TABLE OF CONTENTS. Transmittal letter Executive summary 1-14 i-x

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1 REPORT OF THE AUDITOR-GENERAL ON THE STATEMENT OF FOREIGN EXCHANGE RECEIPTS AND PAYMENTS OF THE BANK OF GHANA (BoG) FOR THE HALF- YEAR ENDED 30 JUNE 2009 TABLE OF CONTENTS Transmittal letter Para(s) Page Executive summary 1-14 i-x Introduction Summary of significant findings Summary of recommendations 22 5 PART I DETAILS OF FINDINGS Analysis of foreign exchange receipts and payments PART II Foreign exchange earnings from dealer commercial banks and balances of external accounts holders PART III Management issues Audit opinion 98 38

2 Tables ES1 ES2 First Half of the Year s Foreign Exchange Inflows and Outflows in US $ million BoG s Total Foreign Exchange Inflows for the First Half Year in US $ million ES3 ES4 ES5 Composition of Foreign Exchange Receipts in US$ million Foreign Exchange Payments in US$ million BoG s Foreign Exchange Payments in US$ million ES6 Details of Invisible Payments in US$ million for the Period

3 TRANSMITAL LETTER Ref. No. AG.01/109/Vol.2/ Office of the Auditor-General Ministries Block O P. O. Box MB 96 Accra Tel. (0302) Fax (0302) / (0302) MAY 2010 Dear Madam Speaker, REPORT OF THE AUDITOR-GENERAL ON THE STATEMENT OF FOREIGN EXCHANGES RECEIPTS AND PAYMENTS OF THE BANK OF GHANA (BoG) FOR THE FIRST HALF YEAR ENDED 30 JUNE 2009 I am pleased to forward the above report to be tabled in the House in pursuant to Article 184(3) of the 1992 Constitution and Section 12(2) of the Audit Service Act, 2000 Act Madam Speaker, the report highlights the management of the country s foreign exchange receipts and payments. I have provided trends for the past three half years in the foreign exchange transactions of Bank of Ghana in the form of tables and graph. Auditor-General s report on Statement of Foreign Exchange Receipts and Payments of the Bank of Ghana for the first half year ended 2009

4 3. I wish to acknowledge the co-operation and support of the Governor and his staff, and other public sector agencies 4. Finally, I would like to appreciate the professional and efficient contributions provided by my staff during the execution of the audit. THE RT HON SPEAKER OFFICE OF PARLIAMENT PARLIAMENT HOUSE ACCRA Auditor-General s report on Statement of Foreign Exchange Receipts and Payments of the Bank of Ghana for the first half year ended 2009

5 REPORT OF THE AUDITOR-GENERAL ON THE STATEMENT OF FOREIGN EXCHANGE RECEIPTS AND PAYMENTS OF THE BANK OF GHANA (BoG) FOR THE HALF-YEAR ENDED 30 JUNE 2009 EXECUTIVE SUMMARY The statement of foreign exchange receipts and payments of the Bank of Ghana (BoG) for the half-year ended 30 June 2009 were audited in compliance with Article 184 (3) of the 1992 Constitution of the Republic of Ghana. 2. The audit was planned and performed so as to obtain reasonable assurance that the statement of foreign exchange receipts and payments taken as a whole was free from material misstatements. I wish to state that the maintenance of a proper system of internal control and accurate and reliable records to safeguard the foreign exchange resources are the responsibility of the Directors of BoG. The report which is in three parts is as follows: Part I deals with trend analysis of the foreign exchange receipts and payments. Part II comments on foreign exchange earnings from dealer commercial banks and external account holders balances. Part III covers management issues arising out of the review of foreign exchange transactions. Bank of Ghana for the first half year ended 2009 i

6 Foreign Exchange Inflow and Outflow Trends 3. Foreign exchange inflows for the first half of 2009 were US$1, million compared with US$1, million for the corresponding period of 2008, an increase of US$55.14 million or 4.5%. The corresponding outflows for 2009 totalled US$1, million compared with US$1, million for the corresponding period of 2008, a decrease of US$68.71 million or 3.8%. Displayed in Table ES1 are the foreign exchange inflows and outflows trends for the three-year period of Table ES1: First Half of the Year s Foreign Exchange Inflows and Outflows in US $ million Inflows Outflows Inflows Outflows Inflows Outflows 1, , , , , , Bank of Ghana for the first half year ended 2009 ii

7 Foreign Exchange Inflows to Bank of Ghana 4. BoG s foreign exchange inflows for the first half of 2009 were derived from cocoa, gold, manganese, capital and invisible receipts. These totaled US$1, million for 2009 compared with US $1, million for 2008, an increase of US$55.14 million or 4.5%. Table ES2: BOG S TOTAL FOREIGN EXCHANGE INFLOWS FOR THE FIRST HALF YEAR IN US $ MILLION Year Amount US $ (m) , , , Total 3, For the first half of the three-year period, total foreign exchange receipts increased from US$1, million in 2007 to US $1, Bank of Ghana for the first half year ended 2009 iii

8 million in 2009, an increase of US$ million or 21.87% mainly due to increases in capital receipts. 6. Table ES3 provides details of the composition of the foreign exchange inflows: Table ES3: Composition of Foreign Exchange Receipts in US$ million Item Cocoa Gold Diamond Manganese Capital Receipts Invisible Receipts Total 1, , , Bank of Ghana for the first half year ended 2009 iv

9 7. The table shows that for the half year ended 30 June 2009, foreign exchange from Capital Receipts constituted the highest inflows, contributing 36.4% of total inflows as against invisible receipts, which constituted the highest inflow of 36% of total inflows for the corresponding period of Analysis of Foreign Exchange Payments 8. Total foreign exchange payments for 2009 was US$1, million compared with US$1, million for the corresponding period of 2008, a decrease of US$68.71 million or 3.8%. 9. Details of the foreign exchange payments have been provided in Table ES4: 10. Table ES4: Foreign Exchange Payments in US$ million Year Amount US $ (m) , , , Total 4, Bank of Ghana for the first half year ended 2009 v

10 The table shows that foreign exchange payments over the three-year period from increased from 2007 to 2008 but decreased in 2009 revealing a rise of US$ million or 47.8% in 2008 and a decrease of US$68.71 million or 3.8% in The main components of the foreign exchange payments were import payments for oil and non-oil imports (visible import payments), capital and invisible payments. 12. The figures in respect of these items have been shown in Table ES5 and ES6. These have also been explained and commented on in this report. Bank of Ghana for the first half year ended 2009 vi

