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ACCOUNTS OF PARASTATAL BODIES
TABLE OF CONTENTS Page INTRODUCTION ..................................................................................................... 1 SCOPE OF AUDIT ................................................................................................... 1 INTERNAL CONTROL ........................................................................................... 1 CHAMBESHI WATER AND SEWRAGE COMPANY LIMITED ........................... 2 ELECTORAL COMMISSION OF ZAMBIA ............................................................ 7 THE HOTEL AND TOURISM TRAINING INSTITUTE TRUST ...........................11 JUDICIARY ............................................................................................................13 MULUNGUSHI UNIVERSITY ...............................................................................19 NATIONAL AIRPORT CORPORATION LIMITED ..............................................25 NATIONAL HOUSING AUTHORITY (NHA) .......................................................35 NATIONAL SPORTS COUNCIL OF ZAMBIA (NSCZ) ........................................36 NITROGEN CHEMICALS OF ZAMBIA (NCZ) .....................................................41 TASK FORCE ON CORRUPTION .........................................................................49 TAZAMA PIPELINES LIMITED ............................................................................54 TIMES PRINTPAK (Z) LIMITED ...........................................................................61 THE UNIVERSITY OF ZAMBIA (UNZA) ............................................................65 THE UNIVERSITY TEACHING HOSPITAL .........................................................68 ZAMBIA FORESTRY COLLEGE...........................................................................71 ZCCM INVESTMENTS HOLDINGS PLC..............................................................76 ZAMBIA EDUCATION PROJECTS IMPLEMENTATION UNIT .........................79 ZAMBIA POSTAL SERVICES CORPORATION ...................................................82 ZAMBIA NATIONAL BROADCASTING CORPORATION .................................88 ZAMBIA RAILWAYS LIMITED .......................................................................... 112 ZAMBIA TELECOMMUNICATION COMPANY LIMITED ............................... 126 CONCLUSION ...................................................................................................... 138 UNRESOLVED RECOMMENDATIONS OF THE COMMITTEE ON PARASTATAL BODIES ....................................................................................... 138
This Report on the accounts of selected Parastatal bodies for 2008 is submitted to the President for tabling in the National Assembly in accordance with provisions of the Constitution of Zambia and the Public Audit Act CAP 378 of the Laws of Zambia.
SCOPE OF AUDIT
This Report is a result of a programme of test checks and reviews of the audited accounts of selected organisations for the financial years up to 31st December 2008. Due to limited resources, the programme of work was restricted to twenty two (22) organisations. In preparing the Report, I sent to the Chief Executives of the affected organisations draft paragraphs for comments and confirmations of the correctness of the facts presented. Where comments were received and varied materially with the facts presented, the paragraphs were amended appropriately.
In this Report, specific mention is made of non - preparation of financial statements, failure to remit statutory contributions, weaknesses in procurement procedures and poor financial performance by the respective organisations.
CHAMBESHI WATER AND SEWRAGE COMPANY LIMITED Background 4. Chambeshi Water and Sewerage Company Limited was established in April, 2003 in accordance with the provisions of the Companies Act and section 9 (c) of the Water Supply and Sanitation Act, No. 28 of 1997. The company started operating on 1st September 2003 with an authorised share capital of K2,000,000 divided into 2,000,000 shares of K1 each. The share capital was later increased to K5,000,000 in 2006. According to the articles of association, the company is owned by Kasama Municipal Council and Mungwi, Mpulungu, Chinsali, Mporokoso, Kaputa, Mpika, Chilubi, Nakonde, Luwingu, Isoka and Mbala District Councils. The principal activity of the company is to provide high quality water and improved sewerage services for high standard of living for the population of the districts of Northern Province. Administration of the Company Board of Directors The company is governed by a Board comprising nineteen (19) members as follows: · · · · · · · Participating Councils (12); Provincial Local Government Office (1); Local Government Association of Zambia (1); consumer representative (1); Zambia Water and Sanitation Engineering and Allied Workers Union (1); private sector or civil society (1); and, two members appointed by the Minister of Local Government and Housing.
The Board is responsible for the formulation of policies and general administration of the business affairs of the company. The board members hold office for a term of not more than three (3) years and members are eligible for reappointment upon expiry of their term of office. Management and Staff The Managing Director is appointed by the board on a renewable term of three (3) years and is responsible for the day-to-day operations of the company. He is assisted by the Finance and Technical Commercial Services directors who are also appointed 2
on three (3) year renewable contracts. The rest of the staff is appointed on a permanent and pensionable basis. Source of Funds The sources of funds for Chambeshi Water and Sewerage include, among others; · · · · Such sums of money as may be raised from its daily operations of sale of water; Provision of sewerage services; Provision of laboratory services and sale of sewerage sludge; and, Grants from the Devolution Trust Funds (DTF), National Water Supply and Sanitation Council (NWASCO) and Ministry of Local Government and Housing.
Review of Operations. A review of operations for the financial years ended 31st December 2005 to 2008 revealed the following: a. Ownership of the Company Although the certificate of share capital indicated that the company had a share capital of K5,000,000 divided into 25 shares of K200,000 each, there was no evidence that shares had been issued to the shareholders as of March, 2009. Contrary to Section 7 of the articles of association which states that a memorandum of understanding will be drawn up between the Shareholders and the Board of Directors to ensure that the roles, responsibilities and powers are clearly understood between them, there was no evidence to show that the memorandum of understanding was in place as of March, 2009. b. Strategic Plan The company operated without a strategic plan during the period under review. As of March 2009, the strategic plan had not been put in place. c. Staff Establishment The company had an approved establishment of two hundred (200) employees out of which a total of one hundred and eighty seven (187) were filled and thirteen (13) were vacant. In particular the following were observed:
i. Lack of Internal Audit Function Among the positions which were vacant was that of the internal auditor. In this regard the company operated without the internal audit function since its inception. ii. Staff Turnover During the period from 2006 to 2008, the company lost a total of forty six (46) employees through resignation or dismissals representing a staff turnover ratio of 25%. d. Profitability An analysis of the profit and loss account for the period 31 st March 2005 to 2008 revealed the following position:
2008 K 3,048,109,464 2,734,413,040 313,696,424 10% 924,577,604 952,064,548 14,751,042 2,205,089,618 982,345,030 586,324,998 247,757,885 966,799,221 2,783,227,134 -578,137,516 -19% 2007 K 2,782,649,431 2,027,474,528 755,174,903 27% 403,275,587 32,759,480 (6,958,810) 1,184,251,160 638,167,473 537,909,626 210,378,004 570,828,576 1,957,283,679 -773,032,519 -28% 2006 K 2,238,273,914 2,225,771,973 12,501,941 1% 397,976,726 82,435,374 8,738,466 501,652,507 328,905,153 483,559,585 208,195,002 679,828,689 1,700,488,429 -1,198,835,922 -54% 2005 K 1,225,245,083 1,315,828,639 -90,583,556 -7% 107,596,370 852,611,805
Turnover Cost of Sales Gross Profit Capital Grants (Deferred Income) Revenue Grants Loss on disposal Other Income Expenses Personal Emoluments Provision for doubtful or Bad debts Depreciation Other Admin expenses Total Profit/Loss before tax Net Profit Percentage
869,624,619 513,170,934 168,076,697 107,558,520 551,258,767 1,340,064,918 -470,440,299 -38%
i. Turnover and Cost of Sales Whereas turnover increased from K1.2 billion in 2005 to K3 billion in 2008 representing an increase of 150%, cost of sales on the other hand increased from K1.3 billion to K2.7 billion representing an increase of 108% and that these increases were attributed to the increase in the number of customers. ii. Personal Emoluments The personal emoluments cost increased from K513 million in 2005 to K982 million in 2008 due to both increase in staff as well as increase in salaries.
iii. Profit/Loss before Tax Although during the period under review turnover increased from K1.2 billion in 2005 to K3.0 billion in 2008, and grants also increased from K3.4 billion to K12.6 billion, the company made losses in all the years. The losses increased from K470 million in 2005 to K573 million in 2008. Consequently, the company was unable to declare any corporation tax or dividends. e. Financial Position as at 31 st March 2005 to 2008
Assets Employed Non-Current Assets Current Assets Inventories Trade and Other receivables Bank and Cash 304,727,309 3,636,697,996 4,096,400,795 8,037,826,100 Current Liabilities Trade and Other payables Bank overdraft Taxation 148,447,415 3,326,397,481 5,365,911,882 8,840,756,778 72,599,488 2,255,057,018 206,090,576 2,533,747,082 62,104,895 2,546,318,985 1,327,847,262 3,936,271,142 2008 K 5,686,451,115 2007 K 1,745,002,217 2006 K 1,440,116,263 2005 K 365,021,052
5,061,359,959 5,061,359,959 3,779,396,819 5,524,399,036
3,133,905,349 3,133,905,349 600,158,267 839,957,996
2,001,157,953 22,363,598 2,023,521,551 1,912,749,591 2,277,770,643
Net Current Assets/ (Liabilities) Total Assets Fiananced By Share Capital Reserves Grants
5,000,000 3,627,716,738 12,603,949,466 8,981,232,728
5,000,000 3,049,579,222 8,568,978,258 5,524,399,036
5,000,000 2,276,546,703 3,111,504,698 839,957,995
2,000,000 1,077,610,781 3,353,381,424 2,277,770,643
The following were observed: i. Non Current Assets The assets relating to the water supply and sewerage operations in all the districts in the Northern Province had not been transferred from the local authorities to Chambeshi Water and Sewerage Company Limited as of 31st December 2009. ii. Liquidity Position The liquidity position for Chambeshi Water and Sewerage Ltd was as indicated in the table below:
2008 K'000 Current Assets Current Liabilites Working Capital Current Ratio 8,037,826 4,743,044 3,294,782 2 to 1
2007 K'000 8,840,756 5,061,359 3,779,397 2 to 1
2006 K'000 2,533,747 3,133,905 (600,158) 1 to 1.2
2005 K'000 3,936,271 2,023,521 1,912,750 2 to 1
As can be seen from the table above, the working capital for the company was positive in all the years apart from 2006. iii. Failure to Collect Debt - Trade and other Receivables According to best practice on debt management, trade and other receivables are supposed to be collected within a period of thirty (30) to ninety (90) days. It was however observed that trade and other debtors repayment periods ranged from 351 to 430 days and as a result, trade and other receivables increased from K2.5 billion in 2005 to K3.6 billion in 2008.
iv. Failure to Meet Obligations - Trade and other Payables The company failed to meet its obligations as they fell due. In this regard, creditors falling due within one year increased from K2.0 billion in 2005 to K4.7 billion in March 2008. The schedule below shows the main creditors owed by CWSC as of March 2008:
Institution (Cre ditor)
ZRA PAYE ZESCO Electricity Bills Workers Compensation Fund Statutory Contribution NAPSA Statutory Contribution Total
Amount K 897,576,709 2,405,154,888 43,310,150 354,683,116 3,700,724,863
v. Shareholders Funds Although the shareholders funds increased from K2.2 billion in 2005 to K8.9 billion in 2008, the increase was due to the increase in grants from various donors and not to the performance of the company. Accumulated losses (Reserves) on the other hand worsened from K1.0 billion in 2005 to K3.6 billion in 2008. The going concern of the company in the absence of grants is therefore doubtful. 6
f. Failure to Follow Tender Procedures i. On 15th February and 24th March 2005 the Company entered into contracts with Town Mouse Enterprise of Kasama and CC Systems Limited of Lusaka worth K1 billion and U$69,751.52 respectively. The contracts were for the supply and delivery of 1,072 bulk and domestic water meters and fittings and supply and installation of 1,144 radio communication equipment respectively. However, there were no records to show that tender procedures were followed in the award of the two contracts. Furthermore, there were no goods received notes to indicate the actual quantities of the goods delivered. ii. There were thirty (30) payment vouchers in amounts totalling K220,427,820 made between September 2007 and March 2008 which were inadequately supported in that they lacked receipts and invoices contrary to Financial regulations No. 45 and 52. g. Lack of an Accurate Customer Database A review of records revealed that Chambeshi water a sewerage company did not have an accurate database of customers. Although the company s records showed that there were 11,624 customers, enquiries with the Management revealed that the customer database had flaws in that it contained customers who were not in existence thus overstating the number of customers. h. Non Submission of Returns It was observed that as of March, 2009 there were no returns for twenty eight (28) receipt books issued to the company s district offices between the period May 2005 and December 2006. It was therefore not possible to ascertain whether all the money collected using the receipts was accounted for.
ELECTORAL COMMISSION OF ZAMBIA
The Electoral Commission of Zambia was established by Article 76 of the Constitution of Zambia, and the Electoral Commission Act No. 24 of 1996. The Functions of the Commission are the supervision of the registration of voters and review of voters registers, conducting presidential and parliamentary elections and the delimitation of constituencies. Other statutory functions include supervision of referenda, conducting and supervising local government elections, formulating and reviewing electoral regulations. 7
An examination of accounting and other financial records carried out in June 2009 revealed the following: Headquarters a. GRZ Grants In the estimates of Revenue and Expenditure for the financial year ended 31st December 2008, an authorized provision of K 248 ,940 ,655,190 was made for the operations of the Commission against which amounts totalling K249,069,979,028 were released resulting in an over funding of K129,323,837 which was not supported by supplementary provision. b. Inadequately Supported Payment Vouchers Contrary to Financial Regulation No.52, three (3) payments in amounts totalling K403,129,050 made during the period April 2008 to December 2008 were inadequately supported by documents such as receipts, invoices, among others. c. Unretired Imprest Contrary to Financial Regulation No.96 (1) imprests in amounts totalling K352,125,420 paid to three (3) officers in February 2008 had not been retired as of March 2010. d. Over payment of Transport Charges To supplement its existing transport, the Commission hired vehicles during the 2008 Presidential elections. It was however observed that the Commission over paid ten (10) transporters by K10,800,000. e. Non-maintenance of Inventory Cards Contrary to the provision of Public Stores Regulations, the Commission did not maintain inventory cards for office furniture and equipment. f. Non-remittance of Statutory Deductions A review of accounting records at the Commission revealed that PAYE and NAPSA contributions in amounts totalling K2,493,570,690 were owed to the Zambia Revenue Authority and National Pensions Schemes Authority respectively as of June 2009 as shown in the table below:
Institution ZRA NAPSA TOTAL
Description PAYE Pension Contribution
Amount K 1,907,910,253 585,660,438 2,493,570,691
The failure to remit statutory contributions will attract penalties from ZRA and NAPSA. g. Disbursements to Districts Presidential and Parliamentary Bye Elections
During the year under review ECZ conducted presidential and parliamentary bye elections. To this effect, ECZ disbursed amounts totalling K109,194,379,000 to all the districts during the period between September and December 2008 for the purpose of the bye elections. A verification of utilisation of 2008 bye-elections funds and materials in selected districts revealed the following: i. Unaccounted for Funds Out of a total of K12,375,933,462 disbursed to six (6) councils, amounts totalling K263,042,782 could not be accounted for as there were no expenditure details provided to ascertain how the funds were utilised as shown in the table below.
Council Mumbwa Chibombo Kabwe Kapiri Mposhi Nchelenge Mpika Total Disbursed K 1,667,500,000 3,075,820,000 2,721,107,500 1,476,155,000 1,255,830,000 2,179,520,962 12,375,933,462 Not accounted for K 45,054,911 21,552,879 126,710,550 25,092,800 39,387,552 5,244,090 263,042,782
Inadequately Supported Payments Contrary to Financial Regulation No.52, payments in amounts totalling K1,052,970,765 made by three (3) Councils were inadequately supported in that there were no receipts, invoices among others as shown below:
Disbursed K 1,691,020,000 1,800,909,000 1,476,155,000 4,968,084,000 Not accounted for K 44,875,000 1,005,464,435 2,631,330 1,052,970,765
Council Monze Kaoma Kapiri Mposhi Total
Failure to Maintain Accounting Records It was observed that seven (7) councils did not maintain basic accounting records such as, cash books, bank reconciliation statements and payment vouchers as shown in the table below:
Council Kasama Mansa Ndola Katete Petauke Mwinilunga Kasempa Re cords not pre pare d/maintaine d. Payment vouchers, Bank reconciliation statements Cash book, Bank reconciliation statement, stores records, Cash book, Payment vouchers, Bank reconciliation statement Cash book, Bank reconciliation statements. Payment vouchers, cash books Cash book, Bank reconciliation statements Cash book, Bank reconciliation statements.
Unaccounted for Fuel Fuel costing K890,433,424 as shown in the table below purchased during the period from September to December 2008 by eleven (11) Councils was not accounted for in that there were no disposal details.
Council Senanga Kalabo Mongu Kaoma Mumbwa Monze Chibombo Kapiri Mposhi Mbala Lundazi Petauke Total Amount K 32,991,126 162,296,878 130,475,224 3,500,000 50,312,580 72,300,000 104,650,000 23,817,330 58,508,852 105,581,434 146,000,000 890,433,424
In the absence of disposal details, it was not clear as to whether the fuel was utilised for the intended purpose. v. Unretired Imprest Contrary to Financial Regulations No. 96 (1), imprests in amounts totalling K1,242,651,490, as shown in the table below, issued to six (6) officers in six (6) Councils during the period September to December 2008 had not been retired as of March 2010. 10
Amount Council K Kalabo 56,700,000 Kaoma 62,625,000 Choma 89,400,000 Monze 57,000,000 Chibombo 729,961,490 Chipata 246,965,000 Total 1,242,651,490
Missing Payment Vouchers Contrary to Financial Regulation No. 65 (1), seven (7) payment vouchers for payments made between 6 th November 2008 and 17th November 2008 by Kapiri Mposhi District Council in amounts totalling K708,340,000 were not availed for audit.
Irregularities in the purchase of Alkaline
In September 2008, a total number of 3,900 batteries were delivered to Kitwe District Council by ECZ. It was however, observed that although the supplied batteries were sufficient, the council without authority from ECZ procured additional 1,300 alkaline batteries at a total cost of K96,200,000.
THE HOTEL AND TOURISM TRAINING INSTITUTE TRUST (HTTI) Background 6. The Hotel and Tourism Training Institute (HTTI) provides training in Hotel and Tourism management. It was established in 1989 following the dissolution of the National Hotel Development Corporation under which it previously operated. The Institute runs on a commercial basis, the Fairview Hotel which serves as its training centre. Administration Board of Trustees The Institute is governed by a Board of Trustees consisting six (6) members appointed by the Minister of Tourism, Environment and Natural Resources. Board members hold office for a renewable period of three (3) years. The current board was appointed in 2007. 11
Management and Staff The Institute is headed by an Executive Director who is appointed by the Board of Trustees and is responsible for the day to day operations of the Institute. The Executive Director is assisted by the Director of Finance and Administration and the Director of Studies. Sources of Funds According the Trust Deed, the sources of funds of the Institute include: · · · · Fees, meals and accommodation; Loans; Government grants; and Donations
An examination of financial, accounting and other relevant records for the financial year ended 31st December 2008 revealed the following: a. Income In the Estimates of Revenue and Expenditure for the financial year ended 31st December 2008, a provision of K1,393,665,867 was made for the Institute and the whole amount was released. The funds were for the procurement of capital items such as computers, beds, televisions, tables, food production equipment, tourism and travel operation equipment and building rehabilitation. In addition, the Institute generated a total of K5,339,308,000 from its operations bringing the total funds available to K6,732,973,867. b. Misapplication of Funds Out of the K1,393,665,863 released for the procurement of capital items, K588,194,787 was misapplied on payment of personal emoluments. Consequently, the Institute was not able to procure all the equipment that was planned for. c. Staff Related Costs Contrary to the terms and conditions of service, amounts totalling K30,964,300 were paid in respect of Christmas bonuses to members of staff during the period under review despite the fact that the Institute made losses totalling K110,260,000 for the period.
d. Inadequately Supported Payments Contrary to Financial Regulation No. 52, there were sixteen (16) payments in amounts totalling K75,841,387 that were inadequately supported in that the vouchers lacked supporting documents such as receipts, invoices and quotations. e. Failure to Follow Tender Procedures Contrary to procurement guidelines, purchases of goods and services in amounts totalling K137,493,495 were made without obtaining competitive quotations.
Failure to Prepare Financial Statements and Annual Report According to Clause 18 and 19 of the HTTI trust deed, the accounts of the Trust shall be made up to the thirty-first day of December in every year and the Trustees shall within three months after completion of each accounting year prepare a statement in such form as they shall consider to be appropriate showing the true position of the Fund at such date. The Trustees shall issue an annual report of the Trust with details of the progress made by Trustees in achieving the objects of the Trust Contrary to the HTTI deed, the Institute did not prepare the financial statements and the annual reports for the year ended 31st December 2008 as of March 2010.
JUDICIARY Background 7. Article 91 (1) of the Constitution provides for the establishment of the Judicature that consists of the Supreme Court, the High Court, Industrial Relations Court, Subordinate Courts ,Small Claims Courts, Local Courts and the Sheriff of Zambia. Article 91 (3) provides for the autonomy of the Judicature, which was to be administered in accordance with the Provisions of the Judicature Administration Act Cap 24 of the Law of Zambia. The core objectives of the Judiciary are to improve access to justice by providing quality trials that are disposed of in an efficient and effective manner, to provide user friendly court rooms and support services in locations and areas that are accessible to its clients, to reduce dependence on government subventions by developing sustainable revenue collecting procedures that will generate levels of income that will adequately support its activities, to increase public awareness of the Judicature s roles 13
through effective communication with partner bodies, staff and society at large, to make rules of procedure that reduce the delays experienced in local courts, subordinate courts, the High Court and the Supreme Court, to protect basic human rights of all individuals by creating a better understanding of human rights issues by all justice administrators and intermediaries, to increase access to legal redress by communities and groups that are otherwise unable to afford legal services. The Judiciary started operating as an autonomous institution through the Judicial Service Commission in 2008. The Judicial Service Commission According to Judicature Administration Act Cap 259 of the Law of Zambia, the Judicial Service Commission shall be composed of the Chief Justice who shall be the Chairman, the Attorney General, the Chairman of the Public Service Commission, the Secretary to the Cabinet, a judge nominated by the Chief Justice, the Solicitor General, a member of the National assembly appointed by the Speaker of the National Assembly, a member to represent the Law Association of Zambia nominated by that Association and appointed by the President, the Dean of the Law School of the University of Zambia and one member appointed by the President. Management of the Judiciary According to the Act, the Chief Administrator is responsible for the day to day running of the Judiciary and is assisted by chief officers namely the Registrar of the High Court of Zambia, the Director of Human Resources and Administration; and the Chief Accountant. Sources of Funds According to the Act, the funds of the Judicature shall consist of such moneys as may: · Be appropriated by Parliament for the purposes of the Judicature; · Be paid to the Judicature by way of court fees or by way of such grants as the Chief Administrator may accept, or · Vest in or accrue to the Judicature. Review of Operations An examination of the financial and other relevant documents pertaining to the Judiciary conducted in September 2009 revealed the following: a. Failure to Prepare Financial Statements The Judicature Administration Act, CAP 24 of 1994 requires the Judiciary to prepare financial statements which should be submitted to the President not later 14
than six months after expiry of each financial year. The financial statements mentioned in the Act comprise the audited balance sheet, audited statement of income and expenditure and such other information as the President may require. It was observed that, contrary to the provisions of the Act, the Judiciary had not produced the financial statements for the years ended 31 st December 2008. b. Under Funding In the Estimates of Revenue and Expenditure for the financial year ended 31st December 2008, a provision of K129,010,305,515 was made out of which amounts totalling K111,256,124,757 were released resulting in an under funding of K17,754,180,758 which represented 14% of the total authorised provision. c. Unvouched Expenditure i. Missing Payment Vouchers Contrary to Financial Regulation No. 65(1), there were seventy eight (78) payment vouchers in amounts totalling K2,069,462,293 were not presented for audit . ii. Inadequately Supported Payment Vouchers There were a total of two hundred and seventeen (217) payment vouchers in amounts totalling K2,774,772,243 relating to the period between January and December 2008 that were not supported by documents such as receipts, invoices and goods received notes contrary to Financial Regulation No.52. d. Unretired Imprest Contrary to Financial Regulation No.96, imprest in amounts totalling K1,213,502,273 paid between January and December 2008 had not been retired as of October 2009. e. Cancelled Cheques not presented for audit There were a total number of fifteen (15) cheques which were indicated as cancelled in the records of the Judiciary. However, these cancelled cheques were not presented for audit. Although the cheques had not been presented to the bank, the Judiciary had not issued a stop order for the cheques posing a risk of fraud. f. Purchase of Payroll System On 18th November 2008, the Judiciary engaged Dove Computing Company, a local software supplier to supply and install a payroll system. In this regard a 15
payment of K65,000,000 was made to Dove Computing Company on 20th November 2008 for the supply and installation of the system. An inquiry with management revealed that Dove Computing failed to deliver the payroll system and as of October 2009, the pay roll had not been received by the Judiciary. Although in his response the controlling officer stated that there were inadequacies in Dove Computing s ability to handle Judiciary`s payroll which led to the cancellation of the contract and that Dove computing had since committed themselves to refund the monies, as of May 2010 only K25 million had been paid back. g. Civil Works During the year under review, the Judiciary disbursed amounts totalling K2,472,841,688 to provinces for the construction and rehabilitation of various local courts and houses as shown in the table below:
Amount K 932,019,710 353,401,968 218,257,754 23,646,374 486,893,756 325,000,000 109,181,462 24,440,664 2,472,841,687
Province Lusaka Coperbelt Western Central Northern Luapula Southern Chipapa Court Total
Sites visit to selected provinces and physical inspections revealed the following:
Station Ndola Judiciary Office Works to be Done Rehabilitation of No. 6 Chibulisho Road Contract Date Contractor Contract Period Contract Price K Amount Paid to contrator K 108,943,749 The newly fixed PVC tiles in the kitchen and replaced tiles in the sitting room had started coming out. The house had not been painted outside. The following defects were noticed: The floor in the court room and local court offices had cracks The panel doors to the main entrance to the court room had big gaps in between planks due to the fact that the contractor used fresh timber. The ceramic tiles that were put in the two offices and the passage were not uniform. The contract had been delayed by eight (8) months as of September 2009. The painting and decorating works had not been completed, The plumbing works had not been done, Air-conditioning installations still outstanding, External works such as drainage system, manholes, septic tank type five and soak-away had not been done, All provisional water reticulation works such as excavating trenches had not been done Remarks
Mpongwe local Court
Construction of local court
LWP Enterprises of Luanshya
Chimfushi Local Court
Construction of local court
A physical inspection conducted in September 2009 revealed that despite the contract period having elapsed on 25th March 2008 construction works had not been completed and the following were still outstanding: The floor for the entire court was not even and had cracks, The contractor used plastic pipes instead of asbestos cement pipes for plumbing works, 398,850,011 The finishing of the walls was poor as they were not even, The conduit pipes and socket outlets were not embedded in the walls but instead were laid on the walls, The extractions for piping, cement drain pipes and fitting and laying and jointing, excavating and construction of the manholes, septic tank, soak-away had not been done, and The water reticulations outside the court had not been installed. A physical inspection of the works that was carried out at Kasalya Local Court revealed the following irregularities: The floor in the court clerk s office, local court magistrate chambers and the court room had cracks. The window between the court clerk s office and the local court magistrate chambers was not closing. 82,109,640 Despite completing construction works no benches had been provided and the structure had not been handed over by July 2009. It was difficult to establish the contract period and contract sum as the contract could not be provided for audit scrutiny.
