April 28, 2016 Source

Poor management of gold in its possession resulted in losses of over $10 billion for the period 2012 to 2014, a forensic audit of the Guyana Gold Board (GGB) has found and among other irregularities, the audit has uncovered instances of fraudulent transactions as well as heavy political interference in the entity.

“Over the period January 1, 2012 to December 31, 2014, the Board purchased and sold in excess of $230 billion in gold. However, losses were recorded in every year and for the three year period totalled over $10.5 billion,” the report by the Ram and McRae accounting firm says. The audit report was submitted to Minister of Finance Winston Jordan last month.

It revealed a number of issues, primarily in the areas of procurement and management of gold stocks. “In our view, the losses incurred by the Board were due to the maintenance of high stocks of gold, presumably based on speculation by the Board as to the expected price movements. The Board has also failed to carry out its duties of monitoring dealers and making efforts to curb possible smuggling,” the report said.

Of the $10.077 billion losses from 2012 to 2014, the greatest was in 2013 when there was a gross loss of $9.7 billion compared with a gross loss of $281.4 million in 2012 and $79.6 million in 2014. A deeper examination of the 2013 figures revealed that the drop in gold prices caused the massive loss. The report said that losses as a result of the fall in gold prices amounted to $9.9 billion while other stock losses and exchange gains totaled $345 million and $624.1 million respectively, a net position of $9.7 billion.

“From our inquiries, the Board seemed uncertain how to respond to changing market conditions and continued to hold large quantities of gold even as the price declined further,” the report said.

It said that the Board failed to put mechanisms in place to protect itself, and the country, from falling gold prices and should consider hedging contracts and other mechanisms to ensure gold is disposed of at or above cost. The report also noted that given the large sums involved, the policy, or rather absence of any policy, needs to be addressed as a matter of urgency with participation and guidance coming from the Department of the Environment, the Ministry of Finance and the Bank of Guyana.

“At the wider Government level, the question that needs to be considered is the level of gold stocks which the Gold Board should hold and whether the national policy on gold should involve the Bank of Guyana holding gold as part of its reserves,” the report said.

Inventory

The audit revealed that unaudited financial statements at May 2015 show accumulated losses of $9.4 billion and an inventory of gold and silver of $7.8 billion. These are financed by overdraft with the Bank of Guyana of $8.8 billion and advances from the Ministry of Finance of $8.7 billion for a total of $17.5 billion. It noted that at the same date, the GGB had gold valued at a weighted average cost of $7.7 billion which exceeded market value by approximately $72 million.

However, the report said that it appears that for the foreseeable future, the GGB will not be able to clear its overdraft with the Bank of Guyana or repay the advances from the Finance Ministry.

“We do not believe that the Board has the ability to repay this amount in the short term. Moreover, the Gold Board Act is silent on how permanent losses are to be dealt with and consideration needs to be given for a re-capitalisation of the Gold Board,” the report said.

Meantime, it also highlighted that Guyana could be losing hundreds of millions in taxes as a number of dealers did not declare gold for export or payment of taxes and royalties, nor did the dealers sell to the Gold Board for a number of years.

It highlighted the case of El Dorado Trading.

The report said that during the course of the audit, rumours persisted that the company habitually sold its gold to the GGB’s operation at Bartica. As a result, several transactions by the dealer were investigated. “Our tests showed that purchases were made around mid-morning on each day around which time price declared by the Gold Board would change. What was interesting however is that the dealer invariably received the higher of the two prices for the day…” the report said.

It noted that the value of the transactions with the GGB by the dealer during the years 2012 to 2014 amounted to $26 billion in 2012, $15.9 billion in 2013 and $324 million in 2014. The report pointed out that sales by El Dorado Trading to the Bartica office were the highest of the top sellers in both 2012 and 2013 with 82,459 ounces and 58,511 ounces respectively based on the list of top sellers.

Significantly, once the Bartica branch was closed in 2014 following the report of a fraud, El Dorado Trading ceased doing business with the Gold Board, the report said. Records show that the company is still exporting gold.

“The Board has a duty to undertake a reconciliation between purchases and exports. The Act does not expressly state but implies that reconciliations should be done for every shipment. Since dealers are requested to maintain detailed records for five years it is therefore recommended that the Gold Board undertake a systematic review of dealers’ records with a view to ensuring compliance with the law,” the report declared.

It noted that a review of gold sold to the GGB and declarations made to the Board by dealers who were issued licences during the period January 2012 to May 2015 revealed that in 2015, GBTI Property Holdings Inc and Adamantium Metals declared gold and paid the necessary royalties and taxes, However, there were no sales to the GGB and no gold declared for exportation.

Grey area

“The General Manager considers that this is a grey area in the law. Once gold has been declared by the dealer and payments were made for royalties and taxes the dealer can wait to export it when they wish or sell to the Gold Board when there is a price increase,” the report said.

The report also pointed out that there were no gold declaration (for export or payment of taxes and royalties) and there were no sales to the GGB by Hope’s Trading, Dinar Trading & Miramar Investment in 2012; Rong An Inc, Hope’s Trading and Adamantium Metals in 2013; Hope’s Trading, Rong An Inc, GBTI Property Holdings Inc and Adamantium Metals in 2014; and Hope’s Trading in 2015. These dealers all had licences at various times.

Rong-An Inc

It was also revealed that Rong-An Inc, a Chinese logging company, was not issued a licence in 2015 due to the firm exporting gold without making declarations to the GGB.

The report said that the General Manager does not plan to renew licences for dealers who are not making sales to the Gold Board, declaring gold and making necessary payments or exporting gold.

