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Fuel Subsidy Probe II: KPMG tells Senate FG Overpaid Marketers Billions due to Arithmetic Errors

By on June 1, 2012

The Senate Committee investigating the Fuel Subsidy scheme has been informed by KPMG of overpayments made to marketers in the range of billions. The overpayments were authorized by Petroleum Products Pricing Regulatory Agency (PPPRA).

Minister of Trade and Investment and former Finance minister, Segun Aganga, appointed KPMG to audit the subsidy scheme between 2006 and 2010.

Testifying before members of the Senate Committee yesterday, a senior partner in KPMG, Dimeji Salaudeen, provided the lawmakers with deep insight to the rot and fraud in the system.

Salaudeen said, ““We found out that there was net over payment to marketers of N25bn. We found out that this was due to the application of inappropriate documentation; inappropriate CBN rates and charges; and arithmetic errors.

“We also looked at the role of PPPRA in the entire subsidy regime and discovered that government’s framework was weak, a situation where a significant discretion rest with the Executive Secretary of PPPRA because the board left significant power in his hands.”

The KPMG executive said subsidy payments averaged N 460 billion between 2006 and 2010. 347% less than the N 1.6 trillion reportedly paid as subsidy in 2011.

Salaudeen said PPPRA made payments based on falsified records and had a weak internal audit system.

“PPPRA’s internal audit function had a major weakness. We took a small sample of participants and independently verified the payments made to them; we discovered certain payments were made by PPPRA on the basis of documentations that were basically altered.

“We found situations where people brought products but were not registered, others who had not completed registration process got petroleum allocations, and participants with historical record of poor delivery got allocations, making it difficult to appreciate the basis for which the allocations were given,” he added.

The agency also used demurrage as a way to milk the treasury. Demurrage is a penalty paid for vessels delayed at the ports. Demurrage charges can range from $20,000/day to $50,000/day and it is very feasible that PPPRA officials collude with marketers and vessel crew or owners to incur demurrage and receive kickbacks over a specific amount.

Whilst smaller companies could clear their cargoes in a few days, NNPC cargoes took an average of 33 days to clear the port costing the country over $ 200 million within the 5 year period under audit.