The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A senior National Insurance Board (NIB) executive refuted Gregory Moss’s denial of allegations that he sought to push a $42,000 energy audit contract to a firm owned by one of his business partners.

The Grant Thornton report into claims levelled against Mr Moss by now-terminated NIB director, Algernon Cargill, suggests there may be some truth to the latter’s allegation that the former chairman tried to steer work to Earth and Sun Energy Company.

That firm is owned by Gregory Smith, a Grand Bahama-based former insurance executive with Star General Insurance Company, and a fellow shareholder with Mr Moss in the Siboney Commercial Centre complex in Freeport.

Mr Moss, in a February 7, 2013, interview at Grant Thornton’s office, admitted that he held a 49.5 per cent equity stake in Siboney’s holding company, with Mr Smith owning a 1 per cent stake.

But he vehemently denied Mr Cargill’s claim that, in his capacity as NIB chairman, he issued a directive to pay Earth and Sun Energy Company $42,000 for an energy audit of NIB’s properties, describing this as “an absolute lie and it was never done”.

However, that account is directly contradicted by Cecile Bethel, who was then Mr Cargill’s second-in-command, and is now NIB’s acting director.

In a written response to Grant Thornton, Mrs Bethel said: “Chairman Moss requested that the proposal from Earth and Sun Energy Ltd be reviewed, and NIB should seek to engage their services.

“The proposal requested up-front payment in full of $42,000, which was the initial impediment to NIB doing business with the company, as it was explained that this type of arrangement is not the norm. In this regard, it was suggested that Earth and Sun be so advised. It was later indicated that similar studies were known to cost less and, in some cases, to be offered free of charge.”

The phrase “NIB should seek to engage their services” strongly suggests that Mr Moss, a backbench PLP MP, was pushing for Earth and Energy to get the NIB audit contract.

Yet, strangely, Grant Thornton appears to have ignored the implications of Ms Bethel’s statement, satisfying itself that Mr Smith and his company ultimately performed no work for NIB.

That outcome appears to have largely resulted from pressure and resistance by NIB’s management under Mr Cargill. Mr Moss, though, “did not recall” discussing the energy audit and Earth and Sun Energy Company proposal with Mr Cargill at their first meeting, as the former director alleged

Instead, he alleged details of the firm’s proposal were first made known to him by Theresa Burrows, NIB’s vice-president of business support. Ms Burrows had explained to him that the main problem with the Earth and Sun Energy Company offer was the demand for the full $42,000 payment upfront, a departure from normal NIB procedure.

Previous energy audits had cost NIB just $3,000, a sum 14 times’ less than the Earth and Sun Energy Company proposal. Yet Mr Moss described as “an absolute unmitigated lie” Mr Cargill’s allegation that he issued a directive to pay the $42,000.

While all attention in recent days has focused on Mr Cargill’s termination by NIB, the report into his allegations against Mr Moss - laid in the House of Assembly last week - has been almost ignored.

Yet the details contained in it, far from totally exonerating Mr Moss, appear to raise more questions than answers regarding his activities and tenure as NIB chairman. Indeed, several sections appear to back allegations levied by Mr Cargill.

Apart from the Earth and Sun Energy Company audit, the Grant Thornton report also reveals:

• Mr Cargill’s allegation that Mr Moss wanted to fire NIB’s then in-house actuary, Derek Osbourne, was confirmed by the former chairman. The reasons given for doing so were that ‘no one is guarding the guardian’, and that Mr Osbourne - as an NIB employee - was not independent

• Phaedra Knowles-Mackey, NIB’s vice-president of investments, confirmed management’s opposition to Mr Moss’s unilateral revocation of their delegated investment authority.

She also indicated that NIB suffered an “opportunity cost” from having more than $15 million sitting in a Central Bank of the Bahamas non-interest bearing account as a result.

• Mr Moss and the NIB Board appeared to override a directive by minister of labour and national insurance, Shane Gibson, not to cancel the property insurance contract with Bahamas First.

Taking all three issues individually, Mr Moss told Grant Thornton there were three factors behind his personal directive to terminate Mr Osbourne as NIB’s in-house actuary - all of which appear questionable.

First, Mr Moss argued that similar to the audit profession, no business should have its books reviewed by the same person for 15 years, as Mr Osbourne had done.

“As all of the projections of NIB, in relation to the level of contributions and otherwise, were based solely upon Mr. Osbourne’s actuarial conclusions and projections, there was a significant concern as to the degree to which past actuarial analyses had not been reviewed by a subsequent actuarial analysis,” the Grant Thornton transcript said of Mr Moss’s reasoning.

The former NIB chairman then said his interpretation of the NIB Act was that actuarial reports should be produced by an independent, outside actuary and not Mr Osbourne, who was an NIB employee.

“Thirdly, as an employee of NIB, NIB would have no recourse against Mr Osbourne should it be determined that his advice was negligent or deficient,” the Grant Thornton transcript said of Mr Moss’s reasoning.

“Not only would there be no legal basis for NIB (as an employer) to sue its own employee, but Mr Osbourne would not have the financial backing to pay any damages that might be awarded to NIB in such a case.

“That is why it was decided that an independent, institutional actuary, with substantial insurance coverage, should be found to provide actuarial services to what is essentially the largest savings fund for the Bahamian people.”

