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In accordance with the law?

Page 414 of the March 15 parliamentary debate on Paper 7 for replenishment of the Contingencies Fund, Mr Khemraj Ramjattan, the AFC MP drew the attention of the National Assembly to section 24 of the Fiscal Management and Accountability Act (FMAA) which requires the Finance Minister, “when introducing a supplementary appropriation Bill, [to] present to the National Assembly the reasons for the proposed variations and provide a supplementary document describing the impact that the variations, if approved will have on the financial plan in the annual budget.”

The Speaker, either because he did not appreciate that such supplementary document ought already to have been presented or because he wanted to take his ‘brother’ off the hook, intervened as follows:

“Speaker: Hon Minister of Finance, will you be in a position to give an undertaking that you will accord and abide by the conditions of the Act?”

Most persons would have to think for a moment or two to come up with a convenient excuse. Others will simply lie. Without a blink, instead of being gracious and honest in accepting such a generous hand from the Speaker, Dr Singh chose to respond as follows:

“Dr Singh: Mr Speaker, as has always been the case [emphasis added], the relevant submission will be made in accordance with the law.”

The truth is that Dr Singh has never once presented at any stage, in close to fifteen supplementary appropriations bills introduced by him since 2006, any supplementary document required by section 24 of the FMAA. The irony is that on this particular occasion he could simply have said that since the year had already expired, the supplementary document was really academic and he did not think it would serve any useful purpose. But, no, Dr Singh had to misrepresent on the parliamentary record an impeccable compliance record since his ego was more important than the truth.

Not that Dr Singh’s action on this occasion was surprising. He sat silent while his ministerial colleague Irfaan Ally misled the National Assembly over the earlier $4 billion transaction with GuySuCo. He played a leading role in either misleading the public about CLICO concealing the truth and so too concerning the Kingston Marriot. And most importantly and currently, he is central to the NICIL illegalities.

So consistent has Dr Singh been that I cannot be confident about what he would say if asked similar questions about the tabling of any of the following:

1. the annual report and audited financial statements of NICIL;
2. filing of annual returns of NICIL at the Deeds Registry;
3. the annual mid-year report within sixty-days of June 30 under the FMAA;
4. the annual report of the GRA;
5. the annual report of the NIS;
6. loan agreements under the External Loans Act.

But Dr Singh’s distortions go beyond these. He failed to disclose to the National Assembly that in 2010 he closed dormant accounts with balances of more than $30 billion when the budgeted Norway funds did not arrive.

It is not only uncomfortable, but also dangerous to have a Finance Minister who puts his ego ahead of the truth.

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On the Line – National Communications Network Inc. (2004-2006) and Guyana National Newspapers Limited 2006

Statutory framework
Business Page was able to access the annual reports of the National Communications Network Inc (NCN) for the three years from 2004 to 2006 and for Guyana National Newspapers Limited (GNNL) for 2006. These reports were obtained from the Deeds Registry where they are required to be filed no later than August 11 following the close of the year. I also did a search in the parliamentary library and was assured that there were no later filings, thus confirming that these two government companies are grossly delinquent in meeting their statutory obligations. But their responsible Minister was similarly delinquent in laying the companies’ annual reports and audited accounts in the National Assembly. I will return to this shortly.

In addition to their obligations under the Companies Act, all government companies (defined in the Companies Act as 51% government shareholding) are subject to sections 48 and 49 of the Public Corporations Act. This requires government companies, no later than six months after the end of each calendar year, to submit to the Minister a report containing:

(a) an account of its transactions throughout the preceding calendar year in such detail as the Minister may direct;

(b) a statement of the accounts of the company audited in accordance with section 345.

The Minister then has up to September 30 to lay before the National Assembly a copy of the report together with a copy of the auditor’s report. This was not done for either NCN or GNNL.

The directors of NCN as shown in the last annual return filed for the year 2006 were Ms Jennifer Webster, (Minister) and Mr Desmond Noor Mohammed, Chartered Accountant and long-time supporter of the PPP. One of the signatories of the balance sheet is Mr Winston Brassington, Executive Director of NICIL.

The directors of GNNL as shown in their annual return for 2006 are Messrs Keith Burrowes, Hydar Ally, David De Groot, Tota Mangar, Patrick Dyal, Kwame McCoy and Colin Alfred.

