New GPC criticizes Auditor General’s report

-after queries raised about bank guarantees, outstanding deliveries

Pharmaceuticals supplier, the New GPC Inc. has criticized aspects of the 2012 Auditor-General’s report as erroneous and said sloppy word was done by the Audit Office after the report highlighted multi-million deficiencies in the procurement and supply of products from the company.

The New GPC Inc. has been awarded the bulk of contracts worth billions of dollars to supply drugs to the Georgetown Public Hospital Corporation (GPHC) and the Ministry of Health (MOH). Shorter bank guarantees than stipulated under the law and sloth in delivery were among the issues highlighted. The Health Ministry had in 2012,

New GPC’s storage facility at Ruimveldt, Georgetown showing air conditioned systems and loading docks (New GPC photo)
New GPC’s storage facility at Ruimveldt, Georgetown showing air conditioned systems and loading docks (New GPC photo)

expended $2.722 billion for pharmaceuticals and medical supplies of which the New GPC was awarded contracts totaling $1.872 billion.

“The transaction with New GPC Inc. included fifteen contracts valued at $1.642 billion of which freight charges totaled $123.913 million. The contracts were supported by five bank guarantees with an aggregate value of $1.829 billion. The guarantees were required to be valid for one year but each had a validity of only three months and a set expiry pattern in months ending August 2012, January 2013 and April 2013. There were no guarantees in force at the time of the examination, but the contractor was still to deliver goods valued at $164.603M,” the report said.

The report noted that there was no response from the ministry in this regard and it recommended that the Ministry take immediate steps to have the contractor fulfill the obligations.

In a statement responding to some of the report’s findings, the NEW GPC described as completely erroneous, statements contained in the report, especially as it relates to lack of documentation or deliveries. “We believe that this is due to sloppy fieldwork by junior officials in the Office of the Auditor General,” the statement said.

 

Simplistic

 

“The New GPC would like to state that the auditor general’s report, as it concerns the corporation, appears to have been compiled on the basis of simplistic interactions with junior and non-technical personnel within the MoH and GPHC administrations and does not take full cognisance of the nature of the supply chain process for pharmaceuticals and related products and the environment in which we operate. The New GPC is also concerned that there is still the lingering suggestion that the company has somehow not delivered items ordered several years back, when documentation was provided directly to the Office of the Auditor General to clarify this matter,” the company said.

Apart from the Health Ministry, the Auditor General’s report had said that in 2012, the GPHC paid $1.16 billion to the New GPC for drugs and medical supplies. There were two major contracts valued at $1.043 billion, 26 purchase orders at $62 million and 101 miscellaneous orders at $55 million.

An examination of the payments revealed that “the major contracts had an aggregated face value of $1.162 billion of which the GPHC paid $1.043 billion during the year. The Ministry of Health was said to have paid the sum of $117.256M to the contractor on behalf of the Corporation. It could not be determined whether the supplier had satisfied the requirement for bank guarantees with respect to the contracts, since these were not provided for examination. To the time of writing, New GPC Inc. was still to deliver medical supplies valued at $8.278M,” the report said. It added that the payments of $62.416M in relation to the 26 purchase orders represented the aggregate value of the orders. It should be noted that the Corporation failed to solidify the awards in keeping with the requirements of the Procurement Act of 2003, the report said.

The GPHC responded that there were no bank guarantees since payments made to the New GPC Inc. were on a monthly basis and not a one-time payment to reflect the contracted value. Deliveries from these contracts were also made periodically during the year. However, the Audit Office recommended that the Corporation take immediate steps to have the contractor fulfill the obligations under the contracts for the year 2012.

The report also noted that the GPHC had entered into a supplementary contract with the New GPC Inc. for medical supplies valued at $114.590 million. “In this regard, the Ministry of Health settled the Corporation’s’ full obligations under that contract. Prior to finalizing this report, the Corporation provided a bank guarantee with respect to the contract. However, the guarantee had a validity of only three months and had expired on 8 April 2013. At the time of reporting, New GPC Inc. was still to deliver medical supplies valued at $58.583M,” the report said.

The GPHC acknowledged the outstanding balance for supplies and the Audit Office recommended that the ministry take action to ensure that all contracts for supplies meet the standards of the Procurement Act (2003) especially as they relate to the terms and conditions that would indemnify the government from financial loss.

