A forensic audit of the operations of the State-owned Petroleum Corporation of Jamaica (PCJ) and Petroleum Company of Jamaica (PETCOM) has uncovered contract irregularities, poor management of the PetroCaribe Development Fund (PCDF) and a cash-skimming scheme that “partly involved PCDF monies” which the auditors have recommended be referred to the police for further investigation.

The audit, which examined the fiscal year April 1, 2006 – March 31, 2007, found a lack of oversight and proper governance over the PCJ by the group managing director and the board of directors. The auditors also said that most of the problems identified were linked to areas under the responsibility of the PCJ’s former director of administration and the corporation’s former financial controller.

The auditors pointed out that the PCJ’s former director of administration reported to the group managing director for all PCJ administration, financial, and human resources matters; was the corporate secretary to the board; and reported to a former chairman of the board.

They questioned why so many responsibilities were bestowed to one individual in a large organisation and argued that it was “highly unusual that an individual would have been permitted to oversee so much of an organisation’s operations and have control over its financial record keeping”.

The audit was ordered by the Government shortly after then Energy Minister Clive Mullings exposed the Cuban light bulb scandal for which Kern Spencer, the junior energy minister in the previous People’s National Party Government, and his then personal assistant Coleen Wright, are now before the courts on corruption charges.

However, the auditors — Canadian firm Papineau Consulting Inc, along with internal auditors from the Ministry of Energy and Mining and the Auditor General’s Department — said they refrained from matters associated with the light bulb distribution project as it had already been investigated by the Office of the Contractor General, the Auditor General’s Department and the mining, energy and telecommunications ministry.

Subsequent to the submission of the audit, PCJ General Manager Ruth Potopsingh was cashiered last Wednesday night. The Sunday Observer also learnt that the position of group managing director Richard McDonald is to be reviewed.

Highly placed sources said that a response to the audit findings was sought from Potopsingh who complied, giving one to the Audit Committee and another to the board — both in writing.

“The board was not satisfied and informed her that they had lost trust and confidence in her, and she was terminated,” the source said.

The audit did not point to Potopsingh in relation to the contract irregularities or the alleged cash-skimming scheme. However, the source said she was cited by the board for “weak and ineffective management”.

“The chairman was not an executive chairman, therefore she was in charge,” said the source, who requested anonymity.

According to the audit, more than $3 million was obtained, for just over a year, through the cash-skimming scheme that was facilitated through the PCJ canteen bank account and PETCOM operations.

“PetroCaribe Development funds were improperly transferred into the PCJ canteen bank account and used in the cash-skimming scheme,” the auditors said. They also said that PetroCaribe Development funds were improperly transferred into the PCJ main bank account.

“The preliminary investigation into the cash-skimming scheme also determined three PCJ cheques amounting to a total of $620,000 were cashed at a PETCOM service station,” the auditors said. However, they were unable to determine how the process was handled at the service station.

The auditors charged that the scheme was facilitated by officials from both PCJ and PETCOM and recommended the matter be probed by the police and that an effort is made to recover funds from the officials involved. They also recommended that the PCJ repay the monies owing to the PetroCaribe Development Fund.

In relation to the contract irregularities, the auditors said their probe uncovered poor contracting practices and processes, lack of written contracts, and lack of transparency and objectivity in awarding contracts.

They said that most contracts were awarded sole source without justification and one competitively awarded tendered contract that they reviewed raised doubts about the competitive process.

The auditors highlighted three paving contracts that the PCJ awarded to one contractor totalling approximately $16 million during the 2006-07 year.

The first ran from January to August 2006 and related to paving and drainage improvements, as well as the demolition and construction of a guard house at the PETCOM headquarters.

“The initial work undertaken totalled more than $11 million but had been awarded sole source,” the auditors said. “No formal written contract was signed. Invoices had minimal details of work completed with poor breakdown of cost details. Occasionally, the contractor submitted estimates for the work to be undertaken, but when invoices exceeded the estimates the bills were still paid without justification.”

The second contract, which ran from May to July 2006, involved paving at the PCJ headquarters on Trafalgar Road in Kingston. That, too, was awarded sole source and had no written contract, the auditors said. That one cost the PCJ approximately $1.5 million.

The third was at a primary school which was initially expected to cost about $1.5 million but for which the PCJ ended up paying more than $3 million without question after the contractor billed the company for unrequested work.

“The audit did not find the justification for PCJ to pay over $3 million for work at a primary public school it does not own, and saw no PCJ corporate mandate to undertake this benevolent gesture,” the auditors said.

The auditors recommended that the contracting practices at the PCJ be referred to the contractor general “for consideration for possible further examinations” and that a forensic audit of the PCJ canteen operations be carried out to determine the full extent of the irregularities.