Introduction
1. The National Drugs Enforcement Agency (NDEA) was set up
under the Act 20 of 2008, which came into force in August 2008, to lead,
manage, co-ordinate and implement the national efforts of the Republic to
combat drug offences. Responsibilities of the NDEA falls under the Chief
Officer appointed by the President under the Act. Effective October 2016, the
statutory functions of the Agency was transferred from the President to the
Minister responsible for Home Affairs vide S.I.73 of 2016.
2. The Financial Intelligence Unit (FIU) was created under
the Anti-Money Laundering Act, 2006 and was established as a Unit within the
Central Bank of Seychelles. Effective 18 August 2008, the Unit was formed into
a Body Corporate vide the Anti-Money Laundering Amendment Act, 2008. The
primary objectives of the Unit is to monitor, train and enforce compliance by
reporting entities with the obligations imposed in Part 2 of the Act. The
Director of the Unit reports to the President, pursuant to Part 3, Section 16
(8) of the Anti-money laundering (Amendment) Act, 2008.
3. The Chairman of the Public Accounts Committee requested
the intervention of the Auditor General vide letter dated 27 March 2017, to
investigate a number of payments made by the Financial Intelligence Unit (FIU) and
the National Drugs Enforcement Agency (NDEA) from funds allocated in the
national budget.
4. The FPAC informed that it was involved in an
investigation and asked the Auditor General to provide detailed information on
payments, specifically consultancy (local and foreign) and other fees made by
the above two entities from 2007 to 2016 with with special emphasis on the
remittances to two companies, namely, Solas Beo and Tech Ltd.
5. Taking into consideration the request, Office of the
Auditor General (OAG) undertook a special audit of the accounts and records of
the NDEA and FIU (Entities), as mandated by Article 158 of the Constitution and
under Section 22 (1) of the Auditor General Act, 2010, in order to submit a
special report to the National assembly.
6. The principal audit objective was to carry out sufficient
audit procedures to establish as to whether (a) the selected transactions were
relevant to the Entities ; (b) adequate and satisfactory books of accounts and
records were maintained by the Entities in relation to the execution of the
transactions; (c) the entities complied with the prescribed financial
procedures (i.e. Financial Instructions, Accounting Manual, PFMA, 2012 and PFMA
Regulations, 2014) and the relevant legislative provisions (i.e. tax and
procurements); and (d) adequate internal controls existed in the Entities to
ensure integrity of financial transactions and accounting records.
Methodology
7. The audit was mainly conducted as follows:
• Obtained all payment transactions from the Treasury
Information System (TIS) relevant to the Entities for the period under audit
(2009-2016);
• Selected transactions for further testing placing emphasis
on foreign or local consultancy services of recurring nature charged to the
account codes and significant and repetitive overseas procurements;
• Scrutinised the payments details in relation to respective
payment vouchers, remittance advice, bank transfer payment voucher (BKTR),
invoices, contract agreements and other supporting documents, including payment
instructions to the Ministry of Finance. Further, Audit scrutinised the
invoices to verify their genuineness/authenticity, relevance to the Entities
and as well as the company details, contact information and bank account details
of the payees.
• Assessed the processes followed against the prescribed
financial policies, procedures regulations and the control environment;
• Interviewed the Director and the Head of Administration
and Finance of FIU and the Director of Human Resources and Administration at
the NDEA for obtaining information.
Scope limitation
8. Audit could not obtain supporting documents, such as,
payment vouchers, invoices and other relevant documents in respect of 2009 and
2010 although the treasury system revealed some payment transactions for the 2
years. Thus the audit covered the details of payments for the period 2011 to
2016 only. Audit did not examine the records of the Central Bank of Seychelles
to establish as to whether the foreign exchange payments selected from the
Treasury records were actually remitted to the respective company/personal
accounts as appearing in the relevant documents. Instead, reliance was placed
on the BKTR documents raised by the Treasury for the payments having been
effected. Furthermore, Audit could not obtain all the information it required
from the Entities in view that the senior management personnel had left the
Entities at the time of the audit.
Disclaimer
9. The report that follows discusses the exceptions that
came to light in the course of the audit during the period April to June 2017.
