News / National
NSSA audit unearths shady property deals
06 Jan 2016 at 05:11hrs | Views
Pensioners could have been prejudiced of millions of dollars through shady property deals by previous management at the National Social Security Authority.
Information obtained by The Herald Business shows that NSSA could have lost millions of dollars through the acquisition of overvalued property and inflating the cost of property projects.
Well-placed sources say that NSSA made questionable investment decisions such as the purchase of a plush office park; Celestial Office Park in Borrowdale, which was purchased for $32 million, which many analysts believed was overvalued.
At that time, the then general manager James Matiza was quoted by an email-based financial news service as saying the institution had been able to negotiate the price downwards from the $36 million that the seller wanted. By his own admission, Mr Matiza acknowledged that NSSA normally does not keep cash or enter into transactions of that magnitude.
Sources say because of the price paid, cost payback period for the property is estimated at over 50 years. Occupancy at the property is currently at just about 50 percent. NSSA is also believed to have purchased overvalued land in Gweru.
A special audit investigation carried out recently by NSSA, whose report was seen by The Herald Business, unearthed gross misuse of funds on the refurbishment of Cornerstone (Kodak) House as management flouted tender rules and inflated the cost of the project.
The NSSA board in 2012 approved the refurbishment of Cornerstone House at a cost of $900 000 including $250 000 for lift refurbishment, a figure below the original purchase price.
Total project cost at the time of approval after factoring in main contractor's costs and consultancy fees amounted to $1 459 341,84 and not the $900 000 tabled for approval, giving a variance of $559 341,84 which is unauthorised expenditure.
The cost paid to date by NSSA for the refurbishment amounts to $964 987,93 inclusive of VAT of $112 50,45. The report said incremental rental as a result of refurbishment costing of $1 459 341,84 is expected to be $31 164 per annum, which translates to refurbishment cost payback period of 46,8 years and NSSA is believed to have expressed concern that the authority will not get its money back from the project.
"The payback period computation done by the quantity surveyor at the time appears to have been window dressed to make the project palatable to the board. The computation excluded consultation fees and included car park fees, which are not part of the project cost tabled to the board.
"These two items had the effect of lowering payback period, which made it more attractive than what it really is. It is not clear why management went on to present such figures to the board," said the report.
After exhausting the budgeted amount for the project, management then sought to finance the remaining works, such as new elevator installation, air conditioning and electrical upgrade through virementing $600 000 from the Ximex Mall budget.
The report said the project cost of $900 000 should have gone for a formal tender, in terms of Statutory Instrument 160 of 2012 ,Section 2 (a)(iii) of the Procurement (Amendment ) Regulation, 2012, but however an informal tender was used .
The report said it would appear that the project cost was tailor made to fall within the informal tender limit of below $1 million by manipulating the costs. "For instance the elevator installation was under priced as $250 000, yet at the time of installation, an amount of $140 000 was used," said the report.
The total cost of phase two of the project amounting to $317 584,00 was conveniently left out so as to ensure that the costs remain below the $1 million threshold of formal tenders.
In essence this amounts to tender splitting designed to avoid going for a formal tender. The additional refurbishment cash call included a plan to install a new elevator at a cost of $140 000 in a four storey building, which was not necessary according to OSH expert advice.
A quick market scan revealed that the elevator can be installed at a cost of $100 000 inclusive of labour for the four storey building. The audit notes that there was lack of planning in the organisation.
"How can a decision be made to incur refurbishment cost amounting to over $1 million and whose payback period falls beyond its demolition time. "The fact that the payback period falls several years after the demolition period means that NSSA will not benefit from the refurbishment," reads the audit
The authority's strategic plan is to demolish the Gateway properties on which Cornerstone is located after 10-15 years and therefore the refurbishment was not part of the strategic plan. The audit recommends that investment in capital projects should be undertaken after thorough project analysis has been done.
