Narrative Report on State Enterprises and Parastatals 2013

ZIMBABWE

REPORT

of the

Auditor-General

for the

FINANCIAL YEAR ENDED DECEMBER 31, 2013 ______

NARRATIVE REPORT

STATE ENTERPRISES AND PARASTATALS

______

ZIMBABWE

Office of the Auditor-General of Zimbabwe 5th Floor, Burroughs House 48 George Silundika Avenue Harare, Zimbabwe

The Hon. P. Chinamasa Minister of Finance and Economic Development New Government Complex SamoraMachel Avenue Harare

Dear Sir,

I hereby submit my Report on the audit of State Enterprises and Parastatals in terms of Section 309(2) of the Constitution of Zimbabwe read together with Section 10(1) of the Audit Office Act [Chapter 22:18], for the year ended December 31, 2013.

Yours faithfully,

M. CHIRI, AUDITOR-GENERAL.

HARARE March 23, 2015

ZIMBABWE

OAG VISION To be the Centre of Excellence in the provision of Auditing Services.

OAG MISSION To examine, audit and report to Parliament on the management of public resources of Zimbabwe through committed and motivated staff with the aim of improving accountability and good corporate governance.

OAG VALUES

COMMITMENT Self-driven, promise keeping to foster mastery in customer RESPECT service delivery thereby leaving a Accepting mutual and legacy of being INTEGRITY reciprocal individuals' visionaries. self-esteem, diversity Being transparent, of view and need for trustworthy and fair recognition and in order to guarantee acknowledgement of professionalism and the office structures, ACCOUNTABILITY goal congruence in processes and our daily conduct. authority. Responsibility of giving assurance on the effective use of public resources and answerable for individual actions. TEAMWORK EMPATHY Results-oriented Empathetic support contribution each and encouragement one of us makes within the OAG through inspiration, family. creativity, chemistry and effectiveness.

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LIST OF ACRONYMS

1. BURS – Botswana United Revenue Service

2. CAAZ – Civil Aviation Authority of Zimbabwe

3. CBZ - Commercial Bank of Zimbabwe

4. CSC – Cold Storage Commission

5. EIA – Environmental Impact Assessment

6. FCR – Foreign Currency Reserve

7. GRN – Goods Received Note

8. GZU – Great Zimbabwe University

9. HPA – Health Professions Authority

10. IDC – Industrial Development Corporation

11. IFRS – International Financial Reporting Standards

12. JV – Joint Venture

13. MMCZ – Minerals Marketing Corporation of Zimbabwe

14. NIEEB – National Indegenisation and Economic Empowerment of Zimbabwe

15. NMMZ – National Museums and Monuments of Zimbabwe

16. NOIC – National Oil Infrastructure Company

17. NRZ – National Railways of Zimbabwe

18. NSSA – National Social Security Authority

19. OAG – Office of the Auditor-General

20. PAYE – Pay As You Earn

21. POSB – People’s Own Savings Bank

22. POTRAZ – Postal Telecommunication Regulatory Authority of Zimbabwe

23. PSIP – Public Sector Investment Programmes

24. RBZ – Reserve Bank of ZimbabweREA – Rural Electrification Authority

25. RTGS - Real Time Gross Settlement

26. S.H.E – Safety Health and Environment

27. SBU – Strategic Business Unit

28. SEDCO – Small and Medium Enterprises Development Corporation

29. SMEs – Small to Medium Enterprises

30. SPB – State Procurement Board

31. SSB – Salary Service Bureau

32. TIMB – Tobacco Industry Marketing Board

33. VAT – Value Added Tax

34. ZENT – Zesa Enterprises

35. ZETDC – Zimbabwe Electricity Transmission and Distribution Company

36. ZIA – Zimbabwe Investment Authority

37. ZIMDEF – Zimbabwe Manpower Development Fund

38. ZIMPOST – Zimbabwe Posts

39. ZIMRA – Zimbabwe Revenue Authority

40. ZINARA – Zimbabwe National Roads Administration

41. ZMDC – Zimbabwe Mining Development Corporation

42. ZPC – Zimbabwe Power Company

43. ZUPCO – Zimbabwe United Passenger Company

Table of Contents EXECUTIVE SUMMARY ...... VIII PUBLIC ENTITIES UNDER THE CATEGORY OF AUTHORITIES AND AGENCIES...... 1 AGRICULTURAL MARKETING AUTHORITY (AMA) ...... 2 BROADCASTING AUTHORITY OF ZIMBABWE (BAZ) ...... 4 CIVIL AVIATION AUTHORITY OF ZIMBABWE (CAAZ) 2012...... 7 HEALTH PROFESSIONS AUTHORITY (HPA) ...... 10 NATIONAL SOCIAL SECURITY AUTHORITY (NSSA) ...... 13 POSTAL TELECOMMUNICATION REGULATORY AUTHORITY OF ZIMBABWE (POTRAZ) ...... 28 RADIATION PROTECTION AUTHORITY ...... 33 ZIMBABWE INVESTMENT AUTHORITY (ZIA)...... 41 ZIMBABWE PARKS AND WILDLIFE MANAGEMENT AUTHORITY ...... 44 ZIMBABWE REVENUE AUTHORITY (ZIMRA) & ITS SUBSIDIARY ...... 53 PUBLIC ENTITIES UNDER THE CATEGORY OF BOARDS ...... 75 GRAIN MARKETING BOARD (GMB) ...... 76 HEALTH SERVICE BOARD ...... 89 NATIONAL INDIGENISATION AND ECONOMIC EMPOWERMENT BOARD (NIEEB) ...... 91 TOBACCO INDUSTRY MARKETING BOARD (TIMB)...... 96 PUBLIC ENTITIES UNDER THE CATEGORY OF COMMISSIONS ...... 98 FORESTRY COMMISSION: 2011 & 2012 ...... 99 PUBLIC ENTITIES UNDER THE CATEGORY OF COMPANIES AND CORPORATIONS ...... 109 ALLIED TIMBERS ZIMBABWE (PRIVATE) LIMITED 2012 & 2013 ...... 110 CMED (PRIVATE) LIMITED ...... 130 COLD STORAGE COMPANY (CSC) 2011 AND 2012 ...... 136 MARANGE RESOURCES (PRIVATE) LIMITED 2012 AND 2013...... 149 MINERALS MARKETING CORPORATION OF ZIMBABWE AND ITS SUBSIDIARY ...... 174 MELLOFIELDDE CHEMICALS (PRIVATE) LIMITED ...... 182 NATIONAL MUSEUMS AND MONUMENTS OF ZIMBABWE (NMMZ) 2011 ...... 186 NATIONAL OIL INFRASTRUCTURE COMPANY OF ZIMBABWE (NOIC)...... 191 NATIONAL RAILWAYS OF ZIMBABWE (NRZ) ...... 196 NETONE (PRIVATE) LIMITED...... 210

PETROTRADE (PRIVATE) LIMITED: 2011-2013 ...... 224 POWERTEL COMMUNICATIONS (PRIVATE) LIMITED ...... 232 PRINTFLOW (PRIVATE) LIMITED ...... 236 TEL ● ONE (PRIVATE) LIMITED ...... 243 ZESA ENTERPRISES (PRIVATE) LIMITED (ZENT) ...... 248 ZIMBABWE MINING DEVELOPMENT CORPORATION (ZMDC) 2012 ...... 256 ZIMBABWE POSTS (PRIVATE) LIMITED (ZIMPOST) ...... 272 COURIER CONNECT (PRIVATE) LIMITED ...... 278 ZIMTRADE (PVT) LIMITED ...... 282 ZIMBABWE UNITED PASSENGER COMPANY (ZUPCO) 2012 ...... 287 PUBLIC ENTITIES UNDER THE CATEGORY OF FINANCIAL INSTITUTIONS ...... 296 AGRICULTURAL BANK OF ZIMBABWE LIMITED (AGRIBANK) ...... 297 INFRASTRUCTURE DEVELOPMENT BANK OF ZIMBABWE (IDBZ) ...... 305 PEOPLE’S OWN SAVINGS BANK (POSB) ...... 308 SMALL ENTERPRISES DEVELOPMENT CORPORATION (SEDCO): 2012 ...... 314 PUBLIC ENTITIES UNDER THE CATEGORY OF UNIVERSITIES AND TERTIARY INSTITUTIONS...... 317 CHINHOYI UNIVERSITY OF TECHNOLOGY (CUT) ...... 318 CHINHOYI UNIVERSITY OF TECHNOLOGY HOTEL ...... 324 GREAT ZIMBABWE UNIVERSITY (GZU)...... 326 HARARE INSTITUTE OF TECHNOLOGY (HIT) ...... 329 MIDLANDS STATE UNIVERSITY ...... 331 NATIONAL UNIVERSITY OF SCIENCE AND TECHNOLOGY NUST (2012&2013) ...... 334 UNIVERSITY OF ZIMBABWE ...... 340 ANNEXURES ...... 344

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EXECUTIVE SUMMARY

Audit mandate

My duties as set out in the Constitution of Zimbabwe and amplified in the Audit Office Act [Chapter 22:18] are, in addition to examining, auditing and reporting on accounts of all persons entrusted with public monies or state property, to audit all institutions and agencies of government, and at the request of government carry out special audits of the accounts of any statutory body or government controlled entity.

Audit approach

I conducted my audit in accordance with International Standards on Auditing. Those Standards require that I comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. My audit approach was designed to enable me to express an opinion on the State Enterprises and Parastatals financial statements.

All aspects of the entities’ activities and procedures may not have been examined. I consider maintenance of adequate internal controls to be the responsibility of management. My work cannot therefore, be expected to identify all weaknesses in the systems and procedures, which a special investigation directed at those areas might reveal. As to the possibility of fraud, I plan my audit to have a reasonable expectation of its disclosure if the potential effects of the fraud would be material in the financial statements. However, there are many kinds of fraudulent activities, particularly those involving defalcation, forgery, collusion and management override of controls, which would be unreasonable to expect the normal audit to uncover. The principal objective of my audit procedures is to enable me to express an opinion on the truth and fairness of the financial statements as a whole. An audit opinion is based on the concept of reasonable assurance. It is not a guarantee that the financial statements are free of misstatements.

Financial reporting framework All the State Enterprises and Parastatals financial statements are prepared in accordance with International Financial Reporting Standards as provided for by the Public Finance Management Act [Chapter 22:19]. The entities are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards (IFRS).

The report outlines material audit findings noted during the audits of the financial statements of the State Enterprises and Parastatals. The audit findings are classified under Governance issues, Revenue collection and debt recovery, Procurement of goods and services, and Employment costs/issues. Also included under each audited account are possible risks /implications associated with the audit findings, audit recommendations, management responses in respect of the findings, audit comments to management responses where necessary and the audit opinion thereto. Although some of the issues identified are common within the audited entities, the majority of the findings are not the same due to the nature, uniqueness and varying mandates of the entities. The highlights are summarised below.

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1. GOVERNANCE ISSUES

Most of the problems that plagued the Zimbabwean public sector entities are of a corporate governance nature. Corporate governance is the system by which corporations are directed, controlled and held to account. It is about oversight of corporations by those responsible to shareholders and stakeholders. Corporate governance world over has been recognised as a tool to fight, among other ills, corruption, corporate scandals, poverty and the agency problem i.e ensuring that directors and managers avoid serving their own interests but those of government and the people of Zimbabwe.

Some entities had no Boards of Directors following the expiry of the previous Boards’ terms of office. In such instances, the Permanent Secretary of the respective Ministry played the role of the Board in the interim. Entities which operated without boards or with boards which were not fully constituted included POTRAZ which operated without a substantive Board since 2010 serve for an Interim Board whose term expired in July 2013; NIEEB did not have a board chairperson at the time of audit; POSB has been operating without a substantive Chairman since 2009. Some entities did not have declaration of interest registers while in some cases board members were not declaring their interest before discussing matters. Best practicerequires that, board members and management should declare interests, if any, before a board or management meeting to discuss resolutions that may be of conflict to them. The entities included Agricultural Marketing Authority, Zimbabwe Parks and Wildlife Management Authority, NetOne (Pvt) Ltd and Powertel Communications Private Limited.

Weak control environments in such entities like Health Professions Authority and Printflow (Pvt) Ltd led to cash embezzlement. Supervision, segregation of duties and the carrying out of bank reconciliations proved to be a challenge to organizations like Zimbabwe Investment Authority, Radiation Protection Authority, National Museums and Monuments to mention but a few.

A number of State Enterprises and Parastatals were struggling to honour their statutory obligations to NSSA, ZIMRA, Pension funds and Medical Aid Societies due to liquidity challenges; Printflow (Pvt) Ltd, Tel One (Pvt) Ltd, Zimbabwe Parks and Wildlife Management Authority, Zimbabwe Investment Authority, Radiation Protection Authority and National Railways of Zimbabwe were some of these State Enterprises and Parastatals.

Jena Mine bought a vehicle worth US$ 129 215 for the Non Executive Chairperson without board and shareholder authorisation.

There were no back-up facilities for Information Technology for some entities.

I was also concerned about the management of joint ventures (JVs) by the ZMDC, Marange Resources and Zimbabwe Parks and Wildlife Management Authority as they were not clear on enforceable contractual arrangements which should specify issues on operations, accounting and reporting, monitoring and entitlements of each party.

2. REVENUE COLLECTION AND DEBT RECOVERY

The challenge facing most of the State Enterprises and Parastatals was failure to recover outstanding debts. I noted lack of due diligence in investment decisions made by NSSA management.

Revenue collection systems were weak as evidenced by huge debtors on financial statements of CAAZ, CMED and Petro Trade. Petro Trade was not adhering to credit policy limits, despite the fact that recoverability of the debts was an issue.

The administration of leases was in some cases, not being done in a transparent and accountable manner e.g. there was no lease agreement between National Oil Infrastructure Company of Zimbabwe (NOIC) and Verify Engineering (Pvt) Ltd. In addition, there were cases where entities failed to collect lease rentals from tenants and instances where lease agreements were not available.

3. PROCUREMENT OF GOODS AND SERVICES

There were issues noted that ranged from lack of due diligence in procurement to non compliance with procurement regulations which include the following:

CMED (Pvt) Ltd borrowed money to procure fuel worth US$ 2 700 000 which was not delivered. The Company made a US$ 1 000 000 short- term investment with a bank which failed to honor both the capital and interest on maturity.

The Minerals Marketing Corporation of Zimbabwe bought rough diamonds worth $ 13 809 which were not delivered. The entity also awarded a tender in 2012 worth US$506 000 for the construction of laboratory without going to tender. In addition US$303 600 was paid as a deposit to the contractor but no tangible evidence of work done existed at the time I concluded the audit.

Jena Mine procurement minutes were not available for two dump trucks that were bought in South Africa for US$ 546 723 yet these could have been acquired for US$ 245 600.

Kimberworth Investments made prepayments of US$ 284 050 and US$ 292 840 to a supplier for goods that were not delivered.

The Mining Promotion Corporation acquired drilling equipment worth US$ 8 911 087 without going to tender.

Marange Resources paid US$ 328 226 in 2012 for the repair of four (4) accident damaged trucks. However, the repairs were not done.

NetOne (Pvt) Ltd acquired a residential property worth US$857 865 without the approval of the parent Ministry.

There was a common trend in most universities that some payments were being made using quotations without any supporting documents like invoices and vouchers. I noted cash disbursements were done using proforma invoices and quotations while invoices were received from suppliers after payments had been effected.

4. EMPLOYMENT COSTS

My audit on State Enterprises and Parastatals revealed some anomalies that included the following:

 Board fees and sitting allowances were either being grossed up or not being taxed. In some cases the amounts were too high due to the frequency of meetings held;

 Allowances being paid outside the payroll and were not being taxed;

 Payment of salaries to suspended managers (MMCZ) over a period of two years due to delays in finalizing their cases. Those in the acting positions were also receiving full benefits; and

 Marange resources bank accounts revealed that $758 000 had been withdrawn and paid to the non executive directors and the CEO as “extra security” fees.

5. CONCLUSION AND AUDIT OPINION

I obtained sufficient and appropriate audit evidence that I considered relevant to arrive at my audit conclusions/ audit opinion. Twelve entities (12) out of eighty-nine I audited had modified opinions including a disclaimer of opinion on Altim Timbers (Botswana) (Pvt) Ltd a subsidiary of Allied Timbers (Pvt) Ltd.

ANNEXURE “A” shows the details on the audit opinion per each public entity audited.

PUBLIC ENTITIES UNDER THE CATEGORY OF AUTHORITIES AND AGENCIES.

AGRICULTURAL MARKETING AUTHORITY (AMA)

Background information

The Agricultural Marketing Authority was originally established in 1967 and is a parastatal that was formed to regulate, supervise, develop and administer the marketing of agricultural products. The Authority is guided by the AMA Act [Chapter 18:24] and statutory instruments 63 of 2011 and SI 140 of 2013.

I have audited the Financial Statements of the Agricultural Marketing Authority for the year ended December 31, 2013.

Opinion In my opinion, the financial statements present fairly, in all material respects, the financial position of the Agricultural Marketing Authority as at December 31, 2013 and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

However, the following are material issues noted during the audit.

1. GOVERNANCE ISSUES

1.1. Board Committees

Finding

There was no evidence to support that the Authority’s board members and management were declaring their interest before discussing matters. Best practice is that, board members and management should declare interests, if any, before a board or management meeting to discuss resolutions that may be of conflict to them.

Risk/ Implication

Conflict of interest may arise.

Recommendation

The Authority should institute the practice of asking all members of the board and management to declare their interest, if any, before discussions of matters which may have conflict and this should be evidenced by way of documented declaration. In the event of no interest such declaration should also be noted for future reference.

Management response

No declaration of interest has occurred because all issues discussed have so far not provided any conflict of interest to any members of the board of management.

To call for a declaration of interest before any resolution under discussion is passed.

1.2. Withholding tax for board fees

Finding

Withholding tax for board fees amounting to $ 7 183 that were paid out in 2012 had not been remitted by the time of the audit of 2013.

Risk/ Implication

This may attract interest and penalties from the regulatory authority, ZIMRA.

Recommendation

Withholding tax must be remitted to the regulatory authority, ZIMRA, 10 days from day of payment. In the event the Authority cannot liquidate the tax due to cash flow constraints, a payment plan should be proactively negotiated with ZIMRA.

Management response

Noted, the outstanding amount will be paid on or before due date.

1.3. Lease agreements

Finding

The Authority’s lease agreement for the premises where it is currently operating from expired on the 31st of August 2012 and was renewed on the 1st of September 2013 by way of an addendum to the original agreement of lease (Addendum No 1). The addendum was however not signed by both parties i.e. the Authority and the lessor’s agent.

Risk/ Implication

The terms and conditions of occupancy may not be viewed in a similar way by the involved parties and hence chances of dispute may arise.

In the event of a dispute, the agreement is not binding.

Recommendation

Any contractual agreements should be signed by both parties involved in the agreement. Lease agreements should always be signed between the landlord and tenant so that both parties are aware of the agreed terms and conditions of tenure. Renewal of leases should be done prior to expiry.

Management response

The lease addendum was signed by the authority management and the lessor agent; however, due to the changes at the lessor agent, the agreement addendum was misplaced hence a new addendum had to be signed. At the time of the audit the new addendum had not been signed by both parties.

BROADCASTING AUTHORITY OF ZIMBABWE (BAZ)

Background information

The Broadcasting Authority of Zimbabwe was established in terms of the Broadcasting Services Act [Chapter 12:06]. Its core function is to manage the licensing of broadcasting services and systems.

I have audited the Financial Statements of the Broadcasting Authority of Zimbabwe for the year ended December 31, 2013.

Opinion In my opinion, the financial statements present fairly, in all material respects, the financial position of the Broadcasting Authority of Zimbabwe as at December 31, 2013 and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

However, the following are material issues noted during the audit.

1. GOVERNANCE ISSUES

1.1. Board Committees

Finding

The board committees were not meeting frequently during the year ended December 31, 2013, neither was there a meeting calendar for the committees. The following is a schedule of how the various committees met during the year under review:

Committee Recommended Actual Variance Meetings Meetings held Broadcast Content and 4 1 3 Compliance Committee Finance and Audit Committee 4 2 2

Human resources committee 4 2 2

Technical Committee 4 1 3

Risk/ Implication

The committees may not be able to deliver on their mandate.

Recommendation

The committees should meet at least four times a year so as to effectively carry out their duties as prescribed by corporate governance framework: paragraph 3.17.

Management Response

The observation has been noted by management and shall be communicated to the Board for consideration.

2. REVENUE COLLECTION AND DEBT RECOVERY

2.1. Receivables

Finding

There were clients who disputed amounts owed, which dated back to the 2009. A sample is tabulated below;

Name Amount Year Remarks owing $ Cresta Jameson 1,670 2009 Paid current invoiced amounts Hotel only Zimbabwe 7,000 2009 Paid current invoiced amounts Tourism only Authority Barclays Bank 2,700 2009 Paid current invoiced amounts only Cresta Lodge 3,960 2009 Paid current invoiced amounts only Cresta Oasis 5,360 2009 Paid current invoiced amounts only Holiday Inn 4,200 2009 Paid current invoiced amounts only

Risk/ Implication

Receivables may be overstated and their recoverability doubtful thereby affecting the Authority’s cash flow.

Recommendation

The Authority should assess all its receivables and then engage the debtors for a payment plan. Those debts which cannot be recovered should be recommended to the Board for write off.

Management Response

Management shall advise the Board and make recommendations to write off the debts which cannot be recovered.

3. EMPLOYMENT COSTS

3.1. Vacant Posts

Finding

The Authority had a 39% vacancy rate which is significant. Out of a staff establishment of 23, there were 9 vacant posts. Posts such as Public Relations Executive, Research officers and Engineers had not been filled. These posts are key for the Authority to deliver its mandate.

Risk/ Implication

The Authority may fail to fully meet its mandate if the posts remain vacant for a long period of time.

Recommendation

The Authority should be fully equipped with human resources in all approved positions so as to meet its mandate of regulating Broadcasting services.

Management Response

This observation is noted as correct. Management would however like to point out that the challenges related to its failure to fill vacant positions results from the lack of adequate financial resources as well as limited office space. This shall however be rectified in due course as the situation improves.

CIVIL AVIATION AUTHORITY OF ZIMBABWE (CAAZ) 2012

Background information

Civil Aviation Authority of Zimbabwe was incorporated in Zimbabwe in terms of the Civil Aviation Act [Chapter 13:16]. The Authority was established to promote the safe, regular and efficient use and development of aviation inside and outside Zimbabwe and to advise the Government on all matters relating to domestic and international civil aviation.

I have audited the Financial Statements of Civil Aviation Authority for the year ended December 31, 2012.

Opinion

In my opinion, the financial statements present fairly, in all material respects, the financial position of the Civil Aviation Authority of Zimbabwe as at December 31, 2012 and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

However, the following are material issues noted during the audit.

1. GOVERNANCE ISSUES

1.1 International holiday travel allowances

Finding

Board members and their spouses were paid an international holiday travel allowance of $5000 each. There was no evidence of approval by the Minister of the allowances paid to the board members contrary to Section 21 of the Civil Aviation Act [Chapter 13:16]. The allowances were only sanctioned by the board.

Risk/Implication

Conflict of interest may arise where members authorize and approve allowances for themselves. There is also a violation of regulations.

Recommendation

Board allowances should be approved by the Minister before being paid out.

Management response

The Board Holiday Allowances were approved by the then Board in its meeting held on 19 February 2004. The resolution has since been adopted by successive Boards. However, management will ensure that the resolution is ratified by the Minister.

1.2. Sustainability of services

Finding

As at December 31, 2012, its liabilities of $247 558 291 exceeded assets of $53 236 912 by $194 321 379. This casts doubt on the company’s ability to continue as a going concern. The Authority has also been reporting losses since 2009 as detailed below.

Year ended Loss for the year Accumulated loss US$ 2009 29 375 307 29 375 307 2010 16 608 005 45 978 112 2011 39 586 263 85 564 375 2012 12 296 655 97 861 030

Risk/Implication

There is doubt that the Authority will be able to sustain its operations and continue as a going concern.

Recommendation

The Authority should adopt a turnaround strategy with a view of making the organisation profitable and paying off existing obligations.

Management response

The going concern of the Authority might be compromised if assessed from the continued loss making point of view which is mainly attributed to low capacity utilization due to depressed business volume. The loss is mainly attributed to high depreciation figure which shows that the huge asset base is not optimally used to generate revenue.

The Authority has huge and high value assets which do not generate the expected business levels. However the aviation business in the country is looking bright as shown by the coming of new airlines (Emirates, KLM, South African Express, LAM and Egypt Air) in the last 2 years.This is a confidence booster which will help to attract more interest into Zimbabwe as a tourists’ destination. This indicates that in terms of business prospect the Authority is a going concern. Lot of efforts is being channeled in re-capitalization and modernization of the aviation systems in order to attract more business.

The Authority in 1997 had 34 major airlines and all these left due to political reasons primarily. CAAZ and Government are currently aggressively marketing Zimbabwe as a prime destination. The MTP’s (2011-2015) objective is to have 40 airlines flying into Harare by 2015.This will improve capacity utilization and profitability. The reality is that the EU has relaxed travel sanctions to Zimbabwe hence management has confidence that CAAZ’s performance will continue to improve.

2. PROGRESS IN IMPLEMENTATION OF PRIOR YEAR RECOMMENDATIONS

I reviewed the progress made towards the implementation of prior year recommendations and found that the Authority made some progress and there was some room for improvement in respect of the following recommendations:

2.1 Statutory deadlines

Recommendation

Management should ensure that statutory deductions are timeously remitted.

Management response

All statutory remittances for the period under review have been paid up but delays would be noticed because of continued cash flow constraints affecting the Authority but management is always doing its best to minimize delays and avoid penalties.

2.2. Rental income

Recommendation

Management should make efforts to ensure that all outstanding revenue from rentals is collected.

Management response

The Authority is engaging all interested stakeholder to come up with a clear position. We hope the issue will be resolved in near future. All the property was transferred to CAAZ at its inception what is lacking is an administrative procedure to enforce rental payments.

HEALTH PROFESSIONS AUTHORITY (HPA)

Background information

The Health Professions Authority was established in terms of the Health Professions Act [Chapter 27:19]. Its core function is the provision of an efficient health care delivery system in Zimbabwe through the coordination and regulation of all health profession Councils and health care institutions in an ethical, efficient and professional manner.

I have audited the Financial Statements of the Health Professions Authority for the year ended December 31, 2013.

Opinion

In my opinion, the financial statements present fairly, in all material respects, the financial position of the Health Professions Authority as at December 31, 2013, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

However, the following are material issues noted during the audit.

1. GOVERNANCE ISSUES

1.1. Board fees and allowances

Finding

The Authority’s board members were paid full board fees and fuel allowances for four (4) meetings held during the year. This was despite the fact that the members did not attend all the meetings. Four (4) members attended one (1) meeting each and the other one attended two (2) meetings.

Risk/Implication

The Authority incurred expenses for services not provided by the board members.

Recommendation

Board fees and allowances should only be paid for services rendered by the members. If a board member cannot avail sufficient time to the business of the board, the Authority should consider replacing the incumbent.

Management response

Audit observation was noted and the President of the Authority addressed all Authority Members on this issue and the situation has now been rectified.

1.2. Cash embezzlement

Finding

The Authority was prejudiced of $46, 015 through fraudulent payments made by staff members. Of the total amount, $33,249 related to 2013 whilst $12,766 was for the year 2014. The Authority’s board of directors instituted a comprehensive forensic investigation on cash transactions which revealed the following fraud schemes which were perpetrated by the employees;

Nature of misappropriation 2013 Jan-Dec 2014 Jan-June Total US$ US$ US$ Under-banking of daily cash 30 964 7 930 38 894 collections Sitting allowances fraudulently paid 960 66 1 026 out for absent Board/Committee members Omission of cash receipts from the 1 000 2 220 3 220 daily cash summaries Fake Electronic Funds Transfer (EFT) 150 2 550 2 700 receipts Fuel coupon payouts for 2013 not 175 0 175 acknowledged Total 33 249 12 766 46 015

Risk/Implication

The financial statements could be misstated due to fraudulent activities. If existing internal controls are not strengthened, the Authority risks further exposure to such fraud schemes.

Recommendation

The Authority should strengthen its internal control environment by segregating the duties in the accounts section and enhancing supervision of the same. This would help in the detection of errors and fraudulent activities on a timely basis.

Management response

The fraud perpetrated by employees in the finance department was reported to the police Serious Fraud Squad under Case Number DR 5 /08/14. Two suspected staff members (the Accountant and Accounts Clerk) were handed over to the police and they are no longer employed by the Authority. A new Finance Manager was recruited to take charge of the finance department. New measures put in place to improve the control environment include clear segregation of duties, passwords control, all board fees now paid through bank deposits and all clients have been instructed to make payments through direct bank deposits to minimize handling of cash at the Authority. The Secretary General is now reviewing all the daily cash transactions and all bank reconciliations will now be subject to his checking and

signing off. The Authority is making arrangement to put in place internal audit services to carry out regular audit checks and investigate suspected areas of fraud in time.

1.3. Investments

Finding

The Authority had no investment policy as a result the investment with Old Mutual unit trusts had no investment schedules detailing the period and movement of the investments. It relied on schedules prepared by the investing company. The Authority did not have advice/instruction letter advising the Old Mutual to roll-over or to stop the investment on maturity. Instead the investing company continued rolling over the investment without correspondence from the investor.

Risk/Implication

The Authority may fail to keep track of the performance of the investment and miss out on other favourable current market rates which might be available. Financial statements may be misstated by not disclosing all the interest earned from the investment.

Recommendation

The Authority should prepare investment schedules to keep track of the investments. On maturity, an instruction should be issued to the investing company to roll forward or terminate the investment. Continuous monitoring of the investments should be done regularly so that it does not miss out better interest returns which could be available.

Management response

Audit observation is noted, the Authority will prepare its own schedule to monitor the investments.

NATIONAL SOCIAL SECURITY AUTHORITY (NSSA)

Background information

The National Social Security Authority is a corporate body that was established in terms of the National Social Security Authority Act, [Chapter 17:04], to establish Social Security Schemes for the provision of benefits to contributors of the Schemes. It has the mandate to administer the National Pension and Other Benefits Scheme, the Workers Compensation Insurance Fund and every Scheme and Schemes to be established in terms of the Act. These financial statements are in respect of the Authority as a whole (consolidation of the two schemes and the subsidiaries) and separate financial statements have been prepared for the individual schemes.

I have audited the financial statements for the National Social Security Authority for the year ended December 31, 2013. I issued a Qualified Opinion on the Group’s financial statements.

Basis for qualified opinion on the Group financial statements Basis of consolidation: Capital Bank financial statements prepared on an inappropriate basis

The Capital Bank financial statements included in the consolidated financial statements have been inappropriately prepared on the going concern basis. Material uncertainty exists over the Bank’s ability to continue operating as a commercial bank as indicated by the following;

i. The shareholders resolved on October 17, 2013 not to further capitalize the Bank. In addition, there was a resolution to wind up the Bank’s operations. Subsequent to year end the majority shareholder reaffirmed its resolution to liquidate the Bank on May 28, 2014.

ii. The regulator of Banking institutions, cancelled the Bank’s banking license, on June 4, 2014 in terms of section 14(4) of the Banking Act [Chapter 24:20] following voluntary surrender of its license. iii. The Bank incurred a loss after tax of $13 631 124 (2012: $25 152 193) for the year ended December 31, 2013. As at December 31, 2013 the accumulated loss amounted to $60 250 953 (2012: $46 619 829). iv. As at December 31, 2013 the Bank had negative equity of $20 919 527 (2012: $13 288 403) against a minimum required capital of $25 million.

v. The Bank’s capital adequacy ratio was a negative 82.58% against the minimum prescribed ratio of 12%. vi. The Bank was in arrears on its off shore loans amounting to $11 746 362 which have been accruing interest and penalties for the past two years.

These events and conditions indicate that the Bank is no longer a going concern and is unable to realize its assets and liabilities in the normal course of business. The

financial statements (and notes thereto) have been prepared on the going concern basis as opposed to the liquidation basis as recommended by International Financial Reporting Standards. The liquidation basis entails the measurement of assets and liabilities to reflect the estimated amount of cash or other consideration that an entity expects to collect or pay to carry out its plan of liquidation.

Qualified opinion on the Group financial statements

In my opinion, except for the effects of the matter described in the Basis for Qualified Opinion paragraph, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as at December 31, 2013 and of the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

Opinion on the Authority’s financial statements In my opinion, the financial statements present fairly, in all material respects, the financial position of the Authority as at December 31, 2013, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

However, the following are other material issues noted during the audit.

1. GOVERNANCE ISSUES 1.1 Investment Department

Finding

I observed that the internal audit division had planned to audit the Investment Department in their 2013/14 operational plan. However, there was no evidence through reports to show that any work had been done on this critical operational area of the Authority. On enquiry, the audit department explained that there had been conflict between the former Chief Internal Auditor and the Investment department and hence no work had been done.

Risk/Implication

Fraud and errors may go undetected. Internal audit independence may have been compromised.

Recommendation

The Internal audit department should audit all divisions and the management should ensure that the independence of the internal audit department is guaranteed in terms of the Public Finance Management Act [Chapter 22:19], the respective internal audit charter and internal auditing standards.

Management response

Internal Audit will in future independently audit all divisions in the Authority as recommended. An independent audit of Investments Division was commenced on 28 February 2014 and fieldwork completed on 15 April 2014 without any problems.

Auditor’s comment

Whilst I appreciate the responses given, management has not explained the circumstances the internal audit department’s failure to audit the investment division. This will enable management to curb against the recurrence of such issues in future and also allow me to fully appreciate what transpired.

1.2 Investment in Rainbow Tourism Group

Finding

NSSA provided a loan of $10 000 000 in November 2012 to Rainbow Tourism Group (RTG) for the latter to recapitalise its operations. The principal amount was to be repaid within one year from the date of signature whilst the interest component would be calculated at 10% of the principal amount and payable on a monthly basis. The ten (10) million loan facility was secured by Bulawayo Rainbow Hotel (through title deeds) and had an initial tenure of one year but was increased to three years when the Authority realised that RTG was facing difficulties in servicing the debt and would not be able to repay within the stipulated timeframe.

At the time of reporting, RTG was four (4) months in arrears in relation to the repayment of the loan interest. On October 3, 2013 an agreement was entered into for a further $4 400 000 to be advanced to RTG for the latter to acquire furniture and equipment for the finalisation of the Beit Bridge Hotel. This $4 400 000 was not secured despite existing indications that RTG was in default of an earlier loan. It was also noted that of this $4 400 000, NSSA had already advanced $1 079 395 prior to the signing of the related loan agreement.

I am concerned with the effectiveness of the financial due diligence in relation to the above mentioned transaction and the appropriateness considering that unsecured loans were extended to an entity already in default.

Risk/Implication

Loss of pensioner’s funds as a result of improper application of funds. The Authority is exposed to higher levels of concentration risk considering that RTG is a related party.

Recommendation

The Authority should clarify the measures it took to protect pensioner’s funds in providing loans to RTG.

Management response

Audit observation noted; however please consider the following; Please note that the loan tenor was adjusted from 1 year to 3 years because the loan would not facilitate the achievement of the financing objective, that is, to fuel the turnaround of the institution. Maintaining the loan at 12 months would imply that it would be classified as a current liability therefore extending the loan meant that it would be classified as a long term liability and thus strengthens the balance sheet position of RTG. Concurrently it would enable management to implement the full spectrum of turnaround strategies to the enhancement of shareholder value.

Four months arrears on loan interest: These arrears are for the current year. RTG has been servicing its US$10 million interest every month on time. However, January to April is the low season for hotels and RTG’s cash flows were not good. This was also worsened by the liquidity challenges in the market. Letters of demand have been sent to RTG demanding the 4 months interest arrears and they have since responded by giving a repayment plan which management are yet to consider. The repayment plan is structured in such a way that all arrears will be paid within 3 months including the current interest.

US$4.4 million loan: Please note that the US$4.4 million loan was given to RTG on the following reasons; this loan was for Beitbridge Hotel furniture and fittings. NSSA built a hotel for RTG in Beitbridge and RTG failed to raise funding to equip the hotel. NSSA Board felt that it was prudent to advance US$4.4 million to RTG to buy the furniture and fittings so that the hotel can be functional and NSSA starts generating income rather than leaving the hotel idle. The arrangement of the loan security was that RTG was going to release A’ Zambezi Hotel from PTA Bank and give to NSSA as security; or PTA Bank was going to give RTG US$4.4 million against A’ Zambezi and the loan proceeds would be used to pay back NSSA.

However, none of the two options has since materialised because RTG has written to PTA Bank and they are waiting for feedback. This can take long to be considered but we are still pursuing RTG to push PTA Bank so that our loan is secured. All loans to RTG will be secured with mortgage bonds.

1.3 Lease agreement for Beitbridge Hotel

Finding

The Authority gave Rainbow Tourism Group access to the Beitbridge hotel without entering into a lease agreement. On inquiry, management provided me with a draft lease agreement on the basis that the final lease agreement is yet to be finalised.

Risk/Implication

There is no basis for reference or recourse in the event of disputes or default by the tenant.

Recommendation

Management should ensure that a signed lease agreement is in place before handing over the premises to the lessee.

Management response

The negotiations took longer than expected because of delays in completing the Hoteland defects refurbishments. The Hotel was opened in January 2014 but still in 2014 NSSA was still correcting some defects on the Hotel and RTG could not sign a lease agreement before everything was finalised. However, the lease agreement is now in place and rentals are backdated to January 2014 when RTG started occupying the Hotel.

1.4 Investment in associates

Finding

The Authority invested in Dubury (Private) Limited, an entity which jointly owns Joina City Building with Cherryfield Investments (Private) Limited. NSSA acquired the stake in Dubury without adequate due diligence as it failed to recognise an existing shareholder loan component embedded in the investment purchase consideration. Whilst NSSA technically acquired the stake through purchase of shares, the total purchase consideration of $11 400 000 in effect involved paying off the existing Dubury shareholders loans.

The prior year financial statements disclosed the investment in Dubury at an amount of $11 863 154 (that equalled the purchase consideration of $11 400 000 and related portion of post acquisition reserves). However, in the current year the investment value was adjusted to $5 790 708 and the other portion was disclosed in the NSSA books as a long term loan to Dubury of $5 977 120.

A legal due diligence carried out by Scanlen& Holderness on this transaction revealed that the details on the share certificate issued to NSSA differed from those on the share certificate register kept and maintained at Dubury. The Authority was issued share certificate number 08 with 3621 shares yet the Dubury share certificate register denoted share certificate number 08 as having101 shares. Efforts to verify this anomaly were futile as I was unable to inspect the share certificate register.

There was no evidence to show that the oversight body (co-ownership committee) held meetings during the year under review as no minutes were availed for my inspection despite having requested for them. There was therefore no evidence to show that the Authority monitored the performance of this investment.

Risk/Implication

The fair values of the investment property may have been manipulated to present a positive outlook especially to the Authority which invested a considerable amount in Dubury.

Failure to monitor the performance of investments may result in the Authority failing to take timeous action to disinvest in deteriorating investments.

Recommendation

The Authority should continuously monitor Dubury’s performance and also ensure that audited financial statements are available.

Management response

With regards to the investment in Dubury which was disclosed as $11 863 154 in the 2012 Financial statements, it is imperative to note that there was an oversight on our part for failing to recognise the loan component. Please note that the reclassification of the investment has been done in 2013 and a note to that effect has been put in the 2013 financial statements.

1.5 Security company contracts

Finding

The contracts between the Authority and the security company were signed in retrospect. Furthermore, I observed that the security contracts that were operational had expired. From a list of all the security contracts I reviewed, two out of three contracts had expired and signed in retrospect. The table below shows such contracts;

Security Date of agreement Period covered Status Company Fawcett security 18 March 2013 Jan-Dec 2013 Expired Wintam 3 April 2013 Jan-Dec 2013 Expired

Risk/Implication

Agreement is not binding.

Recommendation

The Authority should refer the matter to the legal department for the extension of the contracts.

Management response

Noted. The issues relate to our Gweru Regional office. Efforts to extend the contract are being made through the legal department.

1.6 Enterprise Risk Management (ERM)

Finding

A key risk (collusion) emanating from the relationship that exists between the compliance officers and the employers had not been included in the ERM. Whilst I appreciate the identification of other risks by the Authority on the contributions area, the risks identified tended to have been perceived as mostly being generated externally, the one highlighted above points to the need to look at risks also from an internal perspective. Whilst this issue was identified at the regional office the risk noted is pervasive to the Authority.

Risk/Implication

ERM and its related strategies may be inadequate.

Recommendation

The Authority should consider risks also from an internal perspective so that the ERM is comprehensive.

Management response

At the time of compliance of the Risk Register in 2011 the risk did not feature prominently in all the regional offices. However, the Authority subsequently held extensive consultation and road shows in 2013 culminating in the crafting and adoption (by NSSA) of the Fraud Prevention Policy and Code of Ethics. Plans are currently underway to operationalise the same during the course of 2014 as part of risk improvement measures.

1.7 Sustainability of service delivery

Finding

The ability of the NSSA Workers Compensation Rehabilitation Centre to effectively discharge its mandate (sustainability) could be threatened by the shortage of the following equipment;

Description of the Equipment Department CPM Kinetic shoulder Occupational Therapy Kinetic CPM Elbow Occupational Therapy Vita Glide Occupational Therapy Slug Occupational Therapy Four plate stove Occupational Therapy Upright Fridge Occupational Therapy Manual sewing machines Occupational Therapy

Risk/Implication

The expected service delivery levels may not be attained.

Recommendation

The Rehabilitation Centre should liaise with the relevant authority on the ways to address the above issues.

Management response

In terms of funding capital expenditure (capex), the Rehabilitation Centre is always given priority. When capital expenditure bids are submitted to Head Office, depending on the availability of finances, capital expenditure items from all the other divisions can be cut which is never the case with Rehabilitation Centre. Efforts to adequately resource the centre are at times hampered by the delays in the capital expenditure budget approval. As we speak, the capex for 2014 is not yet approved by the Ministry of Finance despite the numerous follow ups we have been making. The other challenge we face is the non availability of some of the equipment on the local market.

2. REVENUE COLLECTION AND DEBT RECOVERY

2.1. Investment in Capital Bank

Finding

The financial statements of Capital Bank used in the preparation of the disclosed Group financial statements were prepared on the going concern basis. However, material uncertainty exists over the Bank’s ability to continue operating as a commercial bank under the current operational and financial structure due to liquidity challenges it is facing. In its letters dated August 26 and October 10, 2013 to Capital Bank and the Reserve Bank of Zimbabwe, the Authority intends to have Capital Bank ring fenced i.e. to have the Bank wound up and converted into a micro finance institution. The Bank had also failed to meet the minimum capital threshold requirement of the Reserve Bank of Zimbabwe. As of the date of reporting, the Reserve Bank of Zimbabwe had withdrawn the former’s banking licence and initiated the liquidation process.

Risk/Implication

Financial loss of the capital amount invested.

Recommendation

Management should make an appropriate assumption on the going concern status of the Bank based on the information available.

Management response

As noted by the auditor Capital Bank is no longer a going concern following the cancellation of its licence by the Registrar of Banks (RBZ), although the processes to wind up the bank has not yet been done. As such the element of impairing the bank is being considered. Final position will be taken after discussion with the external auditors.

2.2. Dormant investments

Finding

The Authority in the past invested in the construction of Biri dam and Ekusileni Medical Centre which to date have not yielded positive returns. The table below briefly describes them;

Name Type of the Value disclosed in financial investment statements Biri dam Other Investments Nil Ekusileni Medical centre Other Investments $4 225 000

Risk/Implication

Retarded growth of the Authority as a result of locked resources in dormant assets. Recommendation

The Authority should have appropriate strategies and systems that grow and preserve pensioner’s funds.

Management response

There have been positive developments on Biri Dam and Ekusileni Medical Centre of late.

2.3. Capital Bank rights issues

Finding

The Authority followed a rights issue in Capital Bank amounting to $6.3 million in February 2013. There was no evidence to suggest that the investment analysts carried out appraisals to establish the appropriateness or economic benefits of subscribing to the rights offer. This was contrary to the provisions of the investment procedure manual which require equity investment to be made after the financial due diligence had been carried out by the analyst. I failed to understand the objective of investing further in Capital Bank, an entity that was showing clear signs of financial distress that was beyond redemption. This transaction entailed NSSA converting part of its debt in Capital Bank into $6,3 million worth of equity.

Risk/Implication.

The rights issue further increased NSSA’s exposure in Capital bank by $6.3 million. Loss of contributors funds due to inappropriate investment decisions.

Recommendation

Investment analyst should appraise projects before any investment decisions are made and implemented.

Management response

Please note that Capital Bank rights issue was a special dispensation taken by the NSSA Board due to many strategic reasons which needed proper investment decision at a High level. The US$6.3 million NSSA used to follow the rights was not real cash injection but through debt conversion. Capital Bank had failed to pay back NSSA maturities and at the same time there was a Reserve Bank of Zimbabwe requirement that Capital Bank must be capitalised to the required threshold and NSSA as the majority shareholder had no option than to follow the rights through debt to equity conversion. The transaction did not have any major effect to NSSA’s cash flows because this was already a non – performing asset in our books.

The US$6.3 million debt to equity conversion was done with faith that Capital Bank management will turnaround the fortunes of the Bank and bounce back to good trading performance.

Also note that there are certain decisions that can be generated from Board discussions depending on the magnitude of the investment and there is no anomaly in doing this. The Board has the alternative decision – making power even on the analysis done by the Analyst. Time parameters are also another factor which can force the Board to consider some investments without the Analysts’ input.

Auditor’s comment

Whilst I appreciate the explanations given by management, it should be noted that NSSA still remained exposed even if the transaction did not involve actual cash payments. In addition and in relation to the current status (where the legal process of liquidating the Bank has been initiated), the Authority may have lost the opportunity of first settlement given to creditors on liquidation of the Bank. Shareholders are usually paid last after all other liabilities have been settled.

2.4. Compliance visits

Finding

I observed that the compliance team was sometimes taking a long period without visiting the employers, with some employers last visited in September 2013 when there was a blitz. However, from the interview I conducted with the head of

compliance, all the employers should be visited on a quarterly basis. Further inquiry also revealed that the unvisited employers could not be invoiced because the billing process only requires the input from the inspectors. The table below shows the employers who were not visited for a period of more than three months (quarter);

Employer Last Date Last date Number of Insurable visited invoiced months to Earnings date US $ Usgate security August 2013 August 2013 7 1 560 Fletcher High Sep 2013 Sep 2013 6 8 617 Imbre enterprise Nov 2013 Nov 2013 4 20 100 Fairhill Farm Nov 2013 Nov 2013 4 28 769 Magic Moment Oct 2013 Oct 2013 5 6 490 Lily’s Whole Oct 2013 Oct 2013 5 8 144 P\L Jaiross Jiri Jun 2013 Jun 2013 9 3 400 Central Estate Jul 2013 Jul 2013 8 6 850

Risk/Implication

Contributions may be understated where the statements are not being sent to the employers.

Recommendation

The Authority should carry out inspections as per set targets.

Management response

Voluntary compliance is way below 30%. It therefore means in majority of cases, Inspectors are seized with the task of following up every employer with material contribution. Even if the employer paid the previous month, one still need to make concerted efforts to visit the employers to enforce compliance. Admittedly, this has meant that in some cases compliant employers have been overlooked. As explained, we can only resume sending invoices to Employers once we have successfully commissioned the new ICT system.

In our Strategic Plan, we have indicated that we will endeavour to visit every employer that is non-compliant at least once a year. This takes into account the bad compliance culture by employers and the limited resources available. The successful completion of ICT project will also enable us to effectively manage regional offices by zone, thereby substantially mitigating the risk of understatement of contributions due.

2.5. Regional offices bank reconciliations

Finding

The Gweru regional office bank reconciliations for this account for the twelve months were all done in January 2014, as a result they were not done properly as was evidenced by the mistakes which were picked during the re-computation process;

The following were reconciling items in the December 2013 reconciliation statement dating back to as far as March 2011, thus giving rise to wrong bank reconciliations and wrong posting to the cash book; $24 260.21 was transferred to Head office on February 6, 2013 and appeared on the bank statement on 4 March 2013 hence was not supposed to appear as a reconciling item in December 2013.

Transfers of $7 884.11 and $4 543.22 were entered into the December 2012 cash book, and twice on 12 and 13 November 2012. These appeared as reconciling items on December 2013. These should have been finalised in December 2012.

On 23 November 2012 the cash book recorded that $15 769 and $5 366 as having been transferred yet the actual transfer on that date were $32 279 and $10 691 which were not recorded in the cashbook. All the four amounts are appearing asreconciling items in December 2013 $148 411.77 were receipts not entered in the cash book on December 31, 2013 and some of these amounts were dating back to as far as 2 February 2012 $420 719.71 had not been receipted despite having been received by the Region from as far as10 March 2011. This amount appeared as reconciling items in December 2013.

A total of $67 039.31 was entered in the bank reconciliation as a reconciling item representing amount transferred to head office not found on the bank statement yet this amount reflected on the bank statement before end of March 2013.

Risk/Implication

Cash and bank balances may be over or understated. Misappropriations may not be detected.

The debtors figure may be overstated if these amounts were not adjusted for in the manual compilation of the debtors.

Recommendation

These reconciling items should be traced and be cleared and bank reconciliations should be done monthly.

Management response

Audit observations are noted. The reconciliations were not done properly. This prompted the office to revise all bank reconciliations from Dec 2011.This was done in January 2014 resulting in all errors being carried forward as reconciling

items as observed by audit. However the majority of these errors have been cleared by now.

3. EMPLOYMENT COSTS

3.1. Non taxation of fringe benefits

Finding

I noted weaknesses in the Authority’s payroll system relating to the taxing of fringe benefits as explained below;

The Authority granted salary advances that were recoverable within four (4) months through the payroll. These salary advances according to the Income tax Act [Chapter 23:06] are classified as loans. The loan benefit arising was not being subjected to tax as per section 8 (f) of the Income tax Act [Chapter 23:06]. The Human Resources policies on conditions of service required that the terms and conditions be determined by the board from time to time. No Board resolutions on terms and conditions were availed to the audit. The following advances were granted during the year;

Employee Number Date salary advance granted Amount advanced 536630 April 3, 2013 $6 000 454300 March 3, 2013 $2 000 515161 April 17, 2013 $1 000 112760 June 26, 2013 $2 000 454300 November 5, 2013 $2 500

The Authority disposed conditions of service vehicles to employees at 5% of the market value. These market values were determined by Independent valuers. This fringe benefit (95% of market value) was not taxed as per section 8 (f) of Income tax Act [Chapter 23:06].

Authority provided staff housing to Regional Managers and the managers had not been paying rentals. The housing benefit arising from this housing arrangement had not been taxed as per section 8 (f) of Income tax Act [Chapter 23:06].

Risk/Implication

The Authority may incur financial losses due to penalties from ZIMRA.

Recommendation

The Authority should comply with the provisions of section 8 (f) of the Income tax Act [Chapter 23:06].

Management response

The observation on salary advances is noted. There is a policy document on Salary Advances dated 21 December 1995 and various circulars updating this. However, these circulars are not written in a comprehensive document. There is an exercise to review all Loan Policy documents into one comprehensive policy by 31 December 2014.

Income Tax on Vehicle There was a comprehensive tax compliance audit by ZIMRA in March and April 2014 and the non-compliance with Section 8 (f) of the Income Tax Act was picked up. Tax was charged and paid and recoveries from the concerned employees are being instituted.

3.2. Recruitment of the real estate manager Finding

A vacancy notice was placed in The Sunday Mail and Sunday News of December 23, 2012 and The Herald and Chronicle of December 28, 2012 for the position of Real Estate Manager. The vacancy notice gave January 4, 2013 as the cut of date for the submission of application letters. I observed that the current Real Estate Manager’s application letter was dated February 26, 2013 (almost two months after the dead line date). In addition, the resume was submitted direct to the General Manager and the incumbent was invited for an interview on March 22, 2013 and subsequently offered the job. There was no written evidence to support and show that management or the board regularised this variation to the expected procedure i.e. applications were to be considered for those who had submitted their resumes within the set timeframe.

Risk

An override of set processes could be a sign of nepotism. NSSA may end up employing inappropriate candidates for key management posts.

Recommendation

The Authority should adhere to its set procedures to ensure transparency in its operations.

Management response

The National Social Security Authority (NSSA) has had challenges in managing construction projects and this has resulted in the Authority losing money and delayed completion of projects. Beitbridge Hotel is a case in point where Costain was awarded a fix and supply tender for US$17, 5 million but the project was eventually completed at a cost of about US$34 million.

Historically we have never had the competencies of an Architect in–house to effectively manage contractors and other service providers such as Quantity surveyors and Architects.

When Price Waterhouse Coopers (PWC) undertook a Performance Improvement review of the Investments Division in 2011, the scarcity in skills to effectively supervise projects was apparent therefore they recommended the creation of the position of Real Estate Manager to assist the Investments Director at senior level.

The General Manager has always been aware of this challenge and was keen to ensure that we bring the right competencies into the organisation that is why he also sat on the panel when the Projects Development Engineer was recruited in 2009 and when the Real Estate Manager was recruited in 2013.

In order to be more effective in our selection process, we introduced wider Selection tools from 2011 as stated in our Strategic Plan. When MrKhatso’s application was received, other applicants were still in the process of going through the selection tests and given our desire to have an Architect in-house, it was felt that his application should be given consideration even though it was received after closing date. It is normal for a lot of business correspondence to be addressed to the General Manager. Architects are a scarce skill locally and those available do not want to work for low salaries but prefer to practice as Consultants as this is more rewarding to them. When the advert for Real Estate Manager was flighted, we had a number of inquiries’ from Zimbabweans in the diaspora but some expressly stated that they were not willing to take up a position whose salary was below $6 000 a month.

Having an Architect in-house has proved to be of immense benefit to NSSA as the Authority successfully challenged the claim by Mr D. Mandishona, the Architect for the Beitbridge Hotel Project, for an additional US$1,7m for Architectural and Project Management fees. His claim was thrown out by the arbitrator after NSSA had effectively put up its defence.

Auditor’s comment The explanation given is noted but my view is that a formal waiver for deviating from the normal recruitment procedures should have been sought to ensure that transparency and fairness exist (in fact and in appearance).

POSTAL TELECOMMUNICATION REGULATORY AUTHORITY OF ZIMBABWE (POTRAZ)

Background information

The Postal and Telecommunications Regulatory Authority of Zimbabwe was established by the Postal and Telecommunications Act [Chapter 12:05] of 2000. The objective of the Authority as provided in the Act is to provide for the licensing and regulation of the cellular telecommunication and all telecommunication services.

I have audited the financial statements of the Postal and Telecommunications Regulatory Authority of Zimbabwe for the year ended December 31, 2013. I issued a qualified opinion as detailed below.

Basis for Qualified Opinion

The Authority recognised license fees revenue on receipt/cash basis which constitutes a departure from International Financial Reporting Standards. IAS 18 and the accounting policy require revenue to be accounted for on accrual basis. These license fees and trade receivables were recognized at $32 135 542 and $3 838 310 respectively. The Authority’s records indicate that had management recognized revenue on accrual basis, the total license fees should have been $34 158 252 and trade receivables would have been $26 364 041. Management has not made any adjustment to that effect.

Qualified Opinion

In my opinion, except for the effects of the matter described in the Basis for Qualified Opinion paragraph, the financial statements present fairly, in all material respects, the financial position of the Postal and Telecommunications Regulatory Authority of Zimbabwe as at December 31, 2013, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

However, below are other material issues noted during the audit.

1. GOVERNANCE ISSUES

1.1 Board of directors

Finding

POTRAZ has operated without a substantive Board since 2010 serve for an Interim Board whose term expired in July 2013. The interim board was made up of Ministry officials. Good corporate governance requires companies with public interest to have a Board of Directors that meet at least once in a quarter.

Risk/implication

There may be lack of effective strategy, policy formulation and management supervision in the absence of a substantive Board.

Recommendation

Management should pursue the issue of the appointment of a substantive board with the parent ministry.

Management response

Appointment of the Board is the prerogative of Government; management has very little or no room to influence that process. A substantive board of directors is however, now in place since May 2014.

1.2 Board fees

Finding

Section 15 (1) of the POTRAZ Act requires that board fees be approved by the Minister. I however, noted that the Permanent Secretary who was the Interim board chairperson went on to approve board fees that they were to receive, which in my view he was is an interested party.

Risk/implication

The may be conflict of interest. Non compliance with the POTRAZ Act requirements.

Recommendation

Board fees should be approved by the Minister in terms of Section 15 (1) of the POTRAZ Act.

Management response

Agreed. The Board fees were approved by the Minister but communicated to the Authority by the Permanent Secretary as is the norm.

Auditor’s comment The comment by management is noted but I have not been availed with evidence that shows approval by the Minister in relation to the matter.

1.3 Condition of Service vehicle for the Permanent Secretary

Finding

The Authority purchased a condition of service vehicle (Jeep Grand Cherokee) valued at $88 817.20 for the Permanent Secretary of Ministry of Transport, Communications

and Infrastructural Development upon a request from the Ministry. The motor vehicle was registered in the name of CMED and currently the vehicle is being retained and used by the Permanent Secretary. This expenditure had not been budgeted for by the Authority and in addition there was no evidence to support that this capital expenditure request had been authorized by the Minister of Transport, Public Service Commission and Treasury.

Risk/implication The Authority may have incurred unauthorized expenditure.

Recommendation Condition of service vehicles for Ministry officials should be met by the parent Ministry.

Management response

Agreed. However, the expenditure was charged to the Authority’s Sponsorship budget and no over-expenditure was incurred on that budget line. The expenditure was duly authorized by Ministry.

Auditor’s comment

Whilst I appreciate the comments given by management, it is my view that the use of the entity’s funds to acquire a vehicle for the Secretary is outside its mandate. In addition the authority/approval for acquisition of the vehicle has not been availed for my inspection.

1.4 Related-party lending

Finding The Authority was directed by the parent Ministry to make financial bailouts to Air Zimbabwe and Civil Aviation Authority of Zimbabwe (CAAZ). The outstanding loan balances at December 31, 2013are as follows;

Name of entity Amount outstanding US$ Air Zimbabwe Advance 5 583 957 CAAZ 2 200 000 Total 7 783 957

The advances were not recovered as agreed between the parties leading to the write off of the entire Air Zimbabwe component. In addition, I was not provided with documentation from Treasury approving this arrangement.

Risk/implication

The funds advanced and impaired may not have been a proper charge to the Authority.

Recommendation

The Authority should recover loaned amounts.

Management response

Every effort is being made to recover the debts including engaging government to assist.

1.5 Money Market Investments

Finding

The Authority’s investment policy required the Authority to operate with set counterpart limits for each bank they invested. The board through its resolution of September 8, 2012, removed the cap on the amount of the money that could be invested in Metbank. It also gave the discretion to management for any investment done with the bank.On April 19, 2013 and May 17, 2013 the Authority then invested one million five hundred dollars ($1 500 000) and six hundred and ninety five thousand dollars ($695 000) respectively into Metbank.

On March 8, 2013 the Acting Director General wrote an email to management for them to process an investment of $1 500 000 into Metbank as soon as possible following an amended resolution on March 7, 2013. The email instructed that the business with Metbank be governed by a Board resolution which was contrary to the investment policy.

There was no evidence of due diligence by the Authority before the Metbank investment was done. The funds invested with Met bank were being rolled over without being credited to the Authority’s investment account on maturity. On inquiry, the management advised that the Bank had no money to repay and the case is now under litigation. The status of case was as follows;

Amount Remark US $ $3 411 312.05 Being pursued by the lawyers $2 985 676.14 Ruling was done in favour of POTRAZ and now processing papers to recover the funds. $6 396 988.19

Risk/implication

Financial loss as a result of not carrying out due diligence.

