“Oil sector auditors must be skilled enough to identify triggers that warrant forensic audits” – says consultant

Dec 14, 2022 News

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Kaieteur News – Guyana may not set out to conduct a forensic audit of the more than US$7B in oil expenses that ExxonMobil affiliate Esso Exploration and Production Guyana Limited (EEPGL) has delivered, but those conducting the checks and balances must be “skilled” enough to identify red flags that may warrant a deeper look into the finances of the company.

Project management specialist and public commentator Mark Weeks in an invited comment told Kaieteur News that it is a matter of “professional responsibility” to their clients that financial auditors keep an eye out for any wrongdoing or inconsistencies when ensuring the truth of the books.  He said that while the auditor may not set out to detect fraud or may not have been instructed by the client, “the auditor must be skilled enough to recognize triggers that may bring cause to a forensic audit.”

Financial Analyst and Certified Accountant, Floyd Haynes had stated in a Kaieteur Radio presentation that auditors of the Exxon bill are only tasked with reviewing the sums provided; that they are not engaged in a forensic audit or a witch hunt exercise and that the audit is being conducted according to the terms of the Stabroek Block Production Sharing Agreement (PSA).

He explained that a forensic audit is done with the aim of identifying fraud and embezzlement with the goal of gathering evidence to be used in a court”. Contrarily, a cost recovery audit is what is being done pursuant to the parameters of the 2016 Production Share Agreement (PSA) governing the Stabroek Block. “The goal is to verify the accuracy or rather the legitimacy and validity of cost claimed…,” he said.

Weeks submitted that it would be “disingenuous” on Guyana’s part to initiate a forensic audit of the oil expenses without any evidence or suspicion of wrongdoing. He agreed that to trigger a forensic audit a “financial crime” needs to be suspected. He added that a forensic audit for instance, which entails trail balances can reveal much, “but must be triggered by a justifiable cause.” Since there is no such suspicion of wrongdoing, it may not sit well for the relationship between the two parties.

He reiterated however, that once the independent auditor spots a trigger, then things become very different as the auditor is now responsible to highlight these triggers on behalf of his client and there are different ways to do that. One example, he said is that overseas as a matter of transparency, is that “the financial body will write under the International Financial Crime Act and under the (anti) Money Laundering Act to be submitted under the Transparency Act. The request is for the particulars of the business transactions to be released from overseas suppliers since Statutory (requirements) will trump on the service agreement for the release of information.” He said if things should get bad, Guyana too can make a request as “the financial body (being the SOCU & Financial Intelligent Unit of Guyana) which has the legal authority to write to sister agencies to get the information…which has the jurisprudence to solicit the information under the aforementioned act.”

Vice President Bharrat Jagdeo last Friday reaffirmed Guyana’s take in the billion Stabroek Block is 52 percent. The arrangement is that Exxon removes 75 percent of earnings made as their expenses to produce the oil sold. Guyana then gets a two percent royalty from what’s left, described as profit oil. Exxon and Guyana will then split the remaining profit down the middle. The problem with that arrangement however is that the Guyana government cannot guarantee that Exxon is not bloating its bills by merely “checking” its bills. Chartered accountant and attorney, Christopher Ram described the US$7B auditors as being “dangerously wrong” to believe that they must merely conduct a cost recovery audit. He said based on the technical details of the Stabroek PSA, the auditors should be conducting more than just a cost recovery audit. He also thought it necessary to point out to the team of Chartered Accountants that they have a duty to familiarise themselves with the technical details of the Agreement under which they have undertaken a professional engagement…”

Industry experts and local stakeholders have highlighted however, numerous instances where Guyana may be leaking money based on its contractual arrangement with Exxon. Among other things, the contract does not cater for ring-fencing so the oil company is allowed to use the finances of any of the multi-billion-dollar oil projects to conduct its operations, while it is also allowed to deduct and utilise mullions of US dollars in decommissioning cost, years ahead.  It was noted that a comprehensive audit would even shine light on the performance of local content and allow for government to create laws and policies to tighten leakage where they may occur.

In a statement on the ‘Auditor’s Responsibility for Fraud Detection’ in October, acting Chief Accountant of the US Securities and Exchange Commission Paul Munter said that “Independent auditors play an important gatekeeper role in supporting high-quality financial reporting and the protection of investors.” He said that a critical aspect of this role is an independent auditor’s responsibilities with respect to fraud detection during the financial statement audit, or, in other words, the auditor’s use of the fraud lens.”

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