Reflections from the 2018 Auditor General’s Report on State Enterprises and Parastatals

Non-delivery of goods by suppliers who would been paid in full – Due Diligence, Beneficial Ownership, Conflict of Interest – the Missing Link

The Auditor General’s (AG) Report was released in the week ending 28th of June 2019, and as has been the norm with other predecessor reports, it exposes massive graft that continues to compromise the proper functionality of public institutions as well as the delivery of key social services. While there is a raging debate on social media platforms by citizens on the rot exposed by the AG’s 2018 Report, TI Z is of the view that it is also necessary to focus in-depth on the issue of non-delivery of goods by suppliers who would have been paid in full.

The 2018 Audit Report for State Enterprises and Parastatals revealed that the Zimbabwe Electricity Transmission and Distribution Company (ZETDC), a subsidiary of the Zimbabwe Electricity Supply Authority (ZESA) Holdings “entered into a two (2) year contract with Pito Investments in April 2010 for the supply of USD 4 962 722 worth of transformers.” According to the AG’s Report, the transformers had not yet been delivered at the time of her audit. That is, 9 years later! The same report also revealed that in 2016, Zimbabwe Power Company (ZPC) another subsidiary of ZESA Holdings paid in advance the same Pito Investments USD 561 935 for transformers which have also not yet been delivered. ZPC also paid York International ZAR 196 064 in 2014 for gas that hasn’t been received to date. Similarly, Grain Marketing Board (GMB) also made an advance payment of USD 1 014 163 for 2 476mt of maize to an undisclosed supplier in 2016, documentation of receipt of this grain could not be established. These unaccounted goods and services by private companies threatens the government’s service provision in sectors such as power generation and even food security for citizens.

Of concern is the fact that the AG’s previous reports have highlighted similar anomalies, where government departments/ ministries enter into contracts and pay for the supply of goods and services that do not get delivered. The 2017 Auditor General’s Report on Appropriation Accounts, Finance and Revenue Statements Fund Accounts highlighted in one Ministry (the name of the Ministry was withheld) 12 motor vehicles purchased were not delivered. In the same report, Trade Measures Fund also entered into a contract with Baldon Furniture for the supply of office furniture. USD 4 876 was paid in October 2016 and as at July 11, 2017 the furniture had not yet been delivered. In 2010, Bulawayo City Council paid a deposit of USD300 000 for ambulances and vehicle tracking system deals. As of 2016 the ambulances and the vehicle tracking system deals had not been delivered thus forcing BCC to take legal action against the suppliers.

The non-delivery of goods by suppliers who would have been paid in full is therefore a thread cutting across many of the AG’s Reports and continues to be one way in which public revenue leaks in Zimbabwe. This has huge financial implications and losses on the part of the Government should one consider the opportunity cost and return on investment. As a result, there is need to interrogate the following two policy questions regarding procurement in state enterprises and parastatals:

• Do Government departments conduct any due diligence before engaging a supplier or service provider?

• If they do, what influence do some of these suppliers such as Pito Investments, enjoy that allows them to get two contracts from the same institution and fail to deliver on both of them for 9 years and 26 months respectively.

The terrain of public procurement in Zimbabwe has been dominated by suppliers whose beneficial owners are Politically Exposed Persons (PEPs) with a lot of political influence. In 2016 it is alleged that Zimbabwe Manpower Development Fund (ZIMDEF) contracted Fuzzy Technologies to supply 170 computers. It is alleged that Fuzzy Technologies is a company owned by the Dr Godfrey Gandawa who at the time of the deal between ZIMDEF and Fuzzy Technologies, was the Deputy Minister of Higher and Tertiary Education, Science and Technology Development. Thus, there was and there remains a reasonable ground for conflict of interest and undue influence. It is alleged that state tenders have also been awarded to companies such as AB Communications and Fruitful Communications whose beneficial and legal owners are alleged to be PEPs wielding a lot of political influence. Disappointingly, such cases despite being reported are not judiciously dealt with in the courts and there is reason to believe that the response is politically motivated.

The AG in the 2018 Audit Report recommended the management in institutions such as ZETDC, ZPC and GMB to make a follow up on some these suppliers who are not delivering. It is TI Z’s belief that recommendations by the AG’s Report won’t yield much change as they do not address issues at the core of the public procurement. There is enough evidence to suggest that most state tenders are being awarded to suppliers with political connections.

TI Z therefore makes the following recommendations to address some of the challenges regarding procurement in state enterprises and parastatals:

There is need for forensic audit / investigation that goes beyond noting that a few suppliers are not delivering for goods paid for. It is important for Government to invest in a holistic audit that shows the extent of this challenge in public procurement. Amounts of public revenue are directed towards public procurement and the non-delivery of goods procured is a huge impediment to Government’s reform agenda that is spelt out in the Transitional Stabilization Programme (TSP). The TSP notes the need to combat the leakage of public revenue through rooting out unethical practices in public procurement. The flagging out of these issues by the AG become highly critical especially at an opportune moment when the Procurement Regulatory Authority of Zimbabwe (PRAZ) has been set up and tasked to provide oversight over procuring entities. It is in the interest of PRAZ to follow up on these issues and develop systems which identify and blacklist suppliers who default on delivering.

There is need for Senior Public Officials to declare their assets and have an independent office to validate these declarations. Parliament in its oversight role needs to push the Executive to prioritize the declaration of assets by Senior Public Officials.

TI Z being an interested party and committed to supporting and compliment good governance efforts in Zimbabwe, will conduct a series of multi stakeholder policy dialogues with the parliamentarians, government departments and the Zimbabwe Anti-Corruption Commission on the 2018 AG’s Report with the aim of influencing the development and adoption of actionable recommendations from the Report.

Source: Transparency International – Zimbabwe (TI Z)