GNPC – Summary findings and recommendations

2.106 The Financial Statements detail that GNPC has been profitable in six of seven years covering 2010 to 2016. In 2015 it posted a loss due to increased administrative costs for overseas travels and increased bank charges realized in the year. GNPC is technically solvent based on the figures in the Financial Statements and the draft Management Accounts provided.

2.107 The External auditors issued a qualified opinion for the 2015 Financial Statements, as well as

a “Disclaimer of Opinion” on the 2016 Financial Statements. The “Report of the Independent Auditors” in the Financial Statements for both years raised issues which could impact the profit for 2017.

Table 16: Summary Balance Sheet as at December 31, 2017

	2016 (GMD’000)	2016 (USD’000)	% of asset / liability total	2017 (GMD’000)	2017 (USD’000)	% of asset / liability total
Non-Current Assets
Fixed Assets	379,704	8,676	13%	429,011	8,936	17%
Equity Investments	128,210	2,930	4%	157,295	3,276	6%

Current Assets
Cash	185,186	4,232	6%	61,958	1,291	3%
Trade and Other Receivables	2,043,178	46,687	67%	1,804,607	37,590	73%
Staff Loans	12,556	287	1%	17,840	372	1%
Inventory	284,148	6,493	9%	0	0	0%

Liabilities
Trade Payables	1,722,152	39,351	87%	1,515,511	31,568	94%
Other Payables	185,828	4,246	9%	88,692	1,847	6%
Corporation Tax	83,867	1,916	4%	–	–	–

Net Assets / Equity	1,041,135	23,790		866,508	18,049

Source: EY analysis of GNPC 2016 Financial Statements and 2017 draft Management Accounts. We applied exchange rates of GMD 43.764: USD 1 for 2016 and GMD 48.008: USD 1 for 2017. Therefore, the GMD depreciated by almost 10% between the two dates.

2.108 Additionally, our review of the 2017 draft Management Accounts indicates that the technical solvency of the company is dependent upon the collectability of a large Trade Receivable from The National Water and Electricity Company (“NAWEC”). This is the largest single asset

on the Balance Sheet of GNPC. Management estimates the debt at GMD 833m

(USD 17.35m). Given the financial difficulties at NAWEC, it is highly unlikely that GNPC will be able to recover this debt.

2.109 The December 2017 draft Management Accounts of GNPC currently presents a Retained Earnings balance of GMD 847m (USD 17.6m). If the entirety of the NAWEC receivable is written-off or provided for, this alone would reduce the Retained Earnings balance to GMD 13.5m (USD 281k).

2.110 We note that the draft Management Accounts of GNPC may require several additional writeoffs which could quickly cause the Retained Earnings balance to become negative. For example, if GNPC writes-off all the GNPC station receivables from the Trade Receivables sub-ledger, this alone would constitute a write-off of GMD 131.9m (USD 2.7m).

2.111 Senior Management and the Finance team at GNPC were very receptive and helpful throughout the course of the fieldwork. However, the Finance team faced difficulties in providing documentation and functional reports due to both incomplete physical records, as well as an accounting system (Navision) which is not fully equipped to handle the reporting requirements for the entity.

2.112 We note that GNPC currently has difficulty in providing complete and verifiable documentation from both a technical and physical perspective. GNPC’s Navision accounting system, which maintains GNPC’s financial reporting information, suffered a failed migration in 2017 which caused several financial reporting issues. The Finance team at GNPC has also noted that the system is unable to generate several key reports expected in any accounting system.

2.113 GNPC was unable to provide supporting documentation for several samples that we selected. Generally speaking, the unavailable documentation related to activities which took place in the period under the previous regime. We note that the inability to produce supporting documentation will cause difficulties for GNPC as it will be unable to substantiate balances for the 2017 Statutory Audit.

2.114 Based on our findings during the Forensic Audit, it appears that any Financial Statements that Management provide for the period ended December 31, 2017, could not currently be satisfactorily subject to External Audit. This is consistent with the ‘no opinion’ audit opinion reported by the external auditors for the 2016 Financial Statements.

2.115 The Finance team were very open about any issues encountered and acknowledged many of the findings as areas they aim to remedy in the oncoming months. This includes using the new accounting platform (FinEx) to address the Revenue, Inventory, and Cost of Sales recognition issues discussed below. We understand that the migration to the new platform is currently underway.

Financial impact of the issues identified

2.116 The approximate financial impact of the issues highlighted in our work to date are captured in

the tables below, shown against the net equity position of the draft Management Accounts as at December 31, 2017. Issues that cannot be or have not yet been quantified are explained more fully in the commentary:

Table 17: Financial impact of issues uncovered during the Forensic Audit

2017 2017

Brief description of issue (GMD’000) (USD’000)

Net Assets / Equity as at December 31, 2017	866,508	18,049
Section 1 – Adjustments that could be quantified (above USD 20k)
1. Impairment of NAWEC receivable	(832,977)	(17,351)
2. Write-off of station receivables	(131,906)	(2,748)

Section 2 – Adjustments that could not be quantified, however could be broadly estimated:

Section 3 – Adjustments that cannot currently be quantified nor estimated, but likely to be above USD 20k:

3. Reconciliation of Trade Receivables balances		TBD		TBD
4. Accounting adjustments for Upstream funds		TBD		TBD
5. Inventory recognition and valuation for the year		TBD		TBD
6. Reconciliation of Trade Payables balances		TBD		TBD
7. Reconciliation of Cash and Cash Equivalent balances		TBD		TBD
8. Adjustment of Fixed Assets balance following full asset verification		TBD		TBD
9. Depreciation adjustment	TBD		TBD
10. Fuel cost of sales recognition for the year	TBD		TBD
11. HFO accounting loss	TBD		TBD
Suggested revised Net Liabilities / Equity following adjustments in Section 1 and Section 2 only	(98,375)		(2,050)

2.117 We note that the nature of the findings above and the incomplete status of the accounts removes our ability to make multiple recommended adjustments to the accounts. Many of the balances have changed significantly in the period between us receiving the 2017 draft Management Accounts and the issue of subsequent Trial Balances. Accordingly, we have highlighted several of the key potential findings which threaten the financial position of the business.

2.118 From the summary of findings, it is evident that the accounting policies and procedures at GNPC are deficient (as regards the absence or non-application of accounting policies, absence of essential accounting procedures and absence of supporting documentation for accounting entries) and consequently little or no reliance can be placed on the 2017 draft Management Accounts. Moreover, Senior Management does not have the relevant, accurate, up-to-date financial information to manage the business effectively.

2.119 We recommend that consideration is given to GNPC not being subject to an External Audit for the next two years while Senior Management rectify these serious flaws and become able to produce Financial Statements that are of auditable quality. We make this recommendation because External Audit is a time-consuming activity which helps neither Senior Management or the reader of the Financial Statements in the present circumstances.

Significant findings

2.120 Our significant findings in relation to our Special Audit of GNPC as at December 31, 2017, which are explained more fully in this section of the report, are as follows:

Reconstruction of the GNPC Balance Sheet (Financial impact table item 3)

► For a period lasting approximately one year (August 2016 to August 2017) there was no effective finance leadership at GNPC. At one point, there was no Finance Director. For the remainder of the period, interviews with the Finance team and Senior Management indicate that the acting Finance Director did not have the appropriate technical and management capabilities or qualifications to run the finance function. This led to a significant backlog of key financial reporting controls and procedures, and a lack of direction which led to a prevalence of incorrect accounting practices.

► This breakdown of governance and key financial controls has greatly hindered the accuracy, existence, auditability, timeliness and transparency of the financial records at GNPC.

► In 2017, a new Finance Director was brought to GNPC to address the financial reporting concerns at the entity. The Finance Director hired additional qualified resources to address the fundamental gaps in the financial records. The Finance team has since begun a major financial reconstruction exercise to clear the large backlog of financial reporting controls and reconstruct the key areas of the Balance Sheet in order to restore integrity to the Financial Statements. He has assembled three teams focused on fully reconciling the balances for Cash, Trade Receivables and Trade Payables. Given the severity of the historical problems, this exercise is proving time consuming and complex.

► We recommend that GNPC continue to financially reconstruct the 2017 accounts and clear the backlog of key financial controls. We recommend they continue to focus on Cash, Trade Receivables, Trade Payables, an Inventory as priority areas.

► We additionally recommend that GNPC recruit or contract additional skilled resources to aid in this process as the backlog of controls and procedures is significant.

Recoverability of NAWEC Trade Receivable (GMD 833m, USD 17.35m / 34% of Total

Assets) (Financial impact table item 1)

► The NAWEC receivable is the largest single asset on the Balance Sheet of GNPC. Management estimates the debt at GMD 833m (USD 17.35m). Given the financial difficulties at NAWEC, it is highly likely that GNPC will not be able to recover this debt. In our review of the centralized plans to resolve NAWEC’s financial obligations, we saw no mention of a formal plan to settle their trade payables liability to GNPC.

► Trade Receivables also includes the amount of a GMD 585m (USD 12.2m). Management has not been able to provide support for this amount, which is Management’s estimate of the foreign exchange (“FX”) gain on foreign currency receivables (most notably NAWEC). The NAWEC receivable is so significant that should GNPC be unable to recover any payment at all, GNPC could become close to technical insolvency.

► We recommend that GNPC, NAWEC and the Government of The Gambia meet to agree a formalized plan of action in respect to NAWEC’s debt to GNPC.

Inconsistent accounting treatment applied to Upstream funds (GMD 225m, USD 4.9m for the year ended December 31, 2017) (Financial impact table item 4)

► Funds collected from upstream activities have been inconsistently accounted for over the period from 2010 to 2017 and no formalized accounting policy or agreement for the accounting treatment exists. We recognize the uncertainty faced by GNPC Senior Management in establishing the correct accounting treatment given the legal and commercial implications for the parties involved in generating the upstream funds.

► We recommend that GNPC, the Ministry of Petroleum and Energy (“MoPE”) and the Government of The Gambia review the mechanism in which GNPC and MoPE account for upstream funds. We also recommend that any policy or agreed upon accounting treatment is implemented as soon as possible into the financial accounts. This should include a review of how to account for the different aspects of the licensing fees on an accruals basis.

Petrol stations treated as customers (GMD 131.9m, USD 2.7m / 5% of Total Assets)

(Financial impact table item 2)

► Fuel movements from the Gam Petroleum depot to the nine GNPC stations are incorrectly treated as sales to customers, and the resulting balances with the stations are incorrectly recognized as receivable balances. Multiple conditions for revenue recognition under International Accounting Standard 18 (the relevant revenue accounting standard as at December 31, 2017) are not satisfied. We noted the following:

▶ GNPC had not transferred to a third-party buyer the significant risks and rewards of ownership of the goods;

▶ GNPC retained both continuing managerial involvement to the degree usually associated with ownership and effective control over the goods sold; and

▶ It was not yet probable that the economic benefits associated with the transaction would flow to GNPC.

► As at December 31, 2017 Trade Receivables from GNPC stations are valued at GMD 131.9m (USD 2.7m). The correct accounting treatment is to treat fuel at the depot and the nine stations at cost (or net realizable value in the unlikely event this falls below cost) until sold to a third party. The overall impact on the Balance Sheet of this improper accounting treatment is that assets and revenue are overstated at the end of the financial period.

► We recommend that all the petrol station receivables should be written out of Trade Receivables. Inventory should then be recognized at the lower of cost and net realizable value. Going forward transfers between the depot and the stations should be treated as Inventory movements.

No Inventory balance in draft Management Accounts (Financial impact table item 5)

► Current practices to account for Inventory do not adequately track or manage the Inventory balance throughout the financial period. Accordingly, Management was unable to calculate an Inventory figure for the draft Management Accounts.

► We recommend GNPC revises the accounting procedures for the purchase, receipt and issues of fuel in line with the good industry practices. This includes recognition of the assets in the Inventory account, and a corresponding liability in Trade Payables upon the receipt of the fuel and its related invoice. For the fuel that has been receipted but not yet invoiced, we recommend that GNPC establish a process to account for it in a Goods Received and Not Invoiced (GRNI) General Ledger (GL) account.

► A 100% inventory account needs to be performed in accordance with good practice to establish an opening position for inventory and a physical inventory tracking system developed. Thereafter, periodic test counts need to be performed to check the ongoing accuracy of the accounting records.

Trade Payables balance unsupported (GMD 1.5b, USD 31.6m / 94% of Total Liabilities)

(Financial impact table item 6)

► Trade Payables contains a manually calculated estimate separate from the accounting system. We note GMD 709m (USD 14.8m) was manually added to the Trial Balance figure by the Finance team to bring the balance in line with current estimates of the balance. Additionally, the Trade Payables sub-ledger does not accurately reflect supplier balances due to an incorrect accounting treatment for supplier payments and fuel purchases.

► The Islamic Trade Finance Corporation (“ITFC”) loan facility requires a full reconciliation between the Government of The Gambia, GNPC and ITFC. The final financial liability and its associated beneficiary will not be clear until this is concluded.

► We recommend that GNPC performs a full supplier-by-supplier rebuild of the Trade Payables sub-ledger, including the ITFC liability. This will allow GNPC to identify their actual liability to all suppliers as of December 31, 2017. It will also allow GNPC to better manage their working capital and resolve any potential supplier disputes.

We also recommend that GNPC immediately ceases the practice of directly debiting any cash payments into the Trade Payables sub-ledger when they are not associated to a specific invoice which has been entered into the ledger. This will prevent the build-up of debit balances in the ledger and assist in maintaining a more accurate view on the Trade Payables balance.

Ongoing Cash and Bank reconciliation (GMD 61.96m, USD 1.29m / 3% of Total Assets)

(Financial impact table item 7)

► The 2017 cash position cannot be currently determined as bank reconciliation and consolidation procedures are still ongoing. The value on the face of the Balance Sheet was calculated based on an incomplete selection of cash GL accounts and a manually added adjustment.

► The bank accounts confirmed by GNPC and the bank accounts present in the accounting system require review and reconciliation.

► We recommend that GNPC continue the bank reconciliation procedures and investigates all discrepancies between the cashbooks in Navision and the current listing of bank accounts.

Retained Earnings used as balancing figure (GMD 846.5m, USD 17.6m)

► Retained Earnings is currently a balancing figure in the draft Management Accounts. This means the value of the figure has been manually calculated and inserted in order to equate GNPC’s Net Assets to the Total Equity (with no basis) on the Balance Sheet.

► We recommend that GNPC continues the current financial reconstruction efforts in order to reach an accurate Retained Earnings figure which would be representative of the 2017 financial period.

Diversion of funds

► The Office of the President has historically accessed the upstream funds collected by GNPC in the USD bank accounts. This resulted in the GMD 251.7m (USD 5.7m) write-off of Government debt and could account for further cash diversions.

► GNPC has been the target of several Executive Directives for loans and political donations which have not brought any recognizable benefit to the business. These loans and donations are valued at, as a minimum, GMD 38.3m (USD 1.4m).

► We recommend an independent investigation of the GNPC USD accounts is conducted to better quantify the diversions of GNPC funds during the time of the former regime.

