Académique Documents
Professionnel Documents
Culture Documents
of the
AUDITOR GENERAL
for 2008
on the
Page
INTRODUCTION ..................................................................................................... 1
SCOPE OF AUDIT ................................................................................................... 1
INTERNAL CONTROL ........................................................................................... 1
CHAMBESHI WATER AND SEWRAGE COMPANY LIMITED ........................... 2
ELECTORAL COMMISSION OF ZAMBIA ............................................................ 7
THE HOTEL AND TOURISM TRAINING INSTITUTE TRUST ...........................11
JUDICIARY ............................................................................................................13
MULUNGUSHI UNIVERSITY ...............................................................................19
NATIONAL AIRPORT CORPORATION LIMITED ..............................................25
NATIONAL HOUSING AUTHORITY (NHA) .......................................................35
NATIONAL SPORTS COUNCIL OF ZAMBIA (NSCZ) ........................................36
NITROGEN CHEMICALS OF ZAMBIA (NCZ) .....................................................41
TASK FORCE ON CORRUPTION .........................................................................49
TAZAMA PIPELINES LIMITED ............................................................................54
TIMES PRINTPAK (Z) LIMITED ...........................................................................61
THE UNIVERSITY OF ZAMBIA (UNZA) ............................................................65
THE UNIVERSITY TEACHING HOSPITAL .........................................................68
ZAMBIA FORESTRY COLLEGE...........................................................................71
ZCCM INVESTMENTS HOLDINGS PLC..............................................................76
ZAMBIA EDUCATION PROJECTS IMPLEMENTATION UNIT .........................79
ZAMBIA POSTAL SERVICES CORPORATION ...................................................82
ZAMBIA NATIONAL BROADCASTING CORPORATION .................................88
ZAMBIA RAILWAYS LIMITED .......................................................................... 112
ZAMBIA TELECOMMUNICATION COMPANY LIMITED ............................... 126
CONCLUSION ...................................................................................................... 138
UNRESOLVED RECOMMENDATIONS OF THE COMMITTEE ON
PARASTATAL BODIES ....................................................................................... 138
i
ii
INTRODUCTI ON
1. This Report on the accounts of selected Parastatal bodies for 2008 is submitted to the
President for tabling in the National Assembly in accordance with provisions of the
Constitution of Zambia and the Public Audit Act CAP 378 of the Laws of Zambia.
SCOPE OF AUDIT
2. This Report is a result of a programme of test checks and reviews of the audited
accounts of selected organisations for the financial years up to 31st December 2008.
Due to limited resources, the programme of work was restricted to twenty two (22)
organisations.
In preparing the Report, I sent to the Chief Executives of the affected organisations
draft paragraphs for comments and confirmations of the correctness of the facts
presented. Where comments were received and varied materially with the facts
presented, the paragraphs were amended appropriately.
INTERNAL CONTROL
1
CHAMBESHI WATER AND SEWRAGE COMPANY LIMITED
Background
4. Chambeshi Water and Sewerage Company Limited was established in April, 2003 in
accordance with the provisions of the Companies Act and section 9 (c) of the Water
Supply and Sanitation Act, No. 28 of 1997. The company started operating on 1st
September 2003 with an authorised share capital of K2,000,000 divided into
2,000,000 shares of K1 each. The share capital was later increased to K5,000,000 in
2006.
The principal activity of the company is to provide high quality water and improved
sewerage services for high standard of living for the population of the districts of
Northern Province.
Board of Directors
The Board is responsible for the formulation of policies and general administration of
the business affairs of the company.
The board members hold office for a term of not more than three (3) years and
members are eligible for reappointment upon expiry of their term of office.
The Managing Director is appointed by the board on a renewable term of three (3)
years and is responsible for the day-to-day operations of the company. He is assisted
by the Finance and Technical Commercial Services directors who are also appointed
2
on three (3) year renewable contracts. The rest of the staff is appointed on a
permanent and pensionable basis.
Source of Funds
The sources of funds for Chambeshi Water and Sewerage include, among others;
· Such sums of money as may be raised from its daily operations of sale of water;
· Grants from the Devolution Trust Funds (DTF), National Water Supply and
Sanitation Council (NWASCO) and Ministry of Local Government and Housing.
Review of Operations.
A review of operations for the financial years ended 31st December 2005 to 2008
revealed the following:
Although the certificate of share capital indicated that the company had a share
capital of K5,000,000 divided into 25 shares of K200,000 each, there was no
evidence that shares had been issued to the shareholders as of March, 2009.
b. Strategic Plan
The company operated without a strategic plan during the period under review. As
of March 2009, the strategic plan had not been put in place.
c. Staff Establishment
The company had an approved establishment of two hundred (200) employees out
of which a total of one hundred and eighty seven (187) were filled and thirteen
(13) were vacant. In particular the following were observed:
3
i. Lack of Internal Audit Function
Among the positions which were vacant was that of the internal auditor. In
this regard the company operated without the internal audit function since its
inception.
During the period from 2006 to 2008, the company lost a total of forty six
(46) employees through resignation or dismissals representing a staff
turnover ratio of 25%.
d. Profitability
An analysis of the profit and loss account for the period 31 st March 2005 to 2008
revealed the following position:
The personal emoluments cost increased from K513 million in 2005 to K982
million in 2008 due to both increase in staff as well as increase in salaries.
4
iii. Profit/Loss before Tax
Although during the period under review turnover increased from K1.2
billion in 2005 to K3.0 billion in 2008, and grants also increased from K3.4
billion to K12.6 billion, the company made losses in all the years. The losses
increased from K470 million in 2005 to K573 million in 2008. Consequently,
the company was unable to declare any corporation tax or dividends.
Current Assets
Inventories 304,727,309 148,447,415 72,599,488 62,104,895
Trade and Other
receivables 3,636,697,996 3,326,397,481 2,255,057,018 2,546,318,985
Bank and Cash 4,096,400,795 5,365,911,882 206,090,576 1,327,847,262
8,037,826,100 8,840,756,778 2,533,747,082 3,936,271,142
Current Liabilities
Trade and Other payables 4,743,044,487 5,061,359,959 3,133,905,349 2,001,157,953
Bank overdraft - - - 22,363,598
Taxation - - - -
4,743,044,487 5,061,359,959 3,133,905,349 2,023,521,551
Fiananced By
Share Capital 5,000,000 5,000,000 5,000,000 2,000,000
Reserves - 3,627,716,738 - 3,049,579,222 - 2,276,546,703 - 1,077,610,781
Grants 12,603,949,466 8,568,978,258 3,111,504,698 3,353,381,424
8,981,232,728 5,524,399,036 839,957,995 2,277,770,643
The assets relating to the water supply and sewerage operations in all the
districts in the Northern Province had not been transferred from the local
authorities to Chambeshi Water and Sewerage Company Limited as of 31st
December 2009.
The liquidity position for Chambeshi Water and Sewerage Ltd was as
indicated in the table below:
5
2008 2007 2006 2005
K'000 K'000 K'000 K'000
As can be seen from the table above, the working capital for the company
was positive in all the years apart from 2006.
The company failed to meet its obligations as they fell due. In this regard,
creditors falling due within one year increased from K2.0 billion in 2005 to
K4.7 billion in March 2008. The schedule below shows the main creditors
owed by CWSC as of March 2008:
Institution Amount
De scription
(Cre ditor) K
ZRA PAYE 897,576,709
ZESCO Electricity Bills 2,405,154,888
Workers Compensation
Fund Statutory Contribution 43,310,150
NAPSA Statutory Contribution 354,683,116
Total 3,700,724,863
v. Shareholders’ Funds
6
f. Failure to Follow Tender Procedures
i. On 15th February and 24th March 2005 the Company entered into contracts
with Town Mouse Enterprise of Kasama and CC Systems Limited of
Lusaka worth K1 billion and U$69,751.52 respectively. The contracts were
for the supply and delivery of 1,072 bulk and domestic water meters and
fittings and supply and installation of 1,144 radio communication
equipment respectively.
ii. There were thirty (30) payment vouchers in amounts totalling K220,427,820
made between September 2007 and March 2008 which were inadequately
supported in that they lacked receipts and invoices contrary to Financial
regulations No. 45 and 52.
A review of records revealed that Chambeshi water a sewerage company did not
have an accurate database of customers. Although the company’s records showed
that there were 11,624 customers, enquiries with the Management revealed that
the customer database had flaws in that it contained customers who were not in
existence thus overstating the number of customers.
It was observed that as of March, 2009 there were no returns for twenty eight (28)
receipt books issued to the company’s district offices between the period May
2005 and December 2006. It was therefore not possible to ascertain whether all
the money collected using the receipts was accounted for.
Headquarters
a. GRZ Grants
In the estimates of Revenue and Expenditure for the financial year ended 31st
December 2008, an authorized provision of K 248 ,940 ,655,190 was made for the
operations of the Commission against which amounts totalling K249,069,979,028
were released resulting in an over funding of K129,323,837 which was not
supported by supplementary provision.
c. Unretired Imprest
To supplement its existing transport, the Commission hired vehicles during the
2008 Presidential elections. It was however observed that the Commission over
paid ten (10) transporters by K10,800,000.
Contrary to the provision of Public Stores Regulations, the Commission did not
maintain inventory cards for office furniture and equipment.
8
Amount
Institution Description
K
ZRA PAYE 1,907,910,253
NAPSA Pension Contribution 585,660,438
TOTAL 2,493,570,691
The failure to remit statutory contributions will attract penalties from ZRA and
NAPSA.
During the year under review ECZ conducted presidential and parliamentary bye
elections. To this effect, ECZ disbursed amounts totalling K109,194,379,000 to all
the districts during the period between September and December 2008 for the
purpose of the bye elections. A verification of utilisation of 2008 bye-elections
funds and materials in selected districts revealed the following:
9
iii. Failure to Maintain Accounting Records
It was observed that seven (7) councils did not maintain basic accounting
records such as, cash books, bank reconciliation statements and payment
vouchers as shown in the table below:
Fuel costing K890,433,424 as shown in the table below purchased during the
period from September to December 2008 by eleven (11) Councils was not
accounted for in that there were no disposal details.
Amount
Council
K
Senanga 32,991,126
Kalabo 162,296,878
Mongu 130,475,224
Kaoma 3,500,000
Mumbwa 50,312,580
Monze 72,300,000
Chibombo 104,650,000
Kapiri Mposhi 23,817,330
Mbala 58,508,852
Lundazi 105,581,434
Petauke 146,000,000
Total 890,433,424
In the absence of disposal details, it was not clear as to whether the fuel was
utilised for the intended purpose.
v. Unretired Imprest
10
Amount
Council K
Kalabo 56,700,000
Kaoma 62,625,000
Choma 89,400,000
Monze 57,000,000
Chibombo 729,961,490
Chipata 246,965,000
Total 1,242,651,490
Contrary to Financial Regulation No. 65 (1), seven (7) payment vouchers for
payments made between 6 th November 2008 and 17th November 2008 by
Kapiri Mposhi District Council in amounts totalling K708,340,000 were not
availed for audit.
Background
6. The Hotel and Tourism Training Institute (HTTI) provides training in Hotel and
Tourism management. It was established in 1989 following the dissolution of the
National Hotel Development Corporation under which it previously operated. The
Institute runs on a commercial basis, the Fairview Hotel which serves as its training
centre.
Administration
Board of Trustees
The Institute is governed by a Board of Trustees consisting six (6) members appointed
by the Minister of Tourism, Environment and Natural Resources. Board members
hold office for a renewable period of three (3) years. The current board was appointed
in 2007.
11
Management and Staff
Sources of Funds
According the Trust Deed, the sources of funds of the Institute include:
An examination of financial, accounting and other relevant records for the financial
year ended 31st December 2008 revealed the following:
a. Income
In the Estimates of Revenue and Expenditure for the financial year ended 31st
December 2008, a provision of K1,393,665,867 was made for the Institute and
the whole amount was released. The funds were for the procurement of capital
items such as computers, beds, televisions, tables, food production equipment,
tourism and travel operation equipment and building rehabilitation. In addition,
the Institute generated a total of K5,339,308,000 from its operations bringing the
total funds available to K6,732,973,867.
b. Misapplication of Funds
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d. Inadequately Supported Payments
Contrary to Financial Regulation No. 52, there were sixteen (16) payments in
amounts totalling K75,841,387 that were inadequately supported in that the
vouchers lacked supporting documents such as receipts, invoices and quotations.
According to Clause 18 and 19 of the HTTI trust deed, “the accounts of the Trust
shall be made up to the thirty-first day of December in every year and the
Trustees shall within three months after completion of each accounting year
prepare a statement in such form as they shall consider to be appropriate showing
the true position of the Fund at such date. The Trustees shall issue an annual
report of the Trust with details of the progress made by Trustees in achieving the
objects of the Trust”
Contrary to the HTTI deed, the Institute did not prepare the financial statements
and the annual reports for the year ended 31st December 2008 as of March 2010.
JUDICIARY
Background
7. Article 91 (1) of the Constitution provides for the establishment of the Judicature that
consists of the Supreme Court, the High Court, Industrial Relations Court,
Subordinate Courts ,Small Claims Courts, Local Courts and the Sheriff of Zambia.
Article 91 (3) provides for the autonomy of the Judicature, which was to be
administered in accordance with the Provisions of the Judicature Administration Act
Cap 24 of the Law of Zambia.
The core objectives of the Judiciary are to improve access to justice by providing
quality trials that are disposed of in an efficient and effective manner, to provide user
friendly court rooms and support services in locations and areas that are accessible to
its clients, to reduce dependence on government subventions by developing
sustainable revenue collecting procedures that will generate levels of income that will
adequately support its activities, to increase public awareness of the Judicature’s roles
13
through effective communication with partner bodies, staff and society at large, to
make rules of procedure that reduce the delays experienced in local courts,
subordinate courts, the High Court and the Supreme Court, to protect basic human
rights of all individuals by creating a better understanding of human rights issues by
all justice administrators and intermediaries, to increase access to legal redress by
communities and groups that are otherwise unable to afford legal services.
According to Judicature Administration Act Cap 259 of the Law of Zambia, the
Judicial Service Commission shall be composed of the Chief Justice who shall be the
Chairman, the Attorney General, the Chairman of the Public Service Commission,
the Secretary to the Cabinet, a judge nominated by the Chief Justice, the Solicitor
General, a member of the National assembly appointed by the Speaker of the National
Assembly, a member to represent the Law Association of Zambia nominated by that
Association and appointed by the President, the Dean of the Law School of the
University of Zambia and one member appointed by the President.
According to the Act, the Chief Administrator is responsible for the day to day
running of the Judiciary and is assisted by chief officers namely the Registrar of the
High Court of Zambia, the Director of Human Resources and Administration; and the
Chief Accountant.
Sources of Funds
According to the Act, the funds of the Judicature shall consist of such moneys as may:
· Be appropriated by Parliament for the purposes of the Judicature;
· Be paid to the Judicature by way of court fees or by way of such grants as the
Chief Administrator may accept, or
· Vest in or accrue to the Judicature.
Review of Operations
14
than six months after expiry of each financial year. The financial statements
mentioned in the Act comprise the audited balance sheet, audited statement of
income and expenditure and such other information as the President may require.
It was observed that, contrary to the provisions of the Act, the Judiciary had not
produced the financial statements for the years ended 31 st December 2008.
b. Under Funding
In the Estimates of Revenue and Expenditure for the financial year ended 31st
December 2008, a provision of K129,010,305,515 was made out of which
amounts totalling K111,256,124,757 were released resulting in an under funding
of K17,754,180,758 which represented 14% of the total authorised provision.
c. Unvouched Expenditure
Contrary to Financial Regulation No. 65(1), there were seventy eight (78)
payment vouchers in amounts totalling K2,069,462,293 were not presented
for audit .
There were a total of two hundred and seventeen (217) payment vouchers in
amounts totalling K2,774,772,243 relating to the period between January
and December 2008 that were not supported by documents such as receipts,
invoices and goods received notes contrary to Financial Regulation No.52.
d. Unretired Imprest
There were a total number of fifteen (15) cheques which were indicated as
cancelled in the records of the Judiciary. However, these cancelled cheques were
not presented for audit. Although the cheques had not been presented to the bank,
the Judiciary had not issued a stop order for the cheques posing a risk of fraud.
