BRM -NNPC Mega Station Report (Final)

AFRICAN PETROLEUM PLC

NNPC MEGA STATION OPERATIONS REPORT

(IBADAN, OSHOGBO AND UMUAHIA)

(PERIOD: 2ND MARCH, 2007 – 30TH APRIL, 2008)

FINANCIAL & PROCESS AUDIT

Confidential Financial & Process Audit Report

EXECUTIVE SUMMARY

This report on NNPC Mega Station Operations routine audit is to enable management ascertain the levels of vulnerability and risk exposures inherent in Ibadan, Oshogbo and Umuahia mega station activities and also to recommend the way forward.

(1) PIONEER NATURE OF THE AUDIT

This routine audit is the very first audit exercise of any of the NNPC Mega Station under African Petroleum plc as Dealer Manager. This audit is therefore expected to lay a foundational basis for establishing a standard benchmark for financial and process audit of all NNPC Mega Stations under African Petroleum plc as well as assist in developing/improving the robust Business Risk Management framework in the nearest future. Specific setbacks encountered while conducting this audit exercise were mostly associated with typical take-off challenges such as:

Lack of standard documentation processes that should easily act as evidence of authorizing approvals as against oral approvals.

The possibility of destroying audit trails unconsciously by the mega station staff by not keeping appropriate records and in desired formats.

The unavailability of approved company procedure on NNPC Mega Station Operations as at the time of the audit exercise.

(2) SCOPE OF THIS ASSESSMENT/AUDIT REPORT

The following key areas of risk exposure were assessed/audited; Accounts & Cash Management; Maintenance Policy Compliances; Operational Policy Compliances, Operational Lapses and House Keeping Records. To ensure adequate coverage we visited the NNPC Mega stations at Ibadan, Oshogbo and Umuahia; Office of the Fire services, State Security services, Police and relevant Banks were also visited where the need arose.

2April, 2008 NNPC Mega Stations Operations Report


(3) SUMMARY OF CRITICAL OBSERVATIONS & MAJOR FINDINGS

The routine financial/process audit assessments of the NNPC Mega Stations Ibadan, Oshogbo and Umuahia have the summary of our major findings as follows:

i) NNPC MEGA STATION IBADAN

Mega Station senior staff sell DPK in the night to members of the public at above approved pump prices.

All Mega Station dispensing pumps had been adjusted to under dispense by between 4.8 and 8.5 below DPR tolerant limit.

Ibadan NNPC Mega Station is at high risk of being sealed off by the Department of Petroleum Resources (DPR).

There is high possibility of African Petroleum being sanctioned by the NNPC for reasons associated with under measuring

dispensing pumps and late night sale of DPK (kerosene) at a premium.

Differences between March 2007 closing and April 2007 opening stocks revealed unexplainable shortages as follows; PMS

11,540.50 liters, AGO 6,187.00 liters and DPK 11,202.00 liters.

Access to restricted areas such cash counting room was noticed..

Intercontinental Bank, Ibadan was in the habit of short crediting the mega station account with between =N=5.00 and

=N=1000.00

Receiving Supervisors do not carry out normal water finding tests for products lifted from the local NNPC depot, Apata,

Ibadan before receiving them into underground tanks.



ii). NNPC MEGA STATION OSHOGBO

All Mega Station dispensing pumps had been adjusted to under dispense by between 5.0 and 8.5 below DPR tolerant limit.

Oshogbo NNPC Mega Station is at high risk of being sealed off by the Department of Petroleum Resources (DPR).

There is high possibility of African Petroleum being sanctioned by the NNPC for reasons associated with under measuring

dispensing pumps.

Procedure for fueling motor cycles were violated (i.e. turn off ignition at entry fore court, roll bike to a dispensing pump,

refuel, roll bike to exit fore court, turn on ignition and ride off)

Crowd control at the DPK stand is very poor and badly managed.

iii) NNPC MEGA STATION UMUAHIA

Umuahia NNPC Mega Station is inactive and not operational.

Armed robbery incident occurred on the early morning of 28th of January, 2008 around 1.30am.

Offices of the Head of Mega Station, Dealer Manager, Accountant, and Attendants’ offices were all vandalized and bullet holes observed everywhere.

Police report on the robbery incident confirmed the attack and level of damage incurred at the mega station.

