Extracted from Parliamentary Hansard 27/06/2017
THIRD REPORT OF THE PUBLIC ACCOUNTS COMMITTEE ON THE 2014 AND 2015 APPROPRIATION AND FUNDS ACCOUNTS FOR THE MINISTRY OF TRANSPORT AND INFRASTRUCTURAL DEVELOPMENT
HON. MPARIWA: I move the motion standing in my name that this House adopts the Third report of the Public Accounts Committee on the 2014 and 2015 Appropriation and Funds Account for the Ministry of Transport and Infrastructural Development.
HON. CROSS: I second.
HON. MPARIWA: Thank you Madam Speaker.
The Public Accounts Committee examined the Ministry of Transport and Infrastructural Development on the findings of the Auditor General on the Appropriation accounts for years ended December 31, 2014 and 2015 and the accounts of the four Funds administered by the Ministry, namely the Department of Roads Fund, 2013and 2014; New Limpopo Bridge Fund, 2014; New Vehicle Number Plate Revolving Fund, 2013 and 2014 and the Traffic and Legislation Fund, 2012- 2014.
The Ministry is lagging behind in terms of reporting on Funds. This is a violation of the Public Finance Management Act (PFMA) [Chapter 22:19]. Section 35 (4) of the PFMA requires the Ministry to prepare and submit financial statements for Funds within three months after the end of a financial year, which is a month after the deadline for submission of appropriation accounts. The Auditor General is expected to report on Funds by the same time she reports on Appropriation accounts which is June 30 of each year. It is of great concern that the Ministry reported on Funds well out of time and this has been the general trend for most Funds. This points to a culture of non-accountability and a general lack of specific sanctions for failure to meet statutory deadlines on the submission of financial statements for audit. The Committee is also concerned that the then Accounting Officer for the Ministry, Mr Munodawafa did not take audit seriously as audit recommendations made in the 2014 Annual Audit Report were not implemented, hence are subject of discussion in this Report.
2.0 OBJECTIVES OF THE ENQUIRY
Section 299 of the Constitution of Zimbabwe Amendment No. 20 of 2013, states as follows:
(1) Parliament must monitor and oversee expenditure by the State and all Commissions and institutions and agencies of Government at every level, including statutory bodies, Government controlled entities, provincial and metropolitan councils and local authorities, in order to ensure that-
(a) all revenue is accounted for;
(b) all expenditure has been properly incurred; and
(c) Any limits and conditions on appropriations have been observed.
Section 309 (2) (a) of the Constitution provides for the functions of the Auditor General as follows:
“to audit the accounts, financial systems and financial management of all departments, institutions and agencies of Government, all provincial and metropolitan councils and all local authorities”.
National Assembly Standing Order No. 16 mandates the Public Accounts Committee to examine the sums granted by Parliament to meet public expenditure and such other accounts laid before the National Assembly.
It is therefore, the duty of the Public Accounts Committee to report whether such public funds have been managed and expended as authorised by Parliament. In this context, the Committee examined the audited Appropriation and Funds Accounts for the Ministry of Transport and Infrastructure Development as reported by the Auditor General in her Annual Report for the financial years ended December 31, 2014 and 2015 respectively.
The Committee held two oral evidence sessions with Mr Munodawafa, the then Permanent Secretary and Accounting Officer for Ministry of Transport and Infrastructural Development, and other senior officials within the Ministry. The Committee requested written evidence which was then analysed and further formed the basis of the Report.
4.0 FINDINGS AND OBSERVATIONS BY THE COMMITTEE
4.1 APPROPRIATION ACCOUNTS FOR THE MINISTRY OF TRANSPORT AND INFRASTRUCTURAL DEVELOPMENT FOR THE YEAR ENDED DECEMBER 31, 2014
4.1.1 Unvouched and Misallocation of Expenditure, 2014
Section 81 (2) (b) (iii) of the PFMA requires all payments for public monies to be supported by sufficient vouchers of proof of payment. The Ministry, in violation of this provision, failed to avail for audit examination payment vouchers amounting to $608 478 for the Harare – Mutare road project. The Audit therefore could not verify the nature of expenditure incurred under the project.
Furthermore, Treasury Instruction 0950 requires all expenditure on voted funds to be classified under appropriate sub-heads and items as shown in the Estimates of Expenditure. During the period under review, Treasury released $400 378 for the Harare – Mutare project but funds were used to settle outstanding invoices for other projects which had no allocation under the 2014 Budget. These were Harare – Masvingo $199 785 – [HON. MEMBERS: Inaudible interjections.]-
Hon. Speaker, can I be heard in silence because I am talking here and I am mentioning names of some constituencies where Members of Parliament may have interest because they are really responsible for those communities. I think understanding and hearing what I am saying here, will give the benefit of a report back to their constituencies.
THE TEMPORARY SPEAKER: May the Hon. Member be heard in silence! You are protected.
HON. MPARIWA: Shamva – Bindura $58 965, Harare – Gweru $54 473, Makuti reseal unit $45 027 and Manyame Bridge $41 790. These expenditures were then reported under Harare – Mutare project thereby overstating the expenditure on the project whilst understating expenditure on various other projects.
There is no doubt that such an environment is conducive for fraudulent activities since payments cannot be verified in the absence of supporting documentation and value of projects may be distorted through misstating of expenditures. Without following proper budgetary processes, State funds may be directed at unintended purposes resulting in missing national priorities.
The Permanent Secretary conceded to the audit observations. He indicated that supporting documentation for the unvouched expenditure could not be availed during the audit period as they were in the provinces. He blamed the manual recoding system obtaining in the provinces. The Ministry indicated that some vouchers were collected from the provinces and the amount had been reduced to $400 000. The Permanent Secretary made a commitment that he would avail the outstanding documentation during the entrance meetings of the 2016 audits. In relation to funds diverted from the Harare – Mutare road project, he pointed out that the transfer of funds to other projects was in response to litigations instigated by the contractors. He acknowledged the need to seek Treasury concurrence in future.
The Committee noted with concern the reluctance by the Permanent Secretary to follow proper procedures by unilaterally moving funds from one project to another without securing Treasury approval.
