Lawyer says difficult to successfully prosecute Pioneer Investments in Malawi Police ration scam

A Malawian private practice lawyer says it would be difficult to convict Pioneer Investments on the Malawi Police Service (MPS) food ration scam based on the evidence that the Anti-Corruption Bureau (ACB) has compiled on the case.

Speaking exclusively to Nyasa Times, the lawyer, who refused to be named due to the sensitivity of the case, explained that although Pioneer Investments have been portrayed as the foul guy in a K2.7 billion contract to supply food rations for the Malawi Police Service, available evidence reveals that the company might actually not have committed any crime.

There have been mounting calls for President Peter Mutharika to resign after a leaked report by the Anti-Corruption Bureau (ACB) accused him of receiving a K145 million kickback from a contract to supply food rations to the police.

The report also accuses Pioneer Investments of trying to defraud government after the company demanded K567 million interest from the Police after delayed payments.

“I do not know if they have some hidden information that has not come to public light, but based on what I have seen, they have a weak case and they will have a huge talk in trying to convince the court that anything wrong was committed,” said the Blantyre-based lawyer, emphasising that he was merely expressing his opinion based on the leaked ACB report.

Documents that Nyasa Times has seen detail the back and forth correspondence between Pioneer Investments, Malawi Police Service, the Secretary to the Treasury and the Accountant General’s office from the moment the contract to supply the food rations was signed on August 4, 2015.

Price adjustment from K2,327,087.500 to K2,793,087.500

Six days after the contract was signed, Pioneer Investments wrote the Inspector General of Police requesting for a 20 percent adjustment in the price of the contract from the initial K2,327,087.500 billion to K2,793,087.500 on the basis of the volatility of the Malawi Kwacha.

In the letter, Pioneer Investments explain that the Kwacha had fallen 16 percent from the date the tender was submitted on July 16, 2015 to the day the contract was signed 18 days later. The Kwacha then moved a further two percent from August 4, 2015 to August 10, 2015 when Pioneer Investments wrote the Malawi Police Service. Further correspondence indicates that the Kwacha had depreciated a further 25 percent by the time Pioneer Investments had been paid in 2016.

In response, an August 14, 2015 letter from the Malawi Police Service to Pioneer Investments signed by MPS director of finance Innocent Botomani says they would consider the request for price increment by Pioneer Investments.

And in a follow-up letter dated November 17, 2015 addressed to Secretary of Treasury in the Ministry of Finance, MPS, via Botomani, request for authority to pay Pioneer Investments for services rendered as the deliveries had been completed as per contract.

“After consideration, we agreed to adjust the price [of the rations] to K4,795/pack and the value of the contract is now K2,793,087.500,” reads Botomani’s letter to Treasury with which was attached the contract, price adjustment correspondence, statement of invoice and delivery note from Pioneer Investments and Office of Director Public Procurement (ODPP) approval letter.

On January 11, 2016, Pioneer Investments followed up their payment with a letter addressed to the Deputy Inspector General of Police, demanding payment for the revised contract price.

“All invoices are over 45 days due as per attached statement and for this reason, our finance costs and pressure from the bank is increasing on a daily basis,” reads the letter signed by Pioneer Investments’ managing director Zameer Karim.

In the letter, the company claimed their suppliers were now demanding a 40 percent increment on the initial cost due the rapid depreciation of the Kwacha.

In a response dated the same day, the Deputy Inspector General of Police Duncan Mwapasa assures Pioneer Investments of payment.

“Please be impressed that the process your payment has been caused by the closure of government agencies over the festive season which was beyond our control. Therefore, I would like to ask for your patience ad request to bear with us as we are trying hard to make the payment of K2,793,087.500 as soon as possible,” reads the letter, assuring Pioneer of payment by end of February 2016.

The issue of K567 million interest

Faced with delayed payment, Pioneer Investments started charging interest on late payments it was owed by government.

According to an accounting professional who opted for anonymity due to the sensitivity of the case, this is legal and a standard procedure in the supply chain business.

“The standard norm is for the client to pay with 30 days after which the supplier can start charging interest. This is so because most suppliers rely on bank loans to meet the cost of bringing in goods. People don’t usually have money lying around waiting for a tender. So when a client delays paying you, it has an adverse effect because you are being charged interest by the bank. But this is not your problem so you have to pass on the cost of interest to the client,” the account, who has over 20 years in the Fast Moving Consumer Goods (FMCG) sector explained.

Based on these accounting principles, on July 12, 2017, Pioneer Investments wrote the Malawi police Service to verify and approve interest claims that were accumulating every month due to the delay in payment.

