STATE enterprises and parastatals incurred loses of about US$1 billion in 2019 due to corruption, mismanagement and bad corporate governance, pushing a majority of them to the brink of collapse.
BRIDGET MANANAVIRE
In her 2019 audit report presented to Parliament this week, Auditor-General Mildred Chiri (pictured) revealed the parlous finances of state entities, bringing into question their ability to continue operating.
This comes as 34 state-owned enterprises failed to submit their financial statements for audit, while 54 audits were still in progress and 52 audits had been completed.
Entities whose going concern status is questionable are the Zimbabwe Consolitated Diamond Company (ZCDC). Chiri questioned the mining firm’s capacity to recover money exceeding US$400 million.
Concerns were also raised over the Zimbabwe Electricity Transmission and Distribution Company (ZETDC) which incurred losses totalling ZW$924 576 859 (Compated to ZW$2 348 661 135 in 2018). The power utility’s liabilities exceeded its current assets by ZW$5 168 114 975 (2018: ZW$4 794 391 397).
In addition, the Procurement Regulatory Authority of Zimbabwe had to write off US$2. 39 million due to inadequate contract information, which resulted in the failure to adequately collect amounts owing.
Chiri also said she was not convinced of the accuracy of administration fees amounting to US$1 514 280 (in 2016) and US$1 329 650 (2017) and the existence and valuation of related trade receivables amounting to US$2 380 983 (2016) and US$717 200 (2017).
“…governance issues have continued to dominate my report for State Enterprises and Parastatals. Out of sixty-nine (69) issues I am reporting; fifty-three (53) relate to the area of governance while sixteen (16) relate to revenue collection, employment costs and procurement,” Chiri said.
“Governance issues reported in the current year are in respect of payment of board fees and allowances without approval of the responsible Minister, failure to declare interest by board members, absence/ unbalanced composition of the Board of Directors and other issues on ineffective internal control systems.”
Some of the highlights by Chiri included: lack of evidence to show that ministerial approval had been sought and granted for some extra board perks such as fuel, board members failing to make any declarations of interest and that ZETDC had US$1.2 million worth of cables undelivered since 2015.
“The Mining Promotion Corporation had no substantive Chief Executive Officer since 2016 whilst Petrotrade did not have a Board of Directors since 2015. Some parastatals were paying board allowances that had not been approved by the minister while others grossed up board fees and also paid board members sitting allowances for attending workshops,” she said.
Regarding the ZETDC, Chiri said its losses indicated that a material uncertainty exists that may cast significant doubt on the company’s ability to continue as a going concern, with losses running into billions of Zimbabwean dollars.
“…draw attention to fact that the company recorded an operating loss before tax of ZW$ 924 576 859 (2018: 2 348 661 135) for the year ended December 31, 2019. As at December 31, 2019, the Company’s current liabilities exceeded its current assets by ZW$5 168 114 975 (2018: ZW$4 794 391 397),” she said.
The company also owes customers who made advance payments for connection of electricity.
“However, the company was not connecting electricity for these customers. As a result, the total amount paid for connections which remained outstanding increased from ZW$3 212 964 in 2018 to ZW$4 137 715 in 2019.”
Chiri also found that ZETDC was not remitting the rural electrification levy to the Rural Electrification Agency (Rea) in breach of the law.
“REA levy outstanding as at 31 December 2019 amounted to ZW$224 392 693 (2018: ZW$108 465 723). The Company had debtors amounting to ZW$2.2 billion as at December 31, 2019 (2018: ZW$1.1 billion). The debtors age analysis revealed that 45% of the Company debtors were aged 90 days or more.
“The Company received loan amounts from Ministry of Finance and Economic Development. However, there was no agreement for the loan amounts. As a result, there were no stipulated terms of repayments and interest. As at December 31, 2019, the amount outstanding was ZW$1 179 454.”
Another entity whose accounts were in a shambles is the Procurement Regulatory Authority of Zimbabwe which does not have a mechanism to monitor how direct awards were being executed and could not support the administration fees with signed contracts, resulting in the authority writing of debt.
“The authority could not reliably measure administration fees at the point of award as the direct awards were prone to variations and cancellations. As a result, the authority wrote off US$2.39 million due to inadequate contract information which resulted in failure to adequately collect amounts owing. I therefore could not satisfy myself on the accuracy of administration fees amounting to US$1 514 280 (2016) and US$1 329 650 (2017) and the existence and valuation of related trade receivables amounting to US$2 380 983 (2016) and US$717 200 (2017),” Chiri said.
“I could not satisfy myself on the completeness and accuracy of the reported bank balance as some transactions were not posted to the cash books. I was unable to verify through alternative means, the accuracy and validity of the disclosed cash balances as the authority did not maintain separate cash books for the three bank accounts that it operated and the only CBZ bank account that was maintained out of the three was incomplete with only payments made and no receipts. Payments made from CBZ bank account amounted to two million one hundred seventy-six thousand three hundred forty-six and twenty-eight cents (US$2 176 346.28).”
She added that the authority operated a number of bank accounts and the cash book maintained for one of the bank accounts was incomplete as it showed only payments made amounting to US$2 176 346 without any receipts yet the records (bank statements) showed that the authority was collecting revenue.
“In addition, the Authority did not maintain separate cash books for three other bank accounts that were in use. I also noted that bank reconciliations were not being prepared for the accounts,” she said.
Chiri also noted that the Zimbabwe Parks and Wildlife Management Authority (ZimParks) was awarding each board member 300 litres of fuel per month, without ministry approval.
“There was no evidence to show that the monthly 300 litres of fuel per board member had been approved by the parent Ministry. The fuel allowance was given from January to September 2018. I also noted that the fuel allowance was not taxed.
“In addition, one of those seven board members was also a director of a company which had entered into a lease agreement with the Authority on 5 June, 2018 for a site located in Marongora Safari. This company had outstanding fees amounting to $34 620 as at December 31, 2018.”
“In addition, I noted that management applied tax rates on board fees and sitting allowances which were lower than the prescribed withholding tax rate. As a result, the tax deducted amounted to $1 252 instead of $8 655, leading to an underpayment of $7 403,” she said.
In response, the ZETDC management said the practice had been stopped and the new board that came in September 2018 is not getting the 300 litres of fuel per month.
Chiri also raised a red flag against the Zimbabwe National Roads Administration.
“Infralink (Private) Limited received a garnishee order for understated Income Tax and Value Added Tax (VAT) of US$46 977 476 in 2015. Management did not accrue for these amounts because they contend that the tax status of the Company is still to be established.”
“The effect of non-accrual of these tax obligations is an overstatement of retained earnings by US$46 977 476 and an understatement of US$46 977 476 in trade and other payables.
“No tax assessments were performed for 2016, 2017 and the current financial year therefore there is potential additional exposure of 3 years,” the Auditor-General said.