Mr Moss alleged that his position was backed by Mr Gibson, only for the minister to then tell him to hold-off on firing Mr Osbourne until a replacement was found. Mr Osbourne has since resigned from NIB.

However, many observers are likely to wonder why Mr Moss was seemingly so eager to dismiss Mr Osbourne. Bahamian life and health insurance companies routinely employ both in-house and external actuaries to validate projections, so questions are likely to arise as to why NIB could not do the same.

Meanwhile, Grant Thornton said they could find no evidence of the NIB Board revoking management’s delegated cash flow management authority, and ability to invest in government bonds (Registered Stock and Treasury Bills) without prior Board approval.

Mr Cargill alleged that such functions had been delegated to NIB management since 1987, via investment policy statement and Board resolution. Yet Mr Moss had given a “unilateral decision” revoking this, which was “not consistent” with the views expressed by NIB’s legal advisor, financial controller and actuary.

These views were backed by Mrs Mackey-Knowles, who said Mr Moss’s individual directive revoking the delegated investment authority was only “subsequently” approved by the Board.

This, again, appears to contradict Mr Moss, who in testimony to Grant Thornton accused Mr Cargill of consistently misrepresenting Board resolutions as personal decisions by him.

As for Mr Cargill’s allegation about loss of investment income as a result of having $15 million sitting in the Central Bank, Mrs Knowles-Mackey appeared to also support this assertion.

The Grant Thornton report said: “We asked Mrs Knowles if was there any loss suffered by NIB for not having transferred the more than $15 million sitting in the Central Bank account without earning interest for several days.

“Mrs Knowles clarified with Mr Christie if he meant about the time value of money or funds sitting in an account earning a zero rate of interest for several days. She said that it was the opportunity cost of having funds sitting in an account earning a zero rate of interest for several days.”

The Grant Thornton report did not appear to inquire into Mr Cargill’s allegation that NIB almost missed two payments to pensioners as a result of the loss of delegated investment authority.

In reply, Mr Moss said the issue first arose when discussing NIB investments worth $240 million. He added that Mr Cargill, in response to his questioning management’s investment authority, could only produce two investment guidelines - one dated 2004, the other 2010.

While the first had been approved by the Minister, the second had not. Mr Moss said that central to his argument was the fact that neither set of investment guidelines could be implemented until the National Insurance Act was so amended - and this had not happened.

“Greg Moss said that this is the crucial point, and said that when you see both investment guidelines they both expressly provided in red, bold print, capitalised letters that they were not to be acted upon by NIB until such time as legislation had been enacted to give effect to them,” the Grant Thornton report said.

“Grant Thornton asked Greg Moss if he was saying that Algernon Cargill was utilising a guideline that had no effect. Greg Moss said yes, and said that upon review of the investment guidelines provided he pointed out to Algernon Cargill that it should not be followed and deemed in effect as it expressly provided that it was not to be acted upon until legislation had been passed to give effect to it.”

Mr Moss had alleged that Heather Maynard, NIB’s legal advisor, ultimately came to agree with his position. The Grant Thornton report added: “Greg Moss reiterated the Board authority, and said that Algernon Cargill wanted to act on the 2004 investment policy guidelines, although they expressly provided that he was not to act upon them until legislation was enacted to give effect to them, and although they were contrary to the provisions of the Third Schedule of the National Insurance Act.”

Finally, Mr Moss confirmed as true Mr Cargill’s allegation that while the NIB director was on a business trip to Puerto Rico, he directed NIB to issue a cheque to Star General to pay for property insurance coverage on all NIB’s buildings.

This was despite the fact an existing policy with Bahamas First was already in place, meaning that the $1.562 million payment to Star would have created “duplicate coverage” for NIB.

In his defence, Mr Moss said he was merely giving effect to a Board resolution to terminate the existing coverage, on the grounds that NIB’s former chairman, Patrick Ward, was also Bahamas First’s chief executive and therefore a ‘conflict of interest’ had arisen.

The resolution, though, ran contrary to a previous directive by Mr Gibson, in his ministerial capacity, not to cancel the Bahamas First policy.The Grant Thornton report did not explain why the Board decided to try and override the Minister.

NIB management had already opposed cancellation, on the grounds that the Bahamas First policy was a three-year deal, and “if NIB sought to cancel the insurance policy, in the middle of the hurricane season, the short rate premium which would be imposed upon cancellation would be the same as the full extent of the premium which NIB had paid”.

Mr Moss alleged that Mr Gibson “had indicated that Cabinet had initially disapproved Bahamas First, notwithstanding that it had the lowest bid, on

the basis of the same conflict of interest which the Board had identified, and had directed Algernon Cargill to send the matter back out to tender and to exclude Bahamas First from the second tender exercise.

“He said that the Minister explained that Algernon Cargill had sent the

matter back out to a second tender, as instructed, but had still included Bahamas First in the second tender exercise with the result that Cabinet felt compelled to accept Bahamas First, notwithstanding the conflict of interest because it was the lowest bid and because the hurricane season was approaching and there was no time to conduct another tender exercise.”

The Board Resolution to terminate the Bahamas First deal, and seek a replacement from the other two bidders - Star General and J. S. Johnson - was passed on August 30, 2012.

NIB’s tenders and contracts committee passed a resolution two weeks later, on September 13, 2012, to hand the business to Star General. Mr Moss said he contacted NIB management a day afterwards to put this into effect.