KPMG Report A4 (2007 v2.1)

Report
Audit Highlights
Memorandum for the
Year Ended
31 December 2012
Volta River Authority
August 2013
AUDIT
Key Findings
Presentation to Stakeholders Meeting
Area
Summary observations
Analysis
Quality of earnings
Financial
statement
analysis
Compared to the previous year, the company’s financial results and performance
showed a significant downturn. This finding was reached based on our analysis of
the following:
■ Statement of financial position
■ Statement of comprehensive income
■ Ratio Analysis
■ Financial statement analysis
Page 4
Page 7
Page 9
Page 10 - 16
Other information
Disclosures
Subsidiaries
Page 19 - 21
Governance
Audit Issues
and Control
observations
Controls tested were generally found to be operating satisfactorily and we noted
a positive approach to addressing issues previously reported
Disclosures
Other risk assessment
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("KPMG International") a Swiss entity. All rights reserved.
Page 23
Page 26 - 27
1
Quality of Earnings
Our perspective on the underlying
performance of the Authority and
the key accounting judgments
made
Quality of Earnings
Underlying Performance
Quality of Earnings
Key developments during the year
• Average inflation rates increased from 8.7% in January 2012 to 9.3% by the end of December
2012.
• The cedi also depreciated by 18% against the US Dollar during the year.
• Bank of Ghana increased the monetary policy rate from 12.5% in January 2012 to 15% by the
end of December 2012.
• Crude oil prices decreased from USD 122 per barrel in January 2012 to USD 111 per barrel by
the end of December 2012.
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("KPMG International") a Swiss entity. All rights reserved.
3
Quality of Earnings
Underlying Performance
Quality of Earnings
STATEMENTS OF COMPREHENSIVE INCOME (GROUP) FOR THE YEAR ENDED 31
DECEMBER 2012
GH¢'000
2012
GH¢'000
2011
% Change
1,749,385
(1,656,583)
92,802
1,110,560
(806,679)
303,881
58%
105%
63,777
(238,796)
(82,217)
48,537
(211,970)
140,448
31%
13%
Financial Income
Financial Expenses
Exchange Gain/(Loss)
Exchange Fluctuation Gain/(Loss) on Foreign Debts
35,617
(50,389)
21,231
(14,388)
2,371
(37,745)
(7,747)
(14,677)
1402%
33%
-374%
-2%
Profit/(loss) for the year after taxation
Taxation
Profit/(loss) for the year after taxation
(90,146)
(90,146)
82,650
(8)
82,642
-209%
389,500
49,342
258,550
714,590
42,938
757,528
-45%
15%
Revenue
Cost of Sales
Other Operating Income
Administrative Expenses
-209%
Other comprehensive Income:
Capital surplus
Revaluation of Investment
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4
Quality of Earnings
Underlying Performance
Quality of Earnings
GH¢ thousand
Revenue Growth
2,000,000
1,800,000
1,600,000
1,400,000
1,200,000
1,000,000
800,000
600,000
400,000
200,000
-
Revenue
2011
Increase in
volume
Tariff
adjustment
(Mines)
Government
subsidy
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("KPMG International") a Swiss entity. All rights reserved.
2012
5
Quality of Earnings
Underlying Performance
Quality of Earnings
Power Sales
700,000
600,000
GH¢ thousand
500,000
591,511
493,464
397,706
400,000
265,275
300,000
200,000
2012
150,771
123,978 101,140
100,000
147,473
145,049
2011
82,794
ECG
Mines
Northern
Electricity Dept
(NED)
Communauté
Electrique Du
Benin
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Others
6
Quality of Earnings
Underlying Performance
Quality of Earnings
Statement of comprehensive income analysis
Operating Profit / (Loss)
200000
150000
140,448
GH¢ thousand
100000
50000
Operating Profit / (Loss)
0
2011 Profit
Crude Oil
purchase
Power purchase
(Loss) 2012
-50000
90,146
-100000
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7
Quality of Earnings
Underlying Performance
Quality of Earnings
Statement of comprehensive income analysis
© 2013 KPMG, a partnership established under Ghanaian law and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
("KPMG International") a Swiss entity. All rights reserved.
8
Quality of Earnings
Underlying Performance
Quality of Earnings
Ratio Analysis
Ratios
Solvency
Profitability
2012
Current ratio
(Current assets/
Current liabilities)
1.92
2011
Commentary
2.52
Current ratio deteriorated over the prior year’ s due to the
significant increase in short term borrowings and trade
payable and decrease in inventory in 2012.
