By NEIL HARTNELL
Tribune Business Editor
The National Insurance Board’s (NIB) former chairman yesterday blasted the Grant Thornton forensic audit as “a very sloppy job”, adding that it would have been impossible for him to use his position to gain a competitive advantage for Bahamas First.
Speaking to Tribune Business, Patrick Ward said he was baffled why the accounting firm, in its report to the Ministry of Labour and National Insurance, would criticise him for declaring a potential conflict of interest IN ADVANCE of it becoming one.
That was a reference to the fact that Bahamas First, for whom he is the president and chief executive, in 2007 acquired the insurance agency that insured all NIB’s property portfolio for an annual premium in excess of $1 million.
As for the auditors other criticisms of him, Mr Ward said the issue of whether his ties to Carib Insurance Agency should have been disclosed among ‘related party transactions’ in NIB’s annual accounts was best answered by its external auditors, PricewaterhouseCoopers (PwC) Bahamas.
Pointing out that every NIB Board member, including himself, had to fill out an annual disclosure form detailing all potential related party transactions and ‘conflicts of interest’, Mr Ward said his relationship with Bahamas First and Carib had always been disclosed.
And the Bahamas First chief also described as “demonstrably untrue” the audit report’s findings that the selection of Algernon Cargill as NIB’s director was not approved by the Board’s human resources committee.
He applied the same description to the finding that Mr Cargill’s salary increases - approved by Mr Ward - did not receive the required approval from the then-minister responsible, Prime Minister Hubert Ingraham.
Mr Ward said he had “copies in my file” of letters sent to both Mr Ingraham and the Ministry of Finance, informing them “in advance” of the details contained in both Mr Cargill’s initial contract and subsequently re-negotiated deal.
As for the Grant Thornton finding that other NIB Board members, including Father Etienne Bowleg, knew nothing of the bonuses paid to NIB management during 2007-2012, Mr Ward said the minutes of Board and human resources committee meetings told a different story.
Father Bowleg was reported as saying he “knew nothing about the executive bonus payments” in the report, to which Mr Ward replied: “With all due respect to him, the minutes reflect what actually happened.”
The only finding Mr Ward declined to comment on was the report’s assertion, based on legal advice from Thomas Evans QC, that the salaries and bonuses paid to Mr Cargill and NIB management were “ultra vires” - meaning illegal, because their were not approved by the Prime Minister.
The Bahamas First chief declined to comment on this issue because he felt it might be subject to legal action.
But, when it was pointed out that Grant Thornton’s findings on former NIB chairman, Gregory Moss, had yet to be published, Mr Ward replied: “How convenient.”
He added: “You’d think they’d at least have the decency to issue copies to people who have might have been involved in the process.”
Kendrick Christie, a Grant Thornton partner and accountant, who is understood to have been one of those who conducted the NIB audit, did not return a message left for him by Tribune Business seeking comment on Mr Ward’s criticisms.
Assessing the background to Mr Ward’s appointment as NIB chairman with effect from July 1, 2007, the Grant Thornton report said Carib Insurance had negotiated general insurance coverage for NIB assets “valued at tens of millions of dollars” since June 3, 2003.
This was almost three years prior to Bahamas First initiating talks with Cooper Cay, the London-based broker that held the majority equity stake in Carib, about taking a stake in the business.
The Grant Thornton report showed Bahamas First initially proposed acquiring a 9 per cent stake in Carib, but this quickly turned into a 20 per cent stake.
This activity came immediately prior to Cooper Gay selling its Bahamian underwriter, Commonwealth General, to Bahamas First in mid-2006. Carib had placed all its business through Commonwealth, and the deal involved it taking over a $1.489 million inter-group loan.
By March 2007, Bahamas First’s desires had increased to purchasing 100 per cent of Carib’s shares. A sales agreement, dated June 22, 2007, was signed, to take effect from January 1, 2007.
Mr Ward, in an interview with Grand Thornton, said he knew he would be appointed to NIB’s Board by May 2007. The first Board meeting was held on August 30, 2007, and the Carib deal was formally approved by the relevant minister and regulator on September 14, 2007 - a permission that arrived with the companies 12 days later.
The August 30, 2007, Board minutes recorded Mr Ward’s revelation of a potential ‘conflict of interest’ with Bahamas First/Carib, and his promise to “recuse himself” from any discussions on NIB’s general insurance business.
