Hindu Credit Union (HCU) president Harry Harnarine spent $7.6 million on expenses, including foreign travels, without any accountability. Ernst and Young partner Maria Daniel gave this information yesterday while testifying at the Commission of Enquiry into the failure of HCU at Winsure Building, Richmond Street, Port-of-Spain. She did not specify the years that this spending took place.
"The president's total expenses, over a period of six years-and there was an account for the general expenses-was over $7.6 million," she said. "It is the president's expenses, stipend and foreign travels we are speaking abut here. "In most instances we were not presented with the supporting documentation, like bills and invoices. For example, the foreign travelling expenses accounted for $5 million.
"In the majority of cases, direct transfers were made to his Visa account. In February 2008 when HCU was having its difficulties, he took a loan of $900,000," She gave a list of the HCU's main subsidiaries that suffered from the group's financial mismanagement.
She said the amount of money that was pumped into HCU Communication was $86.1 million since it was formed. "Despite the significant outlay, HCU never managed to obtain certain licences to operate," Daniel said. "Furthermore, HCU proceeded to borrow the funds from a third-party financial institution and purchased analog television equipment in 2004 for $36.6 million, on the premise that the necessary transfer of licences of $17.8 million would take place.
"The end result was a licence that they did not own, equipment they could not use or sell." HCU Food Corporation was another subsidiary that ran into problems. "There was the acquisition of a third party in 2002, and in 2004 a transaction was entered into with another third party," Daniel said.
"What we could not tell, with the high-level due-diligence report done by the former director, was how much of the sales involved sugar and the impact that had on the acquisition. The equipment involved in the purchase did not work. Only one of six pieces of equipment was working." HCU Printing suffered the same problems as the other subsidiaries.
"For their purchases include equipment that was not operating and needing to be replaced," she said. "Instead of spending capital on updates, money was spent on buildings at a cost of $5.8 million. "Again, this is an example where you have a business venture, you have an idea, and instead of investing in machinery to gain revenues, it was being spent on buildings."
She said the reason why HCU landed in all these problems was because it stepped out of the role of a normal credit union. "We must go back to the fundamental structure of a credit union which is, I take members' shares and deposits and I have a pool of funds available to my members to borrow," she said.
"What took place in the HCU is a decision to expand that, and what happened is more than half of the assets being ended up in real estate, investments in subsidiaries and properties-moving away from the core reason of a credit union, which is loan to members."
Chartered accountant Madan Ramnarine, testifying for a second day, said large amounts of money were used by HCU to keep the subsidiaries afloat. When asked by HCU's lawyer Farid Scoon if any of HCU's subsidiaries were profitable, he said the successes were mixed.
Ramnarine said $250 million was spent in loans to HCU subsidiaries, which Scoon described as a "substantial amount of money." "I believed banking and insurance made a profit and I believed HCU Food Corporation made a profit and it was like $30,000 to $40,000 for one month. "Most of them were making losses of $700,000-$800,000 a month," Ramnarine said.
Scoon asked Ramnarine how quickly a business should start making profit and if profits should be made from the first day. "That question, chairman, is not relevant to the HCU, as they took depositors' money which came out of reserves and is expected to make a profit. "The question he is asking is, if I invest in a business with my money and my bank loan, I can do whatever I want.
"When you take money from investors to invest into a business in order to get returns, I have to ensure that I make a profit from day one," Ramnarine said. Scoon said subsidiaries of the HCU were businesses involved in insurance, food, distribution, communication and security provision, among other things and asked Ramnarine if each of these abided by industry standards.
Ramnarine said these subsidiaries should have been profitable by 2004. "That was one of the problems we identified: monies going in the subsidiary companies and keep funding them while they made losses, hopefully to make a profit in the future. "The business decisions that were going into these industries were wrong because of the long period of losses with depositors' short-term deposits.
"How can you, as a financial institution, give deposits for one to two years, going into a business and make a profit in six years' time? How long can you go on? And this was one of the critical problems of the HCU," Ramnarine said.