The K72 billion (about $180m) suppliers’ arrears the Joyce Banda administration inherited in April 2012 are now estimated at more than K100 billion (about $250m), according to well-placed Malaw Government sources.
The new figure emerged from the first round of verification that the National Audit Office (NAO) conducted on government orders.
has learnt that when Malawi’s Ministry of Finance presented the verification report to the President, she was unhappy with the higher figure and what were considered suspicious claims, including those that did not have supporting documents, such as contracts and delivery notes.
The President then ordered Treasury not to pay anyone until a second round of verification involving, among other ways, physical comparisons of invoices against goods supplied, is done.
Both NAO and the Ministry of Finance have confirmed that the second verification exercise is now under way.
This means that suppliers, who have been complaining that the delays in payment were suffocating their businesses and contributing to job losses, would have to wait longer.
Sources say the Malawi Police Service (MPS), where NAO has already conducted second round verifications; and the Department of Immigration, where a similar exercise is currently taking place, are the major contributors of additional claims.
A Ministry of Finance source explained that arrears have jumped to over K100 billion because when the Banda administration asked the Auditor General to conduct the verification exercise after taking over in April last year, some institutions continued to procure goods and services.
Said the source: “It is true that the Auditor General presented the report to the Ministry of Finance as a client who asked for the exercise and a decision was made that some institutions should be audited again. It is an enormous report with alarming revelations.
“Even the President was astonished with the revelations in the report and she ordered that Treasury should not issue any payment in respect of the arrears until an investigative audit is conducted to ascertain some claims that clearly look very dubious. Some invoices are clearly inflated and the President was not amused.”
The source said an investigative audit by the Auditor General was necessary to verify the quantities supplied and prices quoted given that certain prices could have been inflated.
Added the source: “The kind of verification which the Auditor General conducted could not determine other aspects such as whether the goods were physically delivered or not or if indeed the quality of the goods delivered marry with the quoted price.
“In this case, you need an investigative audit where you physically check the goods delivered and also you check the quality so that undervalued goods are not overvalued. The exercise that has just been completed has revealed that some suppliers inflated the prices, but we can only be certain if an investigative audit is conducted.”
Another Ministry of Finance source corroborated this, saying, for example, that auditors were asked to go back to MPS to conduct fresh verification after it was discovered that from May 2012 to date, the police has accumulated K15 billion (about $37.5m) additional arrears through new purchases.
“As you may recall, the arrears [for MPS] as of May 2012 were at K10 billion [about $25m]. The auditors were asked to go back to police to verify the fresh figures. Because of arrears that have been accumulated from May 2012 to now, the total amount is now at K25 billion [about $62.5m].
“Remember, this is the money which government still has to pay and there was need to verify the amounts. So, as of now, we are no longer talking about
K72 billion, the amount has now moved to over K100 billion,” said the source.
Another source at Immigration Department said the new management was not comfortable with the invoices on some purchases and invited the Auditor General to conduct an investigative audit to verify the prices against the delivered goods.
“The Chief Immigration Officer wrote the Auditor General to go back to his department and verify prices of the goods supplied some two years ago.
Basically, there is a general impression that the prices were inflated, so the auditors are there to conduct investigative audit,” he said.
NAO corporate communications officer Thomas Chafunya confirmed that auditors from the Auditor General’s office have gone back to some of the institutions to conduct verification of records, receipts, stores ledgers and prices.
Chafunya said: “The National Audit Office has now finalised the audit, verification and certification of the K72 billion arrears owed to suppliers accumulated by government departments as of May 2012.”
“What the NAO is doing now is not an investigative audit. We are simply going back into the establishments where new arrears have also accumulated from May 2012 to date,” he said.
On Thursday, presidential press secretary Steven Nhlane could not confirm nor deny that the President issued a directive to Treasury not to pay suppliers until an investigative audit is conducted. He referred the matter to the ministries of Finance and Justice and Constitutional Affairs.