Yet the Grant Thornton report criticised Mr Ward for failing to disclose specifics on the Carib deal to the Board, the date the sales agreement was signed and that formal regulatory approval had yet to be granted.
In response, Mr Ward told Tribune Business yesterday that Bahamas First then already had “a good indication” from the then-Registrar of Insurance that the Carib deal would be approved.
Noting that he had disclosed a ‘potential conflict of interest’ before it actually became so, Mr Ward said: “I don’t understand why that point is there.”
The Board minutes for 2008 and 2009 show Mr Ward recused himself both times when the general insurance contract came up for discussion.
In the latter year, the bids came in at $1.358 million from Orry J,. Sands; $1.334 million from J. S. Johnson; and $1.004 million from Carib Insurance, the Board - minus Mr Ward - voting to go with Carib.
“Grant Thornton notes that the general insurance premium paid to Carib for the year June 1, 2008, to May 31, 2009, was $1.234 million to cover total assets of $129.248 million,” the report said,”while the premium for the period June 1, 2009, to May 31, 2010, was $1.004 million to cover the total assets of $137.491 million.
“In other words, Carib’s quoted premium for the period 2009 to 2010 decreased by $229,683 (that is, from $1.234 million to $1.004 million)l, and the total value of assets covered increased by $8.243 million (that is, from $129.248 million to $137.491 million for the 2009 to 2010 period).
“It should be noted that of the $137 million fixed assets insured for property all-risk, only $43 million in assets relate to NIB-occupied properties. The fixed assets difference of $94 million represents costs related to government buildings, which is charged out as a recovery for repayment to NIB by the Government.”
The Grant Thornton report said the failure of NIB’s financial statements between 2007-2012 to disclose Mr Ward’s Bahamas First relationship, and dealings with NIB, breached International Accounting Standard 24.
But, in reply, Mr Ward told Tribune Business: “I’m not sure that’s technically correct. I think PwC actually believe they did comply with the disclosure requirements.
“You’d have to ask them [PwC]. Once I made that disclosure, it was up to the auditors as to how they conducted their materiality test.”
The Grant Thornton report referenced an email from PwC’s Gowen Bowe replying to Mr Cargill’s queries about the non-disclosure of Mr Ward’s and Bahamas First’s interest, but that was not attached to the report.
Mr Ward seems to be implying that the $1 million insurance contract was not a material event for a social security system with a $1.6 billion reserve fund, and close to $200 million in annual contributions.
Elsewhere, the Grant Thornton report added: “What is indeed clear is that Bahamas First did in fact offer the lowest premiums for general insurance coverage at NIB each year.
“However, due to the conflict by chairman Patrick Ward, there is the perception that he had an unfair advantage, particularly if he was in a position to know what other companies bid.”
Mr Ward emphatically told Tribune Business he “wouldn’t be in a position to know” due to the Tenders process.
Given that bids were sealed, Mr Ward said he would not know the details of any until they were opened in front of the persons handling the Tender process. And bidders often sent their offers in on the deadline day to prevent others from gaining an unfair advantage.
The Bahamas First chief told Tribune Business that the premium quotes submitted by Carib and others were largely driven by reinsurance costs, so it was impossible for them to influence the price locally - even if they wanted to.
“That was something that could easily be verified if they bothered to check,” Mr Ward said. “That’s a very sloppy job by this auditing firm.”
As for the audit’s findings that the NIB human resources committee was not involved in Mr Cargill’s appointment, and that his salary and contract were negotiated by Mr Ward without ministerial approval, the latter replied: “That’s just patently, demonstrably untrue.”
Letters to the then-minister and Ministry of Finance showed they were informed of Mr Cargill’s contract details “in advance”, Mr Ward adding: “No editing or interpretation will change the fact these were reviewed, and the minutes reflect that.
“All I can say is that any second guessing of what took place cannot stand up against what’s in the minute. The Prime Minister and Ministry of Finance had to sign-off on it.”
As for Mr Cargill’s appointment, Mr Ward said: “The human resources committee actively participated in the interviews, all of them. Every member of the committee participated.
“That [finding] is very surprising. I don’t understand it.”
As for the finding that other NIB directors on the human resources committee were unaware of executive salaries and bonuses, Mr Ward said: “That’s just not correct.”
He added of the Grant Thornton findings: “On it’s face, it’s just patently slipshod..”