A national Audit Office (NAO) report has exposed weaknesses in financial controls and operations at the Agricultural Development and Marketing Corporation (Admarc), including lack of evidence for purchases amounting to K3 billion.
The audit of Admarc financial statements for the financial year ending June 30 2018 was done by Deloitte on behalf of the Auditor General (AG) in line with Section 10 of the Public Audit Act number six of 2003.
It is part of the report on results of the audit of accounts of selected statutory bodies for the same period which the AG Thomas Makiwa has submitted for tabling in the National Assembly.
Corporate governance expert James Kamwachale Khomba has since cautioned that unless the country addresses leadership and socio-cultural challenges, corporate governance will remain a deep-rooted problem in public entities, including Admarc.
He said: “These two elements dictate how companies are organised or governed. If we are to improve on these two issues, then corporate government challenges facing these public companies will automatically fall out. Public entities, like all other companies, need leaders who have entrepreneurial skills and who can handle or steer the companies realistically which is lacking at the moment.”
Among other things, NAO in the report faults Admarc for entering into contracts with farmers without specific recovery period, failure to prepare bank reconciliations, non-compliance with procurement procedures, omitting bank accounts in the general ledger, non remittances of pension contributions as well as non remittance of pay as you earn (Paye), fringe benefit tax as well as withholding tax.
In an interview yesterday, Admarc acting chief executive officer Felix Jumbe acknowledged the challenges, but said the parastatal is currently rebuilding and has resolved some of the issues.
Admarc, through its vast network of markets nationwide, buys agricultural produce from both traders and smallholder farmers, among others.
However, the audit report reveals that the entity does not prepare bank reconciliations on a regular basis, despite the best practice requiring the parastatals’ bank reconciliations to be prepared on a monthly basis at a minimum.
Reads the report: “The entity could not provide us with bank reconciliations for the months of July 2017 to May 2018 for several bank accounts held at different banks. It appears that in the entire year ended 30 June 2018, the entity only prepared bank reconciliations for the month of June 2018 for external audit purposes.”
On non-remittance of pension contribution, the report notes with concern that as at June 30 2018, the company had accumulated outstanding pension contributions not yet remitted for several months of K1.1 billion, adding that the entity remitted late pension contributions for the months of October 2017, May and June 2018, contrary to the requirements of the Pensions Act.
According to Section 61, subsection one of the Pension Act 2010, an employer is required to remit pension contributions not later than 14 days of the end of the month to which the contribution relates, failing which the employer may face administrative penalties under the Financial Services Act 2010.
The report further reveals that two bank accounts owned by Admarc were not recorded in the general ledger as at 30 June 2018. The bparastatal owns FDH Bank account number 1070000017258 which had K59 666.40 and Ecobank savings account which had $2 263.29.
“We only came to know about the bank accounts through bank balances confirmation letters which we received for audit purposes from the banks where the accounts are being held,” reads part of the report.
During the audit, the AG’s office also noted Admarc did not comply with procurement procedures, citing the purchase of Hessia Cloth from Jordan Investments amounting to K12.8 million on 22 September 2017 without engaging the Public Procurement and Disposal of Assets Authority (PPDA) nor conducting a national competitive bidding process.
In turn, the report says Admarc just obtained three quotations from suppliers and approved Jordan Investment based on their assessment.
Admarc also entered into contracts where farmers as the other party to the contract were getting bean seeds from the parastatal which, in return, the farmers were obliged to sell their produce to Admarc, but the contracts were devoid of specifications as to when the entity will recover its funds committed under the contract.
The AG fears that failure to specify timelines may increase chances of default by farmers, adding that it is hard for Admarc to measure progress within the contract performance obligations.
Further, the report has faulted Admarc for its unrealistic rate of recovery for employee salary advances, warning that the parastatal runs a risk of not recovering the money in full since the repayment period is too long and records may not be traceable over time.
In his audit opinion on Admarc financial performance, Makiwa categorises Admarc as a high risk parastatal which needs immediate review and enhancement.
He says: “I, therefore, recommend that a forensic audit of the high risk areas be conducted as soon as possible. Additionally, government should review the current business model of giving Admarc a status of a commercial parastatal and still providing subsidy services.
“The governance arrangement, roles of top management and their performance should be assessed, especially for the period under review or before to ascertain their contribution to the going concern problems that Admarc is facing today.”
But while acknowledging the loopholes raised in the report, Jumbe said the parastatal has addressed most of the issues.
He said: “When I came in, we started responding to those audit queries and we were also called by the parliamentary committee in the same month. We had sorted them out in terms of explaining before being cleared by the Auditor General.
“Once you have a query, you provide the evidence of having resolved that query. Most of the queries were cleared and I think we have a few outstanding issues and one of the issues is about those who bought maize and were paid but they never supplied the quantities according to the payment. That issue is still being pursued.”
Jumbe also said another outstanding issue is the money that was “borrowed out” by a past chief executive officer, saying that payment is still coming through. He did not mention the officer.
He added: “Those were the main queries that we were remaining with. Otherwise, the rest are system issues which we are re-enforcing so that we work according to procedure.”
This report earmarked nine statutory bodies, representing coverage of approximately 15 percent of all statutory bodies and combined, the entities had operating expenses of K203.4 billion in 2018 against K79.2 billion in 2017, representing an increase of 203.4 percent.
Admarc is a statutory entity established under Statutory Corporation Chapter 67:03 of the Laws of Malawi and is currently incorporated as a limited liability company, with Government being a major shareholder with up to 99 percent shares.