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Federal Audit: Property and Procurement Squandered $9 million

June 7, 2007 — The Department of Property and Procurement bungled $9 million in taxpayers' money from 2000 to 2005, according to a new federal audit.
As a landlord, the V.I. government's primary property-management agency failed to collect some $3 million rent — letting renters go more than a decade without paying.
As a renter, the Virgin Islands has been less than shrewd, spending $3 million renting land it could have bought for $4.2 million, said the audit from the U.S. Department of the Interior's Office of the Inspector General.
"In effect, both as a landlord and a procurer of private space for government agencies, DP&P has not acted in the best interest of the government of the Virgin Islands," wrote the report's author, Michael P. Colombo, the Department of the Interior's regional audit manager.
The audit reviewed V.I government property-management conduct from 2000 to 2005, a time when the government paid rent on 149 properties and rented out another 129 properties. Auditors reviewed 39 agreements in which the government leased property, and 28 property agreements for land leased out.
The good news was that government records were up-to-date and formal lease-administration procedures had been followed, according to the audit.
The bad news:
"In renting space for government agencies, DP&P spent nearly $6 million that could have been saved or used more wisely," the audit reported. "Deficiencies included leasing privately owned space when suitable government-owned space was available, failing to follow up on opportunities to purchase privately owned space being rented by government agencies and approving leases that exceeded established rental rate limits and included renovation costs for private buildings."
Of 149 properties the territory rents out, 64 percent of rents were delinquent by more than $1.2 million as of Aug. 31, 2005. That's 96 properties not collected on. In many cases, the renters didn't even get a nasty note in the mail.
The territory failed to collect rent from a St. Croix renter for 12 years. The renter ran up $94,700 in back rent before the Department of Property and Procurement sent a letter on Aug. 11, 2005, demanding payment. Suddenly facing nearly $100,000 in debt, the renter filed bankruptcy, the audit said.
"DP&P also failed to collect nearly $1.9 million in additional rental income and related fees because it did not monitor or bill for tenant sublease activity, use correct rental receivable calculations when entering into payment agreements, implement rental rate increases stipulated by lease agreements, and accurately assess or record late fees," the report said.
The territory failed to collect more than $1 million in sublease fees, more than $309,000 in agreed-on rent increases and somehow made $344,384 in "incorrect calculations," the audit said.
"We conducted physical inspections of 10 tenants leasing space in the Crown Bay area of St. Thomas, where DP&P is located, and found that five tenants were subleasing," the report said. "We identified $1,006,106 in outstanding sublease fees, with three tenants responsible for the majority of this amount."
Other leases had expired, but new agreements — with market value-increased rates — were not drawn up. Of 39 leases reviewed, auditors found 23 leases were more than a year expired. One had been expired for 23 years.
And when tenets were behind in their rent, the Department of Property and Procurement lied on their behalf to other government agencies, saying they were in good standing.
The government let 23 other properties fall into disrepair — seven on St. Thomas and 16 on St. Croix.
The Department of Public Works was supposed to estimate costs for repair for the buildings in 2000 — seven years ago — but as of 2005 hadn't gotten around to it. As a result, the buildings owned by the people of the Virgin Islands are homes for squatters, targets for vandals and are slowly succumbing to the elements.
Responding to the audit, Lt. Gov. Gregory Francis said the government recognizes the deficiencies in Property and Procurement and has started aggressively collecting back rents, evicting non-responsive debtors and generally trying to turn things around.
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