15
payment of K65,000,000 was made to Dove Computing Company on 20th
November 2008 for the supply and installation of the system. An inquiry with
management revealed that Dove Computing failed to deliver the payroll system
and as of October 2009, the pay roll had not been received by the Judiciary.
Although in his response the controlling officer stated that there were
inadequacies in Dove Computing’s ability to handle Judiciary`s payroll which led
to the cancellation of the contract and that Dove computing had since committed
themselves to refund the monies, as of May 2010 only K25 million had been paid
back.
g. Civil Works
During the year under review, the Judiciary disbursed amounts totalling
K2,472,841,688 to provinces for the construction and rehabilitation of various
local courts and houses as shown in the table below:
Amount
Province K
Lusaka 932,019,710
Coperbelt 353,401,968
Western 218,257,754
Central 23,646,374
Northern 486,893,756
Luapula 325,000,000
Southern 109,181,462
Chipapa Court 24,440,664
Total 2,472,841,687
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Sites visit to selected provinces and physical inspections revealed the following:
A physical inspection conducted in September 2009 revealed that despite the contract period having elapsed on 25th March 2008 construction
works had not been completed
and the following were still outstanding:
• The floor for the entire court was not even and had cracks,
Chimfushi Local Construction of Katondwe • The contractor used plastic pipes instead of asbestos cement pipes for plumbing works,
28-Dec-07 16 weeks 484,351,645 398,850,011
Court local court Contractors • The finishing of the walls was poor as they were not even,
• The conduit pipes and socket outlets were not embedded in the walls but instead were laid on the walls,
• The extractions for piping, cement drain pipes and fitting and laying and jointing, excavating and
construction of the manholes, septic tank, soak-away had not been done, and
• The water reticulations outside the court had not been installed.
A physical inspection of the works that was carried out at Kasalya Local Court revealed the following irregularities:
• The floor in the court clerk’s office, local court magistrate chambers and the court room had cracks.
Kasalya Local Rehabilitation of Triple Kay • The window between the court clerk’s office and the local court magistrate chambers was not closing.
56,509,500 82,109,640
Court local court Contractors • Despite completing construction works no benches had been provided and the structure had not been handed over by July 2009. It was difficult to
establish the contract period and contract sum as the contract could not be provided for audit scrutiny.
17
Contract Amount Paid
Works to be Contract Contract
Station Contractor Price to contrator Remarks
Done Date Period
K K
Muwezwa
Local Construction of Danjos Steel
Court local court Fabricators Contract document not made available for audit.
Maguya
Local Construction of Cobweb
Court local court Constructions 197,754,250 Works completed
Pineland
Mpika Investments
Magastrate Rehabilitation of Ltd/Wanda
Court Magistrate Court Engineering 20,450,000 Contract document not made available for audit.
18
h. Non Current Assets
Contrary to Financial Regulation No. 103 the Judiciary did not maintain a
fixed asset register.
It was further observed that the properties, whose values could not be
ascertained due to poor record keeping, were not insured and no title deeds
were availed for audit.
MULUNGUSHI UNIVERSITY
Background
8. Mulungushi University is the forerunner to the National College for Management and
Development Studies (formerly known as Presidents Citizenship College) which was
established in 1972 by CAP 238 of the Laws of Zambia to provide leadership training
to officers of Government, Parastatal organisations and the labour movement.
In 2005, the National College for Management and Development Studies (Repeal) Act
No 18 of 2005 was passed and mandated the Council of the National College for
Management and Development Studies, in consultation with the Minister responsible
for Education and the Secretary to the Treasury, to carry out all actions necessary to
transform the College into a Public University.
The Minister of Education formally declared the National College for Management and
Development Studies as Mulungushi University with effect from 1 st January 2008, and
19
brought it under the authority of the University Act, through statutory instrument No.
105 of 2007.
Administration
The University has a council which is the supreme governing body. It also has a senate
which is the supreme academic authority. The Vice Chancellor who is the Chief
Executive of the University is responsible for the day to day operations of the
University.
Sources of Funds
According to the Act, the sources of funds for the University shall include, among
others:
· It’s own internally income generating ventures and donations through projects.
The Council may also accept monies by way of grants or donations from any source in
Zambia and, with the approval of the Minister, from any source outside Zambia.
Review of Operations
The University Act No. 11 of 1999 states among others that as soon as practicable but
not later that six (6) months after the expiry of each financial year the Council shall
submit to the Minister a report concerning its activities during such financial year.
The report of the Council shall include information on the financial affairs of the
Council and there shall be appended to the report –
Contrary to the University Act, the accounts for the financial year ended 31st December
2008 were not ready as at 31 st December 2009.
20
In their response, management stated that during 2008 the accounts unit was
inadequately staffed making it difficult to meet the deadlines and that new staff started
reporting in the third month of 2009.
However, a review of ledgers and other accounting records revealed the following:
a. Income
i. GRZ Grants
21
From the table above, only 44.6% of the budget was actually collected.
In response, management stated that the failure to meet the target was as a
result of low enrolment from the Degree programmes after the launch of the
university in that the budgeted student level was 500 against the actual student
number of 42. They added that the low enrolment impacted negatively on the
commercial entities resulting in the loss of business from the would be
students.
Contrary to the provisions of the University Act, which requires the Minister to
constitute a search committee to advertise and select the Vice Chancellor and
Deputy Vice Chancellor, a search committee was not constituted.
In response, management stated that the appointment of the Vice Chancellor and
the Deputy Vice Chancellor did not strictly comply with the provisions of the
University Act because it was a new University and their appointment preceded
that of the Council and that the Chairman of the Council had since written to the
Minister of Education requesting him to appoint a Search Committee for the formal
appointment of Vice Chancellor and Deputy Vice Chancellor.
In 2007, the incumbent Vice Chancellor was engaged as a consultant during the
transition period of the National College for Development and Management
Studies. During the period that he worked as a consultant, furniture worth
K98,947,000 was procured for his residence.
Although in their response management stated that the purchase of the furniture
was approved by the Executive Committee of the Council on the understanding
that this would be university property to be surrendered to the University at the end
of service of the officers, this was contrary to the conditions of service.
In the first year of operation of the University, all employees were given one year
contracts. A review of the contracts of employment revealed that officers were only
entitled to repatriation in the event that the contract was not renewed. However
22
contrary to the clause in the contracts, repatriation allowances in amounts totalling
K462,000,000 were paid to ninety seven (97) employees who had their contracts
renewed.
i. Unvouched Expenditure
Contrary to Financial Regulation No. 45, there were one hundred and fifty
Seven (157) payments in amounts totalling K 1,765,292,611 made during the
period from January to December 2008 that were not vouched in that they
lacked supporting documentation such as receipts, quotations, goods received
notes, tenancy agreements, Contract and acquittal sheets.
· As at 31st March 2009, thirty (30) weeks after the commencement date,
the building was only 65% complete and no liquidated damages had
been claimed despite the contract over running by 16 weeks.
23
Although management stated that the contract did not provide for exit
clauses which could allow the University to claim damages and that the
variations were approved by the Tender Committee, it was not clear as
to why the liquidated damages clause was omitted from the contract.
Contrary to the Generally Accepted Accounting Practice, it was observed that the
university management did not conduct the year end stock take for the year ended
December 2008.
A test stock take conducted in March 2009 on selected stores items revealed the
following variances:
Ledger Physical
Description Balance Balance Variance
(Shortfall)
Laptops 4 3 (1)
Pillows 445 145 (300)
Sugar 400 360 (40)
Milk 722 506 (216)
Cooking Oil 280 200 (80)
Paint 43 0 (43)
Contrary to Financial Regulation No. 103, the University management did not
maintain a register of accountable documents. It was therefore not possible to
establish the total number of receipt books that were issued for the period under
review.
A test check of receipt books issued to accounts revealed that out of the twenty-five
(25) receipt books purchased and issued to accounts by stores for the period under
review, only twenty-one (21) were recorded as having been received by accounts
leaving a balance of four (4) unaccounted for.
24
NATIONAL AIRPORT CORPORATION LIMITED
9. In paragraphs 52 to 61 of the report of the Auditor General for 2005 on the accounts of
Parastatal bodies, mention was made of the non declaration of dividends and non
payment of taxes by the Corporation due to its poor financial performance. Mention
was also made of the poor liquidity position, increased cost of borrowing, irregular
payment of Christmas bonuses, outstanding pensions and failure to follow tender
procedures among others.
Review of Operations
A review of the operations of the corporation for the financial years ended 31st March
2006 to 31 st March 2009, carried out in September 2009, revealed the following:
Turnover 89 83 66 56
Expenditure (112) (72) (52) (58)
(23) 12 13 (1)
Other Income 6 3 2 3
Loss/Profit
from operations (17) 14 16 2
Net exchange
(loss)/gains (1) 2 (18) 25
Fair Value
Adjustments - 1 - -
Finance Charges (4) (3) (4) (4)
Finance Income 1 0 - 0
(Loss)/profiit
before tax (20) 14 (7) 24
Income tax 4 (4) 3 (7)
(Loss)/profit
for the year (16) 10 (4) 17
b. Profitability
It was observed that although the Corporation recorded profits in the financial
year ending 31st March 2006 and 2008, losses of K3.77 billion and K16.05
billion were incurred in 2007 and 2009 respectively. The losses were mainly
attributed to high operating costs which increased from K 57.5 billion in 2005 to
25
K111.77 billion in 2009. This represents an increase of 94 % as opposed to the
growth of turnover of 57% during the same period.
c. Interest Cover
The interest cover shows the number of times the company is able to pay
interests from its profits. A high level of interest cover indicates a better position
as regards payment of interest. The generally acceptable ratio is two (2) and
above. The interest cover for the Corporation for the period 2006 to 2009 was as
shown below:
The interest cover exceeded the acceptable levels in 2007 and 2008. In 2006, the
profit was only able to cover half of the interest obligation whilst in 2009 the
interest cover was negative, indicating that the corporation may fail to meet its
obligations.
26
d. Statement of Financial Position as of 31st March 2006 to 2009
According to Sections 25 and 29 of the Aviation Act Cap 444 of the laws of
Zambia, the formation and title of the airports passed to the Corporation at
establishment. It was however observed that the corporation does not hold title
to Mfuwe and Livingstone International Airports whilst the title deeds for
Lusaka International Airport are still in the name of the Department of Civil
Aviation.
· Debt position
Trade and other receivables increased from K8.09 billion in the financial
year ending 31st December 2006 to 19.5 billion in 2009. It was further
observed that debtors collection days increased from 52 in 2006 to 78 in
2009 indicating that debt collection had weakened.
27
· Zambian Airways Debt
In April 2009, Zambian Airways was put under receivership and although
claims had been made to the Receiver, no money had been paid to the
Corporation to clear the debt as of December 2009.
iii. Gearing
The ratios above indicate that the company heavily relied on debt and as a
result, the finance costs (interest) increased by 17% from K3.5 billion in 2006
to K3.66 billion in 2009.
The contract for the proposed remodelling and construction of air traffic
control tower at Livingstone International Airport was awarded to Merit
Engineering Services Limited in September 2008 at a total contract sum of
K1,366,136,060 with a completion period of twelve (12) weeks.
28
The scope of works included demolitions and alterations, waterproofing,
roofing, structural steel works, metal works, plumbing and engineering
installation, electrical installations, floor, wall and ceiling finishes and
painting and decorating.
The Contractor was handed over the site in October 2008 and works were
to commence the following week. As of August 2009, a total of
K1,672,086,646 had been paid to the contractor.
Although the project completion period was extended by four (4) weeks,
works were behind schedule by seven (7) months and no liquidated
damages had been claimed from the contractor.
On 3rd April 2008 NACL awarded a tender for the supply, delivery,
installation, testing and commissioning of 800 KVA Three Phase 50Hz
1500 RPM Standby Generator Set at Lusaka International Airport to
Sulmach Limited at a contract price of K1,410,000,000 with a delivery
period of twenty (20) weeks. Works commenced on 14th May 2008 and
were scheduled to be completed by 15th October 2008.
· In April 2009, the contractor could not proceed with the civil works due
to liquidity problems. In this regard, an advance payment of
K30,000,000 was made to the contractor despite the earlier advance
payment having been made contrary to the conditions of the contract
that required certification of completed works before payment could
be made.
29
· A physical verification of the civil works carried out in August 2009,
revealed that construction works had stalled as shown in the picture
below and the contractor was not on site.
Forty nine (49) payment vouchers in amounts totalling K241,442,834 and four
(4) payment vouchers in amounts totalling US$16,308.28 were inadequately
supported in that they lacked receipts, acquittal sheets or other supporting
documents.
g. Unretired Imprest
30
that as of August 2009 the equipment had not been installed (eight years after
purchase).
Background
10. The National Heritage Conservation Commission (NHCC) is a statutory body which
was established in 1989 by the National Heritage Conservation Commission Act,
Chapter 173 of the Laws of Zambia. Under the Act, NHCC is required to conserve, by
preservation, restoration, rehabilitation, reconstruction, adaptive use, good
management, or any other means, the historical, natural and cultural heritage of
Zambia.
Administration
According to the Act, the Commission shall consist of a Chairman, the Permanent
Secretary in the Ministry responsible for heritage who is an ex-officio member and not
less than seven (7) but not more than ten (10) other members who are persons with
experience in matters related to the functions of the Commission.
According to Section 15 of the Act, the Executive Director who is the Chief Executive
Officer (CEO), is responsible for the day to day running of the Commission. The CEO
is assisted by the Director of Conservation Services and four regional Directors for
East Central, North West, Northern and South West regions.
Sources of Funds
The National Heritage Conservation Commission derives its income from grants
received from the Government, entry fees to national monuments, rent receivable,
consultancy fees, lease fees, donor funding and donations.
Review of Operations
An examination of the accounting, stores and other relevant records carried out in
December 2009 revealed the following:
31
a. Income
During the period under review, the Commission received the following funds:
The decline of income between 2007 and 2008 is attributed to the reduction in
receipts from cooperating partners and capital grants.
Further a review of the agreement signed between the Government of Zambia and
the Sun International Hotel in 1999 regarding the entry fees at the Victoria falls
revealed that the agreement did not provide for the Commission or their agents to
verify the accuracy of visitation records used by Sun International Hotel to arrive
at amounts payable.
b. Staffing Levels
The authorised establishment of the Commission during the period under review
was two hundred and sixty (260) positions out of which one hundred and thirty
eight (138) were filled, leaving one hundred and twenty two (122) vacant.
An analysis of the Commission’s wage bills compared to the grants received from
the Government revealed that during the period under review, the Commission
received monthly funding of K376,000,000 against a gross monthly wage bill of
K512,992,145 resulting in a monthly shortfall of K136,992,145. Although the
Commission indicated that the shortfall on net salaries was met through its own
sources, this was still not adequate as a result monthly salaries were being paid in
batches.
32
Obligation K
PAYE 5,970,341,790
NAPSA 800,557,339
ZSIC PENSION 687,980,112
Total 7,458,879,241
The unremitted statutory contributions are likely to attract penalties which will
be a cost to the Commission.
e. Outstanding Gratuity
As of December, 2008 the commission was owing its members of staff a total sum
of K3,205,550,516 in unpaid gratuities.
f. Fixed Assets
Cost
Stand # Location Town Purpose K
2188 Mosi-O-Tunya road Livingstone Office block 28,000,000
Residential
456 Mukambo road Livingstone house 8,500,000
Residential
727 Airport road Livingstone house 7,500,000
Total 44,000,000
Further, although the Commission was in possession of title deed for stand
number 727, the ownership of the property had not been transferred to the
Commission.
In June 2006, the Commission awarded a contract for the rehabilitation of the
Kalomo Administrator’s House under the National Tourism Development Master
33
Plan Project, to Pozzolona Enterprises, a Lusaka based contractor, at a contract
sum of K 278,198,600. According to the contract, the works on the project which
commenced on 13th July 2006 were due to be completed by 27th September 2006.
As of March 2010, amounts totalling K258,704,006 had been paid to the
contractor and the contractor had since abandoned the site.