Non-compliance
Despite the assertion in the audit reports on the financial statements of the two companies, both sets of financial statements are far, far away from compliance with International Financial Reporting Standards (IFRS), the basic requirements for the preparation of financial statements under the Companies Act.

Specifically, there is a complete lack of disclosures in the financial statements rendering analysis very difficult. The year 2005 was the first year of EU adoption of IFRS’s so by the end of 2006, there were substantial developments with several new standards coming into effect which would have required far more disclosure. But as we shall see the defects and deficiencies are even more basic.

NCN
NCN describes itself as a “State Owned and Operated Radio and Television Stations” with the parent company being National Industrial and Commercial Investments Limited. NCN went into operation on March 1, 2004 following the transfer to it of the assets and liabilities of the Guyana Broadcasting Corporation and the Guyana Television Company Limited. The balance sheet of NCN at December 31, 2004 shows a Share Capital (sic) of $35,000,000 and Reserves of $554,536,331, presumably the difference between the value of the assets transferred to it and the amounts of the liabilities which it was asked to assume. In ordinary language it means that the government invested more than half-a-billion dollars to get NCN started.

The liabilities it inherited included a Provision for Corporation, Property and Other Taxes of $18.834 million but by the end of 2006 that amount remained unpaid with no further charge for taxation, even though there is no evidence that NCN is exempted from taxation. Indeed, instead of making some kind of return to the country for taxpayers’ investment, the company was granted some $175 million over the period March 1, 2004 to December 31, 2006 in government subventions.

NCN Statement of Income

Source: Annual Accounts

Reservation
I express reservation on the discussion that follows with the comment that the financial statements – the audit report of which is signed by someone who is not qualified to do so under the Companies Act – contain some very elementary accounting errors. At best, therefore, these financial statements are unreliable and misleading and had there been the appropriate expertise available, they would almost certainly have been rejected at the Deeds Registry and in the National Assembly.

The first point to note is that if the Revenue Subvention is excluded from the Income Statement NCN made operating losses for the ten months of 2004 and in 2005 and 2006. What is even more surprising is that in 2006 – an elections year that often brings an advertising bonanza – NCN could actually make a loss, a feat that can only be achieved under unusual managerial expertise.

The Contingencies Fund
Indeed in 2006 the Minister of Finance had to bail the company out with a $20 million advance from the Contingencies Fund. What makes the matter so nearly pathetic is that while the person signing the audit report – Deodat Sharma – is also the same person who signs the Auditor General report, NCN is showing the Contingencies Fund advance as outstanding while the report on the Public Accounts does not even acknowledge an advance, let alone a debt!

And in payables, NCN shows a liability to the Ministry of Finance, a related party, if ever there was one. The financial statements do not, however, show any related parties, compounding the difficulty in any appreciation and analysis of the statements.

Then in the Statement of Changes in Equity, there are items like capital subvention for flood relief funds (2005) and negative amounts for amortisation, the corresponding entry for which could not be traced.

Strange too is the disclosure that PAYE payable at December 31, 2006 was the same as 2005, as are the provisions for Taxation ($18,834,104), Loan Creditor – Ministry of Finance ($2,332,646) and Other Creditors $110,930). Meanwhile NCN kept racking up other debts and at December 31, 2006 NCN owed unidentified persons some $80,743,424, close to two years worth of cost of sales, while showing accrued expenses as an asset!

Old debts
And on the other side of the balance sheet, Receivables at that date amounted to $205.5 million, including some $48 million of inactive receivables for the Guyana Broadcasting Corporation (GBC) and Linden which would hardly seem to be recoverable several years later and should certainly be written off. That still leaves some $157 million in other unpaid receivables at the end of 2006, an elections year. The question to be asked is how much did NCN bill the political parties for their elections advertisements and how much was paid by the end of the year?

Apart from the GBC and Linden receivable issue there were other concerns reflected in the audit opinion. The first relates to the failure by NCN to maintain an assets register for its more than $643 million worth of fixed assets and the failure to prepare and submit tax returns.

The range and nature of deficiencies identified in this analysis would do a disservice to a cake shop. NCN makes them look good. Just by way of information, one of the two persons signing the financial statements on behalf of the Board is Mr Winston Brassington of NICIL who was in the press recently attempting to teach the nation about accounting and the Companies Act.

