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REPORT

of the

AUDITOR GENERAL

for 2008

on the

ACCOUNTS OF PARASTATAL BODIES


TABLE OF CONTENTS

Page

INTRODUCTION ..................................................................................................... 1
SCOPE OF AUDIT ................................................................................................... 1
INTERNAL CONTROL ........................................................................................... 1
CHAMBESHI WATER AND SEWRAGE COMPANY LIMITED ........................... 2
ELECTORAL COMMISSION OF ZAMBIA ............................................................ 7
THE HOTEL AND TOURISM TRAINING INSTITUTE TRUST ...........................11
JUDICIARY ............................................................................................................13
MULUNGUSHI UNIVERSITY ...............................................................................19
NATIONAL AIRPORT CORPORATION LIMITED ..............................................25
NATIONAL HOUSING AUTHORITY (NHA) .......................................................35
NATIONAL SPORTS COUNCIL OF ZAMBIA (NSCZ) ........................................36
NITROGEN CHEMICALS OF ZAMBIA (NCZ) .....................................................41
TASK FORCE ON CORRUPTION .........................................................................49
TAZAMA PIPELINES LIMITED ............................................................................54
TIMES PRINTPAK (Z) LIMITED ...........................................................................61
THE UNIVERSITY OF ZAMBIA (UNZA) ............................................................65
THE UNIVERSITY TEACHING HOSPITAL .........................................................68
ZAMBIA FORESTRY COLLEGE...........................................................................71
ZCCM INVESTMENTS HOLDINGS PLC..............................................................76
ZAMBIA EDUCATION PROJECTS IMPLEMENTATION UNIT .........................79
ZAMBIA POSTAL SERVICES CORPORATION ...................................................82
ZAMBIA NATIONAL BROADCASTING CORPORATION .................................88
ZAMBIA RAILWAYS LIMITED .......................................................................... 112
ZAMBIA TELECOMMUNICATION COMPANY LIMITED ............................... 126
CONCLUSION ...................................................................................................... 138
UNRESOLVED RECOMMENDATIONS OF THE COMMITTEE ON
PARASTATAL BODIES ....................................................................................... 138

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INTRODUCTI ON

1. This Report on the accounts of selected Parastatal bodies for 2008 is submitted to the
President for tabling in the National Assembly in accordance with provisions of the
Constitution of Zambia and the Public Audit Act CAP 378 of the Laws of Zambia.

SCOPE OF AUDIT

2. This Report is a result of a programme of test checks and reviews of the audited
accounts of selected organisations for the financial years up to 31st December 2008.
Due to limited resources, the programme of work was restricted to twenty two (22)
organisations.

In preparing the Report, I sent to the Chief Executives of the affected organisations
draft paragraphs for comments and confirmations of the correctness of the facts
presented. Where comments were received and varied materially with the facts
presented, the paragraphs were amended appropriately.

INTERNAL CONTROL

3. In this Report, specific mention is made of non - preparation of financial statements,


failure to remit statutory contributions, weaknesses in procurement procedures and
poor financial performance by the respective organisations.

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CHAMBESHI WATER AND SEWRAGE COMPANY LIMITED

Background

4. Chambeshi Water and Sewerage Company Limited was established in April, 2003 in
accordance with the provisions of the Companies Act and section 9 (c) of the Water
Supply and Sanitation Act, No. 28 of 1997. The company started operating on 1st
September 2003 with an authorised share capital of K2,000,000 divided into
2,000,000 shares of K1 each. The share capital was later increased to K5,000,000 in
2006.

According to the articles of association, the company is owned by Kasama Municipal


Council and Mungwi, Mpulungu, Chinsali, Mporokoso, Kaputa, Mpika, Chilubi,
Nakonde, Luwingu, Isoka and Mbala District Councils.

The principal activity of the company is to provide high quality water and improved
sewerage services for high standard of living for the population of the districts of
Northern Province.

Administration of the Company

Board of Directors

The company is governed by a Board comprising nineteen (19) members as follows:

· Participating Councils (12);


· Provincial Local Government Office (1);
· Local Government Association of Zambia (1);
· consumer representative (1);
· Zambia Water and Sanitation Engineering and Allied Workers’ Union (1);
· private sector or civil society (1); and,
· two members appointed by the Minister of Local Government and Housing.

The Board is responsible for the formulation of policies and general administration of
the business affairs of the company.

The board members hold office for a term of not more than three (3) years and
members are eligible for reappointment upon expiry of their term of office.

Management and Staff

The Managing Director is appointed by the board on a renewable term of three (3)
years and is responsible for the day-to-day operations of the company. He is assisted
by the Finance and Technical Commercial Services directors who are also appointed

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on three (3) year renewable contracts. The rest of the staff is appointed on a
permanent and pensionable basis.

Source of Funds

The sources of funds for Chambeshi Water and Sewerage include, among others;

· Such sums of money as may be raised from its daily operations of sale of water;

· Provision of sewerage services;

· Provision of laboratory services and sale of sewerage sludge; and,

· Grants from the Devolution Trust Funds (DTF), National Water Supply and
Sanitation Council (NWASCO) and Ministry of Local Government and Housing.

Review of Operations.

A review of operations for the financial years ended 31st December 2005 to 2008
revealed the following:

a. Ownership of the Company

Although the certificate of share capital indicated that the company had a share
capital of K5,000,000 divided into 25 shares of K200,000 each, there was no
evidence that shares had been issued to the shareholders as of March, 2009.

Contrary to Section 7 of the articles of association which states that a


memorandum of understanding will be drawn up between the Shareholders and
the Board of Directors to ensure that the roles, responsibilities and powers are
clearly understood between them, there was no evidence to show that the
memorandum of understanding was in place as of March, 2009.

b. Strategic Plan

The company operated without a strategic plan during the period under review. As
of March 2009, the strategic plan had not been put in place.

c. Staff Establishment

The company had an approved establishment of two hundred (200) employees out
of which a total of one hundred and eighty seven (187) were filled and thirteen
(13) were vacant. In particular the following were observed:

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i. Lack of Internal Audit Function

Among the positions which were vacant was that of the internal auditor. In
this regard the company operated without the internal audit function since its
inception.

ii. Staff Turnover

During the period from 2006 to 2008, the company lost a total of forty six
(46) employees through resignation or dismissals representing a staff
turnover ratio of 25%.

d. Profitability

An analysis of the profit and loss account for the period 31 st March 2005 to 2008
revealed the following position:

2008 2007 2006 2005


K K K K
Turnover 3,048,109,464 2,782,649,431 2,238,273,914 1,225,245,083
Cost of Sales 2,734,413,040 2,027,474,528 2,225,771,973 1,315,828,639
Gross Profit 313,696,424 755,174,903 12,501,941 -90,583,556
10% 27% 1% -7%
Capital Grants
(Deferred Income) 924,577,604 403,275,587 397,976,726 107,596,370
Revenue Grants 952,064,548 32,759,480 82,435,374 852,611,805
Loss on disposal - (6,958,810)
Other Income 14,751,042 - 8,738,466
2,205,089,618 1,184,251,160 501,652,507 869,624,619
Expenses
Personal Emoluments 982,345,030 638,167,473 328,905,153 513,170,934
Provision for
doubtful or Bad debts 586,324,998 537,909,626 483,559,585 168,076,697
Depreciation 247,757,885 210,378,004 208,195,002 107,558,520
Other Admin expenses 966,799,221 570,828,576 679,828,689 551,258,767
Total 2,783,227,134 1,957,283,679 1,700,488,429 1,340,064,918
Profit/Loss before tax -578,137,516 -773,032,519 -1,198,835,922 -470,440,299
Net Profit Percentage -19% -28% -54% -38%

i. Turnover and Cost of Sales

Whereas turnover increased from K1.2 billion in 2005 to K3 billion in 2008


representing an increase of 150%, cost of sales on the other hand increased
from K1.3 billion to K2.7 billion representing an increase of 108% and that
these increases were attributed to the increase in the number of customers.

ii. Personal Emoluments

The personal emoluments cost increased from K513 million in 2005 to K982
million in 2008 due to both increase in staff as well as increase in salaries.

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iii. Profit/Loss before Tax

Although during the period under review turnover increased from K1.2
billion in 2005 to K3.0 billion in 2008, and grants also increased from K3.4
billion to K12.6 billion, the company made losses in all the years. The losses
increased from K470 million in 2005 to K573 million in 2008. Consequently,
the company was unable to declare any corporation tax or dividends.

e. Financial Position as at 31 st March 2005 to 2008

2008 2007 2006 2005


Assets Employed K K K K

Non-Current Assets 5,686,451,115 1,745,002,217 1,440,116,263 365,021,052

Current Assets
Inventories 304,727,309 148,447,415 72,599,488 62,104,895
Trade and Other
receivables 3,636,697,996 3,326,397,481 2,255,057,018 2,546,318,985
Bank and Cash 4,096,400,795 5,365,911,882 206,090,576 1,327,847,262
8,037,826,100 8,840,756,778 2,533,747,082 3,936,271,142

Current Liabilities
Trade and Other payables 4,743,044,487 5,061,359,959 3,133,905,349 2,001,157,953
Bank overdraft - - - 22,363,598
Taxation - - - -
4,743,044,487 5,061,359,959 3,133,905,349 2,023,521,551

Net Current Assets/ 3,294,781,613 3,779,396,819 - 600,158,267 1,912,749,591


(Liabilities)
Total Assets 8,981,232,728 5,524,399,036 839,957,996 2,277,770,643

Fiananced By
Share Capital 5,000,000 5,000,000 5,000,000 2,000,000
Reserves - 3,627,716,738 - 3,049,579,222 - 2,276,546,703 - 1,077,610,781
Grants 12,603,949,466 8,568,978,258 3,111,504,698 3,353,381,424
8,981,232,728 5,524,399,036 839,957,995 2,277,770,643

The following were observed:

i. Non Current Assets

The assets relating to the water supply and sewerage operations in all the
districts in the Northern Province had not been transferred from the local
authorities to Chambeshi Water and Sewerage Company Limited as of 31st
December 2009.

ii. Liquidity Position

The liquidity position for Chambeshi Water and Sewerage Ltd was as
indicated in the table below:

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2008 2007 2006 2005
K'000 K'000 K'000 K'000

Current Assets 8,037,826 8,840,756 2,533,747 3,936,271


Current Liabilites 4,743,044 5,061,359 3,133,905 2,023,521
Working Capital 3,294,782 3,779,397 (600,158) 1,912,750
Current Ratio 2 to 1 2 to 1 1 to 1.2 2 to 1

As can be seen from the table above, the working capital for the company
was positive in all the years apart from 2006.

iii. Failure to Collect Debt - Trade and other Receivables

According to best practice on debt management, trade and other receivables


are supposed to be collected within a period of thirty (30) to ninety (90)
days. It was however observed that trade and other debtors repayment
periods ranged from 351 to 430 days and as a result, trade and other
receivables increased from K2.5 billion in 2005 to K3.6 billion in 2008.

iv. Failure to Meet Obligations - Trade and other Payables

The company failed to meet its obligations as they fell due. In this regard,
creditors falling due within one year increased from K2.0 billion in 2005 to
K4.7 billion in March 2008. The schedule below shows the main creditors
owed by CWSC as of March 2008:

Institution Amount
De scription
(Cre ditor) K
ZRA PAYE 897,576,709
ZESCO Electricity Bills 2,405,154,888
Workers Compensation
Fund Statutory Contribution 43,310,150
NAPSA Statutory Contribution 354,683,116
Total 3,700,724,863

v. Shareholders’ Funds

Although the shareholders funds increased from K2.2 billion in 2005 to


K8.9 billion in 2008, the increase was due to the increase in grants from
various donors and not to the performance of the company.

Accumulated losses (Reserves) on the other hand worsened from K1.0


billion in 2005 to K3.6 billion in 2008. The going concern of the company
in the absence of grants is therefore doubtful.

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f. Failure to Follow Tender Procedures

i. On 15th February and 24th March 2005 the Company entered into contracts
with Town Mouse Enterprise of Kasama and CC Systems Limited of
Lusaka worth K1 billion and U$69,751.52 respectively. The contracts were
for the supply and delivery of 1,072 bulk and domestic water meters and
fittings and supply and installation of 1,144 radio communication
equipment respectively.

However, there were no records to show that tender procedures were


followed in the award of the two contracts. Furthermore, there were no
goods received notes to indicate the actual quantities of the goods delivered.

ii. There were thirty (30) payment vouchers in amounts totalling K220,427,820
made between September 2007 and March 2008 which were inadequately
supported in that they lacked receipts and invoices contrary to Financial
regulations No. 45 and 52.

g. Lack of an Accurate Customer Database

A review of records revealed that Chambeshi water a sewerage company did not
have an accurate database of customers. Although the company’s records showed
that there were 11,624 customers, enquiries with the Management revealed that
the customer database had flaws in that it contained customers who were not in
existence thus overstating the number of customers.

h. Non Submission of Returns

It was observed that as of March, 2009 there were no returns for twenty eight (28)
receipt books issued to the company’s district offices between the period May
2005 and December 2006. It was therefore not possible to ascertain whether all
the money collected using the receipts was accounted for.

ELECTORAL COMMISSION OF ZAMBIA

5. The Electoral Commission of Zambia was established by Article 76 of the


Constitution of Zambia, and the Electoral Commission Act No. 24 of 1996. The
Functions of the Commission are the supervision of the registration of voters and
review of voters’ registers, conducting presidential and parliamentary elections and
the delimitation of constituencies. Other statutory functions include supervision of
referenda, conducting and supervising local government elections, formulating and
reviewing electoral regulations.
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An examination of accounting and other financial records carried out in June 2009
revealed the following:

Headquarters

a. GRZ Grants

In the estimates of Revenue and Expenditure for the financial year ended 31st
December 2008, an authorized provision of K 248 ,940 ,655,190 was made for the
operations of the Commission against which amounts totalling K249,069,979,028
were released resulting in an over funding of K129,323,837 which was not
supported by supplementary provision.

b. Inadequately Supported Payment Vouchers

Contrary to Financial Regulation No.52, three (3) payments in amounts totalling


K403,129,050 made during the period April 2008 to December 2008 were
inadequately supported by documents such as receipts, invoices, among others.

c. Unretired Imprest

Contrary to Financial Regulation No.96 (1) imprests in amounts totalling


K352,125,420 paid to three (3) officers in February 2008 had not been retired as
of March 2010.

d. Over payment of Transport Charges

To supplement its existing transport, the Commission hired vehicles during the
2008 Presidential elections. It was however observed that the Commission over
paid ten (10) transporters by K10,800,000.

e. Non-maintenance of Inventory Cards

Contrary to the provision of Public Stores Regulations, the Commission did not
maintain inventory cards for office furniture and equipment.

f. Non-remittance of Statutory Deductions

A review of accounting records at the Commission revealed that PAYE and


NAPSA contributions in amounts totalling K2,493,570,690 were owed to the
Zambia Revenue Authority and National Pensions Schemes Authority
respectively as of June 2009 as shown in the table below:

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Amount
Institution Description
K
ZRA PAYE 1,907,910,253
NAPSA Pension Contribution 585,660,438
TOTAL 2,493,570,691

The failure to remit statutory contributions will attract penalties from ZRA and
NAPSA.

g. Disbursements to Districts – Presidential and Parliamentary Bye Elections

During the year under review ECZ conducted presidential and parliamentary bye
elections. To this effect, ECZ disbursed amounts totalling K109,194,379,000 to all
the districts during the period between September and December 2008 for the
purpose of the bye elections. A verification of utilisation of 2008 bye-elections
funds and materials in selected districts revealed the following:

i. Unaccounted for Funds

Out of a total of K12,375,933,462 disbursed to six (6) councils, amounts


totalling K263,042,782 could not be accounted for as there were no
expenditure details provided to ascertain how the funds were utilised as
shown in the table below.

Council Disbursed Not accounted for


K K
Mumbwa 1,667,500,000 45,054,911
Chibombo 3,075,820,000 21,552,879
Kabwe 2,721,107,500 126,710,550
Kapiri Mposhi 1,476,155,000 25,092,800
Nchelenge 1,255,830,000 39,387,552
Mpika 2,179,520,962 5,244,090
Total 12,375,933,462 263,042,782

ii. Inadequately Supported Payments

Contrary to Financial Regulation No.52, payments in amounts totalling


K1,052,970,765 made by three (3) Councils were inadequately supported in
that there were no receipts, invoices among others as shown below:

Disbursed Not accounted for


Council K K
Monze 1,691,020,000 44,875,000
Kaoma 1,800,909,000 1,005,464,435
Kapiri Mposhi 1,476,155,000 2,631,330
Total 4,968,084,000 1,052,970,765

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iii. Failure to Maintain Accounting Records

It was observed that seven (7) councils did not maintain basic accounting
records such as, cash books, bank reconciliation statements and payment
vouchers as shown in the table below:

Council Re cords not pre pare d/maintaine d.


Kasama Payment vouchers, Bank reconciliation statements
Mansa Cash book, Bank reconciliation statement, stores records,
Ndola Cash book, Payment vouchers, Bank reconciliation statement
Katete Cash book, Bank reconciliation statements.
Petauke Payment vouchers, cash books
Mwinilunga Cash book, Bank reconciliation statements
Kasempa Cash book, Bank reconciliation statements.

iv. Unaccounted for Fuel

Fuel costing K890,433,424 as shown in the table below purchased during the
period from September to December 2008 by eleven (11) Councils was not
accounted for in that there were no disposal details.

Amount
Council
K
Senanga 32,991,126
Kalabo 162,296,878
Mongu 130,475,224
Kaoma 3,500,000
Mumbwa 50,312,580
Monze 72,300,000
Chibombo 104,650,000
Kapiri Mposhi 23,817,330
Mbala 58,508,852
Lundazi 105,581,434
Petauke 146,000,000
Total 890,433,424

In the absence of disposal details, it was not clear as to whether the fuel was
utilised for the intended purpose.

v. Unretired Imprest

Contrary to Financial Regulations No. 96 (1), imprests in amounts totalling


K1,242,651,490, as shown in the table below, issued to six (6) officers in six
(6) Councils during the period September to December 2008 had not been
retired as of March 2010.

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Amount
Council K
Kalabo 56,700,000
Kaoma 62,625,000
Choma 89,400,000
Monze 57,000,000
Chibombo 729,961,490
Chipata 246,965,000
Total 1,242,651,490

vi. Missing Payment Vouchers

Contrary to Financial Regulation No. 65 (1), seven (7) payment vouchers for
payments made between 6 th November 2008 and 17th November 2008 by
Kapiri Mposhi District Council in amounts totalling K708,340,000 were not
availed for audit.

vii. Irregularities in the purchase of Alkaline


Batteries

In September 2008, a total number of 3,900 batteries were delivered to Kitwe


District Council by ECZ. It was however, observed that although the
supplied batteries were sufficient, the council without authority from ECZ
procured additional 1,300 alkaline batteries at a total cost of K96,200,000.

THE HOTEL AND TOURISM TRAINING INSTITUTE TRUST


(HTTI)

Background

6. The Hotel and Tourism Training Institute (HTTI) provides training in Hotel and
Tourism management. It was established in 1989 following the dissolution of the
National Hotel Development Corporation under which it previously operated. The
Institute runs on a commercial basis, the Fairview Hotel which serves as its training
centre.

Administration

Board of Trustees

The Institute is governed by a Board of Trustees consisting six (6) members appointed
by the Minister of Tourism, Environment and Natural Resources. Board members
hold office for a renewable period of three (3) years. The current board was appointed
in 2007.

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Management and Staff

The Institute is headed by an Executive Director who is appointed by the Board of


Trustees and is responsible for the day to day operations of the Institute. The
Executive Director is assisted by the Director of Finance and Administration and the
Director of Studies.

Sources of Funds

According the Trust Deed, the sources of funds of the Institute include:

· Fees, meals and accommodation;


· Loans;
· Government grants; and
· Donations

An examination of financial, accounting and other relevant records for the financial
year ended 31st December 2008 revealed the following:

a. Income

In the Estimates of Revenue and Expenditure for the financial year ended 31st
December 2008, a provision of K1,393,665,867 was made for the Institute and
the whole amount was released. The funds were for the procurement of capital
items such as computers, beds, televisions, tables, food production equipment,
tourism and travel operation equipment and building rehabilitation. In addition,
the Institute generated a total of K5,339,308,000 from its operations bringing the
total funds available to K6,732,973,867.

b. Misapplication of Funds

Out of the K1,393,665,863 released for the procurement of capital items,


K588,194,787 was misapplied on payment of personal emoluments.
Consequently, the Institute was not able to procure all the equipment that was
planned for.

c. Staff Related Costs

Contrary to the terms and conditions of service, amounts totalling K30,964,300


were paid in respect of Christmas bonuses to members of staff during the period
under review despite the fact that the Institute made losses totalling
K110,260,000 for the period.

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d. Inadequately Supported Payments

Contrary to Financial Regulation No. 52, there were sixteen (16) payments in
amounts totalling K75,841,387 that were inadequately supported in that the
vouchers lacked supporting documents such as receipts, invoices and quotations.

e. Failure to Follow Tender Procedures

Contrary to procurement guidelines, purchases of goods and services in amounts


totalling K137,493,495 were made without obtaining competitive quotations.

f. Failure to Prepare Financial Statements and Annual Report

According to Clause 18 and 19 of the HTTI trust deed, “the accounts of the Trust
shall be made up to the thirty-first day of December in every year and the
Trustees shall within three months after completion of each accounting year
prepare a statement in such form as they shall consider to be appropriate showing
the true position of the Fund at such date. The Trustees shall issue an annual
report of the Trust with details of the progress made by Trustees in achieving the
objects of the Trust”

Contrary to the HTTI deed, the Institute did not prepare the financial statements
and the annual reports for the year ended 31st December 2008 as of March 2010.

JUDICIARY

Background

7. Article 91 (1) of the Constitution provides for the establishment of the Judicature that
consists of the Supreme Court, the High Court, Industrial Relations Court,
Subordinate Courts ,Small Claims Courts, Local Courts and the Sheriff of Zambia.

Article 91 (3) provides for the autonomy of the Judicature, which was to be
administered in accordance with the Provisions of the Judicature Administration Act
Cap 24 of the Law of Zambia.

The core objectives of the Judiciary are to improve access to justice by providing
quality trials that are disposed of in an efficient and effective manner, to provide user
friendly court rooms and support services in locations and areas that are accessible to
its clients, to reduce dependence on government subventions by developing
sustainable revenue collecting procedures that will generate levels of income that will
adequately support its activities, to increase public awareness of the Judicature’s roles

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through effective communication with partner bodies, staff and society at large, to
make rules of procedure that reduce the delays experienced in local courts,
subordinate courts, the High Court and the Supreme Court, to protect basic human
rights of all individuals by creating a better understanding of human rights issues by
all justice administrators and intermediaries, to increase access to legal redress by
communities and groups that are otherwise unable to afford legal services.

The Judiciary started operating as an autonomous institution through the Judicial


Service Commission in 2008.

The Judicial Service Commission

According to Judicature Administration Act Cap 259 of the Law of Zambia, the
Judicial Service Commission shall be composed of the Chief Justice who shall be the
Chairman, the Attorney General, the Chairman of the Public Service Commission,
the Secretary to the Cabinet, a judge nominated by the Chief Justice, the Solicitor
General, a member of the National assembly appointed by the Speaker of the National
Assembly, a member to represent the Law Association of Zambia nominated by that
Association and appointed by the President, the Dean of the Law School of the
University of Zambia and one member appointed by the President.

Management of the Judiciary

According to the Act, the Chief Administrator is responsible for the day to day
running of the Judiciary and is assisted by chief officers namely the Registrar of the
High Court of Zambia, the Director of Human Resources and Administration; and the
Chief Accountant.

Sources of Funds

According to the Act, the funds of the Judicature shall consist of such moneys as may:
· Be appropriated by Parliament for the purposes of the Judicature;
· Be paid to the Judicature by way of court fees or by way of such grants as the
Chief Administrator may accept, or
· Vest in or accrue to the Judicature.

Review of Operations

An examination of the financial and other relevant documents pertaining to the


Judiciary conducted in September 2009 revealed the following:

a. Failure to Prepare Financial Statements

The Judicature Administration Act, CAP 24 of 1994 requires the Judiciary to


prepare financial statements which should be submitted to the President not later

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than six months after expiry of each financial year. The financial statements
mentioned in the Act comprise the audited balance sheet, audited statement of
income and expenditure and such other information as the President may require.

It was observed that, contrary to the provisions of the Act, the Judiciary had not
produced the financial statements for the years ended 31 st December 2008.

b. Under Funding

In the Estimates of Revenue and Expenditure for the financial year ended 31st
December 2008, a provision of K129,010,305,515 was made out of which
amounts totalling K111,256,124,757 were released resulting in an under funding
of K17,754,180,758 which represented 14% of the total authorised provision.

c. Unvouched Expenditure

i. Missing Payment Vouchers

Contrary to Financial Regulation No. 65(1), there were seventy eight (78)
payment vouchers in amounts totalling K2,069,462,293 were not presented
for audit .

ii. Inadequately Supported Payment Vouchers

There were a total of two hundred and seventeen (217) payment vouchers in
amounts totalling K2,774,772,243 relating to the period between January
and December 2008 that were not supported by documents such as receipts,
invoices and goods received notes contrary to Financial Regulation No.52.
d. Unretired Imprest

Contrary to Financial Regulation No.96, imprest in amounts totalling


K1,213,502,273 paid between January and December 2008 had not been retired
as of October 2009.

e. Cancelled Cheques not presented for audit

There were a total number of fifteen (15) cheques which were indicated as
cancelled in the records of the Judiciary. However, these cancelled cheques were
not presented for audit. Although the cheques had not been presented to the bank,
the Judiciary had not issued a stop order for the cheques posing a risk of fraud.

f. Purchase of Payroll System

On 18th November 2008, the Judiciary engaged Dove Computing Company, a


local software supplier to supply and install a payroll system. In this regard a

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payment of K65,000,000 was made to Dove Computing Company on 20th
November 2008 for the supply and installation of the system. An inquiry with
management revealed that Dove Computing failed to deliver the payroll system
and as of October 2009, the pay roll had not been received by the Judiciary.

Although in his response the controlling officer stated that there were
inadequacies in Dove Computing’s ability to handle Judiciary`s payroll which led
to the cancellation of the contract and that Dove computing had since committed
themselves to refund the monies, as of May 2010 only K25 million had been paid
back.

g. Civil Works

During the year under review, the Judiciary disbursed amounts totalling
K2,472,841,688 to provinces for the construction and rehabilitation of various
local courts and houses as shown in the table below:

Amount
Province K
Lusaka 932,019,710
Coperbelt 353,401,968
Western 218,257,754
Central 23,646,374
Northern 486,893,756
Luapula 325,000,000
Southern 109,181,462
Chipapa Court 24,440,664
Total 2,472,841,687

16
Sites visit to selected provinces and physical inspections revealed the following:

Contract Amount Paid


Works to be Contract Contract
Station Contractor Price to contrator Remarks
Done Date Period
K K
Ndola Judiciary Rehabilitation of No. 6
Copperbelt PBE 108,943,749
Office Chibulisho Road The newly fixed PVC tiles in the kitchen and replaced tiles in the sitting room had started coming out. The house had not been painted outside.
The following defects were noticed:
• The floor in the court room and local court offices had cracks
• The panel doors to the main entrance to the court room had big gaps in between planks due to the fact that the contractor used fresh timber.
• The ceramic tiles that were put in the two offices and the passage were not uniform.
• The contract had been delayed by eight (8) months as of September 2009.
Mpongwe local Construction of LWP Enterprises • The painting and decorating works had not been completed,
24-Dec-07 6 weeks 124,815,390
Court local court of Luanshya • The plumbing works had not been done,
• Air-conditioning installations still outstanding,
• External works such as drainage system, manholes, septic tank type five and soak-away had not been done,
• All provisional water reticulation works such as excavating trenches had not been done

A physical inspection conducted in September 2009 revealed that despite the contract period having elapsed on 25th March 2008 construction
works had not been completed
and the following were still outstanding:
• The floor for the entire court was not even and had cracks,
Chimfushi Local Construction of Katondwe • The contractor used plastic pipes instead of asbestos cement pipes for plumbing works,
28-Dec-07 16 weeks 484,351,645 398,850,011
Court local court Contractors • The finishing of the walls was poor as they were not even,
• The conduit pipes and socket outlets were not embedded in the walls but instead were laid on the walls,
• The extractions for piping, cement drain pipes and fitting and laying and jointing, excavating and
construction of the manholes, septic tank, soak-away had not been done, and
• The water reticulations outside the court had not been installed.

A physical inspection of the works that was carried out at Kasalya Local Court revealed the following irregularities:
• The floor in the court clerk’s office, local court magistrate chambers and the court room had cracks.
Kasalya Local Rehabilitation of Triple Kay • The window between the court clerk’s office and the local court magistrate chambers was not closing.
56,509,500 82,109,640
Court local court Contractors • Despite completing construction works no benches had been provided and the structure had not been handed over by July 2009. It was difficult to
establish the contract period and contract sum as the contract could not be provided for audit scrutiny.