It is to be noted that mentioning of the names of any business entity, person,
or an individual made in this report is without any prejudice or ill will to
such persons but only for the purpose of better understanding of the issues
arising from the audit. An audit report is not based on proof but sufficient
and reasonable evidence collected during the audit exercise and as the matters
appeared to the auditors with sufficient knowledge of government financial
systems and procedures.
Summary of conclusions
10. A contract for consultancy service would typically
contain terms and conditions of deliverables, timelines, fees, arbitration,
etc. In the absence of the contracts with Solas Beo Inc, Tech Limited,
Calendula, and Barry Galvin & Son (for the period prior to 05.01.2015)
Audit could not determine the justification for the variable amounts paid to
these companies.
11. The invoices for payments of services appeared to have
been raised internally, for example in one instance, an invoice supposedly
issued by Calendula was in fact on Solas Beo letter head with particulars of
bank account of Calendula.
12. The nature of services provided could not be determined
as they were not specified, nor had any reports been kept by both Entities as
evidence of the services provided/received. Generally, there was a lack of
documentation of services required and the receipt of such
services in support of significant financial transactions.
However, if the documentation was done, then there was a failure to retain the
same for future reference and audit purpose.
13. There were indications of significant management
influence with limited scope for segregation of functions/duties in both
Entities. All payment documents including Application for Payment in Foreign
Currency – Central Bank of Seychelles (SWIFT) payment instructions forms were
completed and submitted by the two Chief Officers (Head of entities), to the
Ministry of Finance for endorsement and ultimately forwarded to the Central
Bank for payment. It appeared that both Entities and the MoF approved the above
applications for transfer of funds to various accounts in the absence of a
documented proof of receipt of services as per the relevant contracts but only
on the basis of the invoices.
14. Requests for exemption of the consultancy services from
the procurement regulations, when submitted were approved on the basis that it
stated “for reasons of state security”. Furthermore, the requests were approved
on the basis of invoices, which was after the services have been delivered but
not prior to procurement, as normally the case.
15. Where the consultancy contracts were drawn with existing
expatriate senior personnel on the payroll and paid in Seychelles Rupees, it is
not clear if payments on contract in foreign exchange related to extra
duties/services or additional remuneration for the same position.
16. Calendula and Tech Limited were registered as
International companies (offshore company-IBC) with the Financial Services
Authority through a local agent and deriving revenue from and operating in the
Seychelles. Although IBCs are not subject to tax, it is not clear whether these
companies were liable to business tax.
Recommendations
17. According to circular No. 1 of 2015 issued in December
2015 by Procurement Oversight Unit of (POU) the Ministry of Finance, Trade and
the Blue Economy and pursuant to Section 10(1) and (2) of the Public
Procurement Regulations 2014, copies of signed contracts, which also includes
the provision of consultancy services, approved by the National Tender Board
(award Committee) must be submitted to the Procurement Oversight Unit. In
addition, the Procurement Oversight Unit, Circular No 1 issued in November
2011, states that the POU will not entertain any request for “retrospective
approval” for an adopted procurement procedure. The Procurement Oversight Unit
must ensure that these provisions are applied in all procurement cases
involving national budgetary provisions.
18. The Ministry of Finance must ensure that prior to
endorsing the ‘Application for Payment in Foreign Currency – Central Bank of
Seychelles (SWIFT)’ payment instructions forms for foreign exchange payments,
checks are performed to ensure that valid contracts are available, amounts paid
are in accordance with obligations and further, approval/exemptions have been
obtained from the POU where applicable.
19. The Entities (FIU/NDEA) must ensure that appropriate
documentation of the financial transactions are kept and procedures stipulated
in the Public Finance Management Regulations/Financial Instructions are adhered
so as to provide an audit trail as well as to safeguard financial records in
good condition for reference in the future. These should cover fixed assets and
inventory items owned and operated by the Entities.