It recommended that the GGB undertake an analysis of the exports of all dealers separately identifying exports into own production and purchases. “Each of these requires separate tax treatment and once the information is available, it should be forwarded to the Guyana Revenue Authority for their consideration and action. In our estimation, this could involve hundreds of millions of dollars in taxes,” the report said.

It also recommended that the Act be amended to require that licences be granted only to incorporated entities which by law require an independent audit. “Alternatively, if the Board decides to allow the continuation of the system whereby licences are issued to individuals, the requirement for an independent audit should be mandatory,” the report said.

Meantime, the report highlighted the political interference in the GGB. It pointed out that former Ministry of Natural Resources and the Environment Robert Persaud appointed Bobby Gossai Jr as Secretary to the Board. “In our opinion, the Act does not give the Minister the power to name or nominate the Secretary to the Board and the Minister’s action amounted to a usurpation of the Board’s authority,” the report said.

It noted that during the period under review the position of General Manager was held by two persons: Anantram Balram and Lisaveta Ramotar.

Balram resigned his position as General Manager effective November 4, 2014. On October 20, 2014 there was a Special Meeting of the Board, the nature of which meeting “was related to the General Manager’s status.” According to Agenda item 2 of the meeting “the meeting was told that Minister Robeson Benn called the Chairman concerning the General Manager’s issue,” the report said.

At the meeting, Board member Andron Alphonso is reported to have stated that Balram was on leave for a significant amount of time and suggested that while there was no evidence of the General Manager’s participation in fraud, he may have been guilty of negligence.

“Significantly, the Board Secretary Mr Bobby Gossai is reported in the Minutes to have said that notice was given by the Permanent Secretary to the Board and that the package cannot be negotiated by the Board. He stated that the Board has to fulfil the mandate of the Cabinet. He also voiced his disapproval in bringing back the General Manager for a week to “save face” and stated that this suggestion should be turned down,” the report said.

Gossai also said that no minutes were available as yet on the Permanent Secretary’s communication to the Board due to the fact that he was otherwise occupied. The report said when asked for the documentation of the notice mentioned, Gossai indicated that communication was done verbally to the Chairman of the Board via a telephone call.

“The records of the Gold Board do not permit us to arrive at any conclusion regarding the resignation of Mr Balram from the Board. The records do indicate however that there was ministerial intervention in the matter. As noted elsewhere, the authority for the appointment and recommendation of the General Manager rests with the Board, subject to the approval of the Minister. Accordingly the notification conveyed by the Board Secretary to the Board that “notice was given to the Permanent Secretary to the Board and that the package cannot be negotiated by the Board” was unlawful, improper and ultra vires the Cabinet, the Minister, the Permanent Secretary and the Ministry,” the report said.

“In our view disciplinary action ought to be taken against the Board Secretary Mr Bobby Gossai and the Permanent Secretary Mr Joslyn McKenzie,” it added.

Forgery

Further, it highlighted that there was the forgery of the signature of the then Board Chairman. The report said that in the course of the audit, a letter was presented which bore the signature of the Board Chairman addressed to Balram. The letter allowed Balram to proceed on his remaining annual leave for 2014 which amounted to 49 days. Balram was required to resume full duties with the Gold Board on 4 November 2014 and was therefore on leave since May 2014.

“Acting on information provided to us, we confirmed that the signature of the Board Chairman was lifted from another document. This is a gross act of forgery that should be pursued by the appropriate authorities,” the report said.

In relation to Ramotar’s appointment, the report said that another applicant for the position Yog Mahadeo ought to have scored higher than her and should have been offered the post.

The report also noted that included in the expenses paid by the GGB are payments made on behalf of the Ministry of Natural Resources and the Environment which totalled $63.1 million for the period 1 January 2012 to 31 May 2015. It said that the ministry is a budget agency for which appropriations were made in each of the years 2012 – 2014, and by virtue of Article 219 of the Constitution, for the period in 2015 up to the point of the Budget.

“The payments are clearly a means of circumventing the Appropriation Act and action should be taken against those responsible for the payments. However, the Directors of the Gold Board cannot escape culpability for the payments which were not proper expenses of the Board,” the report said.  It pointed out that the GGB has not been reimbursed for any payments made on behalf of the Ministry.

“These payments were treated as expenses of the Board and not recorded as a receivable. The Board should consider restating the financial statements for 2012 to 2014 to ensure correct treatment of the payments made on behalf of the Ministry. Additionally, the Board should seek to have all payments reimbursed by the Ministry,” the report recommended.

The audit also found that the employment contracts of several individuals engaged to undertake duties at the Ministry of Natural Resources are entered into between the GGB and those persons. “In the event of a dispute between the Ministry and the employee, the Board may face certain legal consequences as the employer of record. As noted earlier, we were unable to obtain any legal justification for the Guyana Gold Board to be funding costs of the Ministry without provision for reimbursement,” the report said.

It asserted that the GGB should not be a party to contracts on behalf of other entities and the Board should terminate all current contracts for employees of the Ministry and have the Ministry issue such contracts directly.

The audit also revealed that in 2013 and 2014, 101,000 ounces of gold was sold to the Central Bank based on the then Minister of Natural Resources and the Environment and the Governor of the Bank of Guyana authorising this transfer. “This is not only a usurpation of the functions of the Board by the Minister but also placed the Governor of the Bank of Guyana in a conflict of interest position since he is also Chairman of the Gold Board,” the report said. For two transactions, the GGB would have lost millions based on the price utilized.

The report also highlighted instances where the Board made final payments on quotations rather than invoices. “This increases the risk of payments being made more than once for an item (once on the quotation and another on the invoice) or payment being made on a quotation for an item or service not received,” the report said.

It urged that the Board ensure that the terms of delivery and payment are clearly established and ensure that all final payments are made after receipt and evaluation of the goods or services, and on original invoices.