Kasalya Local Court
Rehabilitation of local court
Triple Kay Contractors
Kahumbu Local Court
Construction of local court
ABC Global Works
The following irregularities were observed: The wood that was used to make doors had not dried up and as such resulted in big gaps being created between planks. The court walls had cracks. The veranda had cracks. Windows were not closing properly. The floor in the chamber was rough. The door to the chamber could not be opened and locked from outside. It was also noted that the contractor applied one coat of paint only. The district local court staff further disclosed that during the rainy season the roof leaked. A further inquiry with management regarding certification of work completed revealed that payments were not based on certificates of completion and no certificate was availed for audit verification.
Station Muwezwa Local Court Maguya Local Court Mpika Magastrate Court
Works to be Done Construction of local court Construction of local court
Contract Price K
Amount Paid to contrator K
Danjos Steel Fabricators Cobweb Constructions Pineland Investments Ltd/Wanda Engineering
Contract document not made available for audit.
197,754,250 Works completed
Rehabilitation of Magistrate Court
20,450,000 Contract document not made available for audit.
Chipalo Local Rehabilitation of Court local court Mwanangwa Local Rehabilitation of Court local court Nkole Mfumu Construction of Local Court local court Rehabilition of house no.17 Golf Course Road
7-Dec-07 E M Buildwell Defra General Dealers
92,249,804 Certificates for 1st,2nd and 3rd payments not availed for audit.
107,839,819 Certificate for 2nd payment not availed for audit.
226,567,399 Works completed. Certificates for 3rd and 4th payments not availed for audit. A physical check conducted at the site revealed the following observations: Painting of the house both interior and exterior was not done and the ceiling board which had been fixed was not painted. 30,608,000 The house was occupied by the caretaker and was in a dilapidated state as it had cracks in some parts and was in a state in disrepair. Work done was generally poor and the physical implementation status of the site was 30% complete as of September 2009. A physical check conducted at Chitembo Local Court revealed the following: Drainage system around the building was not done and the concrete slab done around the court building had cracks in some parts due to insufficient cement that was used. The courtroom had no windows to allow free air circulation. It only had ventilators. 47,796,400 The painting of the interior of the building was not perfected as the paint has already started peeling off. The VIP toilet had no door making the users vulnerable to being exposed to the outsiders. Work done was generally poor. A physical check at the site revealed the following: Fixing of ceiling board was not complete as only the courtroom was done leaving the court chamber room and other two (2) rooms not ceiled. There were no burglar bars fixed and the handles for opening and locking the windows were not properly fitted 157,727,636 The floor inside the court building was poorly done in that it hard very rough surface. The toilets behind the court building were poorly renovated as they were not flushing. Electricity was not installed in the court building as of September 2009. However, a physical check at the site revealed the following; The tiles fitted in the court building were peeling off due to the fact that the floor was not done after putting the concrete slab. The VIP toilets constructed only had grill gates without doors making the users vulnerable to being exposed to the outsiders. The contract commenced on 26th November, 2007 and was required to be completed on 6th March 2008. As of 12th September, 2009 the contractor had not handed over the constructed building and toilets to the Government of the Republic of Zambia.
Chitembo Local Court
Rehabilitation of local court and VIP latrine
Serenje B Local Court
Lima Agro Suppliers
Construction of Chibale Local local court & Court rehabilitation of 2 VIP latrines
Hench Enterprises 10 Months
h. Non Current Assets A scrutiny of records followed by a physical verification of fixed assets revealed the following: i. Non maintenance of fixed asset register Contrary to Financial Regulation No. 103 the Judiciary did not maintain a fixed asset register.
Property Owned by the Judiciary A physical verification of assets revealed that the Judiciary owned a total number of forty-six (46) residential flats in Thorn park and four (4) residential flats in Kabwata. Twenty (20) flats in Thornpark were occupied by Magistrates while twenty-six (26) flats were rented out to non members of staff. The Kabwata flats were occupied by the Judiciary members of staff who rented them at market values. However, as of October, 2009, the tenants owed the Judiciary amounts totalling K60,668,100 in outstanding rentals. It was further observed that the properties, whose values could not be ascertained due to poor record keeping, were not insured and no title deeds were availed for audit.
MULUNGUSHI UNIVERSITY Background 8. Mulungushi University is the forerunner to the National College for Management and Development Studies (formerly known as Presidents Citizenship College) which was established in 1972 by CAP 238 of the Laws of Zambia to provide leadership training to officers of Government, Parastatal organisations and the labour movement. In 2005, the National College for Management and Development Studies (Repeal) Act No 18 of 2005 was passed and mandated the Council of the National College for Management and Development Studies, in consultation with the Minister responsible for Education and the Secretary to the Treasury, to carry out all actions necessary to transform the College into a Public University. The Minister of Education formally declared the National College for Management and Development Studies as Mulungushi University with effect from 1 st January 2008, and
brought it under the authority of the University Act, through statutory instrument No. 105 of 2007. Administration The University has a council which is the supreme governing body. It also has a senate which is the supreme academic authority. The Vice Chancellor who is the Chief Executive of the University is responsible for the day to day operations of the University. Sources of Funds According to the Act, the sources of funds for the University shall include, among others: · Such sums of funds received from the Government as grants; · Tuition fees; and · It s own internally income generating ventures and donations through projects. · Otherwise vest in or accrue to the Council. The Council may also accept monies by way of grants or donations from any source in Zambia and, with the approval of the Minister, from any source outside Zambia. Review of Operations The University Act No. 11 of 1999 states among others that as soon as practicable but not later that six (6) months after the expiry of each financial year the Council shall submit to the Minister a report concerning its activities during such financial year. The report of the Council shall include information on the financial affairs of the Council and there shall be appended to the report · · · · Unaudited balance sheet; Unaudited Statement of Income and Expenditure; A report of auditors on the accounts; and Such other information as the Minister may require.
Contrary to the University Act, the accounts for the financial year ended 31st December 2008 were not ready as at 31 st December 2009.
In their response, management stated that during 2008 the accounts unit was inadequately staffed making it difficult to meet the deadlines and that new staff started reporting in the third month of 2009. However, a review of ledgers and other accounting records revealed the following: a. Income i. GRZ Grants A total provision of K46,973,772,487 was made in the Estimates of Revenue and Expenditure for the year ended 31st December, 2008 to cater for various activities, against which amounts totalling K44,005,051,042 were released as indicated in the table below:
Category Infrastructure Development RDCs Outstanding Bills Staff Recruitment Sector Funds Total
Authorised Provision K 30,000,000,000 9,073,772,487 7,900,000,000 46,973,772,487
Actual Funding K 29,999,395,931 7,559,447,070 4,900,000,000 1,206,727,000 339,481,041 44,005,051,042
Variance K 604,069 1,514,325,417 3,000,000,000 (1,206,727,000) (339,481,041) 2,968,721,445
As shown in the table above, there was an under funding of K2,968,721,445. In response, management stated that it had decided to make monthly follow ups to ensure that all the authorised grants were released in full to the university. ii. Other Income The Council collected a sum of K14,650,122,277 from other sources as indicated below:
Category Course Fees Commercial Entities Konkola Copper Mine Other Income Total
Budget K 21,030,000,000 6,391,575,000 4,515,430,877 925,775,000 32,862,780,877
Actual K 5,020,000,000 4,062,404,295 3,835,193,266 1,732,524,716 14,650,122,277
Variance K (16,010,000,000) (2,329,170,705) (680,237,611) 806,749,716 18,212,658,600
From the table above, only 44.6% of the budget was actually collected. In response, management stated that the failure to meet the target was as a result of low enrolment from the Degree programmes after the launch of the university in that the budgeted student level was 500 against the actual student number of 42. They added that the low enrolment impacted negatively on the commercial entities resulting in the loss of business from the would be students. b. Irregular Appointment of Vice Chancellor and Deputy Vice Chancellor Contrary to the provisions of the University Act, which requires the Minister to constitute a search committee to advertise and select the Vice Chancellor and Deputy Vice Chancellor, a search committee was not constituted. In response, management stated that the appointment of the Vice Chancellor and the Deputy Vice Chancellor did not strictly comply with the provisions of the University Act because it was a new University and their appointment preceded that of the Council and that the Chairman of the Council had since written to the Minister of Education requesting him to appoint a Search Committee for the formal appointment of Vice Chancellor and Deputy Vice Chancellor. c. Irregular Purchase of Furniture In 2007, the incumbent Vice Chancellor was engaged as a consultant during the transition period of the National College for Development and Management Studies. During the period that he worked as a consultant, furniture worth K98,947,000 was procured for his residence. A review of records revealed that in 2008 additional furniture valued at K26,699,000 and K66,963,000 was procured for the residence of the Vice Chancellor and registrar of the University respectively. This was contrary to their conditions of service which did not provide for a fully furnished accommodation. Although in their response management stated that the purchase of the furniture was approved by the Executive Committee of the Council on the understanding that this would be university property to be surrendered to the University at the end of service of the officers, this was contrary to the conditions of service. d. Irregular Payment of Repatriation Allowance In the first year of operation of the University, all employees were given one year contracts. A review of the contracts of employment revealed that officers were only entitled to repatriation in the event that the contract was not renewed. However 22
contrary to the clause in the contracts, repatriation allowances in amounts totalling K462,000,000 were paid to ninety seven (97) employees who had their contracts renewed. e. Procurement of Goods, Works And Services i. Unvouched Expenditure Contrary to Financial Regulation No. 45, there were one hundred and fifty Seven (157) payments in amounts totalling K 1,765,292,611 made during the period from January to December 2008 that were not vouched in that they lacked supporting documentation such as receipts, quotations, goods received notes, tenancy agreements, Contract and acquittal sheets. ii. Unretired Imprest Contrary to Financial Regulation No. 96 (1), one hundred (100) payments in amounts totalling K265,703,069 made during the period January to December 2008, were unretired and unaquitted as at 31st March 2009.
iii. Failure to follow Tender Procedures Contrary to Tender Regulations which requires that a minimum of 3 quotations should be sourced, ninety three (93) payments in amounts totalling K 1,036,949,152 made during the period from January to December 2008, had no competitive (3) quotations. iv. Construction of Resident Engineers Office On 13th August, 2008 Mulungushi University awarded a contract to Baluba Building Construction Limited for the construction of Resident Engineer s Office block at a contract sum of K487,663,420. The contract commenced on 15th August and was to be completed in fourteen (14) weeks. The contract sum was later varied to K626,414,865. As of March, 2009 the contractor had been paid a total of K431,832,002 representing 68.94% of the contract sum. The following were observed: · As at 31st March 2009, thirty (30) weeks after the commencement date, the building was only 65% complete and no liquidated damages had been claimed despite the contract over running by 16 weeks. 23
Although management stated that the contract did not provide for exit clauses which could allow the University to claim damages and that the variations were approved by the Tender Committee, it was not clear as to why the liquidated damages clause was omitted from the contract. · An amount of K7,257,540 paid to the contractor was wasteful in that the amount was paid for carrying out works at a site that was later discovered as a wrong site and there was no evidence provided to back the variation of K7,257,540.
f. Failure to Carry Out Year End Stock Takes Contrary to the Generally Accepted Accounting Practice, it was observed that the university management did not conduct the year end stock take for the year ended December 2008. A test stock take conducted in March 2009 on selected stores items revealed the following variances:
Ledger Physical Description Balance Balance Variance (Shortfall) Laptops 4 3 (1) Pillows 445 145 (300) Sugar 400 360 (40) Milk 722 506 (216) Cooking Oil 280 200 (80) Paint 43 0 (43)
Although in their response management indicated that a programme to ensure that year - end stock takes are done at the end of each financial year was in place, there was no proper explanation given for the variances. g. Non Maintenance of Register of Accountable Documents Contrary to Financial Regulation No. 103, the University management did not maintain a register of accountable documents. It was therefore not possible to establish the total number of receipt books that were issued for the period under review. A test check of receipt books issued to accounts revealed that out of the twenty-five (25) receipt books purchased and issued to accounts by stores for the period under review, only twenty-one (21) were recorded as having been received by accounts leaving a balance of four (4) unaccounted for.
NATIONAL AIRPORT CORPORATION LIMITED 9. In paragraphs 52 to 61 of the report of the Auditor General for 2005 on the accounts of Parastatal bodies, mention was made of the non declaration of dividends and non payment of taxes by the Corporation due to its poor financial performance. Mention was also made of the poor liquidity position, increased cost of borrowing, irregular payment of Christmas bonuses, outstanding pensions and failure to follow tender procedures among others. Review of Operations A review of the operations of the corporation for the financial years ended 31st March 2006 to 31 st March 2009, carried out in September 2009, revealed the following: a. Financial Performance March 2006 to 2009 - Income Statement for the period ending 31 st
2008 2007 2006 2009 K'Billion K'Billion K'Billion K'Billion Turnover Expenditure Other Income Loss/Profit from operations Net exchange (loss)/gains Fair Value Adjustments Finance Charges Finance Income (Loss)/profiit before tax Income tax (Loss)/profit for the year 89 (112) (23) 6 (17) (1) (4) 1 (20) 4 (16) 83 (72) 12 3 14 2 1 (3) 0 14 (4) 10 66 (52) 13 2 16 (18) (4) (7) 3 (4) (4) 0 24 (7) 17 56 (58) (1) 3 2 25
Profitability It was observed that although the Corporation recorded profits in the financial year ending 31st March 2006 and 2008, losses of K3.77 billion and K16.05 billion were incurred in 2007 and 2009 respectively. The losses were mainly attributed to high operating costs which increased from K 57.5 billion in 2005 to 25
K111.77 billion in 2009. This represents an increase of 94 % as opposed to the growth of turnover of 57% during the same period. c. Interest Cover The interest cover shows the number of times the company is able to pay interests from its profits. A high level of interest cover indicates a better position as regards payment of interest. The generally acceptable ratio is two (2) and above. The interest cover for the Corporation for the period 2006 to 2009 was as shown below:
2009 2008 K'Billion K'Billion (16.67) 14.37 3.66 (5.6) times 3.22 4.5 times 2007 K'Billion 15.57 3.61 4.3 times 2006 K'Billion 1.83 3.50 0.5 times
Interest Cover = PBIT I
The interest cover exceeded the acceptable levels in 2007 and 2008. In 2006, the profit was only able to cover half of the interest obligation whilst in 2009 the interest cover was negative, indicating that the corporation may fail to meet its obligations.
Statement of Financial Position as of 31st March 2006 to 2009
2009 K'Bil li on AS S ETS Non-current assets Prop erty , p lant and equip ment Financial asset s at fair value t hrough p rofit and loss Current Asse ts Invent ories Trade and other receivables Held to mat urity financial assets Cash and cash equivalents Taxat ion recoverable 2008 K'Bi ll ion 2007 K'Bi l li on 2006 K'Bil l ion
462.1 0.96 463.06 1.98 19.15 5.59 5.54 0 32.26 495.32
477.26 0.96 478.22 1.03 16.75 10.23 8.67 0.09 36.77 514.99
154.61 0.02 154.63 0.85 15.08 0 12.65 0.07 28.65 183.28
117.8 0.02 117.82 0.78 8.09 0 4.95 0.07 13.89 131.71
Total assets EQ UITY AND LIABILITIES Capi tal and rese rve s Share Cap it al Amount s received p ending allot ment Revaluat ion reserve Ret ained p rofits Non-current l iabi li ties Cap it al grant s Long-t erm loans Deferred income t ax Obligations under finance leases Current li abi li tie s Bank overdraft s Long t erm loans Obligations under finance leases Trade and other p ay ables Taxat ion p ay able
8.7 21.69 297.98 18.24 346.61 94.84 23.9 3.44 0.38 122.56 0 8.37 0.65 16.93 0.21 26.16 495.33
8.7 21.69 305.62 26.66 362.67 99.57 21.79 7.99 1.03 130.38 0 10.07 0.58 11.3 0 21.95 515
1.47 16.49 0 0 17.96 77 62.64 4.01 0.52 144.17 0.31 8.26 0.29 12.29 0 21.15 183.28
1.47 20.27 0 0 21.74 36.49 43.89 6.75 0 87.13 0.49 6.85 0.35 15.16 0 22.85 131.72
Total equi ty and l iabil itie s
i. Non Current Assets - Ownership of International Airports According to Sections 25 and 29 of the Aviation Act Cap 444 of the laws of Zambia, the formation and title of the airports passed to the Corporation at establishment. It was however observed that the corporation does not hold title to Mfuwe and Livingstone International Airports whilst the title deeds for Lusaka International Airport are still in the name of the Department of Civil Aviation. ii. Trade and Other receivables · Debt position Trade and other receivables increased from K8.09 billion in the financial year ending 31st December 2006 to 19.5 billion in 2009. It was further observed that debtors collection days increased from 52 in 2006 to 78 in 2009 indicating that debt collection had weakened.
Zambian Airways Debt Zambian Airways Limited is one of the major debtors of NACL. The airline operated five (5) domestic and three (3) international routes. Revenue from the airline included ground handling, landing fees, navigation fees and office rentals. Zambian Airways was collecting Passenger Service Charge on behalf of the Corporation but was not remitting the funds to the corporation. This resulted in an accumulated debt of US$2,159,042.79 as at 29th January 2009. In April 2009, Zambian Airways was put under receivership and although claims had been made to the Receiver, no money had been paid to the Corporation to clear the debt as of December 2009.
iii. Gearing Gearing is the extent to which an entity s equity is financed by debt. In this regard, the capital structure of a company may either be wholly funded through 100% equity (ungeared company) or a combination of equity and debt (geared company). It is generally accepted that gearing level should not exceed 50%. In situations where the gearing levels are above 50%, the cost of capital becomes high. The table below shows the gearing position of NAC:
2009 K'Billion 23.9 32.6 73% 2008 K'Billion 21.79 30.49 71% 2007 K'Billion 62.64 64.11 98% 2006 K'Billion
Debt x 100% Debt plus equity
The ratios above indicate that the company heavily relied on debt and as a result, the finance costs (interest) increased by 17% from K3.5 billion in 2006 to K3.66 billion in 2009. e. Procurement of Goods, Services and Civil Works. i. Remodelling and Construction of the Proposed Control Tower at Livingstone International Airport The contract for the proposed remodelling and construction of air traffic control tower at Livingstone International Airport was awarded to Merit Engineering Services Limited in September 2008 at a total contract sum of K1,366,136,060 with a completion period of twelve (12) weeks. 28
The scope of works included demolitions and alterations, waterproofing, roofing, structural steel works, metal works, plumbing and engineering installation, electrical installations, floor, wall and ceiling finishes and painting and decorating. The Contractor was handed over the site in October 2008 and works were to commence the following week. As of August 2009, a total of K1,672,086,646 had been paid to the contractor. Although the project completion period was extended by four (4) weeks, works were behind schedule by seven (7) months and no liquidated damages had been claimed from the contractor. ii. Supply and Installation of Generator Set On 3rd April 2008 NACL awarded a tender for the supply, delivery, installation, testing and commissioning of 800 KVA Three Phase 50Hz 1500 RPM Standby Generator Set at Lusaka International Airport to Sulmach Limited at a contract price of K1,410,000,000 with a delivery period of twenty (20) weeks. Works commenced on 14th May 2008 and were scheduled to be completed by 15th October 2008. A total of K1,142,003,600 (inclusive of an advance payment of K846,000,000) representing 80% of the contract price had been paid to the contractor as of August 2009 leaving a balance of K267,996,400 outstanding. The following were observed; · In April 2009, the contractor could not proceed with the civil works due to liquidity problems. In this regard, an advance payment of K30,000,000 was made to the contractor despite the earlier advance payment having been made contrary to the conditions of the contract that required certification of completed works before payment could be made. · The building under construction in which the Genset would be housed did not meet some of the technical specifications outlined in the signed contract. For instance the contractor did not make a provision for a generator plinth contrary to the technical specifications provided by the employer in the contract.
· A physical verification of the civil works carried out in August 2009, revealed that construction works had stalled as shown in the picture below and the contractor was not on site.
Uncompleted Civil works - the building in which the Generator is to be housed.
Consequently, the generator set which had been supplied twelve months earlier in September 2008 had not been installed. f. Inadequately Supported Payments Forty nine (49) payment vouchers in amounts totalling K241,442,834 and four (4) payment vouchers in amounts totalling US$16,308.28 were inadequately supported in that they lacked receipts, acquittal sheets or other supporting documents. g. Unretired Imprest Imprest in amounts totalling K95,993,560 issued to various officers during the period under review had not been retired as of August 2009. h. Crush Aid Clinic Ndola and Livingstone Contrary to the International Civil Aviation Organisation (ICAO) requirements, the two international airports at Ndola and Livingstone had no Crush Aid Clinics for effective emergency operations. i. Failure to Install Constant Current Regulators In January 2001, the Corporation purchased two sets of Constant Current Airfield Regulators from Belgium at a cost of 26,795. It was observed however, 30
that as of August 2009 the equipment had not been installed (eight years after purchase).
NATIONAL HERITAGE CONSERVATION COMMISSION Background 10. The National Heritage Conservation Commission (NHCC) is a statutory body which was established in 1989 by the National Heritage Conservation Commission Act, Chapter 173 of the Laws of Zambia. Under the Act, NHCC is required to conserve, by preservation, restoration, rehabilitation, reconstruction, adaptive use, good management, or any other means, the historical, natural and cultural heritage of Zambia. Administration According to the Act, the Commission shall consist of a Chairman, the Permanent Secretary in the Ministry responsible for heritage who is an ex-officio member and not less than seven (7) but not more than ten (10) other members who are persons with experience in matters related to the functions of the Commission. According to Section 15 of the Act, the Executive Director who is the Chief Executive Officer (CEO), is responsible for the day to day running of the Commission. The CEO is assisted by the Director of Conservation Services and four regional Directors for East Central, North West, Northern and South West regions. Sources of Funds The National Heritage Conservation Commission derives its income from grants received from the Government, entry fees to national monuments, rent receivable, consultancy fees, lease fees, donor funding and donations. Review of Operations An examination of the accounting, stores and other relevant records carried out in December 2009 revealed the following:
Income During the period under review, the Commission received the following funds:
2008 K 4,512,690,299 250,000,000 113,411,406 3,937,700,043 8,813,801,748 2007 K 4,205,610,099 1,537,000,000 976,171,421 3,713,525,348 10,432,306,868 2006 K 4,179,948,267 25,000,000 347,707,892 3,033,214,290 7,585,870,449
GRZ - Recurrent Capital Cooperating Partners Internal Total
The decline of income between 2007 and 2008 is attributed to the reduction in receipts from cooperating partners and capital grants. Further a review of the agreement signed between the Government of Zambia and the Sun International Hotel in 1999 regarding the entry fees at the Victoria falls revealed that the agreement did not provide for the Commission or their agents to verify the accuracy of visitation records used by Sun International Hotel to arrive at amounts payable. b. Staffing Levels The authorised establishment of the Commission during the period under review was two hundred and sixty (260) positions out of which one hundred and thirty eight (138) were filled, leaving one hundred and twenty two (122) vacant.
Wage Bill against Monthly Funding. An analysis of the Commission s wage bills compared to the grants received from the Government revealed that during the period under review, the Commission received monthly funding of K376,000,000 against a gross monthly wage bill of K512,992,145 resulting in a monthly shortfall of K136,992,145. Although the Commission indicated that the shortfall on net salaries was met through its own sources, this was still not adequate as a result monthly salaries were being paid in batches.
d. Non Remittance of Statutory Obligations As at December 2008, the Commission was owing various institutions a total of K7,458,879,241 in unremitted statutory contributions as detailed below:
Obligation PAYE NAPSA ZSIC PENSION Total
K 5,970,341,790 800,557,339 687,980,112 7,458,879,241
The unremitted statutory contributions are likely to attract penalties which will be a cost to the Commission. e. Outstanding Gratuity As of December, 2008 the commission was owing its members of staff a total sum of K3,205,550,516 in unpaid gratuities. f. Fixed Assets i. Questionable Ownership of Buildings In 1993, the Commission purchased three buildings at a total cost of K44,000,000 as shown below:
Cost K 28,000,000 8,500,000 7,500,000 44,000,000
Stand # Location Town Purpose 2188 Mosi-O-Tunya road Livingstone Office block Residential Mukambo road Livingstone house 456 Residential Airport road Livingstone house 727 Total
Despite the Commission having paid the full purchase price of K44,000,000 for the buildings, only title deeds for stand numbers 2188 and 727 were released to the Commission. The title deed for stand number 456 was not released to the Commission as the house was sold while there was still an outstanding mortgage on it. Further, although the Commission was in possession of title deed for stand number 727, the ownership of the property had not been transferred to the Commission. g. Rehabilitation of the Kalomo Administrator s House In June 2006, the Commission awarded a contract for the rehabilitation of the Kalomo Administrator s House under the National Tourism Development Master 33
Plan Project, to Pozzolona Enterprises, a Lusaka based contractor, at a contract sum of K 278,198,600. According to the contract, the works on the project which commenced on 13th July 2006 were due to be completed by 27th September 2006. As of March 2010, amounts totalling K258,704,006 had been paid to the contractor and the contractor had since abandoned the site. A physical inspection of the monument conducted in March 2009 revealed that there was poor workmanship and use of wrong materials. In particular, the following were observed: · · · · · · · · · · · · · · The pavements surrounding the house were replaced with pavements of poor quality. The roof was leaking in one of the self contained rooms. The booster pump for water supply was not working. The bath tub in one of the visitor s toilets was not repaired. The geyser was not changed from pressure type to gravitational type. The housing of the pump was not covered with a top exposing it to theft. The cover on the newly built sewer man hole was broken. The wooden lintels were not replaced. One bath tub was not fixed in one of the self contained rooms. Towel rails had not been installed in five (5) rooms. The inspection box was not covered. The contractor did not replace the window panes and wooden frames. The fascia board on the upper roof was not fixed while the one on the lower roof was of the wrong size and was broken. The contractor did not settle the outstanding water bills amounting to K1,200,000 owed to the water utility company as per contract agreement. It was observed in this regard despite the contractor having fundamentally breached the contract; the commission had not terminated the contract contrary to the provisions of clause 59 of the contract.
h. Un accounted for Funds - NORMFA Support to the Commission During the period under review, the Commission received amounts totalling K629,559,460 as grants from the Royal Kingdom of Norway under the NORMFA Support to the Commission project. However, the Commission misapplied amounts totalling Kl16,022,700 on activities not related to the project such as
legal fees, publication and training. As of March 2010, the funds had not been reimbursed.
NATIONAL HOUSING AUTHORITY (NHA) 11. In the report of the Auditor General for 2007 on the Accounts of Parastatal Bodies, mention was made on various accounting and other regularities at the National Housing Authority (NHA). A review of operations for the year 2008 revealed the following: a. Outstanding Rentals A review of outstanding rentals on commercial properties as at October 2009, revealed the following status:
No. Of Tenants Kulima Tower 91 Indeco House 60 Zimco House 45 Findeco House 223 722/723 Freedom Way 21 NHA Head Office 4 Chipata 13 Solwezi 3 Mansa 5 Kasama 6 Mongu 4 Total 475 Property
Balance (K) 777,711,479 2,057,573,824 594,704,163 2,006,207,858 137,498,196 255,425,939 194,144,639 63,547,474 41,394,211 154,257,725 53,691,400 6,336,156,908
As can be seen from the table above, NHA was owed amounts totalling K6,336,156,908 by various tenants. It was observed that out of the total amount owed, amounts totalling K 5,894,980,132 had been outstanding for more than 360 days. The status on residential properties could not be ascertained as management did not avail the records.
b. Uncollected Income from sale of Kafue Estates Houses As of October 2009, a total of sixty eight (68) housing units which were offered for sale between 2001 and 2006 to the sitting tenants had not been fully paid for and a balance of K441,318,338 had been outstanding for periods ranging between 4 to 8 years. c. Non Remittance of PAYE. Pay as you Earn (PAYE) due to the Zambia Revenue Authority in amounts totalling K 8,709,384,073 deducted from employees during the period from 2001 to 2008 had not been remitted as of December 2008. d. Staff Establishment It was observed that the Authority had no approved staff establishment in place despite having had a total number of 257 employees.