11 Table ES5: BoG s Foreign Exchange Payments in US$ million Foreign exchange payments 30 June June June 2009 Visible Imports , , Capital Payments Invisible Payments Total 1, , , Bank of Ghana for the first half year ended 2009 vii

12 Table ES6: Details of Invisible Payments in US$ million for the Period Year 30 June June June 2009 Manpower, Training & Dev Embassy Transfers Mgt. & Tech. Services Fees Capital Subscriptions Progress Payment Contractors Sundry Payments Total Bank of Ghana for the first half year ended 2009 viii

13 Net-Position of Foreign Exchange Receipts and Payments 13. As a result of decreases in crude oil import and other imports payments, BoG record of net deficit decreased from US$ million in 2008 to US$ million during the first half of 2009, a decrease of US$ or 21.56%. Foreign Exchange Reserve Assets 14. Bank of Ghana s foreign exchange reserve assets as at 30 June 2009 were US$1, million, compared to US$2, million as at 30 June 2008, a decrease of US $ million or 34.7%. The drop was due mainly to decreases in fixed deposits and corresponding Bank balances. Summary of general recommendations 15. To improve internal controls in the management of foreign exchange receipts and payments, we recommend as follows: i. In order to prevent errors, omissions and wrongful treatment of transactions, Bank of Ghana should strengthen its internal and supervisory control systems over the preparation of the statement of foreign exchange receipts and payments transactions by improving its personnel capacity in respect of those in charge of preparation and review of the receipts and payments before issue. ii. On non- submission of returns by external account operators, Bank of Ghana should withdraw the facility from those Bank of Ghana for the first half year ended 2009 ix

14 organisations that failed to submit their bank balances and other returns to BoG. iii. In the case of non-submission of returns by dealer commercial banks, Bank of Ghana should issue regular reminders to the defaulting banks and apply the necessary sanctions to recalcitrant ones. Bank of Ghana for the first half year ended 2009 x

15 REPORT OF THE AUDITOR-GENERAL ON THE STATEMENT OF FOREIGN EXCHANGE RECEIPTS AND PAYMENTS OF THE BANK OF GHANA (BoG) FOR THE FIRST HALF-YEAR ENDED 30 JUNE 2009 Introduction 15 The Statement of Foreign Exchange Receipts and Payments of the Bank of Ghana (BoG) for the first half-year ended 30 June 2009 were audited as required by Article 184 (3) of the 1992 Constitution. The audit covered a review of foreign exchange transactions relating to BoG s foreign exchange receipts and payments, memorandum account of dealer banks, external account position of public, private and organisations permitted by BoG to operate such accounts and foreign inward remittances. 16. We planned and performed the audit to obtain reasonable assurance that the Statement of Foreign Exchange Receipts and Payments was free from material misstatements. We wish also to mention that it is the responsibility of the Directors of Bank of Ghana to ensure, as far as possible, the maintenance of accurate and reliable records to safeguard the foreign exchange assets of the Bank of Ghana by the adoption of appropriate accounting and internal control systems. This report is divided into three segments as follows: Part I provides trend analysis of the foreign exchange receipts and payments of the BoG. 1

16 Part II comments on foreign exchange earnings of dealer banks and position of external account holders balances. Part III deals with management issues arising from our review of the foreign exchange transactions. Summary of Significant Findings 17. A summary of significant findings is provided below: Foreign Exchange Receipts i. Total foreign exchange receipts for the first half of 2009 were US$1,285,676,365 compared with US$1,230,536,418 for the corresponding period of 2008, an increase of US$55,139,947 or 4.5%. Foreign Exchange Payments ii. Total foreign exchange payments for the first half of 2009 were US$1,736,333,856 compared with US$1,805,033,286 for the corresponding period of 2008, representing a decrease of US$68,699,430 or 3.8%. Foreign Exchange Receipts and Payments (Net Position) iii. Due to decreases mainly in forex exchange payments for oil and non oil import, a net deficit of US$450,657,491 was recorded in 2009, as compared with a net deficit of US$574,496,868 for the corresponding period of 2008, representing a favorable decrease of US$123,839,377 or 21.56%. 2

17 Movement in Foreign Exchange Reserve Assets iv. Foreign reserve assets of BoG as at 30 June 2009 were US$1,726,354,004 compared with the balance of US$2,644,219,863 as at 30 June 2008 a decrease of US$917,865,859 or 34.7%. The decrease was mainly due to decreases in BoG s Fixed Deposits and foreign correspondent banks accounts balances. On-shore HIPC Reliefs US$83,539,035 v. Ghana s external creditors granted total reliefs of US$83,539,035 in the form of cancellation of principal and interest on loans, which matured during the period compared with US$154,650,533 granted for the corresponding period of Sovereign Bonds US$33,422,003 vi During the period under review, sovereign bonds proceeds transferred into the Ministries of Mines and Energy and Ports and Harbours accounts to cover their imports needs totalled US$33,422,003. Multilateral Debt Relief Initiative (MDRI) US$27,036,828 vii. Debt reliefs received through the Multilateral Debt Relief Initiative (MDRI) from the World Bank, and African Development fund (ADF) totalled US$27,036,828. Commodity-Related Grants US$259, The Japanese grants to Ghana in the form of direct payments for goods and services for on-going projects were US$259,563 3

18 compared with US$7,780,403 during the first half of 2008, a decrease of US$7,520,840 or 96.7%. The reduction was mainly due to the nonprovision of food and electrification aid during the first half of External Account Holders Balances US$83,953, Out of the 30 institutions permitted by BoG to operate external accounts, 7 institutions failed to submit their returns as at 30 June The total credit balances as at 30 June 2009 for the remaining 23 institutions was US$83,953,546 compared with US$121,656,360 for the corresponding period of 2008, thus recording a decrease of US$37,702,814 or 31%. Memorandum Account Items 20. Out of the 24 dealer commercial banks that operated in the first half of 2009, 23 fully submitted their returns on their foreign exchange earnings to BoG, except Agricultural Development Bank (ADB) that partly submitted their returns. The total foreign exchange earned through dealer commercial banks was US$2,396,114,465 as at 30 June Omissions, Understatements, Overstatements and Misclassifications 21. Our audit revealed omissions, understatements, overstatements and wrongful treatment of transactions in the Statement of the Foreign Exchange Receipts and Payments. 4

