Why didn’t successive Malawi Governments act to stop the looting of US$2 billion+ from government accounts?

Photo Credit: Nation Publications Limited
Photo Credit: Nation Publications Limited

Before any talk of a new IFMIS is taken seriously, Malawians need to be told how much money is missing from government accounts, and why successive governments failed to stop the recklessness and impunity that has led to the loss of at least US$2 billion from Malawi Government accounts the last 6 years.

Anything less is simply not acceptable. And I must say that task could have some serious casualties, complete with more blood than seeped out of Mphwiyo’s gunshot wounds.

Lets see, under DPP’s watch at least US$500 million went missing. That’s only from 2009 to 2012. Who knows what happened before that? Who knows how much was lost between May 2004 to December 2008, or even before that during Muluzi’s tenure?  Do we have the audits going back all the way? Should we have such audits so that there is full accountability? In any case, if there is no accountability how can the system be fixed?

What about aMai? From the depths of her self-imposed exile, what does Joyce Banda and her people’s party have to say for themselves about presiding over the loss of at least US$400 million? And this is only from sums over MK1 million, as I tried to explain here.

I think Malawians deserve to know.

If it is accepted that at least US$2 billion has been misappropriated the last 6 years, then both the government of Bingu Wa Mutharika and Joyce Banda’s government had access to the same IFMIS reviews and reports which contained advice on how to tackle the problems in the government financial system. Make no mistake the PwC report is not the first!

This is not about finger-pointing, but understanding where things when wrong. The question remains, why didn’t Bingu Wa Mutharika, or Joyce Banda (and their officials) plug the holes to the government financial systems when they each had the chance?

When they were informed of the loopholes on numerous occasions? When people at the National Audit Office, at the Ministry of Finance and at OPC knew what needed to be done.

Did it really have to take Mphwiyo’s blood for the issue to come to the fore? And millions of dollars spent on international accountancy firms – churning out dubious reports? When numerous official reports had been commissioned previously, pinpointing the problems, and how to fix them?

I don’t think so.

Watch this space to learn why.

Malawi Cashgate 2.0 in the making: a new IFMIS, into the same old unreformed system

Cashgate 2.0 is in the process of developing. As I write this post the wheels of another scandal are turning. And I hope I am wrong, because the results will not be pretty.

But for any avoidance of doubt, let me say if in 10 years time the then government of Malawi is still grappling with the same corrupt practices in the civil service that are facing the current government, don’t say I didn’t warn you.

After failing to implement the recommendations of various reviews of the IFMIS system, some dating back to 2009 (which I’ll try to share here if time allows), the Government of Malawi has recently published a call for bids to tender to supply a new IFMIS??

So here’s a question, why invest your resources into the purchase of a different system when

(1) The old system is not broken – merely under-utilised, not fully installed/ adopted, and is still open to abuse? Despite various reviews and audits which included recommendations

(2) When you’ve spent over US$10 million + dollars on the old system. Many more millions on audits…

We’ll be asking these questions here, including dissecting the leaked PwC audit report, a copy of which we have seen!

When $10 MILLION DOLLARS + has/ will be spent on different aspects of the current IFMIS, are we really going to spend $10 million every 6 years on new systems?

The old system is not broken, take it from me — ive read the reports, it’s not broken. It’s merely under-utilised, and open to abuse, and instead of deploying it properly, applying the security patches which were recommended by various audits, tests and reviews, you are issuing out another misguided tender?? Wasting money you do not have…

Are the World Bank on board with this latest display of acute idiocy?

Why do you need a new IFMIS, what for!? Where are they getting the money for these things? I thought the country was broke?

Looking at all this, I can’t help but wonder what the likes of Soft Tech and other suppliers will be thinking…azingoti anthu awa ndi zitsiru…Vindele venecho, infact vindele vinandi led by some chief chindele (whoever decided it was sensible to procure a new system). Because where is the logic in bringing in a new system when you never tried to implement the recommendations and patches which were outlined in various reviews of the old system? When you never attempted to fix the leakages of the old system why buy new software?

Apatu njoka zina zikufuna zidye nawo ndalama. Thats the only explanation. This, without a shadow of a doubt is the beginning of another deeper corruption scandal!

