If Malawi National Audit Office (NAO) can’t walk the talk, who will and who should?

A free for all at NAO:

According to the Nation, donors in Malawi are increasingly losing confidence in the National Audit Office (NAO)  —an organ mandated to check abuse of public resources – because of glaring flaws in the way the office manages its own finances.

The Norwegian Embassy was the first and now the United Kingdom’s (UK) Department for International Development (DfID) has joined the chorus of those institutions dismayed and shocked beyond belief by the national watchdog’s lackadaisical handling of resources.

The revelations of the NAO’s financial impropriety have come to the fore after an external audit conducted by professional certified accountants firm, Deloitte; and raises serious questions vis-à-vis the credibility of the country’s supreme auditing body.

This development puts in jeopardy NAO’s operations including finalising local councils’ audits that DfID was financing.

National Audit Office

DfID has since demanded NAO refunds K79 million (about 60 percent of the total funding) discovered by Deloitte’s audit as “misused” during a period of ten months; from January 1, 2011 and October 31, 2011.

On average, as one can figure out, NAO was misusing K7.9 million a month, which DfID could have channelled to other life-saving interventions e.g. maternal care.

The grant, to the tune of £520 000 (about K133 million at the January 2011exchange rate; K240 million at present exchange rate), was meant to help NAO clear audits of local councils for financial years 2008/09 and 2009/10.

DfID’s reaction:

The head of DfID in Malawi Sarah Sanyahumbi has since written Auditor General, Reckford Kampanje a strongly-worded letter, warning that DfID will not fund NAO again until specific audit queries are resolved.

In other words, until the K79 million is repaid and vibrant control measures in line with Deloitte’s recommendations instituted.

“We have now received the final report from Deloitte. It is very disappointing. There have been clear breaches of the agreement between us and blatant misuse of UK taxpayers’ money.

“I am left with no option but to request that your office reimburses us in full all amounts misused or for which the office has been unable to account. This amounts to K79 287 102….

“It is highly regrettable that NAO finds itself in this position. Until this matter has been resolved and the appropriate action has been taken, it will not be possible for the UK to provide further support to NAO, directly or indirectly,” DfID’s Sanyahumbi in a letter dated June 26, 2012.

Kampanje, from reports so far, has opted not to reply to Sanyahumbi, but to send an explanation to the Office of the President and Cabinet (OPC), according to NAO corporate communications officer Thomas Chafunya.

“OPC is the authority line. We replied to OPC in detail of what had happened. I believe OPC would explain better,” he said.

Sanyahumbi’s letter, in the spirit of transparency, was copied to dodgy FinanceMinister Ken Lipenga, the Public Accounts Committee (PAC) of Parliament, Norwegian Ambassador Asbjoun Eidhammer, World Bank country director Sandra Bloemenkamp and European Union (EU) Ambassador Alexander Baum.

Total breakdown of controls:

According to the Deloitte audit, NAO lapsed in practically all control areas and evidence of such includes:-

  • Payment of K5.8 million in allowances to non-deserving staff.
  • Use of wrong rates in paying allowances which consumed K56.6 million more than planned.
  • Unaccounted for K1.3 million allegedly on fuel without valid receipts.
  • Payment of K1.5 million in allowances without signatures of recipients.
  • Officers drawing allowances for more days than worked for, robbing NAO of K4.7 million of the British tax-payers’ money.
  • Payment of about K6.6 million in accommodation allowances to staff working within their base in Lilongwe.
  • Payment of K1.4 million in allowances and facilitation fees for staff to merely write a report on the DfID funding, something which should be part of their normal duties
  • Use of K106 280 on non-programme activities, and spending K867 500 without supporting documentation.

The Ministry of Finance has since said it is aware of effects the disagreements may bring, but hopes an understanding would soon be reached to resume the funding and enable NAO start auditing local councils for financial year 2010/11.

Secretary to the Treasury (ST) Radson Mwadiwa acknowledged in an interview on Wednesday that any delays in the process may result in another backlog of unaudited books at local councils.

“Government is aware of the matter and it is being handled by OPC. All we pray [for] is that this issue be resolved soon,” said Mwadiwa. He thinks some of the alleged misuse “is just a matter of opinion.”

Mwadiwa’s unfortunate response can at best be termed, “childish” because “to give an opinion” is exactly what Deloitte was hired to do by DfID.

“Government will also need to hear from the Auditor General,” he said. There is need for a round table where DfID and NAO will discuss the matter amicably, said the ST. Isn’t the Auditor General the head of NAO, what can he say? One can hazard a guess that a Lipenga-like Kangaroo Commission is obviously in the offing.

DfID has so far declined to discuss the issue with the media.

“Please note that the official policy of the UK Government is not to comment on unofficial/leaked documents,” said Andrew Massa, DfID programme manager.

Chafunya’s miserable attempt at defence:

NAO’s Thom Chafunya acknowledged there are cases where officers got allowances for more days in workshops that ended earlier than scheduled.

He said: “Allowances were paid to staff members who attended the workshop, only that there was a situation where a workshop was completed a day earlier than planned after officers had already received the allowances because some facilitators to the workshop did not turn up as they had other engagements in their ministries and institutions.”

