Audit uncovers financial mess at UDC
Hundreds of millions owed to State entity; losses in estate management portfolio
The JAMINTEL building in downtown Kingston is among a number of properties mentioned in the Auditor General Depertment's report on the Urban Development Corporation.

Over the 10 years since the auditor general made a number of recommendations to the Urban Development Corporation (UDC) to improve efficiency, the entity has implemented only a few, continuing to struggle to collect hundreds of millions of dollars owed to it by other government entities, while racking up losses and cost overruns in its estate management portfolio.

This is according to the report of a follow-up audit of the UDC tabled in the House of Representatives on Friday.

The UDC also divested three properties below market value, in contravention of its estate management policy, and racked up cost overruns, losses and additional costs totalling $156.39 million, due mainly to "poor planning, lack of adequate monitoring and scoping of contracts", Auditor General Pamela Monroe Ellis reported.

The November 2012 audit sought to determine whether the corporation was managing its operations effectively and efficiently to achieve its core business objectives. That audit found significant weaknesses, including several corporate governance failures, as well as financial challenges and internal control deficiencies that impaired the UDC's ability to manage effectively and efficiently the resources under its control. Deficiencies were found in the UDC's management of its investments in subsidiary and joint venture companies.

The 2022 audit sought to determine the adequacy, effectiveness, and timeliness of actions taken by the UDC to correct the reported weaknesses, and to assess whether the corporation was cost-effectively optimising the return on its assets.

The Auditor General's Department found that only six of the 16 recommendations it had made in the 2012 report were fully implemented, six partially implemented and four were not effected at all.

Furthermore, Monroe Ellis noted, her team had been forced to rely on unaudited financial statements and other reports in order to conduct a financial assessment of the UDC, as the entity did not have audited financial statements and annual reports for the last three years to confirm its financial and operational performance.

The $156.39 million in cost overruns applied to a number of properties, including the JAMINTEL building in downtown Kingston. According to the report, the UDC honoured claims submitted by the seller (National Housing Trust) for insurance, electricity, and security charges due to a delay in handing over possession owing to UDC's failure to meet contracted payments despite two payment extensions.

The purchaser of a property at 10-12 Harbour Street, downtown Kingston, from the UDC, was allowed to determine the sale price and paid less than amount approved by the UDC board. The report outlined that part of the Ocho Rios Cruise Ship Pier 22.01 square metres of land was transferred at no cost due to incorrect valuation and measurement, while there was poor scoping and planning for the removal of squatters at the Forum Hotel complex in Portmore, which resulted in time overrun of one year and cost overrun of $40 million when compared with the assessed relocation cost of $59 million.

The Auditor General's Department said the UDC tried to recover outstanding monies owed to it by initiating legal proceedings from which it obtained judgement claim for four accounts from private tenants totalling $11.1 million and US$43,200. In February this year, the UDC collected net legal fees of $179.58 million from proceedings against the commissioner of lands for property occupied by the Ministry of Health and Wellness.

The auditor general said although the UDC had made efforts to improve its financial viability over the review period by seeking to recover rental arrears, the management of receivables remained a challenge, with rental arrears, as at June this year, reaching more than 120 days, and totalling $467.49 million, or 81 per cent of aged receivables. This is compared to arrears amounting to 76 per cent of aged receivables in May 2012.

As at March 2022, the Government owed the UDC $7.23 billion in outstanding compensation for lands transferred to the National Road Operating and Constructing Company (NROCC).

The transfer is related to a Cabinet decision in June 2015 to provide lands for the development of hotels, housing, and other facilities as a condition of the 50-year concession agreement between the Government and NROCC.

"Review of UDC records showed that the value of lands transferred to NROCC currently stands at $9.36 billion for which the Ministry of Finance and the Public Service has provided compensation totalling $2.13 billion," the report said.

Furthermore, in May 2021 Cabinet gave its approval for properties owned by Petroleum Corporation of Jamaica to be transferred to UDC as further compensation, but to date the properties have not been valued and transferred to the UDC.

ALPHEA SUMNER Senior staff reporter saundersa@jamaicaobserver.com

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