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Escom in money scam

  • K1.3bn in deals mostly without contracts, LPOs—Report
  • Procurements ignored IPC, ODPP

An internal audit at Escom has uncovered a multi-billion kwacha heist of Cashgate form from the parastatal, Weekend Nation reveals.

Some materials at Escom were procured without LPOs
Some materials at Escom were procured without LPOs

Suspected misprocurement, overpayments and alleged fraud are milking dry Electricity Supply Corporation of Malawi (Escom), according to the corporation’s internal audit report for the period between January and June 2016, which we have seen.

Of all the financial malfeasance that the audit report has unearthed, misprocurement is the biggest source of loss in what appears to be a free-for-all dishing out of contracts that rip out legal and regulatory instruments for Malawi’s public procurement.

In most cases, explains the report, no local purchase orders (LPO) or contracts were raised/signed for the procurements.

Consequently, says the July 2016 audit report, materials worth over K1.3 billion were misprocured.

Furthermore, the procurements did not go through both Escom’s Internal Procurement Committee (IPC) and the Office of the Director of Public Procurement (ODPP).

In some instances, Escom—notorious for constant power cuts and tariff hikes—sought ODPP’s approval well after the materials were procured and used.

Even where the ODPP had approved a certain procurement method and suppliers, the corporation would proceed to use a different method altogether, especially single-sourcing to pick their supplier, according to the audit findings.

For example, noted the report, the ODPP approved the procurement of 63A MCBs [circuit breakers] using restricted tendering and approved the list of shortlisted suppliers accordingly.

But contrary to the approved method, Escom decided to use single-sourcing method to procure the MCBs from Multistar International at K746.2 million ($995 000).

“The corporation later sought ODPP approval to ratify the method used when the MCBs were already delivered and used,” reads the report.

In the report, it was also noted that the corporation has been overpaying some suppliers.

While the overpayments might be due to delays in carrying out supplier statement reconciliations before effecting payments, the report said the overpayments could mean fraud as payments may be made for goods or services that were not received.

ODPP faults Escom

Early this week, ODPP confirmed that what Escom has done is misprocurement.

In a written response to a questionnaire on Tuesday, ODPP spokesperson Mary Mbekeani said the amount of money involved—K1.3 billion—was above Escom’s threshold and the corporation was required to seek a ‘No Objection’ from ODPP.

Mbekeani said every procuring entity (PE) is given a procurement threshold within a specified amount of money, to procure goods, services or works, without seeking prior approval or a ‘No Objection’ from the ODPP, but in this case the amount is way above threshold.

She said: “This office [ODPP], therefore, regards Escom’s case as a misprocurement.”

But Mbekeani said there is nothing that ODPP can do about this as its hands “as an office are tied” because the current Public Procurement Act does not give it powers to deal with errant PEs.”

Instead, she said, the ODPP can only refer such errant PEs to other government agencies such as the Anti-Corruption Bureau (ACB) or the Auditor General (AG) for their action.

 

Discrepancies

Apart from misprocurements and overpayments, the audit also found discrepancies in stocks, saying there were significant differences between physical stocks counted and those used on valuation stocks.

“This was because some stocks were not captured in the system due to lack of documents. Physical balance of materials should agree with the book balances. From the sample of materials tested, 83 percent of the materials did not agree with their physical balances,” reads the report.

It adds that there was a failure to update transformer movements, saying transformers that were moved or replaced were not reflected in the fixed assets register.

“The fixed assets register does not, therefore, reflect correct records on such transformers,” the report says.

The report also notes that in Blantyre, materials worth about K13 million were not recorded in the materials register.

It explains that a review of material registers belonging to Blantyre distribution maintenance disclosed that 74 percent of sampled materials (54 out of 73) drawn under Blantyre maintenance cost code worth K13 million were not recorded in the materials registers when they were drawn from stores.

“Further substantive tests on the sampled 15 weekly reports revealed that 86 percent [13 out of 15] of sample had their materials used declared in the reports, but not recorded in the material registers.

 

Another red flag

Another red flag the report raised was about some clandestine activities at the Escom Mzuzu office where six cheques were raised by, paid to, and collected by the same employee—a  messenger—on behalf of other officers, saying: “This may perpetrate fraud.”

The report also noted that some Escom officers were splitting payment to suppliers in order to circumvent controls.

“Fifteen tested payees Escom officials were splitting cheques payable to the same payees, on same services that the 15 tested payees had their cheques totaling above K500 000 for each payee split into two or more cheques.

Splitting of the cheques was meant to circumvent controls which require that payments above K500 000 be referred to Head Office for payment,” reads the report.

Escom board chairperson Jean Mathanga said she could not comment on the audit findings because she has not yet seen the report.

 

Escom responds

In its response to our questionnaire Escom management said  yesterday it is aware that there were urgent procurements of critical materials for migrating customers on post-paid meters to prepaid meters and connecting new customers due to high demand while waiting for the delivery of bulk supplies which were already on order.

“All procurements for the 2015/16 Financial Year were done within the Procurement Plan and the items referred to herein only constituted around 2% of the provisions in the Procurement Plan,” said the corporation in a response to the audit query that some procurements were done outside the approved procurement plan.”

On the procurement of 63A MCB’s, Escom said the gadgets were for both the meter migration project and for connecting new customers while the Corporation waited for bulk deliveries from overseas. It said  the single source procurement was approved by ODPP as an emergency and was the required number of the MCBs to meet the target for the quarter April to June 2016. It said the bulk of the requirements to complete the project are still being procured using restricted tendering as approved by the ODPP.

On materials issued without being documented in Stores, Escom denied there  was  such a case.

The coproration also said there is no political interference at the institution on procurement.

On materials worth K13 million not recorded in materials register Escom said the recording of assets in a register is an-ongoing exercise to reflect maintenance works already executed.

It said the audit report has only been submitted by the Internal Auditor and appropriate action is being taken to address the Auditor’s findings.

“The Corporation follows the Public Procurement Act in the execution of its procurements.There are no misprocurements in Escom. Electricity tariffs are approved by the Malawi Energy Regulatory Authority (Mera) following a rigorous laid down process which includes public hearings. Thereafter, any increases in tariff are also determined by Mera and are subject to economic fundamentals. Escom has no mandate at all to adjust tariffs.”  n

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