NATIONAL SPORTS COUNCIL OF ZAMBIA (NSCZ) Background 12. The National Sports Council of Zambia is a statutory body which was established under the National Sports Council Zambia Act No.15 of 1977. The functions of the NSCZ among others include: · To keep itself fully appraised of the policy of government in the matters of sports and disseminate the said policy; To ensure that sports groups and associations at all levels conform to the rules and norms governing the particular sport; To develop, promote, control and encourage all forms of amateur and professional sports on a national basis in conjunction with national sports associations and the Director; To encourage and assist in the formation of sports associations in Zambia and to encourage the affiliation of such associations to appropriate international organisations; To assist, financially or otherwise any team or individual in representing Zambia in any competition within or outside Zambia; 36
To assist financially or otherwise, any citizen of Zambia in obtaining such training within or outside Zambia as would qualify him to become an instructor, coach or organiser of any form of sport; To raise and maintain a fund from such sources and by such means as the Minister may approve, to enable the NSCZ to carry out its functions and achieve it s objectives; To stimulate through the appropriate authorities the provision, development and maintenance of facilities and equipment for all kinds of sport and ensure their equitable distribution and proper use; To ensure that sports groups at all levels maintain proper accounts and where deemed necessary to supervise and direct the maintenance of such accounts; To control the award of National colours; To exercise disciplinary powers in cases of breach of the provisions of this Act; To establish the status of National and Representative teams. Generally to promote the development and organisation of sport and to eliminate undesirable practices; and, To do and perform such other acts and things as may be conducive to the development, control, regulation and promotion of sports and to the enforcement of the provisions of this Act.
· · · ·
Management According to the Act, the NSCZ is governed by a Management Board comprising: i. ii. iii. iv. The Chairman, the vice-chairman and not less than five other members, all of whom shall be appointed by the minister; The Director or his representative; Two members to be appointed by each affiliated body; and, One member to be appointed by: · Youth brigade of the United National Independence Party; · Each of the ministry responsible for sport, defence, education, health, local government and the police; and, · Each associate body. The tenure of office for board members is four (4) years. 37
The day to day operations of the Council are the responsibility of the General Secretary who is appointed by the Board with the approval of the minister and is assisted by the Centre Manager, Accountant, Sports Development Officers, Research and Public Relations Officer and the Administrative Assistant. Sources of Funds According to the provisions of the Act, the funds of the Council shall consist of: · · such sums as may be appropriated by Parliament for the purposes of the Council; such sums as are paid to the Council as donations, contributions, subscriptions, fees or gifts, provided that the council shall not raise money from outside Zambia without prior approval of the Minister; and, such other money or assets as may accrue to or vest to the Council as a result of the investments made or transactions entered into in course of its operations.
Review of Operations A review of the of financial, accounting and other relevant documents for the financial years ended 31st December 2003 to 2008 carried out in August 2009 revealed the following: a. Income i. Grants In the Estimates of Revenue and Expenditure for the financial years ended 31st December 2003 to 2008, provisions of K2,296,931,883 were made to cater for the operations of the Council against which a total of K2,413,669,835 was released resulting in excess funding of K116,737,952 as shown in the table below:
Total Authorized Provision K 370,112,495 87,029,170 308,590,218 550,000,000 429,200,000 552,000,000 2,296,931,883
Year 2003 2004 2005 2006 2007 2008 Total
GRZ Grant K 432,557,756 90,701,893 341,639,406 558,339,791 499,039,766 491,391,223 2,413,669,835
Variance K 62,445,261 3,672,723 33,049,188 8,339,791 69,839,766 (60,608,777) 116,737,9 52
ii. Other Income In addition to government grants, the Council generates its own income from affiliation fees from member bodies and from other activities such as bar sales. The Council had a total of forty two (42) member bodies during the period from 2003 to 2008 and the affiliation fee payable by each member body was K100,000 per year. Therefore, the affiliation fees expected to have been collected by the Council over the period from 2003 to 2008 was K25,000,000. During the period under review, the Council generated amounts totalling K725,113,700 from bar sales. However, due to poor record keeping it was not possible to ascertain how much was received in respect of affiliation fees. b. Staffing Out of a total approved establishment of thirty (30) positions, eighteen (18) were filled while twelve (12) were vacant as of August 2009. Among the vacant positions were those of the Research and Public Relations Officer, the Administrative Assistant, the Accountant and three (3) Sports Development Officers. c. Lack of Segregation of Duties It was observed that there were no internal controls as one person was involved in the preparation, approving and authorisation of payments. d. Poor Record Keeping There was poor record keeping as evidenced by the non maintenance of records such as receipt books, bank reconciliation statements and cash books for funds received by the Council contrary to Financial Regulation No. 128. In this regard, it was difficult to ascertain how the funds received were utilised. e. Failure to Prepare Annual Work and Strategic Plans During the period under review, the Council operated without strategic and annual work plans.
f. Failure to Produce Annual Reports According to the National Sports Council of Zambia Act No.15 of 1977, as soon as may be after the 31 st December in each year but not later than three months thereafter, the Council shall submit to the Minister a report concerning its activities for the financial year. The report of the Council shall include information on financial affairs of the Council and there shall be appended to the report an audited balance sheet, an audited statement of income and expenditure and a report of the auditors as the Minister may require. The Minister shall lay the annual report before the National Assembly. Contrary to the above, the Council did not prepare and submit annual reports for the period under review to the Minister. It was also observed that the accounts for financial years ended 31st December 2003 to 2008 had not been prepared. g. Failure to Establish Provincial and District Sports Committees According to the Act, the Minister in consultation with the Minister in charge of a Province appoints Provincial Sports Advisory Committees who in turn appoint District Sports Committees responsible for the promotion, development and organization of sports within the province and districts respectively. Contrary to the above provisions of the Act, no provincial and district sports committees were appointed in the provinces and districts. h. Creditors During the period under review, the Council owed amounts totalling K1,481,219,438 in respect of terminal benefits, salary arrears, statutory contributions and other creditors as shown in the table below some of which had been outstanding from as far back as 2004.
Amount K 705,003,557 18,468,400 366,746,795 391,000,686 1,481,219,438
Details Terminal benefits Salary arrears Statutory remittances Other creditors Total
In this regard, the Council will be susceptible to interest and penalty charges.
i. Unvouched Expenditure Contrary to Financial Regulations No. 52, 65 and 156 there were six hundred and sixty seven (667) payments in amounts totalling K2,241,435,522 that were unvouched in that the payment vouchers were either missing, unacquitted or inadequately supported with invoices, receipts among others as shown in the table below: Main No. of Total No. of A/C Bar Total Vouchers Vouchers K K K
Main A/c Bar Missing Vouchers Unacquitted Payments Inadequately Supported Total 107 149 166 422 159 4 82 245 266 153 248 667 323,771,094 1,020,605,513 546,745,676 1,8 91,122,283 195,105,236 1,575,000 153,633,003 350,313,239 518,876,330 1,022,180,513 700,378,679 2,241,435,522
NITROGEN CHEMICALS OF ZAMBIA (NCZ) Background 13. The Nitrogen Chemicals of Zambia was established in 1967 by the Government of the Republic of Zambia (GRZ) through its investment arm of INDECO mainly to produce explosive grade ammonium nitrate for further processing into explosives for mining copper, coal, and quarrying operation with an initial estimated investment of US$500 Million. Construction of the plant was done by Kobe Steel Limited of Japan on a turnkey basis and was commissioned in 1970. In 1973, a decision was made to expand the plant to produce fertilisers. In 1975, Klockner of Germany began construction of the second phase which was commissioned in 1981. This phase of expansion included production of additional ammonia, nitric acid, ammonium nitrate, ammonium sulphate and compound (NPK) fertilisers. In 1983, a sulphuric acid plant was also constructed to produce sulphuric acid as phase 3 to be used as raw materials in production of ammonium sulphate. As a result of the expansion, the NCZ has a production capacity of 608,820 metric tonnes of various products per annum as shown in the table below:
Product Ammonium Nitrate Ammonium Sulphate Compound Fertilizer (NPK) Liquid Ammonia Methanol Nitric Acid (100% conc.) Sulphuric Acid (100% conc.) Liquid Carbon Dioxide Total
Design Capacity (MT p.a) 139,000 50,000 142,320 95,000 1,500 120,000 60,000 1,000 608,820
Administration Nitrogen Chemicals of Zambia has a Board of Directors comprising ten (10) members drawn from government ministries and private companies in accordance with the Articles of Association and the Companies Act. The role of the Board is to effectively govern the affairs of NCZ for the benefit of its shareholders, and other constituencies, which include the company s employees, customers, and communities in which it does business. The Board chairman and members are appointed by the Minister of Agriculture and Cooperatives who represent the shareholders, the Government Republic of Zambia. As of November 2009, board membership comprised seven (7) out of the ten (10) board members as the Chairperson and two other members had resigned from their positions in September 2009. The Board delegates responsibility for implementing the strategic direction and for managing the day to day operations of NCZ to the Chief Executive Officer who is assisted by the General Manager, Chief Finance Officer, Purchasing Manager, Technical and Maintenance Manager, Production Manager and Human Resource Manager who are appointed for a contract term of three (3) years. The rest of the members of staff are on permanent and pensionable basis. Source of Income The Company earns its income from the sale of its products, grants from the government and other activities such as hire of equipment and of work shop services.
Share Capital The Company is wholly owned by the government with an authorised share capital of K1,200,000,000 ordinary shares of K2.00 each out of which K1, 089,022,306 was issued and fully paid. In addition, the Company also has a total number of 573,304,370 preference shareholders. Review of Operations a. Failure To Produce Financial Statements Clause 126 of the Articles of Association for the Nitrogen Chemicals of Zambia Limited requires the board of directors to annually produce and lay before the general meeting, profit and loss account and the balance sheet which must be in compliance with any law that is in force. Contrary to the above provision, the Company had not produced audited financial statements for the financial years ended 31st March 2001 to 2009 and consequently it was not possible to comment on the financial performance and position of the company. b. Procurement of Goods and Services i. Contract with Kasofred Distributors (Z) Limited In August 2002, Nitrogen Chemicals of Zambia entered into a contract with Kasofred Distributors (Z) Limited for the supply of 5,288 metric tonnes of DiAmmonium Phosphate (DAP), 2,027 metric tonnes of Muriate of Potash (MOP) and 7,000 metric tonnes of Anhydrous Ammonia at a contract sum of US$3,982,040 with a delivery period of five (5) weeks. In this respect the supplier (Kasofred Distributers Ltd) was paid amount totalling US$2,541,966. It was however, observed that only materials worth US$206,627.65 were delivered leaving a balance of US$2,335,338.35. Consequently, in October 2003, NCZ took the matter to court and the court ruled that the Kasofred distributers should pay US$1,607,410.98 plus interest to NCZ. However, as of March 2010, the money had not been paid to NCZ. ii. Contract for the Supply of D Compound Fertilizer for Fertilizer Support Programme (FSP) In April 2009, the Government of the Republic of Zambia through the Ministry of Finance and National Planning released K5 billion grant for the rehabilitation of the NPK Plant at NCZ in readiness for the production of D 43
Compound fertilizer for the 2009/2010 farming season and the plant was rehabilitated. In September 2009, Nitrogen Chemicals of Zambia Limited and the Government of the Republic of Zambia, through the Ministry of Agriculture entered into a contract for the manufacture and supply of D Compound fertilizer at a total cost of K58.5 Billion. The contract terms provided for among other things the following: · The product was to be sold to the Government at K3.9 million per metric tonne; The Company was to manufacture and make available 5,000 metric tonnes by August 2009; and 10,000 metric tonnes by September 2009 from the date of signing the contract; and, A down payment of K27 billion was to be paid upon signing the contract and the balance of K31.5 Billion was to be paid upon completion of production.
The following observations were made: · Though the Company was expected to make available 5,000 metric tonnes of D Compound fertilizer by August 2009, the contract was only signed on 2 nd September 2009; The down payment of K27 billion that should have been made by the Government upon signing the contract was not released to NCZ contrary to Clause 11.1 of the Special Conditions of the Contract; The Company submitted three proposed production schedules to the Ministry of Agriculture and Cooperatives which indicated availability of the final 5,000 metric tonnes on 31st October 2009, 7th November 2009 and 15th November 2009. However, on 15th September 2009, the Ministry terminated the contract for the manufacture and supply of 15,000 metric tonnes of D Compound fertilizer. The reason for the termination was that the production schedule for the supply of fertilizer that was submitted by the Company would seriously lag behind that for top dressing fertilizers which had already been delivered to the Districts.
iii. Inadequately Supported Payments Contrary to Financial Regulations No. 45, there were six hundred and fifty six (656) payment vouchers in amounts totalling K16,930,433,848 that were inadequately supported in that they lacked supporting documents such as receipts, acquittal sheets and salary schedules among others. c. Failure to Follow Tender Procedure Contrary to Financial Regulation No. 52(1), one hundred and forty six (146) payment vouchers in amounts totalling K1,503,773,118 were inadequately supported in that they lacked three (3) competitive quotations d. Unretired Imprest Contrary to Financial Regulation No. 96(1), imprest in amounts totalling K984,527,347 involving two hundred and seventy seven (277) transactions issued to various officers during the period under review had not been retired as of October 2009. e. Disposal of Motor Vehicles Without Board Approval In September 2002, management disposed of seventeen (17) motor vehicles. The vehicles had reached their full depreciated values. These motor vehicles were sold to members of staff who had been using the vehicles either as personal to holder or in the course of carrying out their duties. The total amounts realised from the disposal was K18, 861,750. There was no Board approval for this disposal. f. Irregular Appointment of Chief Finance Officer (CFO) NCZ recruited the Chief Internal Auditor (CIA) on a contract for a period running from 14th May, 2007 to 15th May 2010. In July, 2009, the Board appointed the CIA to act in the position of CFO before terminating the contract of CIA. It was also observed that as of September, 2009, this officer continued to perform the functions of both offices thus creating a conflict of interest. g. Unaccounted for Revenue - Staff Canteen Among the conditions of service outlined in the collective agreement signed between NCZ and National Union of Commercial and Industrial Workers was that in the absence of food in the staff canteen, employees were to be paid a meal allowance of K75,000 per month or K3,750 per working day. In this respect, NCZ was providing meals to their staff at uneconomical prices ranging between K300 and K700 per plate. In this regard, a total of K887,172,710 was spent on 45
procurement of food stuffs in the financial years ended 31st March 2001 to 2009. However, due to poor record keeping, it was not possible to ascertain how much money was raised from the sale of meals. h. Medical Allowance and NCZ Clinic The conditions of service and the collective agreement provided for a medical allowance of 15% of basic salary to all employees. In this regard, during the financial years ended 31st March 2001 to 2009, NCZ paid amounts totalling K12,920,668,754 to members of staff as medical allowances. However, it was observed that during the same period, NCZ provided free medical services to staff and their families at its two clinics and in this regard, NCZ procured all the medical supplies for the two clinic at a cost of K205,126,823 during the period under review. It was not clear why NCZ was offering free medical services to employees who were at the same time in receipt of medical allowance. i. Failure to Recover Staff Debts In January 2007, NCZ gave 786 employees loans in amounts totalling K161,021,615. The loans were in the form of 1,308 bags of D Compound fertiliser. The loans were to be recovered in four (4) to five (5) monthly instalments. However as of October 2009, no recoveries had been effected and the loans remained outstanding. j. Non Remittance of Statutory Contributions During the period under review, the company owed amounts totalling K123,404,577,864 in respect of statutory obligations as shown in the table below:
Amount Owe d K 30,386,557,383 8,891,698,675 81,528,292,076 2,598,029,730 123,404,577,864
Name of Statutory Body Zambia Revenue Authority - PAYE NAPSA - Principal Debt NAPSA - Penalties Workers Compensation Control Board TOTAL
The outstanding amounts in statutory contributions are likely to attract penalty and interest charges that would further worsen the financial position of the company.
k. Bank Overdraft In February 2007, NCZ obtained a K14.0 billion bank overdraft facility from Zambia National Commercial Bank (ZANACO). The facility was to be used for the purchase of local raw materials and to meet operational expenses. In addition, the overdraft facility provided for a US$13,740,000 (equivalent of K53,970,759,793) letters of credit to procure imported raw materials for the production plant. The overdraft facility and the Letters of Credit were due to expire on 30th November, 2007. The overdraft facility agreed upon between NCZ and ZANACO was on the basis of a contract that was entered into between NCZ and the Government of the Republic of Zambia (Ministry of Agriculture and Co-operatives) to supply 25,000 metric tonnes of Compound D fertilizer under the Fertilizer Support Programme (FSP). As per agreed contract terms, between July 2007 and October 2007, NCZ supplied the Government with the 25,000 metric tonnes of Compound D fertilizer valued at K66,000,000,000. The following were observed: i. Although the overdraft was supposed to be liquidated on 30th November 2007, as of September 2009, the overdraft had not been fully liquidated and there was a balance of K27,763,648,987. As of October 2009, NCZ made payments in amounts totalling K200,869,231 to a collateral manager, SOCOTEC International Inspections, as collateral service charges for managing the fertilizer stocks. However, there was no contract signed between NCZ and SOCOTEC International Inspections for the provision of collateral services thus rendering the payments irregular. Although the K14.0 billion overdraft facility was obtained for the procurement of raw materials, it was observed that amounts totalling K5,300,000,000 were used to clear salary arrears. NCZ further obtained overdrafts of K2.0 billion and K1.5 billion to facilitate for the payment of terminal benefits. However, the two facilities were obtained without approval from the board.
l. Failure to Liquidate a Loan In April 1986, a Credit Development Agreement was signed between the Zambian Government and the International Development Association (IDA). In the signed agreement, IDA agreed to make available to the Government an amount in various currencies equivalent to nine million seven hundred thousand Special Drawing Rights (SDR9,700,000) on the terms and conditions set forth in the Development Credit Agreement. Under Article II of the loan agreement, the Government agreed to lend NCZ on terms and conditions set forth in the Development Credit Agreement, the equivalent in Zambian Currency of the aggregate amount of the currency or currencies equivalent to SDR9,700,000 as a subsidiary loan. The loan was unsecured and accumulated interest at 9.7% per annum. However, contrary to the terms of the agreement which required the loan to be liquidated by 30th June 2001, as of March 2010, the loan had not been liquidated. In this regard, NCZ owed amounts totalling K704,970,000 of which K653,886,000 was interest. m. Non delivery of Raw Materials i. Di Ammonium Phosphate During the year ended 31st March 2007, the NCZ procured 16,015 metric tonnes of Di Ammonium Phosphate valued at US$9,447,492.25 from Industrial Commodities Holdings (Pty) Limited of South Africa. A review of the Material Receipts Reports revealed that only 8,843 metric tonnes of Di Ammonium Phosphate valued at US$ 5,216,826.76 was received by NCZ leaving a balance of 7,171.65 metric tonnes valued at US$4,230,665.49 undelivered as of 0ctober 2009. ii. Gypsum During the year ended 31st March 2007, NCZ procured 10,610 metric tonnes of Gypsum valued at US$224,401.50 from Chambishi Metals plc. A review of the Material Receipts Reports revealed that only 2,628 metric tonnes of Gypsum valued at US$55,587.49 was received by NCZ leaving a balance of 7,981.75 metric tonnes valued at US$168,814.01 undelivered as of October 2009. iii. Coal During the years ended 31st March 2006 and 2007, NCZ procured 5,000 metric tonnes of Coal valued at K1,791,875,000.00 from Collum Coal Mining Industries Limited. A review of the Material Receipts Reports 48
revealed that only 4,447 metric tonnes of Coal valued at K 1,593,629,118 was received by NCZ leaving a balance of 553.18 metric tonnes valued at K198,245,883 undelivered as of October 2009. n. Irregular Payments i. In January 2006, NCZ paid a total amount of K45,000,000 to board members as gratuity. This was irregular in that the Articles of Association did not provide for the payment of gratuity to board members. ii. During the period under review, NCZ engaged ACE Audit Control & Expertise to among other things monitor the fertilizer granulating process, costs and charges, and other collateral management services. However NCZ had operational Quality Assurance, Internal Audit and Finance departments to carry out the same work. During the period August 2005 to April 2006 a total of K158, 378,250 was paid for the service to the said company. o. Failure to Insure Assets A scrutiny of the company records revealed that Leasehold Buildings valued at K59,869,000 and Plant and Equipment valued at K16,349,287,130 were not insured.
TASK FORCE ON CORRUPTION Background 14. The Task Force on Corruption (TFC) was established in 2002 in accordance with Article 61 of the Constitution of Zambia. The specific terms of reference were to: · Collect, evaluate, process and investigate all suspected criminal conduct relating to serious mismanagement of public resources including acts of corruption, theft, abuse of office and money laundering committed by public officials during the period 1992 and 2001; Order and facilitate forensic audit of accounts of suspected persons, body or persons and departments of government upon receipted by the TFC of information on suspicious transactions relating to the period under review; Prosecute all persons reasonably suspected of having committed offences relating to mismanagement of public resources including corruption and abuse of office, theft and money laundering; 49
Initiate and facilitate forfeiture proceedings within and outside Zambia in respect of any property reasonably suspected by the TFC to have been directly or indirectly acquired through illegal acts or transactions in respect of public resources; Liaise with other authorities outside Zambia on maters relevant to the gathering of intelligence information, investigation and prosecution of suspected persons; Make recommendations to the President and other relevant authorities on measures required to prevent future acts of corruption and mismanagement of public resources; and, Carry out other duties as may be assigned to the TFC by competent authorities from time to time.
Administration According to operational guidelines, the Task Force on Corruption was headed by the Executive Chairman who was assisted by the Director of Operations. The Director of Operations was assisted by four (4) Deputy Directors in charge of Finance, Administration and coordination, General Investigations and Recovery and Management of Assets, Financial Investigations and Prosecutions and Litigation. Sources of Funds The operations of the Task Force on Corruption were financed through grants from the Government and cooperating partners. During 2008, the Task Force received amounts totalling K4,000,952,394 as grants from Government. In addition, K2,537,321,860 (US$519,730) was brought forward from 2007 Cooperating Partners grants bringing the total amount available to K6,538,274,254. An examination of financial, accounting, stores records and other relevant documents revealed the following: a. Bank Balances As at 31st December 2008, TFC had four (4) bank accounts as detailed in the table below:
Bank Crown Agents Bank Recoveries Account (BOZ) Recoveries Account (BOZ)
Balance as at 31st December 2008 K US$ 7,143,022,238 83,529.41 1,371,696.04
£ Dollar Account held in London Kwacha Account held at Bank of Zambia Dollar Account held at Bank of Zambia Pound Sterling Account held at Bank of Zambia
33084102 001-37-28-00515-0 001-37-28-00515-2
b. Failure to Comply with Donor Conditions In November 2007, the Royal Danish Embassy disbursed a sum of K7,104,096,881 (US$1,862,651.83) to the TFC on condition that it was to be used solely for payment of local and foreign legal fees. However, it was observed that a sum of K48,672,319 (US$9,969.75) was paid as consultancy fees to the Project Coordinator responsible for preparing financial statements of the Task Force on Corruption. c. Procurement of Legal Services The Government procured legal services by engaging various legal firms in order to assist TFC in prosecuting in the courts of law. However, the following were observed: i. Irregular Engaging of Law Firms for Services The law firms contracted were not engaged competitively but merely single sourced and appointed by the Attorney General. Details of the law firms and their legal fees payable is tabulated below:
Amount Paid as of M ay Amount Due 2008 US$ US$ 280,000.00 120,000.00 280,000.00 280,000.00 15,333.33 1,579,954.79 120,000.00 120,000.00 15,333.33 241,723.73 Amount Outsatnding US$ Remarks 160,000.00 Eight (8) months arrears 160,000.00 Eight (8) months arrears 160,000.00 Eight (8) months arrears Nil Terminated 1,338,231.06 Eight (8) months arrears
Law Firm MNB Zulu & Co
Fee/M onth US$ 20,000.00 20,000.00
Sambo Kayukwa & 20,000.00 Co Mundia & Co 20,000 DLA Piper Rudnick Vary monthly
ii. Payment of Legal Fees The terms of reference for the engaged law firms spelling out reporting lines and the basis of payment of fees were not availed for audit scrutiny. In particular, the following were observations: · Payment to Local Law Firms There was no evidence provided to justify the basis of a fixed charge of K96,640,000 (US$20,000) per month in legal fees. In this regard, the legal fees were paid monthly irrespective of whether any work was done or not. As of December 2008, amounts totalling K1,832,377,317 (US$375,333.33) had been paid to three (3) local law firms while a sum of K2,343,360,000 (US$480,000) was owed to the four local law firms. · Payment to a Foreign Law Firm In 2008, amounts totalling K1,180,095,265 (US$241,724) were paid as foreign legal fee to DLA Piper Rudnick a firm engaged to prosecute cases in the United Kingdom. Included in this amount were payments of claims totalling K18,899,101 (US$3,871.18) in respect of expenses such as hotel bills, travel and subsistence allowances, delivery charges, photocopying charges and taxi fares. However, the payments were not supported by documents such as invoices and receipts as proof that the expenses were genuinely incurred. As of December 2008, DLA Piper Rudnick Gray was owed amounts totalling K6,533,244,035 (US$1,338,231.06) in legal fees for services rendered during the period from May to December 2008. d. Failure to Dispose of Forfeited Assets In December 2008, assets valued at K61,757,412,030 were handed over to Cabinet Office by the Task Force on Corruption for disposal. However, as of June 2009, the assets had not been disposed off. e. Failure to Remit Disposal Proceeds In August 2006, property number S/D52/2898 in Livingstone was sold to Connie Dodia at a sum of K150,000,000 through National Housing Authority (NHA). Cabinet Office had mandated NHA to dispose off the property on their behalf. It was however observed that, contrary to the sale agreement which required the buyer to make one lump sum by certified bank cheque within 30 days from the date 52
of offer, only K84 million had been paid in May 2009, leaving a balance of K66 million outstanding. It was also observed that although the buyer had paid K84 million in 2006, as of May 2009, the money had not been remitted into the recoveries account by NHA. f. Physical Inspection of Forfeited Assets A physical inspection of forfeited assets conducted between February and March 2009 revealed that most of them had deteriorated due to adverse weather conditions and vandalism as detailed below. i. Assorted Equipments and Machinery · Lusaka Equipment valued at K 560,000,000 which was brand new at the time of seizure had deteriorated due to lack of storage facilities. · Kitwe Equipment valued at K1,257,364,500 were observed to have deteriorated due to poor storage. ii. Real Estate - Properties · DGH Poly Products Stand No. 5291, 3292, 5299 and 5300, Lusaka
The company was seized in July 2003 and had not been disposed of as of May 2009. The company was valued at K5,250,000,000 and was running as a going concern. There was no agreement between the Government and the management running the company. · Motor City - Stand No. 5091, Lumumba Road, Lusaka The property was seized in September 2003 and had not been disposed of as of May 2009. The premises which was valued at K1,400,000,000 was leased out to tenants and run by a manager. Rental income realised was not remitted to Government. There was no agreement between the Government and the manager running the premises.
