Discrepancies found in contracts and finances
Published: 05:10 PM,Oct 14,2024 | EDITED : 11:10 AM,Oct 19,2024
MUSCAT: The State Audit Institution of Oman has released its annual report for 2023, highlighting a series of financial and administrative discrepancies in several public sector organizations and companies.
The report, which covered an extensive review of majority state-owned Petroleum Development Oman’s (PDO) contracts, purchases, and financial performance, revealed several irregularities in contract management, a lack of governance in some processes, and unexplained cost overruns.
One of the report’s key findings was the continuation of pipe and accessory purchases for 24 years since 1999 from a single supplier without re-tendering.
The total cost of these purchases amounted to $4.177 billion by October 2023. The State Audit Institution recommended halting the proposed 7-year extension of the contract and instead extending the current contract only until October 2024 to ensure operational continuity.
A comprehensive review of procurement regulations is underway to improve governance and limit the direct awarding of contracts to only the most restricted cases.
The report noted an increase in one contract’s value by $265 million during the 2017-2021 period, resulting from reliance on outdated consumption estimates that did not account for future drilling activities.
Actual pipe consumption exceeded forecasts by 21 percent to 39 percent during the same period. Furthermore, $25 million was lost due to the re-purchase of materials stored for excessive periods, which led to increased storage costs rising from $644,000 in 2017 to $3.2 million in 2021.
The report also detailed the findings of a draft settlement agreement between PDO and a contractor in 2022, where total violations amounted to $3.2 million due to invoice irregularities and deliberate price increases by the contractor.
An additional $14.2 million was agreed upon for settlement, and $9.3 million in overpayments were identified. The company has so far not recovered $6.7 million in overpayments for the period between 2020 and 2022.
The audit revealed errors in PDO’s 2021 financial statements amounting to $355 million. These errors included overstatements of assets and liabilities by approximately $334 million and $21 million, respectively. No action was taken against the auditor responsible for these mistakes, though PDO has pledged not to assign future work to the auditor in question.
The company also delayed transferring the capital costs of 40 exploration wells to expenses, and 17 wells that were no longer productive were not written off.
Significant issues were found in a $78-million contract signed in 2016 for drilling equipment services, where the contract was extended for 5 years despite a 29 percent price increase compared to another contractor who was awarded only 30 percent of the work for $25 million.
An additional $46.5 million was lost due to improper subcontracting practices, where the local subcontractor share was reduced to 2.5 percent instead of the required 10 percent.
The report highlighted a reduction in the allocation for local content initiatives, from $24 million to $1.5 million between 2021 and 2023, with actual spending reaching only $96,000.
The report, which covered an extensive review of majority state-owned Petroleum Development Oman’s (PDO) contracts, purchases, and financial performance, revealed several irregularities in contract management, a lack of governance in some processes, and unexplained cost overruns.
One of the report’s key findings was the continuation of pipe and accessory purchases for 24 years since 1999 from a single supplier without re-tendering.
The total cost of these purchases amounted to $4.177 billion by October 2023. The State Audit Institution recommended halting the proposed 7-year extension of the contract and instead extending the current contract only until October 2024 to ensure operational continuity.
A comprehensive review of procurement regulations is underway to improve governance and limit the direct awarding of contracts to only the most restricted cases.
The report noted an increase in one contract’s value by $265 million during the 2017-2021 period, resulting from reliance on outdated consumption estimates that did not account for future drilling activities.
Actual pipe consumption exceeded forecasts by 21 percent to 39 percent during the same period. Furthermore, $25 million was lost due to the re-purchase of materials stored for excessive periods, which led to increased storage costs rising from $644,000 in 2017 to $3.2 million in 2021.
The report also detailed the findings of a draft settlement agreement between PDO and a contractor in 2022, where total violations amounted to $3.2 million due to invoice irregularities and deliberate price increases by the contractor.
An additional $14.2 million was agreed upon for settlement, and $9.3 million in overpayments were identified. The company has so far not recovered $6.7 million in overpayments for the period between 2020 and 2022.
The audit revealed errors in PDO’s 2021 financial statements amounting to $355 million. These errors included overstatements of assets and liabilities by approximately $334 million and $21 million, respectively. No action was taken against the auditor responsible for these mistakes, though PDO has pledged not to assign future work to the auditor in question.
The company also delayed transferring the capital costs of 40 exploration wells to expenses, and 17 wells that were no longer productive were not written off.
Significant issues were found in a $78-million contract signed in 2016 for drilling equipment services, where the contract was extended for 5 years despite a 29 percent price increase compared to another contractor who was awarded only 30 percent of the work for $25 million.
An additional $46.5 million was lost due to improper subcontracting practices, where the local subcontractor share was reduced to 2.5 percent instead of the required 10 percent.
The report highlighted a reduction in the allocation for local content initiatives, from $24 million to $1.5 million between 2021 and 2023, with actual spending reaching only $96,000.