REPORT of the AUDITOR GENERAL for 2008 on PARASTATAL BODIES

8/9/2019 REPORT of the AUDITOR GENERAL for 2008 on PARASTATAL BODIES

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REPORT

of the

AUDITOR GENERAL

for 2008

on the

ACCOUNTS OF PARASTATAL BODIES


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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..............................................................76ZAMBIA 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 ONPARASTATAL BODIES ........... ................................ ............. ....................... ........ 138


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INTRODUCTION

1. This Report on the accounts of selected Parastatal bodies for 2008 is submitted to thePresident 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 auditedaccounts 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 inaccordance 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 1 st

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 CompanyAlthough 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 amemorandum 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 PlanThe 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 EstablishmentThe 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 FunctionAmong 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 TurnoverDuring 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. ProfitabilityAn analysis of the profit and loss account for the period 31st 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 SalesWhereas 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 thatthese increases were attributed to the increase in the number of customers.

ii.Personal EmolumentsThe 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 TaxAlthough 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 31st March 2005 to 2008Assets Employed

2008

K

2007

K

2006

K

2005

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

Trad e an d Other pay ables 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 Ass ets/ 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 AssetsThe 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 PositionThe liquidity position for Chambeshi Water and Sewerage Ltd was as

indicated in the table below:


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2008

K'000

2007

K'000

2006

K'000

2005

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 ReceivablesAccording 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 otherPayablesThe 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

(Creditor)Description

Amount

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 FundsAlthough 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 Proceduresi.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 K220,427,820made 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 DatabaseA 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 ReturnsIt 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 theConstitution 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 GrantsIn 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 VouchersContrary 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 ImprestContrary to Financial Regulation No.96 (1) imprests in amounts totalling

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

of March 2010.

d. Over payment of Transport ChargesTo supplement its existing transport, the Commission hired vehicles during the2008 Presidential elections. It was however observed that the Commission over

paid ten (10) transporters by K10,800,000.

e. Non-maintenance of Inventory CardsContrary to the provision of Public Stores Regulations, the Commission did not

maintain inventory cards for office furniture and equipment.

f. Non-remittance of Statutory DeductionsA 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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Institution DescriptionAmount

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 ElectionsDuring 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 FundsOut 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

K

Not accounted for

K

Mumbwa 1,667,500,000 45,054,911

Chibombo 3,075,820,000 21,552,879Kabwe 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 PaymentsContrary 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:

Council

Disbursed

K

Not accounted for

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 RecordsIt 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

Kasama

Mansa Cash book, Bank reconciliation statement, stores records,

Ndola Cash book, Payment vouchers, Bank reconciliation statement

Katete

Petauke

Mwinilunga

Kasempa Cash book, Bank reconciliation statements.

Records not prepared/maintained.

Payment vouchers, Bank reconciliation statements

Cash book, Bank reconciliation statements.

Payment vouchers, cash books

Cash book, Bank reconciliation statements

iv. Unaccounted for FuelFuel 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.

CouncilAmount

K

Senanga 32,991,126

Kalabo 162,296,878

Mongu 130,475,224

Kaoma 3,500,000

Mumbwa 50,312,580Monze 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 ImprestContrary 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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Council

Amount

K

Kalabo 56,700,000

Kaoma 62,625,000

Choma 89,400,000

Monze 57,000,000

Chibomb 729,961,490

Chipata 246,965,000Total 1,242,651,490

vi. Missing Payment VouchersContrary to Financial Regulation No. 65 (1),seven (7) payment vouchers for

payments made between 6th 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 AlkalineBatteries

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 andTourism 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. IncomeIn the Estimates of Revenue and Expenditure for the financial year ended 31

st

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 thetotal funds available to K6,732,973,867.

b. Misapplication of FundsOut 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 CostsContrary 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 PaymentsContrary 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 ProceduresContrary 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 ReportAccording 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 yearprepare 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 thatconsists 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 in2008.

