A forensic audit of the Guyana National Co-operative Bank (GNCB) and a number of other agencies has recommended that legal action be taken against former Minister of Finance, Dr Ashni Singh and the principals of three entities for the recovery of investments of $866m.
The investments in question comprised loans of $581m to the now abandoned Casique Hotel project at Providence, $270m to the Guyana Sugar Corporation and $15m to the Guyana Rice Producers’ Association.
Released on the Ministry of Finance’s website on Tuesday, the audit report cited the provisions of the Fiscal Management and Accountability Act, 2003 as grounds for recommending action against Singh.
The report said that on August 5th, 2015 the forensic audit and review of the accounts of the Guyana National Co-operative Bank/Guyana Co-operative Financial Services/Guyana National Co-operative Bank Property Holding Inc (PHI) began. The audit covered the period from 2004 through June 30th, 2015.
It noted that the privatisation and sale of GNCB to the National Bank of Industry and Commerce (NBIC) (now Republic Bank (Guyana) Ltd) was completed in March 2003. Under the privatisation agreement, NBIC acquired all of GNCB’s deposit accounts and its branch properties.
The loan portfolio accounts and all other remaining bank properties not vested to NBIC were retained by GNCB under the same Order 9 of 2003. At privatisation, the forensic audit report noted that the bank’s principal debt balance due from borrowers was approximately $12 billion.
The report said that the Management of GNCB took a conscious decision to continue servicing these loans and convinced the government that there were loans on the books that were recoverable. This new dynamic of servicing the active loans took effect in 2005 when Keith Burrowes was appointed the General Manager of the bank. During the period from privatisation to June 2015, the bank collected approximately $2 billion of outstanding loans and interest from clients, the audit report said.
“The investigation in the audit revealed that the bank was effective in servicing the loans through a combination of effective strategic planning and common sense approach, coupled with due diligence and hard work. There was effective management of the loan portfolio matched with an equally effective litigation policy that produced reasonable results. Borrowers were regularly visited by the bank and were encouraged to make payments on the loans at discounted values. Many borrowers were able to restructure their loans which give them the opportunity to recommence their repayment to the bank. The management took decisive action in order to maximize the collection of the debt”, the forensic audit report stated.
The loan portfolio was reclassified into active and inactive categories. The criteria used for this classification was based mainly on the bank’s ability to recover the maximum amount from the loan portfolio while at the same time reducing the cost that would be incurred in the process. GNCB identified over 400 non-performing loans with a value of approximately $5 billion. These accounts were transferred to the category of inactive loans. In 2007, the forensic audit report said that the Government approved the liquidation of all unserviceable loans with principal value of less than $1 million.
The audit showed that during the period from privatisation to 2015, the number of active loans pursued by the bank was 366. During the audit, the auditors evaluated the loans. All loans above $10 million were thoroughly investigated. The audit report said that it found the following discrepancies:
- Many loan files had -missing pages – files were mildewed with water damage. These damaged files made it extremely difficult to trace the completion of transactions.
- Missing documents were a major concern, many files had no collateral documents.
- Many loans were not securitised.
- Reports in the files suggested that collateral for some loans were sold by the borrower without the knowledge of the bank.
- Some loans were approved by a personal guarantee from the borrower. Many of these loans were not recovered.
- There was no written write-off procedure for bad loans. However, the agency followed the Government-approved restructuring formula. The bank later adopted an agreement with the Rice Producers Association to restructure some of the non-performing loans. This increased collections.
- Initially, there were no pre-numbered receipt vouchers and so it could not be verified if all loan repayments were deposited into the bank account. In 2004, there was a variance of over $15 million between collections and bank deposits. With the arrival of Burrowes, the receipt vouchers were pre-numbered in 2005.
The auditor’s investigation showed that GNCB management made professional business decisions. However, there was no evidence of the Board of Directors meeting. No minutes are available.
“We did not find any evidence of corporate malfeasance, except for the difference of $15 million in loan collection and bank deposits in 2004. With the implementation of the pre-numbered receipt vouchers, all payments receipts from borrowers were deposited into the bank account. Investments were made to maximize the bank earnings. These investments were not approved by the Board of Directors. Three (3) investments amounting to $866 million (are) still outstanding. All efforts must be made to recover these funds”, the audit report said.
Court cases
The bank, the audit report said, initiated an aggressive approach to litigation of outstanding loan portfolio. Outstanding cases were withdrawn from the bail courts and refiled in the Commercial court. There was much success in this new approach as more judgements were received in the bank’s favour with less time and attorney fees. At the end of the audit, there are numerous outstanding matters before the courts.
GNCB-PHI
The audit investigation showed that properties disposed of were done in a manner that maximises sales proceeds on behalf of the bank. Properties sold were by public tenders and/or through professional valuation. Proceeds of sales were deposited into the account of government holding company, NICIL at Republic Bank.
Investigations further showed that all of the expenses incurred by PHI were legitimate business expense. As at the end of June 30th 2015, the current account balance of the amount due to GNCB-PHI was $368,043,315.
The audit report recommended the transfer of the active loans portfolio with a principal balance of approximately $7.5 billion to a debt recovery unit under the Ministry of Finance and that the existing staff be absorbed there.
A financial audit was recommended on each loan file with a view to closure of some files.
NICIL has an amount of $368 million held in trust for GNCB. This amount represents net proceeds from the sale of GNCB-PHI assets. The audit report recommended that this fund be transferred to the Consolidated Funds without delay.