Recommendation

The management should abide by its investment policy and in addition, management should put a concerted effort to recover the money.

Management response.

Due diligence was carried out. Metbank was found to be weak but the interim board in its wisdom resolved that funds be invested with it.

1.6 Executive post held in acting capacity

Finding

The post of Director General had been held in acting capacity since January 2013 up to the time of audit-June 2014, following the expiry of the contract of the previous Director General in December 2012.

Risk/implication

Employees in acting managerial capacity may focus on short term operational issues instead of long term strategic issues.

Recommendation

The Authority should consider appointing a substantive Director General.

Management response

Agreed. Board is now in place and will attend to the matter by the end of the 3rd quarter of 2014.

RADIATION PROTECTION AUTHORITY

Background information

The Authority was established in 2008. The Authority's mandate is to ensure the protection of people and the environment against radiation effects through effective regulatory processes. The Authority also offers registration licenses, import licenses to individuals and corporates importing equipment and medicinal machines or even drugs. The Authority also carries on inspections to all the registered entities at a fee. Trainings and awareness campaigns are also offered to hospitals at a fee. The regulatory authority has been formed as a result of an Act of Parliament. As such all its operations are guided by the provisions of the Radiation Protection Act [Chapter 15:15].

I have audited the financial statements of the Radiation Protection Authority of Zimbabwe for the years ended December 31, 2009-2013.

Opinion

In my opinion, the financial statements present fairly, in all material respects, the financial position of the Radiation Protection Authority of Zimbabwe as at December 31, 2013, and its financial performance and its cash flows for the year then ended.

However, the following are material issues noted during the audit.

1. GOVERNANCE ISSUES

1.1. Internal Control

Findings

For the years ended December 31, 2009-12;

Bank reconciliations were not performed for the month of May to July 2011 for the NMB bank accounts. Bank charges, interest from the bank and direct deposits were not being updated in the cash book prior to the reconciliation being done

Cash was not banked daily for the period 2010 to 2011. Unbanked cash was kept in locked cabinets in the Finance Manager's office. At the end of the day after doing cash counts, no-one signed for the unbanked cash before it was locked away in the cabinets.

There were some transactions in the general ledger which were not dated. Other transactions had no details in the ledger to which the related invoices raised relate to. The table below have details of the anomalies noted in respect of the above finding;

Invoice Amount Anomaly Number

805031 $1,500.00 No date 805047 $3,750.00 No date 805037 $4,850.00 No date 029 $700.00 No transaction detail 125 $350.00 No transaction detail 173 $450.00 No detail

Also during the period 2010 and 2012 there was a lack of supporting documents for some transactions that were neither described nor supported due to the weak control environment during the period to the extent that:

Furniture which was purchased on 7 December 2009 had no invoices issued by the supplier. The only supporting documentation available was an RTG form substantiating the payment of $1,680 to the supplier. The furniture was re-valued by management but no documented basis of the process was provided.

Internal voucher dated 15/3/10 could not be traced to payment as the receipt from Rockguard securities was reported to be missing.

T&S claims for cab hire were not always attached to supporting documents explaining purpose of making the trip

Procurement committee minutes could not be found to evidence that selection of Linelow as a supplier was per the procurement policies.

The invoices attached to the withdrawal slip dated 18 January 2012 added up to $477 leaving out an amount of $107 without supporting documentation as the total withdrawal was for $584.

The invoices attached to the withdrawal slip dated 21 January 2012 added up to $1,380 instead of $1,385 leaving out an amount of $5 with no supporting documents. The accounts department represented that the invoices must have been misplaced.

Included in sundry income on the face of the income statement are unsubstantiated transactions of $4,769 for the 2010 financial year. Included in sundry expenses in the 2011 and 2012 financial year are unsubstantiated transactions of $12,627 and $424 respectively.

Risk / Implication

Lack of audit trail and concealment of material errors and irregularities that may be difficult to detect timeously.

Recommendation

Management should obtain bank statements for all balances at month end and prepare bank reconciliations as part of the month end closure process and the cashbook is updated monthly prior to preparation of the bank reconciliation.

Cash receipts should be banked daily to ensure no misappropriation or rolling of the cash before it is banked. Limits should be set of maximum amounts of cash that can be held in the safe before banking. Unbanked cash should be kept in a safe and the safe be kept in a strong room with restricted entry.At the end of the day when all cash is counted, the person handing over the cash (Assistant Accountant) signs as handing over the cash and the person receiving custody of the cash (Finance Manager) to lock it away also signs as the receiver and amounts counted are agreed by both parties. This prevents any future problems with regards to how much was handed over and how much was received in case there is a dispute.

The general ledger be updated with all necessary information such as the date and transaction details to enable one to be able to trace back to the supporting documents. Filing of supporting documents for all transactions should be done to make them readily available when required.

Procurement minutes should be available for audit.

Management response

Noted. Management will ensure that all cash movements are captured on time. Delays in banking were hugely due to logistical challenges for the Authority started operations without any vehicle. Management to ensure that all unbanked cash is signed for.

Management to ensure that all transactions recorded in the general ledgers are complete.

Management always approved all payments after being satisfied that such expenditure have complete supporting documents. Management made the above observation as well and recoveries were immediately made from the salary of the officer concerned, meaning there was no loss to the Authority. Management to ensure that filing is improved. Accounting department is now adequately staffed and there is now segregation of duties.

1.2. Submission Of Financial Statements For The Years Ended December 31, 2009- 2012

Finding

The financial statements for the years ended December 31, 2009 to 2012 were not submitted timeously. The Public Finance Management Act [Chapter 22:19], requires that financial statements be submitted by March of the next year of the date of the accounting period under audit.

Risk / Implication

Non-compliance with the requirements of Public Finance Management Act and also accountability is compromised.

Recommendation

Management should ensure that financial statements are submitted timeously. The financial closure process should be done timely to enable the audit process to happen.

Management response

Noted. Management failed to produce the financial statements on time due to the non-availability of some policy documents crucial for the completeness of the statements, for example the depreciation Policy. The Policy document was approved early 2013 and only then did we manage to complete the financial statements.

1.3. Board Fees

Finding

The Radiation Protection Act provides that remuneration and other allowances of the board shall be fixed by the responsible Minister. Although correct amounts were paid, the board instructed the Authority to pay the fees monthly instead of quarterly as per the Ministry’s instructions.

Risk / Implication

Non-compliance with Radiation Protection Act requirements.

Recommendation

In future, if there is any variances to Ministry instructions with regards to payment of board remuneration, management should seek approval first.

Management response

Noted, Management shall always advise the Board on Government policy position issues.

1.4. Board Meetings Attendance Register

Finding

Best practice requires that board members should sign in the attendance register as evidence of attendance of a meeting.

There were no attendance registers for the following committee meetings held on September 26, 2013:

Human Resource Committee Finance Committee Technical Committee

Risk / Implication

Sitting allowances might be paid on meetings not attended.

Recommendation

Board members should sign on the attendance register for all meetings attended.

Sitting allowances should be based on number of meetings attended as evidenced by signed register.

Management response

Noted, to ensure that an attendance register is circulated and signed at every Board and Board Committee meeting.

1.5. Tax on employee benefits

Finding

Staff loans other than those issued for studies related to trade and medical expenses during the year ended December 31, 2013 were issued at an interest rate of 2.5% which is below the market rate and the differential to tax allowed was not taxed as a benefit.

Risk / Implication

Non-compliance with statutes could attract penalties and interest.

Recommendation

Benefits on interest on staff loans should be included in payroll and included in Pay As You Earn (PAYE) calculation.

Management response

Noted, all allowances and benefits omitted from taxation to be taxed in retrospect.

2. REVENUE COLLECTION AND DEBT RECOVERY

2.1. Customer Database

Finding

Best practice requires that customer databases with adequate information should be maintained.

On inspection of the 2013 licensing database, I noted that the database did not specify the type of radiation service or equipment the customer had and information that was necessary when invoicing clients.

Risk / Implication

Misstatement of revenue by invoicing client for wrong service.

Inaccurate budget projections as customers are not categorized adequately.

Recommendation

Customer databases should be updated yearly and should include adequate information.

Management response

We note the observation. The Regulatory Authority Information System (RAIS) is the database in use for the management of all licensee data. It is a server based data management system developed and issued by the International Atomic Energy Agency. The system should generate automatic reports on query, however we experienced problems with its reporting in 2013 and had to develop a summarized register on excel highlighting the licenses issued. All data associated with a given facility may be viewed on RAIS at any given moment with the exception of the general reports which keep failing to generate when prompted.

We will engage system developer (IAEA) on report generation problems and improvements of the excel license register have been made for 2014 so as to capture more relevant information.

3. PROCUREMENT OF GOODS AND SERVICES

3.1. Suppliers Listing

Finding

There was no pre-approved suppliers’ listing for the provison of non-tender goods and services.

Risk / Implication

Resources may be wasted through the procurement of poor quality services at high prices and goods and services may be procured from wrong suppliers which could in turn negatively affect the Authority.

Recommendation Pre-approved suppliers list should be established after a thorough assessment of possible suppliers covering among other things to be assessed:-ability to deliver the quality service, delivery time lines against requirement, pricing, regulatory compliance of the possible suppliers and trade reference.

Management response

Noted, Radiation now has an approved supplier list effective 1 March 2014.

3.2. Goods received notes

Finding

I could not verify that all goods were actually received in 2010 as administration explained that there was poor handover from the previous administrator and he left with some of the books where goods received were documented.

There was no document archiving system in place. In 2013, goods received notes prepared by the administration officer were not checked by someone else other than the preparer.

Risk / Implication

Incorrect recording of received goods may not be identified timeously.

Recommendation

Management should ensure that handover is carried out properly when employees leave the organisation. Accounting records should be filed in a systematic manner and kept for at least the prescribed period. A document archiving system should be put in place to safeguard the Authority’s records.

Goods received notes should be reviewed for accuracy by someone other than the preparer for accuracy.

Management response

Noted, there was no proper handover – takeover as the responsible officer had misconduct cases. The referred documents were then reported missing and the issue was reported to police.

Management to ensure that Goods Received Vouchers are raised whenever a service or goods is received by the Authority and we shall ensure that there is always a proper handover takeover whenever an officer is leaving employment for whatever reason. In future all goods received shall be subjected to a secondary review by the requesting officer to check whether they meet desired qualities and specifications.

ZIMBABWE INVESTMENT AUTHORITY (ZIA)

Background information

The Authority was incorporated through an Act of the Parliament of Zimbabwe, the Zimbabwe Investment Authority Act [Chapter 14:30] of 2006. The Export Processing Zones Authority established in terms of the Export Processing Zones Act [Chapter 14:07] and the Zimbabwe Investment Centre established in terms of the Zimbabwe Investment Centre Act [Chapter 24:16] transferred their assets, rights, liabilities and obligations, to the Authority upon its incorporation, and the two latter acts were repealed. The main objective of the Authority is to promote and co-ordinate investment in Zimbabwe.

I have audited the financial statements of Zimbabwe Investment Authority (ZIA) for the year ended December 31, 2013.

Opinion

In my opinion, the financial statements present fairly, in all material respects, the financial position of the Zimbabwe Investment Authority as at December 31, 2013, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards. Emphasis of matter

Without further qualifying my opinion I draw attention to the following; The Authority incurred a deficit for the year amounting to $283 773 (2012:$205 972) for the year ended 31 December 2013 and was in a net current liability position of $681 644 (2012: $137 809) as at 31 December 2013. These factors cast doubt on the Authority’s ability to continue operating in the foreseeable future.

However, below are other material issues noted during the audit.

1. GOVERNANCE ISSUES

1.1. Review of bank reconciliations

Finding

There was no evidence of review of the bank reconciliations for the Authority’s CBZ bank account during the period under review.

Risk/Implication Possible errors and/or fraud may occur and remain undetected.

Recommendation Management should ensure that all the Authority’s bank reconciliations are reviewed by senior independent personnel who should sign the bank reconciliations as evidence of such review.

Management response

The bank reconciliations were being reviewed but the reviewer (Finance and Administration Manager) was not signing as evidence of review. This has been noted and the reviewed bank reconciliations will be signed in future.

1.2. Statutory remittances

Finding

I noted that remittances for Pay As You Earn (PAYE) and NSSA were not being submitted timeously.

Risk/Implication

Non-remittance of these statutory obligations will result in possible penalties being levied against the Authority by the relevant authorities.

Possible financial losses which will worsen the liquidity position of the Authority.

Recommendation

Management should ensure that statutory remittances and the respective payments are done timeously to the relevant authorities.

Management response The major impacting factor has been cash flow problems however, there will be improvements on remitting the returns on time.

1.3. Taxation of allowances and benefits

Finding

I noted that the following allowances and benefits paid to the Authority’s employees during the period under review were not being subjected to Pay As You Earn (PAYE) in terms of the Income Tax Act [Chapter 23:06]:

Representation/Domestic allowance Housing allowance Other allowance Education allowance Transport allowance Motor vehicle allowance Grocery allowance.

Risk/Implication Non-compliance with the Income tax Act leading to possible penalties and interest being levied on the Authority.

Recommendation

Management should ensure that all allowances and benefits awarded to employees are accounted for through the payroll and included in the computation of PAYE.

Management response

Management has noted this and will ensure implementation of the recommendation in future.

2. PROCUREMENT OF GOODS AND SERVICES

2.1. Non compliance with the procurement policy

Finding

I noted that the Administration Assistant was not sourcing three quotations on procurement of goods as per the Authority’s approved policy.

Risk/Implication Goods may be purchased at higher prices leading to financial losses to the Authority.

Recommendation Management should ensure that three quotations are sourced whenever goods are purchased by the Authority. In addition, the purchase order should only be authorised when three quotations are attached.

Management response

There are some cases where we have long standing relationships with our suppliers and in such cases we see it not necessary for three quotations to be sourced out, however for new suppliers there is need for sourcing out three quotations.

3. PROGRESS IN IMPLEMENTATION OF PRIOR YEAR RECOMMENDATIONS

I reviewed the progress made towards the implementation of prior recommendations and found that the Authority made some progress and there was some room for improvements in respect of the following recommendation:

3.1. Pension contributions

Management should ensure that pension contributions are remitted timeously towards the employees’ pension scheme.

Not implemented. Management cited cash flow problems as the reason.

ZIMBABWE PARKS AND WILDLIFE MANAGEMENT AUTHORITY

Background information

Parks and Wildlife Management Authority is an organization which is incorporated in Zimbabwe by an Act of Parliament Parks and Wildlife Act [Chapter 20.14]. The functions of the Authority are to control, manage and maintain national parks, botanical reserves and botanical gardens, sanctuaries, safari areas and recreational parks.

I have audited the financial statements of Zimbabwe Parks and Wildlife Management Authority for the year ended December 31, 2012.

Opinion

In my opinion, the financial statements present fairly, in all material respects, the financial position of the Zimbabwe Parks and Wildlife Management Authority as at December 31, 2012 and the financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards. However, the following issues are material issues that were noted during the audit.

1. GOVERNANCE ISSUES

1.1. Declaration of interest

Finding

According to good corporate governance practice, entities ought to have formal procedures for declaration of business interests by board members and key management staff when dealing with issues that may compromise objectivity. I however observed that there were no formal procedures to declare business interests for the Authority’s board members and key management staff. During the audit I observed that the firm that offers legal counsel to the Parks and Wildlife Management Authority known as Chinogwenya and Zhangazha law firm is owned by one of the Board members.

Risk/Implication

Objectivity may be compromised when making decisions on issues that board members have interests in.

Recommendation

The Authority should consider disengaging the law firm. In addition the Authority should put in place formal procedures for declaration of business interests by its board members and key management staff.

Management response

Corporate governance framework for disclosure of business interests is being put in place to cover both Board members and senior management.

1.2. Board minutes

Finding

Board minutes for 2012 including those of the board committees such as Human Resources, legal and Permits, Management and Conservation, Finance and Audit, Commercial Tourism and Marketing committee were not signed to authenticate the meetings held. All the minutes were being kept as soft copies and no hard copies were filed.

Risk/Implication

Minutes and resolutions are not binding unless they have been signed by the respective chairpersons.

Recommendation

Minutes should be signed by the respective Chairpersons after being confirmed to be a true record of proceedings of the previous meeting.

The signed copies should be kept in files for future reference and as authoritative sources for implementation of resolutions.

Management response

Audit observation is noted. All minutes have been signed and they are in the custody of the Board secretary.

1.3. Finance and Audit Committee

Finding

According to the Corporate Governance Framework for State Enterprises and Parastatals paragraph 3.12, Parastatals should have committees that include the ones responsible for: Corporate Strategic Planning, Audit and Internal Controls, Human Resources and Remuneration, Finance and Risk Management. The Authority’s Audit Committee is combined with Finance to form one committee called Finance and Audit Committee.

The mandate of the Audit Committee includes monitoring and reviewing the effectiveness of the internal audit function and internal controls of the Authority. It is also its responsibility to assess whether the Internal Audit Department has direct access to the Audit Committee. It also reviews the decisions of the finance department. On the other hand the Finance Committee is mandated to superintend over budget formulation, implementation and budgetary control.

Risk/Implication

A combined Finance and Audit Committee compromises objective decision making since the same committee that is responsible for approving financial policies is on the

other hand responsible for reviewing the same policies. There is therefore a risk of self review.

Recommendation

The Authority should have a separate Audit and Finance Committee.

Management response

The issue of separation of the finance and audit committees has since been resolved with the formation of Legal, Audit and Risk Committee which is separate from the Finance Committee. This will be effected in 2014.

1.4. Statutory remittances

Finding

Audit noted that the Authority was not remitting the statutory deductions on time. The Authority had arrears relating to contribution deductions for Medical Aid, NSSA, funeral policy, PAYE and pension. As a result, a penalty of US$57 263.60 was charged for late payment of VAT and PAYE on May 7, 2012 which the Authority paid on May 21, 2012.

Risk/Implication

Loss of cash resources due to penalties being charged by the relevant authorities.

Recommendation

The Authority should remit statutory payments on stipulated dates as required by the statutes. Management should also consider making payment plans with the relevant authorities.

Management response

It is the wish of management to remit statutory payments in time but as already explained, the Authority is failing to generate adequate revenue to meet the statutory obligations in time. We continuously negotiate with service providers to be exempted from penalty fees for late payments.

1.5. Supervision and completion of bin cards

Finding

An inspection of the bin cards at Head office stores revealed that the bin cards were not being updated regularly and this resulted in variances between physical and bin card quantities noted during the 2012 annual stock take. These discrepancies were an indication of lack of supervision of stores officers.

In addition, the goods received and issue vouchers were not being indicated on the bin cards. The following is a sample of variances between the physical and bin card balances of inventory in the stores:

Stock Stock description Physical Bin Variance sheet balance card balance No. 1 Elephant skins 27 29 -2 1 Elephant head, Tails, 101 47 +54 Ears & trunks 1 Elephant feet 11 10 +1 1 Buffalo skulls 18 27 -9 1 Buffalo hooves 0 14 -14 1 Buffalo Horns 0 14 -14 1 Hippo feet 0 4 -4 1 Kudu Horns 0 18 -18 2 Cheetah skins 0 41 -41 2 Sable horns 0 14 -14 2 Giraffe skins 4 10 -6

2 Giraffe hooves 0 2 -2 2 Crocodile skins 0 109 -109 2 Python skins 0 115 -115 3 Rhino Skins 0 120 -120 3 Rhino feet 0 37 -37 3 Pangolin 0 18 -18 3 Jackal skins 0 5 -5 3 Ostrich skins 6 53 -47

Risk/Implication

Stocks may be stolen or misappropriated without being detected due to lack of supervision.

Incomplete completion of bin cards leaves no audit trail, and creates an opportunity for falsification of records.

Recommendation

The bin cards should be completed in full. Evidence of supervision on the bin cards should be shown either in the form of a signature or a mark.

The stock variances should be investigated and controls to avoid recurrence be put in place by management.

Management response

The stock take was done after hides and skins had been graded separating saleable from non saleable ones. Non saleable and valueless hides, hooves, horns, feet and

skins were all dumped at the left corner when one uses the main entrance to enter the storeroom. These dumped items were not counted as stock but are recorded in a non valuable item register.

Unfortunately the bin cards were not updated to reflect the transfer of these non valuables to the non valuable items register hence the negative variances noted on your schedule starting from line 4 (Buffalo skulls) to the last item on the schedule.

When elephant hides were received from stations, they were itemized on issue vouchers (internal delivery notes) simply as ‘hides’ irrespective of the fact that these included skins, heads, tails, ears, feet and trunks. These items were then graded by head office into the aforementioned categories hence a seemingly positive variance particularly on line 2 of your schedule. On receipt of the items, the bin card was recorded according to quantities as itemized on issue vouchers from the stations.

We have since advised stations to correctly itemize stocks according to their categories, ears, heads, etc. in line with head office bin cards to avoid future discrepancies. We have also since updated the bin cards to separate saleable and non saleable items of stock.

1.6. Payment vouchers

Finding

The following payment vouchers were passed for payment without having been recommended or authorised.

Date Details Reference Amount(US$) 17.12.2012 Leave Encashment F2012/12/12/269 1092.00 17.12.2012 2000L Diesel and 2000L Petrol F2012/12/12/266 5660.00 17.12.2012 School Fees F2012/12/12/254 3500.00 17.12.2012 T and S Claim F20012/11/566 760.00 28.11.2012 T and S Claim F20012/07/596 618.00 30.07.2012 T and S Claim F20012/0,7/546 268.00 27.07.2012 T and S Claim F20012/05/685 350.00 30.07.2012 T and S Claim F20012/05/628 266.00 24.01.2012 Tand S Claim F20012/03/231 266.00 13.03.2012 Tand S Claim F20012/03/217 306.00 12.03.2012 Encashment F20012/03/157 400.00 08.03.2012 Tonner F20012/04/115 1100.00

Risk/Implication

Fictitious or fraudulent claims may be made.

Recommendation

All payments should be made after proper recommendation and authorization by the relevant authorities.

Management response

The audit observation is noted. Payment vouchers might not have been recommended or authorized for payment by the Authority would have been obtained through the supporting documents to the payment. However the anomaly will be rectified so that the process is complete.

1.7. Umfurudzi joint venture

Finding

Since inception of the Umfurudzi Joint Venture in 2011 to the end of year 2012, the Pioneer group contributed $ 2 314 331 which represented its shareholders’ contribution to the Joint venture. The Pioneer Group’s contribution into the joint venture from 2013 onwards was being treated as a loan despite the absence of a signed agreement to this effect. Pioneer informed Parks and Wildlife Management Authority in writing in respect of the contributions made so far, but up to the date of audit on January 24, 2014, no agreement was in place and the amount had accumulated to $851 228 from $488 454. I was unable to verify the accuracy of the ‘loan’ as no audited joint venture financial statements were availed to me. In addition, I failed to establish the basis of this loan or how it arose as the memorandum of agreement did not have such provisions but only stated the specific obligations of Pioneer. My review of the schedule detailing the amounts totaling $851 228, revealed that these amounts were capital and recurrent expenditure incurred in the operation of the joint venture. These amounts were consistent with the obligations to be met by Pioneer as stated under clause 6.0 of the memorandum of agreement.

Risk/ Implication

The loan issue could be signs of Pioneer reneging on the terms of the contract.

Recommendation

The two parties should ensure that there are audited financial statements for the joint venture arrangement. In addition, the financial staements should reflect the substance of the memorandum of agreement. Management response

There is no provision in the agreement that the other party will give a loan to the JV. The issue was discussed by Management Committee of the JV and it was agreed that the issue be handled by the principals. A position on how the funding by Pioneer to the JV will be done and reviewed by the principals.

1.8. Preparation of bank reconciliations

Finding

The Authority`s head office was not preparing 2012 bank reconciliations statements on a monthly basis for Kingdom Bank as per the accounting procedure manual. The bank reconciliations were only prepared on March 13, 2013.

Risk/Implication

Errors may not be detected timeously for corrective action.

Recommendation

The bank reconciliations should be carried out every month for every bank account as stated in the accounting procedures manual.

Management response

Interim bank reconciliations were prepared monthly but final bank reconciliations were prepared in March 2013. Head office and regional offices all used Kingdom Bank during the year and the volume of transactions going through this bank for the Authority as a whole was very high.

Capturing and posting of transactions during the course of the year could sometimes be incorrectly processed to regional bank accounts (imprest) and/or to head office bank accounts by regional offices or regional offices on their own. During the course of the year these inadvertent errors had the effect of altering cash book balances of the affected but already reconciled bank account. In order to avoid this it is always agreed between head office and regional office to set a date when all the bank reconciliations should be finalized, in this case it was March13, 2013. When all regions and head office finalized their bank reconciliations the accounting system (SunSystem) was ‘locked’ to disable any more erroneous postings to the final bank reconciliation statements.

Bank or third party errors or omissions were therefore detected and rectified using the interim bank reconciliations which were performed monthly as alluded to above.

1.9. Harvesting authority book

Finding

The harvesting authority document has a provision for an official from Parks and Wildlife Management Authority to append his signature as confirmation that he has witnessed the harvesting of crocodiles and everything has been done above board. I however noted that the following harvests were done at Rokoptrone Investments and concluded without the confirmation of Parks and Wildlife Management Authority officials:

Authority Number Date Number of crocodiles Pond ID Harvested HP00050/10/12 18.10.2012 740 HP40 GP0028 11.03.2013 71 6 GP0029 08.03.2013 100 6 HP00050/10/12 18.10.2012 740 HP40 GP0028 11.03.2013 71 6 GP0029 08.03.2013 100 6

Authority Number Date Number of crocodiles Pond ID Harvested GP00230 09.03.2013 40 6,8 GP0031 11.03.2013 90 8 GP0032 13.03.2013 76 6 GP0038 28.03.2013 37 HP1 and HP5 GP0039 02.04.2013 79 GP 1 GP0040 03.04.2013 66 GP 1 GP0041 04.04.2013 70 Y79,Y80;GP 1, GP72, GP73, GP78 GP0042 05.04.2013 101 Y56, Y57, Y58, Y59 GP0043 06.03.2013 69 Y60, Y71, Y72, Y73 GP0044 08.04.2013 101 Y73, Y74, Y75, Y75, Y76, Y77, Y78, Y79 GP0045 09.04.2013 25 Y79, Y80 GP0046 19.04.2013 44 - GP0047 13.03.2013 66 NP1, 5 34

Risk/ Implication

Unauthorized harvesting of crocodiles can be done.

Crocodiles harvested for the reason of stunted growth may have been transferred illegally to boost Rokoptrone stocks.

Recommendation

The Company should seek the authority of both parties before any harvest can be concluded.

Management response

Management will make sure that both partners are represented during harvest.

2. REVENUE COLLECTION AND DEBT RECOVERY

2.1. Receipting and banking

Finding

The Authority`s head office was not banking money timeously contrary to the Authority`s accounting procedures manual which states that banking should be done on a daily basis. From a sample of receipts examined the following receipts were not banked timeously.

Date receipted Date banked Number of days Amount US$

30/03/2012 25/05/2012 55 57 182 20/04/2012 01/06/2012 41 21 113 04/06/2012 28/06/2012 24 13 818

Date receipted Date banked Number of days Amount US$ 17/08/2012 03/10/2012 47 16 305 31/08/2012 03/10/2012 33 33 890 11/09/2012 21/12/2012 100 4 747 17/10/2012 28/12/2012 77 10 125 26/10/2012 28/12/2012 61 2 691

Risk/Implication

Cash resources may be misappropriated.

Recommendation

All the receipted cash should be banked within 24 hrs or the next working day as per the accounting procedures manual.

Management response

Since multicurrency in 2009, the Authority used Kingdom Bank as its main bankers. The bank started facing liquidity challenges in 2011 which worsened from 2012 onwards resulting in bank transfers (RTGSs) not being processed in time. Cash withdrawals were and are still not being actioned in time. This development seriously compromised the Authority’s operations.

On the other hand, the Authority required hard cash to fund its operations for expenses such as travel and subsistence allowances, motor vehicle spares, computer consumables, fuel coupons and cleaning materials among many other costs. More so, many suppliers no longer wanted to be paid by RTGS through this bank as it took long for them to have their money.

Due to this liquidity challenge that the bankers faced, the Authority was forced to sometimes retain cash received from customers in order to finance its operations.

However, in order to avoid using receipted cash as was unavoidable at that time, ZB Bank were appointed the main Authority’s bankers with effect from May 2013.

ZIMBABWE REVENUE AUTHORITY (ZIMRA) & ITS SUBSIDIARY

Background information

The Zimbabwe Revenue Authority (ZIMRA) started operations on September 1, 2001 and is constituted in terms of the Zimbabwe Revenue Authority Act [Chapter 23:11] of 1999. Its core business is the collection of revenue for the Government of Zimbabwe, administration of tax laws and the facilitation of trade and economic development in the region and beyond.

The Authority also registered a company to provide training and conference facilities St Lucia Park.

I have audited the financial statements of the Zimbabwe Revenue Authority and its subsidiary St Lucia Park for the year ended December 31, 2013 as well as the revenue returns submitted by the Authority. I issued a clean opinion.

Opinion on the consolidated financial statements

In my opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Zimbabwe Revenue Authority and its subsidiary St Lucia Park Training and Conference Centre (Private) Limited as at December 31, 2013, and the financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards.

Opinion on the Authority’s financial statements

In my opinion, the financial statements present fairly, in all material respects, the financial position of Zimbabwe Revenue Authority as at December 31, 2013, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

However, below are other material issues noted during the audit.

1. GOVERNANCE ISSUES

1.1 Tariff changes in the Asycuda system

Finding

Tariff changes were taking long to be implemented in the system after the statutory instrument had been issued. The following tariff changes took more than a year to be implemented in the Asycuda World System.

SI Number Tariffs Effective Asycuda Asycuda Correct Variance Affected Date Changed Date Before Rate change SI 212 2007 10064091 I/01/2008 14/06/2013 Blank 10% 10% SI 212 2007 10064099 I/01/2008 14/06/2013 Blank 10% 10% SI 163 2010 72104990 I/01/2010 14/06/2013 Blank 20% 20% SI 212 2007 72105000 I/01/2008 14/06/2013 20% 0% -20%

SI Number Tariffs Effective Asycuda Asycuda Correct Variance Affected Date Changed Date Before Rate change SI 212 2007 84131100 I/01/2008 14/06/2013 0 10% 10% SI 212 2007 84518010 I/01/2008 14/06/2013 0 15% 15% SI 212 2007 85392210 I/01/2008 14/06/2013 10% 0% -10% SI 155 2011 7019000 1/1/2012 11/3/2013 10% 25% 15% SI 155 2011 7020000 1/1/2012 11/3/2013 10% 25% 15% SI 155 2011 7031000 1/1/2012 11/3/2013 10% 25% 15% SI 155 2011 7049000 1/1/2012 11/3/2013 10% 25% 15% SI 155 2011 7061000 1/1/2012 11/3/2013 10% 25% 15% SI 155 2011 7082000 1/1/2012 11/3/2013 10% 25% 15% SI 155 2011 7095100 1/1/2012 11/3/2013 10% 25% 15%

Risk/ Implication

Revenue may have been under-collected as a result of tariff changes which were not implemented timeously and in the case where duty was overbilled the Authority may be at a risk of being sued by clients.

Recommendation

Management should ensure that tariff changes are effected in the ASYCUDA system timeously.

Management response

Audit observation that tariff changes should be done timeously is noted. A report was run and all under collections will be collected through the post clearance audit process. Declaration Processing Centres also act as compensatory measure to alert of any changes not fully functioning in the system.

1.2 Loan agreement

Finding

The loan agreement between Zimbabwe Revenue Authority (ZIMRA) and St Lucia Park Training and Conference Centre (Pvt) Ltd in 2012 for a USD1 942 442 facility had no exact date when loan repayments were to start and the repayment intervals. Instead there was a general statement to the effect that the loan will be repaid within five years after the subsidiary resumes operations but did not indicate what would happen if the operations did not take off.

At the time of the facility transfer, the company was not operating and there was no explicit date as to when it would resume operations. In addition, there was no agreement on subsequent loan amounting to USD 200 000 that was issued to St Lucia Park Training and Conference Centre (Pvt) Ltd in 2013 by the Authority.

Risks / Implication

The loan agreement may not be enforceable.

Such an agreement may encourage management not to expedite the actual take off.

Recommendation

Management should ensure that contracts do not in a way be open ended but specify repayment period and the repayment terms.

Loans should be formally agreed upon in writing between the borrower and the lender.

Management response

Observation is noted. St Lucia Park is of a strategic nature to the Authority’s training programmes as well as training programmes of international organisations such as SADC to which ZIMRA is affiliated. St Lucia Park was formed to provide accommodation and training facilities to ZIMRA as well as other customers.

St Lucia Park will be self-financing once it starts generating profits. In addition, it should be able to generate sufficient profits to declare dividends to the shareholder. With respect to loans advanced to St Lucia Park the subsidiary is expected to start the loan repayments once it commences its operations and starts making profits.

St Lucia Park is expected to commence operations during the course of 2014 wherein it would start generating revenues of its own.

1.3 Land development

Finding

The Authority acquired a piece of land, stand number 17009 valued at US$320 000 situated on corner R. Mugabe Avenue and 15th Avenue Bulawayo in 2002 and up to the time of audit there had not been any development in violation of council bye-laws which require a stand to be developed within five (5) years or risk being repossessed.

A visit to the stand during the time of audit on May 08, 2014 revealed that Bulawayo City Council had permitted a recreational park to be established during the ZITF without the knowledge or approval of ZIMRA. This may be an indication that Bulawayo City Council had already repossessed the stand. In a related separate issue, the Authority’s twenty (20) stands in Nyamapanda stands were repossessed by the town council due to non-development of the stands.

Risk /Implication

The ownership and control of the stand may be in doubt and assets may be materially misstated in the financial statements if the stand has been repossessed.

The Authority may be losing assets due to repossessions which could have been avoided.

Recommendation

Management should ensure that the control of the stand is regularized and proper documentation should be on file at all times for items of property, plant and equipment.

The Authority should abide by the council’s by laws on stands development within the stipulated timelines

Management response

Bulawayo stands

Agreed. There is an Agreement of Sale between City of Bulawayo and Zimbabwe Revenue Authority on Stand No 17009 which was entered into on the 19th December 2002. Zimra is paying its rates as required by the City Council. The City Council has not repossessed the stand as we have been communicating with them on the funding challenges the Authority has been facing since 2008 which has delayed the development of the stand up to the present day.

Nyamapanda stands

Agree with audit observation. The 20 stands were repossessed by the local authority due to non- development as per the local authority’s by –laws. The failure to abide by the by-laws of the Local Authority was not intentional. The obtaining hyperinflationary economic environment at the time hindered the development of the stands and the Authority approached the Council with the hope of a mutual understanding but all this did not yield the required results.

However, ZIMRA re-engaged the Local Authority with the view to be re-allocated the 20 stands. The Local Authority accepted ZIMRA’s request and the ownership of the stands would have been regularized by the 30th of June 2014.

1.4 Capital expenditure projects

Finding

The Authority incurred expenditure of $222 475 in excess of the approved amount for the payment of scanners and the sheds at Chirundu Border Post. The Authority sought condonation on price increase in favour of Twenty First Building Contractors P/L for the construction of scanner sheds in retrospect from the State Procurement Board which was rejected.

The State Procurement Board through PBR number 0341 of March 20, 2014 rejected the increase from US$2 820 380 to US$3 042 854 on the basis of violation of Section 26 of the procurement regulations. The State Procurement Board, directed the Authority to pay the sum of US$3 042 854 for certified completed works because the costs were already incurred.

The total cost of the Chirundu scanners project now authorized for payment by SPB was $3 042 854. However, the Authority incurred other costs directly linked with the scanners

project amounting to US$2 100 943. These costs were not included in the initial documents sent for tender to State Procurement Board.

In a related project, the Authority budgeted US$ 3 237 419 for the construction of block D and E Beitbridge flats. However, the total cost incurred and capitalized was US$ 3 655 608, giving a variance of US$418 188. There was no evidence to show that variation in prices for these flats was approved by the State Procurement Board (SPB).

Risk/Implication

There is risk of fines and penalties for non-adherence to regulations by the State Procurement Board.

There is risk of low balling in the tender awarding process.

If additional project costs are not put to tender, additional costs may not be the most economical in the use of public funds.

Recommendation

The Authority should obtain approval for variation of contract from the State Procurement Board before committing additional funds.

All costs associated with tenders should be included in the total cost for the project that will be submitted to State Procurement Board for approval.

Management response

Chirundu scanners

Agreed. The State Procurement Board (SPB) authorized ZIMRA to pay $3 042 854.16 up from the originally approved tender sum of $2 820 380. The additional payments over and above the approved $3 042 854 were for professional fees. An amount of $225 654.05 was for interest on late payment of some of the contractor’s claims which were affected by the time that was taken in getting approval from SPB of the project cost overrun.

Some of the professional fees such as architectural designs, evaluation of quantities, and engineering reports are paid before the project is submitted for evaluation by the SPB while the remainder of professional fees is paid from the time the project commences up to its completion. Professional fees are governed by regulations from the relevant professional institutes.

Beitbridge flats blocks D and E

The State Procurement Board (SPB) authorized ZIMRA through PBR 1548 of August 2012, to construct Blocks D & E at a tender sum of US$3,237,419.20. The actual payments that were made to the contractor on this project sum up to $2 672 181.29 resulting a saving of $565 237.91. A total of $3,655,607.73 was capitalized because of

professional fees of $983 426.44 which are not included on the contract sum approved by the SPB.

1.5 Border post route markings

Finding

There were no route markings and direction signs at the Chirundu One Stop Border Post. These route signs and markings were necessary to help travellers conduct their border business easily.

Risk/Implication

The flow of traffic and people at the Border Post may be chaotic thereby providing room for smuggling.

Recommendation

Management should consider putting route markings and signs at the Border Post.

Management response

Agreed. The project was approved in October 2013 but progress has been stalled due to lack of funding. Once funds are available the route markings and signs will be put in place.

1.6 Internal control

Finding

Furniture and computer equipment items at Forbes Border Post, Mutare Inland Office, Beitbridge Border Post and Chirundu One Stop Border Post were not tagged with the asset numbers as required by the Authority’s asset identification procedures. The table below has a summary of assets which were observed as not having asset numbers;

Station Number of Number of computer Total Furniture items items without asset without asset numbers numbers Forbes 14 8 22 Mutare 2 20 22 Chirundu 25 6 31

All printers except two at the Chirundu One Stop Border Post were not functioning properly. As a result, the printing requirements for the station were not being met within the expected time frames to ensure the processing of clients’ documents on time. The following table has details of printers that were sent to Harare for repairs and were returned to the station not working properly:

Printer Serial Location Status Number HP Printer CNK197303 Admin Office Faulty (Attended at ICT) HP Printer CNBXM07268 Motor Traffic Faulty (Attended at ICT) HP Printer CHNX822375 Motor Traffic Faulty (Attended at ICT) HP Printer Commercial Faulty (Attended at ICT) HP Printer CNHXF26086 Commercial Faulty (Attended at ICT)

Certain former employees were still active in the ASYCUDA World system after their contracts had terminated. Furthermore, I noted inconsistencies in the time frame it took to deactivate user accounts. The table below shows a sample of such inconsistencies observed at Masvingo and Beitbridge stations during the audit in May 2014.

EC Action Date of Status in the Date Time taken to Number action system Deleted deactivate 924 Resigned 30-Apr-13 Deleted 11/29/2013 7 Months

2425 Contract 4-Jul-13 Deleted 7/15/2013 9 Days termination 2757 Contract 31-Aug-13 Active termination 2758 Contract 31-Aug-13 Active termination 2981 Deceased 14-Jan-14 Active

2064409 Deceased 19/09/2013 Active - -

00000845 Dismissed 28/03/2013 Deleted 7/3/13 3 months 00000160 Dismissed 26/03/2013 Deleted 7/3/13 3 months 00001231 Dismissed 3/5/2013 Deleted 17/11/13 5 month 00001469 Dismissed 23/01/2013 Deleted 12/19/13 11 months 00001332 Dismissed 16/05/2013 Deleted 12/20/13 6 month 00002236 Resigned 21/03/2014 Active - -

Risk/Implication

Failure to assign asset numbers to assets may make it difficult to identify and account for such assets. In the absence of adequate functional printers, the operational efficiency at the Border Post may be compromised.

Use of old number plates may attract unnecessary fines.

There may be unauthorized access and malicious damage to IT systems.

Recommendation

Management should consider assigning asset numbers to the assets to facilitate easy identification and accountability. Management should consider addressing the urgent need for printers at the station.The new number plates should be affixed to the asset.

Deactivation of users should be done within reasonable time frames to minimize the risk of unauthorized access.

The time frame for profile deactivation should be documented in the IT policy.

Management Response

The observation is noted. Asset numbers for Perkins Generator (Asset No 2000300) and Capri Fridge (Asset No 5001661) are affixed to the assets and shall be entered in the asset register together with all other assets which exercise will be completed by the end of the third quarter of 2014.

Management will ensure that all assets are numbered and the numbers will be fixed by end of third quarter.

The referenced printers have outlived their usefulness. It is no longer economic to repair them. Hence they have been earmarked for disposal.

The vehicles in question are now non-runners and awaiting disposal. Therefore there is no need for new number plates.

The ASYCUDA Profile accounts have been rectified. An ASYCUDA User Profile cleanup exercises are being done on a quarterly basis to minimize risk of unauthorized entry into the system.

2. REVENUE COLLECTION AND DEBT RECOVERY

2.1. Assessment of tax losses

Finding

Declared tax losses and capital allowances were not assessed. The Systems Application Program (SAP) assessing program was under configuration and as a result, the system was unable to process Income tax assessments with losses brought forward and capital allowances. There were no manual interventions done to counter the system challenge.

Risk/Implication

If tax losses are not assessed, inaccurate clients’ declarations may not be identified timely for corrective action.

The debt position may be inaccurate as not all cases were assessed.

Recommendation

The assessment system should be rectified to ensure that all returns are assessed timely.

Management response

ZIMRA has been upgrading the SAP TRM system and currently the system is not yet able to post losses onto the account and the challenge is being addressed. This affected the income tax returns submitted with losses.

Having considered that where clients declare losses there is no income tax which is due on the Quarterly Payment Dates and also on assessment, a decision was taken not to assess these files pending the resolution of the system challenge. Manual interventions were considered not necessary as there is no impact on revenues or the outstanding revenue return. This would also have unnecessarily resulted in work being done outside the system and we also considered that this is a temporary setback. It will be noted that in cases where such system challenges were faced and where there was an effect on service delivery, revenues and the outstanding revenue return, manual interventions were implemented as happened with Capital Gains Tax when manual assessments were issued.

The current tax systems are based on self-assessment where client declarations are submitted and accepted. Based on the assessed risk, selected cases are then audited after the returns have been accepted and the declarations are then verified. As to whether a tax return has been or has not been assessed would not have any impact on the risk assessment process or audits as what is important is the submission of the tax returns which constitute the declarations. And in these cases there was no tax due. In short the risk associated with loss declarations made by clients can only be addressed by auditing and not by assessment.

The returns with capital allowances include returns where tax is payable unlike the losses situation. The impact is also limited as Income Tax is paid through QPD installments and the assessment is used to bill the account and the tax raised is set off against the advance tax payments made. Where the correct amount of QPD’s was paid there is no effect on revenues or the outstanding revenue return. The only impact is on the difference between QPD’s paid and actual tax due per assessment. This is minimal as returns are accepted per declaration.

Regarding the capital allowances challenge, the system has now been rectified with effect from 30th May 2014 and the returns with capital allowances are now being assessed. We expect to clear these returns by 30th June 2014 as the numbers are manageable.

2.2. Tax returns in other currencies

Finding

Tax returns submitted in currencies other than the United States dollar were not processed in the SAP system, hence they were not assessed.

Risk / Implication

Follow up on outstanding amounts become difficult since all client accounts reflect a credit balance.

Refunds to clients may be made in error since their accounts show that they are owed by the Authority.

The Authority may not be able to provide accurate status of client’s tax position in the absence of updated records.

Recommendation

All returns should be captured in the SAP system as they come so as to reflect the actual position in that client’s account.

The Authority should ensure that clients are updated on the requirements when submitting their returns in order to reduce the time lag in updating records.

Management Response

Upon embarking on the SAP upgrade, the Zimbabwe Revenue Authority made a decision to denominate all assessments processed in SAP in United States Dollars given that this is the reporting currency for the Authority and the system has been designed as such. Furthermore, this would eliminate exchange loss/gain challenges that normally arise due to the use of various currencies.

Consequently, all clients are therefore required to submit their returns in the United States Dollars denomination. This is irrespective of the fact that clients can pay for their tax obligations in any convertible currency.

Following this decision all clients who submit their returns in any other convertible currencies other than the United States Dollars are being requested to convert these to the appropriate currency and re-submit accordingly. This exercise is almost complete with only one large client still to complete the re-submission of converted returns. All such returns will be assessed by end of day on Friday the 13th of June 2014.

2.3 Revenue collection target

Finding Pay As You Earn (PAYE), Value Added Tax (VAT), Excise Duty and Corporate Income Tax contributed the bulk of revenue collections. Taxes on income and profits brought in $1.19 billion against a target of $1.26 billion, resulting in a negative variance of 5% while taxes on goods and services at $1.92 billion, missed the target by 6%. Negative variance was also recorded in ‘other taxes’ category. Other taxes collections totaled $317.7 million against a target of $348.8 million resulting in a negative variance of 9% from the budget. Overall collections, net-of-refunds for the year 2013 amounted to US$3.43 billion against a target of US$3.64 billion resulting in a negative variance of 6%. Compared to the previous year, there was a 5% increase in total revenue collections.

Risk/Implication

Variances caused by the Authority’s failure to meet set targets has downstream effects on the Government’s budgetary system and planned operations.

Recommendation

The Authority should consider intensifying efforts to enforce compliance whilst ensuring effective and efficient domestic resources mobilization.

The Authority should continuously play the advisory role to Treasury on tapping into the informal sector.

Management response

The observation is noted. The revenue base has been affected by various factors which include liquidity challenges, low industrial capacity utilisation, company closures and liquidations and lower than expected investment levels.

The Authority has put in place measures to improve operational effectiveness, deal with potential leakages and harness the informal sector as a means of improving revenue collections and countering the unfavourable trends. These efforts, especially tax audits and investigations being carried out have resulted in the establishment of significant amounts of debt. The main challenge has however been the capacity of our clients to meet their tax obligations thus affecting revenue collections and increasing our debtors’ balances.

2.4 Customs and exercise rummage sales

Finding

Items sent for rummage sales were failing to attract buyers at prices above the reserve price and were eventually donated to organisations involved in social and charitable work. At Chirundu border post, of the 31 lots which did not sale during the February 2014 rummage sale, 26 lots for clothing and footwear items were donated while at Kariba station, of the 115 lots which were sent for auction, only three (3) were sold during the August 2013 rummage sale. Vehicles and goods sent for rummage sales at Chinhoyi Station and Beitbridge border post failed to get real interest from buyers at auctions for three (3) to five (5) times. These items continued to increase storage costs for the Authority at warehouses.

The following table provides details of such items: Description/RIH/Seizure No. Quantity Station Vehicles 5 Chinhoyi Blankets Over 250 Beitbridge Motor Vehicles Over 15 Beitbridge Fridges Over 10 Beitbridge Stoves Over 15 Beitbridge Clothing and foot wear Several boxes Beitbridge

In addition, at Beitbridge border post, goods that failed to sale at a rummage sale were not returned to the originating state warehouse but instead were kept at Red Star warehouse which had no shelves. This made it difficult to properly label the goods that would have not been taken up.

Risk/ Implication

Reserve prices set for detained goods may be higher than those offered at alternative markets thereby rendering them unsellable.

Goods might deteriorate and fail to realize sale values that recoup the storage and administration costs incurred by the Authority

There may not be audit trail of the goods that are not properly labeled in the warehouse.

Recommendation

The Authority should consider other ways of disposing of goods that continuously fail to sale at rummage sales.

Management response

There is a standard procedure of adjusting reserve prices for unsalable goods which would have been subjected to at least two rummage sale attempts. The procedure is being implemented.

Beitbridge Red Star Warehouse is leased premises and we will engage the Landlord with considerations to install Relocatable shelving.

To reduce the volumes of unsaleable warehoused goods the frequency for disposal will be increased to twice per quarter effective from the third quarter 2014.

2.5 Rummage sale proceeds

Finding

The auctioneer’s net proceeds for the rummage sales were not being forwarded to Forbes border post and Mutare Inland station within 7 days as agreed in the contract between the Authority and the Auctioneer. The tables below show details of such anomalies: Station Rummage Gross RTGS RTGS RTGS Sale date Revenue amount (USD) date delayed by realized (USD) Mutare Inland 21.03.13 41,710 41,585 08.04.13 15 days Mutare Inland 20.06.13 3,140 3,140 10.09.13 2 months 18 days Mutare Inland 15.08.13 2,110 2,110 10.09.13 22 days Forbes border 21.03.13 29,439 29,439 08.04.13 15 days post

Forbes border 20.06.13 7,775 7,775 10.09.13 2 months 18 post days Forbes border 15.08.13 7,330 7,330 10.09.13 22 days post

Risk/Implication

Contractual terms may be breached to the Authority’s disadvantage.

Recommendation

The rummage sale net proceeds should be remitted to the Authority within 7 days as per contractual agreement.

Management Response Observation noted. The Auctioneer was reminded to adhere to their contractual obligation. Collection measures have been instituted to recover the outstanding amounts.

2.6 Change of ownership documentation

Finding

The valuation form for change of ownership did not indicate the list of documents required to be submitted by clients to the revenue officers before processing the change of ownership. As a result, there was no evidence to suggest that change of ownership supporting documents were complete in certain observed cases lodged at Kariba border post and Chinhoyi satellite station. In seven (7) observed cases I was not provided with evidence of necessary documents as shown in the table below.

Date Vehicle/ CCC Assessed 5% Remarks number Value Excise (USD) (USD) 27/02/13 Mitsubishi Pajero 10,000 500 No agreement of sale and copy of ID provided 02/11/13 Nissan Bus 6,500 325 No copy of ID was provided 25/06/13 Toyota Corolla 5,000 250 No copy of ID was provided 04/7/13 Nissan caravan 9,200 460 No copy of ID was provided 17/09/13 667579 $12 000 600 No CVR form, vehicle registration book, copy of IDs and agreement of sale. 17/09/13 667579 $15 000 750 No CVR form, vehicle registration book, copy of IDs and agreement of sale. 27/10/13 667612 $10 000 500 No CVR form, vehicle registration book, copy of IDs and agreement of sale. 09/07/13 667523 20000 1 000 No agreement of sale 24/04/13 397472 31 000 1 550 No vehicle registration book.

Risk /Implication

In the absence of adequate documentation, irregularities in the change of ownership records may be difficult to identify. Loss of audit trail.

Recommendation

The Authority should ensure that all the required supporting documents are kept together with the assessment documents to have a complete audit trail and enhance revenue collections.

Management response

Agreed. All required supporting documents of the above observed transactions have been located and now properly filed. Follow-up for the registration books for three vehicles is being done with CVR and will be appropriately filed.

2.7 Vehicle inspection and assessment

Finding

Upon clearance of motor vehicles, importer declares the value and the Authority assesses the value of the motor vehicle based on valuation database. Assessment is done using vehicle inspection and assessment form. However, the assessment forms for year under review at Plumtree border post were not attached with adequate documentation such as invoices, shipping documents and registration certificate. Therefore, there was lack of evidence to support the inspection and assessment of the vehicles.

Risk/Implication

Absence of well documented audit trail may make it difficult to reassess if duty was correctly calculated.

Recommendation

Vehicle assessment forms should be supported with sufficient documentation.

Management Response

Observation noted. Clearance prior to February 2014 did not have supporting documentation however, as from February 2014 all vehicle assessment forms are being supported with sufficient documentation. Management will ensure continued compliance. Public awareness will be done to inform the public of the required supporting documentation.

2.8 Domestic taxes recovery of outstanding revenue

Finding

Compliance audits were not carried out timeously. Certain clients had not been filing returns since 2011 and their debt position was discovered well after the companies were placed under liquidation. Clients with outstanding revenue were failing to pay and some were even closing down.From a sample of debtors examined, below is a list of clients whose debts were outstanding;

BP Outstanding Revenue Remarks Number PAYE VAT 200002815 $100 339 $266 143.65 The client was failing to meet the payment plan citing viability problems 200002838 $5 464.20 $58 904.91 The client was failing to pay as per the payment plan of $2000 per month 200005035 $73 116.29 $158 755.09 The company had closed down and was under liquidation 200085493 $810.75 $63 309.39. The client was having viability problems and was failing to settle the debt. The company had closed and was no longer operational casting doubt on the recoverability of the outstanding amounts. 200064812 $26,008 $62 499 The client was failing to extinguish the debt and a garnish order was raised, but could not be effected as the bank account was closed.

Risk/Implication

The amounts outstanding may not be recoverable and the outstanding revenue return may be overstated.

Recommendation

There is need for the Authority to carry out timeous audits.

Management Response

We take note of the observation. The need to carry out timeous audits and to recover amounts owed is critical. Based on the number of clients who are required to furnish tax returns and resources available especially staffing it is not possible to audit every client every year. Prioritization is therefore used to maximize the potential output from the resources available and this entails assessment of risk to revenue and auditing the high risk cases as a priority and audit a specific period. Where a client has additional tax to pay which may also include both penalties and interest, recovery action is taken immediately though it is not always possible to recover the full amount at once. Clients are therefore given terms rather than dispose of assets and close the business.

Regions have always carried out exercises to follow up returns which have not been submitted although this has limited effectiveness given that it is currently a manual process. However, the upgraded SAP system will have an automated functionality of reminding clients to submit their returns.

2.9 Assessment of tax losses

Finding

Tax loss cases were not assessed and billed in the SAP system as at time of audit due to system challenges. Sample cases for Masvingo station are listed in the table below.

BP Number Date Loss for the tax years 2009 to Amount USD 2012 was Declared 200008117 04.03.2013 (90,327.00) 200004210 13.06.2013 (68,934.00) 200003660 31.05.2013 (49,863.00) 200000561 16.09.2013 (49,650.51) 200025470 17.06.2013 (40,019.00) 200052828 06.08.2013 (35,904.85) 200007978 21.12.2013 (35,426.68) 200006971 11.06.2013 (31,220.00) 200013522 13.05.2013 (30,065.61) 200000570 26.04.2013 (30,009.00) 200021678 29.10.2013 (29,238.00) 200088221 08.05.2013 (28,016.00) 200092464 09.07.2013 (27,858.72) 200068137 16.10.2013 (26,848.00)

Risk/Implication

If tax losses are not assessed, incorrect financial statement declarations may not be identified timely for corrective action.

The debt position may be inaccurate as not all cases were assessed.

Recommendation

The assessment system should be rectified to ensure that all returns are assessed timely.

Management Response

The audit observation has been noted. Efforts to have the system challenge delaying assessment of cases with losses addressed is in progress.

The returns with losses do not affect the outstanding revenue return or revenue collections as in these cases there is no income tax which is payable. The decision made was then that these will be processed as soon as the system has been rectified.

The incorrect financial statements referred to can only be picked through audits and investigations and not the assessing process. Assessing essentially entails acceptance of the tax declarations by clients. The un-captured returns do not affect audit work as such cases can still be picked for audit.

2.10 Maintenance of clients’ account

Finding

Corporate Tax income returns remitted at Mutare office for 2012 had not been captured in the SAP system at the time of audit on April 25, 2014. A total of 406 files for 2012 are still to be captured in the SAP System where 263 files had losses declared while 143 files were in respect of clients claiming capital allowances.

Assessments for corporate income tax and Pay As You Earn (PAYE) that were done by the Bulawayo domestic taxes office were not captured in the SAP system, but rather the assessments were maintained outside system. Furthermore, ITF12B returns were on file but not posted into the system. As a norm, after the client is assessed any anomalies discovered are posted into the client’s account. The following table has details of deficiencies that were noted in Bulawayo;

Client Business Revenue Remarks Partner Number Head 200091078 Income tax 2013 ITF12B in file not posted into system; second quarter amount was $ 540.75, first quarter 2013 $399.84.Assessed income tax not captured into the system amounted to $8,852.41. 200000810 PAYE December 2012 FDS audit finding of (1,811.57) not captured into SAP. 200000838 PAYE December 2012 FDS audit finding of $3,030.14 not captured into SAP.

At Region 1, there were irregularities in the maintenance of clients’ accounts in SAP system. Monthly returns were not captured, duplicated or payments were not captured. The Capital Gains Tax account for Business Partner number 200094866 amounting to US$23 750 was outstanding as at April 07, 2014 despite payment having been made on October 28, 2013. The following table has a summary of identified anomalies;

BP No. Contract Tax head Amount $ Comment account 200006740 20054638 PAYE 33,201.63 Return for November 2013 not captured 200013717 20089132 PAYE 68,839.68 Duplicate on 10.09.2013 not reversed 200094866 CGT 23,750.00 No evidence that the payment was captured into the system

Risk/Implication

The Authority may issue tax clearance certificates (ITF 263) to clients who have outstanding taxes.

Errors and irregularities may not be timeously detected for corrective action.

Recommendation

Management should ensure that all returns are captured, assessed, reconciled and reviewed timely.

Management response

The observation is acknowledged. The SAP Upgrade Assessing program still has challenges affecting Income Tax assessing of cases with losses. The challenges in respect of capital allowances have since been addressed and returns are now being assessed and these will be done by 30th June 2014.

The FDS verification results which had not been assessed and posted onto the account have now been processed save for one case which will be done as soon as the system challenge faced is addressed.

The workflow system under the SAP upgrade is still under configuration and thus some returns which were captured were not flowing to the relevant inboxes for billing. The November 2013 return was captured on 30 December 2013 but it hanged in the system because the system workflow still needed perfection. This challenge will be eliminated once the workflow system has been fully rolled out. The upgraded SAP system will be able to detect duplications and thus this challenge will be resolved. In the case of the CGT, the payment was actually made but had been mis-posted because the guarantor had made the payment into their own Business Partner Number and this anomaly has been corrected. Guarantors will be reminded to ensure that the payments they make on behalf of their clients are made to the correct Business Partner Numbers

2.11 Domestic tax returns in other currencies

Finding

There was a backlog on the capturing (billing) of withholding tax returns in the SAP system. As at April 07, 2014, the following clients’ payments for 2013 remained outstanding in the system because the corresponding returns were not captured on time.

BP number Debits (USD) Credits (USD) Outstanding returns in SAP (USD) 200002652 967 982 7 926 405 6 952 423 200000672 3 306 808 7 309 087 4 002 279 200003122 2 485 628 3 158 281 672 653 200008406 1 429 013 1 518 373 89 360 200100247 2 138 478 2 343 797 205 320 200001060 347 577 5 605 642 5 258 065

In addition, tax returns submitted in other currencies other than the US dollar were not processed in the SAP system. Upon enquiry I was informed that the SAP system only accepts the US dollars for assessments but clients had submitted returns in various currencies. A sample of returns which were not captured in the SAP because of returns being denominated in other currencies is listed in the table below.

BP number Date Currency Amount (USD) 200002652 19.09.13 EUR 24 682

200002652 06.09.13 ZAR 1 286 240 200002652 15.09.13 GBP 15 000 200002652 28.11.13 EUR 7 059 200000672 25.07.13 ZAR 15 180 200000672 05.09.13 ZAR 14 986 200000672 16.08.13 EUR 555 200000672 13.12.13 ZAR 140 416 200000672 31.12.13 ZAR 42 330

Risk / Implication

Refunds to clients may be made in error since their accounts show that they are owed by the Authority.