During the period under review, the Commission received amounts totalling
K629,559,460 as grants from the Royal Kingdom of Norway under the NORMFA
Support to the Commission project. However, the Commission misapplied
amounts totalling Kl16,022,700 on activities not related to the project such as
34
legal fees, publication and training. As of March 2010, the funds had not been
reimbursed.
11. In the report of the Auditor General for 2007 on the Accounts of Parastatal Bodies,
mention was made on various accounting and other regularities at the National
Housing Authority (NHA). A review of operations for the year 2008 revealed the
following:
a. Outstanding Rentals
No. Of Balance
Property
Tenants (K)
Kulima Tower 91 777,711,479
Indeco House 60 2,057,573,824
Zimco House 45 594,704,163
Findeco House 223 2,006,207,858
722/723 Freedom Way 21 137,498,196
NHA
Head Office 4 255,425,939
Chipata 13 194,144,639
Solwezi 3 63,547,474
Mansa 5 41,394,211
Kasama 6 154,257,725
Mongu 4 53,691,400
Total 475 6,336,156,908
As can be seen from the table above, NHA was owed amounts totalling
K6,336,156,908 by various tenants. It was observed that out of the total amount
owed, amounts totalling K 5,894,980,132 had been outstanding for more than 360
days.
35
b. Uncollected Income from sale of Kafue Estates Houses
As of October 2009, a total of sixty eight (68) housing units which were
offered for sale between 2001 and 2006 to the sitting tenants had not been fully
paid for and a balance of K441,318,338 had been outstanding for periods ranging
between 4 to 8 years.
Pay as you Earn (PAYE) due to the Zambia Revenue Authority in amounts
totalling K 8,709,384,073 deducted from employees during the period from 2001
to 2008 had not been remitted as of December 2008.
d. Staff Establishment
It was observed that the Authority had no approved staff establishment in place
despite having had a total number of 257 employees.
Background
12. The National Sports Council of Zambia is a statutory body which was established
under the National Sports Council Zambia Act No.15 of 1977.
· To ensure that sports groups and associations at all levels conform to the rules
and norms governing the particular sport;
· To raise and maintain a fund from such sources and by such means as the
Minister may approve, to enable the NSCZ to carry out its functions and achieve
it’s objectives;
· To stimulate through the appropriate authorities the provision, development and
maintenance of facilities and equipment for all kinds of sport and ensure their
equitable distribution and proper use;
· To ensure that sports groups at all levels maintain proper accounts and where
deemed necessary to supervise and direct the maintenance of such accounts;
· To do and perform such other acts and things as may be conducive to the
development, control, regulation and promotion of sports and to the enforcement
of the provisions of this Act.
Management
i. The Chairman, the vice-chairman and not less than five other members, all of
whom shall be appointed by the minister;
ii. The Director or his representative;
iii. Two members to be appointed by each affiliated body; and,
iv. One member to be appointed by:
37
The day to day operations of the Council are the responsibility of the General Secretary
who is appointed by the Board with the approval of the minister and is assisted by the
Centre Manager, Accountant, Sports Development Officers, Research and Public
Relations Officer and the Administrative Assistant.
Sources of Funds
According to the provisions of the Act, the funds of the Council shall consist of:
· such sums as may be appropriated by Parliament for the purposes of the Council;
· such sums as are paid to the Council as donations, contributions, subscriptions,
fees or gifts, provided that the council shall not raise money from outside Zambia
without prior approval of the Minister; and,
· such other money or assets as may accrue to or vest to the Council as a result of
the investments made or transactions entered into in course of its operations.
Review of Operations
A review of the of financial, accounting and other relevant documents for the financial
years ended 31st December 2003 to 2008 carried out in August 2009 revealed the
following:
a. Income
i. Grants
In the Estimates of Revenue and Expenditure for the financial years ended
31st December 2003 to 2008, provisions of K2,296,931,883 were made to
cater for the operations of the Council against which a total of
K2,413,669,835 was released resulting in excess funding of K116,737,952
as shown in the table below:
Total Authorized
Year Provision GRZ Grant Variance
K K K
2003 370,112,495 432,557,756 62,445,261
2004 87,029,170 90,701,893 3,672,723
2005 308,590,218 341,639,406 33,049,188
2006 550,000,000 558,339,791 8,339,791
2007 429,200,000 499,039,766 69,839,766
2008 552,000,000 491,391,223 (60,608,777)
Total 2,296,931,883 2,413,669,835 116,737,9 52
38
ii. Other Income
In addition to government grants, the Council generates its own income from
affiliation fees from member bodies and from other activities such as bar
sales. The Council had a total of forty two (42) member bodies during the
period from 2003 to 2008 and the affiliation fee payable by each member
body was K100,000 per year. Therefore, the affiliation fees expected to
have been collected by the Council over the period from 2003 to 2008 was
K25,000,000.
During the period under review, the Council generated amounts totalling
K725,113,700 from bar sales. However, due to poor record keeping it was
not possible to ascertain how much was received in respect of affiliation
fees.
b. Staffing
Out of a total approved establishment of thirty (30) positions, eighteen (18) were
filled while twelve (12) were vacant as of August 2009. Among the vacant
positions were those of the Research and Public Relations Officer, the
Administrative Assistant, the Accountant and three (3) Sports Development
Officers.
It was observed that there were no internal controls as one person was involved in
the preparation, approving and authorisation of payments.
There was poor record keeping as evidenced by the non maintenance of records
such as receipt books, bank reconciliation statements and cash books for funds
received by the Council contrary to Financial Regulation No. 128. In this regard, it
was difficult to ascertain how the funds received were utilised.
During the period under review, the Council operated without strategic and annual
work plans.
39
f. Failure to Produce Annual Reports
According to the National Sports Council of Zambia Act No.15 of 1977, as soon
as may be after the 31 st December in each year but not later than three months
thereafter, the Council shall submit to the Minister a report concerning its
activities for the financial year. The report of the Council shall include
information on financial affairs of the Council and there shall be appended to the
report an audited balance sheet, an audited statement of income and expenditure
and a report of the auditors as the Minister may require. The Minister shall lay the
annual report before the National Assembly.
Contrary to the above, the Council did not prepare and submit annual reports for
the period under review to the Minister. It was also observed that the accounts for
financial years ended 31st December 2003 to 2008 had not been prepared.
According to the Act, the Minister in consultation with the Minister in charge of a
Province appoints Provincial Sports Advisory Committees who in turn appoint
District Sports Committees responsible for the promotion, development and
organization of sports within the province and districts respectively.
Contrary to the above provisions of the Act, no provincial and district sports
committees were appointed in the provinces and districts.
h. Creditors
During the period under review, the Council owed amounts totalling
K1,481,219,438 in respect of terminal benefits, salary arrears, statutory
contributions and other creditors as shown in the table below some of which had
been outstanding from as far back as 2004.
Amount
Details K
Terminal benefits 705,003,557
Salary arrears 18,468,400
Statutory remittances 366,746,795
Other creditors 391,000,686
Total 1,481,219,438
In this regard, the Council will be susceptible to interest and penalty charges.
40
i. Unvouched Expenditure
Contrary to Financial Regulations No. 52, 65 and 156 there were six hundred and
sixty seven (667) payments in amounts totalling K2,241,435,522 that were
unvouched in that the payment vouchers were either missing, unacquitted or
inadequately supported with invoices, receipts among others as shown in the table
below:
Main
No. of Total No. of
A/C Bar Total
Vouchers Vouchers
K K K
Main A/c Bar
Missing Vouchers 107 159 266 323,771,094 195,105,236 518,876,330
Unacquitted Payments 149 4 153 1,020,605,513 1,575,000 1,022,180,513
Inadequately Supported 166 82 248 546,745,676 153,633,003 700,378,679
Total 422 245 667 1,8 91,122,283 350,313,239 2,241,435,522
Background
13. The Nitrogen Chemicals of Zambia was established in 1967 by the Government of the
Republic of Zambia (GRZ) through its investment arm of INDECO mainly to produce
explosive grade ammonium nitrate for further processing into explosives for mining
copper, coal, and quarrying operation with an initial estimated investment of US$500
Million. Construction of the plant was done by Kobe Steel Limited of Japan on a
turnkey basis and was commissioned in 1970. In 1973, a decision was made to expand
the plant to produce fertilisers. In 1975, Klockner of Germany began construction of
the second phase which was commissioned in 1981. This phase of expansion included
production of additional ammonia, nitric acid, ammonium nitrate, ammonium sulphate
and compound (NPK) fertilisers.
In 1983, a sulphuric acid plant was also constructed to produce sulphuric acid as phase
3 to be used as raw materials in production of ammonium sulphate. As a result of the
expansion, the NCZ has a production capacity of 608,820 metric tonnes of various
products per annum as shown in the table below:
41
Design
Product Capacity
(MT p.a)
Ammonium Nitrate 139,000
Ammonium Sulphate 50,000
Compound Fertilizer (NPK) 142,320
Liquid Ammonia 95,000
Methanol 1,500
Nitric Acid (100% conc.) 120,000
Sulphuric Acid (100% conc.) 60,000
Liquid Carbon Dioxide 1,000
Total 608,820
Administration
Nitrogen Chemicals of Zambia has a Board of Directors comprising ten (10) members
drawn from government ministries and private companies in accordance with the
Articles of Association and the Companies Act. The role of the Board is to effectively
govern the affairs of NCZ for the benefit of its shareholders, and other constituencies,
which include the company’s employees, customers, and communities in which it does
business.
The Board chairman and members are appointed by the Minister of Agriculture and
Cooperatives who represent the shareholders, the Government Republic of Zambia.
As of November 2009, board membership comprised seven (7) out of the ten (10)
board members as the Chairperson and two other members had resigned from their
positions in September 2009.
The Board delegates responsibility for implementing the strategic direction and for
managing the day to day operations of NCZ to the Chief Executive Officer who is
assisted by the General Manager, Chief Finance Officer, Purchasing Manager,
Technical and Maintenance Manager, Production Manager and Human Resource
Manager who are appointed for a contract term of three (3) years. The rest of the
members of staff are on permanent and pensionable basis.
Source of Income
The Company earns its income from the sale of its products, grants from the
government and other activities such as hire of equipment and of work shop services.
42
Share Capital
The Company is wholly owned by the government with an authorised share capital of
K1,200,000,000 ordinary shares of K2.00 each out of which K1, 089,022,306 was
issued and fully paid. In addition, the Company also has a total number of 573,304,370
preference shareholders.
Review of Operations
Clause 126 of the Articles of Association for the Nitrogen Chemicals of Zambia
Limited requires the board of directors to annually produce and lay before the
general meeting, profit and loss account and the balance sheet which must be in
compliance with any law that is in force.
Contrary to the above provision, the Company had not produced audited financial
statements for the financial years ended 31st March 2001 to 2009 and consequently
it was not possible to comment on the financial performance and position of the
company.
However, as of March 2010, the money had not been paid to NCZ.
ii. Contract for the Supply of D Compound Fertilizer for Fertilizer Support
Programme (FSP)
43
Compound fertilizer for the 2009/2010 farming season and the plant was
rehabilitated.
The contract terms provided for among other things the following:
· The product was to be sold to the Government at K3.9 million per metric
tonne;
· A down payment of K27 billion was to be paid upon signing the contract
and the balance of K31.5 Billion was to be paid upon completion of
production.
· The down payment of K27 billion that should have been made by the
Government upon signing the contract was not released to NCZ contrary
to Clause 11.1 of the Special Conditions of the Contract;
44
iii. Inadequately Supported Payments
Contrary to Financial Regulations No. 45, there were six hundred and fifty six
(656) payment vouchers in amounts totalling K16,930,433,848 that were
inadequately supported in that they lacked supporting documents such as
receipts, acquittal sheets and salary schedules among others.
Contrary to Financial Regulation No. 52(1), one hundred and forty six (146)
payment vouchers in amounts totalling K1,503,773,118 were inadequately
supported in that they lacked three (3) competitive quotations
d. Unretired Imprest
NCZ recruited the Chief Internal Auditor (CIA) on a contract for a period running
from 14th May, 2007 to 15th May 2010. In July, 2009, the Board appointed the CIA
to act in the position of CFO before terminating the contract of CIA. It was also
observed that as of September, 2009, this officer continued to perform the
functions of both offices thus creating a conflict of interest.
45
procurement of food stuffs in the financial years ended 31st March 2001 to 2009.
However, due to poor record keeping, it was not possible to ascertain how much
money was raised from the sale of meals.
The conditions of service and the collective agreement provided for a medical
allowance of 15% of basic salary to all employees. In this regard, during the
financial years ended 31st March 2001 to 2009, NCZ paid amounts totalling
K12,920,668,754 to members of staff as medical allowances. However, it was
observed that during the same period, NCZ provided free medical services to staff
and their families at its two clinics and in this regard, NCZ procured all the
medical supplies for the two clinic at a cost of K205,126,823 during the period
under review. It was not clear why NCZ was offering free medical services to
employees who were at the same time in receipt of medical allowance.
During the period under review, the company owed amounts totalling
K123,404,577,864 in respect of statutory obligations as shown in the table below:
Amount Owe d
Name of Statutory Body K
Zambia Revenue Authority - PAYE 30,386,557,383
NAPSA - Principal Debt 8,891,698,675
NAPSA - Penalties 81,528,292,076
Workers Compensation Control Board 2,598,029,730
TOTAL 123,404,577,864
The outstanding amounts in statutory contributions are likely to attract penalty and
interest charges that would further worsen the financial position of the company.
46
k. Bank Overdraft
In February 2007, NCZ obtained a K14.0 billion bank overdraft facility from
Zambia National Commercial Bank (ZANACO). The facility was to be used for
the purchase of local raw materials and to meet operational expenses. In addition,
the overdraft facility provided for a US$13,740,000 (equivalent of
K53,970,759,793) letters of credit to procure imported raw materials for the
production plant. The overdraft facility and the Letters of Credit were due to
expire on 30th November, 2007.
The overdraft facility agreed upon between NCZ and ZANACO was on the basis
of a contract that was entered into between NCZ and the Government of the
Republic of Zambia (Ministry of Agriculture and Co-operatives) to supply 25,000
metric tonnes of Compound D fertilizer under the Fertilizer Support Programme
(FSP). As per agreed contract terms, between July 2007 and October 2007, NCZ
supplied the Government with the 25,000 metric tonnes of Compound D fertilizer
valued at K66,000,000,000.
iii. Although the K14.0 billion overdraft facility was obtained for the
procurement of raw materials, it was observed that amounts totalling
K5,300,000,000 were used to clear salary arrears.
iv. NCZ further obtained overdrafts of K2.0 billion and K1.5 billion to
facilitate for the payment of terminal benefits. However, the two facilities
were obtained without approval from the board.
47
l. Failure to Liquidate a Loan
In April 1986, a Credit Development Agreement was signed between the Zambian
Government and the International Development Association (IDA). In the signed
agreement, IDA agreed to make available to the Government an amount in various
currencies equivalent to nine million seven hundred thousand Special Drawing
Rights (SDR9,700,000) on the terms and conditions set forth in the Development
Credit Agreement. Under Article II of the loan agreement, the Government agreed
to lend NCZ on terms and conditions set forth in the Development Credit
Agreement, the equivalent in Zambian Currency of the aggregate amount of the
currency or currencies equivalent to SDR9,700,000 as a subsidiary loan. The loan
was unsecured and accumulated interest at 9.7% per annum.
However, contrary to the terms of the agreement which required the loan to be
liquidated by 30th June 2001, as of March 2010, the loan had not been liquidated.
