Category: Letters to the editor

Posted on

Weaknesses in the self-regulation of the accounting industry have been demonstrated

The acceptance by Mr Chandradat Chintamani, FCCA of a place on the board of Demerara Distillers Limited on the last day of 2008 has highlighted the role of individual accountants and the regulator in ensuring that ethical standards in the accounting profession are maintained.

Mr Chintamani is a member of the Council of the Institute of Chartered Accountants of Guyana (ICAG) and the Secretary and point man of its Investigations Committee. That committee took close to five years (April 22, 2004 to December 30, 2008) to adjudicate on a professional complaint against two senior directors of DDL and the company’s auditors over a loan-buy back from troubled Hamilton Bank. The evidence is that the company gained from the transaction US$1.1M or more than G$200M at the then exchange rate of the US to the Guyana dollar. The gist of the complaint was that DDL had failed to account for the gain in its financial statements on which the auditors gave a clean opinion.

As the complainant I provided Mr Chintamani directly with particulars of the buy-back which were not reflected in the company’s financial statements.

What increased the concern over the transaction were the conflicting statements made by two senior officials of the company and their inconsistency with the information provided to Mr Chintamani.

In a letter dated December 1, 2003 the company’s Chairman had stated that “the loan was treated as a creditor and included in current liabilities since it is a line of credit.” For good measure the Chairman added that the net effect of the settlement resulted in no gain or loss to the company.

Two weeks later on December 14, 2003 a different story emerged from an article in the Stabroek News in which then Finance Controller and now General Manager of the company Mr Loris Nathoo reported that “since the transaction happened within the financial year and the loans were short-term the company did not see it necessary to report the matter in its statement” (sic). He was also reported as saying that the 25% discount of US$1.1M reflected “interest and other charges.”

After some considerable silence on the part of the Investigations Committee I received a letter dated December 30, 2008 advising me that “based on documentation examined, the Council [of the ICAG] is convinced that the settlement of the loan with Hamilton Bank Limited was properly accounted for in the financial statements of DDL for the year ended December 31, 2002.” I was therefore confronted with a number of questions:

If according to the company’s Chairman the loan was treated as a creditor (as opposed to loans payable or separate treatment as it is an interest bearing liability) how could the Investigations Committee find that it was properly accounted for?

If the later statement by the Finance Controller is correct and there was no need to report the matter in its financial statements were the Finance Controller and the ICAG referring to two different sets of statements?

Assuming that the ICAG is correct, why did interest payable only increase by $72M from 2002 to 2003 if in fact a gain was set against interest payable in 2002?

Should there not have been a disclosure of a loan transaction involving US$4.673M including the credit being specifically disclosed in note 4 to the financial statements?

Since under the ICAG’s bye-laws the Institute can initiate an investigation without a complaint, what is the burden and standard of proof applied by the Investigations Committee and its own obligations to pursue evidence in relation to any enquiry it carries out?

To resolve these questions I wrote the Secretary of the ICAG on January 19, 2009 asking for a copy of the report done by the Investigations Committee. I have not had a response to my request but learnt unofficially that the report may have been oral which raises some serious questions indeed.

The role of the ICAG as regulator is not only to advance the interest of its members generally but also to ensure the maintenance of high standards of practice and professional conduct by all its members. Vernon Soare, ICAEW Executive Director of Professional Standards on the occasion of the decision of that body to open up its tribunals to the press and the public in 2007 put it this way: “A modern professional body must demonstrate that its processes are objective and in the public interest.”

The conduct of the Investigations Committee and the ICAG in the matter of the complaint against DDL and its auditors clearly did not meet that test but rather demonstrated the serious weaknesses in self-regulation and the failure of the accounting profession in its duty to the public. The reputation of the country is no less determined by the conduct of its politicians than by the integrity of the accounting profession.

From the sequence of events Mr Chintamani must have been engaged in discussions about a seat on DDL’s board even while he bore a duty to participate in an independent investigation into a complaint against leading members of that Board. At a minimum, Mr Chintamani should have disclosed to the Council of the ICAG his impending appointment and the Board of DDL ought to have considered the ethical issue involved in offering a place to Mr Chintamani. The approach to him was improper and distasteful and does a disservice to the entire Board of DDL but in the final analysis it was Mr Chintamani’s duty to refuse. His failure to do so, undermined the investigation and discredits the profession.

