Abuse of public funds gets worse

THE cash-strapped government which is struggling to pay civil servants and provide adequate social services, among other pressing problems, is persisting with a costly culture of bad corporate governance and mismanagement, leading to the loss of millions of dollars in public funds including US$180 million not properly accounted for.

Owen Gagare

This is contained in the report titled Appropriation Accounts and Miscellaneous Funds for the year ended 2014, released by Comptroller and Auditor-General Mildred Chiri this week.

Narrative reports on state enterprises and parastatals for the same period also highlight that it remains business as usual as loss-making parastatals, which are a perennial burden to the fiscus, are failing to fulfil their key mandates while also flouting good corporate governance tenents, resulting in huge financial losses.

The rot was also observed in Treasury, which made direct payments of about US$180 million on behalf of ministries, but most payments were not supported by invoices and receipts from service providers.

This is despite the fact that government revenues have dwindled perilously as the economy continues to shrink, with company closures and retrenchments, among other things, contracting the tax base.

The Auditor-General’s department audited 27 ministries and found that 13 (48%) were not reconciling differences in figures in the sub-paymaster general accounts and the public finance management system.

“Governance issues were observed in areas of internal control, record-keeping, diversion of resources from fund accounts to parent ministries, reconciliations of the sub-paymaster general accounts with the public finance management system records, late submission of fund accounts and management of government property and resources,” Chiri says in her report.

She says although section 49 of the public finance management act requires that public entities keep full records of their financial affairs for accountability and transparency purposes, some ministries and funds failed to submit assets and property registers.

“My audit revealed that the majority of the ministries had not yet established audit committees as required by section 84 (1) of the public finance management act and did not have risk management policies in place,” says Chiri.

“This compromised the control environment. Due to weak internal control environments some ministries lost amounts ranging from US$23 634 to US$204 441 through fraudulent activities. This contravenes section 44 (1)(a)(i) of the Public Finance Management Act which requires public entities to establish and maintain effective, efficient and transparent systems of financial and risk management and internal controls.”

Although government is financially struggling, Chiri notes that most ministries had weaknesses in their debt recovery systems.

Government was owed US$95 million as at December 31, 2014, up from US$50 million the previous year.

“Some of the debts have been outstanding since 2009. If these amounts had been recovered they would have gone a long way in funding government operations and programme,” she says.

The audit report shows that some ministries and funds procured goods and services which were never delivered by suppliers, while many ministries were abjectly flouting procurement regulations.

Bad corporate governance was also rampant in parastatals, making it easy for management to loot the institutions which are already saddled with heavy debts.
Some parastatals, Chiri says, were operating without boards while boards of some entities are failing to meet as required.

Many parastatals were also failing to honour their statutory obligations including paying taxes, pension funds and medical aid societies.

These include the Zimbabwe Mining Development Cooperation (ZMDC), Zimbabwe National Road Authority (Zinara), Civil Aviation Authority of Zimbabwe (Caaz) and the Agricultural Marketing Authority (Ama), among others.

“The tax obligations as at December 31, 2014 were approximately US$450 million,” Chiri notes.

A significant number of parastatals are mired in debt and these include Caaz whose liabilities exceeded assets by US$156 million, and the National Railways of Zimbabwe which had a net current liability of US$131 million.

“Weak control environments existed in such entities like Zinara, which made payments amounting to US$4 157 937 which were not supported by authorised payment vouchers, ZMDC which had various expenses amounting US$3 163 091 in its corporate social responsibility ledger account that had no breakdowns or acknowledgements of receipt from the beneficiaries,” she says.

Chiri says many entities were paying board fees and management salaries and benefits which were not authorised.

The Environmental Management Authority board, for instance, increased its own fees without the parent ministry’s approval while Zinara awarded its CEO a monthly salary and a representation allowance increase which were above the contract stipulated rates.

“ZARNet (an internet service provider) paid its CEO a monthly housing allowance whilst paying monthly rentals for his residence, ZMDC gave non-executive directors a total of 2 940 litres of fuel and holiday allowances of US27 450 each without the parent ministry’s approval, and POSB paid board fees that were above those approved by the parent ministry by US$26 868,” says Chiri.

Zimbabwe has 62 state enterprises and local authorities in all the country’s 63 districts. Most of them have, however, become feeding troughs for senior employees, ministers and people connected to Zanu PF by offering extortionate salaries, allowances and board fees, among other benefits.

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