20. Where there are doubts with regards to the liability for
any tax by the IBCs registered in Seychelles, doing business in Seychelles and
earning an income in Seychelles, the matter should be referred to the SRC for a
determination. Similarly, the liability for personal income tax (PIT) of the
personnel who were also on the payroll of the two Entities or elsewhere in
Seychelles, needs to be established in consultation with the SRC. Also, the
withholding tax liability of the non-resident legal service provider must be
referred to SRC for a ruling. These are matters that would require the close
attention of SRC as similar cases may exist in other governmental entities,
particularly, consultancy services.
System outline
21. The Head of Administration and Finance of FIU was
responsible for the accounting function and verifying all invoices for receipt
of goods/services. The Director (Chief Officer) approved all invoices, payment
vouchers as well as completed Application for Payment in Foreign Currency –
Central Bank of Seychelles (SWIFT) payment instructions forms to be submitted
to the Ministry of Finance. In the case of NDEA, Director of Human Resources
and Administration was responsible for the accounting function and certifying
all invoices for payment. The Chief Officer approved all invoices, payment
vouchers and Application for Payment in Foreign Currency – Central Bank of
Seychelles (SWIFT) payment instructions forms to be submitted to the Ministry
of Finance. The Ministry of Finance approved the completed forms and forwarded
them to the Central Bank of Seychelles for effecting transfers. Once effected,
the CBS advised the Ministry of Finance/Treasury through a debit note which was
used by the Treasury to raise the Bank Transfer Payment document (BKTR) and the
relevant voucher to update the general ledger. It is from this ledger that
Audit extracted the financial transactions for further examination in relation
to their payment documents. However, the Treasury ledger did not show the
financial transactions of both FIU and NDEA for the years prior to 2009 whereas
for the payments effected prior to 2011 by NDEA the records were unavailable
according to the Director of Human Resources and Administration of the Agency.
Solas Beo Inc
22. The NDEA and FIU effected regular quarterly payments to
Solas Beo Inc, which according to online search was a registered company, incorporated
in Mauritius on 10.12.2007 bearing company ID no number C076299. The
registration address of the company was C/O Beresford Trust & Corporate
Services Ltd, 1001, Alexander House, 35 Ebene, Cybercity, Mauritius. At the
time of the audit, the offshore company’s status was Active. The Directors and
Shareholders of the Company could not be determined. See Attachment 1 for
relevant information.
23. The Central Bank was requested to effect payments to the
beneficiary’s (Solas) Euro bank account (number 7643621) with the Barclays
Bank, Seychelles, following the approval of the Ministry of Finance on the
basis of payment request/instructions submitted by the Chief Officers of FIU
and NDEA.
24. All payments to Solas Beo Inc for the period 2009 to
2015 by FIU amounted to SR 41,999,846 as appeared from the relevant documents
examined while all payments from NDEA for the period 2009 to 2015 amounted to
SR48,765,843, with a combined total of SR 90,765,689. See Attachment 2 for
details of the payments examined.
Findings
25. Of the sum of SR48,765,843 by NDEA, Audit could not
verify a sum of SR13,262,083 incurred during 2009 (SR6,111,920) and 2010
(SR7,150,162) in view that there were no supporting documents. See Attachment 2
(a) page 2 for details.
26. Fees invoiced for ‘expatriate services’ and
corresponding payments had increased significantly over the years, from €47,500
in 2009 to €88,000 in 2015, in the case of FIU without a documented
justification. In addition to ‘expatriate services’, also included on invoices
were variable amounts ranging from €28,500 to €58,750 (FIU) charged as “special
duties”. The same applied to NDEA with sums ranging from €97,000 to €165,000
per quarter. However, nature/details of the work performed were not specified
on invoices or by way of reports or some other documentation.
27. Payments to Solas Beo were effected on a quarterly basis
in variable amounts by both Entities. However, Audit could not determine the
basis upon which fees were calculated in view that invoices issued merely
stated “expatriate services” for the respective quarter and were vague, which
did not permit the identification of the nature of services provided. Audit
could not obtain the relevant contracts (or a valid copy of the same) stipulating
the terms and conditions despite requests made to the Director FIU and the
Director Human Resources and Administration of NDEA.
