TRANSMITTAL LETTER. Ref. No. AG.01/109/Vol.2/42 Office of the Auditor-General Ministries Block O P O Box MB 96 Accra

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1 TRANSMITTAL LETTER Ref. No. AG.01/109/Vol.2/42 Office of the Auditor-General Ministries Block O P O Box MB 96 Accra 12 August 2011 Dear Madam Speaker Tel: (0302) Fax: (0302) REPORT OF THE AUDITOR-GENERAL ON THE STATEMENT OF FOREIGN EXCHANGE RECEIPTS AND PAYMENTS OF THE BANK OF GHANA (BoG) FOR THE SECOND HALF-YEAR ENDED 31 DECEMBER 2010 In conformity with Article 184(3) of the 1992 Constitution of the Republic of Ghana, I have the honour to transmit, herewith my report on the statement of Foreign Exchange, Receipts and Payments of the Bank of Ghana for the second half-year ended 31 December 2010 to be tabled in the house. The report highlights the management of the country s foreign exchange receipts and payments. I am enjoined by Article 184(3) of the 1992 Constitution to submit two half-year reports to Parliament. of the Bank of Ghana (BOG) for the Half-Year ended 31 December 2010 i

2 Significant findings and recommendations which were made from the reviews conducted were conveyed to the Bank and its responses obtained. I have provided trends in the foreign exchange transactions of the Bank of Ghana in the form of tables and graphs for the successive second half years ended 31 December 2008, 2009 and This is to enhance comparability of operational performance and to inform policy makers and other stakeholders decision making. I would like to thank the Governor and his staff and other public sector agencies for the co-operation and assistance provided to my office during the audit. I also appreciate the professional and efficient contributions provided by my staff for the preparation of this report. Yours sincerely AUDITOR-GENERAL THE RT. HON. SPEAKER OFFICE OF PARLIAMENT PARLIAMENT HOUSE ACCRA of the Bank of Ghana (BOG) for the Half-Year ended 31 December 2010 ii

3 REPORT OF THE AUDITOR-GENERAL ON THE STATEMENT OF FOREIGN EXCHANGE RECEIPTS AND PAYMENTS OF THE BANK OF GHANA (BoG) FOR THE SECOND HALF-YEAR ENDED 31 DECEMBER 2010 TABLE OF CONTENTS Transmittal letter Para(s) i-ii Page Executive summary Introduction Summary of significant findings Summary of recommendations 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 of the Bank of Ghana (BOG) for the Half-Year ended 31 December 2010

4 Tables ES1 ES2 Second Half of the Year s Foreign Exchange Inflows and Outflows in US $ million BoG s Total Foreign Exchange Inflows for the Second 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 of the Bank of Ghana (BOG) for the Half-Year ended 31 December 2010

5 REPORT OF THE AUDITOR-GENERAL ON THE STATEMENT OF FOREIGN EXCHANGE RECEIPTS AND PAYMENTS OF THE BANK OF GHANA (BoG) FOR THE SECOND HALF-YEAR ENDED 31 DECEMBER 2010 EXECUTIVE SUMMARY The Statement of Foreign Exchange Receipts and Payments of the Bank of Ghana (BoG) for the half-year ended 31 December 2010 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. of the Bank of Ghana (BOG) for the Half-Year ended 31 December

6 Part III covers management issues arising out of the review of foreign exchange transactions. Foreign exchange inflow and outflow trends 3. Foreign Exchange Inflows for the second half of 2010 were US$2, million compared with US$2, million for the corresponding period of 2009, a decrease of US$ million or 11.3% The corresponding outflows for 2010 totaled US$1, million compared with US$1, million for the corresponding period of 2009, a decrease of US$75.49 million or 5.2% Displayed in Table ES1 are the foreign exchange inflows and outflows trends for the three-year period of Table ES1: Foreign exchange inflows and outflows in US$ million for the second half over a three year period Inflows Outflows Inflows Outflows Inflows Outflows 3, , , , , , of the Bank of Ghana (BOG) for the Second Half-Year ended 31 December

7 Foreign exchange inflows to Bank of Ghana 4. BoG s foreign exchange inflows for the second half of 2010 were derived from cocoa, gold, manganese, capital and invisible receipts. These totalled US$2,475.01million for 2010 compared with US$2, million for 2009 a decrease of US$ million or 11.3 %. Table ES2: BoG s total foreign exchange inflows for the second half years from 2008 to 2010 in US$ million Year Amount US$ (m) , , , Total 8, of the Bank of Ghana (BOG) for the Second Half-Year ended 31 December

8 5. For the second half of the three-year period, total foreign exchange receipts decreased from US$3, million in 2008 to US$2, in 2009 and declined to US$2, million in This showed a downward movement in forex receipts of 8.5% or US$259 in 2009 and a further decrease of 11.3% or US$ million in 2010 respectively. 6. Table ES3 provides details of the composition of the foreign exchange inflows for 2008 to 2010: of the Bank of Ghana (BOG) for the Second Half-Year ended 31 December

9 Table ES3: Composition of foreign exchange receipts in US$ million for Item Cocoa , , Gold Diamond Manganese Capital Receipts Invisible Receipts 1, Total 3, , , The table shows that for the half year ended 31 December 2010, foreign exchange from cocoa constituted the highest inflows, of the Bank of Ghana (BOG) for the Second Half-Year ended 31 December

