Asphalt Plant paid $9.8M to non-existent company – probe finds
The Asphalt Plant paid more than $9.8 million to a non-existent Trinidadian company back in 2015 – one year before the company was incorporated.
This was among a series of discrepancies unearthed during an investigation into allegations of a major racket at the Asphalt Plant dating back for several years.
Chartered Accountant Chateram Ramdihal led the high-level team of investigators, which included Head of the Inspectorate Division at the Public Works Ministry, Heidi Gillette; that Ministry’s Audit Manager Dexter Smith, and Engineer Brion Singh, to investigate the operations of the Plant, which is run by the Demerara Harbour Bridge (DHB) Corporation.
Almost three months later, the team handed over a report of its findings to Public Works Minister Juan Edghill on Wednesday.
Ramdihal highlighted some of the findings, including the decision to purchase and sell cold mix. Investigators said in the report that not only was this decision taken without the approval of the DHB Board, but no feasibility study was conducted to determine whether this venture would be a beneficial one.
In addition, the report detailed that the cold mix was purchased from a company in Trinidad and Tobago that was registered in that country in April 2016, the same year the cold mix was purchased.
“Hence, at the time of purchase, the company was not a known supplier of the product. Our analysis of the General Ledger revealed that the company was paid the sum of $9,814,600 on the 17th November, 2015, at the time when the company was not incorporated or a legal entity,” the report stated.
Moreover, the investigators say, the analysis revealed that the cost of procuring cold mix is approximately 11 times that of the procurement of asphalt.
But, in response, the plant management explained that the usage of cold mix was not to replace asphalt, but as an option for the early intervention of the then Ministry of Public Infrastructure road maintenance (all weather) and far outlying areas.
They also said the decision to sell cold mix was taken after consultation and deliberation with management of the then Public Infrastructure Ministry. They added that they are unaware of the incorporation details of the Trinidadian company, but noted that there was no loss on this new product.
Nevertheless, the investigators say in their report that they “were unable to determine the rationale for acquiring cold mix from a new company rather than an established supplier. Management advanced the Plant’s fund to a company that was legally non-existent, and, as such, exposed the Plant to the risk of non-recourse in the event of non-delivery.”
To this end, it was recommended that management ensure the cold mix is purchased from known suppliers in order to attract higher quality at a cheaper price, as well as to ensure advance payments are made only to established legal entities.
Recommendations were also made for management to ensure major decisions of this nature be approved by the DHB Board, and that feasibility studies are carried out.
The other findings of the report mostly had to do with the weaknesses in the operations of the Asphalt Plant that could allow for malpractices to be capitalised on.
Lack of internal controls
The probe was ordered back in September, and the team later established – early October, following allegations – that persons at the Asphalt Plant and the Public Works Ministry were reselling asphalt to the Government for their own benefit.
Reports are that persons from the Ministry would order a certain amount of asphalt from the plant, to be billed to the Ministry. However, they would collect less than what was ordered, and sell the difference at discounted prices to select contractors.
Ramdihal said on Wednesday that while they were unable to ascertain whether the allegation is true, it could be “possible”, given the lack of internal controls. He pointed out that there were no records to show at the Ministry’s end that it had received the amount of asphalt it had paid for in advance. It was also discovered in one instance that the Ministry had overpaid for asphalt.
“Our investigation… revealed that the Ministry… purchased asphalt through a pre-payment system, and did not have a system in place to reconcile how much they received against how much is paid for. And as such, we are unable to determine whether the allegation is true… [But] because of the overpayment and because of the lack of reconciliation, the allegation could be possible,” Ramdihal told the gathering at the Ministry’s Boardroom, where the report was handed over.
Other findings unearthed during the probe include the lack of credit policies, hence no credit approval limit was set for customers. This, the report said, resulted in all credit sales being approved by the General Manager without any evidence of a credit review process being carried out and credit limits set for the various customers.
“Management continues to sell goods on credit to Courtney Benn Construction Inc. despite having a large sum outstanding at the point of granting additional credit and against the decision of the board, which is, to discontinue selling asphalt to this client until all monies owed are collected,” the report highlighted.
The Asphalt Plant was also flagged for loaning bitumen to Suresh Jagmohan (a competitor) and China Railways (at the time of loaning, there was no relationship between the two) without the approval of the board. It must be noted that these transactions occurred on the 14th December, 2017 (Suresh Jagmohan) and 9th February, 2019 (China Railways) and were closed in the latter part of 2020.
Discrepancies were also found in relation to the weighing and transporting of asphalt.
It was found that large trucks with asphalt are weighed at the Demerara Harbour Bridge, which is located approximately 10 miles away from the Plant. The report said this resulted in a higher cost than the other option available, which is to use the scale next door for a fee of approximately G$3000.
“This practice exposes the Plant to the risk of asphalt being taken out [on the way] before it is weighed,” the investigators stated.
They also found that the cost of hiring transportation, mainly trucks to transport raw material, is more costly than if the Plant was to purchase its own transportation.
“Our analysis of the outsourcing of transportation services as against that of the procurement of the Plant’s own truck has revealed that the procurement of a truck would have resulted in savings of approximately sixty percent (60%) of the transportation cost incurred during the period under review,” the report detailed.
Moreover, it was found that the Asphalt Plant disposed of some 118.9 tonnes of scrap metal to the tune of $1,877,368 in March, 2019 without a board of survey, as agreed to by the directors at the board meeting in August, 2017.
It was noted that the customer quoted $18,000 per tonne, but the sales was completed at a unit price of $15,789 per tonne.
“Our analysis revealed that adjustment was made to the quoted price for VAT, however, VAT is a recoverable element and therefore should not be deemed to be part of the quoted price,” the investigators found. Hence, they were unable to determine whether the Plant got ‘value for money’.
Upon receiving the report, Minister Edghill described the report as “very damning” and assured that measures will be taken to ensure that hemorrhaging of the public purse ceases.
“I will summon a special sitting of the Board of Directors of the Demerara Harbour Bridge, where the sole subject would be for the deliberations of the findings of this report and the adopting of recommendations or determining specific actions to be taken. Whoever is culpable will be dealt with based upon the principles of natural justice,” Edghill posited.
Meanwhile, Minister within the Ministry of Public Works, Deodat Indar, in echoing sentiments expressed by his colleague minister, also committed to ensure that corrective measures are taken for the deficiencies highlighted in the report. (G8)