18.104.22.168 The Committee recommends that the Civil Service Commission, the appointing authority, should by 31stAugust, 2017, issue a stern warning against Mr Munodawafa, the then Permanent Secretary for the Ministry, for failing to seek Treasury approval for moving funds on projects approved by Parliament and disguising expenditure under different projects.
22.214.171.124 The Ministry should avail vouchers for the outstanding amount of $400 000 by 31stAugust, 2017.
4.1.2 Unreconciled figures for the Receipts and Disbursement Return and the PFMS figure, 2014
The Receipts and Disbursement return showed an amount of $20 091 146 and the PFMS showed a figure of $21 284 987 resulting in a variance of $1 193 840. The Ministry did not carry out reconciliations to establish the source and composition of the variance. The then Permanent Secretary indicated that reconciliations were lagging behind resulting in the variance. He advised the Committee that the reconciliations for 2014 were completed and the figures were reconciled.
With such weak internal controls relating to revenue management, there is a risk of losing State revenue as some receipts could not be accounted for. The Committee noted with concern the lack of supervision by Management in the Ministry in respect of reconciliations that must be carried out on a monthly basis. Reconciliations submitted had no supporting documentation.
126.96.36.199 The Committee recommends that the Ministry should submit to Parliament the reconciliations with the supporting documentation by 1stAugust, 2017.
4.1.3 Understated Expenditure
The Audit observed that Treasury made direct payments to service providers amounting to $2 762 669 on behalf of the Ministry while the Appropriation Account submitted by the Ministry reflected an amount of $2 590 004 for direct payment resulting in a variance of $172 695.
The Permanent Secretary informed the Committee that the Ministry had investigated and found out that the direct payments made by Treasury as per Treasury records were correct and the payments were made to ZINWA. The matter has therefore been addressed to the Committee’s satisfaction.
4.1.4 Suspected Fraud
An Internal Audit Report revealed that between January 2012 and May 2014, the Ministry suffered a loss of $181 950 through fraudulent activities perpetrated by an Accounts Clerk at the Victoria Falls station. The Accounts Clerk resigned when the fraud was uncovered to avoid prosecution. At the time of concluding the audit, no action had been taken by the Ministry whereas Treasury Instruction 0435 requires that a police report be made immediately after preliminary investigation into such kind of loss pointing to criminal action.
The Permanent Secretary informed the Committee that the fraud had not been detected until after the audit. The Ministry suspected that there was connivance between the Vehicle Inspection Department (VID) official and a bank employee. It was a question of under-banking which was concealed by the two individuals involved which went on for some time. The Permanent Secretary also indicated that the official absconded from work after the matter was reported to the Police. He went further to state that the Ministry had instructed Pension Office to stop disbursement of terminal benefits accruing to the former employee as part of efforts to recover the defrauded funds. However, terminal benefits were far too little considering the amount in question.
To strengthen internal controls, the Permanent Secretary informed the Committee that the Civil Service Commission had appointed two accountants to perform receipting duties and prevent such function from being performed by Vehicle Inspection Department inspectors as was the practice.
The Committee noted with concern that no proper care was being taken by the Ministry to safeguard public funds. Where under qualified personnel are entrusted with public funds, the Committee expects the Ministry to ensure constant supervision. The fact that the Ministry admitted that it took long for it to detect the fraud, points to lack of supervision in the Ministry. There is a danger that Government might be losing a lot of funds through such fraudulent activities.
188.8.131.52 The Committee recommends that since the terminal benefits are not adequate to cover the stolen funds, the Accounting Officer should by 31stJuly, 2017report the matter to the Police to ensure that the culprit is brought to book.
4.1.5 Absence of supporting documentation for direct payments to telephone and cellular phone service providers
The Auditor General observed that Treasury made direct payments amounting to $240 330 to telephone and cellular phone service providers. The Ministry did not make any effort to obtain confirmation of amounts owed and receipts of payments made from service providers as required by regulations. During oral evidence, the Ministry availed receipts from Telone and Netone but the amounts were more than the payments made.
184.108.40.206 The Committee recommends that, going forward, the Ministry should consistently check direct payments made by Treasury to service providers and ensure that they maintain up to date records on the management of public funds.
4.1.6 Weak controls in telephone usage by officers
The Audit observed that the Ministry’s telephones at the Head Office were open to Members of staff via the switchboard but there are no controls in place to monitor and limit time spend on calls. The Ministry incurred a bill amounting to $1 919 774 which has been outstanding since 2012. The Permanent Secretary informed the Committee that they have since installed a PABX system which makes it possible to monitor and control usage. Since its installation, he indicated that usage has gone down and they are currently paying an average of $649 per month. The Committee commends the Ministry for taking corrective action.
4.1.7 Failure to submit Annual Departmental Asset Certificate
In violation of Treasury Instruction of 2004, the Ministry did not submit for audit examination an Annual Departmental Asset Certificate which shows whether all assets were properly accounted for. Some provinces submitted incomplete certificates and the Head Office register was not up to date. The Permanent Secretary indicated that most officials in his Ministry were not conversant with requirements for maintenance of assets registers. They have put in place teams that go around twice a year to all depots for purposes of updating assets registers. The Permanent Secretary advised the Committee that the Master Assets Register was now up to date. However, the Ministry up to the time of concluding this Report had not submitted the Annual Departmental Asset Certificate.
220.127.116.11The Committee recommends that the Ministry should, by 31st August 2017, submit the Annual Departmental Asset Certificate to the Auditor General.
4.1.8 Unpaid invoices for Department of Roads
The Audit observed that the Ministry had unpaid invoices amounting to $7 562 005 (2012: $8 331 008) for services rendered. There was no budget to clear the outstanding debts. As observed in previous audits, there was no system in place to monitor timely payment of creditors exposing Government to potential litigation by creditors. The Permanent Secretary informed the Committee that the issue of outstanding debts was a big challenge for the Ministry and that it has been consistently in discussion with Treasury to disburse funds to settle outstanding obligations. In 2016, the Ministry was given US$2 million to settle the outstanding obligations and for 2017, there is a budget allocation of US$2 536 000. Due to tight fiscal space, the Ministry indicated that the Treasury had in situations where the Ministry was facing litigation, requested ZINARA to meet the Ministry’s obligations.
