The recent revelation by Power and Energy Minister Kanchana Wijesekera on the findings of the forensic audit conducted by KPMG, which exposed substantial losses attributed to alterations and deletions of SAP data related to stock holdings at the Ceylon Petroleum Corporation (CPC) and Ceylon Petroleum Storage Terminals Ltd. (CPSTL), has raised many eyebrows.
The Minister revealed that the irregularities that had been identified in the forensic audit had resulted in a massive loss amounting to Rs. 28 billion.
The investigation conducted by KPMG and CPSTL officials revealed that more than 1.3 million entries had been altered or deleted since 2010, with a notable surge observed in 2022, particularly during the height of the fuel crisis.
Subsequent to the Minister’s complaint, there was a discernible decrease in the number of alterations during 2023. The forensic audit shed light on substantial losses in stock holding, reaching Rs. 28 billion in 2022, which saw a reduction to Rs. 4 billion in 2023 after the complaint was filed, emphasising the severe financial impact of these irregularities.
Audit revelations
As observed by The Sunday Morning, the irregularities within the CPC’s Enterprise Resource Planning (ERP) or Systems, Applications, and Products (SAP) date back to 2011.
The Auditor General’s report on the CPC in 2011 exposed a critical deficiency – the lack of a proper evaluation of the risks associated with integrating the corporation’s database into an ERP system. This ERP system was developed by the CPSTL with the assistance of the Indian Oil Corporation (IOC), the parent company and a major industry competitor of the CPC.
The National Audit Office (NAO) underscored the need for a thorough and in-depth analysis, emphasising that the corporation, considering the substantial allocation of resources – both capital and human – required for this integration, should have conducted a comprehensive assessment of the impacts. Such an evaluation, ideally with input from experts in the field of ERP systems, would have been imperative.
Moreover, the report highlighted another critical observation – the absence of any agreement or Memorandum of Understanding (MoU) between the CPC, CPSTL, and the Lanka Indian Oil Company (LIOC) outlining their respective responsibilities under this project before its implementation.
The absence of such a formal agreement or memorandum was deemed significant, especially given the considerable investment of capital and human resources by the corporation in upgrading its equipment to align with the ERP system introduced by the CPSTL.
In the latest available audit report issued in 2021, the NAO highlighted significant discrepancies in sales quantities between the Gross Margin Statement (GMS) and the ERP or the SAP.
The sales quantity for the year under review, according to the GMS, was 4,533 million litres, while the SAP system reported 5,485 million litres, resulting in an unadjusted difference of 952 million litres.
Notably, sales quantities for specific products like Lanka petrol (92 octane), Lanka auto diesel, and Jet A1 in GMS had been overstated, whereas naphtha and furnace oil in GMS had been understated when compared to the SAP system.
In response to this discrepancy, the management cited 16 reasons for the differences between the GMS and ERP system, although these reasons were not explicitly mentioned in the audit report.
The audit report also highlighted a trade and other receivable balance, including related parties, of Rs. 11,246.6 million at the end of 2021. Out of this, a balance of other receivables amounting to Rs. 7.6 million had remained unrecovered for over five years.
However, the audit noted that balance confirmations, especially on the recoverability of these amounts, had not been made available. Most of these balances had been carried forward from before the SAP ERP implementation in 2010. The Audit and Management Committee recommended writing off these long outstanding balances with the prior approval of the Board of Directors.
Additionally, the NAO revealed that the Petroleum Dealers’ Association and four other dealers had filed a case in court against the implementation of a board decision. The court had issued an enjoining order, maintaining the status quo. However, the Colombo District Court had quashed the injunction on 15 July 2022.
Subsequently, changes to the ERP system (SAP) had been made, allowing the corporation to update new commission rates from 16 July 2022. Despite this, the information available indicated that the overpaid dealer commission up to 17 July 2022, amounting to Rs. 4,349.93 million, had not been recovered by the corporation.
The 2019 audit by the NAO on the CPC identified over 1,300 inventory items in the ERP/SAP without corresponding values. These items, valued at Rs. 676 million, raised concerns about accuracy.
Nevertheless, the CPC management has, as stated in the report, defended the practice, citing the mandatory recording of scrap and used items with zero value for internal control. The NAO had recommended proper valuation and accounting and urged the implementation of a robust recording and controlling mechanism for inventory management.
The absence of an agreement or MoU among the corporation, CPSTL, and LIOC regarding their roles in the ERP system, introduced by the CPSTL, has led to underutilisation, particularly for fuel stock reviewing and refinery functions.
The initial tri-party agreement, formulated with Mohamed Ali Sabry’s consultation, aimed to be signed before the ERP launch on 1 April 2010 but remains unsigned till the date of the review.
In 2016, a revised agreement involving legal and IT officers, including Yathra CEO Nadun Perera as a consultant and CPSTL Director Lalith Liyanage, had been sent for the Attorney General’s approval by the ministry, but no progress had ensued. In April 2019, a CPC board directive urged the signing of a bi-party agreement for system modifications, but there is no clarity on its status.
In 2018, the NAO brought to light a significant issue within the ERP system of the company. The audit revealed that over 2,500 types of inventory items, comprising a substantial quantity, had been incorporated into the ERP system (SAP) without their corresponding values being entered into the system.
This discrepancy raises concerns about the accuracy and reliability of the inventory records in the company’s financial statements. The NAO emphasised on the need for proper valuation and recording mechanisms to ensure the integrity of the inventory control system.
‘Those responsible have left’
In such a backdrop, unions attached to the petroleum sector shared a different opinion regarding the Minister’s revelations.
Speaking to The Sunday Morning, Energy Trade Union President Ananda Palitha said the Minister had staged a drama over the forensic audit. “This happened during the current Minister’s time, but now they act like it happened before he became the Minister,” he said.
“Two people who are responsible for this have already left the country,” Palitha added.
When contacted, CPC Chairman Saliya Wickramasuriya declined to comment on the ongoing investigation.