The Sunday Mail
The recently published 2018 Auditor-General’s report on public entities reveals serious levels of financial mismanagement, abuse of public resources, corruption, weak corporate governance structures and internal control systems in most public entities in Zimbabwe.
Unless Government takes serious remedial action to implement the Auditor-General’s recommendations, public entities will continue to drain public resources, create a strain on limited Treasury resources and national budgets, which threatens attainment of Vision 2030.
The 2018 Auditor-General’s report reveals serious weaknesses in the governance of public entities, resulting in wanton looting of public resources worth millions of dollars; thus, draining the country of critical resources meant for its development and provision of social services to the vulnerable and less privileged members of society.
Public entities in this article refer to public institutions such as parastatals, State enterprises, local authorities, educational institutions and Government departments.
What is alarming and shocking from the Auditor-General’s 2018 report is that some public entities such as the Zimbabwe Electricity Transmission and Distribution Company (ZETDC) have not taken delivery of transformers nine years after making a US$4,9 million payment to a supplier.
The governance weaknesses in public entities as revealed by the Auditor-General create conditions which make it easier for corruption and abuse of public resources to proliferate.
Governance weaknesses also create opaqueness, thus compromising on transparency and accountability.
What is worrying is that there is no deterrence to corruption and abuse of public resources given the fact that there is no evidence in the audit reports of disciplinary action or prosecution of offending officers.
Despite production of numerous Auditor-General’s reports over the last decade, there has not been any high-profile prosecution of offenders in public entities to deter would-be offenders.
Below is a summary of common recurrences in Auditor-General’s reports on public entities:
- Weaknesses in the governance practices resulting in accountability, transparency, checks and balances being seriously compromised.
- Poor (weak) internal control systems, paving way for pilferage, theft and abuse of resources.
- Unreliable record keeping and incomplete accounts, making conduct of audits onerous.
- Poor accounting procedures.
- Procurement: payments for goods and services which are never delivered or supplied (Example at ZETDC).
- Direct payments to suppliers and service providers not following procurement procedures; for example, without support of invoices/documentation.
- Employment costs: no reconciliation of pay-sheets, resulting in payments of salaries to ghost workers and workers whose contracts had expired, unauthorised salary payments, double dipping of benefits et cetera.
- Non-disclosure of public assets: procured assets not being included in asset registers and asset registers not updated to reflect correct assets position.
- Flouting of procurement regulations when purchasing goods and services.
- Absence of proof of disciplinary actions or prosecution having been taken against offenders.
Government has to show unwavering commitment and political will to act on findings of the Auditor-General.
Government needs to urgently restore public confidence in public entities through strengthening their governance structures to ensure transparency and accountability, stopping malpractices and abuse of public resources and taking appropriate disciplinary action, including prosecution of offenders to deter corruption.
Additionally, in an effort to strengthen corporate governance and transparency in the manner in which public entities are managed, it should be mandatory for these entities to produce annual reports and convene annual general meetings for shareholders and stakeholders.
These annual reports for public entities, where applicable, should also be tabled before Parliament in the interest of public policy.
An annual report is simply a document that provides material information to existing shareholders, relevant stakeholders and investors that explains both financial and non-financial aspects of an entity’s business during the period under review.
An annual report is a disclosure mechanism that enables shareholders (Government) and stakeholders (the public) to assess public entities’ financial performance, business strategies, as well as their overall management of public resources and corporate governance arrangements.
An annual report is often referred to as an “accountability document” because it provides information that explains both financial and non-financial aspects of an entity’s business and allows members of the public access to information on how public entities are being managed.
The requirement for public entities to produce annual reports is usually defined in an Act of Parliament that gives birth to such an entity.
Where such provision is stated in a statute, the annual report is submitted to the Minister, who in turn is required to table it before Parliament annually.
Our laws provide for public entities to produce annual reports, but this is not being complied with as the Auditor-General 2018 report reveals that some public entities, especially local authorities, are not up to date with production of annual reports.
All companies listed on the Zimbabwe Stock Exchange (ZSE), for example, are required to produce and distribute annual financial statements within six months after the end of each financial year.
The Companies Act, Chapter 24:03, under Section 141, also require directors of companies to present annual financial statements to shareholders at each annual general meeting.
Although there is no mention of annual reports in the ZSE Listing Rules and the Companies Act, there is mention of “annual financial statements”.
It should be noted that an annual report is much broader and apart from containing annual financial statements, it also contains other non-financial information.
Annual financial statements are normally produced in the form of an annual report, which contains financial statements as well as other material non-financial information on an entity’s operations.
Purpose of Annual Reports
Annual reports should disclose important financial and non-financial information of an organisation. An annual report is a disclosure mechanism of activities of an organisation because it enables shareholders, stakeholders and members of the public to asses for themselves the operations of public entities in which they have a vested interest in.
An annual report should meet the disclosure requirements stipulated in terms of laws and regulations, corporate governance best practices, international accounting and audit standards to ensure transparency.
As indicated above, an annual report should not merely contain narrative statements on a public entity’s financial performance, but should cover all aspects of its operations and its corporate governance structures.
Annual reports give shareholders and key stakeholders access to information on operations of public entities, which is often shrouded in a veil of secrecy.
Access to information is critical as it enables members of the public to know how public institutions are operating and how public resources are being managed in the provision of public services.
The Public Entities Corporate Governance Act of 2018 should be used as a tool for enhancing corporate governance in public entities.
If this governance instrument is applied in spirit and intent, most of the issues highlighted in the Auditor-General’s report will be addressed overnight.
Our challenge in Zimbabwe is not in having adequate governance legal instruments — there is a plethora of these.
The problem that we have rests in compliance and enforcement of rules and best practices.
There is inertia and lethargy in implementation, compliance and enforcement at ministerial and operational level.
Zimbabwe also has adequate institutions with oversight responsibilities over public entities and those that deal with fighting corruption such as the Office of Auditor-General, Zimbabwe Anti-Corruption Commission (Zacc), National Prosecuting Authority (NPA) and an independent Judiciary system.
The problem again rests in strengthening the independence and effectiveness of these institutions, supporting them with adequate resources to effectively carry out their mandates and allowing them to carry out their functions without fear or favour.
Public entities play an integral role in our economy and unless we strengthen their governance to ensure transparency and accountability, safeguard of public resources and that they meet the objectives for which they were set for in the first place, attainment of Vision 2030 will be an uphill task.
Allen Choruma can be contacted on e-mail: [email protected]