Eight parastatals in red
The country’s first ever audit report on statutory corporations has exposed glaring weaknesses in financial control and operations by government companies despite having boards of directors which are supposed to provide good governance oversight.
The audit report in Malawi News possession was done by the National Audit Office and covers the year ending June 30, 2018.
The audited statutory corporations are: Blantyre Water Board (BWB); Lilongwe Water Board (LWB); Southern Region Water Board (SRWB); Northern Region Water Board (NRWB); National Oil Company of Malawi (Nocma); Electricity Generation Company of Malawi (Egenco); Malawi Housing Corporation (MHC) and Agricultural Development and Marketing Corporation.
The report dated July 11, 2019 signed by acting Auditor General Thomas Makiwa and sent to Speaker of National Assembly, shows that the parastatals, among others, have failed to comply with Taxation and VAT and Pensions Acts.
Makiwa has categorised BWB and Admarc as high risk organisations, with the others as low or medium risk organisations, depending on their financial performance.
Cumulatively, the statutory corporations, among others, failed to remit over K2 billion of Pay As You Earn (PAYE) tax for employees. They also failed to remit over K2 billion of pension deductions for employees. They further failed to remit over K1 billion withholding tax to Malawi Revenue Authority.
“It was noted during the audit of accrued expenses that the Board is not able to timely remit Pay As You Earn tax to the Malawi Revenue Authority. This has resulted in the outstanding balance of K1.4 billion as at 30 June 2018,” says the report about BWB.
The report adds: “As per Section 102 of the Taxation Act, PAYE becomes due on the 14th of the following month. This is therefore contrary to the requirements of the Taxation Act.”
BWB also did not remit K1.15 billion Value Added Tax to MRA as of June 30, 2018.
The water board further failed to remit K775 million pension contributions, contrary to Section 61 (1) of the Pensions Act, 2011 where an employer is required to remit pension contributions to Pension Fund Administrators not later than 14 days of the end of the month to which the contribution liability arose.
The board had also K4 billion electricity arrears. It also had to settle K6.8 billion part of a loan awarded by International Development Agency, European Investment Bank and Exim Bank of India through the Malawi Government.
“I, therefore, categorised BWB as high risk and requires immediate review and enhancement. I, therefore, recommend that a forensic audit of the high risk areas be conducted as soon as possible,” reads the report.
Makiwa recommends that the governance arrangement, roles of top management and their performance should be assessed especially for the period under review or before to ascertain their contributions to the going concern problems of BWB.
On its part, Admarc did not remit K1.1 billion pension contributions and K385 million PAYE. It also had an outstanding accumulated fringe benefit tax (FBT) liability of K46 million. The corporation further did not remit K182 million withholding tax.
The institution also flouted procurement procedures in the purchase of Hessia cloth from Jordan Investments amounting to K12.8 million.
“The entity just obtained three quotations from suppliers and approved Jordan Investment based on their assessment,” reads the report.
The audit also faulted Admarc for entering into contracts where farmers, as the other party to the contract, were getting bean seeds from Admarc of which in return the farmers are obliged to sell their produce to Admarc. There were no specifications as to when the entity would recover its funds committed under the contract.
Makiwa placed Admarc under high risk category after assessment overall performance of the organisation. He recommended a forensic audit of the high risk areas to be conducted with urgency.
“Additionally, Government should review the current business model of giving Admarc a status of a commercial parastatal and still providing subsidy services,” the report reads.
He also recommended that the governance arrangement and roles of top management and their performance should be assessed.
According to the report, MHC did not remit KK47.6 million withholding tax; K678 million PAYE; K62.6 million fringe benefit tax and K15 million Tevet levy.
Further, following tax assessment by MRA on the Corporation taxes and Tevet levy for the period July 2013 to February 2018, penalties amounting to K1,246,138,587 for taxes and K16,987,475 for Tevet levy were charged against the Corporation.
The report says MHC incurred a lot more trading expenses in both 2018 and 2017 amounting to K4.7 billion and K3.7 billion respectively resulting in operating loss of K1.1 billion for 2018 and also K1.1 billion for 2017.
“This should be a cause for going concern problems. MHC reported a surplus as result of revaluation on investment properties despite registering an operating loss,” the report says.
The report further captures NRWB as having failed to remit K436 million pension.
According to the report, the board is experiencing negative working capital pressures and relies on borrowing to finance its operations. Its current liabilities as at June 30 2018 exceeded assets by over K589 million.
Further, its receivables were at K3.9 million while payables including bank overdraft amounted to K5.7 billion. The board’s biggest customers are government owned institutions which owed the board K2.3 billion.
“There is need to have a debt management policy which is enforceable. As for regular defaulters (Government institutions), the Secretary to the Treasury should immediately address this matter and provide a way forward,” the report recommends.
SRWB also experienced same challenge of government institutions failing to honour their water bills. The debt rose from K5.6 billion to K8.2 billion.
The entity also did not remit K93,578,994 VAT; K31,053,494.02 PAYE and K30,247,572.20
As for Egenco, there was no consistency on how revenue from electricity generation is accounted for. This was due to the absence of the Power Purchase Agreement between Escom and Egenco.
The company was also submitting VAT returns late contrary to the VAT Act section 34 (4) which states that “A return shall be submitted to the Commissioner General not later than the twenty-fifth day of the month immediately following the month to which the return relates.”
As for Nocma, it was noted that there were no reconciliations prepared and reviewed on monthly basis. Further, fixed assets owned by the company did not have an identification code with a sequential numerical number. There was also no password policy for the system and as such no policy was configured.
LWB had stale cheques on FMB and FDH reconciliations dating back to 2016 to the tune of K212,743,702.21.. The entity had also long outstanding uncleared bank deposits from 2016 with FMB, FDH and National Bank to the tune of K955,780,201.36.