The Committee noted with concern that the budget allocations for the Department of Roads are not taking into account the long outstanding debts going as far back as 2012. There is a risk that the Ministry would face litigation and Government would lose out more. It is also worrisome to the Committee that the Ministry continue to incur additional debts regardless of its indebtedness which is worsening the situation. There are therefore poor budgetary controls within the Ministry.
Though the Ministry indicated that payments were made on the first come first served principle, there were situations where those who were contracted late were being paid ahead of those who came in earlier. The Ministry said in such cases, there were threats of litigations. In the absence of a transparent system of paying creditors, this could be a source of corrupt practices.
18.104.22.168 The Committee recommends that the Ministry should, by 31stAugust 2017, engage Treasury on the possibility of taking over the long outstanding debts by the Ministry. Going forward, the Ministry should operate within the approved budget.
22.214.171.124 The Ministry should by 30th September 2017 put in place a transparent system of paying its creditors.
4.2 Appropriation accounts for the Ministry of Transport and Infrastructural Development for the year ended December 31, 2015.
4.2.1 Undisclosed Ministry Expenditure met by Statutory Funds
The Ministry did not disclose payments that were made on its behalf by Statutory Funds to directly settle its obligations for goods and services during 2015. Over the years, the Auditor-General noted that some expenditure for the Ministry’s Head Office were charged to New Number Plate Revolving Fund and Traffic and Legislation Fund without providing a detailed disclosure of assistance received.
The Permanent Secretary, in his response to the audit observation, argued that his Ministry indeed disclosed but probably not in the format acceptable to the auditors. He also defended the intermingling of funds from the Appropriation account and Statutory Funds on the premise that they were both administered by the same officials. The Permanent Secretary admitted that he was knowingly violating the Constitutions of the Funds in question under the pretext that he had started discussion with Treasury on the possibility of amending the constitutions to allow access by other senior officials in the Ministry. He went on to blame the auditors for reporting 2013 issues in 2016 which is well out of time.
The Committee noted with concern the total disregard of regulations and procedures by the Permanent Secretary and apparent lack of remorse for his conduct. The Committee’s understanding was that Fund Constitutions provide direction on the management of funds and they have a force of law. It is also the Committee’s understanding that monies under these funds should be accounted for separately from appropriated funds. Furthermore, it is the Committee’s understanding that the Auditor General at the beginning of each year gives to Accounting Officers the format in which specific returns for both appropriations and Funds should be prepared. The PFMA compels accounting officers to submit accounts for appropriation and funds accounts for prior year within 60 days and 90 days respectively in the beginning of a financial year. This effectively means reporting for both is more or less at the same time and surely reporting on 2013 issues in 2015 should not be blamed on the auditors but the Accounting Officer who delayed in submitting financial statements. Detailed disclosure of all the sources of expenditure is more-so in line with best practice.
It is of great concern that the then Permanent Secretary, with impunity, was violating regulations and went on to apportion blame on auditors for raising issues on accounts that he submitted well out of time. The Permanent Secretary has a duty to manage public funds within the ambit of the governing regulatory frameworks and be held accountable in the manner he has managed such public funds.
126.96.36.199 The Committee recommends that the Permanent Secretary should with immediate effect observe the Constitution of the Funds under his Ministry and ensure that expenditure from such Funds are as per the dictates of those Constitutions.
188.8.131.52 The Civil Service Commission, should by 30th September, reprimand the Accounting Officer for wilful violations of Funds Constitutions.
4.2 Public Financial Asset not prepared according to the recommended format
In violation of the PFMA, the Audit observed that the return for Public Financial Assets was not prepared according to the recommended format as it excluded columns such as balances as at January 1, 2015, expenditure for the year, adjustments and closing balances as at December, 31, 2015. Attempts by auditors to get confirmations form parastatals and other public entities under the Ministry did not help the situation as only three out of eight entities responded. As a result, the auditors could not establish whether the balance of $97 078 183 disclosed in the return represented the correct net amounts of loans and investments outstanding as at December 31, 2015. It is of concern to the Committee that failure to disclose all transactions for loans and investments does not promote transparency and accountability which is a requirement under the Constitution of Zimbabwe.
As portrayed by the Ministry in its earlier responses, they professed ignorance of a recommended format which the Auditor General indicated was issued to all Accounting Officers by her Office in the beginning of every year. The Ministry however indicated that it had since complied and submitted a return in the recommended format. A return for public financial assets in conformity with the recommended format was subsequently submitted as evidence and the matter has therefore been addressed to the Committee’s satisfaction.
4.2.3 Rolling out PFMS to Revenue Collection Stations
The Audit reported that out of 27 revenue collecting stations, 15 were not connected to SAP while users at five stations which had SAP running had no profiles and needed training. At six stations, SAP was down and the receipting was done manually – meaning that most of the transactions from outstations were processed at the Ministry’s Head Office. It was also observed that delays in submitting sub-collectors schedules by stations, posting of revenue information was lagging behind and there were variances between receipts in the PFMS and cash reflected in the bank account throughout the year. There is a risk of exposing public funds to fraud in such a highly manual environment.
The Permanent Secretary informed the Committee that the SAP project was driven by Treasury and as a result, the Ministry had no control in terms of getting all the revenue collection stations connected. He indicated that two stations, one at Eastlea and the other one at Belvedere were connected. For stations still on the manual system, the Civil Service Commission had approved that the Ministry engage staff with accounting skills to ensure that procedures are adhered to.
The Committee was aware that there were plans by Treasury to roll out SAP to districts and it is the Committee’s expectation that this process is speeded up to enhance accountability in revenue collection.
4.3 Roads fund accounts for the years ended December 31, 2013 and 2014
4.3.1 Variances between disbursements made to the Fund by ZINARA and amount reflected in financial statement in 2013 and 2014
The Audit observed that ZINARA made disbursements amounting to $11 800 882 for maintenance of roads in 2013 and the fund financial statements reflected $10 363 302 as the amount received from ZINARA resulting in a variance of $1 437 580. The Audit later confirmed that of this variance, $936 870 was in respect of direct payments made to contractors by ZINARA, leaving a balance of $500 710 unaccounted for. It was also noted that the Fund did not conduct monthly income reconciliations during 2013.