28. Of 20 payments made by NDEA, 18 were not supported by
original invoices. Further, in all cases, information typically found on
invoices, such as, contact information (telephone no., fax and e-mail address)
invoice number and signature of the company representative authorising the
invoices were not found stated on the face of the invoices.
29. In all instances, in the case of FIU, Audit did not find
the approval of the Procurement Oversight Unit and National Tender Board nor
were requests submitted by the FIU, contrary to the requirement of the Public
Procurement Act, 2009 and Public Procurement Regulations, 2014, (regulations 9
& 11, Schedule 1) in respect of consultancy services. In the case of NDEA,
in 14 out of 20 payments were without the approval of POU. Where the POU
approval was sought, it was noted that, approval was sought retrospectively at
the end of the quarter on the basis of the invoice and not prior to soliciting
of services.
30. The Ministry of Finance approved ‘Application for
Payment in Foreign Currency – Central Bank of Seychelles (SWIFT)’ payment
instructions form was not sighted in one case and the relevant BKTR document
was not sighted in 18 cases in the case of FIU. In the case of NDEA, the
relevant BKTR document was not sighted in 7 cases.
31. In two cases of FIU, invoices paid in 2009 (i.e.
23.11.2009 for Euro 45,650 and 20.09.2009 for Euro 47,500) were signed by one
Mr Joseph Cully as Director of Solas Beo. Further audit scrutiny revealed that
in 2010, Mr Cully was on the payroll of FIU as an ‘asset agent’. The payroll
for the year 2009 was not available for audit inspection to confirm if the said
person was in fact in employment with FIU when signing the invoice on behalf of
Solas Beo and the services invoiced were not already being performed internally
by the said persons in post.
Tech Company Ltd
32. Tech Limited was registered with the Financial Services
Authority on 01 April 2011 as an international business company (company number
088982). Although requested, Audit was not provided with particulars of the
Directors and Shareholders by FSA stating that the information was not
available on the company file. It is to be noted that the certificate of
official search from FSA dated 28.04.2017 indicates the company as “not in good
standing”. See details in Attachment 3. According to banking details on the
invoices, all transfers were effected by the Central Bank on behalf of NDEA to
a Euro account (2801001340302) with ABC Banking Corporation Ltd in Mauritius.
33. All payments to Tech Limited for the period 2013 to 2016
by NDEA amounted to SR18,421,559 as appeared from the relevant documents
examined; details in Attachment 4.
Findings
34. It was noted from the invoices examined that Tech
company was charging for “Project Development in relation to classifieds
Project SRU” from July 2013 to Oct 2015 on a quarterly basis at a fee of US
Dollar 142,548.76 initially which was then revised to €137,000 in 2015 and
further increased to €137,740 in 2016. The nature of services as shown on
invoices was “personnel, investigative and legal services”. The Agency, however,
could not produce the contract (or a valid copy of it) with the above company
to confirm the nature of services and other terms and conditions of obtaining
such services.
35. Further, the contact details, such as, the complete
address of the company, telephone numbers and email address and invoice number,
which are typically found on an invoice were not included on the face of the
invoices. The signature of the representative of the company was also not shown
on the invoices. Further, 3 out of 10 invoices were not original but copies.
Calendula Ltd.
36. Calendula Ltd was registered with the Financial Services
Authority (FSA) on 05 March 2013 as an International Company (company number
120570).Audit requested particulars of the Directors and Shareholders and was
informed by FSA that the information was not available on the company file. It
is to be noted that the certificate of official search from FSA (28.04.2017)
indicates the company as “not in good standing”. See Attachment 5. According to
banking details on the invoice, all transfers were effected by the Central Bank
on behalf of FIU to a Euro account number (002801001340402) with ABC Banking
Corporation Ltd in Mauritius.
37. All payments to Calandula Ltd for the period 2015 to
2016 by FIU amounted to SR13,060,944 as appeared from the relevant documents
examined; see details in Attachment 6.
Findings
38. The Unit could not produce the contract ( or a valid
copy of it) with Calendula for the Audit to determine the nature of services
expected to be provided/received and the amounts payable according to the
contract. The Unit received two invoices per quarter in variable amounts, one
for ‘expatriate services’ and the other for ‘special duties and operations’.
