GPHC CEO flouts tax and procurement regulations – audit finds

Aug 17, 2016 News

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—resolution expected this week

Between the period January 1, 2012 and May 31, 2015, there were numerous infractions at the

Georgetown Public Hospital Corporation (GPHC) involving its Chief Executive Officer, Mr. Michael Khan.
In fact, according to the findings of a forensic audit conducted by the Chartered Accountants of Ram and McRae under the purview of the Ministry of Finance, Khan deliberately flouted the law not only when he refused to pay taxes on income earned, but when he condoned questionable procurement practices at the institution.
Khan was sent on administrative leave last year to facilitate the audit which had a primary focus on scrutinising the financial operations and functioning of the hospital. The administration leave was in fact, vacation leave accrued by Khan over a period of time.
The Board of Directors of the hospital, headed by Dr. Carl ‘Max’ Hanoman, has since issued a letter to Khan to resume duties against the backdrop that Khan, based on the audit, was not found guilty of any wrongdoing. Minister of Public Health, Dr. George Norton, has shared an opposing view that “when one, even at a glance, evaluates the (audit) report, there is so much evidence (against Khan), enough for him to be deprived of further employment (at the GPHC).”
CLEARED OF WRONGDOING
But the only time the report noted that Khan was cleared of wrongdoing, is when the auditors made reference to an unsigned nine-page paper which was sharply critical of the CEO and strongly suggested criminal intent on his part.
The auditors, however, note that “unfortunately, we never had the opportunity to meet with the writer or to communicate with him/her to obtain any evidence to support the allegations. To the extent that we could check the allegations, we found no evidence of wrongdoing on Mr Khan’s part or support for some of the assertions.”
Added to this, the auditors said that “we have decided against reproducing the paper to avoid any accusation of defamatory conduct by any person.”
However, it was noted that the paper did contain a number of recommendations that were quite useful which support many detailed in the report. These include a complete overhaul of the statutory form of the Corporation, establishment of an array of policy and procedures for all functions and departments, and the computerisation of the Finance Department and Materials Management.
RESOLUTION THIS WEEK
But the verdict is still out as to whether Khan will be eligible to retain his position following consideration of the audit report. Minister of State Joseph Harmon at last week’s post-Cabinet press briefing said that “among the issues raised in the report were the relationships between the subject Minister (Dr. George Norton) and the Board of Directors of the Corporation.”
He noted that the decision of the Board of Directors to reinstate the CEO of the hospital has gained the attention of Cabinet. And Harmon disclosed that “Cabinet, having deliberated on the matter, appointed the Attorney General and Legal Affairs Minister (Basil Williams) as mediator to inquire in all the issues raised in the report.”
Williams is also tasked with making recommendations to Cabinet which will allow for a resolution within one week, Harmon said. It is expected that that resolution will be forthcoming this week.
However, certain aspects of the report – which has been seen by this publication – could have very damning implications for Khan.
According to the report, Khan was first employed at the GPHC in the capacity of CEO on March 1, 2000. His most recent contract of employment with the hospital was from August 1, 2014 for a fixed period of three years with a monthly salary of $869,946 which is subject to salary increases given to public servants. As CEO, he is also eligible for other benefits including 42 days’ vacation leave per year, bi-annual gratuities of 22.5 per cent of his basic salary, subsidised housing, provision of vehicle, fuel and the entire maintenance cost of the vehicle and telephone and internet service.
TAX DEFAULTER
But at a meeting of the Board of Directors, consideration was given to a request by Khan to be paid an allowance of $200,000 per month for managing the department of Administrative Services after the transfer of Mr Leslie Cadogan to the New Amsterdam Hospital.
However, approval was granted for Khan to be paid a responsibility allowance of $100,000 per month with effect from January 1, 2011. Payment in this regard ended in September 2014 bringing the total amount paid to $4,400,000 thus attracting taxes of approximately $1,413,240.
According to the auditors, such a payment falls within the definition of the gains or profits from employment, and is therefore taxable under the Income Tax Act on the Pay as You Earn (PAYE) basis.
However, Khan, in a handwritten memo, instructed the Director of Financial and General Services that his allowance be paid tax-free.
The auditors noted that Khan must have been aware that the Board made no decision on the tax implications of the payment to him of a responsibility allowance; that the payment by law is subject to PAYE, and that tax is deducted from responsibility allowances paid to other members of staff of the Corporation.
Added to this, the auditors took into consideration that according to Public Service Rules, responsibility allowances should be paid for performing higher duties than those attached to the employee’s current position whereas “a public servant who is required to perform additional work temporarily attached to the position which he or she holds may, with the approval of the Permanent Secretary, Public Service Ministry, be paid duty allowance.”
Moreover, the auditors have noted that “we consider this action by the CEO as a serious breach of law and an abuse of his authority warranting some sanction by the Board of the Corporation.”
QUESTIONABLE PROCUREMENT
According to the report too under Khan’s purview, “the Georgetown Public Hospital Corporation, in many instances, failed to follow the procurement guidelines outlined in the Procurement Act, as well as their own policy on the tendering limits.”
A report of the findings noted that “it is also not clear whether the full National Procurement and Tender Administration Board (NPTAB) sanctioned the contract awards.”
Based on the findings of the audit, the hospital did multiple transactions with a named individual identified as a sole trader whose business (name withheld) was registered with the Deeds Registry on December 17, 2014. According to the findings, the purchases from the entity in question grew significantly from 2012.
While in 2012 the value of purchases amounted to $97,729,410 by 2014, the purchase value mounted to $329,815,110. In fact, between 2012 and the middle of last year, drug purchases from this entity were $852,792,423.
But what was particularly troubling about the GPHC’s relationship with this particular entity is that, it was not authorised to supply prescription drugs. According to the audit report “we were informed by letter dated September 14, 2015 from the Food and Drug Department that (the entity in question) does not have an import permit for prescription drugs nor has ever been issued with a marketing authorisation for prescription items supplied to the GPHC.”
The findings also revealed that quotations reviewed for the same company reflected that the bidder failed to provide expiry dates for the supply of drugs or medical items.
The audit has revealed a number of issues not only with the awarding of contracts, but also with the management of the hospital and lack of internal controls and maintenance of adequate financial systems. There were clear instances where procurement regulations were flouted by the CEO himself.
An instance highlighted by the report was where the CEO permitted sole sourcing without any adequate justification. It was outlined that a quotation for a specialised laser was directly sourced by Khan, who, in his letter to NPTAB, noted that GPHC previously had two Alcon lasers that were donated by the Chinese doctors that are no longer in working condition.
He further noted that justification for sole-sourcing was a memo from Dr. Shailendra Sugrim. But the auditors observed that the memo was dated after the CEO had already sought and received the quote. Permission for the purchase was granted three days later by Chairman of NPTAB. The laser was procured at a cost of $9,901,500.
But according to the policy under which the GPHC operates, sole sourcing is only allowed when purchases are $1 to $150,000. Should the cost exceed $150,000 and is up to $300,000, three or more quotations are required. If the cost exceeds $300,000 and is up to $6M it must gain the attention of the hospital’ Tender Board. A cost exceeding $6M but up to $15M must gain the attention of NPTAB, while costs of $15M and more must be approved by Cabinet.

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