During a press conference on Jan. 21, 2016, Premier Dr. Orlando Smith promised to commission an audit into the cruise pier project, which had given rise to allegations of impropriety after a cost overrun of more than $32 million came to light months earlier.
Following nearly three years of delays and excuses, a 175-page report was released this month, but it technically is not an audit.
Though the government hired KPMG (BVI) Limited to probe certain aspects of the project — including procurement processes and “fair market value” — the firm’s cover letter paints a different picture than the one portrayed by Dr. Smith and other government officials.
“Because the agreed upon procedures do not constitute either an audit or a review made in accordance with International Standards on Auditing or International Standards on Review Engagements, we do not express any assurance on the financial information provided,” the firm states in the August 2018 letter. “Had we performed additional procedures or had we performed an audit or review of the financial statements in accordance with [those standards], other matters might have come to our attention that would have been reported to you.”
The review did, however, uncover serious flaws with the pier project.
The BVI Ports Authority, for instance, repeatedly violated its own procurement procedures, which themselves did not fully accord with the law, and it failed to produce many of the documents that the reviewers requested, according to KPMG.
In spite of such issues, an appended “cost consulting” report by the regional surveying firm Charterland Ltd.— which relied on unverified figures provided by the BVIPA and government — concluded that the project’s overall costs were “reasonable for a project of this magnitude and scope in this location.”
The provided Charterland report — which is missing at least five pages, including its preface and conclusion — appeared to attribute the cost overrun largely to deficiencies in the original budget, which was found to lack sufficient detail.
Dr. Smith could not be reached for comment this week, but opposition member Andrew Fahie (R-D1) said the overall review was not sufficient to put to rest his questions about the project.
“I think anyone can conclude that this document produced has not answered or addressed the concerns that arose from the inception,” said Mr. Fahie, who has long criticised government’s decision to hire a private firm to audit the development. “The first couple pages, if not the first page, says it all.”
Not an audit
Rather than an audit, the KPMG review consisted of an “agreed-upon-procedures engagement,” or AUP. Under such arrangements, a firm carries out a series of assessments agreed in advance with a client, which in this case was the Virgin Islands government.
“With an audit what happens is the auditors actually visit the company and they check the accounting systems that are used to generate the financial statements,” explained Mark Clatworthy, a professor of accounting at the University of Bristol in the United Kingdom, adding, “The level of checking in an audit is much higher than the sort of engagement that they have entered into here; the level of assurance is higher.”
In part because the AUP relies on provided figures that haven’t been verified, he said, it is less likely than an audit to uncover instances of corruption.
“One of the key differences here between this and an audit is that an audit is quite unique in requiring the auditors to express a positive assurance that the accounts show a true and fair view,” he explained.
KPMG Managing Director Russell Crumpler told the Beacon that the term “audit” is “often used quite broadly,” but he explained that KPMG would define a “financial statement audit” as “a review of an organisation’s complete financial statements, to ensure they present fairly, in all material respects, the financial position and financial performance of the entity being audited in accordance with international accounting standards.”
Instead of undertaking such procedures for the pier project, the firm used provided information to carry out various tasks, including reviewing procurement processes; estimating fair market value; reviewing a licensing agreement; reporting on variations in head tax charged to passengers; and having Charterland probe the cost overruns.
The procurement section of the report, which at 114 pages is by far the longest segment, probes whether the BVIPA followed all of its own rules when awarding contracts.
In the great majority of cases, it did not.
Of 45 contractors who received more than $100,000 — accounting for some 98 percent of the money spent on the project — only one was fully compliant with applicable procurement processes, according to the report.
Moreover, during the course of the project, the BVIPA used six different procurement procedures, some of which were inconsistent with the agency’s own policies and with the Public Finance Management Act of 2004 and its 2005 regulations, the report adds.
KPMG also recounted its failed efforts to obtain several documents necessary for the review, including contracts and other crucial records.
“We note that the BVIPA have worked hard to provide the information requested, but it appears that there was no standard document management system in place in respect of the [project], and the general document retention practices by the BVIPA may not be fit for purpose,” the report states. “Accordingly there are considerable gaps in the information provided.”
Appended to the KPMG review is a report by the regional survey firm Charterland, which used unverified figures to assess some $32 million in cost overruns from a budget of about $50 million for the pier extension and landside development.
Ultimately, the firm deemed the project’s final costs “reasonable,” but it is unclear how this conclusion was reached, in part because the report is missing at least five pages, including its preface and conclusion.
The included pages explain that the firm set out to compare the original budget to the final expenditure figures provided by government.
This task, however, presented challenges. Like KPMG, the firm was unable to obtain crucial documents.
“Information on and details of an original budget are scant with specific detail on scope of work, estimates, line items and cost information essentially non-existent,” the report notes. “Drawings and designs have also not been viewed.”
In the absence of more substantive information, the firm relied on a “broad brushstroke” budget included in an October 2013 business case drafted by the firm BDO.
“We are of the opinion that, as the original estimate was based on a conceptual idea and not specific or accurate definitive designs, drawings and details, and that the scope of work was incomplete, the original estimates were under-assessed,” the report notes. “We also reiterate that we have not been provided with a detailed original estimate sufficient to enable us to carry out a more in-depth analysis.”
