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Legal and Corporate Literacy

C2C Corporate Literacy on Corruption and Fraud in Zimbabwe

Brian Tawanda Manyati

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When De-Juan cites technical, cosmetic, desperate mismanagement and fraud what could be obtaining whenever corruption raises its ugly head in private or public corporations?

Such is what the BDO Forensics report cited as obtaining at NSSA. Such is what the RBZ reported on troubled banks.

Except from NSSA Public Corruption Findings

From a public sector perspective, the BDO Zimbabwe Chartered Accountants audit report (2015-2018), NSSA splashed millions of dollars on bad investments, luxuries for board members and hefty salary perks for executive management, at a time when pensioners were wallowing in poverty.

NSSA management splurged $2,5 million in the now defunct CFX Bank, $12 million on overpriced StarAfrica corporation shares and $1,5 million on Africom Continental.

In addition, at least $45 million was locked up in Interfin Bank, which is now under curatorship.

NSSA also lost $11,2 million worth of land to local authorities after failing to develop it and it also dished out “non-profitable or non-performing” loans to parastatals such as the National Oil Company of Zimbabwe ($3,1 million), Zesa ($9 million) and Cottco ($8 million).

Except from Troubled Banks’ Corruption Findings

The private sector gave us the likes of Royal Bank Zimbabwe Limited which was established in 2002 with Messrs Jeffrey Mzwimbi and Durajadi Simba among major shareholders.

According to the Reserve Bank and the Curator these two were instrumental in running down Royal Bank.

For instance, as reported Mr. Mzwimbi started his professional career in 1977 and was instrumental in setting up of United Merchant Bank in March 1995 where he was a Managing Director Designate.

UMB later collapsed in April 1998 due to serious managerial shortcomings and poor corporate governance practices.

In terms of siphoning of Depositor Funds, Mr. Mzwimbi spearheaded a cartel of bank management within the institution to selectively award contracts amounting to ($21.6 billion) for the supply of various goods and services to the companies in which he and colleague had interests, or relationships.

Some of these companies were (Gemtree Investments [Mzwimbi and Pemhiwa], Elytra Investments [Mzwimbi and Pemhiwa], Covenant Investments [D. & W. Simba – brothers], Panalla Investments [D. & T. Simba – spouses].

Furthermore, in terms of the First Mutual Saga, Royal Bank abused depositors` funds amounting to $17.1 billion to purchase shares in First Mutual on behalf of First Mutual senior management and Royal Bank directors.

This transaction later exposed the bank to liquidity and reputation risk and First Mutual Limited took Royal Bank to Court for $60 billion and petitioned for liquidation of the bank.

Where are corporate governance principles failing us in the corruption fight?

It is through permitting a practice commonly known as box ticking. In accounting box ticking is akin to aggressive accounting whereby you appear as if abiding by generally accepted accounting standards but in actual fact only window dressing.

What is below exhibit how this box ticking happens.

Say you wish to check on corruption tackling strategic measures at NSSA among other things, you find a website https://www.nssa.org.zw/ which shows that the NSSA has the 24 hours a day, 365 days a year

Deloitte Tip-offs Anonymous whistle blowing service for its fraud risk management.

This is run as an independent Call Centre handling any unethical and dishonest behaviors that may be occurring within NSSA in a confidential manner.

A separate site http://www.tipoffs.com is provided together with a free post service and e-mail: reportszw@tip-offs.com but cases of corruption and fraud still occur undeterred.

Furthermore, NSSA has not yet embraced integrated reporting and neither does it publicize budgets or forecasts as done by comparative state entities such as NHS (UK).

For instance, according to https://www.kingsfund.org.uk/ the NHS produces a budget annually which is made public.

Planned spending for the Department of Health and Social Care in England was £139.3 billion in 2019/20 and the majority (£132.3 billion) of this is revenue funding for spending on day-to-day items such as staff salaries and medicines.

NSSA is still to adapt to IPSAS from Cash Accounting of which by 2007, South Africa was already adopting IPSASs accruals accounting per a report entitles IPSAS adoption by governments, September 2007 (IFAC) and Zimbabwe was not cited in the report.

On a separate note, https://businesstimes.co.zw/ (2019) reported that Zimbabwe’s oldest and largest professional accountancy organization, the Institute of Chartered Accountants of Zimbabwe (ICAZ) believes the adoption of the International Public Sector Accounting Standards (IPSAS) will be a “game changer”.

Interpretation of this meant that IPSAS had still not been fully embraced by public sector entities (including NSSA) in Zimbabwe.

According to https://www.unicef.org IPSAS are credible, high-quality, independently produced accounting standards, underpinned by a strong due process and supported by Governments, professional accounting bodies, and international organizations.

On use of own corporation code or national codes of corporate governance public sector entities in Zimbabwe such as NSSA have for corporate governance purposes the Public Entities Corporate Governance Act of 2018.

