Money chaos in councils

Councils may have mismanaged over K20 billion in fiscal years ending June 30 2015 and 2016, our calculations from a National Audit Office (NAO) report shows.

According to the NAO audit report for city and district councils released on June 8 2018, the audit found six major loopholes through which the billions of taxpayers’ money may have been wasted.

Among others, the audits found that councils made payments amounting to around K9.4 billion whose supporting documents were not available at the time of audit.

This problem was common in all the 28 councils, but Mangochi was the worst, having unsupported payment vouchers valued at over K1 billion.

Failure to attach supporting documents, according to the audit report, encourages unauthoried and fraudulent transactions to occur.

The audit also revealed that the councils failed to provide documents for audit involving transactions of at least K5.7 billion, a development auditors also said encourage unauthoried and fraudulent transactions to occur.

The local authorities also failed to provide supporting schedules for K3 billion in the financial statements, the risk of which is that the figures in the financial statements may be materially misstated.

The report also found that over K1.7 billion worth of fixed public assets are not in the registers of various councils, putting them at risk of someone claiming ownership over them and getting away with it.

Councils were also unable to provide evidence that they owe someone—including suppliers as claimed—meaning that it was possible for an official to include fictitious claims of payables to creditors, resulting in loss of funds.

The money that NAO found to have been questionable payables amounted to K182 million, a problem that hit mostly Balaka Town and Chikwawa District.

Other problems included unauthorised payments, failure to include some incomes and expenditures in financial statements, poor stores management; people just getting fuel without signing for it or being recorded anywhere and misallocation of expenditure.

While government has been claiming that it is improving public finance management across the public sector, including councils, the audit’s findings actually show that most of the problems are recurring and worsening when compared against fiscal years ending June 2013 and 2014.

For example, the problem of documents not provided for audit jumped by 35 percent, lack of supporting documents for expenditures increased by 71 percent; unsupported creditors rose 97 percent, unauthorised payments grew 2084 percent, unrecorded stores in the ledger shot by 104 percent; unaccounted for fuel grew by 64 percent while misallocation of expenditure rose by 271 percent.

Decreases were noted on only two items; namely, failure to include figures in financial statements, which dropped by 95 percent and breach of procurement regulations that were 40 percent lower than the preceding two fiscal years.

Government has in recent years increased the amount of funds transferred to councils in an attempt to broaden and deepen centralisation, but the fiscal slippages raise serious questions of capacities at local level even as the central government suffers from the same public finance management challenges.

In the 2018/19 financial year alone, the central government has transferred at least K219 billion or 16 percent of the K1.4 trillion spending plan to councils.

The audit report cited insufficient qualified personnel as one of the challenges leading to the fiscal management lapses in councils.

Reacting to the report, Ministry of Local Government and Rural Development spokesperson Muhlabase Mughogho said the ministry’s audit committee is following up on the issues raised by the Auditor General.

“As one way of decreasing the irregularities, district commissioners have said they have started recruiting experienced staff, as attested to by Elis Tembo, DC for Dedza, which is one of the districts with many irregularities.

“I cannot say that we don’t have unqualified personnel. We have started recruiting the qualified personnel; by and by we can solve the problems which have been exposed,” she added.

Commenting on the audit, head of programmes and policy at Action Aid Malawi Peter Pangani, who is also a social commentator, said only if government starts recruiting competent people in the councils will the problems be solved.

“The vacancy rate has been very high in all our district councils and no one seems to care. Key positions of influence and decision-making are occupied by under-qualified staff,” he said.

In his report, the then Auditor General Stephenson Kamphasa complained that despite sending management letters with recommendations to each DC and chief executive, few submitted their responses within the period stipulated under Section 14 of the Public Audit Act.

A summary of my recommendations include:

• Councils should be staffed with qualified personnel, who can adequately maintain accounting books and timely prepare financial statements
• Councils should ensure that financial reporting is in line with the International Public Sector Accounting Standards and relevant financial authorities
• Councils should ensure that the Fixed Asset Register is maintained for accountability of Non-Current assets.
• Management of the councils should ensure proper record management.

On his part, Dalitso Kubalasa—a long time public finance management tracker—urged government to implement the recommendations.