Former Auditor General Anand Goolsarran has flayed the award of a second audit of oil costs to the local consortium VHE considering the questions raised about its performance on the yet unfinished examination of a whopping US$7.3b in ExxonMobil expenses.
While both government and the Guyana Revenue Authority (GRA) remain mum on the status of the second cost oil audit for which there has been criticisms of the quality of work, Goolsarran, has voiced his disapproval of the awarding of another audit to the same contractor.
According to Goolsarran, at a time when stringent oversight is needed to ensure comprehensive audits of the post-contract recoverable costs, contractors undertaking the audits require the knowledge, skills, and competence and experience in the field.
The former Auditor General pointed out that the audits are necessary to provide reasonable assurance to citizens that expenditures incurred are legitimate recoverable costs in the context of the Agreement; and the amounts involved are reasonable and represent good value for money. This, he added, is especially so, considering the higher the recoverable costs, the less will be the amount of Guyana’s share of profit that will accrue to it.
As such, he noted that questions have been raised about the quality of the original report by Vitality Accounting, Haynes and Ramdihal and Eclisar Financial (VHE) Consulting, and listed some of its shortcomings. VHE has declined to speak about its ongoing audit, the issues that have been raised about it and why it is still to be concluded. It was awarded the contract in May of 2022.
“Concerns have been expressed as regards the quality of the original report issued by VHE Consulting. Specifically, the report lacked basic structure. There is no table of contents to guide readers through the report; no executive summary; no list of abbreviations; no definition of the technical terms used; and no sections dealing with the terms of reference for the assignment, the scope and methodology used, the auditing standards that were followed in the conduct of the audit, and findings, conclusions, and recommendations, among others.”
He continued, “Additionally, in several parts of the report, the auditors have stated that some of the issues would be further examined during the next audit, implying clearly that there is an expectation that VHE Consulting will be re-appointed auditors. These statements were also clearly an acknowledgement that the audit was incomplete and did not meet acceptable standards.”
Further, given that Guyana has no ring-fencing provisions – a key weakness in the 2016 Petroleum Sharing Agreement (PSA) according to the International Monetary Fund (IMF) and many analysts – Goolsarran emphasised that having a comprehensive audit was integral to ensuring “the interest of the state is properly safeguarded.”
He explained, “A ring-fencing arrangement ensures that only costs attributable to a particular field are considered in the computation of profit oil for that field. Although the Agreement provides for the sharing of profit oil on a field-by-field basis, it also allows ExxonMobil’s subsidiaries to allocate cost oil to any field within the contract area, thereby defeating the main purpose of ring-fencing. The IMF had also stated that there are too many loopholes in the PSA, which if not plugged, could result in Guyana losing significant amounts of revenue.
“Considering these and other concerns, a comprehensive audit of the post-contract recoverable costs is of utmost importance, requiring the knowledge, skills, and competence of experienced auditors.”
IHS Markit
Two previous audits were undertaken; one by UK firm IHS Markit covering the pre-contact period from 1999 to 2017, and VHE Consulting for the period 2018-2020. The first audit identified US$1.678 billion as recoverable costs of which amounts totalling US$214 million, or 12.8 per cent, were considered disputed charges. The disputed costs are yet to be resolved between the Government of Guyana and ExxonMobil. Suffice it to state that if these disputed charges are removed, oil revenue accruing to Guyana will increase by US$107 million.
As regards the second audit, VHE identified amounts totalling US$7.435 billion as recoverable costs of which the auditors had reservations in relation to amounts totalling US$54.471m, representing less than one per cent of the recoverable costs claimed by Exxon.
Last September, the Minister of Natural Resources, Vickram Bharrat, stated that VHE Consulting was supposed to issue a final report before any action could be taken in relation to the findings.
It is not clear if or when such a report has since been issued and why the public has not been told about it.
However, Goolsarran noted that Bharrat has stated that it was the government’s intention to have the third oil audit contract go to a local consortium, in partnership with international firms, so as to build local capacity.
Further, there have been no updates for months on the second contract. The Sunday Stabroek had two months ago, reached out to the Ministry of Natural Resources (MoNR) and Minister Bharrat had requested that questions be forwarded to the ministry’s Permanent Secretary Joslyn McKenzie. This was done. McKenzie responded that as it related to audits, the GRA was the agency whose ambit that fell under.
The Sunday Stabroek has also reached out to GRA Commissioner-General Godfrey Statia, and he pointed the paper back to the MoNR’s Permanent Secretary. When told that McKenzie had said to check with him (Statia), the GRA head did not respond.
This newspaper also last week complained about the push-around to Vice President Bharrat Jagdeo and he said that he also did not have an update, but would enquire of the requisite persons to provide one.
Three weeks ago, the National Procurement and Tender Administration Board (NPTAB) announced the award of the contract for the audit of ExxonMobil’s recoverable costs that were incurred during the period 2021 to 2023, to VHE.
Immediately the question arose as to how an evaluation committee of the NPTAB could award a second contract to VHE when it couldn’t know if it had satisfactorily completed the huge assignment related to US$7.3b in ExxonMobil expenses.