Malawi cancels $145 million arms deal with SA firm: report

Original article here (via Times Live)

Malawi cancels $145 million arms deal with SA firm: report

The agreement between the Malawi Government and Paramount Group has been abrogated. That is all I can confirm and say,” Gondwe told Saturday’s Nation newspaper.

The paper quoted a source within the finance ministry as saying the government of President Peter Mutharika told the firm the deal was “illegal and expensive”.

More on original article here

Comment

I think President Peter Mutharika must be hugely commended for doing this. The relationship between Paramount and Joyce Banda was unhealthily close. The whole fiasco regarding the arms deal, and the jet bartering and the comments from the UN had an air of dishonesty and special interests about it. I don’t believe the arms deal was to the benefit of the people of Malawi, and Joyce Banda was wrong to associate her government with these guys. As I wrote here, most of these deals benefit people other than Malawians.

Having said that, I wonder what it will cost the country to terminate the contract? Wait, was there a contract? Or was this another gentleman’s agreeement? We will need to know how much it costs the country, and why the president calls it ‘illegal…’. Presumably, the get-out clause is a better devil than paying $145 million? Although what you don’t want to happen is to spend additional millions of dollars you don’t have in court cases fighting a contract that is impenetrable.

I hope President Mutharika will make do on his promises to clean up government in Malawi, and not waste time with propaganda or fighting opponents. I hope he does away with all such useless and ‘illegal’ commitments Malawians never needed. I’d like to see Mutharika revisit Kayelekera, and ‘abrogate’ the unfair Paladin deal. I’d like to see him push for the completion of the Shire-Zambezi waterway, which his brother Bingu Wa Mutharika began – it will lower the cost of goods in Malawi. I’d like to see Malawians realise real benefit from the Vale railway line. I’d like to see Malawi University of Science and Technology open and begin training students in areas which the country is lagging behind. I’d like to see the restrictive and backward thinking regional quota system for university entrance abolished, and in its place an improved open merit based system established. It will be good to see more Universities built across Malawi, and there are many donors who will support this initiative. The proposed mini Chinese city could have huge benefits in terms of stimulating trade and entrepreneurship for both China and Malawi, the president must pursue the agreement, and see its completion. Why can’t we have our own oil refinery? As the Zambians have done (see another link here). There are many ideas the government can adopt to generate income and raise funds outside of taxes. Over a year ago, I helpfully listed some here.

But most of all, I’d like to see president Mutharika get to the bottom of the Cashgate scandal , prosecute all who were responsible for the theft, and close any remaining loopholes in IFMIS. Malawi can never move forward if people continue to steal from the government – and get away with it.

So far, so good. Well done Mr President Sir!

I told you so

cartoon-itys

Remember my article here that questioned whether officials within UDF, DPP and PP knew about the problems of the Integrated Financial Management Information System, (IFMIS) – the government financial system that has in recent months been at the centre of a massive embezzlement scandal by public officials in Malawi in which tens of millions of dollars have been embezzled? (see references here, herehere, here and here)

Well, there has been a copy of an email circulating social media circles recently that strongly suggests that Bingu Wa Mutharika – the Malawian president at the time of the report mentioned in my article – was explicitly informed of the dangers and actual corruption that was currently taking place within his government – and that he did nothing, even after promising to take action.

This was the same government in which Joyce Banda was a minister, then vice president. In fact at the publication of the report below, Joyce banda had been vice president for close to 6 months.

In the email ( which can be found on profiles of political commentators on social media outlets such as Facebook), one of the authors of the report [Summary of key findings and recommendations of GOM IFMIS Review-2] is responding to his brother’s email, who appears to have just informed him that he’s ‘…made the news’. The email is dated October 25th 2013, three days before we published our article, and the writer seems to be saying he did infact inform the government of the day of all the dangers; that he told them so…

ifmis

I am in the process of verifying the authenticity of this email via a contact in Malawi and will post any developments on this page.

IFMIS : What did UDF, DPP and PP know?

IFMIS

Reports can be fantastic pieces of literature. Absolutely wonderful things…informative, revealing, ridiculing, attesting – marvelous!  More so if they happen to be government-funded.

Whenever political leaders are busy paying lip service, telling lies, denying allegations and generally being unpleasant to their electors (and those who didn’t elect them), a little bit of research can quickly reveal who amongst the herd is Pinocchio.

