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Botswana Railways vulnerable to fraud – Audit

A recent audit report on the Botswana Railways (BR) points to violations of International Accounting Standards (IAS), poor internal controls and disregard for laid down company procedures and policies. All these maladies have exposed the organisation to incorrect information that distorts its financial position, and more worryingly left the company vulnerable to fraud.

The auditors took concern with what appeared to be a large variance between the financial statement presented and the trial balance, querying as to why there seems to be an overstatement of the operating costs and understatement of Administration, Marketing and Other Expenses, relative to the figures shown in the trial balance.

The operating costs were overstated by P2 867 550.18 and the Administration, Marketing and Other Expenses understated by P2 869 759.25. The differences, according to the auditors, could be the opposite of true and fair representation of the financial statements.

In response to the query,  The management of BR posited that the difference were due to them rounding off figures to the nearest thousand, however they admitted to wrongfully classifying certain classes and they countered by offering new figures which have been reclassified accordingly albeit lower than what they had initial claimed.

As one peruses the audit report it then becomes clearer as to why there has been errors and misstatements that passed through without being identified and corrected. The auditors laid bare their concern regarding an internal audit plan which was not fully executed due to understaffing.

The BR organisational structure entails four employees under the Internal audit manager, but that was not the case as they lost two internal auditors in 2014, one in August and the other in November, leaving internal controls lax as planned audits could not be completed. It took BR an average of 4 months to appoint each internal auditor, effectively meaning the internal audit was understaffed for 8 months. In mitigation, the BR says all areas which were not audited for the financial year under review have been carried forward to 2015/2016 and are in the process of being finalised.

NO REGARD FOR INTERNATIONAL ACCOUNTING STANDARDS

The audit report has also uncovered what seemingly appears to be lack of regard for International Accounting Standards (IAS) as BR violated the standards on more than one occasion. In one instance, the auditors noted that the lack of adherence to some provisions of IAS 20 meant that the Deferred Grants account is misstated by the unrecognised costs related to the items that the grants were intended for. The auditors also found out that the railway company was in violation of IAS 2, the fundamental principle being that inventories are required to be stated at the lower of cost and net realisable value.

A discussion between auditors and management revealed that all inventory is stated at cost. The closing balance for inventories was P73, 267, 796.97, none compliance to IAS 2 means that the inventory may be overstated. In perhaps the most perplexing violation of the basic IAS 1 which governs the presentation of financial statements, BR failed to separate deferred lease rental into current and non-current liabilities resulting in long term liabilities overstated by P1 175 000.00, which should have been classified as current liabilities.

In several findings, the auditors picked up cases of misallocation of assets which could result in misstatements. The Asset Replacement Reserve (Equity) account is represented by the Asset Replacement Fund Investment (Asset) account. It was revealed that in the reserve account funds not utilised stood at P52 808 610.03 as at 31 March 2015, however the investment account as at the same date shows that the funds available are P25 111 653.72, leaving a difference of P27 696 957.21, which lead the auditors to posit that there is a possible misstatement of that difference in the reserves account.

Furthermore they advised the BR management to reconcile the two accounts by updating the reserve account with the transactions that occurred since the account was last updated so it reflects the actual funds available to the company. The management said it will refer back to its journal to equate the two. Similarly, the auditors’ report that the General Insurance Reserve Account and the Accident Reserve Account have balances of P57 508 459.96 and P25 111 653.72, which means the transactions that appear occur in the Accident reserve fund are not captured in the General Insurance Reserve account resulting in the account to be stagnant from previous period hence a possible overstatement of about P32 396 806.24. Management has since undertaken to equate the two accounts so they reflect the true funds available.

LACK OF PROPER CONTROLS AT BOTSWANA RAILWAYS

The lack of proper controls at BR, particularly on procurement could put them in a collision path with their suppliers. In the Audit report, it was revealed that BR risks running out of fuel due to late delivery from suppliers, moreover it was revealed that on two occasions they received more fuel than they have ordered, in other instances the quantity delivered did not match the invoice order, with some extra quantity not paid for.

This opens the organisation to unnecessary liabilities and expenses as well as disputes with suppliers. In another startling revelation, the BR purchased goods worth P239, 217.56 in August 2013 of which auditors found the goods are still yet to be reported as received. Furthermore there is no documentation indicating any follow up attempts by BR for the delayed delivery of goods.