To be continued

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I welcome any opportunity to address steps to make Olympic association more democratic and effective

I believe that many persons with an interest in the development of sports in Guyana are thankful that the Guyana Olympic Association (GOA) has finally given the public an insight into its governance (Page 29, S/N May 6, 2012 – All our statements have been audited). This was done by no less a person than Mr. K. Juman-Yassin, who in his sixteenth year as President of the GOA, reveals that the GOA is one of those rare organisations that have their general meetings once every four years, and rarer still, that submit audited statement of accounts quadrennially.

In so doing, Mr. Juman-Yassin confirms and explains why I was not fortunate to see any such audited statements – I was not in the Guyana Tennis Association (GTA) long enough for one of those special events.

In responding to my statement about access to financial statements, Mr. Juman-Yassin’s contention is that the GOA follows the “rules of its constitution with respect to its financial requirements.” A similar claim can surely be made by the great and beloved North Korean leader about his government.

Mr. Juman-Yassin was very kind not to want to “create any problems” (for whom he did not say), even as he asserts that I “did not attend more than three meetings” of the GOA. That is true and for a very simple reason: the GTA is not a presidential organisation and during my term as President we decided, and communicated to the GOA, that the GTA would be represented at GOA’s meetings by our Secretary. Our representatives were Dr. Steve Surujbally and later Mr. Ramesh Seebarran, now President of the GTA.

In the Stabroek News report under reference, Mr. Juman-Yassin also confirms the procedure at meetings of the council of the GOA: each association briefly reports on its activities since the previous meeting. At none of the meetings I attended was the council asked to make, approve or ratify any decision, action, overseas representation or expenditure by what appears to be a small kitchen Cabinet, including Mr. Ivor O’Brien who I understand has been Secretary General of the GOA for twice as long as Mr. Juman-Yassin has been President! There certainly was no Treasurer’s report or any attempt at serious discussion. If anything, the meetings were perfunctory and represented top-down management at its basest.

Finally, Mr. Juman-Yassin is reported to have said that he has been trying to make contact with me. I would welcome his call as well as copies of the GOA’s most recent financial statements and any opportunity to discuss steps to make the GOA, a national umbrella sports organisation funded by the International Olympic Association, more democratic, effective and open, and one striving to better serve the country’s sportswomen and sportsmen who ought to be the sports administrator’s raison d’être.

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Annual reports 2011: Guyana Bank of Trade and Industry and Sterling Products Limited

Introduction
Business Page today continues its review of the annual reports of companies for the year 2011 by covering two of the public companies in the Beharry Group – the Guyana Bank for Trade and Industry and Sterling Products Limited. GBTI held its 24th Annual General Meeting on April 3, while Sterling held its AGM on April 18. Secure International Finance Company Incorporated (Secure) owns 61% of the outstanding shares in the Bank and 58.1% of the shares in Sterling. In turn, Secure is 100% owned by Edward B. Beharry & Company Limited, a private company. The reports show that the Bank recorded a 15% increase in profits after tax while Sterling’s profits after tax increased by 20%.

GBTI Highlights

The Bank has nine branches including one at Lethem, making it the first and only banking service outside of the cities and towns of Guyana. Over the past five years, GBTI has witnessed truly impressive growth winning the favours of the government in a number of foreign and locally financed lending schemes, some of which come with tax breaks. In 2006 it was awarded a contract “to carry out the implementation of a Financial Facility to improve the competitiveness of the Rice Sector in Guyana,” and in 2011 it entered into a contract with the Ministry of Finance in respect of “loans to non-traditional agricultural exports, aquaculture, fruits and vegetables and livestock.” Financing for this comes from the IDB and the interest on the loans is exempt from corporation tax. Taking advantage of a number of tax shelters the Bank’s effective tax rate is less than 30%, compared with the nominal rate of 40% on the profits earned by commercial banks.

Asset structure
The Bank’s total assets at the end of 2010 were $75B, reflecting a growth of $12.4B (20%) over 2010 and accounting for 23% of Total Commercial Bank Assets in Guyana. The Bank’s assets as a percentage of commercial bank assets grew by 2 percentage points over 2010. Of the Bank’s assets, some $8.3 billion, or more than 10% was held overseas “so as to benefit from more attractive returns from yet safe instruments.”

