Public finance management systems still weak says World Bank

Post was last updated: January 6, 2016

There are still weaknesses noted by the World Bank in Malawi government’s public financial management systems which continue to expose the country to future cashgate and other forms of fraud.

The World Bank says in an Implementation Status Results report on the Financial Reporting and Oversight Improvement Project (FROIP) dated December 31, 2015 that problems included inability by the government to prepare bank reconciliation statements, prepare and publish in-year financial statements -quarterly; prepare and publish audited annual financial statements in accordance with the Public Financial Management (PFM) Act.

The government was also not able to communicate budget ceilings to ministries and departments, enforce commitments control; prevent misapplication of funds due to non-adherence to rules regarding budget virements; ensure adequate segregation of duties between end users and system administrators of the Integrated Financial Management Information System; and enforce managerial accountability to ensure compliance with rules and regulations.

The team said it noted significant deterioration in the effectiveness of payroll controls where there were “several anomalies” and that the team was unable to confirm any of the actions taken by the government because no evidence was made available.

“It is recommended that the beneficiaries as well as the officials who manipulated the system should be arrested, investigated and prosecuted,” recommends the World Bank in the report.

The team also observed that there was inadequate managerial accountability in government operations and that staff were usually not held responsible for not performing.

It was also noted that the Independent Audit Committee could resolve only 22 of the audit issues referred to them and that over 50 cases were outstanding and that observations or internal control issues raised in previous internal and external audits reports remained largely unattended to or repeated over the years.

The report states that statutory financial reporting deadlines were substantially violated and observes, in particular, that the draft financial statements for the financial year ended 2013 were submitted to the Auditor General in May 2015 instead of October 2013 – about 19 months after the statutory deadline.

The draft financial statements for 2014 were submitted to the Auditor General in September 2015 – almost 12 months after the deadline and that although it is a legal requirement that financial reports be published in the National Gazette and national newspapers, that did not happen.

The report also observes that audited financial statements were in arrears, with statements for 2010, 2011, 2012, 2013 and 2014 either not completed or yet to be published in the gazette.

The project management and monitoring arrangements of FROIP have also been rated unsatisfactory and needed strengthening as “there is continued slippage of agreed dates for completion of various project activities for several reasons”.

“The meetings of the various committees, especially the Technical Working Groups and reporting on the implementation status, need to be enforced and monitored more rigorously. Project Financial Management has been rated moderately unsatisfactory and risk rating is substantial,” reads the report.

It says the project continues to process transactions in excel which, the report observes, not only exposes the transactions to errors but also places a burden on report preparation.

Project procurement management has also been rated moderately unsatisfactory, saying a review conducted by the World Bank revealed that there is scope for improving records keeping and publication of award of contracts and that holding of monthly meetings would facilitate addressing implementation problems in a timely manner.

The report, however, notes that the target on capacity building for internal auditors has been achievedas internal auditors have benefited from capacity building by international trainers.

“They [internal auditors] have been trained in IT Audit and to give them practical experience, pilot audits of the IFMIS, the HRMIS, the passports and immigrations system are on-going. It was agreed that further training of personnel is needed, but to ensure effectiveness future proposed training needs will be based on the Training Needs Assessment being carried out by the Department for Human Resource Management and Development for all the components involved in the project implementation,” reads the report.

It says, however, that one of the challenges facing the component on capacity building was under-utilisation of the skills acquired.

“The team was informed that some controlling officers do not release the budgetary allocations to the internal audit staff attached to their ministry to enable them carry out the audits as planned,” observes the World Bank team in the report.

Another achievement registered is in improvement in the effectiveness of the National Audit Office (NAO) in improving control, accounting and reporting of government finances despite delayed appointment of an Auditor General which was a condition for supporting activities under the component.

“PriceWaterHouse is supporting the NAO with capacity building. Most of the achievements under the external audit component have so far been training and capacity development,” reads the report.

“Considering the delayed start and the gains made so far, the mission team is of the opinion that the component is heading in the right direction and needs to be continued under the project with a focus on improving the governance and legal framework, higher quality assurance, and translating the gains of trained staff into improved audit quality,” it says.

The mission also noted with concern that the draft revisions to the relevant sections of the Constitution and the Public Audit Act (PAA) to ensure professionalism and independence of the Auditor General in discharging his duties have still not been submitted to the legislature.

The team has since recommended restructuring of the project to facilitate extension of the closing date as well as revision of the results framework and possible reallocation of funds between project components.

“The closing date for the project is June 2016 and the time left is insufficient for the project to implement the remaining activities and also achieve the project objectives,” reads the report, in part.

Reasons for the extension including delays in making key decisions, interruption of the project implementation for more than one year due to the cashgate scandal, delays the appointment of a substantive Auditor General and time required for the procurement and implementation of the new IFMIS.

The project is, however, said to be ‘intensive care’ and that the government needs to demonstrate greater commitment before the restructuring and extension of the closing date starts.

“It is recommended that the restructuring of the project should be after an assessment not later than February 2016 to establish improvement in implementation and commitment,” says the World Bank, in the report.

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