► We recommend that GNPC create a formalized policy and associated governance process in respect to all sponsorships and donations to reduce the risk of diverted funds disguised as charitable donations or sponsorships.

Land purchase

► Our review of Board minutes highlighted discussion between the Board and Management regarding a significant land acquisition, the purchase contract for which was signed in December 2017. The Board minutes capture a concern raised by a Board member that the land was purchased at a significant overvalue. Our enquiries to assess the governance around the acquisition included discussion with the current Minister of Finance, who was the GNPC Managing Director at the time of the purchase.

The Minister of Finance explained to EY that while the purchase price was high at GMD 17m (USD 310k), his team negotiated a discount from the GMD 19m initial valuation, which was commissioned by the seller, and represented excellent value considering the strategic importance of the site.

► Central to our audit enquiries was a valuation report that was produced by a Gambian valuation company, Sphinx Associates Gambia Co. Ltd in, October 2017. We have reviewed the report and confirmed that it independently valued the land and buildings at GMD 19m.

Potential discrepancies in Fixed Assets (GMD 429m, USD 8.9m / 17% of Total Assets)

(Financial impact table item 8)

► The Fixed Asset balance per the Management Accounts and the Fixed Asset Register potentially contain assets which do not exist or have no residual value. A full asset verification exercise is required to establish an accurate position.

► We recommend that GNPC engages a third party to perform a full Fixed Asset verification and valuation to properly revalue their asset base.

Other findings

2.121 Other findings in relation to our Special Audit of GNPC as at December 31, 2017, which are explained more fully in this section of the report, are as follows:

Trade and Other Receivables (GMD 1.8b, USD 37.6m / 73% of Total Assets)

► GNPC has several potentially uncollectable Trade Receivable balances. This includes a balance from the Office of the President and GAMTEL, which are estimated at GMD 81.1m (USD 1.7m).

► We recommend that a robust bad and doubtful debt provisioning policy is designed and implemented at GNPC. This policy should allow the business to provide for specific potentially uncollectable debts, and should challenge the recoverability of other aged debt.

Non-Current Assets (GMD 586.3m, USD 12.2m / 23% of Total Assets) (Financial impact table item 9)

► Depreciation calculated by the system is manually multiplied by 2.25 to arrive at a revised depreciation figure which is in line with management’s best estimates. We were not provided with a rationale for the use or size of the multiplier.

► The Gam Petroleum investment of GMD 128m (USD 2.7m) has only recently begun paying dividends and may require impairment.

► We recommend that GNPC engages a third party to perform a full Fixed Asset verification and valuation to properly revalue their asset base.

► We also recommend that GNPC conducts an analysis of the carrying value of the Gam Petroleum investment in order to determine if the cash flow from the investment is sufficient to justify the existing carrying value.

Cash and Bank (GMD 61.96m, USD 1.29m / 3% of Total Assets)

► Multiple GNPC bank accounts have former employees listed as signatories.

► Limited documentation was provided for high value cash transactions tested.

We recommend that all signatories which are former employees are removed from the respective bank accounts. This will reduce the possibility of fraud and unwarranted payments from the GNPC accounts.

► We recommend that GNPC maintain supporting documentation for all bank payments.

Inventory (No balance in 2017 draft Management Accounts)

► Fuel nominations at Gam Petroleum, which allocate fuel to GNPC for future use, are not recognized as Inventory in the draft Management Accounts.

► We recommend that GNPC begins recognizing the fuel nominations in the Inventory accounts immediately.

Income Statement (Net profit of GMD 38.3m, USD 834k for the year ended

December 31, 2017) (Financial impact table items 10,11)

► The cost of sales figure for 2017 is incomplete as it does not yet contain the costs of fuel purchases. The exercise to recognize these expenses is only performed as part of year-end procedures. The final impact on the Income Statement will not be finalized until the Trade Payables reconciliation is complete.

► The Heavy Fuel Oil (“HFO”) revenue stream currently shows a gross loss for 2017 of GMD 450.7m (USD 9.8m) which has not been explained by the Finance team.

► We recommend that costs of sales are accounted for throughout the financial period as this will better inform key stakeholders on the performance and profitability of the business.

► We recommend that GNPC continue the current financial reconstruction efforts in order to reach a final profit or loss figure which would be representative of the 2017 financial period.

► We recommend that GNPC begins collecting and storing key information concerning product volumes bought and sold, as well as the different prices paid for their fuel purchases so they can better understand and track the margin contribution for each of these products.

GCAA – Summary findings and recommendations

2.122 In the section below, we set out our summary findings and recommendations in relation to our Forensic Audit of GCAA in the eight years to December 31, 2017. Further detail on each area is provided in the detailed findings section that follows.

2.123 The draft Financial Statements for the year ended December 31, 2017, currently show a loss of GMD 229m (USD 5m). This represents an increase of 57% on the loss of GMD 146m

(USD 3.5) incurred in 2016. This is due to an increase to the depreciation after reclassing WIP to the Buildings Fixed Asset class, as well as increases to both Staff Costs and Administrative Expenses, up 17% and 40% respectively.

2.124 Operating profit margin has fluctuated significantly, but is currently -65%, the worst margin

during the 2010 to 2017 period. In 2015, a margin of 10% was achieved as a result of the central Government pegging the Dalasi to the US dollar. At December 31, 2017, GCAA reported a positive net asset value of GMD 798m (USD 16.6m). This is comprised predominantly by a Fixed Asset balance of GMD 3,961m (USD 82.5m), which represented 95% of total Assets and non-current liabilities totaling GMD 2,155m (USD 45m).

Table 18: Summary Balance Sheet as at December 31, 2017

	2016 (GMD’000)		2016 (USD’000)		% of asset / liability total		2017 (GMD’000)		2017 (USD’000)		% of asset / liability total
Non-Current Assets
Fixed Assets (PPE)	4,053,693		92,627		95%		3,961,072		82,509		95%
Project Development	91,420		2,089		2%		92,639		1,930		2%
Sub total	4,145,113		94,716		97%		4,053,711		84,439		97%
Current Assets
Inventories	9,308		213		0.2%		8,878		185		0.2%
Receivables	62,315		1,424		2%		116,715^[1]		2,431		3%
Corporation Tax	5,503		126		0.1%		4,634		97		0.1%
Cash	27,536		629		1%		3,734		78		0.09%
Sub total	104,652		2,392		3%		133,961		2,791		3%

Non-Current Liabilities
Loans	887,052		20,269		27%		953,191		19,855		28%
Airport Regularization	1,202,285		27,472		37%		1,202,285		25,044		35%
Sub total	2,089,337		47,741		64%		2,155,476		44,899		63%
Current Liabilities
Loans	506,906		11,583		16%		507,228		10,566		15%
Interest Payable	504,630		11,531		16%		559,437		11,653		17%
Bank Overdraft	22,109		505		1%		33,930		707		1%
Trade Payables	118,966		2,718		4%		133,183		2,774		4%
Sub total		1,152,611		26,337		37%		1,233,778		25,700		37%
Net Assets / Equity		1,007,827		23,029				798,418		16,631

Source: Draft 2017 Financial Statements. We applied exchange rates of GMD 43.764 : USD 1 for 2016 and GMD 48.008 : USD 1 for 2017. Therefore, the GMD depreciated by almost 10% between the two dates.

2.125 Using the comparison of current assets to current liabilities, GCAA has not been solvent in any year from 2010 to 2017. For example, current assets in 2017 are GMD 134m (USD 2.8m) compared to current liabilities of GMD 1.2b (USD 25.7m), a deficit of GMD 1,066m (USD 22.9m).

2.126 We were provided with a draft Balance Sheet which was revised several times over the course of our fieldwork. Relative to the other SOEs, the application of accounting principles at GCAA is reasonable. The balances that proved the most challenging to audit were the Fixed Assets and Airport Regularization. Additionally, GCAA do not correctly depreciate the entirety of their Fixed Asset balance, and rely on the External Auditors to prepare the bad debt provision balance.

2.127 The underlying accounting documentation and records at GCAA are poor. This is primarily a result of the Access Accounting system, which prevents the exporting of accounts and balances to Excel. This makes it incredibly challenging to assess and audit these balances. It should be noted that in some cases, postings are made with insufficient information in the description, such as FX rates, or commentary on the item, which makes understanding the nature and value of the balance difficult.

Financial impact of issues identified

2.128 The approximate financial impact of the issues highlighted in our work to date are captured in the tables below, shown against the net equity position of the draft Financial Statements as at December 31, 2017. Issues that cannot be or have not yet been quantified are explained more fully in the commentary:

Table 19: Financial impact of issues uncovered during the Forensic Audit

Brief description of issue	2017 (GMD’000)		2017 (USD’000)
Net Assets / Equity as at December 31, 2017	798,418		16,631
Section 1 – Adjustments that could be quantified (above USD 20k)
1. Additional depreciation charge	(42,300)		(881)
2. Recognition of Phase II Airport Development Loan	(473,000)		(10,000)
3. Recognition of Phase II Airport Development Loan interest and FX expense	(297,000)		(6,200)
4. Recognition of Phase II Airport Development Interest Payable balance	(87,000)		(1,800)
5. Removal of historic Government loan	437,000		9,100
Section 2 – Adjustments that could not be quantified, however could be broadly estimated:
6. Increase to Airport Regularization balance		(396,000)	(8,200)
7. Increase to Fixed Asset balance		396,000	8,200
8. Removal of Interest Payable in relation to historic Government Loan		413,000	8,603
9. Increase to GIA receivable		10,800	225
10. Increase to receivables provision		(10,800)	(225)
11. Additional depreciation on Project Development balance		3,645	(76)

Section 3 – Adjustments that cannot currently be quantified nor estimated, but likely to be above USD 20k:

12. Reduction of Airport Regularization balance to account for recognition of Phase II Airport Development Loan	–	–
Suggested revised Net Liabilities / Equity following adjustments in Section 1 and Section 2 only	745,473	15,528

Source: Information compiled during fieldwork

2.129 If the proposed adjustments were finalized, the Net Asset position would worsen, but only marginally, decreasing by GMD 53m (USD 1.1m). This is driven primarily by the recognition of the foreign currency loan as outlined in the Airport Regularization section above.

2.130 The recognition of this loan also includes the combined interest and FX loss from 2008 to 2017, per item 4 in Section 1. Additionally, the Balance Sheet would have to reflect an increase to the Interest Payable account per note 5 in Section 1, given that GCAA has not paid off any of the interest.

2.131 The impact of recognizing this foreign currency loan is approximately GMD 857m

(USD 17.9m). It should be noted that this would be partially offset by reducing the Airport Regularization account for any balances that relate to this loan, to prevent a liability balance being recognized twice. We are unable to quantify this balance, and it warrants further investigation.

2.132 In this assessment, the reduction in the Net Asset position has been mitigated by the removal of the historic Government loan, on the premise that the Government are not expecting the balance to be repaid. If this loan was not deemed owed, there is also a portion of the current Interest Payable balance that would be removed, which has been estimated in Section 2 of the table above. No records were provided to us in relation to the FX rates GCAA has used historically when booking the annual charges, and consequently this balance is an estimate.

2.133 It should be highlighted that if the historic Government loan is deemed collectible by the Government, and GCAA recognize the currently unrecognized loan relating to the signed financing agreement, this will result in a negative Net Asset position for GCAA.

2.134 The increase to the GIA receivable is offset by the likelihood that the balance would subsequently be provided for by GCAA. As noted in the Receivables section above, GIA are not currently paying off their outstanding debt.

[1] The Trade Receivables figure shown here is GMD 20m higher than on the latest draft 2017 Financial Statements we obtained. This is due to changes being made by the GCAA Finance Team, who confirmed the new balance would be GMD 177m.

Significant findings

2.135 Our significant findings in relation to our Special Audit of GCAA as at December 31, 2017, which are explained more fully in this section of the report, are as follows:

Fixed Assets (GMD 3,961m, USD 82.5m / 95% of Total Assets) (Financial impact table item 1)

► 95% of the Fixed Assets of GCAA are Land and Buildings, as at December 31, 2017. GCAA revalued its Land and Buildings Fixed Asset balance in 2014, which resulted in an increase to the Fixed Asset value of 211%. It is this revaluation exercise that results in GCAA being solvent on the total Net Asset basis. In addition, the basis of revaluation is cost of replacement, which has no regard for the profit generating capability of these special use buildings.

► Buildings make up 89% of the Fixed Asset balance. The remainder of the balance primarily includes Leasehold land as well as Furniture and fixtures, representing 6% and 3% of the total Fixed Asset base respectively.

While GCAA does maintain a Fixed Asset Register, it is neither comprehensive nor accurate. The Fixed Asset Register differs from the Fixed Asset listing maintained by the Procurement department, with assets such as the Fire Tenders (GMD 74m, USD 1.5m) not itemized or recorded with asset tags. Furthermore, the additions per the Fixed Asset Register do not tie to the draft 2017 Financial Statements. This makes it impossible to verify the Fixed Asset balance as at December 31, 2017 based on the available records.

► Our Fixed Asset verification exercise highlighted significant deficiencies around the tagging of Fixed Assets, with several high value items not tagged or missing from the register.

► The Accounting Policy Manual maintained by the Finance Team has two different sets of depreciation rates for the same asset classes. Furthermore, GCAA does not currently follow its own depreciation policy, depreciating all newly acquired assets for a full year, not on a month by month basis.

► In 2016, the Fixed Asset WIP balance was GMD 1,342m (USD 30.7m), representing 33% of the total Fixed Asset balance. The WIP balance was reclassified in its entirety in 2017, but depreciation was not charged on certain WIP balances prior to 2017, as it should have been as soon as the assets were complete. We estimate that the charge that was not accounted for in relation to this balance, from 2010 to 2016, is GMD 42.3m (USD 881k). This is a result of depreciating the WIP balance for a full year from 2010 to 2015 at a rate of 2%, and then the extra WIP recognized in 2016 for 6 months, when it should have been reclassed.

► The Fixed Asset revaluation performed by Francis Jones Associates in 2014 focused on Land and Buildings, and it is not clear how the Revaluation Balance has been reached for the six other asset classes, totaling GMD 136m (USD 2.8m). GCAA do not have any current plans to perform another revaluation, potentially in noncompliance with international accounting standards.^[1]

► GCAA needs to create a comprehensive Fixed Asset Register which is regularly updated and reconciled to the Trial Balance. This should be coupled with regular asset verification, to ascertain the existence and current state of the Fixed Assets that are recognized in the Financial Statements.

► In accordance with GAAP, GCAA should consider performing an up to date asset revaluation exercise in respect of assets where management has grounds for belief that the carrying value of the assets are materially different from their fair value.

Airport Regularization (GMD 1,202m, USD 25m / 35% of Total Liabilities) (Financial impact table items 2,3,4,6,7)

► Airport Regularization represents the costs incurred in relation to the Phase II Airport Development Project. GCAA have recorded the cost by reference to Interim Payment Certificates from the consultant, NACO, and this balance is recognized under long term liabilities. An asset of equivalent value is included under Fixed Assets. GCAA have classed the balance as Airport Regularization pending a decision from the Government on whether it should be treated as a loan, grant, or additional capital.

