Treasury questions funds abuse at Smedi

An investigative audit that the Central Internal Audit of the Ministry of Finance carried on Small and Medium Enterprise Development Institute (Smedi) has unmasked how top officials allegedly ‘enriched’ themselves by making bogus claims of fuel and telephone allowances amounting to over K21 million ($42 000).

An audit report dated June 3 2015, which Nation on Sunday has seen, alleges that Smedi chief executive officer Charles Kazembe and two of his directors were claiming allowances while fully aware that the same was already provided for in their consolidated monthly packages.

But Kazembe dismissed the findings, saying the payments were duly approved by the organisation’s board of trustees.

Treasury spokesperson Nations Msowoya, in an e-mail interview this week, confirmed that the Ministry of Finance carried out the audit that alleges Kazembe illegitimately claimed about K18 million ($36 000) in total while one director at the organisation pocketed an estimated K2 million ($4000) and the other pocketed K1 million ($2000). He said the matter was now in the hands of Smedi Board of Trustees.

Said Msowoya: “Yes, I can confirm that Treasury sanctioned the audit in line with the Public Finance Management Act which, among other things, mandates the ST [Secretary to the Treasury] to call for an audit of any public institution.

“The report has been referred to the Board of Trustees of Smedi who will review the report and take the necessary actions.”

But in an interview last Friday, Smedi board chairperson Betty Chinyamunyamu said no action had been taken yet as she was waiting to meet Treasury.

“As you can see from the report, I was only copied. I am not the main recipient, that report is for Treasury and they are the right people to comment on the matter,” she said.

But when told that Treasury had told Nation on Sunday that the report had been referred to her board for review and necessary action, Chinyamunyamu said: “You know everything started before our operations as a board. So, I am still studying to understand what really happened.

“Besides, there have been a lot of activities and I have not met Treasury to be given authority to act, so I am not in a position to say what will be the next step of action.”

Conducted between March 30 and April 10 2015, the investigative audit exercise was sanctioned by the Secretary to the Treasury on March 2 2015 following allegations of abuse of public funds.

The report claims that the CEO used his position to influence irregular payment of duty facilitating allowance (fuel and telephone) arrears amounting to K11 730 850 ($23 461.7) while fully aware that he was not entitled and not payable from the trust’s account.

But in an interview last Friday, Kazembe said his conscience is clear as the payment he got was authorised by the Smedi Board then headed by the Reverend Dr Davidson Chifungo.

Kazembe’s position is reinforced by a letter dated September 6 2014 reference ADM/OFF/15/Vol.ii/154 that Nation on Sunday has seen and which shows that Rev Dr Chifungo wrote Smedi human resources and administration manager authorising payment of the duty facilitating allowances to Kazembe.

The office computed the allowance arrears for the period between February 2007 and January 2013 totalling K11 730 850 and Kazembe was paid on May 28 2014 through voucher number 1648 and cheque number 1639. However, enquiries the audit made with the then Malawian Entrepreneurs Development Institute (Medi) human resources and administration manager revealed that the fuel and telephone allowances Kazembe claimed was already being paid (included on his pay slip as taxable allowances) while working as CEO for Medi.

Further, Kazembe is alleged to have also been receiving K13 000 ($26) monthly taxable allowance separate from the consolidated salary which was not provided for in his employment contract.

The audit says an examination of payment and disposal records for fuel and telephone units revealed that the CEO and directors were also claiming utility fuel from the pool for official travels within and outside duty station.

Kazembe and the directors, according to the report, claimed duty facilitating fuel from the utility pool totalling K9 670 674 ($19 341.35) while fully aware that the same was provided for in their employment contract.

During the financial year 2013/14, the report says, he claimed K3 609 406 ($7 218.81) and in the financial year 2014/15, he claimed K2 832 587 ($5 665.17), totalling K6 441 993 ($12 883.99).

The two directors—whose names we have withheld because we could not get their side of the story—claimed K2 067 230 ($4 136.46) and K1 161 451($2 322.90) during the financial year 2014/15.

But the report says when Kazembe joined Smedi as CEO on April 26 2013, his conditions of the contract included duty facilitating allowance (fuel and telephone allowances).

In an interview, Kazembe said he was innocent because the decision to pay him was made by the board chairperson after he sought clarification on the issue.

He explained: “My conscience is clear because I never used my position to be paid. I only sought clarification. My assumption is that after scrutinising everything the board was convinced that I needed to be paid. It would have been something different if I instructed the finance department to pay me.

“If the payment was authorised by the board, which is also our appointing authority, does that also suggest that all other decisions the board had been making were irregular?”

The report has since recommended that since the funds were paid to the CEO and directors irregularly they have to be recovered from them.

The audit also recommends that the Comptroller of Statutory Corporations should also consider replacing the officers for abuse of office and dishonest behaviour.

“Double claim for official fuel amounts to fraud and, therefore, special official trips outside Lilongwe should be calculated and netted off from the double claim. The balance should be recovered from the three officers and the Comptroller of Statutory Corporations should consider replacing the three officers for abuse of office and dishonest behaviours.

“Where it is not practical to recover the money from Mr. Kazembe, the fraud should be reported to law enforcing agency for legal action,” recommends the report.

But in another interview, Comptroller of Statutory Corporations, Zangazanga Chikhosi, said he was yet to decide because the report has not reached his desk.

“I have not seen the report you are referring to. The best thing you could do is to check with the Ministry of Finance first, but if you say it has made recommendations that we need to act on, then I will see it,” he said.

In its conclusion, the report claims that based on the results of the audit, the CEO, using his position, influenced dubious payments to himself while being fully aware that the same was already paid to him during his previous employment contract with Malawian Entrepreneurs Development Institute (Medi) and that the arrears were not legally claimable from his new contract with a different new organisation.

It further says investigations discovered that Smedi management did not coordinate with the line ministry (Industry and Trade) on matters concerning the human resource conditions of service raised with the Comptroller of Statutory Corporations despite that government subvention to the institution was under the ministry’s budget.

The report also faults Kazembe for allegedly “deliberately ignoring” advice by the Comptroller of Statutory Corporation that duty facilitating allowances were not consolidated into the remunerative package.

“The foregoing issues confirm the allegations levelled against management of Small and Medium Enterprise Development Institute [Smedi],” concludes the report.

Smedi—established and registered in 2012 under the Trustees Incorporation Act (Cap. 5:03) after government merged Medi, Dematt and Sedom—primarily operates on public funds from government subvention.

During the financial year 2014/15, Smedi received K355 million as government subvention and generated about K72 million ($144 000) on its own.