By NEIL HARTNELL
Tribune Business Editor
Lease payments between 57 percent to 200 percent above market rate have raised questions of "preferential treatment" and "substandard value for money" at the ministry of finance.
A report commissioned by the Auditor General's Office, and tabled in Parliament yesterday, exposes "significant challenges" to the ministry's compliance with procurement laws and regulations by highlighting its dealings with the Self-Starter initiative's "poster child".
The probe, by Bahamas-based FTI Consulting, questioned why the ministry entered into three apartment rental agreements with a Bahamas Striping Group of Companies affiliate, despite it having no history or track record in the real estate/leasing business.
While just one lease was executed with Atillio Holdings, described as Bahamas Striping's property investment, management and development entity, the FTI Consulting report revealed that the ministry of finance appeared to be paying for all three apartments in late 2017 even though the other rental agreements were in draft form only.
It compared the rental rates for the Cable Beach apartments, one located at 101 Vista Bella and the others at Western View, with listings for other units in the same apartment complexes. While three Bella Vista units were priced at between $3,250 and $3,500 per month, "by comparison Vista Bella was rented to the Ministry of Finance for $5,500 per month.
"This suggests that the Ministry of Finance was incurring a cost that was approximately 57 percent higher than might be expected for similar properties," the FTI Consulting report found. "Even accounting for a hypothetical agent's commission of 10 percent, such a rental rate appears to be well above comparable property rentals."
Ministry of Finance officials had also thought the Vista Bella rental rate "was exceptionally high for the market". While FTI Consulting was unable to track down rival listings for "Western View", it noted that similar apartments were being advertised at Westward Villas - which was in the same location as those being explored by the Ministry of Finance.
If correct, FTI Consulting said the rental rates being offered by Atillio on Western View 5 were "more than 200 percent higher than the rent advertised online.
The Ministry of Finance had been seeking apartments for foreign consultants brought in on tax audit and other Department of Inland Revenue (DIR) related work, and the report said such leases made sense when compared to the cost of hotel rooms.
"However, the amount of rent at issue in the Atillio leases raises concerns about the cost savings that could have been otherwise achieved if the leases were subject to competitive bidding or entered into directly with the ultimate beneficial owners of the apartments," FTI Consulting found.
"It also raises concerns about whether Atillio may have received preferential treatment in its selection as a Ministry of Finance counterparty, and whether it may have been compensated in excess of what otherwise might be expected for a leasing agent."
Simon Wilson, the former financial secretary who is still on leave, told FTI Consulting's investigators that it was "commonplace" throughout the Government not to put leases and other contracts out to competitive bid.
"It is unclear why residential leases are not subject to tendering at the Ministry of Finance or put before the Government's Tenders Board despite the requirements listed in the Financial Regulations," the report said. "This appears to be a relatively long-standing practice at the Ministry of Finance.
"Beyond residential leases, Wilson and other interviewees indicated that tendering exceptions are commonplace at the Ministry of Finance and other ministries. For example, Wilson stated that none of the contracts executed by the Bahamas Ministry of Tourism are ever brought before the Tenders Board.
"This statement is consistent with FTI's review of the Tenders Board minutes dating back to 2015. In another example, Antoinette Thompson, permanent secretary at the Ministry of Public Works, said that the Ministry still engages on occasion in 'sole' bidding whereby a single vendor is pre-selected to bid on a contract. In some cases, Thompson said, sole bidding documentation is presented only after the job had been completed."
Bahamas Striping was founded by Atario Mitchell in 2010 with a $5,000 "self-starter" grant from the Government. He, though, owns just 20 percent of Atillio with the 80 percent majority controlled by Dominic Sturrup, the group's executive vice-president and head of business development.
It has been an enthusiastic participant in bidding on road, airport and parking lot paving contracts, many of which have been issued by the Government, and has taken a key interest in the Government's formulation of a public-private partnership (PPP) policy.
FTI Consulting's report, though, said the Ministry of Finance had breached its own guidelines in dealing with Atillio because it no "profile" with the Treasury Department, and did not possess a Business Licence of Tax Identification Number (TIN) "until several months after executing the leases" in August 2017.
The Ministry of Finance was also requested to make payments to Airport Maintenance Services (AMS), another Bahamas Striping affiliate, because Atillio was still in the process of setting its bank accounts one month after the Bella Vista lease was sealed.
FTI Consulting added that it could also find no evidence that Atillio or its principals were registered as licensed brokers, real estate salespersons or developers despite searching the Bahamas Real Estate Association's (BREA) database.
"The leases reviewed by FTI date from late August 2017," the report said. "Because Atillio was incorporated on July 3, 2017, and had no bank accounts until at least October 2017, it is reasonable to conclude that it also had no operating history or previous qualifications as a leasing agent.
"Although the counterparty risks associated with an occasional unqualified residential leasing agent are relatively limited, the Ministry of Finance's engagement with unqualified leasing agents outside the tendering process may expose it to the risk that it receives substandard value for money .
"It may also raise the risk of conflicts of interest other malfeasance. For example, despite urgency of need, it remains unclear why Atillio was selected as a leasing agent over other potentially more qualified local agents that may have had suitable properties for immediate lease at a lower cost."
Mr Wilson, in his interview with FTI Consulting, said leases were never subject to competitive tendering at the Ministry of Finance, and "it would be impossible to find any references to their tendering" even if researchers went "back many years". He added that competitive bidding was impractical given the Ministry's "urgent" housing needs.
The former financial secretary said he usually accepted the recommendations of the Ministry of Finance's human resources department when agreeing to leases, adding that he had little recollection of the Atillio dealings.
However, Carla Dames, a Ministry of Finance official, told FTI Consulting that "she recommended against" signing the Vista Bella lease that was ultimately executed by Mr Wilson. He also asked her to inspect properties being offered for lease by Atillio, and she was "under the impression" the financial secretary had already been talking to the company.
Ms Dames thought the Vista Bella rental rate of $5,500 per month "exceptionally high", having expected it could be as much as 50 percent less. "She said that she conveyed this view to Wilson, who told her only that he would handle the matter from there," the report said.