Cost of repairs was put at =N=14million by Messrs Julius Berger plc.

Resumption date of operational activities is not certain as reconstruction work had not commenced.



Auditor reconciliation revealed a cash loss of =N=465,915.20 mega station money and =N=100,000.00 being one week

cash sales of AP branded lubricants due to African Petroleum District office, Aba.

Total cash lost to the robbery was =N=565,915.20

(4) SUMMARY OF MAJOR RECOMMENDATIONS

MANAGEMENT ACTION SCHEDULE S/No Major Recommendation(s) Time for

ImplementationOfficer(s)

ResponsibleI Recommendation 1:

The GMM should immediately call to order the appointed Dealer of NNPC Mega Stations Ibadan and Oshogbo to desist from adjusting dispensing pumps below DPR range.

Immediate COO & GMM

II Recommendation 2:

The GMM should issue a strong worded warning letter to the appointed Dealer of the NNPC Mega Stations Ibadan and Oshogbo reminding him of the implications of selling DPK at night and at a premium after switching off the lights.

Immediate COO & GMM

III Recommendation 3:

The Area Manager Ibadan should be made to account for the period March/April 2007

Immediate COO GMM & GMO



Opening/Closing balance products differences as follows: PMS 11,540.20 liters; AGO 6187 liters and DPK 11,202 liters.

IV Recommendation 4

The GMO and GMM should ensure that Ibadan NNPC Mega Station Supervisors are trained on how to receive products from BRV drivers before discharging into underground tanks.

Immediate COO, GMO & GMM

V Recommendation 5:

The GMM and GMO should direct strict compliance with NNPC procedure for refueling motor cycles at Oshogbo mega station because any loss as a result of this breach will fully be borne by African Petroleum plc.

Immediate COO, GMM & GMO

(5). CONCLUSIONS

While commending the appointed Dealer Manager of Ibadan and Oshogbo NNPC Mega Stations; and Umuahia NNPC Mega Station AP operatives for the level of effort put into ensuring the smooth running of the outlets even when the company procedure on running NNPC Mega Stations is still in its draft state, Business Risk Management wishes to state that this procedure is currently in the final stages collation and approval by the COO.

It is our sincere opinion that an approved procedure will stand as a benchmark upon which subsequent performances will be evaluated.

Meanwhile, the GMM, RSM, RM (South West and South East) and GMO are requested to note all the failings/shortcomings that were identified in this report and follow all the recommendations as prescribed by BRM.

Finally, all the queries/observations raised were based only on those issues that came to our attention during the course of the audit exercise and are not necessarily comprehensive enough to have covered all transactions for the period under review.



MAIN REPORT

FINANCIAL/PROCESS AUDIT REPORT

The assessment/audit of the NNPC Mega Station Ibadan, Oshogbo and Umuahia for the period under review have been categorized under five (5) broad risk exposure areas; accounts & cash management; maintenance policy compliances; operational policy compliances; operational lapses; and house keeping records:

IBADAN: NNPC MEGA STATION OPERATIONS REPORT



Key Risk Area

General Finding Possible Consequence(s)

Response(s) Specific Recommendation(s)

Cash Management: (Ibadan)

Bank reconciliation was found to be unsatisfactory especially March, 2007 transactions.

High possibility of fraud. Possible manipulation of records for dishonorable intentions.

We promise to comply strictly, though as at March 2007 the station management was still under AP.

GMM/RSM to reconcile March 2007 cash lodgments from the Bank Cash Register as signed by bank official to bank statement for same period and revert back to BRM within 2 weeks of publishing this report.


Auditors observed that Ibadan NNPC Mega Station designated official bank for daily collection of sales proceeds and rendering of adequate banking services, Intercontinental Bank plc, officials sometimes do not sign appropriate columns of the Cash Lodgment Register when they collect cash at the mega station. However all such unsigned cash pick up were traced to bank statements.

Possible denial by bank official not to have collected such cash.

No comment. GMM/RSM to instruct NNPC mega station to ensure that designated bank staff signs the appropriate column in the Bank Cash Lodgment Register.

Key Risk Area






It was observed that Intercontinental Bank sometimes raises new bank tellers thereby discarding the original tellers raised in the office for cash lodgments.

Loss of audit trail. Possible short crediting of station bank account.

