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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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DPP halts JSC, Judge’s back to work plan

25th January 2021
Kebonang

The Directorate of Public Prosecutions (DPP)’s decision to reject and appeal the High Court’s verdict on a case involving High Court Judge, Dr Zein Kebonang has frustrated the Judicial Service Commission (JSC) and Judge Kebonang’s back to work discussions.

JSC and Kebonang have been in constant discussions over the latter’s return to work following a ruling by a High Court panel of judges clearing him of any wrong doing in the National Petroleum Fund criminal case filed by the DPP. However the finalization of the matter has been hanged on whether the DPP will appeal the matter or not – the prosecution body has since appealed.

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BDP rejects Saleshando payment proposal

25th January 2021
MP saleshando

Botswana Democratic Party (BDP) top brass has declined a request by Umbrella for Democratic Change (UDC) to negotiate the legal fees occasioned by 2019 general elections petition in which the latter disputed in court the outcome of the elections.

This publication is made aware that UDC Vice President Dumelang Saleshando was left with an egg on his face after the BDP big wigs, comprising of party Chairman Slumber Tsogwane and Secretary General Mpho Balopi rejected his plea.

“He was told that this is a legal matter and therefore their (UDC) lawyer should engage ours (BDP) for negotiations because it is way far from our jurisdiction,” BDP Head of Communications, Kagelelo Kentse, told this publication.

This spelt doom for the main opposition party and Saleshando who seems not to have confidence and that the UDC lawyers have the dexterity to negotiate these kind of matters. It is not clear whether Saleshando requested UDC lawyer Boingotlo Toteng to sit at the table with Bogopa Manewe, Tobedza and Co, who are representing the BDP to strike a deal as per the BDP top echelons suggested.

“From my understanding, the matter is dealt with politically as the two parties are negotiating how to resolve it, but by far nothing has come to me on the matter. So I believe they are still substantively engaging each other,” Toteng said briefly in an interview on Thursday.

UDC petitioners saddled with costs after mounting an unprecedented legal suit before the court to try and overturn BDP’s October 2019 victory. The participants in the legal matter involves 15 parliamentary candidates’ and nine councillors. The UDC petitioned the court and contested the outcome of the elections citing “irregularities in some of the constituencies”.

In a brief ruling in January 2020, Judge President Ian Kirby on behalf of a five-member panel said: “We have no jurisdiction to entertain these appeals. These appeals must be struck out each with costs including costs of counsel”. This was a second blow to the UDC in about a month after their 2019 appeals were dismissed by the High Court a day before Christmas Day.

This week BDP attorneys decided to attach UDC petitioners’ property in a bid to settle the debts. UDC President Duma Boko is among those that will see their property being attached with 14 of his party members. “We have attached some and we are on course. So far, Dr. Mpho Pheko (who contested Gaborone Central) and that of Dr, Micus Chimbombi (who contested Kgalagadi South) will have their assets being sold on the 5th of February 2021,” BDP attorney Basimane Bogopa said.

Asked whether they met with UDC lawyers to try solve the matter, Bogopa said no and added. “Remember we are trying to raise the client’s funds, so after these two others will follow. Right now we are just prioritising those from Court of Appeal, as soon as the high court is done with taxation we will attach.”

Saleshando, when contacted about the outcomes of the meeting with the BDP, told WeekendPost that: “It would not be proper and procedural for me to tell you about the meeting outcomes before I share with UDC National Executive Committee (NEC), so I will have to brief them first.”

UDC NEC will meet on the 20th of next month to deal with a number of thorny issues including settling the legal fees. Negotiations with other opposition parties- Alliance for Progressives and Botswana Patriotic Front (BPF) are also on the agenda.

Currently, UDC has raised P44 238 of the P565 000 needed to cover bills from the Court of Appeal (CoA). This is the amount in a UDC trust account which is paltry funds equating 7.8 per cent of the overall required money. In the past despite the petitioners maintaining that there was promise to assist them to settle legal fees, UDC Spokesperson, Moeti Mohwasa then said the party has never agreed in no way to help them.

“We have just been put in debt by someone,” one of the petitioners told this publication in the past. “President’s (Duma Boko) message was clear at the beginning that money has been sourced somewhere to help with the whole process but now we are here there is nothing and we are just running around trying to make ends meet and pay,” added the petitioner in an interview
UDC NEC has in December last year directed all the 57 constituencies to each raise a minimum of P10, 000. The funds will be used to settle debts that are currently engulfing the petitioners with Sheriffs, who are already hovering around ready to attach their assets.

The petitioners, despite the party intervention, have every right to worry. “This is so because ‘the deadline for this initiative (P10, 000 per constituency) is the end of the first quarter of this year (2021),” a period in which the sheriffs would have long auctioned the properties.

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Boko-Khama axis viewed with suspicion

25th January 2021
boko-and-khama

President of the Umbrella for Democratic Change (UDC) Duma Boko’s alliance with former President Lt Gen Ian Khama continues to unsettle some quarters within the opposition collective, who believe the duo, if not managed, will once again result in an unsuccessful bid for government in 2024.

While Khama has denied that he has undeclared preference to have Boko remaining as leader of UDC, many believe that the two have a common programme, while other opposition leaders remain on the side-lines.

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