GRA failed to obtain PPA, Parliamentary approval for contracts with SML – KPMG audit finds

Audit firm, KPMG, has reported that the Ghana Revenue Authority (GRA) entered into various long-term revenue assurance contracts with Strategic Mobilisation Limited (SML) without the approval from the Public Procurement Authority and Parliament.

This follows an audit of the contracts between the two organisations, commissioned by President Nana Akufo-Addo in the wake of series of investigative reports by The Fourth Estate. The reports raised questions about the circumstances surrounding the signing of the contracts, the possibility of duplication of roles already being performed by state institutions and SML’s claims about how its work had benefited the state.

On Thursday, April 24, 2024, the presidency issued a statement revealing the outcome of the audit and announcing certain directives by President Akufo-Addo. It revealed that after three failed attempts to get approval to use the sole-sourcing procurement method to transact with SML, GRA decided to engage the company as a sub-contractor for West Blue, which was already providing services to GRA. SML was then engaged to provide transaction audit services when West Blue’s contract expired on December 31, 2018.

“All these were done without PPA approval,” according to the statement from the presidency.

It was not until 27^th August 2020 that the GRA got the PPA to ratify the procurement processes used to engage SML. Three years later in 2023, GRA and SML with the blessing of the Finance Ministry entered into a revenue assurance services contract with PPA approval, which extended the scope of SML’s services to include upstream petroleum and minerals audit.

KPMG also raised issues with the multi-year contracts which were signed without parliamentary approval, in contravention of the Public Finance Management Act. KPMG also received evidence to show that the contracts signed with SML in 2018 and 2019 (for transaction audit services, external price verification and downstream petroleum audits) were approved by the board of GRA, “contrary to the GRA Act, the corporate governance manual for boards/councils of public services and accepted corporate governance practices.”

KPMG, according to the statement, found that SML failed to fully deliver on the service requirements in the transaction audit and external price verification services.

“Regarding the downstream petroleum audit services, KPMG determined that there was an incremental volume of 1.7 billion litres and an incremental tax revenue of GHS2.45 billion for the period under review,” the statement said. “There were also qualitative benefits including a 24/7 electronic real-time monitoring of the outflow and partial monitoring of inflows of petroleum products at depots where SML had installed flowmeters. This serves as a deterrent for under declarations.”

These notwithstanding, the KPMG audit questioned the variable fee pricing model used for the contracts which has led to the payment of more than one billion Ghana cedis to SML from 2018 to date. The auditors pointed out that such services are usually priced using a fixed fee model.

Following the irregularities in the contracting processes, the auditor recommended the termination of the contracts but warned that “in the event of termination without cause government becomes liable to pay SML a return-on-investment equivalent to the fair value of SML’s investment in the respective [contracts].”

The statement from the Presidency further said. “The total investment value for all the services provided by SML to GRA amounts to USD177,530,902.51.”

The statement said President Akufo-Addo has accepted KPMG’s recommendations and issued several directives.

Firstly, the GRA has been directed to conduct comprehensive technical needs and value-for-money assessments before implementation of the upstream petroleum and minerals audit services. These contracts may be terminated, but they “could prevent revenue losses”, according to the statement from the presidency.

Secondly, President Akufo-Addo has asked the GRA to consider terminating the contract for transaction audit and external price verification services, which according to KPMG, has only been partially fulfilled by SML. “GRA has introduced external price verification tools as part of ICUMS [Integrated Customs Management System]. This renders the reliance on SML for external price verification redundant,” the statement said.

Thirdly, the president has directed a review of the contract for the downstream petroleum audit services, changing in particular, the fee structure “from a variable to a fixed structure.”

Finally, GRA is required to ensure that renegotiated contracts with SML are compliant with section 33 of the Public Finance Management Act.

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