The following irregularities were observed:


• The wood that was used to make doors had not dried up and as such resulted in big gaps being created between planks.
• The court walls had cracks.
• The veranda had cracks.
• Windows were not closing properly.
Kahumbu Local Construction of ABC Global
25-Sep-07 148,000,000 • The floor in the chamber was rough.
Court local court Works
• The door to the chamber could not be opened and locked from outside.
• It was also noted that the contractor applied one coat of paint only.
• The district local court staff further disclosed that during the rainy season the roof leaked.
• A further inquiry with management regarding certification of work completed revealed that payments were not based on certificates of completion
and no certificate was availed for audit verification.

17
Contract Amount Paid
Works to be Contract Contract
Station Contractor Price to contrator Remarks
Done Date Period
K K
Muwezwa
Local Construction of Danjos Steel
Court local court Fabricators Contract document not made available for audit.
Maguya
Local Construction of Cobweb
Court local court Constructions 197,754,250 Works completed
Pineland
Mpika Investments
Magastrate Rehabilitation of Ltd/Wanda
Court Magistrate Court Engineering 20,450,000 Contract document not made available for audit.

Chipalo Local Rehabilitation of


Court local court 7-Dec-07 E M Buildwell 2 months 103,744,862 92,249,804 Certificates for 1st,2nd and 3rd payments not availed for audit.
Mwanangwa
Local Rehabilitation of Defra General
Court local court Dealers 50 days 113,515,599 107,839,819 Certificate for 2nd payment not availed for audit.

Nkole Mfumu Construction of


Local Court local court JKC Trading 90 days 238,492,190 226,567,399 Works completed. Certificates for 3rd and 4th payments not availed for audit.
A physical check conducted at the site revealed the following observations:
Rehabilition of • Painting of the house both interior and exterior was not done and the ceiling board which had been fixed was not painted.
Kasama house no.17 30,608,000 • The house was occupied by the caretaker and was in a dilapidated state as it had cracks in some parts and was in a state in disrepair.
Golf Course Road • Work done was generally poor and the physical implementation status of the site was 30% complete as of September 2009.

A physical check conducted at Chitembo Local Court revealed the following:


• Drainage system around the building was not done and the concrete slab done around the court building had cracks in some parts due to insufficient cement that
Rehabilitation of was used.
Chitembo
local • The courtroom had no windows to allow free air circulation. It only had ventilators.
Local A Mwansa 47,796,400
court and VIP • The painting of the interior of the building was not perfected as the paint has already started peeling off.
Court
latrine • The VIP toilet had no door making the users vulnerable to being exposed to the outsiders.
• Work done was generally poor.

A physical check at the site revealed the following:


Fixing of ceiling board was not complete as only the courtroom was done leaving the court chamber room and other two (2) rooms not ceiled.
Serenje B • There were no burglar bars fixed and the handles for opening and locking the windows were not properly fitted
Lima Agro
Local 10 Weeks 180,624,010 157,727,636 • The floor inside the court building was poorly done in that it hard very rough surface.
Suppliers
Court • The toilets behind the court building were poorly renovated as they were not flushing.
• Electricity was not installed in the court building as of September 2009.

However, a physical check at the site revealed the following;


Construction of • The tiles fitted in the court building were peeling off due to the fact that the floor was not done after putting the concrete slab.
Chibale Local local court & • The VIP toilets constructed only had grill gates without doors making the users vulnerable to being exposed to the outsiders.
Hench Enterprises 10 Months 183,378,110
Court rehabilitation of • The contract commenced on 26th November, 2007 and was required to be completed on 6th March 2008. As of 12th September, 2009 the contractor had not
2 VIP latrines handed over the constructed building and toilets to the Government of the Republic of Zambia.

18
h. Non Current Assets

A scrutiny of records followed by a physical verification of fixed assets revealed


the following:

i. Non maintenance of fixed asset register

Contrary to Financial Regulation No. 103 the Judiciary did not maintain a
fixed asset register.

ii. Property Owned by the Judiciary

A physical verification of assets revealed that the Judiciary owned a total


number of forty-six (46) residential flats in Thorn park and four (4) residential
flats in Kabwata. Twenty (20) flats in Thornpark were occupied by
Magistrates while twenty-six (26) flats were rented out to non members of
staff. The Kabwata flats were occupied by the Judiciary members of staff who
rented them at market values.

However, as of October, 2009, the tenants owed the Judiciary amounts


totalling K60,668,100 in outstanding rentals.

It was further observed that the properties, whose values could not be
ascertained due to poor record keeping, were not insured and no title deeds
were availed for audit.

MULUNGUSHI UNIVERSITY
Background

8. Mulungushi University is the forerunner to the National College for Management and
Development Studies (formerly known as Presidents Citizenship College) which was
established in 1972 by CAP 238 of the Laws of Zambia to provide leadership training
to officers of Government, Parastatal organisations and the labour movement.

In 2005, the National College for Management and Development Studies (Repeal) Act
No 18 of 2005 was passed and mandated the Council of the National College for
Management and Development Studies, in consultation with the Minister responsible
for Education and the Secretary to the Treasury, to carry out all actions necessary to
transform the College into a Public University.

The Minister of Education formally declared the National College for Management and
Development Studies as Mulungushi University with effect from 1 st January 2008, and

19
brought it under the authority of the University Act, through statutory instrument No.
105 of 2007.

Administration

The University has a council which is the supreme governing body. It also has a senate
which is the supreme academic authority. The Vice Chancellor who is the Chief
Executive of the University is responsible for the day to day operations of the
University.

Sources of Funds

According to the Act, the sources of funds for the University shall include, among
others:

· Such sums of funds received from the Government as grants;

· Tuition fees; and

· It’s own internally income generating ventures and donations through projects.

· Otherwise vest in or accrue to the Council.

The Council may also accept monies by way of grants or donations from any source in
Zambia and, with the approval of the Minister, from any source outside Zambia.

Review of Operations

The University Act No. 11 of 1999 states among others that as soon as practicable but
not later that six (6) months after the expiry of each financial year the Council shall
submit to the Minister a report concerning its activities during such financial year.

The report of the Council shall include information on the financial affairs of the
Council and there shall be appended to the report –

· Unaudited balance sheet;


· Unaudited Statement of Income and Expenditure;
· A report of auditors on the accounts; and
· Such other information as the Minister may require.

Contrary to the University Act, the accounts for the financial year ended 31st December
2008 were not ready as at 31 st December 2009.

20
In their response, management stated that during 2008 the accounts unit was
inadequately staffed making it difficult to meet the deadlines and that new staff started
reporting in the third month of 2009.

However, a review of ledgers and other accounting records revealed the following:

a. Income

i. GRZ Grants

A total provision of K46,973,772,487 was made in the Estimates of Revenue


and Expenditure for the year ended 31st December, 2008 to cater for various
activities, against which amounts totalling K44,005,051,042 were released as
indicated in the table below:

Authorised Provision Actual Funding Variance


Category K K K
Infrastructure Development 30,000,000,000 29,999,395,931 604,069
RDCs 9,073,772,487 7,559,447,070 1,514,325,417
Outstanding Bills 7,900,000,000 4,900,000,000 3,000,000,000
Staff Recruitment - 1,206,727,000 (1,206,727,000)
Sector Funds - 339,481,041 (339,481,041)
Total 46,973,772,487 44,005,051,042 2,968,721,445

As shown in the table above, there was an under funding of K2,968,721,445.


In response, management stated that it had decided to make monthly follow
ups to ensure that all the authorised grants were released in full to the
university.

ii. Other Income

The Council collected a sum of K14,650,122,277 from other sources as


indicated below:

Category Budget Actual Variance


K K K
Course Fees 21,030,000,000 5,020,000,000 (16,010,000,000)
Commercial Entities 6,391,575,000 4,062,404,295 (2,329,170,705)
Konkola Copper Mine 4,515,430,877 3,835,193,266 (680,237,611)
Other Income 925,775,000 1,732,524,716 806,749,716
Total 32,862,780,877 14,650,122,277 18,212,658,600

21
From the table above, only 44.6% of the budget was actually collected.

In response, management stated that the failure to meet the target was as a
result of low enrolment from the Degree programmes after the launch of the
university in that the budgeted student level was 500 against the actual student
number of 42. They added that the low enrolment impacted negatively on the
commercial entities resulting in the loss of business from the would be
students.

b. Irregular Appointment of Vice Chancellor and Deputy Vice Chancellor

Contrary to the provisions of the University Act, which requires the Minister to
constitute a search committee to advertise and select the Vice Chancellor and
Deputy Vice Chancellor, a search committee was not constituted.

In response, management stated that the appointment of the Vice Chancellor and
the Deputy Vice Chancellor did not strictly comply with the provisions of the
University Act because it was a new University and their appointment preceded
that of the Council and that the Chairman of the Council had since written to the
Minister of Education requesting him to appoint a Search Committee for the formal
appointment of Vice Chancellor and Deputy Vice Chancellor.

c. Irregular Purchase of Furniture

In 2007, the incumbent Vice Chancellor was engaged as a consultant during the
transition period of the National College for Development and Management
Studies. During the period that he worked as a consultant, furniture worth
K98,947,000 was procured for his residence.

A review of records revealed that in 2008 additional furniture valued at


K26,699,000 and K66,963,000 was procured for the residence of the Vice
Chancellor and registrar of the University respectively. This was contrary to their
conditions of service which did not provide for a fully furnished accommodation.

Although in their response management stated that the purchase of the furniture
was approved by the Executive Committee of the Council on the understanding
that this would be university property to be surrendered to the University at the end
of service of the officers, this was contrary to the conditions of service.

d. Irregular Payment of Repatriation Allowance

In the first year of operation of the University, all employees were given one year
contracts. A review of the contracts of employment revealed that officers were only
entitled to repatriation in the event that the contract was not renewed. However

22
contrary to the clause in the contracts, repatriation allowances in amounts totalling
K462,000,000 were paid to ninety seven (97) employees who had their contracts
renewed.

e. Procurement of Goods, Works And Services

i. Unvouched Expenditure

Contrary to Financial Regulation No. 45, there were one hundred and fifty
Seven (157) payments in amounts totalling K 1,765,292,611 made during the
period from January to December 2008 that were not vouched in that they
lacked supporting documentation such as receipts, quotations, goods received
notes, tenancy agreements, Contract and acquittal sheets.

ii. Unretired Imprest

Contrary to Financial Regulation No. 96 (1), one hundred (100) payments in


amounts totalling K265,703,069 made during the period January to
December 2008, were unretired and unaquitted as at 31st March 2009.

iii. Failure to follow Tender Procedures

Contrary to Tender Regulations which requires that a minimum of 3


quotations should be sourced, ninety three (93) payments in amounts totalling
K 1,036,949,152 made during the period from January to December 2008, had
no competitive (3) quotations.

iv. Construction of Resident Engineers Office

On 13th August, 2008 Mulungushi University awarded a contract to Baluba


Building Construction Limited for the construction of Resident Engineer’s
Office block at a contract sum of K487,663,420. The contract commenced on
15th August and was to be completed in fourteen (14) weeks. The contract
sum was later varied to K626,414,865.

As of March, 2009 the contractor had been paid a total of K431,832,002


representing 68.94% of the contract sum.

The following were observed:

· As at 31st March 2009, thirty (30) weeks after the commencement date,
the building was only 65% complete and no liquidated damages had
been claimed despite the contract over running by 16 weeks.
23
Although management stated that the contract did not provide for exit
clauses which could allow the University to claim damages and that the
variations were approved by the Tender Committee, it was not clear as
to why the liquidated damages clause was omitted from the contract.

· An amount of K7,257,540 paid to the contractor was wasteful in that


the amount was paid for carrying out works at a site that was later
discovered as a wrong site and there was no evidence provided to back
the variation of K7,257,540.

f. Failure to Carry Out Year End Stock Takes

Contrary to the Generally Accepted Accounting Practice, it was observed that the
university management did not conduct the year end stock take for the year ended
December 2008.

A test stock take conducted in March 2009 on selected stores items revealed the
following variances:

Ledger Physical
Description Balance Balance Variance
(Shortfall)
Laptops 4 3 (1)
Pillows 445 145 (300)
Sugar 400 360 (40)
Milk 722 506 (216)
Cooking Oil 280 200 (80)
Paint 43 0 (43)

Although in their response management indicated that a programme to ensure that


year - end stock takes are done at the end of each financial year was in place, there
was no proper explanation given for the variances.

g. Non Maintenance of Register of Accountable Documents

Contrary to Financial Regulation No. 103, the University management did not
maintain a register of accountable documents. It was therefore not possible to
establish the total number of receipt books that were issued for the period under
review.
A test check of receipt books issued to accounts revealed that out of the twenty-five
(25) receipt books purchased and issued to accounts by stores for the period under
review, only twenty-one (21) were recorded as having been received by accounts
leaving a balance of four (4) unaccounted for.

24
NATIONAL AIRPORT CORPORATION LIMITED

9. In paragraphs 52 to 61 of the report of the Auditor General for 2005 on the accounts of
Parastatal bodies, mention was made of the non declaration of dividends and non
payment of taxes by the Corporation due to its poor financial performance. Mention
was also made of the poor liquidity position, increased cost of borrowing, irregular
payment of Christmas bonuses, outstanding pensions and failure to follow tender
procedures among others.

Review of Operations

A review of the operations of the corporation for the financial years ended 31st March
2006 to 31 st March 2009, carried out in September 2009, revealed the following:

a. Financial Performance - Income Statement for the period ending 31 st


March 2006 to 2009

2009 2008 2007 2006


K'Billion K'Billion K'Billion K'Billion

Turnover 89 83 66 56
Expenditure (112) (72) (52) (58)
(23) 12 13 (1)
Other Income 6 3 2 3
Loss/Profit
from operations (17) 14 16 2
Net exchange
(loss)/gains (1) 2 (18) 25
Fair Value
Adjustments - 1 - -
Finance Charges (4) (3) (4) (4)
Finance Income 1 0 - 0
(Loss)/profiit
before tax (20) 14 (7) 24
Income tax 4 (4) 3 (7)
(Loss)/profit
for the year (16) 10 (4) 17

b. Profitability

It was observed that although the Corporation recorded profits in the financial
year ending 31st March 2006 and 2008, losses of K3.77 billion and K16.05
billion were incurred in 2007 and 2009 respectively. The losses were mainly
attributed to high operating costs which increased from K 57.5 billion in 2005 to

25
K111.77 billion in 2009. This represents an increase of 94 % as opposed to the
growth of turnover of 57% during the same period.

c. Interest Cover

The interest cover shows the number of times the company is able to pay
interests from its profits. A high level of interest cover indicates a better position
as regards payment of interest. The generally acceptable ratio is two (2) and
above. The interest cover for the Corporation for the period 2006 to 2009 was as
shown below:

2009 2008 2007 2006


K'Billion K'Billion K'Billion K'Billion
Interest Cover = PBIT (16.67) 14.37 15.57 1.83
I 3.66 3.22 3.61 3.50

(5.6) times 4.5 times 4.3 times 0.5 times

The interest cover exceeded the acceptable levels in 2007 and 2008. In 2006, the
profit was only able to cover half of the interest obligation whilst in 2009 the
interest cover was negative, indicating that the corporation may fail to meet its
obligations.

26
d. Statement of Financial Position as of 31st March 2006 to 2009

2009 2008 2007 2006


K'Bil li on K'Bi ll ion K'Bi l li on K'Bil l ion
AS S ETS
Non-current assets
Prop erty , p lant and equip ment 462.1 477.26 154.61 117.8
Financial asset s at
fair value t hrough p rofit and loss 0.96 0.96 0.02 0.02
463.06 478.22 154.63 117.82
Current Asse ts
Invent ories 1.98 1.03 0.85 0.78
Trade and other receivables 19.15 16.75 15.08 8.09
Held to mat urity financial assets 5.59 10.23 0 0
Cash and cash equivalents 5.54 8.67 12.65 4.95
Taxat ion recoverable 0 0.09 0.07 0.07
32.26 36.77 28.65 13.89

Total assets 495.32 514.99 183.28 131.71

EQ UITY AND LIABILITIES


Capi tal and rese rve s
Share Cap it al 8.7 8.7 1.47 1.47
Amount s received
p ending allot ment 21.69 21.69 16.49 20.27
Revaluat ion reserve 297.98 305.62 0 0
Ret ained p rofits 18.24 26.66 0 0
346.61 362.67 17.96 21.74
Non-current l iabi li ties
Cap it al grant s 94.84 99.57 77 36.49
Long-t erm loans 23.9 21.79 62.64 43.89
Deferred income t ax 3.44 7.99 4.01 6.75
Obligations under finance leases 0.38 1.03 0.52 0
122.56 130.38 144.17 87.13
Current li abi li tie s
Bank overdraft s 0 0 0.31 0.49
Long t erm loans 8.37 10.07 8.26 6.85
Obligations under finance leases 0.65 0.58 0.29 0.35
Trade and other p ay ables 16.93 11.3 12.29 15.16
Taxat ion p ay able 0.21 0 0 0
26.16 21.95 21.15 22.85

Total equi ty and l iabil itie s 495.33 515 183.28 131.72

i. Non Current Assets - Ownership of International Airports

According to Sections 25 and 29 of the Aviation Act Cap 444 of the laws of
Zambia, the formation and title of the airports passed to the Corporation at
establishment. It was however observed that the corporation does not hold title
to Mfuwe and Livingstone International Airports whilst the title deeds for
Lusaka International Airport are still in the name of the Department of Civil
Aviation.

ii. Trade and Other receivables

· Debt position

Trade and other receivables increased from K8.09 billion in the financial
year ending 31st December 2006 to 19.5 billion in 2009. It was further
observed that debtors collection days increased from 52 in 2006 to 78 in
2009 indicating that debt collection had weakened.

27
· Zambian Airways Debt

Zambian Airways Limited is one of the major debtors of NACL. The


airline operated five (5) domestic and three (3) international routes.
Revenue from the airline included ground handling, landing fees,
navigation fees and office rentals. Zambian Airways was collecting
Passenger Service Charge on behalf of the Corporation but was not
remitting the funds to the corporation. This resulted in an accumulated debt
of US$2,159,042.79 as at 29th January 2009.

In April 2009, Zambian Airways was put under receivership and although
claims had been made to the Receiver, no money had been paid to the
Corporation to clear the debt as of December 2009.

iii. Gearing

Gearing is the extent to which an entity’s equity is financed by debt. In this


regard, the capital structure of a company may either be wholly funded through
100% equity (ungeared company) or a combination of equity and debt (geared
company). It is generally accepted that gearing level should not exceed 50%. In
situations where the gearing levels are above 50%, the cost of capital becomes
high. The table below shows the gearing position of NAC:

2009 2008 2007 2006


K'Billion K'Billion K'Billion K'Billion
Debt x 100% 23.9 21.79 62.64 43.89
Debt plus equity 32.6 30.49 64.11 45.36

73% 71% 98% 97%

The ratios above indicate that the company heavily relied on debt and as a
result, the finance costs (interest) increased by 17% from K3.5 billion in 2006
to K3.66 billion in 2009.

e. Procurement of Goods, Services and Civil Works.

i. Remodelling and Construction of the Proposed Control Tower at


Livingstone International Airport

The contract for the proposed remodelling and construction of air traffic
control tower at Livingstone International Airport was awarded to Merit
Engineering Services Limited in September 2008 at a total contract sum of
K1,366,136,060 with a completion period of twelve (12) weeks.

28
The scope of works included demolitions and alterations, waterproofing,
roofing, structural steel works, metal works, plumbing and engineering
installation, electrical installations, floor, wall and ceiling finishes and
painting and decorating.

The Contractor was handed over the site in October 2008 and works were
to commence the following week. As of August 2009, a total of
K1,672,086,646 had been paid to the contractor.

Although the project completion period was extended by four (4) weeks,
works were behind schedule by seven (7) months and no liquidated
damages had been claimed from the contractor.

ii. Supply and Installation of Generator Set

On 3rd April 2008 NACL awarded a tender for the supply, delivery,
installation, testing and commissioning of 800 KVA Three Phase 50Hz
1500 RPM Standby Generator Set at Lusaka International Airport to
Sulmach Limited at a contract price of K1,410,000,000 with a delivery
period of twenty (20) weeks. Works commenced on 14th May 2008 and
were scheduled to be completed by 15th October 2008.

A total of K1,142,003,600 (inclusive of an advance payment of


K846,000,000) representing 80% of the contract price had been paid to the
contractor as of August 2009 leaving a balance of K267,996,400
outstanding.

The following were observed;

· In April 2009, the contractor could not proceed with the civil works due
to liquidity problems. In this regard, an advance payment of
K30,000,000 was made to the contractor despite the earlier advance
payment having been made contrary to the conditions of the contract
that required certification of completed works before payment could
be made.

· The building under construction in which the Genset would be housed


did not meet some of the technical specifications outlined in the signed
contract. For instance the contractor did not make a provision for a
generator plinth contrary to the technical specifications provided by
the employer in the contract.

29
· A physical verification of the civil works carried out in August 2009,
revealed that construction works had stalled as shown in the picture
below and the contractor was not on site.

Uncompleted Civil works - the building in which the Generator is to be


housed.

Consequently, the generator set which had been supplied twelve


months earlier in September 2008 had not been installed.

f. Inadequately Supported Payments

Forty nine (49) payment vouchers in amounts totalling K241,442,834 and four
(4) payment vouchers in amounts totalling US$16,308.28 were inadequately
supported in that they lacked receipts, acquittal sheets or other supporting
documents.

g. Unretired Imprest

Imprest in amounts totalling K95,993,560 issued to various officers during the


period under review had not been retired as of August 2009.

h. Crush Aid Clinic – Ndola and Livingstone

Contrary to the International Civil Aviation Organisation (ICAO) requirements,


the two international airports at Ndola and Livingstone had no Crush Aid Clinics
for effective emergency operations.

i. Failure to Install Constant Current Regulators

In January 2001, the Corporation purchased two sets of Constant Current


Airfield Regulators from Belgium at a cost of €26,795. It was observed however,

30
that as of August 2009 the equipment had not been installed (eight years after
purchase).

NATIONAL HERITAGE CONSERVATION COMMISSION

Background

10. The National Heritage Conservation Commission (NHCC) is a statutory body which
was established in 1989 by the National Heritage Conservation Commission Act,
Chapter 173 of the Laws of Zambia. Under the Act, NHCC is required to conserve, by
preservation, restoration, rehabilitation, reconstruction, adaptive use, good
management, or any other means, the historical, natural and cultural heritage of
Zambia.

Administration

According to the Act, the Commission shall consist of a Chairman, the Permanent
Secretary in the Ministry responsible for heritage who is an ex-officio member and not
less than seven (7) but not more than ten (10) other members who are persons with
experience in matters related to the functions of the Commission.

According to Section 15 of the Act, the Executive Director who is the Chief Executive
Officer (CEO), is responsible for the day to day running of the Commission. The CEO
is assisted by the Director of Conservation Services and four regional Directors for
East Central, North West, Northern and South West regions.

Sources of Funds

The National Heritage Conservation Commission derives its income from grants
received from the Government, entry fees to national monuments, rent receivable,
consultancy fees, lease fees, donor funding and donations.

Review of Operations

An examination of the accounting, stores and other relevant records carried out in
December 2009 revealed the following:

31
a. Income

During the period under review, the Commission received the following funds:

2008 2007 2006


K K K
GRZ - Recurrent 4,512,690,299 4,205,610,099 4,179,948,267
Capital 250,000,000 1,537,000,000 25,000,000
Cooperating Partners 113,411,406 976,171,421 347,707,892
Internal 3,937,700,043 3,713,525,348 3,033,214,290
Total 8,813,801,748 10,432,306,868 7,585,870,449

The decline of income between 2007 and 2008 is attributed to the reduction in
receipts from cooperating partners and capital grants.

Further a review of the agreement signed between the Government of Zambia and
the Sun International Hotel in 1999 regarding the entry fees at the Victoria falls
revealed that the agreement did not provide for the Commission or their agents to
verify the accuracy of visitation records used by Sun International Hotel to arrive
at amounts payable.

b. Staffing Levels

The authorised establishment of the Commission during the period under review
was two hundred and sixty (260) positions out of which one hundred and thirty
eight (138) were filled, leaving one hundred and twenty two (122) vacant.

c. Wage Bill against Monthly Funding.

An analysis of the Commission’s wage bills compared to the grants received from
the Government revealed that during the period under review, the Commission
received monthly funding of K376,000,000 against a gross monthly wage bill of
K512,992,145 resulting in a monthly shortfall of K136,992,145. Although the
Commission indicated that the shortfall on net salaries was met through its own
sources, this was still not adequate as a result monthly salaries were being paid in
batches.

d. Non Remittance of Statutory Obligations

As at December 2008, the Commission was owing various institutions a total of


K7,458,879,241 in unremitted statutory contributions as detailed below:

32
Obligation K

PAYE 5,970,341,790
NAPSA 800,557,339
ZSIC PENSION 687,980,112
Total 7,458,879,241

The unremitted statutory contributions are likely to attract penalties which will
be a cost to the Commission.

e. Outstanding Gratuity

As of December, 2008 the commission was owing its members of staff a total sum
of K3,205,550,516 in unpaid gratuities.

f. Fixed Assets

i. Questionable Ownership of Buildings

In 1993, the Commission purchased three buildings at a total cost of


K44,000,000 as shown below:

Cost
Stand # Location Town Purpose K
2188 Mosi-O-Tunya road Livingstone Office block 28,000,000
Residential
456 Mukambo road Livingstone house 8,500,000
Residential
727 Airport road Livingstone house 7,500,000
Total 44,000,000

Despite the Commission having paid the full purchase price of


K44,000,000 for the buildings, only title deeds for stand numbers 2188 and
727 were released to the Commission. The title deed for stand number 456
was not released to the Commission as the house was sold while there was
still an outstanding mortgage on it.

Further, although the Commission was in possession of title deed for stand
number 727, the ownership of the property had not been transferred to the
Commission.

g. Rehabilitation of the Kalomo Administrator’s House

In June 2006, the Commission awarded a contract for the rehabilitation of the
Kalomo Administrator’s House under the National Tourism Development Master

33
Plan Project, to Pozzolona Enterprises, a Lusaka based contractor, at a contract
sum of K 278,198,600. According to the contract, the works on the project which
commenced on 13th July 2006 were due to be completed by 27th September 2006.
As of March 2010, amounts totalling K258,704,006 had been paid to the
contractor and the contractor had since abandoned the site.

A physical inspection of the monument conducted in March 2009 revealed that


there was poor workmanship and use of wrong materials. In particular, the
following were observed:

· The pavements surrounding the house were replaced with


pavements of poor quality.
· The roof was leaking in one of the self contained rooms.
· The booster pump for water supply was not working.
· The bath tub in one of the visitor’s toilets was not repaired.
· The geyser was not changed from pressure type to gravitational
type.
· The housing of the pump was not covered with a top exposing it to
theft.
· The cover on the newly built sewer man hole was broken.
· The wooden lintels were not replaced.
· One bath tub was not fixed in one of the self contained rooms.
· Towel rails had not been installed in five (5) rooms.
· The inspection box was not covered.
· The contractor did not replace the window panes and wooden
frames.
· The fascia board on the upper roof was not fixed while the one on
the lower roof was of the wrong size and was broken.
· The contractor did not settle the outstanding water bills amounting
to K1,200,000 owed to the water utility company as per contract
agreement.
· It was observed in this regard despite the contractor having
fundamentally breached the contract; the commission had not
terminated the contract contrary to the provisions of clause 59 of the
contract.

h. Un accounted for Funds - NORMFA Support to the Commission

During the period under review, the Commission received amounts totalling
K629,559,460 as grants from the Royal Kingdom of Norway under the NORMFA
Support to the Commission project. However, the Commission misapplied
amounts totalling Kl16,022,700 on activities not related to the project such as

34
legal fees, publication and training. As of March 2010, the funds had not been
reimbursed.

NATIONAL HOUSING AUTHORITY (NHA)

11. In the report of the Auditor General for 2007 on the Accounts of Parastatal Bodies,
mention was made on various accounting and other regularities at the National
Housing Authority (NHA). A review of operations for the year 2008 revealed the
following:

a. Outstanding Rentals

A review of outstanding rentals on commercial properties as at October 2009,


revealed the following status:

No. Of Balance
Property
Tenants (K)
Kulima Tower 91 777,711,479
Indeco House 60 2,057,573,824
Zimco House 45 594,704,163
Findeco House 223 2,006,207,858
722/723 Freedom Way 21 137,498,196
NHA
Head Office 4 255,425,939
Chipata 13 194,144,639
Solwezi 3 63,547,474
Mansa 5 41,394,211
Kasama 6 154,257,725
Mongu 4 53,691,400
Total 475 6,336,156,908

As can be seen from the table above, NHA was owed amounts totalling
K6,336,156,908 by various tenants. It was observed that out of the total amount
owed, amounts totalling K 5,894,980,132 had been outstanding for more than 360
days.

