[Updated] The Public Accounts Committee [PAC] Enquiry into the Special Report of the Auditor General on the Misuse of Public Funds got underway at 3:10pm yesterday [July 12] with ex-Minister Derrick Burgess called to answer questions. This part of the enquiry was into the financial affairs and financial management of the Bermuda Land Development Company Limited [BLDC].
In January 2012, Auditor General Heather Jacobs Matthews issued a Special Report on the “Misuse of Public Funds,” which revealed that former Chairman [Ed Saunders] and Deputy Chairman [Pastor Leroy Bean] of the Board of Directors of the BLDC entered into a consultancy arrangement with the Company while they served on the Company’s Board.
This arrangement resulted in them being paid $160,000 in consultancy fees, which the Auditor General called a “fundamental conflict of interest.”
During the two-hour long session, the PAC learned that in some cases rents from lessees were as much as two years behind; that one lessee was able to quickly pay of $150,000 on its $500,000 rental arrears and soon after settle the rest; that BLDC accounts receivable had reached $2,400,000; that BLDC had been functioning without a Chief Financial Officer for some years; that the Chief Executive Officer had been off sick for a long period of time; and that there were disagreements amongst members of the Board of Directors about the $160,230 paid to the Chairman and Deputy Chairman.
The BLDC is responsible for the care, maintenance, and development of all the ‘baselands’ taken over the by the Bermuda Government after the USA, in 1993, had unilaterally ended its 99 year lease agreement that had been signed in 1940. The BLDC manages more than 300 acres of Bermuda’s land mass. The BLDC is owned by the Ministry of Finance which is often referred to as the shareholder.
Mr Burgess faced questioning by OBA MP Bob Richards in his role as PAC Chairman, and PAC members Cole Simons [OBA], Patricia Gordon-Pamplin [OBA], Lovita Foggo [PLP], and Terry Lister [PLP]. Walter Lister [PLP] and Ashfield Devent [PLP] are also members of the committee, but were absent. Clark Somner serves as Committee Clerk.
Answering the first questions by Chairman Bob Richards, Mr Burgess said that as Minister he was responsible to see that BLDC performed according to its byelaws; and that gave directives which were operational and within his remit as a Minister.
Asked if he put everything in writing in accordance with the specific instructions in the BLDC legislation as passed by Parliament in 1995, Mr Burgess said that he did not, as everything that he deal with could not be put into writing. He said that some matters were too small and that if he dealt with major assets, he would put that in writing.
Mr Richards said that the BLDC Act placed severe encumbrances on the Minister and the legislation specifically stated that “every directive shall be in writing”; that “every directive that has been issued must accompany the Financial Statements”; and that the Minister must get prior permissions from the other shareholder.
However Mr Burgess maintained that “no CEO for any operation gives all directions in writing”. He said: “I’ve run a few hotels. I’ve run a Union. I don’t expect to give every direction in writing.”
Continuing to supply answers, Mr Burgess said that he took over the BLDC in 2007, admitted that he didn’t know the BLDC Act like the “back-of-my-hand” but that he knew what he had to do.
Mr Richards said that in previous testimony from the BLDC Chairman and Deputy Chairman, both had said that they had been asked by Mr Burgess to perform the special investigation. Mr Burgess did not refute this. He said: “I asked them to carry out an investigation.”
Asked if he had agreed to pay them, Mr Burgess said that: “…no permission came from me to do the investigation.” Mr Burgess said that he found out about the consultancy agreement from the Premier.
Mr Richards, pressing the question: “The issue is whether they should get paid over and above their Board fees. They essentially hired themselves. They told us that you gave permission.”
Mr Burgess replied that the Trott & Duncan and KPMG reports had both stated that the payments to the Chairman and Deputy Chairman were within the rules as set out in the BLDC bye-laws and within the rules of the existing Companies Act.
Mr Richards said that the BLDC legislation was specific to the BLDC and was senior to both the BLDC bye-laws and the Companies Act.
Ms Patricia Gordon-Pamplin said that the Chairman and Deputy Chairman had both given evidence that the “Minister had verbally given us direction to investigate.” She asked Mr Burgess, why then, did you need to give permission?
