Editorial | JUTC needs forensic audit

Taxpayers should, perhaps, be grateful that unlike the bosses at the Caribbean Maritime University (CMU) and Petrojam, those at the Jamaica Urban Transit Company (JUTC) weren’t into cruise parties or surprise binges with Hennessy brandy, Burgundy wines, and US$1,000 topsy-turvy cakes. The Petrojam managers, though, might claim that they, at least, ran a profitable enterprise, never mind its inefficiency, monopoly status, and the duty of care they owed to the owners of the business.

At the JUTC, there is no question of extra cash earned by the company swishing around. This fiscal year, before the onset of the COVID-19 pandemic, which threw Jamaica’s economy into turmoil, the state-owned bus company was projected to lose J$5.8 billion even after taxpayers had given it J$5.3 billion in subsidies. Last year, the company claimed a profit of J$2.2 billion, but that, too, was after it tapped the Treasury for J$6.6 billion. And so it has been for several years.

That is why the auditor general’s performance audit of the JUTC, tabled in Parliament last week, makes such depressing reading. Reasonable people will be forgiven if they believe that what is revealed in it transcends managerial incompetence to something resembling political plunder. What makes this particularly galling is that the current crop at the bus company went in four years ago pledging to clean up the nastiness left by their predecessors.

Undoubtedly, there was a mess to be rid of. For, over the two decades of its existence, it was widely understood, even if the evidence was anecdotal, that the JUTC was an enterprise where governing party politicians readily found employment for supporters, through whom money dribbled from the company. During the five-year period, 2014-15 to 2018-19, covered by the auditor general’s review, the JUTC hired more than 500 staff for positions that weren’t approved by the Ministry of Finance and the Public Service at a cost of J$1.1 billion. “Notwithstanding, we saw no evidence that the JUTC leveraged the unapproved excess capacity to reap operational gains, especially in key positions,” the report says. Indeed, while the company had more staff than established positions, and an employee-to-bus ratio higher than its managers set out in their strategic plans, the JUTC had an overtime bill for the period of J$1.74 billion, or 72 per cent above budget. In some cases – especially among bus drivers and mechanics – employees’ overtime earnings ranged from 72 per cent to 182 per cent of their annual incomes.

“Moreover, some employees’ names reoccurred over the period (an analysis of 2017-18 and 2018-19), which suggested a reliance on overtime by these employees,” the report notes.

POLICY BREACHES

With echoes of the Petrojam scandal, there are, at the JUTC, cases of the people hired for various positions, including at the top of the organisation, without the required qualifications and in breach of policy that posts be advertised. Some of these staff, who were recruited outside of policy, received accelerated promotions, at substantially higher salaries, even after doing badly on their performance appraisals.

Then there is the seeming social-welfare approach the company took to voluntary separations in the absence of a clear policy on how to handle these issues. Between March of 2018 and May 2019, the JUTC granted 62 employees voluntary separations, giving them compensation on the basis of the redundancy law. That cost the company J$52 million.

Managers defended their action as a need to reduce staff. Yet, noted the auditor general: “Notwithstanding, management continued to employ persons on temporary contracts and in positions that were unapproved, resulting in an increase in JUTC staff complement, with an additional 48 staff employed in August 2019.”

These, of themselves, would be egregious management failures. They are, however, violently exacerbated by other far more expensive deficiencies and misadventures identified by the auditor general.

For instance, the unsuitability for Jamaica’s environment of some of the buses purchased by the JUTC has long been a matter of political contention and promises by competing sides to do better. Yet, the auditor general found an absence of rigorous, documented evaluation of buses the company intended to purchase for its routes. The report highlights the case of an expenditure in 2016 of US$4.6 million on 35 buses from a Chinese company. The following year, these buses, with a supposed lifespan of 15 years, were all grounded for repairs to their steering system. By early 2019, the JUTC was telling its parent ministry that they were unsuitable for the hilly terrain for which they had been acquired and would soon have to be replaced.

Further, it seems illogical, too, as the auditor general pointed out, that despite plans, in the acquisition arrangements, for training its own mechanical staff, the JUTC paid the local dealer of the buses nearly J$100 million for the servicing of buses. Notable also is the fact that the JUTC spent an extra US$581,000, above the initial contract price for the buses, for “supplementary features” recommended by the dealer.

LARGEST EXPENDITURE

Fuel purchase is the JUTC’s largest expenditure. In 2018-19, it spent J$2.5 billion on this item but over which it had little accountability, compounded by a marked failure to move aggressively to fix a long-disrepaired electronic system for monitoring its fuel inventory. Neither was the company apparently intent on scouting the market for the best price. “... Regarding its procurement of fuel, we found that JUTC consistently utilised the direct-contracting methodology, which offered the least assurance that value for money was obtained and did not facilitate an environment of assured transparency, competition, and fairness in the procurement process,” the report notes.

Nearly as bad is the JUTC’s broken inventory system, which, as the auditor general discovered, made it difficult, and sometimes impossible, to account for hundreds of millions of dollars of spare parts and other inventories.

The circumstances, based on the auditor general’s findings, demand a forensic audit of the JUTC, which would require the current directors and senior management, including board chairman Russell Hadeed and CEO Paul Abrahams, stepping aside to give the auditors free rein to do their work.