Malawi donors lose confidence in Audit Office

Some of Malawi’s donors are losing confidence in the National Audit Office (NAO)—an organ mandated to check abuse of public resources—because of flaws in the way the office manages its finances.

First, it was the Norwegian Embassy and now it is the United Kingdom’s (UK) Department for International Development (DfID).

A recent external audit by Deloitte at NAO has pitted the country’s public resources defender against the UK aid agency, threatening the credibility of the country’s supreme auditing body and jeopardising local councils’ audits that DfID was financing.

DfID wants NAO to refund K79 million (about 60 percent of the total funding) discovered in Deloitte’s audit of the institution as “misused” funds from a DfID-funded Capacity Building Programme for the period covering January 1, 2011 and October 31, 2011.

The grant, to the tune of £520 000 (about K133 million at the January 2011 exchange rate; K240 million at present exchange rate), was meant to help NAO clear audits of local councils for financial years 2008/09 and 2009/10.

The alleged mismanagement forced head of DfID in Malawi Sarah Sanyahumbi to write Auditor General Reckford Kampanje a strongly-worded letter last month, warning that DfID will not fund NAO again until specific audit queries are resolved.

“We have now received the final report from Deloitte. It is very disappointing. There have been clear breaches of the agreement between us and blatant misuse of UK taxpayers’ money.

“I am left with no option but to request that your office reimburses us in full all amounts misused or for which the office has been unable to account. This amounts to K79 287 102….

“It is highly regrettable that NAO finds itself in this position. Until this matter has been resolved and the appropriate action has been taken, it will not be possible for the UK to provide further support to NAO, directly or indirectly,” said DfID’s Sanyahumbi in her letter dated June 26 2012.

Kampanje has not replied to Sanyahumbi, but has sent his explanation to the Office of the President and Cabinet (OPC), according to NAO corporate communications officer Thomas Chafunya.

“OPC is the authority line. We replied to OPC in detail of what had happened. I believe OPC would explain better,” he said.

Our investigations have revealed that the two parties, DfID and NAO, never sat down to hear from each other as is normally the case in audits.

However, Sanyahumbi is clearly unhappy as evidenced by her letter to Kampanje copied to Finance Minister Ken Lipenga, the Public Accounts Committee (PAC) of Parliament, Norwegian Ambassador Asbjoun Eidhammer, World Bank country director Sandra Bloemenkamp and European Union (EU) Ambassador Alexander Baum, possibly in an effort to share the reported audit irregularities at NAO.

According to the Deloitte audit, NAO lapsed in nine areas which include:-

• It paid about K5.8 million in allowances to non-deserving staff.
• In some cases, the office used wrong rates in paying allowances which consumed K56.6 million more than planned.
• It used K1.3 million on fuel without back-up receipts.
• About K1.5 million allowances were paid without signatures of recipients.
• Other officers, says the audit, got allowances for more days than worked for, which resulted in NAO spending K4.7 million extra.
• NAO paid about K6.6 million in accommodation allowances to staff working within their base in Lilongwe.
• NAO paid K1.4 million in allowances and facilitation fees for staff to write a report on the DfID funding.
• NAO used K106 280 on non-programme activities, while K867 500 was spent without supporting documentation.

The Ministry of Finance this week said it is aware of effects the disagreements may bring, but hopes an understanding would soon be reached to resume the funding and enable NAO start auditing local councils for financial year 2010/11.

Secretary to the Treasury (ST) Radson Mwadiwa acknowledged in an interview on Wednesday that any delays in the process may result in another backlog of unaudited books at local councils.

“Government is aware of the matter and it is being handled by OPC. All we pray [for] is that this issue be resolved soon,” said Mwadiwa.

But he thinks some of the alleged misuse “is just a matter of opinion.”

“Government will also need to hear from the Auditor General,” he said. There is need for a round table where DfID and NAO will discuss the matter amicably, said the ST.

Two weeks ago, DfID did not want to discuss the issue in detail when The Nation sought its position on the matter.

“Please note that the official policy of the UK Government is not to comment on unofficial/leaked documents,” said Andrew Massa, DfID programme manager.

In an e-mailed response this week, Chafunya acknowledged there are cases where officers got allowances for more days in workshops that ended earlier than scheduled.