In this regard, NCZ owed amounts totalling K704,970,000 of which K653,886,000
was interest.
i. Di Ammonium Phosphate
During the year ended 31st March 2007, the NCZ procured 16,015 metric
tonnes of Di Ammonium Phosphate valued at US$9,447,492.25 from
Industrial Commodities Holdings (Pty) Limited of South Africa. A review of
the Material Receipts Reports revealed that only 8,843 metric tonnes of Di
Ammonium Phosphate valued at US$ 5,216,826.76 was received by NCZ
leaving a balance of 7,171.65 metric tonnes valued at US$4,230,665.49
undelivered as of 0ctober 2009.
ii. Gypsum
During the year ended 31st March 2007, NCZ procured 10,610 metric
tonnes of Gypsum valued at US$224,401.50 from Chambishi Metals plc. A
review of the Material Receipts Reports revealed that only 2,628 metric
tonnes of Gypsum valued at US$55,587.49 was received by NCZ leaving a
balance of 7,981.75 metric tonnes valued at US$168,814.01 undelivered as
of October 2009.
iii. Coal
During the years ended 31st March 2006 and 2007, NCZ procured 5,000
metric tonnes of Coal valued at K1,791,875,000.00 from Collum Coal
Mining Industries Limited. A review of the Material Receipts Reports
48
revealed that only 4,447 metric tonnes of Coal valued at K 1,593,629,118
was received by NCZ leaving a balance of 553.18 metric tonnes valued at
K198,245,883 undelivered as of October 2009.
n. Irregular Payments
ii. During the period under review, NCZ engaged ACE Audit Control & Expertise
to among other things monitor the fertilizer granulating process, costs and
charges, and other collateral management services. However NCZ had
operational Quality Assurance, Internal Audit and Finance departments to
carry out the same work. During the period August 2005 to April 2006 a
total of K158, 378,250 was paid for the service to the said company.
Background
14. The Task Force on Corruption (TFC) was established in 2002 in accordance with
Article 61 of the Constitution of Zambia. The specific terms of reference were to:
· Collect, evaluate, process and investigate all suspected criminal conduct relating
to serious mismanagement of public resources including acts of corruption, theft,
abuse of office and money laundering committed by public officials during the
period 1992 and 2001;
49
· Initiate and facilitate forfeiture proceedings within and outside Zambia in respect
of any property reasonably suspected by the TFC to have been directly or
indirectly acquired through illegal acts or transactions in respect of public
resources;
· Liaise with other authorities outside Zambia on maters relevant to the gathering
of intelligence information, investigation and prosecution of suspected persons;
· Carry out other duties as may be assigned to the TFC by competent authorities
from time to time.
Administration
According to operational guidelines, the Task Force on Corruption was headed by the
Executive Chairman who was assisted by the Director of Operations. The Director of
Operations was assisted by four (4) Deputy Directors in charge of Finance,
Administration and coordination, General Investigations and Recovery and
Management of Assets, Financial Investigations and Prosecutions and Litigation.
Sources of Funds
The operations of the Task Force on Corruption were financed through grants from the
Government and cooperating partners.
During 2008, the Task Force received amounts totalling K4,000,952,394 as grants
from Government. In addition, K2,537,321,860 (US$519,730) was brought forward
from 2007 Cooperating Partners’ grants bringing the total amount available to
K6,538,274,254.
a. Bank Balances
As at 31st December 2008, TFC had four (4) bank accounts as detailed in the table
below:
50
Balance as at
Bank Account Number
31st December 2008
K US$ £
Crown Agents Dollar Account
Bank 33084102 - 83,529.41 held in London
Recoveries Account Kwacha Account
(BOZ) 001-37-28-00515-0 7,143,022,238 - held at Bank of Zambia
Recoveries Account Dollar Account held
(BOZ) 001-37-28-00515-2 - 1,371,696.04 at Bank of Zambia
Pound Sterling Account
held
Recoveries Account 001-37-28-00515-1 - - - at Bank of Zambia
The Government procured legal services by engaging various legal firms in order
to assist TFC in prosecuting in the courts of law. However, the following were
observed:
The law firms contracted were not engaged competitively but merely single
sourced and appointed by the Attorney General. Details of the law firms and
their legal fees payable is tabulated below:
Amount Paid
as of M ay Amount
Fee/M onth Amount Due 2008 Outsatnding
Law Firm US$ US$ US$ US$ Remarks
MNB 20,000.00 280,000.00 120,000.00 160,000.00 Eight (8)
months arrears
Zulu & Co 20,000.00 280,000.00 120,000.00 160,000.00 Eight (8)
months arrears
Sambo Kayukwa & 20,000.00 280,000.00 120,000.00 160,000.00 Eight (8)
Co months arrears
Mundia & Co 20,000 15,333.33 15,333.33 Nil Terminated
DLA Piper Rudnick Vary monthly 1,579,954.79 241,723.73 1,338,231.06 Eight (8)
months arrears
51
ii. Payment of Legal Fees
The terms of reference for the engaged law firms spelling out reporting lines
and the basis of payment of fees were not availed for audit scrutiny. In
particular, the following were observations:
It was however observed that, contrary to the sale agreement which required the
buyer to make one lump sum by certified bank cheque within 30 days from the date
52
of offer, only K84 million had been paid in May 2009, leaving a balance of K66
million outstanding.
It was also observed that although the buyer had paid K84 million in 2006, as of
May 2009, the money had not been remitted into the recoveries account by NHA.
· Lusaka
· Kitwe
· DGH Poly Products – Stand No. 5291, 3292, 5299 and 5300, Lusaka
The company was seized in July 2003 and had not been disposed of as of
May 2009. The company was valued at K5,250,000,000 and was running
as a going concern. There was no agreement between the Government and
the management running the company.
The property was seized in September 2003 and had not been disposed of
as of May 2009. The premises which was valued at K1,400,000,000 was
leased out to tenants and run by a manager. Rental income realised was not
remitted to Government. There was no agreement between the Government
and the manager running the premises.
53
· Former UBZ Premises – Stand No: 40 83 / 12, Twalumba Close, Ndola
The property was seized in 2008 and had not been disposed of as of May
2009. The property was valued at K1,400,000,000 and leased out to
tenants. No rental income was being remitted to Government. There was no
agreement between the Government and the manager running the premises.
The property was seized in 2008 and it had not been disposed of as of May
2009. The school valued at K4,744,489,530 is a going concern. No income
is being remitted to Government and there was no agreement between
Government and the school management.
The property valued at K520,000,000 was seized in May 2003 and had not
been disposed of as of May 2009.
Background
15. TAZAMA Pipelines Limited was established in 1966 to construct and operate a
pipeline between the port of Dar es Salaam in Tanzania and Ndola in Zambia for the
purpose of transporting crude oil or its refined petroleum products.
The pipeline covers a distance of 1,710 kilometres and has an annual throughput
capacity of 800,000 metric tons of crude oil. The company also operates a tank farm
facility situated at Kigambani in Dar es Salaam which comprises six (6) tanks with a
holding capacity of 232,000 cubic meters. Pumping is achieved though seven (7) pump
stations, five (5) in Tanzania and two (2) in Zambia.
Administration
54
(3) Directors appointed by subscribers of Class B shares with Zambia providing the
Chairperson.
The day to day operations of the company are managed by the Managing Director who
is assisted by the Director of Operations and Engineering, Financial Controller and
Director of Administration who are based at Head office in Ndola.
The Board appoints the Managing Director and directors on a renewable three (3) year
contract. The rest of the staff is appointed on a permanent and pensionable basis.
The total authorise staff establishment of the company was 394 as of March 2009.
Sources of Funds
The major sources of funds for TAZAMA Pipelines Limited are pumping and storage
fees, agency fees and rental income.
Review of Operations
a. Capital Structure
A special resolution of the Annual General meeting held in August 1995 that the
issued share capital be increased by K5 billion annually for the next five (5) years
in order to bring the capital requirement to K25 billion for Class A shareholders
and another K25 billion for the Class B shareholders had not been implemented as
of July 2009.
55
c. Failure to Convert Government Loans into Equity
In January 1991 and July 2002, GRZ paid TAZAMA Pipelines Limited loans
totalling K264,265,472,000 (US$66,378,000). The loans were for the
rehabilitation of crude oil farm tanks in Dar es Salaam.
d. Financial Performance
An analysis of the financial statements for the period ending 31st March 2005 to
2008 revealed the following:
Profitability
56
Pump Yield
2008 2007 2006 2005
Metric Tonnes Metric Tonnes Metric Tonnes Metric Tonnes
Quantities of Feed Stock 461,980 447,340 362,829 492,134
Pumping Costs (K'000) 50,062,011 49,028,132 45,292,453 35,348,116
iii. There were no dividends declared and paid to the shareholders during the
period under review.
e. Financial Position
Balance Sheet for the Financial Year Ending 31st March 2005 to 2008
Curre nt asse ts
Inventories 14,379,070 4,919,176 3,847,546 9,595,816
Debtors and other receivables 27,363,618 9,540,557 1,131,828 15,195,462
Bank balances and cash 3,990,389 4,022,078 1,212,689 1,646,447
45,733,077 18,481,811 6,192,063 26,437,725
Total assets 452,456,200 438,884,739 431,765,960 481,942,673
57
i. Liquidity
The liquidity position of the company during the period under review was as
shown in the table below:
As can be seen from the table above, TAZAMA Pipelines Limited operated
with a negative working capital, while the current and quick ratios for the
company were below the recommended ratios of 2: 1 and 1:1 respectively
during the period under review thereby exposing the company to the risk of
insolvency.
The Debt to Total Assets ratio measures the amount of debt to total assets.
The margin of safety for debt ratio is 50% or less.
During the period under review, the debt to total assets ratio moved from
77% in 2005 to 87% in 2008 as shown in the table below:
The interest cover shows the number of times the company is able to pay
interests over the profits. A high level of interest cover indicates a better
position as regards payment of interest with debt holders confident that
profit is sufficient to pay interest and shareholders confident of their
dividend. The desired margin of safety for interest cover is 2.
58
During the period under review, the interest cover was adverse ranging from
0.05 in 2005 to negative 0.12 in 2008 as shown below:
iv. Gearing
During the period under review, the gearing ratio for TAZAMA Pipelines
Limited moved from 40% in 2005 to 75% in 2008 as shown below:
59
f. Other Irregularities
Contrary to the Income Tax Act, TAZAMA Pipelines Limited did not remit to
Zambia Revenue Authority Pay As You Earn deductions in amounts totalling
K16,142,157,799 some of which had been outstanding from as far back as
1999. It was also observed that, as of April 2009, the company owed amounts
totalling K1,989,869,938 to NAPSA in respect of pension contributions
contrary to the provisions of the National Pension Scheme Act.
60
TIMES PRINTPAK (Z) LIMITED
Background
16. Times Printpak (Z) Limited is a company wholly owned by government. It was formed
as a result of a merger between Times Newspapers Zambia Limited and Printpak (Z)
Limited in March 1993.
Management
The Board appoints the Managing Director, who is the Chief Executive Officer on a
renewable three (3) year contract. The Managing Director is responsible for the day-
to-day operations of the company and is assisted by the Deputy Editor in Chief,
Finance Manager, Manpower and Human Development Manager, Legal Counsel and
Human Resources manager.
Sources of Funds
The sources of funds for the Company are government grants, newspaper sales,
advertising sales, commercial printing sales and courier service.
Review of Operations
A review of audited and draft accounts and other relevant documents for the financial
years ended 31st March 2003 to 2009 carried out in September 2009, revealed the
following:
Times Printpak operated without a board of directors for nine (9) months from
January to October 2007. In addition, the board of directors that existed at the
time of audit had nine (9) members instead of eight (8) as stated in the articles of
association.
61
b. Failure to Produce Audited Financial Statements
During the period under review, the Company collected amounts totalling
K125,414,250,709.59 from newspaper sales, advertising sales, commercial
printing sales, fixed assets disposal, courier services and interest earned against a
total budget of K148,233,021,489 resulting in under collections amounting to
K22,818,770,779.41 representing 15% of the total budget.
d. Unretired imprest
There were forty two (42) payments made between January 2008 and August 2009
in amounts totalling K344,536,092 that were inadequately supported in that the
payment vouchers lacked supporting documents such as receipts and quotations
relating to goods and services purchased.
Contrary to the provisions of the National Pension Scheme Act of 1996, the
Zambia Revenue Authority (ZRA) Act of 1995 and the Income Tax Act, Times
Printpak (Z) Ltd did not remit statutory contributions and taxes to the appropriate
authorities. The total outstanding amounts as at 31st December 2008 were
K247,800,823,519 as shown in the table below:
62
AMOUNT
CREDITOR K
ZRA – PAYE 32,357,063,941
ZRA – WHT 191,655,747
ZRA – VAT 13,615,280,585
NAPSA 201,576,993,573
Workers Compensation Fund 59,829,674
Sub Total 247,800,823,519
During the period from May 2006 to November 2008, the Company irregularly
paid amounts totalling K2,795,000,000 to thirty four (34) members of staff as
car maintenance allowances in that the officers were not entitled to the allowances
and there was no board approval.
In August and September 2008, two (2) employees were summarily dismissed
from employment. At the time of their dismissal, the employees benefits could not
cover all their indebtedness to the company. In this regard, the company was
unable to recover amounts totalling K107,967,268 owed by the dismissed
employees.
Contrary to staff conditions of service, management bought twenty three (23) cell
phones at a total cost of K45, 543,490 for management staff between February
2006 and April 2009. The distribution list was not availed to the auditors for audit
scrutiny.
In July 2006, Times Printpak (Z) Limited engaged EBM Chambers to collect
debt from seven (7) customers who owed the Company amounts totalling
K1,105,902,064 for a long time. The terms of the engagement provided among
others, that the debt collector:
63
· Collects debts on behalf of the Company from the seven (7) customers
only;
· Receives 10% as commission on amount collected from the debts;
· Shall furnish the Company with statements of accounts and any
necessary reconciliation of the debtors assigned to; and,
· Shall, where a debtor proves difficult as regards payment of dues which
he rightfully knows are payable, he shall use all means, within the law
to obtain payment.
· The Company could not provide records on how much was collected
and remitted to them and on the commission paid to the debt collector.
· The Company could not provide any statements of accounts and
reconciliations for the seven (7) customers assigned to the debt collector
to show the outstanding balances as of September 2009.
· The debt collector stopped offering the services for debt collection on
30th April 2007 and since then, no effort had been made by management
to recover the debts.
Contrary to their conditions of service which stated that gratuity shall be paid at
35% of basic salary for the years served, three (3) employees were paid at 100%
of basic salary for the years served resulting in an over payment of K138,810,140
as detailed in the table below:
64
at 100% of basic salary instead of 70% which resulted in over payment of
K13,458,311. As of March 2010, the overpaid amounts had not been recovered.
Background
17. In paragraph 15 of the Auditor General’s Report on accounts of Parastatal bodies for
the year ended 31st December 2006, mention was made of the non production of annual
reports and weakness in receipting student fees by the University.
A review of the situation carried out in December 2009 revealed that only draft
financial statements were availed for audit without supporting ledgers.
a. Staff Establishment
The University did not provide for audit, information regarding its staff
establishment making it difficult to ascertain and compare the authorised
establishment with the actual work force. It was in this regard not possible to
determine the adequacy of the human resource at the institution.
b. Segregation of Duties
The Financial Regulations for the University of Zambia, which were presented for
audit were dated 2002 and were in use during the year under review. However,
these regulations were not approved by the University Council.
Although the internal audit unit produced fourteen (14) reports which highlighted
weaknesses in the management of the institution, management did not implement
the audit recommendations to address the issues raised in the internal audit reports.
65
e. Irregularities in the Student Records System
· The system did not allocate specific serial numbers to respective schools and
units there by making the audit trail difficult to follow;
· The system was unable to generate receivables balances at any other period end
other than at the end of an academic semester.
f. Delayed Banking
There were delays of periods ranging from three (3) to one hundred and fifty five
(155) days in banking revenue collections in amounts totalling K1,069,604,237
collected during the period under review contrary to Financial Regulation No.121
(1).
g. Under Banking
Contrary to Financial Regulation No. 129, revenue for the period under review
were under banked by amounts totalling K198,432,340 as shown in the table
below:
Under banking
Unit Schedule K
School of Law SL 2 232,000
School of Humanities HSS 2 38,465,725
Cash office Cash office 1 89,756,235
IDE IDE 2 8,226,400
Livingstone Livingstone 2 61,021,980
Kitwe Kitwe 2 730,000
Total 198,432,340
h. Unvouched Expenditure
Contrary to Financial Regulation No.45 and 52, there were seven hundred and
eleven (711) payments in amounts totalling K7,107,548,185 that were unvouched
in that the payment vouchers were either missing or were inadequately supported
by relevant documentation such as receipts, invoices and goods received notes.