No comment. GMM/RSM to officially write a complaint letter to mega station bankers seeking explanation to this replacement of bank tellers with new ones and revert back to BRM within one week with evidence of doing so.

It was equally observed that Intercontinental Bank was fund of short crediting mega station account with small amounts such as =N=15, =N=10 and =N=5 and no evidence of any official complaint was made to the bank.

Loss of fund by mega station.

The usual credit/debit of 15, 10 naira done by intercontinental bank was as a result of under payment from the station.

GMM/RSM to officially write a complaint letter to mega station bankers seeking explanation to these short credits and revert back to BRM within one week with evidence of doing so.

.Auditors observed that entirely different bank teller numbers are most times quoted against corresponding amounts in bank

Loss of audit trail. No comment. GMM/RSM to write the Intercontinental Bank plc seeking immediate stoppage



statements. to this practice an d revert back to BRM with evidence of doing so within one week of publishing this report.

A total of five (5) cash lodgments claimed to have been lodged into mega station bank account in March, 2007 could not be traced to bank statement. Detail is as follows:

DATE LODGED TELLER NO. AMOUNT (=N=) 03/03/2007 5861605 1,758,698.00 05/03/2007 5861607 2,605,500.00 11/03/2007 5861621 4,197,980.00 13/03/2007 5861626 2,438,113.00 13/03/2007 5861628 2,662,115.00

TOTAL 13,662,406.00

Loss of audit trail. Possible short crediting of station bank account.

The manager as at the will give detail explanation on the difference.

GMM/RSM to reconcile March 2007 cash lodgments from the Bank Cash Register as signed by bank official to bank statement for same period and revert to BRM within 2 weeks of publishing this report

Key Risk Area




Access to Mega Station cash counting room was found to be unrestricted and porous. All categories of Mega Station staff, NNPC staff and visitors were found to have easy and unchecked access to the cash counting room.

Increased vulnerability of mega station cash to theft.

It is not so because we do not allow strangers even staffs are not

GMM/RSM to write a strong worded warning letter to the appointed Dealer Manager seeking a



allowed except when they are to make deposit of sales proceeds. However the cash counting room is always locked to prevent un scheduled access.

stop to this practice and revert to BRM with evidence of doing so within one week of doing so.

Key Risk Area



Maintenance Policy Compliances (Ibadan)

There is no documentation evidence of having carried out both general and functional checks on the pumps and motors. The standard requirement is that this should be done once (1) every month.

Possible run down of the station and incurring NNPC sanctions.

Checks done on our pump is usually by Wayne technicians and it is only done on demand. There is a total restriction on bearing and impeller check by the dealer as said by the NNPC rep. What I was told was that Julius BG is

GMM should convey a meeting with NNPC officials putting pressure on them to keep to their own part of the maintenance policy agreement and revert back to BRM within one week with evidence of doing so.



to carry out such check so also every other checks.

Key Risk Area




Bearings and Impeller checks that should haven carried out every two (2) months were not done. The station manager claimed not to know anything about that.


This is NNPC responsibility since this is not stated as Dealer’s task.


Vibration and compressor checks that should be carried out every two (2) months by the appointed dealer were not done.


WE usually do it.GMM should convey a meeting with NNPC officials putting pressure on them to keep to their own part of the maintenance policy agreement and revert back to BRM within



one week with evidence of doing so.

Key Risk Area




Specific technical services that are expected to be carried out by Julius Berger plc such as checks on valves every two (2) months, inspection of tanks and pipes materials for determination of :

a) Corrosion Rate (CR)b) Corrosion Allowance (CA)c) Remnant Life Time, andd) Internal/External Corrosion

Have not been done.


We have not experienced such services since the inception of the outlet.


Losses in excess of 0.5% of underground tank as currently experienced have not been investigated and resolved.

High possibility of incurring NNPC sanction.

No comment. GMM to investigate causes of

underground tank shortages and revert to BRM with result of

doing so within 14 days of publishing

this report

Maintenance Comparison between total maintenance Possible sanction No comment. GMM should strike a



Policy Compliances (Ibadan)

expenditure and expected expenditure limit allowable of =N=0.15K of total dealer remuneration revealed a as follows:

Total Expenditure =N=538,700.00 Allowable limit 1,875,414.00 Expenses not done 1,336,714.00

from NNPC for not maintaining the mega station enough.

balance between spending less and saving money for AP and overspending in order to please NNPC.