The total amount for the interest claimed from October 2015 to June 2017 amounted to about K567 million. The breakdown, according to the quarterly interest claims that were sent to MPS from Pioneer Investments are as follows:

• October to December 2015 – K90,555,087.22
• January to March 2016 – K254,973,447.25
• April to June 2016 – K58,725,615.50
• July to September 2016 – K36,154,261.43
• October to December 2016 – K39,387,699.18
• January to March 2017 – K46,132,038.27

On August 12, 2017, Inspector General Lexon Kachama wrote to the Auditor General asking them to certifying the interest as claimed by Pioneer Investments.

“We have verified the interest to be correct based on bank interest rate calculated on reducing balance and taking into consideration the date of delivery of goods and delay of payment,” reads the letter. Attached were calculations of interest accrued to Pioneer Investments.

Attaching the IG’s letter, on August 9, 2017, Pioneer Investments wrote the Treasury requesting for payment upon verification of the interest.

And on August 22, 2017, an Auditor General’s letter to Treasury notes that upon verification of arrears, Pioneer Investments claim for interest was correct.

“An examination of the contract, invoices, payments, delivery notes and other supporting documents confirm that claims on accumulating items totaling K567,866,013.40 were outstanding as at June 20, 2017,” the letter reads.

The Auditor General notes that the Attorney General advised that the fact that there is a stipulated payment period within the contract implies that any late payment will attract interest.

“Passing on the advice from the AG, I therefore, certify that claims for the supply of goods and services and interest of late payments totaling K567,866,013.40 are valid and eligible for payment,” reads the letter signed by Auditor General Stevenson Kamphasa.

What happened next?

The National Audit Office (NAO)—which initially authorised Treasury to pay the interest—has since said the money should not be released as it has unearthed anomalies, including that part of the money was paid in advance of supplies.

On the other hand, the MPS—which initially contested the interest claim—has changed tune and now wants Treasury to pay.

At first, both the Auditor General and the Attorney General certified the demand for payment of the claim, according to a memo from the Auditor General dated August 22 2017, titled ‘Verification of government arrears owed through Malawi Police Services: K567 866  013.40.’

According to the contract, which we have seen, the agreement was for K2.3 billion to deliver food rations within 20 weeks starting from the day the contract was signed.

The contract, which was for supply of corned beef, energy biscuits, energy juice and pilchards, has no specific interest clause.

Kamphasa’s memo, which  we have seen, says he initially authorised payment after verifying the contract agreements, invoices, payment vouchers, delivery notes and supporting documents, inspected delivered goods and interviewed MPS officers

But he notes in the memo: “Further examination of the contract between Pioneer Investments and Malawi Police Service showed that there were no provisions for interest for delayed payments in the contracts, but only provided for payment to be made within 30 days after production of an invoice.

“However, based on advice from the Attorney General’s office through letters Ref. No. MJCA/AG/181 dated 24 March 2017 and Ref. No MJCA/AG/031 dated 27 April 2017, [NAO] was advised that the fact that there is a stipulated payment period within the contract implies that any late payment will attract interest.”

The letters were signed by an officer on behalf of the Attorney General.

To illustrate its point, the Attorney General’s office furnished the Auditor General with a letter from the Auditor General’s office, titled ‘Request for Interpretation on Applicable Rate of Interest in Terms of a Contract between the Roads Authority and Fargo Limited which had similar clauses.

In earlier interviews with The Nation newspaper, both Kamphasa and NAO spokesperson Rabson Kagwam’minga confirmed that the Auditor General reversed the payment certification and is again now investigating the claim of payment.

Said Kamphasa: “We are talking about accruing overdue interest at the time of computing interest. It was later discovered there was an error submitted by Pioneer Investments which came through Treasury that some of these invoices were not supposed to have attracted accrued interest since they were paid in advance. After noting this anomaly, I had to withdraw the certificate and it remains withdrawn until today. Investigations are still ongoing as to how these were included and by who.”

“Even if I certify a transaction and it looks suspicious, there is a clear instruction it should not be [paid] immediately,” he added.

Kagwam’minga, in a separate e-mail, said there was nothing unusual in the withdrawal of the interest payment.

“The certificate in respect of the claim in question was withdrawn when notice of an anomaly in the transaction was taken. Treasury has, therefore, not honoured the claim pending further investigation into the matter.”

Finance Minister Goodall Gondwe also confirmed in an interview that after being asked to audit the interest payment query by Pioneer Investments, NAO first approved it.

“That’s correct; the Auditor General first said ‘pay,’ and now they are saying ‘don’t pay’. We wrote the National Audit Office, after they said ‘pay them the interest,’ because—in our records—this company was paid in time and in full,” he said.

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