66
i. Unretired Imprest
Contrary to Financial Regulation No. 103, the University did not maintain a fixed
asset register making it difficult to ascertain the total assets position for the
institution.
The University did not have title deeds for its properties on plot number 5765
Kalundu, Lusaka and House number 18 Fyakapale road, Riverside Kitwe.
AMOUNT
INSTITUTION DESCRIPTION K
ZRA PAYE 190,948,230,037
ZSIC Pension Contribution 20,179,853,430
TOTAL 211,128,083,468
It was observed that as of December 2009, the University owed a total sum of
K187,298,243,318 in unpaid terminal benefits to its former employees broken
down as K17,873,368,929 (deceased) and K169,424,874,389 (retirees). It was
also observed that a sum of K36,415,652,325 was owed as contract gratuity and
leave commutation payments as of December 2009.
67
THE UNIVERSITY TEACHING HOSPITAL
(UTH)
Background
18. The University Teaching Hospital is the principle medical training institution in the
country for Medical Students, Interns, and Postgraduate Doctors. The Hospital which
has a bed capacity of 1,800, serves as a national referral centre, training facility for
health care providers and a research centre to find solutions to existing health problems
and for development of science.
Management
The Hospital is headed by a Managing Director who is the Chief Executive Officer and
is responsible for the day-to-day operations of the Hospital. The Managing Director is
assisted by Directors for Finance, Human Resource and Administration, Nursing,
Paediatrics, Medicine, Surgery, Laboratory Services, Obstetrics and Gynaecology.
Sources of Funds
Review of Operations
a. Staffing
During the period under review, the Hospital had shortages of critical medical staff
as shown in the table below:
68
i. Doctors and Nurses
Authorised Actual
Establishment Strength Variance
2007
Doctors 373 287 (86)
Nurses 1,367 674 (693)
2008
Doctors 373 314 (59)
Nurses 1,367 696 (671)
As can be seen from the table above, as of December 2008, UTH was
operating below its authorised establishment in that the strength of doctors
and nurses stood at 314 and 696 respectively as opposed to the required
numbers of 373 and 1,367 respectively. The staff levels were therefore
insufficient to meet the demands placed on the Hospital.
It was observed that out of the total authorised establishment of seven (7),
only four (4) positions were filled leaving three (3) positions vacant. The
internal audit unit could not fully execute its assignments as per work plans
due to staff shortages.
b. Irregular Payments
During the period under review, the Hospital paid amounts totalling
K4,545,711,360 to twenty (20) officers as salaries, gratuity, housing allowance
and accumulated leave days. However, the payments were irregular in that the
twenty (20) officers had no contracts of employment with the Hospital.
69
Amount
K
Leave Travel Benefits 3,873,095,740
Salaries & Terminal benefits 6,791,621,679
Gratuity 1,095,377,858
Long service bonus 13,618,176,136
Settling in allowance 691,711,336
Total 26,069,982,749
Contrary to Financial Regulation No. 52(1), there were ten (10) payments in
amounts totalling K17,470,000 made during the period April to October 2008
which had no supporting documents such as receipts, invoices among others .
e. Unretired Imprest
A scrutiny of the Hospital records revealed that during the period under review,
UTH paid amounts totalling K3,876,545,325 as rentals for post graduate doctors,
intern doctors and pharmacists on behalf of the Ministry of Health (MOH).
However, as of March 2010, the Ministry had not refunded the money.
During the period from 2006 to 2008, the Hospital paid amounts totalling
K454,400,000 as salary advances to sixty one (61) doctors and pharmacists
employed by Ministry of Health (MoH). However, as of March 2010, the money
had not been reimbursed to UTH by the MoH.
70
Amount
Institution
K
ZSIC 7,488,076
ZRA 371,742,328
NAPSA 777,393,600
Pensions Board 88,137,041
Total 1,244,761,045
The Hospital was therefore likely to incur penalty and interest charges.
Background
19. The Zambia Forestry College is a Government institution under the Ministry of
Tourism, Environmental and Natural Resources. The objective of the college is to offer
and facilitate effective training and carry out research in forestry, ecosystems and the
related entrepreneurship in order to contribute to sustainable management and
utilisation of natural resources.
The College is headed by a Principal who is the Chief Executive Officer of the
Institution. The Principal is assisted by a vice principal and five (5) heads of
departments namely the department of engineering, biology, economics, administration
and continuous education. All these officers are employed through the Public Service
Management Division.
Sources of Funds
The College mainly depends on funding from the Government. In addition to the
Government funding, the College raises additional income from student fees, hostel
accommodation, saw milling operations and through conducting of short courses.
Review of Operations
An examination of financial, accounting and other relevant records for the financial
years ended 31 st December 2004 to 2008 revealed the following:
71
a. GRZ Funding
In the Estimates of Revenue and Expenditure for the financial years ended 31st
December 2004 to 2008, a total authorised provision of K10,814,530,004 was
made against which amounts totalling K7,534,054,929 were released resulting in
underfunding of K3,280,475,075 as shown below:
In addition to funding received from the treasury, the college raised additional
income from student fees, hostel accommodation, saw milling operations and
conducting of short courses. However, due to poor record keeping, the College
could not avail information pertaining to how much had been raised during the
period under review.
b. Delayed Bankings
c. Underbanking
During the period from January 2004 to December 2007 there were
underbankings in amounts totalling K38,896,450.
According to the College students enrolment records, the College had a total
enrolment of 131 students during the financial year ended 31st December 2008,
with an expected total revenue in fees totalling K326,845,000. It was however,
observed that only K150,561,250 was deposited in College revolving fund
account leaving a balance of K176,283,750 unaccounted for.
72
e. Inadequate Staffing Levels
An analysis of the college staff personnel records revealed that out of the total
establishment of sixty nine (69) positions, only forty eight (48) were filled
leaving twenty (21) positions vacant.
The College engaged part-time employees who were paid amounts totalling
K108,757,000. It was however observed that, contrary to the Income Tax Act,
the College did not deduct Pay as You Earn totalling K38,064,950 in respect of
salaries paid to the part-time employees.
The College did not present for audit financial statements for the financial years
ended 31st December 2004 to 2008 and no returns were prepared by the college
for submission to the Ministry of Tourism, Environment and Natural Resources.
Consequently, the financial position and performance of the College could not be
determined.
Contrary to Financial Regulation No. 137(2), bank statements for the months of
August to November for the year 2007; June, July and October for the year 2005;
and June, August and September for the year 2004 were not availed for audit.
Contrary to Financial Regulation No.145(3), the College did not prepare bank
reconciliation statements for the years 2004, 2005, 2006 and 2008 in respect of
the two bank accounts it maintained.
Further, although the bank reconciliation statements for the months of February,
March and April 2007 were prepared, they did not include unpresented cheques
rendering their correctness questionable.
73
k. Missing Payment Vouchers
Contrary to Financial Regulations No.65 (1), there were eighty six (86) payment
vouchers in amounts totalling K209,134,052 raised between January 2004 and
December 2008 which were not availed for audit.
Contrary to Financial Regulations No.45, there were one hundred and twenty one
(121) payments in amounts totalling K471,498,514 made between January 2004
and December 2008 which were inadequately supported in that the vouchers
lacked relevant documentation such as receipts, invoices, acquittal sheets among
others.
m. Unretired Imprest
Although the works were completed and the contractor paid in full, there were no
completion certificates produced to support the payments.
A physical inspection carried out in November 2009 revealed that the septic tank
and soak away for the laboratory were not completed and the contractor had
74
since abandoned the project. Further, no completion certificates were provided
for audit scrutiny.
The Zambia Forestry College is situated on the Mwekera National Forest No.6
which was originally measuring 45,000 hectares. It was observed that due to
illegal activities such as agriculture, charcoal production, encroachments and
settlements, the forest had been reduced to barely 11,500 hectares.
The College did not maintain a fixed asset register but an inventory list which
only indicated the description and location of the assets. It was therefore difficult
to establish the cost and the date of purchase of the assets.
Terms and conditions of service for the public service No. 73, require that an
officer driving a government vehicle reports to a responsible officer details of an
accident and the responsible officer should subsequently report to the Standing
Accidents Board. It was observed that in September 2008, Motor Vehicle
registration number GRZ 276 CB was involved in a road traffic accident and was
taken to BEM Motors for repair at a cost of K7,632,800. Contrary to the
regulation, the accident was not reported to the police nor was it brought to the
attention of the Standing Accidents Board.
t. Wasteful Expenditure
Inquiries revealed that the College had two pine plantations namely Chipya and
Woodlands. It was however, observed that the College did not maintain records
75
of the two plantations. Consequently, it was not possible to ascertain how many
trees were in the two plantations.
Background
20. The ZCCM Investments Holdings Plc (ZCCM-IH) was established in accordance with
the provisions of the Companies Act, CAP 388 following the successful privatisation
of ZCCM Limited in March 2000. The Government holds 87.6% of the shares with the
remaining 12.4% held by private investors.
The company was created with the purpose of holding shares on behalf of Government
in various mining companies. ZCCM – IH Plc has an investment portfolio as follows:
%
Maamba Collieries Limited 100.0
Ndola Lime Company Limited 100.0
Konkola Copper Mines Plc 20.6
Kansanshi Mining Plc 20.0
Copperbelt Energy Corporation Plc 20.0
Luanshya Copper Mines Plc 15.0
NFC Africa Mining Plc 15.0
Chibuluma Mines Plc 15.0
Chambeshi Mines Plc 10.0
Mopani Copper Mines Plc 10.0
Equinox Minerals Limited (Lumwana Copper Mines) 2.9
Albidon Limited (Munali Nickel Project) 2.0
The company has also conditional future share election option to take up to 15 - 20%
shareholding in Konnoco Zambia Limited (Konkola North Mining Project).
Share Capital
Management
76
The Board is composed of members from Ministry of Mines and Minerals
Development (1), Ministry of Finance and National Planning (1), Ministry of Energy
and Water Development (1), Bank of Zambia (1), Zambia Revenue Authority (1),
Mineworkers Union of Zambia (1) and an independent non executive chairman.
The day to day operations of the company is the responsibility of the Chief Executive
Officer who is assisted by the Company Secretary, Technical Manager, Finance
Manager, Investments Manager, Legal Manager, Environmental Manager and Head
Human Resources and Administration.
Sources of Funds
The ZCCM-IH Plc derives its income from dividends from its subsidiaries and
associated companies and also from cobalt/copper participation sales.
Review of Operations
A review of accounting and other records for the period July 2005 to December 2009
revealed the following:
a. Financial Statements
It was observed that contrary to the provisions of the Memorandum and Articles of
Association, Accounts for the financial years ending June 2006 to June 2009 had
not been laid before the company in General meeting as of December 2009. In this
regard it was not possible to carry out an accurate review of the company’s
financial performance. Further, no dividends had been declared to Government.
77
b. Income from Investments (Dividends Receivable)
The table below shows the investments income which was received from various
ZCCM IH investments during the period May 2004 to June 2009.
From the above table, it can be seen that during the financial years ended 30th
June 2005 to 2008, ZCCM IH received net dividends in amounts totalling K25,778
million in 2005, K5,921 million in 2006, K45,219 million in 2007 and K30,774
million in 2008. In addition a sum of K77,259 million was received in the half
year to 31st December, 2009.
However, the Company did not receive any dividends from Maamba Collieries,
Mopani Copper Mines, Luanshya Copper Mines, Lumwana Mine and Albidon
Mines Limited.
Pursuant to clause 4.2 of the share transfer agreement entered into by the
Government of the Republic of Zambia and the indicative term sheet of 19th
November 2007 signed between ZCCM- IH and Maamba Collieries Limited,
ZCCM- IH entered into various agreements with Maamba Collieries to help
recapitalise and rehabilitate the operations of the mine for it to realise meaningful
production.
78
The following were observed:
· Between August 2008 and April 2009, ZCCM- IH loaned Maamba Collieries
amounts totalling US$5,300,000 for the rehabilitation of the mine. It was
however observed that 40% of the loan was applied on non capital activities
such as payment of salaries. At the time of audit, the servicing of the Loan had
not commenced.
Background
21. The Zambia Education Projects Implementation Unit (ZEPIU) is a unit in the Ministry
of Education and was established for the purpose of implementing World Bank
financed education projects in Zambia in April 1973. The Unit was initially under the
Ministry of Works and Supply until October, 1984 when it was moved to the Ministry
of Education.
The main activities are to supervise the construction and maintenance of schools and
other civil works.
Administration
The day to day running of the Unit is the responsibility of a Director of Projects who is
appointed by the Permanent Secretary and is assisted by a Deputy Director.
Sources of Funds
The unit derives its income from Government and donor grants and the sale of
furniture and fittings to schools and other institutions.
During the period under review, the Unit received amounts totalling K5,031,233,904
from the Ministry of Education against a budget of K7,111,801,522 as shown in the
table below:
79
Authorise d
Ye ar Provision Re le ases Under Funding
K K K
2006 1,094,000,000 884,157,426 209,842,574
2007 1,831,738,363 1,647,656,450 184,081,913
2008 4,186,063,159 2,499,420,028 1,686,643,131
TOTAL 7,111,801,522 5,031,233,904 2,080,567,618
Further in December 1999, Government obtained a loan from the OPEC fund for
International Development in amounts totalling US$6,000,000 for the construction of
Ndola Girls Technical High School.
Contrary to Financial Regulation No. 62 and 128 (1), ZEPIU did not maintain a
cash book for the period under review. As a result, no bank reconciliations were
done making it not possible to ascertain the correctness of the transactions.
Due to poor record keeping, it was not possible to establish the total
authorised staff establishment, filled posts and vacancies at ZEPIU.
80
· Failure to Remit Statutory Contributions
Although between August and December 2008, ZEPIU recruited nine (9)
resident engineers to supervise the construction of schools and other civil
works in the nine (9) provinces of Zambia following a directive by the
Director – Planning and Information, Ministry of Education, no such posts
existed in the ZEPIU structure.
It was however observed that despite the engineers being employed and
remunerated by ZEPIU, the engineers were not supervising any works under
ZEPIU but rather their work was for the Infrastructure Section in the
Ministry and reported directly to the Director- Planning and Information at
the Ministry of Education.
81
iv. Procurement of Goods and Services
Contrary to Public Stores Regulation No. 16, ZEPIU did not maintain stores
records such as Goods Received Notes, Issue Vouchers and fuel registers. In
this regard, there were no receipt and disposal details in respect of fuel
costing K441,703,399 procured during the period under review.
Contrary to Financial Regulation No. 45 and 52, there were fifty (50)
payments in amounts totalling K257,198,627 that were unvouched in that
they lacked supporting documents such as claim forms, receipts, invoices
and quotations.
In May 2007, ZEPIU engaged Goodwill Holdings to supply and install various
school equipment and furniture at a contract price of K1,188,094,734
(US$296,001) with a delivery period of sixteen (16) weeks. However, as of
March 2010, only equipment costing K655,936,248, (US$163,395) had been
delivered while the balance of equipment costing K532,158,486 (US$132,606)
had not been delivered.
Further, it was observed that despite Goodwill Holdings’ failure to execute the
contract, in December 2008, ZEPIU awarded them another contract worth
K1,447,457,093 to supply school furniture.
Background
22. The Zambia Postal Services Corporation (ZAMPOST) which became operational in
July 1994, was established by the Postal Services Act No. 24 of 1994 following the
dissolution of the Posts and Telecommunications Corporation Limited (PTC). The
principal function of ZAMPOST is to provide postal and telegram services in the
country.
82
Organisation and Management Structure
The Act stipulates that the corporation shall consist of a board of directors comprising
eight (8) members, being the Postmaster General, and a nominee from each of the
following institutions:
· the Federation of Employees of Zambia;
· Zambia Congress of Trade Union;
· Zambia Council of Commerce and Industry;
· Law Association of Zambia;
· Zambia Institute of Chartered Accountants;
· Ministry of Justice; and,
· an Organisation that would represent the interests of consumers.
According to the Act, members of the Corporation hold office for a term of not more
than three (3) years and members are eligible for reappointment upon expiry of their
term of office.