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 thatAssociation 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 StatementsThe 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 31st December 2008.

b. Under FundingIn the Estimates of Revenue and Expenditure for the financial year ended 31 st

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 Expenditurei.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 VouchersThere 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

K1,213,502,273paid between January and December 2008 had not been retired

as of October 2009.

e. Cancelled Cheques not presented for auditThere were a total number of fifteen (15) cheques which were indicated as

cancelled in the records of the Judiciary. However, these cancelled cheques werenot 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 SystemOn 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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Sites visit to selected provinces and physical inspections revealed the following:

StationWorks to be

Done

Contract

DateContractor

Contract

Period

Contract

Price

K

Amount Paid

to contrator

K

Remarks

Ndola Judiciary

Office

Rehabilitation of No. 6

Chibulisho RoadCopperbelt PBE 108,943,749

The newly fixed PVC tiles in the kitchen and re placed tiles in the sitting roomhad s tarted coming out. The house had not been painted outside.

Mpongwe localCourt

Construction oflocal court

24-Dec-07 LWP Enterprisesof Luanshya

6 weeks 124,815,390

The following defects were noticed:

The floor in the court room and local court offices had cracks

The paneldoors 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 de layed by eight (8) months as of September 2009.

The painting and decora ting works had not been completed,The plumbing works had not been done,

Air-conditioning installations still outstand ing,

External works such as drainage system, manholes, septic tank type five and soak-away had not been done,

Allprovisionalwater reticulation works such as excavating trenches had not been done

Chimfushi Local

Court

Construction of

local court28-Dec-07

Katondwe

Contractors16 weeks 484,351,645 398,850,011

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,

The contractor used plastic pipes instead of asbestos ce ment pipes for plumbing works,

The finishing of the walls was poor as they were not even,

The conduit pipes a nd 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.

Kasalya Local

Court

Rehabilitation of

local court

Triple Kay

Contractors56,509,500 82,109,640

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, localcourt magistrate chambers and the court room had cracks.

The window between the court clerk s office and the local court magistrate chambers was not closing.

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 c ontract could not be provided for audit scrutiny.

Kahumbu Local

Court

Construction of

local court25-Sep-07

ABC Global

Works148,000,000

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.

The floor in the chamber was rough.

The door to the chamber could not be opened a nd locked fromoutside.

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 furtherinquirywithmanagement regarding certificationof workcompleted revealedthat paymentswere notbased oncertificatesof completion

and no certificate was availed for audit verification.


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StationWorks to be

Done

Contract

DateContractor

Contract

Period

Contract

Price

K

Amount Paid

to contrator

K

Remarks

Muwezwa

Local

Court

Construction of

local court

Danjos Steel

Fabricators Contract document not made available for audit.

Maguya

Local

Court

Construction of

local court

Cobweb

Constructions 197,754,250 Works completed

Mpika

Magastrate

Court

Rehabilitation of

Magistrate Court

Pineland

Investments

Ltd/Wanda

Engineering 20,450,000 Contract document not made available for audit.

Chipalo Local

Court

Rehabilitation of

local court 7-Dec-07E M Buildwell 2 months 103,744,862 92,249,804 Certificates for 1st,2nd and 3rd payments not availed for audit.

Mwanangwa

Local

Court

Rehabilitation of

local court

Defra General

Dealers 50 days 113,515,599 107,839,819 Certificate for 2nd payment not availed for audit.

Nkole Mfumu

LocalCourt

Construction of

local court JKC Trading 90 days 238,492,190 226,567,399 Works completed. Certificates for 3rd and 4th payments not availed for audit.

Kasama

Rehabilition of

house no.17

Golf Course Road

30,608,000

A physical check conducted at the site revealed the following observations:

Painting of the house both interior and exterior was not done and the ceilingboard which had been fixed was not painted.

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.

Work done was generally poor and the physical implementation status of the site was 30% complete as of September 2009.

Chitembo

Local

Court

Rehabilitation of

local

court and VIP

latrine

A Mwansa 47,796,400

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

Drainage systemaround the building was not done and the concrete slab done around the court building had cracks in some parts due to insufficient cement that

was used.

The courtroom had no windows to allow free air circulation. It only had ventilators.

The painting of the interior of the building was not perfected as the paint has already started peeling off.

The VIP toilet had no door makingthe users vulnerable to beingexposed to the outsiders.

Work done was generally poor.

Serenje B

Local

Court

Lima Agro

Suppliers10 Weeks 180,624,010 157,727,636

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 roomand other two (2) rooms not ceiled.

There were no burglar bars fixed and the handles for opening and locking the windows were not properly fitted

The floor inside the court building was poorly done in that it hard very rough surface.

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.

