Madam Speaker, thank you for according me the opportunity to clarify the engagement by Government of a number of private audit firms to verify Zambia’s Public Domestic Debt.
Madam, public domestic debt has significantly increased in the recent years, thus contributing to Zambia’s debt unsustainability. The debt has for instance increased sharply between 2016 and 2022, rising from K51.82 billion to K76.4 billion as at June 2022.
The increase in Domestic Public Debt was driven by increased national external debt service which impacted funding to other areas, higher borrowing requirements mainly to finance the Farmer Input Support Programme (FISP), refinancing of fuel arrears and partly due to increased Budget financing requirements following limited external financing sources.
Domestic arrears also increased due to over procurement of road projects and possibly overpricing.
Madam Speaker, as part of the process of resolving our debt unsustainable position, the UPND Government engaged multilateral organizations in verifying the country’s external debt, which was done and decisions have been taken on this front to resolve the dent problem through cancellations, rescoping and undertaking actual debt restructuring.
Similarly, it was necessary that this rapid increase in arrears is equally verified. The verification, like the one we undertook on the external debt, had to be undertaken using independent and specialized services which Government identified should come from the private sector player.
They possess the expertise and are independent to verify the authenticity of the debt. Like I said, madam speaker, this process was similar to what Government undertook as it was validating the external debt only that this process is being undertaken using local human resources.
Madam Speaker, the firms we engaged are meant to establish and verify the authenticity of arrears owed on the domestic supply of goods and services and on infrastructure projects.
THE PROCUREMENT PROCESS FOLLOWED FOR THE FIRMS
Madam, as a government that has promised transparency and good Governance in the management of public funds. In line with this pledge, the firms that have been contracted were engaged through a selective tender process that involved twelve (12) reputable firms that bid for the different lots (i.e. different categories of outstanding arrears).
The tenders were floated on 31st January 2022 and awarded on 12th May 2022. The firms were engaged by the Ministry of Finance and National Planning with the authority of Auditor General, in line with Section (6) of the Public Audit Act, Chapter 378 of the laws of Zambia which stipulates that “Whenever the exigencies of public audit services so require, the Minister responsible for finance may, at the request of the Auditor-General, engage such agents or specialist consultants as are necessary to assist the Auditor-General in the execution of his duties”.
In addition, and the Public Management Act No. 1 of 2018 section 7(1)(z) states that the Secretary to the Treasury can “carry out any other functions that may be prescribed by the Minister or that may be considered reasonably necessary for proper financial management of the Republic”.
Madam, the bidders were evaluated on technical capabilities in line with after which the successful firms were evaluated on their financial competitiveness. The total contract cost for the work is K16.8 million.
The process resulted in six firms being selected and allotted arrears categories as follows:
- Grant Thornton – Goods & Services
- PWC – Road Contracts
- CYMA – Farmer Input Support Prog.
- Mark Daniels – VAT Refunds
- Client Focus – Awards & Compensation
- EY Advisory Services – Fuel
TERMS OF REFERENCE FOR THE CONSULTANTS
Madam, the Terms of Reference for the review covers all Government entities and is not limited to Defence and Security wings. Further, for Defence and Security wings, the firm allotted for verifying arrears related to goods and services, is verifying debts relating to goods and services such as food rations only.
It does not cover their operations or equipment supplies. Specifically, for Grant Thornton and PWC that have attracted public scrutiny, their Terms of Reference are as follows:
Verification of Domestic Supply of Goods and Services by Grant Thornton
- Review and evaluate Contracts for supply of goods and services by having Procurement Entities supply backup documents for the debt;
- Establish the competitiveness of goods supplied and whether Government obtained Value for Money from them;
- Establish that goods delivered notes were obtained in accordance with contracts;
- Review the Procurement process through which suppliers were contracted with a view to establishing transparency and compliance to existing laws by all players involved; and,
- Establish whether the interest rate chargeable on arrears reflects market fundamentals
Verification of Road Contracts by PWC
- Check the adequacy of the bidding documents and conformity to the law;
- The conformity of the contracts to competitive bidding;
- Where any addenda were issued, the conformity to the law and confirmation that the basis is justified;
- Verify contracts that were granted down payments against the works done;
- In cases where the single source was used, whether the proper authority was obtained (Ascertain the quality of works against amounts paid (including sample site visits or physical inspection);
- For Project funds, determine whether the project funds were used for the purposes
- Review and analyze the potential red flags that may indicate inappropriate financial management, misappropriation of assets and inappropriate use of funds; and
- Identify expenditures which may have been made for ineligible projects.
USE OF THE REPORTS
Madam, the reports once finalised will be submitted to the Office of the Secretary to the Treasury. They are exclusively meant for management use. They will augment the reports of the Controller of Internal Audits (CIA) and are meant to aid decision-making as we make payments and develop strategies for dismantling bigger volumes of arrears such as fuel.
The post-audit services of the Auditor General continue post expenditures in that his office continues to audit public institutions in line with its mandate and based on a schedule as supported by the available expert human resource. Further, these reports augment the internal audit reports which are used by the Auditor General’s office as reference points when conducting audits.
Madam Speaker, I would like to conclude by urging members of the public to ensure that they familiarize themselves with facts as they comment on national issues.
The Ministry of Finance and National Planning is always available to provide clarifications to the public and is committed to ensuring that information is provided to the public in a transparent way. This process of engaging auditing firms was done consistent with Government undertakings to ensure that there are no fraudulent payments and that when payments are made they are done so on account of value having accrued to the Public.
The scrutiny is necessary as we know that already some categories of arrears have incomplete documentation or certificates issued without works being delivered, such as those under the Ministry of Local Government and rural development.
Madam Speaker I thank You.
Dr. Situmbeko Musokotwane, MP
Minister of Finance & National Planning.