The Authority may not be able to provide accurate status of client’s tax position in the absence of updated records.

Recommendation

All returns should be captured in the SAP system as they come so as to reflect the actual position in that client’s account.

The Authority should ensure that clients are updated on the requirements when submitting their returns in order to reduce the time lag in updating records.

Management response

The observation made was correct to the extent that some returns could not be captured because they were in currencies other than the USD. The SAP system is currently designed to accept capturing USD returns and not any other currency. In addition other returns could not be captured because they had various errors which were being followed up and this process is still continuing as some of these issues have not been resolved and in some cases returns had not been submitted at all. However, in some instances there were credit balances which were not necessarily due to returns not captured, the credit balances were as a result of payments made by clients who are under investigations and whose assessments have not been raised. The few clients who are submitting returns in currencies other than the USD are being engaged to ensure that they comply with the correct procedure of submitting their returns in the reporting currency. This process is almost complete with most of the returns having been converted to USD and re-submitted.

3 PROCUREMENT OF GOODS AND SERVICES

3.1 Lease agreements

Finding

The Authority had leased properties of which their lease agreements had expired and were not yet renewed as of May 13, 2014. Below is a list of the expired leases.

Properties being rented by ZIMRA Type of property Property owner Monthly Expiry date of rental ($) lease Stand used as car park Local Authorities Pension 1 150 31/12/2009 Fund (LAPF) Offices in the 2nd and 4th Communication & Allied 8 984 31/12/2013 floors.(Kwekwe) Ind. Pension Fund(CAIPF) Offices(Chiredzi) N & B Holdings Private 1 350 31/12/2013 Limited 4 Bedroomed Hagan & Hill 800 31/12/2013 House(Murambi Gardens, Mutare) Properties being leased out by ZIMRA Type of property Name of tenant Monthly Expiry date of rental ($) lease ZIMRE Centre Rural Electrification Agency 1 830 30/09/13 Masvingo(offices) (REA) ZIMRE Centre Masvingo Nicoz Diamond Zimbabwe 590 30/09/13 (offices) ZIMRE Centre Masvingo Imali Capital (FMC) 432 30/06/13 (offices) ZIMRE Centre Masvingo Telecontract (Telco) 300 31/08/13 (offices) ZIMRE Centre Masvingo Africom(Base Station) 500 30/09/13 Plot 122 Mutondo Drive, Mr&MrsWunganai 300 No lease Bushmead Township, agreement Masvingo)

Risk /Implication

The Authority may have no room for recourse in the event of dispute when there is no contract.

Recommendation

Lease agreements should be entered into before occupation.

Management response

The observation is noted. The Authority has put in place measures to ensure lease agreements are signed in advance taking into account the need to ensure that the lease

agreements incorporate provisions which protect the interests of the organisation. The necessary lease drafts have so far been produced, and corrections/amendments factored in and being vetted before being signed. We will ensure these are finalised without any further delays.

4 EMPLOYMENT ISSUES

4.1 Staffing and overtime claims

Finding

Staff levels decreased at Beitbridge border post through dismissals, transfers, resignation and suspensions without replacement. In 2012, four (4) officers left and were not replaced while in 2013 nine (9) officers left the station without replacement. As at December 31, 2013, there was a cumulative shortfall of fifty two (52) revenue officers who were yet to be replaced.

A review of overtime claims at Chirundu Border Post revealed that there were employees who worked more than 100 hours or 12.5 days in overtime per month. These hours are excessive and affect the employee’s health and effectiveness. The detailed hours claimed from the sampled claims are shown in the table below:

EC Number Month Overtime Hours Overtime in days worked 01153625 Dec-13 141 17 01154419 Nov-13 122.5 15 01151132 Sep-13 133 16. 01153625 Sep-13 179.5 22. 01153625 Jul-13 159.5 19.

Risk/ Implication

Effective service delivery to clients may be compromised as employees may be overwhelmed with long working hours.

Staff health may be at risk as a result of excessive working.

Recommendation

The amount of overtime hours that can be worked by an individual should be allowed to a reasonable maximum in a month to strike a balance between employee health and job performance. The Authority should consider filling the vacant posts.

The Authority should consider understudying whether having overtime work or increasing the staffing levels and the related costs will result in cost savings.

Management response

Gazetting of increased working hours, coupled with the staff turnover has led to significant amounts of overtime being worked at some of our stations. Management will ensure a fair share of the workload so as to reduce the numbers of hours worked by individual officers. Additionally, we are beefing up our establishment through recruitment of Revenue Trainees who will undergo a two year training program for them to become fully-fledged officers.

5 PROGRESS IN IMPLEMENTATION OF PRIOR YEAR RECOMMENDATIONS

5.1 Board composition

Recommendation

The review to ten (10) members from seven (7) should be implemented considering the size, diversity of the Authority and the need to comply with the provisions of the enabling Act.

Progress made

At the time of audit, there was no board in place. The previous board’s term expired on February 28, 2014 and since then a new board was yet to be appointed.

PUBLIC ENTITIES UNDER THE CATEGORY OF BOARDS

GRAIN MARKETING BOARD (GMB)

Background information

The Grain Marketing Board was incorporated under statute in Zimbabwe by the Grain Marketing Board Act [Chapter 18:14]. The Board’s main activities are buying, storing of grain, manufacture of silo products, managing of the Strategic Grain Reserve and the Input Scheme on behalf of the Government of Zimbabwe. Its registered address is 179-187 Samora Machel Avenue, Dura Buildings, Eastlea, Harare.

I have audited the financial statements of Grain Marketing Board for the year ended March 31, 2013. I issued a qualified opinion.

Basis for qualified opinion Journal/reversals in cash books I was unable to obtain sufficient and reliable documentation in the form of journals to support reversals amounting to $6 056 297 and $2 445 429 related to deposits and payments respectively passed through the SAP cash and bank ledger accounts.

Grain and finished products sales and receivables Dispatch vouchers were not being recorded in a consistent and systematic manner. Of the recorded dispatch vouchers, numerous sequence gaps were identified. I was therefore unable to obtain sufficient and appropriate evidence on the $390 191 variance between the disclosed grain and finished products sales figure of $77 781 263 and the SAP reports on cash, credit and journalised sales figure of $77 390 972.

Qualified opinion In my opinion, except for the matters described in the Basis for Qualified Opinion paragraph, the financial statements present fairly in all material respects, the financial position of the Board as at March 31, 2013 and of the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

However, the following issues are other material issues that were noted during the audit.

1. GOVERNANCE ISSUES

1.1 Board and individual members performance evaluation not done

Finding There was no evidence availed to show that a performance evaluation of the board was done during the year under review (i.e. evaluating the work of the main board and all its committees). Individual performance appraisals for members of the Board were also not carried out in line with best practice.

Risk/Implication

Strategic targets and objectives may not be met if there is no performance evaluation system in place.

Recommendation

The Board should consider implementing a performance appraisal for the board and for individual board members.

Management comment The Board notes the Auditors advice. The Performance Targets Forms for the Board Chairman and individual Board members were collected from the Ministry of State Enterprises and Parastatals in November 2012. They were supposed to have been filled in and sent to the Deputy Chief Secretary. The forms were, however, in the format of the Result Based Management (RBM). Management and the Board were not conversant with the RBM. It was agreed that there should be a training workshop for the Board and Management on RBM by the Office of the President and Cabinet. The training is yet to be conducted. However, the Board shall endeavor to carry out a self evaluation of its performance in the coming financial year. This is being coordinated by the Corporate Secretary and the work plan should be out by 30 November 2013.

1.2 Country Feeds (Private) Limited

Finding

I was not availed with documentation showing communication between GMB and the parent Ministry, and the latter’s concurrence to the establishment and operation of Country Feeds (Private) Limited/ Hylbury Enterprises including the appointment of the board of directors for the same. Country Feeds is a company established by GMB to take over the operations of the Norton Stock feeds project. In addition, the board Chairman appointed an interim Managing Director for Country Feeds Private limited. I also noted the following irregularities:

The interim managing director was a coopted member of the current board thereby creating possible conflict of interest that is, the member would be administratively reporting to the GMB General Manager whilst on the other hand sits on the GMB Main board; I was not availed with any documentation relating to the selection and recruitment process of the Interim Managing Director’s post;

Risk/Implication

There is a possible conflict of interest which may result in uneconomic decisions being made. Best practice could have been flouted thus denying the entity the opportunity to employ the best person for the job.

Recommendation

Approval should be sought first from the parent Ministry for any new entities that need to be established.

The Board is also encouraged to follow governance and human resource best practice to avoid conflict of interest and thus ensure that the best strategic and economic decisions are made.

Management comment

When the private company was established in 2009 as Hylbury Enterprises (Pvt) Ltd, the Board did not seek approval from the relevant Ministry. The Board was empowered to establish such a venture by the provisions of the Grain Marketing Act [Chapter 18:14].

The requirements of seeking approval for establishing a subsidiary company before the public entity establishes it, was brought in by the Public Finance Management Act [Chapter 22:19] which came into effect on 2 April 2010- way after the private company: Hylbury Enterprises- was established by GMB. However, when the Board decided to have the Norton Stockfeed Project administered through the wholly owned Private Limited Company whose name had been changed to Country Feeds (Pvt) Ltd, the Board should have informed the Minister of that decision in order to get the Minister’s views since it was a policy issue.

The Minister of Agriculture, Mechanisation and Irrigation Development was informed about the Board’s decision to operate the Norton Stockfeed Plant through a wholly owned private limited company and the appointment of Country Feeds Board through a letter dated 13 June 2013.

The Memorandum of Agreement was meant to guide the Board on how the Parent Company would relate to the subsidiary.

The interim Managing Director was seconded by the Board. This was a temporary deployment of a board member with special skills to set up systems for the Stock Feeds project and as such the Board did not intend it to be a permanent position. The appointment of a permanent General Manager for Stock Feeds would have been done after the setting up had been completed.

On 11 July 2013, the Board of Directors of GMB held a special meeting to review the form, structure and operations of Country Feeds (Pvt) Ltd. The Board resolved that due to financial constraints, the administration of the Norton Stock Feeds project reverts to the Commercial Services Division. The Minister of Agriculture, was informed of the Board’s decision through a letter dated 8 August 2013.

1.3 Investments: IDBZ investment with Muga Foods

Finding

I observed that the Board had a matured and outstanding investment with the Infrastructure Development Bank (IDBZ) since 2010. On 9 December 2010, the Board transferred an amount of US$160 340 through Standard Chartered bank for an investment with Infrastructure Development Bank. The amount transferred had a maturity period of thirty two days and accruing an interest of 20 % per annum, however from 2010 to date the Board has not recovered both the principal amount and the interests accrued from this investment. The explanation provided was that on maturity IDBZ deposited the funds into a GMB client’s account (Muga Foods-which has since been placed under liquidation). This issue was raised in the 2011 audit but to date the issue had not yet been resolved. This issue in my view, seems not be taking the prominence that it needs considering the circumstances under which

the funds were transferred to Muga Foods. It is also important to note that a GMB co-opted member of the board is also a director in the firm (Tudor House Consultancy) liquidating Muga Foods- and that the Chief Executive Officer of IDBZ is also chairman of the GMB board. In view of the above, the possible conflict of interest could be an impediment to the finalization of this issue.

Risk/Implication

The Board could have been prejudiced of the principal amount invested and interest earned thereof.

There could be possible conflict of interest in the case of the liquidator of Muga Foods and the Chairman of the GMB.

Recommendation

The Board should investigate this issue further (including-where possible- the establishment of an independent committee) and bring it to its conclusion.

Management Comment

Management held six meetings with IDBZ and the most recent was held on 10 September 2013 in an attempt to resolve this investment issue. In all instances management has given due attention to the need to collect this amount from IDBZ.

The co-opted board member declared his interest in Tudor House Consultants and recused himself from discussions on Muga Foods liquidation.

The Board Chairman recused himself from the deliberations concerning the recovery of money from IDBZ and assigned the Finance Director and their Legal Advisor.

1.4 Risk management and internal controls

Finding

The Board detected a number of fraudulent transactions which involved employees. I appreciate that the controls were able to detect these occurrences of fraud. I however, observed that of all the instances, the fraudulent transactions were noted after fraud took place. This may imply that preventative controls may be lagging behind. This situation was also exacerbated by the fact that the Board had not been fully implemented an Enterprise Risk Management framework (ERM). In addition, there has been no comprehensive review of the adequacy of the existing internal controls. The internal audit department has also not been subjected to an external review of the work it carries out in terms of the standards for the professional practice of internal auditing.

Risk/Implication

Financial losses may arise if preventive controls do not exist.

Recommendation

Existing controls should be reviewed to allow preventive measures to be in place to compliment detection because controls that prevent fraud may be less costly than controls for detection.

Management comment

Management is committed to the maintenance of internal controls and risk management guidelines. Full implementation of ERM is expected to be complete by September 2014. Senior Managers were trained in June 2013.

A risk register for all GMB risks is available.

There is a written ERM Policy and Framework in place.

For ERM to be fully functional the first phase of implementation will take at most 7 months.

The following is a list of key activities agreed by management to be done within the seven months for ERM to reach maturity working with a consultant:-

Activity Duration (months)  Information gathering and review 2months  Develop training material and train staff 5months  Carryout risk assessment interviews 2months  Compile risk assessments results 1 month  Develop risk maps 2months  Assess risk management strategies for top 40 risks 3months 1month  Gap analysis and improvement opportunities 2 months  Develop a long term ERM Project Plan 2months  Summarise and report results including coming up with a Corporate ERM register

NB Some of the activities will be done concurrently with the other.

With the complexity of GMB a functional ERM can only be matured after 7 months since every employee will have to be trained since ERM calls for a complete paradigm shift in risk management.

External review of Internal Audit will be introduced in the financial year ending March 2015.

1.5 Disbursement of maize through Grain Loan Scheme

Finding

The Grain Marketing Board was tasked by the Government to distribute grain to vulnerable individuals through the Grain Loan Scheme. However, irregular activities were noted at Hwedza Depot where the Board suffered a loss of at least US$ 661 300. According to internal audit reports the irregularities are detailed as follows;

Grain was transferred from depots with surplus maize to Hwedza depot. However, whilst in transit, it was diverted elsewhere. At the intended depot the grain was purportedly received through depot transfer documents which were recorded in retrospect. Fictitious dispatch records were then raised for quantities almost equivalent to what the depot was supposed to dispatch as part of the Grain Loan Scheme.

Individuals were benefitting multiple times in a single month which is in contravention with operational modalities for the Grain Loan Scheme which stipulates that beneficiaries are allowed to get only one 50 kg bag per month. It was also noted that individuals were sharing the same National I.D number. This indicated an element of possible fraudulent activities as individuals cannot share the same I.D numbers and also appear twice in one month.

Risk/Implication

Financial loss through fraudulent activities as a result of weak internal controls.

Manipulation of depot records to cover up for fraud may continue if the cause is not addressed.

Recommendation

The cause of fraud recurrence should be investigated.

Management should ensure that internal control reviews are continuously done and there should be compliance to set regulations.

Management Comment

Internal Controls are continuously being reviewed. Operations, Accounting, Marketing and Treasury manuals were updated in the last financial year.

The Wedza Depot case was a very isolated case which was very complex especially considering that the depot staff, from the manager to the guards had all connived. With such sophisticated collusion this is a case that could have gone unnoticed but due to anonymous tip-offs encouraged by the Board through use of hotline and suggestion boxes, information reached management at Head Office.

The value of the loss has since been reconciled to $232,376.40 following further enquiries carried out and 23 trucks with 683.46 tonnes were proved to have been diverted. Evidence of confirmed weighbridge tickets from recipients was availed and a schedule to that effect is attached.

This reconciled figure will affect the total loss value suffered by the organization through fraud and theft as the total loss will now stand at $403 570.30 thereby decreasing loss value from previous financial year by 0.45%.

Management continuously endeavors to fight these losses and more efforts are being put towards that. CCTVs were installed in the high risk depots like Bulawayo, Cleveland, Aspindale and Norton.

1.6 Grain inventories

Finding

I noted that grain inventories that were impaired (under-grades) during the year amounted to $11 607 124 (2011/12 $14 666 609). Of major concern is white maize which constituted 90% of total impaired inventories. In addition, an analysis of the cause of grain deterioration revealed the following;

CAUSE AMOUNT $ PERCENT % Bin burn 4 564 517 39.33 Water damaged 3 677 185 31.68 Stack burn 802 011 6.91 Insect damaged 498 634 4.30 Other 2 064 777 17.78 Total 11 607 124 100

It was noted that the causes highlighted above signify the need for the Board’s intake strategy to be appropriately funded (refurbishment of silos, fumigation, availability of tarpaulins etc).

Risk/Implication

A situation may prevail where the Board acquires grain in good condition, only for it to deteriorate under its custody/storage facilities.

Recommendation

The Board is encouraged to continue engaging Treasury and its parent ministry over the need to have the intake strategy adequately funded.

Management comment

Management agrees to audit observation and recommendation. The US$ 51 million facility identified by the Board and Management for the rehabilitation of grain storage infrastructure will be continuously pursued with Treasury.

1.7 Trade and other payables

Finding

I noted that only 48 out of 516 creditors’ reconciliations were done during the year under review. The 48 creditors had a total value of $917 622, constituting 10.66% of creditors amount of $8 611 755. A review of the reconciliations availed showed that most of them had not been properly done.

Supplier name Balance as per Balance as per Variance supplier reconciliation(reported in (US $) statement financial statements) (US $) (US $)

Abe mark Electrical 8 804 2 962 5 842 Verde packaging 7 178 6 649 529 Electrical motor 7 657 7 840 (183) centre Weighing Solutions 17 593 16 519 1074 Africa Amtec motors 3 892 2 715 1177 Nissan Clover Leaf 6 767 5 041 1276 motors Global printing 6 680 4 508 2172 services Abrotech 1 548 110 1438 National fencing 8 391 1 577 6814 W W Transport 20 867 18 322 2 545 Gath Apple Services 21 736 6 559 15 177

I also noted that the opening balance for accruals in the SAP system of ($598 770) was not agreeing to the 2011/2012 audited opening balance of $9 468 598 resulting in a variance of $10 067 368. On enquiry, management revealed that the difference arose from payments made to farmers and bank clearings. However, I was not satisfied with the response given since the opening balance should not be affected by any transactions made during the year.

Risk/Implication

Payables may be misstated.

Recommendation

Management is encouraged to ensure that all creditors’ reconciliations are done.

Management comment

Backlog goes back to 2009 and we are in the process of reconciling all our creditors as the process involves numerous reversals, however, management agrees to audit observation.

1.8 Late payment of transporters

Finding

The Board was failing to pay transport fees on time for the Grain Loan Scheme. Grain Marketing Board through the Strategic Grain Reserve has a mandate to provide food security to the nation as a whole. During the year under review, Grain Marketing Board was tasked by the Government to distribute maize under the Grain Loan Scheme to vulnerable people throughout the country. However, the Board was failing to pay for transport fees. The table below shows a sample of amounts owed to transporters as at Mach 2012 and as at March 2013.

Name of Transporter Amount owed 2011/2012 Amount owed 2012/2013 (USD $) (USD $) National Railways of 3 741.60 889 869.23 Zimbabwe Fairline Transport 442 942.00 583 431.61 Plumtree 125 730.46 152 401.21 Mayville Transport 69 704.64 262 472.13

Oragon Investments 140.38 91 340.39

Rid Bravo - 89 043.85

Total 642 259.08 2 068 558.42

Risk/Implication

Financial loss as the creditors will charge interest on the unsettled amounts. Reputational loss through the Board failing to settle its obligations on time. Withdrawal of services by the transporters due due to the Board’s failure to settle obligations.

Recommendation

The Board should engage the responsible authorities to settle their obligations in time to avoid tarnishing of the Board’s corporate image.

Management comment

Management has been engaging Ministry of Finance to have funds released for settlement of outstanding transporter obligations. Lobbying has also been done through the Food and Nutrition Security Working Party.

1.9 Cash book transactions

Finding

I observed that there were numerous reversals in the cashbooks relating to deposits and payments amounting to $6 056 297 and $2 445 429 respectively. On enquiry, the explanation given was that these reversals resulted from the correction of errors in the cashbooks. However, a review of the cashbooks and related controls revealed that;  there was inadequate supervision of clerks on the data being inputted,  the correction of errors (reversals) was done by the clerks themselves,  no effective segregation of profiles in SAP (i.e. the one who made the error also was responsible for making the reversal)  no evidence through documentation of authorisation by supervisors for the related corrections made,  failure to review exception reports in the finance department or their absence thereof.

Due to the above mentioned issues the validity of the reversals made and the integrity of the data contained therein becomes questionable.

Listed in the table below is a sample of such reversals;

DEPOSITS REVERSED

Bank Account Region Amount Stan Chart 113102 Harare 1,495,108.95

CBZ 113302 Kariba 17,575.00

NMB 113312 Harare 18,679.00

NMB 113412 Harare 106,895.92

Stan Chart 113502 9,320.00

NMB 113512 6,161.00

POSB 113602 214,560.47

NMB 113612 93,215.15

CBZ 113702 9,160.00

Stan Chart 113802 Southerton 216,757.00

CBZ 113912 Harare 13,963.00

Stan Chart 114002 Kwekwe 102,419.70

Agribank 114302 904,956.74

CBZ 114312 Manicaland 13,227.00

POSB 114612 Mash South 40,769.22

Agribank 114902 Harare 1,333,430.15

CBZ 115302 Harare 114,750.00

Agribank 116002 Masvingo 255,390.43

PAYMENTS REVERSED

Bank Account Region Amount Standard Chartered 113101 Harare 483,923.24

CBZ 113301 Kariba 10,709.40

Standard Chartered 115701 Harare 124,121.69

FBC 119301 Mash West 458,220.87

FBC 117601 Harare 20,071.10

CBZ 115001 Bindura 528,029.76

FBC 117101 Bulawayo 28,996.47

CBZ 115301 Harare 71,806.66

Agribank 115911 Bindura 15,139.23

Risk/Implication

Without proper controls irregular occurrences may go undetected.

Recommendation

Management is encouraged to ensure that adequate controls exist over reversals/journals made in the accounting system.

Management comment

The numerous reversals arose as a result of a backlog of bank reconciliations with unreconciled items totalling $18 million as observed by the External Auditors in prior year 2012. Subsequently clearing of the reconciled items was undertaken in financial year 2013 resulting in numerous reversals as observed. The reversals were done by personnel authorised to do so.

1.10 Accounting of revenue and receivables (grain and finished products)

Finding

I could not place reliance on the revenue and receivables controls as they proved to be weak during the period under review due to the following: i. There were numerous gaps in the sequence of dispatch vouchers/invoices, ii. The dispatch vouchers were not recorded in a consistent and systematic way such that completeness and sequence tests could not be adequately carried out. In addition, alternative procedures I carried out did not yield satisfactory results, iii. Absence of or failure to use exception reports, iv. Reconciliation of credit, cash and journalised sales (totalling $77 390 972) to the ledger balance of $77 781 263 produced a variance of $390 291. v. Duplications in the recording of dispatch vouchers were noted and vi. Reversals/journals without an audit trail amounting to $1 410 087 were effected in the receivables ledger.

Risk/Implication

Weak controls on this account

Recommendation

The Board should ensure that there is a uniform system of capturing dispatch vouchers in all the provinces.

Management comment

Management agrees to audit observation however considering the size of GMB and that 52 depots are not connected, the controls are fairly adequate. A reconciliation of US$ 77 781 263 was availed to external audit. System of capturing DVs uniformly is in place and will be enforced.

2 REVENUE COLLECTION AND DEBT RECOVERY

2.1 Storage Fees

Finding

The Board offers storage facilities to third parties for grain, inputs and other commodities and they in turn pay rentals. These clients enter into storage contracts with the Board. According to storage contracts in place lessees were supposed to settle invoiced amounts within 14 days

from the date of invoicing, failure of which interest will be charged on the unsettled amount at prevailing commercial bank interest rate. However, there was no evidence that the Board was making follow ups to ensure that payments were made within 14 days. No interest was being charged on the unsettled amounts. The table below refers:

Client Debit Note Date Amount Date Average Interest invoiced (US $) receipted days. charged Delta (Kwekwe 49719 13/06/12 2 929 04/10/12 112 Nil Malting) Paperhole 43696/7 30/09/12 1 748 30/10/12 30 Nil Crodum 0144469/70 10/12/12 5 077 04/01/13 23 Nil

Risk/Implication

Potential revenue is tied up in debtors (or never received as no interest is charged on overdue amounts) and opportunity lost to utilise finances elsewhere.

Recommendation

Management is encouraged to comply and enforce the requirements of the standing storage contracts.

Management comment

The Credit Control section has since been restructured and interest is now being charged. The Credit Policy will be reviewed in line with the market environment.

HEALTH SERVICE BOARD

Background information

The Health Service Board was established in terms of the Health Services Act [Chapter 15:16]. Its core function is to manage and provide the appropriate working environment, and conditions of service for medical staff working in Public Health Institutions.

I have audited the Financial Statements of the Health Service Board for the year ended December 31, 2013. I issued a clean opinion.

Opinion

In my opinion, the financial statements present fairly, in all material respects, the financial position of Health Service Board as at December 31, 2013, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

However, the following are material issues noted during the audit.

1. GOVERNANCE ISSUES

1.1. Capital and Reserves

Finding

The Health Service Board is not in a sound financial position as evidenced by a net comprehensive loss of $73 376 for the year which increased the accumulated losses since the adoption of multi-currency in 2009 to $154 188. The liquidity ratio at year end was 0.04:1 (current assets of $11 280 to current liabilities of $281 025) implying that the Board is not in a position to meet its short term obligations. The total assets of $169 122 were not enough to cover the trade payables which were $173 781. The Board was operating with a net negative reserve of $154 188. This means that the Health Service Board is technically insolvent and its ability to continue operating as a going concern was threatened.

Risk/ Implication

Service delivery may be affected if the Board does not have cash resources to fund its operations.Suppliers of goods and services may demand payment before providing the goods or rendering services.

Recommendation

The Board should continue to highlight the negative financial position to the parent Ministry for cash resources.

Management response

The Board has been and will continue to highlight the negative financial position to the parent Ministry for cash resources.

1.2. Absense of audit committee

Finding

The Board did not have a functional audit committee, the 2013 reports of the internal audit department were being submitted to the Executive Director.

Risk/Implication

Independence may be compromised due to possible conflict of interest. Absence of the audit committee may compromise the effectiveness of the Internal Audit function.

Recommendation

The Board should nominate members to the audit committee. If necessary skills and competence are not available within the current board, the Minister may be requested to co-opt members with the requisite skills to the audit committee.

Management response The Board has come up with the required composition of the Audit Committee. It is the office of Accountant General which is still to come up with Board fees to be paid to the members nominated to the Audit Committee. Once the Board fees have been set up and agreed upon, the HSB would then nominate members to the Audit Committee.

1.3. Insurance of assets

Finding

The Board’s assets were not insured against potential risks which included fire, theft and vehicle accidents.

Risk/Implication

In the event of fire, theft or accidents, the board may not recover anything and the impact of risk may affect the Board’s going concern.

Recommendation

The Board should insure assets to mitigate potential risk.

Management response

Observation is noted, assets need to be insured once resources become available.

NATIONAL INDIGENISATION AND ECONOMIC EMPOWERMENT BOARD (NIEEB)

Background information

The Board was established in terms of the the Indigenisation and Economic Empowerment Act [Chapter 14:33]. The mandate of NIEEB include advising the Minister of Youth Development, Indigenisation and Economic Empowerment on Government’s Indigenisation strategies and appropriate measures for the implementation of the objectives of the act as well as to ensure compliance with the Charter.

I have audited the financial statements for National Indigenisation and Economic Empowerment Board for the year ended December 31, 2013. I issued a clean opinion

Opinion

In my opinion, the financial statements present fairly, in all material respects, the financial position of National Indigenisation and Economic Empowe.rment Board as at 31 December 2013, and its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards.

However, below are material issues noted during the audit.

1. GOVERNANCE ISSUES

1.1. Key positions vacant

Finding

The Board had no substantive Board Chairperson. The organisation’s Corporate and Legal Secretary position has been vacant for more than a year. In the post reporting period the organisation has an Acting General Manager Finance and Administration and Acting General Manager Compliance. This situation is contrary to provisions of NIEEB’s Human Resources policies and procedures which states that the acting period may not exceed six (6) months.

Risk/Implication

Inability to make binding and long term decisions due to the uncertainty over the acting official’s incumbency.

Work overload for people in acting positions as they are required to take responsibility for two positions at the same time which may lead to inefficiencies.

Possible creation of an expectation for employees in acting positions that they are entitled to substantive appointments.

Recommendation

The Board of Directors should recommend to the Minister for a substantive Chairman to be appointed. Management should ensure that vacant positions are filled by substantive office holders on a timely basis.

Management response

Noted. Board Chairperson: The appointment of a substantive Board chairman is a matter that is dealt with at Ministerial level. Since the incumbent Board Chairman resigned in October 2013 to take up another senior position in government structures, the Vice Chairperson naturally took over in an acting capacity until a substantive Chairperson is appointed.The process of appointing a substantive board chairperson is underway and it is hoped that a substantive board chairperson will be appointed before the end of year 2014.

Other key positions:

NIEEB had not been able to replace staffs that have left the organisation due to financial challenges. This meant that the organisation has been operating with a skeleton staff for the year under review. The departure by some of the employees meant that those positions remained vacant thus the need for the existing employees to man the vacant positions in an acting capacity to avoid disruptions to operations.

Management is working on robust strategies to mobilise resources that will enable the resourcing of the organisation leading to the elimination of the need for some employees to concurrently assume duties for vacant positions.

1.2. NIEEB ‘s liquidity

Finding

NIEEB’s current liabilities exceeded its current assets by $ 3 218 519 (2012; $ 1 150 103) for the year ended 31 December 2013. The Board had a negative cash position of $ 1 482 816 (2012: $ 686 519) for the year ended 31 December 2013 and operations were being funded by overdraft facilities. The overdraft facilities were due and payable.

NIEEB has not been able to meet most of its short term obligations such as statutory payments, rentals and other employee benefits.

In the year under review, revenue increased to $ 4 157 041 from $ 2 139 158 in 2012. This represents a 94% increase in revenue. The major contributory factor to the increase is attributed to dividend income of $ 2 972 469 from shareholdings in Blanket Mine (1983) (Private) Limited and Portland Holdings Limited. However, for the year ended December 31, 2013 NIEEB received $ 65 554 in cash as dividend income from the amount of $ 2 972 469 recorded as Dividend income and the balance was used to offset the loans generated under the vendor finance agreement.

Risk/Implication

Going concern threat. NIEEB may fail to meet its financial obligations as they fall due.

Recommendation

Management should engage the government with regards to the release of the full amount allocated to NIEEB in the National Budgets.

Alternatively, management could aggressively pursue revenue growth which results in immediate cash-flows such as the enforcement of reserved sector compliance fees and cost containment simultaneously to increase the rate at which negative returns are reversed.

Management response

Observation noted. The major contributory factor to the liquidity challenges faced by the organisation is the non-release by the Ministry of Finance of the full budgetary allocations for the past three years. Management is optimistic that current discussions with our parent Ministry and the Ministry of Finance will bear fruit and the liquidity challenges will end. In addition to that, current efforts by management to enforce compliance in the Reserved Sectors will result in a considerable amount of cash inflows to the organisation which will go a long way in alleviating the liquidity challenges.

1.3. Overdraft facility

Finding

NIEEB had three overdraft facilities as at 31 December 2013.

Utilisation as Authorized at Bank limit 31/12/ 2013 Excess/utilised Comments

$ $ $ FBC Bank 150 000 51 259 98 741 Overdraft facility expired 31 March 2013 and no evidence of renewal on file. CBZ Bank 1 000 000 1 109 614 (109 614) Overdraft facility expired 30 November 2013 and no evidence of renewal on file. Agribank 250 000 396 212 (146 212) Overdraft facility expired on 3 April 2014 and no evidence of renewal on file. Total 1 400 000 1 557 085 (157 085)

NIEEB had utilised funds in excess of CBZ and Agribank overdraft facilities as at 31 December 2013.The CBZ and FBC overdraft facilities had expired and had not yet been renewed as at 31 December 2013.The cumulative interest charge on overdraft facilities for the year ended 31 December 2013 was USD 258 347 representing an average of 17%. NIEEB was currently being charged penalty interest on the expired overdraft facilities. NIEEB pledged its Blanket Mines shares as security against the CBZ overdraft facility.

Risk/Implication

Loss of the investment in Blanket Mine if CBZ takes recourse action against NIEEB.

Recommendation

Management should consider regularising the overdraft facilities by way of obtaining rollovers for the facilities in order to avoid the penalty interest. Management could also consider engaging the government in obtaining funding to clear the overdraft facilities.

Management response

Observation noted. Due to the failure by NIEEB to service the overdraft facilities, CBZ Bank Limited and FBC Bank Limited declined to rollover the facilities and thus are currently attracting penalty interest.

Management have and will continue to engage the Ministry of Finance through the parent Ministry for disbursement of the full 2014 budget allocation to NIEEF of US$2 649 000 to enable the Board to clear the overdue facilities and also meet some of the operational expenses.

1.4. Statutory payments.

Finding

Through discussions with management it was represented that NIEEB received communication from the government that the funds that would be availed would cover mapped salaries and rentals. Mapped salaries mean that the NIEEB’s employees will be paid the remuneration equivalent to a person in the same grade in the civil service. Of the amounts earmarked for mapped salaries no statutory payments were remitted to the relevant regulatory authorities.

Risk/Implication

Penalties and fines may be charged by regulatory authorities.

Recommendation

Management should arrange for statutory payments on the mapped salaries.

Management Response

Observation is noted. NIEEB was unable to make statutory payments due to failure by Treasury to disburse funds for statutories such as NSSA, ZIMDEF, Standards Development Levies. However, the matter has been discussed with the Ministry of Finance which, with effect from March 2014, is now releasing funds for statutories on the mapped salaries and the Board has also started making payments for same with effect from March 2014.

1.5. Motor vehicle benefits

Finding

The organisation purchased and allocated motor vehicles to its employees in 2012. However, no vehicle benefit was charged in the payroll until July 2013.

Risk/Implication

Understatement of PAYE may lead to misstatement of the financial statements. Non compliance with the Income Tax Act may lead to fines and penalties.

Recommendation

Management should consider recovery of the PAYE on the motor vehicle benefit.

Management Response

Observation noted. The recovery of the PAYE on the motor vehicle benefit for the period in question will be done.

TOBACCO INDUSTRY MARKETING BOARD (TIMB)

Background information

The Board was established in terms of the Tobacco Marketing and Levy Act [Chapter 18:20]. The mandate of TIMB is to control, regulate and promote the marketing of tobacco as well as to produce and collate statistics relating to the marketing, manufacture and consumption of tobacco in Zimbabwe.

I have audited the Financial Statements of the Tobacco Industry and Marketing Board for the year ended December 31, 2013. I issued a clean opinion.

Opinion

In my opinion, the financial statements present fairly, in all material respects, the financial position of Tobacco Industry and Marketing Board as at December 31, 2013, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

However, the following are material issues noted during the audit.

1. GOVERNANCE ISSUES

1.1. Update of lease agreement

Finding

The lease agreement between the Board and Boka Investments (Private) Limited was not up to date as it was still denominated in Zimbabwe Dollars. Furthermore, there was no formal communication to confirm the current rentals being paid by the Board to Boka Investments.

Risk/Implication

The Board may have no recourse in the event that a dispute arises.

Recommendation

An updated or an amended lease agreement should be drawn up and signed by all parties involved and the Board should retain signed copies of same. In the event of disagreements, the Board would have undisputable evidence of the agreement between the parties involved.

Management response

Boka Investments (Private) Limited will be engaged so as to reduce to writing all verbal agreements made to date.

2. PROGRESS IN IMPLIMENTATION OF PRIOR YEAR AUDIT RECOMMENDATIONS

I reviewed the progress made towards the implementation of prior year recommendations and found that the Board made some progress and there was room improvement in respect of the following recommendation:

2.1. Stop order system

Recommendation

Management should ensure that receipts from farmers are captured and updated timeously in the system to avoid double deductions.

Management’s response on progress made

Work in progress, the greatest challenge with refunds is growers’ registrations. System controls and data capturing personnel are under continuous improvement to reduce these cash refunds.

PUBLIC ENTITIES UNDER THE CATEGORY OF COMMISSIONS

FORESTRY COMMISSION: 2011 & 2012

Background information

The Forestry Commission was incorporated in Zimbabwe under the Forestry Act (Chapter 19:05). The Commission was established for the management , protection , and utilization of state indigenous forests, research, training , advisory and extension services , national and regional planning.

I have audited the financial statements for the Forestry Commission for the years ended December 31, 2011 and 2012.

Opinion- for the 2011 financial statements

In my opinion, the financial statements present fairly, in all material respects, the financial position of Forestry Commission as at December 31, 2011 and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards. I issued a clean opinion with an emphasis of matter.

Emphasis of Matter. The Commission’s control environment underlying core Information Technology functions and applications for revenue, inventory, purchases, payables and receivables was weak and inadequate, as a result the integrity of information generated by the system was doubtful. Therefore, I could not place reliance on the Information Technology operating system controls. Reliance had to be placed on the manual ledger balances which appeared reasonable.

Opinion- for the 2012 financial statements

In my opinion, the financial statements present fairly, in all material respects, the financial position of Forestry Commission as at December 31, 2012 and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

Emphasis of Matter The Commission’s control environment underlying core Information Technology functions and applications for revenue, inventory, purchases, payables and receivables was weak and inadequate, as a result the integrity of information generated by the system was doubtful. Therefore, I could not place reliance on the Information Technology operating system controls. Reliance had to be placed on the manual ledger balances which appeared reasonable.

However, the following are material issues noted during the audit.

1. GOVERNANCE ISSUES

1.1 Internal audit charter

Finding

The Commission‘s internal audit charter was last reviewed and approved in 1998. At the time of Audit (September 2013), no review had been done. The 1998 Charter was not approved by the Audit Committee as per best practices but was approved by the General Manager, Internal Audit Manager and Finance/Administration Director.

Risk/Implication

Absence of review and approval of the audit charter might compromise the effectiveness of the Internal Audit function.

Recommendation

The Audit Committee should periodically review and approve the internal audit charter.

Management response

Noted.

1.2 Composition of procurement committee

Finding

The Commission’s Divisional Accountant (Connex) was a member and the chairperson of the Procurement Committee which was contrary to corporate governance and best practices.

Risk/Implication

Possible conflict of interest Non-compliance with corporate governance and best practices.

Recommendation

The Commission should consider observing good corporate governance practices and principles.

Management response

Noted. Management will review the committee composition in accordance with good corporate governance practices and principles. However, the accountant headed committee refers the resolutions back to the buying units and, as such conflict of interest might not arise.

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1.3 Capturing of data into the accounting system.

Finding

The Connex and Research and Development divisions had backlogs in capturing data into the accounting system. The data for 2013 had not yet captured into the system as at January 15, 2014. The two divisions operated manually for 2011, 2012 and 2013 financial periods. Data was captured into the system well after year end. This has led to the following anomalies:

Non preparation of bank reconciliation statements on a monthly basis during the years ended 2011, 2012 and 2013. The ledgers were prepared well after the year ends. Delays in the preparation and reporting of annual financial statements.

Risk/Implication

Errors and irregularities may not be detected timeously. Decision making may be affected in the absence of timely financial reporting.

Recommendation

Data should be captured into the accounting system during the year when the transactions are taking place in order to avoid manual interventions which are prone to errors and irregularities. Timely capturing of data helps management in monitoring operations effectively and reporting to the shareholders on a timely basis.

Management response

Noted. The backlog was as a result of system challenges affecting the organization and frantic efforts are underway to clear the backlog.

2. REVENUE COLLECTION AND DEBT RECOVERY

2.1 Security items register

Finding

The Commission did not maintain a security items register. The security items register is necessary as it shows all the security items acquired, their serial numbers, range of security items issued, name of the person issuing and the one receiving the item.

Risk/Implication

Absence of a securities register exposes the Commission to financial prejudice as control over receipt of security items from head office is lost. It is difficult to ascertain which books were in use during the period under review and whether they were used for the benefit of the entity.

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Recommendation

The Commission should put in place a security items register.

Management response

Agreed that detailed register for 2011, 2012 was not kept but, however, details of security books issued to divisions were recorded on Stores Issue Vouchers (SIVs).

All security books in circulation could be compared to the detail on SIVs and extraction of information from the SIVs can create or serve as a register.

However, management had already improved on the system and as such, the register of security books was created as from 1 January 2013 i.e. well before the audit.

2.2 Segregation of duties

Finding

There was no segregation of duties in receipting and banking of cash at Forest Industry Training Center. The same person responsible for receipting was the same person responsible for banking. The following are examples of receipts receipted and banked by the same person;

Date Description Receipt No Amount Deposit Slip (USD) No 08/12/11 Cash sales 7848-7849 482.00 000109 29/11/11 Cash sales 7834 559.00 000104 17/11/11 School fees 07491-07493 400.00 0061 08/11/11 Cash sales and fees 07468-72,07477-78 397.00 Bank statement

Risk/Implication

Errors and irregularities may not be timeously detected.

Recommendation

Banking should be done by someone independent of receipting to enhance internal controls.

Management response

This has generally been a result of the size of the accounts department at the colleges which only has one person who is being assisted by an Admin Clerk. However, management will look into the matter and see how best it may be resolved during this year 2014.

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2.3 Cash from sales

Finding

The cashier at Ganda Lodge was moving around with cash amounting to $1062.00 instead of locking the cash in the cash box. Upon enquiry, it was revealed that cash amounting to $1758.00 was stolen from the cashbox on the 26th of December 2013. As a result, they were afraid to put it in the cash box until the keys for the safe were changed. This was noted during the stock take on the January 08, 2014.

Risk/Implication

Possible misappropriation and further theft of cash.

Recommendation

New keys for the safe should be bought and further investigations should be done on the money stolen.

Management response

The delay in replacing the safe keys was due to the fact that Chubb, the company that deals with safes was closed for the holiday at the time of the theft and was only opened for service during the time of the audit. The key has been replaced now.

The matter was reported to the Police on the 27th of December 2013 and CID investigations are underway. Our own internal investigations are also underway.

2.4 Petty cash account thresholds

Finding

The Forestry Commission did not have a petty cash threshold for the period ending December 31, 2011. The petty cash should be used to make payments for office running expenses that are daily routine, urgent and when it is considered uneconomical to make a bank transfer. The Commission went on to make the following substantial transactions using cash;

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Details Date Voucher Amount $ number Computers for colleges 11/01/2011 118 8 265.00 Contribution to Ministry 11/01/2011 135 1 805.00 Hunting quotas 11/01/2011 137 3 600.00 Purchase of Toyota Corolla 18/01/2011 244 9 500.00 Shurugwi expenditure 21/02/2011 361 4 073.50 Service ABE8009 29/04/2011 352 1 098.00 T shirts Environment expo 26/05/2011 400 1 300.00 Incubator repairs 13/06/2011 173 1 430.00 Starter motor ABF 8676 Prado 20/06/2011 338 850.00 Final payment FRC incubator repairs 01/07/2011 5 1 537.00 Deep freezer 25/07/2011 312 700.00 Protective clothing FC workers 22/08/2011 318 3 985.54 Repairs ABY9113/739623 07/10/2011 247 1 141.00 Printer purchase 27/10/2011 357 400.00 Industrial griller ZCF 27/10/2011 379 1 690.00 Laptops 08/11/2011 114 3 380.00

Risk/Implication

Cash payments create opportunities for misappropriation of cash. Likelihood of procurement fraud since staff involved in procurement may collude with suppliers.

Recommendation

The Commission should set a minimal petty cash threshold which caters for smaller amounts for day to day/ routine activities. Any substantial transactions requiring huge sums of money should be processed through bank transfers.

Management response

The operating environment had not improved by then to enable us to pay non- petty cash payments by either bank transfers or cheques. Some suppliers who would be either sole suppliers or offer best quotations in all respects demanded cash up-front. We however strive to continue to encourage our suppliers to accept payments by bank transfers or RTGs.

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3. PROCUREMENT ISSUES

3.1 Inventories

Finding

Most of the spares kept at Forest Hill and Fuller Forest stores were obsolete. On inquiry I noted that the motor vehicles that used some of these spares were no longer in use. The spares were purchased before the dollarization era and now had nil values. These spares were never issued since 2010 as shown on the table below:

Stock Items Quantity Balances As at Nov - Bin No Dec-10 Dec-11 Dec-12 13 Borehole Casings 034-001 16 16 16 16 Trailer Wheel bearing 058-001 18 18 18 18 Tractor bearing 058-004 17 17 17 17 Lister engine bushes 201-50540 060-008 14 14 14 14 Nissan bushes 12118-58010 060-017 24 24 24 24 R3 Patches 066-002 37 37 37 37 R4 Patches 066-003 35 33 33 33 Nissan Valve Guide 092-008 24 24 24 24 L/Engine flt wheel oil seal 102-025 21 21 21 21 Ford Tractor valve steam oil seal 102-032 14 14 14 14 L/Cruiser nozzles 22105-58010 112-008 20 20 20 20 Tie rod ends 176-015 17 17 17 17 Mono rod 5/8*16mm 198-007 15 15 15 15 Shaft locking sleeves 198-016 26 26 26 26 Land Rover brake kits 248-027 18 18 18 18 Tractor wheel caps 282-001 22 22 22 22 Tractor studs 282-002 33 33 33 33 Land cruiser studs 282-005 21 21 21 21 L/Engine studs 282-009 26 26 26 26 L/Engine slotted nuts 282-010 16 16 16 16 Grader studs and nuts 282-016 17 17 17 17 L/Engine adjusting screws 282-020 16 16 16 16

Risk/Implication

Storage costs may be incurred resulting from holding onto inventories that have no economic benefit to the Commission.

Recommendation

Obsolete items should be disposed off, creating space for storing other stock items and also releasing funds tied up in such items.

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Management response

It is true that our two workshops Gwaai and Fuller are holding stocks purchased long back which are now redundant. The vehicles and Lister engines meant for those spare parts are no longer on the road.

We have taken note of the finding and we are going to arrange disposal of them this year to create space for other useful stock.

3.2 Suppliers list

Finding

The Commission did not have a documented suppliers list to guide its officers when placing orders for procurement of goods and services.

Risk/Implication

The quality of goods and services delivered might be compromised due to use of non- reputable suppliers.

Recommendation

The Commission should have an approved suppliers’ list.

Management response

Noted. The list is now available with effect from January 2013.

3.3 Procurement Regulations

Finding

The Commission purchased goods without sourcing three quotations as per State procurement regulations. From a sample selected only one quotation was being sought. The table below has details of the payment vouchers:

Date Description Amount Status $ 21/09/11 CBCP01 Fitting of Borehole 2,615.00 Only one quotation was pump and servicing water sought attached tank 31/01/11 J01 PC Service of Injector 1,020.00 No three quotations pumps for Isuzu KB250 sourced only one quotation AAJ-5318 attached 28/02/11 DN39260 Service-air 414.00 No three quotations conditioners and cold rooms attached, only quotation attached used as invoice from Climaton (Private) Ltd.

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30/06/11 Journal No. DN01 DN 37702 1,430.00 No three quotations Incubator Repairs attached.

31/12/11 Transportation of Timber 1,300.00 No three quotations and doors from Chimanimani attached. (CONEX to R&T)to Harare DN38081-Manyemwe Buses & trucks J108

Risk/Implication

The Commission may transact with non-reputable suppliers who may not provide the best goods and services.

Recommendation

The Commission should procure goods and services following the State Procurement Board regulations.

Management response

In situations such as repairs and services three quotations are not always easy and cost effective to get as it requires dismantling the item and move around to the suppliers/service providers. In doing so, one risks losing very important components of the engine to be serviced or repaired. We therefore diligently look for experts in the field of servicing whom we choose and contract and avoid the above mentioned Risk/Implications. Also, due to the work involved in dismantling and reassembling most suppliers tend to charge for doing the quotation.

4. EMPLOYMENT COSTS

4.1 Recruitment of employees

Finding

From a sample of 18 employees recruited in the year 2012 all their personal files did not have vetting forms to indicate that the new employees had gone through police clearance before being employed.

Risk/Implication

Employees with criminal records might be employed exposing the Commission to numerous risks.

Recommendation

All new employees should undergo security vetting before being employed.

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Management response

The Government printers had run out of the required finger print forms sometime in 2012 although some of the employees were recruited before we got the audit recommendation. A few that were recruited in 2013 were sent for vetting where the police charge $5 for finger prints. We however will ensure that all new employees are vetted before confirmed as permanent employees.

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PUBLIC ENTITIES UNDER THE CATEGORY OF COMPANIES AND CORPORATIONS

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ALLIED TIMBERS ZIMBABWE (PRIVATE) LIMITED 2012 & 2013

Background information

Allied Timbers Zimbabwe (Private) Limited and its subsidiaries ("the Group") is involved in plantation development and harvesting, processing, marketing and selling of pine and gum timber. The Group has plantations in the Eastern Highlands area of Zimbabwe and in Mvuma in Midlands Province. The Group is a limited liability company incorporated and domiciled in Zimbabwe.

I have audited the financial statements for Allied Timbers Zimbabwe (Private) Limited for the years ended December 31, 2012 and 2013. I issued a qualified opinion with an emphasis of matter.

Basis for Qualified Opinion on consolidated Financial Statements and Unqualified Opinion on the Company Financial Statements for the year ended December 31, 2012.

A disclaimer of opinion was issued for the financial statements of a foreign subsidiary, Altim Timbers (Botswana) (Pty) Ltd which contributed 9% and 5% of consolidated revenues and net assets respectively. The disclaimer of opinion was due to a limitation of scope as a result of insufficient records to support some transactions and balances. The limitation of scope could materially affect revenue, cost of sales, finance income and administration expenses included in the consolidated statement of consolidated income and trade receivables, inventories as well as trade and other payables included in the consolidated statement of financial position. I was unable to determine whether any adjustments to these transactions and balances would be required in the group financial statements. There is no effect on the company financial statements.

Qualified Opinion on Consolidated Financial Statements and Unqualified Opinion on the Company Financial Statements

In my opinion, except for the possible effects of the matter described in the Basis for Qualified Opinion paragraph above, the consolidated financial statements present fairly, in all material respects, the financial position of Allied Timbers Zimbabwe (Private) Limited as at December 31, 2012, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

In my opinion the company financial statements present fairly the financial position of Allied Timbers Zimbabwe (Private) Limited as at December 31, 2012 and its separate financial performance and separate cash flows for the year then ended in accordance with International Financial Reporting Standards.

Emphasis of Matter

Without further qualifying my opinion I draw attention to note 10 to the consolidated and company financial statements which indicates that the determination of fair values for biological assets presented in the consolidated and company financial

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statements is affected by significant estimates and judgements. Biological assets constitute 86% of total assets and 127% of equity (2011: 81% of total assets and 122% of equity) for the consolidated financial statements and 83% of total assets and 119% of equity (2011: 74% of total assets and 111% of equity) for the company financial statements. Accordingly they have a significant impact on the value of the business.

Basis for Qualified Opinion on consolidated Financial Statements and Unqualified Opinion on the Company Financial Statements for the year ended December 31, 2013

A disclaimer of opinion was issued for the financial statements of a foreign subsidiary, Altim Timbers (Pty) Ltd, due to a limitation of scope for the years ended 31 December 2013 and 2012. The limitation of scope could materially affect trade and other receivables and trade and other payables disclosed in the consolidated financial statements in the amounts of $ 308,569 and $ 879,787 respectively. Consequently, I was unable to determine whether any adjustments to these transactions and balances would be required in the group financial statements. There is no effect on the company financial statements.

Qualified Opinion on Consolidated Financial Statements and Unqualified Opinion on the Company Financial Statements

In my opinion, except for the possible effects of the matter described in the Basis for Qualified Opinion paragraph above, the consolidated financial statements present fairly, in all material respects, the financial position of Allied Timbers Zimbabwe (Private) Limited and its subsidiaries as at 31 December 2013, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

In my opinion the company financial statements present fairly the financial position of Allied Timbers Zimbabwe (Private) Limited as at 31 December 2013 and its separate financial performance and separate cash flows for the year then ended in accordance with International Financial Reporting Standards.

Emphasis of Matter

Without further qualifying my opinion I draw attention to note 11 to the consolidated and company financial statements which indicates that the determination of fair values for biological assets presented in the consolidated and company financial statements is affected by significant estimates and judgements. Biological assets constitute 83% of total assets and 129% of equity (2012: 86% of total assets and 127% of equity) for the consolidated financial statements and 82% of total assets and 118% of equity (2012: 82% of total assets and 119% of equity) for the company financial statements. Accordingly they have a significant impact on the value of the business.

I also draw attention to note 10 to the consolidated and company financial statements which indicates that Altim Timbers (Pty) Ltd a subsidiary in Botswana was classified

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as discontinued operations during the year ended December 31, 2013. The Directors resolved that the Company be liquidated in the current year, 2014.

However, below are other material issues noted during the audit.

1. GOVERNANCE ISSUES

1.1. Motor vehicle registration

Finding

Some motor vehicles were not registered in the name of Allied Timbers for example ABV 8555 registered in the name of Bornadette Millar and ACU 2642, ACU 2744, ACU 2643 were registered in the name of Benjamin Razunguzwa.

Risk/Implication

In case of ownership wrangle the company will not be able to prove that they are the owners of the vehicle as ownership rests with the name on the registration book.

Recommendation

The company should change the name on the registration book to the company’s name.

Management response

Change of ownership was delayed by cash flow challenges.

Change of ownership amounts necessary to effect changes payable to ZIMRA have been budgeted for.

1.2. Trading license

Finding

The company was trading without a valid trading license from the local city council which resulted in penalties being levied on the company.

Risk/Implication

Penalties and litigations which result in financial losses to the company.

Recommendation

The company should practice good corporate citizenship by obtaining a valid trading license before trading.

Management response

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Noted. Management was working with a view that operations were being discontinued. There was a technicality with the current pole treatment site which was condemned as not being suitable by the Local Authority.

1.3. Banking procedure

Finding

I observed several instances where collections from cash sales were not deposited into the bank the next day. Examples of this include:

Description Date Receipt # Amount USD Banking Taranhire 03-03-13 48124 2,588 Not banked Mr Chikafa 10-09-13 54249 1,668 Not banked Mashavire 02-10-13 54791 5,865 Not banked

Risk/Implication

This increases the risks of misappropriations and reduces the time cash is on deposit with the bank and therefore reduces interest income. It creates an opportunity for fraudulent activities if cash received is not banked on time.

Recommendation

Cash received should be banked intact the following day before it is utilised for other things.

Management response

Noted. All cash sales are banked on time except for particular receipts which were used for emergency breakdowns in the Mutare operations.

Amounts were transferred to the Cash Statement.

Going forward all cash sales shall be banked before use.

1.4. Authorised bank signatories

Finding

Two (2) former employees were still on the list of authorised bank signatories.

Risk/Implication

The fact that the name of an employee appears on the bank signatory list indicates that he is able to authorise bank transactions. The former employees may transact without the company knowing as they are still active account signatories. However, I understand that this can only be done jointly with another authorised signatory.

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Recommendation

The company should inform the bank on time such that such former employees are removed from the list of authorised bank signatories.

Management response

The letters were done but the bank did not effect the changes. Follow up letters have been sent.

1.5. Sharing ratios during dispatches and product sharing with contractors

Finding

There were instances when product sharing was not being adhered to. This was the case with Trading Places, a contractor who had two contracts at Erin saw mill with the following sharing ratios, (50:50 and 30:70). I observed that the percentage dispatched was 61% instead of 50% (January to May) and another instance when percentage dispatched was 33% instead of 30% (January to May).

Risk/Implication

This constitutes a breach of contract and could result in financial loss to the company.

Recommendation

The Transport and Logistics should obtain the forester’s confirmation when providing loading instruction. The Forester should keep close supervision of operations and sharing ratios.

Management response

The contractor had requested two truckloads to cover his wages and repair his faulty electric motor. The account was being managed by the Divisional manager and the company has now equalised on its share.

1.6. PAYE payments

Finding

I noted that PAYE payments were not being done throughout the year.

Risk/Implication

Non compliance with statutory requirement attracts penalties and interest from the regulatory authorities resulting in financial losses to the company.

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Recommendation

All statutory deductions should be paid.

Management response

Noted. The company has engaged the Botswana Unified Revenue Services (BURS) to determine the final tax liability. Financial statements have been adjusted to reflect the potential liabilities arising from penalties and interest.

1.7. Compliance with the tax regulations.

Finding

Income tax liability amounting to BWP 424,683 has remained unchanged from the previous year which indicates that no payment has been made to the tax authorities.

Vat outstanding as per management records indicates that BWP 1,978,592 had not been paid as at 31 December 2013.

Risk/Implication

This exposes the company to penalties and interest.

The company may fail to pay the liability as the amount continues to accumulate due to interest charges.

Recommendation

Management should come up with a payment plan for the outstanding tax liabilities with the tax authority

Management response

Noted. BURS have been engaged with a view to have the outstanding liabilities settled.

1.8. Supporting documents

Finding

I noted that for some of the transactions the supporting documents were not availed during the audit. The following serve as examples:

Description Date Ref Amount $ Mutare internet all 6/30/2013 2830 1,288 Mutare internet all 6/30/2013 2799 1,288 24880-5kl water tank 7/31/2013 3861 3,113 Nemasonjo blessing 2/28/2013 8 5,576

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Risk/Implication

In the absence of supporting documents it is difficult to verify authenticity of transactions.

Recommendation

Management should file all supporting documents safely and ensure that there is a proper audit trail.

Management response

The missing documents shall be availed to auditor. The search is ongoing.

1.9. Accounts Payable and Contingent liabilities

Finding

From my review of the payables I noted the following:

58% of the trade payables were above 120 days amounting to $ 597,521 for the divisions, and $ 20,801 for Saligna a subsidiary.

Some of the trade payables outstanding have been dating back to 2009 and 2010 and the balances have not moved since then. The following are examples:

Supplier Balance Balance Balance outstanding as at outstanding as outstanding as at 31 December 2010 at 31 December 31 December 2012 in $ 2011 in $ in $ Agriculture and Rural 23,085 23,085 23,085 Development ZUPCO 8,157 8,157 8,157 Dalstar Engineering 5,337 5,337 5,337 Lynatech 1,063 1,063 1,063

For some suppliers, liabilities were settled in kind, in the form of timber and such payments were not captured in the payables ledger. For example, Dryden Combustion confirmed nil balance to our payables confirmation request whilst the ledger had a liability of USD16, 726.

Cash payments made by Allied Timbers Zimbabwe to some of its suppliers were not reflected on supplier statements and the entity does not have supplier receipts for such payments attached to the FCR3 payments (internal payment voucher). This practice may encourage fraudulent activities going on undetected. An example is Compact Hydraulic.

There were long outstanding reconciling items on the supplier reconciliations dating back to April 2011. Examples include Compact Hydraulic; Amtec Motors and National Tyre Services.

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Risk/Implication

Poor business reputations with suppliers

Misstatement of account balances if transactions in kind are not captured in the ledger

There is risk of litigation by unpaid suppliers which has a going concern impact.

Non- clearance of reconciling items creates opportunities for fraud.

Recommendation

Credit terms with suppliers should be adhered to in order to avoid poor business reputation and litigations.

All transactions should be captured timely in the ledger.

Reconciling items should be followed up and cleared in a timely manner.

Management response

All the above are disputed converted Zimbabwean dollar debts. The practical solution is to write back into income as the prescribed time will have lapsed in 2013. Dryden Combustion supplied goods on behalf of Megamesh a foreign debtor. GRV were done in the name of Dryden instead of Megamesh, implying that the debt for Megamesh was also overstated with the same amount correcting journals was passed as audit adjustment. This was an isolated case since it involved foreign transaction.