Gross Profit Margin
(Gross profit/
Revenue)
5%
27%
Net Profit Margin
(Net profit/ Revenue)
-5%
7%
Return on Assets
(Profit before Tax /
Total assets)
-6%
8%
The gross profit margin decreased as a result of a
significant increase in cost of sales in 2012.
The increase in cost of sales and administrative
expenses resulted in a net loss for the period.
Operational losses and increasing assets caused the
deterioration in this ratio
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9
Quality of Earnings
Underlying Performance
Quality of Earnings
STATEMENTS OF FINANCIAL POSITION (GROUP) AT 31 DECEMBER 2012
GH¢'000
GH¢'000
2012
2011
3 ,3 86 ,105
2,956 ,818
3 71,46 7
279,276
% Change
Non Curren t Asset s
Propert y, Plant and Equipm ent
Long Term Invest m ent s
Trade and ot her Receivables
14,874
10,195
3,772,446
3,246,28 9
13 6 ,3 12
23 9,3 09
1,206 ,73 0
6 6 1,419
15%
33%
46%
Curren t Asset s
Invent ory
Trade and ot her Receivables
Taxat ion
3 57
-43%
82%
-
Short Term Invest m ent s
26 ,3 3 3
25,3 13
Cash and B ank B alances
210,891
16 0,997
1,58 0,623
1,08 7,038
3 6 6 ,3 94
3 3 3 ,442
-
21
4%
31%
Curren t Li ab i l i t i es
Trade and ot her Payables
Taxat ion
B orrow ings
Net Curren t Asset s
Tot al Asset s less Current liabilit ies
455,23 9
98,289
821,6 3 3
43 1,752
758 ,990.00
655,28 6
4,53 1,43 6 .00
3 ,901,575
10%
363%
16%
16%
Non -Curren t Li ab i l i t i es
Ot her Payables
Long t erm B orrow ings
Net Asset s
81,811
25,013
484,3 03
259,93 6
227%
86%
56 6 ,114
284,949
3,965,322
3,616,626
10%
0%
18%
10%
19%
Fi n an ced b y:
Invest m ent by Republic of Ghana
495,449
495,449
Ret ained Earnings Account
459,6 29
3 89,121
2,975,893
2,703 ,284
3 4,3 51
28,772
Capit al Surplus
Debt Cont ingency Fund Reserve
3,965,322
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3,616,626
10
Quality of Earnings
Underlying Performance
Quality of Earnings
Statement of financial position analysis
33%
-43%
82%
4%
31%
3,386,105
2,956,818
1,221,604
239,309
136,312
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("KPMG International") a Swiss entity. All rights reserved.
25,313
Short Term Investments
Trade and other
Receivables
26,333
210,891
160,997
2012
2011
Cash and Bank Balances
671,614
Inventory
371,467279,276
Long Term Investments
4,000,000
3,500,000
3,000,000
2,500,000
2,000,000
1,500,000
1,000,000
500,000
-
Property, Plant and
Equipment
GH¢ Thousand
15%
11
Quality of Earnings
Underlying Performance
Quality of Earnings
Statement of financial position analysis
Total Assets:
Total assets increased by 24% in 2012 compared to 2011 and comprised :
Asset Category
% of total asset s 2012
% of total assets 2011
Property, plant and
equipment
63
68
Long term investments
6
6
Inventory
3
6
Trade and other
receivables
23
15
Short term investments
1
1
Cash and bank balances
4
4
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("KPMG International") a Swiss entity. All rights reserved.
12
Quality of Earnings
Underlying Performance
Quality of Earnings
Statement of financial position analysis
Total Assets
Total assets increased by 22% from GHC4,155.7 million in 2011 to GHC5,089
million in 2012
Property, plant and equipment(PPE) which makes up 63% of total assets increased
by GHC 429.2m in 2012. The increase was mainly due to the revaluation surplus
amounting to GHC 389.5m of the Authority’s assets and additions of GHC178.1m
to PPE during the year under review. Major additions in 2012 included GHC 4.6m
for motor vehicles, generation assets of GHC 43.5m and power distribution assets
of GHC 114m.
The long term investments increased by 33% over the period as a result of the
increase in the debt contingency fund investment in 2012 by GHC 5.6m, interest on
investment from West African Gas Pipeline through TAPCO of GHC 35m and a
revaluation surplus of GHC 49m.
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("KPMG International") a Swiss entity. All rights reserved.
