Malawi Government and Standard Bank (Malawi) are tussling over K287 million (about $956 666) Capital Hill says the bank overclaimed between 2002 and 2004 as transfers to government departments on Treasuryâ€™s behalf.
Treasury now wants that money back whereas Standard Bank contends it cannot refund the alleged taxpayersâ€™ funds because there is no proof the cash belongs to Capital Hill.
These duelling positions have led to a gridlock the two parties hope a special task force, now in place, could resolve.
The Ministry of Finance confirmed the disagreements over the money on Monday this week, but said the task force has produced a report giving direction on the issue, which government is considering at the moment.
Genesis of the fight
The genesis of the fight, according to documents we have seen, is what is known as Credit Ceiling Authority (CCA) funding procedures government introduced in 2000 to control expenditure.
Under the CCA funding system, government, through the Accountant General (AG), issues spending limits to departmental accounts in various commercial banks.
The spending limits are communicated to RBM and commercial banks. Government ministries and departments are then allowed to draw funds from the accounts up to the set limits.
Commercial banks calculate funds drawn and submit reimbursement claims to government through the Reserve Bank of Malawi (RBM).
Government thinks Standard Bank erroneously claimed more than it should have between 2002 and 2004.
We have established that the RBM has been hosting round-table meetings where both Standard Bank and Treasury were represented to find an amicable solution to the matter.
We have seen minutes of one such meeting that the then RBM acting general manager Dr Grant Kabango chaired on December 28 2010. We have also seen a report of a follow up meeting on the same on March 15 2011 chaired by former RBM Governor Dr. Perks Ligoya.
Minutes of the December 2010 meeting show that having put the K287 million in a suspense account from 2003, Standard Bank later sent the money to its profit and loss account in 2007, which may mean that the bank was using the funds as part of its working capital.
â€œFor the period 2002 to 2004, reconciliation of claims between Standard Bank, Accountant General and RBM were in disarray. There were suggestions that Standard Bank had overclaimed on reimbursements. Government still have doubts on claims made and paid to Standard Bank for the period in question,â€ reads the December 2010 minutes in part.
But Standard Bank, according to the minutes, argued during the December meeting that the K287 million was part of a K1.093 billion reimbursement claim received from government through RBM â€œfor spending transactions for the period 2002 to 2004.â€
But during the March 2011 meeting, RBM seemed to back Treasury that the K287 million belonged to the taxpayer.
â€œRBM presented information supporting governmentâ€™s position on the claim and further indicated that the K287 million claim was not part of the K1.1 billion claimed and paid to Standard Bank in 2006,â€ reads the report of the meeting in part.
Standard Bankâ€™s external auditors, KPMG, had noted the discrepancy, according to the minutes.
The minutes also quote Kabango as insisting that Standard Bank should respond to the governorâ€™s letter and also furnish the central bank with the audit report for quick resolution of the matter and also for Standard Bank to be taken seriously.
A report of the March 15 2011 meeting chaired by Ligoya also faulted Standard Bankâ€™s position on the matter, arguing their own records showed that the K287 million belonged to government.
â€œA report prepared by the Standard Bank CCA Unit in October 2005 concluded reconciliation of the suspense accounts resulted in positive balance. This was an indication that Standard Bank overclaimed on reimbursements and received through RBM. The report also recommended that Standard Bank should repay the K287 million to RBM because it was an over-claim. RBM tendered the report as evidence supporting governmentâ€™s position,â€ says the report.
Error points to manual system
According to information available, the error may have been a result of a manual system which was being used in the initial stages of the CCA system.
â€œDuring the early stages, the system was mostly manual and it faced numerous challenges. Commercial banks were required to fax claims to RBM before 16:00 hours for same day reimbursement,â€ reads a report of the January meeting.
According to official information, details provided on claim forms â€œwere basically a lump sum figure, account number, test key and signatures for two authorised signatories.â€
â€œItems constituting the claim lump sum were sent to the individual account holders at various government ministries, departments or institutions,â€ reads the December report.
It adds: â€œReimbursements were made mostly on trust that commercial banks were submitting genuine reimbursement claims that were backed by itemised list sent to individual account holders.â€
We have it on good authority that at some point during the past two years, the RBMâ€”in an effort to bend Standard Bankâ€”deducted the K287 million from the bankâ€™s Liquidity Reserve Requirement (LRR) which is kept at the central bank.
The expectation was that Standard Bank would then be forced to recapitalise its LRR as it would be below the required levels, according to corroborated interviews with sources at Treasury, RBM and the banking industry.
However, Standard Bank protested, saying it would be unfair for RBM to expect it to raise such money to replenish the liquidity reserves. Government backed down after legal advice and returned the money to Standard Bankâ€™s LRR.
A Memorandum of Understanding (MoU) between banks and government in the management of CCA accounts allows RBM to seize funds from banks deemed to have overclaimed payments.
The banksâ€™ obligation number 10 in the MoU reads: â€œIn the event that it is discovered that [name of the bank] overclaims, RBM shall recover the overclaimed amount and interest thereof immediately from [the bankâ€™s] main account with RBM. The interest shall be charged at the ruling bank rate.â€
Conversely, government, acting through RBM, would pay penalties if it failed to pay within agreed time frames.
â€œFor its part, the government, acting through RBM, agrees to: â€¦..Pay interest charges on overdraft arising from failure by RBM to reimburse [the bank] on the same day. The interest charges shall only be payable if claims are submitted to RBM before 4pm [through a dedicated fax line] and are not honoured on the same day.â€
Asked for an update of the talks, RBM spokesperson Ralph Tseka acknowledged in an interview last Wednesday that the matter has dragged, but said â€œthe RBMâ€™s role is that of a facilitator in the matter.â€
â€œThe issue is between Treasury and Standard Bank, but what we know is that Standard Bank has put the money in a suspense account [where unclaimed funds or money from dormant accounts are kept],â€ said Tseka.
In a written response to a questionnaire, newly appointed spokesperson for the Ministry of Finance, Nations Msowoya, said throughout the meetings facilitated by RBM, Standard Bank â€œassured government that it will respect any verdict that will be reached at the end of this matter.â€
Currently, the task force mandated to find a lasting solution has finalised its report of an investigation into the matter, according to Msowoya.
â€œThe government constituted a task force to investigate the matter. The task force has now come up with a report which the government will be considering,â€ said Msowoya.
Responding to a question on whether government would consider interests on top of the K287 million, Msowoya said they will discuss with the bank terms and conditions.
â€œIf indeed it will be established that Standard Bank overclaimed funds from the Treasury under the CCA, the government will definitely discuss with Standard Bank, terms and conditions of the refund,â€ he said in an e-mail response,â€ he said.
Given the dire straits of the countryâ€™s public purse, the money under contentionâ€”if proven that it belongs to governmentâ€”could help government fund some government programmes, especially if the refund takes into account the principle of the time value of money.Â