► The Airport Regularization balance is potentially understated. We re-calculated the value to be GMD 1,598m (USD 33.3m) based on the Interim Payment Certificates (“IPCs”) we obtained, representing a difference of GMD 396m (USD 8.2m) or 33%.

Documentary support for the Airport Regularization balance appears to be incomplete, as two IPCs, IPC nine and ten, were not provided to us and no explanation was provided for the absence of this documentation.

► The Gambian Government has obtained loans to fund the Airport Regularization, totaling GMD 1,385m (USD 28.8m). Of these loans, one has a signed back-to-back lending agreement between the Gambian Government and GCAA. Therefore, GCAA is potentially in effect ultimately liable for the loan balance. This loan is not reflected on the Balance Sheet for GCAA. As already noted, GCAA has booked values based on the IPCs.

► If the IPC balance, currently recognized as Airport Regularization, was accounted for from a loan perspective, similar to the Phase I Airport Development Project, both the historic FX revaluations and Interest Payable amounts would need to be recognized, which would result in the overall impact being higher than the balance currently recorded.

► The respective loan liability would be approximately GMD 473m (USD 10m), and the accumulated interest liability would be GMD 87m (USD 1.8m). Historic costs such as FX revaluation and interest payments would also have a notable impact, with the balance approximately GMD 297m (USD 6.2m) This loan is not reflected on the Balance Sheet for GCAA.

► Discussions with the Loans Department, within MoFEA, identified a loan that was obtained by the Government as recently as July 2017, for a total of SAR 71.25m, which is equivalent to USD 19m or GMD 912m. The purpose of this loan is further airport development, which is an indication that the Airport Regularization balance will continue to grow in the next few years.

► As the Government continues to obtain loans for the development of the airport with GCAA still unable to manage any form of repayment, it indicates that there is no clear and coherent funding plan in place for the development of the airport.

► The Government must determine whether GCAA should be held liable for the lending agreement signed between GCAA and the Government.

► GCAA needs to work with the current Airport consultant, NACO, to properly identify the cost in relation to the Interim Payment Certificates, so as to correctly capitalize the appropriate amount, and recognize an appropriate liability. Once this value has been identified, the Government should consider converting this debt to equity, to aid GCAA in attempting to operate profitably.

Non-Current and Current Loans (GMD 953m, USD 20m and GMD 507m, USD 11m / 43% of

Total Liabilities)

Table 20: Long term and short-term loan position per draft 2017 Financial Statements

Loan	Type	Short Term (GMD’000)	Long Term (GMD’000)	Total (GMD’000)	Total (USD’000)
Government	FX Currency Loan	436,701	–	436,701	9,096
SSHFC	SOE related Loan	–	95,000	95,000	1,979
GPA	SOE related Loan	25,000	–	25,000	521
BADEA	FX Currency Loan	–	415,425	415,425	8,653
KFEAD	FX Currency Loan	–	442,766	442,766	9,223
Megabank	Commercial Loan	45,527	–	45,527	948
Total		507,228	953,191	1,460,419	30,420

Source: Draft 2017 Financial Statements

GCAA is carrying a significantly liability in its Financial Statements that may not be recognized as a receivable by the original loan provider, the Government of The Gambia. The balance on this loan is GMD 437m (USD 9.1m). If this loan was removed from GCAA’s Balance Sheet, a large portion of the Interest Payable balance would also be affected, as GCAA have accounted for the interest on this loan without making a single payment. The approximate balances that would be removed in relation to this Government loan would be GMD 413m (USD 8.6m)

► Our review of two foreign currency loans recognized on GCAA’s Balance Sheet determined that there is a contract between the respective lenders and the Gambian Government, but no documented ‘on-lending’ agreement between the Gambian Government and GCAA. These foreign currency loans are relatively high cost. GCAA booked an FX loss of GMD 66.1m (USD 1.4m) and an interest expense of GMD 21.6m (USD 450k) for 2017 in relation to the loans. To put this into context, GCAA made a loss of GMD 229m (USD 5m) in 2017.

► GCAA is making monthly repayments of GMD 3.9m (USD 82k) in relation to a loan held with Megabank. The annual repayment amount made under this loan equates to GMD 47m (USD 981k), which represents 22% of GCAA’s Gross Profit figure for 2017.

► GCAA currently has two loans with Gambia SOE’s, namely GPA and the SSHFC, under which GCAA owes GMD 25m (USD 521k) and GMD 95m (USD 2m) respectively. GCAA is not repaying GPA, and is paying off the SSHFC loan at a rate of GMD 800k (USD 17k) per month. At this rate of repayment, the SSHFC loan will take approximately 10 years to fully repay.

► GCAA have record of the loan terms for all six loans. It is accounting for each of them, expensing the interest payments, recording the interest payable, and translating the foreign currency balances at year end. However only 2 of these loans are being serviced by actual cash payments as outlined above, with Megabank and the SSHFC loans being addressed. The implication of this is that GCAA’s Financial Statements do not provide a fair reflection of the operating success of the entity.

► GCAA and the Government need to address the existing loans denominated in foreign currency as a priority. Given the current financial health of GCAA, holding GCAA liable for the loan balances will likely be ineffective and will not generate any repayments in the short term. For example, converting the loans to equity would have a significant impact on GCAA, improving both its Net Asset position and its profitability.

Trade Receivables (GMD 117m, USD 2.4m / 3% of Total Assets) (Financial impact table item 9,10)

► GCAA does not collect cash on outstanding Trade Receivables in a timely manner, most notably from Thomas Cook, which results in poor working capital management. The outstanding balance at December 31, 2017, for Thomas Cook was GMD 16m (USD 341k), which represents 14% of the total Trade Receivables balance.

► The Finance Team was unable to provide the aged Trade Receivables listing as at December 31, 2017, due to system constraints, and consequently we were unable to test the reasonableness of the bad debt provision.

► GCAA has a very conservative documented policy on bad debt provisioning, with bad debts not written off until debts exceed seven years. This policy is not adhered to by GCAA; instead in practice it opts to provide for any Trade Receivable in full if no payments have been made to reduce the balance during the year.

We were unable to obtain a breakdown of the bad debt provision, as the calculation is performed by the External Auditors. The draft provision balance is GMD 58m (USD 1.2m) as at December 31, 2017, against a gross Receivables balance of GMD 145m (USD 3m).

► We note that out of the top 20 Trade Receivables balances, 3 are against companies that are no longer in business. These balances represent 5% of the total Trade Receivables balance. These balances should be fully provided for if they haven’t been already. A review of the bad debt calculation held by the external auditors will determine this.

► The GIA Trade Receivable balance, GMD 27.6m (USD 575k), is not a true reflection of operating activity. GCAA has not been invoicing GIA for the upfront operating fee for the last four years, not wanting to incur additional income tax on a balance that will not be paid. GCAA has currently fully provided for the GMD 27.6m (USD 575k) balance.

► The Finance Team estimate the Trade Receivables balance for GIA could be as high as GMD 48m (USD 1m) as at December 31, 2017, almost double the recorded balance, with the operating fee of GMD 2.7m (USD 56k) not being invoiced for the last 4 years. We understand that GCAA are currently in the process of invoicing them in relation to services provided over the past 4 years.

► At least 9% of the Staff Loans balance is likely unrecoverable, as former employees still owe GCAA GMD 1.4m (USD 66k). Of the remaining 91%, the average staff loan balance is GMD 18k (USD 369), against an average yearly salary of GMD 68k (USD 1.4k).

► Further work will need to be undertaken to properly establish the appropriate provision for certain Trade Receivables, as we were unable to obtain the basis of the bad debt provision for 2017. The work we performed in analyzing the Trade Receivables balance suggests that a large portion of this balance is uncollectable.

► GCAA should confirm and document its current bad debt policy. This should be combined with a review of the long-standing receivables balances, with the aim of writing-off debts that will not be collectible.

Other Findings

2.136 Other findings in relation to our Special Audit of GCAA as at December 31, 2017, which are explained more fully in this section of the report, are as follows:

Trade Payables (GMD 133m, USD 2.8m / 4% of Total Liabilities)

► Three of the largest Trade Payables balances for 2017 which remain outstanding as at 2018 are all due to aviation governing bodies. These balances total GMD 56.6m (USD 1.2m). GCAA is currently in negotiations with the Gambian Government, as

GCAA view payment of this creditor to be the responsibility of the Government. The 2017 Board minutes highlight that failure to pay could result in restrictions applied to GCAA’s membership.

► Our unrecorded liabilities testing identified 4 transactions from a sample of 20 that related to 2017 liabilities. From these 4 transactions, 3, totaling GMD 7.2m (USD 152k), were not recorded as liabilities in the accounting records for 2017. Our inability to trace these transactions back to a specific liability in Trade Payables indicates that the liabilities position of the company is understated.

GCAA needs to hold conversations with the Government to clearly determine who is responsible for settling debts owed to aviation governing bodies. This clarification needs to be reached as a matter of urgency, as a prolonged lack of payment could result in sanctions or restrictions which could affect GCAAs ability to operate.

► GCAA needs to implement procedures to ensure all liabilities are identified and recorded.

Project Development (GMD 93m, USD 1.9m / 2% of Total Assets) (Financial impact table item 11)

► One of the Fixed Asset balances present in the 2017 Financial Statements is Project Development, which has a carrying value GMD 92.6m (USD 1.9m). Discussions with the Finance Team indicated that this relates to the fee paid to the consultant NACO for the Phase II Airport Development Project.

► The Finance Team were unable to provide the FX rate used to make the US Dollar to Dalasi conversion per the contract. Whilst recognition of the consultancy fees as an asset is correct, the fees should be directly attributed to the specific asset they relate to, and not kept isolated from the sub asset class of Buildings.

► There is not enough information provided to determine at what stage the consultant costs should be capitalized and put in the WIP asset class in relation to the Phase II Airport Development Project. The impact is that the consultant costs will have potentially been converted at the incorrect FX rate, and therefore the value presented in the Financial Statements is not accurate or representative of the correct value.

► Furthermore, by not reclassing this balance at the appropriate time GCAA have not charged depreciation on this balance. This should have been done once the balance was capitalized, at the relevant depreciation rate of the asset class to which the balance is assigned. For example, if the balance relates to Buildings, one year of depreciation at 2% on this balance amounts to GMD 1.8m (USD 39k). It is possible the depreciation charge could be larger, due to the fees relating to a different asset class, or that they should have been depreciated over a longer period.

► GCAA need to work with the consultant to determine at what stages the fees were paid, and then ensure that the balance is appropriately capitalized and attributable to relevant assets. GCAA then need to determine how much depreciation should be charged on this balance.

Cash (GMD 3.7m, USD 78k / 0.09% of Total Assets)

► GCAA incurred bank changes of GMD 8.9m (USD 183k) in 2017, which represents 4% of its Gross Profit figure. This represents poor treasury management, as GCAA uses its overdraft even when they have available cash resources.

► A bank verification exercise resulted in the discovery of a bank account with First International Bank which was not disclosed in the 2017 Financial Statements. The balance on the account as at December 31, 2017 was an overdraft of GMD 9k (USD 197). This account was set up for possible loan finance, but was not used by GCAA and the account was not closed. This indicates GCAA have poor cash management controls.

► GCAA has a total of five bank accounts with Guaranty Trust Bank, and each account had three recorded signatories who are not currently employees of the company. This indicates poor control over bank mandates.

GCAA needs to improve the control framework around its bank account processes, to ensure that any account set up is recorded and subsequently monitored by the Finance Team. Furthermore, GCAA should refresh its bank signatory mandate as a matter of urgency.

► GCAA needs to reduce the use of its overdraft facility. The charges incurred could be avoided through better cash management or cash collection from outstanding debtors. GCAA should also ensure that they do not continue to breach their overdraft limit, as the Bank could choose to recall the entirety of the outstanding balance.

Restricted revenue

► GCAA have been unable to collect revenue in relation to the Hajj pilgrimage since 2012, which has resulted in lost revenue of approximately GMD 12m (USD 248k) over a five-year period. Lost revenue in relation to Government charter flights not paying the appropriate fees is approximately GMD 700k (USD 15k) from 2015 to 2018.

► GCAA should liaise with the Government to explore the possibility that current restrictions on revenue, notably revenue from charter flights and the Hajj pilgrimage, are lifted and GCAA be allowed to collect this revenue going forward.

NAWEC

Introduction

Background

3.1 NAWEC is a utility company which handles the generation, transmission, and distribution of electricity, as well as water production and distribution, and sewerage, across The Gambia. Approximately 88% of NAWEC’s revenue is generated from the sale of electricity (70% prepaid, 30% billed in arrears), just under 12% from water and less than 1% is sewerage^[1].

Limitations of scope / availability of information

3.2 See the ‘Limitations of scope’ section of the Executive Summary for commentary on limitations that apply to all SOEs, in particular for how our work did not constitute a statutory audit.

3.3 The 2015 Financial Statements are the last set of Financial Statements signed by the External Auditors. The auditors issued an ‘adverse’ opinion. The 2016 Financial Statements are still under the auditors’ review and could yet result in further prior-year adjustments that will impact the 2017 Balance Sheet.

3.4 The 2017 Financial Statements are still in a draft format and, when finalized, could be materially different from the version used for the purposes of this review for the following reasons:

► NAWEC is currently posting a backlog of 2017 day-to-day transactions. The backlog is substantial as the Finance team only started posting 2017 transactions in September 2017;

► Not all reconciliations have been performed (such as bank reconciliations, billing and accounting systems reconciliations), differences investigated or posted; and

► No closing journals have been calculated or posted (such as Inventory and Debtors provision, depreciation, or amortization).

3.5 The 2017 Financial Statements do not fully agree to the underlying Trial Balance. The version of the Balance Sheet provided to us is also fundamentally flawed in that it does not balance; Total Assets do not equal Total Liabilities plus Equity. The Senior Management acknowledged these inconsistencies and put them down to the draft nature of the Financial Statements.

NAWEC – Detailed findings – Balance sheet

3.6 Our detailed findings in relation to our Special Audit of SOE as at December 31, 2017, are explained more fully in this section of the report.

3.7 NAWEC has been increasingly reliant on externally obtained debt to finance not just its capital expenditure, but also its day to day operations to service its current debt. NAWEC’s Fixed Assets’ Net Book Value increased by 32% from 2010 to 2017 to GMD 5.5b (USD 115m), or over 72% of the Total Assets^[2]. However, its Total Debt increased by 256% to GMD 9.1b (USD 190m), i.e., 82% of Total Liabilities^[3].

3.8 As a result, since 2011^[4] NAWEC has consistently been in a negative Equity position which means that the company’s Total Labilities have exceeded its Total Assets. Therefore, on the Balance Sheet test, it has been insolvent for seven out of eight years under review.

