The Malawi Police Service (MPS) is caught in a K567 million interest payout controversy involving food supplier Pioneer Investments, Weekend Nation has learnt.
While Pioneer received K2.3 billion for 500 000 units of food rations it supplied to MPS, the company is now claiming K567 million in interest for what it says was late payment from January 1 2016 to June 30 2017.
But the National Audit Office (NAO)—which initially authorised Treasury to pay the interest—has since said the money should not be released as it has unearthed anomalies, including that part of the money was paid in advance of supplies.
On the other hand, the MPS—which initially contested the interest claim—has changed tune and now wants Treasury to pay.
At first, both the Auditor General and the Attorney General certified the demand for payment of the claim, according to a memo from the Auditor General dated August 22 2017, titled ‘Verification of government arrears owed through Malawi Police Services: K567 866 013.40.’
According to the contract, which Weekend Nation has seen, the agreement was for K2.3 billion to deliver food rations within 20 weeks starting from the day the contract was signed.
The contract, which was for supply of corned beef, energy biscuits, energy juice and pilchards, has no specific interest clause.
The Auditor General Stephenson Kamphasa’s memo, which we have seen, says he initially authorised payment after verifying the contract agreements, invoices, payment vouchers, delivery notes and supporting documents, inspected delivered goods and interviewed MPS officers.
But he notes in the memo: “Further examination of the contract between Pioneer Investments and Malawi Police Service showed that there were no provisions for interest for delayed payments in the contracts, but only provided for payment to be made within 30 days after production of an invoice.
“However, based on advice from the Attorney General’s office through letters Ref. No. MJCA/AG/181 dated 24 March 2017 and Ref. No MJCA/AG/031 dated 27 April 2017, [NAO] was advised that the fact that there is a stipulated payment period within the contract implies that any late payment will attract interest.”
The letters were signed by an officer on behalf of the Attorney General.
To illustrate its point, the Attorney General’s office furnished the Auditor General with a letter from the Auditor General’s office, titled ‘Request for Interpretation on Applicable Rate of Interest in Terms of a Contract between the Roads Authority and Fargo Limited which had similar clauses.
Both Kamphasa and NAO spokesperson Rabson Kagwam’minga confirmed in separate e-mailed responses that the Auditor General reversed the payment certification and is again now investigating the claim of payment.
Said Kamphasa: “We are talking about accruing overdue interest at the time of computing interest. It was later discovered there was an error submitted by Pioneer Investments which came through Treasury that some of these invoices were not supposed to have attracted accrued interest since they were paid in advance. After noting this anomaly, I had to withdraw the certificate and it remains withdrawn until today. Investigations are still ongoing as to how these were included and by who.”
“Even if I certify a transaction and it looks suspicious, there is a clear instruction it should not be [paid] immediately,” he added.
Kagwam’minga, in a separate e-mail, said there was nothing unusual in the withdrawal of the interest payment.
“The certificate in respect of the claim in question was withdrawn when notice of an anomaly in the transaction was taken. Treasury has, therefore, not honoured the claim pending further investigation into the matter.”
He also said this is not the first time his office has withdrawn a certificate upon discovery of some issues which cast doubt over the legality or genuineness of the claimed transactions.
Finance Minister Goodall Gondwe also confirmed in an interview that after being asked to audit the interest payment query by Pioneer Investments, NAO first approved it.
“That’s correct; the Auditor General first said ‘pay,’ and now they are saying ‘don’t pay’. We wrote the National Audit Office, after they said ‘pay them the interest,’ because—in our records—this company was paid in time and in full,” he said.
But both former attorney general Kalekeni Kaphale and his successor Charles Mhango, separately disowned providing advice on the matter.
“I have not provided any legal opinion on the matter, it’s possible an officer from the Attorney General’s office provided such advice because as Attorney General, I cannot be aware of all matters we handle,” said Mhango.
Kaphale, on the other hand, recalled payments to Pioneer Investments which his office inherited from his predecessors but he said he was not aware of the current claim of interest.
“I only recall that in early days, as AG, some guys from abroad collected coupons for Pioneer from my office and I made them sign release and discharge forms. This was a post audit payment, so I never saw the contract itself. I also never dealt with any guarantee to a bank issued by a government department in favour of a supplier,” said Kadadzera.
Police say don’t pay
When Weekend Nation launched investigation into the claim by Pioneer Investments, Deputy Inspector General of Police Duncan Mwapasa said the organisation had advised Treasury not to pay the claim.
He also insisted that there was “no clause about paying the supplier interest if we delay to pay the sum”.
But Weekend Nation has seen a letter signed by the Inspector General (IG) of Police, contradicting this position, addressed to Pioneer Investments and copied to Auditor General, Secretary to the Treasury and Attorney General.
In the letter, dated August 7 2017, IG Lexten Kachama assures the supplier that MPS has gone through calculations of the interest and the sum claimed is correct.
“We have gone through the calculations and verify them to be correct based on bank interest rate calculated at reducing balance taking into consideration delivery of goods and date of payment,” reads part of the letter.
Pioneer managing director Zamir Karim, in an interview, insisted the demand for payment of interest was legitimate and accused police of a breach of contract.