3rd party Dealership Agreement could not be presented for sighting. Possible lack of

knowledge of the provisions of the dealership agreement by appointed dealer manager.

GMM/RSM to ensure that a copy of the dealership agreement is readily available at the mega stations.

Operational Policy Compliances (Ibadan)



Key Risk Area

Product Delivery:

Authenticated underground calibration charts for all underground tanks could not be made available by the appointed dealer.

No authentic calibration chart to fall on in time of disputed shortages.

No comment.GMM/RSM to ensure that valid copies of the underground calibration chart are readily available at the mega stations.

Key Risk Area






It was observed that records of hydrometric and water finding tests for all deliveries were not documented.

Auditors’ enquiry/observations of product receipt processes revealed that PMS liftings from NNPC depot, Apata are not tested for water presence before discharging into underground tanks.

No jointly signed documentary evidence of water testing result in time of dispute

High risk of receiving products with water content. Possible dent to corporate image.

No Comment.

No Comment.

GMM/RSM to direct immediate keeping of documented evidence of test results.

GMM/RSM and Training Manager to organize immediate training of mega station supervisors on procedures for safe receipt of products into underground tanks within two weeks of publishing this report and revert to BRM with evidence of doing so..


Health Safety and Environment:

First aid box was available but we observed that it lacked basic drugs such as analgesia etc.

Possible set back to first aid in case of accident.

No Comment. GMM/HSM/MHSE to replenish first aid box every month.


Staff Welfare:

Staffs at the Mega Station are not adequately remunerated when compared with other NNPC mega station standard.

High possibility of fraud. Poor public

All our staffs are remunerated following the

Management should consider motivating the



image.industrial average.

mega station staff by increasing their monthly salary


Outlet Inspection Report:

Statutory regulatory certificates could not be sighted as they were said to be in the custody of NNPC Headquarters.

Inability to confirm their validity.

NO Comment.GMM/RSM to ensure that valid copies of statutory regulatory certificates are readily available at the mega stations.

Key Risk Area



Operational Lapses (Ibadan)

Procedure for Fueling Motor Cycles:

It was observed that some motor cycles for refueling do not turned off their ignitions at the entrance forecourts.

Possible NNPC sanction.

No comment. GMM to officially communicate full compliance to dealer manager.

It was equally observed that after fueling, some motor cycles do not first roll their bikes to the exit forecourt before their ignition were turned on.


No comment. -do-

Key Risk Area



Operational AGO Use for in-House Generator:



Lapses (Ibadan)

A thorough scrutiny of method of collection/usage of AGO at the mega station for the running of the generator revealed no evidence of written authorization to do so

It is the believe of auditors that current method of collecting AGO for running the generators at the outlet is susceptible to fraud.

High possibility of abuse. Lack of written authorization.

There is no reason to deceive ourselves as much as we are working around the clock to ensure that we cut to the barest minimum of total running.Before we took over the running of the station their monthly usage of AGO to generator was between 5,500-6500 liters per month, now we have successfully reduced such to (3000-3500)

GMM/RSM to enforce immediate implementation.

Key Risk Area






Late Night/Early Morning Selling of DPK:

It was observed that the mega station senior staffs wait late in the night after the attendants must have gone home and the lights switched off to sell DPK to members of the public and at prices above approved pump price.

Possible sanction by DPR and NNPC headquarters.

That our senior staffs wait at night after closing hour to sell kero at prices above approved pump price is totally malicious and untrue.

GMM/RSM to write a strong worded warning letter to the appointed Dealer Manager seeking a stop to this practice and revert to BRM with evidence of doing so within one week of doing so.

It was equally observed that mega station senior staffs come very early in the morning to sell DPK at exorbitant rate to members of the public.

Possible sanction by DPR and NNPC headquarters.

Station commences sale @ 6 am, so to say early morning could be between 6 am and 6.30 am.

-do-


Under Measuring Dispensing Pumps:

Auditors observed that practically all the PMS, AGO and DPK dispensing pumps were under measuring between 4.5 to 8.5

l It is the sincere opinion of the auditor that

this practice puts the image of the company in serious risk of possible dent.