Mr Chintamani needs to reconsider his decision and lapse of judgment and do what is necessary to restore some measure of confidence in the profession. The Council of the ICAG must also consider whether in the light of these developments the findings of the Investigations Committee can and should stand. A profession that many see, perhaps unfairly, as part of the tax evasion industry cannot afford to feed any negative perceptions about its leading members and itself.

Posted on

The minister responsible for NIS is not the President but the Finance Minister

I applaud the initiatives in Friday’s Stabroek Business for persisting with certain issues that do not seem to receive much attention in the other sections of our newspapers. I must however take issue with the editorial in the Stabroek Business of May 8 in which the writer called on the President “to make clear his personal concerns over the particular transgression” regarding the non-deduction/payment by employers of NIS contributions for their employees.

Such a call is not only ill-informed but is also dangerous. Why do we need the President’s “personal concerns” when the minister responsible for the National Insurance Scheme is the Finance Minister? And the writer must surely know that the Attorney General, who just shifted chair back into Cabinet, can with proper respect for the principle of separation of powers among the arms of the state, raise the concern with the Chancellor.

It is also dangerous because as a paper of record Stabroek News should avoid endorsing the improper but regular practice of having the President interfere in matters completely outside his portfolio. We have seen what a mess he makes even when he speaks of matters within his portfolio, such as the Integrity Commission affair. Let me mention an example of the President speaking on the NIS. In 2007 before I resigned as a member of the NIS Reform Committee I wrote the President asking for particulars supporting an announcement he had made in Berbice that “thousands of persons” were being deprived of their pensions because of the state of the records in the NIS. After several weeks, the list I got back had just over 20 names, and on investigation, many of them did not qualify and were therefore properly denied.

While non-deduction/payment is indeed a problem, the NIS faces real and disastrous consequences from Cabinet’s failure to act on the recommendations contained in the 2001 and 2006 Actuarial Reviews and the unlawful and high-risk investments in Clico and the Berbice Bridge, apparently made under a paper baptised by Cabinet. The Head of Cabinet of course is the President himself, while his chief-of-staff Dr Roger Luncheon is the Chairman of the Board of the NIS.

Finally let me say that the scheme continues to act unlawfully or not act as the law requires with its misguided Ministry of Labour/NIS Memorandum of Cooperation. That seems to be the brainchild of someone who has not read the National Insurance Act or who does not have real work to do. Ironically any otherwise delinquent employer could challenge any action by this “inspectorate team” as being unlawful. Oh, what a mess we make!

Posted on

The Insurance (Supplementary Provisions) Bill 2009

I note that the Minister of Finance Dr. Ashni Singh has introduced legislation [The Insurance (Supplementary Provisions) Bill 2009] that will bring the functions of the Commissioner of Insurance (CoI) under the Bank of Guyana (BoG). The Explanatory Memorandum states that the “Bill seeks to pave the way for the Bank of Guyana (not the Commissioner of Insurance) to administer the Insurance Act and for a person nominated by the Bank to be appointed by the Court as judicial manager.” Because it was the first reading of the Bill, the Minister was not required to nor did he otherwise give any reason for this move which is not without considerable significance. Such a move would however have been helpful in alerting parliamentarians and the public of the thinking behind the legislation and directing their minds to the kind of preparation they should begin in order to contribute meaningfully to the progress of the legislation.

The Clico meltdown exposed in a rather dramatic and disastrous fashion some of the weaknesses of the existing legislation and its operations. But it also emphasised the need for a more exhaustive examination by an impartial body of the causes of the debacle and the steps necessary to better regulate the insurance sector and prevent similar failures in the future. Without the benefit of that exercise, I can only rely on my experience of the Insurance Act in relation to audits, revelations about Clico as well as – let’s not forget – the GuyFlag/Fidelity story in offering any opinions. Those suggest that what we need are fundamental changes both to the regulatory framework as well as how it operates. The proposed Bill falls very short.

The only change being made by the Bill is the transfer of responsibility for the supervision of the Office of the Commissioner of Insurance from the Commissioner of Insurance to the BoG. This raises the obvious question whether the Minister really believes that that is all that is necessary to fix the system that certainly failed us in the case of Clico and serves us poorly in the case of GuyFlag/Fidelity. One assumes that the Minister would have been kept fully informed by the Commissioner of Insurance that the breaches of key provisions of the Insurance Act by Clico were putting policyholders and depositors at considerable risk. Are those addressed by this Bill? I think not.