3.9 We have summarized the current draft versions of the 2016 and 2017 Balance Sheets in the table below.

Table 6: Summary draft Balance Sheet as at December 31, 2017^[5]^[6]

	2016 (GMD’000)	2016 (USD’000)	% of asset / liability total	2017 (GMD’000)	2017 (USD’000)	% of asset / liability total
Assets
Fixed Assets	4,931,393	112,682	78%	5,511,519	114,805	72%
Investment	5,500	126	0.1%	5,500	115	0.1%
Intangibles	9,321	213	0.1%	9,321	194	0.1%
Inventories	414,563	9,473	7%	559,742	11,659	7%
Receivables	803,725	18,365	12%	1,199,472	24,985	16%
Cash	181,734	4,153	3%	325,827	6,787	4%
Total Assets	6,346,236	145,012	100%	7,611,381	158,545	100%
Liabilities
Borrowings due after 1 year	8,257,167	188,676	79%	8,557,393	178,250	77%
Deferred capital grants	574,658	13,131	6%	574,658	11,970	5%
Borrowings due within 1 year	556,771	12,722	6%	574,737	11,972	5%
Trade and other payables	862,481	19,708	8%	1,176,228	24,501	11%
Bank Overdraft		3,255	1%	193,773	4,036	2%
Total Liabilities		237,492	100%	11,076,789	230,729	100%
Net Liabilities / Equity	(4,047,281)	(92,480)		(3,784,765)²¹	(78,837)

Source: Compiled by EY based on the 2016 and 2017 Draft Financial Statements. We applied exchange rates of GMD 43.764:USD 1 for 2016 and GMD 48.008:USD 1 for 2017. The GMD depreciated by almost 10% between the two dates.

3.10 We received little or no documentation to support the balances in NAWEC’s Financial

Statements. Most of the documentation that we did receive was provided in week ending January 18, 2019, several weeks after it was first requested. The Finance team’s explanation for the lack of information, and delay in the limited information that was provided, ranged from lack of functionality in the system to produce reports, to documents simply not being found. For example, neither the finance or commercial teams could produce a list of debtors to support the balance in the draft Financial Statements.

3.11 The impact is that it was not possible for us to examine the validity of the figures in the financial statements with reference to supporting information. We sought to adopt alternative procedures where possible to specific focus areas for building a clean Balance Sheet for NAWEC as at December 31, 2017.

Fixed Assets

3.12 The table below sets out a summary of NAWEC’s Fixed Assets as reported in the draft Financial Statements, as at December 31, 2017. The Net Book Value of the Fixed Assets represents 72% of the asset value on the Balance Sheet.

3.13 Almost one third of Fixed Assets are Assets Under Construction (32%), with the rest being

Plant and Machinery (33%), Electricity Network (23%), Water and Sewerage Network (7%), Land and Buildings (3%), Motor Vehicles (1%) and Office Equipment and Furniture (1%).

Table 21: Summary of Fixed Assets as at December 31, 2017

Office

Asset type	Assets Under Construction	Land and Building	Plant and Machinery	Motor Vehicles	Equipment & Furniture	Electricity Network	Water & Sewerage Network	Total
At cost (GMD’000)	1,779,553	232,733	3,525,154	141,088	67,954	1,520,833	624,983	7,892,298
Depreciation (GMD’000)	–	47,919	1,687,751	103,482	31,802	275,290	234,533	2,380,777
Net Book Value (GMD’000)	1,779,553	184,814	1,837,404	37,606	36,152	1,245,542	390,449	5,511,520

At cost (USD’000)	37,068	4,848	73,429	2,939	1,415	31,679	13,018	164,397
Depreciation (USD’000)	–	998	35,156	2,156	662	5,734	4,885	49,592
Net Book Value (USD’000)	37,068	3,850	38,273	783	753	25,945	8,133	114,805
% of Fixed Assets	32%	3%	33%	1%	1%	23%	7%	100%

Source: NAWEC Draft Financial Statements as at December 31, 2017.

3.14 As Fixed Assets represent a large proportion of NAWEC’s assets, it is essential that they are treated in accordance with the applicable accounting standards and that there are appropriate controls in place to give an accurate view of NAWEC’s financial position. However, EY noted a number of fundamental weaknesses in both the control environment²²and accounting practices around Fixed Assets, as described below.

Fixed Assets Register

3.15 EY obtained the Fixed Asset Register as at December 31, 2017, and attempted to reconcile it to the draft Balance Sheet as of the same date. The Net Book Value of Fixed Assets ²² See EY Interim Report dated December 21, 2019 for more details regarding the control weaknesses.

according to the Balance Sheet is GMD 733m (USD 15m) higher than the value supported by the Fixed Assets Register, representing a 13% difference. According to the NAWEC Finance team, the difference exists for the following three reasons:

► There is a historic difference between the Fixed Assets Register and the accounting system. The Finance team advised that there were instances when Assets were entered into the accounting system without all the supporting documentation. No equivalent entries were made in the Fixed Assets Register due to the lack of documentation. EY requested further details but has not been provided with any. We recommend that these differences are resolved and any Fixed Assets which cannot be supported by underlying documentation, or that cannot be located, are removed from the accounting ledgers;

► The reconciliation between the Fixed Assets Register and the accounting system for the additions for the 2017 year has not been completed; and

► There has been a timing difference for the current year depreciation charge. In particular, the draft of the Financial Statements was produced based on the first attempt to charge full year depreciation for 2017. It was unsuccessful because of a system failure and resulted in the calculation and recording of only approximately two months of the depreciation charge. The second attempt to calculate the annual depreciation charge was made after the Financial Statements were produced. However, it also failed, resulting in the posting of an additional one month of the depreciation charge. The cumulative impact of the two partial depreciation calculations is that approximately a quarter of the 2017 full year depreciation charge has been posted to the Fixed Asset Register, but only approximately two months to the accounting system.

3.16 At the time of the review the depreciation calculation was still being finalized. The Finance team advised that this was due to the system fault which NAWEC still needs to resolve.

Fixed Assets’ valuation methodology and resulting carrying value

3.17 We understand that NAWEC uses the revaluation model to measure the Fixed Assets carrying value^[7]. NAWEC’s accounting manual states that the “decision to revalue an asset shall be initiated by the Finance Director, authorized by the Managing Director, and approved by the Board”.

3.18 NAWEC’s Fixed Assets were revalued in 2009. However, according to the Finance team, no revaluation has been performed since 2009^[8]. The lack of a recent revaluation is not in accordance with IAS 16, which states that under the revaluation model such revaluations need to be performed on a ‘regular’ basis. Failing to apply the accounting policy consistently can lead to the carrying amount of Fixed Assets being materially different from that which would be determined using a ‘fair value’ valuation at the end of the reporting period, and therefore be materially misstated.

3.19 NAWEC’s accounting manual should also clearly state the accounting policies followed by the company. The current version of the manual is misleading because, in addition to the fact that Fixed Assets can be revalued, it also states that “Property, Plant and Equipment are stated at cost less accumulated depreciation”. This can imply that the cost model is used as opposed to the revaluation model.

Physical verification

3.20 It is NAWEC’s policy to perform physical verification of Fixed Assets on an annual basis and to investigate any discrepancy. The policy states that high value assets are to be verified on a quarterly basis by Internal Audit, in collaboration with the Finance Division. We were informed by finance that no exercise to verify all assets has been performed since 2009 and in fact that no such exercise is possible, because assets are not tagged.

3.21 EY performed a verification exercise of a sample of Fixed Assets. We selected 15 items with a Net Book Value of GMD 683m (USD 14m) representing 12% of the total Fixed Assets balance (or 18% of the total Fixed Assets balance excluding Assets Under Construction) and asked the management to show these assets to us. We noted the following:

► An individual code is assigned to an asset in the Fixed Asset register, but the asset is not physically tagged. As a result, it is not possible to confirm whether the asset being verified is the same as the one listed in the Fixed Asset Register;

► The opposite scenario also applies. It is not possible to confirm whether an asset identified in the premises has been recorded in the Fixed Asset register. Therefore, to be able to meaningfully perform the Fixed Assets verification exercise, 100% of the assets need to be verified; and

► Of the 15 assets we selected, management could not locate or provide supporting documentation for five. For one of the selected assets, the system did not record details of its location (see table below). The total value of the assets NAWEC was unable to show us or otherwise support was GMD 7m (USD 151k). While this represents only 1% of the sample tested, the testing suggests that Fixed Assets could be substantially overstated. If the unlocated asset value is extrapolated to the full Fixed Asset balance, the Fixed Assets balance would need to be reduced by GMD 55m (USD 1.1m). Moreover, given the poor controls around Fixed Assets as described above and in the Interim report, the current overstatement in the 2017 Financial Statements could be significantly higher.

Table 22: List of Fixed Assets that EY was unable to physically verify

Asset	Name	Location	NBV (GMD)	NBV (USD)
EN000065	Network maintenance 200510	Head office	5,985,114	124,669
EN000060	Network extension	Head office	851,500	17,736
FE001791	Office furniture 00109683	Head office	17,400	362
FE001814	Office furniture 22562047	Head office	10,030	208
EN000054	Network extension	Unknown	415,165	8,647
Total			7,279,208	151,625

Source: Compiled by EY based on the Fixed Assets register

Assets Under Construction

3.22 Assets Under Construction represent one third of the Fixed Assets balance and consist of the eight assets below.

Table 23: Assets Under Construction as at December 31, 2017

No	Asset Under Construction	Asset Value (GMD’000)	Asset Value (USD’000)
1	Expansion of Serekunda Tank cash office	612	13
2	G4 and G6 Generators’ Maintenance	41,674	868
3	Kotu ring water supply	392,996	8,186
4	Asbestos replacement and water supply expansion project	14,104	294
5	Electricity expansion project GBA (EXIM)	8,892	185
6	R.E.P – Extension project	374,706	7,805
7	Brikama power station phase 2	212,477	4,426
8	Kotu power generation expansion project	734,091	15,291
Total		1,779,553	37,068

Source: 2017 Trial Balance

Capitalization of Assets Under Construction

3.23 Assets Under Construction are capitalized on a project basis, with no distinction made between separate parts of the project. When a project is completed, the asset is moved to a different asset category as one asset. For example, the Finance team advised that LFO / HFO day tanks were not a separate asset recorded on the Fixed Assets Register, but had been included in the value of a project when a generator was installed or after maintenance.

The finance team could not name the project or locate it in the Fixed Assets Register. Similarly, the large storage tanks at the Kotu Power Station, are not considered as separate assets on the Fixed Assets Register but rather as one project. The team could not confirm the project these were part of, or locate the project on the Fixed Assets Register.

3.24 The implication of such a capitalization policy is that individual assets are not accounted for correctly in cases where the ‘main’ fixed asset resulting from the project has a significantly different useful economic life, or becomes impaired, relative to the ‘secondary’ assets. This may lead to a materially misstated overall Fixed Assets balance.

Capitalization of exchange losses

3.25 Historically when NAWEC has obtained a foreign currency loan to build a Fixed Asset, it has

capitalized foreign exchange losses incurred on the loan. As described below, these losses have been substantial, as a result of the Dalasi’s weakening against the USD over the period in scope.

3.26 During our review, we noted that NAWEC calculates the loss as a difference between the

current value of the asset (sum of all loan disbursements received in respect of the Asset Under Construction, posted in GMD at a spot rate on the transaction date) and the value of the loan disbursements in GMD, recalculated at the year-end exchange rate.

3.27 Assets Under Construction are non-monetary assets under IAS 21. Ordinarily, the amount of foreign exchange loss would not be added to the value of a non-monetary asset. A loan, on the other hand, is a monetary liability. This means that the loan must be retranslated at each Balance Sheet date, with exchange differences typically recognized in profit or loss.

3.28 However, there are instances when exchange differences on translation of a monetary item would not be recognized in profit or loss. This includes a situation where an entity capitalizes borrowing costs in respect of the construction of a qualifying asset under IAS 23, which may include exchange differences arising from foreign currency borrowings. This is the rationale behind the accounting treatment confirmed by the Senior Management.

3.29 In such situations, IAS 23 requires exchange differences arising from foreign currency borrowings to be capitalized to the extent that they are regarded as an adjustment to interest costs. However, this does not necessarily mean that all exchange differences on the loan can be capitalized as part of the cost of the asset. Care is needed if there are fluctuations in exchange rates that cannot be attributed to interest rate differentials, such as increases or decreases in the foreign currency rates as a result of changes in other economic indicators such as employment or productivity, or a change in government^[9].

3.30 Therefore, using this rationale for the capitalization of the borrowing costs requires significant

level of further consideration from the Finance team. In addition, the subsequent appropriate disclosure of accounting policies and judgements needs to be provided to the users of the Financial Statements.

3.31 We were unable to obtain evidence of such considerations and therefore consider this to be an aggressive accounting treatment which can lead to a considerably overstated Fixed Assets balance, given the instability of Dalasi as a currency and the number of years an Asset Under Construction can take to complete.

Moving Assets Under Construction to a different category on completion

3.32 According to the NAWEC accounting manual, Assets Under Construction should be recognized as Fixed Assets in the Balance Sheet but should not be depreciated until their completion. Upon completion, they need to be immediately moved to a different asset category in order to be depreciated from that point onwards, in line with the company’s depreciation policy.

3.33 EY noted that the Finance team is not always informed when an Asset Under Construction is completed. Furthermore, the Finance team does not chase the project leads for such information.

3.34 Given that NAWEC has high value Assets Under Construction, an absence of a robust process around the asset reclassification has led to a significantly over-inflated Fixed Assets value. No depreciation has been posted for completed assets for months, and in some cases, years. Detailed examples of late transfers can be seen below.

G2 and G4 Generators Maintenance – GMD 42m (USD 868k)

3.35 This Asset Under Construction appears to relate to the purchase of spare parts used in the maintenance of generators G2 and G4. According to the maintenance completion report provided by the Finance team, 24,000 hours of maintenance were finalized in April 2015 for G4, and 24,000 plus 12,000 hours maintenance were finalized in 2014 and 2015, respectively, for G2. We note a number of observations in relation to this expenditure:

► It is unclear why spare parts relating to the maintenance of the generators completed in 2014 and 2015 were capitalized as Assets Under Construction in September and November 2017. EY requested further details of the transactions, including the delivery confirmation of the spare parts, but these were not provided;

► The asset appears to be capitalized based on the payment for, as opposed to the actual delivery of, the spare parts. As a result, only 61% of the total spare parts value was capitalized to date which represents the portion of the total expenditure actually settled

by NAWEC^[10]. It is unclear whether the rest of the payments have been made or capitalized since; and

► One of the two transactions entered were entered incorrectly. According to the supporting documentation provided, when posting the second payment of EUR 50,000 at a EUR/GMD exchange rate of 56.60, GMD 28,300,000 was entered into the system instead of GMD 2,830,000. The Finance team explained it as a human error.

3.36 Accordingly, it is not possible to recommend the correct accounting treatment of the asset

with any certainty. Assuming that the spare parts were actually delivered and used in the 2014 and 2015 maintenance works, 100% of the value needs to be capitalized, along with an associated annual depreciation charge for the period since 2014 / 2015. However, we recommend clarifying the facts around the spare parts purchase as the assets should not be capitalized without a confirmation of their delivery or actual usage.

Kotu Ring water supply – GMD 393m (USD 8m)

3.37 According to the Finance team, this project was split into four parts. The completion report provided to us confirmed that Lots 1, 2 and 4 were finalized in June 2014. However, there were difficulties with paying the contractor for the works performed with regards to Lot 3. Therefore, no formal completion report was provided by the contractor to confirm completion.

