Members of the Public Accounts Committee are examining an Auditor General’s Report on why excessive fees were paid to arrange financing of Boatswain’s Beach.
Auditor General Dan Duguay, in a 2007 report, stated that the Turtle Farm, now called Boatswain’s Beach, overpaid fees to financing agencies by US$1.65 million in a ‘cavalier’ disregard for public spending.
‘This was not good stewardship of public money,’ Mr. Duguay told members of the Public Accounts Committee.
The report, written in 2007, was presented to the Public Accounts Committee for discussion on Tuesday. It is one in a series of 10 outstanding Auditor General reports that the committee is examining.
Asked why he had not made specific recommendations in his report on the financing of Boatswain’s Beach, Mr. Duguay said it was the role of the Committee to make recommendations on policies on government financing, not him.
He said the arrangements for financing of the tourist attraction was a unique situation, so making a recommendation on how overpaying of such fees could be avoided in future was difficult.
‘What are the lessons learnt…? The short answer is don’t do this again,’ Mr. Duguay said.
He added that if the committee was seeking a suggestion on what steps could be taken, he suggested that financing arrangements might be put out to tender, but that would be a matter for the committee to consider tabling to the Legislative Assembly when it made its report.
Mr. Duguay said the financing was more complicated than most financial transactions, because there were two attempts to arrange financing. When the first attempt was scrapped, the government nonetheless had to pay to get out of that transaction.
In the first arrangement for US$36 million in financing from GC Ventures and QuadCapital Advisors, the Turtle Farm signed a financial advisory service agreement in May 2003. Six months later, government officials representing the shareholders requested that the financing deal not be finalised.
In March 2004, the second financial arrangement for US$44.6 million was finalised between the Turtle Farm and William Blair and Company.
The cost of setting up both deals was US$2.8 million.
In his report, Mr. Duguay said the government paid ‘far in excess of amounts paid in other government financing arrangements in the same time period,’ and as such, the Turtle Farm did not get good value for money for the costs incurred.
He said the first financial arrangement ‘made no financial sense to the Turtle Farm.’ More than US$970,000 was paid to QC Ventures and its partner Live Oaks Capital, for which the Board of Directors of the Turtle Farm received little in exchange.
In the second arrangement, the Turtle Farm paid an ‘incentive fee’ of $957,000 to William Blair, a fee Mr. Duguay said was a unique feature of the agreement.
Mr. Duguay said the $595,000 in fees paid to GC Ventures in the second arrangement was excessive because the company was not involved in the final bond placement financing deal with William Blair.
The Turtle Farm paid Live Oaks almost $385,000, despite having no contract with the company. Mr. Duguay discovered that GC Ventures had an agreement with Live Oaks that the former was entitled to 50 per cent of GC Ventures’ fees.
Live Oaks was also paid $110,000 based on a general release. ‘The simple question I ask is ‘general release from what?”, Mr. Duguay said in his report. ‘Again Live Oaks had no contractual obligation with the Turtle Farm.’
Ultimately, the interest rate of 4.85 per cent received by the Turtle Farm was lower than any other government financing arrangement during that time period.
Committee member and UDP legislator Cline Glidden queried how the Auditor General could say the people of Cayman had not received value for money on the deal when the interest rate negotiated was so low.
‘You are talking about a savings over a period of many years. If we are getting a good deal on the bond issue but the criticism is we got charged too much in fees, I have a hard time supporting that criticism,’ Mr. Glidden said.
Mr. Duguay acknowledged that the final interest rate of 4.85 per cent received by the Turtle Farm was a good one and was lower than any other government financing arrangement during that time period. ‘However, it does not mean the fees paid were reasonable,’ he added.
In all, Mr. Duguay concluded that the government had paid US$2.8 million in fees for the financial arrangements, of which more than US$1.65 was of little value to the residents of Cayman.
In his report, he stated: ‘In the course of my almost 30 years of government auditing, I have difficulty thinking of any situation which showed such a cavalier attitude to the expenditure of such sums.’