The report also noted that the Ministry of Health had settled on two occasions the GPHC’s obligation under contracts which amounted to $231.846M. “Since the GPHC is the beneficiary of the contract proceeds in both cases, it follows that its Appropriation Accounts should so reflect the expenditure. As this was not the case, it follows that an understatement of the reported expenditure had occurred,” the report said.

 

Improper charge

 

It also flagged this expenditure in its examination of the Health Ministry. “Since the GPHC is the beneficiary of the contract proceeds in both cases, it follows that it is an improper charge to the appropriations of the Ministry of Health. It follows therefore that an overstatement of the reported expenditure had occurred,” the report said.

The Ministry responded that in December 2012 the GPHC needed funds to procure drugs and the Finance Ministry advised the Health Ministry to make the payment since funds were available. The GPHC had no funds available under the appropriate sub-heading or balance to do a virement and a supplementary provision was not possible in December 2012, the ministry said.

Further, the report said that at the time of reporting in September 2013, 38 payment vouchers totaling $15M for 2012 was unavailable for Audit examination. “It should be noted that three vouchers with an aggregate value of $7.311M relates to payments made to the New GPC Inc. for the supply of drugs and medical supplies. In the absence of the payment vouchers for the New GPC Inc. alternative audit procedures had to be adopted to verify receipt of the purchases,” the report said.

The hospital acknowledged the finding and the Audit Office recommended that the GPHC put systems in place to ensure that there is adequate accountability for payment vouchers and supporting documents, so that these could be provided for audit in a timely manner.

Meantime, in its response to the AG Report, the New GPC charged that several points appear to have escaped the auditors from the Office of the Auditor General. “Contracts, particularly the larger orders, sometimes overlap from a consumption point of view into the following financial year and, hence, it is not unusual that some items are not collected by the MOH at the end of the fiscal year,” it said.

 

Staggered

 

The company also stated that national budgets are approved sometime between March and July and hence the quantities being ordered sometimes cater for this overlap. Further, it said, the MOH takes in or receives goods based on their own predetermined consumption pattern and that means deliveries are staggered throughout the year. “Staggering or phased delivery is also important and specifically sought when items carry short shelf life. So, for example, if an item has less than a year’s shelf life, such as diagnostic test kits, it is counterproductive to deliver all of it in one batch unless it can be utilised within that limited timeframe,” the statement said.

The New GPC stated that contracts are signed at different times during the year, and so for those signed in the later months, deliveries are actually intended to roll over into the following year. “Bank guarantees are not meant to be valid for the original sum throughout the life of the contract. As deliveries are made, the risk is obviously decreasing and hence a bank guarantee can be, and is, often renewed for a lesser amount,” it further said.

“And with the added emphasis on bank guarantees these days, the New GPC sometimes has to provide bank guarantees for stocks that were already delivered or are on hand and cannot be taken in due to space and other limitations at the MOH. The NEW GPC has never defaulted on any of its contracts to the MOH and GPHC,” the statement emphasized.

“As a large supplier, there is always some amount of inventory on hand that is pending receipt by MOH personnel. The media often misinterprets and sometimes deliberately misrepresents the auditor general’s statements and the New GPC gets condemnation while the stocks are sitting in the warehouse,” the company asserted. It added that the auditor general seems unaware that the MOH has written to the New GPC in the past to cease or delay deliveries on account of their Diamond warehouse transition.

“On that score, the New GPC is still currently storing a very large volume of items for the MOH and GPHC which have been recorded as delivered based on the previous regime where the New GPC stored pharmaceuticals for them. These should have been removed, and several requests have been made, since the MoH constructed its new warehouse at Diamond,” the company said. It added that it has never received rental for this service. With this in mind, it is again calling on the MOH and GPHC to remove its goods from the corporation warehouses as soon as possible.

The company said that there are many instances when the New GPC gets paid long after delivery. “Curiously, the auditor general’s reports never seems to mention this aspect. There have also been many cases whereby signed contracts are truncated due to lack of funds and the corporation is left holding the stocks,” the company said.

“The New GPC would like to reiterate that, if the Office of the Auditor General has concerns now or in the future, the corporation stands ready to provide whatever documentation or explanation is needed to bring clarity to the matter. And it would appreciate if such clarification could be sought before the annual reports are produced,” the company said.

 

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