The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas Mortgage Corporation’s (BMC) chairman yesterday said he was “very confident” that its financial health will improve with every audit, after accountants again blasted its shambolic record-keeping.

Beneby & Company, the BMC’s external auditors, refused to give an opinion on its 2013 accounts because of a “breakdown” in internal controls that had resulted in the production of “unreliable financial reports”.

Alex Storr blamed this on “the problems I met in place” at the BMC following the Christie administration’s 2012 general election victory, especially the problems experienced with data migration and inputting involving its then-new IT system.

However, the 2013 audit, which covers the BMC’s first year under the Christie administration, highlights the chaos and record-keeping mess that appears to have persisted across three governments, and a complete lack of accountability.

It also exposes a ‘ticking financial timebomb’ which, if not dealt with, threatens to expose Bahamian taxpayers to a further financial bail-out.

The BMC’s ‘bond sinking fund’, intended to finance the repayment of principal when its debt financing matures, held just over $64 million at end-June 2013.

While a seemingly significant sum, it covers just 37.7 per cent of the $170.168 million worth of bond principal that remains outstanding and owing.

The ‘crunch’ will be hit between 2023-2026, just seven years away, when some $110 million of that principal becomes due, unless corrective action is taken now.

Yet the BMC appears far from being able to achieve a clean bill of financial health, given the findings and ‘qualification’ given by Beneby & Company in the 2013 audit, which was finally tabled in the House of Assembly yesterday.

“We have not been able to obtain sufficient and appropriate evidence to provide a basis for an audit opinion,” the auditors concluded.

“The current state and quality of the Corporation’s accounting records did not enable management to provide us with sufficient and appropriate evidence to support the balances and transactions reported in the accompanying financial statements.

“There were no satisfactory audit procedures that we could have performed to obtain reasonable assurance that the balances and transactions were free from material misstatement.”

The Beneby & Company audit, which was signed off on February 5, 2015, exposed the extent to which the BMC’s internal controls and systems had broken down by recording a $26.739 million boost to retained earnings from booking “unidentified net assets”.

“The breakdown in certain of the Corporation’s internal processes has resulted in significant delay in the production of its financial statements, and the production of unreliable internal and external financial reports,” the audit blasted.

“Further, the breakdown has resulted in material adjustments to retained earnings due to unidentified net assets.”

The financial statements described these ‘unidentified net assets’ as “an accumulation of transactions posed by management to balance the Corporation’s trial balance”, and changes to the value of certain assets and liabilities.

The 2013 financial statements said the BMC’s “ability to properly address the risks” associated with these problems depended on whether it could obtain “the necessary additional qualified resources” - namely updated systems and qualified, experienced personnel.

Summing up the Corporation’s woes, Beneby & Company said: “The Corporation is faced with significant delinquency of its mortgage loan portfolio, an underfunded Bond Sinking Fund Reserve, a long outstanding and significant balance due from the Department of Housing, a significant construction in progress balance, while it is required to meet its bonds payable principal (on maturity of the bonds) and interest payments, and new housing development obligations.

“This situation has resulted in the Corporation having to issue bonds that are guaranteed by the Government to fund new housing development obligations.”

Mr Storr described the BMC’s 40 per cent loan delinquency rate loans as its greatest challenge, and acknowledged that mortgages had in the past been granted to persons who should not have received them.

Turning to the 2013 audit, he told Tribune Business: “We’re working on getting things improved for 2014 and 2015. The situation [in 2013] was caused by putting a new system in place.

“There were problems with the migration of data [to the new platform].And for some reason, when the new system was activated, date was not entered properly.

“It was technical stuff. We had the software people come in and assist us in righting some of the wrongs that were being done. We anticipate for 2014 and 2015 there will be an improvement.”

Mr Storr said he was “very confident” that the woes identified in the 2013 financials would not appear in future statements. Yet he conceded that he had thought the same for 2013, only for the BMC to “run out of time”.

“That’s our goal; to make sure each one [financial audit] is an improvement on the other,” he added.

Mr Storr said he was “fully aware” of the importance of bridging the $106 million ‘gap’ between the BMC’s outstanding bond principal and the ‘sinking fund’ reserve it is accumulating to pay this.

“We’ve never been late on a [bond] payment, and don’t plan to in the future,” he told Tribune Business. “We are taking steps to deal with that.”

BMC’s current mortgage delinquency rate is “somewhere around 40 per cent”, more than twice that of Bahamian commercial banks.

Mr Storr said that while the BMC had enjoyed some initial success in reducing this rate, it typically rose again during the Christmas and Back-To-School seasons, when borrowers “lost their priorities”.

With mortgage repayments vital to generating revenues to cover both the BMC’s operating expenses and ‘sinking fund’ income, Mr Storr said it had adjusted its lending practices.

Borrowers are now required to pay by salary deduction rather than ‘over-the-counter’, while the qualification and collections procedures had been “tightened”.

“Dealing with some of the historically bad loans is going to be a challenge,” Mr Storr told Tribune Business.

“Being a Government corporation, when people run into problems they expect us to be more lenient than a commercial bank. We’re trying to change that mindset and culture.

“Some of this has accumulated because of, how should I put this...... processes in place from [the Department of Housing] on the housing side. We had persons who were probably not qualified obtaining loans.”

To remedy this problem, Mr Storr said the BMC had now become involved “at an earlier stage” in the housing approval process, and determining who was eligible to qualify.

Mr Storr added that the BMC “had received” some of the $15.36 million shown as owing to it from the Department of Housing in the 2013 accounts.

“We’re going back and forth,” he added. “It’s getting them to agree to what the actual amount is. We’ve been involved in having that taken care of, and hopefully in the next year or two we will have that fully taken care of.”