NIGEL HINDS FINANCIAL SERVICES
CERTIFIED PUBLIC ACCOUNTANTS
www.nhfinancial.net
Contents Pages
1. Cover Letter 1
2. Acronyms and Abbreviations 2
3. Executive Summary 3-15
3.1 Introduction 16
3.2 Background of Entity 17-21
3.3 Terms of Reference
3.3.1 Background 22
3.3.2 Objectives & Scope of Audit 22-23
3.3.3 Specialized Areas 23-24
3.3.4 Co-operation 24-25
3.3.5 Eligibility 25
3.3.6 Reporting 25-26
3.4 Methodology 26-27
3.5 Limitations 27
4.Findings
4.1 Corporate Governance 28-34
4.2 Fixed Assets Management 35-49
4.3 Revenue Structure 50-51
4.4 Expense Management 52-57
4.5 Capital Expenditure 57-60
4.6 Capital Projects 60-61
4.7 Bank Reconciliation 61-62
4.8 Stores and Fuel Management 63-72
4.9 Procurement System 72-77
4.10 Hope Canal Project 77-80
4.11 Fixed and Mobile Pumps and Spares 80-81
4.12 Fixed Pumps 81-82
4.13 Internal Audit Department 82-83
4.14 Accounts and Audit 84-85
4.15 Water User’s Association 85-88
4.16 Community Development Councils 89-90
4.17 Community Development and Irrigation Projects 90-92
4.18 Legal Matter 92-93
5 Recommendations 94-110
Annexes 111-142
1. Cover Letter
November 30th, 2015
Honourable Jaipaul Sharma, MP
Minister within the Ministry of Finance
49 Main & Urquhart Streets
Georgetown, Guyana
Re: Forensic Audit and Review of the operations of National Drainage & Irrigation Authority
Dear Minister Sharma,
With reference to our engagement to carry out a forensic audit review of the National Drainage & Irrigation Authority, we are pleased to submit herewith our report which includes our findings and recommendations.
Cooperation and assistance from the management and staff of National Drainage & Irrigation Authoritysatisfactory during the course of the forensic audit.
Kindest regards,
……………………………
Clifton Nigel Hinds, CPA
Forensic Audit Principals: Clement DeNobrega and Nigel Hinds.
2. Abbreviations
Descriptions and explanations of terms and abbreviations relevant to this report are listed below.
NDIA National Drainage & Irrigation Authority
GOG Government of Guyana
GRA Guyana Revenue Authority
MOF Ministry of Finance
MOA Ministry of Agriculture
CEO Chief Executive Officer
DI Drainage & Irrigation
WUA Water User’s Association
FA Farmer’s Association
AOG Audit Office of Guyana
AG Auditor General
HR Human Resources
PS Permanent Secretary
NPTAB National Procurement Tender Administration Board
IFMAS Integrated Financial Management Accounting System
EDWC East Demerara Water Conservancy
CDIP Community Development & Irrigation Project
GUYSUCO Guyana Sugar Corporation
DHB Demerara Harbour Bridge
RPA Rice Producer’s Association
3. Executive Summary
The Executive Summary informs on the principal findings of the forensic audit pursuant to the scope of the terms of reference as set out by the Ministry of Finance for the forensic audit of National Drainage and Irrigation Authority.
1. Governance:Board Members were paid $1,584,000 for nine Board Meetings for the period July 2014 to March 2015, however the records revealed that only two Board Meetings were held for the related period. Aside from the overpayment to Board Members, the Chairman of the Board failed to hold the required number of statutory meetings, thereby exacerbating the weakness of NDIA corporate governance.
2. NDIA Act 2004 provides for the establishment of an Appointments Committee comprising a Chairperson and two other Directors to be appointed by the subject Minister. In breach of the Act, no such Board Committee was put in place.
3. Fixed Asset Register:NDIA has never maintained a Fixed Asset Register for the review period to record acquisition date, purchase cost, estimated life of fixed asset, depreciation and disposal of asset. This reckless omission for an entity that has over $4 Billion in Fixed Assets is incomprehensible.
4. The Auditor General reports for years 2012 and 2013 repeatedly stated that the management of NDIA had failed to maintain historical records for vehicles, equipment, machinery, office furniture and computers etc. Despite these concerns no effort was made by management to compile a fixed assets register in accordance with best practice.
5. Japan International Cooperation Agency handed over six excavators and pontoons to NDIA as noted in the Board Minutes of a meeting held on July 16, 2013; but there was no evidence that the excavators were accounted for by NDIA.
