HARRY'S $5m TRAVEL
Former HCU president flew to India, UK, USA, Mexico as credit union collapsed
By Joel Julien firstname.lastname@example.org
Even as the Hindu Credit Union (HCU) faced crippling cash flow problems, its former president Harry Harnarine was paid $5 million to travel around the world, Ernst & Young partner Maria Daniel testified yesterday.
Harnarine travelled to India, the United Kingdom, the United States of America, the Dominican Republic, Mexico and El Salvador.
The travel allowance formed the lion's share of $7.6 million paid to Harnarine over a period of six years for "president's expenses".
"In most instances we were not provided with supporting documents such as bills and invoices," Daniel said yesterday.
She was giving testimony during the Commission of Enquiry into the collapse of CL Financial and the HCU at the Winsure Building, Richmond St, Port of Spain.
Harnarine approved the payments to himself, she said.
These funds were separate and apart from the monthly salary of $50,000 Harnarine was paid.
"The president received the salary of $50,000 from January 2008 for responsibilities relating to HCU and HCU subsidiaries despite the losses and closures to these businesses as well as the critical cash shortages experienced by the HCU," Daniel said.
"I also want to mention that at this point in time February 2008 when the HCU was having difficulties there was also a loan granted for $900,000 for the president," she said.
A relative of Harnarine was also paid an unexplained sum of $242,000 in 2004, Daniel said.
The money was sent via a wire transfer.
In June 2008, Ernst & Young conducted a "due diligence investigation" into the operations of the HCU, Daniel said.
On July 17 the Ernst & Young investigating team were locked out from the offices of the HCU, she said.
When Daniel and her team were eventually allowed back onto the HCU compound to complete their investigations the computer they were using was attacked by a virus and it became difficult to access necessary files.
Daniel said Ernst & Young discovered that despite the HCU having 18 branches and 28 subsidiaries only "one group of people made all the strategic decisions".
Daniel said from 2004 the HCU had "grown by double but the people to manage the business operations were reduced by half".
"It was a quick build-up and a quick fail," she said.
Even if the HCU did not experience a financial run the company was destined to fail because its expenditure was more than its income, Daniel said.
By 2004, "the HCU was already making significant losses", Daniel said.
In May 2008, the HCU board wrote off $197 million worth of loans to its subsidiaries, she said.
Daniel said the "CEO (chief executive officer) had excessive access to the IT (information technology) system which was not usual for a CEO".
"This included editing transactions, posting to the general ledger and changing the access level of users. This creates an environment for things to take place, I am not saying that they did but what it does is it creates an environment where controls are not in place," she said.
"Segregation of duties is important, especially in a financial institution," Daniel said.
Daniel said it was discovered that from January 2003 to January 2004, $1.3 million was paid to Harnarine's credit card for overseas travel.
Ernst & Young were only supplied with receipts totalling $265,000 for that period.
Among the other discrepancies Ernst & Young uncovered were three separate payments made to Harnarine totalling $250,000 in 2006.
There were no vouchers or any explanation provided by HCU's management for the payments, Daniel said.
"It is important to note that by 2007 based on the documents we saw, people could not get their fixed deposits repaid, staff was being rationed as to how their salaries were going to be paid, statutory obligations were not being paid, however $1.6 million was paid to the directors," Daniel said.
Of all the HCU subsidiaries, only Bankers Insurance was viable, Daniel said.
The other subsidiaries were recording losses of $800,000.
The managing director of HCU USA was paid a salary three years after the entity closed down, Daniel said.
The HCU took out an $86 million loan with a bank in the United States for analogue television equipment but the company did not get the relevant licence to operate.
The HCU spent some $5 million for a real estate project called Jogie's Park but no work was done, Daniel said.
A marketing representative with the HCU was also awarded contracts for construction and janitorial services. The contracts were awarded without tender.
The HCU also entered a deal with insurance giant CLICO to have an asset swap valued at $200 million to correct its liquidity issues, Daniel said.
"PAYE (Pay as you earn) deductions were taken from staff but the funds were not remitted," Daniel said.