39. Invoices lacked pertinent details, such as, complete
address of the company, contact details (telephone, email address/website),
invoice number and the signature of company
representative. The initial invoice dated 15.07.2015 for
Calendula was an invoice drawn on Solas Beo headed paper which was crossed out
by hand with the name “Calendula” inserted. See Attachment 7 for details.
40. Application for Payment in Foreign Currency – Central
Bank of Seychelles (SWIFT) payment instructions forms approved by the Ministry
of Finance were not sighted in 7 out of 13 payments made. In addition, BKTR
document was not sighted in 10 out of 13 payments made.
Christopher Mooney
41. Mr Mooney was employed as a ‘senior asset agent’ with
FIU from 01 October 2011 to April 2016 and was paid a local monthly salary of
SR 27,069. Effective, June 2013, Mr Mooney received a supplementary payment of
€15,000 on a quarterly basis, charged as foreign consultancy, which according
to payment vouchers related to his services as ‘operation consultant’ to SeyPIC
(Seychelles Piracy Intelligence Cell). Payments were effected to Mr. Mooney’s
Euro account (0101043169) with Barclays Bank, Seychelles.
42. All payments to Mr. Mooney charged to overseas
consultancy services, excluding salaries, during the period June 2013 to April
2016 was equivalent to SR.3,071,223, as appeared from the relevant documents
examined; see details in Attachment 8.
Findings
43. According to his employment contract dated 28.12.2013,
effective for the year 2014, his post title was stated as ‘Senior Asset Agent’
despite the relevant invoices showing as ‘Operation Consultant’.
44. Personal Income Tax (PIT) was not deducted and remitted
to the Seychelles revenue Commission from the fees paid in foreign exchange in
respect of which the employee would have been liable. Total liability for the
period 2013 to April 2016 was SR460,683; (SR3,071,223*0.15).
45. Application for ‘Payment in Foreign Currency – Central
Bank of Seychelles (SWIFT)’ payment instructions forms were not sighted in 3
out of 13 payments made.
Barry Galvin and Son
46. Barry Galvin & Son was a Solicitor, based in Ireland
responsible for providing legal services to the FIU. Fees of €40,000 in 2013,
which increased to €50,000, quarterly, charged by the above were paid to his
account with Allied Irish Bank (22612010) in Cork, Ireland. In addition, Mr
Galvin claimed for ancillary fees, such as, travelling costs, subsistence
allowances and others, the re-imbursement thereof was also transferred to his
account in Ireland.
47. All payments to Barry Galvin and Sons for the period
2010 to 2016 by FIU amounted to SR 18,319,967 as appeared from the relevant
documents examined; see details in Attachment 9.
Findings
48. Other than a letter of appointment dated 05.01.2015,
contracts with Barry Galvin & Son dating back to 2013, when the services
were solicited could not be produced to Audit to ascertain the terms and
conditions including amounts payable although the letter of appointment refers
to a contracted services specified in Appendix 1, Appendix 2, Appendix 3,
Appendix 4 and Appendix 5, which was stated to be Classified. Audit did not
sight these Appendixes nor the contract.
49. In all cases, payments were effected on the basis of
proforma invoices instead of originals which is contrary to the Financial
Instructions 0520 which states no payment should be authorised unless payment
vouchers are supported by the original invoices and/or other suitable
documentation such as receipt, GRN and delivery note, etc.
50. There was no evidence to indicate that withholding tax
payable on technical services fees by non-residents which would amount to
SR2,747,995.13, see details in Attachment 10, was paid to the Seychelles
Revenue Commission in accordance with Section 66 (1) of the Business tax Act,
2009, Section (3) of the First Schedule, had he been liable.
51. In 4 cases, the Ministry of Finance approved
‘Application for Payment in Foreign Currency – Central Bank of Seychelles (SWIFT)’
payment instructions form was not sighted. In another 5 cases, BKTR document
was not sighted.
Local consultancy
52. One Mrs M.H was appointed as a Consultant Analyst with
the FIU effective 01 January 2015 for a period of two years, at a fee of SR.30,000
per month according to a (undated) letter/contract. The role of the Consultant
Analyst was to conduct due diligence checks of foreign personnel in relation to
travel records, immigration data, work permits and other data available in the
department of immigration according to an attachment to the letter mentioned
above.