Possible sanction from NNPC. Negative corporate image.

Some of the pumps do over/under measure to the tone of 0.45 and why we allow that is because of evaporation, or possible

GMM to write a strong worded warning letter to Ibadan NNPC mega station dealer manager and revert to BRM with evidence of doing so.



shortages from tanker drivers etc.

Key Risk Area




A sudden visit to the outlet by any relevant regulatory authority will spell serious negative image to African Petroleum plc.

Auditors are equally saddened that this practice is at variance with the current preaching of change within the AP plc family.


Definite sanctions from DPR. Negative public image.

No Comment GMM to write a strong worded warning/displeasure letter to Ibadan NNPC mega station dealer manager and revert to BRM with evidence of doing so within 7 days of publishing this report.

Key Risk Area



Operational



Lapses (Ibadan)

Closing/Opening Stock Differences:

Differences were observed between closing and opening stock figures as recorded in March, April and May, 2007 as follows:

PMS: March closing stock 154,720.50 liters April opening stock 143,180.00 Difference (shortage) 11,540.50 liters

AGO: March closing stock 11,627.00 liters April opening stock 5,440.00 Difference (shortage) 6,187.00 liters

DPK: March closing stock 55,744.00 liters April opening stock 50,876.00 Difference (shortage) 4,868.00 liters

April closing stock 34,528.00 liters May opening stock 28,194.00 Difference (shortage) 6,334.00 liters

Summary of Shortages:Total PMS shortage = 11,540.50 litersTotal AGO shortage = 6,187.00 liters Total DPK shortage = 11,202.00 liters

Auditors are taking it that these differences arose out of dishonorable intentions.

Possible fraud. Loss of products. Reduced profit margin.

No comment.GMM to account for closing/opening stock differences and revert to BRM with evidence of doing so within 14 days of publishing this report.



Key Risk Area



House Keeping Records (Ibadan)

Level of Record Keeping:

It was observed that no chrono (correspondence) file was maintained in Ibadan.

Loss of audit trail. Poor reference system.

Correction taken.

Noted.

March and April 2007 Ibadan mega station data could not be made available to auditors.

Loss of audit trail. No Comment. GMM/RSM to enforce recovery of period data and revert to BRM with detail.

Pump Attendants’ shift register showing details of pump reading on taking/handing over were not properly maintained in all locations.

Poor reference system.

No Comment. GMM to enforce compliance.

Key Risk Area



House Keeping Records (Ibadan)

It was observed in all location that not all Pump Attendants sign in/out the shift register therefore encouraging loss of audit trail.


No Comment.GMM/RSM to enforce implementation.



Auditors observed with dismay that Ibadan mega station allows unrestricted access to staff and visitors alike into the cash counting room.


No Comment.GMM to enforce immediate implementation.

No generator AGO utilization form was in use at the outlets. This lack of documentary control evidence acts directly against the rule of proper authorization and approvals and tacitly encourages theft.

High level of risk exposure to cash

No Comment. GMM to enforce compliance.

OSHOGBO: NNPC MEGA STATION OPERATION REPORT

Key Risk Area



Cash Management: (Oshogbo)

Bank reconciliation was found to be satisfactory as all cash collections were traced to bank statements for the period under review.

OkSatisfactory.



Irregularity was observed between the specimen signature of Intercontinental Bank plc designated mega station cash collection officer, Mr. Adeniyi Talabi as signed in the letter of introduction and station Cash Movement Register. However all such cash pick up were traced to bank statements

Possible denial of liability for cash collected in time of loss.

It has been discussed with the banker, in which it was resolved.

GMM/RSM to direct that mega station should ensure that designated bank operative signature tallies with that of the specimen signature.

Key Risk Area




It was observed that Intercontinental Bank, Oshogbo sometimes do not quote teller numbers against amounts in the bank statements.

Loss of audit trail. This has been resolved through verbal clarification on phone.

Noted.

Frequent reversals were observed in bank statements. Auditors frown at the fact that CASH deposits could be reversed severally before finally being credited either the following day or after several days.

Possible manipulation of mega station cash by bank for selfish interest. Denying mega station instant value for cash lodgments.

No comment. GMM/RSM to write Intercontinental bank expressing company displeasure at this practice and revert back to BRM with evidence of doing so within 7 days.




