Parastatals US$1bn in the red

Source: Parastatals US$1bn in the red – The Zimbabwe Independent June 24, 2016

STATE-owned enterprises and parastatals remain in the red as it emerged their cumulative losses and net liabilities are in excess of US$1 billion, a government audit report has shown. This comes as local authorities lost more than US$500 million through corruption, underhand dealings and unaccounted for expenditures.

By Herbert Moyo/ Hazel Ndebele

State enterprises, which once made up 60% of the economy, have been struggling mainly due to mismanagement and corruption, recording perennial losses and relying on Treasury for survival.

In her report for the period up to December 31 2015, Auditor-General Mildred Chiri warned that poor corporate governance practices, along with the failure to implement proper revenue collection, management and debt recovery strategies, posed a huge threat to the continued existence of the loss-making entities.

The National Railways of Zimbabwe (NRZ) led the way with cumulative losses of US$276,4 million and according to Chiri, “this cumulative loss and net liability position along with other matters indicate the existence of material uncertainty that may cast significant doubt over the National Railways’ ability to continue as a going concern”.

Civil Aviation Authority of Zimbabwe (Caaz) also fared badly as current liabilities exceeded assets by US$174,3 million. The authority also failed to service its foreign loans amounting to US$170,7 million, while operating losses increased from US$14,8 million in 2013 to US$21,5 million in 2014.

“These conditions indicate the existence of a material uncertainty that may cast doubt about the authority’s ability to continue operating without financial assistance,” Chiri noted.

She also expressed concern over the long-term prospects of fixed telephone service provider TelOne and Zesa Holdings. TelOne’s current liabilities exceeded assets by US$98,9 million, while scandal-ridden Zesa’s liabilities were US$65,3 million more than the assets.

Mobile service provider NetOne was also found to have liabilities, which outstripped assets by US$55,6 million, while its losses totalled US$7 million.

The National Social Security Authority was owed in excess of US$217,5 million, with state employees owing US$91,9 million, Air Zimbabwe (US$1,4 million), Zimbabwe National Water Authority (US$1,9 million) and ZBC (US$1,8 million).

In a case of possible fraud, the Zimbabwe National Roads Authority (Zinara) failed to account for expenditure vouchers amounting to US$2,4 million — a development which according to Chiri, cast serious doubts on the “validity and accuracy of the related expenditure.”

All in all, a total of US$888 million was lost in these parastatals while further varying amounts were also lost in other entities.

At the heart of these losses were the perennial issues of poor corporate governance practices which government has failed to address despite Chiri raising the matter every year.

“Most of the challenges that continue to plague the Zimbabwean public sector entities are of a corporate governance nature,” Chiri noted.

Among the poor governance practices observed were some entities that operated either without board of directors or fully constituted boards. Some parastatals allowed board members to when this should not be the case as they has an oversight responsibility.

“A number of entities were paying board fees, management salaries and benefits which were not authorised or subjected to tax,” Chiri reported.

On local authorities, Chiri noted that most councils were not up to date with their audited financial statements, with some being as far behind as 2012 financial year. Harare City Council (HCC) failed to account for US$201 million during the period under review.

The audit revealed that apart from governance issues, most of the weaknesses emanated from weak internal controls and irregularities in the procurement of goods and services.

Underhand dealings were also noted at the Gweru council which failed to disclose US$10 000 transactions entered into with a local company belonging to one of the councilors.

Furthermore, an inspection of fuel books revealed that fuel was given in excess of the stipulated weekly allowances for management and councilors which did not have supporting documentation.

The report further reveals that the majority of councils maintain multiple bank accounts and generally bank reconciliations were not up to date. “In some instances these bank balances did not reconcile to the cash book balances resulting in unexplained variances,” reads the report.

Mutare made unsupported bank withdrawals of US$44 284 while Kwekwe’s bank reconciliation statements revealed an unaccounted figure of US$2,5 million which could not be traced to any underlying transactions.

Gweru and Kariba failed to include some properties in the valuation rolls and did not bill these for owners’ rates and supplementary charges.

Money was also lost at other municipalities. For instance, Chegutu had an unexplained variance of US$167 000 between the payroll and the financial statements.