In a shocking twist, it was noted that BR has not adhered to the Finance and Accounts Manual which requires the supplies department to take a physical count of stock items on a regular basis such that all items are counted at least once a year, and some are counted frequently. Therefore stocks worth P8, 848, 152.47 were not counted, leaving the country vulnerable to misstatements of true value as some of the uncounted stock could have been damaged or stolen.

Further compounding the matter was the likelihood that BR could have lost some assets as the organisation again went against its Finance and Accounts Manual Volume which allows for the verification of fixed assets to be undertaken every alternate year under the guise of Chief Internal Auditor and representatives of the concerned departments. This is done to verify actual assets in hand and value.

But it was revealed to the auditors that BR did not carry out physical asset verification exercises in 2013/2014 and 2014/2015. Therefore the condition and existence of some assets cannot be ascertained. It was also noted that BR has no asset management policy hence assets maybe be over-valued by obsolete assets and inventory.

ACCUMULATION OF NEGATIVE LEAVE BALANCES

In an apparent violation of the General Condition of Service, chapter 10, paragraph 1(a) which act as a guide to leave days other than sick leaves, it was found that five employees have negative leave balances, which BR is still to provide reasons for the accumulation of negative leave balances. The audit report notes that provision for leave Pay has therefore been understated by P236, 697.43 due to negative leave balances.

According to the auditors, BR’s revenue system has several shortcomings; it has a weakness of freezing and hanging on invoices while the user is still transacting, in some cases counter sales report omits invoices that have been processed during the day resulting in cash deposit being more than the counter sales report, and even for invoices that have been printed, sometimes they don’t appear in Small Bank report such that cash deposited for the day is more or less than the invoices processed for the day.

The system is also known to prevent an invoice from showing in both the counter sales report and the Small Bank report. As a result, the system opens the organisation to various risks. “Completeness of revenue cannot be ascertained when there are gaps in invoice sequence and sales report and revenue cut-off is challenged due to some invoices showing on later periods,” stated the report.

Other controversial findings in the audit report have put sharp focus on the finance department’s lackadaisical approach in handling of accounts, sparking fear of possible embezzlement and fraud. The fears arise as a result of the organisation’s poorly prepared bank reconciliations. As per normal procedure, monthly bank reconciliations are prepared by an accounts officer, then proceed to be checked by the supervisor or the financial accountant who then passes it to the finance manager to review the bank reconciliation.

However, the findings point to a different reality as eight bank accounts belonging to the organisation have been checked but not reviewed. “It was discovered during audit that these controls are not consistently adhered to as shown,” noted the report which then proceeded to warn BR that fraud and misappropriation of funds may not be detected if controls are not adhered to.

The report also revealed that some supporting documents differ from bank reconciliation, in this case the bank reconciliation and the cash book reconciliation statement had variances that were picked by auditors. The cash book reconciliation is a system generated report that shows unpresented cheques, unpresented deposit and the month end balance.

The unpresented cheques and unpresented deposit figures in the bank reconciliation should be same as those in the cashbook reconciliation statement but the differences for unpresented deposit for January was at P251, 198.87 while the unpresented cheques for the same period showed a difference of P250, 913.88.

POORLY MAINTAINED ACCOUNTS

Furthermore, some accounts have not been properly maintained giving leeway to funds misappropriation. In one case it was found that the interbank transfer clearing account for the month of March 2015 was not maintained, the account should have a zero balance at any point but it had P139, 080.24, prompting auditors to say cash recorded in this account might not belong to Botswana Railways.

Another account was poorly maintained as it had gone for months with neither bank reconciliation nor cash book reconciliation to support bank reconciliation as a result amounts might have been incorrectly recorded in the wrong account and wrong period. There was a wrong classification concerning the Sea Rail Botswana account which classified the amount of P1, 732, 741.2 as cash at the bank and on hand even though this money had been transferred into another Sea Rail account in Namibia, a subsidiary of Botswana Railways.

Therefore there was a misstatement in the Botswana account while the one in Namibia was understated.  

Botswana Railways also fumbled in other financial transactions, the spotlight being on accounts payable control among other transactions. It was revealed in the audit report that the payable control was overstated by P398, 250.50 as the money was paid out to the supplier but yet it was still reflected as outstanding. Moreover a payment that was made to the tune of $10, 491.61 was shown as being outstanding despite it being paid.

