Another financial mess at State-owned company: K4.8bn mismanaged at SMEDI, CEO says ‘I am innocent.”
Just few days after Malawians were shocked and in left in anguish over revelations that K6.5 billion has been mismanaged at Electricity Generation Company (EGENCO), the attention now goes to Small and Medium Enterprises Development Institute (Smedi) where a forensic audit query has uncovered an alleged financial mismanagement of over K4.8 billion and violation of laid down processes and procedures.
The forensic investigation report dated February 2024 covers the period July 2018 to June 2023 and was written by the National Audit Office (NAO).
NAO was engaged to probe SMEDIA in areas of financial statements, assets, human resource and procurement management. The report claims payments amounting to K1 356 343 727.65 were made without raising vouchers, revenue reported to the Secretary to the Treasury was grossly under-reported by K2 494 857 969 and some revenue reported in the management accounts did not have supporting document.
Further, some fuel cash sales amounting to K26 544 360.16 through prepaid customers and funds meant for procurement of motor vehicles amounting to K270 million could not be accounted for.
Shockingly, SMEDI chief executive officer Rodrick Chattaika has come out adamant, saying he is innocent and ready to defend himself on each of the accusations levelled against him.
He said he had not been shared the audit report despite requesting for the same. However, he does not agree with the alleged contents which the board requested him to comment on.
Said Chattaika: “Among other issues, the auditors asked me to provide vouchers for payments that took place when Smedi had a different accounting system while the voucher system currently in use was introduced recently. As such, it is illogical for auditors to ask for vouchers for the years when the system was non-existent.”
He also said external auditors’ reports from 2017/2018 to 2021/2022 state the contrary from the picture that the NAO audit report gives.
“They [external auditors] stated that in their opinion the financial statements gave a true and fair view of the financial position of Smedi. External auditors report to the board. They made presentations to the board and the board approved these audited reports. I am surprised that the same board is concluding contrary to the external auditors,” he said.
Apparently, there is a new board at Smedi which was appointed in 2023 and sent Chattaika on an indefinite suspension. He has been on suspension since July last year.
The audit report cites lapses in internal controls, financial mismanagement, human resource management, adherence to statutory guidelines, procurement and disposal of assets and asset management, resulting in unexplained expenditure of billions of kwacha.
Further, the report queries Chattaika for buying off the CEO’s vehicle at a price lower than Smedi’s stipulated conditions of service, asset management, sale agreement for the institute’s coaster, inefficiency in entering data into the system and failure to back up data files security.
The audit report also queries unaccounted for funds meant for procurement of new motor vehicles, recruitment and irregularities in the extension of contract of the CEO, sexual harassment of female employees and filling of posts above the established warrant.
According to the report, Smedi purchased its head office at Area 6 in Lilongwe at K320 million before a comprehensive assessment and was forced to irregularly pay an extra K49 million to make the building suitable for an office.
Smedi is also accused of procuring three used motor vehicles at K37 million without approval of the Internal Procurement and Disposal Committee (IPDC), board of trustees and the government.
It is further alleged that there is sexual harassment and exploitation at Smedi but there are no mechanisms to report such cases and also support the survivors.
Reads, in part, the report signed by Auditor General Thomas Makiwa: “Smedi does not follow the Public Procurement and Disposal of Assets Act (2017) when making procurement and disposing of assets as evidenced by the chairing of the IPDC by the CEO, procurements made without a procurement plan, procurement of materials from Zimbabwe without seeking approval from PPDA, irregular payment for air conditioners and gensets for the head office and procurement of used motor vehicles by public auction.
“There was financial mismanagement in Smedi whereby funds realised from the sale of Mitsubishi Rosa Minibus, subvented funding meant for the purchase of motor vehicles and some fuel sales could not be accounted for.”
In its recommendations, the Auditor General asks the board of trustees to take action against the CEO for, among others, failing to report sexual harassment, exploitation and abuse of one survivor by a director.
The report also orders the institution’s accountant to account for the balance of the first withdrawal of funds meant for the procurement of the materials from Zimbabwe and that management should take action against him..
“The board should take action against management for violating the PPDA Act in the procurement of the used cars… the board should also take action against the CEO to explain how the funds realised from the Sale of Mitsubishi Rosa Minibus were used without the approval of the board,” reads the report.
The audit report also wants the board to demand a thorough explanation on why management made payments between July 1 2021 and December 30 2023 without payment vouchers and should further take action against management because of the anomaly.
Smedi board chairperson Henry Chete said they asked the NAO to conduct a forensic audit after observing a number of issues, especially in the accounts and human resources departments.
But reacting to Chattaika’s claims, Chete said while he would not want to comment on the CEO’s claims through the media, appropriate time will come when to make a clear indication of “what happened, what is happening and what we will have done about it.”
However, he said people should know that the annual audits that external auditors do are totally different from forensic audits.
Chete explained: “The annual audits will simply check if your accounts are in order and if you are being compliant, …and they do not detect fraud.
“A forensic audit, on the other hand, is done to check if there is fraud or mismanagement of resources, among others. So, yes, by its nature, the forensic audit found things that annual audits didn’t tell the board.”
However, he confirmed that the Smedi board received and approved the annual audited report which was conducted by external auditors.
Further, Chete said Smedi Board of Trustees was working around the clock to ensure that whatever they were given through the forensic audit report is quickly but appropriately resolved and the public will know once the process is finalised.
But a member of the previous board, Wellington Chatepa, backed Chattaika on certain issues, arguing that the actions had the approval of their board.
But on his part, Comptroller of Statutory Corporations Peter Simbani said the report had not yet been submitted to his office because it is still being discussed by the Smedi board.
With regards to Chattaika’s employment status following his suspension, Simbani said he remains the Smedi CEO on full pay.”
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