New details have emerged that authorities instructed some commercial banks to honour all government cheques for any amount without limit on behalf of the Reserve Bank of Malawi (RBM), a policy that looters took advantage of, it has been learnt.
This aspect of the Integrated Financial Management Information System (Ifmis)-induced Capital Hill cash-gate has put RBM under the microscope as the nation grapples to understand how tens of billions of kwacha in public funds could be cashed so easily without the central bank raising eyebrows during the transaction and as it was refunding overdrawn balances to commercial banks.
A change in payment policy—according to an interim report from a Treasury-sanctioned investigative audit of Ifmis done between 2011 and 2012 by the National Audit Office (NAO)—appears to have created fertile ground for the looting that saw roughly K90 billion (US$24. 3 billion) abused between 2009 and 2012 through the system.
This weakness also led to the K400 million (US$1 million) scandal of 2011 which implicated a senior police commissioner and accounts clerks at the Accountant General’s Department.
Most recently, the looting led to the arrest of some civil servants caught with millions of cash in their bank accounts, sometimes in their homes and even in their vehicles.
In 1995, government had introduced cash rationing (or cash budget)—a system anchored on the principle that government could only spend what was collected—to restrain ministries and departments from overspending.
While the move had mixed results, it did not lead to the free-for-all pilferage that got pronounced with the coming of Ifmis.
Indeed, once upon a time, government used to have Credit Ceiling Authorities (CCAs), which could limit the extent of payments and check excesses.
But the NAO report suggests that CCAs stopped in 2005 when government rolled out Ifmis. The absence of CCAs may have left room for rogue civil servants and their private sector partners to siphon limitless sums of money out of government even when no goods and/or services were ever delivered.
It does not matter whether the budget line has no money or whether the pay cheque issued is way beyond the annual budget allocation for a ministry or department: the money is always paid.
This is because at the time CCAs were abandoned, said the NAO report, government also issued a directive to commercial banks: A government cheque should never bounce at the bank.
This directive may have blown wide open whatk2ever screws may have been left of sound Public Finance and Economic Management (PFEM).
It is a policy directive that the NAO audit says significantly contributed to the looting, now dubbed cash-gate.
Said the NAO in the interim report: “When the system [Ifmis] was being introduced in 2005, government had in place specific accounts for individual ministries/departments with Credit Ceiling Authorities [CCA], which could limit the extent of payment.
“The current arrangement was that a consortium of three commercial banks, namely NBS Bank, Standard Bank and Malawi Savings Bank were the authorised banks to honour all government cheques from any of their branches for any amount without any limit on behalf of the Reserve Bank of Malawi.
“For example, on Malawi Police Service account, cheque number 154424 dated 30/09/10 was cashed for staff with an amount of K500 000 000.00. (US$1. 4 million) The role of RBM was simply to refund all what was disbursed by the commercial banks without control mechanism.”
The report added that in the circumstances where payments are made outside the system, there was no expenditure control over public funds and the objectives of the Central Payment System (CPS) were defeated.
Added the NAO interim report: “This conclusion was made after noting that at the Malawi Police Service [MPS] independent site, for instance, Treasury funding for 2009/10 fiscal year was around K5 billion (US$13 513 513) in line with the budget, but the expenditure level as captured from payments records was in excess of K14 billion.
“There was a risk that payments could be made in excess of the budget limit for a given fiscal period. There was also a risk that unauthorised payments could be processed by unscrupulous individuals and passed through the banks undetected.
The interim report also hits at the poor reconciliation arrangements across the public finance management system.
Apparently, the current arrangement was that Accountant General should perform monthly bank reconciliation for each of the CPS accounts at MPS, Malawi Defence Force (MDF), New State House and Accountant General sites.
The bank reconciliation unit at Accountant General was responsible for obtaining RBM statements and reconciled them with the system’s cash-books from all the sites.
Unfortunately, said the report, no reconciliation and bank statements were produced for audit review as no bank reconciliation was ever prepared for the three-year period under review.
The report said while a soft copy of the RBM bank statement for the headquarters site covering all ministries/departments was produced to auditors, an examination of the statement revealed that a number of paid cheques were deleted from the statement.
“This manifested unscrupulous behaviour by some properties within the system and, therefore, the statements in their custody could not be relied upon,” it said.
NAO also put RBM on the spot when it came to management of cheques, observing that there was lack of control in the manner the cheque pads were distributed. The cheques, printed in South Africa, were being distributed by RBM.
“There was no control over cheque serial numbers as paid cheques were issued by the Central Payment Offices without following serial number order. At Accountant General, it was also noted that at times, renumbering of cheques by the cash office staff was done without authority or valid reason,” explains NAO.
Ministry of Finance spokesperson Nations Msowoya was not available for comment yesterday.
RBM spokesperson Mbane Ngwira promised to respond on Wednesday but failed do so as, he said, he was still gathering information.
Yesterday, Ngwira said he would send the response today (Friday). When the response comes, Nation will publish it.