The status on residential properties could not be ascertained as management did


not avail the records.

35
b. Uncollected Income from sale of Kafue Estates Houses

As of October 2009, a total of sixty eight (68) housing units which were
offered for sale between 2001 and 2006 to the sitting tenants had not been fully
paid for and a balance of K441,318,338 had been outstanding for periods ranging
between 4 to 8 years.

c. Non Remittance of PAYE.

Pay as you Earn (PAYE) due to the Zambia Revenue Authority in amounts
totalling K 8,709,384,073 deducted from employees during the period from 2001
to 2008 had not been remitted as of December 2008.

d. Staff Establishment

It was observed that the Authority had no approved staff establishment in place
despite having had a total number of 257 employees.

NATIONAL SPORTS COUNCIL OF ZAMBIA (NSCZ)

Background

12. The National Sports Council of Zambia is a statutory body which was established
under the National Sports Council Zambia Act No.15 of 1977.

The functions of the NSCZ among others include:

· To keep itself fully appraised of the policy of government in the matters of


sports and disseminate the said policy;

· To ensure that sports groups and associations at all levels conform to the rules
and norms governing the particular sport;

· To develop, promote, control and encourage all forms of amateur and


professional sports on a national basis in conjunction with national sports
associations and the Director;

· To encourage and assist in the formation of sports associations in Zambia and to


encourage the affiliation of such associations to appropriate international
organisations;

· To assist, financially or otherwise any team or individual in representing Zambia


in any competition within or outside Zambia;
36
· To assist financially or otherwise, any citizen of Zambia in obtaining such
training within or outside Zambia as would qualify him to become an instructor,
coach or organiser of any form of sport;

· To raise and maintain a fund from such sources and by such means as the
Minister may approve, to enable the NSCZ to carry out its functions and achieve
it’s objectives;
· To stimulate through the appropriate authorities the provision, development and
maintenance of facilities and equipment for all kinds of sport and ensure their
equitable distribution and proper use;

· To ensure that sports groups at all levels maintain proper accounts and where
deemed necessary to supervise and direct the maintenance of such accounts;

· To control the award of National colours;

· To exercise disciplinary powers in cases of breach of the provisions of this Act;

· To establish the status of National and Representative teams.

· Generally to promote the development and organisation of sport and to eliminate


undesirable practices; and,

· To do and perform such other acts and things as may be conducive to the
development, control, regulation and promotion of sports and to the enforcement
of the provisions of this Act.

Management

According to the Act, the NSCZ is governed by a Management Board comprising:

i. The Chairman, the vice-chairman and not less than five other members, all of
whom shall be appointed by the minister;
ii. The Director or his representative;
iii. Two members to be appointed by each affiliated body; and,
iv. One member to be appointed by:

· Youth brigade of the United National Independence Party;


· Each of the ministry responsible for sport, defence, education, health, local
government and the police; and,
· Each associate body.

The tenure of office for board members is four (4) years.

37
The day to day operations of the Council are the responsibility of the General Secretary
who is appointed by the Board with the approval of the minister and is assisted by the
Centre Manager, Accountant, Sports Development Officers, Research and Public
Relations Officer and the Administrative Assistant.

Sources of Funds

According to the provisions of the Act, the funds of the Council shall consist of:

· such sums as may be appropriated by Parliament for the purposes of the Council;
· such sums as are paid to the Council as donations, contributions, subscriptions,
fees or gifts, provided that the council shall not raise money from outside Zambia
without prior approval of the Minister; and,
· such other money or assets as may accrue to or vest to the Council as a result of
the investments made or transactions entered into in course of its operations.

Review of Operations

A review of the of financial, accounting and other relevant documents for the financial
years ended 31st December 2003 to 2008 carried out in August 2009 revealed the
following:

a. Income

i. Grants

In the Estimates of Revenue and Expenditure for the financial years ended
31st December 2003 to 2008, provisions of K2,296,931,883 were made to
cater for the operations of the Council against which a total of
K2,413,669,835 was released resulting in excess funding of K116,737,952
as shown in the table below:

Total Authorized
Year Provision GRZ Grant Variance
K K K
2003 370,112,495 432,557,756 62,445,261
2004 87,029,170 90,701,893 3,672,723
2005 308,590,218 341,639,406 33,049,188
2006 550,000,000 558,339,791 8,339,791
2007 429,200,000 499,039,766 69,839,766
2008 552,000,000 491,391,223 (60,608,777)
Total 2,296,931,883 2,413,669,835 116,737,9 52

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ii. Other Income

In addition to government grants, the Council generates its own income from
affiliation fees from member bodies and from other activities such as bar
sales. The Council had a total of forty two (42) member bodies during the
period from 2003 to 2008 and the affiliation fee payable by each member
body was K100,000 per year. Therefore, the affiliation fees expected to
have been collected by the Council over the period from 2003 to 2008 was
K25,000,000.

During the period under review, the Council generated amounts totalling
K725,113,700 from bar sales. However, due to poor record keeping it was
not possible to ascertain how much was received in respect of affiliation
fees.

b. Staffing

Out of a total approved establishment of thirty (30) positions, eighteen (18) were
filled while twelve (12) were vacant as of August 2009. Among the vacant
positions were those of the Research and Public Relations Officer, the
Administrative Assistant, the Accountant and three (3) Sports Development
Officers.

c. Lack of Segregation of Duties

It was observed that there were no internal controls as one person was involved in
the preparation, approving and authorisation of payments.

d. Poor Record Keeping

There was poor record keeping as evidenced by the non maintenance of records
such as receipt books, bank reconciliation statements and cash books for funds
received by the Council contrary to Financial Regulation No. 128. In this regard, it
was difficult to ascertain how the funds received were utilised.

e. Failure to Prepare Annual Work and Strategic Plans

During the period under review, the Council operated without strategic and annual
work plans.

39
f. Failure to Produce Annual Reports

According to the National Sports Council of Zambia Act No.15 of 1977, as soon
as may be after the 31 st December in each year but not later than three months
thereafter, the Council shall submit to the Minister a report concerning its
activities for the financial year. The report of the Council shall include
information on financial affairs of the Council and there shall be appended to the
report an audited balance sheet, an audited statement of income and expenditure
and a report of the auditors as the Minister may require. The Minister shall lay the
annual report before the National Assembly.

Contrary to the above, the Council did not prepare and submit annual reports for
the period under review to the Minister. It was also observed that the accounts for
financial years ended 31st December 2003 to 2008 had not been prepared.

g. Failure to Establish Provincial and District Sports Committees

According to the Act, the Minister in consultation with the Minister in charge of a
Province appoints Provincial Sports Advisory Committees who in turn appoint
District Sports Committees responsible for the promotion, development and
organization of sports within the province and districts respectively.

Contrary to the above provisions of the Act, no provincial and district sports
committees were appointed in the provinces and districts.

h. Creditors

During the period under review, the Council owed amounts totalling
K1,481,219,438 in respect of terminal benefits, salary arrears, statutory
contributions and other creditors as shown in the table below some of which had
been outstanding from as far back as 2004.

Amount
Details K
Terminal benefits 705,003,557
Salary arrears 18,468,400
Statutory remittances 366,746,795
Other creditors 391,000,686
Total 1,481,219,438

In this regard, the Council will be susceptible to interest and penalty charges.

40
i. Unvouched Expenditure

Contrary to Financial Regulations No. 52, 65 and 156 there were six hundred and
sixty seven (667) payments in amounts totalling K2,241,435,522 that were
unvouched in that the payment vouchers were either missing, unacquitted or
inadequately supported with invoices, receipts among others as shown in the table
below:
Main
No. of Total No. of
A/C Bar Total
Vouchers Vouchers
K K K
Main A/c Bar
Missing Vouchers 107 159 266 323,771,094 195,105,236 518,876,330
Unacquitted Payments 149 4 153 1,020,605,513 1,575,000 1,022,180,513
Inadequately Supported 166 82 248 546,745,676 153,633,003 700,378,679
Total 422 245 667 1,8 91,122,283 350,313,239 2,241,435,522

NITROGEN CHEMICALS OF ZAMBIA (NCZ)

Background

13. The Nitrogen Chemicals of Zambia was established in 1967 by the Government of the
Republic of Zambia (GRZ) through its investment arm of INDECO mainly to produce
explosive grade ammonium nitrate for further processing into explosives for mining
copper, coal, and quarrying operation with an initial estimated investment of US$500
Million. Construction of the plant was done by Kobe Steel Limited of Japan on a
turnkey basis and was commissioned in 1970. In 1973, a decision was made to expand
the plant to produce fertilisers. In 1975, Klockner of Germany began construction of
the second phase which was commissioned in 1981. This phase of expansion included
production of additional ammonia, nitric acid, ammonium nitrate, ammonium sulphate
and compound (NPK) fertilisers.

In 1983, a sulphuric acid plant was also constructed to produce sulphuric acid as phase
3 to be used as raw materials in production of ammonium sulphate. As a result of the
expansion, the NCZ has a production capacity of 608,820 metric tonnes of various
products per annum as shown in the table below:

41
Design
Product Capacity
(MT p.a)
Ammonium Nitrate 139,000
Ammonium Sulphate 50,000
Compound Fertilizer (NPK) 142,320
Liquid Ammonia 95,000
Methanol 1,500
Nitric Acid (100% conc.) 120,000
Sulphuric Acid (100% conc.) 60,000
Liquid Carbon Dioxide 1,000
Total 608,820

Administration

Nitrogen Chemicals of Zambia has a Board of Directors comprising ten (10) members
drawn from government ministries and private companies in accordance with the
Articles of Association and the Companies Act. The role of the Board is to effectively
govern the affairs of NCZ for the benefit of its shareholders, and other constituencies,
which include the company’s employees, customers, and communities in which it does
business.

The Board chairman and members are appointed by the Minister of Agriculture and
Cooperatives who represent the shareholders, the Government Republic of Zambia.
As of November 2009, board membership comprised seven (7) out of the ten (10)
board members as the Chairperson and two other members had resigned from their
positions in September 2009.

The Board delegates responsibility for implementing the strategic direction and for
managing the day to day operations of NCZ to the Chief Executive Officer who is
assisted by the General Manager, Chief Finance Officer, Purchasing Manager,
Technical and Maintenance Manager, Production Manager and Human Resource
Manager who are appointed for a contract term of three (3) years. The rest of the
members of staff are on permanent and pensionable basis.

Source of Income

The Company earns its income from the sale of its products, grants from the
government and other activities such as hire of equipment and of work shop services.

42
Share Capital

The Company is wholly owned by the government with an authorised share capital of
K1,200,000,000 ordinary shares of K2.00 each out of which K1, 089,022,306 was
issued and fully paid. In addition, the Company also has a total number of 573,304,370
preference shareholders.

Review of Operations

a. Failure To Produce Financial Statements

Clause 126 of the Articles of Association for the Nitrogen Chemicals of Zambia
Limited requires the board of directors to annually produce and lay before the
general meeting, profit and loss account and the balance sheet which must be in
compliance with any law that is in force.

Contrary to the above provision, the Company had not produced audited financial
statements for the financial years ended 31st March 2001 to 2009 and consequently
it was not possible to comment on the financial performance and position of the
company.

b. Procurement of Goods and Services

i. Contract with Kasofred Distributors (Z) Limited

In August 2002, Nitrogen Chemicals of Zambia entered into a contract with


Kasofred Distributors (Z) Limited for the supply of 5,288 metric tonnes of Di-
Ammonium Phosphate (DAP), 2,027 metric tonnes of Muriate of Potash
(MOP) and 7,000 metric tonnes of Anhydrous Ammonia at a contract sum of
US$3,982,040 with a delivery period of five (5) weeks. In this respect the
supplier (Kasofred Distributers Ltd) was paid amount totalling US$2,541,966.
It was however, observed that only materials worth US$206,627.65 were
delivered leaving a balance of US$2,335,338.35. Consequently, in October
2003, NCZ took the matter to court and the court ruled that the Kasofred
distributers should pay US$1,607,410.98 plus interest to NCZ.

However, as of March 2010, the money had not been paid to NCZ.

ii. Contract for the Supply of D Compound Fertilizer for Fertilizer Support
Programme (FSP)

In April 2009, the Government of the Republic of Zambia through the


Ministry of Finance and National Planning released K5 billion grant for the
rehabilitation of the NPK Plant at NCZ in readiness for the production of D

43
Compound fertilizer for the 2009/2010 farming season and the plant was
rehabilitated.

In September 2009, Nitrogen Chemicals of Zambia Limited and the


Government of the Republic of Zambia, through the Ministry of Agriculture
entered into a contract for the manufacture and supply of D Compound
fertilizer at a total cost of K58.5 Billion.

The contract terms provided for among other things the following:

· The product was to be sold to the Government at K3.9 million per metric
tonne;

· The Company was to manufacture and make available 5,000 metric


tonnes by August 2009; and 10,000 metric tonnes by September 2009
from the date of signing the contract; and,

· A down payment of K27 billion was to be paid upon signing the contract
and the balance of K31.5 Billion was to be paid upon completion of
production.

The following observations were made:

· Though the Company was expected to make available 5,000 metric


tonnes of D Compound fertilizer by August 2009, the contract was only
signed on 2 nd September 2009;

· The down payment of K27 billion that should have been made by the
Government upon signing the contract was not released to NCZ contrary
to Clause 11.1 of the Special Conditions of the Contract;

· The Company submitted three proposed production schedules to the


Ministry of Agriculture and Cooperatives which indicated availability of
the final 5,000 metric tonnes on 31st October 2009, 7th November 2009
and 15th November 2009. However, on 15th September 2009, the Ministry
terminated the contract for the manufacture and supply of 15,000 metric
tonnes of D Compound fertilizer. The reason for the termination was that
the production schedule for the supply of fertilizer that was submitted by
the Company would seriously lag behind that for top dressing fertilizers
which had already been delivered to the Districts.

44
iii. Inadequately Supported Payments

Contrary to Financial Regulations No. 45, there were six hundred and fifty six
(656) payment vouchers in amounts totalling K16,930,433,848 that were
inadequately supported in that they lacked supporting documents such as
receipts, acquittal sheets and salary schedules among others.

c. Failure to Follow Tender Procedure

Contrary to Financial Regulation No. 52(1), one hundred and forty six (146)
payment vouchers in amounts totalling K1,503,773,118 were inadequately
supported in that they lacked three (3) competitive quotations

d. Unretired Imprest

Contrary to Financial Regulation No. 96(1), imprest in amounts totalling


K984,527,347 involving two hundred and seventy seven (277) transactions issued
to various officers during the period under review had not been retired as of
October 2009.

e. Disposal of Motor Vehicles Without Board Approval

In September 2002, management disposed of seventeen (17) motor vehicles. The


vehicles had reached their full depreciated values. These motor vehicles were sold
to members of staff who had been using the vehicles either as personal to holder or
in the course of carrying out their duties. The total amounts realised from the
disposal was K18, 861,750. There was no Board approval for this disposal.

f. Irregular Appointment of Chief Finance Officer (CFO)

NCZ recruited the Chief Internal Auditor (CIA) on a contract for a period running
from 14th May, 2007 to 15th May 2010. In July, 2009, the Board appointed the CIA
to act in the position of CFO before terminating the contract of CIA. It was also
observed that as of September, 2009, this officer continued to perform the
functions of both offices thus creating a conflict of interest.

g. Unaccounted for Revenue - Staff Canteen

Among the conditions of service outlined in the collective agreement signed


between NCZ and National Union of Commercial and Industrial Workers was that
in the absence of food in the staff canteen, employees were to be paid a meal
allowance of K75,000 per month or K3,750 per working day. In this respect, NCZ
was providing meals to their staff at uneconomical prices ranging between K300
and K700 per plate. In this regard, a total of K887,172,710 was spent on

45
procurement of food stuffs in the financial years ended 31st March 2001 to 2009.
However, due to poor record keeping, it was not possible to ascertain how much
money was raised from the sale of meals.

h. Medical Allowance and NCZ Clinic

The conditions of service and the collective agreement provided for a medical
allowance of 15% of basic salary to all employees. In this regard, during the
financial years ended 31st March 2001 to 2009, NCZ paid amounts totalling
K12,920,668,754 to members of staff as medical allowances. However, it was
observed that during the same period, NCZ provided free medical services to staff
and their families at its two clinics and in this regard, NCZ procured all the
medical supplies for the two clinic at a cost of K205,126,823 during the period
under review. It was not clear why NCZ was offering free medical services to
employees who were at the same time in receipt of medical allowance.

i. Failure to Recover Staff Debts

In January 2007, NCZ gave 786 employees loans in amounts totalling


K161,021,615. The loans were in the form of 1,308 bags of D – Compound
fertiliser. The loans were to be recovered in four (4) to five (5) monthly
instalments. However as of October 2009, no recoveries had been effected and the
loans remained outstanding.

j. Non Remittance of Statutory Contributions

During the period under review, the company owed amounts totalling
K123,404,577,864 in respect of statutory obligations as shown in the table below:

Amount Owe d
Name of Statutory Body K
Zambia Revenue Authority - PAYE 30,386,557,383
NAPSA - Principal Debt 8,891,698,675
NAPSA - Penalties 81,528,292,076
Workers Compensation Control Board 2,598,029,730
TOTAL 123,404,577,864

The outstanding amounts in statutory contributions are likely to attract penalty and
interest charges that would further worsen the financial position of the company.

46
k. Bank Overdraft

In February 2007, NCZ obtained a K14.0 billion bank overdraft facility from
Zambia National Commercial Bank (ZANACO). The facility was to be used for
the purchase of local raw materials and to meet operational expenses. In addition,
the overdraft facility provided for a US$13,740,000 (equivalent of
K53,970,759,793) letters of credit to procure imported raw materials for the
production plant. The overdraft facility and the Letters of Credit were due to
expire on 30th November, 2007.

The overdraft facility agreed upon between NCZ and ZANACO was on the basis
of a contract that was entered into between NCZ and the Government of the
Republic of Zambia (Ministry of Agriculture and Co-operatives) to supply 25,000
metric tonnes of Compound D fertilizer under the Fertilizer Support Programme
(FSP). As per agreed contract terms, between July 2007 and October 2007, NCZ
supplied the Government with the 25,000 metric tonnes of Compound D fertilizer
valued at K66,000,000,000.

The following were observed:

i. Although the overdraft was supposed to be liquidated on 30th November


2007, as of September 2009, the overdraft had not been fully liquidated and
there was a balance of K27,763,648,987.

ii. As of October 2009, NCZ made payments in amounts totalling


K200,869,231 to a collateral manager, SOCOTEC International
Inspections, as collateral service charges for managing the fertilizer stocks.
However, there was no contract signed between NCZ and SOCOTEC
International Inspections for the provision of collateral services thus
rendering the payments irregular.

iii. Although the K14.0 billion overdraft facility was obtained for the
procurement of raw materials, it was observed that amounts totalling
K5,300,000,000 were used to clear salary arrears.

iv. NCZ further obtained overdrafts of K2.0 billion and K1.5 billion to
facilitate for the payment of terminal benefits. However, the two facilities
were obtained without approval from the board.

47
l. Failure to Liquidate a Loan

In April 1986, a Credit Development Agreement was signed between the Zambian
Government and the International Development Association (IDA). In the signed
agreement, IDA agreed to make available to the Government an amount in various
currencies equivalent to nine million seven hundred thousand Special Drawing
Rights (SDR9,700,000) on the terms and conditions set forth in the Development
Credit Agreement. Under Article II of the loan agreement, the Government agreed
to lend NCZ on terms and conditions set forth in the Development Credit
Agreement, the equivalent in Zambian Currency of the aggregate amount of the
currency or currencies equivalent to SDR9,700,000 as a subsidiary loan. The loan
was unsecured and accumulated interest at 9.7% per annum.

However, contrary to the terms of the agreement which required the loan to be
liquidated by 30th June 2001, as of March 2010, the loan had not been liquidated.
In this regard, NCZ owed amounts totalling K704,970,000 of which K653,886,000
was interest.

m. Non delivery of Raw Materials

i. Di Ammonium Phosphate

During the year ended 31st March 2007, the NCZ procured 16,015 metric
tonnes of Di Ammonium Phosphate valued at US$9,447,492.25 from
Industrial Commodities Holdings (Pty) Limited of South Africa. A review of
the Material Receipts Reports revealed that only 8,843 metric tonnes of Di
Ammonium Phosphate valued at US$ 5,216,826.76 was received by NCZ
leaving a balance of 7,171.65 metric tonnes valued at US$4,230,665.49
undelivered as of 0ctober 2009.

ii. Gypsum

During the year ended 31st March 2007, NCZ procured 10,610 metric
tonnes of Gypsum valued at US$224,401.50 from Chambishi Metals plc. A
review of the Material Receipts Reports revealed that only 2,628 metric
tonnes of Gypsum valued at US$55,587.49 was received by NCZ leaving a
balance of 7,981.75 metric tonnes valued at US$168,814.01 undelivered as
of October 2009.

iii. Coal

During the years ended 31st March 2006 and 2007, NCZ procured 5,000
metric tonnes of Coal valued at K1,791,875,000.00 from Collum Coal
Mining Industries Limited. A review of the Material Receipts Reports

48
revealed that only 4,447 metric tonnes of Coal valued at K 1,593,629,118
was received by NCZ leaving a balance of 553.18 metric tonnes valued at
K198,245,883 undelivered as of October 2009.

n. Irregular Payments

i. In January 2006, NCZ paid a total amount of K45,000,000 to board members


as gratuity. This was irregular in that the Articles of Association did not
provide for the payment of gratuity to board members.

ii. During the period under review, NCZ engaged ACE Audit Control & Expertise
to among other things monitor the fertilizer granulating process, costs and
charges, and other collateral management services. However NCZ had
operational Quality Assurance, Internal Audit and Finance departments to
carry out the same work. During the period August 2005 to April 2006 a
total of K158, 378,250 was paid for the service to the said company.

o. Failure to Insure Assets

A scrutiny of the company records revealed that Leasehold Buildings valued at


K59,869,000 and Plant and Equipment valued at K16,349,287,130 were not
insured.

TASK FORCE ON CORRUPTION

Background

14. The Task Force on Corruption (TFC) was established in 2002 in accordance with
Article 61 of the Constitution of Zambia. The specific terms of reference were to:

· Collect, evaluate, process and investigate all suspected criminal conduct relating
to serious mismanagement of public resources including acts of corruption, theft,
abuse of office and money laundering committed by public officials during the
period 1992 and 2001;

· Order and facilitate forensic audit of accounts of suspected persons, body or


persons and departments of government upon receipted by the TFC of
information on suspicious transactions relating to the period under review;

· Prosecute all persons reasonably suspected of having committed offences


relating to mismanagement of public resources including corruption and abuse of
office, theft and money laundering;

49
· Initiate and facilitate forfeiture proceedings within and outside Zambia in respect
of any property reasonably suspected by the TFC to have been directly or
indirectly acquired through illegal acts or transactions in respect of public
resources;

· Liaise with other authorities outside Zambia on maters relevant to the gathering
of intelligence information, investigation and prosecution of suspected persons;

· Make recommendations to the President and other relevant authorities on


measures required to prevent future acts of corruption and mismanagement of
public resources; and,

· Carry out other duties as may be assigned to the TFC by competent authorities
from time to time.

Administration

According to operational guidelines, the Task Force on Corruption was headed by the
Executive Chairman who was assisted by the Director of Operations. The Director of
Operations was assisted by four (4) Deputy Directors in charge of Finance,
Administration and coordination, General Investigations and Recovery and
Management of Assets, Financial Investigations and Prosecutions and Litigation.

Sources of Funds

The operations of the Task Force on Corruption were financed through grants from the
Government and cooperating partners.

During 2008, the Task Force received amounts totalling K4,000,952,394 as grants
from Government. In addition, K2,537,321,860 (US$519,730) was brought forward
from 2007 Cooperating Partners’ grants bringing the total amount available to
K6,538,274,254.

An examination of financial, accounting, stores records and other relevant documents


revealed the following:

a. Bank Balances

As at 31st December 2008, TFC had four (4) bank accounts as detailed in the table
below:

50
Balance as at
Bank Account Number
31st December 2008
K US$ £
Crown Agents Dollar Account
Bank 33084102 - 83,529.41 held in London
Recoveries Account Kwacha Account
(BOZ) 001-37-28-00515-0 7,143,022,238 - held at Bank of Zambia
Recoveries Account Dollar Account held
(BOZ) 001-37-28-00515-2 - 1,371,696.04 at Bank of Zambia
Pound Sterling Account
held
Recoveries Account 001-37-28-00515-1 - - - at Bank of Zambia

b. Failure to Comply with Donor Conditions

In November 2007, the Royal Danish Embassy disbursed a sum of K7,104,096,881


(US$1,862,651.83) to the TFC on condition that it was to be used solely for
payment of local and foreign legal fees. However, it was observed that a sum of
K48,672,319 (US$9,969.75) was paid as consultancy fees to the Project
Coordinator responsible for preparing financial statements of the Task Force on
Corruption.

c. Procurement of Legal Services

The Government procured legal services by engaging various legal firms in order
to assist TFC in prosecuting in the courts of law. However, the following were
observed:

i. Irregular Engaging of Law Firms for Services

The law firms contracted were not engaged competitively but merely single
sourced and appointed by the Attorney General. Details of the law firms and
their legal fees payable is tabulated below:

Amount Paid
as of M ay Amount
Fee/M onth Amount Due 2008 Outsatnding
Law Firm US$ US$ US$ US$ Remarks
MNB 20,000.00 280,000.00 120,000.00 160,000.00 Eight (8)
months arrears
Zulu & Co 20,000.00 280,000.00 120,000.00 160,000.00 Eight (8)
months arrears
Sambo Kayukwa & 20,000.00 280,000.00 120,000.00 160,000.00 Eight (8)
Co months arrears
Mundia & Co 20,000 15,333.33 15,333.33 Nil Terminated
DLA Piper Rudnick Vary monthly 1,579,954.79 241,723.73 1,338,231.06 Eight (8)
months arrears

51
ii. Payment of Legal Fees

The terms of reference for the engaged law firms spelling out reporting lines
and the basis of payment of fees were not availed for audit scrutiny. In
particular, the following were observations:

· Payment to Local Law Firms

There was no evidence provided to justify the basis of a fixed charge of


K96,640,000 (US$20,000) per month in legal fees. In this regard, the
legal fees were paid monthly irrespective of whether any work was done
or not. As of December 2008, amounts totalling K1,832,377,317
(US$375,333.33) had been paid to three (3) local law firms while a sum
of K2,343,360,000 (US$480,000) was owed to the four local law firms.

· Payment to a Foreign Law Firm

In 2008, amounts totalling K1,180,095,265 (US$241,724) were paid as


foreign legal fee to DLA Piper Rudnick a firm engaged to prosecute cases
in the United Kingdom. Included in this amount were payments of claims
totalling K18,899,101 (US$3,871.18) in respect of expenses such as hotel
bills, travel and subsistence allowances, delivery charges, photocopying
charges and taxi fares. However, the payments were not supported by
documents such as invoices and receipts as proof that the expenses were
genuinely incurred.

As of December 2008, DLA Piper Rudnick Gray was owed amounts


totalling K6,533,244,035 (US$1,338,231.06) in legal fees for services
rendered during the period from May to December 2008.

d. Failure to Dispose of Forfeited Assets

In December 2008, assets valued at K61,757,412,030 were handed over to Cabinet


Office by the Task Force on Corruption for disposal. However, as of June 2009, the
assets had not been disposed off.

e. Failure to Remit Disposal Proceeds

In August 2006, property number S/D52/2898 in Livingstone was sold to Connie


Dodia at a sum of K150,000,000 through National Housing Authority (NHA).
Cabinet Office had mandated NHA to dispose off the property on their behalf.

It was however observed that, contrary to the sale agreement which required the
buyer to make one lump sum by certified bank cheque within 30 days from the date
52
of offer, only K84 million had been paid in May 2009, leaving a balance of K66
million outstanding.
It was also observed that although the buyer had paid K84 million in 2006, as of
May 2009, the money had not been remitted into the recoveries account by NHA.

f. Physical Inspection of Forfeited Assets

A physical inspection of forfeited assets conducted between February and March


2009 revealed that most of them had deteriorated due to adverse weather conditions
and vandalism as detailed below.

i. Assorted Equipments and Machinery

· Lusaka

Equipment valued at K 560,000,000 which was brand new at the time of


seizure had deteriorated due to lack of storage facilities.

· Kitwe

Equipment valued at K1,257,364,500 were observed to have deteriorated


due to poor storage.

ii. Real Estate - Properties

· DGH Poly Products – Stand No. 5291, 3292, 5299 and 5300, Lusaka

The company was seized in July 2003 and had not been disposed of as of
May 2009. The company was valued at K5,250,000,000 and was running
as a going concern. There was no agreement between the Government and
the management running the company.