Chibale Local

Court

Construction of

local court &

rehabilitation of

2 VIP latrines

Hench Enterprises 10 Months 183,378,110

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

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.

The VIP toilets constructed only had grill gates without doors making the users vulnerable to being exposed to the outsiders.

The contract commenced on26th November, 2007 and was required to be completed on 6th March 2008. As of 12th September, 2009 the contractor had not

handed over the constructed building and toilets to the Government of the Republic of Zambia.


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h. Non Current AssetsA scrutiny of records followed by a physical verification of fixed assets revealed

the following:

i. Non maintenance of fixed asset registerContrary to Financial Regulation No. 103 the Judiciary did not maintain a

fixed asset register.

ii. PropertyOwned by the JudiciaryA 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 andDevelopment 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 forManagement 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 1st January 2008, and


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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 senatewhich 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 31st

December 2009.


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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. Incomei. 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:

CategoryAuthorised Provision

KActual Funding

KVariance

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

indicated below:

Category Budget Actual VarianceK 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


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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 thecommercial entities resulting in the loss of business from the would be

students.

b. Irregular Appointment of Vice Chancellor and Deputy Vice ChancellorContrary 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 FurnitureIn 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 endof service of the officers, this was contrary to the conditions of service.

d. Irregular Payment of Repatriation AllowanceIn 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


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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 Servicesi. 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 ImprestContrary 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 ProceduresContrary 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 OfficeOn 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 K431,832,002representing 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.


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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 thatthe amount was paid for carrying out works at a site that was laterdiscovered 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 TakesContrary 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:

Description

Ledger

Balance

Physical

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 DocumentsContrary to Financial Regulation No. 103, the University management did not

maintain a register of accountable documents. It was therefore not possible toestablish 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.


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NATIONAL AIRPORT CORPORATION LIMITED

9. In paragraphs 52 to 61 of the report of the Auditor General for 2005 on the accounts ofParastatal 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, irregularpayment of Christmas bonuses, outstanding pensions and failure to follow tender

procedures among others.


A review of the operations of the corporation for the financial years ended 31st March

2006 to 31st March 2009, carried out in September 2009, revealed the following:

a. Financial Performance - Income Statement for the period ending 31stMarch 2006 to 2009

2009

K'Billion

2008

K'Billion

2007

K'Billion

2006

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. ProfitabilityIt 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


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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 payinterests 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

K'Billion

2008

K'Billion

2007

K'Billion

2006

K'BillionInterest 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.


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d. Statement of Financial Position as of 31st March 2006 to 20092009

K'Billion

2008

K'Billion

2007

K'Billion

2006

K'Billion

ASS ETS

Non-current assets

Property, plant and equipment 462.1 477.26 154.61 117.8

Financial assets at

fair value through profit and loss 0.96 0.96 0.02 0.02463.06 478.22 154.63 117.82

Current Assets

Inventories 1.98 1.03 0.85 0.78

Trade and other receivables 19.15 16.75 15.08 8.09

Held to maturity financial assets 5.59 10.23 0 0

Cash and cash equivalents 5.54 8.67 12.65 4.95

Taxation 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

EQUITY AND LIABILITIES

Capital and reserves

Share Capital 8.7 8.7 1.47 1.47

Amounts received

pending allotment 21.69 21.69 16.49 20.27

Revaluation reserve 297.98 305.62 0 0

Retained profits 18.24 26.66 0 0

346.61 362.67 17.96 21.74Non-current liabilities

Capital grants 94.84 99.57 77 36.49

Long-term loans 23.9 21.79 62.64 43.89

Deferred income tax 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 liabilities

Bank overdrafts 0 0 0.31 0.49

Long term loans 8.37 10.07 8.26 6.85

Obligations under finance leases 0.65 0.58 0.29 0.35

Trade and other payables 16.93 11.3 12.29 15.16

Taxation payable 0.21 0 0 0

26.16 21.95 21.15 22.85

Total equity and liabilities 495.33 515 183.28 131.72

i. Non Current Assets - Ownership of International AirportsAccording 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.


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Zambian Airways DebtZambian 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 collectingPassenger 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. GearingGearing 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

K'Billion

2008

K'Billion

2007

K'Billion

2006

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.


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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 wereto 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 SetOn 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 dueto 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 houseddid 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.


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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.