19 Summary of Recommendations 22. To improve the management of the preparation of the statement of foreign exchange inflows and outflows we re-iterated that: i In order to eliminate errors and omissions, understatements, overstatements and misclassifications, as well as wrongful treatment of transactions, Bank of Ghana should step up its internal and supervisory controls system over the preparation of the statement of the foreign exchange receipts and payments transactions. ii iii On non-submission of returns by external account operators, Bank of Ghana should withdraw the facility from those organisations that have persistently failed to submit their bank balances and other returns to BoG. In the case of non-submission of returns by Dealer Commercial Banks, Bank of Ghana should issue regular reminders to the defaulting banks and apply the necessary sanctions to recalcitrant ones. 5

20 PART I DETAILS OF FINDINGS ANALYSIS OF FOREIGN EXCHANGE RECEIPTS AND PAYMENTS Foreign Exchange Receipts 23. The Bank of Ghana derived its foreign exchange receipts from export proceeds of cocoa, gold, manganese, capital and invisible trade transactions during the period. Foreign exchange receipts for the first half of 2009; totalled US$1,285,676,365 compared with US$1,230,536,418 for the corresponding period of 2008 an increase of US$55,139,947 or 4.5%. The increase was mainly attributable to increases in cocoa, gold and capital receipts. The actual total foreign exchange receipts of US$1,285,676,365 were however higher than BoG projected receipts of US$1,188,770,000, recording a favourable variance of US$96,906,365 or 8.2%. Analysis of Foreign Exchange Receipts Cocoa 24. Foreign exchange receipts from cocoa consisted of foreign exchange inflows of cocoa exports proceeds of Ghana Cocoa Board (COCOBOD) surrendered to Bank of Ghana for cedis. exchange inflows from cocoa were from three main sources: Foreign COCOBOD s trade finance credit facility drawdowns sold to Bank of Ghana. 6

21 Export proceeds of cocoa products such as cocoa butter, paste and powder sold to Bank of Ghana. Other cocoa beans exports proceeds not designated for settlement of trade finance credit facility surrendered to Bank of Ghana for cedis. 25. Table 1 provides details of foreign exchange receipts from cocoa to Bank of Ghana. Table 1: Analysis of Foreign Exchange Receipts from Cocoa to Bank of Ghana in US $ Sources 30 June 2009 % Of Total 30 June 2008 % Of Total Difference Syndicated Trade 190,000,000 Credit Facility 46.4% 159,000, % 31,000,000 Cocoa 219,286, % 94,896, % 124,390,397 Total 409,286, % 253,896, % 155,390, Foreign exchange receipts from cocoa to Bank of Ghana totaled US$409,286,428 in 2009 compared with US$253,896,031 for the corresponding period of 2008, representing an increase of US$155,390,397 or 61.2%. Foreign exchange receipts from cocoa constituted 31.8 % of total foreign exchange receipts of US$1,285,676,365. For the first half of 2009, 328,758 tons of cocoa beans and 63,052 tons of cocoa products were exported compared with 382,859 tons of cocoa beans and 33,306 tons of cocoa products exported during the corresponding period of 2008 indicating a decrease and increase of 54,101 and 29,746 tons respectively. 7

22 Table 2: Cocoa Beans/Products Exported (tons) During the First Halves of 2009 and 2008 in Tons Item 30 June June 2008 Increase Decrease % Cocoa beans 328, ,859 54, Cocoa products 63,052 33,306 29, Total 391, ,165 29,746 54, Inflows from syndicated pre-export trade finance drawdowns increased by US$31,000,000 or 19.5% from US $159,000,000 during the first half of 2008 to US$190,000,000 for the period under review. Foreign exchange receipts from the export of cocoa products totalled US$21,496,799 in 2009, compared with US$26,960,783 for the corresponding period in 2008, a decrease of US$5,463,984 or 20.2 %. Foreign exchange inflows from other cocoa beans exported but not used to finance loans repayment amounted to US$197,789,629 in 2009 compared to US$53,220,249 in 2008, an increase of US$144,569,380 or 272%. 28. Bank of Ghana projection for cocoa receipts was US$443,000,000 for the period under review but actual receipts were US$409,286,428 representing an unfavourable variance of US$33,713,572 or 7.6%. 8

23 Gold 29. As at 30 June 2009, ten companies were noted as licensed gold exporters with surrender percentages ranging between 20% and 40%. Six companies had 20% export receipts surrender; two companies had 25% with AGC surrendering 40% of its total export receipts to BoG for cedis. One company, Newmont Gh. Ltd however, retained 100% of its export proceeds and did not surrender any percentage of its foreign exchange earnings to Bank of Ghana for cedis 30. Foreign exchange receipts from gold exports increased by US$20,245,192 or 9.8% from US$206,879,162 in the first half of 2008 to US $227,124,354 during the first half of Gold inflows represented 17.7% of total foreign exchange receipts of US$1,285,676,365 for the period. Total quantity of gold exported during the period was 1,404,006 ounces as against 1,325,348 ounces for the corresponding period of 2008, an increase of 78,658 ounces or 5.9%. The increase in gold receipts was as a result of increased gold exports during the period. Bank of Ghana s foreign exchange projection for gold was US$206,100,000 but actual receipts were US$227,124,354, a favourable variance of US$21,024,354 or 10.2%. 9

24 Table 3: Schedule of Gold Receipts Surrendered During The First Half of 2009 No. Company Surrender Amount (%) (USD) 1 AGC Ltd.(Obuasi) 40 70,451,673 2 AG GAG Ltd. (Anglogold Ashanti Iduapriem) 20 15,836,171 3 Bogoso Gold Ltd. (Golden Star) 20 15,309,495 4 Abosso Goldfields Ltd ,204,143 5 Wexford Goldfields Ltd. (Golden Star) 20 19,778,115 6 Prestea Sankofa Gold Ltd. 25 1,484,987 7 AG Bibiani Ltd. (Anglogold Ashanti) ,498 8 Goldfields Gh. Ltd ,746,202 9 Chirano Goldmines Ltd ,032, Newmont Gh. Ltd. - - TOTAL 227,124,354 Diamond 31. Diamond inflows was realised from the 20% export receipts surrendered to Bank of Ghana, by Ghana Consolidated Diamonds Ltd. (GCD). The remaining 80% of the export proceeds was retained by GCD to meet its import needs. Following the continuous closure of Akwatia Consolidated Diamonds Ltd, there were no diamond inflows during the period. There were also no forex inflows during the corresponding period of 2008 as a result of the same reason. Bank of Ghana also did not project foreign exchange inflow for diamond as a result of the Company s closure. 10