When the bids for that contract were submitted, three firms had sent tenders in response to the public advertisement of February 14 for the submission of Requests for Proposals (RFPs). Those companies were VHE Consulting; Grant Thorton UK LLP and PKF Barcellos Narine & Company; and M Sukhai & Company (local) in a joint venture with Info Works Solutions Ltd.
The terms of reference for the audit required the auditors to: (i) conduct a pre-audit analysis; (ii) devise an effective audit plan inclusive of an appropriate methodology; and (iii) execute the audit in adherence to the provisions of the Stabroek Block Petroleum Agreement and applicable local laws, regulations, and procedures, as well as international good practices and standards.
The scope of the assignment also includes conducting verification of the crude oil valuation pursuant to the provisions of the petroleum agreement for the audit period, as well as verifying royalties remitted to the government for the same period. Additionally, the auditors are required to validate the accuracy of the total government share of petroleum for the period under review and assessing the impact of the audit on future profit oil revenues.
Similar assignments
According to the advertisement, a key requirement is for the bidding firm, along with its partners (local and foreign) combined, to have completed at least three similar assignments during the past seven years.
It is unclear if any of the three firms had met the requirements and Goolsarran doubts that they did. “It is obvious that none of the three firms that submitted proposals would have met this requirement, including VHE Consulting which was formed to undertake the audit of Exxon’s recoverable costs covering the period 2018-2020. This notwithstanding, the contract was awarded to VHE Consulting.”
The former auditor general also pointed out a shortcoming as required by Section 44 of the Procurement Act. “A procuring entity [in this case the Ministry of Natural Resources] is required to request proposals for consulting services from firms that have been included in a shortlist. Shortlists are to be prepared on the basis of expressions of interest received in response to an invitation to express interest published in the newspapers of wide circulation. There was, however, no evidence that the firms submitting RFPs were shortlisted.”
He went on to state the likely reason and the course of action that could have been taken. “Presumably, this was because only three firms submitted proposals, resulting in the NPTAB, through its Evaluation Committee, reviewing the three proposals for the purpose of selecting the consulting firm to undertake the audit. In these circumstances, it would have been more appropriate if the above qualification requirement was not included to enable more firms to submit proposals, including overseas auditing firms, with the stipulation that they must partner with local auditing firms in order to build local capacity in the long run.”
He opined that the authorities possibly, “decided to retain the services of VHE Consulting via sole sourcing disguised as the result to adherence to competitive bidding procedures.”
“VHE Consulting submitted a bid for $229 million but was awarded the contract for the sum of $312.642 million which is $83.642 million in excess of the bid price. It is not clear whether the scope of the assignment has changed, but Section 51 of the Act does allow for the procuring entity to negotiate the terms of the contract with the selected consultant. It is not clear whether this was the reason for the increase in the bid price,” Goolsarran contended.
Involvement
Meanwhile, he also highlighted the lack of involvement by this country’s Auditor General in the oil auditing process.
“The Auditor General is the appointed auditor of the Natural Resource Fund (NRF). He has audited the financial statements of the Fund for the years 2020 to 2023 and has issued a “clean bill of health” on the financial statements for those years. However, in order to verify the amounts paid into the Fund as Guyana’s share of profit oil, it is necessary to review the basis under which the amounts are arrived at, which means examining the recoverable costs to assess their eligibility under the PSA, as well as their reasonableness and value for money. The Auditor General has acknowledged this was not done, as his Office lacked capacity and competence to do so. As a result, the audits began on the assumption that the amounts paid into the NRF were the correct amounts, which is rather unfortunate.”
And when the government spoke of building local capacity, Goolsarran reasoned that it should have been directed more towards the Audit Office since the law mandates that the Auditor General be the auditor of the NRF. Additionally, there is provision in the Audit Act 2004 for the Auditor General to contract the services of Chartered Accountants in public practice to assist him with any aspect of his mandate.
“He could also enlist the services of national audit offices overseas, especially Canada with which he enjoys a close relationship. It is unclear why the Auditor General was bypassed in preference to a consortium of local auditors in partnership with overseas audit firms, and the Guyana Revenue Authority.”
What Goolsarran finds most unfortunate is that the authorities have deemed the GRA as the competent authority for reviewing the work of the auditors undertaking the audit of the recoverable and the related reports issues, and stated the flaws in this approach.
“Arguably, this represents a usurpation of the role of the Auditor General. The GRA has set up a Petroleum Revenue Department with an approved staff complement of 67. As of September 2024, 39 officers were in place. There is also a Customs Petroleum Unit with an approved staff complement of 32 while the actual staffing as at the same date was 21. Considering that Article 15 of the Petroleum Sharing Agreement specifically states that ‘no tax, value added tax, excise tax, duty, fee, charge or other impost shall be levied… on the Contractor or its Affiliated Companies in respect of income derived from Petroleum Operations…’ one could legitimately question the need for a department or unit of such size”, Goolsarran added.