10 contributing 62.0% of total inflows as against 45.7% of total inflows from cocoa for the corresponding period of Analysis of foreign exchange payments 8. Total foreign exchange payments for 2010 was US$1, million compared with US$1, million for the corresponding period of 2009, representing a decrease of US$75.49 million or 5.2%. 9. Details of the foreign exchange payments for the second half over the three year period have been provided in Table ES4: Table ES4: Foreign exchange payments in US$ million Year Amount US$ (m) , , , Total 5, of the Bank of Ghana (BOG) for the Second Half-Year ended 31 December

11 10. The table shows that foreign exchange payments over the three-year period from 2008 to 2010 decreased from 2008 to 2010 revealing a fall of US$1, million or 50.6% and US$75.49 million or 5.2% in 2009 and 2010 respectively. 11. The main components of the foreign exchange payments were import payments for oil and non-oil (visible import payments), capital and invisible payments. The details have been shown in Table ES5 whilst table ES6 provides the components of invisible payments. These have been explained and commented on in relevant paragraphs of this report. of the Bank of Ghana (BOG) for the Second Half-Year ended 31 December

12 Table ES5: BoG s foreign exchange payments in US$ million for the second half over a three year period. Foreign Exchange 31 Dec 31 Dec Dec Payments 2010 Visible Imports 1, Capital Payments Invisible Payments Total 2, , , of the Bank of Ghana (BOG) for the Second Half-Year ended 31 December

13 Table ES6: Details of invisible payments in US$ million for the period 2008 to 2010 Year 31 Dec Dec Dec Manpower, Training and Dev Embassy Transfers Mgt. & Tech. Services Fees Capital Subscriptions Progress Payment Contractors Sundry Payments Total of the Bank of Ghana (BOG) for the Second Half-Year ended 31 December

14 Net-position of foreign exchange receipts and payments 12. As a result of increases in forex payments for oil and non-oil import as well as other imports, BoG s record of net surplus decreased from US$1, million in 2009 to US$1, million during the second half of 2010 representing a decrease of US$ million or 17.9%. Foreign exchange reserve assets 13. Bank of Ghana s foreign exchange reserve assets as at 31 December 2010 were US$4, million, compared to US$3, million as at 31 December 2009, a growth of US$1, million or 47.3 %. The growth was due mainly to increases in fixed deposits and corresponding bank balances. Summary of General Recommendations 14. To improve internal controls in the management of foreign exchange receipts and payments, we recommend as follows: i. In order prevent errors, omissions and wrongful treatment of transactions so as to provide reliable information for appropriate decision making by policy makers and other stakeholders, 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 instituting measures which would bridge the of the Bank of Ghana (BOG) for the Second Half-Year ended 31 December

15 capacity gap of responsible officials who prepare and review the statements. ii. On non-submission of returns by External Account Operators, Bank of Ghana should sanction those organisations that failed to submit their bank balances and other returns to BoG. of the Bank of Ghana (BOG) for the Second Half-Year ended 31 December

16 REPORT OF THE AUDITOR-GENERAL ON THE STATEMENT OF FOREIGN EXCHANGE RECEIPTS AND PAYMENTS OF THE BANK OF GHANA (BoG) FOR THE SECOND HALF-YEAR ENDED 31 DECEMBER 2010 Introduction 15. The Statement of Foreign Exchange Receipts and Payments of the Bank of Ghana (BoG) for the second half-year ended 31 December 2010 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 Organizations permitted by BoG to operate such accounts. 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. of the Bank of Ghana (BOG) for the Second Half-Year ended 31 December

17 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 US$2,475,008,606 i. Total foreign exchange receipts for the second half of 2010 were US$2,475,008,606 compared with US$2,788,612,559 for the corresponding period of 2009, a decrease of US$313,603,953 or 11.3%. Foreign exchange payments US$1,380,414,162 ii. Total foreign exchange payments for the second half of 2010 were US$1,380,414,162 compared with US$1,455,902,544 for the corresponding period of 2009, representing a decrease of US$75,488,382 or 5.2%. of the Bank of Ghana (BOG) for the Second Half-Year ended 31 December

18 Foreign exchange receipts and payments (Net Position) US$1,094,594,443 iii. Due to increase mainly in forex payments for oil and non-oil import, a net surplus of US$1,094,594,443 was recorded in 2010, as compared with a net surplus of US$1,332,710,016 for the corresponding period of 2009, representing a decrease of US$238,115,573 or 17.9% Movement in foreign exchange reserve assets - US$4,701,033,064 iv. Foreign reserve assets of BoG as at 31 December 2010 were US$4, 701,033,064 compared with the balance of US$3,190,922,944 as at 30 December 2009, an increase of US$1,510,110,120 or 47.3%. The increase was mainly due to increases in BoG s fixed deposits with foreign financial institutions. On-shore HIPC Reliefs US$45,610,626 v. Ghana s external creditors granted total reliefs of US$45,610,626 in the form of cancellation of principal and interest on loans, which matured during the period compared with US$51,032,913 granted for the corresponding period of Multilateral Debt Relief Initiative (MDRI) US$19,336,223 vi. During the period under review, debt reliefs received through the Multilateral Debt Relief Initiative (MDRI) from the World of the Bank of Ghana (BOG) for the Second Half-Year ended 31 December

