PAC preps for Labour pains

The chief internal auditor at the Ministry of Labour and Social Security (MLSS) and the chairperson of the audit committee are today expected to defend reports they crafted detailing what appeared to be a culture of unresponsiveness by the management of the ministry to issues flagged during a litany of audits.

Permanent Secretary Colette Roberts-Risden and her management team will be in the hot seat as members of the Public Accounts Committee (PAC) try to determine why up to 60 outstanding issues raised by internal auditors were not responded to by the accounting officer.

The PAC summoned senior technocrats at the ministry following damning revelations in an Auditor General’s Department report that highlighted a breakdown of controls in the ministry, exposing more than $3 billion to loss or misuse.

Conclusions from the 2017 MLSS internal audit report noted that there was an “absence of internal controls” at the National Insurance Fund Resort Management Company (NIFRMCO), resulting in the “inability to properly” account for funds spent that “facilitated the ease of transferring of significant sums”. The NIF uses NIFRMCO to oversee its investments in tourism.

One of the significant transfers included the $187 million the auditor general said was moved from the NIF to the fund’s resort-management company in 2017 without the required approvals.

Unwarranted expenditure

It also said that the NIF incurred “significant financial loss and unwarranted expenditure” while not receiving the investment inflows projected from NIF-owned Braco Village Hotel in Trelawny, which is under the management of the private Spanish chain Melia Hotels International.

“The fund has not received value for money,” the auditor bluntly stated, adding that the ministry “is exposed to reputable damage if public disclosure is made of the non-compliance with government regulations”.

Many of the issues date back to the tenure of Shahine Robinson, who died last year, and Derrick Kellier from the Portia Simpson Miller administration. Robinson’s niece, Gianna Neil, was appointed to the boards of both the NIF and the fund’s resort-management company.

Karl Samuda took over as portfolio minister in September last year.

Meanwhile, more details are emerging indicating that in a bid to claw back monies owed, NIFRMCO formally accused Melia Hotels International of breaching their 10-year agreement.

But Melia dismissed the January 2017 accusation, setting the stage for the initiation of arbitration proceedings, which were later halted without any indication that the undisclosed monies owed to the Government were paid over.

In a March 9, 2017, letter addressed to Lennox Elvy, the then NIFRMCO chairman, a Florida-based law firm retained by the NIF advised that the notice of breach and opportunity to cure was served on Melia Hotels on January 1 that year.

The letter, obtained by The Gleaner, did not specify the precise breach but noted that Melia denied the accusation and that the period for correction expired on March 2, 2017.

Noting that NIFRMCO “has discretion to terminate” the agreement, the law firm said it would write another letter to Melia raising “additional grounds supporting our claim for breaches”.

It is not clear what happened after that March letter, but by September 15, 2017, an action item from a NIFRMCO meeting on that date was for the preparation for arbitration with the Florida law firm.

A “without prejudice meeting” was reportedly held in Miami, USA, some time in September 2017 and involved representatives from the NIF, the MLSS, and Melia.

What happened after that meeting is unclear although reports indicate that the arbitration did not go ahead.

The hotel agreement included a provision for guaranteed returns to the NIF as owner that was conditional on the hotel being profitable after the first year of operations.

This ranged from US$7,000 per key in the second year of operations to US$7,577 in the sixth year of operations, based on the agreement seen by The Gleaner.

A clause in the agreement, however, stated that if targets were not met, a payment would still go to the NIF.

Heavy losses

Not much detail on the hotel’s financial performance has been published but leaked data suggest that the hotel lost approximately $125 million in 2015 – the year it opened under the Melia brand; $550 million in 2016; $535 million in 2017; while 2018 showed a gross operating profit of about $53,000.

Questions about payments to the NIF per the contract and on any debts owed to the government entity, as well as steps taken to settle any outstanding sums, were put to the MLSS’s permanent secretary, who declined to answer, pointing to today’s parliamentary appearance.

Questions have also been emailed to Melia.

Dimitri Kosvogiannis, the former general manager of the hotel, has accused the ministry and the NIF of “resisting” plans to help make the hotel profitable.

He claimed that the NIF insisted that the Melia had exclusive management rights under the contract and it could not accommodate the proposals to stem the losses, which included increasing the rates and pursuing an aggressive push to improve the hotels’ presence in the target markets.

“Why did you accept the terms of the contract that gives exclusive management of the hotel to Melia, but you don’t invoke the clauses of the management agreement that seek damages from Melia to enforce that?” asked Kosvogiannis, who served from 2014 till he was separated in 2018.

“I would send invoices to Melia every month and say you’re losing money, when are you going to pay me? … I know that I have a guaranteed US$1.5 million.”

In 2019, Kosvogiannis was freed of several fraud-related charges after the prosecution dropped its case in one instance. In another, the court agreed that there was no evidence to support the accusations.

In 2018, financial investigators started probing a $600 million fraud at the NIF, whose net asset value up to March 2019 was $120.7 billion.

- Edmond Campbell contributed to this story.

jovan.johnson@gleanerjm.com