GPL’s system for managing trade receivables is “loose and out of control” and $5.6b will have to be written off as bad debt and that is unlikely to be the end of the problem.
This scathing review of the receivables system was contained in the special audit that was commissioned by the APNU+AFC government of the Guyana Power and Light (GPL) by Nigel Hinds Financial Services. The audit report was submitted to the Ministry of Finance on August 29, 2016 but has still not been released to the public. It is unclear whether GPL has taken action to redress the concerns raised by Hinds in the audit report.
Hinds said that the system used by GPL to manage Trade Receivables is in dire need of restructuring as the current system has failed. He noted that Trade Receivables are processed in the Commercial Divi-sion using the Customer Information System (CIS) and the Prepaid System.
However, he said that these systems were not designed to provide the critical analysis required to monitor and manage receivables in a timely manner. He said that difficulties and the extended periods in obtaining aged receivables reports, receivable balances by tariff category and receivables reconciliation were just a few of the shortcomings of the CIS system.
He concluded that the CIS figures are of questionable reliability, particularly considering management override, back billing and unprocessed requests from the Loss Reduction Division to the Commer-cial Division.
Hinds said that GPL utilises the Oracle Enter-prise Resource Planning System for its financial reporting and has the required modules to process information needs across all activities and functions of GPL but these are not being used.
“… GPL has only fully implemented the General Ledger and Payables modules with procurement and Inventory still not fully implemented. The key module missing is Receivables whether by design or accident, it has resulted in ad hoc, make-shift, unstructured and muddled management of Trade Receivables”, Hinds declared.
He said that the Commercial Division provides the Finance Division periodically with block balances for receivables which are then booked in the General Ledger. There is no oversight by the Finance Division over the accuracy, reliability or adjustments to the receivables in the CIS system, he stated.
Hinds’ report cited the Accounts Receivable Reconciliation prepared and provided by GPL for the period ended Decem-ber 31, 2014 and said that the substantial balances reflected in receivables were indicative of a “loose and out of control collections system.”
For the Non-Govern-ment Tariff Categories (Residential, Commercial, Industrial A and Industrial B), the audit noted multiple accounts with outstanding balances in the following tariff categories, over $50M; in Industrial B; over $10M in Industrial A and Commercial; and over $5M in the Residential tariff category.
“The receivables extract details the most errant non-government consumers and reflects laxity in the monitoring and collection policy by GPL in collection from customers with large balances outstanding”, Hinds stated.
The situation, he said, is even worse with Munici-palities, Neighbourhood Democratic Councils (NDC) and state-controlled corporations.
The Mayor and City Council owes over $1.2B, the Grove/Diamond NDC owes over $126M, with other NDCs collectively owing over $1B in the GE tariff category.
Further, the Cheddi Jagan International Airport owes $358M, $252M is owed by the Ministry of Public Works and approximately $1B is owed by the Guyana Water Inc for electricity consumption at various locations across Guyana in the GD tariff category.
“We are of the view that a significant portion of the receivables are unrecoverable. Also, the receivables provision of 1.5% of turnover is wholly inadequate. Larger provisions, debt write-off and court action; along with other consequential measures are urgently needed to remedy this untenable situation”, the audit report declared.
It said that it is timely for the new Board of Directors to have the Finance Division provide it with an analysis of trade receivables collectible and to ensure that adequate provisions are made.
“The Board needs to write off over G$5.5B of gross receivables and pursue collections of the written off receivables through the court system. The inactive accounts as per billing system as at December 31, 2014 showed a balance of $8.5 B. These matters need to be explained to the Board of Directors and addressed urgently”, Hinds’ audit said.
Delayed
The audit questioned the delayed collection of $2.3 Billion in cheques made out in favour of GPL in December of 2014 for balances owed by Government Agencies and collected by GPL in early May of 2015. The audit report said that the delayed collection arose from a decision taken at the Ministry of Finance and is rationally inexplicable.
“We interviewed the Accountant General, Ministry of Finance, Mr. Persaud in early January of 2016 and the responses from his department to our questions are shown below;
“Why were cheques totaling G$2,459,770,361 (23 of the cheques being for $99 Million each) issued by the Ministry of Finance in favour of GPL and dated December 19, 2014, only uplifted by GPL on May 6, 2015?
“Those cheques represented advance lump sum payment to GPL for electricity provided to Govern-ment agencies. Apart (from) funds given to agencies, the Ministry of Finance would Budget for lump sum payment to GPL as entities from time to time exhaust their electricity allocations and would be in arrears. The Ministry would then review the government total GPL billing Statement and pay on the Agencies Behalf so as not to be in liabilities. Additionally, since the budget would normally pass till the end of 4th month, this acts as a buffer to cover shortfalls that may arise due to limited releases for electricity charges to government agencies (M/D/R).
“What are the implications on the Consolidated Bank Account balance, accounting and reporting for the unpresented cheques as at December 31, 2014?
“From a budgeting and accounting perspective, the impact is neutral and negative respectively. Since that expenditure would have been budgeted and cash flow outlay determined. As soon as the transaction is approved and cheque drawn that expenditure is considered final and will reflect as a credit to the consolidated fund account as the IFMAS Daily expenditure report (indicating the value of cheques cut for the day is sent to the Bank of Guyana). Addi-tionally, when the cheque is en-cashed, this would have a negative balance on the consolidated bank account as the account is then credited at the point of encashment.
“What are the policies related to unpresented cheques at the end of the year issued from the Consolidated Bank Account of the Ministry of Finance?
“The policy applied by the ministry of finance as it pertains to unpresented cheques at the end of the year. The first is to complete our monthly bank reconciliation exercise to determine what quantum and value of cheques are unpresented. This list is then filtered by (Ministries/Departments/Regions), which is then distributed to the various accounting officers for follow up, to ensure the various procuring entities complete their transaction to its finality ensure that the cheque does not become stale dated as the active validity of the cheque lasts for 6 months.
Hinds stated that the key impact of the cheques being withheld from GPL was to avoid a cash charge on the consolidated account, thereby reducing its cash balance.
In his report, Hinds said that management applied to the GPL board in 2014 for a write-off of $5.6b in bad debts but there was no determination on this matter. According to minutes seen, the management was further review by the board but it appears that this was not done.
The percentage of trade receivables owed by the government to total trade receivables was 60% at the end of 2011 and 62% at the end of 2014. Hinds said these figures suggest that government balances represent the bulk of trade receivables in any one year and that the new board of directors should enter into dialogue with the government to find a way to address collectibles.
This table is one of the examples of trade receivables listed in the Hinds report.
Outstanding Account Balances as at December 31, 2014 – Top 30 Government Tariff GD:
