October 1, 2016

All outstanding GNCB loan files should be investigated

– 2016  audit report

In light of several discrepancies in many loan files including missing documents, recommendations have been made for financial audits to be conducted on all outstanding loans of the Guyana National Co-operative Bank (GNCB).
This is according to the bank’s Audit Report published on the Ministry of Finance’s website Tuesday last. The report revealed that during the period from privatisation in 2003 to 2015, a total of 366 active loans were pursued by the bank. During the audit, all loans presented to the auditors were evaluated and those above $10 million were thoroughly investigated.
Among discrepancies found during the investigations were missing documents and pages from loan files. The report said many files were mildewed with water damages, indicating that the storage area of the files was flooded. “These damaged files made it extremely difficult to trace the completion of transactions… Many files had missing collateral documents,” the auditors noted.
To this end, recommendations were made for “A financial audit be conducted on each loan file with a view to closure of some files. The findings and recommendations of the audit should be presented to the Board of Directors for approval and for submission to the Minister of Finance for Cabinet ratification, where necessary.”
Concerns were also raised over the fact that many loans were not securitised. “Reports in the files suggested that some collateral for loans were sold by the borrower without the knowledge of the bank. This may suggest that these collaterals were not registered with the court registry. However, the bank regularly reviewed the Official Gazette to monitor borrowers’ activities. The bank filed objection to the sale of borrowers’ assets when published in the Gazette,” the report states.
It was also outlined that some loans were approved by a personal guarantee from the borrower and many of them were not recovered. Additionally, the auditors highlighted that there was no written write-off procedure for bad loans; nevertheless, the agency followed the Government approved restructure formula. The bank later adopted an agreement with the Rice Producers Association (RPA) to restructure some of the non-performing loans. This new agreement increased collections, the auditors reported.
A new formula for loan repayment provides some incentive to the borrowers with a reduction of 25 per cent of the outstanding principal and the waiver of three instalment payments. This proposal engineered the recovery of approximately $45 million in loan repayment.
Moreover, the auditors pointed out that there was no evidence that the Board of Directors met to evaluate and approve any loan write-off. “Initially, there were no pre-numbered receipt vouchers. We could not verify if all loan repayments were deposited into the bank account. In 2004, there is a variance of over $15 million between collections and bank deposits. With the arrival of Keith Burrowes, the receipt vouchers were pre-numbered in 2005,” the auditors noted.

No oversight
The report further detailed that some loans were more aggressively sought after by the bank. These were the loans where the potential for recovery had a higher probability of collection than others.
In addition, the auditors reported that the institution was more self-managed with very little or no oversight from a Board of Directors.
“The investigation revealed that GNCB management made professional business decisions. However, there was no evidence of the Board meeting. No minutes are available… With the absence of a functioning board, management made substantial investment decisions,” the report states.
According to the auditors, many of these investment opportunities earned significant interest for the bank, including interests of more than $150 million earned investments between 2005 and 2012.
Furthermore, the report states that no evidence of corporate malfeasance was found, except for the difference of $15 million in loan collection and bank deposits in 2004. Investments were also made to maximise the bank earnings but they were not approved by the Board. Three investments amounting to $866 million are still outstanding, the auditors said, while adding that all efforts must be made to recover these funds.
In light of these matters highlighted, recommendations were also made for the transfer of the active loans portfolio with a principal balance of approximately $7.5 billion to a debt recovery unit under the Ministry of Finance, and also for the Ministry of Finance to absorb the existing staff in the new debt recovery unit, given that specialised training was done with the staff.
It was also suggested that the proposed new debt recovery agency of the Ministry of Finance be located in the entire GNCB Sports Club building. The building, which needs substantial general maintenance work, is currently being used by the Small Business Bureau and GNCB staff.
The auditors further recommended that the $368 million held by NICIL in trust for GNCB from the sale of GNCB-PHI assets, should be transferred to the Consolidated Fund without delay, and also that NICIL should be more aggressive in the sale of the other vested properties under its control.
It was also suggested that the bank aggressively pursue investment accounts to maximise its returns. Recommendations were also made for the Ministry of Finance to initiate legal proceedings, under provisions of the Fiscal Management and Accountability Act 2003, against the principals and Dr Ashni Singh, former Minister of Finance, to recover outstanding loan amounts. These include $581.6 million from Casique; $270 million from the Guyana Sugar Corporation and $15 million from RPA.

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