25 Manganese 32. The manganese inflows were received from 20% export proceeds surrendered to the Bank of Ghana by Ghana Manganese Company. To enable the company meet its import needs, the remaining 80% of export proceeds was retained. Foreign exchange inflows from manganese were US$3,507,837 compared with US$3,453,199 recorded in the corresponding period of 2008, representing an increase of US$54,638 or 1.6%. Bank of Ghana's foreign exchange projection for manganese was US$10,800,000 but actual receipts were US $3,507,837 representing an unfavourable variance of US$7,292,163 or 67.5%. Capital Receipts 33. Total capital receipts in the form of loans and grants for the first half of 2009 were US$468,659,724 compared with US$322,527,767 for the corresponding period of 2008, an increase of US$146,131,957 or 45.3%. This was mainly due to new bridging credit facility contracted from the Bank for International Settlement (BIS) during the period. 11

26 Table 4: Analysis of Capital Receipts Agency 2009 US $ 2008 US $ Increase US $ Decrease US $ IDA Loan - 98,119,040-98,119,040 Swiss Grant 8,571,404 8,719, ,708 UK/Ghana Grant 70,222,416 88,126,333-17,903,917 Canadian Grant 24,281,667 16,483,626 7,798,041 - Danish Grant 11,844,247 22,900,904-11,056,657 World Bank Loan IMF Loan IMF Income 8,745 16,698-7,953 French Grant 18,211,063 20,121,098-1,910,035 Netherlands Grant 36,505,047 36,885, ,602 HIPC Reliefs E.U Grant - 31,155,307-31,155,307 Japanese Grant 3,585,440-3,585,440 - German Grant 13,507,965-13,507,965 - BIS Bridging Facility Loan 250,000, ,000,000 - European Investment 31,921,730-31,921,730 - Bank Loan Total 468,659, ,527, ,813, ,681, Bank of Ghana projection for capital receipts was US$404,860,000 but the actual was US$468,659,724 showing a favourable variance of US$63,799,724 or 15.8%. Invisible Receipts 35. Invisible receipts comprised traveller s cheques sales, other interests and commissions, interest from JP Morgan investments, interest on BISIP A and C Portfolio, UBSGAM, and forex purchases. 12

27 Invisible receipts during the first half of 2009 totalled US$177,098,022 compared with US$443,780,257 for the corresponding period of 2008, a decrease of US$266,682,235 or 60%. This was as a result of the drop in interest on BIS portfolio, other interests and commissions and non-availability of Central bank facility and Sovereign Bond. Table 5 below shows summary of invisible receipts: Table 5: Analysis of Invisible Receipts for First Half 2009 and 2008 Item 2009 ( US $) 2008 (US $) Incr. (US $) Decr. (US $) Travellers Cheque 22,437 3,136 19,301 - Other Interest & Commissions 693,827 6,752,666-6,058,839 JP Morgan Investment 3,795,934 (6,618,698) 10,414,632 Treasury Bills Investment Central Bank Facility - 1,460,054-1,460,054 Interest On BIS Portfolio 2,746,796 12,071,793-9,324,997 UBSGAM 3,323,562 3,144, ,398 - Sovereign Bond 327,648, ,648,980 Forex Purchases 166,515,466 99,318,162 67,197,304 - Total 177,098, ,780,257 77,810, ,492,870 HIPC Reliefs 36. HIPC reliefs are of two types, the on-shore and offshore reliefs. The reliefs, which resulted from cancellation of principal and interest payment on debts, were given as a result of the Government s adoption of the HIPC initiative. The offshore reliefs were treated as capital receipts and included in capital receipts for the period. 13

28 37. There were no receipts of offshore HIPC reliefs during the first half of There were also no receipts of HIPC reliefs for the corresponding period of On the other hand, a total of US$83,539,035 was received in 2009 as on-shore reliefs compared with US$154,650,533 in 2008, representing a decrease of US$71,111,498 or 46%. 38. The off-shore reliefs represented foreign exchange inflows to BoG while the on-shore reliefs involved retention of foreign exchange, which otherwise, would have been transferred to pay bilateral and multilateral creditors. It involved the transfer of cedis funds from the Government account to the HIPC Main Receipt account and therefore, did not affect the statement of foreign exchange receipts and payments prepared by the bank. Thus the reliefs were treated as a memorandum item to this statement. Sovereign Bonds US$33,422, Proceeds of the sovereign bonds transferred from the sovereign bonds account to the Ministries of Mines and Energy and Ports and Harbour to cover their import needs totalled US$33,422,003. Multilateral Debt Relief Initiative (MDRI) - US$27,036, The MDRI involved the retention of the cedi equivalent of foreign exchange, which would otherwise have been transferred to settle foreign debts maturing in respect of multilateral institutions in 14

29 the MDRI account by Government. The initiative was to assist qualifying countries to advance towards the achievement of United Nations Millennium Development Goals (MDGs) and aimed at halving poverty by Total MDRI receipts for the period were US$27,036, During the period under review, the Government of Ghana received MDRI inflows from the World Bank and the African Development Fund (ADF). Whereas the World Bank granted total MDRI receipts of US$21,789,886, the African Development Fund (ADF) granted a total of US$5,246,942. This is shown in Table 6. Table 6: Analysis of MDRI Receipts Name of Institution Amount (US $) World Bank 21,789,886 African Development Fund (ADF) 5,246,942 Total 27,036,828 Commodity-Related Japanese Grants 42. The Government of Japan continued to give grants to the Government in the form of direct payments for goods and services for on going projects during the period. These included the rehabilitation of trunk roads, rural electrification, payment for the supply of sports equipment, agricultural machinery, physics and chemistry equipment. Total Commodity related Japanese Grants were US$259,563 15