Former UBZ Premises
Stand No: 40 83 / 12, Twalumba Close, Ndola
The property was seized in 2008 and had not been disposed of as of May 2009. The property was valued at K1,400,000,000 and leased out to tenants. No rental income was being remitted to Government. There was no agreement between the Government and the manager running the premises. · Ndola Trust School Stand No: 587 / C, Ndola
The property was seized in 2008 and it had not been disposed of as of May 2009. The school valued at K4,744,489,530 is a going concern. No income is being remitted to Government and there was no agreement between Government and the school management. · Stand No. 515, Siavonga The property valued at K520,000,000 was seized in May 2003 and had not been disposed of as of May 2009.
TAZAMA PIPELINES LIMITED Background 15. TAZAMA Pipelines Limited was established in 1966 to construct and operate a pipeline between the port of Dar es Salaam in Tanzania and Ndola in Zambia for the purpose of transporting crude oil or its refined petroleum products. The pipeline covers a distance of 1,710 kilometres and has an annual throughput capacity of 800,000 metric tons of crude oil. The company also operates a tank farm facility situated at Kigambani in Dar es Salaam which comprises six (6) tanks with a holding capacity of 232,000 cubic meters. Pumping is achieved though seven (7) pump stations, five (5) in Tanzania and two (2) in Zambia. The company is the Government agent in the procurement of refinery feedstock, overseeing of the refining process and sell of petroleum products. TAZAMA Pipelines Limited also manages the fuel terminal in Ndola on behalf of Government. Administration The Company is governed by a Board of Directors comprising seven (7) members represented by four (4) Directors appointed by subscribers of Class A shares and three 54
(3) Directors appointed by subscribers of Class B shares with Zambia providing the Chairperson. The day to day operations of the company are managed by the Managing Director who is assisted by the Director of Operations and Engineering, Financial Controller and Director of Administration who are based at Head office in Ndola. The Board appoints the Managing Director and directors on a renewable three (3) year contract. The rest of the staff is appointed on a permanent and pensionable basis. The total authorise staff establishment of the company was 394 as of March 2009. Sources of Funds The major sources of funds for TAZAMA Pipelines Limited are pumping and storage fees, agency fees and rental income. Review of Operations a. Capital Structure The company is jointly owned by the Government of the Republic of Zambia (Class A) and the United Republic of Tanzania (Class B). The shares for the Zambian Government are held by the Ministry of Finance and National Planning. The Tanzanian Government holds its shares through Tanzania Petroleum Development Corporate (TPDC). The Company s authorised share capital consists of 50 billion ordinary shares of K1 each comprising 33,333,334,000 of Class A (67%) and 16,666,666,000 of Class B (33%) shares. Out of the authorised share capital of K50,000,000,000, only K25,000,000,000 had been issued and there has been no change in the company s authorised and issued share capital during the period under review. b. Failure to Increase Share Capital A special resolution of the Annual General meeting held in August 1995 that the issued share capital be increased by K5 billion annually for the next five (5) years in order to bring the capital requirement to K25 billion for Class A shareholders and another K25 billion for the Class B shareholders had not been implemented as of July 2009.
c. Failure to Convert Government Loans into Equity In January 1991 and July 2002, GRZ paid TAZAMA Pipelines Limited loans totalling K264,265,472,000 (US$66,378,000). The loans were for the rehabilitation of crude oil farm tanks in Dar es Salaam. Out of the total GRZ loan paid to TAZAMA, an amount of K672,786,497 (US$168,990) was repaid leaving a balance of K263,592,685,503 (US$66,209,010) outstanding and unserviced as of April 2010. d. Financial Performance An analysis of the financial statements for the period ending 31st March 2005 to 2008 revealed the following: Profitability Profit and Loss Accounts (Extract)
2008 K'000 69,744,858 (50,062,011) 19,682,847 3,197,938 22,880,785 (30,032,303) 14,287,838 3,021,758 10,158,078 (846,283) (14,950,105) (2,482,768) (8,121,078) (8,121,078) 2007 K'000 61,100,402 (49,028,132) 12,072,270 2,576,628 14,648,898 (30,704,681) 1,583,730 (14,472,053) (3,856,130) (3,972,970) (25,532,247) (47,833,400) (47,833,400) 2006 K'000 47,413,411 (45,292,453) 2,120,958 4,954,240 7,075,198 (47,599,560) 765,521 (39,758,841) (2,378,182) 47,512,080 5,375,057 5,375,057 2005 K'000 71,750,566 (35,348,116) 36,402,450 3,339,398 39,741,848 (26,476,280) 2,793,280 16,058,848 (13,296,414) 2,762,434 2,762,434
Turnover Pumping costs Gross Profit Other operating income Admin and financial expenses Agency fees Other income Operating Profit/(Loss) Interest expense Prov. for retirement benefits Exchange (losses)/ gains Profit before taxation Taxation Profit /(Loss) for the year
i. The total turnover reduced from K71,750,566,000 in 2005 to K69,744,858,000 in 2008, representing a 3% reduction. During the same period, the quantities of the feed stocks (pump yield) reduced from 492,134 metric tonnes in 2005 to 461,980 metric tonnes in 2008, representing a decrease of 6% while pumping costs increased from K35,348,116,000 in 2005 to K50,062,011,000 in 2008, representing an increase of 42% as detailed below:
Pump Yield 2008 2007 2006 2005 Metric Tonnes Metric Tonnes Metric Tonnes Metric Tonnes Quantities of Feed Stock 461,980 447,340 362,829 492,134 Pumping Costs (K'000) 50,062,011 49,028,132 45,292,453 35,348,116
ii. TAZAMA Pipelines Limited recorded an operating profit of K16,058,848,000 in 2005 and K10,158,078,000 in 2008, the company recorded operating losses of K39,758,841,000 in 2006 and K14,472,053,000 in 2007. Although the company recorded a profit of K5,375,057,000 in 2006, the company recorded losses of K47,833,400,000 in 2007 and K8,121,078,000 in 2008. iii. There were no dividends declared and paid to the shareholders during the period under review. e. Financial Position Balance Sheet for the Financial Year Ending 31st March 2005 to 2008
2008 K'000 ASSETS Non-current ass ets Property, plant and equipment Curre nt asse ts Inventories Debtors and other receivables Bank balances and cash Total assets EQUITY AND LIABILITIES Capital and rese rve s Share capital Revaluation reserve (Accumu losses)/retained profit Non-current liabilities Long - term loans Due to the Government of the Republic of Zambia Curre nt liabilitie s Creditors and other payables Short term indebtedness Bank overdraft Total e quity and liabilitie s 2007 K'000 2006 K'000 2005 K'000
14,379,070 27,363,618 3,990,389 45,733,077 452,456,200
4,919,176 9,540,557 4,022,078 18,481,811 438,884,739
3,847,546 1,131,828 1,212,689 6,192,063 431,765,960
9,595,816 15,195,462 1,646,447 26,437,725 481,942,673
25,000,000 78,362,597 (43,104,732) 60,257,865 26,176,699 158,093,264 184,269,963 141,908,863 66,019,509 207,928,372 452,456,200
25,000,000 84,554,638 (41,172,695) 68,381,943 29,765,712 144,883,537 174,649,249 128,604,888 67,248,659 195,853,547 438,884,739
25,000,000 90,746,679 468,664 116,215,343 48,928,580 112,561,776 161,490,356 107,383,240 46,677,021 154,060,261 431,765,960
25,000,000 96,938,720 (11,098,434) 110,840,286 120,506,732 74,011,645 194,518,377 99,568,759 76,567,491 447,760 176,584,010 481,942,673
i. Liquidity The liquidity position of the company during the period under review was as shown in the table below:
2008 K'000 45,733,077 207,928,372 (162,195,295) 0.22 0.15 2007 K'000 18,481,811 195,853,547 (177,371,736) 0.09 0.07 2006 K'000 6,192,063 154,060,261 (147,868,198) 0.04 0.02 2005 K'000 26,437,725 176,584,010 (150,146,285) 0.15 0.1
Current Assets Current Liabilities Working Capital Current Ratio Quick Ratio
As can be seen from the table above, TAZAMA Pipelines Limited operated with a negative working capital, while the current and quick ratios for the company were below the recommended ratios of 2: 1 and 1:1 respectively during the period under review thereby exposing the company to the risk of insolvency. ii. Debt to Total Assets The Debt to Total Assets ratio measures the amount of debt to total assets. The margin of safety for debt ratio is 50% or less. The TAZAMA Pipelines Limited had a high proportion of debt in relation to total assets. During the period under review, the debt to total assets ratio moved from 77% in 2005 to 87% in 2008 as shown in the table below:
2008 K'000 392,198,335 452,456,200 87% 2007 K'000 370,502,796 481,942,673 77% 2006 K'000 315,550,617 413,765,960 76% 2005 K'000 371,102,387 481,942,673 77%
Debt Total Assets Ratio
iii. Interest Cover The interest cover shows the number of times the company is able to pay interests over the profits. A high level of interest cover indicates a better position as regards payment of interest with debt holders confident that profit is sufficient to pay interest and shareholders confident of their dividend. The desired margin of safety for interest cover is 2. 58
During the period under review, the interest cover was adverse ranging from 0.05 in 2005 to negative 0.12 in 2008 as shown below:
PBIT Interest Payable Ratio
2008 K'000 (8,090,168) 68,405,048 (0.12)
2007 K'000 (47,518,519) 65,760,969 (0.72)
2006 K'000 5,494,273 59,368,402 0.09
2005 K'000 2,823,318 52,697,525 0.05
The capital structure of a company may either be wholly funded through 100% equity (ungeared company) or a combination of equity and debt (geared company). The gearing ratio is usually calculated to help understand the financial risk and the extent to which a company has further borrowing capacity. Gearing ratio measures the proportion of capital that is financed by loans. It is generally accepted that gearing level should not exceed 50%. In situations where the gearing levels are above 50%, the cost of capital becomes high in terms of interests. During the period under review, the gearing ratio for TAZAMA Pipelines Limited moved from 40% in 2005 to 75% in 2008 as shown below:
2008 K'000 184,269,963 244,527,828 75% 2007 K'000 174,649,249 243,031,192 40% 2006 K'000 161,490,356 277,705,699 37% 2005 K'000 194,518,377 305,358,663 40%
Non Current Liabilities Total Capital Ratio
v. Movement in General Reserve The reserves of the company diminished from K116,215,343,000 in 2006 to K60,257,865,000 in 2008, representing a deterioration of 48% over a period of three (3) years as shown in the table below:
2008 K'000 Balances As at 31st March 60,257,865
2007 K'000 68,381,943
2006 K'000 116,215,343
2005 K'000 110,840,286
f. Other Irregularities i. Non Remittance of Statutory Obligations Contrary to the Income Tax Act, TAZAMA Pipelines Limited did not remit to Zambia Revenue Authority Pay As You Earn deductions in amounts totalling K16,142,157,799 some of which had been outstanding from as far back as 1999. It was also observed that, as of April 2009, the company owed amounts totalling K1,989,869,938 to NAPSA in respect of pension contributions contrary to the provisions of the National Pension Scheme Act. ii. Capital Projects · Failure to Comply with the Provisions of the Constitution in the Award of Contracts Contrary to Article 54 of the Constitution, TAZAMA Pipeline Limited entered into two agreements as shown in the table below without seeking the legal opinion of the Attorney General.
Date Contractor Contract Number Scope of Work Refurbishment of six existing crude oil tanks in Dar-es-salaam A new steel floating roof crude oil storage tank located in Ndola and construction of a wall fence Contract Sum K
Tanigra 2-May-08 Contractors Ltd No. 2a
Tanigra 7-Dec-07 Contractors Ltd No. 2b
· Missing Materials
Construction of the Oil Tank
A review of the project appraisal documents revealed that specialised construction materials such as gate valves, density meters, cooling nozzle tips and hand pumps costing K128,814,190 which were left by the first contractor Groupe Snig, in 2000 for the construction of a tank in Ndola were missing. Although the matter was reported to Zambia Police in November 2003, as of July 2009, investigations had not been concluded.
TIMES PRINTPAK (Z) LIMITED Background 16. Times Printpak (Z) Limited is a company wholly owned by government. It was formed as a result of a merger between Times Newspapers Zambia Limited and Printpak (Z) Limited in March 1993. Management According to the Articles of Association, Times Printpak is governed by a board of directors whose members are appointed by the Minister responsible for Information and Broadcasting Services. The Articles of Association states that unless otherwise determined by ordinary resolution, the number of directors shall not be less than two (2) and not more than eight (8) and shall hold office for a term of three (3) years and are eligible for re- appointment upon retirement. The current board of directors was appointed in November 2007. The Board appoints the Managing Director, who is the Chief Executive Officer on a renewable three (3) year contract. The Managing Director is responsible for the dayto-day operations of the company and is assisted by the Deputy Editor in Chief, Finance Manager, Manpower and Human Development Manager, Legal Counsel and Human Resources manager. Sources of Funds The sources of funds for the Company are government grants, newspaper sales, advertising sales, commercial printing sales and courier service. Review of Operations A review of audited and draft accounts and other relevant documents for the financial years ended 31st March 2003 to 2009 carried out in September 2009, revealed the following: a. Lack of a Board of Directors Times Printpak operated without a board of directors for nine (9) months from January to October 2007. In addition, the board of directors that existed at the time of audit had nine (9) members instead of eight (8) as stated in the articles of association.
b. Failure to Produce Audited Financial Statements Contrary to the Articles of Association which requires the Company to prepare audited financial statements annually, it was observed that the company had not produced audited financial statements for the financial years ended 31st March 2004 to 2009 despite it having incurred amounts totalling K78,769,800 as audit fees in 2008. In this regard, it was not possible to carry out an analysis of the Company s financial statements. c. Failure to Meet Targets Revenue Collection
During the period under review, the Company collected amounts totalling K125,414,250,709.59 from newspaper sales, advertising sales, commercial printing sales, fixed assets disposal, courier services and interest earned against a total budget of K148,233,021,489 resulting in under collections amounting to K22,818,770,779.41 representing 15% of the total budget. d. Unretired imprest Imprests in amounts totalling K201,995,900 issued to eighty eight (88) officers during the period January to December 2008 had not been retired as of September 2009. e. Inadequately Supported Payments There were forty two (42) payments made between January 2008 and August 2009 in amounts totalling K344,536,092 that were inadequately supported in that the payment vouchers lacked supporting documents such as receipts and quotations relating to goods and services purchased. f. Non Remittance of Statutory Contributions and Taxes Contrary to the provisions of the National Pension Scheme Act of 1996, the Zambia Revenue Authority (ZRA) Act of 1995 and the Income Tax Act, Times Printpak (Z) Ltd did not remit statutory contributions and taxes to the appropriate authorities. The total outstanding amounts as at 31st December 2008 were K247,800,823,519 as shown in the table below:
CREDITOR ZRA PAYE ZRA WHT ZRA VAT NAPSA Workers Compensation Fund Sub Total
AMOUNT K 32,357,063,941 191,655,747 13,615,280,585 201,576,993,573 59,829,674 247,800,823,519
In this regard, penalty charges and interest fees amounting to K29,509,400,359 were levied for the non remittances of Pay As You Earn, Value Added Tax and Withholding Tax during the period under review thereby worsening the financial performance of the company. g. Irregular Payment of Car Maintenance Allowances During the period from May 2006 to November 2008, the Company irregularly paid amounts totalling K2,795,000,000 to thirty four (34) members of staff as car maintenance allowances in that the officers were not entitled to the allowances and there was no board approval. h. Failure to Recover Loans and Advances from Separated Employees In August and September 2008, two (2) employees were summarily dismissed from employment. At the time of their dismissal, the employees benefits could not cover all their indebtedness to the company. In this regard, the company was unable to recover amounts totalling K107,967,268 owed by the dismissed employees. i. Irregular Purchase of Cell Phones Contrary to staff conditions of service, management bought twenty three (23) cell phones at a total cost of K45, 543,490 for management staff between February 2006 and April 2009. The distribution list was not availed to the auditors for audit scrutiny. j. Engagement of a Debt Collector In July 2006, Times Printpak (Z) Limited engaged EBM Chambers to collect debt from seven (7) customers who owed the Company amounts totalling K1,105,902,064 for a long time. The terms of the engagement provided among others, that the debt collector:
· · · ·
Collects debts on behalf of the Company from the seven (7) customers only; Receives 10% as commission on amount collected from the debts; Shall furnish the Company with statements of accounts and any necessary reconciliation of the debtors assigned to; and, Shall, where a debtor proves difficult as regards payment of dues which he rightfully knows are payable, he shall use all means, within the law to obtain payment.
It was however, observed that: · · The Company could not provide records on how much was collected and remitted to them and on the commission paid to the debt collector. The Company could not provide any statements of accounts and reconciliations for the seven (7) customers assigned to the debt collector to show the outstanding balances as of September 2009. The debt collector stopped offering the services for debt collection on 30th April 2007 and since then, no effort had been made by management to recover the debts.
k. Irregular Payments of Gratuity Contrary to their conditions of service which stated that gratuity shall be paid at 35% of basic salary for the years served, three (3) employees were paid at 100% of basic salary for the years served resulting in an over payment of K138,810,140 as detailed in the table below:
Amount Paid Entitlement Overpayment K K K 102,238,320 35,783,412 66,454,908 64,723,872 22,653,355 42,070,516 46,591,872 16,307,155 30,284,716 213,554,064 74,743,922 138,810,140
Name Position V. Kapoka Operations Controller P. Musanshiko Management accountant J. Mulando Training Coordinator Total
Date Jun-07 Apr-06 Jun-05
l. Irregular Salary Upgrade According to the conditions of service, executive assistants belong to salary scale TPP5. However, contrary to the above, during the period from November 2006 to March 2008, the executive assistant in the office of the Managing Director had her salary scale upgraded from TPP5 to TPP4, a condition of service for middle managers. Consequently, the executive assistant was overpaid by K70,578,473. It was also observed that the executive assistant was being paid housing allowance 64
at 100% of basic salary instead of 70% which resulted in over payment of K13,458,311. As of March 2010, the overpaid amounts had not been recovered.
THE UNIVERSITY OF ZAMBIA
Background 17. In paragraph 15 of the Auditor General s Report on accounts of Parastatal bodies for the year ended 31st December 2006, mention was made of the non production of annual reports and weakness in receipting student fees by the University. A review of the situation carried out in December 2009 revealed that only draft financial statements were availed for audit without supporting ledgers. In particular the following were observed: a. Staff Establishment The University did not provide for audit, information regarding its staff establishment making it difficult to ascertain and compare the authorised establishment with the actual work force. It was in this regard not possible to determine the adequacy of the human resource at the institution. b. Segregation of Duties There was lack of segregation of duties in Provincial centres in that accounting duties were carried out by one officer who raised payments, approved them and was the sole signatory to the bank accounts. c. Lack of Approved Financial Regulations The Financial Regulations for the University of Zambia, which were presented for audit were dated 2002 and were in use during the year under review. However, these regulations were not approved by the University Council. d. Non Implementation of Internal Audit Recommendations Although the internal audit unit produced fourteen (14) reports which highlighted weaknesses in the management of the institution, management did not implement the audit recommendations to address the issues raised in the internal audit reports.
e. Irregularities in the Student Records System The University maintained a Student Financial Records System for receipting students fees. In addition, it ran a SAGE 500 accounting package for processing financial transactions. A review of the two systems revealed the following deficiencies: · The system did not allocate specific serial numbers to respective schools and units there by making the audit trail difficult to follow; The system was unable to generate receivables balances at any other period end other than at the end of an academic semester. Delayed Banking There were delays of periods ranging from three (3) to one hundred and fifty five (155) days in banking revenue collections in amounts totalling K1,069,604,237 collected during the period under review contrary to Financial Regulation No.121 (1). g. Under Banking Contrary to Financial Regulation No. 129, revenue for the period under review were under banked by amounts totalling K198,432,340 as shown in the table below:
Under banking K 232,000 38,465,725 89,756,235 8,226,400 61,021,980 730,000 198,432,340
Unit School of Law School of Humanities Cash office IDE Livingstone Kitwe Total
Schedule SL 2 HSS 2 Cash office 1 IDE 2 Livingstone 2 Kitwe 2
Unvouched Expenditure Contrary to Financial Regulation No.45 and 52, there were seven hundred and eleven (711) payments in amounts totalling K7,107,548,185 that were unvouched in that the payment vouchers were either missing or were inadequately supported by relevant documentation such as receipts, invoices and goods received notes.
Unretired Imprest Contrary to Financial Regulation No. 96, imprest in amounts totalling K462,509,699 issued to six (6) officers during the period under review had not been retired as of March 2010.
Failure to Maintain an Assets Register Contrary to Financial Regulation No. 103, the University did not maintain a fixed asset register making it difficult to ascertain the total assets position for the institution.
k. Lack of Title Deeds The University did not have title deeds for its properties on plot number 5765 Kalundu, Lusaka and House number 18 Fyakapale road, Riverside Kitwe. l. Non Remittance of Statutory Obligations A review of records at the University revealed that amounts totalling K211,128,083,467 were deducted as Pay As You Earn and pension contributions from the employees emoluments. However, these amounts had not been remitted to the Zambia Revenue Authority and Zambia State Insurance Corporation Limited as of January 2010 as shown in the table below:
AMOUNT K 190,948,230,037 20,179,853,430 211,128,083,468
INSTITUTION DESCRIPTION ZRA PAYE ZSIC Pension Contribution TOTAL
m. Failure to Pay Terminal Benefits In paragraph 15 of The Auditor General s Report on Parastatal Bodies for 2006, mention was made of the failure by Management to pay the outstanding long service bonus and retirement gratuity to serving and retired employees. It was observed that as of December 2009, the University owed a total sum of K187,298,243,318 in unpaid terminal benefits to its former employees broken down as K17,873,368,929 (deceased) and K169,424,874,389 (retirees). It was also observed that a sum of K36,415,652,325 was owed as contract gratuity and leave commutation payments as of December 2009.
THE UNIVERSITY TEACHING HOSPITAL (UTH) Background 18. The University Teaching Hospital is the principle medical training institution in the country for Medical Students, Interns, and Postgraduate Doctors. The Hospital which has a bed capacity of 1,800, serves as a national referral centre, training facility for health care providers and a research centre to find solutions to existing health problems and for development of science. Management The Hospital is headed by a Managing Director who is the Chief Executive Officer and is responsible for the day-to-day operations of the Hospital. The Managing Director is assisted by Directors for Finance, Human Resource and Administration, Nursing, Paediatrics, Medicine, Surgery, Laboratory Services, Obstetrics and Gynaecology. Sources of Funds The funds of the Hospital consist of such moneys as may: · · · · Be appropriated by Parliament for the purposes of the Hospital; Be paid to the Hospital by way of fees, levy, grants or donations; or Vest in or accrue to the Hospital, Be charged and collected as fees in respect of consultations, prescriptions, treatment and other medical services provided by the Hospital.
Review of Operations An examination of financial, accounting and other relevant records maintained at the Hospital revealed the following: a. Staffing During the period under review, the Hospital had shortages of critical medical staff as shown in the table below:
i. Doctors and Nurses
Authorised Establishment 2007 Doctors Nurses 2008 Doctors Nurses 373 1,367 373 1,367 Actual Strength Variance 287 674 314 696 (86) (693) (59) (671)
As can be seen from the table above, as of December 2008, UTH was operating below its authorised establishment in that the strength of doctors and nurses stood at 314 and 696 respectively as opposed to the required numbers of 373 and 1,367 respectively. The staff levels were therefore insufficient to meet the demands placed on the Hospital. ii. Internal Audit Unit It was observed that out of the total authorised establishment of seven (7), only four (4) positions were filled leaving three (3) positions vacant. The internal audit unit could not fully execute its assignments as per work plans due to staff shortages. b. Irregular Payments During the period under review, the Hospital paid amounts totalling K4,545,711,360 to twenty (20) officers as salaries, gratuity, housing allowance and accumulated leave days. However, the payments were irregular in that the twenty (20) officers had no contracts of employment with the Hospital. c. Unpaid Staff Benefits As of December 2008, the Hospital owed staff amounts totalling K26,069,982,749 in leave travel benefits, salaries and terminal benefits, gratuity, long service bonus and settling in allowances as shown in the table below:
Leave Travel Benefits Salaries & Terminal benefits Gratuity Long service bonus Settling in allowance Total
Amount K 3,873,095,740 6,791,621,679 1,095,377,858 13,618,176,136 691,711,336 26,069,982,749
Inadequately Supported Payments Contrary to Financial Regulation No. 52(1), there were ten (10) payments in amounts totalling K17,470,000 made during the period April to October 2008 which had no supporting documents such as receipts, invoices among others .
Unretired Imprest Contrary to the Financial Regulation No. 96 (1), imprests in amounts totalling K5,500,000 issued to five (5) officers during the period from February to December 2008 had not been retired as of March 2010.
Non Refund of Rentals by the Ministry of Health A scrutiny of the Hospital records revealed that during the period under review, UTH paid amounts totalling K3,876,545,325 as rentals for post graduate doctors, intern doctors and pharmacists on behalf of the Ministry of Health (MOH). However, as of March 2010, the Ministry had not refunded the money.
Unsettled Salary Advances During the period from 2006 to 2008, the Hospital paid amounts totalling K454,400,000 as salary advances to sixty one (61) doctors and pharmacists employed by Ministry of Health (MoH). However, as of March 2010, the money had not been reimbursed to UTH by the MoH.
Unremitted Statutory Contributions According to the Hospital s financial statements, statutory contributions in amounts totalling K1,244,761,045 were not remitted to respective institutions as shown below:
Institution ZSIC ZRA NAPSA Pensions Board Total
Amount K 7,488,076 371,742,328 777,393,600 88,137,041 1,244,761,045
The Hospital was therefore likely to incur penalty and interest charges.
ZAMBIA FORESTRY COLLEGE Background 19. The Zambia Forestry College is a Government institution under the Ministry of Tourism, Environmental and Natural Resources. The objective of the college is to offer and facilitate effective training and carry out research in forestry, ecosystems and the related entrepreneurship in order to contribute to sustainable management and utilisation of natural resources. Administration and Management The College is headed by a Principal who is the Chief Executive Officer of the Institution. The Principal is assisted by a vice principal and five (5) heads of departments namely the department of engineering, biology, economics, administration and continuous education. All these officers are employed through the Public Service Management Division. Sources of Funds The College mainly depends on funding from the Government. In addition to the Government funding, the College raises additional income from student fees, hostel accommodation, saw milling operations and through conducting of short courses. Review of Operations An examination of financial, accounting and other relevant records for the financial years ended 31 st December 2004 to 2008 revealed the following:
GRZ Funding In the Estimates of Revenue and Expenditure for the financial years ended 31st December 2004 to 2008, a total authorised provision of K10,814,530,004 was made against which amounts totalling K7,534,054,929 were released resulting in underfunding of K3,280,475,075 as shown below:
Authorised Budget K 1,977,037,699 1,877,589,023 1,739,627,484 2,367,879,751 2,852,396,047 10,814,530,004 Actual Funding K 887,195,655 1,348,677,289 1,339,751,913 1,986,607,820 1,971,822,252 7,534,054,929 Over/(Under) Funding K (1,089,842,044) (528,911,734) (399,875,571) (381,271,931) (880,573,795) (3,280,475,075)
Year 2004 2005 2006 2007 2008 Total
In addition to funding received from the treasury, the college raised additional income from student fees, hostel accommodation, saw milling operations and conducting of short courses. However, due to poor record keeping, the College could not avail information pertaining to how much had been raised during the period under review. b. Delayed Bankings Contrary to Financial Regulation No. 121(1), there were delays of periods ranging from three (3) to five hundred and seventy five (575) days in banking amounts totalling K73,322,051 collected during the period under review. c. Underbanking During the period from January 2004 to December 2007 there were underbankings in amounts totalling K38,896,450. d. Unaccounted for Revenue According to the College students enrolment records, the College had a total enrolment of 131 students during the financial year ended 31st December 2008, with an expected total revenue in fees totalling K326,845,000. It was however, observed that only K150,561,250 was deposited in College revolving fund account leaving a balance of K176,283,750 unaccounted for.