Mr Burgess replied that he found $2.4m in receivables and this was rising; rental agreements were not up-to-date; bonuses were still being paid even as the country was going through hard times. He said: “I stopped that.”
Ms Gordon-Pamplin asked if he’d set any Terms of Reference. Mr Burgess said: “No. They all knew that I was annoyed at $2.4m in receivables and rising.” He said: “I needed to get an investigation underway before I could let anyone go.”
Answering Mr Richards, Mr Burgess recounted how he had found one account owing $500,000. He told Mr Richards that he had told the person: “…You give $150,000 to BLDC within six weeks and then work something out with BLDC.” Mr Burgess said that this was the only account that he was involved with.
Update: The second witness to appear before the PAC was one-time BLDC employee Mr Stuart Minors. Asked what his job was at BLDC. Mr Minors said that he had been hired by BLDC in 1997 as an Accounts Systems Manager ,and that monitoring Accounts Receivables was one of his duties. He also told the PAC that he was not responsible for collecting Receivables.
He said that this task fell to the Vice-President of Leasing and when he was employed there, that was Mr Richard Calderon. Mr Minors told the PAC that he had resigned in the third week of February 2010 and was not employed at BLDC during the period that is under investigation.
Ms Gordon-Pamplin asked “when did systems go wrong?” Mr Minors said that things began going wrong when the Chief Financial Officer’s [CFO] post became vacant and remained so. He said that with no one in the CFO post, he had no one to report to. Mr Minors said that the CFO post had been vacant between 2007 and his resignation in February 2010.
Mr Terry Lister asked: “With no CFO and a sick CEO, how was BLDC being run?” Mr Minors said: “As best it could. On the day I resigned, the VP for Leasing also resigned.”
Mr Lister said: “Thank you for that. We now have testimony that we have not had before. What led to the dual resignations?” Mr Minors said that he was not aware that Mr Calderon had also resigned until the day after.
Mr Cole Simons asked: “What protocols were there to pay consultants?” Mr Minors: “First there had to be a written contract. Then a Purchase Order would need to be generated and signed by two people one of whom would have to be the CEO.”
Given the opportunity to make a personal statement, Mr Minors said he wanted to deal with two matters. First, that he had not gotten a 10% discount on the purchase of his home. He said that statement is “full fallacious”. Second was the rumour that he had gotten a BLDC home because of his spouse [Minister Patrice Minors] and her political connections. Mr Minors said “I got the house before I even began dating my spouse.”
The third and final witness at yesterday’s hearing was BLDC Board member Mr Leroy Robinson who said that he was an Electrical Technologist and was self-employed.
Mr Robinson, answering first questions about the hiring of the Chairman and Deputy Chairman as consultants, said that he felt that they shouldn’t be paid both as members of the Board of Directors and as Consultants to the Company. He said, however, that he had no concern as the services that they were supposed to provide.
Mr Terry Lister asked: “Didn’t you regard them as consultants?” Mr Robinson said that he was concerned about high receivables and why some rents were as much as two years in arrears. He said that it was deemed necessary to bring in outsiders. Mr Lister said that this was a good answer, but was not an answer to the question that he had asked.
Mr Robinson went on: “BLDC was in a mess.” Ms Gordon-Pamplin asked: “Can you explain mess?” Mr Robinson came back with: “Timekeeping was a mess. Executives were driving in at 10:00am and 11:00am every day. The company is called the Bermuda Land Development Company but they have not developed anything for years. They’re just collecting rents.”
Mr Cole Simons asked when Mr Robinson had become aware that the Chairman and Deputy Chairman were to be taken on as consultants? Mr Robinson said that he had found that whole discussion to be: “…Embarrassing. Very embarrassing.”
Ms Gordon-Pamplin asked if it would not have made more sense to take on a full-time qualified CFO than hire two people at $110 an hour each to investigate what had gone wrong? Mr Robinson said that he thought that given the hiring freeze that had been ordered, seconding a person from the Ministry of Finance would have been better.
Allowed to make his closing remarks, Mr Robinson said that he thought the whole situation was unfortunate. He said that BLDC has over 300 acres and that not one acre is a garden. He said that BLDC could use buildings differently and that using modern techniques, space could be allocated to commercial agriculture.
Having begun at 3:10pm, the PAC ended the session at 5:00pm.