Tuesday, September 28, 2021

Why SADC needs a Tax break

SADC Executive Secretary Stergomena Lawrence Tax is supposed to be accountable to member states and their citizens. But you wouldn’t know that if you read the 433 page long Board of Auditors Management report on the audit of the Southern African Development Community (SADC) secretariat for the financial year ending 31st March 2020.

Although the report does not spell it out in so many words, for eight years, Tax presided over an institution with a pattern of behaviour that suggests a penchant to undercut all avenues of oversight and frustrate scrutiny of its activities.From violating financial regulations to brushing aside directives agreed by the council of ministers, the SADC Secretariat under Tax acted as an opaque and unaccountable principal rather than a transparent and accountable agent.For starters, since ascending to the helm of the SADC Secretariat, Tax has never presented an annual report to the 345 million SADC citizens.States the audit report under subheading “Weaknesses on preparation of SADC Annual Report”: “SADC Financial Regulation 75 “Annual Report and Oversight Report” provides that as part of the year end reporting requirements the Accounting Officer shall cause the preparation and submission of an Annual Report to the Council. The Annual Report shall include among other information the audited annual financial statements of the Secretariat, the Board of Auditors audit report on those financial statements; particulars of any corrective action taken or to be taken in response to issues raised in the audit report; and any explanations that may be necessary to clarify issues in connection with the financial statements.

Furthermore, the Council shall consider the Annual Report of the Secretariat and by no later than three (3) months from the date on which the Annual Report was submitted, adopt an Oversight Report containing the Council’s comments on the Annual Report, which shall include a statement as to whether the Council has approved the Annual Report with or without reservations; or has referred the Annual Report back for revision of those components that need revision. Once approved by Council, the Annual Report shall be published on the SADC website.

Upon review of financial records, the Board noted that the latest Annual Report that had been posted on SADC website relates to 2011/2012 financial year and covered the Executive Secretary’s activity report on the SADC Secretariat. The 2011 / 2012 Annual Report did not meet the requirements of Financial Regulation 75 on the additional information to be included such as, the audited annual financial statements of the Secretariat; the Board of Auditors audit report on those financial statements; the annual performance report in a format set out in the Framework assessing the Secretariats performance against the measurable performance objectives approved in the budget; and particulars of any corrective action taken or to be taken in response to issues raised in the audit report; and any explanations that may be necessary to clarify issues in connection with the financial statements.” The board of auditors observed that this non-compliance with financial regulations may compromise the secretariat’s accountability to member states and international cooperating partners.

The auditors stopped short of blasting the SADC secretariat for moving too slowly to establish the fraud and corruption management policy, whistle blowing policy and fraud hotline. “The Board noted that SADC Secretariat, was operating without an approved Fraud & Corruption Management Policy, Whistle Blowing Policy and Fraud Hotline as the documents were still in draft form. The absence of such a policy does not complement the principle of transparency and openness regarding the business of SADC being an international organisation which handles huge amounts of public funds and process high volumes of transactions on a daily basis.”It emerged that when Tax took over as SADC Executive Secretary in 2013, SADC had just adopted a Risk Management Policy in March 2012, together with the Risk Management Strategy, and Risk Management Implementation Procedure which formed part of the Secretariat’s corporate governance arrangements. States the report: “This policy confirms the Secretariat’s continued commitment to the management of risk and provides a framework for implementing, evaluating and embedding a risk management culture.

Further, SADC Financial regulations, “Principles of sound financial management”, Principle 1 states that SADC financial resources shall be administered in accordance with the principles of good corporate governance, sound financial management and enterprise risk management. It is one of the Secretariat’s responsibilities to set the tone from the top as a key part of any fraud prevention and detection strategy. The policy is important in among others, to send a strong message about the Secretariat’s commitment to lawful and ethical behavior that fosters a culture of accountability, transparency and employee empowerment. “SADC Treaty Article 23(2) states that, in pursuance of the objectives of this Treaty, SADC shall co-operate with, and support the initiatives of the peoples of the region and key stakeholders, contributing to the objectives of this Treaty in the areas of co-operation in order to foster closer relations among the communities, associations and people of the region. Openness, transparency and accountability are key principles in achieving support and co-operation from the public and stakeholders. Therefore, putting in place mechanisms and open channels of communication with employees and various stakeholders is a key risk management tool.”

However, a year before her term comes to an end, the Risk Management Policy which Tax found in her “IN” tray is still gathering dust on her desk. The audit board pointed out that “the absence of the whistle blowing policy does not support SADC’s transparency, openness and stakeholder participation. The policy is an important tool that establishes a channel through which members of staff, stakeholders and the public may raise concerns about possible improprieties in respect of governance and financial reporting matters. Further, the Board noted that Secretariat had no communication hotline in place. It is imperative that mechanisms for addressing concerns about corporate wrongdoing can help the Secretariat protect itself from the risk of violating laws and regulations that provide protection to whistleblowers. Upon inquiry, the Board was informed that the Secretariat was is in the process of developing the instrument as the draft policy was still undergoing various approval stages before it could be forwarded for clearance by the management team and recommended by the Audit Committee for approval by the Council.

The draft policy on Management of Fraud and Corruption is intended to be submitted to the Audit Committee in 2021.”The audit board warned that under the current regime, there was “risk of breaching laws regarding the protection of whistle blowers who report on unethical business practices and misconduct. And that “violation of laws and regulations, unethical business practices and misconducts may remain unknown for the Secretariat to investigate and take proactive risk decisions.”

The Audit Board also “identified deficiencies in internal control processes during the review of the financial records in line with ISSAI 2350.” Not helping the organisation’s weak oversight is the fact that the position of the Director Internal Audit and Risk Management, which is an important governance structure has not had a substantive Director since 2017.“The Board is also of the view that Director Internal Audit and Risk Management position is a critical post therefore having it vacant for such a long period may compromise the functions of the internal audit function. While audit acknowledges the presence of a personnel on secondment, the arrangement compromises the long-term strategic thrust of the internal audit function.”

The board warned that as a result “ effective implementation of the audit and risk management strategies may be compromised; Reviews of legal guidelines, audit and risk management policies and internal controls may be compromised and the overall audit and risk management governance system may be compromised.” The Board further pointed out that management decision to fill the position through secondment had not been approved by Council in line with Section 3.11.6 of SADC Recruitment, Selection and Appointment Policy.” This was not the first time the SADC Secretariat under Tax had acted against the wish of the SADC council of ministers. According to the report, “ a review of the March 2019 Council of Ministers Minutes revealed that the Council approved a budget of US$ 893,805 for the SADC Solidarity Conference with the Saharawi Arab Democratic Republic (SADR) / Western Sahara to be obtained as follows: 

i US$ 450,000 to be obtained from internal budget re-allocations; and ii US$ 443,805 to be sourced from Contingency Fund.

Upon review of the accounting records, the Board noted that the Secretariat had drawn US$ 909,872.06 from the Contingency Fund for management of the Conference resulting into an unauthorised withdrawal of US$ 16,067.06. Does it mean there was no withdrawal from the budget re-allocations? It was however observed that the excess withdrawal of US$ 16,067.06 was not authorized by the Council of Ministers in the 2018/2019 Adjustments Budget contrary to Financial Regulation 22 (1) (4) (a) which states that “expenditure that can be funded from the Contingency Fund should be expenditure undertaken pursuant to a decision of the SADC Council of Ministers or Summit for activities not provided for in the approved budget.”

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