Please review

http://www.mint.ca/store/mint/about-the-mint/precious-metals-reconciliation-3800004

According to the mints own 12 page report in which they have “satisfactorily” addressed the missing gold scandal, there remain numerous questions which the media appears prepared to ignore. Perhaps it is the Christmas season.

The Mint’s summarized reconciliation

Unreconciled difference as of October 2008 17,500 ounces

Less adjustments that increased the amount of physical gold on hand at

October 2008:

1) underestimate of gold in the on hand balance from slag by-products processed

internally 5,400 ounces

2) recovery of gold accumulated within the facility 1,500 ounces

Less adjustments that reduced the amount of gold in stock-keeping records at

October 2008:

3) underestimate of gold consumed in the by-products processed externally 3,600 ounces

4) underestimate of gold in by-products consumed as part of internal refining process

350 ounces

5) prior period transaction discrepancies 6,650 ounces

Total: 17,500 ounces

I have added the numbering above (in black) for dialogue purposes.

From my limited background (Honours B.Comm major accounting, CMA 1987), here are my thoughts.

Item 1 A conventional approach to physical inventory counts are to separate inventory between product and work in process. Thus the process of estimating slag by-product and definitively including it as part of a physical count is deeply flawed if not fraudulent. An auditor signing off on the gold slag estimate is either incompetent or guilty of fraud.

According to pg. 9 of the document there was a deviation in recovery amount of under 1% of that processed (a nearly 50% miss in the estimated amount of recoverable gold) and clear support as to why it should be considered separate from actual gold in a PHYSICAL count.

Of the 68 tons of slag on hand at the October stocktaking, 18 tons were processed

internally through the hydromet process starting in 2009. The gold content of the 18 tons

was initially recorded in the Mint‟s records at 1.87 % yet the actual recovery was about

2.80% due to the use of the new process. This underestimation represents 5400 ounces of

gold and reduces the reconciliation discrepancy.

A physical count is meant to confirm a book value with the difference being recognized a loss or gain. The beginning of the year inventory is then changed to reflect the physical count as of the count date.

2) That gold was discovered in March and June of 2009, several months after the physical count. It may have accumulated during September to March, during 2008 or previously. It is imperative to understand the rate at which this “unrecoverable loss” occurs to attribute it to 2008. In addition it would have had to have been booked as produced gold in the accounting records to be lost when being counted physically.

According to 9-10 of the report this gold can only be recovered when demolition occurs at which point it would be considered a windfall. That is to say it should not be included in the counts in any case.

Precious metal refineries typically engage in an aggressive and thorough recovery

program of their refinery buildings and equipment every three or four years. These

programs are designed to recover material otherwise classified as “an appropriate loss”.

In March and June of this year, the Mint advanced the timing of such a process which

recovered a further 1,500 ounces.

As stated in the IBI Group report, “gold can become embedded into the fabric of the

refinery building or process equipment and is only recoverable after demolition. This is

considered to be an unrecoverable loss. The gold will be recovered eventually as a

windfall in the year of the demolition. Unrecoverable losses will always occur in a

refinery operation

3) The decision to have an outsider process should have been predicated on the refining paying for the refining service and that all gold recovered would be the property of the mint. The original estimate of gold loss was 150 ounces but the report pg.9 indicates the actual loss through an outside refiner was 3600 ounces. An error by a factor of 24 indicates a clear lack of understanding of the process. The outside firm indicates a range of 297 to 4274 could have been lost. Quite a discrepancy, and a clear sign that the use of estimates in physical counts is completely inappropriate. In addition who was present to ensure that such a precious commodity was not improperly processed at the outside refiner. As a businessman I would be present to verify the process and not use and estimate.

The Mint had estimated external refining losses to be 150 ounces. The IBI Group report

identified losses associated with external refiners to be in the range of 297 to 4,274

ounces per year. Based upon this range, a reasonable estimate of process losses related to

external processing of 2008 by-products is 3600 ounces.

4) According to the report pg 8-9 the refining losses booked of 886 ounces could have been understated by 350 ounces according to models developed by outside experts. Because that amount could have been lost rather they assume that it was lost without any meaningful verification or investigation into alternative wrongdoing

Based on the engineering review and analysis of the refinery operations, industry

benchmarks, external refinery operations, available data, previous studies as well as the

independent testing done on key processes, it was concluded that the range of 2008

refinery losses at the Mint could be within 465 ounces to 1240 ounces per year. The Mint

had reported 886 ounces for the refinery losses in 2008. Based on the foregoing, a

reasonable estimate of the understatement of process losses is 350 ounces.

5) According to the report pg. 6 indicates that a physical count would have occurred in April of 2008 at which time no problem was reported.

Until 2009, the Mint performed a count of stock containing precious metals twice a year.

This count included raw materials, work in process, finished goods and estimates of

precious metals in by-products.

The 6650 ounces that report indicates is from errors in prior years indicates a clear and obvious problem which has not been addressed but rather covered-up by a politically motivated report.

My question is what ever happened to investigative journalism?

As part of my additional gleanings, the report pg. 7 I see an organization who attempts to indicate that they have no accounting issues

Deloitte concluded that the unaccounted difference was not the result of

accounting errors in 2008 and recommended that the three following other areas be

examined and analyzed

nor was their any unauthorized theft pg. 7

Based upon facility visits and assessments, interviews, document reviews, research and

the lack of evidence to the contrary - the Banks Group concluded that; “…there is no

evidence of unauthorized removal of precious metals from the Mint

no computer problems pg. 8

Microsoft in its report (Annex B) stated that “…no evidence was found of an unexpected

inventory impact caused by this integration” and “…the BPCS to Dynamics DAX

integration is working as designed and the integration scenarios reviewed in this

engagement did not lead to the unreconciled difference

nothing criminal pg 8

the RCMP reported that its inquiries and investigation “…do not support

further effort in the continuance of a criminal investigation into this matter

I beg to differ … do you?