Ailing Hwange Colliery Company Limited (HCCL) lost up to $2 million in alleged stealthy payments for goods and supplies that were never delivered since 2012, an audit report has revealed.
Despite facing operational constraints that have locked the giant firm on a loss making path, the internal audit report in the estates division shows gross misappropriation of funds and severe leakages that deter profitability.
The audit report (Ref.13 January to December 2015), which has been leaked to The Chronicle found “no evidence” that goods worth $2,079,412.57 were received by the colliery despite payment since 2012.
“We could not get evidence that goods ordered and paid for in the amounts and to suppliers as per list below were delivered to Estates and received.
Total value of the goods was $2,079,412.57. Some of the deliveries have been outstanding since March 2012,” reads the report.
The 31-page report dated March, 3, 2016 has been seen by the audit committee and circulated to top management including managing director Mr Thomas Makore who confirmed the development in a telephone interview.
“We’ve received such information and we’re investigating the matter. We want to investigate this issue and get all the evidence. Once we go through all the processes of investigation and there’s evidence of criminality, the issue will be handled by the police,” said Mr Makore.
The report contains an extract of about 56 suppliers who have unconfirmed supplies to the colliery.
Among these are fuel, furniture, retail stores, beverage, hardware, motor vehicle dealers, food, transport, metal and steel, telecommunications and cement suppliers.
Top on the list of undelivered supplies is Fuelmaster Petroleum (Pvt) Ltd with a PO value of $1,110,179.80, followed by Engen Zimbabwe (Pvt) Ltd which has $110,637.45, Halsteads Brothers (Pvt) Ltd $167,019.83, Zuva Petroleum (Pvt) Ltd $64,651.53, Delta Beverages $77,871.02, Turnall $48,127.07, DSK Electrical $37,223.65, Bathroom Boutique $36,425.66, D R Hendry $36,000 and DH Sales $29,286.96.
The report further notes that in the case of Fuelmaster and Engen “we could not confirm fuel delivery of some of the transactions”.
For instance on March 3, 2012 Fuelmaster received a payment order to supply 40,000 litres of fuel, which is still outstanding, the report says.
Between then and December 2013, the same firm was paid to deliver a total of 758,104 litres and only managed 466,185 litres with outstanding 291,919 litres to date.
Similarly Engen Zimbabwe was between 2013 and April 2015 ordered to deliver 74,846 litres and the colliery received 46,732 litres with a balance of 28,114 litres.
Ironically HCCL operations have nearly grounded in the last few months due to failure to procure enough fuel.
Recent reports also indicate the firm was struggling to supply thermal power station with coal, a move that is threatening adequate power generation in the country.
“Failure to keep proper records and to properly reconcile money paid for goods and services may result is the division incurring losses,” the audit noted adding: “Inaccurate financial reporting of information is not properly recorded.”
The report places HCCL estates division as a high risk and recommended that it “provides evidence that all goods paid for were received and properly recorded”.
In the report management concurred that irregularities did occur and noted that an exercise was done in 2013 when some of the errors were noted.
“Capturing clerks made fictitious transfers instead of raising RVs (requisition vouchers). GRV (goods received vouchers) cannot be raised for fuel, which was never received. 2015 cases will be investigated and the internal audit will be advised,” it said.
Mr Makore is quoted in the report condemning the division ordering it to tighten up on controls and checks and balances.
“A skills audit must be done to check if staff have the appropriate level of skills. As a business with revenue of $1 million per month, a qualified and highly competent accountant must be responsible for this business,” he said.
“The ERP system must be fully utilised for all buying transactions, payments and financial reporting. Separation of duties must be complied with.
Disciplinary procedures must be strictly enforced to deal with conduct that causes inaccurate records or fraudulent transactions”.
According to the report, previous audit recommendations were not being implemented by management hence the divisional objective of achieving a revenue of $11 million and a net profit of seven percent ($770,000) per annum could not be achieved. Most of the business segments in the division made losses for the year ended 31 December 2015.
Most of the leased HCCL properties are operating without lease agreements with the division being owed rent amounting to $2,5 million by non-HCCL employees and $220,000 by ex-employees in the low density for electricity bills and $876,000 in unpaid rentals.
The report points to failure to adhere to proper buying procedures with no segregation of duties in the buying function of the division. Further, the company’s debtors in the over 120-day old category amounting to $3,9 million did not have allowance for credit losses while some debtors amounting to $149,000 show a negative balance on the age analysis.
The audit also discovered that the estate division was keeping inaccurate debtors’ balances while creditors’ reconciliations were not being done. All estate division bank reconciliations were not reviewed by the commercial accountant while some bank accounts under the division did not have bank statements to prove that they were no longer functional.
Also cashbook ledger balances had not been cleared while cash was being taken from tills to buy stock before banking with unauthorised payments being made.
Management said it had tasked the estate manager to clear the issues in liaison with the ICT department by April 30, 2016.