G.E.R.S.'s Lack of Oversight Led to Questionable Contracts, Cost Overruns and Incomplete Services of Loan Issued to Defunct Supermarket
Even as the Government Employees' Retirement System is currently in the fight of its life to stay afloat, with meetings being held among government leaders on how to stave off collapse, another Inspector General report published late last month serves as a reminder of how the pension system has squandered millions of dollars through its now-suspended Alternative Investment Program (A.I.P.)
2021-10-06 12:12:41 - VI News Staff
The latest investigation delves into G.E.R.S.'s loan to the now-defunct, St. Thomas-based supermarket West Bay, owned at the time by a company named V.I. Fine Foods, LLC. Though the Inspector General previously examined the matter as part of its 2016 Audit Report of G.E.R.S., the I.G. took a closer look more recently, this time to determine how much money was expended, whether the pension system followed established policies and procedures, and whether the loan proceeds were utilized in accordance with the loan's terms and conditions. The investigation also sought to determine whether V.I. Fine Foods, which received $11 million in total from G.E.R.S., made loan repayments as required by the agreement.
G.E.R.S.'s A.I.P. was established through a law in 2005 which authorized the pension system to seek riskier investments that yield higher returns. The program, which resulted in millions of dollars lost, was suspended in 2015.
The V.I. Fine Foods supermarket deal was part of the A.I.P. and G.E.R.S. approved in June 2014 $8.2 million to build the facility, which was named the West Bay Supermarket. The I.G.'s report found that the loan was approved to cover the supermarket’s construction, the purchase of equipment and inventory; fund a Capitalized Interest Reserve Fund and a Debt Service Reserve Fund.
According to the loan terms, the supermarket was expected to be completed within 17 months, with a completion date of November 30, 2015. However, VI Finest Foods did not meet this date, citing unforeseen setbacks and a need for additional funds to complete the project, according to the I.G.'s report. The facility was not completed until 2017 with an additional $2.8 million, leading to a total cost of $11 million.
Writing to G.E.R.S. Board Chairman Nellon Bowry, Inspector General Steven van Beverhoudt stated, "We found that GERS did not effectively manage the loan issued to VI Finest Foods under the Alternative Investment Program. Specifically, GERS: (i) did not adequately review services performed and examine expenses incurred for $2.7 million of loan proceeds issued; (ii) did not ensure that all phases of the supermarket project (the project) were monitored; (iii) failed to ensure that inspectors monitored all phases of the project while continuing to issue funds for the project; (iv) failed to follow established procedures to perform periodic analysis of project expenditures; and (v) provided an additional $2.8 million beyond the initial loan amount although VI Finest Foods never demonstrated the ability to make consistent payments per the loan requirements."
"As a result: (i) the lack of oversight led to questionable contract costs, cost overruns, and incomplete contract services; (ii) at least $480,850 in loan proceeds was diverted for unauthorized purposes;(iii) VI Finest Food defaulted on the loan; and (iv) the collectability of the remaining loan balance owed to GERS remains uncertain," Mr. van Beverhoudt added.
Loan Management
The I.G. found the following: "GERS did not effectively manage VI Finest Foods’ loan according to the terms of the loan agreement. Specifically, GERS advanced $2.7 million in funds without adequate review of services performed and scrutiny of expenses paid.
"We attribute these conditions to GERS’ failure to ensure that all aspects of the project were monitored, while continuing to issue funds. Also, GERS failed to follow established procedures to perform periodic analyses of project expenditures.
"This resulted in questionable contract costs, cost overruns, and the failure to fulfill contract deliverables. It also led to the diversion of $480,850 of loan proceeds for unrelated purposes."