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QUESTIONABLE PURCHASES AT EEC - AUDIT

11/11/2018 05:16:00 BY WELCOME DLAMINI

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MBABANE – Suspicious purchasing orders, invoices without order numbers, invoices with unauthorised amounts and unauthorised employees approving payments.

These are some of the findings made by a reputable audit firm, which carried out an enquiry into procurement processes at the country’s power utility, the Eswatini Electricity Company (EEC), where fraud amounting to E400 million has allegedly been committed.

Two senior managers are currently on suspension because of this alleged fraud. The Times SUNDAY has seen the audit firm’s draft report, dated March 13, 2018 and it raises a number of red flags in the Category A public enterprise’s procurement procedures.

However, the report does not mention any money that the company was defrauded of and has presented no evidence found in this regard.
Impeccable sources within the power utility said this was because the issue of the fraud was a contentious one. “That is why the company has still not charged the two senior managers, who were suspended based on the allegations that they were involved in the fraud. There is no evidence proving theft of this amount of money. Had the theft taken place, the managers would have been charged already. But they have been at home for almost five months now without being charged and are getting paid their full salaries,” said one of the impeccable sources.

ABB, the company that manages EEC’s operating system known as Ellipse, was called upon to give clarity on the issues raised by the audit firm, and it gave explanations to all of them.
Ellipse is a solution to help organise and maintain business efficiencies, effective equipment reliability, labour force utilisation, cost control, effective procurement and inventory management. The purpose of the audit was ‘to confirm if all goods procured by the company follow the appropriate policy’ and also to ‘note any abnormalities that can be identified on the data line, like purchase orders without approved purchase requisitions or invoices without orders’.
One of the key issues noted by the enquiry was that there were invoices that were found to have no order numbers. Out of 32 260 invoices, there were 6 932 that had no order numbers linked to them. The audit said the risk for this was that ‘payment may be made for services that were not provided to SEC’.

EEC was until recently known as the Swaziland Electricity Company.
Discussions are said to have been held with a senior manager, who stated that services such as fixing of certain items ‘are not ordered’.

The explanation given by ABB was that these were non-order invoices, whose authorisation was done manually outside the system and then paid through the system hence there were no purchase orders for them.
These invoices are for contracts, maintenance fees and licence fees. “However, further investigations may be performed to confirm the validity of the identified invoices. But for the audit purposes, we will end the test here,” states the report.
The audit went on to state that there were a total of 866 invoices that had order numbers but could not be paired to the extract of orders. “There is a risk that these invoices are linked to fake orders so that payments are made for items or services that were never provided to SEC,” reads the report.

explanation for anomaly

The explanation provided for this anomaly was that these invoices were for purchase orders created earlier than April 2017, hence did not appear in the list of purchasing orders that was provided to the audit team.
What the audit went on to unearth is that there were 3 341 invoices that had variances, meaning that the figures did not match when comparing the authorised amounts on the purchase orders versus the amounts that were actually paid on the invoice.
It was also stated that there were 32 invoices that had amounts paid which were greater than the authorised purchase order amounts. The risk associated with this, according to the audit, was that ‘fraudulent or erroneous payments may be made to suppliers, like for instance paying the same invoice twice’.

The explanation given by ABB was that some of these invoices were stock orders, whereby the quantity was modified and re-authorised before delivery and capturing into the system – due to demand. It was explained that the amount paid matched the modified purchasing order, hence there was no issue in this regard.
Two purchase orders were also identified to have an authorised status, yet they had invoices that had been paid relating to them. These orders were identified as V15586 and V21734 and the cheque numbers linked to them were classified as A46140 and A49003, respectively.

The power utility was expected to do further testing with these, but the explanation given was that purchasing order V15586 was for a well-known filling station and was modified after receipt and payment. “The modification was done when a Close Open purchasing order exercise was done by an intern. Here the ordered quantity was 4 500 litres and the received stock was 4 300, with 200 litres outstanding,” the audit team was told.

It was explained that there was no way the filling station could come and deliver only 200 litres (presumably of petrol), hence the need to close the purchasing order. “The error was a human error when closing the PO (purchasing order) which resulted in the PO becoming unauthorised. The PO V21734 was modified after the payment was made. After the modification is made, the PO becomes unauthorised and then follows the authority level,” the report goes on to say.

There were also 2 342 purchase orders that could not be linked to purchase requisitions, something that ‘may result in the purchase of unauthorised products’. EEC was expected to provide reasons on why these orders did not have purchase requisitions. There was then the issue of purchase orders that were authorised by personnel with lower authority.

Authorised by subordinate
This was uncovered when the audit identified multiple orders that had been prepared on the same date for the same item. There were 478 items that had more than one purchase order raised on the same day. “However, the concern is with items that when their amount is combined were authorised by a personnel with an authority lower to authorise the orders (quotations),” says the report. The risk posed by this is that multiple items may be split to avoid the authorisation levels.
According to EEC’s procurement policy, the purchasing officer can authorise payment of up to E20 000; the buyer can authorise payment of a maximum of E50 000; the Commercial Services Manager can authorise payment of up to E250 000; and the General Manager Finance can authorise up to a maximum of E500 000.
There are two scenarios given as explanation for the multiple purchase orders; the first being that the orders were created from invoices of material received from suppliers in one day.
The second scenario was that only the orders were shown and not the creation ‘whereas it was found some were created earlier than the order date. Furthermore, it was discovered that orders for individual warehouses were included in this report, yet they must have different purchase orders’.