Inadequate Staffing Levels An analysis of the college staff personnel records revealed that out of the total establishment of sixty nine (69) positions, only forty eight (48) were filled leaving twenty (21) positions vacant.
Failure to Deduct PAYE Tax from Part-time Employees. The College engaged part-time employees who were paid amounts totalling K108,757,000. It was however observed that, contrary to the Income Tax Act, the College did not deduct Pay as You Earn totalling K38,064,950 in respect of salaries paid to the part-time employees.
Failure to Prepare Financial Statements The College did not present for audit financial statements for the financial years ended 31st December 2004 to 2008 and no returns were prepared by the college for submission to the Ministry of Tourism, Environment and Natural Resources. Consequently, the financial position and performance of the College could not be determined.
Missing Bank Statements Contrary to Financial Regulation No. 137(2), bank statements for the months of August to November for the year 2007; June, July and October for the year 2005; and June, August and September for the year 2004 were not availed for audit.
Failure to Prepare Bank Reconciliation Statements Contrary to Financial Regulation No.145(3), the College did not prepare bank reconciliation statements for the years 2004, 2005, 2006 and 2008 in respect of the two bank accounts it maintained. Further, although the bank reconciliation statements for the months of February, March and April 2007 were prepared, they did not include unpresented cheques rendering their correctness questionable.
Overdrawn Bank Account Contrary to Financial Regulation No. 136 (1), bank account number 0450220000001320 was overdrawn by an amount of K1,121,678 in May 2004 and by K6,266,152 during the period from September to December 2005.
Missing Payment Vouchers Contrary to Financial Regulations No.65 (1), there were eighty six (86) payment vouchers in amounts totalling K209,134,052 raised between January 2004 and December 2008 which were not availed for audit. Inadequately Supported Payment Vouchers Contrary to Financial Regulations No.45, there were one hundred and twenty one (121) payments in amounts totalling K471,498,514 made between January 2004 and December 2008 which were inadequately supported in that the vouchers lacked relevant documentation such as receipts, invoices, acquittal sheets among others.
Unretired Imprest Contrary to Financial Regulations No. 96 (1), imprest in amounts totalling K195,181,970 involving eighty three (83) transactions issued to twenty five (25) officers during the period from January 2004 to December 2008 had not been retired as of February 2010.
Failure to Follow Tender Procedures Contrary to procurement guidelines, the College procured goods and services in amounts totalling K55,350,010 during the period under review without obtaining the required three (3) competitive quotations.
Rehabilitation of Staff House and Construction of Kitchen Canopy In October 2007, the College engaged Ezithan Contractors to rehabilitate a staff house (type 321) and to construct a kitchen canopy at a contract sum of K72,999,690 for a duration of four (4) months commencing 22nd August 2007 and ending 20th December 2007. Although the works were completed and the contractor paid in full, there were no completion certificates produced to support the payments.
Rehabilitation of Laboratory, Septic Tank and Soak Away In December 2007, the College engaged Zukanji Sim General Dealers to rehabilitate a laboratory, septic tank and soak away at a contract sum of K 155,384,357. As of October 2009, the contractor had been paid in full. A physical inspection carried out in November 2009 revealed that the septic tank and soak away for the laboratory were not completed and the contractor had 74
since abandoned the project. Further, no completion certificates were provided for audit scrutiny. q. Illegal Settlement and Encroachment of the College Land The Zambia Forestry College is situated on the Mwekera National Forest No.6 which was originally measuring 45,000 hectares. It was observed that due to illegal activities such as agriculture, charcoal production, encroachments and settlements, the forest had been reduced to barely 11,500 hectares. r. Failure to Maintain Fixed Asset Register The College did not maintain a fixed asset register but an inventory list which only indicated the description and location of the assets. It was therefore difficult to establish the cost and the date of purchase of the assets. Further, a physical inspection of the college assets such as office equipments, furniture and fittings, heavy equipment revealed that the assets were not given unique identification marks contrary to Public Stores Regulations. s. Failure to Follow Laid Down Accident Procedure Terms and conditions of service for the public service No. 73, require that an officer driving a government vehicle reports to a responsible officer details of an accident and the responsible officer should subsequently report to the Standing Accidents Board. It was observed that in September 2008, Motor Vehicle registration number GRZ 276 CB was involved in a road traffic accident and was taken to BEM Motors for repair at a cost of K7,632,800. Contrary to the regulation, the accident was not reported to the police nor was it brought to the attention of the Standing Accidents Board. t. Wasteful Expenditure A physical inspection of non-current assets revealed that two boreholes were drilled by Drill Tech ltd of Kitwe in 2007 at a total cost of K78,000,000 in order for the ZFC to provide clean water to students and the College community. It was, however, observed that both boreholes stopped functioning in 2008. As of February 2010, the situation had not been rectified and the students and the College community were drinking untreated water from Mwekera dam. u. Failure to Maintain Record of Plantations Inquiries revealed that the College had two pine plantations namely Chipya and Woodlands. It was however, observed that the College did not maintain records 75
of the two plantations. Consequently, it was not possible to ascertain how many trees were in the two plantations.
ZCCM INVESTMENTS HOLDINGS PLC (ZCCM IH) Background 20. The ZCCM Investments Holdings Plc (ZCCM-IH) was established in accordance with the provisions of the Companies Act, CAP 388 following the successful privatisation of ZCCM Limited in March 2000. The Government holds 87.6% of the shares with the remaining 12.4% held by private investors. The company was created with the purpose of holding shares on behalf of Government in various mining companies. ZCCM IH Plc has an investment portfolio as follows:
% 100.0 100.0 20.6 20.0 20.0 15.0 15.0 15.0 10.0 10.0 2.9 2.0
Maamba Collieries Limited Ndola Lime Company Limited Konkola Copper Mines Plc Kansanshi Mining Plc Copperbelt Energy Corporation Plc Luanshya Copper Mines Plc NFC Africa Mining Plc Chibuluma Mines Plc Chambeshi Mines Plc Mopani Copper Mines Plc Equinox Minerals Limited (Lumwana Copper Mines)
Albidon Limited (Munali Nickel Project)
The company has also conditional future share election option to take up to 15 - 20% shareholding in Konnoco Zambia Limited (Konkola North Mining Project). Share Capital The authorised share capital of ZCCM-IH is K900,000,000 divided into 54,000,000 of A Ordinary shares of K10 each and 36,000,000 of B Ordinary shares of K10 each. Management The company has a Board of Directors comprising the Chairman (Non-Executive Director) and seven (7) other members representing the Government and private entities who are appointed by the Minister of Mines and Minerals Development. 76
The Board is composed of members from Ministry of Mines and Minerals Development (1), Ministry of Finance and National Planning (1), Ministry of Energy and Water Development (1), Bank of Zambia (1), Zambia Revenue Authority (1), Mineworkers Union of Zambia (1) and an independent non executive chairman. The day to day operations of the company is the responsibility of the Chief Executive Officer who is assisted by the Company Secretary, Technical Manager, Finance Manager, Investments Manager, Legal Manager, Environmental Manager and Head Human Resources and Administration. Sources of Funds The ZCCM-IH Plc derives its income from dividends from its subsidiaries and associated companies and also from cobalt/copper participation sales. Review of Operations A review of accounting and other records for the period July 2005 to December 2009 revealed the following: a. Financial Statements The Memorandum of Association and Articles of Association of ZCCM Investments Holdings Plc requires that the Directors shall at least in every calendar year lay before the Company in General Meeting a profit and loss account for the period since preceding account which shall present fairly the profit or loss of the Company for that period, and a balance sheet as at the date to which such profit and loss account is made up which shall present fairly the state of affairs of the Company as at that date. Where at the end of its financial period the Company has one or more subsidiaries, consolidated accounts comprising a consolidated profit and loss account and a consolidated balance sheet, presenting fairly the profit or loss and the state of the affairs of the Company and all its subsidiaries shall instead be laid before the Company in General meeting together with the above mentioned balance sheet of the Company. It was observed that contrary to the provisions of the Memorandum and Articles of Association, Accounts for the financial years ending June 2006 to June 2009 had not been laid before the company in General meeting as of December 2009. In this regard it was not possible to carry out an accurate review of the company s financial performance. Further, no dividends had been declared to Government.
b. Income from Investments (Dividends Receivable) The table below shows the investments income which was received from various ZCCM IH investments during the period May 2004 to June 2009.
Shareholding 2005 K'million 2006 K'million 4,200 3,000 21,578 2,921 25,778 5,921
Dividend 2007 K'million 10,994 20,978 13,247 45,219 2008 K'million 5,165 9,388 6,609 1,703 7,909 30,774 2009 (Half Year) K'million 18,034 4,232 29,557 16,274 9,162 77,259 Total K'million 25,234 20,391 29,557 71,139 19,856 10,865 7,909 184,951
Maamba Collieries 100.00% Ndola Lime Company 20.60% Konkola Copper Mine 20.00% Kansanshi 20.00% Copperbelt Energy 20.00% Luanshya Copper Mines 15.00% NFC Africa Mining PLC 15.00% Chibuluma Mines 15.00% Chambishi Metals 10.00% Mopani Copper Mines 10.00% Lumwana Copper Mines 3.60% Albidon Limited 2.10% Total
From the above table, it can be seen that during the financial years ended 30th June 2005 to 2008, ZCCM IH received net dividends in amounts totalling K25,778 million in 2005, K5,921 million in 2006, K45,219 million in 2007 and K30,774 million in 2008. In addition a sum of K77,259 million was received in the half year to 31st December, 2009. However, the Company did not receive any dividends from Maamba Collieries, Mopani Copper Mines, Luanshya Copper Mines, Lumwana Mine and Albidon Mines Limited. c. Recapitalization and Rehabilitation Loans Maamba Collieries Pursuant to clause 4.2 of the share transfer agreement entered into by the Government of the Republic of Zambia and the indicative term sheet of 19th November 2007 signed between ZCCM- IH and Maamba Collieries Limited, ZCCM- IH entered into various agreements with Maamba Collieries to help recapitalise and rehabilitate the operations of the mine for it to realise meaningful production.
The following were observed: · Between August 2008 and April 2009, ZCCM- IH loaned Maamba Collieries amounts totalling US$5,300,000 for the rehabilitation of the mine. It was however observed that 40% of the loan was applied on non capital activities such as payment of salaries. At the time of audit, the servicing of the Loan had not commenced. In May 2009, ZCCM-IH lent Maamba Collieries another loan of K23,222,750,881 for the rehabilitation of the mine. A visit to the Mine in November 2009 revealed that there was still no meaningful production at the mine despite having received financial help from ZCCM-IH.
ZAMBIA EDUCATION PROJECTS IMPLEMENTATION UNIT (ZEPIU) Background 21. The Zambia Education Projects Implementation Unit (ZEPIU) is a unit in the Ministry of Education and was established for the purpose of implementing World Bank financed education projects in Zambia in April 1973. The Unit was initially under the Ministry of Works and Supply until October, 1984 when it was moved to the Ministry of Education. The main activities are to supervise the construction and maintenance of schools and other civil works. Administration The day to day running of the Unit is the responsibility of a Director of Projects who is appointed by the Permanent Secretary and is assisted by a Deputy Director. Sources of Funds The unit derives its income from Government and donor grants and the sale of furniture and fittings to schools and other institutions. During the period under review, the Unit received amounts totalling K5,031,233,904 from the Ministry of Education against a budget of K7,111,801,522 as shown in the table below:
Authorise d Provision K
Re le ases K
Under Funding K
2006 2007 2008 TOTAL
1,094,000,000 1,831,738,363 4,186,063,159 7,111,801,522
884,157,426 1,647,656,450 2,499,420,028 5,031,233,904
209,842,574 184,081,913 1,686,643,131 2,080,567,618
Further in December 1999, Government obtained a loan from the OPEC fund for International Development in amounts totalling US$6,000,000 for the construction of Ndola Girls Technical High School. An examination of financial, accounting, stores records and other relevant documents revealed the following: i. Failure to Maintain a Cash Book Contrary to Financial Regulation No. 62 and 128 (1), ZEPIU did not maintain a cash book for the period under review. As a result, no bank reconciliations were done making it not possible to ascertain the correctness of the transactions. ii. Weaknesses in Handling Other Income · Irregular Issue of Receipts and Receipt Books Contrary to Financial Regulations No.116 (1) which states that officers receiving payments shall ensure that the numbers of receipt forms issued by the collectors run consecutively, the receipt books were not issued in sequential order and individual receipts were not issued sequentially. · Unaccounted For Revenue Contrary to Financial Regulations No.129, out of amounts totalling K5,306,968,723 collected during the period under review, amounts totalling K3,966,958,452 were banked leaving a balance of K1,340,010,271 unaccounted for as of March 2010. iii. Staff Related Issues. · Lack of Staff Establishment Due to poor record keeping, it was not possible to establish the total authorised staff establishment, filled posts and vacancies at ZEPIU. 80
Failure to Remit Statutory Contributions Contrary to Financial Regulation No. 75 which states that Ministries, Provinces and Spending Agencies shall ensure that third party payments are made in full and cheques distributed to the beneficiaries on a monthly basis, as of April 2010, ZEPIU had not remitted PAYE deductions to Zambia Revenue Authority in amounts totalling K7,510,022,511. It was also observed that, as of April 2010, ZEPIU failed to remit employees contributions in amounts totalling K376,659,968 to National Pensions Scheme Authority (NAPSA). Although in their response, management stated that they were unable to remit statutory contributions to ZRA and NAPSA due to inadequate funds, they were however able to pay production bonuses in amounts totalling K145,043,305 during the same period.
Irregular Payment of Production Bonus During the period from February 2006 to September 2007, ZEPIU management authorised the payment of production bonuses to all employees in amounts totalling K145,043,305 from the sale of furniture. The payment of production bonuses was irregular in that it was not part of the conditions of service and there was no authority from the Permanent Secretary or the Secretary to the Treasury.
Irregular Engagement of Resident Engineers Although between August and December 2008, ZEPIU recruited nine (9) resident engineers to supervise the construction of schools and other civil works in the nine (9) provinces of Zambia following a directive by the Director Planning and Information, Ministry of Education, no such posts existed in the ZEPIU structure. It was however observed that despite the engineers being employed and remunerated by ZEPIU, the engineers were not supervising any works under ZEPIU but rather their work was for the Infrastructure Section in the Ministry and reported directly to the Director- Planning and Information at the Ministry of Education. As at March 2009, ZEPIU had paid a total amount of K460,000,000 in salaries to the resident engineers.
Procurement of Goods and Services · Lack of Receipt and Disposal Details Contrary to Public Stores Regulation No. 16, ZEPIU did not maintain stores records such as Goods Received Notes, Issue Vouchers and fuel registers. In this regard, there were no receipt and disposal details in respect of fuel costing K441,703,399 procured during the period under review. · Inadequately Supported Payments Contrary to Financial Regulation No. 45 and 52, there were fifty (50) payments in amounts totalling K257,198,627 that were unvouched in that they lacked supporting documents such as claim forms, receipts, invoices and quotations.
Failure to Deliver Equipment - Ndola Girls Technical High School In May 2007, ZEPIU engaged Goodwill Holdings to supply and install various school equipment and furniture at a contract price of K1,188,094,734 (US$296,001) with a delivery period of sixteen (16) weeks. However, as of March 2010, only equipment costing K655,936,248, (US$163,395) had been delivered while the balance of equipment costing K532,158,486 (US$132,606) had not been delivered. Further, it was observed that despite Goodwill Holdings failure to execute the contract, in December 2008, ZEPIU awarded them another contract worth K1,447,457,093 to supply school furniture.
ZAMBIA POSTAL SERVICES CORPORATION (ZAMPOST) Background 22. The Zambia Postal Services Corporation (ZAMPOST) which became operational in July 1994, was established by the Postal Services Act No. 24 of 1994 following the dissolution of the Posts and Telecommunications Corporation Limited (PTC). The principal function of ZAMPOST is to provide postal and telegram services in the country. ZAMPOST is wholly owned by the Government.
Organisation and Management Structure The Act stipulates that the corporation shall consist of a board of directors comprising eight (8) members, being the Postmaster General, and a nominee from each of the following institutions: · the Federation of Employees of Zambia; · Zambia Congress of Trade Union; · Zambia Council of Commerce and Industry; · Law Association of Zambia; · Zambia Institute of Chartered Accountants; · Ministry of Justice; and, · an Organisation that would represent the interests of consumers. According to the Act, members of the Corporation hold office for a term of not more than three (3) years and members are eligible for reappointment upon expiry of their term of office. The day to day operations of the organisation are managed by the Postmaster General who is assisted by the Corporate Secretary, Directors responsible for Operations and Commercial Services, Human Resources and Finance. The Board of Directors appoints the Postmaster General and his Directors on renewable three-year terms of office. The rest of the staff are appointed on a permanent and pensionable basis. Funds of the Corporation According to the provisions of the Act, the sources of funds for the Corporation include, among others, such sums of money as may: · · · Be payable to the Corporation from time to time from moneys appropriated by Parliament, Be levied by the Corporation by way of postal charges, transaction commissions and any other levies imposed; Accrue to or vest in the Corporation from time to time, whether in the course of the exercise of its function or otherwise.
Review of Operations An examination of accounting and other financial records revealed the following: a. Failure to Constitute a Full Board of Directors Contrary to the provisions of the Act which stipulates that the Board shall consist eight (8) members, it was observed that the board had two (2) members only during the period September 2008 to April 2009. Further, although the Act stipulated that five (5) members shall form a quorum, during the period September 2008 to April 2009, the two (2) board members proceeded to hold board meetings. In this regard, amounts totalling K72,334,215 were irregularly paid to the two (2) board members as sitting allowances, meals, accommodation and other allowances and no minutes were availed for audit scrutiny. b. Failure to Prepare Annual Reports The Act provides that the Corporation shall, not later than six (6) months after the end of each financial year of the Corporation, submit to the Minister a report of its activities, together with a copy of its audited accounts for that financial year, and the Minister shall, not later than fourteen (14) days after the first sitting of the National Assembly next after the receipt of such report, lay it before the National Assembly. Contrary to the provisions of the Act, the Corporation did not produce annual reports and audited accounts for the financial years ended 31st March 2006 to 2008. This was despite the Corporation having spent amounts totalling K97,250,000 as audit fees. c. Termination of Contract Postmaster-General
The former Post Master General s contract of employment signed on 1st November 2002 for a period of three (3) years came to an end on 31st October 2005. It was observed that the officer continued in office from 1st November 2005 to February 2007 without a contract of employment or authority/letter from the Ministry of Communication and Transport to authorize the officer to continue in office. In this regard, the Corporation irregularly paid amounts totalling K182,479,040 as salaries to the Post Master General.
d. Contract of Employment
The Postmaster General was appointed on 16th February 2007 by the Permanent Secretary Ministry of Communication and Transport. The appointment letter stated that the conditions of service would be revised based on the performance of the Corporation. The contract of employment included the following among other clauses; · · Basic salary of K60 million (K5 million per month) 25% gratuity after three (3) years
In a letter dated April 13th , 2007 addressed to the Permanent Secretary, Ministry of Communications and Transport, the Post master General accepted the offer. Contrary to the provisions of the contract of employment, the Postmaster General was drawing monthly salary advances of between K8,000,000 and K10,000,000 as opposed to being paid his basic salary of K5,000,000. In this regard, it was observed that the Postmaster General had drawn salary advances in the sum of K226,848,160 between August 2007 to April 2009. The basic salary earned for the period March 2007 to April 2009 was K130,000,000. As of April, 2009 no recoveries had been effected and the officer was not on the payroll. e. Irregular Payment of Funeral and other Advances The conditions of service provide that the Corporation shall provide the following funeral assistance: · · · · 150% of employees monthly basic salary for employee only; 100% of employee s monthly basic salary for spouse and child; K900,000 for employee s mother and father (parents); and, K350,000 for employee s registered dependant
Contrary to the conditions of service, the Postmaster General was paid a funeral advance of US$3,500 in October 2008. Further, in November 2008, the Corporation paid for accommodation for the Postmaster General s wife at Holiday Inn in the sum of K940,000. It was further observed that the Corporation bought air ticket for the wife to the Post master General amounting K846,000. There was no evidence of board or ministerial approval for the above mentioned transactions. It was further revealed that the funeral and other advances mentioned above had not been recovered as at 30 April 2009. 85
Non Payment of Terminal Benefits The Corporation owed amounts totalling K8,647,822,763 as benefits to retirees and deceased officers some of which dated as far back as 2004. Consequently, the Corporation incurred amounts totalling K752,373,173 paid out as housing allowance to the retirees between 2006 and 2008 as the conditions of service stipulated that an employee who had been retired shall continue to be housed or receive housing allowance until benefits accruing from the Corporation had been fully paid.
Procurement of Software In August 2006, ZAMPOST and Roraima Data Services entered into an agreement for the Provision of Cash4africa Technology (Swiftcash) which is a Web based Financial Services platform and Equipment to host the programme for a period of ten (10) years. The agreement contained the following clauses among others: · Roraima Data Services undertakes to sell the services that is produced by its Web Based Financial Services Platform to ZAMPOST and to use its best endeavours to provide ZAMPOST during the period of this agreement the management Services for the purpose of assisting ZAMPOST in undertaking the project. · Subject to Clause 3.1 of this agreement Roraima Data Services shall sell to ZAMPOST and deliver and install Telecommunications Equipment, Machinery and, or Services to enable its platform to perform effectively in keeping with the agreement. · Roraima Data Services shall indemnify ZAMPOST against all claims, damages, expenses and costs directly or indirectly related to the provision by Roraima Data Services of the Management Services save to the extent that such matters arise as a result of the negligence or criminal action of ZAMPOST. The following were observed: i. There was no evidence of tender procedures having been followed in the engagement of Roraima Data Services as a provider of a Web Based Financial Services platform and Equipment;
Contrary to the Management Services Agreement clause 2.1, there was no evidence that Roraima Data Services had supplied Equipment and Machinery to host the Web Based Financial Services Technology but instead was currently using ZAMPOST equipment free of charge. ZAMPOST did not have a back-up server for all transactions done on this programme; Contrary to Management Services Agreement clause 2.5, there was no evidence that ZAMPOST was being reimbursed for the cost amounting to K516,844,554 which it was paying to internet service providers (Coppernet, Zamnet and Zamtel) for hosting Web Based Financial Services transactions as at 30th April 2009; The Management Services Agreement did not have a protection clause restricting Roraima Data Services from setting up similar businesses in the ZAMPOST licensed market area. This had resulted in Roraima Data Services to set-up a parallel business in Financial Services which had a going concern implication on ZAMPOST considering that Swift Cash (cash4africa technology) accounted for about 40% of the total revenue of ZAMPOST. Roraima Data Services had not attended fully to the apparent poor security features that this technology had shown such as the Terminal Id (Identifying the Computer terminal being used). The system could be accessed from any terminal, at anytime or day as long as someone had a password. This resulted in the theft of K56,920,200 at Kitwe Post Office as reported in the Internal Audit Activities for the quarter ended March 2007.
h. Procurement of Wide Area Network (WAN) ZAMPOST had embarked on the implementation of a Wide Area Network (WAN) to enhance its operations. More specifically WAN would provide the following benefits and services: · Improved Money Transfer business (Western Union and Swiftcash); · Improved Accounting Reports; and, · Improved Agency business and business partners and ePost services. It was observed that on an unknown date, ZAMPOST and ZAMTEL signed a contract which stated among other things that: · ZAMTEL would install and maintain a Wide Area Network with broadband Internet connection at each ZAMPOST site. 87
· ZAMPOST should pay to ZAMTEL the sum of K1,402,464,276 being the total amount due under this contract for implementation of phase 1 and 2 of the project as indicated in appendices 1 and 2 annexed to the agreement. · That the duration of the agreement shall be for an initial period of twenty four (24) months from the date of the signature and shall thereafter continue unless it was terminated as provided under clause 5. The following were observed regarding the contract: i. There were no Board minutes provided on which the board authorised the purchase and installation of a Wide Area Network; There was no evidence of authority from the Zambia Pubic Procurement Authority ( formally Zambia National Tender Board ) to waiver competitive tender procedures and allow the Corporation to single source Wide Area Network implementation. . ZAMPOST paid K1,668,387,177 which was K265,922,901 more than the consideration agreed in the contract which was K1,402,464,276. No proper explanation was given for the overpayment The original contract between ZAMPOST and ZAMTEL had no effective date including the date of signing. It was further observed that the effective date of the contract was only agreed eleven months later on a memo dated 7th January 2009 as being 8th February 2009. Failure to Remit Pay as You Earn (PAYE) Contrary to the Income Tax Act, the Corporation had not remitted to the Zambia Revenue Authority amounts totalling K36,787,241,040 deducted as Pay as You Earn (PAYE) from employee s salaries during the period under review. As at 31st March 2008, the outstanding amount had increased to K42,998,271,559.
ZAMBIA NATIONAL BROADCASTING CORPORATION (ZNBC) Background 23. The Zambia National Broadcasting Corporation was established by an Act of Parliament in 1987, which was passed to transform the Zambia Broadcasting Services from being a government department under the Ministry of Information and Broadcasting Services into a Statutory Body called the Zambia National Broadcasting Corporation. 88
The 1987 Act was later amended by Act number 20 of 2002. The ZNBC Amendment Act of 2002 was meant to transform the Corporation from being a purely state controlled broadcaster set to communicate Government Programmes to a broadcaster controlled by the members of the public through an independent board of directors. Government of the Republic of Zambia assumed 100% equity holding in the Corporation. The principal activity of the Corporation is to provide information, entertainment and education to the people of the Republic of Zambia. Administration of ZNBC Board of Directors The Zambia National Broadcasting Corporation Act No. 20 of 2002 stipulates the following among other things: · There shall be constituted the Zambia National Broadcasting Corporation Board; · The Board shall consist of nine (9) part time directors appointed by the Minister on recommendation of the appointments committee, subject to ratification by the National Assembly; · The directors shall be paid allowances as the Board may, with the approval of the Minister, determine; and, · A director shall hold office for a period of three (3) years from the date of appointment and may be re-appointed for one further term of three (3) years. Management The Board appoints a Director General and Directors on a renewable three-year terms of office. The Director General is responsible for the day to day operations of the Corporation and is assisted by the Directors of Finance, Marketing, Human Resource, Technical Services and Programmes. Sources of Funds According to the provisions of the Act, the funds of the Corporation shall consist such moneys as may: · · be payable to the Corporation in terms of this Act; be paid to the Corporation by way of grants or donations; 89 of
be appropriated by Parliament for the purpose of the Corporation; and, vest in or accrue to the Corporation.
