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GRA-SML deal: No technical needs assessment was done prior to engaging SML but… – KPMG report

The report issued by accounting and auditing firm, KPMG on the agreement between the Ghana Revenue Authority (GRA) and the Strategic Mobilization Limited (SML) has revealed that no technical needs assessment was done prior to the engagement of SML.

However, the report said, such an assessment was not legally required for engaging SML.

In a statement released by the Presidency on Wednesday, April 24, portions of the KPMG report were captured stating that “No technical 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 & 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. 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 services offered by SML and signed a downstream
petroleum audit agreement with SML.

“All these were done without PPA approval. Following a change of leadership at GRA, the new leadership sought to regularise the contracts with SML and on 27th August, 2020, PPA ratified the procurement processes used to engage SML. In 2023, the Ministry of Finance (MoF), GRA, and SML entered into a Revenue Assurance Services Contract (“2023 Contract”). The 2023 Contract extended the scope of SML’s services to include upstream petroleum and minerals audit. PPA 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. Under section 33 of the Public Financial Management Act, 2016 (Act 921) (“PFMA”), such contracts must have ministerial and parliamentary approval. KPMG also found that there was no evidence that the 2018 and 2019 contracts (transaction audit services, external price verification, and downstream petroleum audits) were submitted to the GRA Board for discussion and approval contrary to the GRA Act, Corporate Governance Manual for Governing Boards/Councils of the Public Services, and sound and accepted corporate governance practices. The GRA Board approved the extension of SML’s services to cover the auditing of the upstream petroleum and minerals sectors, as specified in the 2023 Contract.

“Regarding the transaction audit services, KPMG concluded that SML partially delivered on
the service requirements. However, given the observations made during the investigations, GRA may not have obtained all the expected benefits from the service. This is also partly due to GRA’s lack of instituting monitoring and evaluation processes to
assess the performance of the service and hold its personnel and SML accountable for
non-performance.

“Regarding the external price verification services, KPMG concluded that SML delivered
partially on the service requirements and that, given the observations made during the
investigations, GRA may not have obtained all the expected benefits from the service. It
was noted that ICUMS has inbuilt capabilities of external price verification among other
functions. Regarding the downstream petroleum audit services, KPMG determined that there was an incremental volume of 1.7 billion litres and an incremental tax revenue of GHS 2.45 billion for the period under review.

“There were also qualitative benefits, including a 24/7 electronic real-time monitoring of the outflow and partial monitoring of inflows of petroleum products at depots where SML had installed flowmeters. This serves as a deterrent for under-declarations. Other qualitative benefits include six levels of reconciliation done by SML to prevent revenue losses to GRA and the sharing of discrepancy reports with GRA to follow up.

“SML had yet to implement the upstream petroleum audit and minerals audit services, and therefore, there could be no assessment as to whether GRA would derive value or benefit from that service. KPMG noted, however, that those are areas that could have significant
revenue leakages and, thus, suggested, among other things, that a comprehensive needs
assessment be conducted to establish a need for those services.
The pricing model used in the contracts was based on a variable fee structure. During its
investigation, KPMG noted that such transaction monitoring services are usually priced
using a fixed fee pricing model. The total fees paid under the contracts from 2018 to the date of suspension amount to GH¢1,061,054,778.00. No fee has been paid for the upstream petroleum audit and minerals audit services. The total fees estimated to be paid to SML under the 2023 Contract for five years is GH¢5,173,091,857.00, which averages to about GH¢1 billion per year.”

President Nana Addo Dankwa Akufo-Addo acted on the report presented to him by KPMG on the agreement between the GRA and the SML.

The President has made a number of directives following the reports.

A statement issued by the Presidency on Wednesday, April 24 highlighted the directives saying “The upstream petroleum audit and minerals audit services have not yet been
commenced, and no payments have 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-formoney assessment, and stakeholder engagements before implementing such services.

“The transaction audit and external price verification services may also be terminated.
According to KPMG’s findings, GRA obtained partial value or benefit for those services.
This was also due to a lack of monitoring on the part of GRA to ensure that SML performed
the services as stipulated in the contracts. KPMG’s investigation found that GRA has introduced external price verification tools as part of ICUMS, among its other functions. This renders 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.
There has 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 flowmeters and six
levels of reconciliation done by SML.

This minimises the occurrence of under-declarations. However, it is important to review the contract for downstream petroleum audit services, particularly the fee structure. Given the experience and proficiency of SML over the last four years of providing this service, the President has directed that the fee structure be changed from a variable to a fixed fee structure. Other provisions of the contract worth reviewing include clauses on intellectual property rights, termination, and service delivery expectations.

“SML’s performance in any renegotiated contracts should be monitored and evaluated
periodically to ensure that it meets expectations. Any renegotiated contract should be
compliant with section 33 of the PFMA.”

It added “The Ministry of Finance and the Ghana Revenue Authority are 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. The President has extended his sincere gratitude to KPMG for the thorough nature of the audit conducted.”

President Nana Addo Dankwa Akufo-Addo had appointed accounting and auditing firm, KPMG to audit the contract between the Ghana Revenue Authority (GRA) and the Strategic Mobilisation Ghana Limited (SML).

This matter came uo after a year-long investigation by Evans Aziamor-Mensah, Adwoa Adobea-Owusu and Manasseh Azure Awuni of The Fourth Estate, it was discovered that the company (SML), with the help of a section of Ghana’s media, had made false and unsubstantiated claims of its operations that have served as the basis for the payment it received.

The Fourth Estate asserted that, it appears the Ministry of Finance and the GRA were aware the claims were false, for some officials of the GRA said they had confronted the company about its claims of savings and volumes on two separate occasions.

A few hours after the reporters confronted the management of SML with the findings of the investigation and asked for a response, the major services it claimed to render to the government disappeared from the company’s website.

The investigation also uncovered that at a time players in the downstream petroleum sector were questioning the relevance of SML’s involvement, the Minister of Finance, Ken Ofori Atta, initiated a more outrageous deal that would entitle the company to over $100 million every year for the next 10 years.

3NEWS

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