The railway company also failed to convert a provisional amount of R13, 835, 174.84 to pulas thus the overstatement of the sundry creditors account due to the difference between the rand and the pula equivalent. It has since been revealed that the organisation’s policies have not been followed especially by the tender committee which has the habit of acting beyond its scope.

The committee can only deal with tenders up to the limit of P250, 000.00 but it has since been revealed that they engaged a leading audit firm for services totalling P296, 926.56, a clear violation that flies in the face of the organisation’s laid down procedures. “If policies are not followed, the organisation may be susceptible to fraud and mismanagement of funds” read part of the report. It has been noted that there is no documentation to substantiate the engagement of that particular audit firm.

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BONELA speaks on same-sex decriminalization case

18th October 2021
BONELA

In June 2019, a case involving the Attorney General was brought before the High Court, in which the applicant Letsweletse Motshidiemang challenged Sections 164 (a) and 167 of the Penal Code. The applicant contended that these sections are unconstitutional because they violate the fundamental rights of liberty and privacy. 

The applicant argued that these sections violated his right and freedom to liberty as he was subject to abject ignominy. These laws subjected the LGBTIQ community to brutal and debasing treatment through social control and public morality. On the 1st of November 2017, the Botswana High Court further allowed Lesbians, Gays and Bisexuals of Botswana (LEGABIBO) to join the case as amicus curiae.

However, in July 2019, the respondents, in this case, i.e. the Government, filed an appeal against this iconic High Court ruling seeking re-criminalization of homosexuality. Human Rights Group has criticized this move of the Government all over the world.  The appeal was heard before five judges at the Court of Appeal on Tuesday. The State was represented by Advocate Sidney Pilane, while LEGABIBO and Letsweletse Motshidiemang were represented by Tshiamo Rantao and Gosego Rockfall Lekgowe, respectively.

Non-Governmental Organizations advocating for the LGBTIQ+ community joined the two parties at the Court of Appeal during this case. They argue that the minority group should enjoy their rights, especially the right to privacy and health. Botswana Network on Ethics, Law and HIV/AIDS (BONELA) Chief Executive Officer, Cindy Kelemi says the issues being raised by LEGABIBO are that as individuals belonging to the LGBTIQ community, they have and must share equal rights, including the right to privacy, which also speaks to being able to involve in sexual activities, including anal sex.

“Those rights are framed within the constitution, and therefore a violation of any of those rights allow them to approach the courts and seek for redress. We do not need the law to be regulating what we do in the privacy of our homes. The law cannot determine how and when we can have sex and with who, so the law does not have any business in that context. What we are saying is that the law is violating the right to privacy,” she said on the sidelines of the decriminalization case in Gaborone on Tuesday.

The first case involving the homosexual act was the Utjiwa Kanane vs the State in 2003. Contrary to section 164(c) of the Penal Code, Kanane was charged with committing an unnatural offence and engaging in indecent practices between males, contrary to section 167. The conduct at issue involved Graham Norrie, a British tourist, and occurred in December 1994. (Norrie pleaded guilty, paid a fine, and left the country.)

Kanane pleaded not guilty, alleging that sections 164(c) and 167 both violated the constitution. The High Court ruled that these sections of the Penal Code did not violate the constitution. Kanane then appealed to the Court of Appeal. BONELA CEO recalls that in its judgment then, the High Court indicated, Batswana were not ready for homosexual acts. Twenty years later, the same courts are saying that Batswana are ready, she says.

“They gave the explicit example that shows that indeed Batswana are ready. There are policies and documents in place that accommodate people from marginalized communities and minority populations. The question now is that why is it hard now to recognize the full rights of an individual who is of the LGBTI community?” She further says intimacy is only an expression. The law that restricts homosexuality makes it hard for LGBTIQ members to express themselves in a way that affirms who they are.

“We want a situation where the law facilitates for the LGBTIQ community to be free and express themselves. The stigma that they face in communities is way too punitive. They are called names; some have been physically violated and raped at times. It shows that the law doesn’t not only prevent them from expressing themselves, it also exposes them to violence.” The law on its own, Kelemi submits, cannot change the status quo, adding that there is a need for more awareness and education on human rights and what it means for an individual to have rights.