It is the opinion of auditors that cash lodgments should be given instant values except for Sundays when banks do not open for business.

Denying mega station instant value for cash lodgments.

It has been agreed on.

GMM/RSM to write the bank expressing company displeasure at this practice and revert back to BRM with evidence of doing so within 7 days of publishing this report.

Key Risk Area



It was observed that Intercontinental Bank, Oshogbo sometimes do not quote teller numbers against amounts in the bank statements.

Access to Mega Station cash counting room was found to be restrictive. Unauthorized persons were not allowed entry in the room.

Loss of audit trail.

.

This has been resolved through verbal clarification on phone.

GMM/RSM to ensure that Oshogbo mega station stop this practice.

Noted.



Key Risk Area



Maintenance Policy Compliances (Oshogbo)

General and functional checks on the pumps and motors were regularly carried out as required in the policy guidelines governing the running of the mega station. The standard requirement is that these should be done once (1) every month.

Ok Noted



Key Risk Area




Bearings and Impeller checks that should have carried out every two (2) months were not done. The station manager claimed not to know anything about that.


This is NNPC responsibility since this is not stated as Dealer‘s task.




We have not experience such services since inception of the outlet.


Key Risk Area



Maintenance Specific technical services that are expected to Possible run down This is NNPC GMM should put



Policy Compliances (Oshogbo)

be carried out by Julius Berger plc such as checks on valves every two (2) months, inspection of tanks and pipes materials for determination of :

e) Corrosion Rate (CR)f) Corrosion Allowance (CA)g) Remnant Life Time, andh) Internal/External Corrosion

Have not been done.

of the station and incurring NNPC sanctions.

responsibility since this is not stated as Dealer‘s task.

pressure on NNPC to keep to its own part of the maintenance policy agreement.

Comparison between total maintenance expenditure and expected expenditure limit allowable of =N=0.15K of total dealer remuneration revealed as follows:

10th May 2007-31st December 2007 Total Expenditure =N=721,110.00 Allowable limit 1,573.205.00 Expenses not done 852,095.00

1st January 2008-31st March 2008; Total Expenditure =N=330,080.00 Allowable limit 727,888.05 Expenses not done 397,808.08

Possible sanction from NNPC for not maintaining the mega station enough.

No Comment. GMM should strike a balance between spending less and saving money for AP and overspending in order to please NNPC.

Key Risk Area






3rd party Dealership Agreement could

not be presented for sighting.Possible lack of knowledge of the provisions of the dealership agreement by appointed dealer manager.

This is with the Dealer manager.

GMM/RSM to note.

Key Risk Area



Operational Policy Compliances (Oshogbo)



The said document is with the NNPC and Julius Berger JB

The hydrometer is not available at the station

Noted.

GMM through RSM to enforce documentation of test results.


Evidence of quarterly fire drills and training for all authorized persons was made available. Demand that appropriate certificates be issued by fire service operatives was put across to fire service authorities and assurances dully obtained.

Noted.




Statutory regulatory certificates could not be sighted as they were said to be in the custody of NNPC Headquarters.

Possibility of fraud. Poor public image.

GMM, HSM and MHSE to note.

Key Risk Area



Operational Policy Compliances (Oshogbo)



High risk of receiving products with water content. Possible dent to corporate image.

The said document is with the NNPC and Julius Berger JB

The hydrometer is not available at the station

GMM to note.

GMM/RSM to enforce documentation of test results.




Evidence of quarterly fire drills and training for all authorized persons was made available. Demand that appropriate certificates be issued by fire service operatives was put across to fire service authorities and assurances dully obtained.

Noted.

Key Risk Area



Operational Lapses (Oshogbo)

Procedure for Fueling Motor Cycles:

It was observed that motor cycles for fueling do not turn off their ignitions at the entrance forecourts. They ride straight to the dispensing pumps and after refueling, start their bikes without first rolling them to the exit forecourt.


These were been adhere to as directed.

GMM/RSM to officially communicate compliance to dealer manager and revert to BRM with evidence of doing so within 7 days of



It was equally observed that after fueling, all motor cycles were first rolled to the exit forecourt before their ignitions were turned on.

Possible NNPC sanction. These were

being adhered to as directed.

publishing this report.

Noted.