Review of Operations An examination of accounting records, management accounts, financial statements and other relevant records revealed the following: a. Board of Directors i. Failure to Renew Board Mandate The Board was appointed on 12th September, 2002 for a term of three (3) years. Contrary to the Act, there was no evidence to indicate that the Board members tenure of office had been renewed for a second three (3) year term ending on 11th September 2008. As of May 2009 the directors had continued holding office. ii. Irregular Appointment of a Board Member Contrary to the provisions of the Act which stipulates that Board members should be appointed by the Minister, the Board at its meeting of 8 th May 2006 resolved that the sitting Director of Finance should be a full Board member to assist the Board with information on the financial status of the Corporation. In this regard the Finance Director was irregularly paid Board allowances in amounts totalling K31,700,000. In his response dated 22nd June 2009, the Controlling Officer stated that although the Board was fully aware that section 9 (1) of the ZNBC Act refers to the appointment to sub committees, the Board was of the firm view that finance in any institution is so critical that the presence of the Director of Finance at full Board meetings was so vital hence the decision to incorporate the sitting Director of Finance on the Board. The sitting Director of Finance was therefore invited on the basis of a board resolution. However, section 9 (1) of the ZNBC Act quoted by the Controlling Officer refers to the appointment of members to Sub-committees while the appointment of Board members is the responsibility of the Minister.
iii. Board Subcommittees According to the Public Finance Act No.15 of 2004, every statutory corporation shall have an audit committee which shall perform such functions and exercise such powers in relation to internal audit. It was observed however that although the corporation had established three (3) subcommittees namely; Finance/ Marketing and Sales, Technical Services and Programmes and Administration and Human Resources committees, the audit committee had not been established. In addition, the corporation had only one position for internal auditor in its structure. Further, the internal auditor was reporting to the Director General contrary to good corporate governance requirements. It was further observed that although best practice requires that the Board Chairman shall not belong to any subcommittee and subcommittees shall be headed by Board members with relevant knowledge/experience in the area the subcommittees are overseeing, the Board Chairman was a member of all the sub committees of the Board. In his response dated 22nd June 2009, the Controlling Officer stated that the Chairman of the Board sits on all three sub Committees as an ex officio and that the observation by the auditors was however noted and shall be taken to the Board for re-consideration. b. Lack of Strategic Direction A strategic plan provides general direction of a corporation, setting out clear strategic objectives and strategies on how to achieve such objectives. In this respect, one of the key responsibilities of the Director General as outlined in the job description was to prepare the strategic plan. The audit carried out however revealed that the Corporation operated without a strategic plan up to the year ending 2008 despite the Board directing the management in March 2003 to put in place a strategic plan. Management only acted on the recommendation five (5) years later in 2009 when the five year strategic plan (2009-2014) was developed through Deloitte and Touché at a cost of K54,045,312.
c. Failure to Prepare Annual Reports. Part III, section 24 of the ZNBC Act provides that As soon as practicable, but not later than six (6) months after such financial year, the Corporation shall submit to the Minister a report concerning its activities during such financial year . Contrary to the provisions of the Act, the Corporation had not produced the annual report for the financial year ended 31st March 2008 as of June 2009 nine months after the due date of 30th September, 2008. It was also observed that there were no audited accounts for the financial year ended 31st March 2008 as of June 2009. d. Financial Performance Statement of Income and Expenditure for the Financial Years Ended 31st March 2006, 2007 and 2008
2008 K'000 Income Sales TV licence fees Grant received from government Other income Operations Programme expense Advertising promotion expenses Administrative expenses Other operating expenses Results from operating activities Finance income Finance expenses Net financing income/(expense) Loss before income tax Income tax expense Loss for the year Interim 29,885,416 4,847,796 2,840,000 1,445,052 39,018,264 (1,278,785) (547,341) (37,431,353) (3,551,309) (42,808,788) (3,790,524) 3,732,700 (1,172,281) 2,560,419 (1,230,105) (549,896) (1,780,001) 2007 K'000 2006 K'000
24,391,871 4,490,741 6,704,308 1,434,478 37,021,398 (1,128,981) (317,430) (36,242,467) (3,510,914) (41,199,792) (4,178,394) 1,647,324 (2,228,788) (581,464) (4,759,858) (312,111) (5,071,969)
18,962,824 5,167,614 4,598,727 878,597 29,607,762 (769,131) (296,280) (30,640,272) (3,563,459) (35,269,142) (5,661,380) 4,574,412 (202,544) 4,371,868 (1,289,512) (531,633) (1,821,145)
i. Profitability A review of the income statement revealed that the Corporation incurred losses of K1,821,145,000 in 2006 and K5,071,969,000 in 2007 and there was a projected loss of K1,780,001,000 for 2008. The losses were mainly due to administrative expenses which increased from K30,640,272,000 in 2006 to K37,431,353,000 in 2008 representing an increase of 22%. However, in arriving at the overall financial performance, the corporation had included Government grants of K4,598,727,000 in 2006, K4,490,741,000 in 2007 and K2,840,000,000 in 2008.
If Government grants were not included, the overall financial performance of the corporation would have been as shown below:
2008 K'000 Profit/(Loss) for the year Government Grants Total Profit/ (Loss) (1,780,001) 2,840,000
2007 K'000 (5,072,969) 6,703,308
2006 K'000 (1,821,145) 4,598,727
ii. Staff Costs to Turnover Ratio The staff costs to turnover ratio (i.e. turnover net of Government grants ) were as follows:
2008 K'000 36,178,264 28,290,603 78% 2007 K'000 30,317,090 25,820,347 85% 2006 K'000 25,009,035 18,783,549 75%
Turnover Staff Costs Staff /Turnove r ratio
Whereas revenue increased by 45% from K25,009,035,000 in 2006 to K36,178,264,000 in 2008, staff costs increased by 51% from K18,783,549,000 to K28,290,603,000 over the same period. In this regard, the staff costs to turnover ratio ranged between 75% and 85% over the three (3) year period. It is discernable from the above that the huge resources were being channelled towards staff costs. In his response dated 22nd June 2009, the Controlling Officer agreed with the observation that most of the financial resources are being spent on staff costs.
iii. Balance Sheet
2008 K'000 Assets Property and equipment Investment Inventories Trade and other receivables Cash at bank and in hand Total current assets Total assets Equity General Fund Accumulated Deficit Capital grant Non distributable reserves Medium Term Multichoice Loan6,648,664 6,648,664.00 785.00 66,574,298.00 279,644.00 66,854,727.00 43,637,678.00 13,198,264 10,067,278 23,265,542 531,151 17,569,554 2,271,431 20,372,136 43,637,678 32,679 (33,412,349) 3,497,807 16,150 (29,865,713)
2007 K'000 10,125,771 15,000 10,140,771 436,007 12,633,023 3,648,507 16,717,537 26,858,308 32,679 (31,632,347) 3,740,706 16,150 (27,842,812) 4,750.00 54,444,942.00 251,428.00 54,701,120.00 26,858,308.00
2006 K'000 7,477,345 15,000 7,492,345 228,190 11,590,506 1,925,655 13,744,351 21,236,696 32,679 (26,559,378) 3,700,636 16,150 (22,809,913) 36,965.00 43,809,540.00 200,104.00 44,046,609.00 21,236,696.00
Current Liabilities Bank overdraft Trade and other payables Taxation Total current Liabilities Total equity and liabilities
Liquidity Position The liquidity position of the corporation during the period under review was as shown below:
2008 K'000 20,372,136 66,854,727 (46,482,591) 2007 K'000 16,717,537 54,701,120 (37,983,583) 2006 K'000 13,744,351 44,046,609 (30,302,258)
Current assets Current liabilities Working Capital
From the table above it can be seen that the Corporation s current assets were insufficient to cover the current liabilities. The liquidity position continued to worsen from a deficit of K30,302,258,000 in 2006 to K46,482,591,000 in 2008. The increase in current liabilities is mainly attributed to the statutory contributions which stood at K29,465,189,000 in 2006, K37,561,107,000 in 2007 and K47,522,221,000 in 2008. In his response dated 22 nd June 2009, the Controlling Officer stated that the statutory debt burden at ZNBC over the years had grown as a result of a serious mismatch in terms of revenue and operational costs largely 94
occasioned by the mandate of ZNBC to carry out more public broadcasting programmes than commercially driven ones. He added that while management had over the last three years managed to contain commercial debt and started dealing with statutory payments to NAPSA as they fell due, Pay As You Earn (PAYE) and Value Added Tax (VAT) due to ZRA had continued to be difficult to deal with and had been accumulating in huge quantum s annually rising to over K47 billion as at Match 31st, 2008. He further observed that over the years and realising the magnitude of the problem and the realities at ZNBC, the Board tried to vary the financing model obtaining at ZNBC and challenged Management to gear up the Commercial arm of the Corporation in an attempt to keep the operations of ZNBC afloat and that as a result, the financing model of ZNBC has progressively been tilting towards a more commercially driven operation. · Receivables The Corporation sold its advertising time in two ways, on a cash basis and on credit terms. In this regard, before a client is offered air time on credit, the finance department through the credit controller assesses the credit worthiness of the particular client. The credit controller then puts the particular client on the credit scheme with set credit limits. It was observed that during the period under review, the Corporation did not have a policy governing the awarding of credit facilities to its clients. In this regard, it was observed that the receivables collection period ranged from 189 to 223 days over the three (3) year period as shown below:
2006 K'000 Trade & other receivables Sales Debtors' days 11,590,506 18,962,824 223 2007 K'000 12,633,023 24,399,465 189 2008 K'000 17,569,554 29,885,416 215
Trade and other receivables increased from K11,590,506,000 in 2006 to K17,569,554,000 in 2008 representing an increase of 52% . The failure 95
to collect debt as and when they fell due had a negative impact on the liquidity position of the Corporation. Further, an analysis of the Corporation s debtors records revealed that during the year ended 31st March 2009 management provided for impairment losses of K4,686,404,000 out of an outstanding debt of K12,826,825,000 representing 26% of the Corporation s receivables. This is partly attributed to lack of proper client screening before the awarding of credit facilities, thereby making the recovery of money owed to the Corporation very difficult. · Questionable Write Off of Debt A review of the receivables accounts for the period April 2002 to March 2008 revealed that debts in amounts totalling K438,344,643 involving thirty five (35) clients were written off to the discounts and commissions account. It was observed that the accounts were given 100% discounts. There were no documents availed by management to support the decision to award 100% discounts and therefore the rationale behind this action could not be ascertained. It was also observed that the journal voucher numbers indicated in the accounting system as the basis/authority to reverse the transactions were either different from the physical document or were missing. There was a risk that officers could have received the funds and reduced the debtors account without declaring funds to the Corporation. For example, receipt number 61973 for K30,000,000 received from Digital Business Solutions was posted as discount allowed to Kingdom Investments and receipt number 63037 for K7,323,200 was posted twice to Kingdom Investments. Inquiries made with management revealed that the officers who posted the transactions have since been dismissed. As of May 2009, management had not reversed the entries and the matter had not been reported to the Board or Police. · Questionable Quarterly Adjustments to Clients Accounts A review of the General Journal revealed that journal voucher (JV) number 6666 was passed in January 2005 to debit 46 client accounts which had credit balances in amounts totalling K787,867,391. The narration in the electronic journal indicated that the entry was a 96
quarterly adjustment. No satisfactory response was received on the meaning of quarterly adjustments. Inquiries made with management revealed that they did not have such a series of JV numbers and were making efforts to locate the JV 6666. The implication of this transaction was that clients who had made prepayments to ZNBC had their money misappropriated. As of May 2009, the transaction had not been reversed. · Payables Trade and other payables balances increased from K43,809,540,000 in 2006 to K66,574,298,000 in 2008 representing an increase of 52%. Out of the total amount owed in 2008, K1,549,712,637 was in respect of local trade creditors while foreign creditors were owed K8,018,886,000. Further, the Corporation owed the Zambia Revenue Authority (ZRA) K32,058,193,908 in unpaid Pay as You Earn (PAYE) and NAPSA K1,847,514,000 in contributions as of 31st March 2009. This was contrary to the provisions of the Income Tax Act 323 Part VI section 71 and the NAPSA Act of 1996, section 15, subsection 1. In his response dated 22nd June 2009, the Controlling Officer agreed with the observation and further stated that the Corporation had since entered into an agreement with ZRA where K25 million is remitted monthly towards PAYE. · Changes in Equity Government of the Republic of Zambia owns 100% equity in the Corporation. During the period under review, it was observed that the deficit in shareholders funds had increased from K22,809,913,000 in 2006 to K27,842,812,000 in 2007 and K29,865,713,000 in 2008 and hence the shareholder s funds had been eroded. This is mainly attributed to the increase in accumulated losses from K26,559,378,000 in 2006, K31,632,347,000 in 2007 to K33,12,349,000 in 2008. It is therefore clear from the above that the Corporation s ability to continue as a going concern is in doubt. In his response dated 22 nd June 2009, the Controlling Officer stated that the situation would have been worse had it not been for management innovation as Government funding has been dwindling over the years
and that as a matter of urgency there was need for the Government to recapitalize the institution. e. Failure to Collect Television License Fees In 2002 the ZNBC Act was amended to among other things allow for the collection of T.V license fees countrywide. The Corporation collects the TV license fees through the following schemes namely ZNBC, Zesco Ltd, Defense forces payroll, Zambia Postal Services Corporation and Residence Development Committees (RDCs). It was noted that the T.V license unit was manned by fifteen (15) officers country wide and only had one (1) operational vehicle. The TV license personnel were only represented in five (5) districts namely Lusaka, Kabwe, Kitwe, Ndola and Livingstone. In this regard, there were no agents to collect TV License fees in districts away from the line of rail, except, for the provincial centers and post office(s) which caters for clients who walk in to pay. Further, it was observed that the Corporation does not maintain a database for its clients and is therefore not in a position to make follow ups on clients that have not paid in a particular month or period. In addition, the Corporation did not have a mechanism to ensure that fees collected through Zesco Ltd (which accounts for 80% of its collections) were verified. Arising from the above weaknesses, the Corporation collected less revenue than was budgeted for as shown in the table below:
Financial Ye ar 2006/07 2007/08 2008/09
Budgeted K 6,660,000,000 6,800,000,000 6,900,000,000
Actual K 5,454,617,629 4,709,630,133 4,568,282,320
Variance K 1,205,382,371 2,090,369,867 2,331,717,680
It can be noted from the table above that the collected fees had reduced from K5,454,617,629 in March 2007 to K4,568,282,320 in March 2009 representing a 16% reduction. It was also observed that there were discrepancies between revenue collections reflected in the accounts and that reported by TV License Section as shown in the table below:
2008 2007 2006
Figure s as Pe r Accounts K'000 4,847,796 4,490,741 5,167,614
Figures as per TV Lice nse Se ction K'000 4,568,282 4,709,630 5,454,617
Variance K'000 279,514 (218,889) (287,003)
In his response dated 22nd June 2009, the Controlling Officer stated that the Corporation had difficulties in collecting TV license fees due to viewer dissatisfaction, township agents dissatisfaction with commission paid, internal budget constraints, change of remittance policy by Zesco Ltd (from accrual basis to cash basis), Government directive not to collect TV Licenses from rural districts among other reasons. f. Barter Transactions During the period under review, the Corporation entered into barter agreements with various clients. Barter transactions involve the Corporation providing air time to clients in exchange for goods and services. However, there was no Board approval authorizing management to engage in barter transactions. In this regard, it was observed that the Corporation entered into barter system arrangement with fifty five (55) clients who were as of June 2009 owing ZNBC K5,196,051,554 in goods and services in respect of airtime provided. g. ZNBC/ ZAAA Partnership ZNBC has been partnering with Zambia Amateur Athletics Association (ZAAA) in the promotion of the inter company relay from as far back as 2002. An examination and review of various transactions relating to the Inter Company Relay revealed the following: i. There was no evidence of a formal partnership agreement between ZNBC and ZAAA on the partnership; The President of ZAAA who is chairman of intercompany relay was a Board member of the ZNBC and chairman of the finance/marketing and 99
sales subcommittee of the Board of ZNBC during the period under review. There was no evidence of the board member having declared interest; and iii. In 2007, the Corporation quoted K173,489,674.08 for promotional campaign and live coverage of the inter company relay. Documents revealed that ZAAA negotiated and contracted the service at a sum of K85,690,344.33, representing a discount of 51% (K87,799,329.70.). However, only a sum of K35,000,000 was realized in form of event sponsorship. A review of the ZNBC event budget and offer letter to ZAAA for the inter company relay race for 2009 revealed the following:
Amount K 119,444,542 34,929,343 37,500,000 191,873,885
Pre- event spot adverts Pre-event luanch and count down programme Live broadcast of event Total Cost Sharing ZNBC Sponsorship ZAAA Total
131,873,884 60,000,000 191,873,884
The documents reviewed showed that ZNBC direct benefits would include: · ZNBC to field three teams to take part in the race; · ZNBC to utilize and take advantage of the event to place promotional materials at the venue and various publications on the event; · ZNBC logo to appear on all inter company relay promotional material as major sponsor; and, · ZNBC to have a commercial stake and sell spot adverts during the live broadcast of the event. It was not clear as to why management of ZNBC decided to take up the major cost of hosting a client s event. 100
A review of the 2009 ICR post event records revealed that ZAAA paid ZNBC a sum of K 70,000,000 for the event whilst the other cost of K121,873,884 was met by the Corporation. Apart from the participation of the ZNBC team in the event at a total cost of K13,000,000 and the sale of DVDs/ Tapes which raised K540,000, ZNBC did not benefit from the commercial stake. It can be clearly seen that management did not act in the best interest of the Corporation considering its weak financial position. This raises concern on the relationship between the board and management. In his response dated 22 nd June 2009, the Controlling Officer stated that whereas it was correct that there was no formal partnership Agreement in form of an MOU between ZNBC and ZAAA on Inter Company Relay race, the relationship was borne out through various correspondences between the two parties. The sharing of the cost of hosting the event takes into account a number of factors both quantitative and qualitative. Management further stated that the matter, like regular coverage of football Matches and boxing bouts was treated as a normal operational matter subject to normal business transactions and had never been a Board issue to warrant the Chairman of ZAAA to declare interest in a Board meeting as it had always been treated like any other sports events that are covered by ZNBC and which are not taken to the Board for approval. Despite the response from the Controlling Officer, the Board member who was also the chairman of the sales and marketing sub-committee of the Board was the President for ZAAA. Therefore in line with the tenets of good corporate governance, he should have declared interest as this was a business issue. h. Sales Agencies and Commissions The sales team at ZNBC is divided into two (2) groups. The full time sales staff employed on permanent basis and the sales agents who are on part time basis. According to sales agency guidelines, a commission is payable at 15% net of airtime for agents registered for the first time and 18% net of airtime upon attainment of full agency. In addition, non marketing ZNBC staff is paid a commission of 16% for radio and 12% for TV for any business sought for the Corporation.
The following were observed: i. It was noted that the Corporation paid commissions to agents each time adverts were aired either on TV or radio as opposed to making a one off payment upon sourcing the business. For example, your health matters which is a Government program under the Ministry of Health was engaged through an agent in 2005. The Corporation has been paying 18% of the revenue realized from airing the program since inception. In this regard the agent had been paid a total sum of K425,805,826 as of March 2009. The Corporation paid an agent, D&C Saatchi and Saatchi an agency commission of K382,486,238 relating to 2006 general elections. The commission was paid on the basis that the advertising agent had sourced business from Electoral Commission for the adverts relating to elections.
In both of the above cases, it was not clear as to why Government related business was brought through agents considering that as a national broadcaster ZNBC was an obvious medium for Government communication. During the 2008 Presidential By-Election, the Electoral Commission of Zambia engaged Location Challenge Advertising Agency, as its media agent for the election. In this regard, Location Challenge entered into a contract with ZNBC to place publicity and announcements on ZNBC TV valued at K970,384,121 for which a commission of K150,576,846 was paid to the agent. Records examined at the Corporation revealed that Location Challenge irregularly withheld a sum of K97,000,000 out of a total sum of K819,807,275 due to ZNBC.
Although in their letter dated 13th November 2008, Location Challenge made a commitment to pay back the amount of K97,000,000 in instalments commencing December 2008, as of June 2009, the amount had not been paid to ZNBC. Further, it was not clear as to why ZNBC agreed to be paid in instalments when Location Challenge had been paid in full by ECZ.
i. Subcontracting of Production of Programmes. A review of records revealed that ZNBC subcontracts the production of some programmes to other media organizations thereby losing out on the income from production. For instance, the production of Your Health Matters was sub 102
contracted to Laco Communications to produce the programme on behalf of ZNBC. Inquiries with management revealed that the programme was subcontracted because it was very demanding and that it required a lot of time and logistics to produce. In this regard, during the period October 2005 to March 2009 ZNBC paid Laco Communications a sum of K967,106,937 as production costs. In his response dated 22nd June 2009, the Controlling officer stated that Management had subcontracted the production of Your Health Matters to Laco Communications because producing this programme is extremely demanding as it is produced from different locations far away from Kitwe and Lusaka and would entail constant travelling for ZNBC that would lead to increased costs in subsistence allowances, fuel and transport. He added that ZNBC did not have adequate production facilities at the moment to undertake this demanding production but that it was the intention of ZNBC to pick up this production once production facilities are beefed up. Despite the Controlling Officer s response, production costs are recoverable and therefore to completely avoid getting the benefits of doing programs and raise revenues based on just the issue of costs without doing thorough costs benefits analysis was not the in the best interest of the company. j. Housing Allowance According to the conditions of service, all employees in management who are not accommodated by the Corporation are entitled to be paid housing allowance at 100% net of their basic salary. The conditions of service also stipulate that unionised staff shall be paid housing allowance based on the following fixed bands:
UG 1- UG 3 UG 3/4- UG 7
Amount K 700,000 800,000
It was observed that contrary to the conditions of service, housing allowance for management staff was computed on the basis of grossed up figures. In addition, it was noted that the Corporation paid housing allowances to management gross of tax and in this regard, incurred a tax bill of between 103
K75,000,000 and K90,000,000 on a monthly basis as indicated in the table below:
Salary Scale MG8 MG8/7 MG8/7 MG8 MG8 MG 8 Housing Allowance K 2,314,750 3,042,833 2,939,083 2,923,750 2,880,250 1,901,500 Amount Paid K 3,561,154 4,681,282 4,521,666 4,498,077 4,431,154 2,925,385
Position Sales Manager Senior Maintenance Engineer Financial Accountant Principal Engineer South Principal Engineer Projects Marketing Manager
Tax K 1,246,404 1,638,449 1,582,583 1,574,327 1,550,904 1,023,885
On the other hand, the housing allowances paid to unionised staff were net of tax.
Housing Salary scale allowance K UG1-UG3 700,000 UG3/4-UG7 800,000 Amount Paid K 455,000 520,000
Tax K 245,000 280,000
It was not clear as to why tax was being treated differently for management and unionised staff. k. Utility Allowance According to the conditions of service, the following utility allowances are payable to management staff at rates as indicated below:
Grade M/Director MG 8/7-8 MG 6/5-7 MG 5 Condition 140% of monthly basic salary (Later fused into salary) 85% of monthly basic salary 30% of monthly basic salary 25% of monthly basic salary
A review of the minutes of the Special Board Meeting held on 20th September 2005 revealed that the Board approved additional fixed utility allowance for management staff in addition to the percentage of basic salary effective 12th July 2005.
It was observed that there were discrepancies between the approved and effected amounts as shown in the table below;
Approved Amount K 374,958 369,083 506,083 540,800 542,525 545,188 1,220,329 1,288,375 2,332,650 2,431,425 4,955,183 Effected Amount K 100,000 175,000 200,000 250,000 533,413 533,911 1,595,815 1,684,798 2,332,650 2,431,425 4,955,183
Grade MG 4/3 MG 5 MG 6/5 MG 6 MG 7/6 MG 7 MG 8/7 MG 8 MG 9/8 MG 9 MG 10
Difference K (274,958) (194,083) (306,083) (290,800) (9,112) (11,277) 375,486 396,423 -
As depicted in the table above, management reduced the approved rate for Grade MG 4/3 to MG 7, while Grades MG 8/7 and MG 8 were irregularly increased by K375,486 and K396,423 respectively. Though the Corporation revised the basic salaries of management staff upwards thereby automatically increasing the utility allowance which is 85% of basic salary, Management had continued to add the fixed figures to the 85% indicated in the conditions of service. The utility allowance for management staff ranged between K465,000 and K4,360,000 On the other hand unionised staffs were paid energy allowance at the rate of 15% of basic salary which translates between K239,900 and K400,000 before tax. In his response dated 22nd June 2009, the Controlling Officer agreed with the observation and stated that there was need to review allowances in the best interest of the Corporation.
l. Commuted Car Allowance Conditions of service for management staff provide that a taxable commuted car allowance will be paid to employees who are in possession of motor vehicle provided the Corporation established that the motor vehicle would be used during all official duties within a radius of 25 KM.
Contrary to the above, allowance was being paid gross of tax at the following rates:
Salary Scale MG 8 and above MG 8/7 and below Rate 60% net of monthly basic salary 40% net of monthly basic salary
In this regard, the Corporation was incurring a sum of about K34,000,000 (K408,000,000 annually) as tax for the employees relating to car allowance. There was no evidence of board authority for the grossing up of the car allowance. m. Irregular Increment of Salary Notches In October 2007, management irregularly revised the value of the salary notches in relation to the annual appraisal for contractual staff as indicated in table below:
Grade MG 10 MG 9 MG 9/8 MG 8
Old Notch K 1,236,000 1,140,000 1,092,000 1,044,000
New Notch K 4,868,000 3,920,000 3,700,000 3,538,000
The value for notches for unionized and other management staff remained unrevised. n. Questionable Salary Structure The Corporation did not have an approved salary structure despite the existence of the Board. In this regard, salaries were awarded to employees in an adhoc manner as officers in higher grades were paid lower salaries than those in lower grades. The salary structure was such that for management positions ,the highest was MG 10 and the lowest was MG 5 while for the unionised staff, the highest was UG 7 and the lowest was UG 1. See table below for the comparison of salaries.
Position Stenographer - DHR Systems administrator Secretary for Director Programmes Head of Productions/Operations Secretary to Director General Head of Productions/Operations (Kitwe) Human Resource Development Officer Senior Maintenance Engineer (Shorthorn) Senior Maintenance Engineer Marketing Manager Financial Accountant Chief Accountant Secretary to Director HR Internal Auditor Head of Special Projects Secretary for Marketing Director Secretary -Director HR Public Relations Manager Head Driver Internal Auditor Cleaner (Shorthorn) Accountant Office orderly Credit Controller
Salary Grade MG 5 MG 6 MG 6 MG 7 MG 7/6 MG 7 MG 7 MG 8/7 MG 8/7 MG 8 MG 8/7 MG 8 MG 6/5 MG 8 MG 8 MG 6 MG 6/5 MG 8 UG 4 MG 8 UG 1 UG 7 UG 2 UG 7
BASIC SALARY (P.A) K 32,452,000.00 30,830,000.00 35,516,000.00 32,114,000.00 38,232,000.00 34,247,000.00 37,802,000.00 29,905,000.00 41,608,000.00 27,984,000.00 42,355,000.00 41,817,000.00 37,547,000.00 26,679,000.00 29,550,000.00 37,220,000.00 37,547,000.00 33,987,000.00 27,084,000.00 26,679,000.00 22,018,000 21,321,500 24,286,000 23,427,500
As can be noted from the table above, the Marketing Manager who is in Grade 8 has an annual basic salary of K27,984,000 while the secretary to the Director Marketing who is in Grade 6 has an annual basic salary of K37,220,000. The Chief Accountant though in a higher grade was being paid a lower basic salary than the Financial Accountant who is in a lower grade.
