The management of State entity, Public Holding Incorporated (PHI), made professional business decisions but the management of the finances of the firm was unsatisfactory, an audit has found.
PHI was incorporated on October 5, 1999 for the specific purpose of managing or disposing of property owned by Guyana Stores Limited (GSL). The principal owner of PHI at the time of its creation was GSL, which itself was the property of the Government of Guyana and was under the control of the National Industrial and Commercial Investments Limited (NICIL). GSL then transferred 24 of what was described as “non-core properties” to PHI, the value of which was used to capitalize PHI.
An audit report on the operations of PHI was released recently by the Ministry of Finance and it was critical of some aspects of the operations. The audit, done by auditor Charles Sugrim, covered the period October 1999 to June 2015.
The report said that placing a company’s fund in a non-interest bearing account, at least $10 million was lost.
Further, the report said, though the PHI board had taken a decision to execute current valuation of properties before public tenders were advertised, this has not happened in numerous cases with PHI instead relying on the bid price as the source of the current valuation.
The report cites several instances where properties were sold at sums less than the value assigned by a professional valuation officer and at least one instance of a sale being conducted without a valuation having been done. This was the sale of a property at 1 Public Road, La Penitence to the New Guyana Pharmaceutical Corporation (GPC) at a price of $55 million though there was “no evidence of valuation” available.
Another property, a sub-division A of Lots 49-52 Water Street, was sold to JP Santos & Co Ltd at a price of $215 million after six valuations over a five-year period valued the property at greatly disparate values. The highest valuation, $392 million was provided by Rodrigues Architect Limited in 1999 while the lowest, $215 million, was provided by David A Patterson in 2004. According to the report, the difference in valuations, which were each conducted by professional entities, could not be explained.
The report highlighted that in 2003, PHI had been ordered by the court to compensate Toolsie Persaud Limited (TPL) the sum of $260 million for the acquisition of an adjacent property sublot B of 49-53 Water Street. This sum represented the valuation of the property by David A Patterson in 2001. The audit report said that this information as well as the disparity in the offers of the highest bidder who had withdrawn and JP Santos, suggest that the property was sold below its market value. The highest bidder had offered $315 million before withdrawing.
PHI management argued that the board of the Privatisation Unit (PU) felt that a compelling factor was what a willing buyer and willing seller would buy and sell based on a competitive process.
“The methods used by the valuators were likely an adjusted replacement value rather that a strict market value. As such, Board members used the market bids, previous valuations and their judgments in determining whether to recommend a sale,” the report quoted PHI management as saying.
The report also highlighted several instances where the highest bidder withdrew their bid and PHI rather than re-tendering, sold the property to the second highest bidder.
“There was one instance where the difference in price between the highest bidder and second highest bidder was $146M. The highest bidder withdrew and the property was offered to the second highest bidder,” the report highlighted.
In response, management said that the decision to select the second highest bidder did not and does not rest with PHI but rather with Cabinet on advice of the PU. Management also argued that “the bids received are not a true indication of market value; there are instances where the second highest bidder is still significantly higher than the conducted valuation and there is no guarantee that the value of the highest or second highest bid will be achieved on re-advertising.”
In terms of the loss of income arising from not placing some funds in interest-bearing accounts, PHI was criticised.
“Cash management of the entity was poor…escrow accounts were not interest bearing in three of the five cases found. Large balances were kept in the checking account from 2003-2010…resulting in lost interest of approximately $13,600,000 and lost withholding taxes to the government of approximately $2,700,000,” the report said.
It noted that while no accounting standard was breached in placing a company’s fund into a non-interest bearing account, the fact that tens of millions of dollars were kept in such an account for a number of years does not support the principle that management was seeking to maximise the return of shareholders.
It recommended that PHI be more prudent in its cash management and said that from December 2010, this recommendation was implemented.