In 2014, the fund financial statements on the same reflected disbursements of $11 610 945 while the ZINARA schedule showed a figure of $9 409 285 giving a variance of $2 201 660. No reconciliation was done to establish the source and nature of the variance.
The Permanent Secretary informed the Committee that variances in 2013 were due to direct payments made by ZINARA to service providers without the knowledge of the Ministry. The department then prepared its accounts based on disbursements amounting to $10 363 302 as reflected in its bank account. After the audit, an investigation was carried out and established that the variance of $1 437 580 was relating to direct payments. The Ministry advised the Committee that it had now reconciled the figures. However, the Committee noted that the schedule for direct payments that was submitted by the Ministry as evidence was not supported by vouchers or invoices being paid rendering the evidence incredible.
As for the $2 201 660 observed in 2014, the Ministry indicated that it was still carrying out reconciliations to establish the source.
The Committee noted with concern the challenge in the Ministry of maintaining up to date records. Reconciliations should be carried out on a monthly basis and any variances observed should be investigated at the material time. There is really a serious performance challenge and lack of supervision in the Ministry. The Permanent Secretary indeed admitted before the Committee that there was a casual approach by his officers in dealing with these matters.
184.108.40.206 The Committee recommends that the Ministry should, by 31stAugust, 2017, submit invoices and vouchers supporting the $1 437 580 direct payments made by ZINARA in 2013.
220.127.116.11 The Ministry should as a matter of urgency finalise reconciliations for the 2014 ZINARA disbursements and submit credible evidence explaining the variations of $2 201 660 by 31st August 2017.
4.3.2 Irregular payment of bonuses to casual workers
In 2013, the Audit observed that for four years in succession, the Fund paid bonuses to casual workers violating Section C, part 3 of the contract signed between the Fund and the workers which stipulated that no bonuses should be paid. In addition, there was no authority from the Civil Service Commission to support payment of bonuses amounting to $97 630. This was a clear improper charge against public funds which may result in budget overrun.
The Permanent Secretary conceded that it was wrong for the Fund to pay bonuses to casual workers. He added that the Director in charge of the Fund thought that the Fund was autonomous and he could run it as he wishes. The Ministry stopped payment of bonuses after the matter was raised with auditors.
The Committee was perplexed to note that there was a circular from the CSC which clearly stipulates that casual workers were not entitled to bonus and the Director in charge of the Fund went on to pay such bonuses in disregard of the Circular. The Ministry took no action against the Director, yet this reflected on the performance of the Director.
18.104.22.168 The Committee recommends that the CSC should by 31stAugust 2017, issue a cautionary letter against the Director of the Fund for failing to observe policies and procedures in dealing with public funds.
4.3.3 Procurement of a binder material worth $320 000 without following Tender procedures in 2014
Statutory Instrument 161 of 2008 – Procurement (amended) Regulation Number 16 stipulates that purchases of at least $300 000 should be done through a formal tender. During 2014, the Audit observed that the Fund purchased a binder material called eco-roads soil stabilizer meant to strengthen dust roads at a cost of $320 000 from a private company without flouting formal tender.
The Permanent Secretary indicated that since the material was purchased for research purposes, the Department of Roads did not think that it was necessary to proceed by way of a formal tender. However, the Committee noted with concern that the Statutory Instruments had no such exclusions for procurement for purposes of research. The Permanent Secretary conceded that the action was wrong and he indeed apologised for a clear disregard of laid down policies and procedures.
4.4. NEW LIMPOPO BRIDGE FUND, 2014
The Fund was established to finance the maintenance of the old and the new Limpopo bridges and the roads linking the South African and the Zimbabwean border. ZINARA was appointed as a tolling agent of the Fund which collects around $1.6 million toll fees every month. The Fund received a qualified opinion in 2014 and the issues are highlighted below.
4.4.1 Fund Revenue understated by ZAR21 577 326
The Audit observed that the financial statement had an omission of ZAR21 577 326 which was collected between November and December 2014. The Audit was therefore not satisfied that the $3 241 168 disclosed in the financial statement represented all the revenue that was collected by ZINARA on behalf of the Fund. In coming up with the revenue figure, the Fund relied on the bank statements and deposit slips supplied by ZINARA and did not keep copies of receipts and maintain monthly summaries of revenue collected. This could enable the Fund to carry out independent reconciliations against bank statements. Failure to account for all revenue collected may result in material misstatement of financial statements. Furthermore, revenue may be misappropriated if receipts and monthly returns are not submitted by ZINARA for verification.
The Permanent Secretary indicated that motorists travelling across the Limpopo bridge have the liberty to pay either in United State dollars or in Rands and yet they maintain a United States Dollar bank account. The bank was supposed to convert the Rands to United States Dollars which did not take place. He advised the Committee that there is now compliance in that regard.
In response to the absence of copies of receipts and monthly summary of revenue collected, the Permanent Secretary indicated that the computer system they inherited from the private player who was previously engaged on a BOT arrangement did not produce additional copies of the receipts. However, the Ministry had since instructed ZINARA to change the system to ensure that it generates additional copies of receipts in order to comply with audit requirements. The Audit also noted that monthly reconciliations between duplicate copies of receipts, bank deposit slips and bank statements were not being carried out to which the Permanent Secretary indicated that they were now being carried out.
22.214.171.124 Going forward, the Committee recommends that the Fund should keep copies of receipts and monthly summary of revenue collected and carry out monthly reconciliations to enable them to detect errors and omissions at the material time.
126.96.36.199 The Ministry should submit monthly bank reconciliations by 31st August 2017 as evidence that monthly reconciliations were now being carried out.
4.4.2 Absence of a Contract appointing ZINARA as a collection agent
The Audit observed that there was no contract entered into, between ZINARA and the New Limpopo Bridge Fund stating the terms and conditions under which ZINARA was appointed as a collection agent, save for a Minute written by the Accounting Officer advising ZINARA to retain 20% of the toll fees collected. It also observed that the Statutory Instrument 147 of 2013 which authorised ZINARA to collect toll fees on behalf of the Fund was silent on the retention of 20% of toll fees by ZINARA.
