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Anti-corruption drive: BOST officials, BDCs cited in massive fraud

  • SOURCE: | qwesa2big
  • court_14

    A comprehensive audit report on the Bulk Oil Storage and Transportation (BOST) Company from 2006 has revealed massive corruption involving past and present officials of the company.

    The report, prepared by Ernst and Young (E&Y), a renowned international accounting firm, and made exclusively available to the Daily Graphic, exposed endemic corruption occasioned by collusion among senior BOST officials, some of whom still hold sensitive positions at the various departments, and officials of 16 bulk oil distribution companies (BDCs).

    The report further noted what it described as deliberate activities of top officials at BOST who supported the BDCs to rob BOST of petroleum products at the depots, leading to significant petroleum product losses that affected the national strategic reserve of petroleum products.

    Those acts have led to heavy financial losses to BOST and, by extension, the state.

    Modus operandi

    Describing the deal as a well choreographed act, the report exposed officials of the BDCs who reportedly connived with officials of BOST through bribery and forged documents to inflate the volumes of products in favour of the BDCs.

    That allowed the BDCs to lift petroleum products which did not belong to them from the BOST system.

    That practice, according to the E&Y report, led to “overdrawn balances”.

    It said the net effect of the practice was the gradual depletion of the national strategic reserve of petroleum products.

    Additionally, the report noted that BOST was not paid for that stock, hence causing financial loss to the company.

    The system, it noted, was further used to create a negative balance or BOST indebtedness to the BDCs.

    The audit findings in the Daily Graphic’s possession further revealed that upon a careful and meticulous assessment of the process, most of the key BDCs were rather, in fact, indebted to BOST to the tune of millions of litres of petroleum products, which analysts project to be in excess of tens of millions of dollars.

    Insufficient documentation

    As of the time of the report, some underlying documents had not been made available to support information recorded in the monthly stock reconciliations carried out by BOST and BDC officials for some BDCs.

    That hindered a recompilation of the stock reconciliation statements as of July 31, 2014.

    Inadequate support

    However, for the amounts indicated as ‘Verified claim’, those BDCs had letters from BOST that showed that BOST had accepted the amounts as due the BDCs.

    For one company, for instance, supporting documents provided for sales in 2010, 2011 and 2012 were not adequate.

    The report said E&Y, however, reviewed correspondence that indicated that BOST and that company agreed to an outstanding gasoline balance of 1,915,531 litres as of December 31, 2013 due the said company.

    “We noted in various instances that as of the date of this report, underlying documents had not been made available to support all information recorded.

    “Supporting documents for receipts such as outturn reports, letters to BOST supporting in-tank transfers could not be obtained from some BDCs and BOST. Also supporting documents for some issues out of stock such as schedules and waybills could not be obtained,” it said.

    The audit firm said even though it received confirmation from officials of another BDC that no product claim was being made from BOST as of July 31, 2014, its review indicated the possibility of an overdrawn position of 4.793 million litres of gasoil, in the event that no other supporting document was provided by the said company.

    In another development, adequate supporting documentation was not provided for receipts and sales of products from 2009 to 2014 and, as a result, E&Y did not sight signed reconciliation statements for six months; that is, February to July 2014.

    In the case of another BDC, E&Y noted an understatement in lifting of 1,100,000 litres of gasoline in the reconciliation statement of December 2010 when, in fact, the corrected closing balance should have been 440,496 litres, instead of 1,540,496 litres as of July 31, 2014.

    Monthly reconciliations

    “Errors in reconciliation statements supporting documents for some of the receipts and sales are still outstanding as of the date of this report,” the report noted.

    For instance, in one case, E&Y noted that outturn certificates for 194,105,946 litres of gasoil and 184,770,061 litres of gasoline were not signed by the independent inspector and the APD Manager, as a result of which they were not considered in the compilation.

    Another revealed that documentation for sales and in-tank transfers provided was not adequate to support its sales and transfers recorded in the signed reconciliation statements.

    In that case, the report said the lack of supporting documentation especially hindered the review, hence the stock balances as of July 31, 2014.

    For the entire period under review — January 2009 to July 31, 2014 — the report noted that most of the monthly reconciliation statements prepared were signed off by only one official for BOST, adding, “For the 108 signed reconciliations reviewed, we noted that 86 (80 per cent) were signed by only one BOST official and 22 (20 per cent) were signed by two other BOST officials.”

    More seriously, the report said errors or omissions detected that could occur during the reconciliation process might not be detected and corrective action taken promptly.

    “We noted various errors in stock reconciliations which had been signed off by both officials of BOST and the BDCs,” it said.

    Overdrawn balances

    “We noted some instances when outturn certificates used by some BDCs as supporting documents for receipts on the stock reconciliations had no signatures of independent inspectors, as well as the APD Manager whose signatures were required to authenticate outturn reports.

    “The outturn certificate confirms the receipt of products and failure to sign them casts doubt on their authenticity,” it said, adding that for one BDC, “unsigned outturns related to 30,178,052 litres of gasoil and 4,470,998 litres of gasoline”.

    “Also, another company provided outturn reports for 194,105,946 litres of gasoil and 184,770,061 litres of gasoline but these were not signed and, therefore, not considered in our computation of stock values,” the report added.

    Subsequently, it recommended that BOST officials be mandated to perform monthly reconciliations obtained and file authentic outturn certificates supporting receipt of BDC products into the BOST system.

    Another revelation was that product movement information was not shared with the Finance Department on a regular basis, adding that the Finance Department only became aware of product movement when the commercial officer gave it a copy of the outturn certificate or notified it of an in-tank transfer arrangement.

    Therefore, product movement might occur without the Finance Department knowing and might result in delays in raising invoices and updating its records on stocks.

    Flow meters only used at APD

    It noted that apart from APD, the other depots did not have flow meters installed to measure the exact quantities of products they received from APD.

    “This is currently done manually using the dipping method. The quantities of products received by other depots may be inaccurately measured.

    “Management should consider the installation of flow meters at all depots maintained by BOST,” the report recommended.

    Failure to keep copies of collection

    “We noted at the APD depot that copies of collection orders which show the authorisation of BDCs for products to be lifted are orders not kept on file. Tracking of lifting of products by BDCs may become cumbersome in the absence of proper filing,” it said.

    It said management of the depots should maintain an efficient filing system of its records.


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