The report above which is a summary can be downloaded here: Summary of key findings and recommendations of GOM IFMIS Review-2. It is dated 18th November 2009, and is a summary of a Report commissioned to asses how the IFMIS was functioning. It is titled QUICK ASSESSMENT OF THE INTEGRATED FINANCIAL MANAGEMENT INFORMATION SYSTEM.

The original report (which I imagine can be obtained from the Public Financial and Economic Management section of the Ministry of Finance) is over 200 pages long (and don’t ask how I got my hands on it), but this summary is only 34 pages long. According to this summary:

As part of the continuous PFM reform processes in a bid to further enhance public expenditure management, the Malawi Government through the PSRMU of the OPC engaged the author through UltiNetS2 to undertake a quick impact assessment of the EPICOR* based IFMIS implementation with a core objective to identify any system operational or functionality challenges and make appropriate recommendations for improvements.

*EPICOR is the company that makes such software

In other words the report was commissioned to highlight the benefits and challenges of the IFMIS and ask questions such as:

(1) What is the IFMIS?

(2) Why was it chosen by the Ministry of Finance (MOF)?

(3) Is it working as intended / achieving its purpose?

(4) How well is it performing ?

(5) What are the problems / operational issues ?

(6) Where are these problems / operational challenges?

(7) What can be done to improve its performance/ resolve these problems?

… and so on.

At the time of commissioning, Bingu Wa Mutharika had been in power for some 5 years and 6 months.

Before we look closely at this summary, a notable point is somewhat appropriate: the version of IFMIS Malawi installed on its systems / computers is based on a version Tanzania installed. We all know that not too long ago, Tanzania’s president sacked his cabinet ministers due to corruption. Was this related to IFMIS?? I think someone needs to find out?

Earlier in 2006, the OECD Journal on Budgeting carried an article by Jack Diamond and Pokar Khemani titled Introducing Financial Management Information Systems in Developing Countries that explored the merits of the IFMIS system and looked at case studies in developing countries including those across Africa.

According to the OECD article, attributes of a well-designed FMIS include:

attributes-ifmis

Yet if you take a look at the summary of the IFMIS in Malawi, it’s indisputable how hollow and a shambles the whole rollout was. Everything was dysfunctional, from the contracting phase to the implementation phase and support, everything was a disaster!

According to the UltiNetS Summary, the positives include:

– The successful implementation of the EPICOR based IFMIS significantly contributed to the debt cancellation for Malawi as a country under the HIPC initiative

The implementation of EPICOR based IFMIS has to some extent assisted the Government in restoring some fiscal discipline through public expenditure management particularly on transactions that are primarily processed through the system.

The introduction of EPICOR based IFMIS has significantly checked the proliferation of Government bank accounts by the MDAs* thereby giving the AGD* a better control.

The introduction of the EPICOR based CPS* has significantly restored the credibility of Government cheque payments to its creditors.

*[AGD: Accounts General Department; CPS: Central Payment System; MDA’s: Ministerial Departments and Agencies]

Yet in spite of all this, we are then informed that:

– The conditions of contract were more in favour of the contractor (Soft-Tech Consultants) than the client (Malawi Government) which clearly shows that the client did not have much input into the document before engagement.

There was no valid justification for the training to be conducted for almost the whole year and at every site of implementation, hence proved too expensive for the Government considering similar implementations.

– The IFMIS contractual costs are too high than anticipated (almost USD $1.7million) more particularly on the user licences, consultancy, training services and travel which account for almost 91% of the total cost.

– There was non strategic procurement of bout 240 system concurrent user licences for all 32 sites for all the modules when only a few of these licences are currently used.

–  The EPICOR based IFMIS architecture, design and operational framework is incomplete to constitute an ideal Government IFMIS system design and operational architecture as it still falls short of
other key elements and full functionality of the sy stem.

In other words, the Malawian government has been using an incomplete and system that is not fit for purpose. The observations continue:

There is a great deal of system underutilization considering the number of procured modules and other key features within the existing functional modules that are currently not functional.

The system does not have any alert system to detect any fraudulent activities or any deviations to normal operations within the system such as overriding system controls without appropriate approval
process and any system performance issues let alone a functional audit trail to track system usage

If post-Cashgate you wanted to know why junior accounts assistants (see most recent revelations here) were found with millions of dollars, this is precisely why.

