A forensic audit has recommended “strong disciplinary action” against Chief Executive Officer (CEO) of the Guyana Energy Agency (GEA) Dr Mahender Sharma for alleged lax oversight of the fuel marking system which targets smuggling.
This is one of the key recommendations of the audit by Nigel Hinds Financial Services for the period November 1, 2011 to May 31, 2015.
The audit report which has been posted on the Ministry of Finance’s website also called for an end to polygraph testing until there is a legislative framework for it. One of a number of audits commissioned by the APNU+AFC government, the report also urged compensation for the over 30 employees who were dismissed as a result of the lie detecting programme between 2009 to 2014.
In its discussion of the areas from which it drew its conclusion that there had been lax oversight of fuel marking, the report said that Narissa Samuels, Senior Marking Officer and George Jaundoo, Head of the Marking Section are responsible for the receipt, custody, distributing and reconciling of the fuel marker concentrates “thereby undermining the effectiveness of (the) internal control system for the Fuel Marking Services Division.”
The report said its concern of an apparent compromise in the internal control procedures for the management of the Fuel Marking Concentrate was shared by Internal Auditor, Valmiki Ramtahal, in his reports for the periods January 14, 2012, April 15, 2012, July 10, 2012, September 10, 2012 and January 22, 2014.
In the internal audit reports for the abovementioned periods, Ramtahal repeatedly alluded to the fact that the duties of both Jaundoo and Khushi Narine, an employee of the fuel marking company, Authentix are “without the necessary checks and balances in overseeing the Fuel Markers”.
With one millilitre of fuel marking concentrate to two hundred litres (200L) of fuel and fuel marking services accounting for an average of $335,853,784 per year for the periods 2011 to 2014 or at least 80% of GEA revenue, the forensic audit report said it is very important that the inventory management of fuel concentrate has proper security, checks and balances.
The forensic report said that the GEA Internal Auditor noted in his report that the cumulative loss in the quantity of marker concentrates as a result of spillage could be “significant in total.”
“Nevertheless, when our team enquired about whether there were any records to account for the spillage of fuel marker concentrates, Mr. Jaundoo said that the amount relating to spillage incidents is insignificant. No records of spillage are kept by the Fuel Marking Services Division”, the forensic audit report said.
It noted that the agreement with Authentix for fuel marking said that it would be responsible for the employment of both a full-time operations auditor and a part time liaison officer. However, Narine is the only employee of Authentix here in Guyana.
“We have noted a lack of integration between the inventory records for the marker concentrate and the accounting system. Furthermore, the finance division has no involvement in the reconciliation of fuel marking concentrate inventory”, the forensic audit report said.
Another concern revolved around having a GEA staffer fill in for Narine rather than another Authentix representative.
Inventory reconciliation
The forensic audit report also found that inventory reconciliation of all the stock of GEA is not done on a regular basis.
“Our investigations revealed that the physical verification of inventory items of the GEA is done every six months. It is a concern, as to why physical counts of inventory are done so infrequently. The longer the time period between inventory reconciliation dates, the more difficult is the task of successfully investigating any discrepancies found between the inventory control records and the amount accounted for by a physical count”, the report stated.
The audit found that the out-turn reports for fuel marking are the primary source document for determining how much fuel has been marked and how much to charge oil companies for fuel marking. However, the documents are not independently validated by GEA.
“Random samples revealed that out-turn documents only has the name of the terminal managers who issues the documents without any signature. Also no verification signature from the marking officers or a representative of the vessel from which the fuel was obtained. This makes it difficult to corroborate claims of volumes marked at the terminals.
“A terminal manager who wants to reduce the marking fees for a particular order of fuel imported can easily manipulate the numbers included on the out-turn report. GEA accounting department would be unaware of the manipulation since there are no independent source documents to verify the terminal manager’s claim”, the audit report declared.
Invoices for the Licensing Division are manually prepared and issued by the licensing division. The audit report said that this information is not recorded by the finance division until it is manually entered into the accounting system.
Further, invoice licences are only issued when customers request an invoice or when division management chooses to issue an invoice; instead of the invoice being system generated.
It was also discovered by the forensic auditors that when lump sums are paid for licensing fees for retroactive periods, the current period, and ensuing periods; the information regarding the applicable periods is left out from source documents that are sent to the finance division for inputting into the accounting system. There is therefore no proper system to account for lump sum licence fees, the report said.
As of December 23, 2014, it added that licence-holders are permitted to receive licences for multiple years to avoid making annual renewals.
“The main contributing factor to this type of accounting error is the fact that the issuance of invoices by the licensing division is not integrated with the accounting system. Moreover, the issuance of invoices manually can allow invoices to be issued unknown to the finance department, which can in turn allow officers who issue an invoice to divert payments made to the agency”, the report said.
The audit report cited several examples of lax controls.
It said that based on the Guyana’s Association of Trawler Owners and Seafood Processors’ (GATOSP) contract with the GOG represented by GEA, GATOSP is required to submit documents to GEA of the estimated time of vessel arrival, name of vessel owner, name of vessel and the amount of fuel imported within twenty-four hours of arrival at the agreed designation point as per Agreement.
“However, our investigations found that prior to August 17, 2015, there were several instances where documents were not provided in compliance with the agreement.
“The agreement requires that all trawlers must be calibrated. For the review period there is no documented evidence that GEA had done any calibration of fuel as required by the agreement”, the audit report said.
Among other anomalies, the forensic audit report said that the GEA issued licences to China Zhonghao Inc. Re: Import licence with issue date January 20, 2015 and expiry date January 19, 2035; Export licence with issue date January 20, 2015 and expiry date January 19, 2025.
“The basis for the issue of export fuel could not be determined by our team. In addition, the renewal of the Fuel Import licence occurred in January of 2015, nine months before the expiry of China Zhonghao Inc. previous import licence”, the report said.
The report also said that GEA has issued invoices for licence fees to three of the seven service stations belonging to Two Brothers Corp. However, based on its examination of GEA records, the forensic audit report said that there was no evidence that any of the three service stations were issued retail licences for the period under review.
“Thus, none of Two Brothers Corp. service stations were operating with retail licences for the review period”, the report stated.
Recommendations
Among its other recommendations, the forensic audit report said that polygraph transcripts of employees for the years 2010, 2012, and 2013 should be obtained and investigated to confirm the veracity of the ones submitted by GEA.
It also advised that the invoicing process of the Licensing division be computerised in such a way that it is integrated with the accounting system of the GEA.
It further said that customers should not have the option of determining whether they want an invoice or otherwise; instead invoices should be issued to all customers as a standard policy.
Monthly, bi-annually and yearly audit summary reports should be prepared by the Internal Auditor for presentation to the Board or relevant Sub-Committee, the report stated.
Risk assessments should also be done on areas prone to error and fraud, with a focus on segregation of duties to prevent and detect errors and fraud. The forensic audit report said that this is clearly needed in the receipt, storage, distribution and reconciliation of fuel marking concentrates.
The practice of producing separate financial statements for the Marking Services Division should be stopped immediately, the forensic report added.
For years, the GEA has been plagued by allegations of widespread smuggling of fuel despite its fuel marking programme.
