BACKGROUND

Malawi had a Presidential Jet. According to MBC TV Cabinet press conference rebroadcast on Thursday, 6th March 2014, the Minister of Finance reported that Cabinet decided to sale the Jet in May 2013 and that the Jet was sold to Bonox on 29th July 2013. It has been reported that Bonox was successful bidder and they bought the Jet. However, the sale was barter trade because Government instead of receiving the payment from Bonox for the Jet, the payment was made to another company, the Paramount Group of the United Kingdom to partly settle a military equipment bill that Government
acquired from Paramount Group. The military equipment is reported to have been bought for use in peace keeping missions by Malawi Defense Force. It is reported by the Minister of Finance and collaborated by SADC Executive Director that the military equipment will be reimbursed by the United Nations. Surprisingly, Bonox that bought the Jet is connected to Paramount Group that supplied military equipment. In addition, the Malawi Defense Force had their own budget to acquire the military equipment in question. Besides, there are conflicting statements and reports among Cabinet, OPC and the Presidency about how the corresponding funds (Malawi Kwacha account) from the Malawi Defense Force Budget was used. Cabinet insists part of the funds were used to buy drugs and maize while the Presidency insist part of the money was also used to finance a farm input loan program (Filp).

On the other hand Malawi has experienced looting of public funds in what is popularly known as ‘Cash Gate’ in which about MK13 billion of hard earned tax payers money has been looted through many ways from public coffers. Consequent to this are the several arrests of suspects by law enforcement agencies. The suspects are answering various charges in courts of law.

In response to these revelations, the development partners for Malawi have withheld Budget support that they provide to Government. In response to ‘cash gate’, Government of Malawi with technical and financial assistance from the United Kingdom instituted a forensic audit process on public finances late 2013. The auditors hired to do the exercise were Baker Tilly of the United Kingdom. The forensic audit report is now out but without the ‘management report’ that details names of companies and individuals involved in the looting. This has created widespread concern among Malawians questioning the rationale of withholding names from the report. The auditors are reported to have indicated that revealing the names could lead to litigation against Government. This has led some commentators to think that the report is interim and work in progress such that until a final report is produced, then names can be released simultaneously with the action of arresting those involved. In the confusion of things the President is reported to have summoned the forensic auditors to report to Parliament and shed light on their refusal to release names of alleged culprits. The auditors refused to report to Parliament.

PURPOSE AND METHODOLOGY OF THE STUDY

The purpose of the research was to document systemic failures and cutting of corners in the cash gate forensic audit report and sale of the Presidential Jet; opportunity cost of cash gate and its implications moving forward. This was motivated by gaps and conflicting information coming from Government and State House which smacks of something not being true or that some information was fabricated for damage control purposes but also the playing down of the impact of cash gate on lives of ordinary Malawians. The study used three methods: Desk research; focus group discussions (FGDs) with Civil Society groups and interviews with key informants. The study took place from March to April 2014.

