By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Political pressure from a former minister resulted in the award of a $1.46m computer supply contract to a web shop boss who earned a 30 percent profit margin on the deal.

The revelation, by former Ministry of Finance financial secretary, Simon Wilson, was disclosed in a report to the Auditor General that exposed multiple internal control and procurement failings in the government agency charged with obtaining value for money for Bahamian taxpayers.

The report, by Bahamas-based auditing and advisory firm, FTI Consulting, found that the contract was awarded to a company owned by Pete Deveaux, chief executive of the Island Game web shop chain, and his wife even though they appeared to have "no prior involvement in businesses relating to information technology or computer procurement".

Mr Wilson, who remains on leave from his post, told FTI Consulting's investigators that he was introduced to Mr Deveaux by "a senior elected official" in the Christie administration some three months prior to signing the April 3, 2017, "lease-to-own" agreement for the computer equipment.

The report, tabled in the House of Assembly yesterday, said Mr Wilson did not interpret the meeting's outcome as "an implicit instruction to do business" with Mr Deveaux, but that the senior official "tried to accommodate" the ex-minister's suggestion - adding that such situations were "not uncommon" within government.

FTI Consulting, though, suggested that the Island Game chief did little to earn his $455,000 gross profit, since he and his wife merely acted as brokers in outsourcing the procurement of hundreds of desktop computers, monitors and laptops to a Florida company.

Their Xua Company Ltd, which handled the contract, was likely formed specifically to handle the computer equipment deal, given that it was incorporated on February 20, 2017, - less than two months before the deal's signing, but after the meeting with Mr Wilson and the "elected official".

The report revealed that Xua Company was 213 days late in completing its contractual obligations, with the initial shipment "short" and incomplete, and many desktop computers lacking 50 percent of the promised memory capacity.

No rival bids were received, as the contract did not go out to public tender, with Mr Wilson telling FTI Consulting "that leases are never subject to competitive bidding at the Ministry of Finance" - an assertion that was contradicted by other Ministry officials.

The report identified other discrepancies between Mr Wilson's testimony and the Ministry's information technology (IF) officials, and suggests that the problems with the contract made have delayed the roll-out of Bahamas Customs' Electronic Single Window (ESW) initiative that was designed to reduce the cost, time and bureaucracy associated with cross-border commerce.

"Without prompting by FTI, Wilson referenced the computer purchase from Xua as an example of problematic procurement," the report revealed. "Wilson said candidly that Xua, in particular, was selected as a vendor because of a suggestion made by a former senior elected official Pete Deveaux could provide financing to the Ministry of Finance should the need arise.

"In a subsequent interview, Wilson confirmed that the purchase from Xua, and ultimately his execution of the agreement, followed from the meeting with the senior elected official and Deveaux. He also confirmed that the purchase was not competitively bid, and explained that leases executed by the Ministry of Finance, including lease-to-own agreements, are not subject to Tenders Board review."

Mr Wilson indicated that Mr Deveaux's ability to finance the computer equipment purchase was attractive when set against the Ministry's budget constraints, with just $200,000-$400,000 available in its accounts, and the urgent need to upgrade Customs' IT capabilities for the ESW initiative.

"Wilson understood at the time that Xua had no track record or business history as a computer vendor, and that its incorporation was predicated on the $1.46m computer equipment sale to the Ministry of Finance," the FTI Consulting report said. "However, Wilson was familiar with Pete Deveaux and believed that he was generally well-regarded in the local business community."

Mr Wilson's meeting with Mr Deveaux and the "senior elected official" took place three months before the contract's execution at the latter's office. "Wilson noted that at the time of the meeting the official also served in a ministerial capacity," the report added.

"Wilson believed that such an official's role entailed occasional meetings with business people seeking to do business with the Government. Wilson recalled the official suggesting at the meeting that the Ministry of Finance could turn to Deveaux in the event it needed financing.

"Wilson stated that no specific projects were discussed at this meeting, and there was no mention of computer equipment. He added that he did not interpret this official's suggestion as an implicit instruction to do business with Deveaux," it continued.

"Rather, Wilson said that he tried to accommodate the official's suggestion that Deveaux could be a suitable counterparty, and noted that it is not uncommon for such an official to offer suggestions to their subordinates with the expectation that they find a way to carry these outs, provided they do so in accordance with applicable laws and regulations."

FTI Consulting's investigators said Mr Wilson revealed he later spoke with another, also unnamed, Cabinet minister in the former Christie administration who "approved the agreement" with Mr Deveaux and Xua.

"Wilson also believed that the Cabinet member was aware of his meeting with the senior elected official and Pete Deveaux," the report added.

The minister who recommended Mr Deveaux is not named in the report, unlike the many officials involved, which will prompt questions as to whether their identity is being deliberately protected. However, FTI Consulting said it could find no documents to support Mr Wilson's allegations.

Nevertheless, it found that Mr Wilson's account raised "several concerns about the control environment at the Ministry of Finance" - especially the ability of civil servants to resist pressure from their political superiors over irregular contract awards that violate procurement laws and processes.

"Although Wilson stated that he did not interpret [the meeting] as an implicit or explicit instruction to do business with Deveaux, it may still represent an example wherein Ministry of Finance personnel feel pressured to select vendors based on input from their superiors rather than through a competitive bidding process," FTI Consulting said.