The day to day operations of the organisation are managed by the Postmaster General
who is assisted by the Corporate Secretary, Directors responsible for Operations and
Commercial Services, Human Resources and Finance. The Board of Directors appoints
the Postmaster General and his Directors on renewable three-year terms of office. The
rest of the staff are appointed on a permanent and pensionable basis.
According to the provisions of the Act, the sources of funds for the Corporation
include, among others, such sums of money as may:
83
Review of Operations
Contrary to the provisions of the Act which stipulates that the Board shall consist
eight (8) members, it was observed that the board had two (2) members only
during the period September 2008 to April 2009.
Further, although the Act stipulated that five (5) members shall form a quorum,
during the period September 2008 to April 2009, the two (2) board members
proceeded to hold board meetings. In this regard, amounts totalling K72,334,215
were irregularly paid to the two (2) board members as sitting allowances, meals,
accommodation and other allowances and no minutes were availed for audit
scrutiny.
The Act provides that the Corporation shall, not later than six (6) months after the
end of each financial year of the Corporation, submit to the Minister a report of its
activities, together with a copy of its audited accounts for that financial year, and
the Minister shall, not later than fourteen (14) days after the first sitting of the
National Assembly next after the receipt of such report, lay it before the National
Assembly.
Contrary to the provisions of the Act, the Corporation did not produce annual
reports and audited accounts for the financial years ended 31st March 2006 to
2008. This was despite the Corporation having spent amounts totalling
K97,250,000 as audit fees.
The former Post Master General’s contract of employment signed on 1st November
2002 for a period of three (3) years came to an end on 31st October 2005. It was
observed that the officer continued in office from 1st November 2005 to February
2007 without a contract of employment or authority/letter from the Ministry of
Communication and Transport to authorize the officer to continue in office.
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d. Contract of Employment – Postmaster-General
The Postmaster General was appointed on 16th February 2007 by the Permanent
Secretary Ministry of Communication and Transport. The appointment letter
stated that the conditions of service would be revised based on the performance of
the Corporation.
In a letter dated April 13th , 2007 addressed to the Permanent Secretary, Ministry
of Communications and Transport, the Post master General accepted the offer.
The conditions of service provide that the Corporation shall provide the following
funeral assistance:
Contrary to the conditions of service, the Postmaster General was paid a funeral
advance of US$3,500 in October 2008.
Further, in November 2008, the Corporation paid for accommodation for the
Postmaster General’s wife at Holiday Inn in the sum of K940,000. It was further
observed that the Corporation bought air ticket for the wife to the Post master
General amounting K846,000. There was no evidence of board or ministerial
approval for the above mentioned transactions. It was further revealed that the
funeral and other advances mentioned above had not been recovered as at 30 April
2009.
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f. Non Payment of Terminal Benefits
g. Procurement of Software
In August 2006, ZAMPOST and Roraima Data Services entered into an agreement
for the Provision of Cash4africa Technology (Swiftcash) which is a Web based
Financial Services platform and Equipment to host the programme for a period of
ten (10) years.
· Roraima Data Services undertakes to sell the services that is produced by its
Web Based Financial Services Platform to ZAMPOST and to use its best
endeavours to provide ZAMPOST during the period of this agreement the
management Services for the purpose of assisting ZAMPOST in undertaking
the project.
· Subject to Clause 3.1 of this agreement Roraima Data Services shall sell to
ZAMPOST and deliver and install Telecommunications Equipment,
Machinery and, or Services to enable its platform to perform effectively in
keeping with the agreement.
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ii. Contrary to the Management Services Agreement clause 2.1, there was
no evidence that Roraima Data Services had supplied Equipment and
Machinery to host the Web Based Financial Services Technology but
instead was currently using ZAMPOST equipment free of charge.
ZAMPOST did not have a back-up server for all transactions done on
this programme;
iv. The Management Services Agreement did not have a protection clause
restricting Roraima Data Services from setting up similar businesses in
the ZAMPOST licensed market area. This had resulted in Roraima Data
Services to set-up a parallel business in Financial Services which had a
going concern implication on ZAMPOST considering that Swift Cash
(cash4africa technology) accounted for about 40% of the total revenue
of ZAMPOST.
v. Roraima Data Services had not attended fully to the apparent poor
security features that this technology had shown such as the Terminal Id
– (Identifying the Computer terminal being used). The system could be
accessed from any terminal, at anytime or day as long as someone had a
password. This resulted in the theft of K56,920,200 at Kitwe Post Office
as reported in the Internal Audit Activities for the quarter ended March
2007.
· ZAMTEL would install and maintain a Wide Area Network with broadband
Internet connection at each ZAMPOST site.
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· ZAMPOST should pay to ZAMTEL the sum of K1,402,464,276 being the total
amount due under this contract for implementation of phase 1 and 2 of the
project as indicated in appendices 1 and 2 annexed to the agreement.
· That the duration of the agreement shall be for an initial period of twenty four
(24) months from the date of the signature and shall thereafter continue
unless it was terminated as provided under clause 5.
i. There were no Board minutes provided on which the board authorised the
purchase and installation of a Wide Area Network;
ii. There was no evidence of authority from the Zambia Pubic Procurement
Authority ( formally Zambia National Tender Board ) to waiver competitive
tender procedures and allow the Corporation to single source Wide Area
Network implementation.
.
iii. ZAMPOST paid K1,668,387,177 which was K265,922,901 more than the
consideration agreed in the contract which was K1,402,464,276. No proper
explanation was given for the overpayment
iv. The original contract between ZAMPOST and ZAMTEL had no effective date
including the date of signing. It was further observed that the effective date of
the contract was only agreed eleven months later on a memo dated 7th January
2009 as being 8th February 2009.
Contrary to the Income Tax Act, the Corporation had not remitted to the Zambia
Revenue Authority amounts totalling K36,787,241,040 deducted as Pay as You
Earn (PAYE) from employee’s salaries during the period under review. As at 31st
March 2008, the outstanding amount had increased to K42,998,271,559.
Background
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The 1987 Act was later amended by Act number 20 of 2002. The ZNBC Amendment
Act of 2002 was meant to transform the Corporation from being a purely state
controlled broadcaster set to communicate Government Programmes to a broadcaster
controlled by the members of the public through an independent board of directors.
Government of the Republic of Zambia assumed 100% equity holding in the
Corporation.
Administration of ZNBC
Board of Directors
The Zambia National Broadcasting Corporation Act No. 20 of 2002 stipulates the
following among other things:
Management
The Board appoints a Director General and Directors on a renewable three-year terms
of office.
The Director General is responsible for the day to day operations of the Corporation
and is assisted by the Directors of Finance, Marketing, Human Resource, Technical
Services and Programmes.
Sources of Funds
According to the provisions of the Act, the funds of the Corporation shall consist of
such moneys as may:
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· be appropriated by Parliament for the purpose of the Corporation; and,
· vest in or accrue to the Corporation.
Review of Operations
a. Board of Directors
The Board was appointed on 12th September, 2002 for a term of three (3)
years. Contrary to the Act, there was no evidence to indicate that the Board
members tenure of office had been renewed for a second three (3) year term
ending on 11th September 2008. As of May 2009 the directors had continued
holding office.
Contrary to the provisions of the Act which stipulates that Board members
should be appointed by the Minister, the Board at its meeting of 8 th May
2006 resolved that the sitting Director of Finance should be a full Board
member to assist the Board with information on the financial status of the
Corporation.
In this regard the Finance Director was irregularly paid Board allowances in
amounts totalling K31,700,000.
In his response dated 22nd June 2009, the Controlling Officer stated that
although the Board was fully aware that section 9 (1) of the ZNBC Act
refers to the appointment to sub committees, the Board was of the firm view
that finance in any institution is so critical that the presence of the Director
of Finance at full Board meetings was so vital hence the decision to
incorporate the sitting Director of Finance on the Board. The sitting Director
of Finance was therefore invited on the basis of a board resolution.
However, section 9 (1) of the ZNBC Act quoted by the Controlling Officer
refers to the appointment of members to Sub-committees while the
appointment of Board members is the responsibility of the Minister.
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iii. Board Subcommittees
It was observed however that although the corporation had established three
(3) subcommittees namely; Finance/ Marketing and Sales, Technical
Services and Programmes and Administration and Human Resources
committees, the audit committee had not been established. In addition, the
corporation had only one position for internal auditor in its structure.
Further, the internal auditor was reporting to the Director General contrary to
good corporate governance requirements.
It was further observed that although best practice requires that the Board
Chairman shall not belong to any subcommittee and subcommittees shall be
headed by Board members with relevant knowledge/experience in the area
the subcommittees are overseeing, the Board Chairman was a member of all
the sub committees of the Board.
In his response dated 22nd June 2009, the Controlling Officer stated that the
Chairman of the Board sits on all three sub Committees as an ex officio and
that the observation by the auditors was however noted and shall be taken to
the Board for re-consideration.
The audit carried out however revealed that the Corporation operated without a
strategic plan up to the year ending 2008 despite the Board directing the
management in March 2003 to put in place a strategic plan.
Management only acted on the recommendation five (5) years later in 2009 when
the five year strategic plan (2009-2014) was developed through Deloitte and
Touché at a cost of K54,045,312.
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c. Failure to Prepare Annual Reports.
Part III, section 24 of the ZNBC Act provides that “As soon as practicable, but not
later than six (6) months after such financial year, the Corporation shall submit to
the Minister a report concerning its activities during such financial year”. Contrary
to the provisions of the Act, the Corporation had not produced the annual report
for the financial year ended 31st March 2008 as of June 2009 nine months after the
due date of 30th September, 2008. It was also observed that there were no audited
accounts for the financial year ended 31st March 2008 as of June 2009.
d. Financial Performance
Statement of Income and Expenditure for the Financial Years Ended 31st
March 2006, 2007 and 2008
Income Interim
Sales 29,885,416 24,391,871 18,962,824
TV licence fees 4,847,796 4,490,741 5,167,614
Grant received from government 2,840,000 6,704,308 4,598,727
Other income 1,445,052 1,434,478 878,597
39,018,264 37,021,398 29,607,762
Operations
Programme expense (1,278,785) (1,128,981) (769,131)
Advertising promotion expenses (547,341) (317,430) (296,280)
Administrative expenses (37,431,353) (36,242,467) (30,640,272)
Other operating expenses (3,551,309) (3,510,914) (3,563,459)
(42,808,788) (41,199,792) (35,269,142)
Results from operating activities (3,790,524) (4,178,394) (5,661,380)
Finance income 3,732,700 1,647,324 4,574,412
Finance expenses (1,172,281) (2,228,788) (202,544)
Net financing income/(expense) 2,560,419 (581,464) 4,371,868
Loss before income tax (1,230,105) (4,759,858) (1,289,512)
Income tax expense (549,896) (312,111) (531,633)
Loss for the year (1,780,001) (5,071,969) (1,821,145)
i. Profitability
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If Government grants were not included, the overall financial performance of
the corporation would have been as shown below:
Total Profit/
(Loss) (4,620,001) (11,776,277) (6,419,872)
The staff costs to turnover ratio (i.e. turnover net of Government grants ) were
as follows:
In his response dated 22nd June 2009, the Controlling Officer agreed with the
observation that most of the financial resources are being spent on staff costs.
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iii. Balance Sheet
· Liquidity Position
The liquidity position of the corporation during the period under review
was as shown below:
From the table above it can be seen that the Corporation’s current assets
were insufficient to cover the current liabilities. The liquidity position
continued to worsen from a deficit of K30,302,258,000 in 2006 to
K46,482,591,000 in 2008. The increase in current liabilities is mainly
attributed to the statutory contributions which stood at K29,465,189,000
in 2006, K37,561,107,000 in 2007 and K47,522,221,000 in 2008.
In his response dated 22 nd June 2009, the Controlling Officer stated that
the statutory debt burden at ZNBC over the years had grown as a result
of a serious mismatch in terms of revenue and operational costs largely
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occasioned by the mandate of ZNBC to carry out more public
broadcasting programmes than commercially driven ones. He added that
while management had over the last three years managed to contain
commercial debt and started dealing with statutory payments to NAPSA
as they fell due, Pay As You Earn (PAYE) and Value Added Tax
(VAT) due to ZRA had continued to be difficult to deal with and had
been accumulating in huge quantum’s annually rising to over K47
billion as at Match 31st, 2008.
He further observed that over the years and realising the magnitude of
the problem and the realities at ZNBC, the Board tried to vary the
financing model obtaining at ZNBC and challenged Management to
gear up the Commercial arm of the Corporation in an attempt to keep
the operations of ZNBC afloat and that as a result, the financing model
of ZNBC has progressively been tilting towards a more commercially
driven operation.
· Receivables
The Corporation sold its advertising time in two ways, on a cash basis
and on credit terms. In this regard, before a client is offered air time on
credit, the finance department through the credit controller assesses the
credit worthiness of the particular client. The credit controller then puts
the particular client on the credit scheme with set credit limits.
It was observed that during the period under review, the Corporation did
not have a policy governing the awarding of credit facilities to its
clients.
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to collect debt as and when they fell due had a negative impact on the
liquidity position of the Corporation.
There was a risk that officers could have received the funds and reduced
the debtors account without declaring funds to the Corporation. For
example, receipt number 61973 for K30,000,000 received from Digital
Business Solutions was posted as discount allowed to Kingdom
Investments and receipt number 63037 for K7,323,200 was posted twice
to Kingdom Investments.
Inquiries made with management revealed that the officers who posted
the transactions have since been dismissed. As of May 2009,
management had not reversed the entries and the matter had not been
reported to the Board or Police.
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quarterly adjustment. No satisfactory response was received on the
meaning of quarterly adjustments. Inquiries made with management
revealed that they did not have such a series of JV numbers and were
making efforts to locate the JV 6666.
The implication of this transaction was that clients who had made
prepayments to ZNBC had their money misappropriated. As of May
2009, the transaction had not been reversed.
· Payables
In his response dated 22nd June 2009, the Controlling Officer agreed
with the observation and further stated that the Corporation had since
entered into an agreement with ZRA where K25 million is remitted
monthly towards PAYE.
· Changes in Equity
In his response dated 22 nd June 2009, the Controlling Officer stated that
the situation would have been worse had it not been for management
innovation as Government funding has been dwindling over the years
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and that as a matter of urgency there was need for the Government to
recapitalize the institution.
In 2002 the ZNBC Act was amended to among other things allow for the
collection of T.V license fees countrywide. The Corporation collects the TV
license fees through the following schemes namely ZNBC, Zesco Ltd, Defense
forces payroll, Zambia Postal Services Corporation and Residence
Development Committees (RDCs).
It was noted that the T.V license unit was manned by fifteen (15) officers
country wide and only had one (1) operational vehicle. The TV license
personnel were only represented in five (5) districts namely Lusaka, Kabwe,
Kitwe, Ndola and Livingstone. In this regard, there were no agents to collect
TV License fees in districts away from the line of rail, except, for the provincial
centers and post office(s) which caters for clients who walk in to pay.
Further, it was observed that the Corporation does not maintain a database for
its clients and is therefore not in a position to make follow ups on clients that
have not paid in a particular month or period. In addition, the Corporation did
not have a mechanism to ensure that fees collected through Zesco Ltd (which
accounts for 80% of its collections) were verified.
Arising from the above weaknesses, the Corporation collected less revenue than
was budgeted for as shown in the table below:
It can be noted from the table above that the collected fees had reduced from
K5,454,617,629 in March 2007 to K4,568,282,320 in March 2009 representing
a 16% reduction.
It was also observed that there were discrepancies between revenue collections
reflected in the accounts and that reported by TV License Section as shown in
the table below:
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Figures as
Figure s as per TV
Ye ar Pe r Lice nse
Accounts Se ction Variance
K'000 K'000 K'000
2008 4,847,796 4,568,282 279,514
2007 4,490,741 4,709,630 (218,889)
2006 5,167,614 5,454,617 (287,003)
In his response dated 22nd June 2009, the Controlling Officer stated that the
Corporation had difficulties in collecting TV license fees due to viewer
dissatisfaction, township agents dissatisfaction with commission paid, internal
budget constraints, change of remittance policy by Zesco Ltd (from accrual
basis to cash basis), Government directive not to collect TV Licenses from rural
districts among other reasons.
f. Barter Transactions
During the period under review, the Corporation entered into barter agreements
with various clients. Barter transactions involve the Corporation providing air
time to clients in exchange for goods and services. However, there was no
Board approval authorizing management to engage in barter transactions.
