Kroll audit report finds massive information gaps – AM report

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Kroll audit report finds massive information gaps – AM report

7:50 CAT | 08 Sep 2017

The full report from the audit into the three Mozambican security-related concerns Ematum (Mozambique Tuna Company), Proindicus and MAM (Mozambique Asset Management) gives damning details of how the companies tried to sabotage the audit.

The three companies had taken out loans of over two billion US dollars from European banks (Credit Suisse and VTB of Russia), that were illegally guaranteed by the former Mozambican government, headed by President Armando Guebuza. The loan guarantees added 20 per cent to Mozambique’s foreign debt.

The auditors from Kroll Associates, reputedly the world’s foremost auditing company, had complained about lack of pertinent information in the executive summary, made public in late June. The full report goes into much more detail of how information had been kept from the eyes of the auditors, sometimes invoking the excuse of “national security”.

The report is circulating on the Internet – but, for reasons unknown to the Mozambican public, the Attorney-General’s Office (PGR), which hired Kroll, has not yet put it on its website.

The report points out that Kroll relied on “being provided with complete documentation by the representatives of the Mozambique companies, by the government officials who approved the guarantees for the lending, by the banks that provided the loan agreements, and most recently by the contractor that provided the assets and services” (this is the Lebanon-based Privinvest Group).

Yet despite the well-known fact that the audit was a condition for the resumption of normal relations between Mozambique and the International Monetary Fund (IMF), and other cooperation partners, much of the information was not forthcoming.

The main challenge in completing the audit, Kroll says, “was the lack of information available from the Mozambique companies. Kroll spent a considerable amount of time requesting and liaising with representatives of the Mozambique companies to obtain information and documentation that was, in some case, either ultimately incomplete or not provided at all”.

Key to this obstruction was the man referred to by Kroll as “Person A” (because the report avoids naming any individuals). But it is clear from the context that “Person A” is Antonio do Rosario, the official of the State Intelligence and Security Service (SISE) who is the chairperson of all three companies. Rosario subsequently publicly admitted that he is indeed “Person A”. Kroll said it repeatedly asked Rosario for “outstanding information that would provide a better understanding of expenditure: the response was that the requested information was ‘classified’ and not available”.

Privinvest was selected as the contractor without any tender, and so Kroll asked Rosario if any due diligence had been done before hiring Privinvest, but it ran into a complete refusal to cooperate. “Despite repeated requests, Person A has refused to provide any information relating to other suppliers that were considered or what due diligence was undertaken on the contractor. Person A has maintained that this information is maintained by SISE and cannot be provided, citing ‘national security’ reasons”.

Rosario refused even to supply a copy of the original request for a government guarantee for the Proindicus loan of 622 million dollars. Again, he claimed this was “classified” information. When Kroll turned to the Finance Ministry, it was unable to find a copy of the request in its archives.

Kroll also found it could not obtain “reliable accounting records from the Mozambique companies to enable a proper assessment of the financial position of each company. Further, the Mozambique companies were unable to provide complete loan agreements or supply contracts”.

The invoices that the companies did provide “did not include sufficient detail to provide comfort that the documents accurately reflect the true price of the assets and services”. Some of the assets, such as the Ocean Eagle patrol vessels supplied to Ematum, did not feature in the accounting records at all.

There were huge holes in the Ematum records. Kroll found that Ematum “only provided limited information for two bank accounts which did not cover the period from the account opening, nor did Ematum provide details of two bank accounts held with BNI-Mozambique and Moza Banco. Of particular concern is that the Moza Banco account was not recorded in the Ematum accounting records, despite this account being used to receive more than 1.7 billion meticais (USD 55 million) from SISE”.

“The inability of Ematum to provide complete accounting records and bank statements demonstrates that the company has not maintained adequate books and records, either through mismanagement or a deliberate attempt to frustrate Kroll’s independent audit”, the report declares.

Kroll notes that its difficulties in obtaining relevant financial information and the supporting documentation suggests that the directors of the three companies are in breach of their obligations under the Mozambican Commercial Code. For example, the fact that none of the companies provided Kroll with “reliable balance sheet records”, or any evidence that an inventory of assets had been maintained. These are legal requirements under the Commercial Code.

The missing information means that the audit cannot be regarded as complete – and the IMF has made it clear that until the audit is complete there can be no question of resuming normal relations with Mozambique. Without a new programme with the IMF in place, other partners will not resume their financial support for Mozambique.

In particular, that means it is very unlikely that any donors will resume their direct support to the Mozambican state budget in the near future. The suspension of direct budget support is costing Mozambique hundreds of millions of dollars in aid every year.

Source: AIM