The Bermuda Housing Corporation was in violation of the Bermuda Housing Corporation Act last year because it had more than $1 million in unsecured loans on its books, Auditor General Larry Dennis has revealed.

The BHC, which is now at the centre of an investigation over corruption and kickback allegations, provided $1 million in loans to homeowners for renovations without any type of security, Mr. Dennis' audit for the year ending March 31, 2001 said.

"The loans related to leasehold improvements or renovations to vacant and derelict properties that were paid to the Corporation and were expected to be transferred into mortgages or paid out by clients in lump sum payments.

"There were very few signed agreements between the clients and the Corporation and there had been no assessment of potential credit loss on these arrangements. This process of lending money prior to a legally signed mortgage is in contravention of the Bermuda Housing Corporation Act 1980."

The management of the BHC responded in the report that staff who had since left the Corporation had managed the leasehold project that created the unsecured balances.

"Over the past year, the clean up work for these old balances has been extensive and will continue until all such balances are eliminated."

Mr. Dennis also said that a massive increase in the vacant and derelict housing programme resulted in "control failures" over the Corporation's ability to monitor budgets for overruns on individual projects.

He said that resolution needed to be reached on the "lease back" of derelict properties restored by the Corporation

Management of the Corporation defended the introduction of the leaseback programme, saying it was an "expedient way" of bringing derelict properties back into the rental market.

"The accounting treatments are clearly open to be discussed with all relevant parties," the Corporation said.

Mr. Dennis said in an interview that audit report did not cover the recent allegations against the Bermuda Housing Corporation or his in-depth audit of the Corporation this year.

A report of this year's special audit had been provided to the Premier, Health Minister Nelson Bascome and the Director of Public Prosecutions.

But the report has not been made public until a Police investigation has been completed.