By Elias Hazou
Rampant waste and dealings highly suggestive of corrupt practices are the highlights of the state’s report card for 2014.
In his annual report, which he presented to the President on Monday, Auditor-general Odysseas Michaelides draws attention tax-cheat lawyers and doctors, ‘creative’ local council bookkeeping and profiteering on the sale and transfer of Turkish Cypriot properties.
Tax evasion, and the state’s inability to effectively crack down on laggards, is a consistent theme of the Auditor-general’s reports down the years. For 2014, Michaelides hones in on people in the medical and legal professions.
A number of doctors and lawyers did not submit tax returns for one or more years, with the Tax Department not imposing levies in breach of the relevant legislation.
A doctor practising in the Nicosia district declared an income of €358,533 from 2006 to 2009. In the same period, it was discovered that the doctor’ spent €652,059 on purchasing and restoring a house. Although the Tax Department possessed this data, it did not request the doctor to submit a statement of assets.
In another case, a Nicosia lawyer did not file tax returns for the years 2007 to 2010. In 2009, this person registered in his name, following purchase, an immovable property worth €800,000.
Local communities and their bookkeeping shenanigans are again extensively scrutinized.
“The financial statements compiled by several community councils are rife with errors and omissions, which in most cases hamper their audit and in several cases make an audit unfeasible,” the Auditor-general notes.
“In addition, there are surpluses or deficits which the municipal councils are unable to account for.”
In 2014 and 2015, the Auditor-general’s office notified the Attorney-general of its audit of six community councils where “serious irregularities and actions were identified, which may constitute criminal offences.”
Two of these were in Larnaca, two in Nicosia, one in Limassol and another in Paphos.
In one instance, a restaurant was leased for a number of years to a council member, without going to tender.
In another, a contract was awarded to the son of a community leader with non-transparent procedures. The son did not issue tax invoices.
And payments were made to members of community councils for executing various projects, while materials and equipment parts were purchased from shops or companies belonging to council members or their relatives.
The state’s financial watchdog also found a number of cases where transactions – authorised by the minister of the interior, in his capacity as the Guardian of Turkish Cypriot properties – pointed to profiteering.
According to a 2006 cabinet decision, only Turkish Cypriot properties worth under €200,000 can be sold. This applied to properties whose owners emigrated and settled abroad before the Turkish invasion in 1974.
The Guardian’s consent to these transfers was to be granted only in “exceptional cases”, and the main criterion was that a transfer would be done “in good faith” and provided that a property was not extensive in surface area and monetary value.
But the Auditor-general spotted several instances where sales appeared to lack the good-faith element, in that the price at which a property was sold was substantially lower than the going market value, with the Greek Cypriot buyers subsequently re-selling the property at a far higher price.
In one example, in June 2008 a Turkish Cypriot land tract of 9,430 square meters in Ayia Paraskevi, Lakatamia, was bought by a company for €478,408, whereas its market value was estimated at just over €1.19 million.
In 2012, the land in question was separated into 11 plots, of which five have been sold to private persons for €980,000 (market price: €1.093 million). The other six plots have a combined market value of €1.165 million, in 2013 prices.
The Auditor-general also takes a keen interest in the circumstances leading up to the 2013 financial meltdown, precipitated by the implosion of Laiki Bank.
From September 2011 to March 2013, the bank received some €9.8 billion in Emergency Liquidity Assistance (ELA) to keep it afloat. The emergency cash was approved by the Central Bank of Cyprus after consulting with the European Central Bank.
In total, the Central Bank made 70 ELA requests on behalf of Laiki.
ELA is granted to solvent banks facing temporary liquidity problems. But as the Auditor-general points out, Laiki was receiving ELA for 18 consecutive months, which casts doubt on whether this was a temporary cash-flow issue and, by extension, whether the bank was in fact solvent.
Given the above, the Auditor-general’s office said it is assessing whether the absence of a feasible plan – for example an orderly resolution of the bank – ending Laiki’s reliance on emergency funds “contributed to the ELA rising to levels unacceptable to the Cypriot economy, as well as to what extent this impacted Cyprus’ bargaining position with the troika.”