Malawi Central Bank Audit Exposes Fictitious Transactions

… Former Governor arrested for alleged abuse

By PIJ Reporter

A forensic audit report into local and foreign payments made by Reserve Bank of Malawi (RBM) detail how central bank officials allegedly bended own rules to facilitate payments, some oddly done at 1am of June 27, 2020, when it was apparent the Democratic Progress Party (DPP) had been voted out of Government in the fresh presidential elections that had taken place a day earlier.

The audit that established that transactions that some the auditors deemed fictitious looked at the business activities between January 1 2019 and June 30 June 2020, that further implicates some government ministries, departments and agencies (MDAs) and local commercial banks.

RBM officials bypassed the Central Bank’s own rules and regulations and authorised several suspicious payments, issue letters of credit to companies without due diligence, procured contracts against procurement laws and paid a local bank suspicious sums of money.

In their key findings, the auditors state that RBM did not take necessary risk mitigation procedures in issuing letters of credit for supply of fertiliser to the Government of Malawi through the Smallholder Farmers Fertiliser Revolving Fund of Malawi (SFFRFM), a development that left the central bank financially exposed.

Through an e-mail dated October 22 2014, a senior RBM official appeared to have invited and guided Mulli Brothers Limited (MBL) to access the facility for the 2014/15 Farm Input Subsidy Programme (Fisp) while immediate past deputy governor Henry Mathanga overruled RBM directors who advised against issuing the said letters of credit to MBL.

The auditors followed up on several allegations by whistle-blowers, including Human Rights Defenders Coalition (HRDC) which alleged abuse of office in the procurement of information and communications technology hardware for a Flexcube upgrade at RBM with Mitra, the supplier allegedly awarded two contracts worth K1 billion and K757 million contrary to RBM policy that restricts award of two big contracts to the same company.

The report also says RBM also ignored several red flags such as Mitra’s requirement that RBM pay 60 percent of the contract sum upon placing orders for the equipment despite RBM’s clear instructions in the bidding document that they would only enter into a contract with a vendor who would receive full payment upon delivery.

The forensic audit also probed how Ministry of Homeland Security was allegedly embroiled in a corruption scandal that saw K9.7 billion siphoned from the Prisons Department through RBM in January 2020 through dubious purchase of overpriced materials worth $18 million from the United Arab Emirates (UAE) with eight contracts awarded to one supplier.

The audit quotes the Platform for Investigative Journalism (PIJ-Malawi) which investigated and reported on the suspicious transaction in August last year.  

Just as PIJ established in its expose, the audit report says invoices presented by the vendor, One Guard FZE did not contain any description or specifications for equipment and uniforms that were being supplied as no mention of size, colours, materials and other variations is made.

The auditors said they requested UAE Financial Intelligence Agency on the details of the owners of One Guard FZE, but the authority was yet to respond to auditors when the report was being printed.

The report also investigated reports that RBM was allegedly stealing huge sums of money using the country’s embassies and a review of transactions between January 2019 and June 2020 to the Ministry of Foreign Affairs noted transactions made for building maintenance, rentals, school fees allowances, recall of diplomats and others amounting to K2.2 billion. However, there is no documentation for the said transactions.

Other suspicious payments found include payment of K4.1 billion to the Pensions and Gratuity Account without an approved funding instruction from government. This, according to the auditors, is connected to payments through FDH Bank plc.

Some of the findings surround RBM’s market interventions between December 2018 and December 2020 with auditors querying a treasury note programme with Afrexim Bank in 2018 and 2019 and K6.5 billion payments made to FDH Bank plc.

The auditors said RBM did not disclose details of $30 million proposal to the board, including that the key objective was to fulfill International Monetary Fund (IMF) requirements over its reserve levels.

Reads the report in part: “Furthermore, costs payable to the local custodian bank for the securities [i.e FDH Bank] totalling K3.9 billion were also not disclosed to the board for approval nor presented for ratification by the board.

“…According to the Tripartite Agreement and Custodian Agreement, RBM was responsible for and would assess for reasonableness, the fees and costs of FDH bank. However, there was no evidence that RBM assessed FDH Bank’s fees and costs for reasonable and value for money.”

The report also highlights disbursement of $769 million for market interventions which the auditors say was disproportionally channelled through FDH Bank inconsistent with its size.

Reads the report: “We also note that the timing of the transactions coincided with the time when Malawians were awaiting the results of the Presidential Election following the polls on 23rd June 2020. Notably, the poll results were declared on 27th June 2020 with a change in government.”

Another allegation investigated surrounded ex-gratia payments totalling K27 billion which are ordinarily paid to staff who are retiring, but were allegedly paid to RBM managers and executives who in turn provided K7 billion to then governing Democratic Progressive Party (DPP).

About K2.8 billion was also paid to various law firms from the Miscellaneous Accounts, but auditors did trace any supporting documents.

Former Reserve Bank of Malawi Governor Dalitso Kabambe

Meanwhile, Fiscal Police yesterday arrested former RBM governor Dalitso Kabambe for alleged abuse of office while at the helm of the central bank.

In an interview yesterday, National Police spokesperson James Kadadzera confirmed that Kabambe, who is DPP presidential aspirant, was in custody at Lumbadzi Police Station on the outskirts of the capital city.

He also confirmed that other top officials at the central bank were also previously arrested in connection with the same investigation.

“Police will give more details later, including the day and time the suspect is expected to appear before the court,” Kadadzera said.

He is among the front runners to succeed Mutharika and lead DPP in the 2025 general elections.

DPP is on record as having accused the Tonse Alliance administration of persecuting its rank and file using law enforcement. However, the new administration insists it is stamping out on corruption and abuse, a key campaign promise.

Currently, Kabambe is also embroiled in a legal battle with government over the legality of his demands for terminal benefits from his job estimated at K1 billion. 

RBM TRANSACTIONS AS ESTABLISHED IN THE AUDIT

At the Reserve Bank of Malawi between January 1 2019 and June 30 June 2020:

• Mulli Brothers Limited (MBL) was irregularly issued with letters of credit to or supply fertiliser to the Government of Malawi.

• One company, Mitra, was awarded two contracts of K1 billion and K757 million contrary to RBM policy. Mitra was also irregularly paid 60% upfront

• K9.7 billion was siphoned in January 2020 through dubious purchase of overpriced materials for the Prisons Department worth US$18 million from the United Arab Emirates (UAE).

• K2.2 billion went out for “building maintenance, rentals, school fees allowances, recall of diplomats” but there are no supporting documents for these transactions.

• K4.1 billion paid to the Pensions and Gratuity Account without an approved funding instruction from government. FDH Bank is connected to this.

• K6.5 billion went to FDH Bank in December 2018 and December 2020, which auditors found suspicious.

• K3.9 billion costs payable to FDH Bank that were not disclosed to the board for approval.

• USD$769 million was disproportionally channelled through FDH Bank.

• K27 billion was paid to top managers who are retiring, who in turn provided K7 billion to the then governing Democratic Progressive Party (DPP).

• K2.8 billion paid to various law firms, but auditors did not trace any supporting documents.

One of the whistle blowers Maxwell Ng’ambi aptly captures it thus:

“At exactly, 1 am on 27th June 2020 – K4.3 billion had sprint from Central Bank into FDH – all of us were snoring and fast asleep but hard worker Dalitso Kabambe and team were awake. They had a job to do as patriotic Malawians. The transaction could not wait for daytime or after Justice Chifundo Kachale’s announcement that Lazarus Chakwera was new President later on the same day.”