Inside ECG’s financial maze: GHS 303 million in unexplained ‘tax offsets’ found by PwC audit

A forensic audit of the Electricity Company of Ghana (ECG) has uncovered GHS 303.48 million in unexplained “tax offsets,” raising serious questions about financial transparency and revenue allocation within the power sector.

The PricewaterhouseCoopers (PwC) audit, covering October to December 2023, reveals that Ghana’s primary electricity distributor made these substantial deductions without providing supporting documentation or clear rationale for the transactions.

Breaking down the numbers and findings

According to the audit report, ECG recorded GHS 253.48 million in tax offsets in November 2023 and an additional GHS 50 million in December 2023. 

These deductions were made before calculating revenue available for Level B beneficiaries in the Cash Waterfall Mechanism (CWM), the system designed to ensure fair payment distribution across Ghana’s energy sector.

“ECG could not provide us with evidence supporting these tax offsets and the rationale for doing so,” PwC stated in its findings, highlighting a significant gap in financial accountability.

??The report highlights the following discrepancies:

Unexplained tax offsets: GHS 303 million was identified as offsets against ECG’s tax liabilities, with no clear documentation or justification provided.

Weak reconciliation processes: ECG’s failure to reconcile tax records with GRA filings contributed to these unexplained discrepancies.

Non-compliance risks: The absence of clear documentation for these offsets exposes ECG to potential regulatory scrutiny and penalties.

Impact on expected power sector payments by ECG

The audit reveals a troubling pattern in ECG’s statutory payment practices. 

While the company is required to allocate 12.5% of net collections for statutory payments after Level A Independent Power Producer (IPP) allocations, no direct statutory payment allocations were made in November and December 2023.

Instead, these unexplained tax offsets effectively reduced the pool of funds available for distribution to Level B beneficiaries, which includes critical power sector stakeholders.

Adding to the complexity, the audit uncovered a GHS 500 million credit note issued by ECG to the Ghana Revenue Authority (GRA), intended to offset liabilities through April 2024. 

This arrangement, part of a broader agreement between the Government of Ghana and ECG, affects the settlement of electricity bills by Ministries, Departments, and Agencies (MDAs).

“The issuance of these credit notes means that MDAs who owe ECG will not make any payments for the period covered by the credit notes,” the audit notes, adding that this “has the effect of depriving the beneficiaries of the CWM of their share of collections.“

Broader financial management issues uncovered in the PwC Audit Report

The tax offset findings are part of a larger pattern of financial irregularities at ECG. The audit also revealed:

• GHS 1.14 billion in underdeclared revenues
• GHS 136.74 million in emergency fuel purchases, with only GHS 18.2 million declared
• Operation of 84 bank accounts across 20 banks, contrary to Ministry of Finance and IMF directives
• GHS 47.50 million in unauthorized vendor commissions

For our complete coverage on these issues, visit our PwC Audit Report on ECG dossier.

For Ghana’s energy sector, already struggling with debt exceeding GHS 8 billion, these undocumented tax offsets represent another challenge in achieving financial sustainability and transparency.

The post Inside ECG’s financial maze: GHS 303 million in unexplained ‘tax offsets’ found by PwC audit first appeared on 3News.

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