NAO refunds misused K120m to donors

Malawians, half of whom live in extreme poverty under a dollar per day, have refunded Norway and the United Kingdom K120 million (about $300 000) that the National Audit Office (NAO) misused in 2011.

UK’s Department for International Development (DfID) confirmed on Monday they got back K72 524 046 (about $181 310) that a Deloitte audit said was “misused” by NAO, an institution specifically formed to protect public resources from abuse.

DfID donated the money for a NAO capacity building project from January 1 2011 to October 31 2011.

On its part, Norway also confirmed on Wednesday having received a K49 million (about $122 000) cheque as refund for funds from an Oslo-funded institutional development programme which NAO misapplied.

The financial lapses at NAO angered London and Oslo so much that last year, they both wrote the then Auditor General, Reckford Kampanje—who has since retired—stern letters, demanding that the government’s supreme auditing authority refunds the grants.

The donors also suspended funding to the two projects.

NAO could not comment on the matter this week and it is not clear if anyone at NAO was held to account for the loss in line with the Public Finance and Economic Management Act (PFEMA). Treasury said the matter may have to be investigated further to establish whether these were mere administrative lapses or criminal activities.

Full refund

In an e-mail response this week, DfID head in Malawi, Sarah Sanyahumbi, said: “I can confirm that we have received a full refund from the Accountant General of K72 524 046.00 of UK funds that [NAO] had managed in contravention of our written agreements.”

But Sanyahumbi added that “UK looks forward to renewing our relationship with NAO.”

Treasury sources said this week that NAO and government are looking at how best to cooperate with DfID and Norway following the earlier fallout.

“[NAO] has been putting in place reforms, but they are still not sure if they would manage to follow demands from these donors,” said the Treasury source.

After the audit, Sanyahumbi was clearly disappointed as evidenced by her letter to Kampanje copied to Finance Minister Ken Lipenga, the Public Accounts Committee (PAC) of Parliament, Norwegian Ambassador Asbjørn Eidhammer, World Bank country director Sandra Bloemenkamp and European Union Ambassador Alexander Baum.

“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 287102,” wrote Sanyahumbi to Kampanje.

It was not immediately clear why DfID accepted K72.5 million (about $181 250) when the amount sought was around K79.3 million (about $198 250).

Unsigned reciepts

We had sent a follow up questionnaire to Sanyahumbi on the figure and had not received response by press time.

Grey areas on the DfID funds include NAO paying K5.8 million (about $14 500) in allowances to non-deserving staff and the use of wrong rates in paying allowances which consumed K56.6 million (about $141 500) more than was planned for.

The audit also found that NAO used K1.3 million (about $3 250) in fuel without backup receipts. About K1.5 million (about $3 750) in allowances were paid without signatures for recipients, according to the audit.

Some officers, according to the audit, got allowances for more days than worked for, resulting in NAO spending K4.7 million (about $11 750) extra.

The audit also discovered that NAO paid about K6.6 million (about $16 500) in accommodation allowances to staff working within their base in Lilongwe.

DfID was also outraged that NAO paid K1.4 million (about $3 500) in allowances and facilitation fees from its funding for the public auditor’s staff to write a report.

The audit also discovered that NAO used K106 280 (about $265) on non-programme activities, while K867 500 (about $2 168) was also spent without supporting documentation.

“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 Sanyahumbi in her letter.

New funding line

But on Monday, Sanyahumbi pitched a hopeful note, saying “one of our first actions will be to inform our partners at the World Bank Multi-Donor PFM [Public Finance Management] Trust Fund that we are happy to approve the release of funding for support of the NAO.

“The [NAO] plays a crucial role in keeping government accountable for the public funds it manages and we are glad to support it to become stronger and more independent in this role. We also look forward to the appointment of a new Auditor-General and urge all parties in the National Assembly to come to an agreement on this as soon as possible to provide proper leadership to this important institution.”

On Wednesday this week Parliament approved Stephenson Kamphasa as new Auditor-General (AG).

Since the former AG was forced into an early retirement, the Joyce Banda administration struggled to fill the vacancy.

Its first choice, Anderson Kulugomba, failed to impress Members of Parliament last year.

Government was also hesitant to present the President’s second choice, Peter Kamange, and replaced him with Kamphasa.

A practising chartered certified accountant (ACCA) and certified public accountant (CPAM), 54-year-old Kamphasa joined the civil service as accounts assistant in the Accountant General’s Department in 1981 and rose through the ranks to the position of senior accountant.

He was then seconded to Malawi Institute of Management (MIM) before joining the institute permanently as assistant accountant in 1989 after which he rose to senior accountant, senior auditor as well as head of finance and administration.

In 1998, he joined KPMG, an international auditing firm, as associate director for advisory services and between 1999 and 2000 he was seconded to Europe, Middle East and Africa KPMG Business Centre in Brussels, Belgium.

In 2007, he went into private practice, establishing his own Kamphasa Certified Public Accountants and Business Advisors before he joined Mwenelupembe, Mhango (MKM) and Company as a partner, among other professional highlights.

On Wednesday evening, during a speech to celebrate UK’s Queen Elizabeth II’ birthday, British High Commissioner Michael Nevin asked Parliament to quickly finalise the appointment of the Auditor General, saying it is a critical office in the country’s public finance and economic management architecture.

Effect on audit

On it’s part, Norway was not amused that late last year NAO, after using up all the DfID funding half-way through the project of auditing 40 councils, redirected K25 million (about $62 500) from the Norwegian- funded institutional development programme in 2011 to finish the UK agency’s funded work without seeking prior approval from both donors.

Consequently, Oslo too demanded a refund.

On Wednesday this week, Norwegian Ambassador Asbjørn Eidhammer said “the Embassy has received a cheque from government for the full amount that was not used according to agreement. He said the amount was K49 296 854 (about $124 000).

Asked what the refund meant to the relationship between Norway and

Malawi, particularly NAO, Eidhammer said the reimbursement is important for the possibility of renewed cooperation between Norway and NAO.

“We consider NAO a key accountability institution for Malawi. It has an important role in assuring that public services are delivered to the Malawi people in line with the decisions of Parliament. Its credibility and independence is also important for us as a donor, since we prefer to use the country’s own accountability system in controlling the use of our support to Malawi,” he said.

On the possibility of new agreement, Eidhammer said Norway is in dialogue with NAO on improvement in their reporting and financial control systems [and] hoped to come back with support to capacity building in NAO in the near future.

NAO spokesperson Thomas Chafunya refused to comment when contacted on Monday but last year, he said: “The decision to borrow funds amounting to K25.1 million (about $63 000) from 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 the 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.”

On his part, Treasury publicist Nations Msowoya said he was not aware of any refund made to either DfID or Norway.

“We don’t have a record paying DfID and Norwegians. Nonetheless, it is not a strange practice where funds have been misused, government has been asked to pay back—not from Treasury, but from the ministry or department less their funding,” said Msowoya in an interview.

He said using internal audit systems at NAO, the institution will have to establish what caused the abuse “and from there, then it can be decided whether to deal with the [issue] administratively or through the justice system.”

“If it is fraud, then it is criminal. Administratively, those implicated normally can be asked to pay back or if it is too serious, they can be suspended,” said Msowoya.