State entities continue to violate audit rules

MOST parastatals and State enterprises continue to violate Constitutional provisions and legal requirements of the Public Finance Management Act (PFMA) on accounts auditing due to several operational deficiencies, among them the negative impact of Covid-19, limited capacity due to staffing issues, and ICT deficiencies.

A recent Parliamentary public account committee report on compliance with requirements for submission of financial statements by state entities to the auditor general found that the vast majority of the public entities were not complying with the law, creating risk for abuse of public resources.

The report for the year to December 2019, the latest, showed that 55 percent of the financial statements covered were for earlier years because the entities were behind on their financial statements, among them Air Zimbabwe, ZBC and ZimPost.

Pursuant to the presentation of the 2019 Auditor General’s report to Parliament by Treasury, the Public Accounts Committee resolved to analyse the report on state enterprises and parastatals.

The report noted that 34 entities had not submitted their accounts in clear violation of Section 308 of the Constitution and Section 35(6) of the PFMA.

The PFMA is a legislation enacted to provide for the control and management of public resources and protection and recovery thereof; appointment, powers and duties of the Accountant-General and of his or her staff members.

Further, the law governs treatment of the national budget, preparation of financial statements, regulation and control of public entities and general treasury matters, examination and audit of public accounts as well as matters pertaining to financial misconduct of public officials.

“Most State-owned enterprises do not have adequate ICT infrastructure that is needed considering that the Government was embracing e-Governance in its operations model in the Covid-19 era. Some State-owned enterprises like ZimPost do not have sufficient backup systems.

“The Auditor General’s office is not fully capacitated in terms of ICT infrastructure. Many SOEs (State Owned Enterprises) had completed their audits but the Auditor General’s office was taking a long time to go through them,” the report, released last month, says.

Economist and Zimbabwe chamber commerce chief executive Takunda Mugaga said if state entities and enterprises continue to disregard provisions of the PFMA and other relevant legislation, this reflected badly on the performance of the corporate governance unit in the President’s office, which was formed to monitor activities of the State entities.

“Remember we have a CGU (corporate governance in the Office of the President and Cabinet), if the CGU unit is existing and those (financial) results are not coming . . . it’s tough call for (William) Manungo (permanent secretary, corporate governance unit, President’s office) , because if you are

not releasing financial results, naturally it means you are not adhering to (good) corporate governance.

“The story we should be talking about is not financials, it should be about declaring dividends for the shareholder (where the entity is a for profit organisation). So, you can not continue holding a fiscal hole while state owned enterprises continuously being pushed or funded while they cannot account for money.

“When you do not release results or financials, what it means is that you are not accounting for what you are getting. So, it is a sad state of affairs if anyone runs a business and they do not declare dividends or show results.

“It means there is a fiscal hole; you are continuously pouring resources in a company which is not making (economic) sense or it means there are shenanigans you are hiding (by not declaring financial results) to the extent that an auditor cannot express an opinion,” Mugaga said.

Skills flight and brain drain have resulted also in shortages of key personnel in the accounts department of many State enterprises due to poor remuneration and working conditions, leaving many of them incapacitated to comply with the law.

Further, investigations revealed that delays by ministers to appoint boards in time were a threat to good corporate governance, which may negatively influence the direction to be taken by most state-owned entities.

Notably, most state-owned enterprises also submitted that the outbreak of the Covid-19 pandemic affected them in submitting financial statements in time as required by the PFMA.

The lockdown restrictions of March 2020 made it difficult for the entities to fully function.

The Mining Promotion Corporation also submitted that they failed to submit their audited statements in time because, in 2019, the Corporation did not have a substantive Board and was reporting to the Permanent Secretary for the Ministry of Mines and Mining Development.

Subsequently, a board was appointed in mid-June, 2020 and the board was immediately seized with the matter of putting accounting books in order. State enterprises blamed hyperinflationary accounting for their delay in submitting their financial statements.

The Zimbabwe Statistical Agency (ZIMSTAT) also submitted to the committee that the hyper-inflation accounting was responsible for their delay in submitting financial statements.

The adoption of International Financial Accounting Standard 29 (IAS 29), which deals with financial reporting in hyperinflationary economies resulted in an increase in workload since two sets of financial statements needed to be prepared, that is the historical cost and the inflation adjusted one.

ZimStat said it had not submitted the 2019 accounts due to the introduction of the new currencies. The Agency uses multiple currencies in its transactions and Sage Pastel Evolution System Version 7 database for accounting.

The system did not have the foreign currency module to enable multiple currency conversions to the reporting currency. Thus, the national statistics agency said that the conversions were done in excel spreadsheets which took time.

Zarnet in its submissions indicated that their salaries were uncompetitive leading to skills flight and brain drain. Because of these operational challenges the entity restructured the Finance and Administration Department in 2016, thereby reducing the staff complement from 6 to 2.

The internet services provider said it operated without a substantive Chief Executive Officer from 2015 to 2017. The chief executive officer was only appointed in February 2018 and that is when the organisation was able to clear the backlog from 2015.

ZimPost and its subsidiaries, Courier Connect and Post Properties, explained that the reason for failure to submit financial statements was due to the crash of their internal system. ZIMPOST said since its inception, it had been producing audited financial statements until 2016.

“The company, together with the Group company, lost all the accounting data due to a system crash on 15 December 2017,” the report says.

The parliamentary committee observed that state-owned enterprises were affected by various factors that include the covid-19 pandemic, shortage of staff and the delays in the appointment of board of directors, which also affected the submission of financial statements.

As such, the legislators said they anticipated that the entities will comply with the Public Finance Management Act and that the recommendations of this report will be implemented.-ebusinessweekly