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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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Bangwato regent speaks ‘respect for Dikgosi’

23rd May 2022
Bangwato

Presidential Commission of Inquiry into the Review of the Constitution held a meeting in Serowe this week. The meeting was to accord Bangwato, just like other tribes, a platform to give their opinions, contributions and what they think is the horse power and limitations of the current Constitution of Botswana.

Bangwato Regent, Kgosi Serogola Seretse said, he is of the understanding that the Commission has not come for anything apart from getting their opinions on how things could be made better. His contribution was that he solely knows of only two social positions in the world; Dikgosi and Pastors. He said other positions are just benedictions. He further urged that, Batswana should respect God’s ordained protocols such as Dikgosi and Pastors.

Seretse pointed out the importance of acknowledging and appreciating Dikgosi as nation builders. He cautioned and warned that, the Commission should ensure that their dealing with Dikgosi is harmonious. He called for an amendment to be made on the ‘National Order of Precedence’ noting that Dikgosi are put at number 11, but should at least be taken a little higher to number 7.

One resident, Tshepo Moloi while giving his contribution said there must be provisions of Social Justice that ensure equal distribution of resources to all citizens. He said this provision should entail an obligation that all citizen have equal opportunities to different Government Initiatives. Moloi substantiated that, all ‘Presidential Commissions’ be engraved on the Constitution

Alfred Thogolwane who is as well a resident of the biggest village in the Central District, pointed out the need for preservation of the country and resources thereof, saying “it must dawn onto all that, the calabash that fetches water for the family cannot fixed once its broken.”  Another resident, Keikantsemang Sebedi advocated for Polygamous marriage, saying that men should marry as many wives as they please. She said there is no need for any socioeconomic assessment done on men who wish to marry more than one wife.

She advised that, the country should benchmark from the Zezuru culture that does it, with no complexities. On the other hand, Sebedi said that, there must be considerations done on the Old Age Pension. She said people who earned P4000 should not receive the old Age Pension upon their fullness of age.  Forshia Koloi called for amendments on Section 77 and all the provisions that speaks to the subject of Bogosi and the powers infested in them. He said they should be made more detailed and avoid ambiguity in clauses.

Mr Tlhaodi said there must be Land Audits done in the country. Citing an example of the Tati Land as one that should be thoroughly audited. He further advised that, Election Day be put on the Calendar. He said, if it happens that the day be a Saturday, there should be some special dispensation for the 7th Day Adventist Church members to take part in voting without compromising on their day of worship. Tlhaodi added that there must be People’s Complaint Commission in the country.

Speakers emphasized the need for the country to review the exercise of ‘Political Party Funding’. They articulated that lack of funding political parties’ results in political parties resorting to finding funds for themselves. They reiterated that sometimes going to the extent of getting funds through illegal means. Bangwato agreed in one accord that they want the President be tried whilst in office if suspected of any criminal offences. This was revealed in their contributions. They pointed out that, the law should not to wait until the end of their tenure.

For his part, the Deputy Chairperson of the Commission Johnson Motshwarakgole expressed gratitude to the residents of Serowe. He applauded women for their kindness saying it is only them, who always take responsibility for doing things amicably in the society.

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Parliament unveils major shake-up plans & reforms

23rd May 2022
Parliament

Parliament has revealed that it plans to rollout a Community Score Card (CSC) exercise as part of sweeping reforms to its role and mandate among others.

The planed shakeup, along with the rollout of CSC will see creation of new Parliamentary Portfolio Committees on Health, HIV&AIDS, Education and Skills Development, Trade and Economic Development, Agriculture, Lands and Housing and Local Governance and Social Welfare.
Parliament informed government ministries and departments that the CSC is a participatory, community based monitoring and evaluation tool that enables citizens to assess the quality of public services and interact with services providers to express their concerns.

According to Parliament, the CSC will assist to inform community members about available services and their entitlements and to solicit their opinions about the accessibility and quality of certain services related to the portfolio committees mentioned.  It said the main objective is for Parliament through identified oversight committees is to conduct a participatory monitoring and evaluating process that puts ownership and responsibility for delivery of services in the hands of both the Government and the service recipients.

“Through scorecards developed around identified sectors and services, communities and implementing departments remain in touch with progress made through the programme delivery cycle and are able to respond timely to bottlenecks,” the National Assembly said.  Some of the measurements and expected outcomes for the rolling out of the CSC include among others, improved monitoring and economic evaluation, to determine the impact of spending, so as to be able to direct resources from where they having the least benefit to those projects and programmes where they will have a larger positive impact.

The National Assembly explained further that this could result in a willingness to close down ineffective programmes and institutions and not to implement projects that do not deliver adequate returns, improved productivity in the public services, especially given the substantial pay increases.

The National Assembly believes that the rolling out of CSC is also expected to result in efficiency savings: many public services and programmes could be delivered more effectively at lower costs, by improving management and accountability, and making use of e-services. “This would yield financial savings that could be used for development programmes or reducing the deficit,” the National Assembly said.

