Presentation on theme: "Key Findings Presentation to Stakeholders Meeting"— Presentation transcript:
0 Audit Highlights Memorandum for the Year Ended 31 December 2012 Volta River AuthorityAugust 2013AUDIT
1 Key Findings Presentation to Stakeholders Meeting AreaSummary observationsAnalysisQuality of earningsFinancial statement analysisCompared 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 positionStatement of comprehensive incomeRatio AnalysisPage 4Page 7Page 9PageOther informationDisclosuresSubsidiariesPageGovernanceAudit Issues and Control observationsControls tested were generally found to be operating satisfactorily and we noted a positive approach to addressing issues previously reportedPage 23Other risk assessmentPage
2 Quality of EarningsOur perspective on the underlying performance of the Authority and the key accounting judgments made
3 Quality of Earnings Underlying Performance Key developments during the yearAverage 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.
4 Quality of Earnings Underlying Performance STATEMENTS OF COMPREHENSIVE INCOME (GROUP) FOR THE YEAR ENDED 31 DECEMBER 2012GH¢'000% Change20122011Revenue1,749,3851,110,56058%Cost of Sales(1,656,583)(806,679)105%92,802303,881Other Operating Income63,77748,53731%Administrative Expenses(238,796)(211,970)13%(82,217)140,448Financial Income35,6172,3711402%Financial Expenses(50,389)(37,745)33%Exchange Gain/(Loss)21,231(7,747)-374%Exchange Fluctuation Gain/(Loss) on Foreign Debts(14,388)(14,677)-2%Profit/(loss) for the year after taxation(90,146)82,650-209%Taxation-(8)82,642Other comprehensive Income:Capital surplus389,500714,590-45%Revaluation of Investment49,34242,93815%258,550757,528
5 Quality of Earnings Underlying Performance Revenue GrowthGH¢ thousandRevenueGross revenue for the group increased by 58% (i.e. 2012: GHC1,749m vs. 2011: GHC1,110m).The increase was mainly the result of increase in volume of electricity sold of 12% and an upward adjustment in tariff of the deregulated mining companies from US cents 13/kWh in 2011 to US cents15.8/kWh in Also, there was government subsidy of GHC 360m in the current year.
6 Quality of Earnings Underlying Performance Power SalesGH¢ thousandRevenue BreakdownPower sales to Electricity Company of Ghana increased by 19% over the period from GHC 493m in 2011 to GHC 591m in 2012 as a result of the 12% increase in the volume of electricity sold.Also power sales to the mining companies increased by 49% from GHC 265.2m in 2011 to GHC 397.7m in 2012 as a result of the upward tariff adjustment in 2012 and a 19% depreciation of the Ghana cedi against the US dollars in 2012.
7 Quality of Earnings Underlying Performance Statement of comprehensive income analysis140,448GH¢ thousand90,146
8 Quality of Earnings Underlying Performance Statement of comprehensive income analysisOperating Profit / (Loss)Operating loss compared to prior year profit was mainly caused by a significant increase of 105% recorded in cost of sales from GHC 806.6m in 2011 to GHC 1,656m in 2012.Analysing by budget centre, the increase of 130% and 132% in cost of thermal power and purchase of electricity respectively accounted for the significant increase in cost of sales. The cost of generating power from thermal increased due to increase in the use of crude which is relatively expensive to gas. Following the challenges with the West African Gas Pipeline in July 2012, the crude used by VRA to power its thermal plants shot up from 1.6 m barrels in 2011 to 5.2m barrels in resulting in the significant overall increase in thermal power generating cost despite the marginal decrease in crude prices in 2012.There was a similar increase in the purchase of electricity from GHC 273m in 2011 to GHC 634m in representing an increase of 132%. The increase in the power purchase is as a result of increase in crude component of power purchase bills from Takoradi International Company.