In this regard, it was observed that the Corporation entered into barter system
arrangement with fifty five (55) clients who were as of June 2009 owing ZNBC
K5,196,051,554 in goods and services in respect of airtime provided.
99
sales subcommittee of the Board of ZNBC during the period under
review. There was no evidence of the board member having declared
interest; and
A review of the ZNBC event budget and offer letter to ZAAA for the
inter company relay race for 2009 revealed the following:
Amount
K
Pre- event spot adverts 119,444,542
Pre-event luanch and
count down programme 34,929,343
Live broadcast of event 37,500,000
Total 191,873,885
Cost Sharing
ZNBC Sponsorship 131,873,884
ZAAA 60,000,000
Total 191,873,884
· ZNBC to have a commercial stake and sell spot adverts during the
live broadcast of the event.
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A review of the 2009 ICR post event records revealed that ZAAA paid
ZNBC a sum of K 70,000,000 for the event whilst the other cost of
K121,873,884 was met by the Corporation. Apart from the
participation of the ZNBC team in the event at a total cost of
K13,000,000 and the sale of DVDs/ Tapes which raised K540,000,
ZNBC did not benefit from the commercial stake.
It can be clearly seen that management did not act in the best interest of
the Corporation considering its weak financial position. This raises
concern on the relationship between the board and management.
In his response dated 22 nd June 2009, the Controlling Officer stated that
whereas it was correct that there was no formal partnership Agreement
in form of an MOU between ZNBC and ZAAA on Inter Company
Relay race, the relationship was borne out through various
correspondences between the two parties. The sharing of the cost of
hosting the event takes into account a number of factors both
quantitative and qualitative. Management further stated that the matter,
like regular coverage of football Matches and boxing bouts was treated
as a normal operational matter subject to normal business transactions
and had never been a Board issue to warrant the Chairman of ZAAA to
declare interest in a Board meeting as it had always been treated like
any other sports events that are covered by ZNBC and which are not
taken to the Board for approval.
Despite the response from the Controlling Officer, the Board member
who was also the chairman of the sales and marketing sub-committee of
the Board was the President for ZAAA. Therefore in line with the tenets
of good corporate governance, he should have declared interest as this
was a business issue.
The sales team at ZNBC is divided into two (2) groups. The full time sales staff
employed on permanent basis and the sales agents who are on part time basis.
According to sales agency guidelines, a commission is payable at 15% net of
airtime for agents registered for the first time and 18% net of airtime upon
attainment of full agency. In addition, non marketing ZNBC staff is paid a
commission of 16% for radio and 12% for TV for any business sought for the
Corporation.
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The following were observed:
i. It was noted that the Corporation paid commissions to agents each time
adverts were aired either on TV or radio as opposed to making a one off
payment upon sourcing the business. For example, “your health
matters” which is a Government program under the Ministry of Health
was engaged through an agent in 2005. The Corporation has been
paying 18% of the revenue realized from airing the program since
inception. In this regard the agent had been paid a total sum of
K425,805,826 as of March 2009.
ii. The Corporation paid an agent, D&C Saatchi and Saatchi an agency
commission of K382,486,238 relating to 2006 general elections. The
commission was paid on the basis that the advertising agent had sourced
business from Electoral Commission for the adverts relating to
elections.
In both of the above cases, it was not clear as to why Government related
business was brought through agents considering that as a national broadcaster
ZNBC was an obvious medium for Government communication.
Although in their letter dated 13th November 2008, Location Challenge made a
commitment to pay back the amount of K97,000,000 in instalments
commencing December 2008, as of June 2009, the amount had not been paid to
ZNBC. Further, it was not clear as to why ZNBC agreed to be paid in
instalments when Location Challenge had been paid in full by ECZ.
In his response dated 22nd June 2009, the Controlling officer stated that
Management had subcontracted the production of ‘Your Health Matters’ to
Laco Communications because producing this programme is extremely
demanding as it is produced from different locations far away from Kitwe and
Lusaka and would entail constant travelling for ZNBC that would lead to
increased costs in subsistence allowances, fuel and transport.
He added that ZNBC did not have adequate production facilities at the moment
to undertake this demanding production but that it was the intention of ZNBC
to pick up this production once production facilities are beefed up.
j. Housing Allowance
The conditions of service also stipulate that unionised staff shall be paid
housing allowance based on the following fixed bands:
Amount
K
UG 1- UG 3 700,000
UG 3/4- UG 7 800,000
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K75,000,000 and K90,000,000 on a monthly basis as indicated in the table
below:
Housing Amount
Salary
Position Allowance Tax Paid
Scale
K K K
Sales Manager MG8 2,314,750 1,246,404 3,561,154
Senior Maintenance
Engineer MG8/7 3,042,833 1,638,449 4,681,282
Financial Accountant MG8/7 2,939,083 1,582,583 4,521,666
Principal Engineer South MG8 2,923,750 1,574,327 4,498,077
Principal Engineer
Projects MG8 2,880,250 1,550,904 4,431,154
Marketing Manager MG 8 1,901,500 1,023,885 2,925,385
On the other hand, the housing allowances paid to unionised staff were net of
tax.
Housing Amount
Salary scale allowance Tax Paid
K K K
UG1-UG3 700,000 245,000 455,000
UG3/4-UG7 800,000 280,000 520,000
It was not clear as to why tax was being treated differently for management and
unionised staff.
k. Utility Allowance
Grade Condition
140% of monthly basic salary
M/Director (Later fused into salary)
MG 8/7-8 85% of monthly basic salary
MG 6/5-7 30% of monthly basic salary
MG 5 25% of monthly basic salary
A review of the minutes of the Special Board Meeting held on 20th September
2005 revealed that the Board approved additional fixed utility allowance for
management staff in addition to the percentage of basic salary effective 12th
July 2005.
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It was observed that there were discrepancies between the approved and
effected amounts as shown in the table below;
Approved Effected
Amount Amount Difference
Grade K K K
MG 4/3 374,958 100,000 (274,958)
MG 5 369,083 175,000 (194,083)
MG 6/5 506,083 200,000 (306,083)
MG 6 540,800 250,000 (290,800)
MG 7/6 542,525 533,413 (9,112)
MG 7 545,188 533,911 (11,277)
MG 8/7 1,220,329 1,595,815 375,486
MG 8 1,288,375 1,684,798 396,423
MG 9/8 2,332,650 2,332,650 -
MG 9 2,431,425 2,431,425 -
MG 10 4,955,183 4,955,183 -
As depicted in the table above, management reduced the approved rate for
Grade MG 4/3 to MG 7, while Grades MG 8/7 and MG 8 were irregularly
increased by K375,486 and K396,423 respectively.
Though the Corporation revised the basic salaries of management staff upwards
thereby automatically increasing the utility allowance which is 85% of basic
salary, Management had continued to add the fixed figures to the 85%
indicated in the conditions of service. The utility allowance for management
staff ranged between K465,000 and K4,360,000
On the other hand unionised staffs were paid energy allowance at the rate of
15% of basic salary which translates between K239,900 and K400,000 before
tax.
In his response dated 22nd June 2009, the Controlling Officer agreed with the
observation and stated that there was need to review allowances in the best
interest of the Corporation.
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Contrary to the above, allowance was being paid gross of tax at the following
rates:
Salary Scale Rate
MG 8 and above 60% net of monthly basic salary
MG 8/7 and below 40% net of monthly basic salary
The value for notches for unionized and other management staff remained
unrevised.
n. Questionable Salary Structure
The Corporation did not have an approved salary structure despite the existence
of the Board. In this regard, salaries were awarded to employees in an adhoc
manner as officers in higher grades were paid lower salaries than those in lower
grades. The salary structure was such that for management positions ,the
highest was MG 10 and the lowest was MG 5 while for the unionised staff, the
highest was UG 7 and the lowest was UG 1. See table below for the
comparison of salaries.
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BASIC SALARY
Salary (P.A)
Position Grade K
Stenographer - DHR MG 5 32,452,000.00
Systems administrator MG 6 30,830,000.00
As can be noted from the table above, the Marketing Manager who is in Grade
8 has an annual basic salary of K27,984,000 while the secretary to the Director
Marketing who is in Grade 6 has an annual basic salary of K37,220,000. The
Chief Accountant though in a higher grade was being paid a lower basic salary
than the Financial Accountant who is in a lower grade.
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In his response dated 22nd June 2009, the Controlling Officer agreed with the
observation and stated that the Corporation had a defective salary structure.
A comparison of basic pay and allowances for management staff revealed that
the allowances constituted over 300% of basic pay. An example below shows
the disparities between a member of staff in management who has the same
basic pay with a unionized staff:
It can be noted from the table above that whereas the basic salaries for
management staff were comparable to that of unionised staff, the gross salaries
in management as compared to the unionised staff had very high discrepancies.
In this regard, the basic salary for management staff was 18% of the gross
salary while that for unionised staff was 67% of the gross salary.
Contrary to Tax Laws, the corporation did not deduct tax on directors’
gratuities. In this regard, tax amounting to K680,169,201 was not deducted and
the amount was accrued in the Corporation’s books thereby understating the tax
liability.
During the period April 2003 to March 2009, tax on retirement packages and
gratuity was computed using Pay As You Earn rates as opposed to the rates for
terminal benefits and qualifying gratuity. In this regard, an amount of
K7,229,870,495 accrued over the period as tax liability and was gradually
written off from the Corporation’s books. In a memorandum dated 14th May
2009, which was in response to the audit observation, the Finance Director
advised that a journal would be passed to recognise the correct tax liability in
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the books. However, as of June 2009, the liability had not been recognised and
thereby understating the tax liability.
The Conditions of Service for Unionized staff provide that depending on the
availability of houses, the Corporation shall provide the employee with
unfurnished accommodation in accordance with the Corporation’s housing
Policy. Where such accommodation is unavailable, the Corporation shall pay
housing allowance at agreed rates.
Contrary to the Conditions of Service, the Corporation rented private houses for
sixty one (61) unionized staff and in this regard, a total amount of K12,265,000
was paid over and above the officers’ entitlement. Further, it was also observed
that rental contributions were not deducted from the staff.
s. Pension Scheme
The conditions of service for non union represented staff state that all Zambian
employees on permanent and pensionable conditions of service will, whenever
possible, be members of the Corporation’s Pension Scheme, while the
unionized conditions state that eligible employees shall subscribe to the
Corporation’s pension scheme at rates to be approved by the Corporation’s
pension scheme provider.
Contrary to the conditions of service and best practice, the Corporation did not
have a pension scheme and was paying retirement packages and monthly
pension salaries from operational funds.
Inquires made with management revealed that the pension scheme for the
Corporation which was managed by the Zambia State Insurance Corporation
(ZSIC) was discontinued on an unknown date in the early 1990s; however,
there was no documentation to this effect availed for audit.
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A review of the payroll and other related documents revealed that:
There were no documents availed for audit to indicate board approval or how
management decided on the figure for pension contribution, contrary to the
principles of Social Security and good management practice;
Employe e Contribution
K
during se rvice
Pension Benefits:
From this analysis, it can be seen that in the absence of a pension scheme, the
retirement benefits will continue to be a drain on the resources of the
Corporation.
In this analysis, the Controlling Officer admitted that the Corporation had
difficulties in this area and that management was still in consultation with
Zambia State Insurance Corporation (ZSIC) where the failed scheme was, on
the possibility of reinstating the scheme.
110
t. Irregular Sale of Personal to Holder Vehicles
Among other things the contract of employment for directors provides that the
employee shall be eligible to purchase the personal to holder vehicle if a
replacement is available at the end of the contract, subject to Board approval.
The company policy in this regard was to sell the vehicle based on book value
or 25% of the market value which ever was higher.
The Corporation’s depreciation policy states that motor vehicles are depreciated
at 25% while commercial vehicles are depreciated at 33.33%
i. At the time of sale in December 2008 the motor vehicle had been used
for two and half years by the Corporation.
iii. Contrary to the condition of service, the Corporation sold the car in the
absence of a replacement vehicle, and at the time of audit the Acting
Director of Technical services was being paid commuted car allowance
of K2,935,615 per month as no vehicle was available.
111
In his response, the Controlling Officer acknowledged that the supplier was
paid and did not deliver as per the delivery period and that efforts were being
made to try and recover the money and that so far a sum of K10,000,000 has
been recovered.
Background
24. Zambia Railways Limited (ZRL) was established in 1976 following the split up of the
Rhodesia Railways whose network covered Northern Rhodesia (Zambia), Southern
Rhodesia (Zimbabwe) and Bechuanaland (Botswana).
In July 1998, Government earmarked ZRL for commercialization and for exploration of
the possibility of entering into concessions for some or all the operations of the
company.
The concession agreement did not outline the roles of ZRL but according to
management and the Draft Railway bill, the roles of ZRL were as follows:
Administration
Board of Directors
The Railways Act Cap 453 of the Laws of Zambia provides that the Board of Directors
shall consist of a minimum of five (5) and maximum of fifteen (15) members.
112
Management
The day to day management of ZRL is the responsibility of the Managing Director
who is the Chief Executive Officer appointed by the Board, and is assisted by the
Company Secretary, Director of Finance and Administration and Director of Technical
Services.
The Managing Director, Directors and heads of department are engaged on four year
contracts while the rest of the staff are employed on permanent and pensionable basis.
Sources of Funds
· rental income,
· concession fees,
· any funds appropriated by Parliament and contributions by donors,
Review of Operations
A review of operations for the Zambia Railways Limited (ZRL) for the financial years
ended 31 st December 2002 to 2008 revealed the following;
a. Board of Directors
Contrary to the Companies Act, ZRL operated without a board during the
period from January 2004 to March 2006.
b. Organisation Structure
113
c. Statement of income and expenditure for the year ended 31 st December, 2002
to 2007
Profit/(los s) before taxation (28,061) 18,058 (23,182) (19,669) (45,760) 9,716 (5,732)
i. Profitability
As can be seen from the income statement above, except for 2003 and 2007
when profits of K8,808,000,000 and K17,189,000,000 were recorded, ZRL
recorded losses in all the other years under review. As of December, 2008 the
losses had accumulated to K148,653,000,000.
It can also be noted that the years 2002 and part of 2003 were before the
concession whereas 2004 to 2008 were after the concession. In 2004 there was
a loss after tax of K46.402 billion, in 2005 K20.537 billion, in 2006 and
K23.615 billion. However, in 2007 there was a profit of K17.189 billion, and
in 2008 a loss of K29.421 billion. Therefore the company’s financial
performance according to the published accounts improved between 2004 and
2007 and relapsed in 2008.
114
ii. Revenue
Although the concession fees were recognized in the ZRL books of accounts,
they were paid directly to the Ministry of Finance and National Planning and
according to management no economic benefit accrued to the ZRL.
d. Financial Position - Balance Sheet for the year ended 31 st December 2002 to
2007
ZRL had investment properties which were among the major sources of
income after the concession. However, it was noted that the Investment
Property had not been separated from property, plant and equipment in
accordance with International Accounting Standards – IAS 16 (Property,
115
Plant and Equipment) and IAS 40 (Investment Property) thereby
distorting the financial statements.
ii. Debtors
Bad Debt
Debtors Provision Balance %
Year K'million K'million K'million Provision
2002 129,672 54,420 75,252 41.90
2003 135,744 60,332 75,412 44.40
2004 119,381 82,089 37,292 68.80
2005 127,367 110,722 16,645 86.90
2006 124,129 123,219 910 99.30
2007 120,949 120,921 28 99.90
2008 111,476 108,796 2,680 98.00
It is clear from the above analysis that debtors were not properly managed.