30 compared with US $7,780,403 recorded in the corresponding period of 2008, a decrease of US$7,520,840 or 96.7%. The decrease was as a result of non-provision of food aid and rural electrification grants during the period. Comparative Analyses of Foreign Exchange Receipts 43. A comparative analysis of the composition of foreign exchange receipts for the first half years of 2009 and 2008 is provided in Table 7. Table 7: Comparative Analysis of the Composition of Foreign Exchange Receipts for the First Halves of 2009 and 2008 in US $ Item 30 June June 2008 Increase Decrease Cocoa 409,286, ,896, ,390,397 - Capital Receipts 468,659, ,527, ,131,957 - Invisible Receipts 177,098, ,780, ,682,236 Gold 227,124, ,879,162 20,245,192 - Manganese 3,507,837 3,453,199 54,638 - Diamond Total 1,285,676,365 1,230,536, ,822, ,682,236 Projection Analysis of Foreign Exchange Receipts 44. Our review disclosed that the overall performance of foreign exchange receipts was favourable. Whereas BoG projected total receipts of US$1, million, actual receipts totalled US$1, million showing a favourable variance of US$96.91 million or 8.2%. A detail of budgetary performance is provided in table 8. 16

31 Table 8: Budgetary Performance for Foreign Exchange Receipts for First Half 2009 Item Budget US $ (m) Actual US $ (m) Favourable Variance US $ (m) Unfavourable Variance US $ (m) Forex from Cocoa Forex from Gold Forex from Diamond Forex from Manganese Capital receipts Invisible receipts Total 1, , Foreign Exchange Payments 45. Total foreign exchange payments during the period were US$1,736,333,856 compared with US$1,805,033,286 for the corresponding period of 2008, a decrease of US$68,699,430 or 3.8%. The decrease was mainly due to reduction in payments in respect of oil and non-oil items (forex sales) and invisible payments during the period under review. For the first half of 2009 BoG projected total foreign exchange payments of US$1,630,910,000 but actual total forex payments were US$1,736,333,856 indicating an unfavourable variance of US$105,423,856 or 6.5%. 17

32 Table 9: Analysis of Foreign Exchange Payments Item 30 June 2009 US $ 30 June 2008 US $ Increase US $ Decrease US $ Oil & Non-Oil 1,184,730,120 1,226,684,165-41,954,045 Other Imports 79,010,804 90,673,234-11,662,430 Capital Payments 278,730, ,326,653 83,403,912 - Invisible Payments 193,862, ,349,234-98,486,867 Total 1,736,333,856 1,805,033,286 83,403, ,103,342 Visible Import Payments 46. Visible imports comprised of oil, non-oil as well as other imports. Visible imports payments for the period were US$1,263,740,924 compared with US$1,317,357,399 for the corresponding period of 2008 representing drop of US$53,616,475 or 4.1%. Table 10: Visible Import Payments for the First Halves of 2009 and 2008 Item 30 June 2009 US $ 30 June 2008 US $ Increase US $ Decrease US $ Oil 638,386, ,227, ,840,991 Non-Oil 546,343, ,456, ,886,946 - Other Imports 79,010,804 90,673,234-11,662,430 Total 1,263,740,924 1,317,357, ,886, ,503,421 18

33 47. Forex outflows for crude oil lifting was US$638,386,954, which represented 51% of total visible import payments of US$1,263,740,924 showed a decrease of US$179,840,991 or 21.9% over the 2008 crude oil figure of US$818,227,945. The drop was attributable to the decreases in total quantity of crude oil import and world market price of crude oil. During the period BoG s projection for oil was US$690,090,000, depicting a favourable variance of US$51,703,046 or 7.5%. Non-oil payments increased by US$137,886,946 or 33.8% from US$408,456,220 during the first half of 2008 to US$546,343,166 as a result of the increase in foreign exchange sales to dealer commercial banks to finance import needs of their customers. 48. The actual non-oil payments of US$546,343,166 were higher for 2009 than the BoG s projection of US$477,270,000, which revealed an unfavourable difference of US$69,073,166 or 14.5% resulting from the increase in non-oil imports. Other imports payments decreased from US$90,673,234 in the previous period to US$79,010,804 in 2009, showing a drop of US$11,662,430 or 12.9% due to decreased economic activities. Capital Payments 49. Capital payments, which included loan repayments to bilateral and multilateral institutions, totalled US$278,730,565 compared with 19

34 US$195,326,653 for the corresponding period of 2008, representing an increase of US$83,403,912 or 42.6%. 50. The increase in capital payments was mainly attributable to redemption of 3 years Government Bonds during the period. Actual capital payments of US$278,730,565 for the period were lower than the BoG projection of US$160,020,000 by US$118,710,565 or 74.1%. Table 11: Capital Payments for the First Halves of 2009 and 2008 Particulars 30 June 2009 US $ 30 June 2008 US $ Increase US $ Decrease US $ Misc. Capital 140,202, ,528,189 2,673,895 - Payments Int. On Sovereign 31,875,000 31,874, Bond Interest On 5-Yr Bond 12,830,263 8,484,780 4,345,483 - Interest On 3-Yr Bond 6,304,048 15,404,985-9,100,937 R demption of Govt. Bonds 5 Yr 6,705,347-6,705,347 - R demption of Govt. Bonds 3 Yr 78,197,404-78,197,404 - IMF Loan 405, ,254-28,732 Repayments Interest on BIS Bridging Facility 1,848,778 1,848,778 - IMF Charges 362,119 1,599,475-1,237,356 Total 278,730, ,326,653 93,770,937 10,367,025 20

35 Invisible Payments 51. Invisible payments comprised manpower, training and development, embassy transfers, progress payments to contractors, management and technical services fees, capital subscriptions and sundry payments. Total invisible payments for the first half of 2009 were US$193,862,367 compared with US $292,349,234 for the corresponding period of 2008, a decrease of US $98,486,867 or 33.7%. The decrease in invisible payments resulted mainly from the decrease in payments in respect of manpower training and development, management and technical service fees as well as embassy transfers during the first half of BoG projection for invisible payments was US$124,980,000 whereas actual payments were US$193,862,367 showing an unfavourable difference of US$68,882,367 or 55%. A breakdown of invisible payments for the period is provided below in the succeeding paragraphs. Manpower, Training and Development 53. These were allowances paid to government-sponsored students abroad. Total transfers for the period of 2009 was US$3,403,095 compared with US$4,423,240 for the corresponding period of 2008, a decrease of US $1,020,145 or 23.1%. The decrease was mainly due to a drop in the number of government-sponsored students abroad. 21