AGO Use for in-House Generator:

A thorough scrutiny of method of collection/usage of AGO at the mega station for the running of the generator revealed no evidence of written authorization to do so.


Auditors have however ensured that a satisfactory document was designed and put into use immediately.


Noted. We have started implementing auditor’s recommendation with immediate effect.

Noted.

GMM/RSM to enforce implementation.



Key Risk Area




Late Night/Early Morning Selling of DPK:

No evidence of late night or early morning sale of products at premium to members of the public was observed.

Noted.

Under Measuring Dispensing Pumps:

All twelve (12) PMS pumps were under measuring by 0.85 pointer scales.

All four (4) AGO pumps were under measuring by 0.85 pointer scales.

All four (4) DPK pumps were under measuring by 0.50 pointer scales.




No Comment. GMM to write a strong worded warning letter to Oshogbo mega station dealer manager and revert back to BRM with evidence of doing so within 7 days of publishing this report.

o Crowd Control Concerns:



Crowd control at the DPK stand was observed to be very poor and if not put under control, could lead to sanctions from NNPC authorities.


This has been a domestic product, in which the villagers, learner & uneducated person were been treated together, we have design lot of programmes which we believe it will soon materialize.

GMM through RSM to communicate displeasure and ensure compliance.

Key Risk Area





Sale into Tanker and State Security Services (SSS) Concerns:

o The case of unlawful sale of AGO into a Bulk Rolled Vehicle (BRV) involving the immediate past Oshogbo NNPC Mega Station manager, Mr. Monday Bello, two Supervisors and a pump attendant was

Negative corporate image.

Ok COO to note. BRM noted.



finally resolved on the 21st of April , 2008.

o The truck was finally released on the 21st of April, 2008 to the owner (Prince) who was the transporter.

o The said transporter is neither a registered transporter with AP plc or NNPC.

All the four mega station staff (station manager inclusive) appointments have been terminated


Negative corporate image.Negative corporate image.

Ok

Ok

Ok

UMUAHIA: NNPC MEGA STATION OPERATIONS REPORT

Key Risk Area



Cash Management: (Umuahia)

Bank reconciliation was found to be satisfactory and all cash collections by designated bank, Union bank of Nigeria plc were traced to bank statements throughout the period the outlet was in operation except for evening cash sales of 27/01/2008 valued at =N=465,915.20.

Negative corporate image. Negative cash flow. Loss of revenue.

Okay.

Case dully reported. BRM noted.



Key Risk Area



Cash Management: (Umuahia)

Total cash missing was therefore =N=565,912.20.

Auditors observed adequate evidence that Umuahia NNPC Mega Station designated official bank for daily collection of sales proceeds kept to agreement by dully picking up cash sales twice a day (Monday-Fridays), and once every Saturday and Sunday.

Negative cash flow. Loss of revenue.

Part of cash stolen during the armed robbery incident of 28th Jan.2008.

Case dully reported. BRM noted.

Auditors however observed breach of procedure by the Sales Rep Aba not banking

Breach of company

Daily lubes sales are small

Note.



daily cash sales of lubricants. The accumulation of one whole week’s sales of =N=100,000.00 (One Hundred Thousand Naira) in the mega station underground safe is a serious breach of company procedure which auditors frown at.

procedure on banking of sales proceeds same day.

amounts. The cost of transporting somebody to Aba to raise RV will cost N400. To raise RV each day for 30 days on one DG about 30 RVs. No manager has been appointed yet. The Sales Rep covers all issues at the mega station with 17 outlets in Aba territory.

Key Risk Area



Maintenance Policy Compliances (Umuahia)

Bearings and Impeller checks that should have been carried out every two (2) months were not done. The station manager claimed not to know anything about that.


We use our in house maintenance crew; the fitter does the checks twice a week. During the period AP has not signed service agreement.



Key Risk Area




Specific technical services that are expected to be carried out by Julius Berger plc such as checks on valves every two (2) months, inspection of tanks and pipes materials for determination of :

i) Corrosion Rate (CR)j) Corrosion Allowance (CA)k) Remnant Life Time, andl) Internal/External Corrosion

Have not been done.



Procedure cannot be compromised. Two Gen sets work24/7 of 12 hours each.Julius Berger had only come twice to change bad totalizers and filters. We had never signed for these inspections.