With immediate effect payments to suppliers are going to be made through RTGS which has a proper audit trail. The use of FCR3 payment served as a remittance advice for monies collected by suppliers. Suppliers are only going to be paid through cash after issuing a receipt.

All the reconciling items were cleared during audit and the necessary adjustments were effected in the ledger.

1.10. Monitoring of bank charges and loan interest

Finding

I noted that there were numerous loan interest charges that were being debited to the bank account and later being reversed by the bank without any reasonable justification.

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Risk/Implication

The bank might have been using Allied Timbers account to facilitate transactions not pertaining to Allied Timbers showing them as bank charges. There is also a risk that the bank might have been overcharging Allied Timbers for the services provided.

Recommendation

Management should monitor charges debited to its accounts by the bank and follow up with the bank on any charges or transactions debited to its account that appear unreasonable. Furthermore, management should obtain loan amortization schedules for the various facilities they have with the bank so that comparisons can be made between loan interest debited on the bank account and the interest charge as per loan amortization schedule.

Management response

Agreed. In addition the company has engaged independent loan interest calculator to verify and recover any prejudice.

1.11. Review of payroll journals and reconciliations.

Finding

There was no evidence of review of the salaries and wages posted into the system. As a result there were numerous errors in posting of salaries, Saligna subsidiary wages were posted on a net basis instead of the gross basis resulting in an understatement of the wages by $7 689. Furthermore, the employer’s pension contribution amounting to $15, 581 for Mutare Factory was completely omitted from the system and in other divisions such as Chimanimani, Gwendingwe, it was understated by $9,122 and $11,089 respectively.

Risk/ Implication

Fraudulent journal entries or errors made in the capturing and posting of journal entries will not be detected and corrected on a timely basis resulting in the misstatement of the financial statements.

Recommendation

There should be a review and reconciliation of the payroll schedules/journal done by the payroll administrator and what is subsequently captured in the system by the respective assistant accountants.

Management response

Agreed. Financial Accountants are using checklist for the review process.

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1.12. Physical verification of assets

Finding

There were assets which could not be located during our physical assets verification. The following are examples:

Asset Carrying amount at year end in $ Stapleford- Two Kara Saw Units 8,000 Chimanimani - 31 Ton Trinity 1,300 Trailer Erin-1 Digital Scale 21,250

Risk/ Implication

The missing assets may have been misappropriated thus prejudicing the Company of economic resources, and resulting in misstatement in financial statements.

Recommendation

The entity should always carry out physical verification to confirm that assets recorded in the ledger exist.

Management response

Agreed. The accountants shall carry out a physical verification exercise and update the registers with assets on hand. The asset register was based on a desk valuation by the insurers when we moved into the USD era.

1.13. Cash on hand

Finding

There was a huge sum of cash on hand at Mutare HQ as at year end amounting to $12,613.

The cash on hand balances as per the ledger for Chimanimani and Gwendingwe estates was not tallying with the balance indicated on the cash statement and physically counted as at year end at the two estates. For Gwendingwe, the cash on hand as per the ledger was $116.22 but $120 was physically counted and recorded in the cash statement as at year end. For Cashel, the cash on hand as per the ledger was $120 but $38.20 was physically counted and recorded in the cash statement as at year end.

Risk/ Implication

Handling of huge cash balances increases the risk of theft and teeming and lading. Differences in cash balances in the ledger and physical cash counted could be an indication of irregularities and/or transactions not being processed timeously in the ledger.

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Recommendation

Minimal cash balances should be handled at any time.

Differences between cash balances in the ledger and physical cash counted should be investigated when they arise and transactions should be posted timeously in the ledger to avoid variances with physical cash counts.

Management response

The amount of cash was meant to pay fuels and stocks take incidentals. The amount of $12,613 is spread over six divisions. The Company uses a central payment system for its operation.

For Gwendingwe the difference was due to rounding off errors. Cashel there was unrecorded expense of $82 for loading and this has been corrected to agree with the balance of $38.20.

1.14. Bank confirmation letter

Finding

I could not verify the bank balances for Botswana as I was unable to obtain the bank statements or the bank confirmation letter.

Risk/Implication

It is difficult to verify the bank balance as there is no supporting evidence to confirm amount recorded.

Recommendation

Management should obtain bank statements on a monthly basis and perform bank reconciliations.

Management response

Noted. FNB had already closed all the accounts with Altim Timbers in line with the shutdown of the subsidiary.

Auditor’s comment

Bank statements are still required for the amounts disclosed in the financial statements. The mere fact that the subsidiary has closed its accounts with the bank does not entail failure by the bank to provide the statement of account.

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2. REVENUE COLLECTION AND DEBT RECOVERY

2.1. Credit limits

Finding

I noted that while the credit limits for the customers were being input into the system, the system in place has no control function in place to trigger off excesses in credit limits for management’s attention. It was also observed that the Sales & Marketing Department does not monitor the utilisation of customers’ credit limit prior to the acceptance of further sales orders.

The following are examples:

Debtor Approved credit limit Balance Due 31.12.13 Limit Exceeded

$ $ $ Auckslane 22,000.00 34,838.47 12,838.47 DN Timbers 30,000.00 33,526.50 3,526.50 Machinga 60,000.00 239,083.00 179,083.00 Woodmaster 80,000.00 147,871.57 67,871.57 Zetio 40,000.00 53,721.28 13,721.28

Risk/Implication

Lack of proper monitoring of customers’ credit limits impairs the effectiveness of credit control.

Recommendation

Management should put in place a module such that the system does not allow sales invoices to be raised if credit limit is exceeded.

Management response

Noted. All the debts emanated from the previous year. The Company has since stopped giving credit.

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2.2. Credit sales

Finding

I noted that defaulting debtors were being given credit, the following are examples:

Over Account Amount 1-30 31-60 61-90 91-120 120 $ $ $ $ $ $

Auckslane 34,838 7,142 27,697

Assimilate 87,447 7,223 49,401 4,508 26,314

Blutbuck 15,277 7,142 7,157 978 Chigume Investments 24,737 7,100 17,637 Flonet Holdings 25,824 14,664 11,159 HalstedsMut are 24,748 9,793 9,040 5,915

Machinga 239,083 12,454 13,237 213,392

Motox 22,831 5,597 4,348 6,547 4,845 1,493

Woodmaster 147,872 14,115 12,951 11,698 109,108

Ynothna 75,611 8,378 67,233

Zetio 53,721 6,944 7,087 39,690

Autonmood 103,912 5,828 98,085

Gaywood 31,711 832 2,249 1,799 26,831

Sakmatz 15,713 4,997 10,716

Risk/Implication

The entity is exposed to higher risk of bad and doubtful debts.

Recommendation

Management should set up the system such that all sales on credit are first approved by the credit manager before processing such that non performing debtors are not granted further credit.

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Management response

Noted. The Company has since stopped extending credit terms to customers. The initiative was to stimulate sales in an attempt to recover the old debts whilst the customers were also servicing their new debts.

2.3. Outstanding debtors

Finding

I noted that there was a huge balance of long outstanding debtors and some of the balances stretch as far back as 2009. This does not conform to the company's credit policy of 30 days.

The table below contains examples:

Account Amount $ Reeldon Timbers 95,609.55 Mpumalanga Timbers 63,652.87 Kleko Timbers 62,569.61 African Timbers Trading RSA 39,299.57 Musthar Enterprises 34,194.46 Lifetime 30,526.27 Brickforce 30,170.51 Syller Marketing RSA 27,687.72 Rubbertive (kleko) 26,455.23 Kinglon 26,297.94 Trading Place 24,930.10 Chipinge Brooms 17,965.53 Radcorp 16,915.43 NZI Gazaland 16,898.14 ElcoRoofingRSA 15,011.84 Gamelon 11,974.14 Beyridge 11,343.78 Lumber Marketing Namibia 11,106.27 Kadion Enterprises 11,045.89

Risk/Implication

Disputes may exist in long outstanding balances if not promptly followed up and delays may render them even more difficult to collect. Moreover, cash flow will be adversely affected if amounts are unnecessarily tied up in trade debtors.

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There is risk that the Company is recognising assets that may never be recovered therefore the balance sheet may be misstated.

Recommendation

The credit control procedures must be strengthened and appropriate action be taken for timely review and follow up of all outstanding debts. Amounts likely not to be recovered should be written off as an expense.

Management response

Noted. As previously stated the Company is working with a very restricted debtor’s book for performing customers. All the non performing debtors have been handed over and are on stop supply. Efforts to recover debts are being intensified.

2.4. Foreign debtors translation

Finding

Some of the foreign debtors were being translated to US dollars at incorrect exchange rates. The table below contains examples:

Book Foreign Recalcula Account Value Currency Currency Closing ted Variance rate Value A B C D=B/C E=(A-D) African Timbers Trading 39,300 ZAR 268,377 10.50 25,567 13,733 Mega Hardware 24,310 ZAR 228,361 10.50 21,755 2,555 Flonet Holdings 25,824 BWP 219,914 8.68 25,334 490

Hapinas 78,303 ZAR 641,100 10.50 61,075 17,228 Modern Woodwork s 9,839 BWP 73,261 8.68 8,440 1,399

Mpumalan ga Timbers 63,653 ZAR 466,358 10.50 44,428 19,225 Mudzi Wooden Products 6,662 ZAR 69,072 10.50 6,580 81 Sharpened Arrow 11,399 BWP 99,216 8.68 11,430 (31) Shefera ZAR 10.50

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Book Foreign Recalcula Account Value Currency Currency Closing ted Variance 17,403 175,087 16,680 723

Southgate 122,544 BWP 890,369 8.68 102,570 19,974

Superseven 26,948 BWP 192,773 8.68 22,207 4,741 Syller Marketing 27,688 ZAR 213,185 10.50 20,309 7,379

453,870 3,537,073 366,374 87,497

Risk/Implication

Debtors balance might be misstated which could result in materially misstated financial statements.

Recommendation

Management should develop a translation system that correctly identifies correct exchange rates and translates balance sheet amounts at appropriate rates. The closing foreign debtors should be translated at closing rates.

Management response

Noted. Debtors had been translated at transaction rate not closing rate.

Adjusting journal to correct the anomaly has been effected in the Financials.

2.5. Huge balance of long outstanding liabilities

Finding

I noted that there were creditors with long outstanding balances amounting to BWP 10,276,707. I could not obtain sufficient and appropriate audit evidence in validating this closing balance. The balance is the same as prior year and circularisation has not been successful from prior year. Creditors were not being paid when due.

Risk/Implication

Misstatement of financial statements. Failing to pay creditors when due creates a negative reputation with suppliers and in future it will be difficult to receive services from the same suppliers. Results in cashflow constraints in settling the litigations.

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Recommendation

The Company should try by all means possible to pay creditors within a reasonable time from the date goods or service is provided.

Management response

Noted. The majority of creditors could not be located for them to provide proof of their liabilities hence the decision by management to have them transferred to other liabilities pending a resolution to have these written back to income.

2.6. Leases

Finding

Allied Timbers Zimbabwe (Pvt) Ltd entered into a leasing contract with Mutare Board & Paper Mills (MBPM) to lease a slide tech machine from the latter. At audit attendance, it was noted that this machine was operated and controlled by Trading Place at Stapleford. However, the lease agreement with MBPM prohibited the machine to be transferred or sub-let and therefore the risks of loss or damage of the machine was still with Allied Timbers Zimbabwe (Pvt) Ltd.

The lease agreements for Gweru and Masvingo branches expired and have not been renewed since the Zimbabwean dollar era. Changes in monthly rentals were communicated via emails and invoices; however, there was no formal contract on file. The examples are as follows:

Branch Rental for the year ended Last effective date on latest lease 31 December 2012 agreement on file Gweru USD7,800 31 July 2007 Masvingo USD14,040 31 August 2005

Risk/ Implication

Non compliance with signed agreements can result in penalties.

Without valid lease agreements in place, Allied Timbers may be evicted from these premises without notice which can result in loss valuable business.

Recommendation

The Company should comply with the MBPM lease agreement

All the other leased properties and other assets should have updated signed lease agreements.

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Management response

The sawmill is still being used by the Company, the arrangement is that we are running it through a contract miller. We have a contract which spells out the contractual obligations between the contract miller and ourselves which we feel adequately addresses all the risk issues.

Noted. O D retail to draft all the contracts with immediate effect.

Auditor’s comment

The concern is that the lease agreement with MBPM prohibited the machine to be transferred or sub-let.

3. PROCUREMENT OF GOODS AND SERVICES

3.1. Supporting documents Botswana

Finding

I noted that supporting documents for some of the transactions for the Botswana subsidiary were not availed during the audit.

Risk/Implication

In the absence of supporting documents it is difficult to verify authenticity of transactions.

Recommendation

Management should file all supporting documents safely and ensure there is proper audit trail.

Management response

Noted. The Divisional Manager in Botswana is searching for the respective missing documents.

4. EMPLOYMENT COSTS

4.1. Pension remittance

Finding

I noted that pension deducted is not being remitted to the pension fund. This was the case throughout the year.

Risk/Implication

Financial loss from legal claims against the company from retired employees.

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Employees are demotivated as their contributions are not being invested and they do not earn interest on it.

Recommendation

I recommend that pension deductions should be remitted when due.

Management response

Noted. Management have adjusted and effected the necessary outstanding pension obligation in the respective employee’s retrenchment packages.

4.2. Payment of salaries

Finding

Salaries and wages were not being paid on time during the year under review for example salaries for August 2013 were only paid in October 2013.

Risk/Implication

High labour turnover

High pilferage from disoriented employees

Possible financial loss due to legal claims from employees

Recommendation

Management is should consider paying salaries when due.

Management response

Noted. This was mainly caused by the fact that the company was now trading cautiously with a view to shut down operations in Botswana hence there were no longer product support from the parent company, ATZ.

5. PROGRESS IN IMPLEMENTATION OF PRIOR YEAR RECOMMENDATIONS

I reviewed the progress made towards the implementation of prior year recommendations and found that the company made some progress and there was some room for improvement in respect of the following recommendations:

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5.1. Cash and bank

Recommendation

Payments should be made through bank transfers and minimal transactions should be settled using cash.

Progress made

No progress made.

5.2. Long outstanding uncleared related party balances-Altim City, Msasa

Recommendation

All long outstanding balances should be cleared accordingly.

Progress made

No progress made.

5.3. 10% withholding taxes

Recommendation

For purchases exceeding $250 from local suppliers, a valid ITF 263 tax clearance should be obtained. Where there is no valid ITF 263 certificate, the company should withhold 10% and subsequently submit to ZIMRA.

Remittance certificates should be obtained from customers who withhold 10% of funds due to the entity for subsequent utilisation of the funds withheld and remitted to ZIMRA.

Progress made

No progress made.

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CMED (PRIVATE) LIMITED

Background information

CMED (Private) Limited is a commercialized enterprise as provided for by the Central Mechanical Equipment Department (Commercialisation) Act of 2000. It is wholly owned by the State and its mandate is to provide transport and equipment hire services to the market. It also provides ancillary services in the form of vehicle procurement, fuel, training and testing drivers and the administration of the Government Transport Purchase Fund (GTPF).

I have audited the financial statements for CMED (Private) Limited for the year ended December 31, 2013.

Opinion In my opinion, the financial statements present fairly, in all material respects, the financial position of the CMED (Private) Limited as at December 31, 2013 and the financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards.

However, the following are material issues noted during the audit.

1. GOVERNANCE ISSUES

1.1. Managing Director’s contract

Finding

The Managing Director worked from 2010 to 2013 without an employment contract. The contract was only signed in March 2013 at the end of his term of office.

Risk/Implication

In the absence of a contract disputes may be difficult to resolve.

Recommendation

The Board should prepare the Managing Director’s contract and it should always be signed before engaging him. The performance of the managing director may be difficult to assess as there will be no basis for measurement.

Management response

As correctly observed, the Board “came on board” when the Managing Director’s contract had already expired. After consultations with the shareholder, the situation was regularised and the Managing Director was given a contract which expired on 31st December 2013. The Board has already initiated the process of renewing the contract. It has evaluated the Managing Director’s performance in 2013 and submitted the

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evaluation report and its recommendations to the Minister of Transport and Infrastructural Development for concurrence.

1.2. Board fees and allowances

Finding

The board and its various committees held a total of 72 meetings during the period under review implying that they were meeting at least twice per week. The frequency was no longer for oversight and strategic direction but more of operations. For oversight, best practice requires that board members meet at least four times a year excluding any ad hoc meetings. The board fees and sitting allowances for all these meetings amounted to $172 694.

Risk/Implication

Oversight role may be compromised if non executive directors are involved in operations. Management may spend more time in preparing for the meetings and less time on supervision and directing operations.

Recommendation

Board members should comply with best practise.

Management response

We agree with the audit recommendation. From now on the company will adhere to the standard practice whereby Board and Committee meetings are convened on a quarterly basis, with a provision for special meetings to deal with emerging or urgent issues that may arise.

2. REVENUE COLLECTION AND DEBT RECOVERY

2.1. Investment with Met Bank

Finding

CMED (Pvt) Limited invested $1 million in Met bank on July 29, 2013. On maturity of the investment on September 3, 2013 only $418 005 was paid to CMED being part payment for the principal and interest. Efforts to get the remaining balance had proved to be difficult as the case was now in the courts.

Risk

The recoverability of this amount is doubtful.

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Recommendation

Management should pursue the matter with Met bank with the view of recovering the remaining balance. Meanwhile the amount owed by the bank should be reclassified from cash and cash equivalents to other receivables.

Management response

The company is pursuing recovery of the outstanding balance of U$600,000.00 that Met bank failed to pay on maturity of the investment. To safeguard its interests, CMED pushed for the signing of a Deed of settlement with Met bank. The terms of the deed of settlement are that Met bank should clear the amount owing through monthly installments of US$50,000.00. Should the bank default in paying any installment on the due date, the balance outstanding shall immediately become due and payable and the deed of settlement shall be registered as a court order.

Unfortunately, Met bank only paid the first installment of $50, 000 for the month of April 2014 and has defaulted on the May and June 2014 installments. Met bank is thus in breach of provisions of deed of settlement and management has instructed company lawyers to recover the full amount through the court process.

2.2. Bus project to Mussina

Finding

The buses which are used for the cross border operations to South Africa had no route permit for the South African side. In some instances the bus crew had to pay fines to South African Police in order to reach their intended destinations.

Risk/Implication

Non-compliance with laws regarding to route permits may result in penalties from both South African and Zimbabwean authorities. Company reputation may be tarnished.

Recommendation

The Company should take corrective measures in acquiring the necessary required legal route permits.

Management response

Efforts are underway to acquire a route permit for Mussina route.

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3. PROCUREMENT OF GOODS AND SERVICES

3.1. Procurement of fuel

Finding

The Company paid $2.7 million on March 1, 2013 to First Oil Company for the supply of 3 million litres of diesel fuel. The commodity however, had not been delivered at the time of audit (May 15, 2014). The expected selling prices for the commodity were as follows; cash sales $1.30 per litre while coupons were pegged at $1.37 per litre with an average price of $1.34 per litre giving gross revenue of $4 million. The money used to finance the deal was borrowed from ZB bank and incurred interest charges amounting to $285 000. The entity paid $3 million to the bank to cover for the principal and interest using funds from operations. Resultantly CMED lost potential revenue of $4 million and working capital amounting to $7 million which should have been used to finance its operations and generate more profit for the company.

The company did not comply with the State Procurement Procedures in the process of selecting the supplier. According to the board of inquiry conducted on October 25, 2013 by the Finance and Audit Committee of the CMED Board, it was noted in the minutes that there was lack of management cohesion, coordination and control. The deal was concluded without the involvement of loss control and internal audit managers. The committee also noted that the company only put the contract in place when the bank requested it implying that transactions were being done without a valid contract with the supplier. The fuel contract between CMED and First Oil was crafted and signed on March 5, 2013 at the instance of the bank, long after the payment had been effected to the non performing First Oil. The contract was drafted by the Fuels Manager instead of the Corporate Executive and Company Secretary.

Due diligence was not taken in awarding the contract to First Oil Company. The company was awarded a contract to supply fuel without a valid fuel operating licence. Its operating licence had expired in December 2012 and was renewed in May 2013 after the conclusion of the contract.

The procurement of fuel was left to be the responsibility of a single person, thereby eliminating checks and balances in the system. There was no involvement of the procurement committee. Management disregarded the Board’s directive to procure fuel from a supplier who had the product locally that is ex Masasa.

At the time of audit, efforts to get debt confirmation from the supplier failed as the matter was allegedly being handled through the company lawyers.

Risk/Implication

Working capital has been tied up to the detriment of CMED operations. There is also the risk of loss of revenue (opportunity cost) which could have been earned using the profits generated had the fuel been delivered on time.

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Recommendation

When procuring, the company should evaluate supplier’s capability to deliver before an order is placed. There should also be an effective and constant follow up with suppliers on outstanding deliveries. The company should have its supplier list where reputable suppliers of goods or services can be selected from.

Management response

First oil submitted their company profile which included a receipt from SPB confirming registration to supply fuel.

In all fuel procurement processes Internal Audit participates in the opening of the tender box to ensure transparency and this transaction went through the same process. Loss Control does not have a role to play in procurement.

The contract was not the bank`s idea but this was initiated by CMED on the 28th of February 2013 however the supplier only returned the signed contract on the 5th of March 2013. CMED had actually instructed the bank to hold on to money paid to First Oil until the contract was signed and further proof of product availability at Msasa was availed and this was done on the 5th of March 2013. First Oil then accessed money only after the signing of the contract.

Due diligence was done starting on the 28th of February where upon First Oil presented a letter from Petrotrade confirming product availability at Msasa as per their quotation. CMED verified the authenticity of the letter by having it confirmed by Petrotrade and the latter confirmed by restamping the letter. On the same day CMED wrote to NOIC the custodian of fuel tanks who indicated that they do not deal directly with off takers resulting in the bank requesting the same from Petrotrade. Petrotrade then instructed NOIC to write direct to the bank confirming product availability.

CMED was not importing fuel from outside but purchasing fuel from local companies hence there was no need for the Import Licence. Only the SPB registration was important.

The procurement office compiles a comparative schedule from the bidders as opened in the presence of Internal Audit, this schedule is then used to award the tender.

The current Board became seized with this matter upon its appointment in June 2014 and has taken measures to improve internal control systems that were compromised in this transaction, leading to the loss. Measures taken include:-

Pitching the head of the Loss Control Unit at management level to strengthen risk management within the organisation;

A resolution taken that fuel procurement, like any other products and services, should be subjected to normal tender procedures. Specifically, tender invitation

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is now being done formally by advertising in press and bids are being adjudicated through the internal procurement committee.

The company is pursuing recovery of the money paid to First Oil through both civil and criminal proceedings against First Oil, its Directors, NOIC and Petrotrade. NOIC and Petrotrade were being sued for having misled CMED into believing that they were holding fuel on behalf of First Oil, when in fact it later turned out that First Oil did not have the product, hence the failure to deliver.

The company has appointed a senior lawyer to pursue recovery. On the criminal case, the senior lawyer engaged the Attorney General’s office and the police who have since completed the docket on the accused and referred it to the Magistrates Court for trial. The trial date has been set for 21st August 2014. The latest development was that three directors of First Oil have been arrested and are set to face trial on 21st August 2014. Further investigations are underway, implying that the net was being cast wider than the three accused arrested to date.

The civil case awaits set down date.

CMED is confident that the two pronged approach adopted enhances chances of recovery.

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COLD STORAGE COMPANY (CSC) 2011 AND 2012

Background information

The Cold Storage Commission was established in 1937 in terms of the Cold Storage Commission Act to procure, process and market beef, lamb, goat and related products. The Commission subsequently came under the authority of the Agricultural Marketing Authority, which was responsible for all policy and major issues until the Authority’s dissolution on 30 September 1994, to pave way for the commercialisation of the Commission.The Commission was registered as a limited company, the Cold Storage Company Limited, herein referred to as CSC, on 18 January 1995 and is wholly owned by the Government of Zimbabwe. The Directors are appointed by the Minister of Agriculture, Mechanisation and Irrigation Development, and are responsible for all policy issues while the Chief Executive is responsible for the day-to-day affairs of the Company.

The Company owns five abattoirs in Chinhoyi, Bulawayo, Masvingo, Marondera and Kadoma. A Canning plant whose production is mainly for export operates from Bulawayo. The Bulawayo, Chinhoyi, Marondera and Masvingo abattoirs and the Canning plant are European Union approved. The Company also operates distribution depots in Harare, Gweru and Mutare. In addition the Company operates some outlets in all major cities and towns under the brand name Meat Pride. The bulk of CSC’s slaughters are made up of internationally recognised breeds, which are grazed on free range and finished on grain. The concept of total quality management is at the base of all CSC operations. Through this, the CSC strives to ensure total responsibility and commitment to product quality throughout the whole organisation.

I have audited the financial statements for the Cold Storage Company Limited for the years ended December 31, 2011 and 2012. I issued a qualified opinion with an emphasis of matter.

Basis for Qualified Opinion on the financial statements for the year ended December 2012

Impairment of property, plant and equipment

Valuation of property, plant and equipment was last performed in the 2009, a period when the economy was emerging from hyperinflation values assigned to property, plant and equipment were generally overstated. The Group has not assessed the carrying amounts of property, plant and equipment for possible impairment. Consequently, I could not determine the financial effect of the non-compliance with International Accounting Standard 36 “Impairment of Assets”, on the carrying amount of the property, plant and equipment, depreciation expense and retained earnings.

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Qualified Opinion

In my opinion, except for the effects of the matter described in the Basis for Qualified Opinion paragraph, the consolidated financial statements present fairly, in all material respects, the financial position of Cold Storage Company Limited and its subsidiaries as at 31 December 2012, and its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards, and in the manner required by the Companies Act of Zimbabwe (Chapter 24:03).

Emphasis of matter

Without further qualifying my opinion I draw attention to Note 18 of the consolidated financial statements which indicates that the Group incurred a net loss of $ 9 900 228 for the year ended 31 December 2012. As at that date, the Group’s current liabilities exceeded its current assets by $ 19 696 048 and its total liabilities exceeded total assets by $ 17 507 314. This condition indicates the existence of a material uncertainty which may cast significant doubt on the Group’s ability to continue as a going concern and therefore it may be unable to realise its assets and discharge its liabilities in the normal course of business.

However, below are other material issues noted during the audit.

1. GOVERNANCE ISSUES

1.1. Insurance of Non-current assets

Finding

I noted that Masvingo, Chinhoyi and Kadoma branches’ non-current assets were not insured.

Risk/Implication

Inability to recover assets in the event of unforeseen disasters and or accidents.

Recommendation

All assets should be adequately insured to safeguard assets against unforeseen events.

Management response

Due to severe cash constraints in the past several years, management’s approach to insurance has been to select and insure those assets that are exposed to greater risk, or those whose damage or loss would directly disrupt current operations.

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The need for a more comprehensive coverage is not lost on management, and hence continuous effort to bring operations to sustainable levels, which enable all company assets to be insured against all risks through improved cash flows.

1.2. Compliance with Tax regulations

Finding

Income tax legislation requires that QPD (ITF12B) returns are submitted to ZIMRA on a quarterly basis even where a company has incurred a loss. There was no evidence that the entity submitted its ITF12B returns for all the four (4) quarters of the year.

Amongst the list of sundry debtors was ZM Transport from which CSC was charged Value added tax on the transportation of cattle from Botswana. According to the Value Added Tax Act [chapter 23:12] subsection 12(3) paragraph b, the importation of such goods as are prescribed in regulations made in terms of section 36 of the Customs Act shall be exempt from the tax.

The company disposed vehicles to some employees during the year. Output VAT should have been levied on disposal of the vehicles at 15% as they previously qualified for an input tax claim. Output VAT totalling $7,449 was not levied on the disposal of these vehicles.

Risk/Implication

Penalties and interest may be levied for non compliance by the tax authorities.

Recommendation

All outstanding ITF12B returns should be submitted quarterly as per ZIMRA stipulated dates.

Management should ensure that tax regulations are adhered to at all times.

Management response

The perennial losses made by the company had made us to be lax in this area. This will be rectified immediately and QPDs will now be filed by the Treasury Accountant on or before the stipulated dates.

ZIMRA gave CSC the benefit of doubt and waived any penalties that could have arisen from this oversight. The supplier who had erroneously charged the VAT will refund us in full the amount overpaid, and arrangements to do so are already underway.

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Noted. The relevant VAT statute was not correctly applied. For the example cited, the provisions of the VAT act will be applied in retrospect and the amounts will be charged to the purchasers of the disposed assets.

1.3. Information Technology policy

Finding

I observed that the company was operating without an I.T policy. Moreover the I.T systems did not have a firewall or a data intrusion system.

Risk/Implication

Potential loss of data.

Inconsistent application of IT policies.

Recommendation

Management should have a documented IT policy.

Management response

We have been operating using ISO procedure manuals and an internet/email usage policy. However management in their meeting of the 9 April 2013 requested that a comprehensive IT policy be put in place. The Information Systems Manager is preparing and will complete for presentation to ICT committee in July 2013.

User data is stored on individual PCs and firewall is enabled on the newer individual PCs but not on the old Acer PCs from 1999. Antivirus software is also installed on individual PCs. No PC or server has direct connection to the outside world except for the Linux email/internet server which is connected to an Internet Service Provider (ISP) who has their own security measures in place. The current Proteus system runs on a separate AIX server which has its own access control procedures in place and only allows access from the LAN. Password control is also active for all business applications. Backups are done monthly. Internet use is by individuals with access being controlled on the Linux proxy server (any outgoing and incoming requests go through the ISP first). Newer hardware has been ordered to allow better control and management of data especially Pastel.

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Firewalls will be put in place when a VPN is setup for Bulawayo and Harare to share resources. ICT policy will document all data integrity and security aspects.

1.4. Wetblue Industries (Private) Limited

Finding

I could not obtain the board resolutions for the investment in Wetblue Industries (Private) Limited.

I was not furnished with the CR2 form in order to determine allotment of the shares of Wetblue Industries (Private) Limited.

Risk/Implication

It may be difficult to determine the percentage ownership without a valid CR2 form from the registrar of companies.

Recommendation

Management should file the CR2 form with the registrar of companies as per statutory requirement.

Management response

The process of obtaining the form CR2 from the company secretary is already underway.

1.5. Compliance with the Animal Health Act

Finding

It is a requirement by the Animal Health Act [Chapter 19: 01] that dead cattle are supposed to be examined by the Veterinary Service Department so as to determine the cause of death and possible environmental reasons that may have infected the cattle to curb the likelihood of any outbreak of diseases. Thereafter the Veterinary services issue a death certificate. To this end, it is company procedure to remove from the register, upon securing the death certificate of the dead cattle.

All the procedures outlined above were not being followed when dead animals were being removed from the registers. Cattle deaths recorded from all the 7 ranches as from January 2012 to December totalled 161.

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Risk/Implication

Non-compliance with the Animal Health Act.

There is risk of recording stock theft if no physical evidence or formal documentation attesting the deaths is available.

Recommendation

Management should ensure that the ranch cattle procedures are followed.

Management response

It is ideal that every cattle that dies must be issued with a death certificate by veterinary officials in order to ascertain the cause of death; however, at times it’s not practical to call the veterinary officials because of the time of death, distance of the ranch and availability of the veterinary officials. However, where possible the assistance of veterinary personnel will be sought.

1.6. Cattle tagging

Finding

The Livestock Branch has 854 cattle in all the ranches. However, the cattle were not tagged for easy identification.

I also noted that during the year end stock count 24 cattle at Dubane ranch were reported missing and only 18 were recovered long after the stock count was concluded.

Risk/Implication

It may be difficult to track cattle.

Theft of cattle.

Recommendation

All cattle should be tagged or branded for easy identification.

Management response

All CSC cattle are identified by registered ranch, veterinary and provincial brands which are continuously renewed for ease of identification. This system is

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very effective in identifying and tracking lost cattle. We are in the process of ensuring that individual cattle must have a tag in order to monitor the performance of individual animals and the process has already started at Dubane Ranch.

2. REVENUE COLLECTION AND DEBT RECOVERY

2.1. Lease agreements

Finding

The Masvingo branch was leasing some of its properties to third parties in order to supplement its income base. Residential properties and part of the plant storage space was being leased out to tenants. Some of the tenants occupying the properties were not complying with the stipulated lease conditions. This resulted in the company accumulating significant arrears from the tenants.

I also noted that some lease agreements had not been signed by the parties involved in the contract. The table below contains the details

Tenant Property leased TV Sales and Hire CSC storage space Blessed fire CSC storage space North class trading CSC storage space

Risk/implication

Loss of income.

Potential disputes arising from no-legally binding agreements.

Recommendation

Management should consider performing due diligence on potential tenants before allowing them to occupy their properties.

Management response

Management strongly believes that in the past and current years they played due diligence on all potential tenants from the vetting to the final phase of monitoring the property and its accounts. Constant monitoring of the accounts is always carried out and communications are done to alert the tenants to pay their bills and rentals. As noted in the file, the letters sent out where to remind the tenants to comply of which it has been rectified by our tenants.

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Tenants who fail to comply have often had their leases terminated and in the process the security is utilised to clear the outstanding debts.

In the case of Blessed Fire their lease agreement contract was not renewed during the period of 2012 and it is now a litigation issue with our lawyers. TV Sales and Hire have a contract that was signed and is still binding as presented in the file.

The tenants that have been described as non-compliant tenant have since been compliant within their respective cases. We do take note of the risk that late payments may attract interest. We however believe that we have been prudent in selecting the best tenants so as to minimise loss of revenue.

2.2. Daily banking/

Finding

The company policy states that total cash proceeds from the sale of beef should be banked on a daily basis. Cashier fills in a deposit slip based on the sales made before the cash is banked. A daily sales summary is sent to the Harare main branch showing all the daily cash sales.

I however, noted that there were instances when cash proceeds received from daily sales were either less or more than cash banked. It was revealed that before the cash proceeds are banked some of the cash was being withheld to cater for daily branch or outlet expenses such as delivery costs and fuel. There was no documentation to support the expenses incurred. Reconciliations of how the cash was being utilised were not provided.

The table below contains the details

Date Branch Cash proceeds Cash banked Variance $ $ $

3/5/2012 Harare 15,207 20,503 5,296

13/03/12 Harare 7,414 16,044 8,630

5/7/2012 Mutare 1,722 2,635 913

1/3/2012 Kadoma 2,899 2,273 (626)

Total 27,242 41,455 14,213

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Risk/Implication

Misappropriation of cash could go undetected for prolonged periods.

Recommendation

Management should consider conducting surprise cash counts at all branches covering all locations with the assistance of internal audit.

Management should ensure cash reconciliations of amounts banked and amounts received from cash sales are done on a daily basis and reviewed.

Management should ensure reconciling items are followed up and resolved.

Management response

Noted. Going forward, Harare will intensify internal controls on cash handling and appropriate action will be taken to recover any cash shortages so discovered. This matter has also been noted. In terms of documents to support most expenses incurred ( i.e. invoices, vouchers, etc.) some are available ( particularly for Harare branch) whilst others might be missing and it has been very difficult to verify and authenticate all payments made at respective branches (Mutare, Gweru, Kadoma and Victoria Falls) because of the distance problem as well as non-enforcement of requirements for accounting transactions to be supported by appropriate documents( sales invoices, purchase invoices, goods received notes, purchase orders, etc.). Harare will rope in internal audit in order to recover any prejudice to CSC. This matter has been noted. Harare recommends that full computerization that is supported by daily sales reconciliations and taking corrective action as recommended to ensure compliance and completeness. Harare also recommends that making Sales deposits into a Harare account before remittance to CSC Head Office (to facilitate quicker reconciliations of deposits by Harare so as to avoid ‘false declarations of deposits’ by branches) would go a long way to expedite quicker reconciliations of deposits and ensure accountability and responsibility.

2.3. Trade debtors

Finding

As at 31 December 2012, outstanding debtors amounting to USD 98 008 had been outstanding for over 120 days.

The table below highlights significant debtors that had been outstanding for over 120 days;

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Description Amount $ Zimhaal 65,644 Mutungadura 10,514 Well bty 4,908 Chakanyuka 2,003

Risk/Implication

Working capital constraints.

Unrecoverable receivables.

Recommendation

Management should either write off the amount or agree a settlement plan with customers.

Management response

The big amounts like Zimhalaal and Mutangadura have been handed over to lawyers, Dube Manikai and Hwacha for recovery while a debt collector has been engaged for the smaller ones.

2.4. Invoices on sale of hides

Finding

During the year, there were sales of hides of about $ 14 237. However, no invoices were issued on the sale of these hides.

Risk/Implication

Possible misappropriation of monies received and inability to provide assurance over the accuracy of receivables collected.

Fraud and error.

Recommendation

Management should ensure invoices are issued on the sale of hides. Management response

The accountant takes note of this and will ensure proper invoices are used.

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2.5. Monitoring of Credit Limits for Debtors

Finding

Credit limits established for customers were not regularly monitored to ensure sales were in line with the set limits.

In addition, there were no formal procedures for periodic review of the credit limits and approval of sales exceeding the limits, “excess sales”

Risk/Implication

Exposure to high risk of bad and doubtful debts.

Recommendation

Management should ensure a credit policy is developed and formal procedures established for periodic review of credit limits and approval of excess sales over limits set.

Management response

A Credit Policy is in place along with the formal procedures setting credit limits. However in the year under review circumstances developed which compromised branch management’s ability to conform to the provisions of the policy at all times. Faced with a pile-up of low quality beef which is prone to deterioration faster than better quality product, branch management fast tracked the credit- approval procedures and ended up extending credit to difficult customers. The reasoning was that it was better to chase up a debtors than getting product go bad in your hands. Notwithstanding the difficulties, the action was not condoned by corporate management when it came to light.

It will be noted that in the early phase of the Botswana imports the company was unable to make commercial decisions regarding what quality to procure, as the overriding objective was to clear specified zones of all cattle in Botswana.

2.6. Sales invoices

Finding

I noted that there were a number of missing sales invoices. Management revealed that 48 sales invoices were cancelled during the year. These invoices were however, not availed for audit for review.

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Risk/Implication

Fraudulent activities involving invoices could go undetected.

Loss of assurance over the completeness of revenue recognised by management.

Recommendation

Management should consider implementing controls to monitor cancellation of invoices by the invoicing clerks.

Management response

Some of the cancelled invoices were due to system failure to print. If the system fails to print an invoice then a new one would be generated to replace the one that has failed to print. However management has already put in place that no invoice will be cancelled without accounts knowledge. An authorised credit note is passed by accounts in such a case. Efforts have been put with service providers of the system to minimise system failures.

3. PROCUREMENT OF GOODS AND SERVICES

3.1. Botswana project

Finding

The company entered into an agreement with the government of Botswana from which it purchased 29 381 cattle from phase 1(Government to Government) and phase 11 (with Botswana Meat Commission) from which it purchased 3 934 cattle. This left the company with debt of $ 2 828 954.

To this end CSC failed to repay the project through its proceeds. However, CSC had to borrow a total of USD 1,187,213 to pay The Botswana Meat Commission.

Discussions with management revealed that no feasibility study was initially carried out to assess whether the project was viable.

Risk/Implication

Liquidity- challenges.

Recommendation

Management should evaluate whether the current structure of the project is viable.

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Management response

The liquidity challenges that led to the failure to pay the debts for cattle purchases were not attributable to lack of project feasibility studies and forecasts. Rather, it was the use of project cash flows to pay for pressing non- project creditors some of whom had instituted legal action against the company, necessitating the diversion of funds.

CSC has huge creditors for unpaid utilities, salaries and other services that emanated from many years of inactivity and the major ones pounced when the company resumed operations. Project viability analyses are always done and presented to the Board for approval and phases I and II were no exception. A review of the relevant board papers and minutes can prove this.

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MARANGE RESOURCES (PRIVATE) LIMITED 2012 AND 2013

Background information

Marange Resources (Private) Limited (Marange Resources) is a company which is 100% owned by Zimbabwe Mining Development Corporation (ZMDC). The company was incorporated as Blockwood Mining (Private) Limited in November 2005 before changing name to Marange Resources in November 2007. The Company conducted mining activities in the Chiadzwa area using special mining grants issued to ZMDC by the Ministry of Mines and Mining Development.

I have audited the financial statements of Marange Resources for the years ended December 31, 2012 and 2013. I issued an unqualified opinion with an emphasis of matter.

Opinion on the financial statements for the year ended December 31, 2012

In my opinion, the financial statements present fairly, in all material respects, the financial position of Marange Resources (Private) Limited as at 31 December 2012, and its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards, and in the manner required by the Companies Act of Zimbabwe [Chapter 24:03].

Emphasis of matter

Without qualifying my opinion, I draw your attention to the following:

Uncertain outcome of a lawsuit

As described in Note 24 of the financial statements, which outlines the uncertainty related to the outcome of the lawsuit filed against the Company by Core Mining and Mineral Resources (Private) Limited, the ultimate outcome of the matter cannot presently be determined, and no provision for any liability that may result has been made in the financial statements.

Going concern

I draw attention to Note 25 of the financial statements which indicates that the Company incurred a net loss of USD24 826 433 for the year ended 31 December 2012. As at that date, the Company’s current liabilities exceeded its current assets by USD52 598 293. The Company’s total liabilities exceeded total assets by USD22 993 138. As disclosed more fully in Note 7.1 to the financial statements, the total assets exclude the value of the mineral reserves. Exploration and evaluation of the mineral resources has been initiated with the involvement of external consultants. These conditions indicate the existence of a material uncertainly that may cast doubt about the Company’s ability to continue as a going concern.

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Investment in joint ventures

International Accounting Standard 31 [Interests in joint ventures] requires a venturer to recognise its interests in jointly controlled entities using proportionate consolidation or the equity method in its consolidated financial statements. Marange Resources (Private) Limited is a wholly owned subsidiary of the Zimbabwe Mining Development Corporation (ZMDC) and is allowed not to present consolidated financial statements in accordance with IAS 31 and IAS 27 [Consolidated and separate financial statements].

In its separate financial statements, the company is required to account for its interests in jointly controlled entities in accordance with IAS 27. The standard requires investments in jointly controlled entities to be accounted for either at cost or in accordance with International Accounting Standard 39 [Financial Instruments – Recognition and Measurement]. Marange Resources (Private) Limited has not accounted for the investment in the joint venture company in its separate financial statements as at December 31, 2012. The joint venture operation is being accounted for and has been recognised as an investment in a joint venture in the financial statements of ZMDC as described in Note 26 to the financial statements.

Opinion on the financial statements for the year ended December 31, 2013

In my opinion, the financial statements present fairly, in all material respects, the financial position of Marange Resources (Private) Limited as at 31 December 2013, and its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards, and in the manner required by the Companies Act of Zimbabwe [Chapter 24:03].

Emphasis of matter

Without qualifying my opinion I draw attention to the following matters:

Going concern

As fully explained in Note 30 of the financial statements, the Company incurred a net loss of USD 30 464 985 (2012: USD 24 633 163) for the year ended 31 December 2013. As at that date, the Company’s current liabilities exceeded its current assets by USD 73 920 980 (2012: USD 52 418 239). The Company’s total liabilities exceeded total assets by USD 53 296 505 (2012: US$ 22 831 520). As disclosed more fully in Note 10.1 to the financial statements, the total assets exclude the value of the mineral reserves. Exploration and evaluation of the mineral resources has been initiated with the involvement of external consultants. These conditions along with other matters disclosed in Note 30 indicate the existence of a material uncertainly that may cast doubt about the Company’s ability to continue as a going concern.

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Uncertain outcome of a lawsuit

As outlined in Note 29 to the financial statements, which outlines the uncertainty related to the outcome of the lawsuit filed against the Company by Core Mining and Mineral Resources (Private) Limited, the ultimate outcome of the matter cannot presently be determined, and no provision for any liability that may result has been made in the financial statements.

Investment in joint ventures

Marange Resources (Private) Limited entered into a joint venture agreement in which it contractually agreed to share control over the operating and economic activities of the joint venture company, Mbada Diamonds (Private) Limited in the Chiadzwa area. International Financial Reporting Standard 11 [Joint arrangements] requires a venturer to recognise its interests in jointly controlled entities using the equity method in its consolidated financial statements. Marange Resources (Private) Limited is a wholly owned subsidiary of the Zimbabwe Mining Development Corporation (ZMDC) and is allowed not to present consolidated financial statements in accordance with IFRS 11 and IFRS 10 [Consolidated financial statements].

In its separate financial statements, the company is required to account for its interests in jointly controlled entities in accordance with IAS 27. The standard requires investments in jointly controlled entities to be accounted for either at cost or in accordance with International Accounting Standard 39 [Financial Instruments – Recognition and Measurement]. Marange Resources (Private) Limited has not accounted for the investment in the joint venture company in its separate financial statements as at December 31, 2013. The joint venture operation is being accounted for and has been recognised in the financial statements of ZMDC as described in Note 31 to the financial statements.

Possible merger of diamond mining companies

I draw attention to note 32to the financial statements which indicates that Ministry of Mines and Mining Development made public announcements in February 2014 on the possible consolidation of the diamond mining companies operating in Chiadzwa into two companies. The effect this may have on the ability of the company to continue operating as a going concern cannot presently be determined.

Other matters

Probe into the affairs of the company

As explained in Note 32 to the financial statements, the Minister of Mines and Mining Development appointed a team to carry out an investigation into the affairs of the company. The executive and senior management of the company were sent on leave to pave way for the investigation to be conducted. The results of the investigation are still pending and I was unable to determine whether there may be additional issues which may require adjustments to the results of operations for the year ended December 31, 2013.

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However, the following are other material issues noted during the audit

1. GOVERNANCE ISSUES

1.1. Board composition and sub committees

Finding

Best practice recommends that there must be a suitable balance of skills and gender on the board. The composition of the company’s board of directors and sub- committees was not in line with best practice.

The board was not demographically balanced, all members were male.

In addition, the CEO was a member of the audit committee and the committee comprised of only two members of the board.

With the exception of the board chairman, all other members of the board were members of the Human Resources and marketing sub-committee; there was therefore no independent review of work done.

Risk / Implication

Ineffective oversight by the entity’s board of directors and sub-committees over the company’s operations, financial reporting and internal controls.

Recommendation

Best practice guidelines may need to be considered in structuring the new board of directors of the company:

Managementt response

Management is confident that the above issues will be addressed upon the appointment of a substantive Board following the dissolution of the previous Board of Directors in December 31, 2013.

1.2. Allowances for Non-Executive directors

Finding

There was no evidence of approval of other allowances paid to none of the shareholder, Zimbabwe Mining Development t Corporation(ZMDC), indicated that non-executive directors of the company were entitled to the following benefits:

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Purpose Designation Amount USD

Base fees Board chairperson 700 Member 650 Sitting fees (Board) Board chairper son 345 Deputy chairperson 330 Member 316 Sitting fees (sub committees) C hairperson 331 Member 285

I noted that in addition to the approved remuneration, non-executive directors were also given 2940 litres of fuel (cumulative) and holiday allowances of $27 450 each.

Scrutiny of some of the company’s bank accounts revealed that $758 000 had been withdrawn by the company and the amount had been paid off as ‘extra security’ to non-executive directors and the CEO. These payments were paid directly to the directors and they were not supported by supplier invoices; therefore, I could not determine the appropriate classification of these payments.

Had these payments been director’s remuneration, they should have been approved by the company shareholders in a general meeting as required by the First Schedule of the Companies Act [Chapter24:03] and also disclosed in the financial statements as related party transactions in line with their requirements of the Companies Act and the International Financial Reporting Standard (IFRS) 24-Related party transactions respectively.

Risk / Implication

Non- compliance with the requirements of the Companies Act [Chapter 24:03] and IFRS24.

Possible penalties and fines from the company not remitting withholding tax emanating from these transactions.

The oversight function performed by the directors may be impaired due to payment of significant remuneration packages which may affect director’s independence.

Recommendation

With regards to setting of directors’ remuneration, best practice suggest that non- executive remuneration should comprise of a base fee and sitting fees as other allowances such as share option schemes may impair on director’s independence. These fees should be presented for approval by the shareholder in the general meeting as required by the Companies Act [Chapter 24:03].

The remuneration of directors should also be disclosed in the company’s financial statements as required by both section 147of the Companies Act [Chapter 24:03] and

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the International Financial Reporting Standards (IFRS) 24-Related party disclosures.

Management response

This was a result of a weak corporate governance framework and control environment.

Management will seek shareholder guidance and approval when confronted with requests or directives of this nature from Board members in future.

1.3. Disposal of assets

Finding

The company disposed of motor vehicles to various members of management based on the motor vehicle replacement policy of the company. The placement and disposal policy of the company states that a company vehicle shall be subject for replacement at 150000km or 3 years, whichever occurs first (provision9).

An inspection of the asset disposal forms revealed that nine (9) of the sixteen (16) vehicles disposed had met the requirements of the motor vehicle policy under provision 9 as the forms explicitly highlighted that the vehicles had exceeded the150 000 km requirement. The rest of the seven (7) vehicle disposals were approved based on the following reason, ‘disposal of passenger motor vehicle to the manager who has completed more than 3 years with the organization in accordance with the provision 9 and 10 of the motor vehicle policy’. It is important to note that the 3 years referred to in provision 9 of the policy refer to the motor vehicle and not the ‘person’ as stated on the disposal form. I could not however get the mileage of these vehicles at disposal date but based on the information on the disposal forms, these vehicles had neither reached the 150000km or the 3 year requirement.

The following table shows the list of motor vehicles that were disposed of in June 2013 without meeting the replacement criteria:

Vehicle Year of purchase Replacement date NissanTeana 11/1/2010 Oct2013 NissanNavara4x4D/Cab 11/1/2010 Oct2013 FordRanger2.54x4D/Cab 11/1/2010 Oct2013 FordRanger2.54x4D/Cab 2/1/2011 Dec2013 FordRanger2.54x4D/Cab 2/1/2011 Dec2013 ToyotaLandcruiserPrado 1/1/2011 Dec2013 FordRanger3.04x4D/Cab 5/30/2012 April2015

Risk / Implication

Noncompliance with the Company’s policy.

Prejudice to the Company as a result of management’s override of the existing vehicle disposal policy.

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Recommendation

Management should ensure compliance to company policies.

Management response

The interim management does not have access to information supporting the disposal of vehicles outside the company policy as this was held by Executive Management currently on special leave. Management will strive to ensure compliance with company policy. Where there is deviation, it must be properly authorized by the Board of Directors and reasons thereof clearly stated. Management is also seeking review of other policies to allow for the disposal of Passenger Motor Vehicles at the discretion of the Company after considering financial feasibility of such disposals.

1.4. Custody of the company assets

Finding

During my physical verification of motor vehicles, I noted that two of the company vehicles on the asset register were not in the custody of the Company. These vehicles, a Toyota Land Cruiser, registration number CAN3088, and a Jeep Cherokee, registration number ACO1538, with carrying amounts of $ 76 028 and $46 579 respectively which were being used by the former board members had not been returned to the company since the dissolution of the board.

Risk / Implication

Overstatement of assets. Missappropriation of assets.

Recommendation

Management should consider recovering the motor vehicles. In the case that the management fails to recover the vehicles, they should consider impairing the vehicles in the company’s financial records.

Management response

The company was authorized to seek legal assistance to recover the vehicles and has instructed the company lawyers to start the legal process to recover the vehicles in June 2014.

1.5. Internal controls

Findings

FBC loan collateral The Company acquired a $7,000,000 loan from FBC on 16 June 2013, The loan has a tenor of 2 years up to 16 June 2015, with an interest rate of 16%.The loan was secured

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by the offices at number 6 Constantia road Strathaven, Avondale. Harare, where the company was conducting its operations.

My review of board minutes and resolutions showed that there was no evidence of approval indicating that the board sanctioned the company to use the property as collateral.

Fuel issues A comparison of the fuel ledger and them annual fuel issues revealed that the ledger balance was understated by the equivalent of 51859.4 litres. Enquiries with management revealed that this variance was due to delays in posting of manual issues into the ledger. I also noted that fuel reconciliations between the manual issues and the ledger were not being done.

Diamond inventory After completion of the inventory count, I noted that the system figure for diamond stocks differed from the physical count and paper trails by 11 486.02 carats. Of the difference 4731.07 carats related to stock differences during the joint mining arrangement with Mbada and the difference of 6 754.95 carats was due to posting errors in the system. The company policy requires that diamond stocks be physically verified regularly with reconciliations being performed timely. The fact that these differences were only noted at year-end suggest that regular stock takes were not being performed and reconciliations were not being done. On inspecting the stock files, I noted that only stock take records for the month of March 2013 were on file.

Risk / Implication

Management override of internal controls.

Misappropriation and fuel theft.

Fraud and errors may go undetected and weakening of the company’s internal controls.

Recommendation

Managements should comply with the company’s policies and procedures.

Management should consider performing daily reconciliation of fuel issues to the ledger as fuel is highly susceptible to theft.

Inventory counts and reconciliations to system records should be performed on a timely basis.

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Management response

The interim management sought ratification of the securitization of the company’s assets upon review of the above facility in May 2014.

The company has been using one ledger code for fuel issues from the stores and direct purchases e.g. Fuel for management and pool vehicle at the Head Office. A separate ledger code has been created for direct expenses. Ledger code for fuel issues would be configured to become a control account.

The stock discrepancies on sort house stocks were largely due to training gaps for sort house stocks. Stocks transferred from the mine were taking long periods of time before being processed in the system. Training has been arranged for the Sort house staff and there has been improvement on system utilization. Management is reviewing the procedures to take away Stock Reconciliations responsibility from marketing to Finance. As a migratory measure, Finance has been keeping a manual record of stock movements, which would be compared to the quarterly stock counts. The recommendation has been implemented beginning June 2014.

1.6. Laws and regulations

Findings

Non compliance with the exchange control regulations I noted that the company had significant penalties of USD741565 that had been charged on its exports receipts as a result of not acquitting CD1 forms upon each export receipt as required by the Exchange Control Act (Chapter 22:05). Non- acquittal and/or non-remittance of CDI Forms on export receipts into the country within the stipulated ninety(90)day period is a violation of Section 5(i) a of the Exchange Control Regulation Act and may result in penalties and fines and in the case of Marange,5% penalty is being charged on each export receipt. I noted that on one of the company export sales of USD3 572 441, RBZ charged a penalty of USD178 622(5% of sale) directly into the company bank account held with NMB Bank leaving the account in a deficit position as there were no cash reserves at that time. The garnishing of the NMB account created an overdraft with punitive interest at the rate of 34% per annum being charged.

Non compliance with the Environmental Management Act (EMA) [Chapter 20:27] The Environmental Impact Assessment [EIA] is a planning tool used to identify, predict, and assess potential impacts (i.e. the negative or positive) that may arise from planned projects, and come up with ways with which to minimise negative impacts and enhance positive ones. EIA aims to predict environmental impact at an early stage in project planning and design, find ways and means to reduce adverse impacts, shape projects to suit the local environment and present the predictions and options to decision- makers. The EIA requires any operation that has a negative impact on the environment to carry out an environmental assessment study. The company had not

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been issued an EIA certificate as it has not carried out the required study.

Non compliance with the Radiation Protection Act Marange Resources had two machines which require it to have licences and permits under the Radiation Protection Act [Chapter15:15] which are the Scan X-Ray machine and the X-Ray Technology. The Radiation Protection Act requires that; employees working where there is exposure to radiation to have radiation badges and that mining operation carried out where there is radiation exposure should have a dosimeter which assesses the ionizing radiation dose received by the human body due to the external irradiation and the ingestion or inhalation of radioactive materials. I noted that the company was using the X-Ray Technology without fulfilling the requirements of the Act. The ScanX-ray machine was purchased on1 August 2011 at a purchase price of USD217 279 but the machine has not been operational due to licenses that had not been issued to Marange Resources.

Non compliance with the The Pneumoconiosis A c t Pneumoconiosis is a disease of the respiratory organs due to the inhalation of mineral dust. The Pneumoconiosis A c t [ Chapter 1 5 : 0 8 ] p r o v i d e s f o r t h e c o n t r o l a n d administration of persons employed in dusty occupations. It also states that no person shall employ a worker in a dusty occupation unless the worker is the holder of a current certificate and also an employer shall keep a record of the particulars of a certificate relating to any worker employed by him and shall retain such certificate in his possession as long as the worker remains in his employ. In terms of the Pneumoconiosis Act [Chapter15:08] , employees working in areas prone to organic or inorganic causes of pneumoconiosis should have the following health reviews; initial medical examinations, periodic medical examinations and exit medical aid examinations. I noted that Marange Resources had 415 employees without initial and periodical certificates.

Risk / Implication

Non-compliance with Exchange Control Act and financial losses through NMB punitive charges on the unauthorized over draft facility.

Non-compliance with the Environmental Management Act [Chapter20:27] and financial losses due to penalties and fines.

Non-compliance with the Radiation Protection Act and possible wear and tear of assets not yet bought into use.

Penalties and fines resulting from non-compliance with the Pneumoconiosis Act [Chapter15:08]. Employees diagnosed with pneumoconiosis may not receive compensation from NSSA.

Recommendation

Management should ensure that it acquits CD1 forms of export receipts into the country within the stipulated ninety (90) day period.

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Management should perform an Environmental Impact Assessment study in accordance with the EMA act.

Management should adhere to the requirements of the Radiation Protection Act. (h) Management should also consider settling the outstanding obligation with Radiation Protection Authority of Zimbabwe which will enable them to use the Scan X-ray machine as it is a more reliable control measure as compared to the current manual search the company is relying on.

Management should ensure that employees working in areas prone to Pneumoconiosis go for health checks as required by the Pneumoconiosis Act.

Management response

CD1 acquittal process is the mandate of MMCZ. Marange Resources is engaging MMCZ and the Ministry of Mines and Mining Development to bring closure to the issue. The Fines mostly relate to transactions done in 2011 for which documents have been misplaced by both the producer (Marange) and the agent (MMCZ). The other cause for outstanding CD1s is the non-cancellation of open CD1positions by MMCZ for cancelled sale transactions.

EIA certification is in progress. However, it has been delayed by funding issues and management to prioritise funding for this processin 2014.

Management to propose a payment plan to Radiation Authority of Zimbabwe with a view of obtaining requisite licences.

Medical reviews and examinations will be prioritised to comply with the Pneumoconiosis Act.

1.7. Joint mining arrangements

Finding

During the period 14 July 2013 to 3 August 2013, Marange Resources entered in a joint mining arrangement with Mbada Diamonds (Private) Limited herein referred to as ‘Mbada’. There was no documented agreement that outlined the terms and conditions of the mining arrangement. The financial records of Marange showed that as at year end, Marange Resources owed Mbada $ 78 022.

On reviewing the transactions that occurred during this period, I noted that there were no records of production inputs brought in by Mbada and the hours worked and consumables utilised could not be ascertained. Log sheets were not signed by

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both parties as evidence of agreeing on the hours worked, machine hiring rates and the agreed basis for charging work done. No documentation was raised and acknowledged by both parties upon transferring of rough diamonds to Mbada.

The company maintained individual records of round diamonds and upon reconciliation of the records at year end, the schedule providedby Mbada differed from Marange’s records by 4 731 carats valued at US$ 191 655 in the negative. This amount was written off as an inventory adjustment in the financial statements.

Risk / Implication

Fraud and error and possibility of unrecorded liabilities.

There is also a risk of misappropriation of rough diamonds as there were no adequate controls in place during the period.

Recommendation

In future, management should ensure that contracts detailing the terms and conditions of service are drafted and agreed upon prior to engaging in such arrangements. Proper documentation of transaction should be raised and kept on file for future reference.

Management should consider communicating and reconciling records with Mbada Diamonds to ascertain whether there may be any unrecorded liabilities arising from the arrangement.

