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Financial irregularities rock ZNBC

Financial irregularities rock ZNBC
Written by George Chellah
Tuesday, June 30, 2009 3:05:19 PM

THE Auditor General's interim audit report on the Zambia National Broadcasting Corporation (ZNBC) has revealed several financial irregularities, which include losses incurred amounting to K6 billion, tax evasion on retirement and gratuity and hefty board allowances among others.

According to the interim audit report obtained by The Post, in an internal minute dated November 12, 2008 the minister of information and broadcasting services approved the new sitting and quarterly allowances for the board.

"It was however observed that the quarterly and sitting allowances had been backdated to July 1, 2008. In this regard, the board members received arrears in the sum of K104,200,000.00," the report stated. "It was also observed that the board and its subcommittees met 44 times between March, 2008 and March 2009. In this regard, a total of K384,300,000.00 was spent on board allowances during the period in question."

But ZNBC management's response to the above irregularity was that the application for review of the board's quarterly and sitting allowances was made on July 30, 2007.

"In that letter, the board chairman was seeking the minister's approval for an upwards review of sitting allowances so as to approximate the level obtaining in other public media at the time," management stated. "The minister's approval was silent on whether or not the adjustments were effective from the date of the letter of the request. After debating the matter in the board meeting of November 17, 2008, the board was of the firm view that the adjustments were applicable from the date that the approval was sought from the minister."

On board allowances, management responded: "The correct position is that the 44 board meetings were held over a period of two years, i.e. from March 2007 to March 2009."

Barclays Bank head of government relations Augustine Seyuba chairs the ZNBC board. The other board members are information permanent secretary Emmanuel Nyirenda, Sr Rose Nyondo, Elias Mpondela, Joseph Chileshe, David Chimpinde and Bertha Lishomwa.

The report further showed that the corporation operated without a strategic plan up to the year ending 2008 and that a strategic plan covering the period 2009 to 2014 had however been put in place at a cost of K54,045,312.

But in response ZNBC explained that, just like government, management was using its corporate budgets, which are prepared annually to run the corporation.

The report revealed that the corporation incurred losses of K1,821,145,000 in 2006 and K5,072,962,000 in 2007 and that interim results for 2008 showed that the situation was not likely to change.

"The losses are mainly attributed to staff costs which represented between 70 per cent and 80 per cent of turnover as opposed to the industry norm of 30 to 40 per cent," it stated.

In response, management agreed with the auditors that most of the financial resources were being spent on staff costs.

The report indicated that a review of the March 2009 payroll revealed that 43 per cent of the total payroll related to 74 management staff while 57 per cent related to 343 unionised staff.

Management's response was that: "Whereas the auditors concentrated on the payroll issues, staff costs constitutes all costs including those paid outside payroll."

The audit report stated 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. This factor is worsened by continued practice by management staff to lump the payment of Pay As You Earn tax on various allowances on the corporation," the report stated.

In response, management stated that the current statutory debt burden had been a matter of great concern to the current and past boards of directors.

The report additionally revealed that there was no policy or guidelines in place with respect to barter transactions and that there was no board approval authorising management to engage in such transactions.

"There was no proper documentation and records in the form of goods received notes (GRN) indicating goods or services exchanged. In this regard, 55 clients who were on ZNBC's barter account were owing the corporation K5,196,051,554.06 with regard to the sale of airtime. The amounts owed to ZNBC by the various clients ranged from K1,090,120 to K2,215,343,331.48. A review of selected client accounts revealed that the accounts were not reconciled on a regular basis. The implication of this control weakness is that individuals would easily collect goods for their personal use and pass on the bill to ZNBC," it stated.

But management's response was that whereas it was correct to say that there was no written policy per se on barter transactions, the guidelines were there.

According to the report, there was no evidence of a formal partnership agreement between ZNBC and the Zambia Amatuer Athletics Association (ZAAA) on the partnership of the Inter-Company Relay.

"The president of ZAA [Mpondela] who is chairman of the Inter-Company Relay was a board member of the ZNBC board and chairman of the finance/marketing and sales subcommittee of the board of ZNBC during the period under review. There was no evidence of the board member having declared interest. 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 questionable discount of 51 per cent (87,799,329.70)," the report stated. "A review of the ZNBC event budget and offer letter to ZAAA for the Inter-Company Relay race for 2009 revealed that out of the total cost of K383,747,769.79, ZNBC would absorb a sum of K263,747,769.79 and ZAAA was expected to pay only K120,000,000. The benefits to ZNBC from this transaction was however not properly quantified. As of May, 2009 the corporation had commenced the promotional campaigns for 2009 Inter-Company Relay."

ZNBC management in response stated: "Whereas it is correct that there is no formal partnership agreement in form of an MoU between ZNBC and ZAAA on Inter-Company Relay race, the relationship is born out through various correspondence between the two parties."

The report indicated that during the 2008 presidential by-election, the Electoral Commission of Zambia (ECZ) engaged Location Challenge Advertising Agency as its media agent for the presidential by-election.

"In this regard, Location Challenge entered into contract with ZNBC to place publicity and announcements on ZNBC TV valued at K970,384,121.03. The following were however observed that ZNBC irregularly paid Location Challenge a commission of K150,576,846.37 for sourcing business to ZNBC when the agent was acting on behalf of ECZ," the report stated. "It was further observed that Location Challenge irregularly withheld a sum of K97,000,000.00 out of a sum of K970,384,121.03 due to ZNBC. In unclear circumstances, management through a letter dated 28th November 2008 agreed to receive the K97,000,000 over a period of five months commencing December 2008. As of May 2009, Location Challenge had not paid ZNBC the withheld funds."