19 Bank, and African Development Fund (ADF) totalled US$19,336,223. Commodity-Related Grants US$30,754, The Japanese Grants to Ghana in the form of direct payments for goods and services for on-going projects were US$30,754,048 compared with US$18,830,089 during the second half of 2009, an increase of US$11,923,959 or 63.3%. The increase was mainly due to the provision in respect of forest preservation programmes and rehabilitation of trunk roads. External account holders balances US$162,071, As at the time of audit, out of the 24 Institutions permitted by BoG to operate external accounts 20 submitted their returns and bank statement fully whilst 4 institutions partly submitted theirs for the period reviewed. The total credit balances as at 31 December 2010 was US$162,071,103 compared with US$61,265,552 for the corresponding period of Memorandum account items US$5,465,934, All the 26 dealer commercial banks that operated in the second half of 2010 fully submitted their returns on their foreign exchange earnings to BoG. The total foreign exchange earned through dealer commercial banks was US$5,465,934,850 as at 31 December of the Bank of Ghana (BOG) for the Second Half-Year ended 31 December

20 Omissions, Understatements and Misclassifications 21. Our audit revealed omissions, understatements and misclassifications of transactions in the statement of the foreign exchange receipts and payments. 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 so as to provide reliable information for appropriate decision making by policy makers and other stakeholders, 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 On non-submission of returns by external account operators, Bank of Ghana should sanction those organizations that timely failed to submit their bank balances and other returns to BoG. of the Bank of Ghana (BOG) for the Second Half-Year ended 31 December

21 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 second half of 2010, totalled US$2,475,008,606 compared with US$2,788,612,559 for the corresponding period of 2009, a decrease of US$313,603, or 11.3%. The decrease was mainly attributed to a fall in capital receipts. The actual total foreign exchange receipts of US$2,475,008,606 were however higher than BoG projected receipts of US$1,693,000,000 recording a favourable variance of US$782,008,606 or 46.2%. The increase was as a result of bonds issued in foreign exchange through commercial banks whose proceeds were eventually sold to Bank of Ghana. 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 of the Bank of Ghana (BOG) for the Second Half-Year ended 31 December

22 (COCOBOD) surrendered to Bank of Ghana for cedis. Foreign exchange inflows from cocoa were from three main sources: COCOBOD s trade finance credit facility drawdowns sold to Bank of Ghana. 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$ million Sources 31 Dec % Of 31 Dec % Of Difference Total Total Syndicated Trade Credit 1,295,000, % 950,000, % 345,000,000 Facility Cocoa 239,536, % 324,802, % (85,265,780) Total 1,534,536, % 1,274,802, % 259,734, Foreign exchange receipts from cocoa to Bank of Ghana totalled US$1,534,536,261 in 2010 compared with US$1,274,802,041 for the corresponding period of 2009, representing an increase of of the Bank of Ghana (BOG) for the Second Half-Year ended 31 December

23 US$259,734,220 or 20%. Foreign exchange receipts from cocoa constituted 62% of total foreign exchange receipts of US$2,475,008,606. For the second half of 2010, 204,626 tons of cocoa beans and 63,611 tons of cocoa products were exported compared with 179,448 tons of cocoa beans and 62,731 tons of cocoa products exported during the corresponding period of 2009, indicating an increase of 25,178 and 880 tons respectively. Table 2: Cocoa beans/products exported during the second halves of 2010 and 2009 in tons Item 31 Dec Dec Increase Decrease Cocoa Beans 204, ,448 25,178 - Cocoa 63,611 62, Products Total 268, ,179 26, Inflows from syndicated pre-export trade finance drawdowns increased by US$345,000,000 or 36.3% from US$950,000,000 during the second half of 2009 to US$1,295,000,000 for the period under review. Foreign exchange receipts from the export of cocoa totalled US$239,536,261 in 2010 compared with US$324,802,041 in 2009, a decrease of US$85,265,780 or 26.3%. 28. Bank of Ghana projection for cocoa receipts was US$1,240,000,000 for the period under review but actual receipts of the Bank of Ghana (BOG) for the Second Half-Year ended 31 December

24 were US$1,534,536,261 resulting in a favourable variance of US$294,536,261 or 23.8 %. Gold 29. As at 31 December 2010, nine companies were noted as licensed gold exporters with surrender percentages ranging between 20% and 40%. Five companies had 20% export receipts surrendered; 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. We noted that, Bibiani goldmines, which operated during the corresponding period of 2009, had ceased operations and therefore did not export gold to earn foreign exchange. 31. Foreign exchange receipts from gold exports increased by US$50,692, or 19% from US$266,083,685 in the second half of 2009 to US$316,776, during the second half of Gold inflows represented 12.8 % of total foreign exchange receipts of US$2,475,008,606 for the period. 32. The total amount of US$316,776, repatriated was verified with export documents and final values from the various of the Bank of Ghana (BOG) for the Second Half-Year ended 31 December