Management response

The arrangement with Mbada was beyond management control and as such there was no room for agreeing the terms of engagement and administrative arrangements there of prior to the temporary partnership. There was no document to authorize and guide the implementation of the collaboration. Reconciliations have been done for stores items and Mbada needs to adjust its books for VAT inappropriately charged on fuel. The reasons for diamonds stocks discrepancy was difficult to ascertain as Marange Resources could not access the sorting records for stocks shipped to Mbada Diamonds.

1.8. Statutory obligations

I noted that Marange Resources (Private) Limited had long outstanding statutory obligations to the relevant authorities such as MMCZ, ZIMRA, Mining Industry Pension Fund and NSSA.

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Statutory Deductions Amount dueUSD Royalties to ZIMRA 11 466 846 Depletion fees to ZMDC 2 504 615 Commission to MMCZ 758 270 PAYE to ZIMRA 167 892 NSSA 141 365 MIPF 1 162 674 Risk / Implication

Possible fines and penalties arising from failure to remit statutory deductions.

Employees may fail to receive compensation from WCIF due to non-remittances of contributions by the company.

Recommendation

Management should consider coming up with a payment plan to meet the company’s obligations.

Management response

This is dependent upon the improvement of the cash flow situation. Management will strive to continuously service these accounts be it partial or in full whichever will be affordable and realistic. Statutory payments on sales will be deducted at source with effect from 1 January 2014. This will make sure the liability will not keep on increasing.

1.9. Input VAT

Finding

I noted that a significant amount of Input Vat amounting to USD1647043was written off during the period under review as a result of using proforma invoices in updating the payables subsidiary ledger.

According to the VATAct (Chapter23:12) a valid tax invoice should have the following features:

The word ‘Tax Invoice’ in a prominent place. Name, address and VAT registration number of the supplier. Individual serialised number. Date of issue. Description of goods and /or services. Quantity or volume of the goods or services supplied. Price and VAT.

Upon inquiry of the write off, we noted that valid invoices were not being obtained within the stipulated 12 months for them to be valid for claiming input VAT.

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Risk/Implication

Financial losses.

Recommendation

Management should ensure that only valid tax invoices are used in updating the payables subsidiary ledger.

Management response

This issue has since been regularized through putting proactive controls at the invoice processing stage. Only invoices that comply with all the requirements for a proper tax invoice as defined in theVAT Act [Chapter23:12]are processed in the system. Suppliers have also been officially notified of the need to comply with tax requirements other wise the VAT component would not be paid. These measures have improved compliance levels for the company with the VAT Act.

1.10. Reallocated mining concessions

Finding

Marange Resources performed exploration and evaluation exercises on concessions J, K and I2. Discussions with management revealed that concessions J, K, and I2 were subsequently reallocated to Jinani (Private) Limited. However, there was no evidence that the Marange Resources recovered exploration and evaluation costs incurred on these mining concessions.

Risk/Implication

Failure to recover exploration and evaluation assets recognised in the financial statements.

Unrecognised impairment of exploration and evaluation assets.

Recommendation

Management should engage Jinani (Private) Limited, through ZMDC its parent company, to recover exploration and evaluation costs incurred in these concessions.

Management response

Management has already processed a claim to Jinan and has engaged ZMDC at board level for their help.

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1.11. Tagging of earth materials

Finding

I noted that there were no identification tags on some of the screened, unscreened and waste earth materials.

These tags are meant to clearly demarcate the different forms of earth materials for production and accounting purposes.

Risk/Implication

Inaccurate accounting of costs incurred at the various stages of production.

Recommendation

Management should ensure that all screened, unscreened and waste material is demarcated by use of tags.

Management response

Noted. This has been rectified with some security considerations in mind.

1.12. Liquidity and profitability challenges of the company

Finding

The company continued to face liquidity and profitability challenges. A review of the financial statements revealed that the company continued to face liquidity challenges with some of the liquidity ratios indicating a position worse than that reported in the prior year.

The following table summarises the profitability and liquidity ratios of the company:

Ratio 2013 2012 Change

Gross profit percentage -13% -7% -6%

Net profit percentage -63% -38% -25%

Current ratio 0.12 0.15 -3%

Acid test ratio 0.07 0.06 -1%

Net assets 0.42 0.68 -26%

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On reviewing the average actual costs per carat and average selling price per carat per year I noted that diamonds were being sold at prices below cost, resulting in a gross loss position. The table below shows the monthly analysis of average actual cost and selling prices of diamonds per carat:

Month in 2013 Cost per carat Selling price per Variance per carat USD carat USD USD January 150.89 49.30 -101.59 March 65.49 39.93 -25.56 April 34.48 425.76 391.27 May 48.74 60.46 11.72 June 78.33 105.04 26.70 July 89.69 88.38 -1.31 September 168.52 67.33 -101.19 October 115.55 67.61 -47.94 December 132.53 56.99 -75.54

Risk / Implication

The company may not be able to continue as a going concern in the near foreseeable future. There is also risk of failure to service short-term obligations as they fall due.

Recommendation

Management should consider employing working capital management strategies that involve managing inventories, accounts receivables, accounts payables and cash. Management should consider cost cuttings strategies improve the profitability of the company.

Management should implement production cost control measures given the fact that management has no direct control over diamond prices.

Management response

Management has put in place a turnaround strategy which focuses mostly on revenue enhancement and cost optimisation. Deep boiling of diamonds before sale and increasing production levels are some of the strategies being implemented.

The deep boiling of diamonds has so far resulted in 90% improvement in average selling prices from+/-$50 achieved during the last quarter of 2013 to $95 in 2014.

Cost optimisation strategies implemented from Jan 2014 to date have resulted in +$400,000.00 monthly cost savings (i.e. Renegotiation of security, meals and insurance contracts and procuring directly from manufacturers).

These initiatives have resulted in the fall. Of the break-even point from 125,000 carats in December 2013 to +/- 45,000 carats.

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Further cost optimization strategies to be implemented during the third quarter are expected to further reduce the production cost per carat from the current $ 72 to $50 by August 2014. Production ramp up strategies are expected to push production levels to +70,000 carats per month by Dec 2014.

The following are some of the turn around strategies that have been put in place to ramp up production and further contain costs: Relocation of area 300 plant to the concession; Installation of a static dry screen with a 400 tonnes per hour capacity (expected to increase screened tonnes from the current 31,600 to more than 120,000 tonnes per month;

Acquisition of Earth Moving Equipment in July 2014 (expected to increase tonnes mined from the current 65,330 to 245,000 tonnes per month); Infrastructure sharing with Jinan Mining, Kusena and the ZMDC group;

1.13. Review of standard costs

Finding

From my review of the costing model, I noted that the standard costs were not reviewed on a regular basis. Standard costs were only reviewed annually when the budget for the year was prepared.

Below is a table showing a comparison of the standard costs against the month to month actual production costs.

Month Actual cost per carat Standard cost per carat Difference

$ $ $ January 151 41 110 February 76 41 36 M arch 65 41 25 April 34 41 -6 M ay 49 41 8 June 78 41 38 July 90 41 49 August 68 41 27 September 169 41 128 October 116 41 75 November 55 41 14 December 133 41 92

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Risk / Implication

Understatement of inventory balances due to use of a lower standard cost than actual.

Recommendation

Standard costs should be reviewed regularly or at least every quarter to reflect a more realistic position that approximates actual costs.

Management response

Management will embrace the recommendation and consider reviewing the standard costs on a quarterly as is in line with the changing assumptions.

1.14. Litigations

Finding

Review of the legal file revealed that the company was being sued by several creditors for nonpayment of outstanding balances amounting to $6 150 515.

Risk / Implication

Financial losses due to litigation charges.

Bankers and suppliers may not be willing to engage in further business with the company due to non-adherence to agreed terms and conditions of payment.

Recommendation

In future, management should consider engaging the bankers sand/or suppliers in discussing a payment plan which they should adhere to in the event that they have failed to meet the initial arrangements. This will help avoid unnecessary litigation claims, which may result in increased financial losses and bad publicity for the company.

Management response

Management has put in place an engagement strategy which aims to assure creditors of the safety of their investments and management efforts to stabilize the company. Realistic payment plans have been agreed with major creditors and the process is continuing. Management is also s e e k i n g to reduce the number of outstanding creditors from the current 140 to a manageable level. 80% of the creditors account for 20% of the value. The company secured a funding package in May 2014, which was used to pay the outstanding creditors. This process eliminated 66 creditors from the Age Analysis and allowed partial payments for the rest of creditors.

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1.15. Mining rights

Finding

I noted that the special prospecting grants issued to Zimbabwe Mining Development Corporation (ZMDC) by the Ministry of Mines and Mineral Development to mine in the Chiadzwa area on September 10, 2009 expired on the of October 3, 2013. Enquiries with management of Marange Resources, accompany that is currently mining some parts of the Chiadzwa area by virtue of being a100% owned subsidiary of ZMDC, revealed that no documentation had been provided by the parent company with regards to the renewal of the special prospecting rights.

Risk / Implication

Going concern threat.

Recommendation

Management should follow-up the parent company as to the renewal of the special prospecting rights.

Management response

Company has engaged ZMDC and the Ministry of Mines and Mining Development for the renewal of the mineral rights.

1.16. Diamond ore grades

Finding

A year on year analysis of the diamond recovery per tonne since 2010 shows a declining trend as indicated in the table below:

2010 2011 2012 3 months Year Year Total ore mined (tonnes) 567 377 1 044 431 1 990 907 Total carats produced 526 808 954 468 1 261 275 Recovery per tonne 0.93 0.91 0.63

This indicates a decline in the diamond ore grade.

Risk/Implication

The Company may not be able to continue as a going concern in the near foreseeable future.

Recommendation

Management should perform a resource evaluation exercise in order to locate high grade reserves within the Company’s designated concessions.

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Consideration should be given to alternative methods of diamond mining such as conglomerate extractions to improve overall recovery per tonne.

Management response

Resource evaluation is a continuous process which needs both resources and time. This is on-going at the rate of availability of funding. Increased primary concentration has enabled the company to lower the threshold grade that can be viably processed. Conglomerate mining requires a more comprehensive mapping of the resource and design of the mining and extraction processes. This is being rolled out as a medium term project.

2. REVENUE COLLECTION AND DEBT RECOVERY

2.1. Machine downtime

Finding

The company purchased some Frontend loaders on auction for USD 487 232 during the year ended December 31, 2014. These assets suffered major breakdowns and the table below shows their utilisation percentages for the year.

Asset Total Total Total Avail Running Avail % Number Possible Engineering Operational Hours Hours Hours Delays (Hrs) Delays (Hrs) Actual

FL6 8808 4017 512 4791 4279 54 FL7 8808 1250 222 7558 7313 86 FL8 8808 1834 340 6974 6635 79 FL9 8808 2903 197 5973 6148 67 FL12 8808 7511 31 1272 1243 15 FL13 8808 3468 268 5248 4973 61 FL14 8064 2842 208 5222 5014 65 FL15 8064 3967 165 4097 3932 51 FL16 8064 2528 195 5536 5340 69

Total 77040 30320 2137 46670 44877 61 Risk / Implication

Revenue loss due to the company failing to meet production as a result of excessive breakdowns.

Recommendation

Management should consider acquiring equipment from suppliers who provide product support for which spare parts are available.

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Management response

The equipment was purchased from an auction under the impression that the company would be availed with service kits that came with the equipment. However, after payment of the purchase price ZIMRA advised that the service kits have not been cleared for auction and efforts to procure these from the owner, PharmaWorld proved fruitless. Management acknowledges that the availability of spare parts and after-sales support is key when making key capital acquisition decisions and this will play a key role on future procurement decisions.

3. EMPLOYMENT COSTS

3.1. Employee benefits

Finding

A review of Marange Resources files showed that there were some employee benefits which were not passing through the payroll. Such benefits and allowances included staff meals, cellphone allowance and fuel allowance whereby employees were claiming the maximum allowance irrespective of the actual mileage per month. The files also showed that Marange Resources paid DSTV and GYM subscriptions for some employees, utility bills, groceries, maid, gardener and security.

The company rented residential properties situated at number 12 Murambi drive and 5 Zimunya Avenue, Murambi in Mutare where it was paying rentals of USD 1200 per month and USD 1900 respectively. The residential property in Murambi was occupied by four individuals during the financial year ended December 31, 2013 from the following departments; procurement, human resources, geology and public relations. The property at number 5 Zimunya Avenue, Murambi was occupied by the Chief Operating Officer. The Income Tax Act [Chapter 23:06] provides that, where an employee occupies residential property at a cost to the employer, the benefit should be taxed in the hands of the employee unless the employee is required by his duties or conditions of services to live in a company house. However, I could not get access to the employee files and records to determine whether there was a specific requirement stated in the contracts which would warrant the occupation of these houses and therefore waive the possibility of payment of tax (PAYE).

Risk / Implication

Non-compliance with Section 8 (1) (f) of the Income Tax Act [Chapter23.06] which requires all benefits, allowances and advantages to be taxed. Financial losses due to penalties and interest imposed by ZIMRA for non- compliance with the legislation.

Recommendation

In terms of the Thirteenth Schedule paragraph (1) of the same Act, “remuneration “means any amount of income which is paid or payable to any person by way of any salary, leave pay, allowance, wage, overtime pay, bonus, gratuity, commission, fee,

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emolument, pension, superannuation allowance, retiring allowance, stipend or commutation of a pension or anannuity, whether in cash or otherwise and whether or not in respect of services rendered.” Management should therefore ensure that all benefits, allowances and advances awarded to employees are taxed accordingly.

With regards to the cellphone allowance, ZIMRA normally accepts ratio of 80:20 whereby 80% is the business usage and 20% being the private usage on which the employee will be taxed. The benefit with regards to the staff meals is the cost which the employer incurs in order to provide a meal to the employee.

Management should consider the tax implications of the housing benefit and remit PAYE. It should also consider regularising the housing benefits to avoid discrepancies amongst employees within the same grade.

Management response

All employment benefits that were previously processed outside payroll are, with effect from May 2014, being processed through payroll.

Management is also seeking guidance from ZIMRA on payments to third parties for services such as camp rentals for which it is difficult to determine whether employees are actually benefiting from such services.

The housing benefit was rectified with effect from May 2014.

3.2. Advances to executives and management

Finding

An inspection of the senior executives and management payroll revealed that the company advanced $94 306 to executives and management to pay for the PAYE obligation that had arisen due to the disposal of motor vehicles at prices below the market value. According to the Income Tax Act [Chapter23:06], when a vehicle is disposed at a value below the market value, the difference is considered as gross income and therefore taxable in the hands of the employee. The total tax obligation that arose from these transactions was $94 306 which is the amount that the company advanced to executives and management. These amounts were shown as a ‘negative recovery’ on the payroll and there were no supporting documents availed that showed that the advances had been appropriately authorized. Enquiries with some of the members of management concerned revealed that they had not applied or signed for any loan forms with regards to these advances and balance confirmations returned by the employees indicated that they did not owe the company money contrary to what was shown in the company’s financial records.

The advances to employees may be regarded as an interest free loan that is also taxable in accordance with the Income tax Act [Chapter23:06].No PAYE obligation was recognized to this effect.

I also noted that an allowance of USD800 per month was also granted to the above mentioned employees to partially set off the interest free loans of USD94306.This

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allowance is not being processed through the payroll and no supporting documents showing the approval of the allowance were availed for inspection.

Risk / Implication

Non compliance with the loan request procedures of the company.

Possible penalties and interests due to nonpayment of PAYE on interest free loans and motor vehicle allowances. Possible fraud.

Recommendation

Management should adhere to the documented policies of the company with regards to granting of loans to employees. Management should also compute and remit the PAYE obligation to ZIMRA.

Management response

Details of this transaction are kept by the Chief Finance Officer and the Human Resources Executive, both of whom are on special leave.

3.3. Motor vehicle allowances reimbursement policy

Finding

An inspection of the motor vehicle policy indicated that employees who w e r e using their personal vehicles for business use were to be reimbursed based on a fixed mileage and AArates. The total amount that had been reimbursed from August 2013 to December 2013 amounts to US$ 96 380 and this amount w a s being set off against the interest free loan.

Risk / Implication

Reimbursement of expenses based on fixed mileage may result in financial losses as there is a possibility of reimbursement on mileage that was not incurred.

Recommendation

Management should consider reimbursement of expenses based on the mileage actually travelled. A ceiling should also be placed as to the maximum mileage to be travelled. This would help to curb excessive payments on reimbursement of expenses on use of personal motor vehicles.

Management response

Management to propose to the Board for equity on both parties i.e. safeguarding the company from excessive reimbursements whilst ensuring management gets adequate compensation for use of personal vehicles based on actual mileage travelled.

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Management is also looking at financing options to replace the passenger motor vehicles fleet for managers as a way of eliminating the allowances for use of own vehicles for company business.

4. PROCUREMENT OF GOODS AND SERVICES

4.1. Hiring of equipment.

Finding

My review of the contract awarding process for the suppliers from which the company hires equipment from revealed that, although the suppliers were included in the approved suppliers lists, the selection process for the most viable option was not done prior to granting the contracts. The standard operating procedures stipulate that 3 quotations be sought before a decision is made on which company to acquire goods and services. The procurement procedures were not followed as no quotations were sought prior to awarding the contracts. Below is a table showing the various contractors engaged by the company and their charge out rates:

Contractor Equipment Hired Charge out rate per hour USD Shinecode Investments Excavator 140 Shinecode Investments Loader 125 Conics Investments Dumptruck 140 Fruitstone Grader 110 Multimine Compressor 50

An inspection of a contract between Marange Resources and Tarcon (Pvt) Ltd, a company that is currently letting out a dozer and excavator to Marange Resources revealed that the excavator is being charged out at USD 60/per hour, a charge which is 57% lower than that paid to Shine code Investments of $140 per hour.

Risk / Implication

Financial loss and possible theft through vendor payments and collusion by employees and suppliers. Recommendation

Management should consider sourcing for quotations prior to purchasing goods and services. Evidence of procurement procedures done should be kept on file for future reference.

Management response

Management notes the weakness and will strive to adhere to the Procurement Policy for all future contracts.

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4.2. Payments made in advance

Finding

The Company’s four Astra trucks were involved in an accident at the mine and the insurer paid USD328 226 as restitution.

In October 2012, the Company contracted and made a prepayment to Conics (Private) Limited to repair the trucks. However, at the time of concluding the year ended December 31, 2012 audit, the trucks were not yet repaired.

Risk/Implication

In the event of the supplier failing to provide the required services, it may be difficult to recover such prepayments.

Recommendation

Management should ensure that the repairs of accident damaged trucks are done since the insurance claim was settled by insurer and Conics was paid in advance.

Management response

The supplier was waiting for spares ordered from Italy. The payment was necessary in order to expedite the process. Spares are now at the boarder as per indications from Conics.

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MINERALS MARKETING CORPORATION OF ZIMBABWE AND ITS SUBSIDIARY

Background information

The Minerals Marketing Corporation of Zimbabwe (MMCZ) was established by statute in 1982 to act as sole marketing and selling agent for all minerals, except gold and silver and to provide for the control and regulation of stock piling of minerals. The Minerals Marketing Corporation of Zimbabwe (MMCZ) owns 100% of Mellofielde Chemical (Private) Limited which was incorporated on April 17, 2012. The main objects of the Company are to pursue mining and mining related investment opportunities and projects and to provide specialist management services to the Corporation.

I have audited the consolidated financial statements for Minerals Marketing Corporation of Zimbabwe for the year ended December 31, 2013.

Opinion on the Corporation’s financial statements

In my opinion, the Corporation’s financial statements present fairly, in all material respects, the financial position of Minerals Marketing Corporation of Zimbabwe as at December 31, 2013, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

Opinion on the consolidated financial statements

In my opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Minerals Marketing Corporation of Zimbabwe and its subsidiary Mellofieldde Chemicals (Private) Limited as at December 31, 2013, and the consolidated financial performance and the consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards.

However, the following are material issues noted during the audit.

1. GOVERNANCE ISSUES

1.1. Board of directors

Finding

The Corporation was operating without the Board of Directors since the preceding Board was dissolved on December 10, 2013. Corporate governance principles require a board to be in place to ensure that there is strategic guidance and effective oversight of the Corporation’s operations.

Risk/Implication

There may be lack of policy direction and oversight.

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Recommendation

The appointment of the Board of Directors should be done as soon as the current Board’s term expires so that policy and governance issues are addressed timeously.

Management response

Management still awaits the Minister to appoint the directors for the smooth running of the Corporation’s affairs.

1.2. Board fees and allowances

Finding

Board fees and allowances paid to Board members were grossed up from June to December 31, 2013 to cover the twenty percent (20%) withholding tax on directors’ fees and allowances. However, there was no evidence of specific approval by the responsible Ministry to gross up board fees and allowances. As a result, the Corporation incurred withholding tax on directors’ fees and allowances emanating from the grossed up earnings amounting to $54 522 during the year under review.

Furthermore, the minutes of the board meeting held on May 30, 2013 indicated that the board resolved to allocate its members monthly fuel allowance ranging between 340 litres to 400 litres, $200 internet subscription allowance and $400 to $500 cell phone allowances. These allowances were paid to the members as resolved backdated to January 2013. However, there is no evidence to confirm that the allowances were approved by the Ministry of Mines and Mining Development. The summary of payments made towards fuel, internet and cell phone allowances for the nine (9) Board members was as follows;

Allowance Amount (USD) Fuel $49 550 Internet $15 465 Cell phone $46 544 Total unapproved allowances $111 559

Risk/Implication

The expenditure was unauthorised.

Recommendation

The Corporation should ensure that benefits and allowances for board members are appropriately approved by the relevant authorities before implementation.

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Management response

The Board wrote to the Ministry of Mines and Mining Development seeking the approval of the allowance and other benefits grossing up, however the former Board Chairman left the Corporation before finalising the matter with the Minister. Furthermore, the Board was dissolved before the approval could be obtained. In future, approvals should be obtained before implementation of the fees and such benefits.

1.3. Corporate social responsibility and donations

Finding

The Corporation had no Corporate Social Responsibility policy to guide its corporate social responsibility activities. A draft policy availed for audit was not approved by the board.

During the year under review the Corporation made unbudgeted donations of varying amounts totalling to US$ 1 869 846 in 2013. There was no evidence of the criteria used to identify projects for donations and the amounts to be expended. The following table has a summary of such donations;

Donation towards Amount donated (USD)

National Art Gallery 250 000

Chamber of Mines 11 225

Accommodation 446 936

Air travel, fuel and road transport 192 749

Legal firm expenses 492 447

Gold Fund 153 651

T-shirts 80 180

Charity organizations 62 800

Ministry of Mines and Mining Development 20 000

Educational supplies 27 808

Health related 62 900

Other 69 150

Total in donations ledger $1 869 846

These payments were later approved by the Acting Board Chairman on March 03, 2014 pursuant to the proposal by the dissolved Finance and Investment Committee in November 2013 to ‘offset all direct payments made in 2013 on behalf of Treasury

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against the dividend due as at December 31, 2013’. I was not availed with the Treasury concurrence for the same.

Risk/Implication

The Corporation’s social responsibility and development initiatives may fail to create the required objectives if there is no policy and related budget in place.

The expenditure incurred may not have had business purpose for the Corporation.

Recommendation

Management should ensure that a corporate social responsibility/donation policy and related budgets are in place.

Dividends should be paid to Treasury.

Management response

The Corporation was instructed by the Ministry to pay for treasury commitments and the only class where these could be reported were donations since the services were for the nation. The Ministry later directed the full payments to be a payment towards dividends payable by the Corporation and this has since been corrected in the financial statements. The donations policy was drafted and adopted by the Board Committee. It now awaits the approval by the Board Chairman.

1.4. Outstanding legal cases

Finding

The Corporation was taking long to finalise the matter of two managers who were suspended on January 27, 2011. The Corporation’s internal processes require that such cases should be attended to within 30 days. However, audit noted that as at August 2014, these suspended managers together with those acting in their capacity were getting full benefits. For the period February 01, 2011 to December 31, 2013, a total of US$805 028 was incurred as salaries and allowances for the suspended managers while US$205 699 was paid in 2014 up to and including the month of August. The table below summarises these payments.

Period Total salaries and allowances (USD) February 2011 to December 2011 $210 427 January 2012 to December 2012 $211 451 January 2013 to December 2013 $383 150 January 2014 to August 2014 $205 699 Grant total $1 010 726

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Risk/ Implication

The Corporation may continue to incur avoidable expenditure through double paying employees for the same posts.

Recommendation

The Corporation should facilitate the finalisation of these suspensions expeditiously.

Management Response

Noted. Management repeatedly highlighted the issue to the Board articulating the huge payroll costs due to the acting capacities as well as the impact on productivity. The Acting Board Chairman is well appraised with the matter.

1.5. Roasting Plant inventory

Finding

The dispatch register at the Roasting plant in Kwekwe revealed that a number of prospective investors collected samples from the gold dump ranging from 5 kilograms to 500 kilograms for analysis. My enquiry revealed that potential investors extracted samples from the plant in a manner desirable to their suggested technological processes. However, I noted that the Corporation did not have a policy to guide the relationships with prospective investors.

Furthermore, there was no evidence of subsequent feedback on the results of the analysis carried out on the gold dump samples collected.

Risks/Implications

In the absence of a standing policy document governing gold dump samples collection, the prospective investors may prejudice the Corporation through repeat sample collection.

The opportunity to gather important information on the gold dump may be missed if no feedback is received.

Recommendation

The Corporation should ensure that a mechanism is in place to govern the relationship with prospective investors.

Management response

The Corporation is in the process of attracting investors with the appropriate technology for processing the dump and ores at the Roasting Plant to ascertain the appropriate technology, the potential investors had to extract samples from the plant in a manner desirable to their suggested technological processes.This resulted in numerous samples of varying quantities being extracted from the

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Roasting Plant. In future, in an effort to ensure that standard samples are collected, management intends to set pre-conditions that would discourage time wasters and the possibility of repeat sample collecting.

1.6. Risk management policy

Finding

The Corporation did not have risk management policy. The policy was necessary to provide a framework for the identification of risks, assessing the identified risk and setting out mitigating measures.

Risk/Implication

The Corporation may fail to identify existing and emerging risks.

Recommendation

A risk management policy should be put in place to cover the process of identifying, analysing and mitigating risks.

Management response

Agreed. A comprehensive review of policies and procedures was done with Limits of Authority, Risk Management Framework drafts recommended for approval to the Board Chairman.

1.7. Safety, Health and Environment (S.H.E) policy

Finding

I noted with concern that the Corporation had no Safety, Health and Environment (S.H.E) policy in place.

During my tour of the Roasting plant site in Kwekwe, I observed that chemicals were left everywhere in the laboratory, toxic arsenic substances were dumped by the gate side which was close to the area of human inhabitation. In addition, the whole plant area was not easily accessible due to the danger of harmful chemicals.

Risks / Implications

Toxic substances may not be properly discharged in an area of human inhabitation.

Non compliance will result in penalties and fines from responsible authorities.

Recommendations

The S.H.E policy should be put in place to ensure that such harmful substances are properly handled and discharged so that they do not cause danger to the environment and the community.

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Management response

The Corporation does not have an approved Safety, Health and Environment Policy in place. Once the Roasting Plant is operational, an appropriate policy would be made to enhance the recently proposed SHE policy. Management however, acknowledges the need to maintain the Roasting Plant in a safe and secure state to both the environment and the community as evidenced by the erection of a security fence around the plant.

2. PROCUREMENT OF GOODS AND SERVICES

2.1. Delivery of Diamonds

Finding

The Corporation purchased 440.01carats of Rough Diamonds from Gemgrade Mining (Pvt) Ltd for $13 809.97 on October 24, 2013. Despite a follow up instruction dated March 03, 2014, no delivery was made by the time of audit in July 2014. Furthermore, the bin cards showing diamond quantities and movement could not be provided by either the Non-metal Section or the Accounts Section of the Corporation.

Risk/Implication

The Corporation may fail to timeously recover funds paid or to get the delivery of the diamonds.

Recommendations

The Corporation should engage Gemgrade Mining (Pvt) Ltd to enable the recovery of funds or delivery of diamonds.

Management response

The Audit observation has been noted. Efforts to collect the diamonds were made and the Corporation’s security team failed to collect the parcel as other parties who sealed the parcel were not present. Arrangements to uplift the parcel by the close of business on August 4, 2014 have been made as all parties will be present.

2.2. Tiling contract

Finding

Purchase order for tiling services amounting to US$36 390 was issued on December 31, 2013 before the contract was signed with the contractor Exzillar (Private) Limited. The contract was then subsequently signed on January 22, 2014.

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Risk/Implication

In the absence of a formal contract (service level agreement), variables such as service quality, deliverables and responsibilities may not be known.

Recommendation

Management should ensure that contracts are formally documented and agreed upon before implementation.

Management response

Noted, management will ensure all processes are done diligently.

3. EMPLOYMENT ISSUE

3.1. Segregation of duties

Finding

The human resources and salaries officer was responsible for recruitment, administration of the junior payroll and posting of payroll journals. These are incompatible duties /functions that required sufficient segregation.

Risk/Implication

Lack of segregation of duties may create an opportunity for concealment of errors and material irregularities.

Recommendation

Segregation of duties should be considered in this area to prevent the above risk.

Management response

Noted. Management would recommend to the Board for further recruitment and or re-assign some of the functions to the Finance department.

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MELLOFIELDDE CHEMICALS (PRIVATE) LIMITED

Background information

Mellofieldde Chemical (Private) Limited is a company 100% owned by Minerals Marketing Corporation of Zimbabwe (MMCZ). The company was incorporated on April 17, 2012. The main objects of the Company are to pursue mining and mining related investment opportunities and projects and to provide specialist management services to the Corporation.

I have audited the financial statements for Mellofieldde Chemical (Private) Limited for the year ended December 31, 2013.

Opinion

In my opinion, the financial statements present fairly, in all material respects, the financial position of Mellofieldde Chemical (Private) Limited as at December 31, 2013, and its financial performance and its cash flows for the year then ended.

Report on legal and other regulatory requirements

Mellofieldde Chemical (Private) Limited was formed without notifying and obtaining approval from Treasury and appropriate Minister as required by Section 48 subsection 3(a) of the Public Finance Management Act [Chapter 22: 19].

In my opinion, except for the matter above, the financial statements have, in all material respects, been properly prepared in compliance with the disclosure requirements of the Companies Act [Chapter 24: 03] and all other relevant statutory instruments except for section 48 (3a) of the Public Finance Management Act [Chapter 22: 19] which states that a subsidiary should be formed after obtaining approval from Treasury and appropriate Minister.

However, the following are other material issues noted during the audit.

1. GOVERNANCE ISSUES

1.1. Strategic plan

Finding

There was no strategic plan for the company. A strategic plan was necessary to provide direction to enable the Company to achieve its mandate. In addition, I noted that US$700 000 was invested in the company and $ 1 700 000 worth of equity investments ceded by the Corporation without well documented and defined goals, objectives and strategies.

Risk/Implication

The Company’s activities may fail to align to the Corporation’s goals. Financial resources may not be allocated more effectively and efficiently.

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Recommendation

Management should formulate a strategic plan to establish a framework for decision making and direction.

Management response

Observation noted. Management wishes to advise that the Mellofielde Chemicals strategic plan will be drawn along the lines of the Corporation’s and Ministry of Mines and Mining Development's strategic plans in line with ZIMASSET. Once these are approved they will cascade down into Mellofieldde Chemical’s strategic plan.

1.2. Company address

Finding

I noted that contract documents for the same company, Mellofieldde Chemicals (Private) Limited had different addresses. Upon enquiry and verification of the company registration details, I was made to understand that the official company address was 90 Mutare Road, Msasa. However, the laboratory construction contract showed that Mellofielde’s address was 46 Mondyness, Mandara Harare, which was the same address for Milltrop Trading. Milltrop Trading were the contractors in the laboratory construction contract.

Risk/Implication

In case of dispute, the contract entered into may not be enforceable at law.

There is risk of procurement irregularities where documents do not bear accurate details.

Recommendation

Management should ensure that contracts bear the official company address.

Management response

Observation noted. Management will in future ensure all contracts and any related documentations bear the correct address for the company and any of its related entities to avoid the risk explained above. The correct registered address for the company is 90 Mutare Road Msasa, Harare, Zimbabwe.

1.3. Particulars of directors on CR 14 Form

Finding

The directors from the dissolved Board were still registered on CR14 Form as directors of the company, in July 2014, seven (7) months after the board dissolution. The Companies Act [Chapter 24:03] requires that when a director of a company

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ceases to be member of the Board, the said change should be registered immediately and the former member removed from the company’s CR14 as a director.

Risk/ Implication

Members from the dissolved Board may continue to engage in business transactions on behalf of the Company.

Recommendation

Current and existing Board members should be listed on the CR14 Form in compliance with legislation.

Management response

Agreed. Management is working on normalizing all corporate governance issues of the company and has since engaged the Ministry for guidance on the proper administration of the company.

2. PROCUREMENT OF GOODS AND SERVICES

2.1. Procurement procedures

Finding

The Company awarded a contract to Milltrop Trading and Luke Akimo worth US$ 506,000 in August 2012 for the construction of a laboratory without going to tender. According to Statutory Instrument 106 of 2012, the contract, since it exceeded the US$300 000 threshold, was supposed to have been awarded through a formal tender process administered by the State Procurement Board. The contract expired in August 2013 and was automatically renewed on the same terms and conditions.

At the time of audit in July 2014, US$303 600 had been paid as deposit to the contractor but there was no tangible evidence of work performed by the consultant in setting up the laboratory.

Risk/Implication

Penalties and fines for non-compliance with procurement regulations.

The Company may not get value for money from its investment due to absence of competitive bids and failure to carry out due diligence.

The US$ 303 600 paid to the consultant may not be recovered or service worth that amount may not be received.

Recommendations

Procurement regulations procedures should be adhered to in awarding of contracts.

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The Company should ascertain the value of work carried out by the contractor and ensure that contract terms are adhered to.

Management response

Observation noted. The SPB is seized with the matter and once the Corporation receives the correct guidance, your office will be advised.

Management engaged Ministry of Mines and Mining Development through its department, Institute of Mining Research, to ascertain the value of the progress done to date by the consultant. Once the report is ready, your office will be appraised.

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NATIONAL MUSEUMS AND MONUMENTS OF ZIMBABWE (NMMZ) 2011

Background information

The organisation is a statutory body established in Zimbabwe in terms of the National Museums and Monuments Act [Chapter 25:11] responsible for conducting scientific investigations and maintenance of museums and monuments within and outside Zimbabwe.

I have audited the financial statements for National Museums and Monuments of Zimbabwe for the year ended December 31, 2011.

Opinion

In my opinion, the financial statements present fairly, in all material respects, the financial position of National Museums and Monuments of Zimbabwe as at December 31, 2011, and its financial performance and its cash flows for the year then ended.

Emphasis of matter

Without qualifying my opinion, I draw attention to the fact that the organisation incurred a deficit of US$1 192 311 (2010: US$515 758) for the year endedDecember 31, 2011. These conditions, along with other matters, indicate the existence of a material uncertainty which may cast significant doubt on the organisation’s ability to continue as a going concern.

However, below are other material issues noted during the audit.

1. GOVERNANCE ISSUES

1.1. Skills of the board of trustees

Finding

Best practice recommends that there must be a suitable balance of skills on the board. While there is board diversity in terms of where members are drawn from, the board lacks specialists in the critical areas of Audit and Finance sub-committees for these functions.

Risk / Implication

Financial management, risk management and audit issues may not be adequately addressed by the board.

Recommendation

Consideration should be given to the appointment of experts in the areas of Audit and Finance on the board.

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Management response

The observation is noted. Management will therefore draw the attention of the Ministry of Home Affairs to this concern. It is expected that the Ministry will, as it constitutes a new board, make the effort to introduce a suitable balance of skills on the board.

1.2. Internal controls

Findings

Lack of passwords

The NMMZ Act places a responsibility on the organisation to “compile and keep a register of all national monuments and of any relics that it has acquired or that has been brought to its notice.” My enquiries on the database in place for these monuments and relics established that this information was maintained on spreadsheets (Microsoft Excel). There were no passwords over these spreadsheets hence were open to unauthorised access.

Bank Reconciliations

I established that bank reconciliations were not being prepared timely for the Head Office and Great Zimbabwe. Bank reconciliations were not being reviewed at the Military Museum in Gweru and there were no bank reconciliations for the Masvingo SBU.

Risks / Implications

Manipulation of collections records by unauthorised users. Collections may be misappropriated.

Fraud and errors may go undetected if bank reconciliations are not prepared monthly.

Recommendations

The board and management should consider developing or acquiring suitable software to manage the country’s relics and monuments more effectively. In the absence of the above, management may consider implementing stringent password controls to prevent access to the system by unauthorised users.

Bank reconciliations must be prepared on a monthly basis, in accordance with the organisation’s policies and procedures and should be reviewed in a timely manner.

Management response

The need for more stringent controls over the collections database is noted and agreed. The organisation will therefore establish an Information Technology Unit whose area of specialisation will be computerisation and management of collections databases.

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The organisation will also study best practice examples in the region and elsewhere so as to capacitate the unit as it comes up with systems that rectify current database management challenges,

Military Museum – the oversight to review the reconciliations is noted. Head Office and Great Zimbabwe – the oversight in the timely preparation is noted. SBU – No reconciliation prepared is noted and efforts will be put in place to ensure that this is done.

1.3. Management meetings.

Finding

I could not obtain evidence that management meetings were held during the year. Subsequent enquiries of management established that there were no management meetings held during the year.

Risk / Implication

The effectiveness of management control over the organisation may be compromised. Recommendation

Management should endeavour to meet regularly to discuss pertinent issues affecting the organisation.

Management response

The observation is noted. Management meetings are an integral part of the meetings the organisation holds each year for example, all trustees’ meetings are preceded by a management meeting, the deliberations of which are intended to feed into board meetings.

Each cycle of meetings held quarterly starts with a works council meeting. Due to operational constraints during the year under consideration, the organisation failed to convene all scheduled management meetings. Views on all critical issues were however solicited from members of the management team through exchange of letters and telephone discussions.

1.4. Policies and procedures manual.

Finding

Since the introduction of the multi-currency system, the procedures and policies manuals have not been updated to reflect the new currencies. References to procurement limits in the manual are still made in Zimbabwean dollars which have since been demonetised.

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Risk / Implication

Ambiguity in respect of procurement limits of authority. Possible override of controls due to the existence of this ambiguity. Weakening of the general control environment.

Recommendation

All policies and procedures manuals must be updated to suit the current business operating environment.

Management response

We acknowledge that some of the applied policies and manuals are outdated as most processes have been overtaken by events by way of lower and upper limits and/or through the currencies that is no longer in use.

The recommendation is noted and concerted efforts will be put in place to ensure that transactions are reflective of current activities and events as amended.

2. REVENUE COLLECTION AND DEBT RECOVERY

2.1. Funds transfers from Masvingo to the Head office.

Finding

Audit review of amounts paid to the head office by the Masvingo SBU established that some of the transfers had been made without memoranda signed by the Executive Director to evidence approval. Some transfers were significant and there were no reasons stated for the transfers made as shown below

Date Payment voucher details Amount US $ 12/12/2011 130 875 10/11/2011 101 8 938 10/11/2011 101 30 000 21/01/2011 11 10 500

Risk / Implication

Fraud and errors may go undetected.

Recommendation

There should be adequate supporting documentation for each disbursement made.

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Management response

The observation is noted and the oversight is regrettable. Future transactions between the SBU and Head Office or other regions will be substantiated by the relevant supporting documentation.

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NATIONAL OIL INFRASTRUCTURE COMPANY OF ZIMBABWE (NOIC)

Background information

The National Oil Infrastructure Company of Zimbabwe (NOIC) (Private) Limited is incorporated in Zimbabwe in terms of the Companies Act [Chapter 24.03] and it is wholly owned by the Government of Zimbabwe. The company is responsible for the transportation, storage and handling of petroleum products for oil companies. It operates fuel depots in Harare, Mutare and Beitbridge.

I have audited the financial statements for National Oil Infrastructure Company of Zimbabwe (Private) Limited (NOIC) for the year ended December 31, 2013.

Opinion

In my opinion, the financial statements present fairly, in all material respects, the financial position of National Oil Infrastructure Company of Zimbabwe (Private) Limited as at December 31, 2013, and its financial performance and its cash flows for the year then ended.

However, below are other material issues noted during the audit.

1. GOVERNANCE ISSUES

1.1. Directors’ allowances

Finding

There was no evidence of approval by the parent Ministry for monthly fuel allowances, airtime allowances and I-pad computers given to non-executive directors. These monthly benefits were taxed at the withholding tax rate of 20%. Only the approval by executive directors was availed. A summary of these payments made towards fuel, airtime and I-pad computers to six (6) non-executive directors in 2013 was as follows;

Allowance Amount (US$) Fuel 3 562 Airtime 700 Six (6) Ipad computers 7 224 Total unapproved allowances 11 486

Risk/ Implication

The company may be incurring unauthorised expenditure.

Penalties and fines by the tax authorities for non-compliance with the Income Tax Act [Chapter 23:06] as the monthly allowances may be liable for Pay As You Earn (PAYE) and not withholding tax at 20%.

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Recommendation

The Company should only pay allowances and benefits for its non-executive directors that are authorised by the parent Ministry.

Management response

There was a Board Resolution authorising Management to procure the items stated above for the non-executive directors. Fuel and air time allowances were disclosed to the shareholder in January 2014. These allowances enable the Board members to do their work more effectively. There was no directive from the shareholder to stop these allowances at the point of disclosure. I-pads are tools that enable Board members to do their work. We send documents on email and business of the company is transacted in an efficient way. We therefore do not regard them as benefits. Fuel and air time are currently being taxed using the PAYEE rates for the respective board members.

1.2. Dividend policy

Finding

The Company did not have a policy in place to guide it on dividend declaration and payment. As a result the entity declared a dividend of $9 430 350 but only remitted $8 022 598 without recognising the difference as a liability.

Risk/ Implication

Without a dividend policy to govern when and how much it declares as dividends, the Company’s dividend payments may become inconsistent and its financial planning and management may be adversely affected.

Recommendation

The entity should consider the formulation of a divided policy.

Management response

The Company is currently working on the formulation of a dividend policy. We expect to have it in place by the end of the first quarter of 2015.

2. REVENUE COLLECTION AND DEBT RECOVERY

2.1. Interest on overdue accounts

Finding

There was no specific guideline on how to charge interest on overdue accounts (debtors). The trade receivable procedure in the ‘Finance standard operating manual’ only stated that interest will be charged on overdue accounts without elaborating when it will be charged and the rate(s) to be applied.

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Risk/ Implication

There may be inconsistencies in the application of the procedure which may create an opportunity for abuse.

Recommendation

The entity should come up with guidelines on how interest will be charged on overdue accounts.

Management response

The Finance Standard operating Manual is currently being updated to reflect the interest to be charged on any outstanding amounts. This will be completed by the end of December 2014. With effect from April 2014 customers are pre-paying for services rendered by NOIC.

2.2. Lease agreement

Finding

NOIC had a tenant who was occupying 13 out of the 32 offices at NOIC’s Feruka premises. However, there was no lease agreement between NOIC and the tenant. NOIC was responsible for the care and maintenance of these offices and also paying for the utility bills.

Risk/ Implication

NOIC may not have legal recourse with regards to any breach in the absence of a binding lease agreement.

Recommendation

Management should ensure that a lease agreement between NOIC and the tenant is put in place which addresses the issue of rentals and utility bills.

Management response

The tenant in question is a Government Company mandated to set up a refinery at Feruka depot. NOIC has the lease agreement drafted and will engage the company to finalise the agreements by the end of the first quarter of 2015.

3. EMPLOYMENT ISSUES

3.1. Payroll costs

Finding

The fuel allowances and airtime benefits received by an executive director were not included in the payroll for tax purposes.

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Senior executive members of management received holiday air tickets worth $41,368 outside the payroll and did not pay the PAYE arising from the benefit.

Members of management purchased motor vehicles from the company at 25% of the vehicles market value and did not pay the PAYE arising from the benefit.

The payments to management on the said benefits is summarised in the table below;

Fuel allowances $ 6,996

Airtime allowances $ 2,573

Holiday allowances $41,368

Purchase of company vehicle benefit $31,125

Total $82,062

Risk/implication

The Company may be penalised by the tax authorities for under declaring PAYE.

Recommendation

All taxable income, benefits and allowances should be processed through the Company’s payroll system.

Management response

The Company policy provides for disposal of motor vehicles to management at 25% of the market value. This is in respect to the vehicles they were allocated to use. The other issues were corrected after the ZIMRA Audit.

3.2. Employment benefits

Finding

The Chief Executive Officer received cash in lieu of leave amounting to $ 8 766 in 2013 whereas his contract of employment stipulated that the company does not pay cash in lieu of leave except in situations of termination of employment. There was no evidence that the contract of employment was terminated in the year under review.

In a addition, two senior executives received holiday allowances in excess of what was approved by the Board.The payments to management on the said benefits is summarised in the table below;

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Benefit Approved Amount paid Variance allowance (US$) (US$) (US$)

Holiday allowances 19 900 21 800 1 900 (combined) Cash in lieu of leave - 8 767 8 767 Total 19 900 30 567 10 667

Risk/ Implication

Payment of un-authorised staff allowances.

Recommendation

Management should ensure that there is strict adherence to the company’s approved remuneration policy, holiday allowance policy and employment contracts when allowances are being paid out.

Management response

The above issues were corrected after the ZIMRA Audit. The variance on the holiday benefit was a result of an error in calculation. The matter on the cash in lieu for the Chief Executive Officer arises from an error on the contract that was signed. The clause prohibiting the encashment of leave days was meant to be removed as indicated on the current contract. The clause is ultra vires the Labour Act and will be rectified with the current Board. Encashment of leave days is a right of every employee. The Board Chairman who also signed the contract clearly suggested the clause be removed under clause 8 of the contract ‘Suggest to exclude the statement” however contract was signed before the clause could be cancelled or removed.

3. PROGRESS IN IMPLEMENTATION OF PRIOR YEAR RECOMMENDATIONS

I reviewed the progress made towards the implementation of prior year recommendations and found that the company made some progress and there was room for improvement in respect of the following recommendation:

3.1. Ownership of assets

Recommendation

The company should make concerted effort to regularise the ownership of assets.

Progress made

No progress.

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NATIONAL RAILWAYS OF ZIMBABWE (NRZ)

Background information

The National Railways of Zimbabwe (NRZ) is a designated corporate body operating in terms of the Railways Act [Chapter13:09]. NRZ is the prime mover of local, import/export and transit traffic carrying freight and passengers by rail.

I have audited the financial statements of National Railways of Zimbabwe for the year ended December 31, 2013. I issued a clean opinion with an emphasis of matter.

Opinion

In my opinion, the financial statements present fairly, in all material respects, the financial position of National Railways of Zimbabwe as at December 31, 2013, and its financial performance and cash flows for the year then ended.

Emphasis of matter

Without qualifying my opinion, I draw your attention to the fact that National Railways of Zimbabwe is in a net liability position of US$109 124 920. The organisation also incurred a net loss of US$49 103 769 (2012: US$52 884 423) contributing to a cumulative loss of US$203 937 077. This cumulative loss and net liability position indicate the existence of a material uncertainty that may cast significant doubt over the Organisation's ability to continue as a going concern.

However, the following are material issues noted during the audit.

1. GOVERNANCE ISSUES

1.1. Internal controls

Finding

Inventory valuation The inventory valuation report contained inventory items with negative balances amounting to US$3 121 323 as at December 31, 2013, (2012: US$8 927 374). From my analysis of the stores ledger, which feeds into the inventory valuation report, I noted that, posting of inventory receipts was not being performed before processing of there spective inventory issues and the stores ledger erroneously calculated inventory balances such as the multiple of a positive quantity and price being negative instead of being positive.

Inspection of the stores ledger also indicated that there were negative fuel quantities with a value of USD 1 554 781. I also noted that the adjustment for negative inventory balances is not reliably correct as correction of some inventory negative balances require an amount double the error.

Some changes to the cost of inventory items in the Unit Price Change (UPC) (Document Type 80) control document did not indicate evidence of authorisation and

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review by management. Examples of such UPC documents are provided in the table below. The amounts might appear small but the principle of not authorising and reviewing changes is of concern:

Capture date Pro.Number Effective date Batch total US$ 5 Feb 2013 4001 2 Jan 2013 3 7 May 2013 5001 23 April 2013 56 22 May 2013 1002 2 April 2013 1265 28 May 2013 1002 2 May 2013 1157 27 June 2013 7001 3 June 2013 51

Bank reconciliations Some reconciling items on bank reconciliation statements were not being followed up and remain outstanding for considerable time periods. Below are examples of reconciling items on two bank accounts that had been outstanding for at least five months as at November 30, 2013:

Transaction Amount Period Period outstanding reference US$ Letter DD 7497 Mar-13 toNov-13 9 months JE91-0550 1000 Jan-13 toJul-13 7months RCT116251DD 1 610 Apr-13 toAug-1 5 months JE91-0807 1 336 Jan-13 to Aug-13 8months

Risk / Implication

Misstatement of inventory and payables balances.

Theft and pilferage may go unnoticed.

Collusion involving buyers and suppliers may result in financial loss due to fraud from overstating inventory prices.

Over or under-valuation of inventories in the financial statements.

Misstatement of the cost of sales, gross and net profit, income tax expenses and obligations.

Fraud and errors may go undetected and misstatement of cash and bank transactions in the financial statements.

Recommendation

Deficiencies in the processing of inventory receipts and subsequent issues should be resolved timely. Monitoring controls should be put in place to identify such processing within the system. Inventory items with credit balances should be investigated and resolved as part of the internal control environment. Management should ensure that information is accurately processed.

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All amendments to the cost of inventory items in the price master file should be reviewed by management. Such review should be evidenced by management sign-offs in the related documents. In addition, the price master file update report should be reviewed and signed- off by management.

All reconciling items should be investigated and resolved on a monthly basis. Management should consider engaging banks to provide full details of transactions for more effective control. Management should also encourage greater internal communication between departments in order to record transactions accurately.

Management Response

Observation noted. However, inventory processing anomalies are investigated and cleared on a continuous basis as evidenced by the decline in the value of n e g a t i v e balances from $8 927 374 to $3 121 323. It will be appreciated that as some discrepancies are cleared, further more new anomalies arise particularly considering the volume of transactions involved. Also the anomalies form a relatively small proportion of NRZ inventory values.This not withstanding, adjustments are done at year end to correct the figures. The organisation has since implemented a new information system (SAP) and it is expected that similar issues will not recur in the future.

Observation noted and agreed. Procedures enumerated in the recommendations are already in place. However, the organisation has been experiencing some challenges in obtaining all the necessary information from the bank statements to facilitate receipting and updating of customers’ accounts. This is also made worse by the failure of the customers to submit proof of payments when they make payments. The banks are continuously being engaged to improve on the situation. Also the organisation was experiencing some challenges in obtaining bank statements from Standard Bank Botswana, however, the situation has since been rectified.

Recommendation noted, as a matter of policy, all unit price changes are authorised by management. The exceptions noted by the auditors are being investigated. The organisation will endeavor to ensure that the identified issues do not recur.

1.2. Internal audit findings

Finding

A review of internal audit reports revealed that some findings had not yet been responded to for considerable time periods. Discussions with the internal audit department revealed that responses to their findings were reasonably expected within a month of submitting the report.

The table below details internal audit findings to which responses had not yet been received as at November 30, 2013.

Report date Report address to Report subject

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13-Jul-13 Manager: Supplies and Stores Buying office - CMW

13-Apr-13 General Manager Portable train weighter/scale 13-Jun-13 Manager: Southern Area MSA cash imprest purchases 13-Aug-13 Works and buildings service manager Workyard -Rutenga 13-Aug-13 Principal Engineer (Electrical) Electrical workshop -Rutenga 13-Aug-13 Principal Engineer (Tracks) PWM - deport

Risk / Implication

Weak control environment characterized by management override of internal controls and ineffective management oversight function.

Fraud may go undetected.

Recommendation

Responses to internal audit findings should be received from the responsible managers /persons within reasonable time periods. The Audit and Risk Committee should ensure that all responses to internal audit findings are received within agreed time periods.

Management response

Agreed. Responses have been done. As a matter of procedure, the Internal Audit branch maintains a register of all reports issued and monitors responses to the reports. Follow ups are initiated where reponses are not received on time and the issue is reported to the respective Director if the followups do not yield desired results. A summary of the Internal Audit Reports and any material deviations are reported to the Board Audit Committee when in place.

1.3. Tax invoices

Finding

A review of the NRZ files showed that some input tax claims were based on invalid tax invoices.

The features of a valid tax invoice are as follows:

The words “Tax Invoice” or “Fiscal Tax Invoice” should be in a prominent place.

Name, address and VAT registration number of the supplier.

Name, address and VAT registration number of recipient (if the recipient is a registered operator).

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Serial number and the date on which the invoice was issued. Description of the goods or services supplied. Quantity or volume of the goods or services supplied.

Value of supply, price charged or consideration of the supply.

A fiscal tax invoice should also include any other words or phrase employed under the fiscal recording regulations denoting an invoice used to account for taxable supply.

The table shows some of the suppliers whose invoices were used for purposes of claiming input VAT.

DATE INVOICE NUMBER AMOUNT 9/10/2013 INVB10105 2870 5/12/2013 INB32467 833 31/12/2013 INB32491 14400 19/12/2013 INB32457 29708 24/6/2013 4899 5722 27/11/2013 958 22050 14/11/2013 1615 5100 25/11/2013 1613 16123 390 25/11/2013 136 4200 18/06/2013 IN101695 1909 3/12/2013 466 1035 19/12/2013 530 1600 24/11/2013 517002 2880 16/10/2013 161013-1 8109 16/04/2013 313 900

Risk / Implication

Rejection of claims where supporting documents are required.

Non-compliance with the VAT Act which requires that an input tax claim be made based on a valid tax invoice and specifies the features of a valid tax invoice.

Financial losses due to unnecessary penalties.

Recommendation

Input tax should be claimed only where the supplier has supplied a VAT compliant Tax invoice or Fiscal tax invoice with all features as stated above. It is therefore important to ensure that before any input tax claim is made, the supplier’s tax invoice or fiscal tax invoice is checked to see if it complies with all the requirements of a proper tax invoice. Thorough checking of the invoices guarantees that there will be no disallowance of input tax claims. Management is advised that proper tax invoices should be obtained from the supplier within 30 days of delivery of the goods or supply of the service.

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Management response

The lapse is acknowledged. The policy and standing instruction is that all payments to suppliers must be based on valid tax invoices. In the event that payments have been done as per pro-forma invoice, the supplier must produce a valid tax invoice. Constant reminders of this regulation will be done to all concerned parties to ensure compliance.

2. REVENUE COLLECTION AND DEBT RECOVERY

2.1. Approval of credit sales

Finding

In my review of the debtors’ book, I noted that there were debtors who did not have accounts with NRZ. To have an account the following requirements should be met:

A customer should complete a credit application form and produce the following: Proof of guarantor Financial statements Bank statements and other company documents

Authorisation should be done by the regional marketing manager. There was no evidence to support that the above requirements were met for debtors amounting to US$ 6 086 523. These debtors constitute 11% of the total debtors.

Most of these debtors had amounts which had been outstanding for more than 120 days. However, discussions with management revealed that some of these debtors had been outstanding for years. The table shows customers to whom services were being provided on credit without approval.

Customer Amount US$ Abareyon Ent FFZ 139,378 Hisman Ent Maca Save 86,058 Maca Save 81,611 Makomo Resources 276,662 Manica Freight C/O ZSS 219,480 Mr Sly Dave 214,267 Mugede/Nzuma 116,401 Murata/ Mugede 122,040 National Foods A/C Biscry Ent 174,325 Sadc Bulk 119,047 Stromspice 109,803 Zimglass 88,485

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Risk / Implication

Loss arising from inability to collect amounts outstanding.

Recommendation

The established credit control policy should be adhered to.

Management Response

The recommendation is noted and has been in operation for some time. Granting of credit facilities has continued to be strengthened in recent years. The debtors have queries on the balances.

2.2. Debtors book

Finding

The debtors’ book included companies which had either been closed or placed under judicial management. It also includes farms that have had numerous tenants or whose operations had ceased.

Positive confirmations of outstanding amounts could not be obtained from the debtors as they were not available on the purported addresses provided by management.

Statements were being sent fortnightly to all debtors even though these companies had since been closed or placed under judicial management.

The table shows examples of companies that had either been closed or placed under judicial management.

Account Freight amount Unmatched report Grand Total number total US$ US$ US$ 132B 235,245 12,015 247,260 110B 27,646 639 28,285 008W 32,526 - 32,526 134X 42,656 - 42,656 081M 232,110 - 232,110 122P 70,643 - 70,643 040Z 811,130 21,925 833,055

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Risk / Implication

Overstatement of trade receivables.

Fraud may go undetected.

Failure to lodge legal claims with companies under judicial management may result in the outstanding balances being forfeited.

Recommendation

Effective credit control policies should be established.

Management should consider writing off these debtors and management should constantly monitor the status of all debtors taking into consideration publicly available information.

Management Response

A system of monitoring companies which are distressed, are under Judicial Management or closed is in place and claims were submitted (in respect of client 132 Band 1 2 2 P ) . Although not in operation, offers have been intermittently received from customer 0 4 0 Z associated companies to structure payment. It is however, difficult to trace changes to farm ownership and where this comes to our knowledge, appropriate action is taken. Adequate allowances for doubtful debts are made.

2.3. Rental debtors

Finding

NRZ had a total rental debtors book of $9 991 874. Review of the rental debtors schedule revealed that debtors amounting to $9 138 503 which constituted 91% of debtors had been outstanding for more than 90 days. Debtors collection period has increased from 170 days to 290 days.

There were some rental debtors with no lease agreements while others had lease agreements that were still quoted in Zimbabwean dollars. There was no evidence of any addendums to formally agree new rentals in the USD functional currency. In addition some of the tenants had lease agreements that had expired and had not been renewed.

Risk / Implication

Debts may not be recoverable resulting in liquidity challenges.

Debts may be irrecoverable as there is no binding agreement between NRZ and the tenant. In the case of legal disputes, NRZ may face financial losses as the organisation may not be able to claim amounts in USD currency.

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Incorrect amounts may be collected from the debtors.

Recommendation

Management should ensure that a significant portion of the amounts are collected as this will improve the liquidity position of the company.

Management should ensure that all rental debtors have lease agreements. The lease agreements should be kept on file for ease of retrieval and reference.

Rental agreements should be put in place and rental fees agreed on in the current functional currency. Rental agreements should also be renewed upon expiry.

Management Response

Long outstanding debts are being pursued through litigation and asking for payment plans from defaulting tenants.

The lease for customer number 065P was cancelled and a payment plan for amount owing drawn up. Leases for customer numbers 112 N, 141U and 102B were concluded after December 31, 2013. The other lease agreements appear to have been misplaced and efforts to locate them are underway. Alternatively copy agreements will be drawn.

Although USD rentals were agreed with the tenants, the lease agreements were not updated. A review of all lease agreements will be undertaken and w he r e necessary, amendments effected.

2.4. Revenue exceptional reports

Finding

Not all discrepancies from revenue exception reports were being investigated and resolved with originating stations on a timely basis. Common discrepancies noted from the exception reports included duplicated and missing invoice numbers. In some instances, no responses had been obtained from the stations for such invoice queries for more than ten (10) months. Some examples of long outstanding sales invoice queries are provided in the table below:

Date Station Reference Months outstanding 31-Aug-13 G we ru LIR3/8/13 4 31-Aug-13 M u tare LIR3/8/13 4 31-Aug-13 B u lawayo LIR3/8/13 4 31-Aug-13 M oun t Hampden L I R3 / 8 / 1 3 4 31-Aug-13 Ch inhoyi LIR3/8/13 4 30-Sep-13 Gweru LIR3/9/13 3 30-Sep-13 Ch inhoyi LIR3/9/13 3 31-Jan-13 M utare L I R3 / 1 / 1 3 11

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Risk/Implication

Duplicated and omitted invoices could result in financial loss.