Ministry of Finance spokesperson Nations Msowoya, in a questionnaire response, confirmed that the Auditor General presented a draft report of their audit findings on the arrears.
Said Msowoya: “So far, the auditors have done an excellent job; their main challenge though, has been accessing missing documentation. Remember their task was to ascertain if all the arrears have supporting documents [such as] invoices, signed contracts, delivery notes, procurement plan, and internal procurement committee approval.”
He said such documents would prove that the standard processes in procurement of goods and services in government were followed. He said Treasury has written controlling officers to provide the missing documents to the auditors.
“Following the submission of the draft audit report, we have noted that the report was citing missing supporting documentation as a major challenge in their audit.
“What we have done is to extend the time for the audit so that National Audit Office can have more time to review transactions that have missing supporting documents. What is so important is to make sure that there is value for money for any payment that will be made after the audit and that is the essence of the exercise,” he said.
He said during the extended period, NAO would cover several ministries and departments, adding that depending on how quickly the auditors get access to the missing documentation, the final report could be submitted to the ministry in June 2013.
On how much were the arrears at this stage, Msowoya said: “Since the audit has not been concluded, it is difficult at this stage to ascertain the final amount. For those arrears where the government has all supporting documentation we are working with individual suppliers/contractors on a settlement plan.”
Last month, Msowoya said once the audits were completed, a retirement plan would be developed to settle the arrears over a three to four years period.
He said at the time: “Some [arrears] have indeed been settled, especially those that were denominated in foreign currency in their contracts so that they could be cleared to avoid them going up further in Malawi kwacha terms owing to the further movements in the exchange rate.”
The private sector and some economists reacted by warning government that it was shooting itself in the foot by suffocating the goose that lays eggs-businesses, which generate wealth, jobs and taxes that feed the nation-at a time the rapidly depreciating kwacha, double digit inflation and interest rates are hurting enterprises by pushing up production costs and dampening consumer spending whose disposable income has been eroded. Over the past two weeks though, the kwacha has shown signs of stability and has strengthened against major currencies in the last few days.
When presenting the National Budget last year, Finance Minister Ken Lipenga said the over K72 billion arrears “are mainly on account of parastatal organisations where loans and overdrafts accounted for about K37 billion (about $92.5m); government departments have accumulated arrears of around K28.6 billion and arrears accumulated on pension contributions, salaries, utilities and subscriptions are estimated at K6.1 billion.”
In his breakdown of the arrears, Lipenga said SFFRFM has K16.2 billion, Air Malawi has K5 billion, Malawi Broadcasting Corporation has K5 billion and Admarc has K4.9 billion.
On government departments debts, the Finance Minister said the Malawi Police Service has K10 billion, Road Sector Projects has K8.3 billion, Central Medical Stores has K2 billion, Malawi Housing Corporation has K2.1 billion, Malawi Defence Force has K1.3 billion, Malawi Prison Service has K1.3 billion and Immigration Department has K1.2 billion.
Lipenga further said government arrears include rental at K1.4 billion, Office of the President and Cabinet has K590 million and Malawi Electoral Commission has K407 million while Ministry of Education salary arrears are
K612 million and Compensation Fund has K627 million.
“The stock of our domestic debt is therefore expected to reach K 192.37 billion at year end, representing 16 percent of GDP, just nine percentage points below the prudentially accepted limit,” said Lipenga.
Chief immigration officer Hudson Mankhwala, in an exclusive interview on Thursday, confirmed to have written the Auditor General, asking for re-verification of the arrears to clear some issues.
“It is true that when auditors from the National Audit Office came to audit our arrears, particularly on uniform sub-item and when they submitted their verification report, I felt that there were areas that required further clarification,” he said.
Mankhwala said the expectation of the department was that once the verification exercise was completed, Treasury would release money to clear the arrears as promised.
“Our expectation was that once the auditing is finalised and the arrears properly verified, the indication was that Treasury was going to help us clear the arrears. But the way the verification report came, it indicated that there were some things that were hanging and would not result into direct clearance of the arrears,” he said.