GMM should put pressure on NNPC to keep to its own part of the maintenance policy agreement.

Losses in excess of 0.5% of underground tank were not experienced throughout the period the outlet was under operation.

Comparison between total maintenance expenditure and expected expenditure limit

Extravagance on the part of AP plc.

Thank you.

Poor product supplies. Target

Noted.

GMM/GMO through EM to query



allowable of =N=0.15K of total dealer remuneration revealed a as follows:

Total Expenditure =N=565,714.00 Allowable limit 70,073.70 Excess Expenses 495,640.30

Possible running of the outlet at a loss or depleted margin.

3.5M liters Actual 1.2M liters. While we have fixed running costs that if compromised NNPC will penalize us

Regional Engineer south east to explain his high expenditure on maintenance of Generators and other equipment Umuahia NNPC Mega station over a short period of four (4) months the outlet was operational and revert back to BRM within 4 days with evidence of doing so..

Key Risk Area



Maintenance Policy Compliances (Umuahia)

The position of expenses at the mega station is above allowable limit to the tone of =N=495,640.30 which is not in the interest of African Petroleum plc.

Auditors observed that the Regional Engineer spent =N=268,150.00 on servicing the generator in four (4) months.

Extravagance on the part of AP plc. Running the generators on idle pumps.

GMM/GMO through EM to query Regional Engineer south east to explain his high expenditure on maintenance of Generators and other equipment Umuahia NNPC Mega station over a short period of four (4) months the outlet was



operational and revert back to BRM within 4 days with evidence of doing so..

3rd party Dealership/Managerial Agreement could not be presented for sighting.

Possible lack of knowledge of the provisions of the dealership agreement.

This agreement has not been signed as of the period in question.

Noted.

Key Risk Area



Operational Policy Compliances (Umuahia)

Product Delivery:

We observed that all NNPC product Delivery Tankers Calibration Charts were dully kept in the outlet by the appointed mega station Dealer Manager.

It was observed that records of hydrometric and water finding tests for all deliveries were not documented

Hydrometer not yet supplied by NNPC. We only use water finding paste but do not record. Currently we have opened a register.

Noted.

GMM/RSM to enforce documentation of test results.




Evidence of quarterly fire drills and training for all authorized persons was made available.

Auditor test of familiarity and competence of mega station staff revealed adequate knowledge of steps to be taken in case of any fire outbreak.

First aid box was available but we observed that it has been depleted due to the armed robbery incident and long time of not being tended to.

HMS is in charge of all statutory regulations and implementations.

GMM to ensure that fire service certificate form part/support of each fire drill.

Noted.

Key Risk Area




Statutory regulatory certificates could not be sighted because the NNPC appointed Head of Mega Station was not available as the outlet has been inactive since the armed robbery incident in late January, 2008.

Environment was observed dirty basically due

to the inactive state of the outlet for over three

Noted.

GMM, HSM and MHSE to note.



months.

Key Risk Area



Operational Lapses (Umuahia)

AGO Use for in-House Generator:

A thorough scrutiny of documentation revealed that method of collection/usage of AGO at the mega station for the running of the generator lacks any evidence of written authorization to do so.


We keep inventory register of AGO; The Dealer Manager authorizes the accountant for collection. Each refill of 600 liters staff pay as HMS refuse credit which put undue pressure on staff while AP pays at month end.

GMM to enforce implementation.


Auditors have however ensured that a



satisfactory document was designed and put into use immediately.

Closing/Opening Stock Differences:

Differences were not observed between closing and opening stock figures as carried forward from month to month.

Noted.

Key Risk Area



Inactive State of Outlet Concerns:

Armed robbery incident occurred on the early morning of 28/01/08 around 1.30am.

Head of Mega Station, Dealer Manager, Accountant, and Attendants’ offices were all vandalized and bullet holes observed everywhere.

Police report on the robbery incident confirmed the attack and level of damage incurred at the mega station.



Event dully reported.

Event dully reported.

Cost of repairs was put at =N=14million by Messrs Julius Berger plc.

Resumption date of operational activities is not yet certain.



ENDORSEMENT

Risk Assessment Team/Auditors:

Mike Mazogi………………………………………………Sign:…………………………………...date………………………Ag. Head, Business Risk Management


Documents

BRM -NNPC Mega Station Report (Final)