The forensic audit conducted by RSM Risk Assurance LLP of the UK covering 2009 to 2014 has revealed that there has been bid rigging linked to businesses owned by at least five families.
The summary of the audit report, which Weekend Nation has seen, however, says the K577 billion that is regularly quoted as unaccounted for is incorrect and has reduced the un-reconciled amount to K236 billion.
Says the report in its Executive Summary: “It is likely that the remaining unreconciled amount could be reduced further if additional analysis were to be taken.”
The audit reveals that K83.5 billion was paid to 44 of the businesses which were selected as part of the sample of 50 businesses which matched to the bank transactions.
The report says to date, 13 businesses and K17.08 billion have been subject to review and that of these 13 cases alone have allowed the audit to identify at least $19.6 million in possible savings and recoverable costs.
These are $14.2 million in overpayments for goods and services; one duplicate payment of $5.45 million which the report says should be subject to immediate recovery; and $29 166 overpayment on shipping to wrong locations.
The audit has also identified forex transactions which exist that are not present in the data included in the Analytical Report suggesting that further accounts exist which have not been included in the analysis.
The forensic audit also concludes that there is evidence to suggest that a number of cartels are winning contracts through restricted tender and single source procurements sometimes to supply quantities that do not reflect the actual needs of the MDAs.
Says the report: “These groups of suppliers are owned by the same individuals with the majority of trade being inter-company implying that limited actual trade exists.”
The report also says analysis of suppliers’ accounts suggests that there is limited trading activity with a high number of transactions being inter-company loans and repayments between group businesses.
“This suggests ‘layering’ a method sometimes used to hinder or prevent investigations in accurately tracing the source or destination of transactions and flow of funds,” says the report.
It reports that the use of bank cheques to move funds between related suppliers could be seen as an attempt to deliberately conceal the audit trail.
“Of even more concern is that we have gathered evidence which suggests that manipulated procurements have taken place as late as December 2015 and are therefore likely to be continuing,” says the report.
The report recommends urgent further detailed work on at least five families based on the cases it has completed. More details of these businesses have been provided to authorities separately.
Bid splitting in Police
The report also says it has found evidence of bid splitting in Malawi Police Service where contracts were awarded to businesses controlled by one individual.
Says the report: “One family group, for example, has invoiced for 240 015 PRS Fatigue Dresses within a one-month period meaning that approximately 14 PRS Fatigues for every police officer serving at a time.”
The audit firm says it has also found evidence which shows this group of businesses providing documentation that shows that each company delivered similar goods for the same period to the same MDA to the value of K4.6 billion while another payment has been paid.
“Similarly, one payment of $5.4 million has been made twice to one company based overseas. The payments are one year apart and use the same documents to facilitate payment.”
Goods and services overpriced
It says overpricing of goods and services is prevalent with one instance where tear-gas and rubber bullets cases are procured at almost seven times the recommended retail price.
‘‘Commercial benchmarking suggested here that the overpricing amounted to $13.6 million [about K9 billion at current exchange rates] loss to the government,” says the report.
These items are also procured from a business which is not listed as an Organisation for the Prohibition of Chemical Weapons.
“No export approval certificates have been provided. Similarly, the MDF has been contracted for the refurbishment of more vehicles than it owns.”
The audit report says at the time of issuing this report, the audit firm also traced companies using overseas partners in Hong Kong and the United Arab Emirates (UAE) and noted in more than one case that the beneficial ownership of these companies could be traced to businesses or persons based in the Panama Papers.
“These companies and their Malawian partners were awarded and paid for multi-million dollar contracts sometimes with limited evidence of legal contracts in place. … One supplier to government referred to in the Panama Papers has an address that matches this business with the offices of Mossack Fonseca in the British Virgin Island.”
The Panama Papers are 11.5 million leaked documents that detail financial and attorney-client information for more than 214 488 offshore entities.
The leaked documents were created by Panamanian law firm and corporate service provider Mossack Fonseca some date back to the 1970s.
The leaked documents illustrate how wealthy individuals and public officials are able to keep personal financial information private.
While offshore business entities are often not illegal, reporters found that some of the Mossack Fonseca shell corporations were used for illegal purposes, including fraud, kleptocracy, tax evasion, and evading international sanctions.
National Audit Office spokesperson Godfrey Kagwamminga refused to share with us the 50 most frequent government suppliers fearing that doing so would jeopardise the investigations by both NAO and the investigating agencies.
In their first evaluation of the audit report, the group of donors supporting the investigation who included the European Union, UK, Ireland, Norway and Germany said in a response to our inquiry that the final audit work in the K577 billion Cashgate identified lack of integrity in the procurement processes as a key concern.
Said the donors: “This is one of the results that became obvious thanks to the findings of the second phase of the forensic audit.”
The forensic audit of the financial years 2009-2014 was carried out in two phases. In a first phase, PwC on behalf of the National Audit Office of Malawi checked whether the statements from government bank accounts matched with entries in Ifmis.
The analysis showed that 43 percent of payments reflected in the government bank statements were not accounted for in Ifmis, according to sources.
The Auditor General’s report on the Cashbook Reconstruction was submitted to Parliament in June 2015. But Parliament’s Public Accounts Committee of Parliament did not scrutinise it to make recommendations to the whole House.
Kagwamminga told Weekend Nation on Thursday that in accordance with the Public Audit Act, the audit report by RSM Risk Assurance LLP has also been submitted to Parliament and shall be referred to Public Accounts Committee for further scrutiny.
“It will be referred to Public Accounts Committee because it is ensuing from the previously reported Reconstruction of Cash Book, and the work is on-going,” he said.
On Thursday Speaker of Parliament Richard Msowoya blocked requests from some members of Parliament who demanded the status of the K577 billion following media reports last week that some cabinet ministers are implicated in the mismanagement of the funds.
The shooting of former Ministry of Finance budget director Paul Mphwiyo outside the gate of his Area 43 residence in Lilongwe on September 13 2013 is widely believed to have led to revelations of Cashgate.
Former president Joyce Banda ordered an audit which British audit firm Baker Tilly undertook covering the period between April and September 2013. It established that K24 billion was siphoned from public coffers through dubious payments, inflated invoices and goods or services never rendered.
Owing to Cashgate the country’s development partners withdrew their assistance until Malawi improved its public finance management. n