Consequently, the generator set which had been supplied twelve

months earlier in September 2008 had not been installed.

f. Inadequately Supported PaymentsForty 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 supportingdocuments.

g. Unretired ImprestImprest 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 RegulatorsIn January 2001, the Corporation purchased two sets of Constant Current

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

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

housed.


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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 whichwas 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.


An examination of the accounting, stores and other relevant records carried out in

December 2009 revealed the following:


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a. IncomeDuring the period under review, the Commission received the following funds:

2008

K

2007

K

2006

KGRZ - 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 fallsrevealed 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 LevelsThe 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 ObligationsAs at December 2008, the Commission was owing various institutions a total of

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


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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 GratuityAs of December, 2008 the commission was owing its members of staff a total sum

of K3,205,550,516 in unpaid gratuities.

f. Fixed Assetsi. Questionable Ownership of Buildings

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

K44,000,000 as shown below:

Stand # Location Town Purpose

Cost

K

2188 Mosi-O-Tunya road Livingstone Office block 28,000,000

456 Mukambo road Livingstone

Residential

house 8,500,000

727 Airport road LivingstoneResidential

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 standnumber 727, the ownership of the property had not been transferred to the

Commission.

g. Rehabilitation of the Kalomo Administrators HouseIn June 2006, the Commission awarded a contract for the rehabilitation of the

Kalomo Administrator s House under the National Tourism Development Master


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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 withpavements 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 gravitationaltype. 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 amountingto K1,200,000 owed to the water utility company as per contract

agreement.

It was observed in this regard despite the contractor havingfundamentally 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 CommissionDuring 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


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

revealed the following status:

PropertyNo. Of

Tenants

Balance

(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 13 194,144,639Solwezi 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.


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b. Uncollected Income from sale of Kafue Estates HousesAs 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 EstablishmentIt 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 establishedunder 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 ofsports and disseminate the said policy;

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

To develop, promote, control and encourage all forms of amateur andprofessional 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 toencourage the affiliation of such associations to appropriate international

organisations;

To assist, financially or otherwise any team or individual in representing Zambiain any competition within or outside Zambia;


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To assist financially or otherwise, any citizen of Zambia in obtaining suchtraining 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 theMinister may approve, to enable the NSCZ to carry out its functions and achieveit s objectives;

To stimulate through the appropriate authorities the provision, development andmaintenance 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 wheredeemed 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 thedevelopment, 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 ofwhom 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.


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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 ofthe investments made or transactions entered into in course of its 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. Incomei.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:

Year

Total Authorized

Provision

K

GRZ Grant

K

Variance

K

2003 370,112,495 432,557,756 62,445,261

2004 87,029,170 90,701,893 3,672,7232005 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 2,413,669,835 116,737,952


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ii.Other IncomeIn 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 memberbody 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. StaffingOut 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 DutiesIt was observed that there were no internal controls as one person was involved in

the preparation, approving and authorisation of payments.

d. Poor Record KeepingThere 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 PlansDuring the period under review, the Council operated without strategic and annual

work plans.


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f. Failure to Produce Annual ReportsAccording 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 includeinformation 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 CommitteesAccording 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. CreditorsDuring 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.

Details

Amount

K

Terminal benefits 705,003,557

Salary arrears 18,468,400

Statutory remittances 366,746,795Other creditors 391,000,686

Total 1,481,219,438

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


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i. Unvouched ExpenditureContrary 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 tablebelow:

Total No. of

Vouchers

Main

A/C

K

Bar

K

Total

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

Inad equately Supported 166 82 248 546,745,676 153,633,003 700,378,679

Total 422 245 667 1,891,122,283 350,313,239 2,241,435,522

No. of

Vouchers

NITROGEN CHEMICALS OF ZAMBIA(NCZ)

Background

13. The Nitrogen Chemicals of Zambia was established in 1967 by the Government of theRepublic 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$500Million. 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 variousproducts per annum as shown in the table below:


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roduct

Design

Capacity

(MT p.a)

Ammonium Nitrate 139,000

Ammonium Sulphate 50,000

Compound Fertilizer (NPK) 142,320Liquid 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 theirpositions 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 cont

REPORT of the AUDITOR GENERAL for 2008 on PARASTATAL BODIES

Documents

Transcript of REPORT of the AUDITOR GENERAL for 2008 on PARASTATAL BODIES