Faced with poor internal controls, the Board and Management of Botswana Railways have approached cabinet for a P3 billion recapitalization bailout.
The request to the shareholder, however, coincides with a damning forensic audit report commissioned by the Board and leaked to Sunday Standard this weak.
The report compiled by consultants from Deloitte found incidents of systematic weaknesses, conflict of interest and a terrible culture of poor corporate governance at the corporation.
The report casts doubts on the long-term sustainability of Botswana Railways.
More importantly, it points to a collapse of control environment in the organisation.
The report says Botswana Railways internal controls are not only weak but also open to abuse.
“In almost all aspects of our review, it was clear that even some of the basic financial controls are either not adhered to or inconsistently applied.”
The report’s key findings are that finance and procurement controls are generally ineffective; the supplier database contains incomplete and inaccurate information; authorization levels to this database are not properly restricted and maintained thereby making it difficult to distinguish between valid and invalid transactions.
It further alleges inadequate levels of enforcement, supervision and monitoring.
The report also details a glaring picture of Botswana Railways as a corporation that will not survive unless the shareholder injects more money and new controls are put into place. But then cautions that any money from the shareholder should be preceded by strict establishment of proper financial control mechanisms.
The report says there is insufficient control over the generation and collection.
“There appears to be a major problem in recognising revenue due to BR. The current system does not ensure completeness of revenue and, as a result, BR is exposed to significant risks of loss of revenue, fraud and theft.”
The report further says although the corporation has extensive assets under its control (in terms of quantity and value) asset control measures are weak, with documents important to the control environment not sequentially numbered.
“Due to control weaknesses the validity, accuracy and completeness of some transactions cannot be determined. This has created an environment where valid and invalid transactions cannot always be distinguished from each other, thus exposing the organization to significant fraud risk. We did not find a culture of compliance and discipline in applying controls,” say the consultants.
Consultants further bemoaned inconsistent application of procurement procedures and substandard record keeping in respect of tenders.
Another fear expressed by the consultants was that, as presently run, Botswana Railways may not be receiving all revenue for services rendered and that it is very likely not in a position to determine the quantum of lost revenue.
“The organization does not have a fraud response plan, fraud prevention plan or ethics policy. This is not in line with good governance principles or best practice.”
Responding to the request by BR for government to assist with money, the consultants advise caution.
“It is our understanding that BR is contemplating a re-capitalisation and comprehensive restructuring. It is our view that the deficiencies highlighted in this report and the general instability of the current control environment could impact adversely on the prospects of a successful transformation of BR. The current situation should, in our view, be stabilised as a matter of urgency as a pre-requisite for transformation.”
Coming out for singular criticism is the Corporation’s Finance Director, Mr. Gobona Tobedza.
“We did not find the Finance Director to be hands-on about problems in respect of the revenue control environment. He appears to hold the view that the control environment is good (this report makes it clear that it is not even in terms of basic controls). He appears to believe that fraud and corruption are unlikely to occur and, therefore, it is not necessary for the organization to deal with it.”
Still on Mr. Tobedza, the consultants say his commercial interests outside Botswana Railways should be a concern.
“The Finance Director has business interests outside the organization in financial services and procurement. Although these may create a perception of conflict of interest, he has declared them to Botswana Railways. Some of these interests are substantial. We question whether he is successfully able to balance these interests with a high profile executive directorship. A Finance Director with outside interests in financial services and procurement, operating in a poor control environment and seemingly not aware of that fact should in our view be of some concern to the Board.”
In numerous reports, the Auditor General also highlighted loopholes in BR’s financial systems.
“There are certainly questions arising from the Financial Director’s position vis-├á-vis his outside interests. He is an executive director of BR and, as Finance Director, his position is a high profile and important one. His actions undoubtedly reflect on the organization. Mr. Tobedza told us himself that he is ultimately responsible for everything to do with finance in the organization. It also stands to reason that the finance director of any business plays a major role in risk management and corporate governance.
“During our interview with him, we did not find Mr. Tobedza to be particularly hands on about problems in respect of the revenue control environment. He takes the view that the single most important challenge facing BR is a lack of skills across the organization, and its inability to attract talent. He appears to believe that fraud and corruption are not issues necessary for the organization to deal with (he stated that except for collusion, such events were unlikely to occur). His response to our questions regarding control of revenue bordered on the theoretical – i.e. if the correct processes are followed then the result cannot be anything other than regular.”