25 refinery reports to BoG to ensure that all repatriated proceeds were received. 33. Total quantity of gold exported during the period was 1,594,244 ounces as against 1,254,174 ounces for the corresponding period of 2009, an increase of 340,070 ounces or 27%. The increase in gold receipts was as a result of increases in total gold exported and average world market price of gold during the period. Bank of Ghana s foreign exchange projection for gold was US$202,350,000 but actual receipts were US$316,776,183 thus recording a favourable variance of US$114,426,183 or 56.5%. Table 3: Schedule of gold receipts surrendered during the second half of 2010 Surrender (%) Amount No. Company (USD) 1 AGC Ltd. (Obuasi) 40 68,162,457 2 AG GAG Ltd. (Anglogold Ashanti Iduapriem) 20 28,295,925 3 Bogoso Gold Ltd. (Golden Star) 20 18,385,841 4 Abosso Goldfields Ltd ,373,594 5 Wexford Goldfields Ltd. (Golden Star) 20 21,861,123 6 Prestea Sankofa Gold Ltd. 25 2,841,031 7 Goldfields Gh. Ltd ,780,942 8 Chirano Goldmines Ltd ,075,270 9 Newmont Gh. Ltd. - - TOTAL 316,776,183 of the Bank of Ghana (BOG) for the Second Half-Year ended 31 December

26 Diamond 34. 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. Manganese 35. 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$7,515,571 compared with US$10,054,910 recorded in the corresponding period of 2009, representing a decrease of US$2,539,339 or 25.3%. Bank of Ghana's Foreign Exchange projection for manganese was US$10,650,000 but actual receipts were US$7,515,571 representing an unfavourable variance of US$ 3,134,429 or 29.4 %. of the Bank of Ghana (BOG) for the Second Half-Year ended 31 December

27 Capital receipts 36. Total capital receipts in the form of loans and grants for the second half of 2010 were US$72,906,547 compared with US$867,558,410 for the corresponding period of 2009, a decrease of US$794,651,683 or 91.60%. This was mainly due to non-provision of IDA loan, IMF loan, IMF Grant and a decrease in EU Grant and African Development Bank loan. Table 4: Analysis of capital receipts Agency 2010 US$ 2009 US$ Increase US$ Decrease US$ IDA Loan - 151,028, ,028,340 African Dev. 15,602,300 48,334,500 32,732,200 Bank- Loan Danish Grant - IMF Loan 105,547, ,547,772 IMF Grant 454,526, ,526,262 IMF Income 663, , ,998 - French Grant 3,584,209 5,666,260-2,082,051 E.U Grant 53,056, ,242,722-49,186,236 Japanese Grant - German Grant - Total 72,906, ,558, , ,102, Bank of Ghana did not project for capital receipts during the period as indicated in the Bank s cashflow. of the Bank of Ghana (BOG) for the Second Half-Year ended 31 December

28 Invisible receipts 38. Invisible receipts comprised traveller s cheques sales, other interests and commissions, interest from JP Morgan Investments, and interest on BISIP A, C and K Portfolio, Export of coins, UBSGAM, Comm. paper and forex purchases. Invisible receipts during the second half of 2010 totalled US$543,274,044 compared with US$370,113,513 for the corresponding period of 2009, an increase of US$173,160,531 or 46.8% was thus registered. This was mainly due to increase in forex purchases and other interests and commissions. Table 5 shows summary of invisible receipts: Table 5: Analysis of invisible receipts for the second halves of 2010 and 2009 Item 2010 US$ 2009 US$ Increase US$ Decrease US$ Travellers 3, , ,111 Cheque Other Interest & 4,119, ,135 3,521,640 Commissions JP Morgan Investment 2,798,162 2,733,900 64,262 Interest On BIS 2,882,560 5,897,276-3,014,716 Portfolio UBSGAM 374,386 2,084,571-1,710,185 Forex Purchases 532,395, ,487, ,908,825 - Export of Coins 605, ,358 Comm. Paper 31,889-31,889 CBF 62,569-62,569 Total 543,274, ,113, ,194,543 5,034,012 of the Bank of Ghana (BOG) for the Second Half-Year ended 31 December

29 HIPC Reliefs 39. 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. 40. There were no receipts of offshore HIPC reliefs during the second half of On the other hand, a total of US$45,610,626 was received in 2010 as on-shore reliefs compared with US$51,032,913 in 2009, representing a decrease of US$5,422,287 or 10.6 %. 41. 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. Multilateral Debt Relief Initiative (MDRI) US$19,336, 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 creditors of the Bank of Ghana (BOG) for the Second Half-Year ended 31 December

30 institutions in 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$19,336, 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$17,510,221 the African Development Fund (ADF) granted a total of US$1,826,003. This is shown in Table 6. Table 6: Analysis of MDRI Receipts Name of Institution Amount (US$) World Bank 17,510,221 African Development Fund (ADF) 1,826,003 Total 19,336,224 Commodity-related Japanese Grants US$30,754, 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 programme for improvement to cope with natural disasters, forest preservation and rehabilitation of national trunk roads. Total commodity related of the Bank of Ghana (BOG) for the Second Half-Year ended 31 December

