SML minimized under-declarations but needs review – President

KPMG’s audit has disclosed that revenue monitoring of the downstream petroleum sector by Strategic Mobilization Ghana Ltd (SML), conducted on behalf of the Ghana Revenue Authority (GRA), has increased tax revenue to the state by GH₵2.45 billion.

The findings also show a 1.7 billion litre increase in volumes of petroleum products monitored under the contract.

KPMG also observed qualitative benefits, including 24/7 electronic real-time monitoring of outflow and partial monitoring of inflows of petroleum products at depots where SML had installed flow meters, along with six levels of reconciliation done by SML.

A statement issued by Eugene Arhin, Director of Communication at the Office of the President on the audit report of KPMG on the execution of the contract stated that it minimized the occurrence of under-declarations.

Per the report, SML was paid a total of GH¢1 billion (GH¢1,061,054,778) from 2018 to the present date.

The total fees estimated to be paid to SML under the 2023 Contract for five years is GH¢5.1 billion (GH¢5,173,091,857), which averages to about GH¢1 billion per year.

Despite these positives, the president directed that the fee structure be changed from a variable to a fixed fee structure.

He also instructed that other provisions of the contract, such as clauses on intellectual property rights, termination, and service delivery expectations, be reviewed.

The statement called on the Ministry of Finance and 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.

“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 statement stated.

The President received the final report on Wednesday, March 27, 2024.

According to the statement, the President had acted on the findings and accepted recommendations of KPMG and had, by a letter dated Thursday, April 18, given directives to the Ministry of Finance and the GRA.

Per the directives, SML’s performance in any renegotiated contracts should be monitored and evaluated periodically to ensure that it meets expectations.

Additionally, any renegotiated contract should be compliant with section 33 of the Public Financial Management Act.

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 KPMG’s findings, GRA obtained partial value or benefit for those services due to a lack of monitoring on the part of GRA to ensure that SML performed the services as stipulated in the contracts.

The KPMG 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.

SML, GRA, and the Ministry of Finance were accused of underhand dealings, which they denied.

Following the high public interest the accusations attracted, the President directed KPMG to conduct an audit regarding the transactions which the two entities entered into in 2020.

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 KPMG, per its investigations and findings, established that no technical needs assessment was done prior to the engagement of SML.

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

According to the report, 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.

It pointed out that 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, but PPA did not grant approval.

Subsequently, the KPMG report stated that GRA engaged SML as a subcontractor to West Blue, which was already providing services to GRA at the port.

It noted that SML eventually took over the services provided by West Blue when the latter’s contract came to an end on December 31, 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,” the KPMG’s findings established.

KPMG found that following a change of leadership at GRA, the new leadership sought to regularize the contracts with SML and on August 27, 2020, the PPA ratified the procurement processes used to engage SML.

According to the findings, in 2023, the Ministry of Finance, 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.