“As it is now, it is very tough for some to do that because of a legal environment that is not enabling. We also want to see a situation where LGBTIQ+ people can access services and be confident that they are provided with non-discriminatory services. It is challenging now because health care providers, social workers and law enforcement officers believe that it is illegal to be homosexual. What we are saying is that if you have an enabling law, then that will facilitate for people to be able to express themselves, including accessing health services,” Kelemi said.

“As we are doing this advocacy work, one of the issues that we picked up is that there is lack of capacity, especially on the part of healthcare workers. We noted that when we provide services or mobilize Men who have sex with other men (MSM) to access health facilities, health care workers are not welcoming, forcing them to hideaway. We must put an end to this to allow these people the freedom that they equally deserve.”

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Masisi warns Gov’t officials

18th October 2021
President Masisi

The President, Dr Mokgweetsi Masisi, has declared as an act of corruption the attitude and practice by government officials and contractors to deliver projects outside time and budget, adding that such a practice should end as it eats away from the public coffers.

For a very long time, management problems and vast cost overruns have been the order of the day in Botswana, resulting in public frustrations. Speaking at the commissioning of the Masama/Mmamashia 100 Kilometres project this week, Masisi said: “There is a tendency in government to leave projects to drag outside their allocated completion time and budget. I want to stress that this will not be tolerated. It is an act of corruption, and I will be engaging offices on this issue,” Masisi said.

In an interview with this publication over the issue, the Director-General of the Directorate on Corruption and Economic Crime (DCEC), Tymon Katholo, says, “any project that goes beyond its scope and budget raises red flags.” He continued that: “Corruption on these issues can be administrative and criminal. It may be because government officials have been negligent or been paid to be negligent by ignoring certain obligations or procedures. “This, as you may be aware has serious implications on not only of the economy but even the citizens who use these facilities or projects,” Katlholo said, adding that his agency is equally concerned.

According to the DCEC director, the selection, planning and delivery of infrastructure or projects is critical. In most cases, this is where the corruption would have occurred, leading to a troubled project. A public finance expert at the University of Botswana (UB), Emmanuel Botlhale, attributes poor project implementation to declining public accountability, lack of commitment to reforming the public sector, a decline in the commitment by state authorities and lack of a culture of professional project management.

In his research paper titled, ‘Enhancing public project implementation in Botswana during the NDP 11 period,’ Botlhale stated that successful implementation is critical in development planning. If there is poor project implementation, economic development will be stalled.
Corruption is particularly relevant for large and uncommon projects where the public sector acts as a client, and experts say Megaprojects are very likely to be affected by corruption. Corruption worsens both cost and time performance and the benefits expected from such projects.

Speaking during this week’s Masama/Mmamashia pipeline commissioning, Khato Civils chairman said Africans deserve a chance because they are capable, further adding that the Africans do not have to think that only Whites and Chinese people can do mega projects.  During his rule, former president Ian Khama went public to attack Chinese contractors for costing the government a move that ended up fuelling tensions between China and Botswana after Khama dispatched the then Minister of Foreign Affairs, Pelonomi Venson Moitoi, to China to register Botswana’s complaints with Chinese government-owned construction companies.  Botswana had approached the Chinese government for help in its marathon battle with Chinese companies contracted to build, among others, the failed controversial Morupule B power plant and refurbishment of Sir Seretse Khama International Airport (SSIK).

 

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Guma’s battle for millions of Pula give Court headache

18th October 2021
Guma Moyo

A legal battle between former Botswana Democratic Party (BDP) legislator Samson Moyo Guma and First National Bank (FNB) over a multimillion oil refinery project intensified this week with Justice Zein Kebonang referring the matter to Court of Appeal for determination.  The project belongs to Moyo Guma’s company called United Refineries which he has since placed under judicial management.

The war of words between Moyo Guma and FNB escalated after the company’s property worth millions of Pula were put up for sale in execution by the bank and scheduled to take place on 8th October. It emerges from Court papers that the bank had secured an order from the High Court to place the company’s property under the hammer.

Moyo Guma then also approached the High Court seeking among others that the public auction scheduled for 8th October 2021 be stayed. He contended that the assets that were to be sold belonged in reality to United Refineries and that as the company had been under judicial management at the time of the attachment, the intended sale in execution was unlawful.