31 Japanese Grants were US$30,754,048 compared with US$18,830,089 recorded in the corresponding period of 2009, representing an increase of US$11,923,959 or 63%. The increase was mainly as a result of an increase in food aid and provision of aid in respect of programmes for improvement to cope with natural disasters, forest preservation and rehabilitation of national trunk roads. Comparative analyses of foreign exchange receipts 45. A comparative analysis of the composition of foreign exchange receipts for the second half years of 2010 and 2009 is provided in Table 7. Table 7: Comparative analysis of the composition of foreign exchange receipts for the second halves of 2010 and 2009 Item 31 Dec Dec Increase Decrease Cocoa 1,534,536,261 1,274,802, ,734,220 - Capital 72,906, ,558, ,651,863 Receipts Invisible Receipts 543,274, ,113, ,160,531 Gold 316,776, ,083,685 50,692,498 - Manganese 7,515,571 10,054,910 2,539,339 Diamond Total 2,475,008,606 2,788,612, ,587, ,191,202 of the Bank of Ghana (BOG) for the Second Half-Year ended 31 December

32 Projection analysis of foreign exchange receipts 46. Our review disclosed that the overall projection performance of foreign exchange receipts was favourable. Whereas BoG projected total receipts of US$1,693,000,000 actual receipts totalled US$2,475,008,606 showing a favourable variance of US$782,008,606 or 46.2%. The detailed budgetary performance is provided in table 8. Table 8: Budgetary performance for foreign exchange receipts for the second half 2010 Item Budget US$ (m) Actual US$ (m) Favourable Variance US$ (m) Unfavourable Variance US$ (m) Forex from Cocoa 1, , Forex from Gold Forex from Diamond Forex from Manganese Capital Receipts Invisible Receipts Total 1, , Foreign exchange payments 47. Total Foreign Exchange Payments during the period were US$1,380,414,162 compared with US$1,455,902,544 for the corresponding period of 2009; a decrease of US$75,488,382 or 5.2% was thus recorded. The decrease was mainly due to reduction in of the Bank of Ghana (BOG) for the Second Half-Year ended 31 December

33 capital, invisible and other import payment during the period under review. For the second half of 2010 BoG projected total foreign exchange payments of US$1,428,350,000 but actual total forex payments were US$1,380,414,162 indicating a favourable variance of US$47,935,838 or 3.4%. Table 9: Analysis of foreign exchange payments Item 31 Dec Dec Increase Decrease US$ US$ US$ US$ Oil & Non-Oil 924,139, ,051, ,087,712 - Other Imports 23,430,607 57,877,132-34,446,525 Capital Payments 249,809, ,380, ,570,419 Invisible 183,034, ,593, ,559,150 Payments Total 1,380,414,162 1,455,902, ,087, ,576,094 Visible import payments 48. Visible imports comprised oil, non-oil as well as other imports. Visible imports payments for the period were US$947,569,817 compared with US$529,928,630 for the corresponding period of 2009 representing an increase of US$417,641,187or 78.8 %. of the Bank of Ghana (BOG) for the Second Half-Year ended 31 December

34 Table 10: Visible import payments for the second halves of 2010 and 2009 Item 31 Dec US$ 31 Dec US$ Increase US$ Decrease US$ Oil 688,034, ,383, ,650,969 - Non-Oil 236,104, ,667,997-39,563,257 Other Imports 23,430,607 57,877,132-34,446,525 Total 947,569, ,928, ,650,969 74,009, Forex outflows for crude oil lifting was US$688,034,470, which represented 72.6% of the total visible import payments of US$947,569,817 showed an increase of US$491,650,969 or 250.4% over the 2009 figure of US$196,383,501. The increase was attributed to the rise in total quantity of Crude Oil import and an increase in the world market price of crude oil. During the period, BoG s projection for oil was US$614,760,000, depicting an unfavourable variance of US$73,274,470 or 11.9%. Non-oil payments reduced by US$39,563,257 or 14.4% from US$275,667,997during the second half of 2009 to US$236,104,740 as a result of the decline in foreign exchange sales to dealer commercial banks to finance import needs of their customers. 50. The actual non-oil payments of US$236,104,740 were lower in 2010 than the BoG s projection of US$269,000,000, which revealed a favourable difference of US$32,895,260 or 12.2% resulting from the decrease in non-oil imports. Other imports payments dwindled from of the Bank of Ghana (BOG) for the Second Half-Year ended 31 December

35 US$57,877,132 in the previous period to US$23,430,607 in 2010, showing a reduction of US$34,446,525 or 59.5% due to decreased economic activities. Capital payments 51. Capital payments, which included loan repayments to bilateral and multilateral institutions, totalled US$249,809,618 compared with US$609,380,037 for the corresponding period of 2009, representing a decrease of US$359,570,419 or 59%. The decrease in capital payments was mainly due to non-repayment of IMF loans, BIS- Bridging Facility and Interest on BIS Facility. Actual capital payments of US$249,809,618 for the period were lower than the BoG s projection of US$257,590,000 by US$7,780,382 or 3.1%. of the Bank of Ghana (BOG) for the Second Half-Year ended 31 December