He said: “Allowances were paid to staff members who attended the workshop, only that there was a situation where a workshop was completed a day earlier than planned after officers had already received the allowances because some facilitators to the workshop did not turn up as they had other engagements in their ministries and institutions.”

But Chafunya said “the auditors were not correct to state that NAO used incorrect rates in paying allowances to its staff, but rather NAO used government prevailing rates.”

“The basis for the preparation of the budget for the audits of local councils which was submitted to DfID was a Circular Ref No. HRMD/ALL/01 dated 24th July 2007, which states that an officer will be paid K3 750 plus the amount for hotel accommodation so that he/she pays for accommodation on his/her own. The project task force, which was formed to implement the project, discussed with officers from DfID in a meeting where an agreement was reached to use the above circular,” he said.

The said understanding was “reached after considering that DfID uses a flat rate of K21 000 for every member of staff involved in an assignment.”

“If the flat rate of K21 000 was used by the National Audit Office, then the funds that were provided would not have been adequate. You may also wish to note that the office adjusted the allowances downwards below the current government rates as provided in a circular no 15/15/1 dated 25th March 2011, when it was discovered that the funding was not adequate to cover the whole assignment. So, the budget that was submitted to DfID was based on this circular in so far as allowances were concerned,” wrote Chafunya.

The Nation also understands that in the course of auditing the 40 councils, NAO ended up spending the whole grant half way into the project.

This forced NAO to borrow some K25 million from the Norwegian-funded Institutional Development Programme without seeking prior approval from both DfID and the Norwegian Embassy.

Chafunya defended the move, arguing it was meant to save a situation.

“The decision to borrow funds amounting to K25.1 million from the Norwegian-funded programme was reached after the office had run out of DfID funds half-way through the audit of the local councils while the auditors were in the field due to complexity of the audits and some challenges met in course of the audit which required more days than planned. At that juncture, withdrawing the auditors would have led to the flopping of the whole audit programme,” he said.

Chafunya rejected assertions that the shortfall may have been created by the abuses noted by the auditors such as the use of incorrect rates in paying allowances.

You may wish to note that the audit was targeting 40 councils throughout the country as most of them had not been audited for a long period and as such there was need to do a thorough job; hence, more days than planned,” he said.

The UK’s suspension of support to NAO is a concern to stakeholders who benefited from the audits at local councils, including the National Local Government Finance Committee (NLGFC).

NLGFC executive secretary Wezi Mjojo said most district councils started putting their books in order following recent audits.

“If DCs discover that there won’t be another audit soon, they may relax. The danger of auditing councils after three years is that issues discovered cannot be easily addressed because some DCs may have moved,” she said.

The DfID suspension of NAO support comes at a time the Norwegians also recently withheld their aid over alleged abuse.

A Deloitte audit into the Norwegian funding also discovered abuses similar to those in the DfID audit such as NAO paying allowances to staff who were not involved in the actual auditing of local councils.

The audit findings have since triggered the Auditor General into action, putting up measures to close loopholes in NAO’s financial procedures.

In a four-paged circular reference number AUD/5/6 dated June 21 2012 to all NAO employees, Kampanje acknowledges lapses in NAO’s financial procedures.

“I am very much concerned and disheartened with the anomalies that have been brought to my attention involving prevailing practices in financial management…,” said Kampanje in his memorandum.

Measures

Among other measures, he has directed that allocation of funds to activities and procurement at NAO “should be handled by the Funding Allocation Committee (FAC).”

Says the AG: “I have been made to understand that the task of allocating funds to activities has been single-handedly handled by accounts staff without involving other sections. This has posed a challenge in that there has been no check and balances.”

Kampanje has also centralised the authorisation of any payment made from NAO following loopholes in the former system

“It has been observed that some officers are taking advantage of the multiplicity of the payment authorising points and are indulging in certain malpractices. In order to strengthen the current financial management systems, it is essential that there be one focal point,” reads Kampanje’s circular in part.

‘Necessary evil’

In an interview Tuesday, Chafunya acknowledged that his boss’s reaction is partly a result of findings from the DfID audit.

“We are looking at the DfID audit as a necessary evil. We have already tightened up our financial management systems,” he said.

NAO is currently working towards autonomy which will see them report directly to Parliament as opposed to the current system where the office operates under the Finance Ministry.