Statement by The Most Honourable Andrew Holness
on Factories Corporation of Jamaica (FCJ)
Delivered in Parliament on Tuesday, September 13
Mr. Speaker, over the past two months I have noted the public sentiments being expressed in the media and elsewhere about the findings from the audits that were conducted at the Port Authority of Jamaica (PAJ ) and the Factories Corporation of Jamaica (FCJ). I have read both reports and must say there are justifiable reasons for the public outcry over what the Auditor General found to be unacceptable practices in some areas of operation in both entities. Both agencies are now under the Ministry of Economic Growth and Job Creation, a Ministry which was created March 7, 2016 and one for which I have responsibility.
Mr. Speaker, although the audits span more than one political administration and fall outside of any time period of this current administration, as the Minister, and given commitments that this Government has made to the people of this country for transparency and good governance, I have taken the decision to update the House and the Nation of the actions that have been and are being taken to address the weaknesses that have been identified in the reports.
On June 7, 2016, The Auditor General tabled its Regulatory Audit and Financial Statements Assessment of the FCJ, dated May 2016, this was subsequently discussed by the Public Accounts Committee of Parliament on Tuesday July 19, 2016.
The audit of the FCJ is for the Financial Year 2010/2011 to Financial Year 2014/2015.
NEW FCJ BOARD APPOINTED
In July 2016, Cabinet approved the appointment of a new Board of the Corporation. I wish to point out here Mr. Speaker that the first charge to the new Chairman was for the new Board to take the necessary steps to address the issues raised by the Auditor General and to implement the recommendations to ensure that the issues identified do not reoccur. On Tuesday September 6, representatives of the Board of Management gave an update to Cabinet on the status of actions that have been taken to date.
Let me state here Mr. Speaker that given reports that I have received to date, I am satisfied that the Chairman of the Board has taken the mandate that I have given them seriously, and is working in earnest to bring order to the Corporation and to restore public confidence in its leadership and management.
Mr. Speaker, please allow me to give a summary of the key findings in the Report and to outline some of the actions that were taken previously and are being pursued by the recently appointed Board.
KEY FINDINGS AND STEPS TAKEN EMERGING FROM THE AUDITOR GENERAL’S REPORT
- Finding: The FCJ should review its governance practices and implement systems to ensure that it is compliant with the Public Bodies Management and Accountability (PBMA) Act and relevant regulations.
As a result of the above findings, this Board has now appointed several Sub-Committees with specific task of ensuring good governance and accountability in the operations of the FCJ.
Specifically, a Corporate Governance Committee was established to provide oversight and advice to the other Committees to ensure that they specifically comply with the PBMA and other Acts that govern the operations of Government entities.
- Competence Gap in Human Resources and Finance –
Finding: The FCJ paid two Consultants J$15.2 million to perform operational tasks in Human Resources and Accounting between December 2011 and October 2015.— This means that they were instances where consultants were hired to perform task of underperforming staff while those staff members continued to occupy their post and were being paid.
- Additionally, despite the fact that the Board had expressed concern about the underperformance of a senior officer, in one instance, the same officer’s contract was extended three times since 2012.
- The report also found that the institutional capacity of the FCJ was negatively impacted by the high turnover of Managing Directors since July 2012.
The Board is currently undertaking comprehensive review of the organizational structure of the FCJ. Advertisements have been placed to fill the posts of Managing Director as well as Manager, Finance and Accounts and Legal Counsel/ Corporate Secretary.
3 . Employment of Board Members
Finding: The FCJ paid five (5) Board members J$25 million for employment in Key Managerial Positions.
- The Chairman of the Finance Committee at the time was paid J$3.4 million from August 2013 to February 2014 to provide oversight of the Finance Department
- The Company Secretary/Chairman of the HR Committee was paid J$7.3 million between August 2012 and September 2013.
- The Board Chairman and another member acted as Managing Director between August 2012 and June 2013, and received salaries amounting to J$2.7 million and J$4.3 million respectively. Members did not recuse themselves from Board and this created a situation of conflict of interest. The Board contended that it depended on Sections of the Articles of Association of the Corporation.
Steps Taken: This Board has sought to engage the Ministry of Finance and the Public Service and external counsel to seek legal advice of the possible remedies which may be applied.
- Conveyancing by Board Members –
Finding: FCJ engaged two Attorneys who were Board Members to carry out the sale of 200 acres of the Caymanas Economic Zone (CEZ) lands valued at J$900 million, to the FCJ. It was proposed that both Attorneys be named jointly as representing the FCJ for the CEZ Project as they had “been leading the legal charge in these negotiations on behalf of FCJ…”
These attorneys were paid a total of $26.9M inclusive of GCT. Mr. Speaker, note that the work of the attorneys who were first engaged was practically completed.