3.38 Nevertheless, according to the Water Director, the project was completed in full in 2014 and the asset has been fully operational since. Despite our multiple requests, no written confirmation of this has been provided. We recommend that the Finance team continues to chase the project team to confirm the project completion month. This is to enable them to calculate the depreciation charge with certainty, as even a single month’s depreciation charge is significant.

3.39 Assuming that all works were completed in June 2014, there has been an understatement of the depreciation of GMD 35m (USD 733k) over three and a half years, with GMD 10m (USD 204k) relating to 2017 alone^[11].

R.E.P – Extension project

3.40 This Asset Under Construction relates to two projects: Rural Electrification Extension Project (REEP) and Rural Electrification Extension Project 2 (REEP 2). These are two separate projects with two separate funding sources and assets constructed. However, on the completion of REEP, the Asset Under Construction was not moved to a different asset category. Instead, it continued to be increased by the amounts relating to REEP 2.

3.41 EY obtained two completion reports confirming the completion of two assets under REEP.

The reports confirmed that the “Design, Supply, Installation & Commissioning of 2MW HFO Based DG Power station at Basse & Farafenni” was completed on March 3, 2016, for a value of USD 8,611,559. The transmission and distribution network was completed on the same date, for a value of USD 10,500,500.

3.42 We note that the total value of REEP and REEP 2 Asset Under Construction currently booked is GMD 374,705,725 (USD 7,805,120), of which only GMD 227,328,756 (USD 4,735,258)

appear to relate to REEP^[12]. Therefore, the REEP asset appears to be understated by GMD 690,196,927 (USD 14,376,802)²⁹.

3.43 The asset was financed by a USD 20m loan from EBID. All the disbursements were made by the lender directly to the suppliers engaged in the asset construction. Once the suppliers were reimbursed, the value of the loan, as well as the value of the asset, increased.

3.44 Based on the EBID reconciliation provided, the total disbursements made in relation to the project were USD 17,830,294. However, it appears that most of the payments made to Mohan Energy Co, the main contractor, have not been booked by NAWEC either as an asset or a loan. The NAWEC Finance team does not have full knowledge of the transactions or most of the copies of the invoices and was therefore unable to provide explanation of why these invoices have not been booked.

3.45 EY obtained a contract signed between NAWEC and Mohan Energy Co dated May 2, 2012 confirming that this supplier was engaged in the construction of the asset. We therefore recommend that the circumstance around the failure to book the invoices is established, i.e., if the invoices were in fact from the supplier, why they were not seen or posted by NAWEC. This is to avoid a similar oversight in the future. The value of the loan and the asset will then need to be increased.

3.46 We note that due to the time constraints we were unable to test the difference between the assets value according to the completion reports (USD 19,112,060) and the loan value (USD 17,830,294). This difference was explained by NAWEC’s Finance team as their additional internal investment in the asset. We have relied on the value of the completion report to calculate the depreciation adjustment resulting from NAWEC’s failure to move the assets into a different asset category upon completion.

3.47 Using this basis, and once the full value of the asset and the loan is booked, the

corresponding additional depreciation to be accounted for since the completion date until the 2017 year-end should be GMD 61m (USD 1.3m), or GMD 33m (USD 693k) for 2017 alone^[13].

3.48 It must be noted that it is particularly important for NAWEC to ensure that the Assets Under Construction are moved to a different asset category upon completion given the current accounting practice of capitalizing foreign exchange losses as described above. NAWEC ceases adding foreign exchange losses to the value of an asset once it is completed, therefore keeping completed Fixed Assets Under Construction in this category for several years after the asset’s completion leads to a significantly inflated asset value.

3.49 For example, as detailed above, the Kotu Ring Water Supply project was completed in 2014. However, it is still being kept as an Asset Under Construction. The latest foreign exchange loss of GMD 36m (USD 763k) was added to the value of the asset as of December 31, 2016. According to the Finance Team, NAWEC has already calculated further exchange loss of GMD 30m (USD 630k) to be added to the asset value in December 31, 2017. As a result, the asset value will be overstated by at least GMD 66m (USD 1.4m), as of December 31, 2017.

3.50 The same principle applies to the REEP project, which was completed in 2016. The

exchange loss to be added to the value of the asset in 2017 is GMD 17.9m (USD 364k)^[14].

Depreciation

3.51 EY considered the reasonableness of NAWEC’s depreciation policy and noted the following:

► The current NAWEC accounting manual states that Plant and Machinery are to be depreciated using a 4-10% rate. No further detail is indicated in the manual, as to what percentage to be used for which specific type of asset (e.g., Plant or Machinery). This can lead to a level of judgement required to be applied by a clerk entering the Fixed Asset into the system, potentially causing inconsistent treatment of assets of the same class;

► Land and Building are both depreciated at 2%. During our depreciation testing we confirmed that Land is, in fact, being depreciated at the indicated rate. Under international accounting standards, Land is not normally subject to depreciation because it is deemed to have an unlimited useful life.

Senior Management stated that the historic depreciation of Land is an oversight as the same category is being used when entering both buildings and land into the system. NAWEC therefore needs to clarify its depreciation policy to state that Land should not be depreciated and create a new asset category in the accounting system for Land, with a 0% associated depreciation rate; and

► NAWEC has limited knowledge of what land they have, or its value. For example, for the 15 assets on the Fixed Assets register which EY identified as land based on the assets’ description, Senior Management was unable to provide any further detail as to where these pieces of land were, what their value was, or any confirmation of ownership. We are therefore unable to propose an accounting adjustment. However, we recommend that NAWEC identifies all Land it holds, and account for it correctly in Fixed Assets. We note NAWEC performed an exercise to combine all available land-related documentation available in one file. However, the file was not complete and also was not shared with the Finance Team to ensure those assets were accounted for correctly. We were unable to cross reference the land from the FAR to this file.

3.52 We also noted that the depreciation report from the accounting system is not produced in a

user-friendly format. There is no single depreciation schedule which shows the asset value upon acquisition less all depreciation charges. The report produced only lists all depreciation calculated for each asset per month. This type of report makes it difficult to identify and correct potential errors in the depreciation calculation produced by the system. Our testing has also confirmed that such errors have occurred, as explained below.

3.53 EY re-performed the depreciation calculation for 10 assets and we noted the following:

► A wrong depreciation rate was used for 3 out of 10 assets^[15]:

► 2.5% was used for a Plant and Machinery asset that is meant to be depreciated at 4-10% according to the policy;

► 2% and 3.3% were used for two Electricity Network assets that are meant to be depreciated at 2.5% according to the policy; and

► Depreciation was last calculated for in March or April 2017.

3.54 The above deficiencies are likely to have resulted in an inaccurate total Net Book Value on the Balance Sheet.

Recommendations

► We recommend that NAWEC verifies 100% of its Fixed Assets and updates the Fixed Assets Register with the results. Any assets which cannot be verified need to be written-

off;

► NAWEC should consider the need to revalue its assets to be in compliance with the applicable accounting standards under the revaluation model. NAWEC is to clarify its accounting policy with regards to the method of measuring Fixed Assets carrying value;

► Going forward NAWEC must assign each individual asset with a unique number. This number is to be used to tag the asset and record it in the Fixed Assets Register with;

► NAWEC needs to ensure that the correct depreciation rate and acquisition date are used for all assets in the Fixed Assets Register; and

► NAWEC needs to move all the completed Assets Under Construction into the correct assets category using the correct value, i.e., net of any revaluation losses capitalized post assets’ completion and reduced by the amount of current year and accumulated depreciation.

Intangible assets

3.55 Intangible assets represent less than 1% of the Total Assets and consist of purchased software such as Galetee (NAWEC’s billing system) and Suprima (NAWEC’s pre-payments system).

3.56 EY obtained the listing of Intangible Assets. The listing provided had the assets’ value at the purchase date only. The details of how these had been amortized over the years were requested but were not provided to us.

3.57 We have reviewed the listing for reasonableness and noted the following:

► Two of the nine Intangible Assets were two and three-year software licenses purchased in 2010 and 2012, respectively. While these expired in 2012 and 2015, the Finance Director confirmed that they are still being amortized in accordance with the accounting policy, i.e., over 10 years until 2020 and 2022. This is not in line with IAS 38 which states that Intangible Assets need to be amortized over their useful economic life. As the useful economic life of the assets finished in 2012 and 2015, their Net Book Value needs to be written-down from GMD 145k (USD 3k)^[16] as at December 31, 2017 to zero; and

► We noted an asset called “DT ASSOCIATS.PAYMT OF 20% ADVANCE PAYMT OF THE CONTRACT” which was acquired in 2015 for GMD 153k (USD 3k). As DT also became NAWEC’s auditors in 2015, we requested support for the above payment to confirm it was associated with the accounting software package rather than the audit fees. However, the Finance team was unable to provide any support of the above despite multiple requests. Also, despite the description, there is no evidence that the remaining 80% of the asset has been capitalized since 2015.

3.58 NAWEC’s inability to support the asset balance above raises concerns regarding its existence. Also, despite the small value of the transaction, it highlights NAWEC’s frequent inability to provide support for its transactions, raising questions about the existence of the asset, and the robustness and reliability of the asset carrying value in the Financial Statements.

Amortization

3.59 EY also re-performed the amortization calculation based on NAWEC’s policy to amortize its Intangible Assets at a rate of 10% per annum. We calculated that the Intangible Assets balance is overstated by GMD 3.5m (USD 73k), or 37%^[17]. An explanation for the difference provided by the Finance team is that the 2017 amortization has not yet been booked at the time of the audit. However, 2017 amortization only accounts for 1.5m (USD 31k) of the difference, with the rest of the difference of GMD 2m (USD 42k) (or 21% of the total balance) left unexplained.

Recommendations

3.60 We recommend that the NAWEC amortization policy is amended to allow for the situations where an Intangible Asset’s useful economic life is shorter or longer than 10 years.

Investments

3.61 Investments represent less than 1% of the assets on NAWEC’s Balance Sheet. The only Investment that NAWEC has on the Balance Sheet is an investment in Agua Gambia Limited, for the amount of GMD 5.5m (USD 115k).

3.62 This asset represents a payment made by NAWEC in response to an Executive Directive from the Office of the President in October 2015. The payment was made to Agua Gambia Ltd “as Gambia Government’s first quarterly payment of its share capital towards the Public Private Partnership”^[18]^&[19].

3.63 We note that while NAWEC made the payment, it appears that it was not a formal party to the agreement. The agreement provided in support of the transaction confirmed that, on signature, The Gambian Government owned 40% of Agua Gambia Ltd, while the rest was owned by Agua Inc^[20].

3.64 According to Senior Management, NAWEC did not have the funds, nor did its Management team want to invest in the entity at the time, but still made the payment in response to the Executive Directive. We therefore consider this to be a diversion of entity funds, which we have captured in our analysis of misused funds.

3.65 We consider that given that NAWEC is not part of the agreement between the Gambian Government and Agua Inc, it is not correct to classify it as an Investment. We therefore propose to reclassify it as a Government Receivable. NAWEC should then assess the recoverability of the Receivable and adjust its value accordingly.

Inventory

3.66 Inventory accounts for 7% of the Balance Sheet assets at NAWEC. It mainly consists of electrical and water equipment spare parts, and fuel.

Recording of Inventory

3.67 During our review we discovered that there is a backlog of Inventory related transactions to be entered into the system. Because of the backlog, the only time the Inventory Listing is updated is at the end of the year, and the updates are based on the year-end stock take

results. 2017 Inventory data was only entered onto the system in January 2019, as a response to our request for the Inventory Listing.

3.68 As a result, bin cards^[21] are the only source of information on the value of NAWEC’s Inventory available throughout the year. The cards are updated when the Inventory is added or issued out without the system being updated. The number of items on a bin card for a particular type of Inventory is used as a point of reference for the year end stock take.

3.69 There are a number of issues with using this process, which we list below:

► This is not in accordance with the accounting manual which dictates that the accounting system needs to be updated for the Inventory movements within 24 hours;

► This is a manual system prone to human error and, potentially, fraud; and

► Up to date information regarding Inventory levels is key for management to be able to run the business effectively, for example to identify the cash flow requirements for an upcoming quarter. This system does not allow for this information to be available at any point in time other than year-end, and there is a significant time lag in the processing of the data, as exemplified by the Finance team only producing the 2017 report in early 2019.

3.70 EY was unable to reconcile the Inventory balance per the Inventory Valuation Report and the Balance Sheet. The difference was GMD 131m (USD 2.7m). According to the Stores team, the reasons for the difference was Inventory in Ballast Store. The location did not have any value assigned to its Inventory. At the time the system was set up, an error was made, and the cost price was defined as nil for all items. This has not been changed since and the report produced for this location always has zero value. EY was told that a separate report is collated for this location, but it was not provided to EY despite multiple requests.

3.71 We identified no HFO or LFO Inventory was on the listing. The Stores Manager explained that the fuel is booked as an expense during the year. It is only when the Inventory count is done at the year-end that the Inventory value is entered into the system and an equal proportion of the expense already posted during the year is reversed out. On January 1 each year, the year-end entry is reversed out.

3.72 We note that the Inventory Valuation Report differed from the Financial Statements in years prior to 2017. The issue was reported in the 2015 Audit Report, where DT, NAWEC’s auditors, highlighted they had “noted a difference of D10Million between the inventory valuation report and the General Ledger Balance. The difference was not supported, reconciled or corrected by Management”.

Stock takes

3.73 According to the NAWEC accounting manual, an annual stock take should be carried out. Given the process limitations identified, the year-end stock count is performed by pulling a list of all items of Inventory from the system without the amount and recording the number of Inventory items identified. These are checked against the bin card amount.

3.74 During our fieldwork we performed a physical count of a sample of Inventory items. The sample was selected from the 2017 Inventory Listing and the number of items expected to be seen in stores was taken from the current version of the bin card. We noted the following from the exercise:

► The bin card quantity agreed to the number of items found in stores for 8 out of 18

Inventory codes tested (15 ‘sheet to floor’ and 3 ‘floor to sheet’)^[22];

► No inventory existed for three codes from the sample. No bin cards were found for these codes which, according to the Stores Manager, means that the Inventory has not been ordered or used for many years. The total value of this Inventory as at December 31, 2017 was GMD 1,595,301 (USD 33,230)^[23]. This balance should be written-off. In addition, one duplicate Inventory line with a value of GMD 23,382 (USD 487) was found on the 2017 Inventory Valuation Listing. The items did not exist and therefore their value needs to be written-off^[24]:

► While the value of the write-off above might not be significant, this highlights an important concern that of eighteen items tested, four (i.e., 22%) did not exist;

► In addition, we identified more entries from our review of the Inventory Listing with identical descriptions. We were unable to test these due to time constraints, but these may indicate more duplicate items which need to be written-off;

► While we have not extrapolated these observations over the whole Inventory balance, the finding suggests that the Inventory balance could be significantly overstated. We recommend further testing is completed to identify the exact size of the overstatement;

► Differences were found between bin cards and physical number of items in stores for six more items, three of them were understated and three overstated^[25];

► Such a discrepancy is of a particular concern for Invoicing Receipt Books. While the quantity of these was 1,897 per the bin card, we found 1,908 of these in stores. Unaccounted copies of such invoices had been previously used by NAWEC employees to commit fraud by issuing fake invoices to customers as described in the Interim Report;

► Based on the conversation with the Stores Manager, all items located in Kotu A according to the Inventory Listing were located in Kotu D. We requested but were not provided with any transfer forms to confirm that the transfer had been correctly recorded⁴³;

► Inventory items are not tagged, and reliance is placed on Inventory description rather than the Inventory item number. The absence of tagging may cause further difficulties with stock count and valuation;

► We also noted the following regarding the condition of some stores which could affect the Inventory’s usefulness:

► At Kanifing I there is no roof on the site due to maintenance. We also noted that some stock had fire damage as a result of the maintenance works;

► At Kanifing I the shelves were visibly overloaded; and

► At Kanifing I and Kotu A&D most of the Inventory was covered in dust.