36 Progress Payments to Contractors 54. These were payments made to contractors undertaking various projects in the country. Total payments for the period were US$46,160,921 compared with US$120,332,545 for the corresponding period of 2008, a decrease of US$74,171,624 or 61.6%. The decrease was mainly due to the drop in the number of projects undertaken which included the installation of 49.5MW Tema Emergency Power Plant and the construction of the Bui Dam project. Table 12: Progress payments to Contractors for the First Half of 2009 and 2008 Type of Project Renovation works on 13 Belgrave Square London Building Additional works Embassy of Ghana Rome Police Hospital Project Contractor/Agent Messrs Amandi Holding Inc US$ US$ 1,877,690 Embassy of Ghana- Rome 151,608 Messrs International Hospital Group 9,006,314 4,185,992 Atholl Energy Limited 31,266,056 Solbit Re-Sonitra Limited 1,003,012 Solbit Re-Sonitra Limited 877,234 2,234,069 Installation of 49.5MW Tema Emergency Power Plant Renovation works at Takoradi Airport 3 Lane Dual Carriageway from Tetteh Quarshie Interchange to Madina Refurbishment of Komfo Gertech Kreisparkasse Anokye Teaching Hospital Tuttlingen Germany 7,208,532 Rehabilitation of Naval Messrs Damen Shipyard Shipway Project at Sekondi 3,287,974 Establishment of Office of Defence Advisor Embassy of Ethiopia 511,880 Additional Works for Completion of Tema Thermal 1 Power Project Messrs Gecad Inc. 6,000,000

37 Construction of the Bui Dam Sinohydro Corporation 43,368,014 Project Ltd. Of Beijing China Rehabilitation of Ohene Djan Sports Stadium M/S Michelleti & Co Ltd 2,833,669 East-West Interconnection & Weija WPT Extension works Messrs Ballast Nedam Ghana B.V. 3,489,556 3,472,828 Renovation of Residence of Former Head of Mission Ghana Embassy Kinshasha Congo 26,800 Renovation & Refurbishment of 3 Ghana Governement Messrs Amandi Holding 6,294,140 Property in Copenhagen Tetteh Quarshie Circle Manfe Road Inc. China International Water & Electric 1,132,048 1,495,608 Work on Anyinam - Konongo Nkawkaw Road By-pass Solbit Re-Sonitra Ghana 146,002 Achimota Ofankor Road Rehabilitation & Construction of Annex to the Existing Chancery & Residence Construction of a Test Bench at Sekondi Naval Base 230MW Kpone Thermal Power Plant Project Accra Kumasi Road Dualisation Project Tetteh Quarshie Mamfe / Flagstaff House Road Sofoline Interchange Design Works Rehabilitation of Hockey Pitch Completion of Works on Tamale & Sekondi Stadia Messrs China Railway Wuju Group Corporation 2,751,070 3,715,357 Ghana Mission Brasilia 246,486 Messrs HYSA Ltd 1,006,828 Zakheim Int. Construction Limited 1,806,382 - China International Water - & Elect. Corp. 15,950,000 Messrs Ibadesa Export Aciones Y Services SA 308,777 China Railway Major - Bridge Reconnaissance & 182,619 Design Institute Co. Ltd. Messrs Micheletti & Co. 7,508,617 - Ltd. Messrs Shangai - Construction (Group) 878,333 General Co. Reconstruction of Sunyani Road in Kumasi China Geophysics 2,269,971 Total 46,160, ,332,545 23

38 Embassy Transfers 55. There were remittances to Ghana Missions abroad. An amount of US$26,314,901 was remitted during the first half of 2009 compared with US$32,026,751 during the corresponding period of 2008, showing a decrease of US$5,711,850 or 17.8%. Embassy transfers formed the third highest invisible payment, representing 13.5% of total invisible payments for the period. Management and Technical Service Fees 56. Foreign exchange payments made for technical and management services were US$21,940,602 compared with US$49,299,901 for the corresponding period of 2008, a decrease of US$27,359,299 or 55.5%. The decrease was caused by the reduction in payment of management consultancy services by government. Capital Subscriptions 57. Capital subscriptions were payments in respect of fees to International and Regional Organisations and Agencies to which Ghana is affiliated. In the first half of 2009, US$1,019,666 was paid as capital subscriptions compared with US$2,056,342 recorded for the previous period, representing a decrease of US$1,036,676 or 50.4%. The decrease was attributed to the reduction in the payment of capital subscriptions 24

39 Sundry Payments 58. Sundry payments consisted of other payments through BoG, inspection fees, freight and insurance, subscriptions, medicals and correspondent bank charge. Sundry payments made during the period totalled US$95,023,182 compared with US$84,210,456 for the corresponding period of 2008, an increase of US$10,812,726 or 12.8%. The increase was mainly due to the rise in other payments through BoG and Freight and insurance. Projection Analysis of Foreign Exchange Payments 59. Comparison of projected payments of US$1,452,360,000 with actual payments of US$1,736,333,856 showed that BoG made an under projection of US$283,973,856 or 20.0% during the first half of Details of the budgetary performance are provided in table 13. Table 13: Budgetary Performance for Foreign Exchange Payments for First Half 2009 Item Budget US $ (m) Actual US $ (m) Favourable Variance US $ (m) Unfavourable Variance US $ (m) Oil & Non-Oil 1, , Capital payments Invisible payments Total 1, , (*) Note: The actual invisible payments of US $ million include other imports of US $79.01 million, a visible payment but included in invisible payment projection 25

40 Foreign Exchange Receipts and Payments (Net Position) 60. Bank of Ghana recorded a net deficit of US$450,657,490 during the first half of 2009 compared with a net deficit of US$574,496,868 for the corresponding period of 2008, representing a favourable decrease of US$123,839,378 or %. The decrease in deficit was mainly attributed to reductions in forex sales, in respect of crude oil and non-oil imports, other imports as well as invisible payments during the period under review. Movement in Foreign Reserve Assets 61. Bank of Ghana s foreign reserve assets consisted of gold, holdings of Special Drawing Rights; correspondent bank balances, foreign notes and coins balances, foreign securities and fixed deposits, HIPC trust investment in Ghana International Bank (GIB) London as well as Investment in Afrexim Bank. The bank s reserve position as at 30 June 2009 totalled US$1,726,354,004 compared with US$2,644,219,863 for the corresponding period of 2008, a decrease of US$917,865,859 or 34.7%. Details of the reserve assets as at 30 June 2009 are provided in Table