This is in addition to ZimCode. Dr. Tafataona Mahoso (2018) as cited by https://www.thepatriot.co.zw criticized the Act.

For instance, Parts III and IV of the Act are dedicated to bureaucratic controls on parastatals ranging from the Permanent Secretaries of line ministries, to line ministers and the minister responsible for the Corporate Governance Unit (which is currently in the office of the President and Cabinet) to the minister responsible for Finance and the President and Cabinet.

In his view, the Act dismissed the board of directors by involving the Permanent Secretary of the line ministry, the line minister, the minister administering this Act, the Corporate Governance Unit, the President and Cabinet instead.

As regards nomination of directors NSSA’s annual report of 2017 shows they have a multi-function human resources, remuneration and nominations committee but it’s not specifically a nominations committee.

Furthermore, on remuneration of directors and staff there are still challenges. The remuneration policy at NSSA is not as transparent as it comparatively is at NHS (UK).

For instance, five NSSA executives were sacked in 2018 for gross mismanagement and were required to pay back more than US$1,5 million they awarded themselves as loans and to return their company vehicles.

This came out as NSSA board chairman Mr Robin Vela revealed in 2019 that NSSA had come up with a proposed remuneration framework that will see a 25 percent reduction in monthly staff costs. But however, the new framework was still to be finalized pending consultations with NSSA stakeholders.

Another report by https://www.theindependent.co.zw/ (2016) per an audit for the period August 1, 2013 to June 30 2015 carried out by Deloitte Advisory Services, revealed that senior managers at the NSSA had gobbled US$2 million each in housing loans over a consecutive two years in addition to getting hefty allowances.

In the two-year period, the report showed that NSSA provided loans to executives comprising housing loans of between US$1,8m and US$2m each, long service loans for management who do not benefit from housing loans of US$795 523 each, vehicle loan of between US$70 911 and US$185 447 each depending on seniority, as well as personal loans for management of between US$8 427 and US$22 363 each.

This was not in tandem with NSSA`s meagre pay-outs to beneficiaries which were below the poverty datum line despite the Parastatal itself investing in banks, the equities market and property to sit at a US$1,2 billion balance sheet as at 30 June 2015.

As a result, a restructuring exercise had to follow the appointment of a new board led by Robin Vela with The Retrenchment Board giving the nod as reported to the Parliamentary Portfolio Committee on Public Accounts.

In its annual report (2017) NSSA only stated that responsibility of the Board was to appoint management and set the remuneration framework for cost containment.

It’s also stated that in executing its functions, the board is guided by the State and Parastatal Corporate Governance Framework, National Code on Corporate Governance in Zimbabwe and the Public Entities Corporate Governance Act (10:31), Board and Committees Terms of Reference.

If you check out on board meetings as required in corporate governance, NSSA`s annual reports are clear on membership and attendance with regard to both the main board and board committees. The attendances are tabulated for clarity by each director`s name. A total of 4 quarterly meetings are visible annually. Somehow corruption and fraud are still perpetrated.

Why should we care about entities such as NSSA?

We all know NSSA is the reservoir point for our defined contribution plan payments (a statutory pension plan) if formally employed.

Both the employee and employer contributes monthly and it is inevitable not to have compulsory savings towards our post-employment benefits.

Therefore, any abuse of such contributions is as good as abuse of bank deposits, which causes depositors to lose confidence in the financial services sector as and when it happens or is reported.

We all know the damage that failed indigenous banks left us as a people without meaningful remedy.  

However, with NSSA the statutory, the compulsory aspect makes us all continue to bleedingly pay up.

Like it or not, entities such as NSSA have to shape up, or ship out and be replaced with whatever works at rebuilding public confidence.

However, there must not be left any slight room for any hawks to catapult themselves onto milking or asset stripping such wealthy institutions if at all a call to disband and restart them afresh is been made.

Restarting because the national security perspective on its own has never been misplaced, only corruption centered shenanigans are what is misplaced and definitely needing sound rectification.

At present leading on the front in the fight against corruption and fraud are external audit firms, forensic accounting firms, and the Auditor General.

Despite of all that, the main question is are these systematically enough, are they adequately equipped and supported by laws and regulations, are their findings in audit reports respected, are their recommendations being implemented?

For instance, the recent NEXUS SA article entitled “Top SA forensic audit firm hammers “unreliable” BDO Zimbabwe NSSA report” among other things goes or shows things that are to the contrary.

Specialist firms may be lacking progressive peer reviews in the fight against corruption.

What else can be done to nip public corruption in the bud?

Furthermore, to the Zimbabwe Corporate Governance Code (ZimCode), Public Entities Corporate Governance Code, Banks Surveillance and Corporate Governance Code, Criminal Codification Act criminalizing all forms of bribery, and institutionalization and empowerment of bodies such as ZACC, we need to address as a nation the civil service wages and salaries.