Misstatement of revenue and reported profit in the financial statements. Over or understatement of income tax liabilities to the Zimbabwe Revenue Authority (ZIMRA).

Recommendation

All discrepancies from revenue exception reports should be resolved on a timely basis.

Management Response

Observation noted and agreed. The organisation has been experiencing some logistical and communication challenges due to the archaic information system that has been in place hence the delays experienced in resolving some of the items in the exception reports. The organisation is currently in the process of implementing a new information system SAP and it is hoped that these challenges will be addressed.

3. EMPLOYMENT ISSUES

3.1. NSSA numbers

Finding

My review of the payroll master file revealed that there were different employees that had the same NSSA number.

The table below shows examples of such employees:

NSSA NUMBER NRZ STAFF ALLOCATED THIS NUMBER 1234483N 492702 492702 1276923 D 381745 421935 153 326357 352282 1537279E 343013 343301 3052899C 486404 490966

205

Risk / Implication

Fraud when remitting NSSA amounts may go undetected

Recommendation

Management should investigate and resolve the cause of these duplicated NSSA numbers.

Management Response

The existence of employees sharing the same NSSA numbers acknowledged and Management is in the process of regularizing this anomaly. In addition, a programme has been developed to reject the processing of any NSSA number which has already been allocated to a serving employee

3.2. Fringe benefits

Finding

A review of the payroll showed that some employee benefits were not being subjected to PAYE. These benefits include the housing benefit, utility bills, maid, gardener, and security paid on behalf of the General Manager.

Some employees stay in NRZ houses where the rentals they pay were below the market rates.

A benefit arises where the employee pays rent which is below the market rental for the same property. The benefit is the difference between the market rental and what the employee pays.

Any amount paid to an employee or on behalf of an employee by the employer as salary, benefit or advantage forms part of the employee’s remuneration and should therefore be taxed.

Section 8 (1) (f) of the Income Tax Act [Chapter23.06] subjects all allowances, benefits and advantages awarded to employees to tax.

Risk / Implication

Non-compliance with the Income Tax Act [Chapter23.06] Section 8 (1) (f) which requires that all allowances, benefits and advantages accruing to employees be taxed through the payroll.

Financial losses due to penalties and interest imposed by ZIMRA for failure to comply with the requirements of the above section.

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Recommendation

Management should ensure that all employee benefits, allowances and advantages are taxed in accordance with the legislation.

Where employees are staying in NRZ properties which are outside the municipal area, rentals should be based on 12% of one’s basic salary or NRZ can engage ZIMRA so that the two (2) parties can agree on favourable rentals to be paid.

Management Response

Observation noted and we agree. NRZ will comply.

4. PROGRESS IN IMPLEMENATION OF PRIOR YEAR ISSUES

I reviewed the progress made towards the implementation of prior recommendations and found that the company made some progress and there was room for improvement in respect of the following recommendations:

4.1. Statutory payments

Recommendation

In order to obtain a tax clearance certificate and renew the Agent’s Bond, management should ensure that all statutory tax obligations are remitted as and when they fall due.

Management should negotiate for favourable settlement terms and engage ZIMRA proactively to avoid penalties.

Management should ensure that all machines are fiscalised to ensure compliance with tax regulations.

Progress made

No progress

4.2. NSSA payment plan

Recommendation

NRZ should adhere to agreed payment plans.

Progress made

No progress

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4.3. Pension contributions

Recommendation

Management should work on improving cash flows in order to meet its obligations.

Progress made

No progress

4.4. Budgetary process

Recommendation

Management should ensure that budgets are as close to realisable amounts of the organisation capacity as possible. Management should also revise their budgets on a quarterly basis.

Progress made

No progress

4.5. Back up facility

Recommendation

Management should develop a Business Continuity Plan which spells out methods and procedures of backing up and restoring data.

Progress made

No progress

4.6. Overall performance

Recommendation

Management should explore ways of improving the organisation’s working capital position and reported earnings.

The Board should come up with a turnaround strategy.

Progress made

No progress

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4.7. Payments to suppliers

Recommendation

Prepayments should only be made when a supplier produces a bank guarantee to ensure that funds are secured.

Management should make follow up on the defaulting suppliers.

Legal action should be taken to recover the outstanding amounts.

Progress made

No progress

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NETONE (PRIVATE) LIMITED

Background information

Net*One is involved in the provision of connection to the network for airtime services. The company is a limited liability company incorporated and domiciled in Zimbabwe.

I have audited the Financial Statements of Net*One (Private) Limited for the year ended December 31, 2013. I issued an unqualified opinion with an emphasis of matter.

Opinion

In my opinion, the financial statements present fairly, in all material respects, the financial position of the Net*One (Private) Limitedas at December 31, 2013 and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

Emphasis of matter

Without qualifying my opinion, I draw attention to the fact that the company incurred a loss of USD 4 841 276 (2012: USD 5 942 859) for the year ended 31 December 2013 and, as at that date, the company’s current liabilities exceeded its current assets by USD 81 206 009 (2012: USD 74 420 668). This condition, along with other matters, indicates the existence of a material uncertainty which may cast significant doubt on the Company’s ability to continue as a going concern.

The Company also did not comply with the Postal and Telecommunications Regulatory Authority of Zimbabwe (POTRAZ) regulations with respect to the remittance of annual license and spectrum fees. The Board does not believe that the issue will have a significant impact on the ability of the business to continue as a going concern as the company has recourse to shareholder support and has a common shareholder with the regulator.

The company has written off a long outstanding loan to Standard Chartered Bank (United Kingdom), amounting to USD 5 563 246 as disclosed in Note 21 to the financial statements. The loan has been disclosed as an off-balance sheet commitment.

However, the following are other material issues noted during the audit.

1.1. Board performance evaluations

Findings

An Interim Board to oversee the matters of the company in 2013 was appointed after the company had been operating without a substantive board for the 2012 financial period. The Interim Board met only twice during the year.

There was no evidence that the performance of the board had been evaluated against set performance indicators and targets as indicated in the company’s business plan and strategy document.

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In terms of the Corporate Governance Framework for State Enterprises and Parastals , the board shall evaluate itself against agreed performance indicators and targets on an annual basis with the guidelines developed by the responsible Minister after consultation with the Minister of State Enterprises and Parastals.

The Board shall sign a performance agreement with the responsible Minister for the period of appointment and be evaluated based on the agreed performance management system.

Risk/Implication

The company’s ability to meet strategic objectives may not be properly monitored if those charged with governance are not evaluated.

Recommendation

The board should ensure it drafts a performance evaluation framework in order to measure its performance against the set strategic objectives of the company.

Management Responses

The company had an interim board during the period under review. The board met in January and February 2013 and the rest of the year the company had no board. A new Board was appointed with effect from 1 August 2014, and a strategic review meeting is scheduled for mid September 2014.

1.2. Directors’ interests

Findings

The Company was not maintaining a register of directors interests as required by the Companies Act [Chapter 24:03]. According to the Companies Act [Chapter 24:03] Section 186 “…it shall be the duty of a director of a company who is in any way whether directly or indirectly, has an interest in a contract or proposed contract with the company to declare the nature and full extent of his interest at a meeting of the directors of the company.”

The Corporate Governance Framework for State Enterprises and Parastatals also recommends that directors are bound to disclose in writing to the Board, the responsible Minister and the Minister of State Enterprises and Parastatals, information of material effect to the State Enterprise or Parastatal’s operations, financial status or image.

I was not provided with evidence to show that directors were declaring interests in contracts.

Risk/Implication

Directors may vote and decide on or influence contracts in which they have interests. Non compliance with the requirements of the Companies Act [Chapter 24:03]

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Recommendation

In terms of the Companies Act [Chapter 24:03], the company should keep a register of interests where all interests in contracts are recorded. The register should be availed to all directors so that they can declare their interests.

Management response

The past board had completed declaration of interest forms where interests were recorded. NetOne has not had a substantive board since 1st February 2012 and has been run by interim boards comprising Ministry officials.

1.3. Tax returns

Finding

A review of the client’s tax file revealed that the company has not been submitting VAT and withholding returns on or before the due date. The tables below show the returns submitted after the due date.

Number of Month Due Date Date Return days Amount Client delayed submitted return due exposure

USD USD

February 25/03/2013 22/05/2013 58 388 024 1 740 March 25/04/2013 06/06/2013 42 626 448 1 260 April 25/05/2013 19/06/2013 25 757 478 750 May 25/06/2013 03/07/2013 8 471 278 240 July 25/08/2013 27/08/2013 2 763 320 60 August 25/09/2013 26/09/2013 1 460 111 30 September 25/10/2013 29/10/2013 4 612 193 120 November 25/12/2013 03/01/2014 9 539 639 270 December 25/01/2014 07/03/2014 41 (192 483) 1 230 5 700

Date Number of Month Due Date return days Amount Client submitted delayed return due exposure USD USD January 10/02/2013 22/05/2013 101 14 240 3 030 February 10/03/2013 22/05/2013 73 34 227 2 190 March 10/04/2013 22/05/2013 42 14 458 1 260 April 10/05/2013 03/07/2013 54 4 662 1 620

212

Date Number of Month Due Date return days Amount Client submitted delayed return due exposure May 10/06/2013 03/07/2013 23 13 655 690 July 10/08/2013 23/08/2013 13 6 280 390 August 10/09/2013 24/09/2013 14 9 191 420 September 10/10/2013 16/10/2013 6 3 821 180 September 10/10/2013 14/10/2013 4 15 021 120

9 900

In terms of the Statutory Instrument 97 of 2013 paragraph (3) (a), late submission of returns is liable to a penalty of not more than US$ 30 per day a return is still outstanding. As this statutory requirement became effective on the 29th June 2013, the client’s total exposure is US$ 2 820. A written warning is sent to clients that submit their returns late up to a maximum of 10 days. The warning is issued only once and thereafter penalties are charged at US$ 30 per day.

From the 11th day penalties are calculated based on the penalty loading model as stated in Statutory Instrument 97 of 2013. Though the returns are late, there is no exposure due to the fact that the legislation was passed on the 29th June 2013. The client’s tax exposure is calculated starting from the 29th June 2013 till the date the return was paid.

Risk/Implication

Financial losses due to penalties and interest being imposed.

Recommendation

Management should ensure that returns are completed and submitted on or before the due date. Written communication should be submitted to ZIMRA if the client has challenges submitting returns on time.

Management Responses

Findings noted. All returns will be submitted on due dates in future. However, any submissions within 10 days after the due date do not attract penalties.

1.4. Disaster recovery site

Finding

The company is currently not operating an offsite IT disaster recovery site, which should address part of the contingency plans of the technological aspect of the Business Continuity Plan (BCP) in the event of a catastrophe.

213

Risk/Implication

The unavailability of a Disaster Recovery site can expose the company to operational and data losses in the event of disaster at the primary site. The company also faces slow resumption of operations and delays to normal operation in the event of a disaster.

Recommendation

Management should ensure that an offsite IT Disaster Recovery Site is identified and developed to enhance responsiveness to any unexpected or unforeseen interruptions of business operations.

A warm to hot site or reciprocal agreements could be considered as disaster recovery site options. The IT Disaster Recovery plan should be tested regularly as an integral part of the Business Continuity Planning process. Copies of systems documentation need also to be kept at the Disaster Recovery Site. The IT Disaster Recovery Plan should be kept up to date by incorporating changes in IT systems and infrastructure.

Management responses

Noted. Plans are already underway to have an offsite disaster recovery site. This plan has been difficult to implement due to cashflow challenges as substantial capital is required to fund the project. Discussions have already been entered into with equipment and software suppliers to enable the project to be implemented.

1.5. Payment of statutory obligations

Finding

A review of the tax file revealed that Netone Cellular has not been settling PAYE, VAT and Withholding tax payments on or before the due date. Included in the VAT and PAYE due amounts, are outstanding balances for the period ended 31 December 2012 for VAT and PAYE amounting to USD 4 089 671 and USD 446 710 respectively.

Risk/Implication

Financial losses due to penalties and interest charged.

Recommendation

Management should ensure that they settle their statutory obligations on or before the due date. The client should engage ZIMRA if it has challenges in making payments on time.

Management response

Net One has remitted significant amounts towards VAT and PAYE in 2013. The main challenges are however attributed to previous years when the bulk of Net One customers were on post-paid and failed to settle their invoices.

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2. REVENUE COLLECTION

2.1. Customer retention

Finding

The company had the following promotions running during the period:  Dash for cash  Airtime Spin and Win  Dollar-per-day

Appropriate appraisals and post implementation analysis were done for all the promotions. Largely, the objective of the promotions was to retain customers and drive revenue growth. I however noted that these promotional activities do not address a long term competitive strategy to ensure growth in the market share.

This is due to the fact that the objective of these promotions is to retain existing customers and attract new customers in the short term but do not focus on improving the customer experience for the services offered in the long term.

In terms of the Integrated Market Perception and Customer Satisfaction Study, the levels of preference for the network continue to decline among the existing customers due to network related problems.

This has led to Net*One being the least preferred network albeit the majority of the customers preferring the network for its bonuses and promotions.

Risk/Implication

Loss of customers resulting in loss of revenue.

Recommendation

Management should adopt an improved consumer experience long term strategy through their promotions by focusing on:

 Offering customers more value for their dollar.  Developing lasting relationships with customers through customer loyalty points.  Investing in customer care.  Defining a competitive advantage that addresses long term growth of the entity.

Management response

Management views promotions as long term strategy for customer retention and customer loyalty particularly in light of competitor actions and a reduced service demand.The new billing system has capacity to profile customers. Netone shall focus on customer changing preferences and tastes and customize products and services to meet these needs.

215

2.2. Revenue streams

Finding

The number of mobile phone users has increased significantly as evidenced by a mobile penetration rate of 103% as at year end compared to 97% in 2012. The increase has been driven by promotions offered by mobile operators thereby enticing customers to use multiple Sim cards to ensure they obtain bargains on promotions offered by the various networks.

An increase in the range of smartphones with mobile data capabilities has significantly increased the demand for mobile data services. The majority of the company’s revenue is generated from traditional services such as voice calls and texts as shown in the table below:

Description Amount % USD Recharge revenue 66 307 417 63% Contract customers 14 034 544 13% Interconnection fees 13 974 364 13% Data 4 410 533 4% Other 2 261 847 2% Roaming revenue 4 534 595 4% One wallet 6 119 0.01%

However consumer behaviour has since changed from traditional voice calls to alternative modes of communication such as cross platform mobile message applications and VOIP. With mobile penetration of 103%, diversification of revenue streams continues to define the telecoms industry as there is limited scope for growth in the traditional services of voice calls and texts.

The emergence of mobile money transfer services and revenue from services has proven to be a significant area of focus in the industry. However, as shown in the table these other revenue streams have shown low revenue in comparison to competitors.

Risk/Implication

The going concern of the company could be affected if the company does not consider diversifying other revenue streams.

Recommendation

Management should consider introducing promotions that increase data usage in line with consumer behaviour trends. Management should consider developing a strategy for data or diversified service offerings to offset future potential losses in revenue generated from voice calls.

Management should consider capital investments to improve consumer data usage so that the company can catch up with the competition and technological advancements. Management should consider implementing a wider dealership network for the One Wallet facility to ensure access to potential customers.

216

Management response

Management signed a contract with China Eximbank for the loan funding to finance equipment from Huawei Technologies on the provision of mobile broadband. The MBB project will increase internet access and connectivity. NetOne is likely to have more value added services and products as a result of the MBB project.

Management has been on a recruitment drive to increase the number of dealers and the wider distribution of One Wallet dealership since its re-launch in November 2013. This has also seen improved activity in the volume and value of transactions.

2.3. Bank reconciliations

Finding

There are significant reconciling items on the company’s bank accounts broken down as follows:

Description Amount US$ Unpresented cheques 605 792 Uncleared deposits 801 098

These have been recorded as reconciling items because the accounting staff could not identify customers who deposited funds into the company’s bank account.

I further noted that some of these reconciling items have been unresolved as they date as far back as September 2011.

Funds deposited have already been utilised to finance the operations of the company though the source could not be established.

Failure to capture these deposits has also resulted in some debtors being overstated and cash accounts being understated.

Risk/Implication

Overstatement of accounts receivables.

Fraud and error could go undetected.

Recommendations

Management should consider prompting customers to give details such as their name or mobile phone number as a reference when making payments.Management should consider encouraging customers to utilise their One Wallet facility to make payments for their respective accounts. Management should ensure that all reconciling items are resolved by requesting detailed schedules of deposits made into the company’s bank accounts in order to trace deposits to customers.

217

Management Responses

Most of the unreconciled receipts/deposits pertain to clients who will have made direct deposits into the bank accounts without giving the full details of their cellphone or account numbers. Assistance has been sought from the banks leading to some of the deposits being cleared. In some instances even the banks have failed to give details as what they will have captured is all they will have received from the other bank. Management has put in place measures to clear these reconciling items on daily basis and customers will be encouraged to fill in all details of their accounts at time of transfers.

2.4. Government departments amounts

Finding

The company currently owes the Government of Zimbabwe and its related departments US$ 29 662 935 which represents 56% of the total payables as at year end.

The table below indicates the amounts owing from the government and its related departments:

Government Department Amount US$ Telone Circuits 1 044 589 Ministry of Finance – Telecel 1 552 375 Telone Circuits 12 658 260 Potraz 13 814 820 Ministry of Finance - Econet 592 891 Total 29 662 935

These significant amounts are affecting the company’s working capital position thereby raising concerns on the company’s ability to continue as a going concern.

I also noted a total amount of US$ 5 114 874 is owed by the government and its related departments which represents 30% of the outstanding debtors at year end.

Government Department Amount US$ ZNA (Signals) 1 726 045 Ministry of Defence 1 365 616 Office of the President 814 036 Airforce of Zimbabwe 616 286 Ministry of Justice 592 891 Total 5 114 874

Risk/Implication

Going concern of the company might be affected.

218

Recommendation

Management should consider negotiating a set off of its liabilities with the Government of Zimbabwe to ensure the company’s working capital position is rectified. This would also enable the company to restructure their balance sheet and ensure the company can source financing through improved key financial ratios improved finance risk profile.

Management response

Negotiations are being pursued with Government to set off government liabilities against NetOne obligations to Government. This will continue going forward and it was done several times before when set off was done on statutory obligations or lump sum payments were received by Net One. TelOne account is supposed to be set off against the debtors account and the overall balance determines the final balance.

2.5. Interconnection fees

Finding

The company has agreements with other players in the industry for interconnection fees on the calls made to other networks. There are also roaming agreements with other mobile operators in the other countries to allow Netone subscribers to roam on other foreign networks. In the year under review, the protracted dispute with Econet concerning interconnection liabilities with the company was eventually settled through negotiations with the Government of Zimbabwe.

I however noted that no valid interconnection agreements exist between the company and Econet and Telecel. I also noted that interconnection fees were not being paid on time and the interconnection liabilities amount was US$ 7 773 072 as at 31 December 2013 as shown below:

Mobile operator Amount US$ Local Creditors Econet 940 429 Telecel 757 818 Foreign Creditors Telco 725 006 Bics& MTN 4 504 573 Roaming 845 877

7 773 703

Risk/Implication

Financial loss in the event of litigation without a valid agreement.

219

Recommendation

Legally binding interconnection agreements should be drafted between Netone and all the other service providers whose contracts have either expired or do not exist in order to avoid legal disputes. Management should ensure that interconnection liabilities are settled timeously.

Management response

Legally binding interconnection agreements do exist between the interconnection parties. The 2004 agreements as directed by POTRAZ last year are the subsisting agreements until new agreements have been signed. By virtue of their nature, interconnection agreements tend to be protracted as they also need to be approved by POTRAZ. Most of the partners now have new or revised and signed agreements except Econet and Telecel as there are still areas of dispute in the negotiations.

Settlement of the liabilities is being done in line with cashflow as liquidity challenges dictate rationing of resources between competing needs.

3. PROCUREMENT OF GOODS AND SERVICES

3.1. Residential properties

Findings

The company acquired a property in Borrowdale worth US$ 800 000 during the year. Stamp duty on transfer amounting to US$ 57 865 was paid to Wintertons Legal practitioners resulting in a total cost of US$ 857 865.

There were no records of internal authorisation by management or the parent ministry. The purchase price was paid in 3 instalments. The purchase of this property was approved by the Finance Director and the Managing director for the purposes of residential accommodation. A deed of transfer was recorded in the company’s name.

Risk/Implication

Fraud may go undetected.

Recommendation

Management should ensure authorisation limits are adhered to. Internal authorisation records should be kept and filed.

Management response

At the time of purchase of this house, there was neither a substantive Board nor Interim Board. Executive Management Committee passed the resolution to purchase the house to replace the one used by the Managing Director as it has proved costly to maintain hence it procurement. Under normal circumstances, this should have been authorised by the Board of Directors.

220

In their absence, EMC being the management committee available did resolve to purchase the property. At the time of passing the resolution, the Managing Director excused himself. This property is also going to house a base station hence it was not bought solely for MD’s residence.

3.2. Prepayments

Finding

Whilst performing a review of the prepayments balance, I noted that a total of US$ 172 425 worth of prepaid goods were not delivered and services had not been rendered to the company at year end. The following table shows examples of such amounts:

Date Payee Amount US$ 06-08-09 Saab 46 826 30-09-09 Car guard 696 31-01-10 Roamware 50 000 31-01-10 LM Cellphones 1 957 31-01-11 Tramgraphics 2 430 30-06-11 Makoni RDC 1 200 30-06-11 Claude Neon 1 250 30-06-11 MM Cellink 235 31-07-11 Zone Free 440 31-07-11 Plumtree 1 000 30-08-11 Chimanimani RDC 783 30-08-11 Tendo 52 174 31-10-11 Cordiale 1 696 31-10-11 Claude Neon 11 738

172 425

Risk/Implication

Fraud could go undetected as payments might be diverted for personal use. Mismanagement of cash resources.

Recommendation

Management should ensure that goods paid for in advance are received timely. The Stores controller should follow up on long outstanding goods acquired but have not yet been delivered.

Management Responses

The payees constitute the bulk of our credit suppliers and we have relocated the prepayments to their individual payable accounts to reduce the level of indebtedness on the part of NetOne. Makoni RDC, Plumtree and Chimanimani RDC are local

221

authorities where our base stations reside. Rentals are made in advance and the prepayments are apportioned and expensed as and when they become due and payable. Roamware - The Roamware project failed to take off and another project has been commissioned in its place. LM Cellphones and MM link - The prepayments have been relocated to the relevant – Accounts payable and measures have been taken to recover the balances through our Lawyers.

Management ensured that the purchase order processed and Accounts payable modules be installed and function as intended to assist in identifying unfulfilled orders. The modules became fully functional in 2013.

4. EMPLOYMENT COSTS

4.1. Performance measurement and evaluations

Finding

There was no evidence that individual performance appraisals were performed. In terms of human resources policy handbook section 16.2.1 ‘Netone operates a yearly performance related bonus scheme. Objectives are set and agreed at the start of the year. Only those employees, who would have exceeded their objectives, will be paid a performance related bonus at the end of the year after the profitability of the company has been established. In January 2013, the board recommended that management should consider using the Results Based Management (RBM) system as a tool for strategic planning, budgeting and measuring performance.

I noted that this tool does not measure performance of individual employees. The company’s business plan and strategy for 2013 recommended that a Balanced Score Card system be implemented to ensure quarterly assessment of the hierarchy from the managing director to heads of department. This assessment monitors and reviews progress on achieving business plan targets and making the appropriate management decisions.

Furthermore I noted that the company awarded a bonus to all its employees based on the following key performance indicators as approved by the relevant Ministry.

Target revenue: US$ 100 000 000. Network development: 100 Base stations to improve network quality, increase coverage and enhance customer satisfaction. Profitability: US$ 838 779

These performance indicators reflect on the overall performance of the entity and do not address key individual performance and needs for staff members. The performance of the board for the 2013 financial year was not evaluated.

Risk/Implication

Inefficiencies within the system cannot be identified and improved. Staff training needs are not identified and resolved.

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Recommendation

Management should consider carrying out individual performance appraisals on a quarterly basis to assess progress on achieving company goals and objectives. Management should create a high performance culture amongst employees to encourage accountability from all employees and stimulate overall corporate performance inspired by individual performance.

Management response

Management is in the process of implementing a results based management system where outcomes would be measured against agreed targets for all employee levels. This is also in line with Government directive that all state enterprises are required to use results based management.

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PETROTRADE (PRIVATE) LIMITED: 2011-2013

Background information

Petrotrade (Private) Limited is a company incorporated in Zimbabwe and engages in the importation, distribution and retail of petroleum products.

I have audited the financial statements for Petrotrade (Private) Limited for the years ended December 31, 2011- 2013.

Basis of the qualified opinion on the financial statements for the year ended December 31, 2011

I was unable to satisfy myself as to the accuracy, completeness and valuation of trade debtors from National Oil Company of Zimbabwe limited amounting to $ 3 323 600. These debtors are included amongst other accounts receivables in the statement of financial position.

Qualified Opinion

In my opinion, except for the effects of the matter described in the basis for qualified opinion, the financial statements are properly drawn up in conformity with International Financial Reporting Standards and, in all material respects give a true and fair view of the financial position of the Company as at December 31, 2011, and of the results of its operations and cash flows for the ten months then ended.

Opinion on the financial statements for the year ended December 31, 2012

In my opinion, the financial statements are properly drawn up in conformity with International Financial Reporting Standards and, in all material respects, give a true and fair view of the financial position of the Company as at December 31, 2012, and of the results of its operations and its cash flows for the year then ended.

Opinion on the financial statements for the year ended December 31, 2013

In my opinion, the financial statements are properly drawn up in conformity with International Financial Reporting Standards and, in all material respects, give a true and fair view of the financial position of the Company as at December 31, 2013, and of the results of its operations and its cash flows for the year then ended.

However, below are material issues noted during the audit.

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1. GOVERNANCE ISSUES

1.1. Chief Executive Officer

Finding

The Company was operating without a substantive Chief Executive Officer (“CEO”) since February 2013. In addition, the Company did not have a Board of Directors effective from February 2014 up to mid-June 2014.

Risk/Implication

Weak control environment as there was no oversight over management’s decisions; and

Inadequate devotion of effort to the Company’s strategic focus as the Acting CEO was also involved in the execution of the duties and responsibilities of his other office/post.

Recommendation

A Board of Directors should be always be in place at any point in time; and

A substantive CEO should be appointed sooner rather than later.

Management response

Noted, the Board was now in place and a substantive CEO will be appointed by the Board.

1.2. Communication

Finding

The Administration department received correspondence from the Municipality of Gwanda regarding the repossession of a certain piece of land previously allocated to the Company in Gwanda. However, this was not timeously communicated to the Finance Department for purposes of updating financial records. The land was only de- recognised at the instigation of the auditors after year end.

Risk/Implication

Management may fail to make appropriate decision if vital information was not availed to them timeously.

Recommendation

Management should ensure that clear communication channels within and amongst all departments are set up to facilitate the smooth flow of information.

Management response

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Noted, management will improve communication channels.

1.3. Internal control

Finding

There was no evidence to indicate that cash on hand was being counted periodically. Driveway sheets for Matshobane Service Station were not sequentially prenumbered. Some driveway sheets had no signatures of the site supervisors as evidence of review. The following serve as examples:

Site Date Driveway number

Chikonohono 04/09/11 1268 Chikonohono 14/08/11 1248 Gweru S/S 05/10/11 197

Risk / Implication

Fraudulent activities may go undetected and it affects the accuracy and completeness of information on sales, inventories and cash received.

Recommendation

Management should ensure that cash on hand is counted and recorded on cash count forms which should be signed by the official who keeps the cash and a senior independent official would have counted the cash. Ideally, cash on hand should be counted at every month end, when it is being reconciled and on surprise visits. Management should ensure that all Driveway sheets are sequentially pre-numbered and are used in sequence. Management should ensure that all Driveway sheets are reviewed by the site supervisors who should sign same as evidence of review.

Management response

Noted. Recommendation will be adopted.

The finance department will, in addition to the stock counts, also carry out cash counts at the various sites. The internal auditor will also be required to carry out surprise cash counts.

Management will ensure that all driveway sheets are reviewed and signed off by the site supervisors.

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1.4. Sitting allowances

Finding

Sitting allowances amounting to $780 were paid to certain board members in respect of meetings they did not attend.

Risk / Implication

The allowances were therefore paid for services not rendered.

Recommendation

Management should ensure that sitting allowances are compiled and paid out based on the attendance registers.

Management response

Noted. These payments were erroneously paid out. This has since been regularised and the sitting allowances paid in error will be deducted from the respective board members’ allowances during the current financial year.

Noted. Management will come up with policy for writing off bad debts and providing for doubtful debts after analysing the performance and behaviour of the company’s debtors in 2012.

1.5. Debt management policy

Finding

There was no documented policy on providing for doubtful debts in the credit policy document of the company.

Risk / Implication

Lack of audit trail

Recommendation

Management should consider putting in place a documented policy on providing for doubful debts, which should be followed by the company.

Management response

Noted. Management will come up with policy for writing off bad debts and providing for doubtful debts after analysing the performance and behaviour of the company’s debtors in 2012.

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1.6. Debt servicing

Finding

The electricity and water supplies to the company’s Matshobana Service Station in Bulawayo were disconnected during the year ended December 31, 2012 due to long outstanding debts.

Risk / Implication

Disruptions to the company’s operations and affect revenue inflows.

Recommendation

Management should ensure that amounts due for essential services such as utilities are effectively managed and paid for timeously.

Management response

The problem has since been rectified; we experienced billing problems with ZESA and City of Bulawayo dating back to the time when we were still under NOCZIM. ZESA had not yet installed the electricity meter and this was only done after several follow –ups. We were then charged $26,000 back dated to the NOCZIM time, we have since cleared this backlog. The City of Bulawayo was experiencing problems with their water and rates billing system and again did not bill us for several months, but it has since been rectified.

2. REVENUE COLLECTION AND DEBT RECOVERY

2.1. Credit limits

Finding

Some customers had outstanding receivables exceeding their set credit limits as at December 31, 2013, indicating that credit sales were being made to customers who would have exhausted their credit limits. The following serve as examples:

Customer Outstanding balance at Credit limit December 31, 2013 US$ US$ Lyonnais 246 135 70 000 DTZ OZGEO 282 190 100 000 MAPS Petroleum 180 192 80 000

Risk/Implication

Increased risk of bad debts resulting in the entity incurring financial losses.

Potential cash flow problems arising from long outstanding debtors.

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Recommendation

Management should ensure that credit sales to customers are only processed if they have not exceeded their set credit limits at any given time.

Management response

Noted, going forward management will ensure that credit sales are only processed up to the agreed credit limit. The noted cases highlighted by audit, were exceptional cases:

Lyonnais had provided extra collateral security to back up increased sales limits. However, this had not been amended in the credit application forms;

DTZ and MAPS had requested temporary increases which were approved by management.

2.2. Debtors statements

Finding

The Company did not periodically send statements to credit customers.

Risks

Potential disputes with credit customers as they have no point of reference to compare their own balances.

Recommendation

Management should consider sending statements to customers at least once every month indicating the outstanding balances.

Management response

Noted, management has started sending customer statements on a monthly basis.

2.3. Credit sales agreements

Finding

After a credit sale application had been approved, management did not sign any credit sale agreement with the customer detailing the credit terms.

Risks

Disputes with credit customers arise if the credit terms are not formally agreed upon by both parties.

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Recommendation

Management should ensure that credit sale agreements are entered into with the respective credit customer’s representatives soon after the credit application form has been approved.

Management response

Noted, a separate credit sales agreement form will be signed indicating the credit terms.

2.4. Duty free certificates

Finding

The Company sold fuel to the Office of the President free of duty. On enquiry, I was informed that the company was issued with duty free certificates which should have been presented to NOIC to reduce the amount of import duty payable to ZIMRA. However, to date, the Company has never utilised the duty free certificates to claim a reduction in the import duty payable. The amount yet to be claimed amounted to $1 054 390 as at December 31, 2013.

Risk/Implication

The Company is financially prejudicing itself by not claiming the duty rebates.

Recommendation

Management should ensure that duty free certificates are presented to NOIC at the earliest opportunity.

Management response

Noted. Some purchases from the President’s department were coming with duty free certificates and others without. Consolidation of all uplifts made by the President’s department for all fuel procured up to June 2014 has been done. The matter has also been clarified with ZIMRA, the President’s Office and NOIC.

Management have since submitted a global certificate to ZIMRA. In future, management will insist on a bill of entry before product up-liftment.

2.5. Publication of petroleum licence

Finding

The Company did not publish its fuel import licence timeously as required by the Petroleum Act [Chapter 14:22] (“the Act”), i.e., within thirty days of being issued with

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a licence. Section 35(4) of the Act requires the Company to publish notice of the licence in the Government Gazette and in a local newspaper. Despite having been issued with the fuel import licence on January 21, 2014, the Company only published the notice in a local newspaper on March 19, 2014. The Company was up to now yet to publish the issuance of the fuel import licence in the Government Gazette.

Risk/Implication

Penalties and fines may be levied on the Company for non-compliance with statutes.

Recommendation

Management should ensure that the relevant notices of the issuance of the fuel import licence are published timeously as was required by the Act.

Management response

Noted, this has been regularised.

2.6. NOCZIM debtors

Finding

I was unable to satisfy myself as to the accuracy, completeness and valuation of trade debtors inherited from National Oil Company of Zimbabwe Limited amounting to $3 323 600. These debtors are included amongst other accounts receivables in the statement of financial position.

Risk / Implication

Lack of audit trail

Recommendation

Management should make efforts to regularize the issue

Management response

Management to ensure that all transactions recorded in the general ledgers are complete.

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POWERTEL COMMUNICATIONS (PRIVATE) LIMITED

Background information

PowerTel Communications (Pvt) Ltd is a wholly owned subsidiary of ZESA Holdings incorporated under the Companies Act [Chapter 24:03], and is licensed with a Class A Internet Access Provider license for operation in Zimbabwe

I have audited the financial statements for PowerTel Communications (Private) Limited for the year ended December 31, 2013.

Opinion

In my opinion, the financial statements present fairly, in all material respects, the financial position of PowerTel Communications (Private) Limited as at December 31, 2013, and its financial performance and its cash flows for the year then ended.

Without qualifying my opinion, I draw attention to the fact that the company incurred a net loss of US$ 164 588 for the year ended 31 December 2013 and, as at that date, the company’s current liabilities exceeded its current assets by US$ 4 336 335. These conditions, along with other matters, indicate the existence of a material uncertainty which may cast doubt on the company’s ability to continue as a going concern.

However, below are material issues noted during the audit.

1. GOVERNANCE ISSUES

1.1. Register of directors’ interest in contracts

Finding

There was no evidence that the company maintained a register of directors’ interests in contracts.

The Corporate Governance Framework for State Enterprises and Parastatals requires directors to disclose in writing to the Board, the Responsible Minister and the Ministry of State Enterprises and Parastatals of interests in contracts.

Risk/Implication

Transactions may not be carried out that are at arm’s length resulting in potential prejudice to the company.

Potential related parties and transactions may not be disclosed in terms of IAS 24 “Related Party”.

Poor governance practices may compromise the control environment and by extension the economy, efficiency and effectiveness with which scarce resources are deployed.

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Recommendation

Management should ensure that a register of director’s interests is maintained and kept up-to-date.

Management should ensure that a register of interests in contracts is circulated during meetings or general notice should be given to directors prior to the meetings where the decision to engage contractors are made.

Where directors have potential conflicts of interest they should recuse themselves from participating in the discussions, evaluation and execution/ implementation related to the transaction in which the directors interest conflict those of PowerTel.

Management response

The current practice was that all directors were disclosing any interests prior to the commencement of each Board or Board Committee Meeting to ensure that there is no conflict of interest. However, going forward, a register of directors’ interests will be put in place and circulated during meetings.

2. REVENUE COLLECTION AND DEBT RECOVERY

2.1. Billing of customers

Finding

During the period under review, PowerTel Communications had no billing system capable of switching off clients that had not serviced their accounts.

Customers continue being billed although they may not have been using the service. The customers’ contracts provide for disconnection of services if payment is not made.

Risk/Implication

Financial losses as customers that have not paid up their accounts may continue to enjoy the service without settling their accounts. Quality of reported income could be at variance with actual revenue as some receivables might be impaired.

Recommendation

Management should ensure that for all retail customers (individuals) no debt accrues beyond 30 days without the service being disconnected as set out in the service contracts entered into between PowerTel and the customer

Management response

A Telco grade billing system was identified through a formal tendering process. The installation of the hardware and software has been completed. A parallel

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run of the new billing system and billing in the Sales and Distribution Module in SAP has been on-going since completion of installation.

The billing system is currently able to automatically disconnect any CDMA customer whose account is not paid up. The next phase will be to introduce the fibre customers onto the system.

The technical teams are currently working on integrating the Billing system with the ERP (SAP) that is responsible for the generation of financial reporting. It is anticipated that the parallel run will end in July 2014 when the system will go live.

2.1. Debtors’ days

Finding

As at 31 December 2013 the company had trade debtors amounting to US$ 4 338 089. Of this amount US$ 1 659 110 has been outstanding for more that 150 days which represents 38 % of total trade debtors.

As at 28 February 2014, trade debtors of US$ 1 487 967 were outstanding for more than 150 days out of a total amount of US$ 5 096 261 which represents 30 % of all outstanding amounts.

Risk/Implication

Slow recovery of amounts owing may significantly affect the operating cash flows of the entity.

Slow recovery may be an indication of impairment. As such some of the amounts recognised may not be recoverable. This could negatively impact on both financial performance and position of PowerTel.

Recommendation

Debtors should be frequently monitored on a timely basis to ensure that amounts are recovered within a reasonable time frame.

Management should negotiate settlement plans with customers and monitor compliance where such plans have been agreed.

Management response

The observation is noted. The new billing system currently being installed will address the issue of long outstanding debts, as customers will only be billed for what they used, on a strict prepayment system. Customers that are out of prepaid credit will be disconnected.

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In the meantime, until the system is fully functional, management has been making a provision for doubtful debts in the value of 2,5% of invoice billing for the month. Various efforts have been employed to follow up on customers with long outstanding amounts with the aim of improving on collections including but not limited to agreement to payment plans for collection of monthly usage fees.

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PRINTFLOW (PRIVATE) LIMITED

Background information

The company is a successor organization to the former Department of Printing and Stationery in the Ministry of Finance. It has all the capacity as permitted by section 9 of the Companies Act [Chapter 24.03], and without derogating from the scope of these powers, the principal objectives for which the company was established is to carry on the business of printing, publishing, buying and selling of all forms of office supplies and any other business in printing and stationery field necessary to discharge the functions of the company.

Opinion

In my opinion, the financial statements present fairly, in all material respects, the financial position of Printflow (Private) Limited as at December 31, 2013 and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

However, below are other material issues noted during the audit.

1. GOVERNANCE ISSUES

1.1. Composition of the Audit and Risk Committee

Finding

The Audit and Risk Committee was not properly constituted in 2013 as it was made up of two non-executive directors out of a total of five members. Best practice requires that the majority of the Audit and Risk Committee be made of independent non-executives directors.

Risk / Implication

The Committee may not govern in the best interest of the organisation.

Recommendation

The Board should consider having an Audit and Risk Committee whose majority of members consist of independent non-executive directors.

Management response

The issue was presented to the previous Audit and Risk Committee meeting, and the committee noted the observation.

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1.2. Safety, Health and Environment (SHE) Policy

Finding

The Company had no Safety, Health and Environmental policy in place. Safety, Health and Environment policy ensures that all risks associated with the work place are mitigated and that the Company’s management is able to monitor all processes and procedures that they have been put in place to ensure that the Company is complying with the Industrial Labour Relations Act [Chapter 28.01] and NSSA (Accident Prevention) (Workers Compensation Scheme) Notice No 68 of 1990.

Risk / Implication

The absence of the S.H.E policy exposes the employees to unsafe working practices and environment.

The Company may incur financial losses due to litigation, in case of accidents.

Recommendation

The Company’s management should put in place a Safety, Health and Environment policy.

Management Response

Draft policy is now in place and is awaiting board approval.

1.3. Safety and Health Regulations

Finding

The National Employment Council for the Printing industry requires that Company employees be provided with protective clothing and shoes when working in production as required by Safety and Health Regulations. I noted that Printflow (Private) Limited factory employees were working without protective clothing and shoes.

The employees working in the Lithol department did not have noise protecting devices to protect them against the noise coming from the running machinery.

Risk / Implication

Workers are susceptible to health threats and dangers.

Recommendation

The Company’s management should consider purchasing protective clothing and shoes for its employees working in the workshop.

Management Response

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Cash flow constraints due to the prevailing economic environment were affecting the procurement of protective clothing. Notwithstanding that, management is procuring protective clothing on a piece meal basis.

Observation noted. The SHE Committee will look into the issue and advise on the appropriate material to use for noise protection.

1.4. Bulawayo factory building

Finding

There was poor ventilation in the workshop in which employees were working in contravention of the Factories and Works Act [Chapter 14.08]. I also noted that the Bulawayo building was peeling off from inside. The ceiling in the kitchen was falling off. There were exposed electrical cables in the kitchen and warehouse. The building had plumbing problems and as a result water was leaking from the first floor there by eroding the brick work in the kitchen. The toilet for gentlemen had peeling floor tiles. The whole building had a bitumen top that had peeled off such that when rain fell the roof leaked water into the building.

Risk / Implication

Factory employees are highly susceptible to health problems emanating from being exposed to chemicals and dust that will be accumulating in the workshop.

Recommendation

The Company should ensure that ventilation in the factory is improved. The use of respirators is also encouraged to help in reducing the incidence of respiratory related diseases.

Management should consider refurbishing the Bulawayo branch building.

Management response

Cash flow constraints are affecting the repairing of air conditioning units which assist in the ventilation of the plant.

Observation noted. Management will refurbish the branch’s buildings once the company’s cash flow position has improved.

1.5. Custody of third party assets

Finding

During my physical verification of the Company motor vehicles, I noted that there were two Land Cruisers that had been parked at the Company for some time. They were not in the Company’s asset records and there was no documentation to identify ownership of the vehicles. I was informed that the vehicles belonged to the Ministry

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of Finance and Economic development. The table below shows the registration and the dates the vehicles arrived at the Company:

Name of Vehicle Registration Number Date of Arrival at the Company Toyota Land Cruiser ABR-2850 14 October 2013 Toyota Land Cruiser ABR-2851 13 December 2013

Risk / Implication

Additional costs of security over the assets may be incurred.

Under utilisation of government assets.

Recommendation

Custody of assets should rest with the owners.

Management response

The vehicles belong to the Ministry of Finance and were parked within our premises upon their request.

1.6. Payment of sitting allowances to board of directors

Finding

The Secretary to the Corporate Service Director embezzled funds from the Company amounting to two thousand four hundred and eighty four dollars ($2 484) as she short changed board members from their sitting allowances. On further enquiry I noted that the Secretary was arrested and the issue went to court where the Secretary was found guilty. Currently the Secretary is no longer an employee of the Company as she was dismissed. This could be pointing to weak internal controls.

Risk / Implication

Ineffective controls in monitoring the disbursement of Board’s allowances may result in fraudulent activities going unnoticed.

Recommendation

The Company’s management should improve its controls on the disbursement of funds to its board members. The Company should take steps to recover the money from the perpetrator of the fraud.

Management Response

Payments of Directors’ allowances are now being done through the bank.

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1.7. Remittance of statutory obligations

Finding

The Company was not remitting their statutory obligations to the various statutory bodies upon deducting the obligations from the employees. The table below shows a sample of statutory obligations not remitted by the Company:

Description Amount US$

Pension Fund 901 889 NEC 117 968 NSSA 68 011 Zimbabwe Graphical Workers Union 34 321 ZIMDEF 32 908 Standards Levy 17 868 Total 1 172 965

Risk / Implication

Penalties and interests may be charged or levied by the relevant Authorities.

Recommendation

Remittance of statutory deductions should be done timely.

Management response

Remittance of statutory deductions was being affected by cash flow challenges arising out of the company’s operational challenges. Management has been trying to rectify the issue on a piecemeal basis.

1.8. Fire extinguishers

Finding

All fire extinguishers at the Company have not been serviced despite the fact that Printflow deals with paper products which are highly susceptible to fire. Furthermore, all water hoses in the workshop were not working.

Risk / Implication

High exposure to loss of equipment through fire.

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Recommendation

Fire extinguishers should be serviced and be put in place and the water hoses in the workshop should be attended to.

Management’s comments

Cash flow constraints are affecting the servicing of fire extinguishers. Management will allocate finances for servicing of the fire extinguishers on a piecemeal basis.

2. REVENUE COLLECTION AND DEBT RECOVERY

2.1. Credit control procedures

Finding

According to the Company’s credit control procedures if a client does not respond to final demand letters the Company may handover the client to debt collector’s or take legal action. I observed that the Company was not complying with its credit control procedures as there were clients with outstanding debts since 2010. In addition, a sample of fifteen clients with outstanding amounts of US$ 83 115 in the more than 150 days category had final demand letters sent to them but there was no response.

Risk

The trade debtors figure might be overstated as they include figures that might not be collectable.

Recommendation

Concerted effort should be made to recover the outstanding amounts.

Management Response

Management is in the process of engaging debt collectors. The process delayed because some of the debt collectors are hesitant to pursue government related debts.

3. PROCUREMENT OF GOODS AND SERVICES

3.1. Payment vouchers

Finding

Some payment vouchers were being processed without being authorised. Instances noted included payment vouchers for twenty eight thousand dollars ($28,000) and fifty four thousand and eighty six dollars ($54,086) with invoice number 964 664 were not authorized by the Corporate Service Director and another one for ten thousand dollars ($10,000) with invoice number 964 971 had not been authorized by

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the Finance Manager. The Company’s Accounting Procedure Manual requires the Finance Manager and Corporate Service Director to authorize every payment.

Risk

Funds may be misappropriated.

Recommendation

The Corporate Services Director and the Finance Manager should ensure that they comply with the Company’s Accounting Procedure Manual.

Management response

Observation noted. The Corporate Services Director was not available and the goods were being required urgently.

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TEL ● ONE (PRIVATE) LIMITED

Background information

Tel●One (Pvt) Ltd was incorporated in Zimbabwe in 2000 in terms of the Postal and Telecommunications Act [Chapter 12:05]. The Company’s main business is that of provision of telecommunication services and products.

I have audited the financial statements for Tel●One (Private) Limited for the year ended December 31, 2013.

Opinion

In my opinion, the financial statements present fairly, in all material respects, the financial position of Tel●One (Private) Limited as at December 31, 2013, and its financial performance and its cash flows for the year then ended.

Emphasis of Matter

Without qualifying my opinion, I draw your attention to the fact that the company had a net liability position of US$178 215 996. Fixed-term borrowings approached maturity without realistic prospects of renewal or repayment. These conditions indicate the existence of a material uncertainty that casts doubt about the company’s ability to continue as a going concern.

Below are other material issues noted during the audit.

1. GOVERNANCE ISSUES

1.1. Loan agreement

Finding

TelOne (Private) Limited obtained a US$ 9,5 million loan facility through the Ministry of Finance in 2011 to finance the Harare to Bulawayo optic fibre projects. The funds from this facility were disbursed in batches. However, there was no loan agreement signed by all parties to acknowledge the debt. The loan had accrued $ 901 250 in interest charges as at December 31, 2013 which were yet to be paid.

Risk/Implication

It may be difficult to enforce terms of the loan when the facility is not formally agreed.

Recommendation

Loans should be formally agreed upon in writing between the borrower and the lender.

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Management response

Agreed. The loan agreement was drawn up and effort to have it signed by the Ministry of Finance as the funder proved to be difficult. Management will again approach the Ministry and have the issue regularised.

1.2. Statutory obligations

Finding

The Company did not pay statutory obligations in the form of spectrum and licence fees to the Postal and Telecommunications Regulatory Authority of Zimbabwe (POTRAZ) for the period 2009 to 2011 which resulted in a penalty of US$ 9 772 744 being charged for non-compliance. The total obligation apart from the penalty amounted to US$ 31 897 657. In addition, the company was also not remitting statutory deductions to the Zimbabwe Revenue Authority (ZIMRA) on time which resulted in interest and penalties charges amounting to US$ 8 016 714 being levied in the year under review.

Risks/Implication

Non adherence to statutory requirements may attract undesirable penalties and fines from the responsible authorities.

Failure to pay obligations timeously may affect the company’s ability to discharge its mandate effectively.

Recommendation

The Company should ensure that payment of statutory obligations is done on time to avoid the risk of penalties and fines.

Management response

Noted. The non-payment of statutory obligations was due to the liquidity constraints being faced by the company as clients failed to pay for telecommunication services rendered. For POTRAZ, the company appealed and the penalty was reversed in totality. For ZIMRA, the company negotiated for a downward charge in penalties and interest. The company is now servicing the ZIMRA debt with a three way off-set arrangement involving ZIMRA- Government of Zimbabwe and TELONE.

1.3. IT personnel monitoring

Finding

Good practice requires that changes implemented on the live Information Communication Technology (ICT) environment should be monitored on a regular basis. However, I observed that audit trails were enabled but there were no procedures to monitor the super user activities within the SAP system, audit trail reports of failed

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log-in attempts and account lockouts within the SAP system for super users. In addition there was no periodic review of whether users’ accesses were appropriate to their job responsibilities for the Leap billing application.

Risk/implication

Lack of periodic checks may result in unauthorised, intentional or unintentional changes to the applications going unnoticed. This may result in inaccurate financial reporting or may leave the system vulnerable to fraudulent activities.

Recommendation

Regular monitoring of IT personnel activity on critical business processes should be carried out and evidence of such reviews kept to allow management to identify inconsistent and unauthorized IT personnel activity and take the necessary corrective action.

Business owners should take responsibility in monitoring business related activities.

Periodic user access review should be performed, either quarterly or bi-annually and that evidence of such user validation be kept so that management may gain assurance that the users’ access to systems is appropriate based on their job descriptions. This could involve the IT department sending a list of active users to departmental heads, who would confirm the presence of the users as well as appropriateness of the roles assigned to them. Changes may then be made as needed.

Management response

Noted. Internal Auditors will be monitoring IT personnel.

1.4. Help desk incident management and reporting

Finding

It is good practice to have documented procedures regarding information security policy violations, and exception reporting within the Information Technology (IT) environment. However, I noted that the IT department utilised emails, counter books and phone calls to manage incidents. This practise appeared inadequate as it lacked key aspects of an effective incident management process such as status tracking of incidents and inability to assign severity levels of incidents. There was a manage engine helpdesk system but it was not being fully utilized.

Risk/Implication

Failure to resolve incidents in an effective and timely manner may result in the disruption of normal business operations.

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Recommendation

The helpdesk system should be fully utilized where all queries and full details are recorded.

There should be procedures allowing for timely notification of incidents or violations to specific individuals. These procedures could be complemented by specific timelines clearly set out for the resolution of challenges.

Management response

Noted. The current Help Desk system is not fully customized to capture software incidents and customization of the application by the Vendor is in progress. However, in the meantime, the system will be used in its current state to record incidents that suit current functionality while recording Downtimes of System and using the Billing email accounts used by all System users.

2. REVENUE COLLECTION AND DEBT RECOVERY

2.1. Billing for newly connected customers

Finding

The standard procedure required that billing be done on every monthly cycle. I however, observed that there were some clients who were not billed on time. The company took on average four (4) to five (5) months before billing newly connected clients as shown in the table below.

Account Telephone Date Start Date of Time it took Number Number Connected Billing before billing commenced 4140004022 705443 23/01/2013 May 2013 5 Months 4140001719 771372 19/01/2013 September 2013 8 Months 4140001694 756417 28/01/2013 May 2013 3 Months 4140001700 781480 21/01/2013 October 2013 9 Months 4140001700 772788 21/01/2013 October 2013 9 Months 4140000815 782919 29/01/2013 May 2013 4 Months 4140004127 740395 30/01/2013 May 2013 4 Months 4140004127 740409 30/01/2013 May 2013 4 Months 4140004127 740395 30/01/2013 May 2013 4 Months 4140001703 743459 28/01/2013 May 2013 4 Months

Risk/ Implication

Failure to bill clients on time may result in deferral of revenue collection by the company thereby negatively affecting the working capital requirements.

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Recommendation

Management should ensure that all newly connected clients are billed on time.

Management response

Noted. These were clients connected outside the billing system due to challenges faced at the time with the new Network Inventory Management System (NIMs). The accounts had to be recreated in the system in order to enable them to bill. This process however took time and resulted in the delays noted above.

3. PROGRESS IN IMPLEMENTATION OF PRIOR YEAR ISSUES

3.1. Assets not in the name of the Company

Recommendation

Corrective steps to address the anomaly should be timeously implemented and bring the issue to finality.

Progress made

On going

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ZESA ENTERPRISES (PRIVATE) LIMITED (ZENT)

Background information

ZESA Enterprises (Private) Limited, is incorporated under the Companies Act (Chapter 24:03) and the Electricity Act [Chapter 13:19] and is 100% owned by ZESA Holdings. It is mainly involved in the manufacture and repair of power and distribution transformers and line material; design, construction and commissioning of high voltage substations, power lines, civil and mechanical works; provision of transport logistics; supply and distribution of high quality hardware, domestic and industrial electrical equipment; provision of information technology and support services.

I have audited the financial statements for ZESA Enterprises (Private) Limited for the year ended December 31, 2013.

Opinion

In my opinion, the financial statements present fairly, in all material respects, the financial position of ZESA Enterprises (Private) Limited as at December 31, 2013, and its financial performance and its cash flows for the year then ended.

However, below are material issues noted during the audit.

1. PROCUREMENT OF GOODS AND SERVICES

1.1. Inventory holding days

Finding

The inventory holding levels for the Company had increased from 263 days at December 31, 2012, to 306 days at December 31, 2013. High inventory levels can result in inventory items being held for a long period thus impacting negatively on the working capital of the company. Possible causes may include:

 Non-competitive pricing  Lack of customer demand  Lack of aggressive marketing during the sale season  Stock holding levels that are too high  Purchasing the wrong items or the wrong quantity  Unnecessary holding of items in stores

Risk/Implication

Poor working capital positions as cash will be locked up in slow moving inventory.

Financial losses due to costs such as pilferage, inventory holding costs and increased chances of obsolescence.

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Recommendation

The Company should identify and analyse the reasons for the increase in the number of days stocks are held.

Management response

This analysis was done at Board level in 2013 and a plan was put in place to run down stocks which were high. The reason for ordering high stocks had been based on an initial tripartite agreement moderated by ZESA Holdings whereby ZENT was to produce an output of over 500 units per month in order to fulfil ZETDC requirements and address the national backlog. ZETDC proceeded not to issue order for the agreed quantities due to liquidity constraints that prevailed in the market. Material had already been procured and this led to excess stocks given quantity deductions.

A holistic plan with the involvement of ZESA Holdings is now in place to use up the materials in 2014 given that ZETDC will issue a bulk order of over 3000 transformers by 31 May 2014. The material in stock is for ZESA transformers which are still in use on the Grid hence this will mitigate obsolescence.

1.2. Costs structure

Finding

ZENT's efforts of reducing dependency on the ZESA group are falling short due to the costs structure of transformers. ZENT participated in a number of tenders for transformers during the year and the success rate was low. I noted that out of thirteen tenders ZENT participated in, it was awarded two contracts. The table below summaries the activity:

Tender Project tendered Date of Awarded / not number submission awarded REA Linesand substationconstruction 26.04.2013 Not awarded

ZPC H/O 66 Drytypetransformers 01.05.2013 Not awarded ZPC H/O 69 Drytypetransformers 01.05.2013 Not awarded ZPC Floor gate 13.06.2013 Not awarded REA 10xdistributiontransformers 01.06.2013 Not awarded ZPC Kwekwe Supplyand installation of11kV 18.06.2013 Not awarded outdoorswitchyardequipment ZETDC HVandMVReticulation 20.06.2013 Not awarded Southern CEC Rewind (complete) ofa15MVA Awarded 66/11kv ZPC Redcliff Rehabilitationof11kVlines 01.08.2013 Not awarded REA Distribution transformers(57 23.08.2013 Not awarded units) REA SWERTransformers 23.08.2013 Awarded

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Tender Project tendered Date of Awarded / not number submission awarded UNICEF Prequalification package for 16.10.2013 Awaiting Rehabilitation Works of Water adjudication Supply and Sewage Systems ZETDC Eastern Partitioningofoffices 03.12.2013 Not awarded

Enquiries from management indicated that items of stock in inventory from PME Power Solutions are the main contributing factor.

Risk/Implication

The company’s ability to continue as a going concern may be affected due to a decline in revenue.

Going concern threat.

Recommendation

Management should engage PME Power Solutions and strive to re-negotiate prices of stock items to more favourable prices. Management should revise cost structures to accurately cost transformer units and therefore strategically position themselves in the market.

Management response

The general cost structure for ZESA Enterprises is high and this creates challenges when competing with foreign companies. This has been experienced by most organisations in Zimbabwe due to inherited ZWD cost structures converted to USD e.g. rigid manpower structures.

ZENT none the less has embarked on a Continuous Culture Improvement which has seen various measures being taken that include: Procurement of material from original manufacturers in the east. This has yielded results on the SNEL order although the downside is the need for upfront funding which in most cases is difficult to secure. As supply chains are created, such credit will increasingly be availed by suppliers as relationships are built.

Revisit of designs to make them resource efficient, increasing production efficiencies to reduce overheads and close monitoring of admin and general expenses.

PME material in stock exists and this has diluted Gross Profit Margins. The material however should be used up in 2014 and blended with cheaper material. Thus in ZENT’s position, this material is still to be paid given that it was supplied on credit.

ZENT has awarded ZETDC discounts of over 30% from 2012 due to revised costing and production methods. Price competitiveness reviews will be on- going.

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1.3. Signing of project division contracts

Finding

Review of the contract files showed that significant work has commenced on some Afrexzim projects, whose contract forms are not signed. These projects are Parkridge 33/11kv; Cowdary Park and Chiwaridzo. The extent of progress on the projects shown in the table below:

Project name Percentage of completion Parkridge 100% Cowdary Park- civil works only 42% Chiwaridzo-civil works only 48%

Risk/Implication

No right of recourse as contract terms are not agreeable by both parties.

Recommendation

Management should ensure that all contracts are signed and agreed by both parties prior to the commencement of a project.

Management response

For Parkridge substation, an offer was made to ZETDC and an order placed to that observation. These two documents were used as the contract. It is however conceded that a formal contract document should have been formulated. This will be rectified for future projects since the project has been handed over and accepted for operation by ZETDC.

For Chiwaridzo delays were experienced in the initial stages due to lack of a suitable site as ZETDC faced problems with the local Authority. After securing of a suitable site, the contract was drafted and tabled with ZETDC in the first quarter of 2013. Concerted efforts to have this concluded did not yield results as ZETDC has not been forth coming. It is expected that the contract will be finalised by the end of May 2014. ZENT however is the mentioned contractor on the Afreximbank funding contract document. Money was distributed to ZETDC on the basis that ZENT would be the contractor.

The contract for Cowdry Park has not been submitted due to servitude problems encountered by ZETDC. Quantification of transmission line lengths was thus not possible due to the lack of servitudes. The servitudes were however granted in the first quarter of 2014. The contract is expected to be signed in the second quarter of 2014. ZENT is again the mentioned contractor on the Afreximbank funding contract documentation which in principle gives full rights to execute the projects. ZENT in conclusion will ensure that project specific contracts are signed before commencement.

