The Auditor General Dan Duguay severely criticises the activities of the National Housing and Community Development Trust in a report released to the public Wednesday.
The report not only criticises the actions of the NHCDT during the previous administration, but is also critical of the lack of progress with the Trust and some of its actions during the post-election period since the release of his initial report in June.
Among the key aspects of the report, which has been posted on the Government website, is the finding that the Housing scheme is not economically viable.
‘It is… impossible to escape the conclusion that the Affordable Housing Initiative in financially unsustainable as it is presently constituted,’ Mr. Duguay wrote.
There have now been three reports issued by the Auditor General on the NHCDT this year. Wednesday’s report is the second of two requested by the Governor after the Auditor General was asked to attend a special Cabinet meeting on 24 May in which allegations were made relating to the NHCDT.
‘After reviewing the issues, I came to the conclusion that an examination was warranted and I decided to accept the engagement,’ Mr. Duguay wrote in the latest report.
In the 24-page report, the Auditor General noted that clearly communicated policies and procedures are essential for the survival of any business.
‘Since its start-up, the NHCDT has not developed any business policies or procedures in such areas as accounting, human resources, purchasing, etc,’ the report said.
‘Specifically, to date, the NHCDT has no bad debt policy and no contracting procedures policy.’
Bad debts are an increasing problem with the NHCDT, and something that could negatively affect its ability to meet its bond obligation.
The NHCDT secured a bond issuance from Scotia Capital for US$14.5 million in October 2004.
After two interest only payments in the beginning, the Trust is required to make bi-annual payments of US$607,032 starting in April 2006 until the loan is repaid in October 2024.
Based on the potential income levels if all 99 AHI homes currently erected were sold, the NHDCT could only collect US$409,162 every six months.
However, the present level of collection on the homes is only 35 per cent, meaning, if that rate persisted, the NHCDT’s cash inflow would only be about US$142,785 every six months. That would create an annual cash shortfall toward the NHCDT’s bond repayment of approximately US$920,000.
The report notes that the problem with delinquent payments has actually gotten substantially worse since June, when 27 out of 77 homeowners were a total of CI$30,122 in arrears.
As of 2 August, however, that number had risen to 50 homeowners in arrears of CI$58,136.
‘As can be seen, non-payment is quickly becoming the norm rather than the exception for those home owners under the AHI,’ the report stated.
Mr. Duguay reported that a collections officer started working for the NHCDT on 6 June.
‘We expect that the percentage of homeowners in arrears and the total amount owed would decrease after that time,’ the Auditor General stated.
‘Clearly, the collections officer has not yet had any positive impact on the delinquency rate of the mortgage payments to date,’ the Audit report stated.
Rents were also delinquent on the 14 homes rented after Hurricane Ivan, although the report indicates Staunch Ltd. paid $11,500 – representing 38 per cent of the total arrears of $29,000 – on 9 August to clear up what it had owed on four rental houses.
One tenant, who took up residence in one of the AHI homes as a squatter, was allowed to live rent-free for two months. After that, this renter only paid one month’s rent for March and a partial rent of $500 for July.
‘When the NHCDT asked against which month they should allocate this $500, the tenant replied they did not care, the NHDCT was lucky the tenant was paying anything at all,’ the Audit report states.
The Auditor General made the recommendation in his June report that the NHCDT formulate an internal policy to deal with bad debts, but said that such a policy had not been written by 2 August.
Also recommended in the June report was finalisation of the mortgage agreement and Strata by-laws. As of 11 August, the Auditor General said no action had been taken in that regard.
‘As a result, none of the homeowners have yet to sign a mortgage agreement, even though some have now occupied their homes for 10 months.’
With no signed mortgage agreement in place, the Auditor General notes that the terms of the agreement are unenforceable at this time.
The Auditor General is particularly critical of the NHCDT’s selection process for homeowners.
‘I am appalled at how homes were allocated under the Affordable Housing Initiative,’ he said. ‘A fair process was not used. Homes were awarded in a hasty manner, with little or no regard for the very limited criteria or those with the most need.’
‘In my opinion, to even call the method used by the NHCDT a process makes a mockery of the term,’ Mr. Duguay wrote.
The only selection criteria stated for allocation of AHI homes was that the applicant be Caymanian or have Caymanian Status, and that he or she earn less than CI$24,000 per year.
Yet Mr. Duguay learned nearly half (38 of 77) successful applicants earned more than the specified salary.
Some 250 people applied for homes before Hurricane Ivan, and that number increased to approximately 600 in the months afterwards, the report states.
The vast majority of those applications were not even considered, Mr. Duguay stated.
‘Given the large numbers of individuals who had applied for these homes, and the large number of applicants who were never assessed, I find it amazing that almost half the people who received homes failed to meet even the most limited of assessment criteria,’ Mr. Duguay wrote.
Only 30 of the 77 successful homeowners were given eligibility assessments by NHCDT managers, the report states.
‘Some of those award homes were not assessed favourably (for example, four failed the manager’s financial review), while 23 applicants who did not receive homes were assessed favourably.’
Mr. Duguay pointed to three applicants who received homes due to known influence by Minister of Housing and chairman of the NHCDT chairman Frank McField.
‘Needless to say, such actions would be seen as blatantly unfair by those individuals who applied for a home and whose applications were not even considered,’ Mr. Duguay stated, noting that in all three cases, the applicants earned more money than the maximum allowed under the selection criteria.
In two other cases, successful applicants were related to NHCDT staff members, and at least nine of the successful candidates work for the Cayman Islands Government, the report stated.
The report also details the misuse of special purpose funds to be used to assist people who were unable to meet the required $1,000 or $1,500 down payment.
The funds were part of a $32,800 donation made by Celebrity Cruises in November 2004 and were to only be used for that specified purpose.
However, NHCDT managers applied $3,658 in February, and $6,900 in July of the donation proceeds to the delinquent mortgage accounts of three homeowners.
In doing so, Mr. Duguay believes the NHCDT breached its fiduciary responsibility to Celebrity Cruises.
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