· Motor City - Stand No. 5091, Lumumba Road, Lusaka

The property was seized in September 2003 and had not been disposed of
as of May 2009. The premises which was valued at K1,400,000,000 was
leased out to tenants and run by a manager. Rental income realised was not
remitted to Government. There was no agreement between the Government
and the manager running the premises.

53
· Former UBZ Premises – Stand No: 40 83 / 12, Twalumba Close, Ndola

The property was seized in 2008 and had not been disposed of as of May
2009. The property was valued at K1,400,000,000 and leased out to
tenants. No rental income was being remitted to Government. There was no
agreement between the Government and the manager running the premises.

· Ndola Trust School – Stand No: 587 / C, Ndola

The property was seized in 2008 and it had not been disposed of as of May
2009. The school valued at K4,744,489,530 is a going concern. No income
is being remitted to Government and there was no agreement between
Government and the school management.

· Stand No. 515, Siavonga

The property valued at K520,000,000 was seized in May 2003 and had not
been disposed of as of May 2009.

TAZAMA PIPELINES LIMITED

Background

15. TAZAMA Pipelines Limited was established in 1966 to construct and operate a
pipeline between the port of Dar es Salaam in Tanzania and Ndola in Zambia for the
purpose of transporting crude oil or its refined petroleum products.

The pipeline covers a distance of 1,710 kilometres and has an annual throughput
capacity of 800,000 metric tons of crude oil. The company also operates a tank farm
facility situated at Kigambani in Dar es Salaam which comprises six (6) tanks with a
holding capacity of 232,000 cubic meters. Pumping is achieved though seven (7) pump
stations, five (5) in Tanzania and two (2) in Zambia.

The company is the Government agent in the procurement of refinery feedstock,


overseeing of the refining process and sell of petroleum products. TAZAMA Pipelines
Limited also manages the fuel terminal in Ndola on behalf of Government.

Administration

The Company is governed by a Board of Directors comprising seven (7) members


represented by four (4) Directors appointed by subscribers of Class A shares and three

54
(3) Directors appointed by subscribers of Class B shares with Zambia providing the
Chairperson.

The day to day operations of the company are managed by the Managing Director who
is assisted by the Director of Operations and Engineering, Financial Controller and
Director of Administration who are based at Head office in Ndola.

The Board appoints the Managing Director and directors on a renewable three (3) year
contract. The rest of the staff is appointed on a permanent and pensionable basis.

The total authorise staff establishment of the company was 394 as of March 2009.

Sources of Funds

The major sources of funds for TAZAMA Pipelines Limited are pumping and storage
fees, agency fees and rental income.

Review of Operations

a. Capital Structure

The company is jointly owned by the Government of the Republic of Zambia


(Class A) and the United Republic of Tanzania (Class B). The shares for the
Zambian Government are held by the Ministry of Finance and National Planning.
The Tanzanian Government holds its shares through Tanzania Petroleum
Development Corporate (TPDC).

The Company’s authorised share capital consists of 50 billion ordinary shares of


K1 each comprising 33,333,334,000 of Class A (67%) and 16,666,666,000 of
Class B (33%) shares. Out of the authorised share capital of K50,000,000,000,
only K25,000,000,000 had been issued and there has been no change in the
company’s authorised and issued share capital during the period under review.

b. Failure to Increase Share Capital

A special resolution of the Annual General meeting held in August 1995 that the
issued share capital be increased by K5 billion annually for the next five (5) years
in order to bring the capital requirement to K25 billion for Class A shareholders
and another K25 billion for the Class B shareholders had not been implemented as
of July 2009.

55
c. Failure to Convert Government Loans into Equity

In January 1991 and July 2002, GRZ paid TAZAMA Pipelines Limited loans
totalling K264,265,472,000 (US$66,378,000). The loans were for the
rehabilitation of crude oil farm tanks in Dar es Salaam.

Out of the total GRZ loan paid to TAZAMA, an amount of K672,786,497


(US$168,990) was repaid leaving a balance of K263,592,685,503
(US$66,209,010) outstanding and unserviced as of April 2010.

d. Financial Performance

An analysis of the financial statements for the period ending 31st March 2005 to
2008 revealed the following:

Profitability

Profit and Loss Accounts (Extract)

2008 2007 2006 2005


K'000 K'000 K'000 K'000
Turnover 69,744,858 61,100,402 47,413,411 71,750,566
Pumping costs (50,062,011) (49,028,132) (45,292,453) (35,348,116)
Gross Profit 19,682,847 12,072,270 2,120,958 36,402,450
Other operating income 3,197,938 2,576,628 4,954,240 3,339,398
22,880,785 14,648,898 7,075,198 39,741,848
Admin and financial expenses (30,032,303) (30,704,681) (47,599,560) (26,476,280)
Agency fees 14,287,838
Other income 3,021,758 1,583,730 765,521 2,793,280
Operating Profit/(Loss) 10,158,078 (14,472,053) (39,758,841) 16,058,848
Interest expense (846,283) (3,856,130)
Prov. for retirement benefits (14,950,105) (3,972,970) (2,378,182) (13,296,414)
Exchange (losses)/ gains (2,482,768) (25,532,247) 47,512,080 -
Profit before taxation (8,121,078) (47,833,400) 5,375,057 2,762,434
Taxation - - - -
Profit /(Loss) for the year (8,121,078) (47,833,400) 5,375,057 2,762,434

i. The total turnover reduced from K71,750,566,000 in 2005 to K69,744,858,000


in 2008, representing a 3% reduction. During the same period, the quantities
of the feed stocks (pump yield) reduced from 492,134 metric tonnes in 2005
to 461,980 metric tonnes in 2008, representing a decrease of 6% while
pumping costs increased from K35,348,116,000 in 2005 to K50,062,011,000
in 2008, representing an increase of 42% as detailed below:

56
Pump Yield
2008 2007 2006 2005
Metric Tonnes Metric Tonnes Metric Tonnes Metric Tonnes
Quantities of Feed Stock 461,980 447,340 362,829 492,134
Pumping Costs (K'000) 50,062,011 49,028,132 45,292,453 35,348,116

ii. TAZAMA Pipelines Limited recorded an operating profit of K16,058,848,000


in 2005 and K10,158,078,000 in 2008, the company recorded operating losses
of K39,758,841,000 in 2006 and K14,472,053,000 in 2007. Although the
company recorded a profit of K5,375,057,000 in 2006, the company recorded
losses of K47,833,400,000 in 2007 and K8,121,078,000 in 2008.

iii. There were no dividends declared and paid to the shareholders during the
period under review.

e. Financial Position

Balance Sheet for the Financial Year Ending 31st March 2005 to 2008

2008 2007 2006 2005


K'000 K'000 K'000 K'000
ASSETS

Non-current ass ets


Property, plant and equipment 406,723,123 420,402,928 425,573,897 455,504,948

Curre nt asse ts
Inventories 14,379,070 4,919,176 3,847,546 9,595,816
Debtors and other receivables 27,363,618 9,540,557 1,131,828 15,195,462
Bank balances and cash 3,990,389 4,022,078 1,212,689 1,646,447
45,733,077 18,481,811 6,192,063 26,437,725
Total assets 452,456,200 438,884,739 431,765,960 481,942,673

EQUITY AND LIABILITIES

Capital and rese rve s


Share capital 25,000,000 25,000,000 25,000,000 25,000,000
Revaluation reserve 78,362,597 84,554,638 90,746,679 96,938,720
(Accumu losses)/retained profit (43,104,732) (41,172,695) 468,664 (11,098,434)
60,257,865 68,381,943 116,215,343 110,840,286
Non-current liabilities
Long - term loans 26,176,699 29,765,712 48,928,580 120,506,732
Due to the Government of the
Republic of Zambia 158,093,264 144,883,537 112,561,776 74,011,645
184,269,963 174,649,249 161,490,356 194,518,377
Curre nt liabilitie s
Creditors and other payables 141,908,863 128,604,888 107,383,240 99,568,759
Short term indebtedness 66,019,509 67,248,659 46,677,021 76,567,491
Bank overdraft - - - 447,760
207,928,372 195,853,547 154,060,261 176,584,010
Total e quity and liabilitie s 452,456,200 438,884,739 431,765,960 481,942,673

57
i. Liquidity

The liquidity position of the company during the period under review was as
shown in the table below:

2008 2007 2006 2005


K'000 K'000 K'000 K'000
Current Assets 45,733,077 18,481,811 6,192,063 26,437,725
Current Liabilities 207,928,372 195,853,547 154,060,261 176,584,010
Working Capital (162,195,295) (177,371,736) (147,868,198) (150,146,285)
Current Ratio 0.22 0.09 0.04 0.15
Quick Ratio 0.15 0.07 0.02 0.1

As can be seen from the table above, TAZAMA Pipelines Limited operated
with a negative working capital, while the current and quick ratios for the
company were below the recommended ratios of 2: 1 and 1:1 respectively
during the period under review thereby exposing the company to the risk of
insolvency.

ii. Debt to Total Assets

The Debt to Total Assets ratio measures the amount of debt to total assets.
The margin of safety for debt ratio is 50% or less.

The TAZAMA Pipelines Limited had a high proportion of debt in relation to


total assets.

During the period under review, the debt to total assets ratio moved from
77% in 2005 to 87% in 2008 as shown in the table below:

2008 2007 2006 2005


K'000 K'000 K'000 K'000
Debt 392,198,335 370,502,796 315,550,617 371,102,387
Total Assets 452,456,200 481,942,673 413,765,960 481,942,673

Ratio 87% 77% 76% 77%

iii. Interest Cover

The interest cover shows the number of times the company is able to pay
interests over the profits. A high level of interest cover indicates a better
position as regards payment of interest with debt holders confident that
profit is sufficient to pay interest and shareholders confident of their
dividend. The desired margin of safety for interest cover is 2.

58
During the period under review, the interest cover was adverse ranging from
0.05 in 2005 to negative 0.12 in 2008 as shown below:

2008 2007 2006 2005


K'000 K'000 K'000 K'000
PBIT (8,090,168) (47,518,519) 5,494,273 2,823,318
Interest Payable 68,405,048 65,760,969 59,368,402 52,697,525

Ratio (0.12) (0.72) 0.09 0.05

iv. Gearing

The capital structure of a company may either be wholly funded through


100% equity (ungeared company) or a combination of equity and debt
(geared company). The gearing ratio is usually calculated to help understand
the financial risk and the extent to which a company has further borrowing
capacity. Gearing ratio measures the proportion of capital that is financed by
loans. It is generally accepted that gearing level should not exceed 50%. In
situations where the gearing levels are above 50%, the cost of capital
becomes high in terms of interests.

During the period under review, the gearing ratio for TAZAMA Pipelines
Limited moved from 40% in 2005 to 75% in 2008 as shown below:

2008 2007 2006 2005


K'000 K'000 K'000 K'000
Non Current Liabilities 184,269,963 174,649,249 161,490,356 194,518,377
Total Capital 244,527,828 243,031,192 277,705,699 305,358,663

Ratio 75% 40% 37% 40%

v. Movement in General Reserve

The reserves of the company diminished from K116,215,343,000 in 2006 to


K60,257,865,000 in 2008, representing a deterioration of 48% over a period
of three (3) years as shown in the table below:

2008 2007 2006 2005


K'000 K'000 K'000 K'000
Balances As at
31st March 60,257,865 68,381,943 116,215,343 110,840,286

59
f. Other Irregularities

i. Non Remittance of Statutory Obligations

Contrary to the Income Tax Act, TAZAMA Pipelines Limited did not remit to
Zambia Revenue Authority Pay As You Earn deductions in amounts totalling
K16,142,157,799 some of which had been outstanding from as far back as
1999. It was also observed that, as of April 2009, the company owed amounts
totalling K1,989,869,938 to NAPSA in respect of pension contributions
contrary to the provisions of the National Pension Scheme Act.

ii. Capital Projects

· Failure to Comply with the Provisions of the Constitution in the


Award of Contracts

Contrary to Article 54 of the Constitution, TAZAMA Pipeline Limited


entered into two agreements as shown in the table below without seeking
the legal opinion of the Attorney General.

Date Contractor Contract Scope of Contract Sum


Number Work K US$
Refurbishment of six
Tanigra existing crude oil tanks in
2-May-08 Contractors Ltd No. 2a Dar-es-salaam 601,839,000 133,742
A new steel floating roof
crude oil storage tank
located in Ndola and
Tanigra construction of a wall
7-Dec-07 Contractors Ltd No. 2b fence 14,197,790,880 3,155,065
14,799,629,880 3,288,807

· Missing Materials – Construction of the Oil Tank

A review of the project appraisal documents revealed that specialised


construction materials such as gate valves, density meters, cooling nozzle
tips and hand pumps costing K128,814,190 which were left by the first
contractor Groupe Snig, in 2000 for the construction of a tank in Ndola
were missing. Although the matter was reported to Zambia Police in
November 2003, as of July 2009, investigations had not been concluded.

60
TIMES PRINTPAK (Z) LIMITED

Background

16. Times Printpak (Z) Limited is a company wholly owned by government. It was formed
as a result of a merger between Times Newspapers Zambia Limited and Printpak (Z)
Limited in March 1993.

Management

According to the Articles of Association, Times Printpak is governed by a board of


directors whose members are appointed by the Minister responsible for Information
and Broadcasting Services. The Articles of Association states that unless otherwise
determined by ordinary resolution, the number of directors shall not be less than two
(2) and not more than eight (8) and shall hold office for a term of three (3) years and
are eligible for re- appointment upon retirement.

The current board of directors was appointed in November 2007.

The Board appoints the Managing Director, who is the Chief Executive Officer on a
renewable three (3) year contract. The Managing Director is responsible for the day-
to-day operations of the company and is assisted by the Deputy Editor in Chief,
Finance Manager, Manpower and Human Development Manager, Legal Counsel and
Human Resources manager.

Sources of Funds

The sources of funds for the Company are government grants, newspaper sales,
advertising sales, commercial printing sales and courier service.

Review of Operations

A review of audited and draft accounts and other relevant documents for the financial
years ended 31st March 2003 to 2009 carried out in September 2009, revealed the
following:

a. Lack of a Board of Directors

Times Printpak operated without a board of directors for nine (9) months from
January to October 2007. In addition, the board of directors that existed at the
time of audit had nine (9) members instead of eight (8) as stated in the articles of
association.

61
b. Failure to Produce Audited Financial Statements

Contrary to the Articles of Association which requires the Company to prepare


audited financial statements annually, it was observed that the company had not
produced audited financial statements for the financial years ended 31st March
2004 to 2009 despite it having incurred amounts totalling K78,769,800 as audit
fees in 2008. In this regard, it was not possible to carry out an analysis of the
Company’s financial statements.

c. Failure to Meet Targets – Revenue Collection

During the period under review, the Company collected amounts totalling
K125,414,250,709.59 from newspaper sales, advertising sales, commercial
printing sales, fixed assets disposal, courier services and interest earned against a
total budget of K148,233,021,489 resulting in under collections amounting to
K22,818,770,779.41 representing 15% of the total budget.

d. Unretired imprest

Imprests in amounts totalling K201,995,900 issued to eighty eight (88) officers


during the period January to December 2008 had not been retired as of September
2009.

e. Inadequately Supported Payments

There were forty two (42) payments made between January 2008 and August 2009
in amounts totalling K344,536,092 that were inadequately supported in that the
payment vouchers lacked supporting documents such as receipts and quotations
relating to goods and services purchased.

f. Non Remittance of Statutory Contributions and Taxes

Contrary to the provisions of the National Pension Scheme Act of 1996, the
Zambia Revenue Authority (ZRA) Act of 1995 and the Income Tax Act, Times
Printpak (Z) Ltd did not remit statutory contributions and taxes to the appropriate
authorities. The total outstanding amounts as at 31st December 2008 were
K247,800,823,519 as shown in the table below:

62
AMOUNT
CREDITOR K
ZRA – PAYE 32,357,063,941
ZRA – WHT 191,655,747
ZRA – VAT 13,615,280,585
NAPSA 201,576,993,573
Workers Compensation Fund 59,829,674
Sub Total 247,800,823,519

In this regard, penalty charges and interest fees amounting to K29,509,400,359


were levied for the non remittances of Pay As You Earn, Value Added Tax and
Withholding Tax during the period under review thereby worsening the financial
performance of the company.

g. Irregular Payment of Car Maintenance Allowances

During the period from May 2006 to November 2008, the Company irregularly
paid amounts totalling K2,795,000,000 to thirty four (34) members of staff as
car maintenance allowances in that the officers were not entitled to the allowances
and there was no board approval.

h. Failure to Recover Loans and Advances from Separated Employees

In August and September 2008, two (2) employees were summarily dismissed
from employment. At the time of their dismissal, the employees benefits could not
cover all their indebtedness to the company. In this regard, the company was
unable to recover amounts totalling K107,967,268 owed by the dismissed
employees.

i. Irregular Purchase of Cell Phones

Contrary to staff conditions of service, management bought twenty three (23) cell
phones at a total cost of K45, 543,490 for management staff between February
2006 and April 2009. The distribution list was not availed to the auditors for audit
scrutiny.

j. Engagement of a Debt Collector

In July 2006, Times Printpak (Z) Limited engaged EBM Chambers to collect
debt from seven (7) customers who owed the Company amounts totalling
K1,105,902,064 for a long time. The terms of the engagement provided among
others, that the debt collector:

63
· Collects debts on behalf of the Company from the seven (7) customers
only;
· Receives 10% as commission on amount collected from the debts;
· Shall furnish the Company with statements of accounts and any
necessary reconciliation of the debtors assigned to; and,
· Shall, where a debtor proves difficult as regards payment of dues which
he rightfully knows are payable, he shall use all means, within the law
to obtain payment.

It was however, observed that:

· The Company could not provide records on how much was collected
and remitted to them and on the commission paid to the debt collector.
· The Company could not provide any statements of accounts and
reconciliations for the seven (7) customers assigned to the debt collector
to show the outstanding balances as of September 2009.
· The debt collector stopped offering the services for debt collection on
30th April 2007 and since then, no effort had been made by management
to recover the debts.

k. Irregular Payments of Gratuity

Contrary to their conditions of service which stated that gratuity shall be paid at
35% of basic salary for the years served, three (3) employees were paid at 100%
of basic salary for the years served resulting in an over payment of K138,810,140
as detailed in the table below:

Amount Paid Entitlement Overpayment


Name Position K K K Date
V. Kapoka Operations Controller 102,238,320 35,783,412 66,454,908 Jun-07
P. Musanshiko Management accountant 64,723,872 22,653,355 42,070,516 Apr-06
J. Mulando Training Coordinator 46,591,872 16,307,155 30,284,716 Jun-05

Total 213,554,064 74,743,922 138,810,140

l. Irregular Salary Upgrade

According to the conditions of service, executive assistants belong to salary scale


TPP5. However, contrary to the above, during the period from November 2006 to
March 2008, the executive assistant in the office of the Managing Director had her
salary scale upgraded from TPP5 to TPP4, a condition of service for middle
managers. Consequently, the executive assistant was overpaid by K70,578,473.
It was also observed that the executive assistant was being paid housing allowance

64
at 100% of basic salary instead of 70% which resulted in over payment of
K13,458,311. As of March 2010, the overpaid amounts had not been recovered.

THE UNIVERSITY OF ZAMBIA


(UNZA)

Background

17. In paragraph 15 of the Auditor General’s Report on accounts of Parastatal bodies for
the year ended 31st December 2006, mention was made of the non production of annual
reports and weakness in receipting student fees by the University.

A review of the situation carried out in December 2009 revealed that only draft
financial statements were availed for audit without supporting ledgers.

In particular the following were observed:

a. Staff Establishment

The University did not provide for audit, information regarding its staff
establishment making it difficult to ascertain and compare the authorised
establishment with the actual work force. It was in this regard not possible to
determine the adequacy of the human resource at the institution.

b. Segregation of Duties

There was lack of segregation of duties in Provincial centres in that accounting


duties were carried out by one officer who raised payments, approved them and
was the sole signatory to the bank accounts.

c. Lack of Approved Financial Regulations

The Financial Regulations for the University of Zambia, which were presented for
audit were dated 2002 and were in use during the year under review. However,
these regulations were not approved by the University Council.

d. Non Implementation of Internal Audit Recommendations

Although the internal audit unit produced fourteen (14) reports which highlighted
weaknesses in the management of the institution, management did not implement
the audit recommendations to address the issues raised in the internal audit reports.

65
e. Irregularities in the Student Records System

The University maintained a Student Financial Records System for receipting


students’ fees. In addition, it ran a SAGE 500 accounting package for processing
financial transactions. A review of the two systems revealed the following
deficiencies:

· The system did not allocate specific serial numbers to respective schools and
units there by making the audit trail difficult to follow;

· The system was unable to generate receivables balances at any other period end
other than at the end of an academic semester.

f. Delayed Banking

There were delays of periods ranging from three (3) to one hundred and fifty five
(155) days in banking revenue collections in amounts totalling K1,069,604,237
collected during the period under review contrary to Financial Regulation No.121
(1).

g. Under Banking

Contrary to Financial Regulation No. 129, revenue for the period under review
were under banked by amounts totalling K198,432,340 as shown in the table
below:

Under banking
Unit Schedule K
School of Law SL 2 232,000
School of Humanities HSS 2 38,465,725
Cash office Cash office 1 89,756,235
IDE IDE 2 8,226,400
Livingstone Livingstone 2 61,021,980
Kitwe Kitwe 2 730,000
Total 198,432,340

h. Unvouched Expenditure

Contrary to Financial Regulation No.45 and 52, there were seven hundred and
eleven (711) payments in amounts totalling K7,107,548,185 that were unvouched
in that the payment vouchers were either missing or were inadequately supported
by relevant documentation such as receipts, invoices and goods received notes.

66
i. Unretired Imprest

Contrary to Financial Regulation No. 96, imprest in amounts totalling


K462,509,699 issued to six (6) officers during the period under review had not
been retired as of March 2010.

j. Failure to Maintain an Assets Register

Contrary to Financial Regulation No. 103, the University did not maintain a fixed
asset register making it difficult to ascertain the total assets position for the
institution.

k. Lack of Title Deeds

The University did not have title deeds for its properties on plot number 5765
Kalundu, Lusaka and House number 18 Fyakapale road, Riverside Kitwe.

l. Non Remittance of Statutory Obligations

A review of records at the University revealed that amounts totalling


K211,128,083,467 were deducted as Pay As You Earn and pension contributions
from the employees’ emoluments. However, these amounts had not been remitted
to the Zambia Revenue Authority and Zambia State Insurance Corporation
Limited as of January 2010 as shown in the table below:

AMOUNT
INSTITUTION DESCRIPTION K
ZRA PAYE 190,948,230,037
ZSIC Pension Contribution 20,179,853,430
TOTAL 211,128,083,468

m. Failure to Pay Terminal Benefits

In paragraph 15 of The Auditor General’s Report on Parastatal Bodies for 2006,


mention was made of the failure by Management to pay the outstanding long
service bonus and retirement gratuity to serving and retired employees.

It was observed that as of December 2009, the University owed a total sum of
K187,298,243,318 in unpaid terminal benefits to its former employees broken
down as K17,873,368,929 (deceased) and K169,424,874,389 (retirees). It was
also observed that a sum of K36,415,652,325 was owed as contract gratuity and
leave commutation payments as of December 2009.

67
THE UNIVERSITY TEACHING HOSPITAL
(UTH)

Background

18. The University Teaching Hospital is the principle medical training institution in the
country for Medical Students, Interns, and Postgraduate Doctors. The Hospital which
has a bed capacity of 1,800, serves as a national referral centre, training facility for
health care providers and a research centre to find solutions to existing health problems
and for development of science.

Management

The Hospital is headed by a Managing Director who is the Chief Executive Officer and
is responsible for the day-to-day operations of the Hospital. The Managing Director is
assisted by Directors for Finance, Human Resource and Administration, Nursing,
Paediatrics, Medicine, Surgery, Laboratory Services, Obstetrics and Gynaecology.

Sources of Funds

The funds of the Hospital consist of such moneys as may:

· Be appropriated by Parliament for the purposes of the Hospital;


· Be paid to the Hospital by way of fees, levy, grants or donations; or
· Vest in or accrue to the Hospital,
· Be charged and collected as fees in respect of consultations, prescriptions,
treatment and other medical services provided by the Hospital.

Review of Operations

An examination of financial, accounting and other relevant records maintained at the


Hospital revealed the following:

a. Staffing

During the period under review, the Hospital had shortages of critical medical staff
as shown in the table below:

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i. Doctors and Nurses

Authorised Actual
Establishment Strength Variance
2007
Doctors 373 287 (86)
Nurses 1,367 674 (693)
2008
Doctors 373 314 (59)
Nurses 1,367 696 (671)

As can be seen from the table above, as of December 2008, UTH was
operating below its authorised establishment in that the strength of doctors
and nurses stood at 314 and 696 respectively as opposed to the required
numbers of 373 and 1,367 respectively. The staff levels were therefore
insufficient to meet the demands placed on the Hospital.

ii. Internal Audit Unit

It was observed that out of the total authorised establishment of seven (7),
only four (4) positions were filled leaving three (3) positions vacant. The
internal audit unit could not fully execute its assignments as per work plans
due to staff shortages.

b. Irregular Payments

During the period under review, the Hospital paid amounts totalling
K4,545,711,360 to twenty (20) officers as salaries, gratuity, housing allowance
and accumulated leave days. However, the payments were irregular in that the
twenty (20) officers had no contracts of employment with the Hospital.

c. Unpaid Staff Benefits

As of December 2008, the Hospital owed staff amounts totalling


K26,069,982,749 in leave travel benefits, salaries and terminal benefits, gratuity,
long service bonus and settling in allowances as shown in the table below:

69
Amount
K
Leave Travel Benefits 3,873,095,740
Salaries & Terminal benefits 6,791,621,679
Gratuity 1,095,377,858
Long service bonus 13,618,176,136
Settling in allowance 691,711,336
Total 26,069,982,749

d. Inadequately Supported Payments

Contrary to Financial Regulation No. 52(1), there were ten (10) payments in
amounts totalling K17,470,000 made during the period April to October 2008
which had no supporting documents such as receipts, invoices among others .

e. Unretired Imprest

Contrary to the Financial Regulation No. 96 (1), imprests in amounts totalling


K5,500,000 issued to five (5) officers during the period from February to
December 2008 had not been retired as of March 2010.

f. Non Refund of Rentals by the Ministry of Health

A scrutiny of the Hospital records revealed that during the period under review,
UTH paid amounts totalling K3,876,545,325 as rentals for post graduate doctors,
intern doctors and pharmacists on behalf of the Ministry of Health (MOH).
However, as of March 2010, the Ministry had not refunded the money.

g. Unsettled Salary Advances

During the period from 2006 to 2008, the Hospital paid amounts totalling
K454,400,000 as salary advances to sixty one (61) doctors and pharmacists
employed by Ministry of Health (MoH). However, as of March 2010, the money
had not been reimbursed to UTH by the MoH.

h. Unremitted Statutory Contributions

According to the Hospital’s financial statements, statutory contributions in


amounts totalling K1,244,761,045 were not remitted to respective institutions as
shown below:

70
Amount
Institution
K
ZSIC 7,488,076
ZRA 371,742,328
NAPSA 777,393,600
Pensions Board 88,137,041
Total 1,244,761,045

The Hospital was therefore likely to incur penalty and interest charges.

ZAMBIA FORESTRY COLLEGE

Background

19. The Zambia Forestry College is a Government institution under the Ministry of
Tourism, Environmental and Natural Resources. The objective of the college is to offer
and facilitate effective training and carry out research in forestry, ecosystems and the
related entrepreneurship in order to contribute to sustainable management and
utilisation of natural resources.

Administration and Management

The College is headed by a Principal who is the Chief Executive Officer of the
Institution. The Principal is assisted by a vice principal and five (5) heads of
departments namely the department of engineering, biology, economics, administration
and continuous education. All these officers are employed through the Public Service
Management Division.

Sources of Funds

The College mainly depends on funding from the Government. In addition to the
Government funding, the College raises additional income from student fees, hostel
accommodation, saw milling operations and through conducting of short courses.