In his response dated 22nd June 2009, the Controlling Officer agreed with the observation and stated that the Corporation had a defective salary structure. o. Comparison of Basic Salary and Allowances. A comparison of basic pay and allowances for management staff revealed that the allowances constituted over 300% of basic pay. An example below shows the disparities between a member of staff in management who has the same basic pay with a unionized staff:
De s cription Basic Salary Commuted Car Allowance Housing Allowance Utility Allowance Total
Manage me nt Staff K 2,032,000 1,875,692 3,126,154 4,059,850 11,093,696
Unionize d Staff K 2,035,792 700,000 305,368 3,041,160
It can be noted from the table above that whereas the basic salaries for management staff were comparable to that of unionised staff, the gross salaries in management as compared to the unionised staff had very high discrepancies. In this regard, the basic salary for management staff was 18% of the gross salary while that for unionised staff was 67% of the gross salary. p. Non payment of Tax on Gratuity Contrary to Tax Laws, the corporation did not deduct tax on directors gratuities. In this regard, tax amounting to K680,169,201 was not deducted and the amount was accrued in the Corporation s books thereby understating the tax liability. q. Tax Evasion on Retirement and Gratuity During the period April 2003 to March 2009, tax on retirement packages and gratuity was computed using Pay As You Earn rates as opposed to the rates for terminal benefits and qualifying gratuity. In this regard, an amount of K7,229,870,495 accrued over the period as tax liability and was gradually written off from the Corporation s books. In a memorandum dated 14th May 2009, which was in response to the audit observation, the Finance Director advised that a journal would be passed to recognise the correct tax liability in 108
the books. However, as of June 2009, the liability had not been recognised and thereby understating the tax liability. r. Selective Staff Housing The Conditions of Service for Unionized staff provide that depending on the availability of houses, the Corporation shall provide the employee with unfurnished accommodation in accordance with the Corporation s housing Policy. Where such accommodation is unavailable, the Corporation shall pay housing allowance at agreed rates. Where the Corporation has provided accommodation to an employee, the employees shall be required to pay rent at 6%, 8% and 10% of basic salary per month for a low, medium and high cost houses respectively. Contrary to the Conditions of Service, the Corporation rented private houses for sixty one (61) unionized staff and in this regard, a total amount of K12,265,000 was paid over and above the officers entitlement. Further, it was also observed that rental contributions were not deducted from the staff. s. Pension Scheme The conditions of service for non union represented staff state that all Zambian employees on permanent and pensionable conditions of service will, whenever possible, be members of the Corporation s Pension Scheme, while the unionized conditions state that eligible employees shall subscribe to the Corporation s pension scheme at rates to be approved by the Corporation s pension scheme provider. Contrary to the conditions of service and best practice, the Corporation did not have a pension scheme and was paying retirement packages and monthly pension salaries from operational funds. Inquires made with management revealed that the pension scheme for the Corporation which was managed by the Zambia State Insurance Corporation (ZSIC) was discontinued on an unknown date in the early 1990s; however, there was no documentation to this effect availed for audit.
A review of the payroll and other related documents revealed that: An amount of K5,000 was deducted from each employee as pension contribution on a monthly basis despite the fact that there was no pension scheme in place; There were no documents availed for audit to indicate board approval or how management decided on the figure for pension contribution, contrary to the principles of Social Security and good management practice; There was no separate account maintained for the pension contributions. Consequently there was no evidence to indicate that the deductions were invested contrary to the principles of Social Security; and, The Corporation paid a sum of K38,868,824 as pension monthly salaries to retired employees as of June 2009. Below is an analysis of an employee s pension benefits who had served the Corporation for 20.75 years (1stApril 1988 to 31st December 2008) and was contributing K5000 per month towards pension. The analysis also shows what the Corporation actually paid:
Employe e Contribution during se rvice K5000 * 12 months * 20.27 years Pension Benefits: Pension Commutation Service benefits Monthly pension salary Survivors pension 13,662,492 256,171,719 1,138,541 759,027
From this analysis, it can be seen that in the absence of a pension scheme, the retirement benefits will continue to be a drain on the resources of the Corporation. In this analysis, the Controlling Officer admitted that the Corporation had difficulties in this area and that management was still in consultation with Zambia State Insurance Corporation (ZSIC) where the failed scheme was, on the possibility of reinstating the scheme.
t. Irregular Sale of Personal to Holder Vehicles Among other things the contract of employment for directors provides that the employee shall be eligible to purchase the personal to holder vehicle if a replacement is available at the end of the contract, subject to Board approval. The company policy in this regard was to sell the vehicle based on book value or 25% of the market value which ever was higher. On 3rd November 2008, the Director of Technical services wrote to the Director General to be allowed to purchase the personal to holder vehicle following the end of his contract. The motor vehicle was procured by the Corporation in June 2006 at a cost of K87,435,000 (Nissan Hardbody ABG 934) The Corporation s depreciation policy states that motor vehicles are depreciated at 25% while commercial vehicles are depreciated at 33.33% The following were observed: i. At the time of sale in December 2008 the motor vehicle had been used for two and half years by the Corporation. Contrary to the depreciation policy of the Company, depreciation on the personal to holder vehicle was charged at 33.33% which is for commercial vehicles as opposed to 25%. In this regard it was observed that the Corporation sold the car at K14,579,786 as opposed to K32,788,125 resulting in under valuation of K18,208,389. Contrary to the condition of service, the Corporation sold the car in the absence of a replacement vehicle, and at the time of audit the Acting Director of Technical services was being paid commuted car allowance of K2,935,615 per month as no vehicle was available.
Although in response management stated that the vehicle was depreciated at 33.33% because the vehicle was not a saloon car, the vehicle in question was used on personal to holder basis as opposed to being used as a utility vehicle. In addition the policy on depreciation did not mention the rate for saloon cars. u. Undelivered Studio Equipment In April 2007, the Corporation paid Keroba Investments limited a sum of K90,746,860 for the supply of various Studio Equipment which as of 30th June 2009 had not been supplied. 111
In his response, the Controlling Officer acknowledged that the supplier was paid and did not deliver as per the delivery period and that efforts were being made to try and recover the money and that so far a sum of K10,000,000 has been recovered. ZAMBIA RAILWAYS LIMITED Background 24. Zambia Railways Limited (ZRL) was established in 1976 following the split up of the Rhodesia Railways whose network covered Northern Rhodesia (Zambia), Southern Rhodesia (Zimbabwe) and Bechuanaland (Botswana). In July 1998, Government earmarked ZRL for commercialization and for exploration of the possibility of entering into concessions for some or all the operations of the company. In February 2003, the assets of ZRL were concessioned to Railways Systems of Zambia with a view to improving the performance of the railway operations and infrastructure. The concession included the use of infrastructure as well as a set of core operating assets, comprising locomotives, wagons and maintenance facilities. The concession agreement did not outline the roles of ZRL but according to management and the Draft Railway bill, the roles of ZRL were as follows: · · · · · · To monitor the Railway Concessions in the country; Monitoring the compliance with the terms of the GRZ/RSZ Concession Agreement; Processing of applications for Railway Infrastructure; Custody of railway infrastructure assets and overseer of the asset inventory; To resolve the outstanding liabilities, disposing of surplus assets, winding up noncore activities of the concessioned railways; and, Carrying out any other functions legally assigned by Government.
Administration Board of Directors The Railways Act Cap 453 of the Laws of Zambia provides that the Board of Directors shall consist of a minimum of five (5) and maximum of fifteen (15) members.
Management The day to day management of ZRL is the responsibility of the Managing Director who is the Chief Executive Officer appointed by the Board, and is assisted by the Company Secretary, Director of Finance and Administration and Director of Technical Services. The Managing Director, Directors and heads of department are engaged on four year contracts while the rest of the staff are employed on permanent and pensionable basis. Sources of Funds The sources of funds for the Company include, among others: · · · rental income, concession fees, any funds appropriated by Parliament and contributions by donors,
Review of Operations A review of operations for the Zambia Railways Limited (ZRL) for the financial years ended 31 st December 2002 to 2008 revealed the following; a. Board of Directors Contrary to the Companies Act, ZRL operated without a board during the period from January 2004 to March 2006. b. Organisation Structure Zambia Railways Limited had a total approved establishment of 28 positions out of which 23 were filled as of December, 2008 leaving a balance of 5 vacancies. Among the vacant positions was the position of Director Engineering and Technical whose key role was to monitor the concession. In response management stated that the position of Director Engineering and Technical had not been filled due to the fact that one of the long term roles of Zambia Railways, monitoring performance of the Concession, had not been resolved and that employing a Technical Director at this stage may result in such an individual not being fully utilized. Management further stated that the position would be filled when the work of the Inter-Ministerial Committee was finalised and the Concession Agreement reviewed to enable ZRL effectively monitor the concession.
c. Statement of income and expenditure for the year ended 31 st December, 2002 to 2007
2008 K'm Revenue: Passengers Freight Interchange Other revenue Distribution from Unitary System GRZ concession fees Rental income Bank interest Amortisation of capital grants Expenditure: Interchange costs Manpower Administration expenses Operational expenses Repairs and maintenance Finance charges Retrenchment cost Bad debts /provision for impairment losses Depreciation Loss on disposal of assets Profit/(loss) before exchange gains & taxation Un realised depreciation in shares Exchange (loss)/gains Profit/(los s) before taxation Taxation Profit/(loss) for the year Accummulated loss as at 1 January Transfer from revaluation reserve Accummulated loss as at 31 December 5,829 8,720 2,760 2,386 73 19,768 3,638 2,978 684 1,742 331 13,631 6,680 90 29,774 (10,006) (425) (17,630) (28,061) (1,360) (29,421) (126,213) 6,981 (148,653) 2007 K'm 16,545 7,552 1,690 1,415 73 27,275 3,084 2,889 476 829 348 2,609 6,728 16,963 10,312 7,746 18,058 2006 K'm 24,052 5,931 1,438 1,076 73 32,570 2,761 2,952 3,465 1,631 803 24,957 8,735 45,304 (12,734) (10,448) (23,182) 2005 K'm 609 1,750 9,552 1,424 2,168 24 15,527 1,264 1,785 17,329 13 1,159 2,000 284 28,632 52,466 (36,939) 17,270 (19,669) (868) (20,537) (120,193) 6,981 (133,749) 2004 K'm 525 1,412 2003 K'm 2002 K'm 2,677 109,021 17,000 14,961 143,659 31,109 39,163 28,508 31,144 19,704 3,243 928 153,799 (10,140) 4,408 (5,732) (268) (6,000) (97,542) 6,981 (96,561)
2,550 95,133 18,323 19,346 23,675 10,698 3,962 1,443 461 14,539 162,989 4,699 6,332 16,089 1,118 596 7,784 2,517 19,651 32,368 47,712 23,798 14,250 2,343 13,141
21,758 60,893 153,263 (46,354) 594 (45,760) (642) (46,402) (80,772) 6,981 (120,193) 9,726 (10) 9,716 (908) 8,808 (96,561) 6,981 (80,772)
(869) (433) 17,189 (23,615) (150,383) (133,749) 6,981 6,981 (126,213) (150,383)
i. Profitability As can be seen from the income statement above, except for 2003 and 2007 when profits of K8,808,000,000 and K17,189,000,000 were recorded, ZRL recorded losses in all the other years under review. As of December, 2008 the losses had accumulated to K148,653,000,000. It can also be noted that the years 2002 and part of 2003 were before the concession whereas 2004 to 2008 were after the concession. In 2004 there was a loss after tax of K46.402 billion, in 2005 K20.537 billion, in 2006 and K23.615 billion. However, in 2007 there was a profit of K17.189 billion, and in 2008 a loss of K29.421 billion. Therefore the company s financial performance according to the published accounts improved between 2004 and 2007 and relapsed in 2008. 114
ii. Revenue Although the concession fees were recognized in the ZRL books of accounts, they were paid directly to the Ministry of Finance and National Planning and according to management no economic benefit accrued to the ZRL. d. Financial Position - Balance Sheet for the year ended 31 st December 2002 to 2007
2002 K'm Non - current assets GRZ unitary system debt/Financial assets Property plant and equipment Investments Amounts due from concessionaire Current assets Stock Trade and other receivables Short term deposits Bank balances & cash/cash equivalents Total assets Capital and reserves Share capital Amounts pending allotment of shares Reserves Non - current liabilities Capital grants Amounts received from the GRZ awaiting allocation Deferred liability for long service gratuity Long term loans Current liabilities Short term loan Bank overdrafts Bank loan Trade and other payables Trade creditors Other creditors Accruals and provisions World Bank loan Interest Taxation payable Total equity and liabilities 2003 K'm 2004 K'm 2005 K'm 12,875 72,902 13,255 99,032 2006 K'm 12,875 64,206 13,255 90,336 2007 K'm 12,875 57,514 13,255 83,644 2008 K'm 12,875 50,835
12,875 12,875 12,875 101,137 91,817 82,711 13,255 13,255 114,012 117,947 108,841
12,040 75,252 75,412 37,292 16,645 910 28 1,434 2,321 10,977 9,207 12,609 10,408 12,634 7,218 1,429 872 19,876 99,134 90,367 55,487 27,281 14,391 19,904 213,146 208,314 164,328 126,313 104,727 103,548 198 2,318 -2,956 -440 198 2,318 5,852 8,368 198 2,318 -40,550 -38,034 198 2,318 -61,087 -58,571 328 1,063 78,710 80,101 198 2,318 -84,702 -82,186 255 1,063 94,529 95,847 198 2,318 -67,513 -64,997 182 1,063 78,531 79,776
100,238 198 2,318 -96,934 -94,418 109 1,063 96,293
1,063 1,063 1,063 6,388 4,726 78,966 100,696 119,247 86,417 106,485 120,310
3,602 9,067 11,867 41 27 1,602 3,377 46,363 60,775 44,002 44,277 53,354 46,316 71,463 42,447 29,665 33,760 28,961 22,537 5,353 5,494 8,826 9,369 709 1,294 671 1,152 210 719 127,169 93,461 82,052 104,783 91,066 88,769 213,146 208,314 164,328 126,313 104,727 103,548
17,476 14,251 1,028
i. Fixed Assets
ZRL had investment properties which were among the major sources of income after the concession. However, it was noted that the Investment Property had not been separated from property, plant and equipment in accordance with International Accounting Standards IAS 16 (Property,
Plant and Equipment) and IAS 40 distorting the financial statements. ii. Debtors
The debtors position reduced from K75,252,000,000 in 2002 to K2,680,000,000 in 2008. The reduction is attributed to the provision for bad debts which stood at 98% of the total debtors as of December, 2008 as detailed below;
Bad Debt Debtors Provision Balance K'million K'million K'million 129,672 54,420 75,252 135,744 60,332 75,412 119,381 82,089 37,292 127,367 110,722 16,645 124,129 123,219 910 120,949 120,921 28 111,476 108,796 2,680
Year 2002 2003 2004 2005 2006 2007 2008
% Provision 41.90 44.40 68.80 86.90 99.30 99.90 98.00
It is clear from the above analysis that debtors were not properly managed. In response management stated that the company policy had been to fully provide for any debtor over three months and that 75% of the debtors were either Government or Government related debt and these had proved to be very difficult to collect. iii. Liquidity The table below shows the liquidity position of ZRL during the years under review:
2002 2003 K'M K'M 99,134 90,367 127,169 93,461 (28,035) (3,094) 0.78: 1 0.97 : 1 2004 K'M 55,487 82,052 (26,565) 0.68 : 1 2005 K'M 27,281 104,783 (77,502) 0.26 : 1 2006 K'M 14,391 91,066 (76,675) 0.16 : 1 2007 K'M 19,904 88,769 (68,865) 0.22 : 1 2008 K'M 21,348 97,191 (75,843) 0.22 : 1
Current Assets Current Liabilities Working Capital Current Ratio
The working capital position of ZRL worsened from a deficit of K 28,035,000,000 in 2002 to a deficit of K 75,843,000,000 in 2008 thereby exposing the company to the risk of insolvency. Meanwhile, the current ratio which reflects the ability of a firm to discharge its short term financial 116
obligations or number of times current liabilities can be paid with current assets deteriorated from 0.78:1 in 2002 to 0.22:1 in 2008 when the generally accepted ratio is 2:1. iv. Long Term Liabilities Long term liabilities increased from K86,417,000,000 in 2002 to K 97,465,000,000 in 2008. Included in the amount of long term liabilities was a sum of K1,063,000,000 received from the Government of Zambia. The figure had remained unallocated for over seven (7) financial years. v. Capital Structure The authorised share capital of the company is three hundred million kwacha (K300,000,000) divided into three hundred million (300,000,000) ordinary shares of one kwacha (K1.00) each. The total issued and fully paid up capital stood at K197,755,755 as at 31st December 2008. In 1991, the Government agreed to take over loans and interest in the sum of K2,317,648,000 in exchange of equity shares. As of March 2009, the shares had not been issued and there was no correspondence or agreement to indicate how many shares the Government was to receive. The amount had been reflected in the balance sheet as amount pending allotment. In his response dated 19th February 2010, the Controlling Officer stated that financial constraints were the major factor in the delay of allotting the K2,317,648,000 into shares and that the amount required to register the shares was astronomical given the poor financial state of Zambia Railways at the time. He further stated that the matter would be dealt with when the situation improved. e. Failure to Rotate Auditors It was observed that ZRL had been audited by the same auditing firm and partner for a consecutive period of over ten (10) years contrary to the auditing best practice. In his response dated 19th February 2010, the Controlling Officer stated that there would be a change of Auditors for the 2009 financial year after approval at the next annual general meeting.
f. Non Remittance of Statutory Obligations Although the Company deducted statutory contributions from its employees, the amounts deducted were not remitted to the relevant institutions. In this regard it was observed that as of March 2009, the Company owed ZRA a sum of K34 billion in outstanding PAYE and K62 billion in penalties and interest. It was also observed that National Pension Scheme Authority (NAPSA) was owed K8.616 billion in penalties due to the failure by ZRL to remit pension contributions on time. g. Land Encroachment Zambia Railways Limited owns land that lies along ZRL railway reserve from Livingstone to Chililabombwe. In addition ZRL owns residential and farm land in areas away from its railway reserve. It was observed that the failure by ZRL to either develop or dispose of its undeveloped land to the general public had given room to encroachment. A scrutiny of the records revealed that fourteen (14) business organizations had encroached on ZRL properties located in Lusaka In addition three (3) properties in Pemba and Choma had either been illegally occupied by some members of the public or the council had allocated land to the members of the public to build permanent structures. In his response dated 19th February 2010, the Controlling Officer stated that the Ministry had granted authority to dispose of residential plots areas not linked to railway operations. h. Review of Concession Agreement A review of the performance of the concession agreement revealed the following: i. Investment Plan Management of ZRL had budgeted to spend a total of US$44.5 Million in rehabilitation of railway infrastructure during the period from January 1999 to December 2003 out of which a total of US$24.7 Million was spent as shown in the table below:
Year Budget Actual
2003 2002 2001 2000 1999 Total $' Million $' Million $' Million $' Million $' Million $' Million 10.5 8.1 11.8 6.3 7.8 44.5 2.2 4.53 3 11.9 3.09 24.7
However, it was observed that at the time of concessioning, the agreement provided for an investment of US$14.774 Million over a period of six years which was far less than the actual investment required to bring the railway infrastructure into good condition as was planned by ZRL. As of December 2007, a total of US$14.6 million had been invested out of the US$14.774 million. The investment figures for the year 2008 were not availed for audit. ii. Track Rehabilitation of the Mainline Livingstone To Kitwe Zambia Railways Limited commenced the rehabilitation of the railway line in the 1980s. The rehabilitation involved the replacement of wooden sleepers with concrete sleepers among others. At the time of Concession, the 518 kilometer of the main line had been re-laid with concrete sleepers leaving a balance of 324 kilometers. Schedule 15 of the concession agreement stipulates that RSZ shall replace the sleepers damaged through derailments and at joints with new concrete sleepers. In addition the schedule states that second hand steel sleepers and/or new wood sleepers should be used to replace one (1) out of four (4) defective wooden sleepers. An inquiry with management of Zambia Railways, revealed that this was not actually investment but maintenance works which was not sufficient to hold the railway together for a period of 20 years. The management indicated that the Investment Plan in the agreement was actually a patch up plan. It could not be ascertained as to why the concession agreement allowed the investor to discontinue the full rehabilitation and instead replace one (1) concrete sleeper out of four (4) wooden sleepers.
Sections of the mainline rehabilitated with concrete sleepers prior to the concession
Sections of the mainline were RSZ has interlaced on average one concrete sleeper in every four wooden sleepers
iii. Rolling Stock A scrutiny of the concession agreement revealed that apart from the US$ 3.5 Million in the investment plan for Rolling Stock (i.e. Locomotives and Wagons) there was nothing to compel the concessionaire to invest more in the twenty (20) year life of the agreement. Though in his response dated 19th February 2010, the Controlling Officer stated that he recognised the inadequacy of the agreement and the need to find a lasting solution, it was difficult to understand why it had taken the Ministry such a long time since the concession came into force to find a lasting solution. iv. Condition of the railway infrastructure A review of the Government Inspector of Railways Annual Inspection Report of Railway Systems of Zambia network carried out in March, 2008 revealed the following among other things: · Railway line There was no systematic maintenance of the railway line to improve the overall condition of the network and track defects such as low joints, uneven cross levels and misalignment. See pictures below:
Such unsafe joints with wide gaps and missing bolts are a common feature on the network.
Section of the Kitwe- Chingola line
· Bridges The twenty eight (28) bridges on the network which required regular painting to prevent corrosion of the steel structures and ultimately ensure the safety of the bridges, had not been done as of December 2008. · Flashlights at Class A level Crossing Contrary to the provisions of the Road and Road Traffic Act and the Concession Agreement, RSZ had not provided flashlights at Class A Level Crossings. · Passenger Coaches Concession of the Passenger Services of GRZ provides that the Concessionaire shall operate the ordinary train which at a minimum, shall consist of the following locomotives and passenger coaches: v v v v v U20 (or equivalent) locomotive, 1 Baggage/generator car, 5 economy coaches, 3 Standard coaches and 1 sleeper coach and snack coach.
A review of the Government Inspector of Railways report for 2008 revealed that the passenger train lacked the standard and sleeper classes/coaches v. Change in Asset Assignment Clause 12.7.1 provides that during the concession period, RSZ undertakes to promptly return to GRZ all surplus assets which in its discretion will not be required for railway operations. 121
Contrary to the provisions of the clause, RSZ had not handed back all assets that the company was not using as detailed below; · Flash butt welding plant Kafue
Although the plant was part of the concession, RSZ has not been using it from the time of the concession agreement in 2003 and the boundar y wall to the plant had partially collapsed, the electrical motors and other equipment were either missing or had been vandalized. The rails procured by ZRL for the rehabilitation of the railway line were going to waste. See pictures below.
Part of the vandalized plant
Materials for rehabilitation of the track left on site by ZRL
Part of the vandalized equipment at the Kafue plant which was operational at time of concession
· Office block at the Livingstone Yard The building which was operational at the time of handover had been vandalized and roofing materials stolen. See picture below:
Part of the vandalized offices at Livingstone yard that was operational at time of handover
It was further noted that the concessionaire was using wagons as perimeter fence in the Livingstone yard. Other wagons not in use by RSZ had been bundled in unacceptable manner as evidenced in the pictures below:
Bundled wagons at the Kitwe yard not handed back to Zambia
Wagons being used for fencing
vi. Concession Fees According to the concession agreement the fees payable to GRZ comprised; · a fixed concession fee; · a negative fixed concession fee payable under the passenger concession agreement; · a variable concession fee of 5% of the Railway Income; and, · a one time entry fee of $750,000 payable on commencement date. A review of records relating to the concession fees revealed the following: · Fixed Concession Fees According to the agreement, Government was expected to receive a total of US$246,090,596 in fixed concession fees during the 20 year period as indicated in the table below:
Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Freight US$ 3,177,241 3,452,739 4,191,878 4,398,580 4,640,922 5,244,927 6,234,850 5,614,398 6,572,263 7,693,548 9,006,133 10,542,657 12,341,326 14,446,862 16,911,622 19,796,890 23,174,411 27,128,165 31,756,464 37,174,391 253,500,267
Passenger US$ (700,000) (800,000) (1,000,000) (1,200,000) (1,200,000) (1,200,000) (1,309,671) (7,409,671)
Net US$ 2,477,241 2,652,739 3,191,878 3,198,580 3,440,922 4,044,927 4,925,179 5,614,398 6,572,263 7,693,548 9,006,133 10,542,657 12,341,326 14,446,862 16,911,622 19,796,890 23,174,411 27,128,165 31,756,464 37,174,391 246,090,596
In addition, Section 16.1.1 and 16.3.2 of the concession agreement states that if the actual tonne Kilometres hauled in one year is lower by 3% or more of the estimated ton/Km set out in the agreement, then a change in circumstances is deemed to have occurred. The negative variance so calculated, being the difference between the actual Gross profit and the anticipated Gross operating profit shall be shared equally between RSZ and GRZ in fifty (50) percent ratio. It was observed that the Concessionaire declared a change in circumstances in the year 2005. As of 31st March 2009 the declaration was still in force and consequently no fixed concession fees had been paid to the Government since 2005. A review of the world bank implementation completion report No 32520 of December 2005 revealed that the initial concession agreement was changed in respect of the principal provisions relating to change in circumstance, change in law, termination, track standard thereby GRZ in a disadvantaged position. Inquiries with management revealed that fixed concession fee (which is the most lucrative of the concession fees) shall never be paid for remainder of the agreement and that the Inter-ministerial Committee (IMC) was of the view that the clause be changed as the change in circumstances is triggered by factors that the concessionaire is in control of.
Contradictory Clauses in Passenger Agreement While the concession agreement stipulated that the minimum passenger service levels shall be three (3) trains per week in the first six (6) months to seven (7) trains per week after 24 months between Livingstone and Kitwe, the agreement on the other hand had a contrary clause which stated that RSZ would only be in default if they failed to run a single train in 90 consecutive days.
Variable Concession Fees Section 5-3-2 of the agreement states that RSZ shall pay the first installment of the variable concession fee for the first three (3) months following the commencement date, within 60 days of the end of that period. Subsequent payments shall be made quarterly in arrears within 60 days of the end of each subsequent quarter. According to records obtained at the Ministry of Finance and National Planning, a total of K17,993,371,848 had been remitted by RSZ as variable concession fees. It was however observed that concession fees for 2008 had not been received as of May 2009. The table below shows the amounts received per year;
AMOUNT K 3,034,169,685 9,592,029,842 3,782,544,694 1,584,627,627 0 17,993,371,848
YEAR 2004 2005 2006 2007 2008 Total
It was also observed that the agreement did not provide for either ZRL or GRZ to conduct an independent verification concession fees declared. It was therefore not possible to ascertain the correctness of the concession fees paid.