9 Quality of Earnings Underlying Performance Ratio AnalysisRatios20122011CommentarySolvencyCurrent ratio (Current assets/ Current liabilities)1.922.52Current 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.ProfitabilityGross Profit Margin (Gross profit/ Revenue)5%27%The gross profit margin decreased as a result of a significant increase in cost of sales in 2012.Net Profit Margin (Net profit/ Revenue)-5%7%The increase in cost of sales and administrative expenses resulted in a net loss for the period.Return on Assets (Profit before Tax / Total assets)-6%8%Operational losses and increasing assets caused the deterioration in this ratio
10 Quality of Earnings Underlying Performance STATEMENTS OF FINANCIAL POSITION (GROUP) AT 31 DECEMBER 2012
11 Quality of Earnings Underlying Performance Statement of financial position analysis15%33%-43%82%4%31%GH¢ Thousand
12 Quality of Earnings Underlying Performance Statement of financial position analysisTotal Assets:Total assets increased by 24% in 2012 compared to 2011 and comprised :Asset Category% of total asset s 2012% of total assets 2011Property, plant and equipment6368Long term investments6Inventory3Trade and other receivables2315Short term investments1Cash and bank balances4
13 Quality of Earnings Underlying Performance Statement of financial position analysisTotal AssetsTotal assets increased by 22% from GHC4,155.7 million in 2011 to GHC5,089 million in 2012Property, plant and equipment(PPE) which makes up 63% of total assets increased by GHC 429.2m in 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.
14 Quality of Earnings Underlying Performance Statement of financial position analysisTrade and other receivables increased significantly by 82% in 2012 compared to 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 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.
15 Quality of Earnings Underlying Performance Statement of financial position analysis23%368%86%GH¢ thousand
16 Quality of Earnings Underlying Performance Statement of financial position analysisTotal Liabilities:Total liabilities increased by 94% in 2012 compared to 2011 and comprised:Asset Category% of total liabilities 2012% of total liabilities 2011Trade and other payables3250Short term borrowings3314Long term borrowings3536
17 Quality of Earnings Underlying Performance Total LiabilitiesTotal 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 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.
18 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).
19 SubsidiariesVRA 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 captionVLTCAHLTAPCO2012GHS’0002011Revenue9,8619,1223,7293,418-Operating cost(14,201)(6,279)(3,429)(3,306)(12)(10)Operating (loss)/profit(4,340)2,843300112Other Income/expense(31)(51)86,60443,676Tax expenses/income(8)
20 Subsidiaries – cont’d Financial Position Caption VLTC AHL TAPCO 2012 GHS’0002011Property, plant and equipment77,47781,2366,2863,488-Investments (short/long term)955239337,116250,113Inventory842564189194Accounts receivable3,0802,00329124412,19812,402Cash and Cash equivalent90419683175810,7669,049Taxation40223510493(345)Accounts payable(7,476)(4,335)(3,557)(2,694)6,1364,222Borrowings(1,241)(1,200)(80)Stated capital(1,123)(542)(1)Retained earnings1,6181,5981,2651,594(184,453)(97,861)Capital surplus(74,317)78,765)(5,821)(3,295)
21 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 incomeTaxation on revenue and other income : No tax provision has been made on revenue and other incomeSupporting documentation for the increase in investment in the West African Gas Pipeline Company Limited were not obtained.
22 GovernanceAudit Issues and Controls findings including a summary of our management letter points
23 GovernanceSystems and Controls Analysis of Current and Prior Year Control DeficienciesDefinitions of control deficienciesA control deficiency exists when the design or operation of a control does not prevent or detect misstatements on a timely basis.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.KeyNo. of IssuesType of deficiency
24 Other Information from the Audit Areas relating to the general conduct of the audit
25 Summary of Audit Status of the Audit Other InformationSummary of Audit Status of the AuditSignificant risks:Fraudulent revenue recognitionUnrecorded liabilitiesIncorrect capitalisation of capital work in progressAudit work at a glanceMain Risk areasOur deliverablesFraudulent revenue recognitionUnrecorded liabilitiesIncorrect capitalisation of capital work in progressAudit opinion on statutory financial statementsManagement reportReport to audit committeeAdding valueStatus of the auditHighlighting areas for improvement in the management letterAudit complete.Clean audit opinion issued.
26 Other risk assessment Disclosures Other informationOther risk assessment DisclosuresThe company generally complied with relevant laws and regulations relating to financial reporting.Going concernNo 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 findingsAs 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 regulationsThe Authority generally complied with relevant laws and regulations relating to financial reporting.
27 Reliance on the Work of Others Other InformationReliance on the Work of OthersInternal AuditWe 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).
28 AppreciationWe 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.