The Permanent Secretary informed the Committee that the decision for ZINARA to become the collection agent was hurriedly taken and was unanticipated. He indicated that a contract was now in place. Regarding the 20% retention fee, he indicated that it was in fact 15% and the two governments had agreed on the percentage.
4.4.3 Absence of supporting documents for payments amounting to $1 000 000.00 for road works and salaries for contract workers amounting to $32 948
Treasury Instruction 1216 requires that a payment voucher should be supported by adequate documentation. The Audit observed that no expenditure returns were submitted to support payments amounting to $1 000 000.00 allegedly spent on road works and salaries for contract workers amounting to $32 948 were also not supported by pay sheets.
The Permanent Secretary indicated that the supporting documents in both instances were in the provinces and what was needed was to get the copies from provinces and avail them to auditors. He pointed out that supporting documents for the $1 million were indeed availed to the auditors before the finalisation of the audit. Pay sheets supporting the salaries for casual workers together with the alleged missing vouchers were submitted to the Committee and the matter has been addressed to the Committee’s satisfaction.
4.4.4 Absence of supporting documentation for the source of Accumulated Fund figure of $722 562
The Audit could not validate the source of the Accumulated figure of $722 562 reflected in the Income and Expenditure as it was extracted from a bank statement and was not supported by source documents. The Audit therefore, could not place reliance on the Accumulated Fund balance of $2 654 009 reflected in the balance sheet.
The Permanent Secretary pointed out that $722 562 relates to the first one and a half months of operation after they took over from the private player and at that stage, they had no guidelines as to how they were supposed to operate and then they operated in the manner that was not in compliance with the expectations of the auditors.
The Committee was concerned that the Ministry has been extracting figures from the bank statements or receipts instead of using ledgers to prepare financial statements. This is contrary to good accounting practice and reflects weak accounting control and poor record keeping.
188.8.131.52 Going forward, the Committee recommends that the Ministry should maintain proper accounting records and ensure that accurate and complete information is kept.
4.5 New vehicle security registration number plate revolving fund 2013 and 2014
The Fund was established to import blank registration plates of the specifications stipulated in the vehicle registration and licensing regulations and incidental materials, for production of vehicle registration number plates and sell to vehicle owners. The Fund in both years received adverse opinions which are an indication that there were material misstatements which render financial statements unreliable. This state of affairs is of great concern to the Committee as those entrusted with public funds should exercise due diligence and care and instil public confidence. Below are the issues which gave rise to adverse opinion.
4.5.1 Failure to maintain ledger accounts for sale of Number plates, 2013
The Audit observed that the Fund did not maintain individual ledger accounts for sales realised by 32 agencies while some agencies did not submit monthly sales returns or receipts together with bank deposit slips to facilitate reconciliation of the sales figure. There were indications from monthly sales returns received from agencies that some number plates were cancelled. However, a schedule of the returns inwards for cancelled number plates was not availed for audit verification. As a result, the sales figure of $16 275 058 disclosed in the financial statements could not be validated. The situation did not improve in 2014 where the sales figure was $17 473 239.
Failure to carry out monthly reconciliations can result in errors going through the system undetected and such an environment is also conducive for fraudulent transactions.
The Permanent Secretary informed the Committee that the 2013 and 2014 figures had since been reconciled and were included in the re-casted financial statements which were submitted to the Auditor General’s office. To curb future recurrences, the Ministry now make use of its internal audit to carry out periodic audits which cover receipting and banking against sales just to ensure that if there are any discrepancies, they will be immediately attended to. The Ministry also has made it mandatory for all agents to submit sales returns together with the duplicates receipts and the deposits slips on a monthly basis and in the event an agent failed to comply with the directive, officials are dispatched to go and collect the documents. The Committee was satisfied with the measures taken to address the observation.
4.5.2 Absence of detailed stock takes procedures, 2013
The Audit observed that the Fund did not have detailed stock take procedures to provide guidance to officers. The Fund had a checklist that was not comprehensive enough to highlight condition, quantity and value of inventory on hand. No consolidated report was produced on the outcome of the stock take exercise conducted at year end. As a result, auditors could not confirm whether, the inventory disclosed in the financial statement with a value of $3 273 246 was accurate.In the absence of comprehensive stock take procedures, there is a risk that values of closing inventory may be manipulated.
The Permanent Secretary conceded that the system that was initially in place did not meet the Audit expectations. The Ministry had changed the system, the new system involved both internal and external auditors in the stock. The Committee was satisfied with the measures that were taken in addressing the observation. The Committee also questioned the basis of the price of number plates, considering that the Ministry had relied on one sole supplier over a period of more than 19 years. The Fund was also in a position to lend surplus funds to other entities and the Committee was wondering whether it was now a profit making venture or whether the percentage being retained should be reviewed. The Permanent Secretary indicated that the Ministry was seized with the matter within the context of ease of doing business. He confirmed that there was scope for reducing the price of number plates.
4.5.3 Suspense Account, 2013
There was a balance of $3 560 631 (2014:$3 560 631) disclosed in the financial statements and it had been outstanding since 2011. No evidence was shown to the auditors that the Fund had taken measures to either investigate or clear the suspense account. Existence of a suspense account implies that the financial statements are not reliable.
The Permanent Secretary informed the Committee that the balance relates to stocks that were procured prior to the introduction of the multicurrency regime and there was no guidance from Treasury regarding the conversion rate. Thus the balance in the suspense account therefore relate to the value that was placed on closing stock for raw materials and finished products. He however indicated that his Ministry got some guidance and recommendations from the Auditor General on how to recast the figure. There was therefore scope to recast the figures going back to 2009, based on the value which has been placed on those number plates.
184.108.40.206 The Committee recommends that the Fund should clear the suspense account by 30thSeptember 2017 based on the formula given by the Auditor General.
4.5.4 Long Term Advances to Air Zimbabwe, 2013
Audit observed that for the second year running, the Fund made some payments to Air Zimbabwe service providers without obtaining prior Treasury authority. Payments were then treated as long term loans, although no interest is being charged, contrary to the provisions of the Fund’s Constitution. The accumulated payments as at December 31, 2013 amounted to $22 909 504 (2012:19 875 976). The loan agreements had not been signed by Air Zimbabwe and no repayments had been received. During 2014 the Fund further advanced to Air Zimbabwe $7 578 660 as a loan to repay its operation expenses. The Audit further noted that there were no explanatory notes submitted with accounts on the long outstanding loans to Air Zimbabwe, which is required by best practice.