41 Table 14: BoG Reserve Assets Position As At 30 June 2009 Item 30 June 2009 US $ 30 June 2008 US $ Increase US $ Decrease US $ Gold 244,437, ,744,754 8,693,059 - Holdings of - SDR 626,430 1,875,185 1,248,755 Correspond 263,993,038 Bank Balance 120,554, ,547,137 - Foreign Notes - & Coins 39,247,250 17,607,125 21,640,125 Foreign - Securities Fixed 682,897,268 Deposits 1,294,960,001 1,977,857,269 - Reserve - - Position IMF - - HIPC Trust - Investment 1,523,587 1,583,569 59,982 Investment in - GIB London 23,004,824 23,004,824 - Investment in - - Afrexim Bank 2,000,000 2,000,000 Total 1,726,354,004 2,644,219,863 30,333, ,199, The analysis in Table 14 shows that BoG foreign reserves position reduced from US$2,644,219,863 during the first half of 2008 to US$1,726,354,004 as at 30 June 2009, a decrease of US$917,865,859 or 34.7%. The decrease in foreign reserves mainly resulted from the decrease in BoG s Fixed Deposits and account balances with foreign financial institutions. 27

42 PART II FOREIGN EXCHANGE EARNINGS FROM DEALER COMMERCIAL BANKS AND BALANCES OF EXTERNAL ACCOUNTS HOLDERS Memorandum Accounts Items Dealer Commercial Banks 63. Commercial banks, which handle foreign exchange earning inflows on behalf of their customers, are required to submit monthly returns on their foreign exchange earnings to BoG. As at 30 June 2009, 24 Commercial banks were noted as facilitating the receipt of foreign exchange inflows on behalf of their customers. 64. We noted, however, that as at 30 June 2009, 23 out of the 24 dealer banks fully submitted the required returns on their foreign exchange earnings to BoG, except ADB that partly submitted their returns. 65. In view of defaults on submission of returns by the bank, the total amount of US$2,396,114,465 foreign exchange inflows receipted through dealer commercial banks did not represent the entire receipts for the first half of Total foreign exchange earnings from authorized dealer banks for the corresponding period of 2008 totalled US$2,429,787,809 a decrease of US$33,673,344 or 1.4% 28

43 66. We reiterated as in our previous report, that BoG should ensure that the defaulting bank was sanctioned as required under the bank s regulations. Table 15: Schedule of Earnings from Dealer Commercial Banks for First Half of 2009 Particulars Amount (US$) Non-Traditional Exports 49,578,384 Other Exports 684,611,944 Service Receipts 1,010,138,741 Income Receipts 20,888,511 Financial Transactions 630,896,885 Total 2,396,114,465 External Account Holders Balances US$83,953, BoG gives approval to public and private organizations to operate forex accounts with foreign banks. To monitor the operation of these external accounts, BoG requires all institutions, operating such accounts, to submit to it monthly account statements. As at 30 June 2009, we noted that 30 institutions had been granted approval and therefore operated forex accounts with foreign banks. 68. Out of the 30, twenty-three institutions had complied with the BoG requirements and submitted their returns to the bank. We were, however, unable to obtain the returns or statements of 7 institutions to confirm their credit balances as required by BoG. 29

44 69. The defaulters were Ghana Telecommunication Limited (VODAFONE), Timber Export Division, Tema Oil Refinery, Land Title Registry, Ghana Consolidated Diamonds, Ghana Manganese Company Ltd., Wextford Goldfields Company Ltd. 70. Credit balances of the 23 institutions totalled US$83,953,546 compared with US$121,656,360 as at 30 June 2008, a decrease of US$37,702,814 or 31%. A summary of the credit balances is provided in table 16. Table 16: Balances of External Account Holders Sector 2009 US $ 2008 US $ Increase US $ Decrease US $ Mining Sector 43,345, ,215,494-71,869,610 COCOBOD 16,765,443-16,765,443 - Others 23,842,219 6,440,866 17,401,353 - Total 83,953, ,656,360 34,166,796 71,869, We advised that BoG should ensure compliance on requirements for submission of account returns by all the 30 institutions and also obtain the account balances of the 7 noted defaulting institutions. 72. Management responded that Ghana Manganese Company, Timber Exports Division and Land Title Registry have dormant accounts and could not report. 30

45 PART III MANAGEMENT ISSUES OMISSIONS/ UNDERSTATEMENTS/ OVERSTATEMENTS AND MISCLASSIFICATIONS 73. Our audit of the Statement of foreign exchange receipts and payments for the period again revealed omissions, understatements, overstatements and wrongful treatment of transactions which eventually resulted in the revision of various figures: Overstatement of Non-Oil Payments US$6,800, Bank of Ghana (BoG) forex sales to Commercial banks is captured under Non-Oil payments in schedule 4. The total BoG forex sales to Commercial Banks indicated under Non-Oil and stated in the BoG statement of foreign exchange receipts and payments for the first half of 2009 submitted for audit was US$553,143, Our audit however revealed that the total forex sales of US$553,143, stated by the Bank were overstated by US$6,800,000. We noted in this regard that Stanbic Bank of Ghana on January 20, 2009 purchased US$6,800,000 3-year Bond from the BoG per ticket number T and Deal number

46 76. The amount was subsequently transferred to a designated Deutsche Bank Trust America per SWIFT number BKTRUS33 and Account Number of value date 20 January 2009 through the Federal Reserve Bank of the United States of America. The transaction a 3-year Bond Sales Deal was correctly treated in January year Bond Sales proceeds figure of US$22,455, resulting in an overall 3-year Bond Sales proceeds payments of US$78,197, for the period January to June The same Stanbic 20 January 2009 transaction of US$6,800,000 was again wrongly treated as Non-Oil and captured as forex sales to Dealer Commercial Banks. Consequently, the Stanbic Bank 3-year bond sales proceed was therefore treated twice. 77. The double treatment of the transaction was attributed to weak controls in the preparation of the half-year statement of foreign exchange receipts and payments, and resulted in misrepresenting the total forex sales to Commercial Banks. 78. Management responded that the amount of US$6,800,000 was a sale of foreign exchange in respect of redemption of a 3 year bond held by an off- shore investor which was first classified under Non-oil payment. The anomaly was detected and reclassified under bond transaction, but it inadvertently remained under the old classification at the time of audit, resulting in double counting. 32

