By Ariana Gordon

THE Forensic Audit into the operations of the Guyana Energy Agency (GEA) has recommended that Chief Executive Officer (CEO) of the agency Dr Mahender Sharma be disciplined.

The audit was conducted by Nigel Hinds Financial Services. According to the report published by the Ministry of Finance on its website, “Strong disciplinary action should be taken against Sharma, CEO, for lax oversight of the fuel-marking system and ensuing fuel-smuggling, his role in unlegislated and unauthorised polygraph testing of GEA employees from the Fuel Marking Services Division that resulted in the services of over 30 employees being terminated.”

In the Audit Report, it was noted that there were several deficiencies in the Fuel Marking Division and those deficiencies are as a result of “a weak internal control system.” It was noted that there are three persons responsible for the ordering, storing, dispensing and reconciling fuel-marking concentrates.

Revenue generated from fuel-marking services have averaged GY$335,853,784 per year for the periods 2011 to 2014, but there is a lack of proper validation of fuel marking reports, prepared and issued by terminal staff of oil companies to the Marking Services Division (MSD) of the GEA for bulk fuel marked.

The fuel-marking reports are used to determine the quantity of fuel marked, so that fees can be calculated. Based on investigations by the auditor, it was discovered that the reports were “not independently validated by the MSD) staff or by any officer of the vessel that delivered the fuel to the terminal.

“Prior to 2015 there is no documentation that Fuel Marking Services Division requested the Association of Trawlers and Seafood Operators, to provide approved Guyana Revenue Authority (GRA) Custom forms, before duty-free markers are dispensed from GEA stores to mark the fuel.”

It was discovered that the Guyana Association of Trawler Owners and Seafood Operators only made a verbal request instead of a notification to GRA and GEA at least 20 hours before the estimated time of arrival of the authorised importing vessel in the years preceding 2015.

The provision of notification to both the GRA and the GEA allowed for the timely dispatch of fuel-marking inspectors to mark the imported fuel, however, since this was not done, the ability of the GEA management to provide proper monitoring and accounting procedures to comply with the agreement between the GEA and the Trawlers Association has been compromised.

“GEA was unable to provide evidence of a software licence for the Peachtree accounting software it is currently using to maintain its financial records. The unlicensed usage of this accounting application should be discontinued,” said Nigel Hinds Financial Services.

The auditor has also recommended that the invoicing process of the licensing division be computerised in such a way that it is integrated with the accounting system of GEA.

“The integration will allow for improved recognition of revenue, accounting of receivables and the monitoring of licence holders,” the audit report stated.

According to the report, GEA manually prepares and issues invoices for wholesale, retail, import, export, bulk transportation carriers, and storage licences. The annual revenues generated from licensing fees averaged $25 Million for the years 2011 to 2014, amounting to over half of GEA’s income, when fuel-marking fees are not considered.

Additionally, the generating and issuing of invoices for licensing fees are not integrated in the agency’s accounting system. “This undermines the accounting department’s ability to effectively and efficiently monitor the financial transactions pertaining to revenue generated from licensing fees.”

It was discovered that the issuing of invoices for licensing fees by the GEA is not standardised or computerised and an invoice is issued only when requested by customers or when management decides to issue same.

“GEA has 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 auditors found.

The Energy Agency has also issued invoices to three of the seven service stations belonging to Two Brothers Corporation and based on the investigation conducted by the auditor, there were no records to support or evidence to show that any of the three service stations were issued retail licences during the period under review.

Additionally, the period identified between invoice date and payment due date for purchases of fuel from Petroleum of Venezuela is between 20 to 30 days. However, just before the May 2015 General Elections, it was discovered that invoices were issued to oil companies in April and May “demanding immediate settlement for fuel loaded on the vessels. The monies received were for deposit in the Petro Caribe Fund.”

The auditor has therefore recommended that all GEA invoicing should be a component of the financial accounting system and noted 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.

POLYGRAPH TESTING
Recommendations have been made for the use of polygraph testing on employees of the GEA to be discontinued until Guyana has enacted the applicable legislation to govern polygraph testing.

“Guyana does not have an act of parliament for polygraph testing. In countries where there are laws for polygraph testing, government employees are generally protected from lie detector tests by civil service rules. In the absence of laws for guiding polygraph testing in Guyana, such tests can be deemed as illegal when carried out by a government agency without an act of parliament.”

It was noted in the audit report that in developed countries where polygraph testing is done according to the law there must be a provable, reasonable suspicion that an employee was involved in the theft or other conduct triggering the polygraph test. “This was not the case for employees tested by GEA,” the audit report stated.

Additionally, the auditor has also recommended that “Immediate action should be taken to compensate employees who were terminated as a result of the Polygraph Testing Programme conducted by the GEA over the period 2009 to 2014.”

According to auditors, the GEA CEO was not authorised by Cabinet or the subject minister, then Prime Minister Samuel Hinds to institute the polygraph testing programme in 2009. The first employee was tested on February 24, 2009.

“Based on our findings, GEA utilised the Polygraph Testing Programme over the period 2009 to 2014. There is no documentary evidence to show the CEO had any governmental authorisation to implement the tests was only seen on a copied document dated January 31, 2014 and signed by then Prime Minister, Mr. Samuel Hinds; this being several years after the first test was carried out on a GEA employee.”

The cost of the polygraph-testing programme was not ascertained by the auditor, but was informed by Dr Sharma that the Government at the time had dealt with the procurement of the programme and its related costs and as such the cost is unavailable.

The forensic audit team requested “documented evidence” from the agency to determine whether the tested employees had signed a consent form to be polygraphed, but those documents were never provided to the auditors.

“GEA did not provide us with original or copies of transcripts for polygraph test results for the period 2010 to 2014, even though our team made several requests to the CEO for the transcripts,” the report stated.

Notwithstanding that, the results and names of those who were terminated and who had resigned were provided. Additionally, the auditor has recommended that the polygraph transcripts for the years 2010 2012 and 2013 that were not available to the auditors should be “obtained and investigated to confirm the veracity of the [results] submitted by GEA.”

“Except for two employees who refused to be polygraphed, we were unable to find any evidence that Prime Minister Samuel Hinds authorised the termination of employees who failed the polygraph test. Our team found that the CEO exercised partiality in dealing with those employees who failed the polygraph test.”

It was discovered that among those who failed the polygraph test, at least five of them were allowed to keep their jobs while others were given the opportunity to resign, while the others were terminated. In the matter of the dismissed employees, the GEA hired the law firm of former Attorney General and Minister of Legal Affairs Anil Nandlall, Mohabir A. Nandlall & Associates on July 19, 2013 as its counsel in response to the litigations filed against the agency the eight employees who were terminated as a result of failing the polygraph test. Though filed, the case remains unresolved.

“The cost of the legal counsel amounted to $2 Million of which $1 Million was paid on signing of the agreement.”

Separate Financial Statements

It has also been recommended that the “practice of having separate financial statements for the Marking Services Division should be discontinued immediately.” According to the auditor, there is no legal basis for having separate financial statements.

“The GEA failed to provide evidence that the agency was authorised to prepare financial statements separately for its Fuel Marking division. However, financial statements for the Fuel Marking Division from its set up in 2003 were always prepared by GEA and audited by the Audit Office separately from the audited Financial Statements of GEA.”

The GEA should have one set of Financial Statements that encompass all five divisions of the entity, it was recommended. Other recommendations made included the need for the GEA Finance Division accounting practices to be in accordance with the International Financial Reporting Standards and the need for full compliance and adherence to the laws and regulations governing the GEA.