THE failure by local authorities to craft proper risk management policies has led to losses running into millions of dollars, through over[1]payments, mis-statements and non-delivery of paid for goods.
NATHAN GUMA
Risk management policies are crafted to guide institutions on how they can manage economic pitfalls that possibly lead to financial losses.
Findings by acting Auditor-General Rhea Kujinga in her report on Local Authorities for the year ended 31 December 2021 has revealed that several local authorities have been operating without risk management policies, thereby raising accountability issues.
For instance, Bindura Municipality has failed to account for US$418 000 which was invested with an asset management company between 2020 and 2021, amid indications that the council does not have a proper risk management policy.
“This was contrary to the Public Finance Management Act [Chapter 22:19], section 1(a) (i) which requires an accounting authority to ensure that the public entity maintains effective, efficient systems of financial and risk management. The non-disclosure of the investments was also against fair presentation according to IPSAS 1- ‘Presentation of Financial Statements’,” according to the report.
More local authorities have been losing more money due to poor risk management, with the acting AG also flagging Kadoma City Council over non-delivery of goods which were paid for by the local authority.
“The Council procured a motor vehicle (High Rider Single Cab Toyota Hilux 2.4L Diesel) on July 13, 2021 with a condition that the contractor delivers the motor vehicle within six weeks from the signing of the contract. At the time of my audit in 2022, the council had not yet received the procured vehicle,” she said in the report.
Redcliff Municipality has also been flagged over the delivery of wrong equipment, which has led to financial loss. “In 2020, the Municipality (seller of land) entered into an agreement with a certain company (purchaser of land) for the supply of vehicles in exchange with land,” reads the report.
“However, I noted that during the execution of the contract in 2021, the company breached section 2.2 (iii) and (iv) of the contract which required the purchaser (the company) to supply Garbage Truck Faw Underpan 10m3 motor vehicle at a price of US$41 260 but instead supplied a Dong fang garbage truck valued at USD57 819. The same contract also stated that the company had to supply a Fire tender Faw Underpan motor vehicle valued at US$66 802 but instead supplied a Dong Fang fire tender at a price of US$74 180. In addition, the company was supposed to deliver brand new vehicles as per section 2.6 of the agreement which stated that motor vehicles to be delivered by the company to the Municipality shall be in brand new condition. However, one (1) of the vehicles delivered was not brand new. The value of the vehicle as per invoice was US$75 000 but the value on the contract was US$42 414.”
Masvingo City Council has also been under fire, amid indications that the local authority lost millions in 2021 through overpayments in the Emergency Road Rehabilitation Programme (ERRP).
“The Council entered into a contract for an emergency road rehabilitation programme. However, I noted that there was an overpayment ZW$2 561 445 to Earthlygate Precast and Civil Contractors for the emergency road rehabilitation programme (ERRP) phase one works which had an initial contract sum of ZW$19 416 900 in April 2021,” reads the report.
“Subsequently, in August 2021 an addendum for a variation of ZW$3 495 042 to bring the contract price to ZW$22 911 942 was signed citing that the charging of Preliminaries and Generals cost (Ps and Gs) had been ‘omitted’.
“However, according to the contractual agreements signed on April 14, 2021, no variations were permitted except where the works were specifically stated as being a measured item, necessitated by the employer (the Council) or by government regulation.”
The price variation resulted in the contractor engaged proving not to be the cheapest bidder as was indicated on the supplier evaluation sheet as the cheapest bidder would have been Jepnik with a bid amount of ZW$19 861 930 which might have led to a saving of ZW$3 050 012.
This is contrary to the Public Finance Management Act [Chapter 22:19] Section 85 (1) (b), which does not permit irregular, fruitless and wasteful expenditure.
Kujinga also flagged Harare City Council for having insufficient systems in place to correctly account for impairment on receivables from non-exchange transactions amounting to ZW$441.2 million in 2019.
Reads the report: “An impairment assessment of outstanding receivables from non-exchange transactions was not performed. I was not able to quantify the impact of the resultant misstatement on receivables or the impairment expense as it was impracticable to do so. Following the withdrawal of the BIQ system in March 2019, there was no alternate billing system until June 2019. Management did not submit records of what transpired between March 2019 and June 2019. I was also not able to verify the opening balances used in the new billing system. Following the withdrawal of the BIQ system in March 2019, there was no alternate billing system until June 2019. Management did not submit records of what transpired between March 2019 and June 2019. I was also not able to verify the opening balances used in the new billing system.”