Review of Operations

An examination of financial, accounting and other relevant records for the financial
years ended 31 st December 2004 to 2008 revealed the following:

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a. GRZ Funding

In the Estimates of Revenue and Expenditure for the financial years ended 31st
December 2004 to 2008, a total authorised provision of K10,814,530,004 was
made against which amounts totalling K7,534,054,929 were released resulting in
underfunding of K3,280,475,075 as shown below:

Authorised Actual Over/(Under)


Year Budget Funding Funding
K K K
2004 1,977,037,699 887,195,655 (1,089,842,044)
2005 1,877,589,023 1,348,677,289 (528,911,734)
2006 1,739,627,484 1,339,751,913 (399,875,571)
2007 2,367,879,751 1,986,607,820 (381,271,931)
2008 2,852,396,047 1,971,822,252 (880,573,795)
Total 10,814,530,004 7,534,054,929 (3,280,475,075)

In addition to funding received from the treasury, the college raised additional
income from student fees, hostel accommodation, saw milling operations and
conducting of short courses. However, due to poor record keeping, the College
could not avail information pertaining to how much had been raised during the
period under review.

b. Delayed Bankings

Contrary to Financial Regulation No. 121(1), there were delays of periods


ranging from three (3) to five hundred and seventy five (575) days in banking
amounts totalling K73,322,051 collected during the period under review.

c. Underbanking

During the period from January 2004 to December 2007 there were
underbankings in amounts totalling K38,896,450.

d. Unaccounted for Revenue

According to the College students enrolment records, the College had a total
enrolment of 131 students during the financial year ended 31st December 2008,
with an expected total revenue in fees totalling K326,845,000. It was however,
observed that only K150,561,250 was deposited in College revolving fund
account leaving a balance of K176,283,750 unaccounted for.

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e. Inadequate Staffing Levels

An analysis of the college staff personnel records revealed that out of the total
establishment of sixty nine (69) positions, only forty eight (48) were filled
leaving twenty (21) positions vacant.

f. Failure to Deduct PAYE Tax from Part-time Employees.

The College engaged part-time employees who were paid amounts totalling
K108,757,000. It was however observed that, contrary to the Income Tax Act,
the College did not deduct Pay as You Earn totalling K38,064,950 in respect of
salaries paid to the part-time employees.

g. Failure to Prepare Financial Statements

The College did not present for audit financial statements for the financial years
ended 31st December 2004 to 2008 and no returns were prepared by the college
for submission to the Ministry of Tourism, Environment and Natural Resources.
Consequently, the financial position and performance of the College could not be
determined.

h. Missing Bank Statements

Contrary to Financial Regulation No. 137(2), bank statements for the months of
August to November for the year 2007; June, July and October for the year 2005;
and June, August and September for the year 2004 were not availed for audit.

i. Failure to Prepare Bank Reconciliation Statements

Contrary to Financial Regulation No.145(3), the College did not prepare bank
reconciliation statements for the years 2004, 2005, 2006 and 2008 in respect of
the two bank accounts it maintained.

Further, although the bank reconciliation statements for the months of February,
March and April 2007 were prepared, they did not include unpresented cheques
rendering their correctness questionable.

j. Overdrawn Bank Account

Contrary to Financial Regulation No. 136 (1), bank account number


0450220000001320 was overdrawn by an amount of K1,121,678 in May 2004
and by K6,266,152 during the period from September to December 2005.

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k. Missing Payment Vouchers
Contrary to Financial Regulations No.65 (1), there were eighty six (86) payment
vouchers in amounts totalling K209,134,052 raised between January 2004 and
December 2008 which were not availed for audit.

l. Inadequately Supported Payment Vouchers

Contrary to Financial Regulations No.45, there were one hundred and twenty one
(121) payments in amounts totalling K471,498,514 made between January 2004
and December 2008 which were inadequately supported in that the vouchers
lacked relevant documentation such as receipts, invoices, acquittal sheets among
others.

m. Unretired Imprest

Contrary to Financial Regulations No. 96 (1), imprest in amounts totalling


K195,181,970 involving eighty three (83) transactions issued to twenty five (25)
officers during the period from January 2004 to December 2008 had not been
retired as of February 2010.

n. Failure to Follow Tender Procedures

Contrary to procurement guidelines, the College procured goods and services in


amounts totalling K55,350,010 during the period under review without obtaining
the required three (3) competitive quotations.

o. Rehabilitation of Staff House and Construction of Kitchen Canopy

In October 2007, the College engaged Ezithan Contractors to rehabilitate a staff


house (type 321) and to construct a kitchen canopy at a contract sum of
K72,999,690 for a duration of four (4) months commencing 22nd August 2007
and ending 20th December 2007.

Although the works were completed and the contractor paid in full, there were no
completion certificates produced to support the payments.

p. Rehabilitation of Laboratory, Septic Tank and Soak Away

In December 2007, the College engaged Zukanji Sim General Dealers to


rehabilitate a laboratory, septic tank and soak away at a contract sum of K
155,384,357. As of October 2009, the contractor had been paid in full.

A physical inspection carried out in November 2009 revealed that the septic tank
and soak away for the laboratory were not completed and the contractor had

74
since abandoned the project. Further, no completion certificates were provided
for audit scrutiny.

q. Illegal Settlement and Encroachment of the College Land

The Zambia Forestry College is situated on the Mwekera National Forest No.6
which was originally measuring 45,000 hectares. It was observed that due to
illegal activities such as agriculture, charcoal production, encroachments and
settlements, the forest had been reduced to barely 11,500 hectares.

r. Failure to Maintain Fixed Asset Register

The College did not maintain a fixed asset register but an inventory list which
only indicated the description and location of the assets. It was therefore difficult
to establish the cost and the date of purchase of the assets.

Further, a physical inspection of the college assets such as office equipments,


furniture and fittings, heavy equipment revealed that the assets were not given
unique identification marks contrary to Public Stores Regulations.

s. Failure to Follow Laid Down Accident Procedure

Terms and conditions of service for the public service No. 73, require that an
officer driving a government vehicle reports to a responsible officer details of an
accident and the responsible officer should subsequently report to the Standing
Accidents Board. It was observed that in September 2008, Motor Vehicle
registration number GRZ 276 CB was involved in a road traffic accident and was
taken to BEM Motors for repair at a cost of K7,632,800. Contrary to the
regulation, the accident was not reported to the police nor was it brought to the
attention of the Standing Accidents Board.

t. Wasteful Expenditure

A physical inspection of non-current assets revealed that two boreholes were


drilled by Drill Tech ltd of Kitwe in 2007 at a total cost of K78,000,000 in order
for the ZFC to provide clean water to students and the College community. It
was, however, observed that both boreholes stopped functioning in 2008. As of
February 2010, the situation had not been rectified and the students and the
College community were drinking untreated water from Mwekera dam.

u. Failure to Maintain Record of Plantations

Inquiries revealed that the College had two pine plantations namely Chipya and
Woodlands. It was however, observed that the College did not maintain records

75
of the two plantations. Consequently, it was not possible to ascertain how many
trees were in the two plantations.

ZCCM INVESTMENTS HOLDINGS PLC


(ZCCM – IH)

Background

20. The ZCCM Investments Holdings Plc (ZCCM-IH) was established in accordance with
the provisions of the Companies Act, CAP 388 following the successful privatisation
of ZCCM Limited in March 2000. The Government holds 87.6% of the shares with the
remaining 12.4% held by private investors.

The company was created with the purpose of holding shares on behalf of Government
in various mining companies. ZCCM – IH Plc has an investment portfolio as follows:

%
Maamba Collieries Limited 100.0
Ndola Lime Company Limited 100.0
Konkola Copper Mines Plc 20.6
Kansanshi Mining Plc 20.0
Copperbelt Energy Corporation Plc 20.0
Luanshya Copper Mines Plc 15.0
NFC Africa Mining Plc 15.0
Chibuluma Mines Plc 15.0
Chambeshi Mines Plc 10.0
Mopani Copper Mines Plc 10.0
Equinox Minerals Limited (Lumwana Copper Mines) 2.9
Albidon Limited (Munali Nickel Project) 2.0

The company has also conditional future share election option to take up to 15 - 20%
shareholding in Konnoco Zambia Limited (Konkola North Mining Project).

Share Capital

The authorised share capital of ZCCM-IH is K900,000,000 divided into 54,000,000 of


‘A’ Ordinary shares of K10 each and 36,000,000 of ‘B’ Ordinary shares of K10 each.

Management

The company has a Board of Directors comprising the Chairman (Non-Executive


Director) and seven (7) other members representing the Government and private
entities who are appointed by the Minister of Mines and Minerals Development.

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The Board is composed of members from Ministry of Mines and Minerals
Development (1), Ministry of Finance and National Planning (1), Ministry of Energy
and Water Development (1), Bank of Zambia (1), Zambia Revenue Authority (1),
Mineworkers Union of Zambia (1) and an independent non executive chairman.

The day to day operations of the company is the responsibility of the Chief Executive
Officer who is assisted by the Company Secretary, Technical Manager, Finance
Manager, Investments Manager, Legal Manager, Environmental Manager and Head
Human Resources and Administration.

Sources of Funds

The ZCCM-IH Plc derives its income from dividends from its subsidiaries and
associated companies and also from cobalt/copper participation sales.

Review of Operations

A review of accounting and other records for the period July 2005 to December 2009
revealed the following:

a. Financial Statements

The Memorandum of Association and Articles of Association of ZCCM


Investments Holdings Plc requires that the Directors shall at least in every calendar
year lay before the Company in General Meeting a profit and loss account for the
period since preceding account which shall present fairly the profit or loss of the
Company for that period, and a balance sheet as at the date to which such profit and
loss account is made up which shall present fairly the state of affairs of the
Company as at that date. Where at the end of its financial period the Company has
one or more subsidiaries, consolidated accounts comprising a consolidated profit
and loss account and a consolidated balance sheet, presenting fairly the profit or
loss and the state of the affairs of the Company and all its subsidiaries shall instead
be laid before the Company in General meeting together with the above mentioned
balance sheet of the Company.

It was observed that contrary to the provisions of the Memorandum and Articles of
Association, Accounts for the financial years ending June 2006 to June 2009 had
not been laid before the company in General meeting as of December 2009. In this
regard it was not possible to carry out an accurate review of the company’s
financial performance. Further, no dividends had been declared to Government.

77
b. Income from Investments (Dividends Receivable)

The table below shows the investments income which was received from various
ZCCM IH investments during the period May 2004 to June 2009.

Investment Shareholding Dividend


2009
2005 2006 2007 2008 (Half Year) Total
K'million K'million K'million K'million K'million K'million
Maamba Collieries 100.00% - - - - - -
Ndola Lime Company 20.60% 4,200 3,000 - - 18,034 25,234
Konkola Copper Mine 20.00% - - 10,994 5,165 4,232 20,391
Kansanshi 20.00% - - - - 29,557 29,557
Copperbelt Energy 20.00% 21,578 2,921 20,978 9,388 16,274 71,139
Luanshya Copper Mines 15.00% - - - - - -
NFC Africa Mining PLC 15.00% - - 13,247 6,609 - 19,856
Chibuluma Mines 15.00% - - - 1,703 9,162 10,865
Chambishi Metals 10.00% - - - 7,909 - 7,909
Mopani Copper Mines 10.00% - - - - - -
Lumwana Copper Mines 3.60% - - - - - -
Albidon Limited 2.10% - - - - - -
Total 25,778 5,921 45,219 30,774 77,259 184,951

From the above table, it can be seen that during the financial years ended 30th
June 2005 to 2008, ZCCM IH received net dividends in amounts totalling K25,778
million in 2005, K5,921 million in 2006, K45,219 million in 2007 and K30,774
million in 2008. In addition a sum of K77,259 million was received in the half
year to 31st December, 2009.

However, the Company did not receive any dividends from Maamba Collieries,
Mopani Copper Mines, Luanshya Copper Mines, Lumwana Mine and Albidon
Mines Limited.

c. Recapitalization and Rehabilitation Loans –Maamba Collieries

Pursuant to clause 4.2 of the share transfer agreement entered into by the
Government of the Republic of Zambia and the indicative term sheet of 19th
November 2007 signed between ZCCM- IH and Maamba Collieries Limited,
ZCCM- IH entered into various agreements with Maamba Collieries to help
recapitalise and rehabilitate the operations of the mine for it to realise meaningful
production.

78
The following were observed:

· Between August 2008 and April 2009, ZCCM- IH loaned Maamba Collieries
amounts totalling US$5,300,000 for the rehabilitation of the mine. It was
however observed that 40% of the loan was applied on non capital activities
such as payment of salaries. At the time of audit, the servicing of the Loan had
not commenced.

· In May 2009, ZCCM-IH lent Maamba Collieries another loan of


K23,222,750,881 for the rehabilitation of the mine. A visit to the Mine in
November 2009 revealed that there was still no meaningful production at the
mine despite having received financial help from ZCCM-IH.

ZAMBIA EDUCATION PROJECTS IMPLEMENTATION UNIT


(ZEPIU)

Background

21. The Zambia Education Projects Implementation Unit (ZEPIU) is a unit in the Ministry
of Education and was established for the purpose of implementing World Bank
financed education projects in Zambia in April 1973. The Unit was initially under the
Ministry of Works and Supply until October, 1984 when it was moved to the Ministry
of Education.

The main activities are to supervise the construction and maintenance of schools and
other civil works.

Administration

The day to day running of the Unit is the responsibility of a Director of Projects who is
appointed by the Permanent Secretary and is assisted by a Deputy Director.

Sources of Funds

The unit derives its income from Government and donor grants and the sale of
furniture and fittings to schools and other institutions.

During the period under review, the Unit received amounts totalling K5,031,233,904
from the Ministry of Education against a budget of K7,111,801,522 as shown in the
table below:

79
Authorise d
Ye ar Provision Re le ases Under Funding
K K K
2006 1,094,000,000 884,157,426 209,842,574
2007 1,831,738,363 1,647,656,450 184,081,913
2008 4,186,063,159 2,499,420,028 1,686,643,131
TOTAL 7,111,801,522 5,031,233,904 2,080,567,618

Further in December 1999, Government obtained a loan from the OPEC fund for
International Development in amounts totalling US$6,000,000 for the construction of
Ndola Girls Technical High School.

An examination of financial, accounting, stores records and other relevant documents


revealed the following:

i. Failure to Maintain a Cash Book

Contrary to Financial Regulation No. 62 and 128 (1), ZEPIU did not maintain a
cash book for the period under review. As a result, no bank reconciliations were
done making it not possible to ascertain the correctness of the transactions.

ii. Weaknesses in Handling Other Income

· Irregular Issue of Receipts and Receipt Books

Contrary to Financial Regulations No.116 (1) which states that officers


receiving payments shall ensure that the numbers of receipt forms issued by
the collectors run consecutively, the receipt books were not issued in
sequential order and individual receipts were not issued sequentially.

· Unaccounted For Revenue

Contrary to Financial Regulations No.129, out of amounts totalling


K5,306,968,723 collected during the period under review, amounts totalling
K3,966,958,452 were banked leaving a balance of K1,340,010,271
unaccounted for as of March 2010.

iii. Staff Related Issues.

· Lack of Staff Establishment

Due to poor record keeping, it was not possible to establish the total
authorised staff establishment, filled posts and vacancies at ZEPIU.

80
· Failure to Remit Statutory Contributions

Contrary to Financial Regulation No. 75 which states that “Ministries,


Provinces and Spending Agencies shall ensure that third party payments are
made in full and cheques distributed to the beneficiaries on a monthly basis,
as of April 2010, ZEPIU had not remitted PAYE deductions to Zambia
Revenue Authority in amounts totalling K7,510,022,511. It was also
observed that, as of April 2010, ZEPIU failed to remit employees
contributions in amounts totalling K376,659,968 to National Pensions
Scheme Authority (NAPSA).

Although in their response, management stated that they were unable to


remit statutory contributions to ZRA and NAPSA due to inadequate funds,
they were however able to pay production bonuses in amounts totalling
K145,043,305 during the same period.

· Irregular Payment of Production Bonus

During the period from February 2006 to September 2007, ZEPIU


management authorised the payment of production bonuses to all employees
in amounts totalling K145,043,305 from the sale of furniture. The payment
of production bonuses was irregular in that it was not part of the conditions
of service and there was no authority from the Permanent Secretary or the
Secretary to the Treasury.

· Irregular Engagement of Resident Engineers

Although between August and December 2008, ZEPIU recruited nine (9)
resident engineers to supervise the construction of schools and other civil
works in the nine (9) provinces of Zambia following a directive by the
Director – Planning and Information, Ministry of Education, no such posts
existed in the ZEPIU structure.

It was however observed that despite the engineers being employed and
remunerated by ZEPIU, the engineers were not supervising any works under
ZEPIU but rather their work was for the Infrastructure Section in the
Ministry and reported directly to the Director- Planning and Information at
the Ministry of Education.

As at March 2009, ZEPIU had paid a total amount of K460,000,000 in


salaries to the resident engineers.

81
iv. Procurement of Goods and Services

· Lack of Receipt and Disposal Details

Contrary to Public Stores Regulation No. 16, ZEPIU did not maintain stores
records such as Goods Received Notes, Issue Vouchers and fuel registers. In
this regard, there were no receipt and disposal details in respect of fuel
costing K441,703,399 procured during the period under review.

· Inadequately Supported Payments

Contrary to Financial Regulation No. 45 and 52, there were fifty (50)
payments in amounts totalling K257,198,627 that were unvouched in that
they lacked supporting documents such as claim forms, receipts, invoices
and quotations.

v. Failure to Deliver Equipment - Ndola Girls Technical High School

In May 2007, ZEPIU engaged Goodwill Holdings to supply and install various
school equipment and furniture at a contract price of K1,188,094,734
(US$296,001) with a delivery period of sixteen (16) weeks. However, as of
March 2010, only equipment costing K655,936,248, (US$163,395) had been
delivered while the balance of equipment costing K532,158,486 (US$132,606)
had not been delivered.

Further, it was observed that despite Goodwill Holdings’ failure to execute the
contract, in December 2008, ZEPIU awarded them another contract worth
K1,447,457,093 to supply school furniture.

ZAMBIA POSTAL SERVICES CORPORATION


(ZAMPOST)

Background

22. The Zambia Postal Services Corporation (ZAMPOST) which became operational in
July 1994, was established by the Postal Services Act No. 24 of 1994 following the
dissolution of the Posts and Telecommunications Corporation Limited (PTC). The
principal function of ZAMPOST is to provide postal and telegram services in the
country.

ZAMPOST is wholly owned by the Government.

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Organisation and Management Structure

The Act stipulates that the corporation shall consist of a board of directors comprising
eight (8) members, being the Postmaster General, and a nominee from each of the
following institutions:
· the Federation of Employees of Zambia;
· Zambia Congress of Trade Union;
· Zambia Council of Commerce and Industry;
· Law Association of Zambia;
· Zambia Institute of Chartered Accountants;
· Ministry of Justice; and,
· an Organisation that would represent the interests of consumers.

According to the Act, members of the Corporation hold office for a term of not more
than three (3) years and members are eligible for reappointment upon expiry of their
term of office.

The day to day operations of the organisation are managed by the Postmaster General
who is assisted by the Corporate Secretary, Directors responsible for Operations and
Commercial Services, Human Resources and Finance. The Board of Directors appoints
the Postmaster General and his Directors on renewable three-year terms of office. The
rest of the staff are appointed on a permanent and pensionable basis.

Funds of the Corporation

According to the provisions of the Act, the sources of funds for the Corporation
include, among others, such sums of money as may:

· Be payable to the Corporation from time to time from moneys appropriated by


Parliament,
· Be levied by the Corporation by way of postal charges, transaction
commissions and any other levies imposed;
· Accrue to or vest in the Corporation from time to time, whether in the course of
the exercise of its function or otherwise.

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Review of Operations

An examination of accounting and other financial records revealed the following:

a. Failure to Constitute a Full Board of Directors

Contrary to the provisions of the Act which stipulates that the Board shall consist
eight (8) members, it was observed that the board had two (2) members only
during the period September 2008 to April 2009.

Further, although the Act stipulated that five (5) members shall form a quorum,
during the period September 2008 to April 2009, the two (2) board members
proceeded to hold board meetings. In this regard, amounts totalling K72,334,215
were irregularly paid to the two (2) board members as sitting allowances, meals,
accommodation and other allowances and no minutes were availed for audit
scrutiny.

b. Failure to Prepare Annual Reports

The Act provides that the Corporation shall, not later than six (6) months after the
end of each financial year of the Corporation, submit to the Minister a report of its
activities, together with a copy of its audited accounts for that financial year, and
the Minister shall, not later than fourteen (14) days after the first sitting of the
National Assembly next after the receipt of such report, lay it before the National
Assembly.

Contrary to the provisions of the Act, the Corporation did not produce annual
reports and audited accounts for the financial years ended 31st March 2006 to
2008. This was despite the Corporation having spent amounts totalling
K97,250,000 as audit fees.

c. Termination of Contract – Postmaster-General

The former Post Master General’s contract of employment signed on 1st November
2002 for a period of three (3) years came to an end on 31st October 2005. It was
observed that the officer continued in office from 1st November 2005 to February
2007 without a contract of employment or authority/letter from the Ministry of
Communication and Transport to authorize the officer to continue in office.

In this regard, the Corporation irregularly paid amounts totalling K182,479,040 as


salaries to the Post Master General.

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d. Contract of Employment – Postmaster-General

The Postmaster General was appointed on 16th February 2007 by the Permanent
Secretary Ministry of Communication and Transport. The appointment letter
stated that the conditions of service would be revised based on the performance of
the Corporation.

The contract of employment included the following among other clauses;

· Basic salary of K60 million (K5 million per month)


· 25% gratuity after three (3) years

In a letter dated April 13th , 2007 addressed to the Permanent Secretary, Ministry
of Communications and Transport, the Post master General accepted the offer.

Contrary to the provisions of the contract of employment, the Postmaster General


was drawing monthly salary advances of between K8,000,000 and K10,000,000 as
opposed to being paid his basic salary of K5,000,000. In this regard, it was
observed that the Postmaster General had drawn salary advances in the sum of
K226,848,160 between August 2007 to April 2009. The basic salary earned for
the period March 2007 to April 2009 was K130,000,000. As of April, 2009 no
recoveries had been effected and the officer was not on the payroll.

e. Irregular Payment of Funeral and other Advances

The conditions of service provide that the Corporation shall provide the following
funeral assistance:

· 150% of employees monthly basic salary for employee only;


· 100% of employee’s monthly basic salary for spouse and child;
· K900,000 for employee’s mother and father (parents); and,
· K350,000 for employee’s registered dependant

Contrary to the conditions of service, the Postmaster General was paid a funeral
advance of US$3,500 in October 2008.

Further, in November 2008, the Corporation paid for accommodation for the
Postmaster General’s wife at Holiday Inn in the sum of K940,000. It was further
observed that the Corporation bought air ticket for the wife to the Post master
General amounting K846,000. There was no evidence of board or ministerial
approval for the above mentioned transactions. It was further revealed that the
funeral and other advances mentioned above had not been recovered as at 30 April
2009.

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f. Non Payment of Terminal Benefits

The Corporation owed amounts totalling K8,647,822,763 as benefits to retirees


and deceased officers some of which dated as far back as 2004. Consequently, the
Corporation incurred amounts totalling K752,373,173 paid out as housing
allowance to the retirees between 2006 and 2008 as the conditions of service
stipulated that an employee who had been retired shall continue to be housed or
receive housing allowance until benefits accruing from the Corporation had been
fully paid.

g. Procurement of Software

In August 2006, ZAMPOST and Roraima Data Services entered into an agreement
for the Provision of Cash4africa Technology (Swiftcash) which is a Web based
Financial Services platform and Equipment to host the programme for a period of
ten (10) years.

The agreement contained the following clauses among others:

· Roraima Data Services undertakes to sell the services that is produced by its
Web Based Financial Services Platform to ZAMPOST and to use its best
endeavours to provide ZAMPOST during the period of this agreement the
management Services for the purpose of assisting ZAMPOST in undertaking
the project.

· Subject to Clause 3.1 of this agreement Roraima Data Services shall sell to
ZAMPOST and deliver and install Telecommunications Equipment,
Machinery and, or Services to enable its platform to perform effectively in
keeping with the agreement.

· Roraima Data Services shall indemnify ZAMPOST against all claims,


damages, expenses and costs directly or indirectly related to the provision by
Roraima Data Services of the Management Services save to the extent that
such matters arise as a result of the negligence or criminal action of
ZAMPOST.

The following were observed:

i. There was no evidence of tender procedures having been followed in the


engagement of Roraima Data Services as a provider of a Web Based
Financial Services platform and Equipment;

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ii. Contrary to the Management Services Agreement clause 2.1, there was
no evidence that Roraima Data Services had supplied Equipment and
Machinery to host the Web Based Financial Services Technology but
instead was currently using ZAMPOST equipment free of charge.
ZAMPOST did not have a back-up server for all transactions done on
this programme;

iii. Contrary to Management Services Agreement clause 2.5, there was no


evidence that ZAMPOST was being reimbursed for the cost amounting
to K516,844,554 which it was paying to internet service providers
(Coppernet, Zamnet and Zamtel) for hosting Web Based Financial
Services transactions as at 30th April 2009;

iv. The Management Services Agreement did not have a protection clause
restricting Roraima Data Services from setting up similar businesses in
the ZAMPOST licensed market area. This had resulted in Roraima Data
Services to set-up a parallel business in Financial Services which had a
going concern implication on ZAMPOST considering that Swift Cash
(cash4africa technology) accounted for about 40% of the total revenue
of ZAMPOST.

v. Roraima Data Services had not attended fully to the apparent poor
security features that this technology had shown such as the Terminal Id
– (Identifying the Computer terminal being used). The system could be
accessed from any terminal, at anytime or day as long as someone had a
password. This resulted in the theft of K56,920,200 at Kitwe Post Office
as reported in the Internal Audit Activities for the quarter ended March
2007.

h. Procurement of Wide Area Network (WAN)

ZAMPOST had embarked on the implementation of a Wide Area Network (WAN)


to enhance its operations. More specifically WAN would provide the following
benefits and services:

· Improved Money Transfer business (Western Union and Swiftcash);


· Improved Accounting Reports; and,
· Improved Agency business and business partners and ePost services.
It was observed that on an unknown date, ZAMPOST and ZAMTEL signed
a contract which stated among other things that:

· ZAMTEL would install and maintain a Wide Area Network with broadband
Internet connection at each ZAMPOST site.

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· ZAMPOST should pay to ZAMTEL the sum of K1,402,464,276 being the total
amount due under this contract for implementation of phase 1 and 2 of the
project as indicated in appendices 1 and 2 annexed to the agreement.
· That the duration of the agreement shall be for an initial period of twenty four
(24) months from the date of the signature and shall thereafter continue
unless it was terminated as provided under clause 5.

The following were observed regarding the contract:

i. There were no Board minutes provided on which the board authorised the
purchase and installation of a Wide Area Network;

ii. There was no evidence of authority from the Zambia Pubic Procurement
Authority ( formally Zambia National Tender Board ) to waiver competitive
tender procedures and allow the Corporation to single source Wide Area
Network implementation.
.
iii. ZAMPOST paid K1,668,387,177 which was K265,922,901 more than the
consideration agreed in the contract which was K1,402,464,276. No proper
explanation was given for the overpayment

iv. The original contract between ZAMPOST and ZAMTEL had no effective date
including the date of signing. It was further observed that the effective date of
the contract was only agreed eleven months later on a memo dated 7th January
2009 as being 8th February 2009.

i. Failure to Remit Pay as You Earn (PAYE)

Contrary to the Income Tax Act, the Corporation had not remitted to the Zambia
Revenue Authority amounts totalling K36,787,241,040 deducted as Pay as You
Earn (PAYE) from employee’s salaries during the period under review. As at 31st
March 2008, the outstanding amount had increased to K42,998,271,559.

ZAMBIA NATIONAL BROADCASTING CORPORATION


(ZNBC)

Background

23. The Zambia National Broadcasting Corporation was established by an Act of


Parliament in 1987, which was passed to transform the Zambia Broadcasting
Services from being a government department under the Ministry of Information and
Broadcasting Services into a Statutory Body called the Zambia National Broadcasting
Corporation.

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The 1987 Act was later amended by Act number 20 of 2002. The ZNBC Amendment
Act of 2002 was meant to transform the Corporation from being a purely state
controlled broadcaster set to communicate Government Programmes to a broadcaster
controlled by the members of the public through an independent board of directors.
Government of the Republic of Zambia assumed 100% equity holding in the
Corporation.

The principal activity of the Corporation is to provide information, entertainment and


education to the people of the Republic of Zambia.

Administration of ZNBC

Board of Directors

The Zambia National Broadcasting Corporation Act No. 20 of 2002 stipulates the
following among other things:

· There shall be constituted the Zambia National Broadcasting Corporation


Board;
· The Board shall consist of nine (9) part time directors appointed by the Minister
on recommendation of the appointments committee, subject to ratification by
the National Assembly;
· The directors shall be paid allowances as the Board may, with the approval of
the Minister, determine; and,
· A director shall hold office for a period of three (3) years from the date of
appointment and may be re-appointed for one further term of three (3) years.

Management

The Board appoints a Director General and Directors on a renewable three-year terms
of office.
The Director General is responsible for the day to day operations of the Corporation
and is assisted by the Directors of Finance, Marketing, Human Resource, Technical
Services and Programmes.