53. All payments to the above person for the period 2014 to
2016 by FIU amounted to SR 960,000 as appeared from the relevant documents
examined.
Findings
54. No contract was available prior to 2015 despite payments
commencing on 05.06.2014, which totalled SR240,000 up to the end of 2014. The
contract was undated and signed by Mrs M.H only; the signature of the Chief
Officer was not sighted. According to this letter she was entitled to leave at
the rate 1.75 days per completed month of service, not to be accumulated beyond
42 days, implying that it was some sort of employment contract with FIU.
55. Narrative on the invoices indicated ‘general
consultancies’ whereas details appended to the ‘letter of contract’ was
specifically in relation to ‘immigration consultancies’.
56. Personal Income tax totalling SR144,000 (SR960,000*0.15)
was not deducted from the payments totalling SR 960,000 made for the period
June 2014 to December 2016.
Daniel Technologies
57. Daniel Technologies is a company in Ireland which
supplies security equipment and uniforms to NDEA upon order. All payments to
Daniel Technologies for the period 2011 to 2016 by NDEA amounted to
SR6,947,386, which was paid to AIB Bank, Dublin (a/c 01610009) as appeared from
the relevant documents examined; see details in Attachment 11.
Findings
58. In most cases, the original invoices were not found by
Audit in support of the payments made and the supplier’s signature was not
found on invoices. Further, the POU approval was not sighted in respect of 15
cases.
59. Various items of supplies paid for could not be traced
to inventory records in evidence of receipt of the items purchased. According
to the Agency, inventory records were not maintained, contrary to the
requirements of Financial Instructions 1203.
60. In 10 cases, the Ministry of Finance approved
‘Application for Payment in Foreign Currency – Central Bank of Seychelles
(SWIFT)’ payment instructions form was not sighted while the BKTR document was
not sighted in another 25 cases.
Finbarr O’Leary and Thomas Quilter
61. Mr. Finbarr O’Leary was appointed by the Director
(signed) as Deputy Director of FIU for a period of 18 months effective 02 April
2015, to cease on 30 November 2016. Similarly, Mr. Thomas Quilter was appointed
by the Director (signed) as Director of the FIU under for a period of 24 months
effective 10 March 2015. Both officers were paid monthly salaries on the
payroll of FIU. Other than monthly salaries both officers received monthly
‘relocation allowances’ charged as consultancy services and paid quarterly.
This provision was cited as being “in accordance with the overall service
provision contract between State House and the Service Provider, Calendula
Ltd.” Relocation allowances were transferred to the respective beneficiaries’
bank accounts in Ireland; Bank of Ireland (40931088) and IPBS (54208089).
Findings
62. Sums paid for relocation allowance varied each quarter
ranging from Euro 4,700 to Euro 6,400 per quarter. According to the contract,
the terms and rates of allowance was in accordance with the overall service
provision contract between the State House and the service provider Calandula
Ltd. However, Audit could not ascertain amounts payable as they were not
specified in the respective contracts of appointment. Moreover, as the contract
with Calandula was not sighted, Audit could not confirm the arrangements.
63. Personal income tax (PIT) which would amount to
SR.76,059.30 (SR507,062*0.15) and SR. 132,205.80 (SR881,372*0.15) in respect of
Mr Finbarr O’Leary and Mr Thomas Quilter, had they been liable, was not
deducted from relocation benefits/consultancy services paid in the sums of
SR507,061 and SR881,372 respectively. See details of payments in Attachment 12.
64. Mr O’ Leary was last included on the payroll in November
2016. He was, however, paid a gross salary of SR42,199.95 on 21.12.2016 which
appeared to be an overpayment in view he was no longer employed by FIU. The
justification for the payment was not documented on the payment voucher and
supporting documents.
65. In 2 cases, the BKTR document was not sighted by Audit
in respect of the payments made the above personnel.
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Niall Scully, Declan Barber(top) and Barry Galvin; the Irish
hired by James Alix Michel
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