36 Table 11: Capital payments for the second halves of 2010 and 2009 Particulars 31 Dec US$ 31 Dec US$ Increase US$ Decrease US$ Misc. Capital 153,558, ,485,383 30,072,683 - Payments Int. On Sovereign 31,875,000 31,875, Bond Interest On 5-Yr 1,268,471 2,097, ,869 Bond Interest On 3-Yr 17,039,072-17,039,072 - Bond Redemption of Govt. Bonds 5 Yr - Redemption of Govt. Bonds 3 Yr 45,262,957-45,262,957 - IMF Loan - 638, ,081 Repayments BIS Bridging Facility - 450,000, ,000,000 Int. on BIS Facility - 902, ,449 IMF Charges 806, , ,268 - Total 249,809, ,380,037 92,798, ,369,399 Invisible payments 52. Invisible payments were made up of 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 second half of 2010 were US$183,034,727 compared with US$316,593,877 for the corresponding period of 2009, registering a decrease of US$133,559,150 or 42.2%. The decrease in invisible payments of the Bank of Ghana (BOG) for the Second Half-Year ended 31 December

37 resulted mainly from the fall in payments in respect of sundry payment, progress payment to contractors and capital subscription. 53. BoG s projection for invisible payments was US$287,000,000 whereas actual payments were US$183,034,727 showing a favourable difference of US$103,965,273 or 36.2%. A breakdown of invisible payments for the period is provided below in the succeeding paragraphs. Manpower, training and development 54. These were allowances paid to government-sponsored students abroad. Total transfers for the period of 2010 was US$7,663,775 compared with US$11,476,859 for the corresponding period of 2009, recording a decrease of US$3,813,084 or 33.2%. The decrease mainly arose from the decline in the number of government-sponsored students abroad. Progress payments to contractors 55. These were payments made to Contractors undertaking various projects in the country. Total payments for the period were US$20,131, compared with US$67,884,732 for the corresponding period of 2009, representing a decrease of US$47,753,352 or 54.3%. The decrease arose from reduction in contract projects undertaken during the period. Project payments of the Bank of Ghana (BOG) for the Second Half-Year ended 31 December

38 towards installation of 49.5MW Tema Emergency Power Plant, payment of 15% Counterpart Fund for SHEP IV Programme and supply of materials to the National Electricity Scheme were all not made during the period. The details of Contractual Payments are provided in Table 12: Table 12: Progress payments to contractors for the second halves of 2010 and 2009 Type of Project Contractor/Agent 2010 US$ 2009 US$ Supply and installation M/S China Geo- 1,845, of streetlights and accessories in the Engineering corporation Tema Municipality. Installation of 49.5MW Tema Emergency Power Plant Nsawam Road (Kwame Nkrumah Circle Achimota Road) Reconstruction of Kpando-Worawora- Dambai road Various Works Executed Mallam Achimota Ofankor Road Work executed on Achimota to Ofankor 5% Government of Ghana counterpart funding on interim payment certificate Atholl Energy Limited M/S BCEOM Societe Francaise D Lingenierie Shinsung E & C. Co.Ltd Sonitra Ghana Limited M/S Sonitra Ghana Ltd. China Railway Wuju corporation China International Water and Electricity Corporation. - 5,809, , , , ,026, ,281 1,703, ,217, of the Bank of Ghana (BOG) for the Second Half-Year ended 31 December

39 No.2 for US$170,000,000 for the supply of credit agreement under SEHP4 as per MOFEP No. B. 05/MOEN/NES/2010/ 02 Tetteh Quarshie Madina Road Rehabilitation of Nsawam Apedwa Road 3 Lane Dual Carriageway Achimota Ofankor East-West Interconnection & Weija WPT Extension works Retention IRO works on Ejura Nkoranza road. Construction of emergency sea defence at Atorkor-Dzita- Anyannmi Bole Bamboi Road (Twiga Section) 15% Counterpart Fund for SHEP IV Programme Tetteh Quarshie Circle Manfe Road Achimota Ofankor Interchange Advance Mobilisation Fee IRO Civil Eng. And Railway Track Works (Asorpochona Solbit Re-Sonitra Limited China Railway Wuju Corp (Group) China Railway Wuju Corp (Group) Messrs Ballast Nedam Ghana B.V. 390, ,514, ,122-1,484,149-1,203,496 P&W Ghana Ltd 18, Amandi holding limited 6,997, P & W Ghana Ltd. - 63,789 M/S Wendy/Lamont Associates Inc. China International Water & Electric China Railway Wuju Corp. (Group) M/S Amandi Holdings Ltd. - 8,000, ,942-2,652,292 2,539, ,100,000 of the Bank of Ghana (BOG) for the Second Half-Year ended 31 December

40 Tema Station) Renovation & Refurbishment of Chancery Building / Ottawa Canada/ New York Design & Construction of Warehouse Complex Ghana Airforce School of Trade Training Project Supply of Materials National Electricity Scheme Supply of Materials National Electricity Scheme Supply of Materials National Electricity Scheme Supply of Materials National Electricity Scheme Supply of Materials National Electricity Scheme Installation of Synthetic Hockey Pitch Workdone on Hockey Pitch Work on Anyinam Konongo Nkawkaw Road Bypass Sunyani Town Roads M/S Superlock Technologies International Devt. Co. Ltd. Land M/S Int. Trgn. & Support of Germany 1,390, ,067-4,603, ,070 Ibistek - 9,516,000 Reroy Cables - 453,449 Nexan - 1,621,993 Super Mart - 297,861 S C L Technology- - 6,199,230 M/S Edel Grass BV 1,080,925 M/S Micheletti Co. Ltd. Solbit Re-Sonitra Ghana M/S China Int. Water and Electricity Corp. 1,822,576 1,030,491 4,930,250 of the Bank of Ghana (BOG) for the Second Half-Year ended 31 December