Sources of Funds

According to the provisions of the Act, the funds of the Corporation shall consist of
such moneys as may:

· be payable to the Corporation in terms of this Act;


· be paid to the Corporation by way of grants or donations;

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· be appropriated by Parliament for the purpose of the Corporation; and,
· vest in or accrue to the Corporation.

Review of Operations

An examination of accounting records, management accounts, financial statements and


other relevant records revealed the following:

a. Board of Directors

i. Failure to Renew Board Mandate

The Board was appointed on 12th September, 2002 for a term of three (3)
years. Contrary to the Act, there was no evidence to indicate that the Board
members tenure of office had been renewed for a second three (3) year term
ending on 11th September 2008. As of May 2009 the directors had continued
holding office.

ii. Irregular Appointment of a Board Member

Contrary to the provisions of the Act which stipulates that Board members
should be appointed by the Minister, the Board at its meeting of 8 th May
2006 resolved that the sitting Director of Finance should be a full Board
member to assist the Board with information on the financial status of the
Corporation.

In this regard the Finance Director was irregularly paid Board allowances in
amounts totalling K31,700,000.

In his response dated 22nd June 2009, the Controlling Officer stated that
although the Board was fully aware that section 9 (1) of the ZNBC Act
refers to the appointment to sub committees, the Board was of the firm view
that finance in any institution is so critical that the presence of the Director
of Finance at full Board meetings was so vital hence the decision to
incorporate the sitting Director of Finance on the Board. The sitting Director
of Finance was therefore invited on the basis of a board resolution.

However, section 9 (1) of the ZNBC Act quoted by the Controlling Officer
refers to the appointment of members to Sub-committees while the
appointment of Board members is the responsibility of the Minister.

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iii. Board Subcommittees

According to the Public Finance Act No.15 of 2004, every statutory


corporation shall have an audit committee which shall perform such
functions and exercise such powers in relation to internal audit.

It was observed however that although the corporation had established three
(3) subcommittees namely; Finance/ Marketing and Sales, Technical
Services and Programmes and Administration and Human Resources
committees, the audit committee had not been established. In addition, the
corporation had only one position for internal auditor in its structure.
Further, the internal auditor was reporting to the Director General contrary to
good corporate governance requirements.

It was further observed that although best practice requires that the Board
Chairman shall not belong to any subcommittee and subcommittees shall be
headed by Board members with relevant knowledge/experience in the area
the subcommittees are overseeing, the Board Chairman was a member of all
the sub committees of the Board.

In his response dated 22nd June 2009, the Controlling Officer stated that the
Chairman of the Board sits on all three sub Committees as an ex officio and
that the observation by the auditors was however noted and shall be taken to
the Board for re-consideration.

b. Lack of Strategic Direction

A strategic plan provides general direction of a corporation, setting out clear


strategic objectives and strategies on how to achieve such objectives. In this
respect, one of the key responsibilities of the Director General as outlined in the
job description was to prepare the strategic plan.

The audit carried out however revealed that the Corporation operated without a
strategic plan up to the year ending 2008 despite the Board directing the
management in March 2003 to put in place a strategic plan.

Management only acted on the recommendation five (5) years later in 2009 when
the five year strategic plan (2009-2014) was developed through Deloitte and
Touché at a cost of K54,045,312.

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c. Failure to Prepare Annual Reports.

Part III, section 24 of the ZNBC Act provides that “As soon as practicable, but not
later than six (6) months after such financial year, the Corporation shall submit to
the Minister a report concerning its activities during such financial year”. Contrary
to the provisions of the Act, the Corporation had not produced the annual report
for the financial year ended 31st March 2008 as of June 2009 nine months after the
due date of 30th September, 2008. It was also observed that there were no audited
accounts for the financial year ended 31st March 2008 as of June 2009.

d. Financial Performance

Statement of Income and Expenditure for the Financial Years Ended 31st
March 2006, 2007 and 2008

2008 2007 2006


K'000 K'000 K'000

Income Interim
Sales 29,885,416 24,391,871 18,962,824
TV licence fees 4,847,796 4,490,741 5,167,614
Grant received from government 2,840,000 6,704,308 4,598,727
Other income 1,445,052 1,434,478 878,597
39,018,264 37,021,398 29,607,762
Operations
Programme expense (1,278,785) (1,128,981) (769,131)
Advertising promotion expenses (547,341) (317,430) (296,280)
Administrative expenses (37,431,353) (36,242,467) (30,640,272)
Other operating expenses (3,551,309) (3,510,914) (3,563,459)
(42,808,788) (41,199,792) (35,269,142)
Results from operating activities (3,790,524) (4,178,394) (5,661,380)
Finance income 3,732,700 1,647,324 4,574,412
Finance expenses (1,172,281) (2,228,788) (202,544)
Net financing income/(expense) 2,560,419 (581,464) 4,371,868
Loss before income tax (1,230,105) (4,759,858) (1,289,512)
Income tax expense (549,896) (312,111) (531,633)
Loss for the year (1,780,001) (5,071,969) (1,821,145)

i. Profitability

A review of the income statement revealed that the Corporation incurred


losses of K1,821,145,000 in 2006 and K5,071,969,000 in 2007 and there was
a projected loss of K1,780,001,000 for 2008. The losses were mainly due to
administrative expenses which increased from K30,640,272,000 in 2006 to
K37,431,353,000 in 2008 representing an increase of 22%.

However, in arriving at the overall financial performance, the corporation had


included Government grants of K4,598,727,000 in 2006, K4,490,741,000 in
2007 and K2,840,000,000 in 2008.

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If Government grants were not included, the overall financial performance of
the corporation would have been as shown below:

2008 2007 2006


K'000 K'000 K'000
Profit/(Loss)
for the year (1,780,001) (5,072,969) (1,821,145)
Government
Grants 2,840,000 6,703,308 4,598,727

Total Profit/
(Loss) (4,620,001) (11,776,277) (6,419,872)

ii. Staff Costs to Turnover Ratio

The staff costs to turnover ratio (i.e. turnover net of Government grants ) were
as follows:

2008 2007 2006


K'000 K'000 K'000
Turnover 36,178,264 30,317,090 25,009,035
Staff Costs 28,290,603 25,820,347 18,783,549
Staff /Turnove r
ratio 78% 85% 75%

Whereas revenue increased by 45% from K25,009,035,000 in 2006 to


K36,178,264,000 in 2008, staff costs increased by 51% from
K18,783,549,000 to K28,290,603,000 over the same period. In this regard, the
staff costs to turnover ratio ranged between 75% and 85% over the three (3)
year period. It is discernable from the above that the huge resources were
being channelled towards staff costs.

In his response dated 22nd June 2009, the Controlling Officer agreed with the
observation that most of the financial resources are being spent on staff costs.

93
iii. Balance Sheet

2008 2007 2006


K'000 K'000 K'000
Assets
Property and equipment 13,198,264 10,125,771 7,477,345
Investment 10,067,278 15,000 15,000
23,265,542 10,140,771 7,492,345
Inventories 531,151 436,007 228,190
Trade and other receivables 17,569,554 12,633,023 11,590,506
Cash at bank and in hand 2,271,431 3,648,507 1,925,655
Total current assets 20,372,136 16,717,537 13,744,351
Total assets 43,637,678 26,858,308 21,236,696
Equity
General Fund 32,679 32,679 32,679
Accumulated Deficit (33,412,349) (31,632,347) (26,559,378)
Capital grant 3,497,807 3,740,706 3,700,636
Non distributable reserves 16,150 16,150 16,150
(29,865,713) (27,842,812) (22,809,913)
Medium Term Loan-
Multichoice 6,648,664 - -
6,648,664.00 - -
Current Liabilities
Bank overdraft 785.00 4,750.00 36,965.00
Trade and other payables 66,574,298.00 54,444,942.00 43,809,540.00
Taxation 279,644.00 251,428.00 200,104.00
Total current Liabilities 66,854,727.00 54,701,120.00 44,046,609.00
Total equity and liabilities 43,637,678.00 26,858,308.00 21,236,696.00

· Liquidity Position

The liquidity position of the corporation during the period under review
was as shown below:

2008 2007 2006


K'000 K'000 K'000
Current assets 20,372,136 16,717,537 13,744,351
Current liabilities 66,854,727 54,701,120 44,046,609

Working Capital (46,482,591) (37,983,583) (30,302,258)

From the table above it can be seen that the Corporation’s current assets
were insufficient to cover the current liabilities. The liquidity position
continued to worsen from a deficit of K30,302,258,000 in 2006 to
K46,482,591,000 in 2008. The increase in current liabilities is mainly
attributed to the statutory contributions which stood at K29,465,189,000
in 2006, K37,561,107,000 in 2007 and K47,522,221,000 in 2008.

In his response dated 22 nd June 2009, the Controlling Officer stated that
the statutory debt burden at ZNBC over the years had grown as a result
of a serious mismatch in terms of revenue and operational costs largely

94
occasioned by the mandate of ZNBC to carry out more public
broadcasting programmes than commercially driven ones. He added that
while management had over the last three years managed to contain
commercial debt and started dealing with statutory payments to NAPSA
as they fell due, Pay As You Earn (PAYE) and Value Added Tax
(VAT) due to ZRA had continued to be difficult to deal with and had
been accumulating in huge quantum’s annually rising to over K47
billion as at Match 31st, 2008.

He further observed that over the years and realising the magnitude of
the problem and the realities at ZNBC, the Board tried to vary the
financing model obtaining at ZNBC and challenged Management to
gear up the Commercial arm of the Corporation in an attempt to keep
the operations of ZNBC afloat and that as a result, the financing model
of ZNBC has progressively been tilting towards a more commercially
driven operation.

· Receivables

The Corporation sold its advertising time in two ways, on a cash basis
and on credit terms. In this regard, before a client is offered air time on
credit, the finance department through the credit controller assesses the
credit worthiness of the particular client. The credit controller then puts
the particular client on the credit scheme with set credit limits.

It was observed that during the period under review, the Corporation did
not have a policy governing the awarding of credit facilities to its
clients.

In this regard, it was observed that the receivables’ collection period


ranged from 189 to 223 days over the three (3) year period as shown
below:

2006 2007 2008


K'000 K'000 K'000
Trade &
other receivables 11,590,506 12,633,023 17,569,554
Sales 18,962,824 24,399,465 29,885,416

Debtors' days 223 189 215

Trade and other receivables increased from K11,590,506,000 in 2006 to


K17,569,554,000 in 2008 representing an increase of 52% . The failure

95
to collect debt as and when they fell due had a negative impact on the
liquidity position of the Corporation.

Further, an analysis of the Corporation’s debtors records revealed that


during the year ended 31st March 2009 management provided for
impairment losses of K4,686,404,000 out of an outstanding debt of
K12,826,825,000 representing 26% of the Corporation’s receivables.
This is partly attributed to lack of proper client screening before the
awarding of credit facilities, thereby making the recovery of money
owed to the Corporation very difficult.

· Questionable Write Off of Debt

A review of the receivables’ accounts for the period April 2002 to


March 2008 revealed that debts in amounts totalling K438,344,643
involving thirty five (35) clients were written off to the discounts and
commissions account. It was observed that the accounts were given
100% discounts. There were no documents availed by management to
support the decision to award 100% discounts and therefore the
rationale behind this action could not be ascertained.
It was also observed that the journal voucher numbers indicated in the
accounting system as the basis/authority to reverse the transactions were
either different from the physical document or were missing.

There was a risk that officers could have received the funds and reduced
the debtors account without declaring funds to the Corporation. For
example, receipt number 61973 for K30,000,000 received from Digital
Business Solutions was posted as discount allowed to Kingdom
Investments and receipt number 63037 for K7,323,200 was posted twice
to Kingdom Investments.

Inquiries made with management revealed that the officers who posted
the transactions have since been dismissed. As of May 2009,
management had not reversed the entries and the matter had not been
reported to the Board or Police.

· Questionable Quarterly Adjustments to Clients Accounts

A review of the General Journal revealed that journal voucher (JV)


number 6666 was passed in January 2005 to debit 46 client accounts
which had credit balances in amounts totalling K787,867,391. The
narration in the electronic journal indicated that the entry was a

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quarterly adjustment. No satisfactory response was received on the
meaning of quarterly adjustments. Inquiries made with management
revealed that they did not have such a series of JV numbers and were
making efforts to locate the JV 6666.

The implication of this transaction was that clients who had made
prepayments to ZNBC had their money misappropriated. As of May
2009, the transaction had not been reversed.

· Payables

Trade and other payables’ balances increased from K43,809,540,000 in


2006 to K66,574,298,000 in 2008 representing an increase of 52%.
Out of the total amount owed in 2008, K1,549,712,637 was in respect of
local trade creditors while foreign creditors were owed K8,018,886,000.

Further, the Corporation owed the Zambia Revenue Authority (ZRA)


K32,058,193,908 in unpaid Pay as You Earn (PAYE) and NAPSA
K1,847,514,000 in contributions as of 31st March 2009. This was
contrary to the provisions of the Income Tax Act 323 Part VI section 71
and the NAPSA Act of 1996, section 15, subsection 1.

In his response dated 22nd June 2009, the Controlling Officer agreed
with the observation and further stated that the Corporation had since
entered into an agreement with ZRA where K25 million is remitted
monthly towards PAYE.

· Changes in Equity

Government of the Republic of Zambia owns 100% equity in the


Corporation. During the period under review, it was observed that the
deficit in shareholders’ funds had increased from K22,809,913,000 in
2006 to K27,842,812,000 in 2007 and K29,865,713,000 in 2008 and
hence the shareholder’s funds had been eroded. This is mainly attributed
to the increase in accumulated losses from K26,559,378,000 in 2006,
K31,632,347,000 in 2007 to K33,12,349,000 in 2008. It is therefore
clear from the above that the Corporation’s ability to continue as a
going concern is in doubt.

In his response dated 22 nd June 2009, the Controlling Officer stated that
the situation would have been worse had it not been for management
innovation as Government funding has been dwindling over the years

97
and that as a matter of urgency there was need for the Government to
recapitalize the institution.

e. Failure to Collect Television License Fees

In 2002 the ZNBC Act was amended to among other things allow for the
collection of T.V license fees countrywide. The Corporation collects the TV
license fees through the following schemes namely ZNBC, Zesco Ltd, Defense
forces payroll, Zambia Postal Services Corporation and Residence
Development Committees (RDCs).

It was noted that the T.V license unit was manned by fifteen (15) officers
country wide and only had one (1) operational vehicle. The TV license
personnel were only represented in five (5) districts namely Lusaka, Kabwe,
Kitwe, Ndola and Livingstone. In this regard, there were no agents to collect
TV License fees in districts away from the line of rail, except, for the provincial
centers and post office(s) which caters for clients who walk in to pay.

Further, it was observed that the Corporation does not maintain a database for
its clients and is therefore not in a position to make follow ups on clients that
have not paid in a particular month or period. In addition, the Corporation did
not have a mechanism to ensure that fees collected through Zesco Ltd (which
accounts for 80% of its collections) were verified.

Arising from the above weaknesses, the Corporation collected less revenue than
was budgeted for as shown in the table below:

Financial Budgeted Actual Variance


Ye ar K K K
2006/07 6,660,000,000 5,454,617,629 1,205,382,371
2007/08 6,800,000,000 4,709,630,133 2,090,369,867
2008/09 6,900,000,000 4,568,282,320 2,331,717,680

It can be noted from the table above that the collected fees had reduced from
K5,454,617,629 in March 2007 to K4,568,282,320 in March 2009 representing
a 16% reduction.

It was also observed that there were discrepancies between revenue collections
reflected in the accounts and that reported by TV License Section as shown in
the table below:

98
Figures as
Figure s as per TV
Ye ar Pe r Lice nse
Accounts Se ction Variance
K'000 K'000 K'000
2008 4,847,796 4,568,282 279,514
2007 4,490,741 4,709,630 (218,889)
2006 5,167,614 5,454,617 (287,003)

In his response dated 22nd June 2009, the Controlling Officer stated that the
Corporation had difficulties in collecting TV license fees due to viewer
dissatisfaction, township agents dissatisfaction with commission paid, internal
budget constraints, change of remittance policy by Zesco Ltd (from accrual
basis to cash basis), Government directive not to collect TV Licenses from rural
districts among other reasons.

f. Barter Transactions

During the period under review, the Corporation entered into barter agreements
with various clients. Barter transactions involve the Corporation providing air
time to clients in exchange for goods and services. However, there was no
Board approval authorizing management to engage in barter transactions.

In this regard, it was observed that the Corporation entered into barter system
arrangement with fifty five (55) clients who were as of June 2009 owing ZNBC
K5,196,051,554 in goods and services in respect of airtime provided.

g. ZNBC/ ZAAA Partnership

ZNBC has been partnering with Zambia Amateur Athletics Association


(ZAAA) in the promotion of the inter company relay from as far back as 2002.

An examination and review of various transactions relating to the Inter


Company Relay revealed the following:

i. There was no evidence of a formal partnership agreement between


ZNBC and ZAAA on the partnership;

ii. The President of ZAAA who is chairman of intercompany relay was a


Board member of the ZNBC and chairman of the finance/marketing and

99
sales subcommittee of the Board of ZNBC during the period under
review. There was no evidence of the board member having declared
interest; and

iii. In 2007, the Corporation quoted K173,489,674.08 for promotional


campaign and live coverage of the inter company relay. Documents
revealed that ZAAA negotiated and contracted the service at a sum of
K85,690,344.33, representing a discount of 51% (K87,799,329.70.).
However, only a sum of K35,000,000 was realized in form of event
sponsorship.

A review of the ZNBC event budget and offer letter to ZAAA for the
inter company relay race for 2009 revealed the following:

Amount
K
Pre- event spot adverts 119,444,542
Pre-event luanch and
count down programme 34,929,343
Live broadcast of event 37,500,000
Total 191,873,885

Cost Sharing
ZNBC Sponsorship 131,873,884
ZAAA 60,000,000
Total 191,873,884

The documents reviewed showed that ZNBC direct benefits would


include:

· ZNBC to field three teams to take part in the race;

· ZNBC to utilize and take advantage of the event to place


promotional materials at the venue and various publications on the
event;

· ZNBC logo to appear on all inter company relay promotional


material as major sponsor; and,

· ZNBC to have a commercial stake and sell spot adverts during the
live broadcast of the event.

It was not clear as to why management of ZNBC decided to take up the


major cost of hosting a client’s event.

100
A review of the 2009 ICR post event records revealed that ZAAA paid
ZNBC a sum of K 70,000,000 for the event whilst the other cost of
K121,873,884 was met by the Corporation. Apart from the
participation of the ZNBC team in the event at a total cost of
K13,000,000 and the sale of DVDs/ Tapes which raised K540,000,
ZNBC did not benefit from the commercial stake.

It can be clearly seen that management did not act in the best interest of
the Corporation considering its weak financial position. This raises
concern on the relationship between the board and management.

In his response dated 22 nd June 2009, the Controlling Officer stated that
whereas it was correct that there was no formal partnership Agreement
in form of an MOU between ZNBC and ZAAA on Inter Company
Relay race, the relationship was borne out through various
correspondences between the two parties. The sharing of the cost of
hosting the event takes into account a number of factors both
quantitative and qualitative. Management further stated that the matter,
like regular coverage of football Matches and boxing bouts was treated
as a normal operational matter subject to normal business transactions
and had never been a Board issue to warrant the Chairman of ZAAA to
declare interest in a Board meeting as it had always been treated like
any other sports events that are covered by ZNBC and which are not
taken to the Board for approval.

Despite the response from the Controlling Officer, the Board member
who was also the chairman of the sales and marketing sub-committee of
the Board was the President for ZAAA. Therefore in line with the tenets
of good corporate governance, he should have declared interest as this
was a business issue.

h. Sales Agencies and Commissions

The sales team at ZNBC is divided into two (2) groups. The full time sales staff
employed on permanent basis and the sales agents who are on part time basis.
According to sales agency guidelines, a commission is payable at 15% net of
airtime for agents registered for the first time and 18% net of airtime upon
attainment of full agency. In addition, non marketing ZNBC staff is paid a
commission of 16% for radio and 12% for TV for any business sought for the
Corporation.

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The following were observed:
i. It was noted that the Corporation paid commissions to agents each time
adverts were aired either on TV or radio as opposed to making a one off
payment upon sourcing the business. For example, “your health
matters” which is a Government program under the Ministry of Health
was engaged through an agent in 2005. The Corporation has been
paying 18% of the revenue realized from airing the program since
inception. In this regard the agent had been paid a total sum of
K425,805,826 as of March 2009.

ii. The Corporation paid an agent, D&C Saatchi and Saatchi an agency
commission of K382,486,238 relating to 2006 general elections. The
commission was paid on the basis that the advertising agent had sourced
business from Electoral Commission for the adverts relating to
elections.

In both of the above cases, it was not clear as to why Government related
business was brought through agents considering that as a national broadcaster
ZNBC was an obvious medium for Government communication.

During the 2008 Presidential By-Election, the Electoral Commission of Zambia


engaged Location Challenge Advertising Agency, as its media agent for the
election. In this regard, Location Challenge entered into a contract with ZNBC
to place publicity and announcements on ZNBC TV valued at K970,384,121
for which a commission of K150,576,846 was paid to the agent.

Records examined at the Corporation revealed that Location Challenge


irregularly withheld a sum of K97,000,000 out of a total sum of K819,807,275
due to ZNBC.

Although in their letter dated 13th November 2008, Location Challenge made a
commitment to pay back the amount of K97,000,000 in instalments
commencing December 2008, as of June 2009, the amount had not been paid to
ZNBC. Further, it was not clear as to why ZNBC agreed to be paid in
instalments when Location Challenge had been paid in full by ECZ.

i. Subcontracting of Production of Programmes.

A review of records revealed that ZNBC subcontracts the production of some


programmes to other media organizations thereby losing out on the income
from production. For instance, the production of ‘Your Health Matters’ was sub
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contracted to Laco Communications to produce the programme on behalf of
ZNBC.

Inquiries with management revealed that the programme was subcontracted


because it was very demanding and that it required a lot of time and logistics to
produce. In this regard, during the period October 2005 to March 2009 ZNBC
paid Laco Communications a sum of K967,106,937 as production costs.

In his response dated 22nd June 2009, the Controlling officer stated that
Management had subcontracted the production of ‘Your Health Matters’ to
Laco Communications because producing this programme is extremely
demanding as it is produced from different locations far away from Kitwe and
Lusaka and would entail constant travelling for ZNBC that would lead to
increased costs in subsistence allowances, fuel and transport.

He added that ZNBC did not have adequate production facilities at the moment
to undertake this demanding production but that it was the intention of ZNBC
to pick up this production once production facilities are beefed up.

Despite the Controlling Officer’s response, production costs are recoverable


and therefore to completely avoid getting the benefits of doing programs and
raise revenues based on just the issue of costs without doing thorough costs
benefits analysis was not the in the best interest of the company.

j. Housing Allowance

According to the conditions of service, all employees in management who are


not accommodated by the Corporation are entitled to be paid housing allowance
at 100% net of their basic salary.

The conditions of service also stipulate that unionised staff shall be paid
housing allowance based on the following fixed bands:

Amount
K
UG 1- UG 3 700,000
UG 3/4- UG 7 800,000

It was observed that contrary to the conditions of service, housing allowance


for management staff was computed on the basis of grossed up figures. In
addition, it was noted that the Corporation paid housing allowances to
management gross of tax and in this regard, incurred a tax bill of between

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K75,000,000 and K90,000,000 on a monthly basis as indicated in the table
below:

Housing Amount
Salary
Position Allowance Tax Paid
Scale
K K K
Sales Manager MG8 2,314,750 1,246,404 3,561,154
Senior Maintenance
Engineer MG8/7 3,042,833 1,638,449 4,681,282
Financial Accountant MG8/7 2,939,083 1,582,583 4,521,666
Principal Engineer South MG8 2,923,750 1,574,327 4,498,077
Principal Engineer
Projects MG8 2,880,250 1,550,904 4,431,154
Marketing Manager MG 8 1,901,500 1,023,885 2,925,385

On the other hand, the housing allowances paid to unionised staff were net of
tax.

Housing Amount
Salary scale allowance Tax Paid
K K K
UG1-UG3 700,000 245,000 455,000
UG3/4-UG7 800,000 280,000 520,000

It was not clear as to why tax was being treated differently for management and
unionised staff.

k. Utility Allowance

According to the conditions of service, the following utility allowances are


payable to management staff at rates as indicated below:

Grade Condition
140% of monthly basic salary
M/Director (Later fused into salary)
MG 8/7-8 85% of monthly basic salary
MG 6/5-7 30% of monthly basic salary
MG 5 25% of monthly basic salary

A review of the minutes of the Special Board Meeting held on 20th September
2005 revealed that the Board approved additional fixed utility allowance for
management staff in addition to the percentage of basic salary effective 12th
July 2005.

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It was observed that there were discrepancies between the approved and
effected amounts as shown in the table below;

Approved Effected
Amount Amount Difference
Grade K K K
MG 4/3 374,958 100,000 (274,958)
MG 5 369,083 175,000 (194,083)
MG 6/5 506,083 200,000 (306,083)
MG 6 540,800 250,000 (290,800)
MG 7/6 542,525 533,413 (9,112)
MG 7 545,188 533,911 (11,277)
MG 8/7 1,220,329 1,595,815 375,486
MG 8 1,288,375 1,684,798 396,423
MG 9/8 2,332,650 2,332,650 -
MG 9 2,431,425 2,431,425 -
MG 10 4,955,183 4,955,183 -

As depicted in the table above, management reduced the approved rate for
Grade MG 4/3 to MG 7, while Grades MG 8/7 and MG 8 were irregularly
increased by K375,486 and K396,423 respectively.

Though the Corporation revised the basic salaries of management staff upwards
thereby automatically increasing the utility allowance which is 85% of basic
salary, Management had continued to add the fixed figures to the 85%
indicated in the conditions of service. The utility allowance for management
staff ranged between K465,000 and K4,360,000

On the other hand unionised staffs were paid energy allowance at the rate of
15% of basic salary which translates between K239,900 and K400,000 before
tax.

In his response dated 22nd June 2009, the Controlling Officer agreed with the
observation and stated that there was need to review allowances in the best
interest of the Corporation.

l. Commuted Car Allowance

Conditions of service for management staff provide that a taxable commuted


car allowance will be paid to employees who are in possession of motor vehicle
provided the Corporation established that the motor vehicle would be used
during all official duties within a radius of 25 KM.

105
Contrary to the above, allowance was being paid gross of tax at the following
rates:
Salary Scale Rate
MG 8 and above 60% net of monthly basic salary
MG 8/7 and below 40% net of monthly basic salary

In this regard, the Corporation was incurring a sum of about K34,000,000


(K408,000,000 annually) as tax for the employees relating to car allowance.
There was no evidence of board authority for the grossing up of the car
allowance.

m. Irregular Increment of Salary Notches

In October 2007, management irregularly revised the value of the salary


notches in relation to the annual appraisal for contractual staff as indicated in
table below:

Old Notch New Notch


Grade K K
MG 10 1,236,000 4,868,000
MG 9 1,140,000 3,920,000
MG 9/8 1,092,000 3,700,000
MG 8 1,044,000 3,538,000

The value for notches for unionized and other management staff remained
unrevised.
n. Questionable Salary Structure

The Corporation did not have an approved salary structure despite the existence
of the Board. In this regard, salaries were awarded to employees in an adhoc
manner as officers in higher grades were paid lower salaries than those in lower
grades. The salary structure was such that for management positions ,the
highest was MG 10 and the lowest was MG 5 while for the unionised staff, the
highest was UG 7 and the lowest was UG 1. See table below for the
comparison of salaries.

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BASIC SALARY
Salary (P.A)
Position Grade K
Stenographer - DHR MG 5 32,452,000.00
Systems administrator MG 6 30,830,000.00

Secretary for Director Programmes MG 6 35,516,000.00


Head of Productions/Operations MG 7 32,114,000.00

Secretary to Director General MG 7/6 38,232,000.00


Head of Productions/Operations (Kitwe) MG 7 34,247,000.00

Human Resource Development Officer MG 7 37,802,000.00


Senior Maintenance Engineer (Shorthorn) MG 8/7 29,905,000.00

Senior Maintenance Engineer MG 8/7 41,608,000.00


Marketing Manager MG 8 27,984,000.00

Financial Accountant MG 8/7 42,355,000.00


Chief Accountant MG 8 41,817,000.00

Secretary to Director HR MG 6/5 37,547,000.00


Internal Auditor MG 8 26,679,000.00

Head of Special Projects MG 8 29,550,000.00


Secretary for Marketing Director MG 6 37,220,000.00

Secretary -Director HR MG 6/5 37,547,000.00


Public Relations Manager MG 8 33,987,000.00

Head Driver UG 4 27,084,000.00


Internal Auditor MG 8 26,679,000.00

Cleaner (Shorthorn) UG 1 22,018,000


Accountant UG 7 21,321,500

Office orderly UG 2 24,286,000


Credit Controller UG 7 23,427,500

As can be noted from the table above, the Marketing Manager who is in Grade
8 has an annual basic salary of K27,984,000 while the secretary to the Director
Marketing who is in Grade 6 has an annual basic salary of K37,220,000. The
Chief Accountant though in a higher grade was being paid a lower basic salary
than the Financial Accountant who is in a lower grade.

