A forensic audit says major irregularities were found in GuyOil’s charge system for fuel sales to customers along with abuses of the tendering system and it accused former Managing Director Badrie Persaud of conflict of interest transactions with relatives including a $62m transportation contract with a brother-in-law.
Released yesterday by the Ministry of Finance, the audit by Nigel Hinds Financial Services which covered the period November 1st, 2011 to May 31, 2015 called for the disciplining of Persaud over the non-disclosure of the conflict of interest transactions and for the alleged breaches of the state-owned GuyOil’s procurement policies.
Last month, Persaud was fired by the GuyOil Board after it reviewed the findings of the Hinds audit report. Persaud subsequently charged that his dismissal was political and that he had not been given an opportunity to review the audit report. In July last year, Persaud had been sent on 210 days leave so that the forensic audit of the state-owned company could be completed.
Hinds’ audit said that there was no documented policy for credit purchases for customers, including wholesale, duty free, employees and government agencies.
In addition, there was a breakdown of the internal control systems of credit sales of fuel and lubes by Service Stations, resulting in unapproved credit sales.
“An attempt by Forensic Audit to reconcile a sample of seventy-seven of seven hundred fifty-eight credit customers for the period 01.01-10.15.2015 proved difficult since fifty-four thousand four hundred fifty-eight (54,458) transactions did not reconcile with the approved vehicles in customer files”, the report said.
Contributing to the differences seen were:
* Cashiers entering inadequate information such as excluding the full vehicle registration number on charge bill.
* Delivery to customers by attendants at service stations was done using the Customer’s Purchase Order without checking the Management Memorandum detailing approved vehicle(s) for credit customers.
* Submission of a statement of accounts for payment to the National Sports Commission for vehicles not approved by GuyOil e.g. vehicles- PRR 1219, PRR 9222, PSS 2332, PLL 1734.
Bank guarantees are required as a form of security (based on Board Sub – Finance and Audit Committee meeting dated February 18th 2008). Only 37 were accessible. The audit report said that of the 37 only 24 were active and qualifying for credit purchases based on the review of 758 customers for the period 01.01- 10.15.2015.
“This is a major credit risk and may result in GuyOil being unable to recover monies owed to the company”, the report said.
It said that Persaud breached the Board Sub- Finance and Audit Committee decision dated February 18th 2008 on requirements for a bank guarantee by approving a credit limit of $5,000,000 on 09.17.2013 to Mohamed Fawaaz Bacchus who is the brother-in-law of Leonard Khan – Manager of Guyana Aviation Services Inc (GASI), a subsidiary of GuyOil. Khan signed as his guarantor.
Prepaid Customers were monitored manually in ledgers at respective stations instead of using the company’s accounting system. The risk here, the report said, was that existing prepaid customers may have exhausted their payment and still have fuel delivered without payments being made.
On the question of procurement, the report said that no pre-qualification by public tendering and approval by GuyOil’s board of directors was done nor was it required of local and overseas suppliers for the period under review. Hence it could not be determined whether these suppliers have the requisite resources, technical expertise or experience, the report said.
“The procurement process was poorly managed, which allowed for frequent management override of the process and breach of procurement controls by the Managing Director”, the report declared.
The report found that purchases were frequently singled-sourced from Powercompu, breaching the Tender Board requirements. Powercompu is owned by contractor Manesh Seeram who is also GuyOil’s accounting local solutions provider. Payments to date at 08.07.2015 for Seeram are $90,854,911.
GuyOil also single-sourced Zip Logistics as its freight forwarder in Miami, with Zip Logistics also clearing goods purchased and delivered to the company at varying rates including blanket rates.
GuyOil also single-sourced by instructing P&P Insurance Brokers and Consultants to submit a quote for services. This resulted in Marsh Ltd being paid $13,627,250 for Aviation Liability coverage and Diamond Insurance Company charging $650,000 for fronting fees.
Payments totalling $4,839,000 were also made to Panorama Media Ltd; Panorama was single sourced for a Special Report in the Miami Herald on 05.26.2014 entitled Guyana Panorama “A Land of Opportunities”, the report found.
Fuel Purchases for the period 01/01/2011-06/30/2015 totaling $94,452,242 were made in favour of Deodat Dhanrajh (who also ships fuel for GuyOil) without obtaining three quotes. The report said it was obvious that Dhanrajh enjoyed a special relationship with GuyOil.
The report said that on 05.04.2015, GuyOil purchased from Rubis 238,481 litres for $47,457,719 which was followed by the purchase from Dhanrajh on 05.06.2015 at the same price. “Indicating the staggering and splitting of a full order to facilitate ordering from Mr. Deodat Dhanrajh which could have been sourced possibly at a lower negotiated price based on the volume of purchases from Rubis. GOCL wholesale price in effect at the time was $172.30 effective 03.05.2015 and subsequently changed to $198 on 06.05.2015”, the report stated.
Conflicts of interest
The report said that Persaud awarded transportation contracts of $62 Million over the review period to his brother, Indarjeet Persaud and a construction contract for $860,000 to his nephew, Avinash Persaud.
Aside from the initial sole sourcing of the contract to Indarjeet Persaud, no subsequent contracts were issued between GuyOil and Indarjeet Persaud. However, Indarjeet Persaud continued to provide services to GuyOil beyond the contract period. The report said that Inderjeet Persaud was paid through the holder of his power of attorney Hansrajh Persaud, who is also the brother-in-law of Badrie Persaud.
The report said that Badrie Persaud solicited a quotation from his nephew for GuyOil works at Providence and then approved the works totaling $860,000. The quotations are meant to be sought by the Procurement and Inventory Manager, Mark Adams. The report said that Badrie Persaud also identified the contractual works himself. Two GuyOil employees also told the forensic auditor that the contract was prepared after works were done by the nephew.
The report found that Badrie Persaud was also reviewing a proposal for a gas station at Tuschen, East Bank Essequibo from his brother-in-law, Hansrajh Persaud. The report said that the proposal was recovered from Badrie Persaud’s laptop.
GuyOil’s thirty plus dealers were poorly managed as in many instances ID, TIN, Transport, Lease, Tenancy Agreement, relevant GEA licences and insurance coverage were not stored on dealer files.
Further, Article VI of the GuyOil/Dealer contract was breached to the extent that some dealers were receiving fuel on credit without a bank guarantee or security bond.
There is no documented policy for changes in the fuel prices at GuyOil, the report said, adding that the absence of such a policy requires immediate corrective measures because of the national implication of such a decision.
The report said that profit before taxation was seemingly understated by $340 million in 2011 and $532 million in 2013. It stated that efforts were made to have Hans Manohar, Finance Manager, explain the seeming discrepancy but as at the report date Manohar did not provide a response.
Fuel valued at $31 million was loaned to Guyana Power and Light Inc., Sol Guyana Inc. and Bauxite Company Guyana Inc., without any loan agreement. The loaned fuel was still owed to GuyOil as at May 31, 2015.
The report also queried the outsourcing of engineering services.
It said that the functions of Robert Lynch, Operations Assistant Manager included preparation of engineering cost estimates, designing specifications and monitoring of contracts. “However, Marcel Gaskin & Associates Ltd were paid $77.9 Million during the review period to perform the aforementioned functions; additional in-house personnel could have been hired at a substantially lower cost, if needed”, the report declared.
Another concern for the forensic audit was that the Fixed Asset Unit is manned by one person managing net assets valued at $2.5 Billion. The report said that the under staffing of this unit severely affects the monitoring, verification and tagging required to properly manage the company’s fixed assets.