41 Ofankor Road Sunyani Town Roads E. W. Interconnection & Weija Water Treatment Plant Extension Project 230MW Kpone Thermal Power Plant Project Dualisation of Pantang, Peduase and Flagstaff House Road Completion of Works on Tamale & Sekondi Stadia Kpone Water Supply Systems China Geo Engineering China Geo Engineering Haskoning Netherlands B. V. Nijmegen Zakheim Int. Construction Ltd. China International Water & Elect. Corp. Messrs Shangai Construction (Group) General Co. Ballast Nedem Gh. B. V. 500,000 2,007, ,600, ,891-1,668,833 Total 20,131, ,884,732 - Embassy transfers 56. These were remittances to Ghana Missions abroad. An amount of US$41,333,452 was remitted during the second half of 2010 compared with US$46,047,964 during the corresponding period of 2009, showing a decrease of US$4,714,512 or 10.2%. Embassy transfers formed the second highest invisible payment, representing 23% of total invisible payments for the period. of the Bank of Ghana (BOG) for the Second Half-Year ended 31 December

42 Management and technical service fees 57. Foreign exchange payments made for technical and management services were US$49,647,881 compared with US$30,780,320 for the corresponding period of 2009, representing an increase of US$18,867,561 or 61.3%. The increase was due to payment of legal settlement agreement obligation to Rockshell International Ltd. Capital subscriptions 58. Capital subscriptions were payments in respect of fees to International and Regional Organisations and Agencies to which Ghana is affiliated. In the second half of 2010, an amount of US$632,256 was paid as capital subscriptions as against US$12,191,946 recorded in the previous period, representing a decrease of US$11,559,690 or 94.8%. The decrease was attributed to reduction in payment of capital subscription during the period. Sundry payments 59. Sundry payments consisted of other payments through BoG, inspection fees, freight and insurance, subscriptions, medicals and correspondent bank charges. Sundry payments made during the period totalled US$63,625,983 compared with US$148,212,057 for the corresponding period of 2009, a decrease of US$84,586,074 or of the Bank of Ghana (BOG) for the Second Half-Year ended 31 December

43 57.1%. The decrease was mainly due to the drop in other payments through Bank of Ghana. Projection analysis of foreign exchange payments 60. Comparison of projected payments of US$1,428,350,000 with actual payments of US$1,380,414,162 resulted in a favourable variance of US$47,935,838 or 3.4% during the second half of Details of the budgetary performance are provided in table 13. Table 13: Budgetary performance for foreign exchange payments for the second half of 2010 Item Oil & Non- Oil Capital Payments Invisible Payments Budget US$ (m) Actual US$ (m) Favourable Variance US$ (m) Unfavourable Variance US$ (m) Total 1, , (*) Note: The actual Invisible Payments of US$206.47million include Other Imports of US$23.43 million, a visible payment but included in invisible payment projection. of the Bank of Ghana (BOG) for the Second Half-Year ended 31 December

44 Foreign exchange receipts and payments (Net Position) 61. Bank of Ghana recorded a net surplus of US$1,094,594,443 during the second half of 2010 compared with a net surplus of US$1,332,710,016 for the corresponding period of 2009, representing a decrease of US$238,115,573 or 17.9%. The decrease in surplus was mainly attributed to a drop in forex receipts from capital receipts. Movement in Foreign Reserve Assets 62. Bank of Ghana s foreign reserve assets consisted of gold, holdings of Special Drawing Rights; correspondent bank balances, foreign notes and coins balances, investment and fixed deposits, investment in Ghana International Bank (GIB) London as well as Investment in Afrexim Bank. The bank s reserve position as at 31 December 2010 totalled US$4,701,033,064 compared with US$3,190,922,944 for the corresponding period of 2009 showing an increase of US$1,510,110,120 or 47.3%. Details of the reserve assets as at 31 December 2010 are provided in Table 14. Table 14: BoG Reserve assets position as at 31 December 2010 Item 31 Dec US$ 31 Dec US$ Increase US$ Decrease US$ Gold 396,948, ,633,815 87,315,024 - Holdings of SDR 450,114, ,778,037 3,663,438 Correspond Bank Balance Foreign Notes & Coins 591,886, ,813, ,072,862 29,913,344 46,190,364-16,277,020 of the Bank of Ghana (BOG) for the Second Half-Year ended 31 December

45 Foreign Securities Fixed Deposits 3,207,164,858 2,228,967, ,197,076 - Reserve Position IMF HIPC Trust - - 1,534,384 1,534,384 Investment Investment in - 23,004,824 23,004,824 - GIB London Investment in - - 2,000,000 2,000,000 Afrexim Bank Total 4,701,033,064 3,190,922,944 1,531,584,962 21,474, The analysis in Table 14 shows that BoG foreign reserves position rose from US$3,190,922,944 during the second half of 2009 to US$4,701,033,064 as at 31 December 2010, recording a growth of US$1,510,110,120 or 47.3%. The growth in foreign reserves resulted mainly from the increases in BoG s fixed deposits with foreign financial institutions, correspondent bank balances and Gold. of the Bank of Ghana (BOG) for the Second Half-Year ended 31 December

