Guyana’s President Dr. Irfaan Ali told the 77th session of the United Nations General Assembly currently under way that fossil fuels are a necessary means of energy while the world transitions to more sustainable means; and the fossil fuel industry should not be penalized or treated unfairly as the world moves away from that sector. This is in contrast to the UN Secretary-General’s opening remarks to the Assembly that the fossil fuel industry is responsible for a large share of planet-warming gases and is ‘feasting on hundreds of billions of dollars in subsidies and windfall profits while household budgets shrink and our planet burns’. The Secretary-General called on all developed economies to tax the windfall profits of fossil fuel companies and redirect the funds garnered to countries suffering loss and damage caused by climate change and to people struggling with rising food and energy prices. We must state that we entirely agree with the Secretary-General’s statement.
In Guyana, one recalls a top government official urging ExxonMobil and other companies operating in the oil and gas industry to explore and extract as much crude oil as possible in the shortest period of time before the deadline set by the Paris Accord on Climate Change reaches for switching to renewable sources of energy. This statement appears contradictory considering how glowingly we speak of our Low Carbon Development Strategy. Lest we forget, in eight years’ time, all countries that are signatories to the accord are required to achieve 50 percent energy from renewable sources.
Amid calls from a wide cross-section of the Guyanese population for a renegotiation of the Agreement with Exxon so that the country can obtain a higher share of the oil wealth as is being done in some other countries, the Government has so far refused to do so. This is despite the fact that in its 2020 elections manifesto, it had stated that it would do so. It is now saying that we must respect the sanctity of the Agreement when in fact the Agreement allows for the renegotiation with the approval of both parties. Chartered Accountant and Attorney-at-Law, Christopher Ram, pointed out that there is precedent for renegotiation since the Agreement was amended in 2019 to exclude the two percent royalty from the computation of recoverable costs. In defence, the Government chose to split hairs by seeking to distinguish between renegotiation and amendment. Was the latter not done based on negotiation between the two parties? And whose interest does the Government serve in relation to this matter – the national interest or that of Exxon?
In our last two articles, we discussed some procurement matters, especially as regard the contract for the reconstruction of the North Ruimveldt Secondary School. This contract was awarded to a contractor who had performed poorly in relation to the construction of the Kato Secondary School in Region 8. The Kato school contract was for the sum of $728.165 million and was executed on 31 December 2012, three days before Cabinet offered its no objection to the award, with a commencement date of 21 January 2013, a duration of two years, and a defects liability period being one year after completion.
It is unclear why the Auditor General did not comment on the award of the contract for the Kato school in his 2012 report since the contract was entered into on the last day of the fiscal year 2012, the date when all appropriations lapse and unspent balances have to be returned to the Consolidated Fund. Section 30 of the Fiscal Management and Accountability Act specifically prohibits entering into a contract or other arrangement providing for payment of public moneys unless there is a sufficient unencumbered balance available in the appropriation. Additionally, the 2012 Estimates only provided for the design of the Kato Secondary School Project and not the actual construction which was to commence in 2013. Did it not dawn on the Auditor General that the contract might have been entered into on the last day of the fiscal year to facilitate the payment of a mobilization advance using the budgetary
allocation for 2012? There was also no mention in the Auditor General’s reports for 2013 and 2014 as regards the progress of the works undertaken.
In his 2015 report, in two small and innocuous paragraphs, the Auditor General stated the contractor was granted three extensions, resulting in a revised contract completion date of 30 September 2015; as at 31 December 2015, the total amount paid to the contractor was $661.312M; and at the time of reporting (September 2016), the performance bond had expired. He indicated that a special investigation was being undertaken, including physical verification of the works. However, there was no mention about the outcome of the investigation in his 2016 report while for 2017 and 2018, the Auditor General merely repeated verbatim what he wrote in his 2015 report. His reports for 2019 and 2020 were also devoid of any commentary on the outcome of the investigation.
In today’s article, we discuss the financial reporting and audit arrangements relating to the Natural Resource Fund (NRF). The Auditor General has issued his opinion on the financial statements of the Fund for the year 2021, which opinion was unqualified, meaning that there were no issues of a material or fundamental nature that affected the fair presentation of the financial statements. Unfortunately, we have not been able to have sight of these audited accounts as they are not available on the website of the Ministry of Natural Resources.
Civil society Article 13 Group has flayed the “clean” opinion given by the Auditor General and has called on him to withdraw it, citing the lack of compliance with the NRF Act. The Group stated that the taxes paid by the Natural Resources Minister were not properly accounted for in the financial statements. It referred to Article 15(4) of the 2016 Petroleum Agreement that requires ‘the appropriate portion of the Government’s share of Profit Oil…shall be accepted by the Minister as payment in full by the Contractor as the Contractor’s share of each of the following levies… which the Minister shall then pay on behalf of the Contractor to the Commissioner General, Guyana Revenue Authority…’ According to the Group, the financial statements show no withdrawals were made from the Fund for the taxes paid by the Government to Exxon’s subsidiaries.