FINDINGS

The following are the findings from the study

1. Huge ‘opportunity cost’ of the looted Mk 13 billion
   The study finds that Malawians have enormously lost public services due to the cash gate. However, due to the urgency of the matter and practicalities of getting formal data from affectedGovernment Ministries and Departments, the Study could not get the actual service loss as planned by various Ministries and Departments in the 2013/14 Budget. Instead, a proxy of public services with comparable cost to MK 13 billion was used. Using the proxy, Malawians have lost either of the following alternative public services:
   • Drugs that could cater for seven (7) District Hospitals for a whole year at an estimated current drug bill of MK1.8 billion per District Hospital per year.
   • 2.5 months of salary for the whole Ministry of Education at a total wage bill of about MK5.27 billion per month
   • 1,625 boreholes that could have been sank and provide portable water where one borehole costs about USD 700, 000 with some administration costs (ex. Rate of MK390/USD)
   • 48 Kilometers of rural bitumen road which is equivalent to road distance between Mzuzu and Nkhata Bay or between Machinga and Balaka or between Thyolo and Blantyre or between Ntchisi and Dowa or between Jenda and Edingeni.
   • 812,500 bags of subsidized fertilizer or 41 million Kgs of fertilizer (41 thousand tones of fertilizer) at estimated current subsidy of Mk16,000 per bag of 50Kgs
2. Malawians have paid the price of cash gate by facing:
   • no drugs in hospitals and relying on donations
   • high interest rates courtesy of high demand for borrowing to meet cash gate created gap and budget support withdrawal gap
   • high cost of living influenced by massive cash in circulation from cash gate against fewer goods and services
   • likelihood of raised taxes in 2014/15 budget to meet the gap left by budget support withdrawal.
3. Gross negligence and disregard of the Constitution and other laws
   The study finds that there was gross negligence and disregard of the Constitution of the Republic of Malawi, governance institutions and legislation governing public finance management in both the sale of Jet and cash gate in the following ways:
   1. Section 172 of Malawi Constitution subjects proceeds from disposal of public assets to be treated as any public money and be deposited in consolidated fund. The reasoning is that such proceeds need to be debated by Parliament and appropriated properly to satisfaction of the nation. This did not happen.
   2. With regard to (a) above, the income from sale of the Jet is not even indicated in the 2013/14 approved financial statements meaning that appropriation of such funds was done by the Executive which is unconstitutional.
   3. Under Reserve Bank of Malawi Act Chapter 44:02, Section 39, RBM is banker and adviser to Government that should have been involved. But Secretary to the Treasury did not bother to open a bank account for jet sale proceeds to have an audit trail. Was it on purpose?
   4. Gross lack of ethics among many civil servants who could not report suspicious transactions for remedial measures within section 89 (1) of the Public Finance Management Act which makes it an obligation to report any offense committed under section 88 of the same Act. Those who ought to have known or actually approved the cash gate transactions are surprisingly left scott free.
4. Misguided sale of the Presidential Jet
   The study finds that sale of the Presidential Jet was highly misguided which smacks of high level political scheming and machination as supported by the following:
   1. No valuation of Jet took place to ascertain its value before bartering it. This coupled with the desperation that Government portrayed in the before-sale period, presents the high likelihood that Jet was sold at a loss.
   2. Barter trade is not supported by the laws of this country. Yet Government went ahead to dispose of this big national asset without involving Parliament.
   3. Proceeds from the sale of the Jet went towards settling a bill for military equipment to be used in peace keeping missions. This was happening at a time when priority should have been buying of drugs and maize. This did not warrant sidelining of Parliament and cutting of corners unless someone high up was giving orders or there was gross collapse of procedure.
5. Gross negation of duty by the Auditor General’s office in handling of forensic audit report
   The study finds that the office of the Auditor General conducted itself in an unprofessional, overzealous and ultra vires manner as supported by the following:
   1. Failure to advise the President not to summon the external forensic auditors to report to Public Accounts Committee because reporting on public audit issues is the sole responsibility of the Auditor General’s office under section 184 of the Constitution of the Republic of Malawi. Anybody doing such audit exercises are sub-contractors responsible to the office of Auditor General as provided in section 10 of the Public Audit Act.
   2. Failure to advise Minister of Finance not to release the forensic audit report which was still work in progress was unprofessional. Releasing of the report to the public if it was complete was supposed to be concurrent with arrest of the culprits. Now that culprits cannot be arrested because there is no solid evidence against them, the report has served the nation not so much but has just given more suspicions.
   3. Failure to advise Public Accounts Committee on how to handle the report with Ministry of Finance who is the client of the audit report. Instead of giving such advice the Auditor General’s office was being defensive with Public Accounts Committee.
6. Cash gate revelations and public trust in the outcome of the forensic audit report
   The study finds that much as it is a tragedy for Government to experience such massive looting of public funds, the revelations themselves provide a wake-up call to effect changes in the way Government manages public resources. At the same time, the incorporation of external forensic auditors have given some trust and confidence in the outcome of the forensic audit exercise for which Government should be commended.
7. Prudence in the sale of Presidential Jet
   The study was unable to verify the facts that the Jet was sold in order to save money as it is claimed to have been very expensive to run. Data to do a comparative analysis could not be readily available. As such another study should dig into this in view of frequent travels by the Presidency.
8. Implications moving forward
   The study finds that there are serious implications emanating from cash gate and sale of presidential Jet as supported by the following:
   1. Malawians will have a raw deal going to the polls on 20th May without the knowledge as to who is at the centre of cash gate. Malawians risk putting into office a Government that is actually the main culprit.
   2. There is loss of trust in the Government finance management system as seen from the withdrawal of budget support which counts for 40% of national support. This support is not expected to come soon in the near future. This is a warning to any Government that comes to power after 20th May 2014 that it should decisively deal with the issue of IFMIS and without fear or favour deal with cash gate. Otherwise it will send a very bad signal of impunity if looters are treated with kid gloves.
   3. The issue of zero donor aid in the 2014/15 national budget has serious implications on Malawi’s economy. In this case taxes on already impoverished Malawians and fragile private sector are likely to increase just as it was with zero-deficit budget in 2011/12 financial year

RECOMMENDATIONS

1. Malawians to watch out as they go to choose a government of their choice on 20th May 2014. They should put in place a Government that can be trusted with the public purse, a Government that can deal with cash gate without fear or favour and without conflict of interest and negating of duty in the management of public affairs.
2. Parliament whenever it shall meet should accordingly press the current serving public officers in Government to account. Demand an independent valuation report of the Jet before it was sold, ascertain the loss and decide to demand a top up price or re-possess the Jet altogether.
3. Auditor General’s Office should be seen to act professionally within the law without political influence.

REFERENCES

1. Government of Malawi (2004), The Constitution of the Republic of Malawi, Lilongwe, Ministry of Justice
   2. Government of Malawi (2003), Public Audit Act, Zomba, Government Printer
   3. Government of Malawi (2003), Pubic Finance Management Act, Zomba, Government Printer
   4. MBC TV (2014), MBC TV News bulletin @ 20.00hrs, Thursday 6th March 2014, MBC
   5. http://www.rbm.mw/legislation.aspx; Reserve Bank of Malawi Act (1989)
   6. Government of Malawi (2013), Draft 2013/14 Financial Statements, Ministry of Finance

Signed
Voice Pearson Mhone
CHAIRPERSON