President Nana Addo Dankwa Akufo-Addo has called for a review of the contract for downstream petroleum audit services, particularly the fee structure, regarding the transactions between the Ghana Revenue Authority (GRA) and Strategic Mobilization Ghana Ltd (SML).
Given the experience and proficiency of SML over the last four years of providing that service, the President directed that the fee structure be changed from a variable to a fixed fee structure.
He asked that other provisions of the contract such as clauses on intellectual property rights, termination, and service delivery expectations also be reviewed.
The directives were given by the President in response to the final report of the audit conducted by KPMG on the GRA/SML transactions.
The President was provided with the final report on Wednesday, March 27, 2024.
A statement issued by the Communications Directorate, Office of the President, noted that the President had acted on the findings and accepted recommendations of KPMG, and had, by a let
ter dated Thursday, April 18, given directives to the Ministry of Finance and the GRA.
Per the directives, the SML’s performance in any renegotiated contracts should be monitored and evaluated periodically to ensure that it met expectations.
Additionally, any renegotiated contract should be compliant with section 33 of the Public Financial Management Act, according to the statement.
The President stated that the upstream petroleum audit and minerals audit services had not yet commenced, and no payments had been made in respect of those services, therefore, they may be terminated.
‘However, given that the upstream petroleum audit and minerals audit services could prevent significant revenue leakages, the President has directed that the Ministry and GRA conduct a comprehensive technical needs assessment, value-for-money assessment, and stakeholder engagements before implementing such services.
‘The transaction audit and external price verification services may also be terminated,’ he noted.
According to t
he KPMG’s findings, GRA obtained partial value or benefit for those services due to lack of monitoring on the part of GRA to ensure that SML performed the services as stipulated in the contracts.
The KPMG’s investigations found that GRA had introduced external price verification tools as part of the Integrated Customs Management System (ICUMS), among its other functions.
That rendered the reliance on SML for external price verification redundant.
‘There is a clear need for the downstream petroleum audit services provided by SML. GRA and the State have benefited from these services since SML commenced providing them,’ the President stated.
Referring to the KPMG’s findings, he affirmed that there had been an increase in volumes of 1.7 billion litres and an increase in tax revenue to the State of GHS 2.45 billion.
KPMG also observed that there were qualitative benefits, including a 24/7 electronic real-time monitoring of outflow and partial monitoring of inflows of petroleum products at depots where SML had
installed flow meters and six levels of reconciliation done by SML.
‘This minimises the occurrence of under-declarations,’ the statement emphasised.
It called on the Ministry of Finance and the GRA to give effect to the above directives of the President immediately and provide the Office of the President with an update on the steps taken.
Following public criticism, the President directed KPMG, an internationally acclaimed Audit, Tax and Advisory Services firm, to conduct an audit regarding the transactions which the two entities entered in 2020.
The contract was meant to enhance revenue assurance in the downstream petroleum sector, the upstream petroleum production and the minerals and metals resources value chain.
KPMG, which was initially given up to January 16, 2024, to complete its work, was granted an extension of its working period, following a request to the President.
The auditors were tasked to conduct an audit to ascertain the rationale or needs assessment performed before the contract approv
al by GRA and assess how the arrangement aligns with specific needs.
They were also to assess the appropriateness of the contracting methodology.
The KPMG’s working mandate was to verify compliance with legal standards and industry best practices in the procurement process for the selection of SML and evaluate the degree of alignment between current activities and the stipulated contract scope, identifying any deviations.
Per its terms of reference, the audit firm was to evaluate the value or benefit that SML had so far offered to the GRA through the engagement.
The President tasked the auditors to review the financial arrangements, including pricing structures, payment terms and resolution of any financial compliance issues and submit a report on its findings, together with appropriate recommendations.
He, therefore, directed the Ministry of Finance and GRA to provide KPMG with whatever assistance it required for conducting the audit.
The KPMG, per its investigations and findings, established that no t
echnical needs assessment was done prior to the engagement of SML.
‘However, such an assessment was not legally required for engaging SML. After SML was engaged, a Chamber of Bulk Oil Distributors’ industry report, a 2021 Ernst and Young audit report commissioned by GRA and a report by the Revenue Assurance and Compliance Enforcement of the Ministry of Finance, all found that there might be underreporting, under-declaration and potential revenue leakages.
‘On three occasions (between June 2017 and September 2017), GRA sought approval from the Public Procurement Authority (‘PPA’) to use the single source procurement method to engage SML to provide transaction audit services. The PPA did not grant approval.
‘Subsequently, GRA engaged SML as a subcontractor to West Blue, which was already providing services to GRA at the port.
‘SML eventually took over the services provided by West Blue when the latter’s contract came to an end on 31st December 2018. GRA then added external price verification to the servic
es offered by SML and signed a downstream petroleum audit agreement with SML.
‘All these were done without PPA approval,’ the KPMG’s findings established.
Following a change of leadership at GRA, the new leadership sought to regularise the contracts with SML and on August 27, 2020, the PPA ratified the procurement processes used to engage SML.
In 2023, the Ministry of Finance (MoF), GRA, and SML entered a Revenue Assurance Services Contract (2023 Contract).
The 2023 Contract extended the scope of SML’s services to include upstream petroleum and minerals audit.
The PPA’s approval was obtained for this contract, which is now the governing agreement for the services offered by SML to GRA.
Another issue raised by KPMG is the absence of parliamentary approval for the contracts, given that they are multi-year contracts.
Source: Ghana News Agency