In response to the above criticism, the Auditor General stated that while the Audit Office has completed its examination of the 2021 NRF financial statements, it is still not equipped to look into matters in the oil and gas sector. He disclosed the audit merely examined the accountability for the moneys that were placed in the NRF, and not what should have been received and what should have been paid out. He indicated that the Audit Office is working to build capacity in order to provide a more comprehensive coverage of the audit of the NRF.
The Auditor General did not indicate whether he would withdraw his opinion and replace it with a qualified one. It is true that there is precedent for the withdrawal of the Auditor General’s opinion when, after the issuance of his opinion, fresh evidence was uncovered that rendered the original opinion incorrect. For example, in 1997, the Auditor General withdrew his “clean’ opinion on the World Bank-funded Essequibo Road Project and replaced it with a qualified opinion in the midst of new information received about the importation of inferior quality of stone; short shipment of stone; diversion of stone to an unrelated project; and falsification of invoices. There was one case where the Auditor General’s report was amended because the public debt was overstated due to a computation error in the conversion of the Japanese Yen to Guyana dollar. Additionally, the report on the exportation of bottle-nosed dolphins was withdrawn and replaced with new one, which became known as the “Dolphin Scam” report, that precipitated the premature departure of the then Auditor General because of the Government’s reaction to the new report as well as of its scathing attack on him.
Financial reporting of the NRF
The Bank of Guyana, as the operational manager of the Fund, is required to maintain proper books of account and records in conformity with the International Financial Reporting Standards (IFRS) and to prepare and submit to the Minister and the Board of Directors monthly and quarterly reports on the operation of the Fund. As soon as possible after the close of the financial year, the Bank is to prepare and submit to the Auditor General annual accounts of the Fund consistent with IFRS.
Internal audit of the NRF
The internal audit of the Fund is to be carried out by the Bank’s Internal Audit Department at least annually. The auditors are expected to conduct their audits in accordance with the standards promulgated by the Institute of Internal Auditors, and the related report is to be forwarded to the NRF Board for consideration. It is not clear if such an audit has been undertaken.
External audit of the NRF
Section 31 of the Act requires the external audit of the NRF, which is to be noted involves the examination of accounts, records and other information relating to the Fund, to be undertaken annually by the Auditor General. However, he may engage the services of an internationally recognized auditing firm to assist him in the discharge of his responsibilities under the Act. This is in recognition that the Audit Office may not have the professional and technical capacity as this point in time to undertake the audit.
The Auditor General is required to finalise the audit of the Fund in time for the Bank to submit the audited accounts along with an annual report to the Minister and the Board by 30 April following the close of the financial year. Without sight of a copy the audited accounts, we are unable to determine whether the Auditor General has met this deadline.
It is a fundamental auditing principle, indeed a requirement of the International Standards of Auditing (ISAs) that the Auditor General used in the conduct of the audit of the NRF, that auditors should avoid undertaking an audit if they believe that they do not possess the professional and technical competence or capacity to do so. In such a situation, auditors are expected to decline appointment. As indicated above, there is provision in the NRF Act for the Auditor General to engage the services of an internationally recognized auditing firm to assist him. Additionally, the Audit Act allows the Auditor General to engage the services of Chartered Accountants in public practice if he considers it necessary. He has chosen to do neither, which is regrettable. A Chartered Accountant in public practice undertaking an assignment for which he/she is not competent to do, runs the risk of being sued for professional negligence. This is why a professional indemnity insurance has to be taken out as a requirement of the ISAs. While the Auditor General is not immune from being sued for negligent work, it is the State that will have to bear the related costs, should he be found liable.
Presentation of the audited accounts of the NRF to the National Assembly
By Section 32, the NRF Board is required to the submit to the Minister an annual report within 30 days of the receipt of the audited accounts of the Fund from the Auditor General. The report is to contain, among others, (i) the audited accounts and report of the Auditor General; (ii) details of deposits and withdrawals; and (iii) comparison of the amounts approved for withdrawal with the actual amounts withdrawn. The Minister must then present the report to the National Assembly as soon as possible but not later than 30 days after its receipt from the Board. It is not clear whether the report was laid in the Assembly.
Publication of report
Section 33 requires the annual report of the NRF prepared by the Board and laid in the Assembly to be published on the Ministry’s website. However, there is no evidence that this was done.