There is a risk that the Fund may fail to achieve its objectives if its revenue is diverted to other entities which is in violation of the Constitution of the Fund. The Committee further queried whether retention funds are justified if the Fund had such excess funds to loan out to other entities. In the absence of explanatory notes on items, the integrity of the financial statements may be compromised.
The Permanent Secretary admitted that the Ministry erred in diverting Fund monies to Air Zimbabwe without Treasury approval and offered an apology for its action. He confirmed that loan documents for all the amounts observed were in place. The Committee questioned the possibility of Air Zimbabwe paying back the loans, considering its current dire state.
220.127.116.11The Committee recommends that the Ministry approach the Treasury and work out the modalities for takeover of the debt for Air Zimbabwe by Treasury by 30 September, 2017. Going forward the Ministry should desist from diverting Fund revenue without Treasury approval.
18.104.22.168 The Treasury should assess and advise by 31st December, 2017 whether there is need for the Ministry to still retain the current percentage of the Fund revenue in view of the amounts, hovering around $23 million that have been extended to Air Zimbabwe though over a period of time.
4.5.5 Payment vouchers amounting to $555 572 not supported by invoices, 2013
The Audit observed that the Fund paid a total amount of US$555 572, that had no supporting invoices. The figure relates to cash withdrawals amounting to $88 593 that were made without the Chief Accountant’s approval and supporting payment vouchers; payment of wages and salaries totalling $174 517again without supporting documents and a further payment of $292 462 made on behalf of the Ministry Head Office still without supporting documents. Thus the auditors could not ascertain whether the payments were a proper charge against the Fund.
The Permanent Secretary defended the payment made on behalf of the Ministry on the basis that the Fund had no dedicated staff to run the Ministry and for him there was nothing wrong in utilising the Fund for administrative purposes. On the basis of the arguments advanced by the Ministry, the Fund was being used to augment resources appropriated to the Ministry, which is not the intention in terms of its Constitution. Regarding the missing vouchers, the Permanent Secretary indicated that they were available.
22.214.171.124 The Committee recommends that the Ministry should submit to Parliament all the supporting documentation relating to the $555 572 by 31st August 2017.
126.96.36.199 Treasury must review and advise by 31st December, 2017 on the need for the Ministry to continue to retain funds under the Fund, considering that it is now being used to fund expenditure ordinarily funded by appropriated funds.
4.5.6 Acquisition of Assets outside the approved budget, 2013
The Audit observed that the Fund purchased assets worth $302 960 which were not budgeted for. The assets were shredders, printers, scales and filing cabinets. However, seven scales valued at $9 429, have been lying idle ever since they were purchased. This resulted in wasteful expenditure.
The Permanent Secretary informed the Committee that the Ministry realised the need for filing cabinets for safe keeping of used receipt books by CVR during the course of the year.In relation to scales that were lying idle, he indicated that use of the scales was postponed pending a tender process for disposal of old number plates.
The Committee was concerned that the Ministry’s budget formulation was poor, considering they should have anticipated the need for the equipment during the budget formulation. There is also poor planning because the equipment was just purchased without clear objectives and direction as to what they really wanted to achieve. On one hand they purchased equipment with a view to dispose of old number plates by way of shredding. Later on they realised that there was some aluminium in the old number plates and they realised the opportunity to dispose them through sale. The Ministry really needed to be reminded that they are dealing with public funds and there is need to ensure there is efficiency, economy and effectiveness in the use of public resources.
188.8.131.52The Committee recommends that the Civil Service Commission should revisit the employment contract of the officials in the Ministry running the Fund and advice on their continued suitability by 31st December, 2017 in view of the glaring poor performance.
184.108.40.206 Treasury should by December, 2017, review the framework of the Fund, in view of the observations noted.
4.5.7 Purchased Vehicles under the Fund converted to personal issue vehicles to directors, 2013
The Audit observed that the Fund sought and was granted authority to purchase three vehicles valued at $128 179. However, the vehicles were later issued as personal vehicles to the Directors at the Ministry’s Head Office and $33 894 was spent on putting on extras, such as radios, sport lights and bull bars. Subsequently, the Ministry sought authority from Public Service Commission to convert the vehicles to personal issue vehicles and such authority had not been granted at the time of the audit.
The Permanent Secretary indicated that the vehicles were meant to be pool vehicles for CVR. However, there were three directors that had no personal issue vehicles, hence they were issued to directors. He claimed that the Ministry got Treasury and PSC approval to allocate the vehicles to the Directors. The Committee noted with concern that there is a clear violation of the Constitution of the Fund and there seems to be no consequences for such violations. The Accounting Officer actually defended use of the Fund to meet expenditure ordinarily funded through appropriated funds. In fact the Fund has proved to be an additional budgetary source for the Ministry.
220.127.116.11 The Committee recommends that the Ministry should, by 31st August 2017, submit to Parliament approvals from Treasury and the CSC for its decision in issuing Fund vehicles to Directors in the Ministry.
18.104.22.168 Treasury should, by 30th September 2017, submit to Parliament a justification for continued retention of funds by the Ministry under this Fund, in view of these violations and other uses which the Funds are being put to.
4.5.8 Inadmissible Accounting Records, 2014
The Audit observed that the Fund used excel spreadsheet to maintain its records instead of a reliable accounting package. There was no consistency in the recording of manual and excel ledgers, resulting in eight manual ledger records reflecting a total of $2 457 581, which was not posted to excel ledger accounts, while sixteen excel ledger accounts had expenditure amounting to $2 092 206, which was not posted to the manual ledger. The fourteen ledger accounts which were maintained in both manual and excel ledger accounts, separately, had variances amounting to $1 930 756. There is a risk that inconsistencies in recording financial transactions may result in materially misstated financial statements and failure to reconcile manual and excel records could result in failure to detect errors and fraud.
The Permanent Secretary indicated that they have adopted a pastel accounting version 14. He also indicated that the figures were reconciled.