At December 31, 2011 loans and advances amounted to $24,051 million, a 24% increase over 2010. The report states that loans to all sectors of the economy increased in 2011and that lending to individual customers increased by $3.1 billion while lending to business enterprises increased by $13.6 billion, which in total exceeds the $4.7 billion increase in total loans and advances. There is a similar discrepancy in the information on loans in the Agriculture Sector which in one case is shown as increasing by $2.8 billion and in another by $1.1 billion. In yet another table, loans and advances to the Agriculture Sector are shown as $2.342 billion while in a narrative they are stated as $9.7 billion.

Income statement
Neither the Chairman nor the CEO discusses lending and deposit rates in the absence of which only very rough calculations can be computed. These show that the average rate paid on savings accounts was 2.03% and on term deposits 1.91%. Taking all deposits into account the average interest paid by the Bank is about 1.5%, compared with the average rate on lending of close to 12%.

GBTI has always earned significant commissions and foreign exchange gains and in 2011 the amounts earned exceeded the Bank’s entire salaries bill. As a consequence of the operating performance, earnings per share (EPS) rose by 5.3% to $34.59, encouraging the directors to increase dividends per share from $4.50 to $6.00 giving a payout ratio of 19.53%.

GBTI continues to be one of the country’s strongest banks and has several committees designed to enhance better governance and better results. Its high quality annual report is upbeat and positive, justified by the results it has been delivering. There are however some technical areas for improvement in meeting IFRS and other regulatory requirements.

Sterling – Highlights

Statement of Income

For the first time in the company’s history, turnover topped the G$3.0 billion mark, although this has come with a reduction of G$9.7 million in after-tax profit, down 5.6% to $162.1 million from $171.9 million in 2010. Chairman Dr Leslie Chin attempts to explain this as “due to sales and marketing expenditure directly associated with enhancing distribution of our products. With additional spending in the area of marketing and distribution the company saw the relative return on investment as a total business expanded,” which must have confused the shareholders in attendance.

The Chairman also reports that export sales grew by 5.5% or by G$9.9M over year 2010 sales without stating the level of export sales, which too is not shown in the financial statements. From note 22 dealing with credit exposure it is apparent that the company does business with Grenada and Trinidad and Tobago, with two of the top balances being with customers from those countries.

He does however report that the company has seen “growth in some Caribbean Countries, whilst others present problems with respect to competitiveness.” Sterling is potentially one of Guyana’s manufacturing exporters and for years it has sought to “explore ways and means to have our products on the shelves of businesses in the Caribbean.”

Gross margin has declined from 25.3% to 22.6% while other income has also fallen, from $34.9 million to $22.3 million even as distributing and marketing expenses have increased by $25 million. Once again the company incurs finance costs from an overdraft, even as it holds more than two hundred million dollars in fixed deposits.

With the reduction in the tax rate from 35% to 30% the company’s tax charge has declined by $29 million, of which a significant portion is due to the tax effect of depreciation. Basic earnings per share increased from $6.18 to $7.42 while dividend per share has increased from $3.30 to $3.50. The increase is not reflected in the table above as dividends are only recognised in the financial statements when paid.

The balance sheet of this company is strong with both adequate working capital and healthy liquidity. One of the commendable features of this company is that it has maintained its defined benefit schemes for its employees while so many others are switching from defined benefit to defined contribution scheme. Hopefully, it keeps it that way.

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Contrary to what Luncheon claims NICIL is a government company

I find the earlier pronouncements of Drs Roger Luncheon and Ashni Singh and now Mr Winston Brassington that National Industrial and Commercial Investments Limited (NICIL) is a private company with the legal right to withhold public moneys annoying, self-serving, misinformed and mischievous. It is sad, and even dangerous, that individuals with the power to make major decisions over the resources of the country and the lives of its people can be so deficient in their knowledge and reckless in their actions.

Dr Luncheon wrongly informed the media that there are “20-something articles that underpin the creation of NICIL and none of them says that money from NICIL has to be put in the Consolidated Fund.” Mr Brassington adds his share of vacuity with his pronouncement that “proper accounting requirements dictate that money from the sale of government assets should first be placed in the company account, provided it can adequately discharge all of its liabilities.” In my 42 years as a professional, I have never heard anything so absurd and facile.

