Wednesday’s release on the Ministry of Finance’s website of the forensic audit into the National Insurance Scheme (NIS) provided evidence of what has long been suspected about the PPP/C’s style of government particularly under former President Jagdeo.
The board minutes examined by the forensic auditor, Ramesh Seebarran have provided the strongest evidence thus far of the subversion of the public agency which provides the social security umbrella for the nation’s people. For the period that he examined the auditor found embedded in the minutes, a Cabinet-inspired decision for the purchase by the NIS of $950m worth of preference shares in the Berbice Bridge Company Inc (BBCI) when just one meeting earlier its Board of Directors (BoD) had expressed disinterest. That purchase as well as the common shares in BBCI are bringing no returns to the Scheme at a time when its expenditure has begun to exceed its contributions and reserves are being eaten into.
The report notes that in the minutes of the 445th BoD meeting it was stated that “the chairman (Dr Roger Luncheon) informed directors that approval was given by Cabinet for National Industrial and Commercial Investments Limited (NICIL) to sell 950,000 preference shares held in BBCI to NIS at par value.”
It goes on to state that Cabinet’s decision was “countenanced by directors” who in effect made no attempt to determine whether the investment was in the best interest of the scheme. Furthermore, the audit found that this decision came exactly one meeting after “directors expressed a disinterest in the BBCI investment offer” and “the chairman expressed concern about the inordinate risk concentrated in the portfolio.”
From this and other evidence the auditor concluded that “cabinet had significant input over the board and made certain decisions which the directors accepted without any discussions, analysis and due diligence to determine the merits of the decisions” which are now “having a severe impact on the scheme’s cash flows and the recoverability of these investments.”
Cabinet’s decisions and instructions were no doubt transmitted to the NIS board through its Chairman, Dr Luncheon who was also the Cabinet Secretary and the Head of the Presidential Secretariat, a gross case of conflicting interests. No Cabinet Secretary should be chairing a board whose affairs will inevitably be discussed at some point at Cabinet. The revelation in the audit report must be one of the most extreme cases of conflict of interest and Cabinet’s diktat, in an era where there was supposed to be independence of action by boards and the full and uninhibited exercise of the fiduciary responsibilities of directors. To make matters far worse, the decision has endangered the already unstable financial situation of the NIS.
During the period 2011 to 2014, 89% of the investments were generating average annual returns of 2% which was below the average annual inflation rate of 2.22% a negative real return of .22%.
Additionally the report noted that during that same period the scheme’s overall investments generated an average of 3% return for the period 2011-2014.
“This average of 3% is down from the average of 4.7% as reported in the 8th Actuarial Review to December 31, 2011. The 1.7% is due mainly to the loss in returns from CLICO which had generated 6.25% per annum before bankruptcy,” the report said.
The Scheme’s $5.1B investment into CLICO represented one of two “major high risk investments” classified by the forensic auditor as “potential losses to the scheme.” The other is the $2.59B investment in the Berbice Bridge.
The interference by Cabinet in this most risky investment and in less important issues like the construction of the Corriverton NIS office constitutes an abuse of power and exemplifies the paramount role of the PPP/C Cabinet. While the PNC had placed itself as the paramount institution in the Burnham years, its counterpart during the PPP/C years must be its Cabinet imposing itself upon public institutions like the NIS. This abomination is worthy of a further investigation of the NIS’s investment practices particularly its controversial decision to invest and endanger $5.1b in CLICO (Guyana) instruments and its subsequent loss of this sum. The Chairman of the board and those who were directors during this period should be summoned to explain exactly how these investment decisions were made.
The finding of the Cabinet imposition on the NIS is all the more reason why the interference by Minister of State, Joseph Harmon with the Guyana Revenue Authority in April on behalf of the controversial Chinese logging company Baishanlin raises red flags. If a minister in a nascent government believes he has the authority to impose himself on the autonomous revenue gathering agency in the country then it means that this culture of political interference and subversion is cloying and there must be a concerted effort by the Granger administration to root it out. This is a lesson that the directors of the new boards must also take to heart. They must strenuously resist any attempt, and certainly by their colleague directors and chairpersons, to channel government interference.
Lastly, one must question the present administration’s plan for these sprawling audits that were ordered when it entered office last year. This particular audit was delivered to the Ministry of Finance on November 9 last year but only released nearly six months later. One could understand if the report was kept under wraps for the purposes of further investigation and prosecution. However, none of the dozen or so audits for which reports have been released have produced even gentle wave action. The most important of all, NICIL, appears to be at a dead end. Furthermore, given the well-known problems of the NIS, there would have been great value in the immediate release of the report’s findings about its systemic deficiencies so that the public and Parliament could be aware. This then could have resulted in immediate remedial measures being taken in areas such as contributions records and the longstanding problem of the denial of pensions to many who have claimed to have had the requisite number of contributions. Was the forensic auditor’s report even shared with the NIS for a response and immediate action on the various weaknesses? The easiest thing was the ordering of the audits. The administration seems to have no clue what to do with them even if it is only immediate rectification of the shortcomings discovered.