In September 2012, the then newly appointed Board terminated the services of the attorneys after the sale agreement was stamped and the letter of possession received and they engaged another attorney at an agreed price of $22M. The new attorney has been paid $17M to date and he has submitted a claim for the remaining $5M.
By letter dated July 22, 2015, the FCJ’s Attorney wrote to the two Attorneys requesting a refund of amounts paid to them claiming that the matter was not concluded and the attorneys were paid in full.
The FCJ wrote to the General Legal Council on November 30, 2015, reporting its inability to recover funds from the two Attorneys despite several attempts.
On December 7, 2015, a Claim was filed against the Corporation by the two Attorneys in the Supreme Court to retain the sums paid to them. The matter has been set for December 16, 2016. Attorneys have been engaged to represent FCJ in this Suit.
The FCJ is now in possession of a copy of the title for the 200 acres of land.
- Recovery of approximately J$109 million for property sold
Finding: Cabinet, by way of decision taken in July 2010, gave approval for the sale of property at 76 Marcus Garvey Drive for the sum of J$140 million. The Instrument of Transfer was executed and forwarded to the Attorney to effect the transfer of the property pending Sub-division by the KSAC. However, the attorney failed to hand over J$70 million received from February 2011 for the sale of FCJ property. With interest and penalties of J$39.6 million, the total outstanding balance to be handed over is J$109.6million inclusive of principal, interest and penalties
The matter was reported to the General Legal Counsel, which has the jurisdiction to conduct the trial and make an order for restitution as well as instituting disciplinary action. The hearing is set for September 22. The matter was also reported to the Fraud Squad by letter dated November 15, 2015. The Fraud Squad was written to, to request an update on the status of their investigations.
- Insufficient use of Assets
Finding: Delayed Implementation of Three Development Projects. The FCJ was unable to develop or expand the Caymanas Economic Zone, the Naggo Head Tech Park and the Garmex Free Zone.
The recently appointed Board has appointed an Enterprise Team to review the FCJ’s development projects and to ensure efficient and economical use.
The infrastructure works for the 1st Phase of 120,000 sq. ft. at the Naggo Head Tech Park are now 95% complete.
We have commenced works on the rehabilitation of the Garmex Free Zone complex as follows.
Creation of additional 100,000 sq. ft. of space – Demolition of old structure has commenced and architect engaged to do the design.
South Gate – this is currently under construction and is 65% completed. Projected to be completed in this Financial Year.
Administrative Building – Design and working drawings as well as Bill of Quantities have been prepared. Projected to be completed in this Financial Year.
East Gate – Design drawing has been prepared. Projected to be completed in this Financial Year.
- Prime Commercial Land sold at a nominal price
Finding: The transfer of 11:58 acres of commercial land valued at J$164 million to a private Trust for J$10,000.00. This was a Cabinet Decision on which the FCJ acted. During 2011, the FCJ had entered into arrangement with a third party to sell 1.2 acres of the said property at a price of $11m.
However, Cabinet in a Decision dated July 23, 2012, rescinded the sale of a section of the property at Whitfield Pen to the same private entity and approved the transfer of the entire property from Factories Corporation of Jamaica Ltd. to South West St. Andrew Trust, which is in the South West St. Andrew constituency. Although the trust is set up ostensibly to benefit the community as the beneficiary of the Trust, the Directors were three private individuals. The Trust is not registered with the RGD or the Department of Co-operative and Friendly Societies. In addition, there is no copy of the Trust Deed. Also, the title has no restrictive covenant, preventing unauthorized disposal.
Steps Taken: The Board has carried out the necessary due diligence regarding the use of the Whitfield Lands and has verified that:-
- Section 1 comprises 1.37 acres
- Section 3 comprises 2.2 acres
- Section 5 comprises 1.26 acres. This was the section that the private company had expressed an interest in purchasing. There appears to be interest still in acquiring the section.
- Section 6 comprises 6.5 acres. This section houses a football field, basketball court, netball court and club house.
- The FCJ Board has sought the advice of Attorney General’s Department for assistance in addressing the concerns that have been raised by the Auditor General, chief among them being the integrity of the Trust and the price at which the land was ordered to be transferred. Cabinet has discussed the decision to transfer all five sections of the land to the company and has instructed the Attorney-General to review the matter.