"To this end, the authority needs to up-skill staff so as to equip them with the relevant skills." NSSA has, however, since changed its investment policy following the coming in of a new board led by Robin Vela while top management was relieved of its duties.
Information obtained by The Herald Business shows that NSSA could have lost millions of dollars through the acquisition of overvalued property and inflating the cost of property projects.
Well-placed sources say that NSSA made questionable investment decisions such as the purchase of a plush office park; Celestial Office Park in Borrowdale, which was purchased for $32 million, which many analysts believed was overvalued.
At that time, the then general manager James Matiza was quoted by an email-based financial news service as saying the institution had been able to negotiate the price downwards from the $36 million that the seller wanted. By his own admission, Mr Matiza acknowledged that NSSA normally does not keep cash or enter into transactions of that magnitude.
Sources say because of the price paid, cost payback period for the property is estimated at over 50 years. Occupancy at the property is currently at just about 50 percent. NSSA is also believed to have purchased overvalued land in Gweru.
A special audit investigation carried out recently by NSSA, whose report was seen by The Herald Business, unearthed gross misuse of funds on the refurbishment of Cornerstone (Kodak) House as management flouted tender rules and inflated the cost of the project.
The NSSA board in 2012 approved the refurbishment of Cornerstone House at a cost of $900 000 including $250 000 for lift refurbishment, a figure below the original purchase price.
Total project cost at the time of approval after factoring in main contractor's costs and consultancy fees amounted to $1 459 341,84 and not the $900 000 tabled for approval, giving a variance of $559 341,84 which is unauthorised expenditure.
The cost paid to date by NSSA for the refurbishment amounts to $964 987,93 inclusive of VAT of $112 50,45. The report said incremental rental as a result of refurbishment costing of $1 459 341,84 is expected to be $31 164 per annum, which translates to refurbishment cost payback period of 46,8 years and NSSA is believed to have expressed concern that the authority will not get its money back from the project.
"The payback period computation done by the quantity surveyor at the time appears to have been window dressed to make the project palatable to the board. The computation excluded consultation fees and included car park fees, which are not part of the project cost tabled to the board.
After exhausting the budgeted amount for the project, management then sought to finance the remaining works, such as new elevator installation, air conditioning and electrical upgrade through virementing $600 000 from the Ximex Mall budget.
The report said the project cost of $900 000 should have gone for a formal tender, in terms of Statutory Instrument 160 of 2012 ,Section 2 (a)(iii) of the Procurement (Amendment ) Regulation, 2012, but however an informal tender was used .
The report said it would appear that the project cost was tailor made to fall within the informal tender limit of below $1 million by manipulating the costs. "For instance the elevator installation was under priced as $250 000, yet at the time of installation, an amount of $140 000 was used," said the report.
The total cost of phase two of the project amounting to $317 584,00 was conveniently left out so as to ensure that the costs remain below the $1 million threshold of formal tenders.
In essence this amounts to tender splitting designed to avoid going for a formal tender. The additional refurbishment cash call included a plan to install a new elevator at a cost of $140 000 in a four storey building, which was not necessary according to OSH expert advice.
A quick market scan revealed that the elevator can be installed at a cost of $100 000 inclusive of labour for the four storey building. The audit notes that there was lack of planning in the organisation.
"How can a decision be made to incur refurbishment cost amounting to over $1 million and whose payback period falls beyond its demolition time. "The fact that the payback period falls several years after the demolition period means that NSSA will not benefit from the refurbishment," reads the audit
The authority's strategic plan is to demolish the Gateway properties on which Cornerstone is located after 10-15 years and therefore the refurbishment was not part of the strategic plan. The audit recommends that investment in capital projects should be undertaken after thorough project analysis has been done.
"To this end, the authority needs to up-skill staff so as to equip them with the relevant skills." NSSA has, however, since changed its investment policy following the coming in of a new board led by Robin Vela while top management was relieved of its duties.
Source - the herald
