Accounting and advisory firm,KPMG, has recommended an “orderly resolution" in the contract between the Ghana Revenue Authority (GRA) and the Strategic Mobilisation Limited (SML), including parliamentary approval.

"The contract did not receive parliamentary approval as required by section 33 of the Public Financial Management Act, 2016 (PFMA Act 921).

Parliamentary approval should sought to regularise the contract to meet the existing legal requirement, if practicable," it said, as part of its recommendations.

The firm said although the orderly resolution approach was more accustomed to the financial services sector, it was being recommended for consideration in the context of the State's contract with SML because it "prioritises a review of the existing contracts with the view to addressing noticeable complexities and areas of concerns in a mutually negotiated and acceptable manner".

In settling for that option, the accounting and advisory firm said it considered the systemic impact, cost to state, sustainability, complexity and deliverability, public trust and implications.

The report of its investigation the propriety of the state contracting SML to perform revenue assurances in some areas of the petroleum and mining sectors said the option was also based on the assumption that as of the time of reporting, the contracts were not void or voidable, but must receive parliamentary approval to make them enforceable.

"On the basis of the above, an orderly resolution could be used to address identified challenges with the contract Upstream Petroleum and Minerals Audit. These components of the contract cover major revenue sources to the State," it said.

Context

President Nana Addo Dankwa Akufo-Addo in a letter dated December 29,2023, appointed KPMG to conduct an audit of the contracts and related transactions between GRA and SML.

The overall objective of the engagement was for KPMG to review the work and activities of SML in relation to the contracts with GRA, and assess the propriety of procurement and contracting processes as well as the appropriateness of cost value analysis in the performance of the contracts.

Needs assessment

After its work, the accounting and advisory firm underscored the fact that if there were revenue leakages the impact could be significant, but strongly recommended the performance of technical needs assessment to establish detailed gaps that should be resolved.

It added that in order to ensure that the services were justified, and the fees proportionate and commensurate with the services to be rendered, the contract should be subjected to a technical needs and value-for-money assessment.

In its execution, the Ministry of Finance, GRA and SML should conduct extensive engagement with all relevant stakeholders to ensure awareness creation, stakeholder buy-in and alignment on the services contract, its deliverables and outcomes.

Transaction audit, price verification

The accounting firm further recommended that the services which had been partially delivered required a comprehensive review to assess their ongoing relevance.

It said with the integration of the Integrated Customs Management System (ICUMS), there had been a duplication of external price databases and research services provided by SML, necessitating immediate action to amend or reassess the services.

KPMG also recommends that ICUMS capabilities for external price verification should be reassessed in view of the services provided by SML to optimise efficiency and adapt to evolving business dynamics.

Regarding contract resolution for the downstream petroleum audit, KPMG recommended that the service had been provided for over four years, and SML had gained experience and become more proficient.

"Based on this, we recommend renegotiating contract prices, including consideration of shifting from a variable to a fixed fee structure."

Procurement

Touching on incorporation of needs assessment into public procurement practice, the audit firm said for a covered entity in Ghana, submission of a procurement plan to the Public Procurement Authority (PPA) complied with section 21 of Act 663 as amended.

However, submitting the same without conducting a needs assessment may expose the State to misallocation of public funds and the erosion

of public trust in the government's ability to manage resources effectively.

Conducting a needs assessment as part of the procurement process was important for aligning procurement activities with organisational needs, optimising resource allocation, 

mitigating risks, and fostering stakeholder engagement and accountability, KPMG said

However, it said there was no legal requirement to perform a needs assessment for procurement of other goods and services with substantial value and to address that, KPMG recommended that consideration should be given to the legislation of the needs assessment process as part of public procurement practice.

In the meantime, it suggested that, boards of covered entities should approve a policy as part of the budget review and approval process, to require management to adopt and prepare needs assessment or perform feasibility studies as part of the procurement process.

Regarding the compliance with Public Financial Management Act, it said one key area requiring examination was the requirement in section 33 of the PFMA for multi-year expenditure commitments to receive approval of the Minister and Parliament.

"While this is a key accountability measure, the Act's current lack of a clear threshold may result in an excessive number of agreements being brought to Parliament. This could lead to delays and administrative bottlenecks in the approval process and ultimately commencement of key projects," it said and recommended an amendment to the Act to enhance implementation.

SML contribution

In determining the value GRA has derived from SML, KPMG assessed the perspectives: quantitative increment in volumes lifted and reported to GRA, incremental tax revenue and qualitative benefits.

The audit and advisory firm said its analysis on the first, determined an incremental volume of 1.7 billion litres for the period May 1,2020 to December 31,2023, amounting to 38.6 million litres per month,

On the second, it determined an incremental tax revenue of GH¢2.45 billion for the period under review, which worked out to approximately GH¢55.68 million per month.

The net fee (net of taxes) paid to SML for the same period was GH¢720 million, working out to a monthly average of GH¢16.36 million, which constituted 29.41 per cent of the incremental tax revenue.

On the qualitative benefits, KPMG found that SML conducted 24/7 electronic real-time monitoring of the outflow and partial monitoring of inflows of petroleum products at depots where SML had its flow meters and ATGs installed and operationalised.

"This ensures that movement of petroleum products outside the depots can be identified and

accounted for and also serves as a deterrent for under-declarations," the KPMG report said.

The investigation confirmed that SML conducted six levels of reconciliation to identify avenues that might cause revenue losses to GRA and share discrepancy reports for GRA to follow up on gaps.

For outflows, SML has installed flowmeters at 24 out of 26 depots, which serve as an alternative source for GRA to be able to determine quantities of petroleum products lifted at these locations, distinct from the volumes recorded by NPA and GRA in ERDMS and ICUMS, respectively.

As of December 31,2023, SML had flowmeter readings for 16 out of 24 depots, representing 76 per cent of total petroleum products lifted.

On payments to SML, KPMG observed that there was no deduction of Value Added Tax (VAT) by GRA for an eight-month period on payments.

Presidency cautions

Announcing the release of the full report to the public last night, the Communications Director at the Presidency, Eugene Arhin, said the Office of the President was justified in turning down the request for a copy of the KPMG report.

He explained that prior to the request the President on April 24, 2024, had caused to be published a detailed press statement outlining KPMG's findings and recommendations, as well as his directives to the Ministry of Finance and GRA.

"The Office of the President reiterates the necessity for those who file applications and requests under the RTI

Act to have a thorough understanding of its provisions," Mr Arhin stressed.