The Committee was concerned with the extent of poor record keeping that was prevalent in the Ministry and the inaction by the Accounting Officer as these issues are reported year after year.
4.5.9 Trade Receivables that could not be ascertained
The Audit could not ascertain the existence, accuracy and completeness of trade receivables amounting to $1 201 012 as the Fund did not maintain detailed individual debtor records. There were no debtor reconciliations carried on throughout the year. One agent of the fund understated sales for the month July, 2014 by $46 493 thereby under remitting revenue by the same amount.
The Ministry indicated that individual debtor records were now being maintained and reconciliations were being carried out. The Committee was however, concerned about the weak controls in the Ministry which can possibly lead to fraud if no action is taken to address the issues.
22.214.171.124 The Committee recommends that the Ministry should, by 31st August 2017, submit to Parliament evidence of reconciliations and individual debtor records being maintained.
4.5.10 Absence of a Management Committee to administer the Fund
The New Number Plate Revolving Fund Constitution Section 3 (a) states that the Fund shall be administered by a Management Committee appointed by The Accounting Officer who shall be responsible for the day-to-day running of the Fund. The Fund has been operating without a Management Committee since its inception. In the absence of the Committee, decisions taken by Management may not be independent as has been demonstrated in this Report.
In his response to the observation, the Permanent Secretary regretted that the requirement of setting up a Management Committee was not fulfilled. He has made an attempt to set up one such Committee but he indicated that the Committee was not operational as the Chairman was pursing part time studies.
The Committee noted with concern that there was a deliberate effort by the Permanent Secretary to downplay the need of a vibrant Management Committee to administer the Fund. The challenges besetting the Fund are just numerous to guarantee and instil public confidence that there is proper safeguard and management of public resources under this Fund. The Fund is rather a cash cow for the Ministry which is not the intent and purpose for which it was set.
126.96.36.199 The Committee recommends that the Ministry should, by 30th September 2017, put in place a viable Management Committee to administer the Fund and demonstrate ample evidence that the Committee is now in charge of the affairs of the Fund.
4.6 TRAFFIC AND LEGISLATION FUND 2012- 2014
The accounts for the Fund for 2012 to 2014 received an adverse opinion which is a clear indication that this is another Fund under the Ministry that is badly administered. Below are issues raised in the audit?
4.6.1 Computerised Accounting System partially utilised
The Audit observed that the Fund purchased computerised accounting software called pastel in 2011 to ensure that reliable financial statements were produced and that the organisation’s information was protected. However, the Fund did not have an approved Information Technology security policy. The Chief Accountant acted as the system administrator, thus exposing the financial information to manipulation, as there was no segregation of duties. While the computerised accounting system was introduced in 2011, it was not being fully utilised as most of the financial information was not uploaded on the system.
The Permanent Secretary informed the Committee that the Ministry until recently had no IT skills at the appropriate levels. Their target is to have an IT policy by end of 2017. Regarding the full functionality of the system, he informed the Committee that they are currently in discussion with the service provider to enable it to deal with depreciation and revenue processes which were said to be the outstanding functions. He pointed out that the Chief Accountant was the supervisor as opposed to the Administrator of the software. He went further to state that they did not feel that there was any compromise by having the accountant there.
The Committee noted with concern that the Permanent Secretary has not been consistent in his responses. To the auditors he indicated that the IT officers did not have the capacity to administer the software and as a result, the Chief Accountant was acting as the Administrator. During oral evidence session, he then denied that the Chief Accountant was an Administrator. He blamed his junior staff for the responses given to the auditors. The Committee was very much concerned with the conduct of the Accounting Officer in dealing with audit matters. He displayed total disregard of the audit processes and as a result, the Committee could not place reliance on the evidence he gave.
188.8.131.52 The Committee recommends that the Ministry should, by 31st August 2017, submit to Parliament reliable evidence regarding the level of utilisation of the computerised accounting system and such evidence to include the officers administering the system.
184.108.40.206 The Committee recommended that the Civil Service Commission should assess the conduct of the Permanent Secretary in relation to audits and take appropriate action by 31st December 2017.
4.6.2 Suspense Account
Audit observed that the Fund’s balance sheet had a suspense figure of $2 548 991 and auditors could not verify the source of this figure as supporting ledger accounts were not being maintained. It was established that in 2009 the accumulated figure included an amount of $2 499 758, whose origin could not be established. The suspense figure has been carried on over the years without being investigated. Continued failure by the Fund to investigate the source of the balance affects the integrity of the financial statements and errors may occur undetected.
The Ministry attributed the figure to the period prior to the dollarization and indicated that they have sought guidance from the Auditor General in addressing the observation. However, the Ministry had simply removed the figure from the financial statement without supporting documentation showing how it has been removed from the financial statements.
220.127.116.11 The Committee recommends that the Ministry should fully investigate the suspense account and clear the balance by 30th September, 2017.
4.6.3 Payment for Construction works without supporting documentation
The Audit could not establish whether payment for construction works amounting to $182 301 which included $43 146 incurred in 2013 were a proper charge to public funds. The payments were for hiring of equipment. There were no payment vouchers compiled, neither were there invoices, competitive quotations and certificates of completion availed to auditors.
Auditors also reported that they failed to establish whether expenditure valued at $929 851 disclosed in the 2012 financial statements represented a fair value of projects, that were completed or under construction, in the absence of work progress certificates. The projects undertaken at various Vehicle Inspection Depots included construction of some hill starts and office blocks.
The Ministry indicated that they have now centralised all payments done under the Fund. The Accounting Officer approves all payments to eliminate loopholes. He pointed out that construction of hill starts was under the purview of the Provincial Road Engineer and there were no certificates produced for the work. Going forward, all construction work has to be certified by the Ministry of Local Government, Public Works and National Housing.
The Committee was concerned about payments being made without supporting documents as the issue has been reported in all the four Fund Accounts.
4.6.4 Absence of supporting documentation for revenue received
The Audit could not place reliance on the revenue figure of $5 346 014 (2013: $5 158 177) disclosed in the financial statements, as the cash book was updated using entries from the bank statements, instead of using amounts from actual receipts together with related sub-collectors schedules from all depots. As a result, there were un reconciled differences of $233 858 (2012: $251 085) between, figures shown in the financial statements and those in the ledger accounts.