13
Quality of Earnings
Underlying Performance
Quality of Earnings
Statement of financial position analysis
Trade and other receivables increased significantly by 82% in 2012 compared to
2011. This increase was due to a significant increase in power sales receivables
from GHC 471.4m in 2011 to GHC 918m in 2012 representing a percentage
increase of 94%. Significant balances owed were that of the Electricity Company of
Ghana and Ministries, Departments and Agencies of the Government of Ghana
amounting to GHC 277.6m and GHC 163.5m respectively.
Also, other receivables from Tema Oil Refinery(TOR) increased from GHC 27m in
2011 to GHC 123m in 2012 as a result of TOR’s usage of VRA’s crude.
Inventory reduced by 43% in 2012 compared to 2011 due to reduction in crude
stock held at the year end from GHC 216.8m in 2011 to GHC 125.3m in 2012.
Also, spares and consumable inventory reduced from GHC 21.7m in 2011 to GHC
10.5m in 2012 due mainly to a write off of unsupported inventory in 2012.
Cash and bank balances increased by 31%in 2012 compared to 2011.
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14
Quality of Earnings
Underlying Performance
Quality of Earnings
Statement of financial position analysis
23%
368%
86%
GH¢ thousand
600,000
455,239
500,000
400,000
484,303
448,205
358,455
259,936
300,000
200,000
2012
2011
98,289
100,000
Long term borrowings
Short term borrowings
Trade and other payables
-
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("KPMG International") a Swiss entity. All rights reserved.
15
Quality of Earnings
Underlying Performance
Quality of Earnings
Statement of financial position analysis
Total Liabilities:
Total liabilities increased by 94% in 2012 compared to 2011 and comprised:
Asset Category
% of total liabilities 2012
% of total liabilities 2011
Trade and other payables
32
50
Short term borrowings
33
14
Long term borrowings
35
36
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16
Quality of Earnings
Underlying Performance
Quality of Earnings
Total Liabilities
Total liabilities increased by 94%
The 94% increase in liabilities was mainly driven by an increase in short term borrowings of
363% from GHC 98m in 2011 to GHC 454m in 2012. The high operating cost coupled with
increasing receivables meant that the Authority had to rely on short term loans from its
bankers and suppliers (Standard Chartered Bank, Ecobank, Unibank, Merchant Bank and
Sahara Energy) for funds to finance its crude imports.
Long term loans also increased by 86% due to a GHC 188.5m three year loan obtained from
Ecobank Ghana Limited in 2012 and drawdown on other long term facilities used to finance
capital projects during the period amounting to GHC 38.6m.
Trade and other payables increased by 25% over the period due to outstanding invoices on
crude imports at the end of the year.
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17
Northern Electricity Distribution Company
Limited
Northern Electricity Distribution Company Limited is incorporated as a subsidiary of VRA.
Currently, it has been treated as a department whose results are combined with the mainstream.
However, NEDCo though a limited liability company has not prepared separate financial
statements from its inception as a company(1997) to date.
NED serves as a distribution unit of the authority serving the Northern part of the country.
During the year NED made a total revenue of GHC151.8m (2011: GHC124.8m) as against
operational and general expenses of GHC214.3m (2011:GHC170m) resulting in operating loss of
GHC62.5m (2011: GHC45.2m).
As at 31 December 2012, the total assets of the company amounted to GHC705.4m (2011:
GHC585.5m) with total liabilities of GHC248.4m (2011: GHC182m).
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18
Subsidiaries
VRA has four subsidiaries, i.e. TAPCo, VLTC, Akosombo Hotels Limited and Kpong farms. These
companies are wholly owned by the Authority. These Subsidiaries have been consolidated except Kpong
farms which is a dormant company.
Two of these subsidiaries were audited by other auditors. TAPCo was, however, audited by KPMG.