But Chafunya said “the auditors were not correct to state that NAO used incorrect rates in paying allowances to its staff, but rather NAO used government prevailing rates.”

“The basis for the preparation of the budget for the audits of local councils which was submitted to DfID was a Circular Ref No. HRMD/ALL/01 dated 24th July 2007, which states that an officer will be paid K3 750 plus the amount for hotel accommodation so that he/she pays for accommodation on his/her own. The project task force, which was formed to implement the project, discussed with officers from DfID in a meeting where an agreement was reached to use the above circular,” he said.

Reckford Kampanje

The said understanding was “reached after considering that DfID uses a flat rate of K21 000 for every member of staff involved in an assignment.”

“If the flat rate of K21 000 was used by the National Audit Office, then the funds that were provided would not have been adequate. You may also wish to note that the office adjusted the allowances downwards below the current government rates as provided in a circular no 15/15/1 dated 25th March 2011, when it was discovered that the funding was not adequate to cover the whole assignment. So, the budget that was submitted to DfID was based on this circular in so far as allowances were concerned,” wrote Chafunya to the Nation.

Even if Chafunya’s shabby defence was valid, in the sense that Deloitte are professionals who would have used as a base for their audit tests, work, conclusion and opinion; the contract and budget signed between the two parties, what is shocking is that NAO exhausted the entire grant just half way into the project.

And that is not all.

NAO then started borrowing illegally (something that has become commonplace in Malawi’s institutions) some K25 million from the Norwegian-funded Institutional Development Programme without seeking prior approval from both DfID and the Norwegian Embassy.

In these days of emails, smses and what have you, NAO spokesperson, Thomas Chafunya finds this “normal” saying it was meant to save a situation. Would the donor be asking for too much to expect a short email beforehand that outlines the challenges faced?

What Chafunya’s careless responses will in fact achieve is a worsened situation.

“The decision to borrow funds amounting to K25.1 million from the Norwegian-funded programme was reached after the office had run out of DfID funds half-way through the audit of the local councils while the auditors were in the field due to complexity of the audits and some challenges met in course of the audit which required more days than planned. At that juncture, withdrawing the auditors would have led to the flopping of the whole audit programme,” he said.

Chafunya rejected assertions that the shortfall may have been created by the abuses noted by the auditors such as the use of incorrect rates in paying allowances.

You may wish to note that the audit was targeting 40 councils throughout the country as most of them had not been audited for a long period and as such there was need to do a thorough job; hence, more days than planned,” he said.

All these shameful attempts to defend mismanagement are tantamount to rubbing salt into the British and Norwegian tax-payers’ wounds.

Point is: the NAO’s failure to properly budget for contingencies, knowing as it should have known, that the councils’ had been unaudited for a while, can neither serve as authority to engage in illegal borrowing nor a license to co-mingle donor funds.

National concern:

The UK’s suspension of support to NAO should be a concern to all Malawians of goodwill because the local councils are the mechanism that Government uses to take development to marginalised people in the villages.

What is worrisome is that this suspension comes at a time the Norwegians also recently withheld their aid over alleged abuse.

In a four-paged circular reference number AUD/5/6 dated June 21 2012 to all NAO employees, Kampanje has acknowledged lapses in NAO’s financial procedures.

“I am very much concerned and disheartened with the anomalies that have been brought to my attention involving prevailing practices in financial management…,” said Kampanje in his memorandum.

Measures (in direct contradiction to Chafunya’s childish defending of the indefensible):

Among other measures, he has directed that allocation of funds to activities and procurement at NAO “should be handled by the Funding Allocation Committee (FAC).”

Says the AG: “I have been made to understand that the task of allocating funds to activities has been single-handedly handled by accounts staff without involving other sections. This has posed a challenge in that there has been no check and balances.”

Kampanje has also centralised the authorisation of any payment made from NAO following loopholes in the former system

“It has been observed that some officers are taking advantage of the multiplicity of the payment authorising points and are indulging in certain malpractices. In order to strengthen the current financial management systems, it is essential that there be one focal point,” reads Kampanje’s circular in part.

‘Necessary evil’

Chafunya: Defending the indefensible

In an interview Tuesday, Chafunya acknowledged that his boss’s reaction is partly a result of findings from the DfID audit.

“We are looking at the DfID audit as a necessary evil. We have already tightened up our financial management systems,” he said.

Ironically, with all this financial malfeasance NAO is working towards autonomy which will see it report directly to Parliament as opposed to the current system where the office operates under the Finance Ministry. Which idiot will approve this autonomy with such a mess, remains to be seen.

Impunity reigning supreme:

All these tear-evoking developments raise a few questions:

  • is there in Malawi, one – just one institution – that truly has national welfare and development at heart if the National Audit Office is breaking the national record in impunity and outrageous financial management?
  • who in their right minds, can take reports on audits conducted by the NAO seriously when itself has a K79 million worth of financial impropriety in its own backyard, ”overspending” on budgets and trying to cover up with borrowing, like a drunken sailor?
  • Indeed, who is watching over the guards?
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