Red flags for Nocma, Escom
The Public Accounts Committee (PAC) of Parliament has red-flagged National Oil Company of Malawi (Nocma) and Electricity Supply Corporation of Malawi (Escom) for financial malfeasance and recommended that they should be audited regularly to stop further abuse of public funds.
Describing the two entities as ‘problem child’ parastatals, PAC chairperson Shadric Namalomba observed that they need scrutiny by the National Audit Office (NAO) because of the costly dubious deals they
have been involved in, a task he said should not be left to external private firms.
Section 10 of the Public Audit Act of 2003 allows the Auditor General (AG) to outsource audit of statutory corporations and coupled with capacity challenges, the AG subcontracts audit services of majority of parastatals.
This is despite the AG making a commitment in 2018 to reduce subcontracting audit services to private firms to enhance compliance of government regulations.
In an interview on Tuesday, Namalomba observed that government needs to get tough with all financially-troubled parastatals that either post losses annually or are rocked in dubious financial deals. He singled out Nocma and Escom as such firms, observing that their accounts should always be scrutinised by the AG as the principal government auditor.
He pointed out that apart from posting losses, there are “a lot of wrong things happening at Nocma, starting with the organisation’s recent dubious awarding of contracts to fuel companies.
In September this year, Nocma awarded fuel contracts to two companies using a procurement method known Ex-Tank as recommended by the Anti-Corruption Bureau (ACB). But Nocma also awarded contracts using another system called Delivered at Place Unloaded (DPU) that was not recommended by ACB after it carried out an investigation into the award of contracts by the organisation.
Nocma’s decision to award contracts outside the ACB’s recommended system sparked uproar from various groups, including the Human Rights Defenders Coalition and the Fuel Tankers Operators Association, who argued that using the DPU system, which was not part of the original bidding system, had favoured some companies.
Namalomba said his committee also red-flagged Escom because the corporation has recently been rocked with several procurement scandals involving billions of kwacha.
He observed that Parliament was aware that NAO has capacity challenges and cannot be auditing all statutory bodies, but “those with red flags such as Nocma and Escom should always be subjected to scrutiny by government.”
For the first time—in the period ending June 30 2018—NAO conducted a review of selected accounts of nine statutory bodies—representing 15 percent of all parastatals whose audit services were subcontracted to private firms.
The audited parastatals were Nocma, Escom, Blantyre Water Board (BWB) Southern Region Water Board(SRWB), Northern Region Water Board (NRWB), Lilongwe Water Board (LWB), Electricity Generation Company (Egenco), Malawi Housing Corporation (MHC) and Agricultural Development and Marketing Corporation (Admarc).
The audit account for Escom was not incorporated in the consolidated AG’s report as it was not ready at the time of producing the report.
But the then AG Stephenson Kamphasa disclosed that a 2016/17 audit of Escom by NAO, revealed that the power utility ordered goods valued at K8.3 billion from about 23 suppliers without following internal procurement procedures and without the knowledge of key management.
On the other hand, former acting AG Thomas Makiwa revealed that a 2018 review of an
audit report for seven parastatals showed only Nocma registered losses of K1.2 billion.
Both Escom spokesperson Innocent Chitosi and Nocma deputy chief executive officer Helen Buluma were yet to respond to our queries on PAC’s analysis of the reports.
A 2021 Annual Economic Report by Ministry of Finance said Escom was unable to convert sales into cash as a number of institutions owed them K25.6 billion in electricity bills as of end of December 2020. “The low liquidity level poses a serious challenge to operations of the corporation as it cannot quickly pay suppliers.”
The report marked MHC and BWB as high risk statutory bodies that needed a forensic audit and immediate enhancing for registering operating losses of K1.1 billion in 2018 and K1.1 billion in 2017 respectively and an accumulated net loss of K2.5 billion.
On a positive note, two parastatals—Egenco and LWB—registered profits during the period under review of K11 billion and K2.5 billion respectively.
NAO spokesperson Rabson Kagwam’minga in an e-mailed response indicated that the AG is gradually working to reduce subcontracting of audits of statutory bodies.
He said: “As the only external auditor of government, the AG already has a lot of clients hence, the need to build capacity at NAO to meet this demand
