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Audit Shows Port Authority Lax in Lease Enforcement

March 23, 2005 – V.I. Inspector Gen. Steven van Beverhoudt released an audit this week concluding that the office of Lease Management at the Virgin Islands Port Authority needs to tighten up on its leased properties when it comes to collecting rents and subleasing.
The audit covers outstanding accounts through Oct. 10, 2003.
When VIPA updated its collections procedures in 2000, it included a four-day grace period before an account becomes past due. After that, a five step process was implemented, beginning with a phone call to the tenant after 10 days, a call to the tenant's financial officer after 30 days, certified demand letter after 45 days, notices to quit at 60 days and legal action and denial of the use of the property at 90 days. There was also to be a 1.5 percent interest fee tacked onto delinquent bills.
The report finds the collection procedures were inconsistent, and enforcement actions taken were not always effective in providing long-term solutions for chronic delinquent tenants. Some tenants were allowed to occupy space for as long as 40 months without paying rent. Also, the 1.5 percent late fee was not enforced, and subleasing activities were done with no documentation to the Port Authority.
Van Beverhoudt cited:
– As of Oct. 10, 2003, 355 accounts with outstanding balances of $4.4 million, $2.5 million were delinquent for more than 30 days.
– Tenants were regularly late in making rental payments.
– At least $99,495 in interest on late payments was not collected.
– Some tenants violated subleasing agreements by not occupying any of the leased space, but rather became landlords and collected yearly incomes from Port Authority's properties.
In his recommendations to VIPA, van Beverhoudt said Darlin Brin, executive director, should have Property Management:
– Ensure that procedures as established in the Manual for collection and outstanding accounts are adhered to. Document all steps in the collections department as required.
– Assess and collect interest for late payments in accordance with the Manual and lease provisions.
In a memo addressed to Brin, Kenn Hobson, director of Property Management wrote that the assessment of a 1.5 percent interest rate to overdue accounts was discontinued in the early 1990s because "tenants disputed the application of the finance charges."
"The manual was revised after that," said van Beverhoudt in a telephone interview. "You can't just decide on your own that you're not going to charge interest when it's written in every document you have."
Brin responded to the audit report by saying three steps would be taken in addressing delinquent accounts.
First was the appointment of a collections specialist and assistant. Second was to schedule weekly reviews to ensure compliance with VIPA's Property Manual and lease agreements. Finally, bi-weekly reports from the collections specialist and internal auditor about the collection of accounts and the enforcement of lease provisions. Monthly progress reports will also be submitted to the board.
In the matter of subleasing, the audit recommended VIPA perform regular inspections of rental properties to make sure tenants are adhering to their lease agreements.
Second, files for tenants who sublease should contain copies of the sublease including the amount.
Van Beverhoudt concluded "with the increased staff, reporting requirements and oversight as directed by the executive director, we will consider the recommendations resolved."
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