He also sought the Court to declare that the writs of execution against the properties of guarantors and sureties of United Refineries Botswana Holdings Propriety Limited (the company) are unlawful.  Moyo Guma also sought a stay of the execution against the property known as Plot 43556 in Francistown, that is, the land buildings, plant and machinery which make up the property and any all immovable or movable property belonging to the guarantors and sureties of the company pending finalization of the winding up of United Refineries.

But FNB disputed Moyo Guma’s assertions and submitted that the properties in question belonged to TEC (Pty) Ltd and not United Refiners. TEC Pty Ltd which is one of the shareholders in United Refineries is one of the sureties and co-principal debtors of a debt amounting to P24 million owed by United Refineries to FNB.  FNB argued in papers that the properties belonged to TEC because it was TEC which had passed a covering mortgage bond in its favour over the property it now sought to execute.

Moyo Guma submitted that the covering mortgage bond passed in favour of FNB did not tell the full story as the property in question was in truth and fact owned by United Refineries and not TEC Pty Ltd. He maintained that the shares had been had been passed by the company in exchange for the properties in question and that the parties had always been guided by the spirt of the share agreement in dealing with each other despite delays in the change or transfer of ownership of plots 43556 and plot 43557 in Francistown.

Kebonang said it was clear to him that the two plots (43556 and 435570 belonged to United Refineries notwithstanding that TEC (Pty) Ltd had passed a mortgage bond over them in favour of FNB.  “For this reason the properties were immune from attachment or sale in execution so long as the judicial management order was in place,” he said.

The background of the case is that Moyo Guma together with five other investors, namely Elffel Flats (Pty) Ltd; Mmoloki Tibe; TEC (Pty) Ltd; Profidensico (Pty) Ltd and Tiedze Bob Chapi, each bound themselves as sureties and co-principal debtors in respect of a debt owed by a company called United Refineries Botswana Holdings (Proprietary) Limited (the Company), to First National Bank Botswana (FNBB) (1st Respondent).

FNB had extended banking facilities to the company in the amount of P24 million which was then secured through the suretyship of Moyo Guma and other shareholders.  Court records show that Moyo had on the 11th February obtained a temporary order for the appointment of a provisional judicial manager in respect of United Refineries and it was confirmed by the High Court on 24th September 2019.

In terms of the final court order by the High Court issued by Justice Tshepho Motswagole all judicial proceedings against the company, execution of all writs, summons and process were stayed and could only proceed with leave of Court. Court documents also show that First National Bank had sued the company and the sureties for the recovery of the debt owed to it and through a consent order, the bank withdrew its lawsuit against the company.

But FNB later instituted fresh proceedings against Moyo Guma and did not cite the company in its proceedings.  “There is no explanation in the record as to why the Applicant was now reflected as the 1st Defendant and why the company had suddenly been removed as the 1st Defendant. There was no application either for amendment or substitution by the bank,” said Justice Kebonang.

FNB had also argued that it sought to proceed to execute against Moyo Guma and other sureties on the basis of the suretyship they signed and that by signing the suretyship agreement, Moyo and other sureties had renounced all defence available to them and could therefore be sued without first proceedings against the principal debtor (United Refineries).  The question, Kebonang said, was that can FNB proceed to execute against Moyo Guma and other sureties on the basis of the suretyship contracts they signed?

“The starting point is that the Applicant (Moyo Guma) and others by binding themselves as sureties became liable for debts of the principal debtor and such liability is joint and several. He said the consequences of placing the company under judicial management means that every benefit extended to it should also extend to sureties.

“If the company is afforded more time to pay or its debt is discharged, reduced or compromised or suspended the obligation of sureties is to be likewise treated. It follows in my view that where judicial proceedings are suspended or stayed against the company, then any recourse against the sureties is similarly stayed or suspended,’ said Kebonang.

He added that “In the circumstances of this case, it seems to me that so long as the company is under judicial management, the moratorium that applies to it must also apply to its sureties/guarantors and no execution of the writs should be permitted against them. Any execution would be invalid.”

“Mindful that there is judicial precedent on this point in Botswana, at least none that I am aware of, and given its significance, I consider it prudent that the Court of Appeal must provide a determinative answer to the question whether a creditor can proceed against sureties where a company is under judicial management,” said Kebonang.

Pending the determination of the Court of Appeal, he issued the following order; the execution of writs issued in favour of FNB against Moyo and other sureties/guarantors of United Refinery are hereby stayed pending the determination of the legal question referred to the Court of Appeal.

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