In response management stated that the company policy had been to fully
provide for any debtor over three months and that 75% of the debtors were
either Government or Government related debt and these had proved to be
very difficult to collect.
iii. Liquidity
The table below shows the liquidity position of ZRL during the years under
review:
116
obligations or number of times current liabilities can be paid with current
assets deteriorated from 0.78:1 in 2002 to 0.22:1 in 2008 when the generally
accepted ratio is 2:1.
v. Capital Structure
The authorised share capital of the company is three hundred million kwacha
(K300,000,000) divided into three hundred million (300,000,000) ordinary
shares of one kwacha (K1.00) each. The total issued and fully paid up capital
stood at K197,755,755 as at 31st December 2008.
In 1991, the Government agreed to take over loans and interest in the sum of
K2,317,648,000 in exchange of equity shares. As of March 2009, the shares
had not been issued and there was no correspondence or agreement to
indicate how many shares the Government was to receive. The amount had
been reflected in the balance sheet as amount pending allotment.
In his response dated 19th February 2010, the Controlling Officer stated that
financial constraints were the major factor in the delay of allotting the
K2,317,648,000 into shares and that the amount required to register the shares
was astronomical given the poor financial state of Zambia Railways at the
time. He further stated that the matter would be dealt with when the situation
improved.
It was observed that ZRL had been audited by the same auditing firm and partner
for a consecutive period of over ten (10) years contrary to the auditing best
practice.
In his response dated 19th February 2010, the Controlling Officer stated that there
would be a change of Auditors for the 2009 financial year after approval at the
next annual general meeting.
117
f. Non Remittance of Statutory Obligations
Although the Company deducted statutory contributions from its employees, the
amounts deducted were not remitted to the relevant institutions. In this regard it
was observed that as of March 2009, the Company owed ZRA a sum of K34
billion in outstanding PAYE and K62 billion in penalties and interest. It was also
observed that National Pension Scheme Authority (NAPSA) was owed K8.616
billion in penalties due to the failure by ZRL to remit pension contributions on
time.
g. Land Encroachment
Zambia Railways Limited owns land that lies along ZRL railway reserve from
Livingstone to Chililabombwe. In addition ZRL owns residential and farm land in
areas away from its railway reserve. It was observed that the failure by ZRL to
either develop or dispose of its undeveloped land to the general public had given
room to encroachment. A scrutiny of the records revealed that fourteen (14)
business organizations had encroached on ZRL properties located in Lusaka
In addition three (3) properties in Pemba and Choma had either been illegally
occupied by some members of the public or the council had allocated land to the
members of the public to build permanent structures.
In his response dated 19th February 2010, the Controlling Officer stated that the
Ministry had granted authority to dispose of residential plots areas not linked to
railway operations.
i. Investment Plan
118
However, it was observed that at the time of concessioning, the agreement
provided for an investment of US$14.774 Million over a period of six years
which was far less than the actual investment required to bring the railway
infrastructure into good condition as was planned by ZRL.
Sections of the mainline rehabilitated Sections of the mainline were RSZ has
with concrete sleepers prior to the interlaced on average one concrete sleeper in
concession every four wooden sleepers
119
iii. Rolling Stock
A scrutiny of the concession agreement revealed that apart from the US$ 3.5
Million in the investment plan for Rolling Stock (i.e. Locomotives and
Wagons) there was nothing to compel the concessionaire to invest more in
the twenty (20) year life of the agreement.
Though in his response dated 19th February 2010, the Controlling Officer
stated that he recognised the inadequacy of the agreement and the need to
find a lasting solution, it was difficult to understand why it had taken the
Ministry such a long time since the concession came into force to find a
lasting solution.
· Railway line
Such unsafe joints with wide gaps and missing bolts are a common feature on the
network.
120
Section of the Kitwe- Chingola line
· Bridges
The twenty eight (28) bridges on the network which required regular
painting to prevent corrosion of the steel structures and ultimately
ensure the safety of the bridges, had not been done as of
December 2008.
Contrary to the provisions of the Road and Road Traffic Act and the
Concession Agreement, RSZ had not provided flashlights at Class A
Level Crossings.
· Passenger Coaches
Clause 12.7.1 provides that during the concession period, RSZ undertakes to
promptly return to GRZ all surplus assets which in its discretion will not be
required for railway operations.
121
Contrary to the provisions of the clause, RSZ had not handed back all assets
that the company was not using as detailed below;
Although the plant was part of the concession, RSZ has not been using
it from the time of the concession agreement in 2003 and the boundar y
wall to the plant had partially collapsed, the electrical motors and other
equipment were either missing or had been vandalized. The rails
procured by ZRL for the rehabilitation of the railway line were going
to waste. See pictures below.
The building which was operational at the time of handover had been
vandalized and roofing materials stolen. See picture below:
122
Part of the vandalized offices at Livingstone yard that was
operational at time of handover
123
Freight Passenger Net
Year US$ US$ US$
1 3,177,241 (700,000) 2,477,241
2 3,452,739 (800,000) 2,652,739
3 4,191,878 (1,000,000) 3,191,878
4 4,398,580 (1,200,000) 3,198,580
5 4,640,922 (1,200,000) 3,440,922
6 5,244,927 (1,200,000) 4,044,927
7 6,234,850 (1,309,671) 4,925,179
8 5,614,398 - 5,614,398
9 6,572,263 - 6,572,263
10 7,693,548 - 7,693,548
11 9,006,133 - 9,006,133
12 10,542,657 - 10,542,657
13 12,341,326 - 12,341,326
14 14,446,862 - 14,446,862
15 16,911,622 - 16,911,622
16 19,796,890 - 19,796,890
17 23,174,411 - 23,174,411
18 27,128,165 - 27,128,165
19 31,756,464 - 31,756,464
20 37,174,391 - 37,174,391
253,500,267 (7,409,671) 246,090,596
124
· Contradictory Clauses in Passenger Agreement
Section 5-3-2 of the agreement states that RSZ shall pay the first
installment of the variable concession fee for the first three (3) months
following the commencement date, within 60 days of the end of that
period. Subsequent payments shall be made quarterly in arrears within
60 days of the end of each subsequent quarter.
AMOUNT
YEAR K
2004 3,034,169,685
2005 9,592,029,842
2006 3,782,544,694
2007 1,584,627,627
2008 0
Total 17,993,371,848
It was also observed that the agreement did not provide for either ZRL
or GRZ to conduct an independent verification concession fees declared.
It was therefore not possible to ascertain the correctness of the
concession fees paid.
125
ZAMBIA TELECOMMUNICATION COMPANY LIMITED
(ZAMTEL)
Background
25. The Zambia Telecommunication Company (ZAMTEL) Ltd was established under the
Companies Act of 1994 following the dissolution of the Posts and Telecommunications
Company Limited (PTC) and became operational in July 1994. PTC was a wholly
owned subsidiary of Zambia Industrial & Mining Company Limited (ZIMCO)
(Voluntary Liquidation). Following the establishment of the Zambia
Telecommunication Company (ZAMTEL) Ltd on 1 July 1994, the Government of the
Republic of Zambia assumed 100% equity holding in the Company.
Administration
Board of Directors
Zamtel ltd has a board of directors consisting the Chairperson and not more than eight
(8) other persons appointed by the Minister responsible for communications and
transport.
Management
The Managing Director who is assisted by two General Managers, nine directors
including the Chief Internal Auditor and twenty (20) managers is responsible for the
daily operations of the Company.
The Managing Director and the two (2) General Managers are appointed by the board
on renewable three-year terms of office. The rest of the staff is appointed on a
permanent and pensionable basis.
Sources of Funds
The sources of funds include, among others, such sums of money as may be raised
through subscriber calls, line rentals, foreign administration income, phone
installations, leased services.
126
Review of Operations
A review of audited accounts and other relevant documents for the financial years
ended 31 st March 2006 to 2008 revealed the following:
It was observed that although the Company had a strategic plan for the period 2006
to 2011, the implementation of the plan was not progressing as scheduled. The
strategic plan provided that the company would be divided into two main divisions
being PSTN/Internet and Mobile each operated by a General Manager. As of June
2009 the company had not been structured as provided for in the plan.
The table below shows the profit and loss account for the financial years ended 31st
March 2006 to 2008:
Zamtel had been consuming more resources than it was generating. Revenue
decreased from K368,027,000,000 in 2006 to K357,002,000,000 in 2007
127
representing a decrease of 3%. This was mainly attributed to the decrease in
subscriber calls from K224,154,000,000 in 2006 to K176,898,000,000 in
2007. The directors report for the financial year ended 31st March 2007
revealed that the decrease in turnover was largely due to substitute products
from competitors as some of the districts had aging equipment that resulted
in difficulties in call penetration. However, the turnover increased to
K406,010,000,000 in 2008 representing an overall increase of 11%
(K37,983,000,000) from 2006 to 2008. On the other hand operating costs
increased from K383,618,000,000 in 2006 to K518,994,000,000 in 2008
representing an increase of 36% (K135,376,000,00) . In this regard, the
Company recorded operating losses amounting to K125,859,000,000 in 2007
and K105,801,000,000 in 2008 respectively.
During the period under review, staff costs consumed between 63% and 72%
of the turnover as shown in the table below:
It was observed that while the Company turnover increased by 11%, the staff
costs increased by 16% over the same period. The high staff costs had
impacted negatively on the company’s ability to utilise internal resources for
reinvestment.
128
c. Financial Position
The table below shows the balance sheet as at 31st March 2006 to 2008.
129
The following were observed:
i. Liquidity Position
The liquidity position of the company during the period under review was
as shown below:
It was also observed that the company had been operating below the
standard current ratio of 2:1. The trend over the period was that the ratio
continued to worsen from 1.03 in 2006 to 0.34 in 2008.
Although Zamtel ltd had a debt policy of 30 days, it was observed that
the company took between 88 to 170 days to collect its debts.
130
iii. Gearing
Zamtel ltd heavily relied on debt and as a result, the finance costs
(interest) had increased from K10,301,000,000 in 2006, K17,360,000,000
in 2007 and K18,318,000,000 in 2008 as shown in the table below:
131
In response, ZNTB stated the following among other things:
· Zamtel ltd was obliged to invite a formal tender for the supply and
delivery of 20,100 mobile phones in order to enhance transparency
and competition.
The sister companies quoted the same unit price, warranty and other
specifications except that the quotation from M. Mobile
telecommunications of Zambia included a charge of US$375 as transport
charges from Lusaka to Ndola.
132
Enquiries with management revealed that the phones had been retrieved
and had since been disposed of by selling them to the unsuspecting public
during the ‘Amabondi na 4x4 Promotion’.
The contract stated among other things that; that ASCOM SA shall
supply 450 Exanto Card payphones, Software licence for connecting 500
Exanto and 170 GNT Payphones. PSN 150 Centre valued at
Euro445,081.00, and that ASCOM SA shall be obligated to remedy
defects in the hardware during a period of 12 (twelve) months from the
date of production of the said hardware.
· Loss of Revenue
Zamtel ltd procured 300,000 pay phone cards from Gemplus South
Africa at a total cost of K1,196,026,159 and with a market value of
K4,500,000,000.
133
e. Un Accounted for Cell Z Scratch Cards
f. Capital Projects
Zamtel ltd undertook various projects during the period under review
which included the following among others:
Amount Contract
Project US$ Date
National Optic Fibre Project 48,000,000 14-Nov-06
GSM phase I 21,500,000
GSM phase II 38,000,000 4-May-04
GSM III 25,000,000 4-May-04
Rural telephone Project 23,000,000 6-Dec-07
It was observed that although the Company had signed contracts and
work had commenced on the National Optic Fibre, GSM phase III and the
Rural Telephone Projects, the company had not secured funding for the
projects as of June 2009. A review of the schedule of works done as at
31st March 2009 indicated the following:
The company did not implement its projects on time, for example, the
supply, delivery, installation and commissioning of GSM cellular
telephone system which commenced in 2002 and was to be completed in
134
ten (10) months at a cost of US$21,570,244 was only completed in
November 2007.
Although there was no evidence to indicate that Zamtel ltd had recouped
from the investments in GSM phase I and II implemented at a total cost of
US$59,622,905, at the time of the audit in June 2009, the company was in
the process of implementing GSM phase III .
The contract further provided that any quantities set out in the price
schedule were estimated quantities and were not to be taken as the actual
and correct quantities of the works which the contractor was required to
execute.
The detailed design for the project was done after the project came into
effect thereby making the bill of quantities in the contract inadequate as
the detailed design had more quantities than the estimate.
In this regard, in May 2009 following a claim from the contractor for
work done over a stretch of 634Km, the contract price was revised
upwards by US$3,351,305.
135
g. Under Utilisation of Exchange Capacities
The total capacity for the PSTN telephone exchange system as of March
2009 stood at 161,422 lines while the number of connected customers
was 84,774 representing 53% capacity utilization.
In October 2007, Zamtel ltd entered into a contract with ZTE Company
for the supply, delivery, installation and commissioning of the GSM
Cellular Telephone System at a total contract sum of USD $25,079,226.
The contract was aimed at increasing the exchange capacity from 150,000
to 800,000.
A review of the report on the status of the equipment for telephone switching
and transmission systems as of March 2009 revealed the following among
others:
Minutes of the special board meeting held on 22nd January 2006 on the
report of the remuneration and establishment committee on the
remuneration of the Managing Director and the two (2) General
136
Managers revealed that the board resolved among others that the clause
in the contracts under gratuity should be recast in respect of the tax
component so that the sentence ”the company will bear tax” should not
be reflected.
It was observed that the condition of service was questionable in that the
company paid gratuity on commuted leave days.
It was observed that as of March 2009, the company owed amounts totalling
K433,018,088,724 to the three (3) institutions in unremitted statutory
contributions as shown in the table below:
137
Amount
Entity K Details
ZRA 322,894,687,816 PAYE
ZRA 78,200,000,000 Penalties (K58.3 billion)
Interest (K19.9 billion)
NAPSA 11,968,189,329 Pension
ZSIC 19,955,211,579 Pension
Total 433,018,088,724
CONCLUSION
26. This Report highlights various areas of weaknesses in the management of the
organisations audited. Weaknesses in the areas of maintenance of records, remittance
of statutory contributions and preparation of financial statements and annual reports are
of particular concern. In this regard, there is need for improvement in the management
of the organisations concerned.
27. The Appendix to this Report on pages 141 to 148 contains unresolved issues reflected
in various reports of the Committee on Parastatal Bodies. As can be observed from the
list of unresolved issues, there has been little or no follow-up action by the affected
parastatals and it is likely that if timely action is not taken by the Executive, the
unresolved matters will increase to the extent that recommendations of the Committee
on Parastatal Bodies will be rendered meaningless.
138
Appendix
Report of the Auditor General on the Review of the operations of the Public
Service Pensions Fund from the period January 1997 to March 2002
Report of the Auditor General on Nanga Farms PLC (Transfer of CDC shares to
New World Farming Limited)
139
Report of the Auditor General on the Review of the Operations of the Zambia
National Oil Company
Report of the Auditor General for 1995 on the Accounts of Parastatal Bodies
Report of the Auditor General on the Operations of Zesco and Kariba North Ltd
for the financial year ended 31st December, 1998
140
27 (28) Part Payment made for former - As to whether the amount of
Chairman’s gratuity and fees K6,000,000 was recovered
(K6,000,000). from the former Chairman
Report of the Auditor General on the Accounts of Parastatal Bodies for the
Financial Year Ended 2004 Allowances
141
20 (24) Consultancy fees - As to whether recoveries have
been made.
24-25 (29) Maize paid for and not - The current position on the
delivered matter
Report of the Auditor General on the Accounts of Parastatal Bodies for the
Financial Year Ended 2005
99 (130) Drugs paid for But Not Received - Regarding the current position
(K2,290,357,583) on the drugs paid for but not
received for K2,290,357,583.
142
Transferred by Government matter
143
Actuarial valuation Report - As regards the current position
on the actuarial deficit of
K26.2 billion.
144
cheques and unsupported and
inadequately supported
payments.
Treasury Minute on the Report of the Public Accounts Committee on the Report
of Public Accounts Committee on the Report of the Auditor- General for 2006
Accounts.
Para 12 (10) Mukuba Hotel Limited - Progress made to address the issues
raised in (a) (b) (c) (e) (f) and (h)
145
Para 21 (19) Zambia Flying Doctors - As to the latest position on the
Service matters raised in (c) – (g)
Para 23 (21) Zambia National Tender Board - Latest position on the matters
raised.
146