The exercise is also expected to result in “Careful scrutiny of subsidy schemes and termination of those that do not address market failure or assist truly needy Batswana.”  The National Assembly revealed that proposed Parliamentary Portfolio Committee on Health and Wellness has been established in accordance with the Standing of National Assembly of Botswana.  It explained that the mandate of the Committee is mainly to exercise Parliamentary oversight and scrutiny over Government Ministries, Departments and Agencies with portfolio responsibilities in respect of Health and HIV/AIDS.

“There is need to identify reasons for inefficiency and poor outcomes and ensure that health system reform improve productivity and value for money. Key areas of focus for scorecard, availability of drugs, staffing ratios, accessibility of health services, speciality care and services and sexual reproductively health,” the National Assembly said.

Another proposed Committee is on Local Governance and Social Welfare. The mandate of the Committee is mainly to exercise Parliamentary Oversight and Scrutiny over Government Ministries. Departments and Agencies with Portfolio responsibilities in respect of Local Governance and Social Welfare.

“Strategies under NDP 11 to improve outcomes of social uplifment include; diversification of rural economies, development and support of small businesses, provision of social safety nets, eradication of absolute poverty, provision of quality and equitable education and harmonisation of social protection programmes,” said the National Assembly.  It said social nets need to be improved so as to target these most in need (at present some social safety nets benefit many people who are not the most needy, but also miss out some of those who are needy).

“Some social development policies more broadly should also aim to reduce household vulnerability to shocks such as those arising from fluctuations in agriculture, climate change, incomes and employment and improve their ability to handle shocks, thereby building household resilience,” the National Assembly said.

Another Committee established is on Agriculture, Lands and Housing. The mandate of the Committee is mainly to exercise Parliamentary oversight and scrutiny over Government Institutions, Departments and Agencies with portfolio responsibilities in respect of Agriculture, Lands and Housing.

The National Assembly said the average growth rate of the agricultural sector since the beginning of National Development Plan 11 (NDP11) (i.e. during the 2017/2018 and 2018/19 financial years) was 2.5 percent, making it the slowest growing sector of the economy, in line with its historical performance.

“Over the same period, its share of GDP has been stagnant at around 2 percent. The sector also contributes job opportunities for about 80 000 adults. Food security has become paramount since the onset of the corona virus pandemic,” the National Assembly said.  The National Assembly said the Government realises the need to increase food production for products in which Botswana has a cooperative advantage such as beef, grains and other horticulture products.

The Committee on Finance, Trade and Economic Development has also been established. One of the mandates of Committee would be to exercise Parliamentary oversight and scrutiny over government ministries, departments and agencies with portfolio responsibilities in respect of Finance, Development, Trade and Industry.

“The sector is at the core of industrialisation aspirations and strategies for economic development in Botswana. Manufacturing in particular can be the driver of economic growth through technological improvements and innovation,” the National Assembly said. Hence, it said, the development of the sector could also foster export diversification and export led-growth in Botswana while benefitting from the African Continental Free Trade Area (AFCFTA).

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Salbany, Bareetsi threaten to sue DIS

23rd May 2022
Salbany Bareetsi

Two senior members of Directorate on Corruption and Economic Crime (DCEC) have threatened legal action against Directorate of Intelligence and Security (DIS), it has transpired. The threat is contained in an answering affidavit of Director General of DCEC, Tymon Katlholo in which he is seeking an interdiction from High Court to stop the DIS from accessing investigation files at his office.

After the DIS detained DCEC officials Joao Salbany and Tsholofelo Bareetsi on December 16, 2021, they filed an official complaint against DIS and some officials. They complained about abuse of office by DIS and five officers. Salbany and Bareetsi also complained about unlawful detention by DIS and unlawful dissemination of classified information contrary to Section 44 of Corruption and Economic Crime Act. “The DIS interviews were premised on information divulged during the course of official DCEC work product, that is the Monday media brief meeting,” they wrote.

They further requested leave to institute a civil suit against the DIS and its officers, and invariably the State for inhuman and degrading treatment they suffered and unlawful detention. They also pondered a declaratory seeking a sanction against the DIS and Botswana Police Service (BPS) and clarification of the role of BPS officers seconded to DIS.

“The envisaged suit against BPS and DIS officers and the DIS will inevitably centre on investigations done by the DCEC and the scope of the protection availed to DCEC officers for conduct done in the course and scope of DCEC official duties.” The duo said it was self-evident from the conduct of the DIS officers that there was nothing urgent about the information required by the DIS, justifying their detention at its Sebele facility from 08:30 hours on December 16, 2021 until 02:00 hours on December 17, 2021.

They reasoned that the information required by the DIS could have been obtained by a simple request to DCEC Director General. “What the DIS did was to seek to intimidate officers of the DCEC whom they knew were carrying out investigations against some of the DIS officers who were part of their investigation team. This turn of events has a chilling effect not only on the functioning of the DCEC but also on the official conduct of officers of the DCEC as to how they conduct their official duties.”

They concluded by stating that in the event the request is granted, they would further request to be advised as to the provision of legal representation as the unalwful detention and the degrading and inhuman treatment by the DIS was in relation to matters conducted by and on behalf of the DCEC.

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