107
In his response dated 22nd June 2009, the Controlling Officer agreed with the
observation and stated that the Corporation had a defective salary structure.

o. Comparison of Basic Salary and Allowances.

A comparison of basic pay and allowances for management staff revealed that
the allowances constituted over 300% of basic pay. An example below shows
the disparities between a member of staff in management who has the same
basic pay with a unionized staff:

Manage me nt Staff Unionize d Staff


De s cription K K
Basic Salary 2,032,000 2,035,792
Commuted Car Allowance 1,875,692 -
Housing Allowance 3,126,154 700,000
Utility Allowance 4,059,850 305,368

Total 11,093,696 3,041,160

It can be noted from the table above that whereas the basic salaries for
management staff were comparable to that of unionised staff, the gross salaries
in management as compared to the unionised staff had very high discrepancies.
In this regard, the basic salary for management staff was 18% of the gross
salary while that for unionised staff was 67% of the gross salary.

p. Non payment of Tax on Gratuity

Contrary to Tax Laws, the corporation did not deduct tax on directors’
gratuities. In this regard, tax amounting to K680,169,201 was not deducted and
the amount was accrued in the Corporation’s books thereby understating the tax
liability.

q. Tax Evasion on Retirement and Gratuity

During the period April 2003 to March 2009, tax on retirement packages and
gratuity was computed using Pay As You Earn rates as opposed to the rates for
terminal benefits and qualifying gratuity. In this regard, an amount of
K7,229,870,495 accrued over the period as tax liability and was gradually
written off from the Corporation’s books. In a memorandum dated 14th May
2009, which was in response to the audit observation, the Finance Director
advised that a journal would be passed to recognise the correct tax liability in

108
the books. However, as of June 2009, the liability had not been recognised and
thereby understating the tax liability.

r. Selective Staff Housing

The Conditions of Service for Unionized staff provide that depending on the
availability of houses, the Corporation shall provide the employee with
unfurnished accommodation in accordance with the Corporation’s housing
Policy. Where such accommodation is unavailable, the Corporation shall pay
housing allowance at agreed rates.

Where the Corporation has provided accommodation to an employee, the


employees shall be required to pay rent at 6%, 8% and 10% of basic salary per
month for a low, medium and high cost houses respectively.

Contrary to the Conditions of Service, the Corporation rented private houses for
sixty one (61) unionized staff and in this regard, a total amount of K12,265,000
was paid over and above the officers’ entitlement. Further, it was also observed
that rental contributions were not deducted from the staff.

s. Pension Scheme

The conditions of service for non union represented staff state that all Zambian
employees on permanent and pensionable conditions of service will, whenever
possible, be members of the Corporation’s Pension Scheme, while the
unionized conditions state that eligible employees shall subscribe to the
Corporation’s pension scheme at rates to be approved by the Corporation’s
pension scheme provider.

Contrary to the conditions of service and best practice, the Corporation did not
have a pension scheme and was paying retirement packages and monthly
pension salaries from operational funds.

Inquires made with management revealed that the pension scheme for the
Corporation which was managed by the Zambia State Insurance Corporation
(ZSIC) was discontinued on an unknown date in the early 1990s; however,
there was no documentation to this effect availed for audit.

109
A review of the payroll and other related documents revealed that:

An amount of K5,000 was deducted from each employee as pension


contribution on a monthly basis despite the fact that there was no pension
scheme in place;

There were no documents availed for audit to indicate board approval or how
management decided on the figure for pension contribution, contrary to the
principles of Social Security and good management practice;

There was no separate account maintained for the pension contributions.


Consequently there was no evidence to indicate that the deductions were
invested contrary to the principles of Social Security; and,

The Corporation paid a sum of K38,868,824 as pension monthly salaries to


retired employees as of June 2009.

Below is an analysis of an employee’s pension benefits who had served the


Corporation for 20.75 years (1stApril 1988 to 31st December 2008) and was
contributing K5000 per month towards pension. The analysis also shows what
the Corporation actually paid:

Employe e Contribution
K
during se rvice

K5000 * 12 months * 20.27 years 1,245,000

Pension Benefits:

Pension Commutation 13,662,492


Service benefits 256,171,719
Monthly pension salary 1,138,541
Survivors pension 759,027

From this analysis, it can be seen that in the absence of a pension scheme, the
retirement benefits will continue to be a drain on the resources of the
Corporation.

In this analysis, the Controlling Officer admitted that the Corporation had
difficulties in this area and that management was still in consultation with
Zambia State Insurance Corporation (ZSIC) where the failed scheme was, on
the possibility of reinstating the scheme.

110
t. Irregular Sale of Personal to Holder Vehicles

Among other things the contract of employment for directors provides that the
employee shall be eligible to purchase the personal to holder vehicle if a
replacement is available at the end of the contract, subject to Board approval.
The company policy in this regard was to sell the vehicle based on book value
or 25% of the market value which ever was higher.

On 3rd November 2008, the Director of Technical services wrote to the


Director General to be allowed to purchase the personal to holder vehicle
following the end of his contract. The motor vehicle was procured by the
Corporation in June 2006 at a cost of K87,435,000 (Nissan Hardbody ABG
934)

The Corporation’s depreciation policy states that motor vehicles are depreciated
at 25% while commercial vehicles are depreciated at 33.33%

The following were observed:

i. At the time of sale in December 2008 the motor vehicle had been used
for two and half years by the Corporation.

ii. Contrary to the depreciation policy of the Company, depreciation on the


personal to holder vehicle was charged at 33.33% which is for
commercial vehicles as opposed to 25%. In this regard it was observed
that the Corporation sold the car at K14,579,786 as opposed to
K32,788,125 resulting in under valuation of K18,208,389.

iii. Contrary to the condition of service, the Corporation sold the car in the
absence of a replacement vehicle, and at the time of audit the Acting
Director of Technical services was being paid commuted car allowance
of K2,935,615 per month as no vehicle was available.

Although in response management stated that the vehicle was depreciated at


33.33% because the vehicle was not a saloon car, the vehicle in question was
used on personal to holder basis as opposed to being used as a utility vehicle. In
addition the policy on depreciation did not mention the rate for saloon cars.

u. Undelivered Studio Equipment

In April 2007, the Corporation paid Keroba Investments limited a sum of


K90,746,860 for the supply of various Studio Equipment which as of 30th June
2009 had not been supplied.

111
In his response, the Controlling Officer acknowledged that the supplier was
paid and did not deliver as per the delivery period and that efforts were being
made to try and recover the money and that so far a sum of K10,000,000 has
been recovered.

ZAMBIA RAILWAYS LIMITED

Background

24. Zambia Railways Limited (ZRL) was established in 1976 following the split up of the
Rhodesia Railways whose network covered Northern Rhodesia (Zambia), Southern
Rhodesia (Zimbabwe) and Bechuanaland (Botswana).

In July 1998, Government earmarked ZRL for commercialization and for exploration of
the possibility of entering into concessions for some or all the operations of the
company.

In February 2003, the assets of ZRL were concessioned to Railways Systems of


Zambia with a view to improving the performance of the railway operations and
infrastructure. The concession included the use of infrastructure as well as a set of core
operating assets, comprising locomotives, wagons and maintenance facilities.

The concession agreement did not outline the roles of ZRL but according to
management and the Draft Railway bill, the roles of ZRL were as follows:

· To monitor the Railway Concessions in the country;


· Monitoring the compliance with the terms of the GRZ/RSZ Concession
Agreement;
· Processing of applications for Railway Infrastructure;
· Custody of railway infrastructure assets and overseer of the asset inventory;
· To resolve the outstanding liabilities, disposing of surplus assets, winding up non-
core activities of the concessioned railways; and,
· Carrying out any other functions legally assigned by Government.

Administration

Board of Directors

The Railways Act Cap 453 of the Laws of Zambia provides that the Board of Directors
shall consist of a minimum of five (5) and maximum of fifteen (15) members.

112
Management

The day to day management of ZRL is the responsibility of the Managing Director
who is the Chief Executive Officer appointed by the Board, and is assisted by the
Company Secretary, Director of Finance and Administration and Director of Technical
Services.
The Managing Director, Directors and heads of department are engaged on four year
contracts while the rest of the staff are employed on permanent and pensionable basis.

Sources of Funds

The sources of funds for the Company include, among others:

· rental income,
· concession fees,
· any funds appropriated by Parliament and contributions by donors,

Review of Operations

A review of operations for the Zambia Railways Limited (ZRL) for the financial years
ended 31 st December 2002 to 2008 revealed the following;

a. Board of Directors

Contrary to the Companies Act, ZRL operated without a board during the
period from January 2004 to March 2006.

b. Organisation Structure

Zambia Railways Limited had a total approved establishment of 28 positions


out of which 23 were filled as of December, 2008 leaving a balance of 5
vacancies. Among the vacant positions was the position of Director
Engineering and Technical whose key role was to monitor the concession.

In response management stated that the position of Director Engineering and


Technical had not been filled due to the fact that one of the long term roles of
Zambia Railways, monitoring performance of the Concession, had not been
resolved and that employing a Technical Director at this stage may result in
such an individual not being fully utilized. Management further stated that the
position would be filled when the work of the Inter-Ministerial Committee was
finalised and the Concession Agreement reviewed to enable ZRL effectively
monitor the concession.

113
c. Statement of income and expenditure for the year ended 31 st December, 2002
to 2007

2008 2007 2006 2005 2004 2003 2002


K'm K'm K'm K'm K'm K'm K'm
Revenue:
Passengers - - - - - 2,550 2,677
Freight - - - - - 95,133 109,021
Interchange - - - 609 525
18,323 17,000
Other revenue 5,829 16,545 24,052 1,750 1,412
19,346 14,961
Distribution from Unitary System 23,675 -
GRZ concession fees 8,720 7,552 5,931 9,552 10,698 3,962 -
Rental income 2,760 1,690 1,438 1,424 1,443 - -
Bank interest 2,386 1,415 1,076 2,168 461 - -
Amortisation of capital grants 73 73 73 24 - - -
19,768 27,275 32,570 15,527 14,539 162,989 143,659
Expenditure:
Interchange costs - - - 1,264 4,699 19,651 31,109
Manpower 3,638 3,084 2,761 1,785 6,332 32,368 39,163
Administration expenses 2,978 2,889 2,952 17,329 16,089 47,712 28,508
Operational expenses - - - 13 1,118 23,798 31,144
Repairs and maintenance 684 476 3,465 1,159 596 14,250 19,704
Finance charges 1,742 829 1,631 2,000 7,784 2,343 3,243
Retrenchment cost 331 348 803 284 2,517 13,141 928
Bad debts /provision for impairment
losses 13,631 2,609 24,957 28,632 21,758 - -
Depreciation 6,680 6,728 8,735 - - - -
Loss on disposal of assets 90 - - - - - -
29,774 16,963 45,304 52,466 60,893 153,263 153,799
Profit/(loss) before exchange gains &
taxation (10,006) 10,312 (12,734) (36,939) (46,354) 9,726 (10,140)
Un realised depreciation in shares (425)
Exchange (loss)/gains (17,630) 7,746 (10,448) 17,270 594 (10) 4,408

Profit/(los s) before taxation (28,061) 18,058 (23,182) (19,669) (45,760) 9,716 (5,732)

Taxation (1,360) (869) (433) (868) (642) (908) (268)


Profit/(loss) for the year (29,421) 17,189 (23,615) (20,537) (46,402) 8,808 (6,000)
Accummulated loss as at 1 January (126,213) (150,383) (133,749) (120,193) (80,772) (96,561) (97,542)
Transfer from revaluation reserve 6,981 6,981 6,981 6,981 6,981 6,981 6,981
Accummulated loss as at 31 December (148,653) (126,213) (150,383) (133,749) (120,193) (80,772) (96,561)

i. Profitability

As can be seen from the income statement above, except for 2003 and 2007
when profits of K8,808,000,000 and K17,189,000,000 were recorded, ZRL
recorded losses in all the other years under review. As of December, 2008 the
losses had accumulated to K148,653,000,000.

It can also be noted that the years 2002 and part of 2003 were before the
concession whereas 2004 to 2008 were after the concession. In 2004 there was
a loss after tax of K46.402 billion, in 2005 K20.537 billion, in 2006 and
K23.615 billion. However, in 2007 there was a profit of K17.189 billion, and
in 2008 a loss of K29.421 billion. Therefore the company’s financial
performance according to the published accounts improved between 2004 and
2007 and relapsed in 2008.

114
ii. Revenue

Although the concession fees were recognized in the ZRL books of accounts,
they were paid directly to the Ministry of Finance and National Planning and
according to management no economic benefit accrued to the ZRL.

d. Financial Position - Balance Sheet for the year ended 31 st December 2002 to
2007

2002 2003 2004 2005 2006 2007 2008


K'm K'm K'm K'm K'm K'm K'm
Non - current assets
GRZ unitary system debt/Financial assets 12,875 12,875 12,875 12,875 12,875 12,875 12,875
Property plant and equipment 101,137 91,817 82,711 72,902 64,206 57,514 50,835
Investments - - - - - - 1,925
Amounts due from concessionaire - 13,255 13,255 13,255 13,255 13,255 13,255
114,012 117,947 108,841 99,032 90,336 83,644 78,890
Current assets
Stock 12,040 - - - - - -
Trade and other receivables 75,252 75,412 37,292 16,645 910 28 2,680
Short term deposits 1,434 2,321 10,977 9,207 12,609 - -
Bank balances & cash/cash equivalents 10,408 12,634 7,218 1,429 872 19,876 18,668
99,134 90,367 55,487 27,281 14,391 19,904 21,348
Total assets 213,146 208,314 164,328 126,313 104,727 103,548 100,238
Capital and reserves
Share capital 198 198 198 198 198 198 198
Amounts pending allotment of shares 2,318 2,318 2,318 2,318 2,318 2,318 2,318
Reserves -2,956 5,852 -40,550 -61,087 -84,702 -67,513 -96,934
-440 8,368 -38,034 -58,571 -82,186 -64,997 -94,418
Non - current liabilities
Capital grants - - - 328 255 182 109
Amounts received from the GRZ
awaiting allocation 1,063 1,063 1,063 1,063 1,063 1,063 1,063
Deferred liability for long service gratuity 6,388 4,726 - - - -
Long term loans 78,966 100,696 119,247 78,710 94,529 78,531 96,293
86,417 106,485 120,310 80,101 95,847 79,776 97,465
Current liabilities
Short term loan - - - 3,602 9,067 11,867 20,430
Bank overdrafts 41 27 - - - - -
Bank loan 1,602 3,377 - - - - -
Trade and other payables - - 46,363 60,775 44,002 44,277 44,006
Trade creditors 53,354 46,316 - - - -
Other creditors 71,463 42,447 - - - -
Accruals and provisions - - 29,665 33,760 28,961 22,537 17,476
World Bank loan Interest - - 5,353 5,494 8,826 9,369 14,251
Taxation payable 709 1,294 671 1,152 210 719 1,028
127,169 93,461 82,052 104,783 91,066 88,769 97,191
Total equity and liabilities 213,146 208,314 164,328 126,313 104,727 103,548 100,238

i. Fixed Assets – Investment Property

ZRL had investment properties which were among the major sources of
income after the concession. However, it was noted that the Investment
Property had not been separated from property, plant and equipment in
accordance with International Accounting Standards – IAS 16 (Property,

115
Plant and Equipment) and IAS 40 (Investment Property) thereby
distorting the financial statements.

ii. Debtors

The debtors position reduced from K75,252,000,000 in 2002 to


K2,680,000,000 in 2008. The reduction is attributed to the provision for bad
debts which stood at 98% of the total debtors as of December, 2008 as
detailed below;

Bad Debt
Debtors Provision Balance %
Year K'million K'million K'million Provision
2002 129,672 54,420 75,252 41.90
2003 135,744 60,332 75,412 44.40
2004 119,381 82,089 37,292 68.80
2005 127,367 110,722 16,645 86.90
2006 124,129 123,219 910 99.30
2007 120,949 120,921 28 99.90
2008 111,476 108,796 2,680 98.00

It is clear from the above analysis that debtors were not properly managed.

In response management stated that the company policy had been to fully
provide for any debtor over three months and that 75% of the debtors were
either Government or Government related debt and these had proved to be
very difficult to collect.

iii. Liquidity

The table below shows the liquidity position of ZRL during the years under
review:

2002 2003 2004 2005 2006 2007 2008


K'M K'M K'M K'M K'M K'M K'M
Current Assets 99,134 90,367 55,487 27,281 14,391 19,904 21,348
Current Liabilities 127,169 93,461 82,052 104,783 91,066 88,769 97,191
Working Capital (28,035) (3,094) (26,565) (77,502) (76,675) (68,865) (75,843)
Current Ratio 0.78: 1 0.97 : 1 0.68 : 1 0.26 : 1 0.16 : 1 0.22 : 1 0.22 : 1

The working capital position of ZRL worsened from a deficit of K


28,035,000,000 in 2002 to a deficit of K 75,843,000,000 in 2008 thereby
exposing the company to the risk of insolvency. Meanwhile, the current ratio
which reflects the ability of a firm to discharge its short term financial

116
obligations or number of times current liabilities can be paid with current
assets deteriorated from 0.78:1 in 2002 to 0.22:1 in 2008 when the generally
accepted ratio is 2:1.

iv. Long Term Liabilities

Long term liabilities increased from K86,417,000,000 in 2002 to K


97,465,000,000 in 2008. Included in the amount of long term liabilities was a
sum of K1,063,000,000 received from the Government of Zambia. The
figure had remained unallocated for over seven (7) financial years.

v. Capital Structure

The authorised share capital of the company is three hundred million kwacha
(K300,000,000) divided into three hundred million (300,000,000) ordinary
shares of one kwacha (K1.00) each. The total issued and fully paid up capital
stood at K197,755,755 as at 31st December 2008.

In 1991, the Government agreed to take over loans and interest in the sum of
K2,317,648,000 in exchange of equity shares. As of March 2009, the shares
had not been issued and there was no correspondence or agreement to
indicate how many shares the Government was to receive. The amount had
been reflected in the balance sheet as amount pending allotment.

In his response dated 19th February 2010, the Controlling Officer stated that
financial constraints were the major factor in the delay of allotting the
K2,317,648,000 into shares and that the amount required to register the shares
was astronomical given the poor financial state of Zambia Railways at the
time. He further stated that the matter would be dealt with when the situation
improved.

e. Failure to Rotate Auditors

It was observed that ZRL had been audited by the same auditing firm and partner
for a consecutive period of over ten (10) years contrary to the auditing best
practice.

In his response dated 19th February 2010, the Controlling Officer stated that there
would be a change of Auditors for the 2009 financial year after approval at the
next annual general meeting.

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f. Non Remittance of Statutory Obligations

Although the Company deducted statutory contributions from its employees, the
amounts deducted were not remitted to the relevant institutions. In this regard it
was observed that as of March 2009, the Company owed ZRA a sum of K34
billion in outstanding PAYE and K62 billion in penalties and interest. It was also
observed that National Pension Scheme Authority (NAPSA) was owed K8.616
billion in penalties due to the failure by ZRL to remit pension contributions on
time.

g. Land Encroachment

Zambia Railways Limited owns land that lies along ZRL railway reserve from
Livingstone to Chililabombwe. In addition ZRL owns residential and farm land in
areas away from its railway reserve. It was observed that the failure by ZRL to
either develop or dispose of its undeveloped land to the general public had given
room to encroachment. A scrutiny of the records revealed that fourteen (14)
business organizations had encroached on ZRL properties located in Lusaka

In addition three (3) properties in Pemba and Choma had either been illegally
occupied by some members of the public or the council had allocated land to the
members of the public to build permanent structures.

In his response dated 19th February 2010, the Controlling Officer stated that the
Ministry had granted authority to dispose of residential plots areas not linked to
railway operations.

h. Review of Concession Agreement

A review of the performance of the concession agreement revealed the following:

i. Investment Plan

Management of ZRL had budgeted to spend a total of US$44.5 Million in


rehabilitation of railway infrastructure during the period from January 1999
to December 2003 out of which a total of US$24.7 Million was spent as
shown in the table below:

Year 2003 2002 2001 2000 1999 Total


$' Million $' Million $' Million $' Million $' Million $' Million
Budget 10.5 8.1 11.8 6.3 7.8 44.5
Actual 2.2 4.53 3 11.9 3.09 24.7

118
However, it was observed that at the time of concessioning, the agreement
provided for an investment of US$14.774 Million over a period of six years
which was far less than the actual investment required to bring the railway
infrastructure into good condition as was planned by ZRL.

As of December 2007, a total of US$14.6 million had been invested out of


the US$14.774 million. The investment figures for the year 2008 were not
availed for audit.

ii. Track Rehabilitation of the Mainline Livingstone To Kitwe

Zambia Railways Limited commenced the rehabilitation of the railway line


in the 1980s. The rehabilitation involved the replacement of wooden sleepers
with concrete sleepers among others. At the time of Concession, the 518
kilometer of the main line had been re-laid with concrete sleepers leaving a
balance of 324 kilometers.

Schedule 15 of the concession agreement stipulates that RSZ shall replace


the sleepers damaged through derailments and at joints with new concrete
sleepers. In addition the schedule states that second hand steel sleepers
and/or new wood sleepers should be used to replace one (1) out of four (4)
defective wooden sleepers. An inquiry with management of Zambia
Railways, revealed that this was not actually investment but maintenance
works which was not sufficient to hold the railway together for a period of
20 years. The management indicated that the Investment Plan in the
agreement was actually a patch up plan.

It could not be ascertained as to why the concession agreement allowed the


investor to discontinue the full rehabilitation and instead replace one (1)
concrete sleeper out of four (4) wooden sleepers.

Sections of the mainline rehabilitated Sections of the mainline were RSZ has
with concrete sleepers prior to the interlaced on average one concrete sleeper in
concession every four wooden sleepers

119
iii. Rolling Stock

A scrutiny of the concession agreement revealed that apart from the US$ 3.5
Million in the investment plan for Rolling Stock (i.e. Locomotives and
Wagons) there was nothing to compel the concessionaire to invest more in
the twenty (20) year life of the agreement.

Though in his response dated 19th February 2010, the Controlling Officer
stated that he recognised the inadequacy of the agreement and the need to
find a lasting solution, it was difficult to understand why it had taken the
Ministry such a long time since the concession came into force to find a
lasting solution.

iv. Condition of the railway infrastructure

A review of the Government Inspector of Railways Annual Inspection


Report of Railway Systems of Zambia network carried out in March, 2008
revealed the following among other things:

· Railway line

There was no systematic maintenance of the railway line to improve


the overall condition of the network and track defects such as low
joints, uneven cross levels and misalignment. See pictures below:

Such unsafe joints with wide gaps and missing bolts are a common feature on the
network.

120
Section of the Kitwe- Chingola line

· Bridges

The twenty eight (28) bridges on the network which required regular
painting to prevent corrosion of the steel structures and ultimately
ensure the safety of the bridges, had not been done as of
December 2008.

· Flashlights at Class A level Crossing

Contrary to the provisions of the Road and Road Traffic Act and the
Concession Agreement, RSZ had not provided flashlights at Class A
Level Crossings.

· Passenger Coaches

Concession of the Passenger Services of GRZ provides that the


Concessionaire shall operate the ordinary train which at a minimum,
shall consist of the following locomotives and passenger coaches:

v U20 (or equivalent) locomotive,


v 1 Baggage/generator car,
v 5 economy coaches,
v 3 Standard coaches and
v 1 sleeper coach and snack coach.

A review of the Government Inspector of Railways report for 2008


revealed that the passenger train lacked the standard and sleeper
classes/coaches

v. Change in Asset Assignment

Clause 12.7.1 provides that during the concession period, RSZ undertakes to
promptly return to GRZ all surplus assets which in its discretion will not be
required for railway operations.

121
Contrary to the provisions of the clause, RSZ had not handed back all assets
that the company was not using as detailed below;

· Flash butt welding plant – Kafue

Although the plant was part of the concession, RSZ has not been using
it from the time of the concession agreement in 2003 and the boundar y
wall to the plant had partially collapsed, the electrical motors and other
equipment were either missing or had been vandalized. The rails
procured by ZRL for the rehabilitation of the railway line were going
to waste. See pictures below.

Materials for rehabilitation of the track left


Part of the vandalized plant
on site by ZRL

Part of the vandalized equipment at the Kafue plant


which was operational at time of concession

· Office block at the Livingstone Yard

The building which was operational at the time of handover had been
vandalized and roofing materials stolen. See picture below:

122
Part of the vandalized offices at Livingstone yard that was
operational at time of handover

It was further noted that the concessionaire was using wagons as


perimeter fence in the Livingstone yard. Other wagons not in use
by RSZ had been bundled in unacceptable manner as evidenced
in the pictures below:

Bundled wagons at the Kitwe yard


Wagons being used for fencing
not handed back to Zambia

vi. Concession Fees

According to the concession agreement the fees payable to GRZ comprised;


· a fixed concession fee;
· a negative fixed concession fee payable under the passenger concession
agreement;
· a variable concession fee of 5% of the Railway Income; and,
· a one time entry fee of $750,000 payable on commencement date.

A review of records relating to the concession fees revealed the following:

· Fixed Concession Fees

According to the agreement, Government was expected to receive a


total of US$246,090,596 in fixed concession fees during the 20 year
period as indicated in the table below:

123
Freight Passenger Net
Year US$ US$ US$
1 3,177,241 (700,000) 2,477,241
2 3,452,739 (800,000) 2,652,739
3 4,191,878 (1,000,000) 3,191,878
4 4,398,580 (1,200,000) 3,198,580
5 4,640,922 (1,200,000) 3,440,922
6 5,244,927 (1,200,000) 4,044,927
7 6,234,850 (1,309,671) 4,925,179
8 5,614,398 - 5,614,398
9 6,572,263 - 6,572,263
10 7,693,548 - 7,693,548
11 9,006,133 - 9,006,133
12 10,542,657 - 10,542,657
13 12,341,326 - 12,341,326
14 14,446,862 - 14,446,862
15 16,911,622 - 16,911,622
16 19,796,890 - 19,796,890
17 23,174,411 - 23,174,411
18 27,128,165 - 27,128,165
19 31,756,464 - 31,756,464
20 37,174,391 - 37,174,391
253,500,267 (7,409,671) 246,090,596

In addition, Section 16.1.1 and 16.3.2 of the concession agreement


states that if the actual tonne Kilometres hauled in one year is lower by
3% or more of the estimated ton/Km set out in the agreement, then a
change in circumstances is deemed to have occurred. The negative
variance so calculated, being the difference between the actual Gross
profit and the anticipated Gross operating profit shall be shared equally
between RSZ and GRZ in fifty (50) percent ratio.

It was observed that the Concessionaire declared a change in


circumstances in the year 2005. As of 31st March 2009 the declaration
was still in force and consequently no fixed concession fees had been
paid to the Government since 2005.

A review of the world bank implementation completion report No


32520 of December 2005 revealed that the initial concession
agreement was changed in respect of the principal provisions
relating to change in circumstance, change in law, termination, track
standard thereby GRZ in a disadvantaged position.

Inquiries with management revealed that fixed concession fee (which is


the most lucrative of the concession fees) shall never be paid for
remainder of the agreement and that the Inter-ministerial Committee
(IMC) was of the view that the clause be changed as the change in
circumstances is triggered by factors that the concessionaire is in control
of.

124
· Contradictory Clauses in Passenger Agreement

While the concession agreement stipulated that the minimum passenger


service levels shall be three (3) trains per week in the first six (6)
months to seven (7) trains per week after 24 months between
Livingstone and Kitwe, the agreement on the other hand had a contrary
clause which stated that RSZ would only be in default if they failed to
run a single train in 90 consecutive days.

· Variable Concession Fees

Section 5-3-2 of the agreement states that RSZ shall pay the first
installment of the variable concession fee for the first three (3) months
following the commencement date, within 60 days of the end of that
period. Subsequent payments shall be made quarterly in arrears within
60 days of the end of each subsequent quarter.

According to records obtained at the Ministry of Finance and National


Planning, a total of K17,993,371,848 had been remitted by RSZ as
variable concession fees. It was however observed that concession fees
for 2008 had not been received as of May 2009. The table below shows
the amounts received per year;

AMOUNT
YEAR K
2004 3,034,169,685
2005 9,592,029,842
2006 3,782,544,694
2007 1,584,627,627
2008 0
Total 17,993,371,848

It was also observed that the agreement did not provide for either ZRL
or GRZ to conduct an independent verification concession fees declared.
It was therefore not possible to ascertain the correctness of the
concession fees paid.

