Newly publicised auditor general reports for the years 2010 and 2011 detail numerous issues with government finances, some of which continue today.

The two documents, which were tabled by Premier Dr. Orlando Smith during a House of Assembly meeting last month, discuss practices like contract splitting, carried-forward expenditures, and ministerial overreach, all of which then-Auditor General Sonia Webster described as out of keeping with proper financial management procedures.

The reports came to the HOA after months of pressure from Opposition Leader Andrew Fahie, who regularly criticised lawmakers for not publicising years’ worth of audited financial statements.

To date, government still has not tabled audited statements for 2012 to 2016, years in which the governing National Democratic Party was in office.

Opposition criticism

During last month’s HOA sitting, Mr. Fahie (R-D1) and Opposition Member Julian Fraser (R-D3) also alleged that Dr. Smith (R-at large) had not provided the public with the entire picture: The Ministry of Finance, they said, also should have provided reports from the accountant general and financial secretary for both of those years.

“It just doesn’t add up,” Mr. Fraser said. “It’s impossible for the auditor general to have a proper report in the absence of Treasury’s report, and until those two reports are synchronised and there’s a concurrence between the two, … it’s useless bringing the auditor general’s report forward.”

Dr. Smith explained that he had not seen those reports, but said he was sure they would be “forthcoming.”

However, Mr. Fahie countered by saying he had seen the Treasury reports— but not the financial secretary’s reports —in his capacity as chairman of the Public Accounts Committee, but could not discuss them publicly until they were brought to the HOA.

“I am surprised to hear the premier has not received the accountant general’s report from the Treasury,” he said.

Dr. Smith could not be reached for comment.

Contract splitting

In both of the tabled reports, Ms. Webster criticised government’s practice of contract splitting.

Any contract over $100,000 is deemed a “major contract,” and as such requires a public tender process provided for in the Public Finance Management Regulations unless the Cabinet waives the requirement.

However, government can also utilise petty contracts, usually for amounts between $5,000 and $100,000, which do not need to be publicly tendered, although government instead is supposed to seek “competitive quotations.”

If government officials split up what would be a $100,000-plus project into multiple sub-$100,000 contracts, they can circumvent the public tender process.

This happened on a massive scale in 2011, when the then-Virgin Islands Party-led government awarded more than 60 separate contracts, all valued between $10,000 and $16,650,to pave five different sections of road on Anegada.

“The rationale provided for contract splitting is to allow for work to be shared and promote development of skills among local contractors,” the report stated. “The result is frequently work that is of inconsistent quality or engagement of individuals who are not sufficiently qualified or experienced to perform the contract.”

According to the 2011 report, there were also instances where the same contractor was awarded multiple parts of a split contract, for total values exceeding $100,000.

For example, in 2010, government awarded Wheatley Construction Ltd. all four sections of an HOA split contract— including renovations and furniture; security doors; security windows; and reconfiguration — for a total value of $189,287.20. Though the report does not say one way or the other, that nearly-$200,000 project could have been awarded without a tender process because each subsection of the split contract was less than $100,000.

“The selection of contractors on a split contract is particularly susceptible to cronyism, nepotism and favouritism and has to a large extent become heavily politicised,” the report states. “This is all made easy by the fact that no formal competitive bidding is required and the works are now divided and costed in the budget by district.”

Practice continues

Split contracts are still used today for a variety of projects.

For example, the Ministry of Education and Culture awarded more than 20 sub-$100,000 contracts to help construct the new classroom buildings at Elmore Stoutt High School, though the ministry did “shortlist tender” the erection and installation of each building’s steel frame.

The MEC split contracts on an even larger scale for the unfinished ESHS perimeter wall.

In 2014 and 2015, the ministry awarded 72 work orders and 15 petty contracts, ranging in value from $4,375 to $66,231.55, to finish various portions of that project, according information provided by MEC Minister Myron Walwyn at an HOA sitting last October.

During those two years, government spent more than $1 million on the project overall, Mr. Walwyn (R-at large) added.

Other issues

The audit reports also mention several other issues regarding the then-government’s finances.

Public service departments “widely disregarded” requirements to submit monthly reports of arrears of revenue recovered and an annual return of arrears of revenue, Ms. Webster wrote.

Also, several departments carried over payments for expenditures into subsequent years, a practice prohibited by Public Finance Management Regulations unless exempted by the financial secretary, according to the report.

For example, in 2011, the BVI International Finance Centre — the predecessor of the now-private entity called BVI Finance — held over nearly $800,000 in unpaid expenditure. The Water and Sewerage Department held over more than $3 million.

The report also describes something called “ministerial portfolio infringement,” where ministries foot the bill for contracts outside of their scope of responsibilities.

Ms. Webster particularly criticised that practice when it came to the Ministry of Finance.

“When the Ministry of Finance becomes involved in the execution of projects, the accountability principle of separation of functions is eroded,” she wrote. “In this instance, the executing agency for the project is also the body that reviews, assesses, and recommends funding requests to the Cabinet. This practice compromises the accountability process and should be discontinued.”

Opposition leader

Mr. Fahie, however, defended his former government’s record.

“I am confident during 2007-2011 [period], the minister of finance, [Premier Ralph O’Neal], did an admirable job steering the territory through some turbulent financial times,” he said. “As soon as the then-VIP government took office, the territory experienced five major storms that did significant damage to the territory’s infrastructure.”

Mr. Fahie also cited the 2008 global financial crisis as a reason for financial difficulties, but said the government still succeeded in the face of that adversity.

“The minister of finance did an excellent job with the finances of the territory during those challenging times as he ensured the police and all law enforcement agencies’ needs were met to ensure the safety and security of the people of the Virgin Islands,” the opposition leader said. 

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