REPORT OF THE PUBLIC ACCOUNTS COMMITTEE ON THE REPORT OF THE AUDITOR GENERAL ON THE ACCOUNTS OF THE REPUBLIC FOR THE FINANCIAL YEAR ENDED 31ST DECEMBER, 2013, FOR THE FOURTH SESSION OF THE ELEVENTH NATIONAL ASSEMBLY APPOINTED BY RESOLUTION OF THE HOUSE ON 26TH SEPTEMBER, 2014 Consisting of: Mr V Mwale, MP (Chairperson); Ms M G M Imenda, MP; Mr P Mucheleka, MP; Mr J Zimba, MP; Mr A Milambo, MP; Mr M Mbulakulima, MP; Ms C Namugala, MP; Mr C Mweetwa MP; and Mr C Matafwali, MP. The membership of your Committee changed following the appointment of Mr V Mwale, MP as Minister of Sport and Youth who was replaced by Brig Gen Dr B Chituwo, MP. Ms M G M Imenda, MP was subsequently elected Chairperson to replace Mr V Mwale, MP. The membership of your Committee further changed following the demise of Mr C Matafwali, MP. The Honourable Mr Speaker National Assembly Parliament Buildings LUSAKA Sir, Your Committee has the honour to present its Report on the Report of the Auditor General on the Accounts of the Republic for the Financial Year ended 31st December, 2013. Functions of the Committee 2. The functions of your Committee are to examine the accounts showing the appropriation of sums granted by the National Assembly to meet the public expenditure, the Report of the Auditor General on these accounts and such other accounts, and to exercise the powers as provided for under Article 117(5) of the Constitution of the Republic of Zambia. Meetings of the Committee 3. Your Committee held twenty-four meetings to consider the Report of the Auditor General on the Accounts of the Republic for the Financial Year ended 31st December, 2013. Procedure adopted by the Committee 4. With technical guidance from the Auditor-General, the Accountant General and the Controller of Internal Audit, your Committee considered both oral and written submissions from Controlling Officers of ministries and institutions that were cited in the Report of the Auditor-General on the Accounts of the Republic for the Financial Year ended 31st December, 2013. The Secretary to the Treasury was also requested to comment on the financial performance of all the ministries and institutions. Your Committee undertook inspection field visits to selected infrastructure construction projects in Central, Western and Southern Provinces. The projects were cited in the Audit Report for accountability and implementation challenges. This Report contains the observations and recommendations of your Committee and includes, in some cases, proposed remedial measures to correct identified irregularities and weaknesses. The Report is in three parts. Part I is on the Auditor General’s comments and the response from the Secretary to the Treasury. Part II captures the responses from Controlling Officers on the individual audit queries. Part III is on your 1 Committee’s local tours. This report has been tabled with Appendix I being the Report on the Outstanding Issues arising from your Committee’s previous reports. PART I AUDITOR-GENERAL’S COMMENTS 5. The Report on the audit of the accounts of the Government of the Republic of Zambia for the financial year ended 31st December, 2013, was submitted to the President for tabling in the National Assembly in accordance with the provisions of Article 121(4) of the Constitution of the Republic of Zambia. Statement of Responsibility According to the provisions of the Public Finance Act No. 15 of 2004, the Minister responsible for finance shall, subject to the provision of the Constitution and the Act, have management, supervision, control and direction of all matters relating to the financial, planning and economic management of the Republic. The Minister is the Head of the Treasury established under the Act and shall make policy and other decisions of the Treasury except those designated under Section 6 of the Act to the Secretary to the Treasury who shall exercise the powers of the Treasury. In exercising these powers, the Secretary to the Treasury designates in respect of each head of revenue or expenditure provided for in the financial year, an officer who shall be a Controlling Officer. The responsibilities of the Controlling Officers are outlined in Section 7(3) to (9) of the Public Finance Act and include the preparation and submission of financial statements to the Auditor- General for audit and certification before inclusion in the Financial Report. The audited financial statements are then submitted to the Secretary to the Treasury to enable him/her prepare the Annual Financial Report for tabling in the National Assembly by the Minister responsible for finance in accordance with the provisions of Article 118 (1) of the Constitution of Zambia. Audit Scope and Methodology The Auditor General reported that the audit scope included Government Ministries, Provinces and some Spending Agencies (MPSA) as contained in the Financial Report of the Republic. The audit covered Revenue and Expenditure on the accounts for the Financial Year ended 31st December, 2013. The Report also focused on information technology systems in