There is only one Commonwealth Caribbean country that I know of where the insurance industry is supervised by the Central Bank – Trinidad and Tobago which coincidentally has also had the biggest failure to stakeholders, other than Guyana. In Barbados and Belize the sector is supervised by a Supervisor of Insurance operating under the Ministry of Finance. Jamaica has what I consider to be the best model and one which was recommended in Ram & McRae’s Focus on Budget 2009, i.e. a Financial Services Commission. Under that umbrella can fall responsibility for the supervision of such sectors as insurance, securities, prevention of money-laundering and even the financial institutions. That would allow the central bank to deal with its core objectives, namely “the fostering [of] domestic price stability through the promotion of stable credit and exchange conditions, as well as sound financial intermediation conducive to the growth of the economy of Guyana.”

While the Commissioner of Insurance has had to take responsibility for much of Clico’s regulatory failure, the Bank of Guyana too failed to detect that Clico was engaged in deposit-taking which required Clico to apply to the Bank for a licence under the Financial Institutions Act. In fact the disclosures surrounding financial/quasi financial institutions including Clico, the Hand-in-Hand Trust, the New Building Society and the National Insurance Scheme suggest that the Bank of Guyana has its own problems. To add to its mandate supervision for the insurance sector can compound those problems.

I hope that the Bill is a mere temporary measure until the President’s promised investigation into Clico makes more extensive and meaningful recommendations. I hope we do not have to wait too long.

Posted on

It’s not too late for President to honour promise to Globe Trust depositors

The Kaieteur News of Thursday April 9, 2009 reported the Office of the President (OP) as stating that I and other (sic) directors of Globe Trust blocked payout of up to $100,000 each to 5,404 depositors of the financial institution. Apparently OP produced a “critique” to support its allegation that it was certain that up to “$235M would have been recovered from the realizable assets of Globe Trust”. I will deal briefly with the allegation, indicate my role in the Globe Trust imbroglio and offer a possible reason for President Jagdeo’s breach of promise.

The allegation though malicious and misleading is not surprising. It is also a mathematical impossibility. Even a junior clerk in the Office of the President could have told the manufacturer of the allegation that 5,404 times $100,000 is $540.4M. Where would the balance of $305.4 M ($540.4 M – $$235 M) have come from? But even the figure of $235 M is what the Liquidator very recently said was actually collected to date.

The architects of the allegation obviously intended to divert attention from my assertion – which I now repeat – that Jagdeo on August 3, 2001 had promised that approximately 2,000 small depositors defined by him as those with savings “in the vicinity of about $10,000 each” would get back their money. Instead of responding to my factual assertion, they create this absurd allegation and spurious diversion.

Second, I never was a director of Globe Trust or had a direct role in the Globe Trust case. Ram & McRae was retained by the institution to advise on and prepare a restructuring plan to address the difficulties being faced by the company. I was not a party to the action No 429/P in which Bank of Guyana (BoG) was the petitioner and Globe Trust was the respondent. I appeared as a witness to explain what came to be referred to as the Ram & McRae plan. I should add that the plan itself had identified as a first step – partly for administrative reasons – the repayment of all the under $10,000 accounts. In other words, there was no opposition to Jagdeo’s pledge which by coincidence was consistent with the Ram & McRae plan.

The basis of the intervention by Globe Trust in the legal action was that the BoG had acted outside of the law (the Financial Institutions Act) when on September 20, 2001 it took possession of Globe Trust “for the purpose of liquidation”. Then Chief Justice Carl Singh in his prompt, written judgment found that the decision by the BoG “manifested its misconception of its powers”; that the determination by the BoG that Globe Trust could not be restored to financial soundness was made “in a manner that was unfair to Globe Trust”; and that Globe Trust had been “unfairly treated”. The Chief Justice however did not hesitate to criticise the directors of Globe Trust for their “failure to act decisively in the face of lax, loose and grossly incompetent management.”

I should add that as set out in the written submission of Attorney-at-Law Stephen Fraser for Globe Trust, its intervention and proposed restructuring plan was not an objection to the Bank of Guyana assuming possession. In fact the point was made by Globe Trust director Professor Clive Thomas and emphasised by Mr. Fraser that the foundation of the Ram & McRae plan was that it would operate under the protection of the Financial Institutions Act. The premature and high-handed manner in which the Bank of Guyana acted leads inescapably to the conclusion that it did not want Globe Trust to survive.