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1.4. Input tax claims

Finding

A review of the ZENT files for the various divisions showed that some input tax claims were based on invalid tax invoices.

The features of a valid tax invoice are as follows:

 The words “Tax Invoice” or “Fiscal Tax Invoice” should be in a prominent place  Name, address and VAT registration number of the supplier  Name, address and VAT registration number of recipient  Serial number and the date on which the invoice was issued.  Description of the goods or services supplied  Quantity or volume of goods or services supplied  Value of supply price charged or consideration of supply

The table below shows some of the suppliers from the Manufacturing division whose invoices are invalid for the purposes of claiming input

Supplier Date Invoice number Amount paid $ Rhemat Print 22.07.2013 59245 500

Cernol Chemicals 27.06.2013 OP/1087753 448

TM Welding Solutions 07.08.2013 5515 371

Rabgrah Service 27.06.2013 112645 1 395

CMC 28.06.2013 9670/139 466 The Cotton Waste Company 08.07.2013 HRIN4523 196

Insburg Freight Logistics 30.06.2013 IN104459 345

Ice Age 31.05.2013 W0250 622

Ice Age 21.06.2013 W0202 579

Ice Age 09.07.2013 W205 397

Africa Steel 23.05.2013 10145199 1 531

Africa Steel 15.05.2013 10146785 1 803

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Supplier Date Invoice number Amount paid $ BOC 30.06.2013 MINV0037643 643

In addition, some payments to the following suppliers were based on proforma invoices and quotations:

 Incorporated Tools and Hardware  Glita Connections  Premier Stone Crushers (Projects Division).

Risk/Implication

Rejection of claims where supporting documents may be required.

Non-compliance with the VAT Act which requires that an input tax claim be made based on a valid tax invoice and specifies the features of a valid tax invoice.

Financial losses due to penalties being imposed by ZIMRA.

Where payment for goods or services is based on a proforma invoice or quotation there is a risk that the input tax charged might not be claimed at all especially where the documents are filed away after making the payment

Recommendation

Thorough checking of the invoices guarantees that there will be no disallowance of input tax claims. Management is advised that proper tax invoices should be obtained from the supplier within 30 days of delivery of the goods or supply of the service.

Proforma invoices and quotations should not be filed away until the proper invoice from the supplier is availed and the input tax has been claimed.

Management response

We will ensure that no payments are made on non-compliant invoices. All recommendations stated have been adhered to immediately and non- compliant documentation in retrospect for 2014 will be addressed with respective suppliers by 30 June 2014.

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1.5. SAP production module

Finding

The Division was running on an improvised system to handle jobs in production. This 'make-shift' system permits jobs to be lumped and closed when completed to enable invoicing. It however, has challenges of not being able to determine the actual cost per job and ascertaining work in progress (WIP) at period end. Enquiries from management indicated that, this new system will enable:  Individual jobs to be managed from start to end  Analysis per jobs for actual costs incurred  Strict control over STF's raised from stores  Accurate determination of WIP

Risk/Implication

Continued failure to control individual job costs in production.

Recommendation

Management should ensure that the new system is put to use.

Management response

The system still has configuration hiccups which show when trial runs are attempted. The IT department is facing challenges in resolving queries on time and this draws out the implementation program. The Division is awaiting correction of errors so that another run can be attempted by ZESA IT in liaison with TTCS (SAP Service Provider). System should be in use by July 2014.

1.6. Techpro investment initiative

Finding

The Company entered into a Technology Transfer Agreement with Techpro of Korea in December 2011, for a period of 5 years. A technology transfer fee of $3 million was capitalised and is to be written off over the tenure of the agreement. US$ 1 million has so far been paid against this fee. However, the project has not taken off as scheduled.

Risk/Implication

Increased liquidity problems as a result of failure to realise return on investment.

Capital commitment in projects that are not yielding positive returns.

Recommendation

Management should strive to implement set capital projects in order to reap maximum benefits from committed capital.

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Management response

Implementation of this project has been stalled due to lack of funding. Despite ZESA Holdings and ZENT Board Resolutions to have funding availed for working capital, this has not materialised primarily due to the liquidity constraints faced by ZESA Holdings. The switchgear factory has however been refurbished ready for production. Efforts will be made to secure the much needed funding for production to commence in the second quarter of 2014.

2. PROGRESS IN IMPLEMENTATION OF PRIOR YEAR RECOMMENDATIONS

2.1. Materials agreement

Recommendation

Management should ensure procurement of raw materials through sourcing three (3) quotations where the economical one is chosen.

Management should consider negotiating a separate agreement with PME for the supply of raw materials.

Management should engage component manufacturers and they should be identified as preferred suppliers of components parts for transformers, as they are cheaper than the assemblers (PME).

Progress made

No progress

2.2. Customer base/Over reliance on Zimbabwe Electricty Transmission and Distribution Company

Recommendation

Management should ensure that the Marketing department development strategies to fully exploit targeted markets and reduce dependency on the sole customer.

Management should diversify its customer base through suitable marketing strategy.

Progress made

No progress

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ZIMBABWE MINING DEVELOPMENT CORPORATION (ZMDC) 2012

Background information

Zimbabwe Mining Development Corporation is wholly owned by the Government of Zimbabwe. The main business of the Corporation and its subsidiaries, which are incorporated in Zimbabwe, is that of minerals extraction and sales.

I have audited the financial statements for the Zimbabwe Mining Development Corporation for the year ended December 31, 2012. My Opinion was a Qualified Opinion.

Basis for a qualified opinion on consolidated financial statements

(i). Non compliance with International Accounting Standard 27 (IAS 27): Consolidated and Separate Financial Statements andInternational Accounting Standard 31 (IAS 31): Interests in Joint Ventures

The Group has not consolidated financial statements of its subsidiary Shabani and Mashava Mines (Private limited (76%) as disclosed in Note 33 to the financial statements, and joint ventures namely,Todal Mining (Private) Limited (40%) and Gye Nyame Resources (Private) Limited (50%) due to the nonavailability of financial statements. International Financial Reporting Standards require that the subsidiaries and joint ventures should be consolidated. Had these subsidiaries and joint ventures been consolidated, elements in the accompanying consolidated financial statements would have been materially different.

(ii). Mining rights

International Accounting Standard 38 (IAS 38), Intangible Assets, requires an entity to recognise its intangible assets, such as mining rights at cost or fair value. The Corporation transferred its mining rights to its joint ventures in consideration for 50% shareholding in the entities, the value of which has not been included in these financial statements. The joint ventures are Mbada Diamonds (Private) Limited, Diamond Mining Corporation (Private) Limited and JinanMining (Private) Limited. This constitutes a departure from International Financial Reporting Standards. The effect of non-compliance has not been established.

(iii). Valuation and existence of inventories

Management appointed auditors for one of the consolidated joint ventures, Jinan Mining (Private) Limited after December 31, 2012 and thus auditors did not observe the counting of inventories. I was unable to satisfy myself by alternative means as to the valuation and existence of inventories held at December 31, 2012 which are included in the consolidated statement of financial position at $10,677,271.

(iv). Valuation of property, plant and equipment

Included in property, plant and equipment is equipment valued at US$33,456,046 belonging to a consolidated joint venture Jinan Mining (Private) Limited components

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of which were carried both at cost and fair value for the same class of assets. This contravenes the requirements of International Accounting Standard 16 (IAS 16), which requires that an entire class of property, plant and equipment should be valued on the same basis. Additionally, the valuation report on which the values of property, plant and equipment were based comprised items which do not meet the definition of assets per IAS 16. As at reporting date, the process of establishing a complete and accurate asset register was underway. There were no satisfactory alternative audit procedures which I could perform to verify whether any adjustments to the recorded values were necessary.

Qualified opinion

In my opinion, except for the effects of the matters described in paragraphs (i) to (iv) above, the consolidated financial statements give a true and fair view of the financial position of Zimbabwe Mining Development Corporation and its subsidiaries as at December 31, 2012, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

Emphasis of Matter

Without further qualifying my opinion, I draw attention to Note 32 to the consolidated financial statements which describes the going concern uncertainty for three significant subsidiaries and a joint venture which have been consolidated, namely, Marange Resources (Private) Limited, Jena Mines (Private) Limited, Kimberworth Investments (Private) Limited and Mbada Diamonds (Private) Limited. Marange Resources (Private) Limited incurred a loss before tax of US$24,387,958 (2011 profit before tax: US$41,840,803) and its current liabilities exceeded its current assets by US$52,598,293 (2011: US$16,417,227). Jena Mines (Private) Limited incurred a loss before tax of US$1,856,548 (2011: US$2,284,068) and its current liabilities exceeded its current assets by US$7,629,939 (2011: US$3,570,824). Kimberworth Investments (Private) Limited incurred a loss before tax of US$5,877,630 (2011: US$3,373,668) and its current liabilities exceeded its current assets by US$10,018,284 (2011: US$4,039,313). Mbada Diamonds (Private) Limited’s current liabilities exceeded its current assets by US$71,395,606 (2011: US$35,379,050). These conditions along with other matters as set forth under Note 32 to the consolidated financial statements indicate the existence of a material uncertainty that may cast significant doubt about the ability of the subsidiaries and joint venture to continue as going concerns.

However, below are other material issues noted during the audit.

1.1. Withholding tax on Non- executive directors’ fees

Finding

The Corporation was not filing the withholding tax on fees paid to Non- Executive Directors in 2012. For instance, the returns for the remittance of withholding taxes (Rev 5 returns) had not been lodged.

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Risk/Implication

Potential penalty and interest.

Recommendation

The Corporation should make immediate arrangements to pay the outstanding amount to ZIMRA.

Management response

Rev 5 returns have been obtained and we are currently working on regularising the matter.

1.2. Capitalisation of mining subsidiaries

Finding

The Corporation’s subsidiaries were in loss making positions as shown below:

Current year loss Total cumulative Mine name (US$) loss (US$) Sandawana Mines (Private) Limited 2,178,455 8,892,194 Mineral Development (Private) Limited 1,619,034 6,070,847 Jena Mines (Private) Limited 3,481,388 9,051,444 Kimberworth Investments (Private) Limited 5,128,970 11,765,311

The loss making positions were attributed to the following;

Sandawana Mines (Private) Limited The company stopped mining emeralds in 2011 and has been under care and maintenance. There is no plan, on when the mine will start production and return to profitable operations. It is costing US$2 million on average for care and maintenance per year funded by the Corporation.

Mineral Development (Private) Limited The mining shaft collapsed in 2004 and from that date the company has not been mining. The company has a staff complement of 98 and there is no detailed plan on when the mine will start producing. It is costing US$1,7 million on average for care and maintenance per year funded by the Corporation.

Jena Mines (Private) Limited and Kimberworth Investments (Private) Limited The companies are mining but are consistently incurring losses due to undercapitalization.

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Risk /Implication

Going concern problems for the Corporation and subsidiaries if the operations are not operating profitably.

Financial loss through financing projects and companies without a detailed and measurable recovery plan.

Recommendation

Turnaround business plans for all the subsidiaries should be drawn up and implemented immediately to stop the financial losses.

Management response

Business plans have been produced through various consultants e.g. SERA. Challenges of funding have been experienced during the period under audit. ZMDC is now considering equity financing through partnering other investors and also listing on the stock market. We are also considering retention of dividend in order to be able to finance the subsidiaries.

1.3. Remittance of statutory deductions

Finding

Statutory deductions for the periods shown below were not remitted on time. The contributions which were not remitted for the various statutory bodies in different months are tabled below;

MONTH ZIMDEF NSSA MIPF GROUP STANDARD US$ US$ US$ PENSION DEVELOPMENT US$ LEVY US$ Jan 1,398 Feb 9,334 1,252 Mar 1,336 June 2,310

Aug 4,311 6,837 35,904 13,427 1,829

Sept 4,110 5,402 36,727 1,814

Oct 5,166 5,223 37,506 14,788 1,971

Nov 6,869 5,280 37,897 14,912 3,229

Dec 5,384 4,959 38,399 2,262

Total 25,840 27,700 186,433 52,462 17,399

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Risk/Implication

Penalties and interests may be charged by the respective authorities which will lead to financial losses.

Litigation and claims by employees in the case of failure by the Corporation to remit pension contributions to the respective pension funds.

Recommendation

All statutory deductions must be remitted timeously. In case of financial challenges a representative can negotiate with respective authorities and agree on method of payment so as to avoid penalties.

Management response

Agreed. The period has been characterized by cashflow challenges. During the first quarter of 2013, the obligations were settled.

1.4. Gold grades

Finding

The Jena mine had not sunk any new shafts and has been mining in previously mined areas. An analysis of the average gold grade reveals that the ore grade was declining as shown below:

Year 2010 2011 2012 Grams sold 168,550 317,668 308,430 Tonnage milled 56,943 105,840 114,103 Average grade 2.96 3.0 2.7

Risk

Reduced profitability and going concern problems for the mine.

Recommendation

The company should endeavour to obtain financing to establish more resources and to increase production and make the company profitable.

Management response

The mine intends to deepen two shafts and continue with exploration work in order to improve gold ore grades by increasing the mineable areas.

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1.5. Production costs

Finding

The Jena mines production costs per ounce increased from $1,336 (2011) to $1,860 in 2012. The production cost per ounce is above the selling price of gold per ounce which averaged $1,766 during the year. The major expenses are as follows:

Description Cost Labour $ 5,254,661 Repairs and maintenance $ 1,252,102 Dump truck hire $ 698,205 Interest expenses $ 123,756 Fuel $ 283,386 Consumables $ 168,010 Consultancy $ 140,911

Risk /Implication

Reduced profitability and going concern problems for the mine.

Recommendation

The mine should constantly monitor its cost structure and consider cost saving initiatives like mechanization, purchasing its own fleet of dump trucks, sourcing raw materials in order to take advantage of bulk discounts and improving productivity of its staff.

Management response

The mine has applied for financing from FBC Bank through Head Office. The required finance will be applied towards the purchase of three dump trucks, ball mill and mechanisation of operations. These initiatives will significantly reduce operating costs.

1.6. Purchase of motor vehicle for the Non-Executive Chairman

Finding

Jena mine purchased a Toyota Prado, registration number ACK 7525 at a cost of $129,215 for the company’s Non Executive Chairperson. Standard practice is that motor vehicles are only allocated to employees of the company. There was no documentation/resolution authorizing the purchase and allocation of the vehicle to the Non-Executive Chairperson.

Risk/Implication

Unauthorised use of the company’s resources.

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Recommendation

Transactions with directors and senior management should be approved by the board of directors and shareholders.

Management response

Written authorization will be obtained from Head Office.

1.7. Capitalisation of Kimberworth (Private) limited

Finding

Kimberworth (Private) limited is highly under-capitalised as evidenced by the following factors:

The company’s average monthly production was 15.9kg which is below the budgeted monthly break-even point of 22kg.

Gold produced during the year was 190.27kg (2011: 219.55 kg) against budget of 461.08 kg.

Production bottlenecks which include crushing and milling breakdowns and pumping challenges arising from compressor breakdowns.

Low average ore grade of 2.14 g/t which is below the budget of 3.46 g/t.

Low tonnage milled of 83,206 tonnes against a budget of 294,711 tonnes.

Ageing plant and machinery.

Risk/Implication

The company may fail to continue operating as a going concern.

Recommendation

There is urgent need for the company to be recapitalised.

Management response

We will continue searching for a strategic partner to capitalise the mine.

1.8. Security system

Finding

From the tour of the plant I noted that only manual searches are carried out at security check points. Considering that gold is vulnerable to theft, the security system may be inadequate.

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Risk/Implication

Financial losses may be incurred by the company arising from the theft of gold not being detected.

Recommendation

The company should consider acquiring electronic sensors (gold detectors) for use in addition to the manual searches currently in use.

Management response

We have since purchased a metal detector.

1.9. Kusena Diamonds (Private) limited joint venture agreement

Finding

Management represented that the company is a joint arrangement between Zimbabwe Mining Development Corporation and an unidentified party. The following information has not been availed for audit verification:-

The joint arrangement agreement.

Details of all parties to the joint arrangement.

Rights and obligations of the parties involved.

Risk /Implication

Parties to the joint arrangement may not comply with the provisions of the joint arrangement thus negatively affecting the company. Lack of a reference point in the case of disagreements among the parties to the joint venture.

Recommendation

A formal agreement that clearly indicates parties to the joint arrangement, responsibilities of each party should be drafted and signed by all the parties.

Management response

Noted. This is a special type of joint arrangement; ZMDC is contributing funds as well as other resources. However, a draft joint venture agreement is being circulated for comments before it is submitted to various committees and to the board of directors.

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1.10. Fiscalisation: aquisition of electronic tax registers

Finding

The Corporation had not yet started recording transactions using fiscalised devices at the time audit. In terms of Statutory Instrument (SI) 104 of 2010 (as amended by SI 99 of 2011) which was gazetted on 1st August 2011, all registered operators under category “C’ are required to record transactions using fiscalised devices with effect from 1st January 2012.

In terms of ZIMRA’s ‘Operational Procedures and Guidelines on Electronic Registers’’ retail operators and all other category C registered operators shall be required to use an electronic signature device; or a Fiscalised electronic register; or a non-Fiscalised electronic register together with a fiscal memory device. The requirement applies to registered operators whose annual turnover is at least US$240 000 per annum.

All electronic registers and fiscal memory devices are to be registered on form FRT1 with the Regional Manager before use.

Risk/Implication

Failure to acquire an electronic register; or electronic signature; or electronic device; or electronic memory device by the fixed date constitutes an offence that attracts a fine of up to US$400 or imprisonment for a period not exceeding 12 months or both such fine and imprisonment.

Further with effect from 1st January 2012 ZIMRA is imposing a penalty of US$25 per point of sale for each day a taxpayer remains in default in respect of fiscalisation.

Recommendation

Management should ensure that the Corporation complies with legislation concerning the acquisition and implementation of electronic cash registers without further delay. The Corporation should report to ZIMRA any challenges that it faces in this regard as well as apply for extension of time for as long as it is not yet fully fiscalised.

Management response

The devices had been acquired. What was still pending was completion of the required forms from ZIMRA. We have started working on finalising the fiscalisation process.

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1.11. Disaster recovery site

Finding

Backup copies of SAP system are stored at the Head Office in the IT office. Primary ICT processes are run from the main office. There is neither a disaster recovery site nor off-site backup storage facility.

Risk /Implication

In the event of disaster at the Head office backup is likely to be affected. This would result in loss of operation capacity and critical data. The corporation may also face retarded resumption of ICT dependent operations.

Recommendation

Hot or warm offsite facility should be setup. The backup could be replicated online or be done on secondary storage media, which would frequently be shipped to the storage facility.

Management response

Service Provider has been identified and orders were prepared.

2. FINANCIAL PERFORMANCE

2.1. Kimberworth (Private) Limited)

Finding

Kimberworth (Private) limited is facing going concern problems as its operations continue to be hampered by shortage of working capital. The following are indicators of going concern problems:

Loss after tax of $5,128,970 (2011: $ 3,038,894)

Shortage of working capital as evidenced by current liabilities exceeding current assets by $10,018,284 (2011: $4,039,313)

Negative equity position of $3,563,697 (2011: positive $1,565,273)

Failure to secure adequate funding

Failure to settle creditors as evidenced by a series of lawsuits against the company.

Risk/Implication

The company may fail to continue operating as a going concern.

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Recommendation

There is urgent need for the company to be recapitalized. Directors should make all possible effort to come up with and implement business strategies to turn around and rescue the company.

Management response

We will continue searching for a strategic partner to capitalise the mine. We are also implementing strategies to increase production and reduce costs.

2.2. Sandawana mine

Finding

The following conditions indicate the existence of a material uncertainty on going concern: Sandawana mine’ a subsidiary of ZMDC incurred a loss after tax of $2,175,761 (2011:$5,017,952) during the year ended 31 December 2012.

The company had negative equity of $5,307,395 down from the prior year negative equity of $3,131,634).

As of 31 December 2012 the company’s current liabilities exceeded its current assets by $6,475,765 (2011:$4,693,754).

The company has also been unable to sell its emerald stocks since 2008 due to the absence of an external market.

Risk/Implication

The going concern assumption may be inappropriate resulting in the misstatement of financial statements.

Recommendation

The company needs to speed up the tantalite exploration activities so that operations of the mine are resumed urgently. The company should also continue pursuing engagement of potential investors to obtain funding for the mine.

Management response

The tantalite exploration is at an advanced stage and mining activities are expected to commence soon. An investor has been identified and signing of the agreement is expected anytime.

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2.3. Mining Development Corporation/Elvington Mine

Finding

The mine is facing serious going concern challenges as operations continue to be hampered by lack of capital to resuscitate operations. The following are indicators raising concern over the going concern of the company;

The mine had not been operating since its collapse in 2003.

The mine was no longer processing sands, and there has been no revenue from Gold sales since 2011. It has had substantial operating losses for the past eight years.

No investor has been secured yet for the recapitalization of the mine while they had long outstanding trade and other payables amounting to $384,724, with payroll accruals, tax liabilities and statutory deductions contributing significantly to this balance and outstanding salaries amounting to $101, 313.

Risk/Implication

The entity may fail to operate as a going concern.

Recommendation

There is urgent need for the company to look for alternative funding, for example new capital injection by shareholders or a strategic partner to inject new capital.

Management response

ZMDC Head Office has promised to fund the Pilot Plant Sands Project which will see the resumption of sands treatment before the end of the third quarter.

Funds for engagement of a Rock Mechanics expert for underground feasibility study initial work are in place and the exercise is expected to be done before the end of the 3rd quarter.

A new Business Plan has just been completed by external consultants and this will be used for investor courting.

3. REVENUE COLLECTION AND DEBT RECOVERY

3.1. Scrap metal sales agreements

Finding

On 04 April 2012, a memorandum of agreement was signed with Market Power (Private) Limited for sale of scrap metal based on stipulated prices. During the year, the Corporation recorded revenue amounting to US$47,617 from sale of the scrap metal.

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According to the Memorandum of agreement, the purchaser was supposed to pay at least 50% of the estimated selling price based on the estimated total quantity as per Clause [3].(b). Market Power (Private) Limited proceeded to collect scrap metal without any deposits having been received by the Corporation which is a violation of the clause.

Risk /Implication

Loss of revenue if the customer defaults.

Recommendation

Follow up should be done in order to recover the funds from the customer.

Management response

Agreed. Our Legal department shall follow-up for payment of debt.

4. PROCUREMENT OF GOODS AND SERVICES

4.1. Procurement of diamond drilling equipment

Finding

A prepayment of $350,000 was made to Macasave Investments (Private) Limited on the 14th of December 2012 followed by subsequent payments amounting to US$1,300,000 for the procurement of drilling equipment for Mining Promotion Corporation (Private) Limited. The total amount per invoice (IN10012 dated 19 October 2012) was $8,911,087.

No documentation was availed to substantiate that a competitive bidding process or quotations were sought from other suppliers. The supplier was also not on the Corporation’s list of approved suppliers.

Risk /Implication

Financial losses may be incurred by procuring from a single supplier without price comparisons which are done through the tender process. Quality of products procured may be compromised by procuring from unapproved suppliers resulting in financial losses in the long run.

Recommendation

The Corporation’s procedures in respect of approval for procurement should be adhered to.

Purchases should also be made from the list of approved suppliers as these have been accredited as suppliers of quality products.

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Management response

Agreed. Procurement procedures will be adhered to.

4.2. Absence of documented purchasing procedures

Finding

There were no minutes indicating how purchasing decisions were arrived at Jena Mine for example:

For the purchase of two dump trucks at a total cost of $546,723 from Bell South Africa, subsequent quotations obtained and discussed in the board meeting dated 7 March 2013 indicated that two dump trucks would be purchased at $245,600. However, it is not apparently clear whether quotations were sourced from different suppliers and why Bell South Africa had been selected.

The rationale for changing from traditional suppliers to new suppliers was not documented. For instance the change over from, National Fencing to Molito Trading and Midlands Metals to Falwell Casting was not documented.

Risk/Implication

Financial losses as suppliers may not be properly vetted resulting in the company not purchasing at best advantage.

Recommendation

All procurement meetings and decisions should be minuted.

Management response

For the current year, all purchases will be made by the Purchasing Manager at Head Office.

4.3. Payments made for goods

Finding

Payments in advance were made by ZMDC Head Office to Chaferfly, a supplier, on behalf of Kimberworth Investments (Private) Limited for which no goods had been received by the time of audit. The review of Board minutes indicated that the supplier is having financial problems. The payments are summarized below:

DESCRIPTION PAYMENT AMOUNT OUTSTANDING DATE PAID ($) TO DATE ($) Telsmith 36” Gyrasphere crusher 06.01.12 284,050 284,050 Tertiary crusher upgrade 27.04.12 292,840 292,840

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Risk/Implication

The amounts may not be recoverable resulting in financial losses being incurred by the company.

Recommendation

Management should devise ways of recovering the amount owed such as handing over the matter to debt collectors or lawyers.

Mangement response

The issue is being handled by ZMDC legal department to recover the amount from the supplier.

5. EMPLOYMENT ISSUES

5.1. Taxation of staff benefits

Finding

Some of the Corporation’s staff occupy flats owned by its wholly owned subsidiary Protea Court (Private) Limited at below market rentals. The Corporation further provides housing accommodation to some staff at subsidised rentals.

There is no taxable benefit calculated on the subsidised accommodation.

Risk/Implication

Penalties and interests can be charged by ZIMRA.

Recommendation

Management needs to account for PAYE on the benefit. The Corporation may consider offering an allowance to cushion the employees from the PAYE arising. There is need for the Corporation to quantify and pay over to ZIMRA tax due on the housing benefit.

Management response

The recommendations will be adopted.

6. PROGRESS IN IMPLEMENTATION OF PRIOR YEAR ISSUES

The issues I raised during the prior period were addressed except for the following;

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6.1. Statutory compliance

Recommendation

Taxes should be paid directly to the tax authority by the individual companies.

Taxes should be paid on time

Progress made

Some payments were made directly to ZIMRA; however corporate tax payments made by joint ventures to ZMDC were remitted to the Ministry of Mines and Mining Development.

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ZIMBABWE POSTS (PRIVATE) LIMITED (ZIMPOST)

Background information

The company is incorporated under the Companies Act [Chapter 24:03] and its registration number is 4505/2000. The company is mainly involved in the provision of postal and agency services in Zimbabwe.

I have audited the financial statements of the Zimbabwe Posts (Private) Limited for the years ended December 31, 2012 and 2013.

Basis for Qualified Opinion on the financial statements for the year ended December 31, 2012

Valuation of property and equipment Property and equipment was valued by management in 2009, however, information relating to the methodology and assumptions used was not availed to me for audit verification. There were no satisfactory alternative audit procedures which I could perform to enable me to test the reasonableness of the valuation figures. As a result I could not obtain adequate assurance with regards to the valuation and accuracy of property and equipment and related financial statement areas.

Ownership of land and buildings I could not satisfy ourselves as regards the ownership of land and buildings as no title deeds were availed or where they were availed the title deeds were in the name of another entity.

Completeness and accuracy of revenue Included in revenue is an amount of US$7,337,648 relating to mailroom, international and cash sales. The documents which are used by the company to initiate and record the revenue transactions are not pre-numbered. As a result of the inadequate record keeping there were no satisfactory audit procedures which I could perform to obtain adequate assurance that all customers were billed and that all such revenue was recorded in the ledger. Consequently, I could not satisfy myself as to the completeness and accuracy of revenue and related financial statement areas.

Lack of supporting documents for inventory write off Included in operating expenses is an amount of US$1,014,503 relating to inventory write off. We could not obtain supporting documents to satisfy ourselves with the validity of this amount. Consequently I could not perform alternative procedures to obtain adequate assurance with regards to the existence of this expense and other related financial statement areas.

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Existence and accuracy of uncollected money orders Included in other payables is an amount of $1,069,958 relating to uncollected money orders. I could not obtain supporting documents to satisfy ourselves with the validity of this amount. Consequently I could not perform alternative procedures to obtain adequate assurance with regards to the existence and accuracy of this liability and other related financial statement areas.

Completeness of electricity bills payable Included in other payables is an amount relating to electricity bills payables. I could not obtain supplier statements for some post offices. Consequently I could not perform alternative procedures to satisfy myself as to the completeness of electricity bills payable.

Qualified Opinion In my opinion, except for the effects of the matters described in the Basis for Qualified Opinion paragraphs (i) to (vi) above, the financial statements give a true and fair view of the financial position of Zimbabwe Posts (Private) Limited as at December 31, 2012, and the results of its operations and cash flows for the year then ended in accordance with the International Financial Reporting Standards.

Emphasis of matter Without further qualifying our opinion, I draw attention to note27 to the financial statements which indicates that the company incurred a loss before tax of $1,516,550 ($4,017,995 in 2011) during the year ended 31 December 2012 and had a working capital deficit of $9,151,690 ($5,673,783 in 2011). As of that date, the company had negative equity of $1,491,803 ($1,518,044 in 2011). These conditions indicate the existence of a material uncertainty that may cast significant doubt about the company’s ability to continue as a going concern.

Basis for Qualified Opinion for the financial statements for the year ended December 31, 2013

Valuation of property and equipment

Included in property and equipment are assets with a carrying amount of US$459 615 which were valued by management in 2009, however, information relating to the methodology and assumptions used was not availed for audit verification. The values of similar assets which were revalued by independent professionals in 2013 show that the values determined in 2009 were materially understated. There were no satisfactory alternative audit procedures which I could perform to enable me to test the reasonableness of the figures. As a result I could not obtain adequate assurance with regards to the valuation and accuracy of property and equipment and related financial statement areas.

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Ownership of land and buildings

I could not obtain adequate assurance regarding the ownership of land and buildings as the title deeds were in the name of another entity.

Trade and other payables with no supporting schedules

I could not obtain supporting documentation for the trade and other payables with a carrying amount of US$383 490. Also included in the trade payables was a balance for which the amount confirmed by the supplier was US$410 427 more than the balance in the financial statements. No reconciliation was provided to explain the variance. There were no satisfactory alternative procedures which I could perform to verify the amount. Consequently, I could not obtain adequate assurance regarding the completeness and accuracy of the amount.

Completeness of money order commission

Included in revenue is an amount of US$184 065 relating to money order commission. I could not obtain the money order transaction listing for the whole year to enable me to recompute the money order commission. There were no satisfactory alternative procedures which I could perform to obtain adequate assurance with regards to the completeness and accuracy of this revenue stream and other related financial statement areas.

Non-accrual of penalties

The company did not comply with the requirements of the Zimbabwe Revenue Authority to install fiscalised tax registers and the non-compliance attracts penalties. The penalties were not quantified, however, they were likely to be material to these financial statements. Had the penalties been quantified and adjusted for, they would have increased other payables and the loss before tax.

Qualified Opinion

In my opinion, except for the effects of the matters described in the Basis for Qualified Opinion paragraphs (i) to (v) above, the financial statements give a true and fair view of the financial position of Zimbabwe Posts (Private) Limited as at December 31, 2013, and the results of its operations and cash flows for the year then ended in accordance with the International Financial Reporting Standards.

Emphasis of matter

Without further qualifying my opinion, I draw your attention to note 27 to the financial statements which indicates that the company incurred a loss before tax of US$ 7 162 886 (US$ 1 516 550 in 2012) during the year ended December 31, 2013 and as of that date there was a working capital deficit of US $14 912 800 (US$ 9 151 690 in 2012). These conditions indicate the existence of a material uncertainty that may cast significant doubt about the company’s ability to continue as a going concern.

However, the following are other material issues noted during the audit.

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1. GOVERNANCE ISSUES

1.1. Fixed Term Deposit

Finding

A grant of $5 million that was obtained from the Postal Telecommunication Regulatory Authority of Zimbabwe (POTRAZ) was deposited with Metropolitan bank (Metbank). However, when the deposit matured the company failed to transact from this account because the bank was facing liquidity problems. The account balance as at December 31, 2013 was $2 453 492 but the company only managed to recover $100 000 after year end. The issue was handed over to the lawyers so that they recover the funds. A full provision has been raised for this amount.

Risk / Implication

The company may fail to recover the investment and this may result in increased cash flow constraints.

Recommendation

Investments should be spread in various banks to reduce concentration risk.

Management response

Noted. Initially the investment was spread between FBC and Metropolitan bank (Metbank). However, Metbank bettered their offer resulting in the money invested with FBC being moved to Metbank. A due diligence exercise was done and Metbank was sound. However, procedures to approve projects took over a year until the bank began facing liquidity challenges. In future stringent due diligence will be applied in balancing return against associated financial risk.

1.2. Insurance of property and equipment

Finding

Items of property and equipment were inadequately insured. The only asset category that was adequately insured were motor vehicles. All other assets were not adequately insured and the details are as follows:

Description Amount (US$) Carrying amount excluding vehicles 45,556,586 Sum insured 10,100,000 Total valued of uninsured assets 35,456,586

Risk / Implication

The company may fail to replace the assets in the event of a disaster and this may adversely affect operations.

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Recommendation

The company should ensure that its assets are adequately insured.

Management response

The current sum insured of $10 million was covering all assets, but when they were revalued the value shot up after the premium had already been paid and funds permitting the insurance cover will be increased so that assets are adequately covered.

1.3. Compliance with Value Added Tax (VAT) legislation

Finding

The company failed to remit VAT payable to ZIMRA on time during the year ended December 31, 2013 and the VAT for the months of September to December 2013 amounting to US$316 191 was outstanding at year end. This amount could rise to US$331 831 including interest and US$1,156,889 for penalties for both late remittance and late submission of VAT returns.

Risk / Implication

Late remittance of VAT will result in possible penalties and interest levied against the company.

Recommendation

Management should arrange for a payment plan with ZIMRA to pay the outstanding VAT for the year ended December 31, 2013.

Management response

Noted. This will be adhered to and the amounts owing as at 31 December 2013 have since been paid. However, the company will continue engaging ZIMRA with a view of proposing a payment plan to clear any outstanding amount and thereby avoid punitive penalties.

1.4. Compliance with Withholding tax legislation

Finding

The company paid license fees mainly to Escher Group of the United States of America and Vision R4 Corporation of Canada. In all the instances no remittances for withholding taxes were made to ZIMRA. ZIMRA reviewed the company’s records in 2014 and charged penalty and interest of US$745,708 due to the company’s failure to withhold Non-resident tax on fees (NRTF).

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Risk/ Implication

Failure to withhold NRTF may result in possible penalties and interest being levied against the company.

Recommendations

Management should come up with a payment plan to settle the outstanding debt.

Returns should be completed and submitted to ZIMRA whether or not the remittance is made to avoid penalties.

Management response

Noted. We will comply with the regulation.

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COURIER CONNECT (PRIVATE) LIMITED

Background information

The main business of the Company, which is incorporated in Zimbabwe (registration number 29491/2008), is provision of courier services in Zimbabwe and beyond. The Company is incorporated under the Companies Act [Chapter 24:03]. The holding entity is Zimbabwe Posts (Private) Limited.

I have audited the financial statements of the Courier Connect (Private) Limited for the year ended December 31, 2012 and 2013.

Opinion on the financial statements for the year ended December 31, 2012

In my opinion, the financial statements present fairly, in all material respects, the financial position of Courier Connect (Private) Limited as at December 31, 2012, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

Emphasis of matter

Without qualifying my opinion, I draw your attention to note 19 to the financial statements which indicates that the company incurred a loss before tax of US$27 501 (2011: US$4 914) during the year ended December 31, 2012 and as of that date, the company’s current liabilities exceeded its current assets by US$ $359 269 (2011: US$ $336 200). The company also had a negative equity position of U$221 357 (2012: US$197 035) as at December 31, 2012. These conditions, along with other matters as set forth in note 19, indicate the existence of a material uncertainty that may cast significant doubt on the company’s ability to continue operating as a going concern.

Opinion on the financial statements for the year ended December 31, 2013

In my opinion, the financial statements present fairly, in all material respects, the financial position of Courier Connect (Private) Limited as at December 31, 2013, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

Emphasis of matter

I draw your attention to note 18 to the financial statements which indicates that the company incurred a loss before tax of US$207 232 (2012: US$27 501) during the year ended December 31, 2013 and as of that date, the company’s current liabilities exceeded its current assets by US$ 566 426 (2012: $359 269). The company also had a negative equity position of U$404 888 (2012: US$221 357) as at December 31, 2013. These conditions, along with other matters as set forth in note 18, indicate the existence of a material uncertainty that may cast significant doubt on the company’s ability to continue operating as a going concern.

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However, the following are material issues noted during the audit.

1. GOVERNANCE ISSUES

1.1. Board and Audit Committee composition

Findings

The company appointed a new board in 2013, but the composition of this board had six (6) members which comprised of four (4) directors who are employees of Zimbabwe Posts (Private) Limited, the parent company. Best practice recommends that the majority be independent non-executives. The Chairman was not independent as he was the managing director of the parent company.

The Audit Committee had two members which is inconsistent with best practice which recommends a minimum of three independent non-executive directors.

Furthermore, the two members were also not independent as they were employees of the parent company.

Risk / Implication

The board and audit committee may fail to effectively carry out their oversight roles.

Recommendation

The company must ensure that good corporate governance best practices are adhered to.

Management response

All the issues highlighted will be corrected through the setting up of a substantive Courier Connect board which is in line with good corporate governance practice.

1.2. Maintenance of asset register

Findings

A motor vehicle, KIA 2700 with registration number ABP 3015 was disposed of during the year. However, it was not removed from the asset register.

Furthermore, the asset register included a Nissan UDI lorry truck purchased on November 21, 2013 which was still registered in the name of the previous owner.

Risk / Implication

Misappropriation of company assets may not be detected.

Delays in changing the ownership of assets may create legal complications.

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Recommendation

Management should regularly review the asset register for accuracy.

Management response

Noted. The register will be updated timeously.

1.3. Compliance with taxation requirements

Finding

A housing loan amounting to $8,000.00 given to the General Manager in October 2013 had no interest charged to it. The Income Tax Act [Chapter 23.06] section 8(1) h requires interest on such loan to be calculated at LIBOR plus 5% and be taxed in the hands of the employee as it constitutes a benefit.

The company did not complete QPDs for submission to ZIMRA during the year. Income Tax Act [Chapter 23.06] section 72 requires a company to complete and submit quarterly QPDs for every quarter based on actual or estimated profit or loss.

Revenue declared to ZIMRA for VAT purposes was $ 249,932 less than revenue in the management accounts. This was due to netting off of 10% withholding tax withheld by customers with the output tax. Tax legislation requires that output tax should be accounted on full amount of revenue recognised whilst withholding tax is deducted from the income tax expense for the year.

A statutory withholding tax of 10% for payments to suppliers without valid tax clearance certificates was not being deducted for some payments. From a sample of 52 items 17 suppliers had no valid tax clearance certificates and 10% withholding tax was not withheld.

Risk / Implication

Financial loss as a result of penalties and interest levied by ZIMRA.

Recommendations

All benefits accruing to employees should be taxed in accordance with the Income Tax Act [Chapter 23.06].

Management should also ensure that the company complies with provisions of tax legislation.

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Management response

Management will ensure that all benefits to employees are accounted for in compliance with the Income Tax Act. Also that a tax consultant will be hired to help assist on tax issues.

Management will engage a tax consultant in future if cash flows permits and where necessary to ensure full compliance with tax issues.

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ZIMTRADE (PVT) LIMITED

Background information

ZimTrade is a national trade development and promotion organisation, is unique joint venture partnership between the private sector and the Government of Zimbabwe. It was established in 1991.The main activity of the Organization is to develop and promote trade between Zimbabwe and other countries.

I have audited the financial statements of the ZimTrade (Pvt) Limited for the year ended December 31, 2013.

Basis for Qualified Opinion

Completeness of trade surcharge income

The Organization derives a substantial portion of its income from trade surcharges which are calculated as 0.1% of free on board value of goods. The surcharges are collected by banks on behalf of the Organization and the Trade Development Surcharge Act does not give ZimTrade absolute control over what is recorded by the banks and hence we could not ascertain the completeness of the income recorded. Accordingly, our examination did not extend beyond receipts recorded by the banks but we are not aware of any circumstances which would indicate that any income has not been brought into account.

Qualified opinion

In our opinion, except for the effects of the matters described in the Basis for Qualified Opinion Paragraph above, the financial statements present fairly, in all material respects, the financial position of ZimTradeas at December 31, 2013, the results of its operations and cash flows for the year then ended in accordance with International Financial Reporting Standards.

1. GOVERNANCE ISSUES

1.1. Market research and external fairs

Finding

The organisation kept a substantial and unutilized amount of cash in bank accounts averaging US$500,000 per month but failed to meet its target for the number of market researches and external fairs as follows:-

Description Actual Budget Variance Market researches One Four Three External fairs Two Five Three

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Risk/Implication

Failure of the organisation to meet its purpose and mandate.

Recommendation

The organisation should ensure that market researches are carried out and new markets are identified in order to promote trade between Zimbabwean companies and the external market as long as the funds are available.

Management response

The 2013 operational programmes budget had assumed that there would be adequate staff on the ground to implement the planned programmes. However, the People Development Programme (PDP), which sought to address the staffing issue, took longer to implement than had been expected. As a result, some of the planned activities for the year could not be carried out.

1.2. Value Added Tax (VAT) on trade and development surcharge levy

Finding

The organisation is involved in the promotion of trade and development which constitutes a trade in accordance with section 2 of the VAT Act (Chapter 23:06). The organisation has not been accounting for and remitting VAT yet section 11 of the VAT Act does not exempt the levy from VAT. This resulted in the following potential tax liability:-

Year Total Possible Penalty Interest Total surcharge VAT 15% 100% 10% per potential levy annum liability 2013 2,404,425 360,633 360,633 36,063 757,394 2012 1,454,299 218,145 218,145 43,629 479,919

Risk/Implication

Potential 100% penalties plus 10% interest from ZIMRA on Value Added Tax (VAT) not remitted. ZIMRA may garnish the organisation’s bank account which may result in reputational damage.

Recommendation

Section 9 of the VAT Act provides for the exemption from VAT of an amount of "tax” included in the consideration. Tax in this instance is however defined to be an amount charged in terms of the VAT Act. The ZimTrade levy would therefore not qualify as the levy is charged under a different Act altogether. The only way to minimise risk is to lobby Government through the Ministry of Finance to exempt or zero rate the surcharge levy.

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Management response

As soon as the ZimTrade Board is constituted, this matter will be tabled and lobbying will be done through our parent Ministry, Industry and Commerce, to seek specific exemption. We believe that levying VAT on Trade Development Surcharge will be a tax on tax, and other organisations with a set up that mirrors ours are also not levying VAT on collections. We are therefore confident that our lobbying efforts, if handled carefully, have very huge prospects to succeed.

1.3. Recoverability of bank balances

Finding A number of bank accounts are held with either struggling or closed banks and these balances might not be recoverable as follows:-

Bank Amount (US$) Trust Banking Corporation 3,682 Metbank Limited 10,320 Allied Bank Zimbabwe Limited 819 Capital Bank Corporation Limited 560

Risk/Implication

Amounts may not be recoverable.

Recommendation

Amounts held by closed banks should be written off and those held in struggling banks should be provided for.

Management comment

The recommendation is noted. Subsequent to year end, Capital Bank transferred the outstanding amount to CBZ and only $50 remain in the account.

On engagement, Allied Bank and Metbank have indicated that the current balances will be transferred to CBZ Bank before mid-March 2014.

On Trust Bank, the Organisation has applied to the Deposit Protection Corporation (DPC), but indications are that only $500 might be paid, with the balances being considered during the liquidation process.

Management will therefore, provide for the balance in Trust Bank after proceeds from the DPC have been received, and will continue to engage the other struggling banks on a regular basis.

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1.4. Cash book and bank accounts

Finding

The following were bank accounts maintained in one cash book:

Bank Currency Account number BancABCZimbabwe United States of L21300000 Limited America Dollar South African Rand L21300000 Botswana Pula L21300000 Euro L21300000 British Pounds L21300000

Standard Chartered Bank United States of 8740006206500 of Zimbabwe Limited America Dollar United States of 8700206206500 America Dollar

Risk/Implication

Fraud may go undetected.Increased errors and omissions arising from the complexity of preparing and reconciling bank balances and cashbook.

Recommendation

Separate cash books should be maintained for each bank account.

Management response

Currently, all the other currencies were being converted to the United States of America dollar cash book for the respective bank. Going forward, separate cash books will be maintained for each account. These will be in place by 31 March 2014.

2. REVENUE COLLECTION AND DEBT RECOVERY

2.1. Completeness of surcharge income

Finding

The organisation had no control over the completeness of surcharge income. The surcharges are collected by banks on behalf of the organisation and the Trade Development Surcharge Act does not give ZimTrade control over what is recorded by the banks.

Risks/Implication

Revenue may be understated as surcharge might not be charged and remitted for qualifying imports and exports. Limitation of audit scope.

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Recommendations

Organisation should ensure that certificate of the completeness of the surcharge income collected and remitted are availed.

Organisation should continue to engage the Reserve Bank of Zimbabwe to obtain import and export figures for use in assessing reasonableness of surcharge income.

The organisation should ensure that informal traders account for surcharge income.

Management response

The organisation approached the Reserve Bank of Zimbabwe for trade information on export and import figures. The information is now being used to engage banks on the gap between expected surcharge income and collected amounts. The indication is that the engagement will need a bit more time, but will bring about intended results. The organisation is targeting to have completed this exercise by 30 June 2014.

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ZIMBABWE UNITED PASSENGER COMPANY (ZUPCO) 2012

Background information

The Zimbabwe United Passenger Company (ZUPCO) is a road transport company incorporated and registered in Zimbabwe with the mandate to provide rural, urban and regional passenger travel services. Since independence, ZUPCO has remained the single largest bus services operator in the country, both in terms of size of the fleet of buses and the spread of operations throughout the country.With its Head Office at 109 Belvedere Road in Harare, ZUPCO runs its activities through two main divisions, namely the Northern Region based in Harare and the Southern Region based in Bulawayo.

I have audited the financial statements for Zimbabwe United Passenger Company (Private) Limited for the year ended December 31, 2012.

Basis for Qualified Opinion

ZUPCO Pension Fund Liability

The liability that the company has with the Zupco Pension Fund is in dispute. The company does not agree with the currency conversion valuation done on dollarization of the fund in 2009 and the subsequent post dollarization actuarial valuations. The effect that the resolution of this matter may have on the company's financial statements cannot be established.

Qualified Opinion

In our opinion, except for the possible effects of the matter described in the Basis for Qualified Opinion paragraph, the financial statements present fairly, in all material respects, the financial position of Zimbabwe United Passenger Company Limited as at 31 December 2012, and its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards, and the requirements of the Companies Act [Chapter 24:03].

1. GOVERNANCE ISSUES

1.1. Insurance cover-Head Office

Finding

I observed that the company only had insurance cover for busses. All the other assets were not covered.

Risk/Implication

It would be very difficult for the company to recover in the event of a catastrophe affecting the uninsured assets of the company.

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Recommendation

I recommend that all assets should be insured at the current replacement cost of the assets. Insurance cover should be reviewed and adjusted, if necessary, on a periodic basis (say annually) with the assistance of specialist insurance advisers.

Management response

Management is in the process of covering all assets.

1.2. Title deeds-Head Office

Finding

I observed that the following assets were not registered in the name of the company:

Town Address Chinhoyi Stand 64 Sinoia Township Karoi Industrial Area Stands 579,580, 581 ChikangweKaroi

Rusape-Residential Stand 259, Rusape Rusape-Depot Stand 661, Rusape Gweru-Depot Stands 980,981,1004 Gweru Gweru Stand 3177, Gweru Kwekwe Stands 1825, Kwekwe Masvingo Stand 691, Masvingo

Risk/Implication

The company risks losing its property to the current title deeds holders. It cannot be ascertained whether the properties are really owned by the company or not. In turn it affects the accuracy of the company’s overall accounting records.

Recommendation

I recommend that the assets be registered in the name of the company and the title deeds be obtained.

Management response

Necessary documentation from responsible authorities are being sought and title deeds will be applied for.

1.3. Asset register-Head Office

Finding

I observed that the asset register was not prepared in time for the audit. The asset register was only availed to the auditors two weeks after the audit had begun.

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Risk/Implication

Audit will take longer than necessary.

Recommendation

I recommend that the asset register be prepared and reviewed timeously.

Management response

Administrator was on leave hence delay in submitting register.

1.4. Asset Register-Southern Division

Finding

Some assets from the Southern Division asset register could not be physically verified.

The following serve as examples:

 Shotgun  Sahara Electra 1000 Plus Ups  Ingersol Rand Type 30 Model 1st Air

Risk/Implication

Audit will take longer than necessary translating into higher costs to the company.

This could result in theft of assets if adequate controls are not in place.

Recommendation

Management should thoroughly supervise the preparation of the fixed asset register.

Management response

The Administrator was on leave at the beginning of external audit that is why the register was not available. The register was availed as soon as she came back.

Auditor comments

The assets needed to be physically verified.

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1.5. Reconciliation of inventory and financial records-NorthenDivison

Finding

I noted that no regular reconciliation is performed between the inventory accounting package and the financial records. Inventory valuations and the ledger balances were different.

The following are examples:

Inventory Item Ledger Balance Inventory Valuation Report Diesel $61,331 $85,941 Tyres $36,808 $0 Body Shop $27,488 $20,319

Risk/Implication

This could result in misstatements of inventory balances.

Recommendation

I recommend that there should be reconciliations between the valuation report and the ledger and should be reviewed timeously.

Management response

This was a Pastel systems error which was looked into. The system had inconsistencies in the production of the reports. The inventory module posts direct into the ledger once information is posted.

1.6. VAT remittance-Southern Division

Finding

I observed that for the year ended 31 December 2012, only one payment was remitted for VAT in June. There were no payments for the other 11 months.

Risk/Implication

Potential interest and penalties resulting from non-payment of statutory liabilities could result in unnecessary financial loss to the organization.

Recommendation

I recommend that VAT be remitted on time to avoid penalties.

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Management response

Cash flow constraints caused this.

2. REVENUE COLLECTION AND DEBT RECOVERY

2.1. Revenue contracts-Northern Division

Finding

I observed that revenue contracts were missing. The revenue contracts could not be availed when requested.

Risk/Implication

Revenue could be manipulated as there is no evidence of the contracts.

Recommendation

I recommend that all contracts should be kept safely.

Management response

The office bearers at the time of the contract had not handed them over, but the Division will get copies from the client.

2.2. Revenue banking-Northern Division

Finding

I observed that revenue was not being banked intact. It is the company’s policy that all takings from waybills should be banked intact. However the following examples show that this was not being done.

Mutare Depot Date Ref Amount Waybill Variance Banked Amount 30.04.12 120052 $2,725 $7,082 $4,307 04.01.12 187862 $7,462 $9,753 $2,290 28.12.12 69131 $15,179 $18,353 $3,174

Risk/Implication

This increases the risk of error or fraud in accounting for revenue receipts.

Recommendation

I recommend that revenue should be banked intact.

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Management response

The lower than budgeted revenue inflows caused operation expenditure to be above the company benchmarks on road expenses causing the budget overrun on road expenses and underbanking.

2.3. Revenue banking-Southern Division

I observed that cash was not being banked intact for the following examples:

Gweru Depot Date Ref Amount Waybill Variance Banked Amount 31.08.12 118687 $14779 $26226 $11440 04.07.12 118602 $6637 $10732 $4095 23.12.12 118805 $21829 $29053 $7524

Risk/Implication

This increases the risk of error or fraud in accounting for cash receipts.

Recommendation

I recommend that cash should be banked intact.

Management response

Shortage of petty cash due to low revenues being generated has failed the system of banking the cash intact.

2.4. Recording of revenue in the ledger-Southern Division

Finding

I observed that there were inconsistencies in recording revenue in the ledger. According to the accounting and procedures manual, revenue should be posted daily to the ledger. However the following show that this did not take place:

Depot Date Revenue Ledger Details Book Date Ref Amt

Khami 01.01.12 $1,751 31.01.12 JANKHA $15,129 MI Gweru 01.01.12 $6,361 31.01.12 JANGW $202,727

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Risk/Implication

This increases the risk that revenue will be understated and funds will be misappropriated.

Recommendation

Revenue should be recorded on a daily basis as per the accounting and procedures manual.

Management response

Delays were caused at times by movement of revenue books from the depots to Accounts office as the revenue books are the source documents used in capturing revenue. This movement causes delays in posting revenues daily. Management is working at linking depots to Divisional Head office and company Head Office, this will help reduce delays in days.

3. PROCUREMENT OF GOODS AND SERVICES

3.1. Posting from the expense invoice to the ledger-Northern Division

Finding

I observed that the following errors took place when posting from the invoice to the ledger. The table below contains examples:

Supplier Ref Date Amount Date Ref Amount Name Castrol BYO021919 09.10.12 $8,744. 05.10.12 S04 $8,429 Fuel Filters ASI20502 22.05.12 $7,262.70 18.05.12 SIVV33 $7,000 Engine Oil 46529 13.12.12 $7,259.50 13.12.12 GRN00337 $5,821 Eng003 AU091632 06.12.12 $9,677.00 07.12.12 GRN00363 $8,316 engine oil

Risk/Implication

This could result in overstatement or understatement of expenses.

Recommendation

I recommend that all invoices should be captured correctly.

Management response

The postings were rectified.

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3.2. Reconciliation between authorized payments and goods received-Northern Division

I observed that the following authorised payments did not agree to the amounts on the goods received voucher.

Purchase Order Details Goods Received Details Variance

Supplier Ref Date Amount Date Ref Amoun Name t Transerve 154209 12.04.12 $5,636 18.05.12 105243 $2,344 $3,292 Diesel 020055 16.04.12 $54,600 23.05.12 B4550, B4558, B4605 $54,53 5 $65 Diesel 020062 28.05.12 $54,600 01.06.12 B4609, (RHQ3850 B4622 7) $39,81 1 $14,789

Risk/Implication

Fewer goods could be delivered than those that were ordered which could result in embezzlement of funds.

Recommendation

I recommend that reconciliation be done between goods purchased and goods delivered.

Management response

The GRVs and Payments are being reconciled.

3.3. Diesel Goods Received Voucher (GRV) Book for Gweru-Southern Division

I observed that there was a missing Diesel GRV Book for Gweru.

Risk/Implication

It is difficult to ascertain quantities at hand. If a supplier were to furnish an invoice for diesel supplied, there will be no basis to support that the diesel was actually received and in what quantities.

Recommendation

I recommend that there should be better custody of goods received vouchers.

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Management response

Gweru depot manager confirmed that the missing GRN was sent to Harare procurement department as per request and never returned.

4. EMPLOYMENT COSTS

4.1. Mandatory leave policy-Head Office

Finding

Several employees have gone for consecutive years without taking leave. These have accumulated up to the maximum number of leave days.

Employee Employee Number Number of days due

Madzima 2870 90 Chikukwa 90 Gombarashoma RC129 90

Muwoni 22 90

Risk/Implication

Accumulation of a liability and potential inconsistencies or errors may remain unidentified. Fraud can easily be covered up in business processes.

Recommendation

All employees should go on leave at least once a year.

Management response

ZUPCO now has a leave planner and all mentioned employees have since taken their leave days.

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PUBLIC ENTITIES UNDER THE CATEGORY OF FINANCIAL INSTITUTIONS

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AGRICULTURAL BANK OF ZIMBABWE LIMITED (AGRIBANK) Background Agribank is a registered commercial bank in terms of the Banking Act of Zimbabwe (Chapter 24:20) and is subject to the supervision of the Reserve Bank of Zimbabwe. The Bank is a loan granting and deposit taking agricultural development financial institution. Its main business is the provision of agricultural loans, retail banking services, treasury services, bridging finance, corporate banking and advisory services. The bank is the government’s important and primary vehicle for channeling financial resources to the agricultural sector.

I have audited the financial statements of the Agricultural Bank of Zimbabwe Limited for the year ended December 31, 2013.

Opinion

In my opinion, the financial statements present fairly, in all material respects, the financial position of Agricultural Bank of Zimbabwe Limited as at 31 December 2013, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Zimbabwe Companies Act (Chapter 24:03) and the relevant Statutory Instruments ("SI") SI 33/99 and SI 62/96 and the Zimbabwe Banking Act (Chapter 24:20).

Emphasis of matter

I draw attention to Note 4 (e) to these financial statements, which states that Agricultural Bank of Zimbabwe Limited incurred a net loss of US$9 268 000 during the year ended 31 December 2013 and, as of that date the accumulated losses amounted to US$31 713 000. These conditions indicate the existence of a material uncertainty which may cast significant doubt about the ability of Agricultural Bank of Zimbabwe Limited to continue as a going concern. My opinion is not qualified in respect of this matter.

Report on other legal and regulatory requirements

As at 31 December 2013, Agricultural Bank of Zimbabwe Limited did not meet the minimum regulatory capital of US$25 000 000 as required by the Zimbabwe Banking Act (Chapter 24:20) as disclosed in note 3.8 to these financial statements.

However, the following are material issues noted during the audit.

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1. GOVERNANCE

1.1 Cash-in-transit.

Finding

For the sample tested I noted that, cash-in-transit seal numbers were not inscribed on the cash in transit voucher for a transfer of US$40,000 made to the Marondera Branch.

Risk/Implication

This may result in misappropriation of cash which may not be detected in a timely manner.

Recommendation

Cash-in-transit seal numbers should be documented on the Cash-in-transit voucher to ensure that the cash is not tampered with whilst in transit.

Management response

Noted. Seal numbers are being documented on the CIT vouchers

1.2 Customer accounts closure.

Finding

The following accounts were authorised for closure by the Customer Service Officer (“CSO”), however, there was no evidence that the branch manager had approved the closure as is required by policy.

Date account Account Authorise Authorised closed number d by CSO by branch manager 20/06/2013 110000037327 Yes No 19/08/2013 005417925101 Yes No 19/08/2013 005296521101 Yes No 30/08/2013 110000030988 Yes No

Risk/Implication

Customer accounts may be opened and closed fraudulently and this may not be detected timeously.

Recommendation

Customer accounts should only be closed after the appropriate approvals are obtained as is required by policy.

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Management response

Audit recommendations have been noted and this will not be overlooked in future.

1.3 Know-Your- Client (KYC) documentation.

Finding

The following are examples of new accounts opened without all the required know your client documents being obtained as is required by the bank’s policies and procedures:

Account number Date account opened Documents missing

110000013978 12/11/2013 KYC form 110000022877 19/09/2013 KYC form 110000060558 12/04/2013 -KYC form -Customer ID -Proof or residence -Payslip 110000060771 29/04/2013 -Customer ID -Proof of residence 110000062138 19/06/2013 -Proof of residence

Risk/Implication

This may result in the bank accepting customers who have not been vetted appropriately. In addition fictitious accounts may be opened and manipulated withoutdetection.

Recommendation

Appropriate Know-Your- Client documentation should be obtained for all new accounts opened.

Management response

A dispensation to vary normal requirements was sought through line management to open accounts for ZRP new recruits without full documents pending receipt of same as soon as they are available. We however noticed that

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most of the new recruits are school leavers who come from outside of Chinhoyi town and we have had challenges in updating their files. As a control measure, we created a separate file for such accounts and also placed a “No Debit” flag into the system so that clients will be prompted to contact the branch once they fail to withdraw cash. These accounts were opened with zero balances and no debits have gone through them since inception.

1.4 Loans and advances security.

Finding

There was no evidence of collateralisation of the loans and advances as shown in the table below at the Head Office Branch. Category Loan ID Value date Amount US$ Loan LD1321383892;1 2013/07/31 1,454,554.69 Loan LD1324146308 2013/08/29 600,000.00 Loan LD1325977254 2013/09/16 250,000.00 Loan LD1326310877 2013/09/20 250,000.00 Loan LD1328140189 2013/10/08 250,000.00 Loan LD1314973307;1 2013/05/29 4,500.00 Loan LD1308740012;1 2013/03/28 1,894,395.67 Overdraft 111000000074 2013/12/27 199,833.78 Overdraft 13000001192 2013/10/31 304,167.51 Overdraft 13000001249 2013/09/09 583,979.29

In addition there was no evidence that a formal facility letter signed by both parties was obtained for the Chemplex Corporation Limited overdraft facility.