MPSAs. As regards the methodology employed, the Auditor General explained that the Report was as a result of programmes of test checks, inspections and examination of accounting, stores, projects and other records maintained by the public officers entrusted with handling public resources. The audit programmes were designed to give reasonable assurance of financial management in the Government and to enable them express an opinion on the financial statements for the year. They were also intended to provide information that would assist Parliament in its oversight responsibility over the application of public resources and execution of programmes by the Executive. In the course of preparing the Report, each Controlling Officer, where possible, was sent appropriate Draft Annual Report Paragraphs (DARP) for comments and confirmation of the correctness of the facts presented. Where the comments varied with the facts presented, and were proved to be valid, the affected DARP were amended accordingly. In order to ensure that the limited audit resources were directed towards the most risky areas of Government operations, a risk based approach in prioritising the clients was used. Limitation of Scope The Auditor General reported that the execution of the audit programmes was limited by the factors set out below. 2 i. Staff Constraints Although the staffing position in the Office had over the years been improving, the approved staff establishment had not been achieved to date as over one hundred (100) positions still remain vacant for various reasons. The current staffing levels could not adequately cope with the volume of work. ii. Financial Constraints Most of the Office’s work involved travelling to far flung areas where the projects were being undertaken to conduct on the spot verifications without which the Government would continue losing money through shoddy works by contractors. This required financial and other resources such as motor vehicles, both of which had been inadequate over the years. iii. Challenges caused by the Integrated Financial Management Information System (IFMIS) The implementation of the IFMIS in Ministries had caused considerable challenges in the finalisation of the Financial Report. There were still challenges relating to the use of the system in the budgeting and production of the Financial Report. Internal Control The Auditor General reported that although the Ministry of Finance had taken measures aimed at addressing some of the weaknesses in the management of public resources, especially in the collection of revenue, weak internal controls continued to surface. The Internal Audit Department under the Ministry of Finance required to be strengthened to effectively execute its mandate. The common internal control weaknesses observed in most MPSAs included; flouting of procurement procedures; failure to account for stores procured; failure to supervise projects for which contractors were paid; failure to undertake activities which were paid for; failure to collect revenue due to Government; failure to terminate retired and deceased officers from the payroll; poor custody of financial records; non-processing of data in the IFMIS leading to incomplete financial statements; and misapplication of funds, among others. Statement of Revenue, Financing and Expenditure for the Year Ended 31stDecember, 2013 Article 118(2) of the Constitution states that a financial report in respect of a financial year shall include accounts showing the revenue and other moneys received by the Government in that financial year, the expenditure of the Government in that financial year other than expenditure charged by the Constitution or any other law on the general revenues of the Republic, the payments made in the financial year otherwise than for the purposes of expenditure, a statement of the financial position of the Republic at the end of the financial year and such other information as Parliament may prescribe. Shortfall/Surplus in Revenue As reflected in statement B of the Financial Report for the year, the actual revenue collected was less than the estimated revenue by K737,046,196. The Net Deficit of K737,046,196 was attributed to under collection in Income Tax, Customs and Excise, Bilateral and Multilateral Grants. Excess Expenditure A review of Statement ‘C’ of the Financial Report for the year under review revealed that expenditure in excess of the provision voted by Parliament in respect of one head of expenditure amounted to K501,234,551. The excess expenditure of K501,234,551 would require approval by Parliament as provided for in Article 117(5) of the Republican Constitution. 3 RESPONSE BY THE SECRETARY TO THE TREASURY Paragraph 1-5 Introduction 6. The Secretary to the Treasury submitted that the facts were as stated by the Auditor General in her Report and the Ministry of Finance did table the Annual Financial Report for the year ended 31st December, 2013, before the National Assembly. Statement of Responsibility The Secretary to the Treasury submitted that the facts were as stated.