Where the fraud, corruption fight is lost

If findings of several recent audits of the operations of the public sector are anything to go by, fraud and corruption are rampant in Malawi. The vices tend to happen in various ways, including false claims and inflated invoices for goods and services rendered to the public sector.

In 2013, following the shooting of former Ministry of Finance budget director Paul Mphwiyo outside the gate of his Area 43 residence in Lilongwe, revelations of massive plunder of public resources at Capital Hill were exposed. In fact, it is widely believed that the incident exposed what later became to be known as Cashgate.

Then president Joyce Banda ordered a forensic audit undertaken by British firm Baker Tilly, covering the period between April and September 2013. The forensic audit established that about K24 billion was siphoned from public coffers through dubious payments, inflated invoices and goods or services never rendered.

Recommendations were made to strengthen the public finance management instruments as it emerged that government’s electronic central payment platform, Integrated Financial Management and Information System (Ifmis) was grossly abused.

Come May 2015, a financial analysis report by audit and business advisory firm PricewaterhouseCoopers (PwC) also established that about K577 billion in public funds could not be reconciliated between 2009 and December 31 2014.

In July this year, yet another forensic audit by RSM Risk Assurance Services LLP of the United Kingdom established that during the six-year period under review, public funds amounting to K236 billion (and not K577 billion as earlier estimated) could not be accounted for.

Forensic audits generally examine and evaluate an organisation’s or individual’s financial information for use, mostly as evidence in court. Audits examine adherence to set systems and standards in terms of procurement, supply and payments.

Why is there little or no action to implement recommendations of the auditors to seal the loopholes? That is where the country is losing the battle against fraud and corruption, vices estimated to drain about 30 percent of the resources allocated in annual national budgets. Where do the resources go? Into individual pockets, of course!

Reacting to an earlier article, one expert familiar with audits said the fact that there has been no national dialogue on combating fraud and that government is completely oblivious to the same speaks volumes about our understanding of financial governance and the nature of ‘organised crime’, ‘fraud’ and ‘corruption’.

Ironically, the country has some of the best pieces of legislation crafted to fight these evils. These include the Corrupt Practices Act, the Money Laundering, Proceeds of Serious Crime and Terrorist Financing Act and the Financial Services Act 2010.

Said the reader: “In 2008, the World Bank and the East and Southern Africa Anti-Money Laundering Group [ESAAMLG] under the auspices of the Financial Action Task Force [FATF] undertook a review of the Anti-Money Laundering and Combating Financing of Terrorism [AML/CFT] regime in Malawi and concluded that the framework met international standards, but that government need to have a strategy for implementing the regime and made several proposals. Nothing was done apart from passing of the Financial Services Act 2010 by default.

“Then, came Cashgate. Three audits, and one forensic audit down the line [Baker Tilly and PricewaterhouseCoopers] and all the government can promise the IMF [International Monetary Fund] in its Letter of Intent of March 15 2015 is: (1) There will be amendments to the Penal Code, Money Laundering Act and the Corrupt Practices Act; and, (2) The Reserve Bank will re-evaluate its capacity to enforce compliance with the AML regime.”

This is where the problem lies. Implementation. Instead of taking the bull by the horns, authorities choose to go into “talking shops” promising “strengthening” of Public Finance Management instruments. But, if truth be told, the laws, in their present state, are straight-forward. They just need implementation.

Yet another area or tendency that lend credence to fears that fraud and corruption are, after all, “organised crime” in the public sector is the unexplained delays by agencies such as the Anti-Corruption Bureau (ACB), Fiscal Police and indeed the Directorate of Public Prosecutions (DPP) who, in most cases, take forever to carry out investigations or produce legal opinions on critical fraud cases. I am not a lawyer, but if one takes two or so years to produce a legal opinion on a file, surely, there is a big problem.

Perhaps, it would help the cause to fight fraud and corruption and restore confidence in the country’s public finance management if timelines were set for every step of an investigation into a case. That way, the public and stakeholders would be able to see where the problem lies when a case stalls. The lame excuse of “we are still investigating” will, thus far, be eliminated. Progress will be visible.