Below are highlights of the financials of the subsidiaries:
Income statement
VLTC
caption
Revenue
Operating cost
Operating
(loss)/profit
Other
Income/expense
Tax
expenses/income
AHL
TAPCO
2012
GHS’000
2011
GHS’000
2012
GHS’000
2011
GHS’000
2012
GHS’000
2011
GHS’000
9,861
9,122
3,729
3,418
-
-
(14,201)
(6,279)
(3,429)
(3,306)
(12)
(10)
(4,340)
2,843
300
112
(12)
(10)
(31)
(51)
-
-
86,604
43,676
-
-
(8)
(8)
-
-
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19
Subsidiaries – cont’d
Financial Position Caption
VLTC
2012
GHS’000
Property, plant and equipment
AHL
2011
GHS’000
2012
GHS’000
TAPCO
2011
GHS’000
2012
GHS’000
2011
GHS’000
77,477
81,236
6,286
3,488
-
-
-
-
955
239
337,116
250,113
842
564
189
194
-
-
3,080
2,003
291
244
12,198
12,402
Cash and Cash equivalent
904
196
831
758
10,766
9,049
Taxation
402
235
104
93
(345)
(345)
Accounts payable
(7,476)
(4,335)
(3,557)
(2,694)
6,136
4,222
Borrowings
(1,241)
(1,200)
-
(80)
-
-
Stated capital
(1,123)
(1,123)
(542)
(542)
(1)
(1)
1,618
1,598
1,265
1,594
(184,453)
(97,861)
(74,317)
78,765)
(5,821)
(3,295)
-
-
Investments (short/long term)
Inventory
Accounts receivable
Retained earnings
Capital surplus
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20
Subsidiaries – cont’d
TAPCO
The following outstanding issues raised during the prior year audit of TAPCO had still not been
resolved.
• Shares : We require the number of issued shares for incorporation into the financial
statements. This is a requirement of the Companies Act, 1963 (Act 179)
• Explanation for tax provision of GHC 0.4m on dividend income
•
Taxation on revenue and other income : No tax provision has been made on revenue and
other income
•
Supporting documentation for the increase in investment in the West African Gas Pipeline
Company Limited were not obtained.
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21
Governance
Audit Issues and Controls findings
including a summary of our
management letter points
Systems and Controls
Analysis of Current and Prior Year Control Deficiencies
Definitions of control
deficiencies
A material weakness is a
control deficiency that
results in more than a
remote likelihood that a
material misstatement
would not be prevented or
detected in the financial
statements.
A significant deficiency is
a control deficiency, or
combination of control
deficiencies, that results
in more than a remote
likelihood that a
misstatement that is more
than inconsequential
would not be prevented or
detected.
No. of Issues
A control deficiency exists
when the design or
operation of a control
does not prevent or
detect misstatements on
a timely basis.
18
16
14
12
10
8
6
4
2
0
Governance
2011
No action
Key
taken
2011 Resolved
2012 New Issues
Type of deficiency
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23
Other Information from
the Audit
Areas relating to the general
conduct of the audit
Summary of Audit
Status of the Audit
Significant risks:
•Fraudulent revenue
recognition
Audit work at a glance
Main Risk areas
 Fraudulent revenue recognition
•Unrecorded liabilities
•Incorrect capitalisation
of capital work in
progress
Other Information
 Unrecorded liabilities
 Incorrect capitalisation of capital
work in progress
Our deliverables
 Audit opinion on statutory financial
statements
 Management report
 Report to audit committee
Adding value
Status of the audit
 Highlighting areas for
 Audit complete.
improvement in the management  Clean audit opinion issued.
letter
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25
Other risk assessment
Disclosures
Other information
• The company
generally complied
with relevant laws
and regulations
relating to
financial reporting.
Going concern
No events or conditions were highlighted that cast doubt on the company’s
ability to continue operations as a going concern .
However, the current year’s financial performance is an issue of concern.
Fraud findings
As part of our responsibilities as auditors, we are required to make inquiries of
those charged with governance, as to their knowledge of known or suspected
incidence of fraud.
We held various discussions with management with respect to fraud. No fraud
related issues were identified.
Laws and regulations
The Authority generally complied with relevant laws and regulations relating to
financial reporting.
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26
Reliance on the Work of Others
Other Information
Internal Audit
We considered work done by the Authority’s internal audit unit to determine the extent to which
we could place reliance on their work in the conduct of our audit.
Our interaction included reviewing results of their work and interpreting the extent to which that
mitigated our overall audit risk.
Due to differences in objectives and the scope of work of the unit, which focused mainly on
compliance with operating procedures and policies, limited reliance was placed on their work in
our audit of the financial statements.
Information technology (IT)
 We used ITA specialists to ascertain the operating effectiveness of IT controls. Broad areas
covered under these tests included the following:
- Access to programmes and data
- Programme changes
- Programme development
- Computer operations (including data back ups and business continuity planning).
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27
Appreciation
We wish to place on record our appreciation of the courtesies and co-operation
extended to our representatives by Management, Staff and the Board of the
Authority during the course of the audit.
Thank you.
© 2013 KPMG, a partnership established under Ghanaian law and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
("KPMG International") a Swiss entity. All rights reserved.
28
© 2013 KPMG a partnership registered under Ghanaian law and a member firm of the KPMG network of
independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a
Swiss entity. All rights reserved.
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