Integrity Commission speaks on basis on which assets values are stated in summaries of statutory declarations

The Integrity Commission has sought to explain in detail why cost of purchase is used over current value in the summary of the statutory declarations it published recently for Prime Minister Andrew Holness and Opposition Leader Dr Peter Phillips.

Below is the full text of the Commission's statement:
 

The Integrity Commission (IC) is focused mainly on tracking the acquisition of the asset, the change in the number of the asset class and the cost to acquire the said asset.

Objective

To enable an assessment of the asset accumulation of parliamentarians and public officers for the purpose of determining whether assets owned can be explained by verifiable income or other sources.

Process of Verification

Declared property acquisition and other asset holdings at cost as at the date of declaration are examined and analysed to determine increases over previous period(s). Year-on-year increases in assets are assessed against income to determine whether asset growth is supported by declared income or other verifiable source(s).

Use of Cost versus Fair Value

A declarant is required to provide evidence in support of all assets declared. In the case of property acquisition the Commission requires evidence of the source of funds for example, income, investments or mortgage. All gift contribution(s) must be supported by affidavit.

For the purposes of tracking real growth in assets the cost is used because the declarant is required to explain the growth in assets and how the growth (acquisition) was funded. Whereas the market value is necessary to determine net worth, it is not used to determine the real growth in asset. The use of an estimated value would be highly subjective and is not a reflection of the cost and price paid.

For example, if a house is purchased for $12 million in 2001, unless the declarant (in this case, a parliamentarian) invests in home improvements, such as adding a garage or more rooms, then his/her declaration will still be $12 million. However, if he/she improves on the asset (in this example, the house) at a cost of $7 million, what will be declared is the original price of the house, plus the $7-million improvement cost. Therefore the total that would now be declared should be $19 million. The parliamentarian would be asked to provide evidence that can be verified by the Commission for the source of the $7 million he/she spent in addition to the source of funds in respect of all his other investments.

The house could by then be valued at $25 million. Reference to that value would lead to an explanation being required for a difference of $13 million ($7 million that he actually spent plus the increase attributable to a change in the market value of $6 million) which would be grossly misleading.

Some examples of the types of assets that the Commission investigates are, land, houses, motor vehicles, insurance policies, shares, bank accounts etc.

Assets Held by Companies

Where a declarant holds assets beneficially through a wholly owned company, or one that he/she controls, that investment is reflected in the category “Real Estate, Mortgages and Business Investments” as the net asset value (total assets minus liabilities) of the company that is attributable to the declarant, which is entered at Item 6 of the Summary. The Commission requires audited financial statements for the said company.

If for example the declarant holds 80 per cent of the shares of the company, then 80 per cent of the net asset value would be reflected in his summary. If assets in the company are reflected at valuation, the net asset value would be adjusted to eliminate the difference between the cost and valuation.

Where real estate is owned directly by the declarant it is entered on the statutory declaration and also on the summary at Item 4.

Certification of Summary Prior to Publication

The process engaged by the Commission prior to certification of the Summary of Statutory Declaration of Assets, Liabilities and Income involves communicating with the declarant to provide an opportunity to voice any concern. All concerns raised are deliberated on by the Commission and all decisions, supported by the reasons, are communicated to the declarant. Further, the declarant is requested to affix his/her signature indicating that he or she agrees with the summary.