In fact, the Articles of Continuance of NICIL comprise nine articles (see attached) and it operates under, and is classified by the Companies Act 1991 as a “Government Company.” The Act imposes on NICIL the following obligations over and above those imposed on companies generally:

1. that sections 48 and 49 of the Public Corporations Act dealing with accounts and audits apply;

2. NICIL is required to submit to the Minister of Finance an account of its transactions and audited financial statements no later than June 30 of the following year; and

3. the Minister of Finance is required to lay in the National Assembly the statement of transactions and the audited financial statements no later than September 30, ie, within 90 days of receiving them.

The public is reminded that the Chairman of NICIL is Dr Ashni Singh and the Minister to whom he must submit the report and accounts is the same Dr Ashni Singh. If it was only these breaches of which he is derelict, it would still be a serious matter. But there are more, and worse. The Government of Guyana “vests” lands and other properties in NICIL – on whose Board also sit Drs Luncheon and other Cabinet members – which then sells the assets and pockets the money. The government also uses NICIL to collect dividends from Guyoil, GT&T and other investments which are also retained by NICIL.

This scheme, which assumed scandalous proportion under the Jagdeo-Ashni Singh duo, has become a ruse to get around Article 216 of the Constitution which requires “All revenues raised or received by Guyana to be paid into and form one Consolidated Fund.” By their own boasts, NICIL has collected tens of billions of dollars and not paid these into the Consolidated Fund.

To any ordinary person, so far as the land transactions are concerned, NICIL is merely an agent for the government. Therefore, the moneys it collects should be paid over to the Ministry of Finance to be deposited into the Consolidated Fund. Instead, in an arrangement which in neighbouring Trinidad would be considered criminal, NICIL’s board uses the funds as a second budget to do the things which the Finance Minister would not be comfortable in bringing to the National Assembly, like the Marriott Hotel, like getting involved in Pradoville 2 and for miscellaneous purposes including secret overseas trips, etc. Article 217 of the Constitution dealing with spending public moneys does not allow any of these.

Now, to go back to the absurdity about state companies being subject only to the company laws, I refer the financial doctors to the following two documents: 1) the Report of the Working Party on the Harmonization of Company Law in the Caribbean Community, and 2) the Report of the Review Committee on the Companies Act of Guyana.

This is what the Working Party Report under the heading Public Accountability has to say in paragraphs 19.142 [in part] and 143:

“Whether the company is a mixed enterprise or wholly State owned, public funds are employed for the capital of the company. In the view of the Working Party, this introduces an important dimension with which existing company law does not deal….”

“With respect to companies with capital drawn from public funds, however, the State shareholder is in theory the party which should ensure that proper use of those funds is taking place. In practice, this cannot provide a system of accountability to the public for the effective use of public funds. It by no means follows that the assessment of the State as shareholder with respect to the running of the company will stand up to scrutiny when viewed as a public investment. Increasingly, arguments are made in this context for some additional mechanism whereby the performance of the company in relation to the investment of public monies is subject to accountability beyond the company itself.” And the Guyana Review Committee appointed by the Hoyte administration to consider the report of the Caricom Working Party proposed the adoption of its recommendation that “wholly-owned government companies should be constituted under the Public Corporations Act.

Presciently, the authors of the Working Party Report, including our own Bryn Pollard, were saying thirty years ago, that there could be no accountability under the NICIL-type model, even if it did not have the degree of egregiousness practised by Drs Singh and Luncheon and Mr Brassington.

And finally, with respect to the chorus that it is for the directors to decide if and when NICIL would pay any dividends to the government, let us recall that in 2009, the government, a mere 20% shareholder in GT&T, caused that company to pay more than $6 billion in dividends. And guess who the Finance Minister was and who was the government director on the Board of GT&T when that “persuasion” took place? Dr Ashni Singh and Mr Brassington respectively.

Now the same Messrs Luncheon, Singh and Brassington are bold enough, in respect of a 100% government company in which public property is routinely vested, and which has a 100% Cabinet Board, to plead impotence in calling for a dividend which the country badly needs to help the working and the non-working poor.

To show how reckless and ridiculous it has become, only a couple of years ago the government forced the Geology and Mines Commission to pay $1.8 billion to NICIL to build/repair roads in the hinterland communities, all done by way of a Cabinet directive signed by Dr Luncheon.

For too long constitutional violations, financial improprieties, mis/malfeasance in public office and breaches of fiduciary duties have been tolerated by this bleeding country. It is time for the talking to stop and for the courts in Guyana, and if necessary the Caribbean Court of Justice, to be invited to address these matters. Sooner rather than later some Guyanese will decide that enough is enough.