CEOs blow US$800 million

By Shame Makoshori | Financial Gazette |

Chief executive officers (CEOs) of at least 28 State-owned firms salted away nearly US$1 billion between 2014 and 2015 through corporate crimes related to tax evasion, as well as mismanagement of public funds, official documents have revealed.

Some US$800 million was siphoned between 2014 and 2015 by bosses in charge of State-owned enterprises through fraud and mismanagement, now the greatest threat to government’s ability to emerge out of its current financial crisis.

According to a report by the country’s auditor general, over half of the US$800 million was in various forms of unpaid taxes due to the government’s tax collecting agency, the Zimbabwe Revenue Authority (ZIMRA), as well as millions diverted as untaxed benefits by the CEOs and their colleagues.

In addition to parastatals executives, administrators in 47 local authorities awarded themselves huge educational loans and holiday allowances while their institutions accumulated tax liabilities that have crippled government operations, with the State battling to pay its staff. Extravagance on holidays and top-of-the-range cars were also rampant, resulting in an unprecedented plunge in revenues to the State.

The auditor general’s reports point to disaster as government operations increasingly come under threat. Government, lurching towards bankruptcy, this week announced that it would pay the bulk of its workers US$100 as part payment for their June salaries due to cash constraints.

In her reports for the year ended December 31, 2015, the auditor general, Mildred Chiri, raised concern over the huge amounts of funds being salted out of the tax system by State CEOs.

“A number of entities were paying board fees, management salaries and benefits which were not authorised or which were not subjected to tax,” said Chiri.

“Allowances were paid outside the payroll and were not being taxed, contrary to the Income Tax Act, resulting in penalties for non compliance,” she said in the report.

State enterprises control about 40 percent of the country’s US$14 billion gross domestic product. At the Zimbabwe National Roads Administration (ZINARA), officers deleted files and massaged accounts to hide fraud at toll gates. The auditor general said ZINARA had US$2,5 million worth of transactions that were not supported by documents.

A further US$1,1 million disbursed by ZINARA to the department of roads was not supported by documents, raising auditors’ fears that public funds could have been expended on services not rendered.

“Some vehicles passing through tollgates and roads access collection points were reflecting as heavy vehicles on the tollgate system while they had discs confirming that they were light vehicles. Toll operators deleted computer records to force the systems to accept manual capturing of the right weights,” said Chiri.

The report said US$36 800 was paid to CMED board members for mileage without approval from the Minister of Transport.

At the Civil Aviation Authority (CAAZ), executives diverted a dump truck purchased for the US$150 million expansion of the Victoria Falls International Airport to a mine in Bindura.

Two vehicles meant for the same airport were also allocated to managers at CAAZ head office in Harare.

“Two Toyota Hilux vehicles for the Victoria Falls project with registration numbers ADA 3509 and ADR 1014 were allocated to two senior CAAZ employees resident in Harare,” the report said.

“The vehicles were being used in Harare and not in Victoria Falls, while the employees in question had their personal issued vehicles. The authority provided accommodation for its employees and paid the same employees housing allowances…there is a fundamental issue in that employees have received double benefits,” said the report.

The report says 209 CAAZ workers received tax free accommodation in violation of the Income Tax Act, prejudicing the cash-strapped government.

Despite clear evidence of the existence of tax evasion, law enforcers have treated offenders with kids’ gloves, while hitting hard on those caught on the wrong side of the law in the private sector.

The report exposed fraud at fixed line telephone operator, TelOne, where officers stole US$700 000 last year. The firm had a US$100 million net liability.

Chiri said the acting director general of the Postal and Telecommunications Regulatory Authority approved holiday allowances for managers without approval from the parent ministry, while he and his deputy bought fuel for domestic generators using the telecommunications regulator’s funds.

At ZIMRA, fraudulent Value Added Tax (VAT) refunds, relating to presumed false input tax claims, prejudiced government of close to US$1 million, while an additional US$1,2 million was lost through “illegitimate” VAT refunds last year, and in the prior years.

These two amounts were enough to pay one month’s wages for about 7 300 civil servants.
The auditor general has previously requested ZIMRA to review its relationships with clearing agents to avoid losses, but the tax collection agency has failed to do so.

Now, US$42 million in non-acquitted Removal in Transit entries could be lost as many of the agencies closed before clearing their paperwork.

Chiri said ZIMRA continued to pay workers who had long left the organisation, while workers on suspension without benefits continued to receive their incomes.

ZESA Enterprises had about US$6,7 million in unremitted taxes, while the Zimbabwe Power Company’s tax liability stood at US$18,6 million at the end of 2014.

The National Social Security Authority spent US$16 000 on its luxurious lodges in Nyanga, where its employees take holidays, but only generated US$563 from the lodges.

The Zimbabwe National Parks and Wildlife Management Authority (ZNPWMA) failed to remit US$5,6 million to various statutory bodies including ZIMRA resulting in US$530 000 being charged as penalties.

Full time ZNPWMA staff were not subjected to Pay As You Earn (PAYE) after teaching at the agency’s college on part time. Close to 900 litres of fuel received by ZNPWMA executives during the year to December 31, 2013 violated State tax laws.

“The authority’s management received during the year ended December 31, 2013, monthly fuel allowances which were processed outside the pay roll system and were not subjected to PAYE in violation of the Income Tax Act. All benefits and allowances should be processed through the payroll and subjected to PAYE in line with the Income Tax Act,” said Chiri.

At the Minerals Marketing Corporation of Zimbabwe, management were not taxed for benefits and allowances, including night security at their homes. The National Railways of Zimbabwe did not remit US$2,2 million to various statutory bodies in 2014.

At the Environmental Management Agency, the agency’s board received performance-based bonuses during the year under review based on a resolution that the board had passed.

The board resolution stated that approval should be sought from the minister, but there was no evidence to show that the minister had approved the payment of bonuses to the board members.

The total amount of bonuses paid to the board members amounted to US$11 992 in 2014 and US$2 350 in 2013. At the Competition and Tariff Commission, benefits to management were not taxed, while overtime was not processed through the payroll, evading PAYE.
Many parastatals are showing signs of serious illiquidity.

For example, NetOne did not service its loans resulting in penalty charges of US$1 696 748 and its current liabilities exceeded its current assets by US$55 616 801 as at December 31, 2014.

ZESA’s current liabilities exceeded its current assets by US$65 321 490 as at December 31, 2014; ZPC did not service its overdue foreign long term loans which amounted to US$324 314 133 as at December 31, 2014; and TelOne had a net liability position of US$163 431 710 as at December 31, 2014.

“The Harare City Council did not reconcile its cashbook overdrawn balance of US$208 430 777 as per financial statements to the bank overdraft balances of US$7 590 828 giving a significant variance of US$200 839 949,” said Chiri.

“(Gweru) senior council employees were being paid holiday and education allowances outside the payroll, as a result the allowances were not being taxed. The (Mutare) council could not avail supporting documentary evidence for acquittals of travel and subsistence allowance advances amounting to US$13 617 given to the city council’s town clerk in various months of the 2013 financial year,” she said.

On Redcliff, Chiri said one resident had deposited US$5 to purchase a stand.