The Ministry indicated that receipts are now being received on a weekly basis from the various collecting centres and reconciliations are carried out at the end of every week. It was also indicated that the difference of $233 858 had since been cleared. The Committee expressed concern that the Accounting Officer waits for audits to point out issues and the review does not seem to have a mechanism to review its systems.
18.104.22.168 The Committee recommends that the Ministry should, by 31st August 2017, avail supporting evidence to Parliament of weekly reconciliation being carried out and the differences cleared.
4.6.5 Unrecovered Travel and Subsistence Advances
The Audit noted that Travelling and Substance Advances issued to staff members were not being acquitted within the stipulated period of 30 days as required by Treasury Instruction 1505. This resulted in an increase in 2014 of outstanding advances by 94% to $352 081from $181 357 in 2013. The Fund did not put in place mechanisms to recover outstanding advances.
The Permanent Secretary admitted that his officials were not doing their work as expected, resulting in one of the officials being discharged from the service for this and other misdemeanours. He advised the Committee that the figure has gone down to $93 960.
22.214.171.124 The Committee recommends that the Ministry should, by 30th September 2017, submit to Parliament evidence of recoveries made and a schedule showing officers who are yet to acquit and action being taken to recover the amounts.
4.6.6 Procurement of fuel on behalf of the Ministry
Audit observed that the Fund purchased fuel coupons with a value of $707 921 in 2014 and $953 757 in 2013. The fuel coupons were issued to VID depots and to the parent Ministry. It was observed that part of the fuel expenditure amounting to $227 840 was paid without compiling payment vouchers. It was also observed that the Fund and Ministry accounting systems are not integrated, posing a risk of fraud if adequate records are not maintained.
The Permanent Secretary again defended the use of Fund resources to meet expenditure funded by appropriated funds on the basis that the Fund had no independent stuff but was administered by officials at the Ministry’s Head Office. Though the Head Office officials administer the Fund, it is the considered view of the Committee that there should be a clear demarcation of expenditures and ensures that Fund revenue is utilised for the purpose for which the Fund was established.
126.96.36.199 The Committee recommends that the Ministry should, by 30th September, 2017, set up a Management Committee responsible for the day to day running of the Fund.
188.8.131.52 Treasury should, by 30th September, 2017, review and advice on the continued retention of funds by the Ministry, in view of the violations observed.
4.6.7 Advances to Treasury
It has been reported that in 2009 the Fund advanced $888 678 to Treasury for the purchase of vehicle spare parts. Since that time the amount has been appearing in the Fund’s balance sheet as an advance. There was no evidence of follow up to ensure that the advance was recovered.
The Permanent Secretary informed the Committee that the Ministry made some follow ups with Treasury and the response was that Treasury was looking at advances from these funds in a holistic manner. Again, the Committee was dismayed to note that the Permanent Secretary gave a response that was at variance with the one he previous gave to auditors. He had said to the auditors that the amount was wrongly classified as an advance to Treasury when in fact it should have been treated as an expense. He indicated that the error had since been corrected. Under such circumstances, the Committee is left wondering as to what exactly is the correct position regarding the matter.
184.108.40.206 The Committee recommends that the Ministry should, by 31st August 2017, submit to Parliament documentary evidence regarding the correct stance in relation to the advance.
4.6.8 Absence of Assets Register for the Fund
Accounting Officer’s Instruction clearly states the need for assets under the Fund to be recorded in an asset register clearly marked with the name of Fund. The Audit observed that the Fund was not maintaining a separate register from its parent Ministry. As a result, the assets belonging to the Traffic and Legislation Fund could not be identified and verified form those of the Ministry.
The Permanent Secretary informed the Committee that there were administrative lapses and the Ministry now maintains a separate asset register for the Fund.
220.127.116.11 The Committee recommends that the Ministry should, by 31st August 2017, submit to Parliament an asset register for the Fund.
4.6.9 Failure to maintain ledger accounts for depreciation
Audit observed that the Fund did not maintain ledger accounts for depreciation. As a result, the rates applied in the calculation of depreciation were different from those provided in the accounting officer’s instructions resulting in a net understatement of depreciation in the 2013 financial statement by $77 676. The Permanent Secretary informed the Committee that the ledger accounts for depreciation were now in place and that correct rates were now being used.
18.104.22.168 The Committee recommends that the Ministry submit to Parliament the ledger accounts for depreciation by 31st August 2017.
The Committee draws a general observation that the Ministry has no separate accounting units within its structure to oversee the administration of each of the four Funds under its purview, save for, the Central Vehicle Registry. This arrangement is the main source of the numerous challenges and inefficiencies confronting these Funds. There is one Chief Accountant responsible for the administration of these Funds in addition to the Appropriation Account. Consequently, the state of governance in the administration of the Funds leaves a lot to be desired. The Constitutions are very clear on the need for Management Committees to oversee the day to day administration of these Funds, but this has been ignored and there are no consequences for such non adherence to the regulations. These have to be constituted as a matter of urgency.
The attitude of the Permanent Secretary as the Accounting Officer in respect to audit issues makes a mockery of the Office of the Auditor General. This has been displayed in the manner he has responded to audit observations which did not tackle the issues at hand. The PFMA is very clear on the need to cooperate with auditors in the process of executing their constitutional mandate. To say the least, the Permanent Secretary had shown disregard for the work of the Audit office as similar issues are raised year after year without corrective action being taken. He had also shown disregard for laid down policies and procedures as he was not apologetic for violating Constitutions of Funds under the Ministry.
He had further shown disregard for the Treasury in failing to seek approval for operating outside the regulations when situations demanded so. The Permanent Secretary displayed a lax attitude even when he responded to questions put to him by the Committee. The Committee gave stern warning to the Permanent Secretary to reflect on his conduct and ensure that he provides that assurance that he is properly managing public funds in line with laid down policies and procedures.
Lastly, as observed in other Ministries, Funds are generally poorly managed by Ministries when compared to Appropriation funds as demonstrated by the Ministry of Transport and Infrastructural Development. Going forward, Treasury should direct that all revenue collected under various funds be deposited into the Consolidated Fund before it can be disbursed to Fund Administrators to ensure proper utilisation. I thank you