GERS Responds to Critical IG Report

Austin Nibbs (Source file photo)
Austin Nibbs (Source file photo)

Steven van Beverhoudt, V.I. Inspector General, reports for the second time that the Government Employees’ Retirement System of the Virgin Islands mishandled a loan to VI Finest Foods.

The loan principal was recouped and has no relation to the vastly larger financial crisis facing the pension system. In a letter to GERS Board Chairman Nellon Bowry at the end of September, van Beverhoudt wrote, “GERS did not adequately review services performed and examine expenses incurred for $2.7 million” loan. This was the second loan to Finest Food. Van Beverhoudt had also written a report in 2016 criticizing the original loan to Finest Food of $8.2 million.

Sen. Kurt Vialet told the Source Wednesday the findings in the report came as no surprise. He said senators had heard before that there were problems with the Finest Food loan. He said the problems began right at the beginning of the process.

Beverhoudt wrote “GERS failed to ensure that inspectors monitored all phases of the project while continuing to issue funds for the project”

Vialet says GERS must implement more safeguards in its investment programs.

The report recommends GERS, if a similar program is restarted, create a unit to oversee and monitor project costs. In GERS’ official response to the report, it agreed to create such a unit if the Alternative Investment Program is restarted. The Program has been suspended.

Austin Nibbs, administrator at GERS, responded in an email to the Source to specific criticisms in the report.

As for the criticism that GERS did not effectively manage the loan, Nibbs wrote, “The GERS hired a reputable engineering and architectural firm to be their owner’s representative to review and sign off on all payment requests received from VI Finest Foods.” He added that GERS had also hired an outside accountant to review the books and records of VI Finest Foods, but records were not forthcoming.

As for the criticism that GERS advanced the loan without adequate review, Nibbs responded, that the GERS Board approved the request based on presentations by VI Finest Food’s consultant and engineer/architect which were confirmed by GERS’s engineering and architectural firm review.

The report states that $480,850 in loan proceeds were diverted for unrelated purposes. Nibbs writes that he had disallowed that request as inappropriate for Finest Foods because no inventory was being purchased for the West Bay Supermarket. However, Nibbs said GERS was unable to confirm where that money went because, again, GERS was unable to obtain the pertinent books and records.

The report also stated that GERS is negotiating a new loan agreement for the original outstanding principal of $3.3 million. And “The collectability of this balance remains uncertain.”

Nibbs wrote, “The GERS is not negotiating a new loan agreement. This matter is in Court to recover the remainder of the interest owed to the GERS. Nibbs added that it should be noted that “GERS recouped all of the $11 million that was paid out.”

The original loan in 2014 loan was for $8.2 million to V.I. Finest Foods for a new grocery on St. Thomas. Finest Food then asked for another $2.7 million, and it was granted.

In 2016 an Inspector General report addressed the 2014 portion of the loan and said, “The application and qualification process took almost two years because the proposers had difficulty turning over documentation to prove favorable character, capacity, collateral, capital, and conditions. In fact, … the outside financial consultant wrote an investment memorandum recommending that GERS “do not invest” due to competition, repayment ability, and the proposers’ limited experience in retail grocery operation,”

Vialet told the Source he did not think the loan program problem would distract from GERS’s larger problem—looming insolvency.