Risk/Implication

In the event of default by a customer the entity may suffer financial loss due to failure to recover amounts through security held. In addition failure to obtain a legal binding agreement signed by both parties may leave the entity exposed to credit risk.

Recommendation

Adequate security should be obtained for all loans and advances.

Management response

Ariston Holdings Ltd

The facility was approved on an unsecured basis in line with other local lenders. The branch was only able to take security for the IDCSA loan as this was a medium term loan. Chemplex

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The offer letter is now in the file. Facility was initially granted on an unsecured basis. However in January 2014 the client was requested to provide security and they agreed to give us one of their properties which we are in the process of registering.

Cairns

The loan was approved on an unsecured basis in line with other lenders. After the company was put into judicial management, part of the conditions for the new investor is that the loans from banks will be secured. The scheme document is now under review by the investor and it is expected that once the scheme of arrangement is finalised, the loan will be restructured for 5 years on a secured basis

1.5 Backup procedures

Finding

There was no documented evidence for the successful executions and review of backups for the e-channels server from the 2nd of January 2013 to the 26th of April 2013.

Risk/Implication

If backups are not logged on a logbook and independently reviewed, there would be a risk that backups may not be performed consistently and that this will go undetected.

In the event of a disaster occurring at the onsite location, the above weaknesses may affect business recovery and continuity. This could result in significant delays in recovering business operations, which may contribute to loss of revenue.

Recommendation

I recommend that backups should be performed and logged in a logbook. The logbook should be reviewed by someone independent of the person who would have carried out the backup to ensure that the backups were actually performed.

Management response

Agreed. The systems were still in development and the backups were being done but were not being recorded on the full system list from the Operations department. This recording on the list with other systems was started when the systems and servers were handed over to the Operations department responsible for systems in Production.

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1.6 Value of security

Finding

The security value stated in the facility offer letters for the following loans and advances was more than the value as stated in the valuation reports.

Company Issue Maturity Amount Security values as Security name and Date date US$ per facility offer values as per LD letter professional number valuers LD13087527 14/06/ 09/06/2014 4,000,000 Asset Valuers & 81;1 2013 Managers (Pvt) ltd- $1.6m NOH for $5m of stand (stand no. 1882 1882 Gwelo Township Gwelo and NOH for LD1300000 N/A N/A 723,037.52 township) and 1656 US$4.2m of Lot 1A of Carse Estate. Fairvest Real Estate (Pvt) ltd-US$3.5m (Lot 1A). 31/12/2 31/01/2014 106,527.51 NOH of $439,200 for Chronicles LD13049144 013 stand 4062 Salisbury Properties for 73 township of stand $160,000. 31/12/2 31/01/2014 497,245.69 4004 Salisbury LD1304996 013 Township. 912

Risk/Implication

In the event of default by a customer the entity may suffer financial loss due to failure to recover amounts through security held.

Recommendation

Value of security should be regularly monitored to ensure that loans and advances are adequately secured.

Management response

FSI – When the registrations were done, they were based on estimates without valuation reports. When the valuation reports were requested and furnished, the figures were lower compared to the estimates and this was influenced by the prevailing conditions in the cotton industry and the value of the properties in the market, hence the difference. The branch has requested additional security from the company’s directors to make up for the difference. A restructure of the loan is currently being worked on and this is envisaged to address this issue once finalised.

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2. PROCUREMENT OF GOODS AND SERVICES

2.1 Procurement policies and procedures

Finding

Procurement of goods and services at Masvingo Branch was being done without the required supporting documents as required by policy. The transactions below are some of the examples.

Date Description of Amount Supporting expenses US$ documentation 26/04/2013 Telecom charges Internal requisition 807.56 Purchase order 24/01/2013 Postage expenses Internal requisition action pack 88.00 Purchase order 30/01/2013 Rates payable, 1,000.00 Purchase order operating licence 31/05/2013 Rent payable Internal requisition 180.00 Purchase order 10/06/2013 Water Internal requisition 461.19 Purchase order 11/09/2013 Postage expenses Internal requisition action packs 94.00 Purchase order 29/10/2013 Rent payable, 1,330.00 Internal requisition Zvishavane Nov. Purchase order Rent 21/08/2013 Postage expenses Internal requisition action packs 88.00 Purchase order

Risk/Implication

This may result in unauthorised purchases being made.

Recommendation

Laid down procedures should be followed in procurement process and appropriate tax invoices obtained for all purchases made.

Management response

The branch does not seek authority to pay utility bills which are paid against invoices. However, for best practice, the recommendation will be adopted where internal requisitions and purchase orders will be raised at the branch when paying the utility bills.

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3. HUMAN RESOURCES ISSUES

3.1 The branch staffing.

Finding

At the time of the audit four employees at the Chinhoyi Branch were absent from work. Two were absent due to ill health and the remaining two were on maternity leave. This put a strain on the remaining employees as they were short staffed and no alternative arrangements had been made. In addition the position of Relationship Officer has been vacant since January 2013 and the Branch Manager and the Customer Service Officer have been interchanging these roles and responsibilities.

Risk/Implication

This may result in inappropriate separation of duties. Strain on current staff may also lead to disgruntlement resulting in poor service delivery and reputational damage due to delays caused.

Recommendation

The branch should be appropriately staffed to ensure adequate segregation of duties.

Management response

The issue of replacement of the Relationship Officer was communicated to HR soon after the incumbent Relationship Officer resigned. Management also appraised HR on the current staffing challenges and they are aware of the branch’s plight.

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INFRASTRUCTURE DEVELOPMENT BANK OF ZIMBABWE (IDBZ)

Background information

The Infrastructure Development Bank of Zimbabwe (IDBZ) is a development financial institution which is incorporated and domiciled in Zimbabwe under the IDBZ Act [Chapter 24:14]. IDBZ and its subsidiaries, (together the “Group”) are primarily involved in mobilizing and providing finance for infrastructure development activities and management of infrastructure development projects.

I have audited the financial statements of the Infrastructure Development Bank of Zimbabwe (IDBZ) for the years ended December 31, 2013.

Opinion

In my opinion, the financial statements present fairly, in all material respects, the financial position of Infrastructure Development Bank of Zimbabwe as at December 31, 2013 and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

Emphasis of matter

I draw your attention to the matters highlighted below:

As disclosed in note 19, the group has shareholder loans denominated in various foreign currencies amounting to US$39 889 575 (2012: US$ 37 544 268) as at December 31, 2013, 80% of which are guaranteed by the Government of Zimbabwe. The loans are past due and the Group is unable to service the interest charges and to repay the capital.

For the year ended December 31, 2013, total liabilities of the Group exceeded total assets by US$ 6 357 901 (2012: US$ 11 344 865).

These conditions indicate the existence of a material uncertainty which may cast significant doubt about the Group’s ability to continue as a going concern. My audit opinion is not qualified in respect of these matters.

However, the following are material issues noted during the audit.

1. GOVERNANCE ISSUES.

1.1 Inadequate loan securities

Finding

Some loans and advances balances are either unsecured or under-secured. The following balances were noted.

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Client Balance Security Unsecured (US$) (US$) Balance (US$) Mosi oa Tunya Development Company 1,700,196 - 1,700,196 Star Africa Corporation 1,452.344 - 1,452,244 National Blankets Limited 437,483 300,00 137,483

Implication

The risk of loan losses is higher in the absence of adequate security cover.

Management response

Mosi oa Tunya: In terms of security, land which is 274ha in size is currently under valuation. A team comprising IDBZ, Ministry of Tourism and Ministry of Local Government will visit Vic Falls week ending 4 April 2014 to conduct some verification exercise. The Bank has already approved an increase in the Mosi oa Tunya facility by US$100 to facilitate issuance of a valuation report and survey report to facilitate the issuance of title deeds. Once this is done title will be out in a month. The Surveyor General is ready to issue titles once all other processes have been completed.

Star Africa Corporation was a bankers’ acceptance issued based on the company’s strong performance in prior years. The company has since faced financial difficulties due to aged and obsolete manufacturing plant. However, it has secured funding from creditors to upgrade the plant and targets to resume sugar refinery operations in May 2014. It intends to service the bank loan from funds generated from business operations.

On National Blankets, the unsecured balance is as a result of interest/rate fee charges. The company is under judicial management and the Bank expects repayment from encumbering the security.

1.2 Concentration of credit risk

Finding

The top 4 loans and advances of the Bank constitute 40% of the total loans and advances. The Zimbabwe Electricity Distribution Company (ZETDC) accounts for more than 23%. An analysis of the top 4 advances has been done below.

CLIENT AMOUNT (US$) % OF LOAN BOOK ZETDC 20,000,080 23% Cairns 5,597,354 6% Premier Service Medical Investments 5.040,107 6% Meikles Limited 4,000,000 5% TOTAL 34,637,541 40%

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Implication

The Bank could be at risk of significant losses should these customers default.

Management response

ZETDC: The facility is secured by way of a Sinking Fund funded on a monthly basis to an equivalent of 1.5 times cover of ceded revenues from ZETDC’S “ring- fenced” customers.

PSMI and Meikles: The exposure limits are indeed high, but the borrowings were approved on the basis of viability, whose basis was premised on the prior years’ solid performance and health cash flow projections for the next 5 years. The PSMI facility is adequately secured by a mortgage bond which is 1,5 times cover. The Meikles debt has reduced from US$5m to US$3m to-date.

2. REVENUE COLLECTION AND DEBT RECOVERY

2.1 Late submission of claims to judicial managers

Finding

In my correspondence with judicial managers for various clients, I noted that the Bank had not submitted its claims against certain debtors that have been placed under judicial management. As a consequence, the judicial managers confirmed nil balances for debts owed to the Bank resulting in differences with the balances recorded in the Bank’s ledger. Examples are as follows:

Client Judicial Manager Ledger Balance Confirmed Balance (US$) US$) Corvan Enterprises Matizanadzo and 246,419 - (Private) Limited Warhurst Mugandani Enterprises Dr. Cecil Madondo 517,275 - (Private) Limited

Risk/Implication

There is a higher risk of loan losses as the judicial managers may conclude on the liquidation dividend without including the Bank’s claim.

Management response

The Bank avoids proving its claims in the first creditors meeting and it is our strategy and not an omission. It is done on purpose as there is a higher risk of being asked to pay part of liquidation expenses in all cases where there is very little security to cover such expenses.

The bank judiciously ensures that claims are submitted in subsequent creditors meetings.

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PEOPLE’S OWN SAVINGS BANK (POSB)

Background information

The People’s Own Savings Bank is a corporate body established in terms of section 3 of the People’s Own Savings Bank of Zimbabwe Act, [Chapter 24:22] of 1999, to provide savings, banking and financial services in Zimbabwe. The bank accepts deposits that will accumulate interest for the benefit of the depositors and all deposits are government guaranteed.

I have audited the financial statements of the People’s Own Savings Bank for the year ended December 31, 2013.

Opinion In my opinion, the financial statements present fairly, in all material respects, the financial position of the People’s Own Savings Bank as at December 31, 2013, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

However, the following are material issues noted during the audit.

1. GOVERNANCE ISSUES.

1.1 Board composition

Finding

The Bank has been operating without a substantive Chairman since 2009. Ever since the Board Chairman resigned in 2009; the Chairman of the Audit Committee has been the Acting Chairman of the Board. The appointment of the Board Chairman is long overdue.

Risk / Implication

The objectivity of the Audit Committee is compromised.

The Acting Chairman may be overwhelmed with responsibilities thus impacting on his ability to effectively exercise his oversight role.

Recommendation

In order to enhance the objectivity of the Audit Committee, the Acting Board Chairman should not sit in the Audit Committee.

A substantive Chairman should be appointed.

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Management response

The Acting Board Chairman had continued to hold the position of the Chairman of the Audit Committee due to the skills gap within the Board itself. Following the coming in on Board of an alternate director, the observed deficiency will be corrected as a recommendation that the alternate director chair the Audit Committee is being prepared for submission to the Board for adoption.

1.2 Agriculture funding product

Finding

The Bank’s loan products in respect of agricultural activities have not been reviewed to capture the cropping programme. As a result overdraft repayments for those who borrowed to finance agriculture were irregular or did not coincide with the time the applicants realized proceeds from the sale of their produce. For instance, an overdraft facility of $100 000 to finance agriculture for a certain client expired on September 26, 2013 and as at December 31, 2013 the total amount in arrears was $109 852. The client was not in a position to immediately repay because proceeds from the sale of produce were yet to be realized.

Risk/Implication

The Bank’s cash flow projections may be disrupted where funds placed on short-term facilities end up being long term by default.

Recommendation

The Bank should review its agriculture funding structure taking into account the cropping program and ensure that follow ups on applicants are done regularly.

Management response

Observation is noted. Management will ensure that customers are availed appropriate products depending on their line of business as far as possible. The funding for agriculture will also be reviewed.

1.3 Access administration

Finding

User profiles are disabled on applications when an employee is disengaged from the organization. However, I noted that the date on which a profile was disabled was manually input into the system and this allowed input of dates prior to the actual date when the profile was disabled.

Risk/Implication

Disengaged user profiles may be kept active and used to perpetrate fraud.

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Recommendation

Management should ensure that the system is configured to capture the dates when profiles are created, modified or deleted and not allow manual input of such dates.

Management response

Observation is noted. System configuration recommendations will be escalated to the service provider.

2. REVENUE COLLECTION AND DEBT RECOVERY

2.1 Funds on placement

Finding

The Bank could not provide documented evidence of the follow ups done to recover the outstanding amount of $2 148 077 as at December 31, 2013 from a local commercial Bank. This outstanding amount was related to interbank placements undertaken by the POSB with the commercial bank that were not being repaid on time. The evidence of follow up was necessary for the Bank to evaluate whether the counter party was able to honour the previous arrangements before committing more funds to the same. The table below shows details of treasury deals.

Deal Reference Deal Maturity Principal Interest Maturity Date Date Amount LNIP250920131 25/09/13 30/12/13 $500 000 $20 000 $520 000 LNIP21020130 02/10/13 01/11/13 $700 000 $8 166 $708 166 LN180920130 01/09/13 17/12/13 $300 000 $10 500 $310 500 LNIP180920131 18/09/13 18/11/13 $200 000 $4 744 $204 744 LNIP91020130 09/10/13 08/11/13 $400 000 $4 666 $404 666 TOTAL $2100 000 $48 077 $2 148 077

Risks/Implications

If follow up is not done, the bank may fail to recover the outstanding amount and may lose potential interest income from possible reinvestment of the funds.

There may be possible financial loss through increased exposure to such placements.

Recommendation

Follow up should be done with the view of recovering the outstanding amount.

Management response

Observation is noted. Follow ups were being done but mostly verbally and through adhoc meetings which often included the CEOs and Treasurers of the two banks. The bank also discussed these outstanding placements in a number of Asset and Liability Committee meetings.

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The bank is sitting on Bankers’ Acceptances (BAs) from this counterparty which are only maturing in March 2014, thus we intend to call-up on those B.As as they mature. This is beside the assurances, security strengthening and capital raising updates that we got from this bank regarding the outstanding amounts.

2.2 Agency business

Finding

A review of the agency business between POSB and ZIMPOST revealed that ZIMPOST failed to remit to POSB any excess amounts of deposits over withdrawals from post offices as required in terms of the service level agreement item number 4.6 paragraph 3. This was as a result of POSB failing to enforce the provisions of the service level agreement. The table below shows the remittance pattern and outstanding balance by ZIMPOST for the year 2013.

Month Outstanding Current Settlements Outstanding Balance b/d Transactions (USD) Balance c/d (USD) Deposits (USD) USD January 3 710 790 3 049 577 (3 002 321) 3 758 045 February 3 758 0450 3 762 644 (4 783 800) 2 736 889 March 2 736 889 2 411 282 (3 506 200) 1 641 972 April 1 641 972 3 321 674 (3 237 100) 1 726 546 May 1 726 546 5 516 406 (4 616 200) 2 626 753 June 2 626 753 5 490 707 (5 112 953) 3 004 507 July 3 004 507 5 117 901 (3 706 191) 4 416 217 August 4 416 217 4 270 535 (3 681 294) 5 005 458 September 5 005 458 4 864 522 (4 083 752) 5 786 228 October 5 786 228 7 448 666 (5 332 551) 7 902 343 November 7 902 343 3 484 496 (5 041 823) 6 345 016 December 6 345 016 3 278 644 (3 020 260) 6 603 401

Risks /Implications

Depositor’s funds may have been misused. The bank may lose potential revenue from possible placements of the deposits from ZIMPOST.

Recommendations

The Service level Agreement should be reviewed to include interest charges on all funds outstanding.

Management should engage ZIMPOST to enforce early remittance and resolve the matter of late remittances.

Management response

Observation is noted. The late remittance of deposits by ZIMPOST has also been a cause of concern to management. We have engaged ZIMPOST on several

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occasions formally and informally. We have held meetings as well as writing to them concerning the outstanding amount. The idea of penalty interest is at discussion stage with ZIMPOST and we are in the process of attending to the service level agreement to update the interest clause. ZIMPOST has also promised to clear the outstanding settlement and they are taking steps to ensure the debt is cleared.

3. PROCUREMENT OF GOODS AND SERVICES

3.1 Ethix system upgrade

Finding

The Bank incurred expenditure of $428 542 on the purchase of the additional IT system on its EthixCore Banking System upgrade over and above the approved bid price without seeking ratification from the State Procurement Board.

Risk/Implication

There is risk of fines and penalties for non-adherence to regulations.

Recommendation

The Bank should obtain approval for variation of contract from the State Procurement Board before committing additional funds.

Management response

Observation is noted. It should however be noted that the expenditure was urgent given the serious problems that were being experienced on the core banking system at the time. Management will ensure in future that all such additional expenditure is authorised by the State Procurement Board.

4. EMPLOYMENT COSTS

4.1 Taxable deemed benefits

Finding

Five (5) vehicles were sold to employees on completion of five years’ service at ten percent (10%) of the average market price as per the Bank policy. As a result, taxable deemed benefits arose when employees acquired motor vehicles at a discount from the Bank on their termination of employment during the year. The deemed benefit amounting to $69 660 was the difference between the fair market price of the motor vehicles and the discounted disposal prices. However, the Bank did not include these deemed benefits which accrued to the employees in its computation of taxable income.

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Risk/Implication

The Bank may suffer financial loss due to penalties and fines that may be charged by the Zimbabwe Revenue Authority due to non-compliance with Income Tax Act [Chapter 23:06].

Recommendation

The Bank should include the deemed benefits accruing from the disposal of motor vehicles at discounted prices in taxable income computations.

Management response

Observation is noted. Management will rectify and ensure the same does not recur in the future.

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SMALL ENTERPRISES DEVELOPMENT CORPORATION (SEDCO): 2012

Background information

The Small Enterprises Development Corporation was incorporated in Zimbabwe in terms of the Small Enterprises Development Act [Chapter 24:12] as amended. The nature of business of the Corporation is that of providing loan finance to upcoming and existing small to medium scale enterprises and that of property letting and investment activities.

I have audited the financial statements of Small Enterprises Development Corporation for the year ended December 31, 2012. My Opinion was Qualified as below:

Basis of Qualified Opinion

Fraud

The Corporation was affected by fraud for the third year running. Cash estimated to be over $29 000 could not be accounted for during the year under review. The extent of the prejudice could not be determined due to the destruction of some of the records and documents.

Qualified Opinion

In my opinion, except for the effects of the matter described in the Basis for Qualified Opinion paragraphs, the financial statements present fairly, in all material respects, the financial position of Small Enterprises Development Corporation and its subsidiary as at December 31, 2012, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

However, the following are other material issues noted during the audit:

1. REVENUE COLLECTION AND DEBT RECOVERY

1.1. Calculation of portfolio risk

Finding:

The AFROSOFT System used for processing of Loans was unable to calculate the portfolio risk for the year under review.

Risk/Implication

Loans showing possible signs of defaults might not be detected for timely correction. It will be difficult to adequately provide for the loans in the event of a default.

Recommendation

The Loan processing system should be enhanced to allow calculation of portfolio risk for periods greater than 1 day, greater than 30 days and greater than 60 days. This

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calculation should be done at Portfolio Analyst level, Branch level and as well as at the corporate level.

Management response

The Corporation is in the process of replacing the Afrosoft system and the new system (Theme Pro Micro Finance) is expected to go live by the beginning of 2014. The PAR is more of the Age analysis and in the new application system we have the same age analysis covering the different time frames as being proposed by the audit.

1.2. Repayment reports

Finding

The AFROSOFT System was unable to produce a report for expected repayments. I was unable to verify repayments of loans that were due within a week or a month from the system. The Corporation was unable to send reminders of amounts due to clients in advance.

Risk/Implication

Loan repayments amounts may be difficult to collect if clients are not reminded. Loan amounts maybe not be recovered timely thereby impacting on the cash flows of the Corporation.

Recommendation

The Corporation should implement a system that is able to produce reports on expected repayments.

Management response

The new system has a Targeted Collection report which shows the expected collections by client to assist in a more proactive in credit management approach. Afrosoft system did not have such a report hence Operations had to rely on a report that would show accounts that are overdue for follow-up.

1.3. Funds on placement

Finding

The Corporation made an investment of US$1 006 222, being funds on placements (short term investment) with Royal Bank Limited, the funds were invested from February 3, 2012 to July 20 ,2012 with a maturity value of USD1,006, 222. The Bank failed to pay the full amount when the loan had matured. There was no evidence to support that due diligence exercise was performed before the Corporation invested in Royal Bank.

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Risk/Implication

Recoverability of the amount is doubtful.

Recommendation

The Corporation should follow up on the amount.

Management response

The matter has been referred to the Board and it advised that we wait for the outcome of the liquidation process of the bank by its liquidators, Tudor House Consultants. The write off will be based on the amount that would have proved irrecoverable after the liquidation process.

1.4. Client loan statements

Finding

The Corporation’s clients were not being issued with monthly statements for them to easily manage their repayments. Most clients especially at branch level could not tell their outstanding amounts after being levied interest penalties for defaulting loan repayments due to lack of monthly statements. For the clients that were circularized the loan amount could be easily confirmed but it proved difficult for the clients to confirm the amounts they owed to SEDCO at any given time. Some clients had credit balances on their statements which were not known to them.

Risk/Implication

If clients are not given monthly statements they may not know the actual amounts of repayments this may result in over or under payments of the loans.

Recommendation

The Corporate should provide loan statements to the clients on a regular basis.

Management response

The Afropack system did not produce reliable client statements such that each time a branch requested for a client`s balance, a manual computation would need to be done to get the correct balance. Once the Corporation has fully migrated the system is decentralised and allows for bulk messaging of the balances.

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PUBLIC ENTITIES UNDER THE CATEGORY OF UNIVERSITIES AND TERTIARY INSTITUTIONS

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CHINHOYI UNIVERSITY OF TECHNOLOGY (CUT)

Background information

Chinhoyi University of Technology is a Higher Education Institution governed by the Chinhoyi University of Technology Act [Chapter 25:23].The University’s principal activities include the advancement of knowledge, the diffusion and extension of arts, science and learning, the preservation, dissemination and enhancement of knowledge that is relevant for the development of the people of Zimbabwe through teaching and research and, so far as is consistent with those objectives, the nurturing of the intellectual, aesthetic, social and moral growth of the students at the University.

I have audited the financial statements of Chinhoyi University of Technology for the year ended December 31, 2013.

Opinion

In my opinion, the financial statements give a true and fair view of the financial position of Chinhoyi University of Technology as at December 31, 2013, and of the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

However, the following are material issues that were noted during the audit.

1. GOVERNANCE ISSUES

1.1 Council Committee meetings

Finding

The following council committees did not hold the number of meetings as per their policy and in terms of the principles of good corporate governance.

Committee Number of meetings per policy Number of meetings held Audit committee 4 1 Finance committee 4 2

Risk/Implication

The University may lack strategic guidance to achieve its objectives.

Council may fail to exercise its fiduciary duties.

Risk management systems may collapse.

Recommendation

Council and sub committees should meet at least quarterly as per the approved diary of meetings.

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Council must fully comply with the provisions of the Chinhoyi University of Technology Act [Chapter 25:23].

Management response

In view of the national events which took place in 2013 Council was unable to hold all meetings. The diary for the year 2014 has been compiled and the meetings will be held as planned.

1.2 Fund accounts reconciliations

Finding

There was a shortfall of $63,444 between specific funds and the bank balances supporting the fund accounts. Some funds that are deposited in the University bank account are not being transferred to the designated bank accounts for specific funds.

Risk/Implication

Specific funds may be used for activities other than those that they were earmarked for.

Loss of donors if funds are not properly reconciled and accounted for.

Recommendation

All specific funds should be deposited in the designated specific funds bank accounts. In cases where the money is deposited in the University bank account, these amounts should be transferred immediately to the specific funds bank account.

Management response

In future all commitment of expenses of the specific funds will be met from the fund account and ledger accounts reconciled to reflect the same. Specific Funds deposited in the University bank account will be immediately transferred to the designated specific funds bank accounts.

2. REVENUE COLLECTION AND DEBT RECOVERY

2.1 Cadetship student creditors

Finding

The University had cadetship student creditors amounting to $84,666. The amount relates to cadetship fees for students who were no longer with the University. The Ministry of Higher and Tertiary Education Science and Technology continued to send funds based on the approved list of students despite the fact that some of these students will have dropped out or completed their studies. The University did not inform the Ministry of the students that had dropped out or completed their studies.

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Risk/Implication

Funds may be lying idle yet there are some students in need of cadetship funding.

Recommendation

Students who have completed their studies should be removed from the cadetship programme so that other students may benefit.

The University should make an assessment every semester to ascertain cadetship students who are still enrolled with the University and inform the Ministry of those who will have dropped out.

Management response

The University used to receive cadetship funds from old schedules which are with the Ministry but because some students pay some fees on their own they end up having credit balances when Ministry also pays. We are now giving the Ministry schedules of who to pay fees for. We will also assess cadets who are still in the system every semester. Meanwhile, students with credit balances will be refunded as and when they come to claim their refunds.

2.2 Lease of Orange Grove motel

Finding

The offer to lease Orange Grove Motel was not done through tender. The rental charge for Orange Grove Motel has not been reviewed in two years yet the lease agreement states that rent shall be subject to review on an annual basis. The lessee of Orange Grove Motel (Mazowe Garden Plaza) owed CUT an amount of $119,334 as at December 31, 2013 and subsequent receipts as at February 11, 2014 totaled $79,517. A review of the minutes of a series of Adhoc Tender Evaluation Committee meetings to review the lease agreement revealed that the debt has been outstanding for a long time and the tenant was failing to meet his payment obligations. I also noted that the University had not taken any meaningful action to rectify the situation as Mazowe Garden Plaza was still occupying the property.

Risk /Implication

The University may be charging sub-economic rentals.

The University may fail to recover outstanding debts.

Recommendation

The tender evaluation committee should consider the reputation and ability of the lessee to pay rentals before a tenant is approved.

The rent should be reviewed on an annual basis to comply with the provisions of the lease agreement.

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The University should enforce collection of long outstanding debtors. The best practice in leasing hotels is to set a fixed rate plus variable rent that is calculated as a percentage of a chosen benchmark e.g. turnover or profit before tax.

Management response

When we bought Orange Grove Motel, there was a lot of tension with locals who did not want us to use the facility entirely for academic purposes. A suitor who also wanted to buy and use the property presented his request to lease and continue the old business. A comparative analysis of rentals for similar hotels arrived at the current rental. The economic difficulties faced by all companies made the tenant to default. Letters of demand were written to the debtor monthly and meetings were even held that he attended. We are in the process of cancelling the lease. Three months’ notice has been given as required by law. The tender evaluation committee will put to tender the lease of Orange Groove Motel when the notice to vacate the premises has expired.

3. PROCUREMENT OF GOODS AND SERVICES

3.1 Procurement policy

Finding

The procurement policy requires that three (3) quotations be obtained before awarding any tender. The quotations should be presented to the tender evaluation committee for adjudication before the purchase is authorised. However, the committee approved procurement of some goods and services without three quotations being sought or floating an informal tender for amounts exceeding $10 000. The following are examples of tenders where only one quotation was obtained;

Tender Details Quotations Chosen Amount Number obtained Supplier STE153/249/2013 ICT Iron port Axis Solutions Axis Solutions $11,891 STE162/266/2013 Renting of Qrent Qrent $22,500 computers STE/146/237/2013 Bricks Beta Bricks Beta Bricks $28,650 STE/146/235/2013 Planter Farmec Farmec $12,900 STE/147/239/2013 Automatic ThermoFisher ThermoFisher $54,854 elementary Scientific Scientific analyzer STE/162/263/2013 Heavy duty Xerox Xerox $19,000 photocopier STE/162/265/2013 Industrial Mac Brothers Mac Brothers $12,443 Laundry Machine

Risk/Implication

Financial losses may be incurred due to purchases above market prices.

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Purchases may be made at uneconomic prices.

Recommendation

The procurement regulations should always be complied with.

Management response

Enquiries were made from some suppliers, but the suppliers did not have the required items hence they could not give us the quotations. In future, tenders will be put in the press. The procurement policy will be complied with by ensuring that there are at least three quotations.

4. EMPLOYMENT COSTS

4.1 Tax on staff benefits

Finding

The benefit given to staff in the form of payment of tuition fees for their children was not being taxed. Holiday allowances paid to executives did not go through the payroll and were not being taxed.

Executive management enjoy an education benefit in terms of Clause 2.2.9 of their contracts, limited to tuition fees, limited up to three (3) biological children at rates applicable to Government schools. The University was also paying accommodation and travel expenses but these were not contained in the contracts.

Risk/Implication

Failure to tax the staff benefits attracts penalties from ZIMRA. The benefit being received by executive management may be above what the contract permits.

Recommendation

All the benefits received by all staff should be taxed in terms of Section 8(1) of the Income Tax Act [Chapter 23:06].

The University should come up with a policy on education benefit for executive management and have it approved by Council.

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Management response

The benefits are now going through payroll. Management is in the process of compiling all the benefits accruing to the employees with a view to tax them. The education benefit for executive management is based on what other Universities are doing. The University will craft its own policy to remove ambiguity of the terms “tuition fees” and “government rates”.

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CHINHOYI UNIVERSITY OF TECHNOLOGY HOTEL

Background Information

The Hotel operates under the School of Hospitality and Tourism of Chinhoyi University of Technology. Its principal activity is to advance the provision of knowledge through hands-on experience to students from the School of Hospitality and Tourism. The Hotel also offers accommodation and venues for business and social meetings.

I have audited the financial statements for the Chinhoyi University of Technology Hotel for the year ended December 31, 2013.

Opinion

In my opinion, the financial statements give a true and fair view of the financial position of Chinhoyi University of Technology Hotel as at December 31, 2013, and of the results of its operations and its cash flows for the year then ended in accordance with International Reporting Standards.

However, the following are material issues noted during the audit.

1. GOVERNANCE ISSUES

1.1 Board committee meetings

Finding The following committees did not hold the number of meetings as per their policy and in terms of the principles of corporate governance.

Committee Meetings as per policy Number of meetings held Board of Trustees 4 2 Finance Committee 4 1 Business Development Committee 4 2

Human Resources Committee 4 1

Risk/Implication

The Hotel may lack strategic guidance to achieve its objectives.

The trustees may fail to exercise their fiduciary duties.

Recommendation

The committees should meet as prescribed to enable the trustees to effectively monitor the performance of the hotel and provide the necessary strategic guidance.

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Management response

Noted, with great concern. We will push to grow the number of meetings to be held.

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GREAT ZIMBABWE UNIVERSITY (GZU)

Background information

The Great Zimbabwe University is a Higher Education Institution created by an Act of Parliament; the Masvingo State University Act [Chapter 25:24] No. 11 of 2002 as amended, and is domiciled in Zimbabwe.

I have audited the financial statements of the Great Zimbabwe University for the year ended December 31, 2013.

Opinion

In my opinion, the financial statements present fairly, in all material respects, the financial position of the Great Zimbabwe University (GZU) as at 31 December 2013 and its financial performance and its cash flows for the year then ended.

However, the following are material issues that were noted during the audit.

1. GOVERNANCE ISSUES

1.1 Council members

Finding

In terms of Section 10 of the Great Zimbabwe University Act (Chapter 25:24) of 2007, the Great Zimbabwe University Council is supposed to be constituted of 45 Council members, however during the year the University only had 29 members appointed to the Council.

Risk/Implication

The Council’s effectiveness in carrying out its mandate might be negatively affected if essential input, from the unrepresented constituencies, needed during Council deliberations is not available.

Recommendation

Council should ensure that, at all times, the University is in full compliance with all relevant rules and regulations which may directly affect the operations of the University. However, where it is not possible to comply with certain provisions of rules and/ or regulations, the Council should engage the respective authorities and seek to be formally condoned.

Management response

Noted. We will forward the recommendation to the Council for the way forward.

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1.2 Lease agreements

Finding

Upon inspection of the University’s records regarding leased properties, I noted that the University did not have documented lease agreements for the properties that it was renting during the year under review.

Property rented from Use Masvingo Teachers’ College Students accommodation and offices Zimbabwe Development Fund Staff and students accommodation Masvingo Polytechnic College Students accommodation and offices

Risk/Implication

Lack of transparency and audit trail.

Recommendation

Management should ensure that the University has documented evidence for all the leased properties in the form of appropriately signed lease agreements.

Management response

Noted. A memorandum of understanding for the lease has been drafted and will be signed by the Zimbabwe Development Fund and the University; and the University will engage the responsible authorities from both Masvingo Teacher’s College and Masvingo Polytechnic College so as to formalise the lease arrangement.

2. EMPLOYMENT COSTS

2.1 Statutory deductions

Finding

During the audit, I noted that the following deemed benefits accruing to some of the University’s staff during the period under review were not being taxed:  Exempt tuition fees benefit; and  End of contract car benefit.

Risk/Implication

Penalties and fines may be charged by the relevant authorities.

Recommendation

Management should ensure that all deemed benefits taxable are taxed and that the monies are paid over to the tax authorities.

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Management response

Noted. All taxable benefits are now being taxed in line with the provisions of the relevant rules and regulations.

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HARARE INSTITUTE OF TECHNOLOGY (HIT)

Background information

The Harare Institute of Technology is a Higher Education Institution governed by the Harare Institute of Technology Act [Chapter 25:26] and is domiciled in Zimbabwe.

I have audited the financial statements of HIT for the year ended December 31, 2013.

Opinion

In my opinion, the financial statements present fairly, in all material respects, the financial position of the Harare Institute of Technology (HIT) as at 31 December 2013 and its financial performance and its cash flows for the year then ended.

However, the following are material issues that were noted during the audit.

1. GOVERNANCE ISSUES

1.1 Insurance of assets

Finding

The Institute’s assets were not insured save for motor vehicles.

Risk/Implication

The Institute may not recover the value of its assets in the event of possible loss through theft, fire, or any other unforeseen disasters.

Recommendation

Management should ensure that all the Institute’s assets are adequately insured with reputable and registered insurance companies/brokers.

Management response

The Institute has engaged various insurance companies to come up with a model that is affordable given resource constraints.

2. EMPLOYMENT COSTS

2.1 Taxation of benefits

Finding

The Institute is paying telephone allowances to its staff and is not subjecting the allowances to taxes as it is not included in the Institute’s payroll for computing Pay as

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you Earn (PAYE). The motor vehicle fringe benefit is also not taken into account in computing PAYE.

Risk/Implication

Possible fines and/or penalties which may be levied by the tax authorities for non- compliance.

Recommendation

Management should ensure that all allowances and fringe benefits that are taxable are included in the payroll for purposes of computing employee taxes.

Management response

Motoring benefits and cell phone allowances have not been traditionally subject to tax in all state universities, however, the issue is now under consideration in consultation with other state universities.

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MIDLANDS STATE UNIVERSITY

Background information

The Midlands State University (MSU) is a Higher Education Institution governed by the MSU Act [Chapter 25:21] and is domiciled in Zimbabwe.

I have audited the financial statements of Midlands State University for the year ended December 31, 2013.

Opinion

In my opinion, the financial statements present fairly, in all material respects, the financial position of the Midlands State University (MSU) as at December 31, 2013 and its financial performance and its cash flows for the year then ended.

However, the following are material issues that were noted during the audit.

1. GOVERNANCE ISSUES

1.1 Mortgage scheme

Finding

The University made an investment amounting to $ 608,000 in FBC Building Society at below market interest terms. This was done in order to assist employees to acquire houses. However, the bank ended up benefiting more compared to the assistance it was supposed to give to the University. The investment with the Building Society was made for a period of five (5) years at an interest rate of 1% per annum which is far less than the Bank itself is charging the employees on the mortgage scheme. While I recognize that this was a welfare programme, I am of the opinion that a better rate could have been negotiated or alternatively, the loans could have been awarded to the employees at a better rate directly and not through the bank.

Risk/Implication

Financial loss to the University.

Recommendation

For future additions to the scheme, the University should negotiate for better terms.

Management response

Protracted negotiations with FBC were held with a view to getting a better interest rate without success. The loans could have been awarded direct to the employees. However, University management felt that we did not have the capacity to manage such a long term scheme. Further negotiations will be pursued with the bank to get a better rate.

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1.2 User rights forms

Finding

The University did not use change authorisation forms upon changing user rights in the accounting system Pastel Evolution. User rights were changed by the system administrator without anyone else authorizing the change.

Risk/Implication

There is no audit trail on authorization of user rights changes. User rights may be inappropriately assigned.

Recommendation

The authorization for user rights changes should be documented through the use of change authorization forms which should be authorized by the Deputy Bursar.

Management response

User rights forms will be put in place, which will describe the system user rights of an individual and these, should be signed by the user, supervisor and the Deputy Bursar (System Administrator). In the event of change in one's scope of work, the same forms will be used and be authorized by the System Administrator.

1.3 Information technology (IT) policy

Finding

The University had no formalized Information Technology Policy in place. The document was still at its draft stage. As such computer users are not formally aware of the Information Technology policy.

Risk/Implication

Security breaches as users may not be aware of what is expected of them in adhering to the University’s IT and security expectations. The IT environment may be difficult to control as there is no formal documentation to spell out what is expected from the information system users.

Recommendation

The IT policy should be formalized and adopted by Council.

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Management response

Noted. Management has already engaged the Chairman of the ICT Committee to facilitate the crafting of the ICT Policy and Disaster Recovery Plan.

2. PROCUREMENT OF GOODS AND SERVICES

2.1 Quotations

Finding

Payments for procurement of goods were made using quotations. There were also cases where transactions selected for testing had no supporting invoices. Invoices had to be sought during the audit. The following are examples of such transactions:

Supplier Date Amount $ Solution First 22.02.2012 37,232.00 Elicon 02.12.2012 31,400.00 Jackson Munyeza 31.08.2012 48,730.00 Chips Computing Services 29.06.2012 23,414.00

Risk/Implication

Fraudulent payments may be made.

Recommendation

Payments should be made against valid supplier invoices.

Management response

All payments will be made against an invoice and for those purchases which would be conducted on Cash On Delivery basis a GRV register will be maintained which will be used as a tool to follow up invoices and GRVs.

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NATIONAL UNIVERSITY OF SCIENCE AND TECHNOLOGY NUST (2012&2013)

Background information

National University of Science and Technology is a Higher Education Institution governed by the National University of Science and Technology Act [Chapter 25:13] of 1990 and is domiciled in Zimbabwe.

I have audited the financial statements of National University of Science and Technology for the year ended December 31, 2013.

Opinion

In my opinion, the financial statements present fairly, in all material respects, the financial position of the National University of Science and Technology (NUST) as at December 31, 2013 and its financial performance and its cash flows for the year then ended.

However, the following are material issues noted during the audit.

1. GOVERNANCE

1.1 Tax registration

Finding

The University Shop was still not registered for VAT despite the fact that it supplied taxable goods and the value of the supplies in any given year exceeded the minimum threshold of $60,000.

Risk/Implication

This may result in financial losses due to penalties being charged by ZIMRA.

Recommendation

In accordance with the tax legislation; the University Shop should be registered for VAT.

Management response

The EY Tax Specialist was consulted and their report will be analysed. However, the threshold was only reached after adding sales on consignment with goods supplied on a sale or return basis.

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2. REVENUE COLLECTION AND DEBT RECOVERY

2.1 Fidelity loans

Finding

The University had to settle its employees’ debts to Fidelity Printers in April 2013. After settlement was made on behalf of the employees, an apportioned deduction in their respective pay slips was only made in the month of April and no deductions were made subsequently. The balance outstanding was not transferred to the individual accounts.

Risk/Implication

Misstatement of staff debtors.

Recommendation

The balances should be transferred to individual accounts. The payroll staff should ensure that all staff related expenses are processed in the payroll every month.

Management response

The deductions need to be effected on Paywell to clear the debt. They are not NUST staff loans.The factors leading to payment to Fidelity were specific to only that case and it’s not likely to occur again.

2.2 Staff debtors

Finding

No recoveries were made from staff debtors who resigned during the period under review. Amounts owed by the employees were not deducted from the terminal benefits.

Below is an example of employees who owed the University when they resigned and were given their full terminal benefits:

Employee Number Employee Name Amounts Owed Date of Retirement $ 300 Gawajena 7 329 March 2012 2490 Maunganidze 508 2012 1427 Makasi 427 March 2013

Risk/Implication

Misstatement of staff debtors.

Recommendation

Amounts due from employees who resigned should be deducted from their terminal benefits.

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Management response

Necessary procedures to be followed before a clearance of staff will now be enforced.

Monthly status reports on retirees and resignees must be done and reviewed by the Deputy Bursar Finance and Administration. The Deputy Bursar Accountancy and Management Systems will also ensure that the reconciling items are cleared.

2.3 Staff loans

Finding

Upon review of the staff debtors listing, it was noted that no deductions were made through the payroll in respect of amounts that were owed by some staff members in the prior year. Examples of such employees were;

Employee Amounts Due in Amounts Due in Deductions in Current Number Prior Year Current Year Year $ $ 655 4 812 4 812 - 417 1 968 1 968 - 1402 1 587 1 587 - 1741 1 283 1 283 -

Risk/Implication

Misstatement of staff debtors and misappropriation of funds.

Recommendation

All amounts due from employees should be recovered through the payroll.This should be based on the agreed terms and conditions.

Management response

The omission in the system has been identified. Together with Internal Audit, ICTS and Human Resources, the Bursar’s department is working on a system that will not allow such occurrences in future. The Assistant Accountant Research Board will also ensure that specific fund advances are accounted for monthly.

3. PROCUREMENT OF GOODS AND SERVICES

3.1 Payments for goods and services

Finding

Cash disbursements were done using pro-forma invoices and quotations and no subsequent invoices are filed (nor receipts) from the supplier, so as to ensure that the staff utilized all the cash they were given. The following examples show expenditures made using pro-forma invoices or quotations where no subsequent invoices were filed.

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Date Description Amount $

25/09/2013 The Chronicle & Sunday News 455 17/10/2013 The Chronicle & Sunday News 389 2013/06/06 Elma Lithographic Printers 380 2013/07/05 Art Effex 288 19/07/2013 Sterling Furniture 4,053 30/07/2015 Spaceball t/a Comp-u-plus 2,510 2013/04/06 Mpala Guest Lodge 1,040

Risk/Implication

Misappropriation of funds.

Recommendation

Where cash disbursements are made using quotations, invoices or receipts should be agreed to the amounts disbursed and subsequently submitted.

Management response

The problem arose because payment vouchers were raised and passed for payment before the order was issued. This will be rectified with the implementation of the ordering and creditors system which will ensure supplier invoices are only passed for payment after delivery is done.

4. EMPLOYMENT COSTS

4.1 Payroll allowances

Finding

Payroll related allowances for employees were only being processed in Paywell and Navision upon payment.

Risk/Implication

Misstatement of expenses.

Recommendation

All expenses should be recognised when they accrue and not when payment has been made.

Management response

All payroll allowances will be processed on Paywell monthly. In relation to lecturing claims, amounts will be journalized monthly as claims are lodged. A subsidiary record will be maintained reflecting all amounts accrued and the relevant tax. ZIMRA will be engaged in relation to remittance of PAYE.

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Together with ICTS we are working on the Creditors system and linking payroll with Navision. In addition, at year end utility accounts will be scrutinised to identify accruals and prepayments.

4.2 Payments to part time external employees

Finding

As per the University policy, no advances were given to part time external employees and attachees. However these were included in the staff debtors listing due to payments done outside the system.

Examples of external part time employees who were paid outside the system and included on the staff debtors listing are as follows:

Employee Number Employee Name Amounts Owed $ 314 Njini 15,872 291 Phiri 11,314 3239 Ncube 1,158

Risk/Implication

Misstatement of staff debtors, misappropriation of funds. Understatement of PAYE payable to ZIMRA.

Recommendation

Payments to part time external employees should be made through the system on a timely basis.

Management response

314 Njini: These were part payments relating to claims. The manual payments option was not working at the time but has since been rectified. Future part payments will now be processed through payroll.

291 Mr Phiri: Retired on 30.6.13 but his exit package was only finalised in January 2014. The amount advanced was accrued and was not against part time claims. He is not a part-time lecturer.

3239 Mr Ncube: Had a systems automatic advance resulting from deduction of fees as a student on attachment. It will be rectified through clearing the salaries control account.

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4.3 Medical expenses fund

Finding

Funds that were set aside to meet medical expenses of students were used for other purposes which were not related to medication. Examples noted in the Medical Aid accounts were as follows:

Description Amount $ NikisingorimaTichaona Lovejoy-t shirts for dean 1,960 Bulawayo Rainbow Hotel-students leaders orient 1,712 Gees Supermarket-lunch for src faculty reps 350 Gees Supermarket-lunch for attending students 375 Chris Photo Studios-dvd& photos for Dr Sifobel 250 Mr Prosper Machengo-addressing NUST students 200 Fuel purchases from works dept 475

Risk/Implication

Misappropriation of funds.

Recommendation

Funds should be utilized for the specific purposes for which they are set aside for.

Management response

Students control the SRC and Medical Aid votes. Any expenses relating to medical trips and medical related costs are charged to the Medical Aid vote. This includes fuel for the vehicle that ferries students on medical grounds. The other expenses should have been charged to the SRC vote.

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UNIVERSITY OF ZIMBABWE

Background Information

The University of Zimbabwe (hereinafter referred to as UZ) is a Higher Education Institution governed by the University of Zimbabwe Act [Chapter 25:16] and is domiciled in Zimbabwe.

I have audited the financial statements of the University of Zimbabwe for the year ended December 31, 2013.

Opinion

In my opinion, the financial statements present fairly, in all material respects, the financial position of the University of Zimbabwe (UZ) as at December 31, 2013 and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

However, the following are material issues that were noted during the audit.

1. GOVERNANCE ISSUES

1.1 Cash Handling

Finding

Cash received was not being banked on a daily basis. Of the 25 days selected for testing, cash was only banked timely on one occasion where the cash was banked the following day. Examples of such instances are as follows:

Date received Date Banked Delay Amount 21 June 2013 28 June 2013 7 days 5,305.00 08 October 2013 14 October 2013 6 days 3,296.00 18 October 2013 29 October 2013 11 days 4,330.00 27 November 2013 04 December 2013 7 days 744.00 28 November 2013 04 December 2013 6 days 3,899.00

Risk/Implication

This increases the risk of misappropriation of cash and cash rolling.

Recommendation

All cash collections should be deposited in total the following day. This would reduce risks associated with holding cash on the University premises and enable opportunities to derive interest income. Furthermore, management should consider implementing frequent surprise cash counts which can be carried out by either the internal audit department or an executive of the accounts department. This would minimize risks related to misappropriation of cash.

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Management response

Noted. While it is best practice that cash receipts be banked the following day, there is also need to take into account the challenges our bankers may have regarding the collection of money from our premises for deposit. Due to resource constraints, our bankers are not able to collect cash for banking every day and therefore the best practice requirement cannot be met. However we continue to engage them with the hope that they increase their cash collection frequency.

1.2 Inventory management and accounting system

Finding

The University had no accounting system for inventory. Inventory quantities were determined during the year end stock count and the inventory values were determined using market prices.

Risk/Implication

Inventory is a commodity which can be a significant drain on working capital. Inability to obtain accurate records of inventories at any point in time during the year may result in management not being able to monitor and control the expenditure related to inventories during the year. In addition, theft and fraudulent activities may remain undetected during the year.

Recommendation

The University should invest in an inventory system which will enable it to maintain perpetual stock records and minimize errors.

Management response

The need to invest in an integrated inventory system is appreciated and remains one of the top priority projects during 2014 financial year. This will definitely minimize human error and inconsistencies in inventory management.

1.3 Insurance for assets

Finding

Of the 283 motor vehicles belonging to the university, 104were not insured.

Risk/Implication

Failure to insure assets leaves the University vulnerable to significant financial losses in the event of accidents or disasters.

Recommendation

All University motor vehicles should be ensured.

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Management response

Due to financial constraints all assets of the University are not insured.

2. PROCUREMENT OF GOODS AND SERVICES

2.1 Receipt of goods Finding There were goods acquired by the University for which no central receiving department was in place. With the exception of stationery and computer equipment, when purchases are done, goods are received by the respective departments and there is no individual who monitors the physical receipt of goods. Recording of these purchases is only done once the department that has received the goods produces the supporting documents to the bursar’s department.

Risk/Implication In the absence of a central receiving department, the University cannot keep track of whether all items acquired were received and adequately recorded. The University runs the risk of paying for fictitious goods. Furthermore should the receiving department not produce the documents timely to the bursar’s office, these items will not be recorded timely.

Recommendation All procurements by the University should be done and monitored by a central department. This department will be responsible for managing the entire process from approving the purchase order, sourcing suppliers, making the purchase and payments, receiving the goods and recording the goods. This department will then be responsible for issuing the goods to the respective departments. This will also enable the University to monitor the University’s purchases process and monitor liabilities.

Management response

The comment is noted. Plans are now at an advanced stage to set up a central receiving of goods point and we hope it will be operational by 31 May 2014.

3. EMPLOYMENT COSTS

3.1 Unclaimed salaries

There were long outstanding unclaimed salaries with a balance of $ 238 377.13 as at year end date. Explanations provided on the balance highlighted instances where employees submit incorrect information such as wrong bank accounts. As a result, when salaries are being posted to their bank accounts they are rejected. Some of these salaries are dating back to 2009.

Risk/Implication

This created an opportunity for fraud.

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Recommendation

There should be timely follow ups whenever salaries are rejected by the bank. All outstanding salaries should be identified and the individuals affected should be alerted of any anomalies.

Management Response

Efforts are being made to get in touch with the respective members .The total outstanding figure is not only for rejected salary payments but comprises outstanding salary payments for staff members who have not yet submitted their banking details. The majority of these members are Part Time Academic employees who by the nature of their engagement are hard to get in touch with.

From the Paymaster’s point of view, it defies logic for a rational and bona fide employee to be ignorant and mum about non-payment of salary dues, we are thus, approaching these ‘stray’ salaries with skepticism regarding their authenticity and entitlement, and in this regard tangible prima facie evidence is being sought to validate these salary claims.

3.2 Remittance of taxation on deemed employee benefits

Finding

The University has not been calculating and remitting PAYE on the deemed benefit where employees exercise their option to purchase their allocated vehicle after four years of use. The Toyota Hilux highlighted below was sold to the University employee for US$7.8 thousand against a net book value of US$50 thousand. The resultant taxable deemed benefit would thus be 42 thousand dollars.

Asset Code Description Purchaser Net Book Value Toyota Hilux Fortuner D4D ACB 3087 Bursar 4X4 SUV 50,085.50

Risk/Implication

Non remittance on PAYE deemed benefits may result in hefty ZIMRA penalties.

Recommendation

PAYE should be calculated and remitted on all deemed employee benefits going forward. Alternatively, we recommend the University to seek clarity with ZIMRA with regards to treatment of the benefit. Copies of correspondence should be kept for future references.

Management response

The recommendation is noted.

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ANNEXURES

ANNEXURE (A)

STATE ENTERPRISES AND PARASTATALS AUDIT OPINIONS PER ACCOUNT

PUBLIC ENTITY YEAR OPINION

Authorities and Agencies Agricultural Marketing Authority (AMA) 2013 Unqualified Broadcasting Authority of Zimbabwe (BAZ) 2013 Unqualified Civil Aviation Authority of Zimbabwe (CAAZ) 2012 Unqualified Health Professions Authority (HPA) 2013 Unqualified Medicines Control Authority of Zimbabwe 2013 Unqualified (MCAZ) National Social Security Authority(NSSA) 2013 Qualified

Postal& Telecommunication Regulatory Authority 2013 Qualified of Zimbabwe (POTRAZ) Radiation Protection Authority 2013 Unqualified Zimbabwe Energy Regulatory Authority (ZERA) 2013 Unqualified Zimbabwe Investment Authority (ZIA) 2013 Unqualified Zimbabwe Parks and Wildlife Management 2012 Unqualified Authority Zimbabwe Revenue Authority (ZIMRA) 2013 Unqualified

Boards Health Services Board 2013 Unqualified National Indegenisation and Economic 2013 Unqualified Empowerment Board. Tobacco Industry and Marketing Board 2013 Unqualified Tobacco Research Board 2013 Unqualified Unqualified

Companies and corporations Allied Timbers (Pvt) Ltd 2012 Qualified with an Emphasis of matter

2013 Qualified with an Emphasis of matter CMED (Pvt) Limited 2013 Unqualified Cold Storage Company and its Subsidiary Wetblue Industries (Pvt) Limited 2012 Qualified with an Emphasis of matter

Courier Connect 2012 Unqualified with an Emphasis of matter Unqualified with an Emphasis of 2013 matter

Deposit Protection Corporation 2013 Unqualified Liteford Engineering 2013 Unqualified Marange Resources 2012 Unqualified

2013

344

PUBLIC ENTITY YEAR OPINION Minerals Marketing Corporation of Zimbabwe 2013 Unqualified (MMCZ) & Mellofield 2013 Unqualified opinion and qualified on legal and regulatory matters National Oil Infrastructure Company of Zimbabwe 2013 Unqualified (NOIC) National Pharmaceuticals(NATPHARM) 2013 Unqualified National Railways of Zimbabwe 2013 Unqualified 2013 Unqualified with an Emphasis of matter

Net *One Pvt Ltd 2013 Unqualified with an Emphasis of matter

New Ziana 2012 Unqualified Petro Trade Pvt Ltd 2011 Qualified

2012 Unqualified

2013 Unqualified Power Tel 2013 Unqualified with an Emphasis of matter

Printflow (Pvt) Ltd 2013 Unqualified

Saint Lucia Park Training and Conference Centre 2013 Unqualified (Private ) Ltd TelOne (Private ) Ltd 2013 Unqualified with an Emphasis of matter

ZENT 2013 Unqualified Zesa Holdings 2013 Unqualified Zimbabwe Mining Development Corporation 2012 Qualified with an Emphasis of matter

Zimbabwe Posts (Pvt) Ltd (ZIMPOST) 2012 Qualified with an Emphasis of matter

2013 Qualified with an Emphasis of matter Zimbabwe Power Company (ZPC) 2013 Unqualified ZimTrade 2013 Qualified Zimbabwe Transmission and Distribution Company 2013 Unqualified (Pvt) Ltd (ZETDC) Zimbabwe United Passenger Company (ZUPCO) 2012 Qualified

Councils Consumer council of Zimbabwe (CCZ) Environmental Health Practioners Council (EHPC) 2013 Unqualified Medical and Dental Practitioners Council 2013 Unqualified National AIDS Council (NAC) 2012 Unqualified National Arts Council of Zimbabwe 212 Unqualified Nurses Council of Zimbabwe 2013 Unqualified Pharmacist Council of Zimbabwe 2013 Unqualified Research Council of Zimbabwe 2013 Unqualified Traffic Safety of Zimbabwe 2013 Unqualified

345

PUBLIC ENTITY YEAR OPINION Zimbabwe Council for Higher Education 2013 Unqualified (ZIMCHE) Zimbabwe National family Planning Council 2013 Unqualified

Commissions Competition and Tarrif Commission 2013 Unqualified Forestry Commission 2011 Unqualified with an emphasis of matter.

2012 Unqualified with an emphasis of matter. Securities and Exchange Commission of 2013 Unqualified Zimbabwe (SECZ) Sports and Recreation Commission (SRC) 2013 Unqualified Zimbabwe Media Commission (ZMC) 2013 Unqualified

Financial Institutions Agribank 2013 Unqualified with an emphasis of matter. Infrastructure Development Bank of Zimbabwe 2013 Unqualified with an emphasis of (IDBZ) matter. People's Own Savings Bank (POSB) 2013 Unqualified Small Enterprise Development Corporation 2012 Qualified (SEDCO)

Tertiary Institutions Bindura University of Science Education 2013 Unqualified Bulawayo School of Hospitality and Tourism 2012 Unqualified Chinhoyi University of Technology and the Hotel 2013 Unqualified Great Zimbabwe University 2012 Unqualified Harare Institute of Technology ( HIT) 2013 Unqualified Judicial college of Zimbabwe 2012 Unqualified Lupane State University 2013 Unqualified Midlands State University 2012 Unqualified National University of Science and Technology Unqualified University of Zimbabwe (UZ) 2012 Unqualified

2013 Unqualified Zimbabwe School of Mines (ZSM) 2013 Unqualified

Other National Galleries of Zimbabwe 2012 Unqualified National Museums and Monuments of Zimbabwe 2011 Unqualified with an Emphasis of (NNMZ) matter Scientific and Industrial Research Development 2013 Unqualified Centre( SIRDC)

346

ANNEXURE (B)

ACCOUNTS BEING FINALISED AS AT DECEMBER 31, 2014

PUBLIC ENTITY YEAR Zimbabwe School Examination Council ( ZIMSEC) 2013 Agricultural Rural Development Authourity 2012 Air Zimbabwe and its Subsidiaries 2010 Allied and Health Practioners Council 2013 Anti Corruption Commission 2010 Bulawayo School of Hospitality and Tourism 2013 Civil Aviation Authority of Zimbabwe (CAAZ) 2013 Enviromental Management Agency 2013 Grain Marketing Board (GMB) 2013/14 Great Zimbabwe University 2013 Lotteries and Gaming 2013 Medical Rehabilitation Practioners Council 2013 National Aids Council 2013 National Arts Council of Zimbabwe 2013 National Biotechnology Authority 2010-2012 National Income and Pricing Commission 2013 Parirenyatwa Group of Hospital 2013 Small and Medium Enterprise Development Corporation 2013 (SEDCO) and its Subsidiary Liteford Engineering State Lotteries 2009-11 State Procurement Board 2009-2011 Transmedia 2012 Zimbabwe Academic and Research Network ( ZARNET) 2011-2013 Zimbabwe Electrol Commission 2012-2013 Zimbabwe Institute of Public Adminstration (ZIPAM) 2013 Zimbabwe Mining Development Corporation and its subsidiaries 2013 Zimbabwe National Road Adminstration (ZINARA) 2012-2013 Zimbabwe National Water Authority (ZNWA) 2012 Zimbabwe Open University 2012

Zimbabwe Parks and Wildlife Management Authority 2013

347

ANNEXURE (C)

ACCOUNTS NOT SUBMITTED FOR AUDIT AS AT DECEMBER 31, 2014

PUBLIC ENTITY YEAR

State Procurement Board 2013 Anti-Corruption 2011-2013 Forestry Commission 2013 National Libraries and Documentation Services 2009-2013 National Handicraft Centre 2009-2013 Zimbabwe Open University 2013

348