Regarding the President’s failure to honour his commitment, it is possible that he forgot, which is human. But my belief is that when he made his promise on August 3, 2001 he hoped to neutralise popular opposition to an unlawful and politics-driven decision that had already been made but not yet announced – to liquidate Globe Trust. The liquidation announcement came seven weeks later. In the end he got both his wishes, i.e. the liquidation of Globe Trust and preempting any opposition. No need then to bother about any commitment.

A final thought. For years I have tried unsuccessfully to get the President not to make unlawful and unconstitutional spending out of the Lotto funds and more recently out of the Privatisation proceeds. Now OP would have the public believe that I prevented the President from meeting an obligation he made in good faith. Like their math, this just does not add up.

But it is still not too late. The President’s guarantee on Clico involving failures by his people is the equivalent of a blank cheque for billions and billions. He knows the exact and comparatively modest exposure on Globe Trust. It is far easier and clearly less costly for him to honour that commitment. I am not in his way.

Posted on

Information which was challenged in column came from Insurance Commissioner’s office

The tone of the March 3 letter of Commissioner of Insurance Maria Van Beek seems to suggest that she is reacting to the pressure from several quarters over her supervision of Clico. To accuse sections of the victims of the worst insurance failure in the country under her watch of making “reckless, uninformed and irresponsible pronouncements” (GINA release published March 1) might seem to indicate that Ms Van Beek is reluctant to acknowledge the scale of the problem or the extent of public concerns about potential personal and national losses of billions of dollars. Even if the government gives a complete bailout of Clico it is we the taxpayers who will pay it, while those who contributed to the crisis lecture us on how much they have done to protect us.

A number of persons have suggested to me that I should respond to the three issues she challenged me on: 1) the statutory fund/assets; 2) her reason for the approach to the court for a winding up of Clico; and 3) the name of the company, Clico.

1. I never claim to be an expert on insurance, accounting or indeed on any subject. However Ms Van Beek can rest assured that the provisions of the Insurance Act, including the difference between statutory assets and the statutory fund, would not escape any practising accountant. It is Ms Van Beek who has some explaining to do for apparently missing the assertion in Clico’s 2007 financial statements that the company had a “statutory fund” of $46 million and not the $9B she says it should be! As the expert and regulator of the sector, Ms Van Beek should tell the public what steps she took to have such an error in the audited financial statements rectified in a timely manner.

2. Ms Van Beek claims that I accused her of saying that it was Clico’s business model and investment strategy from which its problem stemmed. I did not invent that. Ms Van Beek said so in paragraph 10 of her affidavit. Ms Van Beek has insisted that it was the decision by The Bahamas authority to liquidate their Clico that triggered her move to the courts. It is not that decision which imperilled Clico Guyana’s investments.

Those unlawful and injudicious investments were impaired long before the move by The Bahamas authorities and required action, not excuse. But no, she waited until the property market in the US had collapsed taking with it huge amounts of Clico’s funds and then waited even further and longer on the Bahamian authorities.

3. Ms Van Beek writes that I wrote from an uninformed position concerning the name of the company. In her very affidavit she also refers to the company as SA!

In other words, everything Ms Van Beek accuses me of came out of her office.

Finally let me say that I welcome the press statement made by Ms Van Beek on the state of the company and note that she has taken several of the steps I advocated some weeks ago, including calling in the debts and guarantees of the related parties and giving specific advice to policyholders about the state of their insurance coverage. However she continues to repeat the vague promise she “attributes” to President Jagdeo that “no policyholder in Clico (Guyana) will lose their money.”

By now she should have sought written confirmation from the Minister of Finance to whom she reports, and not the President, of the precise nature and scope of the guarantee which in my view has to have parliamentary approval. Perhaps Stabroek News can clarify their report that Ms Van Beek “re-emphasised the assurances given by President Bharrat Jagdeo and Finance Minister Dr Ashni Singh, that no one with investments in the company will lose their money.” That goes well beyond policyholders and was not contained in the statement issued to the press. It would however naturally raise the hopes of investors including the NIS. It would be painful if that assurance turns out to be false.