125
ZAMBIA TELECOMMUNICATION COMPANY LIMITED
(ZAMTEL)

Background

25. The Zambia Telecommunication Company (ZAMTEL) Ltd was established under the
Companies Act of 1994 following the dissolution of the Posts and Telecommunications
Company Limited (PTC) and became operational in July 1994. PTC was a wholly
owned subsidiary of Zambia Industrial & Mining Company Limited (ZIMCO)
(Voluntary Liquidation). Following the establishment of the Zambia
Telecommunication Company (ZAMTEL) Ltd on 1 July 1994, the Government of the
Republic of Zambia assumed 100% equity holding in the Company.

The principal activity of the Company is to provide telecommunication services in the


Republic of Zambia.

Administration

Board of Directors

Zamtel ltd has a board of directors consisting the Chairperson and not more than eight
(8) other persons appointed by the Minister responsible for communications and
transport.

Management

The Managing Director who is assisted by two General Managers, nine directors
including the Chief Internal Auditor and twenty (20) managers is responsible for the
daily operations of the Company.

The Managing Director and the two (2) General Managers are appointed by the board
on renewable three-year terms of office. The rest of the staff is appointed on a
permanent and pensionable basis.

Sources of Funds

The sources of funds include, among others, such sums of money as may be raised
through subscriber calls, line rentals, foreign administration income, phone
installations, leased services.

126
Review of Operations

A review of audited accounts and other relevant documents for the financial years
ended 31 st March 2006 to 2008 revealed the following:

a. Failure to Implement the Strategic Plan

It was observed that although the Company had a strategic plan for the period 2006
to 2011, the implementation of the plan was not progressing as scheduled. The
strategic plan provided that the company would be divided into two main divisions
being PSTN/Internet and Mobile each operated by a General Manager. As of June
2009 the company had not been structured as provided for in the plan.

b. Financial Performance - Profitability

The table below shows the profit and loss account for the financial years ended 31st
March 2006 to 2008:

2008 2007 2006


K'M illion K'M illion K'M illion

Re venue 399,791 354,178 365,783


Other Income 6,219 2,824 2,244
406,010 357,002 368,027

Ope rating e xpe nse s

Staff Costs 287,643 248,637 231,931


Other expenses 172,143 151,843 115,960
De pre ciation 59,208 43,977 35,727
518,994 444,457 383,618

Ope rating loss (112,984) (87,455) (15,591)

Net Exchange gains/(losses) 26,362 (53,760) 31,495


Interest payable (15,553) (14,740) (7,850)
Other finace charges (2,765) (2,620) (2,451)
8,044 (71,120) 21,194

Loss before taxation (104,940) (158,575) 5,603

TAX (charge)/credit (861) 32,716 (5,542)

Loss for the ye ar (105,801) (125,859) 61

The following were observed;

i. Profit and loss

Zamtel had been consuming more resources than it was generating. Revenue
decreased from K368,027,000,000 in 2006 to K357,002,000,000 in 2007

127
representing a decrease of 3%. This was mainly attributed to the decrease in
subscriber calls from K224,154,000,000 in 2006 to K176,898,000,000 in
2007. The directors report for the financial year ended 31st March 2007
revealed that the decrease in turnover was largely due to substitute products
from competitors as some of the districts had aging equipment that resulted
in difficulties in call penetration. However, the turnover increased to
K406,010,000,000 in 2008 representing an overall increase of 11%
(K37,983,000,000) from 2006 to 2008. On the other hand operating costs
increased from K383,618,000,000 in 2006 to K518,994,000,000 in 2008
representing an increase of 36% (K135,376,000,00) . In this regard, the
Company recorded operating losses amounting to K125,859,000,000 in 2007
and K105,801,000,000 in 2008 respectively.

ii. Staff Costs to Turnover Ratio

During the period under review, staff costs consumed between 63% and 72%
of the turnover as shown in the table below:

K'Million K'Million K'Million


2008 2007 2006
Turnover 406,010 357,002 368,027
Staff Costs (287,643) (248,637) (248,700)

72% 70% 63%

It was observed that while the Company turnover increased by 11%, the staff
costs increased by 16% over the same period. The high staff costs had
impacted negatively on the company’s ability to utilise internal resources for
reinvestment.

128
c. Financial Position

The table below shows the balance sheet as at 31st March 2006 to 2008.

2008 2007 2006


K'Million K'Million K'Million
ASSETS
Non current assets
Property,plant and equipment 429,867 446,170 432,945
Long term receivables 2,009 2,009 2,009
Investments 2,951 3,206 -
434,827 451,385 434,954
Current assets
Inventories 11,678 10,674 8,197
Trade and other receivables 96,885 140,471 169,842
Cash and cash equivalents 29,427 15,543 21,506
Taxation 12,411 12,411 17,660
150,401 179,099 217,205
Total assets 585,228 630,484 652,159

EQUITY AND LIABILITIES


Capital and reserves
Share capital 2,545 2,545 2,545
Revaluation reserves 11,323 13,127 15,234
Revenue reserves (130,520) (18,003) 123,536
Shareholders's decifit (116,652) (2,331) 141,315

Non- current liablities


Long term borrowings 153,020 204,482 179,392
Deferred liability 98,004 89,238 83,078
Deferred taxation 32,717
Capiatl grants 2,767 3,001 3,235
Finance lease 7,277 1,080 2,182
261,068 297,801 300,604
Current liabilities
Trade and other payables 434,589 324,810 200,453
Overdrafts and shirt term borrowings 2,012 6,854 5,787
Tax 861 -
Dividends 3,350 3,350 4,000
440,812 335,014 210,240

Total equity and liabilities 585,228 630,484 652,159

129
The following were observed:

i. Liquidity Position

The liquidity position of the company during the period under review was
as shown below:

2008 2007 2006


K'Million K'Million K'Million
Current Assets 150,401 179,099 217,205
Current Liabilities 440,812 335,014 210,240
Working Capital (290,411) (155,915) 6,965

Current Ratio 0.34 0.53 1.03


Debtor Days 88 days 144 days 170 days

Working capital reduced from K6,965,000,000 in 2006 to a deficit of


K290,411,000,000 in 2008. In this regard, Zamtel ltd was technically
insolvent. The Government, being the shareholder provided a letter of
comfort giving an undertaking to provide such support as was necessary
to ensure that it continued as a going concern. The lack of working capital
resulted in the company incurring huge penalties on its obligations. As of
31st March 2009, Zamtel ltd had incurred penalties and interest to Zambia
Revenue Authority totalling K78,200,000,000.

It was also observed that the company had been operating below the
standard current ratio of 2:1. The trend over the period was that the ratio
continued to worsen from 1.03 in 2006 to 0.34 in 2008.

Although Zamtel ltd had a debt policy of 30 days, it was observed that
the company took between 88 to 170 days to collect its debts.

ii. Uncollected debts

A review of debtors’ records revealed that the company had uncollected


debts from private institutions amounting to K173,485,715,184 as of June
2009. An additional amount of K17,036,246,322 was owed by the
Government as of March 2009 bringing the total debt to
K190,521,961,506.

It was observed that debts in amounts totalling K12, 865,000,000 were


classified as irrecoverable.

130
iii. Gearing

Zamtel ltd heavily relied on debt and as a result, the finance costs
(interest) had increased from K10,301,000,000 in 2006, K17,360,000,000
in 2007 and K18,318,000,000 in 2008 as shown in the table below:

2008 2007 2006


K'Million K'Million K'Million

Debt A 155,032 211,336 185,179


Debt + Equity B 38,380 209,005 326,494
A/B *100 C 404 101 57

iv. Share Capital and Reserves

The authorised share capital remained at K6, 000,000,000 divided into


300,000,000 shares of K20 each. The issued and fully paid share
capital remained unchanged at 127,250,000 ordinary shares of K20
each translating into K2, 545,000,000. It was observed that no additional
capital had been injected by the shareholders since its establishment in
1994.

d. Procurement of Goods and Services

i. Memorandum of Understanding with M.DOT Mobile SDN BHD

In February 2007, ZAMTEL and M. DOT Mobile SDN BHD of Malaysia


entered into a Memorandum of Understanding to provide enhanced
telecommunications operations, specifically in the areas of provision of
affordable mobile handsets, management of international mobile
equipment identity facility and enhancement of capturing of revenues
from the grey market.

However, there was no evidence to indicate that board approval was


obtained to enter into the MoU with M. DOT Mobile SDN BHD of
Malaysia.

ii. Supply of 20,100 Network Locked Phones

In March 2007, ZAMTEL requested for authority from the Zambia


National Tender Board to single source M. Dot Mobile SDN Company of
Malaysia for the supply of 20,100 mobile phones at a cost of
US$664,250.

131
In response, ZNTB stated the following among other things:

· The method used to identify the recommended supplier was not


conducted in a transparent manner;

· Zamtel ltd could increase its customer base by having network


locked phones, when the norm of the day was having one hand set
and several sim cards from different networks for convenience;

· Low cost phones were usually associated with a high maintenance


costs on the part of the purchaser; and,

· Zamtel ltd was obliged to invite a formal tender for the supply and
delivery of 20,100 mobile phones in order to enhance transparency
and competition.

iii. Failure to follow Tender Procedures

Contrary to the directive by ZNTB that ZAMTEL invites a formal tender,


the company floated a selective tender to six (6) companies for the supply
of low cost network locked phones. The tender documents revealed that
only two (2) companies responded. The two (2) companies that responded
were sister companies namely M Dot Mobile SDN. BHD of Malaysia and
M. Mobile Telecommunications of Zambia.

The sister companies quoted the same unit price, warranty and other
specifications except that the quotation from M. Mobile
telecommunications of Zambia included a charge of US$375 as transport
charges from Lusaka to Ndola.

Further, it was observed that although M Dot Mobile SDN of Malaysia


was awarded the contract at a total cost of K3,215,836,15, a preliminary
evaluation indicated that they did not qualify.

iv. Wasteful Expenditure

In August 2008, ZAMTEL shipped 14,300 phones back to the supplier as


they were found to be faulty and were still under warranty. However,
there was no response from the supplier and consequently in March 2009,
ZAMTEL retrieved the phones which were marooned at the airport. In
this regard, ZAMTEL spent a total of K868,247,554 of which
K534,144,770 was in respect of storage charges in Malaysia.

132
Enquiries with management revealed that the phones had been retrieved
and had since been disposed of by selling them to the unsuspecting public
during the ‘Amabondi na 4x4 Promotion’.

v. Procurement of Card phone Booths, Payphone Management System


and Mobile Telecentres

On 24th November 2004 ZAMTEL entered into a contract with ASCOM


SA of France to procure 500 Cardphone booths, Payphone
Management System (PSM) and Mobile Telecentres at a total cost of
K2,698,634,717.00 (Euro445,081.00).

The contract stated among other things that; that ASCOM SA shall
supply 450 Exanto Card payphones, Software licence for connecting 500
Exanto and 170 GNT Payphones. PSN 150 Centre valued at
Euro445,081.00, and that ASCOM SA shall be obligated to remedy
defects in the hardware during a period of 12 (twelve) months from the
date of production of the said hardware.

The following were observed;

· Failure of Payphone Management Software System

The public payphones became operational on 25th June 2005 and


were only operational for a period of 25 months before they ceased
operation on 4th July 2007 due to failure of the payphone
management system software (PSM). The PSM software was not
covered with a maintenance agreement in case of failure.

· Loss of Revenue

Zamtel ltd procured 300,000 pay phone cards from Gemplus South
Africa at a total cost of K1,196,026,159 and with a market value of
K4,500,000,000.

Out of the 300,000 pay phone cards procured, a total of 211,064


cards with a market value of K 3,286,070,000 were still in stock as
of 30th June 2009 as a result of failure of the PMS. The total
revenue locked up in pay phone cards as a result of the failure of the
PMS was K21,855,095,000. This figure included the 37,137 cards
of K500,000 denomination totalling K18,568,500,000 which were
donated.

133
e. Un Accounted for Cell Z Scratch Cards

In December 2005, ZAMTEL procured and received 1,370,000 Cell Z Scratch


Cards of 10,000 denominations from Namitech of South Africa at a cost of
$75,350.
A physical inspection at Lusaka stores and inquiries with management in July
2009 revealed that 291,900 scratch cards valued at K2,919,800,000 were
unaccounted for.

f. Capital Projects

i. Poor Management and Implementations of Projects

Zamtel ltd undertook various projects during the period under review
which included the following among others:

Amount Contract
Project US$ Date
National Optic Fibre Project 48,000,000 14-Nov-06
GSM phase I 21,500,000
GSM phase II 38,000,000 4-May-04
GSM III 25,000,000 4-May-04
Rural telephone Project 23,000,000 6-Dec-07

It was observed that although the Company had signed contracts and
work had commenced on the National Optic Fibre, GSM phase III and the
Rural Telephone Projects, the company had not secured funding for the
projects as of June 2009. A review of the schedule of works done as at
31st March 2009 indicated the following:

Work Done Paid Outstanding From


Project
US$ US$ Work Done
US$
Optic Fibre 29,894,473 3,050,000 26,844,473
GSM III 16,292,386 1,500,000 14,792,386
Rural Telephone 5,862,691 900,000 4,962,691

ii. Delayed Implementation of Projects

The company did not implement its projects on time, for example, the
supply, delivery, installation and commissioning of GSM cellular
telephone system which commenced in 2002 and was to be completed in

134
ten (10) months at a cost of US$21,570,244 was only completed in
November 2007.

iii. Lack of Return on Investments

Although there was no evidence to indicate that Zamtel ltd had recouped
from the investments in GSM phase I and II implemented at a total cost of
US$59,622,905, at the time of the audit in June 2009, the company was in
the process of implementing GSM phase III .

iv. Inadequate Provisions in Bill of Quantity – SDH Optical Backbone


Transmission Contract

In November 2006, ZAMTEL entered into an agreement with Huawei


Technologies Co. limited for the design, supply, delivery, installation and
commissioning of the optical backbone transmission network. The project
cost on the foreign component was estimated at US$48,135,590 net of
tax. The contract provided that ZAMTEL would foot the local cost
component relating to taxes, supervision, monitoring and other project
management costs.

The contract further provided that any quantities set out in the price
schedule were estimated quantities and were not to be taken as the actual
and correct quantities of the works which the contractor was required to
execute.

v. Lack of Detailed Design

The detailed design for the project was done after the project came into
effect thereby making the bill of quantities in the contract inadequate as
the detailed design had more quantities than the estimate.

In this regard, in May 2009 following a claim from the contractor for
work done over a stretch of 634Km, the contract price was revised
upwards by US$3,351,305.

vi. Delayed Completion

Although the contract commenced in June 2007 for a period of 18


months, as of June 2009 the project was less than 50% complete.

135
g. Under Utilisation of Exchange Capacities

i. The Public Switched Telephone Network (PSTN)

The total capacity for the PSTN telephone exchange system as of March
2009 stood at 161,422 lines while the number of connected customers
was 84,774 representing 53% capacity utilization.

ii. Global System for Mobile (GSM)

In October 2007, Zamtel ltd entered into a contract with ZTE Company
for the supply, delivery, installation and commissioning of the GSM
Cellular Telephone System at a total contract sum of USD $25,079,226.
The contract was aimed at increasing the exchange capacity from 150,000
to 800,000.

As of March 2009, the number of connected customers was 289,968


giving a total capacity utilization of 36%, while the number of active
customers who remained active on the network within a period of 24
hours stood at 89,608 representing 11% capacity utilisations.

h. Obsolete Operational Equipment

A review of the report on the status of the equipment for telephone switching
and transmission systems as of March 2009 revealed the following among
others:

The company telecommunications network comprised of ninety five (95)


telephone exchanges (PSTN) and one (1) GSM switch in operation. Seventy six
(76%) percent of the exchanges were digital while twenty four percent (24%)
were still analogue.

Although seventy-six percent (76%) of the exchanges were digital, forty-four


percent (44%) were obsolete and were no longer supported by manufacturers.
Overall, forty-nine percent (49%) of the exchanges were obsolete resulting in
constant outages, poor quality of service and consequently loss of revenues.

i. Staff Related Matters

i. Irregular payment of Gratuity

Minutes of the special board meeting held on 22nd January 2006 on the
report of the remuneration and establishment committee on the
remuneration of the Managing Director and the two (2) General

136
Managers revealed that the board resolved among others that the clause
in the contracts under gratuity should be recast in respect of the tax
component so that the sentence ”the company will bear tax” should not
be reflected.

Contrary to the board resolution, a review of contracts for three (3)


officers revealed that gratuity would be paid at the end of the contract
period at the rate of thirty five per centum (35%) of the employees total
basic salaries earned over the three (3) year contract period and that the
employees shall be paid the gross amounts.

In this regard, the company irregularly paid tax in the sum of


K186,211,258 on behalf of the three employees.

ii. Irregular payment of gratuity on accrued leave days

The contracts of employment for top management provide that gratuity


would be paid at the rate of thirty five percent (35%) tax free of the last
drawn annual salary together with accrued leave days and that tax shall
be paid by the company.

It was observed that the condition of service was questionable in that the
company paid gratuity on commuted leave days.

A test check of records relating to gratuity for top management between


2006 and 2009 revealed that the company paid a sum of K128,352,942
to sixteen (16) members of staff as gratuity on leave days. This was in
addition to the company paying cash in lieu of leave days.

iii. Outstanding Terminal Benefits

During the period under review, the company owed a sum of


K26,718,304,868 in unpaid retirement and deceased benefits as of
May 2009. The amounts had been outstanding from 2007.

j. Non-Payment of Statutory Contributions

It was observed that as of March 2009, the company owed amounts totalling
K433,018,088,724 to the three (3) institutions in unremitted statutory
contributions as shown in the table below:

137
Amount
Entity K Details
ZRA 322,894,687,816 PAYE
ZRA 78,200,000,000 Penalties (K58.3 billion)
Interest (K19.9 billion)
NAPSA 11,968,189,329 Pension
ZSIC 19,955,211,579 Pension
Total 433,018,088,724

CONCLUSION

26. This Report highlights various areas of weaknesses in the management of the
organisations audited. Weaknesses in the areas of maintenance of records, remittance
of statutory contributions and preparation of financial statements and annual reports are
of particular concern. In this regard, there is need for improvement in the management
of the organisations concerned.

UNRESOLVED RECOM MENDATIONS OF THE COMMITTEE ON


PARASTATAL BODIES

27. The Appendix to this Report on pages 141 to 148 contains unresolved issues reflected
in various reports of the Committee on Parastatal Bodies. As can be observed from the
list of unresolved issues, there has been little or no follow-up action by the affected
parastatals and it is likely that if timely action is not taken by the Executive, the
unresolved matters will increase to the extent that recommendations of the Committee
on Parastatal Bodies will be rendered meaningless.

AUDIT HOUSE ANNA O CHIFUNGULA FCCA, FZICA


HAILE SELASSIE AVENUE AUDITOR GENERAL
LUSAKA REPUBLIC OF ZAMBIA

3rd June 2010

138
Appendix

RECOMMENDA TIONS OF THE PUBLIC ACCOUNTS COMMITTEE ON


PARASTATAL BODIES WHICH HAVE NOT OR HAVE BEEN PARTLY
BEEN IMPLEMENTED

Report of the Auditor General on the Review of the operations of the Public
Service Pensions Fund from the period January 1997 to March 2002

6 (5) Local Investments - As regards the current position of


the matters raised, the
investigations on the purchase of
properties in Jesmondine and
Kalundu.

13 (4) Unclaimed Monthly Pension - As regards the current position on


the matter.

19 (20) Local Bank Accounts - As regards the current position on


the matter.

24 (25) Government Indebtedness to - As to whether the Government


the Fund debt to the fund had since been paid.

25 (26) Indebtedness of ZAMPOST to - As regards the current position on


the Fund the interest

26 (27) Computerisation of the Fund’s - The current position on the matter


Records

29 (30) Financial Position of the Fund - As regards the current position on


the outcome of the investigation
by the Task Force on corruption

Report of the Auditor General on Nanga Farms PLC (Transfer of CDC shares to
New World Farming Limited)

13 (11) Sale of Shares - As to whether the Government


holds 14.29 per cent shares in the
company and as to why the
directors who signed the no
objection letter were not
disciplined

139
Report of the Auditor General on the Review of the Operations of the Zambia
National Oil Company

9 (10) Management of the Company - As regards outcome of the appeal


against the judgement by the
receiver.

15 (19) Amendment to the Contracts - As to whether the Forensic audit


in the operations of ZNOC have
since been done.

18 (26-34) Subsidies to Oil Marketing - As to whether the amount of


Companies. US$48 million has been settled.

19 (35) Appointment and Payment to - As regards the current position on


Reciever/Manager the appeal by the Reciever.

20 (36) Appointment of Liquidator - As regards the current position on


the meeting with Government to
discuss outstanding issues on the
liquidation.

Report of the Auditor General for 1995 on the Accounts of Parastatal Bodies

42 (13) Management of the Board - As to whether the National


Housing Authority Act has been
amended.

Report of the Auditor General on the Operations of Zesco and Kariba North Ltd
for the financial year ended 31st December, 1998

6 (5) Recapitalisation - As regards the current position on


the matter.

15 (15) Irregular Payment - Latest position on the matter.

26 (26-27) Education Allowance paid to - As to whether the amount paid


the General Manager erroneously has been recovered.
(K110,856,400)

26 (26-27) Purchase of Foreign Exchange - The current position on the


for Incidentals (US$ 39.136 and matter.
GBP 1,000)

27 (28) Directors’ fees and Responsibility - As to whether the amount of


Allowance (K8,199,000) K8,199,000 irregularly paid to
The Managing Director has
been recovered.

140
27 (28) Part Payment made for former - As to whether the amount of
Chairman’s gratuity and fees K6,000,000 was recovered
(K6,000,000). from the former Chairman

Recovery of funds from the - Latest position on the recovery


closed Bank (2.2 billion) of K2.2 billion in the closed bank.

27 (28) Unrecovered Investment - As to whether the liquidation has


Amounting K370,638,400 realised the assets and declared
as in above. dividends.

30 (31) Investments Bank Receipts - As to whether the liquidation has


(K40,000,000) realised the assets and declared
dividends.

Domestic Servant Allowance - As to whether the amount


education allowance and irregularly paid to the Managing
and Performance bonuses Directors have been recovered.

Over payment of Responsibility - As to whether the amount of


Allowance (K5, 599,500) K5,599,500 overpayment of
responsibility allowance has been
recovered.

Report of the Auditor General on the Accounts of Parastatal Bodies for the
Financial Year Ended 2004 Allowances

10 (11-13) Irregular Payment of Salaries - As to whether the former Chairman


and Allowances has been paid back the moneys
that were irregularly paid to him.

Purchase of Stationery - Regarding the outcome of the


Police and the Anti-Corruption
Commission Investigations

Procurement of carpets - As regards the progress made on


the matter.

Construction of Pre-Fabricated - As to whether the correctional


Building works have since been carried
out.
Payment for preparing of a - As regards the outcome of the
staff appraisal system. court case.
Sales of Motor Vehicles - Recommended for closure

141
20 (24) Consultancy fees - As to whether recoveries have
been made.

23 (28) Assets of the Agency - The current position on the


matter raised in (i) and (ii)

24-25 (29) Maize paid for and not - The current position on the
delivered matter

Loans obtained by the Food - The current position on the


Reserve Agency matter

27 (31-32) Contract of sale of Zambezi - The current position on the items


Sawmills (1968) Limited raised in (iii)

32 (37) 2004 Indebtedness of political - As to whether the various


Organisation and Politicians political organisations and
Politicians have since
honoured their obligations

33 (38) Procurements - Current position on the matter.

34 (40) Long Term Loans - As regards the current position


on the matter

Report of the Auditor General on the Accounts of Parastatal Bodies for the
Financial Year Ended 2005

29 (39) Unvouched Expenditure – - As regards the current position


failure to follow on the matter raised (a) – (d)

99 (130) Drugs paid for But Not Received - Regarding the current position
(K2,290,357,583) on the drugs paid for but not
received for K2,290,357,583.

10 (14) Failure to Constitute a Board - As to whether the Board has


since been constituted.

12 (14) Irregular Remuneration for the - As to the current position on


Managing Director the matter.

13 (17) Irregular Receipt of House Rental - As to whether the Attorney


General has since given
advice on the matter.

17 (22) Registration of Property to be - The current position on the

142
Transferred by Government matter

18 (23) Irregular Payment of Gratuity - As to whether the


and allowances investigations by ACC have
since been concluded

22 (27) Registration of Property Transferred - As to whether documents


by Government – Invoicing of relating to collections for
Chichele Lodge Based in South Chichele Lodge have been
Luangwa submitted for verification

Title Deed of Office Building - As to whether the title deeds


At the South Luangwa Area have since been issued.
Management Unit (S.Luangwa)

23 (28) Irregular Procurement of Uniforms - The current position on the


for Drug Enforcement Commission matter.

24 (29) Irregular Issue of Title Deeds in - The current position on the


Mosi-O-Tunya National Park matter

26 (31-32) Trade Debtors – (i) Chiawa Game - As to whether the tour


Management Area operators have started paying
(ii) Chiawa Community Resource - The current position on the
Board matter

38 (51) Other Irregularities (a) Board of - As to whether the full Board


Directors has since been constituted.

42 (48) Irregular Payment of Christmas - As regards the current position


Bonus on the matter

43 (59) Outstanding Pension Remittances - As to whether NACL was now


current in terms of pension
remittances

49 (66) Irregular Appointments of General - As to the current position on


Managers the matters raised (a) (b) (c)
(e).

55 (76) Loss of Shareholding - As to whether the Government


Restructuring – Profitability had since settled its
Indebtedness.

Insurance Brokers - The current position on the


matter.

Sales of House sub-division No. - Regarding the current position


1653 of Farm No. 441A Lusaka on the matter
Road, Roma, Lusaka

143
Actuarial valuation Report - As regards the current position
on the actuarial deficit of
K26.2 billion.

Pension Contribution - As to whether the arrears have


since been cleared.

56 (77-81) Operation of Village Industry - The current position on the


Service matters raised (i) (iv)

60 (86) Review of operations - As to whether the queries raised


Have since been addressed.

61 (87) Under Banking-Kalongola - Progress on the matter

62 (88) Irregular use of Company Funds - As regards the outcome of the


the court case.

63 (89) Failure to follow Tender - Measures taken to address


Procedures – Rehabilitation the queries raised.
of Lukulu Pontoon

64 (90) Failure to follow tender - As regards the current position


Procedures – Rehabilitation of on the matter
Kalongola Pontoon

67 (93) Lease of premises - Current position on the


matter in (a, b, c, e and f)

68 (94) Staff Debtors - As to whether the loan has


since been recovered

69 (95) Irregular Award of Salary - As regards the current position


on the matter

70 (96) Unapproved payments of - The current position on the


Christmas Bonus matter

71 (97) Questionable Payments of - Whether the matters raised have


Allowances since been addressed

72 (98) Non payment of tax from - Current position on the matter


Gratuity
The Managing Director - The current position on the court
case involving the Managing
Director

81 (108) Unvouched Expenditure - Latest position on the missing


Payment voucher, 9 cancelled

144
cheques and unsupported and
inadequately supported
payments.

Treasury Minute on the Report of the Public Accounts Committee on the Report
of Public Accounts Committee on the Report of the Auditor- General for 2006
Accounts.

Para 8 (6) Review of operations - As to whether the strategic plan for


2009-2013 has now been done and
progress on issues raised in (h) (l)
(m) (n) and (q)

Para 9 (7) Examinations Council - As to the progress made to address


to address the issues raised in (b)
(c) (d) (f) and (h).

Para 10 (8) Food Reserve Agency - As to the progress made to address


the issues raised in (b) (ii) (iii), (c)
(d) (f-g) (j) and (k-l).

Para 11 (9) Kafubu Water and - As regards the current position on


Sewerage Company the matters raised.

Para 12 (10) Mukuba Hotel Limited - Progress made to address the issues
raised in (a) (b) (c) (e) (f) and (h)

Para 13 (11) Mulungushi Village Complex - As regards the current position on


the matters raised (a-b), c (i-vii)

Para 14 (12) Provincial Health offices, - As to the current position on


Hospitals and Districts Health all matters raised (a-k, m, o, r)
Management Teams -

Para 15 (13) Tanzania – Zambia Railway - As regards the latest position


Authority on the matters raised (a) - (o)

Para 16 (14) University Teaching Hospital - The current position on issues


raised in (b), (c) and (d).

Para 17 (15) University of Zambia - As regards the latest position


matters raised in (a) (b) (c) (d)
(f) (j) (k) (l) (m)

Para 18 (16) ZAFFICO - As regards the latest position on


issues raised in (a) (b) (d)

Para 19 (17) Zesco Limited - As to the current position on the


issues raised (iv) (v) and all
other matters raised.

145
Para 21 (19) Zambia Flying Doctors - As to the latest position on the
Service matters raised in (c) – (g)

Para 22 (20) Zambia National Building Society - As to the progress made in


resolving the issues raised

Para 23 (21) Zambia National Tender Board - Latest position on the matters
raised.

146

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