46 PART II FOREIGN EXCHANGE EARNINGS FROM DEALER COMMERCIAL BANKS AND BALANCES OF EXTERNAL ACCOUNTS HOLDERS Memorandum Accounts Items Dealer commercial banks 64. 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 31 December 2010, 26 commercial banks were expected to facilitate the receipt of foreign exchange inflows on behalf of their customers. 65. We noted that as at 31 December 2010, all the 26 dealer banks fully submitted the required returns on their foreign exchange earnings to BoG. 66. Total foreign exchange earnings from authorized dealer banks as at 31 Dec 2010 was US$5,465,934,850 compared with US$1,824,714,469 for the corresponding period of of the Bank of Ghana (BOG) for the Second Half-Year ended 31 December

47 Table 15: Schedule of earnings from dealer commercial banks for the second half of 2010 Particulars Amount (US$) Non-Traditional Exports 128,354,397 Other Exports 736,988,172 Service Receipts 1,722,347,281 Income Receipts 50,142,199 Financial Transactions 250,705,668 Transfers Inward Remittances 2,577,397,133 Total 5,465,934,850 External account holders balances US$162,071, BoG gives approval to public and private organisations 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 31 December 2010, we noted that 24 Institutions had been granted the required approval and therefore operated forex accounts with foreign banks. 68. Out of the 24 Institutions, 20 had fully complied with the BoG s requirement and submitted their returns and bank statements to the Bank at the time of audit. We were therefore unable to confirm the credit balances of the 4 affected institutions. These defaulters were Anglo-gold Ashanti, Ghana Supply Company, Volta River Authority and COCOBOD. of the Bank of Ghana (BOG) for the Second Half-Year ended 31 December

48 69. Credit balances totalled US$162,071,103 compared with US$61,265,552 received as at 31 December Table16. Balances of External Account Holders Sector US$ US$ Increase Decrease Mining sector 106,440,101 24,166,088 82,274,013 - COCOBOD 21,567,086 30,128,639-8,561,553 Others 34,063,916 6,970,825 27,093,091 - Total 162,071,103 61,265, ,367,104 8,561, We recommended that BoG should ensure compliance with requirements for submission of account returns by all the 24 institutions and also obtain the account balances of the affected institutions, otherwise appropriate sanctions should be applied. 71. At the instance of the audit, the bank statements of the 4 institutions were however submitted to the Bank and forwarded for our review. of the Bank of Ghana (BOG) for the Second Half-Year ended 31 December

49 PART III MANAGEMENT ISSUES OMISSIONS/ UNDERSTATEMENTS/ OVERSTATEMENTS AND MISCLASSIFICATIONS 72. Our audit of the statement of foreign exchange receipts and payments for the period again revealed omissions, understatements and overstatements of transactions, which eventually resulted in the revision of various figures. Understatement of contractual payment figure US$468, Our audit revealed that the total contractual payments figure reported by the Bank was understated by US$468, We noted that this amount was paid to Shin Sung Engineering and Construction Company Ltd as final payment for work executed on the reconstruction of Kpando-Worawora Dambai road. 74. The understatement, which was attributed to inadequate control in the preparation of the half-year statement of foreign exchange receipts and payments, subsequently understated the total contractual payment and thus the Invisible Payment figures. The situation might lead to unfair reporting, which could result in inappropriate decisions, thus affecting government policies. of the Bank of Ghana (BOG) for the Second Half-Year ended 31 December

50 75. Management however informed us that in the preparation of the payment telexes register for the period under review the above indicated amount in respect of contractual payment was inadvertently omitted. Management further promised that the process would be extracted electronically to avoid the manual intervention in the compilation of the payment so as to forestall such recurrences. 76. The anomaly was rectified, leading to a revision of the contractual payment figure to US$20,131, Understatement of capital subscription- US$189, We noted that, total Capital Subscription for the period was understated by US$189, The understatement occurred as a result of omissions in the recording of capital subscriptions for July and September amounting to US$45, and US$143, respectively. The effect of the omission is the understatement of foreign payments and overstatement of the net position of forex receipts. This could affect decision making. of the Bank of Ghana (BOG) for the Second Half-Year ended 31 December

51 Capital Subscription not captured the statement Date Applicants Beneficiaries Control No. Amount US$ July 20/ July/10 Parliamentary service September 15 /Sept/10 Nat. Security. Council Secretariat 20/Sept/10 20/Sept/10 Grand total Office of parliament Office of parliament African parliamentary union. Committee Of Intelligence and Sec.Service Of Africa (CISSA) The Common wealth hansard editors Association The Common wealth hansard editors association CT/2010/07/265 45, CT/2010/09/ , CT/2010/09/ CT/2010/09/ , Management explained that during the compilation of the capital subscription data, the underlying documents for the amount of US$ 189, was wrongly classified and treated as an ordinary subscription and were omitted. Management added that measures have been put in place to avert the recurrence including the strengthening of the internal control in the Unit. 80. The errors were subsequently rectified resulting in a revised figure of US$632, of the Bank of Ghana (BOG) for the Second Half-Year ended 31 December