47 79. The anomaly was subsequently rectified leading to a revision of the forex sales figure from US$553,143, to US$546,343, Omission of Multilateral Debt Relief Initiative (MDRI) Receipts From African Development Fund (ADF) US$5,246, Government External Creditors granted Ghana Debt Cancellation during the period under review. For the first-half of 2009, BoG stated in its statement that reliefs under the Multilateral Debt Relief Initiative (MDRI) were received from only the International Monetary Fund (IMF) and World Bank. The two total (US$36,630,888). 81. Our audit however revealed that, the African Development Fund (ADF) under the same Multilateral Debt Relief Initiative (MDRI) granted the Ghana Government a total of US$5,246,942 as debt reliefs during the period January to June This was received in five separate reliefs as detailed below: MDRI Receipts - ADF Value Date Reference Particular / Amount Entry Date US$ 26/01/09 FT DTP ,423,511 26/01/09 FT DTP ,920 08/04/09 FT DTP ,037,455 08/04/09 FT DTP ,898 26/04/09 FT DTP ,158 Total 5,246,942 33

48 82. We noted that these receipts were omitted from the schedule of MDRI receipts thereby understating the total debt reliefs by US$5,246,942. The omission arose from the Bank s inability to ensure that all data and information related to the half-year statement of foreign exchange receipts and payments were captured. 83. Management explained that the statement on MDRI in respect of the African Development Bank was initially omitted in the memorandum page. 84. The omission was subsequently included in the total MDRI receipts resulting in a revised figure of US$27,036,828. Omission of Debt Service Payment to Poly Technologies Inc. in respect of Peacekeeping Equipment Supplied US$4,001, (Euro 2,998,500) 85. Ministries, Departments and Agencies (MDA s) foreign loan repayments through BoG are classified under capital payments. Total capital payments for the period as stated in the first half-year 2009 forex statement submitted for audit was US$274,120, We noted however during the audit that the total capital payments figure of US$274,120,338 was incorrect. We further noted that the wrong figure was as a result of omission of debt service payment by the Government of Ghana to Poly Technologies Incorporated in respect of Peacekeeping Equipment supplied by the 34

49 Company totalling US$4,001, or EUR2,998,500. Under the terms of the contract for the supply of the equipment dated 1 February 2008 EUR2,998,500 representing the first debt service repayment comprising of principal of EUR2,498, and interest of EUR499,750.00, matured on 1 May In compliance with the repayment schedule the Ministry of Finance and Economic Planning letter dated 1 April 2009 and Controller and Accountant General Letter dated 22 April 2009 addressed to the Head of Banking, Bank of Ghana (BoG), the Bank was instructed to effect the transfer to meet the debt service repayment schedule. The Bank subsequently effected the transfer on the 4 May The transaction was erroneously omitted from the capital repayment figure for the period. 88. As a result of weak internal control system relating to preparation of the half-year statement of foreign exchange receipts and payments, the bank was unable to capture the first debt service transaction of US$4,001, or EUR2,998,500 to Poly Technologies Incorporated of Beijing, China. This failure by the Bank resulted in the understatement of the total miscellaneous capital payment figure of US$136,200, by US$4,001, According to management, the error arose due to a payment of Euro 2,998, made by the payments and transfer unit on behalf of Controller and Accountant- General to Poly Technologies 35

50 Inc. on 30 April 2009 meant for the repayment of loan which was initially classified as a contractual payment and captured as such. 90. The error was subsequently rectified by adding US$4,001, to the total miscellaneous capital payment figure of US$136,200, resulting in the revised miscellaneous capital payment figure of US$140,202, Wrongful Treatment of Investment Loss as Investment Gain US$444, Invisible receipts for the period included forex interest receipts from JP Morgan. The total receipt for the period was US$4,685, We however noted that the interest receipts totalling US$4,685, was incorrect because the total investment loss of US$444, made during the month of April 2009 was wrongly treated as a gain and added to the total investment receipts. The loss arising from the investment in April, which was erroneously stated as gain and added to total receipts resulted in wrong total receipt of US$4,685, Management responded that the anomaly occurred in the course of preparing the receipts and payments schedule. 36

51 94. We attributed the anomaly to lapses in controls in the compilation of the figures of the first half-year 2009 statement of forex receipts and payments and had the effect of misrepresenting the total invisible receipts for the period. 95. To rectify the loss of US$444, a total of US$889, was subtracted from the wrong JP Morgan Investment interest receipts of US$4,685, resulting in revised interest receipts of US$3,795, Omission of Bank for International Settlement (BIS) Bridging Facility Interest US$608, The debt service payments are captured under capital payments in the half-year statement of foreign receipts and payments. Total debt interest payments in respect of BIS Bridging Facility in the firsthalf 2009 forex statement submitted for audit totalled USD$1,240, Our review of interest payments in respect of BIS Bridging Facility during the period revealed that interest payments of US$294, and US$314, for the months of May and June 2009 respectively were completely omitted. Consequently, total interest repayment of USD$1,240,250 was understated by US$608,

52 98. The error was rectified with the re-instatement of interest payment to the Bank for International Settlement (BIS) of US$294, and US$314, for the months of May and June 2009 respectively. 99. The revision resulted in total interest payment of US$1,848, to the bank. 38

53 AUDIT OPINION 100. We have audited the Statement of Foreign Exchange Receipts and Payments of the Bank of Ghana and the attached relevant schedules for the first half-year ended 30 June Our audit was conducted in accordance with generally accepted auditing standards. Our examination included a general review of accounting and internal control procedures, records and other supporting evidence to validate the Foreign Exchange Receipts and Payments figures. Additionally, we reviewed the receipts and payments of external loans and grants, external bank balances and the foreign exchange reserve position of BoG As a result of our examination, we are of the opinion that the Statement of Foreign Exchange Receipts and Payments of BoG fairly presents the foreign exchange position of the Bank of Ghana as at the end of the first half year ended 30 June

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