6. The CEO, Mr. Lionel Wordsworth indicated that one of the excavators fell into the conservancy and was salvaged at a later date. However, we could not verify its existence.
7. Motor Vehicles: As at December 31, 2014 – of the twenty-three motor vehicles listed as belonging to NDIA; certificates of registration show that one is in the name of NDIA, 16 are in the name of the Ministry of Agriculture, four were without registration and two were in the name of contractors. The breach of administrative and accounting procedure undermines the ability of NDIA to properly manage its fixed assets and ensure that assets are transferred to NDIA after project completion.
8. NDIA was de-linked from the MOA in 2004. NDIA received Capital Assets from the MOA upon its establishment as a separate entity. An analysis of the registration documents of machinery revealed that ownership of the machinery NDIA acquired from MOA was never vested in NDIA.
9. A total of G$1,490,127,000 in supplementary funds was approved by Parliament to cover over-expenditures for 2011 to 2014. This indicates the lack of proper planning and budgeting that obtained at NDIA.
10. Repairs:Over $1.8 Billion from both the capital and current budget over the period 2011 to 2014 was expended on repairs. No one from management could provide any justification for the level of expenditures on repair works, which was done by contractors. New machinery and equipment acquired during the period 2011-2014 exceeded 50% of the listed machinery and equipment of NDIA.
11. Minutes of the Board Meeting showed members were not told at any point of the massive repair costs.
12. Capital expenditures for the period January 2011 to June 2015 amounted to G$6.3 Billion and this excluded the Hope Canal Project. 21% or G$1.3 Billion was used for restoration of machinery and equipment.
13. The stated belief by several staff as to the existence of a “kickback scheme” between senior management and contractors could not be confirmed or denied without access to the financial assets of the named individuals.
14. Of the total G$1.08 Billion in purchase of heavy duty machinery, 47% was purchased from Guytrac. The model years were absent from four contracts examined, the price paid is influenced by the year of manufacture. Since this information was not available it was not possible to do a price comparison with the local and foreign suppliers.
15. NDIA purchased ten excavators valued at G$295 Million and tractors with harrows valued at G$198 Million for Guysuco in 2013, a total of G$493 Million. There has to be a clear Policy Guideline to inform Finance Staff as to what items of machinery and equipment should be included on its asset listing and reasons why items purchased with NDIA Funds are excluded. Instead of having NDIA appearing as a banker for Guysuco.
16. We also reviewed a letter written by Mr. Rajaindra Singh, DCEO of Guysuco to CEO, Mr. Lionel Wordsworth dated June 26, 2013 for NDIA to provide short term financing for ten Holland Tractors to the tune of G$161.9M and this was repaid on January 3, 2014. NDIA used funds from its own budget to fund that request and this would have impacted on NDIA own plans for that fiscal year 2013.
17. In addition to these purchases, NDIA constructed pumping stations valued G$146 Million based on figures seen in its Capital Expenditure Plan.
18. It is still not clear why Tractors with Harrows used primarily for tillage by Guysuco would have been purchased by NDIA. More importantly there was no evidence from the Board Minutes reviewed that this matter was discussed at the Board level. Even the letter written by Mr. Rajaindra Singh, DCEO of Guysuco was not presented to the Board
19. In order to complete the draft Financial Statements for year ended December 31, 2014, a physical count of all stock was undertaken and concluded on February 9, 2015. Based on that exercise the valuation of Inventory was G$76,290,588. We could not determine the accuracy of the valuation as we could not access the original invoices to confirm the prices used.
20. Fuel Purchases represent a significant cost to NDIA. G$1.4 billion was spent between January 1, 2011 to December 31, 2014 and there were serious concerns raised by the Executive Management and Employees related to the accounting and management of fuel and lubricants.
21. NDIA does not have storage facilities for fuel and we were told that the fuel was stored in contractor’s tanks, with the same contractors being used to transport the fuel. There were no proper explanations as to how fuel held in contractors’ tanks was accurately monitored.
22. We compared the Fuel Reconciliation Monthly Summary generated by the Fuel Controller, Mr. Garfield Roberts and the Machine Status report generated by Mr. Avinash Singh, Head of the Mechanical Division for the period 2013 to mid-2015 using a sample of 18 heavy duty machines. Fuel was issued to machines classified as not working or out of service. These machines showed that for the period referenced, the machines worked a total of 3,812 hours and utilized a total of 47,897 litres of fuel. This amounted to approximately G$9,709,755 in fuel losses for the few months sampled each year.