Ultimately, Charterland appeared to blame the cost overruns largely on the landside development instead of the pier extension, noting that while “a proper” competitive bidding process “was carried out for the marine work, the park development did not fully comply.”
The largest overrun came from the Tortola Pier Park infrastructure and buildings: An original projection of some $18.6 million ballooned about $18.4 million to exceed $37 million, the report stated.
The pier work, by contrast, cost about $9.6 million more than the projected $27.2 million, and “development costs” such as consulting and interest fees spiked about $4.9 million over a budget of nearly $4.1 million, the report stated.
Charterland founding partner Simon Watson did not respond to requests to comment and to provide the report’s missing pages.
HOA Information Officer Linton Leonard, who provided the report to the Beacon, said that the document was missing the pages when the HOA received it from the Premier’s Office. As of Beacon press time yesterday, the Premier’s Office had not complied with a request to supply the pages.
KPMG also carried out other procedures.
A valuation used figures provided by government — including expenditures, debts and revenue projections — to estimate the “fair market value” of the pier project to be between $0 and $5,704,474 as of Dec. 31, 2016.
Mr. Clatworthy, though, cautioned that such valuations typically rely on subjective criteria.
“There is a great deal of subjectivity involved in any valuation,” he said.
Additionally, KPMG set out to learn whether government had met its financial obligations under a licensing agreement it signed early in the project with the firm Tortola Ports Partners. Though the reviewers tracked a series of payments totalling nearly $1.8 million, they were again stymied by missing documentation: The relevant payment schedule contained “insufficient information to ascertain” which of the payments were “directly attributable” to the licence, the report stated.
The review also recalculated head-tax figures provided by the BVIPA for 2014 through June 2017 and reached a total $10,838 higher than the BVIPA’s figure of $21,706,536.
A response from the Ministry of Communications and Works was also tabled in the HOA this month.
The five-page document, which describes the KPMG review as an “audit,” is largely a broad summary of the firm’s findings, and it thrice repeats Charterland’s contention that the overall costs were deemed “reasonable.”
However, the ministry also admitted that changes are needed at the BVIPA.
“The BVIPA over the next five years is expected to undergo several construction projects as part of the rebuilding effort,” the report states. “It is paramount that the internal controls are strengthened. Additional staff training is required in the areas of administration, project development and management; and the governance structure [needs to be] improved.”
BVIPA procurement policies should also be updated to accord with those used by central government or international agencies like the Caribbean Development Bank, the response adds.
The KPMG review wasn’t the first time the pier project had been subject to intense scrutiny.
In 2013, the Office of the Auditor General probed an earlier version of the development that was eventually scuttled, and the Public Accounts Committee followed with its own investigation in 2014.
Both the auditor general and the PAC alleged that officials involved with the earlier plan sidestepped proper procurement practice, wasted public money, ignored tendering and transparency rules, and gave rise to concerns about conflict of interest.
The project was later altered significantly in light of those findings, but critics continued to ask questions — particularly after the cost overruns came to light in 2015.
After the premier in January 2016 announced his plan to hire a private firm to conduct an “audit,” Mr. Fahie and his opposition colleague Julian Fraser (R-D3) criticised the decision, claiming that it amounted to government “auditing itself.”
Mr. Fraser said at the time that even a financial audit would not be sufficient, calling for a different type of audit that focuses more closely on detecting fraud.
“Of course it should be a forensic audit,” Mr. Fraser told the Beacon in 2016. “We have been getting stories from this project from its inception, so there should be a full investigation.”
He added, though, that he wasn’t surprised that the government hadn’t gone that route.
“They hired their own consultant, which can only give government what government wants to hear,” he said.
Mr. Fahie said this week that the report confirmed his fears about the probe.
“The records of the [HOA] would show that the opposition was always concerned about the legitimacy of a sitting government being given permission to audit themselves,” he said. “So from then, the results were already in our minds predetermined.”
In the face of such criticism, the premier and other government leaders have stood by the pier project, insisting that it provided good value for money and pointing out that it survived Hurricane Irma with relatively minor damage.
Last week Governor Gus Jaspert declined to comment on the report except to point out that it was commissioned by the premier.
“The governor is of the view, therefore, that the premier is most appropriate to answer whether or not [the premier] is satisfied with the outcome of [the] review,” Arliene Penn, Mr. Jaspert’s executive private secretary, wrote in response to a request for comment on whether Mr. Jaspert was satisfied with the report.
The premier was too busy for an interview by Beacon press time last week because of the Jan. 22 HOA sitting, but he will consider speaking this week, according to Chief Information Officer Desiree Smith.
Lenius Lendor, the current BVIPA managing director, did not respond to a request for comment last week, and neither did Communications and Works Minister Mark Vanterpool (R-D4); Premier’s Office Permanent Secretary Dawn Smith; or Opposition Leader Ronnie Skelton (R-at large).
Claude Skelton-Cline, who was the managing director of the BVIPA during the construction of the pier project, said on Jan. 22 that he would be able to comment after he finished reading the report, but he has not responded since then.