"If Wilson had felt pressure to engage Deveaux as a counterparty but disagreed with doing so, it is unclear what independent ethical review bodies or reporting mechanisms, if available, would have or could have prevented such a non-competitive selection.

"Ministry of Finance does not appear to have any internal written policies or procedures that could provide an objective justification for its personnel to challenge irregular requests, explicit directives or implicit instructions from senior officials in regard to the selection of engagement of specific vendors."

The FTI Consulting report, which probed specific contracts as part of an investigation into the Ministry of Finance's procurement processes and controls, exposed a situation that is particularly troubling for the Government's efforts to get its debt and annual deficit under control. It indicates that the Minnis administration faces a steep, uphill climb to achieve its austerity targets even with the Fiscal Responsibility Bill's recent passage.

It confirmed that the Government's Tenders Board is routinely bypassed in the awarding of contracts that should go before it, while the Financial Administration and Audit Act and accompanying regulations also appear to be ignored or breached.

FTI Consulting said the value of the contract awarded to Mr Deveaux and Xua was "well above the threshold requiring Cabinet approval. It is possible that the agreement may have contravened the financial regulations if, in fact, no such approval was granted".

Its report also suggested the Ministry of Finance breached its own guidelines, which require it to only do business with companies that possess valid Business Licence, Taxpayer Identification Numbers and other permits, and have an established track record in the relevant industry.

Xua only gained its Business Licence and Taxpayer Registration Certificate on May 24 - some six to seven weeks after the deal was signed. The latter permit was made "retroactive" to April 20, 2017, while Alecia Bowe, a partner at the Karam & Missick law firm, requested that the initial contract payments be made to JEMS Holdings, a business controlled by Judy Munnings, as Xua was still setting up its bank accounts.

And, while the contract called for Dell computer equipment, Xua told the Ministry of Finance it had been informed by its Florida supplier that the models in question had been discontinued. It suggested that the Government instead acquire 2,190 computer monitors and 1,160 desktop computers manufactured by HP.

The FTI Consulting report, though, suggested that this explanation was suspect as the Florida supplier, Intertech, had been barred by a US court order from selling or re-supplying Dell products for more than a decade.

It added that the model supposedly discontinued was still available for order via Dell's website, which "suggests an overall lack of candor on the part of Intertech and Xua".

The computer equipment, after several delays, ultimately sparked "an unusual spectacle" at the Ministry of Finance when it arrived on September 13, 2017, last year. Among those attending to inspect the goods were two police officers, a Customs officer, Mr Deveaux and his attorney, two truck drivers, five to six Ministry of Finance personnel and acting financial secretary, Marlon Johnson.

The inspection, though, was bungled as the equipment selected to break the lock and cut the wire on one container did not work. The inspection took place the following morning, with the Attorney General's Office now also represented, and revealed that while all 400 laptops were present the shipment was "short" by 402 desktop computers and 216 monitors.

Adrianna Knowles-Rahming, a Ministry of Finance officer legal adviser, wrote in a minute paper that she had been instructed by Mr Johnson to speak to the Customs comptroller and "ascertain what is required to have the computer hardware seized by Customs".

Her report included an invoice from Intertech to Xua for 1,246 pieces of equipment valued at $331,180, which was much less than the 3,132 items counted on September 14. "As a result, Knowles-Rahming warned that Xua may have 'understated the amount or quantity of computer hardware in the two containers and the dollar value of the computer hardware' in possible evasion of import taxes or duty," the FTI Consulting report said.

It added, though, that these allegations were unproven and that it obtained no information on any further investigation. While all the computer hardware ordered under the agreement was eventually delivered, Ministry of Finance officials then found that the HP desktop computers only had 4 gigabytes (GB) of memory instead of the promised 8GB.

This was eventually rectified by Xua's dispatch of five technicians in March 2018, although Ministry of Finance officials suspected they "may have been students from the University of The Bahamas". This Xua's contractual obligations were completed 213 days after deadline.

FTI Consulting questioned why the Ministry of Finance did not purchase the computer hardware outright, rather than do a lease-to-own deal that gave Xua a further $51,000 over contract's value. And it also questioned "the value, if any added" by the company.

"Based on documentary evidence, Xua agreed to pay $1.005m for computer equipment that it sold to the Ministry of Finance for $1.46m. This represents a gross profit for Xua of $454,907, and a gross margin of 30 percent of the value of the agreement, exclusive of taxes, duties, freight fees and other such expenses," the report concluded.

"Xua appears to have collected a gross profit of approximately $455,000 merely for acting as an intermediary in a computer purchase that was ultimately fulfilled by Intertech.....

"Although it may be true, as Wilson indicated, that Xua's Pete Deveaux is a reputable business person, the sourcing and delivery issues encountered by the Ministry of Finance in its dealings with Xua are consistent with an inexperienced and unqualified computer vendor."

Mr Wilson told FTI Consulting he was unconcerned about Xua's inexperience as an IT supplier because the contract detailed the equipment to be provided, and it "bore a significant financial risk" if it failed to perform.

He believed, though, that the company's profit margin was "minimal" as opposed to the actual 30 percent. And, while aware that Xua was using a third party, FTI Consulting suggested such outsourcing could be interpreted as breaching the contractual agreement.

The report also found that Mr Wilson's assertions that he kept the Ministry of Finance's IT department informed of the Xua deal, and the ability to conduct non-competitive bidding, were contradicted by other officials.