Inventory valuations

3.75 It is NAWEC’s policy to value stocks using the first-in-first-out (FIFO) method. The cost is determined using a standard method where cost is the purchase cost together with the related import duties, freight, and insurance and commission charges.

3.76 However, the costs of Inventory are not updated and the price an item is first purchased at is the price entered into the system and used for the Inventory valuation going forward. An example of this is the treatment of the Brikama Ballast store, where the cost has not changed since it was initially entered as zero. This is likely to result in the value of the Inventory being misstated.

3.77 An issue of wrong stock pricing was also highlighted by NAWEC’s auditors in their 2015 Auditors Report which stated that “some stock items were wrongly priced resulting in an overstatement of the stock values by D19million.” However, it appears that no actions have been taken to correct the issue.

Inventory impairment

3.78 The accounting manual states that slow-moving stocks should be provided for at 25% per

annum. We were unable to obtain further details as to what is considered as slow-moving stock by NAWEC. Similarly, no calculation was provided to confirm NAWEC’s stock provision calculation for either 2016 (calculated but no details available regarding the method) or 2017 (not yet calculated).

3.79 The 2015 Auditors Report also stated that “D6.9million was charged as provision on slow

moving goods, but the basis of provision was not provided or supported with a list of the identified slow-moving stock”. As with the Inventory Valuation Report discrepancy, it appears that NAWEC has been historically made aware of the issue but has not taken any action to correct it.

3.80 We reviewed the Inventory Valuation Report and analyzed it based on when the Inventory was last issued. The results are summarized in the figure below.

3.81 The figure shows the number of Inventory codes in each ‘Last issued’ category. There is a significant number of missing dates or dates which appear to be wrong (because they make no sense) on the listing provided. We therefore were unable to perform an Inventory

impairment calculation. However, we make the following observations on the information provided to us:

► Of 12,233 Inventory line items, 2,094 (or 17%) were last issued in 2009 and earlier^[26]. The value of this Inventory was GMD 26,426,520 (USD 550,464) as of December 2017, or 8% of the total Inventory value per the Valuation Report at the date. The earliest ‘last issued date’ identified was as early as 1989.

► NAWEC’s policy is to provide for slow moving items at 25%. However, it appears reasonable to have a much higher provision for items which haven’t been used for over 10 years.

► We noted no date or nonsensical dates^[27] of when items were last issued for 4,352 items

(or 36%) as at 31 December 2017. The value of these items is GMD 44,829,805 (USD 933,804), or 14% of the total Inventory value per the Valuation Report. Therefore, not only is there a large portion of slow moving Inventory, but there is no indication of how old a significant portion of other Inventory is, meaning that Inventory could be overstated still further.

Planning

3.82 The policy states that every stock item has a re-order level. Current re-order levels are detailed in the accounting system. Stock is ordered when an existing stock reaches the re-order level or new stock is needed by departments. EY noted in the interim report that the stock level re-order level exists. However, we were unable to verify whether these were used.

3.83 Based on our current and more complete understanding of the way records are kept and given the limited availability of up-to-date information on Inventory levels in each location (i.e., this information is not being stored on the system), it appears unlikely that these levels are meaningfully used.

3.84 It is widely accepted that NAWEC has cash flow restrictions. Using re-order levels for inventories and planning ahead for any upcoming cash requirements is vital for the company. Therefore, it is concerning that the Inventory process does not allow to plan ahead and provide Management with the required information to make strategic decisions.

3.85 Planning also allows an organization to order the Inventory in advance when needed and avoid emergency procurement practices currently used by NAWEC.

Recommendations

3.86 Based on the above findings we make the following recommendations:

► NAWEC needs to start following its accounting policy and update the system with any Inventory movements throughout the year as opposed to once a year with a time lag of two years (the year-end balance for 2017 was only entered in 2019). NAWEC needs to start relying on the system, rather than the bin-cards;

► NAWEC needs to update the costs of stock on a regular basis and ensure stock is valued at the lower of cost or NRV;

► NAWEC needs to review all stock line items on the Valuation Report. Any duplicate line items need to be removed, the missing information regarding the acquisition cost, last issued date need to be updated;

► NAWEC needs to clarify its impairment policy, i.e., what a slow-moving item is, and to reassess the value of the impairment based on that policy; and

► NAWEC should keep their stores in a safer and cleaner condition.

Trade and Other Receivables

3.87 The table below sets out a summary of NAWEC’s Trade and Other Receivables as reported in the Balance Sheet as at December 31, for 2015, 2016 and 2017. As of December 31, 2017, Trade Receivables represent 17% of the Total Assets value on the 2017 Balance Sheet, with Staff Receivables and Other Receivables each representing less than 1%.

Trade Receivables	1,036,057	25,829	907,328	20,732	1,310,186
Staff Receivables	24,459	610	29,531	675	23,191	483
Other Receivables	5,828	145	4,905	112	4,135	86
Provisions	-157,753	-3,933	-138,038	-3,154	-138,038	-2875
Total	908,591	22,651	803,726	18,365	1,199,474	24,985

Table 23: Trade and Other Receivables for 2015, 2016, 2017 Receivable 2015 2015 2016 2016 2017 2017 category (GMD’000) (USD’000) (GMD’000) (USD’000) (GMD’000)

Source: 2015 Financial Statements and the 2016-2017 draft Financial Statements.

3.88 Trade Receivables only arise from the billing revenue stream, i.e., where a customer is invoiced monthly based on consumption of both water and electricity. This revenue stream accounts for around 38% of the total revenue. The balance of the revenue (around 62%) mostly arises from selling pre-paid electricity⁴⁶.

3.89 While Trade Receivables may not represent a large proportion of NAWEC’s Assets, and in fact can arise from only around 38% of revenue, it is an important area of the Balance Sheet as NAWEC has difficulties with managing its working capital. Therefore, effective cash collection as well as a prudent assessment of its Receivables balance is key for its ‘going concern’.

Trade Receivables Listing

3.90 Neither the Commercial nor the Finance team were able to produce a 2017 Debtors Listing, a basic report showing the breakdown of the Debtors balance by customer / invoice. In addition, no ageing information was provided. The listing could not be obtained due to the limitations of Galatee, the billing system used by NAWEC.

3.91 An absence of such listing means that NAWEC is unable to establish the existence, valuation, and recoverability of its debtors. EY enquired whether NAWEC had ever produced the report and we were advised that this had only been done once in a paper format (around nine boxes of paper had to be printed). This is a critical limitation of the system as no reviewer is able to confirm with certainty that all individual invoices outstanding add up to the Trade Receivables balance on the Balance Sheet. From the Senior Management perspective, this report is also key to understand the Debtors’ ageing and act upon this information, for example initiate legal action where necessary.

3.92 NAWEC provided us with what was described as Top Debtors reports (or Management

Information reports) collated by the Commercial Department on a monthly basis for around

⁴⁶ We note that these are approximate numbers as there is lack of separation in the accounts between electricity generation, transmission and distribution and water supply.

50 customers. These reports contained information regarding Government institutions such as Local Councils, Ministries and SOEs.

3.93 The purpose of these reports is to provide the Management and the Government with the information regarding the arrears built up. These also appeared to have been used for the purposes of the MOU^[28] to quantify the Government’s debt to NAWEC to be offset against the NAWEC’s liabilities taken over by the Government.

3.94 The reports provided monthly information on the amount billed and arrears before billing for the set group of customers. EY combined all monthly reports for 2017 and identified that data was missing for a number of months for some customers. We requested the missing information to be able to perform a meaningful analysis for each customer. However, it has only been partially provided. In addition, some existing data has been modified when provided for a second time^[29].

3.95 We analyzed the monthly billing trends for the ‘top 11’⁴⁹ customers from the listing provided. These were quite sporadic with no set pattern. The Commercial Team explained that this was because NAWEC’s meter readers were not consistently granted access to the properties.

Trade Receivable balance and recovery

3.96 In absence of a debtors listing or ageing analysis, EY held a number of conversations with various members of the Commercial Team to understand the top 11 customer balances and their recoverability. EY requested supporting documentation as considered necessary to confirm the key arguments provided by NAWEC. The total balance outstanding from the customers tested represented around 44% of the overall Trade Receivables balance. Each of the categories is considered below.

Table 24: Top 11 Debtors

2017 Debtor Balance 2017 Debtor Balance Category⁵⁰

No Customer GMD USD

1	Brikama Area Council (BAC)	123,643,284	2,575,490	Local Council
2	Kanifing Municipal Council (KMC)	88,291,947	1,839,121	Local Council
3	Ministry of Health and Social Welfare	82,538,717	1,719,281	Ministries
4	Office of the President	80,667,426	1,680,302	Ministries
5	GRTS	53,618,969	1,116,883	Agencies
6	Banjul City Council (BCC)	32,142,841	669,535	Local Council
7	GCAA	32,050,311	667,608	Agencies
8	Ministry of Defense	25,611,764	533,493	Ministries
9	Ministry of Interior	24,375,489	507,741	Ministries
10	GAMTEL	19,982,601	421,537	Agencies
11	Central Bank & Co	8,320,411	173,314	Agencies
Total		571,243,760	11,904,305

Source: Compiled by EY based on the Management Information Report.

Local Councils

3.97 The Brikama Area Council (“BAC”), Kanifing Municipal Council (KMC) and Banjul City Council (BCC) are three local councils for which NAWEC provides water and electricity for office buildings, street lights, townhalls and other public facilities. The total balance of the councils’ arrears was GMD 244,078,074 (USD 5,084,146).

3.98 One of the main issues identified for this customer category was an ongoing issue with

regards to the current bills and arrears in relation to streetlights. Local councils, which NAWEC currently invoices for streetlights, believe that these are the responsibility of the National Road Authority (NRA). According to the Commercial team, NRA does not accept the responsibility and does not attend any meetings where the issue is discussed between the relevant stakeholders.

3.99 EY obtained a breakdown of the balance for BAC (for 2017 and partially for 2018), BCC and KMC from Galatee to identify the proportion of debt relating to streetlights and other facilities. The information is summarized below.

Table 25: BAC, BCC and KMC debt breakdown BAC BCC KMC

	GMD	%	GMD	%	GMD	%
Streetlights	67,228,302	59	5,776,492	80	70,943,018	92
Other	47,390,044	41	5,776,492	20	6,385,550	8
Total	114,618,346⁵¹	100	28,203,267⁵²	100	77,328,569⁵³	100

Source: Compiled by EY based on the Galatee system reports for BAC, BCC and KMC as at December 31, 2017.

The categories were assigned to mirror the MOU Debtors categorization. As no details of what customers wereincluded in each category were provided in the MOU, we used the following source to assign the categories: http://www.accessgambia.com/information/government-directory.html.
This balance does not agree to the Management Information report.
This balance does not agree to the Management Information report.
This balance does not agree to the Management Information report.
- As shown in the table, in 2017 street lights make up a large proportion of each council’s overall balance, i.e., 59%, 80% and 92% for BAC, BCC and KMC respectively. The MoFEA agreed to centrally make the payments for streetlights to NAWEC to ensure these are timely received^[30]. It was not clear whether the payments are to be made for the historic balances or the balances going forward. We recommend that NAWEC clarifies with the MoFEA whether the payments to be settled by the MoFEA will relate to future periods or cover the arrears as well. This can significantly influence the assessment of the balances recoverability.
- Based on the Galatee system reports for 2018 no payments have been made by any of the

three councils in 2018 in relation to streetlights or other bills⁵⁵. However, the following efforts are being made to recover the balances owed to NAWEC:

► NAWEC and the local councils are currently attempting to perform a netting-off exercise for each other’s bills to come up with an overall balance outstanding from the councils. The exercise is still in progress;

► EY notes that while any netting-off exercise will reduce the total outstanding balance from Government debtors, it is unlikely to reduce the debt significantly. This is because the services NAWEC provides are likely to be more expensive than the council’s rates. For example, the amount outstanding from BCC as of December 31, 2017 is GMD 32,142,841 (USD 669,535). The amount outstanding from NAWEC (as confirmed by the council) for 2012 to 2015 is GMD 4,888,065 (USD 101,818). Extrapolating this value to account for potential additional debt the council might have claimed for 2016 and 2017, NAWEC can offset a total of GMD 8,020,017^[31] (USD 167,060) against the amount outstanding from the council, or 25%. NAWEC therefore needs to consider the recoverability of 75% of the council’s debt;

► NAWEC deducts 50% of any payments made by KMC towards their pre-paid meters and allocates these to the historic balances (this used to be 75%). EY has seen the calculation of such deductions for 2018 but has not seen the evidence of these being allocated to the KMC account. While this can be explained by the backlog of daily transactions to be posted, it is considered an issue as this can mean that NAWEC is not aware of the most current outstanding balance from each client to be able to promptly recover these without entering into a dispute; and

► The Lord Mayor of BCC has promised to start paying all electricity bills and has a payment plan to reduce the arrears, with 60% of car park fee revenue to go to NAWEC^[32]. As the letter is dated January 22, 2019, EY was unable to observe whether this plan is being adhered to.

3.102 There is currently no payment plan in place for BAC. BAC has requested help from the Government to resolve the dispute over the arrears NAWEC are owed, which has resulted in no recovery plan^[33]. The arrears which NAWEC is owed are from over five years ago, when the BAC offices were disconnected. BAC states that the arrears relate to streetlights and believes it is the NRA which should make the payment. However, as seen from the table

above, the streetlight arrears for BAC contribute to only 59% of the arrears. Therefore, the recoverability of the rest of 41% needs to be assessed by NAWEC^[34].

3.103 The balances due from the Local Councils form part of the Memorandum of Understanding (“MOU”). We based this conclusion on the fact that the outstanding balance from the councils according to the MOU equaled GMD 269,042,285 (USD 5,604,150) and agreed to the same according to the Management Information report for June 2017. The MOU suggests that 29% of this balance will be offset against NAWEC’s liabilities to the Government.

3.104 In summary, it appears that the outstanding balances from the councils are relatively old. There are a number of efforts being made to recover these, however, NAWEC has not made any overall assessment of whether these will be ever recovered in full. This is of particular concern for BAC where the council does not agree it owes anything to NAWEC.