23. The Machine Status Report is prepared by the Regional Engineer. There is evidence that the fuel clerk manipulates his figures. Many persons we interviewed from communities in the Corentyne and who requested that their names not be mentioned - these indicate that fuel was sold illegally from the Whim outlet.
24. Procurement:For Jan-July 2015, a review of the Projects awarded showed that out of G$647,338,367, 59% were awarded by Sole Sourcing, 17% by Quotations and 24% by Public Tendering. It was also noted that most of the contracts awarded by Sole Sourcing went to Water Users Associations.
25. A three quotation procedure is used for projects up to 15 million. Numerous works were sole sourced to just under 15 million to avoid cabinet scrutiny.
26. Most contracts documents sent to tender board for approval are already completed, but the submission to tender board gives the false impression that the works are yet to commence.
27. Monies are regularly transferred to Mahaica Mahaicony Abary- Agricultural Development Authority (MMA-ADA). Many at just under 15 million to avoid cabinet scrutiny.
28. Further testimony of mismanagement of contracts was evidenced in the award of a contract to Suresh Jagmohan Hardware Supplies and Construction Services in August 2014 for the supply of Steel Sheet Piles at a value of G$177,820,000 for the Construction of Pumping Stations. When the steel sheet piles were delivered it was found by an Independent Consultant Mr. Mark Yhann - who advised that steel Q345B is not ASTM A690 as required by the contract specification and it should be coated with coal tar. Although Management was aware that the specifications were incorrect, the Chief Executive Officer instructed the contractor to utilize the sum of G$4,000,000 in the contract for factory inspection to supply more sheet piles.
29. There were significant sums of monies spent on “The Operating, Servicing and Monitoring” of NDIA machinery at various locations over the review period. Contractors submitted invoices for hours worked at various rates. Members of the Finance Office indicated that they could not verify what work was actually done but signed in good faith. Other staff members from engineering sections claimed that they were instructed to sign and certify documents for payments even though they had no knowledge of the projects.
30. The Hope Canal Project was approved in 2009 but actual works began in 2010. The Project budgeted cost was G$3.6 Billion and was completed in May 2015 at a purported cost of G$3.4 Billion. However, our findings indicate the costs of the project was over $4.1 Billion. The Hope Canal was substantively funded from the PetroCaribe Fund and all payments for the project were done through the MoF. The Ministry of Finance, Ministry of Agriculture nor NDIA were able to locate contract agreement or loan terms for such a massive contract. However, we reviewed the documentation available at the Finance, Procurement and Engineering Offices at NDIA and noted the following.
31. In addition to the monies paid by the Finance Ministry as shown above, we noted that NDIA paid significant sums from its own funding for the following years excluding the cost of fuel supplied:
2013 166,596,644
2014 90,817,833
Total 257,414,477
32. No information was available for years 2010, 2011 and 2015.
33. Fuel supplied to NDIA to the Hope Canal amounted to 1,927,844 litres between June 2011 and May 2015 which amounted to G$402,919,396 as shown in annex 11.1.
34. Fourteen super long reach excavators were purchased between 2009 and 2012 for the Hope Canal Project for G$441,628,000, but the Finance Office is showing G$466,862,450 were paid for thirteen excavators and one bulldozer between 2009 and 2012 as shown in annex 11.2. Documents were not available to verify dates of acquisition and amounts paid for equipment purchased directly for Hope Canal Project.
35. We were unable to obtain all the documentation to compute the actual cost of the Project as it would appear that deliberate efforts were made to understate the actual cost. NDIA, Ministry of Agricultural and Ministry of Finance were unable to access the Loan Agreement to determine the parties to the contract, the terms of the loan and the method of repayment. Any finance cost would increase the cost of the project as it has to be capitalized. Given the non-availability of critical information, it is reasonable to infer that the Project exceeded its original cost from the information gathered above.
36. Surendra Pumps: A contract for the supply and installation of 8 fixed and 6 mobile drainage pumps was awarded on May 6, 2011 to Surendra Engineering Corporation Limited of Mumbai for the sum of US$4 Million.
37. A total of US$2,991,147 was disbursed, leaving a balance of US$1,008,853. We are yet to receive a confirmation from Exim Bank through the Ministry of Finance that this balance exists. Included in the sum US$2,991,147 disbursed to Surendra Engineering Corporation Limited of Mumbai India received the sum US$126,000 to supply spares. The spares were never received by NDIA.