In response, management stated that Location Challenge was a duly registered ZNBC agent.

"In this connection, Location Challenge was entitled to commission for bringing business to ZNBC. It is also important to mention that the payments were made directly to Location Challenge by ECZ," they stated.

According to the audit report, as of March 2009, the corporation was owed a sum of K12,826,825,000 out of which K4,686,404,000 was possible bad debt.

The corporation's management agreed that there was need to put together a credit policy, which must be approved by the board.

The report also indicated that a review of the debtors accounts for the period April 2002 to March 2008 revealed that debts in amounts totaling K438,344,643 involving 35 clients were irregularly written off to the discounts and commissions accounts and that the accounts were given 100 per cent discounts.

In response management explained that debts were adjusted where after invoicing a client and that such a client writes to communicate non-performance of the contract by the corporation through the marketing department. They further explained that once verification was done then the adjustment would be passed.

On salary progression for the director general, the report stated that during the period of the contract July 2005 to July 2008, the director general's salary increased from K14,157,668 to K24, 448,833 per month representing an increment of 72 per cent.

And management stated that salary progression for the director general was based on individual performance and general staff increment awarded by the board.

The auditors further highlighted that management revised the value of salary notches in relation to the annual appraisals for contract staff effective October 2007 and that the increment was between 239 and 294 per cent.

Management agreed that the board did not sit to review the notch values.

The report revealed a questionable salary structure stating that the marketing manager who is in grade eight had an annual basic salary of K27,984,000 while the secretary to the director marketing who is in grade six had an annual basic salary of K37,220,000.

ZNBC management agreed with the auditors that the corporation had a defective salary structure.

It further indicated that contrary to the tax regulations, management was computing tax on retirement package and gratuity using PAYE rates as opposed to the rates for terminal benefits and qualifying gratuity.

"A review of the PAYE account revealed that the tax on retirement benefits and gratuity were written off thereby reducing tax liability. In this regard, a sum of K7,229,870,494.59 tax on retirement benefits and gratuity had been written off during the period April 2003 to March 2009," the report stated.

But ZNBC management dismissed this claim by the auditors, saying it was incorrect and totally misleading.

The report stated that during the financial year ended March 31, 2009 management consumed talk time worth K135,291,865.

Management stated that talk time was not an entitlement, explaining that it was an operational provision.

The report showed that the corporation disposed off six vehicles by public tender and that the offer letters for the successful bidders were dated between October 9 to 19, 2007, about twelve days before the tender closing date.

Management responded that the dates reflected on the offer letters had "typing errors."

The auditors noted that on November 3, 2008 the then 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 Hard Body ABG 934]. Contrary to company policy, the car was sold before a replacement was made. It was observed that the corporation sold the car at K14,579,786.25 as opposed to K32,788,125 resulting in under valuation of the K18,208,388.75," the report stated.

In response, management insisted that the depreciation rate used was correct.

The report disclosed that in November 2001, the corporation procured two Toyota Corona AAX 6155 and AAX 6156 at a cost of K23,100,000.00 each and that the vehicles were insured at a cost of K30 million each.

"On 12th January 2003, the then director of marketing Joseph Salasini's personal to holder car, AAX 6156 was stolen in Woodlands at gunpoint around 20:00 hours. On 31st March 2003, motor vehicle AAX 6155 belonging to marketing and sales department was stolen at the house of the then director marketing and sales Joseph Salasini around 03:30 hours less than three months after the other car was stolen," the report stated. "In an internal memorandum dated 4th April 2002 to the director of human resource from administration officer, it was noted that a white book for AAX 6155 went before the car was stolen. It was also observed that management had over-insured the vehicles at K30 million. However, the insurance company only paid K21,120,000.00 as compensation for each vehicle."

ZNBC management responded that it was difficult to establish whether there was negligence on the part of the officer as at that time there was a high rate of car thefts in Lusaka.

The report revealed that ZNBC paid K90,746,860 to Keroba Investments Limited to supply various studio equipment and that the supplier had not yet delivered the equipment resulting in a delay of over two years.

Management acknowledged that the supplier was paid and did not deliver the equipment.

Management stated that the supplier claimed that there was an irregularity on the specifications reflected on the order which management did not agree to.

The audit report showed that imprest amounting to K38,826,000.00 and US$1,840 issued to eight officers between May 2008 and April 2009 was not retired as of May 2009.

Management replied that some imprest had been retired while other officers had been directed to retire or face deductions through payroll.

It was further noted that 25 payment vouchers amounting to K99,479,900 paid between January 2008 and December 2008 was not retired.

Management responded that they would take measures to recover any outstanding imprest.

The report further showed that though ZNBC was audited by KPMG, there was no evidence that the external auditors had physically audited the Northern region which operated independently in terms of revenue collection and expenditure.

In response, management stated that it would bring the matter to the attention of KPMG though external auditors plan their audit work without management interference.

Recently, workers at ZNBC demanded a salary increment of K700,000 but management asked the workers to forego their demands as the institution faced difficulties due to the global economic meltdown. After a series of meetings the workers downed tools and demanded the removal of the board and management. Following the protest, information minister Lieutenant General Ronnie Shikapwasha intervened and advised the workers to return to work and asked the Auditor General's office to carry out an audit on the allegations levelled against management and the board. Salasini went on leave and the special audit on the company was carried out from May 6 to 31, 2009.

Labels: AUDITOR GENERAL, ZNBC

posted by MrK @ 2:02 PM