3.105 We recommend that NAWEC makes an assessment of the above and provides for or writes-off the balance it does not consider recoverable. The assessment needs to take into consideration the balances to be offset against NAWEC’s debt according to the MOU.

Ministries

3.106 The Ministry of Health & Social Welfare, Office of the President, Ministry of Defense and Ministry of Interior are four ministries for which NAWEC provides water and electricity for office buildings, hospitals and security sites. The total debt outstanding from these is GMD 213,193,398 (USD 4,440,818).

3.107 We requested a breakdown of these balances from the Galatee system, but we have only been provided with three: The Ministry of Health and Social Welfare with the balance of GMD

71,032,925 (USD 1,479,615), The Ministry of Interior with the balance of GMD 14,527,686

(USD 302,611) and The Office of the President with the balance of GMD 74,772,782 (USD 1,557,517). All balances were different from the Management Information report (14%, 40% and 7% difference).

3.108 There is evidence that the Ministries pay bills for their past arrears. EY observed this for the Ministries of Defense^[35], Interior^[36] and Health & Social Welfare^[37]. However, these were for 2018 invoices which means that the recoverability of the 2017 balance is still a concern.

3.109 In addition, the payments have not been reflected in the Galatee system reports for 2018 by the two councils we were able to obtain the 2018 system download for. This shows that NAWEC is not regularly updating its system. As above, while this can be explained by the backlog of daily transactions to be posted, it is considered an issue as this can mean that NAWEC is not aware of the most current outstanding balance from each client to be able to promptly recover these without entering into a dispute.

3.110 Most Ministry offices have had their post-paid meters replaced with pre-paid meters, but these meters do not take away any deductions to be allocated to the arrears (unlike KMC). There are areas which have post-paid meters installed such as the Hospitals and Security sites, but these are to be covered by the payments made centrally by the MoFEA from January 2018;

3.111 The balances due from the Ministries form part of the MOU. The current version of the MOU recognizes that Ministries owed NAWEC GMD 202,688,978 (USD 4,222,011) as of June 30, 2017, and suggests that 100% of this balance is offset against NAWEC’s liabilities. EY was

unable to reconcile the MOU balance to the balance outstanding per the Management Information report^[38].

3.112 In summary, it appears that the outstanding balance from the four ministries as of December 31, 2017, has not been paid off. No active efforts to recover the balance appear to be made. However, according to the MOU, 100% of the balance will be offset against NAWEC’s debt, therefore it appears recoverable.

Agencies

3.113 GRTS, GCAA, GAMTEL and Central Bank are four agencies for which NAWEC provides water and electricity for office buildings, runways and outlets^[39].

3.114 EY requested a breakdown of these balances from the Galatee system which were provided as set out in the table.

Table 26: Galatee breakdown for Agencies

No	Customer	Galatee balance GMD	MI Report balance GMD	Difference GMD	Difference %
1	GRTS	50,313,038	53,618,969	3,305,931	6%
2	GCAA	26,642,215	32,050,311	5,408,095	17%
3	GAMTEL	11,196,223	19,982,601	8,786,378	44%
4	Central Bank	2,205,713	8,320,411	6,114,697	73%

Source: Compiled by EY based on the Galatee system reports and Management Information report for GRTS, GCAA, GAMTEL and Central Bank as at December 31, 2017.

3.115 As shown in the breakdowns provided, the Galatee system total amounts are always significantly lower than those presented in the Management Information (MI) report. This raises concerns whether the information provided to Senior Management is correct. In addition, the MI reports are used in the MOU to identify the balances to offset against NAWEC’s debt. We therefore recommend that these are to be reassessed to reflect the most accurate balance.

3.116 According to the Commercial department, Agencies do not regularly pay their bills on time and it is not until NAWEC disconnects the Agencies that a payment is made.

3.117 Based on the Galatee system reports for 2018, no payments have been made by three of the four Agencies in 2018 in relation to their bills (a payment was made by GAMTEL in 2019 which is detailed below). There are currently no plans in place to recover arrears from Agencies and in the MOU there is no amount allocated for the Agencies arrears to be offset against the NAWEC’s liabilities.

3.118 However, we noted the following with regards to the efforts made to recover the balances owed to NAWEC:

► NAWEC has recently replaced all of GRTS’s post-paid meters with pre-paid⁶⁵ ones. The meters do not have the element of arrears deduction (unlike KMC). As this was a recent change, a decision has been made to give GRTS time to adjust and then discuss a recovery plan for the arrears;

► There is no recoverability plan in place for GCAA;

► GAMTEL has no pre-paid meters and there is currently no plan to install them. Recently, GAMTEL paid a bill that equated to approximately GMD 1.9m (USD 39K) covering their

October 2017 bill. The payment represented just under 10% of the overall arrears as of December 31, 2017. This was paid when NAWEC disconnected GAMTEL temporarily; and

► NAWEC nets-off their bills with their customers. For example, there was a netting-off exercise between NAWEC and GAMCEL according to the letter dated September 19, 2018. As a result of this exercise GMD 3.7 of GMD 3.8m owed by GAMCEL has been offset.

3.119 For the Central Bank there is uncertainty with the regards to the arrears balance. We note that the difference between the MI report and the Galatee balance is also significant (73% as per the table above). The customer believes that they owe significantly less. There has recently been a meeting between the Central Bank and NAWEC to resolve the issue, but the result has not been communicated to EY as the fieldwork had finished by the time it became available.

3.120 NAWEC claims this is an issue for customers who pay their bills through the Central Bank. EY observed a credit note from the Central Bank^[40] which did have limited details, as it did not outline who the payment was from. However, the detail does appear to include a unique number which NAWEC could use to help identify the correct invoice to allocate it against in the system.

3.121 By not allocating the payments against the right customer or invoice, NAWEC are at risk of entering into unnecessary disputes with customers. We therefore recommend that NAWEC reconciles the outstanding balances with all its customers.

3.122 We also recommend that a specific provision is considered for the outstanding balances for GRTS and GCAA as no payments have been made in respect of these since 2017, and no efforts are made to recover the arrears for 2017 and before. The recoverability of the balances due from GAMTEL is also to be re-assessed. Only 10% of the bill has been recovered since 2017. The arrears are building up and therefore a reasonable provision needs to be booked against this debtor.

‘Former regime’ arrears

3.123 Large historic arrears for water and electricity built up in the previous regime from State House, the ex-President’s previous residence, and, according to the Commercial team, the businesses related to the ex-President, being Kanilai Farms, Kanilai Group International (KGI), Green Industries and Maintenance Service Agency.

3.124 State House is part of the account for The Office of the President⁶⁷ which as of December 31, 2017, had the total balance of GMD 80,667,426 (USD 1,680,302) outstanding and is considered as a Ministry⁶⁸. If the MOU goes ahead, the arrears will be covered as explained in the section above.

3.125 However, there is an issue with respect to the recoverability of the businesses’ arrears. Some of these debts date back to as early as 1993 (Kanilai Farms), when the meters were installed^[41]. EY was unable to obtain the value of the arrears as of December 31, 2017, as the last time they were included in the MI report was October 2017.

3.126 According to the MI Report, these businesses are Agencies and, while no netting-off is suggested for these in the MOU, they are included in the amount presented as due from Agencies as of June 2017 (GMD 61,583,205 or USD 1,282,778 representing over 36% of the total Agency balances). As the agreement resulting from the MOU has still not been finalized, we suggest that the Government reassesses whether these balances are, in fact, Agencies. This is in case a decision is made to offset these against NAWEC’s debt.

3.127 NAWEC is making efforts to recover these debts by either disconnecting meters but is facing significant challenges. For example, according to the Commercial team, NAWEC has recently tried to disconnect the post-paid meters to replace them with pre-paid meters for the Maintenance Service Agency but they were prevented from doing so. NAWEC’s engineers were prevented from leaving the premises by the Police Intervention Unit (PIU) who had withheld the engineers’ vehicle until the freshly disconnected meters are reconnected.

3.128 NAWEC needs to reassess the recoverability of these debts and provide accordingly.

SOE Trade Receivables

Figure 4: SOE Trade Receivables

Source: Compiled by EY based on the information provided by other SOEs and NAWEC’s Management Reports

3.129 We also compared the balances NAWEC believes are owed by other SOEs and what SOEs

have in their books. The results are summarized in the figure above. While the balances do not differ significantly, each of them differs. This highlights the importance of performing reconciliations with each customer for NAWEC to ensure that the overall Trade Receivable balance is correctly stated and recoverable.

Dormant accounts

3.130 EY has been advised that NAWEC employed the Asset Management & Recovery Corporation (AMRC) to help recover the arrears from dormant accounts. EY requested, but has not been provided with, information regarding which accounts AMRC looked at. However, we were provided with the list of dormant accounts below. We note that at least three of the six accounts appear to be active with invoices raised in 2018 and recent payments made. We have not considered these further.

Table 27: Dormant accounts

Institution	Total Due GMD	Last Billed	Last Payment Date	Last Payment Amount GMD
Tanji Ice Plan	4,127,533	n/a	July 31, 2016	2,850
Sankung Sillah & Sons	2,200,726	December 2018	November 15, 2018	50,000
National Partnership Enterprise	1,760,599	June 2011	August 1, 2018	20,000
Golden Beach Hotel	252,860	November 2018	November 16, 2018	6,400
Laguna Beach Hotel	782,741	June 2013	NA	NA
Laico Atlantic	4,223,913	December 2018	January 14, 2019	631,461
Total	13,348,372			710,711

Source: NAWEC’s dormant account listing

3.131 EY held a conversation with the Commercial Department to discuss the rest of the table. It was confirmed that for both Tanji Ice Plant and National Enterprise Partnership, no efforts are currently being made to recover the debt. NAWEC needs to confirm whether the debts are recoverable and, if not, write this debt off.

3.132 As confirmed during the review of the Internal Audit reports^[42], the Laguna Beach Hotel owes NAWEC for invoices from 2003, when it was still in business. NAWEC has made effort to contact the proprietor of the hotel, but no further action has been taken. As the bills have been outstanding since 2003 and the hotel is not known for being active^[43], a recommendation would be to write-off the Trade Receivable balance.

Provisions

3.133 As noted in the Interim Report, it is our assessment that the Bad Debt provision policy is not adequate. The provision for bad debts should reflect a prudent estimate of the extent to which amounts owed and may not be paid by NAWEC’s debtors. Under the current policy, government receivables are never provided against, and other debts have to be outstanding for over seven years to be considered irrecoverable. This does not reflect the reality of likelihood of recoverability and results in an overstatement of debtors.

3.134 In practice, the current system used to account for debtors does not provide the debtors ageing analysis. NAWEC therefore applies 15% flat rate to the debt outstanding as opposed to following its own policies. The current auditor highlighted in the recent Management Letter that this is not good practice⁷².

3.135 EY recalculated the provision for 2010 to 2016 and confirmed that NAWEC has used a 15% rate to calculate its general provision. As it currently stands, 2017 provision is at 10% but this has not been finalized yet.

3.136 The current policy also states that the Central and Local Government balances are excluded from being provided against. This policy appears unreasonable, especially given the amount and age of the Government debt. We recommend that the policy is amended to include such balances in the provision calculation.

Recommendations

3.137 NAWEC needs to re-assess the recoverability of a number of Trade Receivable balances. This is especially the case for the debtors which do not have a repayment plan in place, where no payments have been made since 2017 or where there is a dispute between NAWEC and the customer.

3.138 NAWEC is to perform the reconciliation of the major balances outstanding from each customer, with the customer;

3.139 NAWEC is to revise its Bad Debt provision to make it more prudent as described above;

3.140 NAWEC is to replace the existing billing system with a system which produces all the basic reports, including ageing and Trade Receivables breakdown.

Staff Loans

3.141 Staff Loans Receivable balance represents less than 1% of the Total Assets on the Balance Sheet in 2017.

3.142 The types of loans provided by NAWEC to its employees are summarized below.

Table 28: Staff Loans Receivable

Loan	Interest Rate	Loan	Description
Building	5%	15 years	The loan is for a purchase of land or building materials. After the first disbursement of the loan, deeds of the property are to be provided to NAWEC^[44] before any further disbursements are made, unless there are exceptional circumstances.
Car	2%	5 years	The loan is for the purchase of a vehicle or its maintenance. NAWEC must be provided with car insurance details and be listed as a driver before the first disbursement. Staff who are a Grade D or above only pay back 50% of the loan.^[45]
1 x 6	0%	6 months	Related to the supplies for the Tobaski festival.
Other	0%	12 months average	This is to account for staff salary advances. This category is also used for the transfer of various loans between categories.^[46]

Source: Staff Service Rules 2014 and Accounting Policy.

3.143 In addition to the above, staff are also able to take out loans with the Credit Union and the NAWEC Staff Association (NASA).

3.144 The figure below shows different types of Staff Loans Receivable from the Payroll Reports over the period 2015-2018.

3.145 As seen in the above figure, Building and Car Loans represent most of the Staff Loans Receivables balance. This is due to these loans being the larger balances which are borrowed over a longer period of time in comparison to other Staff Loans.

3.146 The Staff Loans Receivable is a composition of loans owed to NAWEC by current and exstaff as shown in the figure below.

Source: Compiled by EY based on the Payroll Reports from as at December 31, 2015-2018.

3.147 On average, 10% of the Staff Loans Receivable is from ex-staff of NAWEC and this on average comprises of 100 people owing NAWEC GMD 24,271 (USD 543). In comparison, 90% of the Staff Loans Receivable is from current staff of NAWEC and this on average comprises of 1,451 people owing NAWEC GMD 15,254 (USD 338). Between current and exstaff, ex-staff owe NAWEC on average 59% more than a current staff member. As at December 31, 2017, there were 1,430 of current staff, and 106 of ex-staff that held an outstanding loan position.

Reconciliation

3.148 EY requested from NAWEC the reconciliations between the Payroll reports and the

accounting system for 2015, 2016 and 2017. The accounting policy required that the

reconciliation should be done each month^[47]. EY was informed by the NAWEC Payroll team that this reconciliation had not been completed since 2015.

3.149 EY attempted to reconcile the Staff Loans balance per the Payroll Reports and the Balance Sheet for 2015, 2016 and 2017. The differences identified were GMD 3m (USD 75k), GMD 2.6m (USD 60k), GMD Cr 300k (USD Cr 6k) or 12%, 9% and -1% respectively.

Due Process of Acceptance of a Staff Loan

3.150 EY walked through the process of obtaining a Staff Loan with the HR department and the Payroll team. There are no clear criteria regarding how long an employee needs to have been with NAWEC to be eligible for Staff Loans.

3.151 For a Staff Loan to be approved, a staff needs to^[48]:

► Fill out the Loans application form; and

► Meet the 50% take home criteria, i.e., estimated new net pay cannot be less than 50% of gross pay. This is known as the eligibility percentage.

3.152 EY tested the January months for the period 2015-2017 to ensure that the eligibility percentage was being adhered to. The results of this exercise are summarized below.

Table 29: Staff Loans Receivable Composition

Year	Number of staff with loans	Number of staff not meeting eligibility before loan deductions	%	Number of staff not meeting eligibility after loan deductions	%
2015	1,482	117	8%	441	30%
2016	1,442	179	12%	535	37%
2017	1,430	180	13%	541	38%

Source: Compiled by EY based on the Payroll Reports for January 2015-2017.