The current Chart of Accounts is not yet fully GFS compliant as per the IMF requirement and does not fully respond to the performance measurement indicators of the current MGDS.

From a budget execution perspective, the EPICOR based IFMIS system is working perfectly as a budget expenditure control system since no funding or expenditure can take place where there is no budget unless overridden, however the system does not block budgets that have already been expended to the equivalent of expenditures 

In other words, a user can Overspend. In principle, this means that a user can generate a cheque and get the Reserve Bank of Malawi to honour it, even when on his budget, that money doesn’t actually exist.

The IFMIS infrastructure does not have any intrusion prevention and detective system or mechanism to easily gain visibility and monitor any potential security threats considering that the access in mainly by user ID and password which can easily be accessed

So who can say whether foreign criminals haven’t laid their hands on some of this money??

Some of key control features particularly in the payment management approval process within the IFMIS are not yet activated and functional to improve the entire system internal control framework.

The current payments management system is weak and prone to exploitation or abuse by colluders as access into the system and Accounts Payable module in particular is not physically authenticated beyond normal user ID and passwords due to lack of appropriate tools.

Again, like above, misappropriation withing IFMIS is easy, so long as you have a username and password. And people could collude to steal money, so the Cashgate scandal should not be a surprise at all.

The current core accounting system and financials suite of the EPICOR based IFMIS has an Electronic Funds Transfer (EFT) module which is more secure mode of payments which if implemented could help reduce some instances of cheque frauds and frequent delays in processing and dispatching cheques. In addition, it could eliminate risks associated with the MALSWITCH link used for cheque list transmission.

So they knew that there was cheque fraud happening? Or is this just a hypothetical situation?

The current structure of the CPS within the EPICOR based IFMIS lack appropriate tools and effective controls for checking, verifying and authenticating or validating payment transactions within key units before issuing cheques or effecting transfers to third parties, hence difficult to detect any fraudulent payments from within the financial system. For instance the Receiving unit of the AGD’s CPO does not have any means for verifying the authenticity of signatures on the payment vouchers and electronic voucher list from the MDAs, hence difficult to establish any instances of forgery.

There was no capacity to check if signatures are fake, meaning forgeries could have occurred, or did occur?

– The NAO [National Audit Office] does not have adequate capacity to audit the EPICOR based IFMIS functionality apart from auditing the financial statements (‘ Appropriation accounts’) as it does not have automated audit management tools to enable carry out that function

The NAO does not have adequate capacity in terms of man power and funding to effectively carry various types of audits covering automated systems.

All this advice was given to the Office of the President under DPP’s watch, when Mutharika was at the helm. Further the 2006 OECD report at page 19 / 115(last paragraph), states that:

In general, the implementation phase has not progressed well, primarily because of clearly limited involvement and some neglect of the system by the main players, including the Ministry of Finance, the Accountant General and pilot ministries. There are several significant issues to be addressed before the system can be made fully functional and rolled out.

Neglect?? That’s a strong word. When they received this advice, why didn’t DPP act?  And if they claim to have acted, what did they do to solve the above problems? More importantly, when PP came into power, did they know of this report and its findings, given the fact that the Ministry of Finance is a crucial ministry in any country?

I think the Malawian people deserve some answers. Malawians need responsible leaders who will help develop the country, not a hopeless and clueless bunch who are only interested in self-enrichment…

Reviewing this summary, it is absolutely clear that the Ministry of Finance knew the dangers of the IFMIS and the fraud that was happening ? They must have known. There are no two ways about this. But they ignored the problems/ fraud, or took advantage of them. In my view, the silence / inaction suggests some people was benefitting from the mess. Clearly, Lipenga and his juniors were hopelessly incompetent, and Joyce Banda must take responsibility for bringing in such a useless man into such a respectable office.

It all simply begs the question, how can such massive amounts of money be embezzled when the inherent problems were known? Those responsible for the plunder must pay back what they stole…Every single penny! And face the arm of the law.

The fact that successive governments knew there was a problem, but didn’t act strongly suggest there was a conspiracy to defraud the Malawian people, such that our syndicate theory may in fact be broader and far-reaching than us ordinary folk think?

Why do Malawians elect incompetent officials who can’t even do the basics?

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