- Warns that another ‘Cashgate type’ event likely
It appears they all looked the other way since 2005: former president the late Bingu wa Mutharika, his successor on his demise in 2012 Joyce Banda and—despite all the right noises about public finance and economic management reforms—incumbent President Peter Mutharika too maybe paying a blind eye to the unabated looting largely done through fraudulent procurement processes.
That seems to be the verdict of the forensic auditors of what was initially the K577 billion Cashgate—now reduced to K236 billion—who say are disappointed that government did not curb the grand fraud 11 years after it was noted in 2005.
In its report of a forensic audit of the government of Malawi covering the period January 2009 to December 2014, the auditors—RSM Risk Assurance Services LLP of the United Kingdom (UK)—said the 11-year inaction, especially in procurement mischief, lack of follow ups on red flags and poor cashbook reconciliation increase the risk of another “Cashgate type event”.
“On a more general note, many of the issues set out above and in the following paragraphs, are not dissimilar to those that have occurred in Malawi since 2005. Thus, it is disappointing to find that, whilst some improvements have been made, many weaknesses still exist.
“This, in turn, gives rise to concerns over the proper stewardship of the funds and the associated regularity of the expenditure, irrespective of whether these funds are generated from within Malawi or are provided by the international donor community,” reads the report in part.
While RSM’s audit found that the unaccounted figure is K236 billion—and not the K577 billion that the Pricewaterhouse Coopers (PwC) data analysis report feared was untraceable—the forensic auditors say bid rigging and manipulated procurements are likely to suck taxpayers even drier.
“It also appeared that the suppliers involved in these practices were often not manufacturers nor did they seem, on the evidence available, to be the most suitable businesses to supply the goods or services required. Of even greater concern, perhaps, is that the evidence we have gathered suggests that ‘manipulated procurements’ have taken place as late as December 2015 and are, therefore, likely to be continuing,” says RSM.
The auditors noted that in the 50 businesses selected for review and their connected persons to provide a picture of any network that might bid together various businesses, it was found that seemingly unconnected businesses often appear to be linked in a variety of different ways.
Some of the linkages include business ownership, shared addresses, shared phone numbers, acting as bank references, shared accountants, trustees, shared directors, intercompany transactions, common correspondence and identical invoice format.
RSM has since called for more probing into the businesses whose names the report Weekend Nation has seen does not provide ostensibly for legal reasons, but whose files the Auditor General has forwarded to investigating authorities.
“Further investigation to the businesses will, therefore, be required to confirm whether any specific linkages exist,” advises the report.
The report said the auditors studied the 50 case files of businesses suspected of receiving government funds without supplying legitimate goods, services or works or in doing so using artificially inflated prices.
“To date, NAO [National Audit Office] has issued 166 subpoenas and 31 requests for information for MDAs [Ministries, Departments and Agencies]. A total of 208 bank accounts based in Malawi relating to the 50 suppliers have been identified,” reads the report.
The report also noted subpoenas were issued to all 11 commercial banks operating in Malawi in order to determine how many bank accounts the 50 suppliers held.
It said responses from the banks indicated that the 50 suppliers had at least 208 bank accounts.”
“We, therefore, concluded that several of the businesses identified as part of our sample share ‘common features’ and appeared to be controlled by a small group of family owned businesses [at least five]. These businesses are involved in significant supply to government and in many cases supporting evidence of the procurement process being followed was not available for us to review,” reads the report.
The auditors also noted that two families were linked to at least 16 businesses both in Malawi and overseas.
The auditors also expressed concern that these business groups are sometimes the only ones approached to compete against each other in what prima facie might appear to be open competitive tenders.
“We also found evidence of groups of businesses providing documents that suggest that each company delivered similar goods, for the same period, to the same MDA, valued at K4.6 billion. We consider this is highly unusual,” it said.
Financial Intelligence Unit (FIU)—an institution that was established to curb money laundering which is part of organised crime—said at the current situation it was difficult for the unit to hold institutions accountable on the loss of money in the country.
FIU director Atuweni Juwayeyi Agbermodji in an interview on Thursday noted that FIU does not have powers to investigate, which makes it difficult for organisations to go after the culprits and proceeds of the crimes.
“What we have to understand is that criminals commit crimes for financial benefits and it is difficult to deal with the criminals without dealing with the financial crimes,” she said.
One legal expert who understands organised crime, Jai Banda, said the challenge in Malawi is that State institutions are unwilling to share information because of lack of mutual trust which gives rise to fear of possible leakage of sensitive material to unauthorised persons,” he said.
The initial financier of the K577 billion audit report, the German Government, says it appreciates the work that PwC and RSM have done.
It also commended the present Mutharika administration and the previous Joyce Banda regime for allowing foreign independent auditors to check the books.
German ambassador to Malawi Peter Woeste said on Thursday: “We now know that the misappropriation has been happening over a long period of time. What became known as ‘Cashgate’ was just a small section of it. The procurement area still needs reform and in particular the security related procurements still seem to be problematic.
“The transparency of the Malawian government to open their books is remarkable and unique in Africa. I believe in the will of this government to allow zero tolerance in the fight against corruption.”
Another senior diplomat, who opted not to be mentioned, told Weekend Nation that comparing the current RSM report and the trends of the Pricewaterhouse Coopers (PwC) audit Analytical Report, he has noted that the figures went down in the beginning of the Joyce Banda reign as the “bad guys” first wanted to learn how the new rulers work.
Minister of Finance, Economic Planning and Development Goodall Gondwe commenting on the K577 billion audit report said the cases that were highlighted in the report were mostly about reconciliation on government payment and that only signified inefficiency in government.