3.153 The results show that a number of people (227 individuals over the 3 years period) had loans

despite them not meeting the eligibility percentage. Further analysis also shows that 8 of the employees’ net pay after their loan deductions became less than 10% in January 2015, 4 in January 2016 and 7 in January 2017.

3.154 EY consulted with the HR department at NAWEC which confirmed that the eligibility percentage is not always being adhered to. HR quoted the Service Rules Manual, being that the MD as the Chief Executive can use his/her reasonable discretion to approve loans for staff as he/she deems fit⁷⁸. We understand this to mean that the MD can override the control of the 50% eligibility criteria.

3.155 EY selected two individuals⁷⁹ to see if all the documentation required to be kept has been kept. The documentation which should be observed is Staff Loans application form, calculation of eligibility percentage, amortization schedule, documentation depending on the loan^[49], Loans Committee minutes and approval from the MD.

3.156 For the Building Loan example, the due process was partly followed. EY could not see any Loan Committee minutes except for the memo^[50] that was addressed to the Chairman for the Loan Committee, with the MD being cc’d in. Everything else was adhered to.

3.157 For the Car Loan example, the process of obtaining a Loan bypassed the formal process. For instance, there was a memorandum addressed to the MD with no Loan application. It is unclear if the Loan went to the Loans Committee for their consideration.

Recoverability of Staff Loans from current staff

3.158 For current staff, monthly deductions are taken from their salaries automatically. The Payroll team sets-up the Staff Loans in the system once it has received full confirmation from HR. There are no breaks^[51] in the payback period for staff, so the loan period is set in the system.

Recoverability of Staff Loans from ex-staff

3.159 NAWEC has not historically written-off any Staff Loan balances, so these balances include Staff Loan Receivable amounts that may not be recoverable.

3.160 Before a member of staff leaves NAWEC (except in the circumstance of death), he/she must either settle their liabilities or set-up a payment plan. Over the years these controls have not been adhered to and the balances have not historically been chased.

3.161 Currently, the Company Secretary is working through a list which was created by the External Auditors following their 2015 External Audit^[52]. Whilst this is a good initiative from the Company Secretary, the issue is that the focus is on balances which are greater than GMD 20,000 based on a potentially obsolete listing from 2015. Since then, more staff have left the company, which could have resulted in an increase of the receivable balance from exemployees. Given the current situation, it appears unlikely that any balances which are below 20,000 will be chased, and therefore a provision for these should be considered.

3.162 One of the loans NAWEC is trying to recover is a loan outstanding from Famalang Darboe. This ex-staff has one of the highest outstanding Staff Loan Receivable amounts totaling GMD 647,079.32^[53] (USD 13,225.65) representing 3% of the overall Staff Loan Receivable balance. NAWEC has attempted to contact this individual^[54] but did not receive any response from him. NAWEC wanted to recover the liability through the individual’s SSHFC Pension Contributions, however, this individual was part of an old scheme, and NAWEC needs his authority to use his contributions. As noted below, NAWEC needs to confirm its position with regards to the Statute of Limitation in order to assess the recoverability of this loan.

3.163 In addition, EY noticed a difference between the value on the Payroll Report and the value on

the Management Letter (which the Company Secretary is using). The Payroll Report gives a higher loan value balance for Building Loan than the Management Letter by GMD 19,949.48 (USD 412). NAWEC needs to confirm the balance of all the loans to ensure they are chasing for the correct amount.

3.164 In the Company Secretary’s pursuit of recovering loans, a member of ex-staff obtained legal advice that due to the Statute of Limitations, NAWEC cannot recover its loan as it has taken so long to attempt to recover it. NAWEC is still chasing loans beyond the period as it will get responses from ex-staff who will acknowledge this, making the statute void.

3.165 The Limitation Act states that “An action founded on simple contract shall not be brought after the expiration of six years from the date on which the cause of action accrued.”^[55]

This appears to imply that once it has been six years since either the final date of payment due or when the staff leaves employment, NAWEC can no longer chase for unpaid staff loans. We summarized the amount of loans falling under the Statute of Limitations under either of the two scenarios as can be seen below. We also tested the position of Staff Loans Receivable for 2017 and 2018 in light of this statute^[56]. See a summary of the results below.

Table 30: Implications of the Statute of Limitation

6 years from the final loan payment due	% of Staff Loan Receivable Balance	6 years from point staff left NAWEC	% of Staff Loan Receivable Balance
GMD USD		GMD USD
61,159.74 1,263.63	0%	713,720.73 14,736.30	3%
25 1×6 Loan		1 Building Loan 1 Car Loan 26 1×6 Loan

Source: Compiled by EY based on the Payroll Reports as at December 31, 2017.

3.166 If the date a contract ‘accrued’ on is taken as the time an employee leaves NAWEC, this would be significant for NAWEC, as 3% of the Staff Loan Receivable should be written-off.

3.167 NAWEC is making sure that all necessary steps are taken to recover the loans for ex-staff and that the process is duly followed going forward. Examples of such efforts include placing an advertisement in National Newspaper^[57] asking for ex-staff of NAWEC to come forward and repay their loans as well as putting in place Debt Repayment Agreements⁸⁹ with ex-staff. These agreements outline the debt owed and the repayment schedules. These agreements are signed by both NAWEC and the ex-staff, making the Loan acknowledged and enforceable.

[1] This is an approximate calculation as there is no clear separation of electricity and water in the accounting system.

[2] Almost a third of this balance is currently Assets Under Construction which will most likely require further funds to complete and therefore will further increase NAWEC’s Total Debt. Total Debt here and throughout the report is the externally obtained debt, both long-term and due within one year.

[3] These numbers do not take into account the MOU.

[4] NAWEC’s 2009 Equity was also negative, followed by a positive position in 2010 and back to negative in 2011.

[5] In this table and in tables throughout the report the numbers are rounded.

[6] The Equity value is based on the draft Balance Sheet. The value is incorrect and should be negative GMD

3,465,408,000 (negative USD 72,184,000) when calculated using the accounting equation Equity=Total Assets-Total Liabilities. The difference is GMD 319,356,000 (USD 6,652,000). Senior Management could not explain the difference, stating that the Financial Statements were still in a draft format.

[7] According to IAS 16, under the cost model, an asset is carried at its cost less any accumulated depreciation and impairment. Under the revaluation model, an asset is carried at a revalued amount, which is its fair value at the date of the revaluation less any subsequent accumulated depreciation and impairment.

[8] It is unclear whether all asset classes were revalued. In absence of different information, we assume that all assets were revalued.

[9] In such cases we believe that a practical approach is to limit exchange losses taken as borrowing costs such that the total borrowing costs capitalised do not exceed the amount of borrowing costs that would be incurred on functional currency equivalent borrowings, taking into consideration the corresponding market interest rates and other conditions that existed at inception of the borrowings.

[10] 50% of the total value of the Memorandum of Agreement between NAWEC and GPS plus first of five further instalments.

[11] 43 months of depreciation at 2.5% yearly rate. Note that this calculation assumes that the value of the asset capitalized is as it is currently stated in the Financial Statements.

[12] This is based on FOREIGN EXCH DIFF. 31.12.2017- 09-01-2018 spreadsheet provided by the Finance Team. ²⁹ This value was different from the total value of EBID disbursements of USD 17,830,294. This difference was explained by NAWEC’s Finance Team as their additional internal investment into the asset.

[13] USD 789,392 for the power station at 5% per year and USD 481,272 for transmission and distribution network at 2.5% per year.

[14] This is based on FOREIGN EXCH DIFF. 31.12.2017- 09-01-2018 spreadsheet provided by the Finance Team.

[15] PM000008, PM000004, PM000005, PM000006, EN000032, EN000033

[16] Based on EY recalculation of NBV describes below.

[17] This is inclusive of the overstatement of GMD 145k (USD 3k) detailed above.

[18] See “Re: Equity Contribution – Agua Gambia Ltd” Executive Directive from October 1, 2015.

[19] We note that NAWEC is currently in a separate licencing agreement with Agua Gambia whereby NAWEC leases its wastewater treatment assets to Agua Limited for a 10% profit share. However, these are two separate agreements.

[20] We note that this agreement is between AguaInc Ltd and the Gambian Government. However, the payment was made to the company acquired, i.e., Agua Gambia. No explanation of why this was the case was provided by the Finance Team.

[21] These are paper cards created for each type of Inventory used for manually updating any movements of the Inventory.

[22] Stock items with the following numbers: K1-STAT0001, K1-VESP0019, K1-VESP0233, KA-GEME1334, KAGEME1497, KD-GEME0363, KD-GEME1371, KD-GEME0141.

[23] These are items K1-VESP0270, K1-STAT0158, KA-GEME1263.

[24] Stock code KA-GEME1441.

[25] Stock codes K1-STAT0148, K1-STAT0022, K1-STAT0085, K1-STAT0019, K1-STAT0010, KD-GEME1174. ⁴³ For example, KA-GEME1334 found in Kodu D and not Kotu A.

[26] This includes line items with zero value.

[27] A date which is none existent or non-sensical, for example 1900.

[28] See Interim report for more details regarding the MOU.

[29] For example, in the first set of data, the monthly bill for GAMCEL in September 2017 was GMD 390,443. In the second set of data received this value changed to GMD 352,124, creating a difference of GMD 38,319 (USD 808.43). This difference is minimal; however, it raises concerns regarding the accuracy of the Receivables balance. ⁴⁹ Here and throughout the section this means top 11 customers from the Management Information report. While the Central Bank is not a ‘top’ customer, it has been included in the revue.

[30] Letter from MoFEA, dated January 29, 2018 and titled Enhancing Financial Discipline in the Electricity Sector. ⁵⁵ We note that it was confirmed by the Commercial Team on multiple occasions that the 2018 Galatee reports provide details of any payments made in 2018. This was also confirmed on the phone call between EY and the Commercial Team which took place on February 19, 2019. However, we have also been provided with STREET LIGHTS 2018 spreadsheet detailing some payments made in February – April 2018 by all three councils in relation to street lights. It is unclear whether this table was correct as it contradicts other documentation provided as well as the Commercial team’s verbal confirmation that the councils made no payments in relation to street lights in 2018.

[31] Based on GMD 1,565,975 (USD 32,619) yearly charge.

[32] Letter from Chief Executive Officer to NAWEC, dated January 22, 2019, titled Re: Aide de Memoire (NAWEC Arrears)

[33] Letter from BAC, dated November 28, 2018, titled Appeal for Government support/intervention on NAWEC Arrears

[34] BAC committed to pay for ‘Other’ bills from January 2017 onwards in their letter dated November 28, 2019.

However, no such payments have been made according to the Commercial team.

[35] Memo dated October 29, 2018 for payment for June 2018 bills.

[36] Memo dated August 17, 2018 for part payment for March bills.

[37] Memo dated October 26, 2018 for payment for February 2018 bills.

[38] There is a difference of GMD 13,568,668 (USD 280,344), which can be explained by not all Ministries being listed on the Management Information Report. Access Gambia has a list of all the Ministries on their website http://www.accessgambia.com/information/government-ministries.html

[39] EY observed from the Management Information report that not all Government Agencies were listed and that there was missing information from some of the Agencies in random months. It was unclear why this was the case. ⁶⁵ Letter to GRTS from NAWEC dated January 24, 2019 titled, Notice of replacement of your conventional meters to cashpower

[40] Credit note from Central Bank dated April 17, 2018 with reference DD1810748111 and payment details NAWEC-

PYT IRO 02103000113000/112500, transfer amount GMD 5,244.03 ⁶⁷ This is seen in the customer listing for Office of the President. ⁶⁸ Access Gambia has a list of all the Ministries on their website http://www.accessgambia.com/information/government-ministries.html

[41] We note that this was based on the conversation with the Commercial Team who provided us with the Kanilai Farms meter listing detailing when the meters were installed. According to the team no payments have been made by for these meters since.

[42] Internal Audit Report March 2017

[43] EY conducted research and found no results for Laguna Hotel. ⁷² Management Letter from DT Associates 2015 audit, pg. 36.

[44] This is a recent policy introduced by NAWEC, to help with the recovery for Staff Loans.

[45] EY was unable to confirm if the full amount of the Staff Loan Receivable for Grade D employees and above was accounted for in the Receivables balance. Page 33 of the Service Rules NAWEC 2014.

[46] The Company Secretary transferred their loan over from their previous employer and this loan was a Building Loan with a different interest to NAWEC.

[47] NAWEC Policy and Procedure Manual 7.3.4 Staff loans and advances

[48] NAWEC Policy and Procedure Manual 7.3.4 Staff loans and advances ⁷⁸ Service Rules, Chapter VII, 7.0 Advances, 7.1 General ⁷⁹ Both were from 2013 for a Building and Car Loan.

[49] If a Building Loan, deeds to the property. If a Car Loan, insurance with NAWEC also named on the documentation.

[50] Dated January 2, 2013 with subject Building Loan

[51] This is despite that the Accounting Policy 7.3.4. Staff loans and advances, where all loan deductions to be waived at ‘Tobaski’ and Christmas.

[52] Management Letter from DT Associates 2015 External Audit

[53] This is from the Payroll Report as of December 31, 2018. It is a combination of a Building Loan (GMD 418,939.32) and a Car Loan (GMD 228,140.00)

[54] EY have observed email communications dated March 19, 2018 and a demand letter dated January 18, 2018.

[55] Limitation Act of The Gambia, Actions Founded on Simple Contract.

[56] EY assumed that all Staff Loans are simple contracts.

[57] EY observed an extract from a Newspaper which was released in the Autumn of 2018. ⁸⁹⁸⁹ EY observed the example of Ida Ndure dated April 24, 2018.

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GNPC – Summary findings and recommendations

Table 16: Summary Balance Sheet as at December 31, 2017

Table 17: Financial impact of issues uncovered during the Forensic Audit

GCAA – Summary findings and recommendations

Table 18: Summary Balance Sheet as at December 31, 2017

Table 19: Financial impact of issues uncovered during the Forensic Audit

Table 20: Long term and short-term loan position per draft 2017 Financial Statements

NAWEC

Introduction

NAWEC – Detailed findings – Balance sheet

Table 6: Summary draft Balance Sheet as at December 31, 2017[5][6]

Table 21: Summary of Fixed Assets as at December 31, 2017

Table 22: List of Fixed Assets that EY was unable to physically verify

Table 23: Assets Under Construction as at December 31, 2017

Table 23: Trade and Other Receivables for 2015, 2016, 2017 Receivable 2015 2015 2016 2016 2017 2017 category (GMD’000) (USD’000) (GMD’000) (USD’000) (GMD’000)

No Customer GMD USD

Table 25: BAC, BCC and KMC debt breakdown BAC BCC KMC

Table 26: Galatee breakdown for Agencies

Figure 4: SOE Trade Receivables

Table 27: Dormant accounts

Table 28: Staff Loans Receivable

Table 29: Staff Loans Receivable Composition

Table 30: Implications of the Statute of Limitation

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Table 6: Summary draft Balance Sheet as at December 31, 2017^[5]^[6]