ZAMBIA TELECOMMUNICATION COMPANY LIMITED (ZAMTEL) Background 25. The Zambia Telecommunication Company (ZAMTEL) Ltd was established under the Companies Act of 1994 following the dissolution of the Posts and Telecommunications Company Limited (PTC) and became operational in July 1994. PTC was a wholly owned subsidiary of Zambia Industrial & Mining Company Limited (ZIMCO) (Voluntary Liquidation). Following the establishment of the Zambia Telecommunication Company (ZAMTEL) Ltd on 1 July 1994, the Government of the Republic of Zambia assumed 100% equity holding in the Company. The principal activity of the Company is to provide telecommunication services in the Republic of Zambia. Administration Board of Directors Zamtel ltd has a board of directors consisting the Chairperson and not more than eight (8) other persons appointed by the Minister responsible for communications and transport. Management The Managing Director who is assisted by two General Managers, nine directors including the Chief Internal Auditor and twenty (20) managers is responsible for the daily operations of the Company. The Managing Director and the two (2) General Managers are appointed by the board on renewable three-year terms of office. The rest of the staff is appointed on a permanent and pensionable basis. Sources of Funds The sources of funds include, among others, such sums of money as may be raised through subscriber calls, line rentals, foreign administration income, phone installations, leased services.
Review of Operations A review of audited accounts and other relevant documents for the financial years ended 31 st March 2006 to 2008 revealed the following: a. Failure to Implement the Strategic Plan It was observed that although the Company had a strategic plan for the period 2006 to 2011, the implementation of the plan was not progressing as scheduled. The strategic plan provided that the company would be divided into two main divisions being PSTN/Internet and Mobile each operated by a General Manager. As of June 2009 the company had not been structured as provided for in the plan. b. Financial Performance - Profitability The table below shows the profit and loss account for the financial years ended 31st March 2006 to 2008:
2008 K'M illion Re venue Other Income 399,791 6,219 406,010 2007 K'M illion 354,178 2,824 357,002 2006 K'M illion 365,783 2,244 368,027
Ope rating e xpe nse s Staff Costs Other expenses De pre ciation 287,643 172,143 59,208 518,994 (112,984) 26,362 (15,553) (2,765) 8,044 (104,940) (861) (105,801) 248,637 151,843 43,977 444,457 (87,455) (53,760) (14,740) (2,620) (71,120) (158,575) 32,716 (125,859) 231,931 115,960 35,727 383,618 (15,591) 31,495 (7,850) (2,451) 21,194 5,603 (5,542) 61
Ope rating loss Net Exchange gains/(losses) Interest payable Other finace charges
Loss before taxation TAX (charge)/credit Loss for the ye ar
The following were observed; i. Profit and loss Zamtel had been consuming more resources than it was generating. Revenue decreased from K368,027,000,000 in 2006 to K357,002,000,000 in 2007 127
representing a decrease of 3%. This was mainly attributed to the decrease in subscriber calls from K224,154,000,000 in 2006 to K176,898,000,000 in 2007. The directors report for the financial year ended 31st March 2007 revealed that the decrease in turnover was largely due to substitute products from competitors as some of the districts had aging equipment that resulted in difficulties in call penetration. However, the turnover increased to K406,010,000,000 in 2008 representing an overall increase of 11% (K37,983,000,000) from 2006 to 2008. On the other hand operating costs increased from K383,618,000,000 in 2006 to K518,994,000,000 in 2008 representing an increase of 36% (K135,376,000,00) . In this regard, the Company recorded operating losses amounting to K125,859,000,000 in 2007 and K105,801,000,000 in 2008 respectively. ii. Staff Costs to Turnover Ratio During the period under review, staff costs consumed between 63% and 72% of the turnover as shown in the table below:
K'Million 2008 406,010 (287,643) 72% K'Million 2007 357,002 (248,637) 70% K'Million 2006 368,027 (248,700) 63%
Turnover Staff Costs
It was observed that while the Company turnover increased by 11%, the staff costs increased by 16% over the same period. The high staff costs had impacted negatively on the company s ability to utilise internal resources for reinvestment.
c. Financial Position The table below shows the balance sheet as at 31st March 2006 to 2008.
2008 K'Million ASSETS Non current assets Property,plant and equipment Long term receivables Investments Current assets Inventories Trade and other receivables Cash and cash equivalents Taxation Total assets EQUITY AND LIABILITIES Capital and reserves Share capital Revaluation reserves Revenue reserves Shareholders's decifit Non- current liablities Long term borrowings Deferred liability Deferred taxation Capiatl grants Finance lease Current liabilities Trade and other payables Overdrafts and shirt term borrowings Tax Dividends 2007 K'Million 2006 K'Million
429,867 2,009 2,951 434,827 11,678 96,885 29,427 12,411 150,401 585,228
446,170 2,009 3,206 451,385 10,674 140,471 15,543 12,411 179,099 630,484
432,945 2,009 434,954 8,197 169,842 21,506 17,660 217,205 652,159
2,545 11,323 (130,520) (116,652)
2,545 13,127 (18,003) (2,331)
2,545 15,234 123,536 141,315
153,020 98,004 2,767 7,277 261,068 434,589 2,012 861 3,350 440,812 585,228
204,482 89,238 3,001 1,080 297,801 324,810 6,854 3,350 335,014 630,484
179,392 83,078 32,717 3,235 2,182 300,604 200,453 5,787 4,000 210,240 652,159
Total equity and liabilities
The following were observed: i. Liquidity Position The liquidity position of the company during the period under review was as shown below:
2008 K'Million 150,401 440,812 (290,411) 0.34 88 days 2007 K'Million 179,099 335,014 (155,915) 0.53 144 days 2006 K'Million 217,205 210,240 6,965 1.03 170 days
Current Assets Current Liabilities Working Capital Current Ratio Debtor Days
Working capital reduced from K6,965,000,000 in 2006 to a deficit of K290,411,000,000 in 2008. In this regard, Zamtel ltd was technically insolvent. The Government, being the shareholder provided a letter of comfort giving an undertaking to provide such support as was necessary to ensure that it continued as a going concern. The lack of working capital resulted in the company incurring huge penalties on its obligations. As of 31st March 2009, Zamtel ltd had incurred penalties and interest to Zambia Revenue Authority totalling K78,200,000,000. It was also observed that the company had been operating below the standard current ratio of 2:1. The trend over the period was that the ratio continued to worsen from 1.03 in 2006 to 0.34 in 2008. Although Zamtel ltd had a debt policy of 30 days, it was observed that the company took between 88 to 170 days to collect its debts. ii. Uncollected debts A review of debtors records revealed that the company had uncollected debts from private institutions amounting to K173,485,715,184 as of June 2009. An additional amount of K17,036,246,322 was owed by the Government as of March 2009 bringing the total debt to K190,521,961,506. It was observed that debts in amounts totalling K12, 865,000,000 were classified as irrecoverable.
Gearing Zamtel ltd heavily relied on debt and as a result, the finance costs (interest) had increased from K10,301,000,000 in 2006, K17,360,000,000 in 2007 and K18,318,000,000 in 2008 as shown in the table below:
2008 K'Million Debt A Debt + Equity B A/B *100 C 155,032 38,380 404 2007 K'Million 211,336 209,005 101 2006 K'Million 185,179 326,494 57
Share Capital and Reserves The authorised share capital remained at K6, 000,000,000 divided into 300,000,000 shares of K20 each. The issued and fully paid share capital remained unchanged at 127,250,000 ordinary shares of K20 each translating into K2, 545,000,000. It was observed that no additional capital had been injected by the shareholders since its establishment in 1994.
d. Procurement of Goods and Services i. Memorandum of Understanding with M.DOT Mobile SDN BHD In February 2007, ZAMTEL and M. DOT Mobile SDN BHD of Malaysia entered into a Memorandum of Understanding to provide enhanced telecommunications operations, specifically in the areas of provision of affordable mobile handsets, management of international mobile equipment identity facility and enhancement of capturing of revenues from the grey market. However, there was no evidence to indicate that board approval was obtained to enter into the MoU with M. DOT Mobile SDN BHD of Malaysia. ii. Supply of 20,100 Network Locked Phones In March 2007, ZAMTEL requested for authority from the Zambia National Tender Board to single source M. Dot Mobile SDN Company of Malaysia for the supply of 20,100 mobile phones at a cost of US$664,250. 131
In response, ZNTB stated the following among other things: · The method used to identify the recommended supplier was not conducted in a transparent manner; Zamtel ltd could increase its customer base by having network locked phones, when the norm of the day was having one hand set and several sim cards from different networks for convenience; Low cost phones were usually associated with a high maintenance costs on the part of the purchaser; and, Zamtel ltd was obliged to invite a formal tender for the supply and delivery of 20,100 mobile phones in order to enhance transparency and competition.
Failure to follow Tender Procedures Contrary to the directive by ZNTB that ZAMTEL invites a formal tender, the company floated a selective tender to six (6) companies for the supply of low cost network locked phones. The tender documents revealed that only two (2) companies responded. The two (2) companies that responded were sister companies namely M Dot Mobile SDN. BHD of Malaysia and M. Mobile Telecommunications of Zambia. The sister companies quoted the same unit price, warranty and other specifications except that the quotation from M. Mobile telecommunications of Zambia included a charge of US$375 as transport charges from Lusaka to Ndola. Further, it was observed that although M Dot Mobile SDN of Malaysia was awarded the contract at a total cost of K3,215,836,15, a preliminary evaluation indicated that they did not qualify.
Wasteful Expenditure In August 2008, ZAMTEL shipped 14,300 phones back to the supplier as they were found to be faulty and were still under warranty. However, there was no response from the supplier and consequently in March 2009, ZAMTEL retrieved the phones which were marooned at the airport. In this regard, ZAMTEL spent a total of K868,247,554 of which K534,144,770 was in respect of storage charges in Malaysia.
Enquiries with management revealed that the phones had been retrieved and had since been disposed of by selling them to the unsuspecting public during the Amabondi na 4x4 Promotion . v. Procurement of Card phone Booths, Payphone Management System and Mobile Telecentres On 24th November 2004 ZAMTEL entered into a contract with ASCOM SA of France to procure 500 Cardphone booths, Payphone Management System (PSM) and Mobile Telecentres at a total cost of K2,698,634,717.00 (Euro445,081.00). The contract stated among other things that; that ASCOM SA shall supply 450 Exanto Card payphones, Software licence for connecting 500 Exanto and 170 GNT Payphones. PSN 150 Centre valued at Euro445,081.00, and that ASCOM SA shall be obligated to remedy defects in the hardware during a period of 12 (twelve) months from the date of production of the said hardware. The following were observed; · Failure of Payphone Management Software System The public payphones became operational on 25th June 2005 and were only operational for a period of 25 months before they ceased operation on 4th July 2007 due to failure of the payphone management system software (PSM). The PSM software was not covered with a maintenance agreement in case of failure. · Loss of Revenue Zamtel ltd procured 300,000 pay phone cards from Gemplus South Africa at a total cost of K1,196,026,159 and with a market value of K4,500,000,000. Out of the 300,000 pay phone cards procured, a total of 211,064 cards with a market value of K 3,286,070,000 were still in stock as of 30th June 2009 as a result of failure of the PMS. The total revenue locked up in pay phone cards as a result of the failure of the PMS was K21,855,095,000. This figure included the 37,137 cards of K500,000 denomination totalling K18,568,500,000 which were donated.
e. Un Accounted for Cell Z Scratch Cards In December 2005, ZAMTEL procured and received 1,370,000 Cell Z Scratch Cards of 10,000 denominations from Namitech of South Africa at a cost of $75,350. A physical inspection at Lusaka stores and inquiries with management in July 2009 revealed that 291,900 scratch cards valued at K2,919,800,000 were unaccounted for. f. Capital Projects i. Poor Management and Implementations of Projects Zamtel ltd undertook various projects during the period under review which included the following among others:
Amount US$ 48,000,000 21,500,000 38,000,000 25,000,000 23,000,000 Contract Date 14-Nov-06 4-May-04 4-May-04 6-Dec-07
Project National Optic Fibre Project GSM phase I GSM phase II GSM III Rural telephone Project
It was observed that although the Company had signed contracts and work had commenced on the National Optic Fibre, GSM phase III and the Rural Telephone Projects, the company had not secured funding for the projects as of June 2009. A review of the schedule of works done as at 31st March 2009 indicated the following:
Work Done US$ 29,894,473 16,292,386 5,862,691
Optic Fibre GSM III Rural Telephone
Outstanding From Work Done US$ 3,050,000 26,844,473 1,500,000 14,792,386 900,000 4,962,691
Delayed Implementation of Projects The company did not implement its projects on time, for example, the supply, delivery, installation and commissioning of GSM cellular telephone system which commenced in 2002 and was to be completed in 134
ten (10) months at a cost of US$21,570,244 was only completed in November 2007. iii. Lack of Return on Investments Although there was no evidence to indicate that Zamtel ltd had recouped from the investments in GSM phase I and II implemented at a total cost of US$59,622,905, at the time of the audit in June 2009, the company was in the process of implementing GSM phase III . iv. Inadequate Provisions in Bill of Quantity Transmission Contract SDH Optical Backbone
In November 2006, ZAMTEL entered into an agreement with Huawei Technologies Co. limited for the design, supply, delivery, installation and commissioning of the optical backbone transmission network. The project cost on the foreign component was estimated at US$48,135,590 net of tax. The contract provided that ZAMTEL would foot the local cost component relating to taxes, supervision, monitoring and other project management costs. The contract further provided that any quantities set out in the price schedule were estimated quantities and were not to be taken as the actual and correct quantities of the works which the contractor was required to execute. v. Lack of Detailed Design The detailed design for the project was done after the project came into effect thereby making the bill of quantities in the contract inadequate as the detailed design had more quantities than the estimate. In this regard, in May 2009 following a claim from the contractor for work done over a stretch of 634Km, the contract price was revised upwards by US$3,351,305. vi. Delayed Completion Although the contract commenced in June 2007 for a period of 18 months, as of June 2009 the project was less than 50% complete.
Under Utilisation of Exchange Capacities i. The Public Switched Telephone Network (PSTN) The total capacity for the PSTN telephone exchange system as of March 2009 stood at 161,422 lines while the number of connected customers was 84,774 representing 53% capacity utilization. ii. Global System for Mobile (GSM) In October 2007, Zamtel ltd entered into a contract with ZTE Company for the supply, delivery, installation and commissioning of the GSM Cellular Telephone System at a total contract sum of USD $25,079,226. The contract was aimed at increasing the exchange capacity from 150,000 to 800,000. As of March 2009, the number of connected customers was 289,968 giving a total capacity utilization of 36%, while the number of active customers who remained active on the network within a period of 24 hours stood at 89,608 representing 11% capacity utilisations.
h. Obsolete Operational Equipment A review of the report on the status of the equipment for telephone switching and transmission systems as of March 2009 revealed the following among others: The company telecommunications network comprised of ninety five (95) telephone exchanges (PSTN) and one (1) GSM switch in operation. Seventy six (76%) percent of the exchanges were digital while twenty four percent (24%) were still analogue. Although seventy-six percent (76%) of the exchanges were digital, forty-four percent (44%) were obsolete and were no longer supported by manufacturers. Overall, forty-nine percent (49%) of the exchanges were obsolete resulting in constant outages, poor quality of service and consequently loss of revenues. i. Staff Related Matters i. Irregular payment of Gratuity Minutes of the special board meeting held on 22nd January 2006 on the report of the remuneration and establishment committee on the remuneration of the Managing Director and the two (2) General 136
Managers revealed that the board resolved among others that the clause in the contracts under gratuity should be recast in respect of the tax component so that the sentence the company will bear tax should not be reflected. Contrary to the board resolution, a review of contracts for three (3) officers revealed that gratuity would be paid at the end of the contract period at the rate of thirty five per centum (35%) of the employees total basic salaries earned over the three (3) year contract period and that the employees shall be paid the gross amounts. In this regard, the company irregularly paid tax in the sum of K186,211,258 on behalf of the three employees. ii. Irregular payment of gratuity on accrued leave days The contracts of employment for top management provide that gratuity would be paid at the rate of thirty five percent (35%) tax free of the last drawn annual salary together with accrued leave days and that tax shall be paid by the company. It was observed that the condition of service was questionable in that the company paid gratuity on commuted leave days. A test check of records relating to gratuity for top management between 2006 and 2009 revealed that the company paid a sum of K128,352,942 to sixteen (16) members of staff as gratuity on leave days. This was in addition to the company paying cash in lieu of leave days. iii. Outstanding Terminal Benefits During the period under review, the company owed a sum of K26,718,304,868 in unpaid retirement and deceased benefits as of May 2009. The amounts had been outstanding from 2007. j. Non-Payment of Statutory Contributions It was observed that as of March 2009, the company owed amounts totalling K433,018,088,724 to the three (3) institutions in unremitted statutory contributions as shown in the table below:
Entity ZRA ZRA NAPSA ZSIC Total
Amount K Details 322,894,687,816 PAYE 78,200,000,000 Penalties (K58.3 billion) Interest (K19.9 billion) 11,968,189,329 Pension 19,955,211,579 Pension 433,018,088,724
CONCLUSION 26. This Report highlights various areas of weaknesses in the management of the organisations audited. Weaknesses in the areas of maintenance of records, remittance of statutory contributions and preparation of financial statements and annual reports are of particular concern. In this regard, there is need for improvement in the management of the organisations concerned.
UNRESOLVED RECOM MENDATIONS OF THE COMMITTEE ON PARASTATAL BODIES 27. The Appendix to this Report on pages 141 to 148 contains unresolved issues reflected in various reports of the Committee on Parastatal Bodies. As can be observed from the list of unresolved issues, there has been little or no follow-up action by the affected parastatals and it is likely that if timely action is not taken by the Executive, the unresolved matters will increase to the extent that recommendations of the Committee on Parastatal Bodies will be rendered meaningless.
AUDIT HOUSE HAILE SELASSIE AVENUE LUSAKA 3rd June 2010
ANNA O CHIFUNGULA FCCA, FZICA AUDITOR GENERAL REPUBLIC OF ZAMBIA
Appendix RECOMMENDA TIONS OF THE PUBLIC ACCOUNTS COMMITTEE ON PARASTATAL BODIES WHICH HAVE NOT OR HAVE BEEN PARTLY BEEN IMPLEMENTED Report of the Auditor General on the Review of the operations of the Public Service Pensions Fund from the period January 1997 to March 2002 6 (5) Local Investments As regards the current position of the matters raised, the investigations on the purchase of properties in Jesmondine and Kalundu. As regards the current position on the matter. As regards the current position on the matter. As to whether the Government debt to the fund had since been paid. As regards the current position on the interest
13 (4) 19 (20) 24 (25) 25 (26)
Unclaimed Monthly Pension Local Bank Accounts Government Indebtedness to the Fund
Indebtedness of ZAMPOST to the Fund
26 (27) 29 (30)
Computerisation of the Fund s - The current position on the matter Records Financial Position of the Fund As regards the current position on the outcome of the investigation by the Task Force on corruption
Report of the Auditor General on Nanga Farms PLC (Transfer of CDC shares to New World Farming Limited) 13 (11) Sale of Shares - As to whether the Government holds 14.29 per cent shares in the company and as to why the directors who signed the no objection letter were not disciplined
Report of the Auditor General on the Review of the Operations of the Zambia National Oil Company 9 (10) Management of the Company - As regards outcome of the appeal against the judgement by the receiver. Amendment to the Contracts As to whether the Forensic audit in the operations of ZNOC have since been done. As to whether the amount of US$48 million has been settled.
18 (26-34) 19 (35) 20 (36)
Subsidies to Oil Marketing Companies. Appointment and Payment to Reciever/Manager Appointment of Liquidator
- As regards the current position on the appeal by the Reciever. As regards the current position on the meeting with Government to discuss outstanding issues on the liquidation.
Report of the Auditor General for 1995 on the Accounts of Parastatal Bodies 42 (13) Management of the Board As to whether the National Housing Authority Act has been amended.
Report of the Auditor General on the Operations of Zesco and Kariba North Ltd for the financial year ended 31st December, 1998 6 (5) 15 (15) 26 (26-27) Recapitalisation Irregular Payment Education Allowance paid to the General Manager (K110,856,400) As regards the current position on the matter. Latest position on the matter. As to whether the amount paid erroneously has been recovered.
Purchase of Foreign Exchange - The current position on the for Incidentals (US$ 39.136 and matter. GBP 1,000) Directors fees and Responsibility - As to whether the amount of Allowance (K8,199,000) K8,199,000 irregularly paid to The Managing Director has been recovered. 140
Part Payment made for former Chairman s gratuity and fees (K6,000,000). Recovery of funds from the closed Bank (2.2 billion) -
- As to whether the amount of K6,000,000 was recovered from the former Chairman
Latest position on the recovery of K2.2 billion in the closed bank. As to whether the liquidation has realised the assets and declared dividends. As to whether the liquidation has realised the assets and declared dividends. As to whether the amount irregularly paid to the Managing Directors have been recovered.
Unrecovered Investment Amounting K370,638,400 as in above. Investments Bank Receipts (K40,000,000) Domestic Servant Allowance education allowance and and Performance bonuses
Over payment of Responsibility - As to whether the amount of Allowance (K5, 599,500) K5,599,500 overpayment of responsibility allowance has been recovered. Report of the Auditor General on the Accounts of Parastatal Bodies for the Financial Year Ended 2004 Allowances 10 (11-13) Irregular Payment of Salaries - As to whether the former Chairman and Allowances has been paid back the moneys that were irregularly paid to him. Purchase of Stationery
- Regarding the outcome of the Police and the Anti-Corruption Commission Investigations - As regards the progress made on the matter.
Procurement of carpets
Construction of Pre-Fabricated - As to whether the correctional Building works have since been carried out. Payment for preparing of a - As regards the outcome of the staff appraisal system. court case. Sales of Motor Vehicles - Recommended for closure
20 (24) 23 (28) 24-25 (29)
Consultancy fees Assets of the Agency Maize paid for and not delivered Loans obtained by the Food Reserve Agency
- As to whether recoveries have been made. - The current position on the matter raised in (i) and (ii) - The current position on the matter
- The current position on the matter - The current position on the items raised in (iii) - As to whether the various political organisations and Politicians have since honoured their obligations - Current position on the matter. - As regards the current position on the matter
Contract of sale of Zambezi Sawmills (1968) Limited
32 (37) 2004 Indebtedness of political Organisation and Politicians
33 (38) 34 (40)
Procurements Long Term Loans
Report of the Auditor General on the Accounts of Parastatal Bodies for the Financial Year Ended 2005 29 (39) 99 (130) Unvouched Expenditure failure to follow -
As regards the current position on the matter raised (a) (d)
Drugs paid for But Not Received - Regarding the current position (K2,290,357,583) on the drugs paid for but not received for K2,290,357,583. Failure to Constitute a Board Irregular Remuneration for the Managing Director Irregular Receipt of House Rental - As to whether the Board has since been constituted. - As to the current position on the matter. - As to whether the Attorney General has since given advice on the matter. The current position on the
10 (14) 12 (14) 13 (17)
Registration of Property to be 142
Transferred by Government 18 (23) Irregular Payment of Gratuity and allowances -
matter As to whether the investigations by ACC have since been concluded
Registration of Property Transferred - As to whether documents by Government Invoicing of relating to collections for Chichele Lodge Based in South Chichele Lodge have been Luangwa submitted for verification Title Deed of Office Building At the South Luangwa Area Management Unit (S.Luangwa) As to whether the title deeds have since been issued. - The current position on the matter. - The current position on the matter - As to whether the tour operators have started paying - The current position on the matter - As to whether the full Board has since been constituted. - As regards the current position on the matter - As to whether NACL was now current in terms of pension remittances
23 (28) 24 (29) 26 (31-32)
Irregular Procurement of Uniforms for Drug Enforcement Commission Irregular Issue of Title Deeds in Mosi-O-Tunya National Park Trade Debtors (i) Chiawa Game Management Area (ii) Chiawa Community Resource Board Other Irregularities (a) Board of Directors Irregular Payment of Christmas Bonus Outstanding Pension Remittances
38 (51) 42 (48) 43 (59)
Irregular Appointments of General - As to the current position on Managers the matters raised (a) (b) (c) (e). Loss of Shareholding Restructuring Profitability Insurance Brokers Sales of House sub-division No. 1653 of Farm No. 441A Lusaka Road, Roma, Lusaka 143 - As to whether the Government had since settled its Indebtedness. - The current position on the matter. Regarding the current position on the matter
Actuarial valuation Report
As regards the current position on the actuarial deficit of K26.2 billion. As to whether the arrears have since been cleared. The current position on the matters raised (i) (iv)
Pension Contribution 56 (77-81) 60 (86) 61 (87) 62 (88) 63 (89) Operation of Village Industry Service Review of operations Under Banking-Kalongola
- As to whether the queries raised Have since been addressed. Progress on the matter As regards the outcome of the the court case.
Irregular use of Company Funds Failure to follow Tender Procedures Rehabilitation of Lukulu Pontoon Failure to follow tender Procedures Rehabilitation of Kalongola Pontoon Lease of premises Staff Debtors Irregular Award of Salary Unapproved payments of Christmas Bonus Questionable Payments of Allowances Non payment of tax from Gratuity The Managing Director
- Measures taken to address the queries raised. - As regards the current position on the matter -
67 (93) 68 (94) 69 (95) 70 (96) 71 (97) 72 (98)
Current position on the matter in (a, b, c, e and f)
- As to whether the loan has since been recovered - As regards the current position on the matter - The current position on the matter - Whether the matters raised have since been addressed Current position on the matter The current position on the court case involving the Managing Director Latest position on the missing Payment voucher, 9 cancelled
cheques and unsupported and inadequately supported payments. Treasury Minute on the Report of the Public Accounts Committee on the Report of Public Accounts Committee on the Report of the Auditor- General for 2006 Accounts. Para 8 (6) Review of operations As to whether the strategic plan for 2009-2013 has now been done and progress on issues raised in (h) (l) (m) (n) and (q) As to the progress made to address to address the issues raised in (b) (c) (d) (f) and (h). As to the progress made to address the issues raised in (b) (ii) (iii), (c) (d) (f-g) (j) and (k-l).
Para 9 (7)
Para 10 (8)
Food Reserve Agency
Para 11 (9) Para 12 (10) Para 13 (11)
Kafubu Water and Sewerage Company Mukuba Hotel Limited
- As regards the current position on the matters raised. - Progress made to address the issues raised in (a) (b) (c) (e) (f) and (h)
Mulungushi Village Complex - As regards the current position on the matters raised (a-b), c (i-vii)
Para 14 (12) Provincial Health offices, - As to the current position on Hospitals and Districts Health all matters raised (a-k, m, o, r) Management Teams Para 15 (13) Tanzania Zambia Railway Authority Para 16 (14) University Teaching Hospital Para 17 (15) University of Zambia - As regards the latest position on the matters raised (a) - (o) - The current position on issues raised in (b), (c) and (d). As regards the latest position matters raised in (a) (b) (c) (d) (f) (j) (k) (l) (m)
Para 18 (16) ZAFFICO Para 19 (17) Zesco Limited
- As regards the latest position on issues raised in (a) (b) (d) - As to the current position on the issues raised (iv) (v) and all other matters raised. 145
Para 21 (19) Zambia Flying Doctors Service
- As to the latest position on the matters raised in (c) (g)
Para 22 (20) Zambia National Building Society - As to the progress made in resolving the issues raised Para 23 (21) Zambia National Tender Board - Latest position on the matters raised.