This is in order to achieve levels that are satisfactory to the employee base which may to some extent help out in removing motivation or fraud causation factors on the fraud triangle.

Reward management in the public service is a critical issue.

I also have called for the lifting of economic sanctions on Zimbabwe, they have a part impact on causation of corruption in a restricted economic set up, and somehow these two evils dovetail or intertwine.

Preventative forensics could also be an answer, not reactive investigation and reporting.

However, the area of forensic accounting require more support regulation in the form of a specific Act of Parliament.

It needs not be provided as “other audit services” by external audit firms but by totally independent and specialist firms.

The author, Brian T Manyati is a member of the Connections2Communities (C2C) initiative. C2C is an initiative which seeks to build community power around effective problem solving on matters of interest including civic, corporate and governance issues.

 Contacts: LinkedIn – briantawandamanyati

Email: tawandamanyati@gmail.com

+263772815211

In order to register for C2C Mentorship, you can click on the following link https://zonfulenergy.com/membership/

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Legal and Corporate Literacy

Is it a Case of Judicial Capture? – South Africa Judiciary under the Spotlight

Brian Kazungu

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Brian Kazungu, 01/02/2021

During the same period that President Jacob Zuma has expressed concern on the integrity of the judiciary, Ms. Janice Greaver, a fellow South African says that she has also lost the little confidence that she had on the same institution as a gatekeeper for justice and equity.

This follows a letter that she wrote to the Judge President of the High Court of South Africa, the South Gauteng Local Division, Honourable Justice Mojapelo which was then responded to by the Acting Judge President, Justice Sutherland.

At the core of the matter is a dispute involving the export of a law or decree created or invented in neighboring Zimbabwe to obtain assets using public power and use the South African forum as another platform to continue the plunder.

In response to Janice, Judge Sutherland said “Your letter dated 12, 2021 has been received and the contents noted. No action from this office is necessary and parties are at liberty to act as they deem fit. Correspondence on this topic is now closed”.

Janice was disgusted with the response that she felt that no justice would be served by her silence and she also believes that no independent and impartial judiciary would act in the manner in which this and other related matters have been handled.

“This smacks of judicial capture and no resistance at all to foreign laws that offend the South Africa Constitution.” She said

While commenting on the idea of judicial capture on a different occasion, Chief Justice Mogoeng Mogoeng, during the 17th Nelson Mandela Annual Lecture held on 23 November 2019 said: “A captured judiciary will never use the Constitution as an instrument for transformation because any captured member of judiciary will simply be told or will know in advance [that] when so and so are involved, I better know my place.”

He also stated that: “You must be worried when you read a judgment and you are struggling to make sense of it.”

Against the backdrop of the Zondo Commission on state capture, calls have been made as correctly observed by the Chief Justice that to the extent that judges are responsible for administering oaths to presidents and members of Parliament, it cannot be unreasonable for judges to be loyal to their oaths of office.

In explaining her displeasure, Janice highlighted the following: “Prior to my joining the C2C initiative, I naively thought that a company is owned by shareholders and that directors are accountable to shareholders, but now I know better.

A company is a separate and independent legal entity, not owned by shareholders as is commonly believed – a shareholder can be compared to a sperm donor – once the child is born, the parent does not own the child, but the child is a separate entity.

Another common misconception is that directors are accountable to shareholders but they are in-fact accountable to the company.

She further states that “Only directors have the authority to act on behalf of a company, or to give power of attorney to any other parties to act on behalf of the company. A company therefore cannot cause a litigation without the instrumentality of directors.

Any judge would know that in order to institute legal proceedings ina court of law, a company requires a resolution of directors of the company and in the case of SMM vs. Mawere and Mariemuthu, the authority to litigate was given by an Administrator pursuant to the existence and operation of a Zimbabwean law that was applied in South Africa.

This law is patently penal and confiscatory

I also expected that the call by the Chief Justice that judges must not be “hypocritical” to their duties as contemplated in the Constitution by my experience so far in relation to a dispute that relates to the manner in which a civil matter instituted by the government of Zimbabwe dressed as a company before Judge Mojapelo in the South Gauteng Local Division of the High Court of South Africa was adjudicated by Judge Willis as he was known then”.

On the same note, she further gave a lengthy narration saying “On 6 September 2004, the government of Zimbabwe unilaterally and through a decree permitted the then Minister of Justice, Mr. Patrick Chinamasa, a close confidante of President Mnangagwa, to substitute the judiciary by issuing an order in relation to SMM Holdings Private Limited (SMM).

SMM’ shareholders and directors were divested of the control and management of the company and through the same Act of a foreign state, SMM’s directors were dismissed by the Administrator who was extra judicially appointed by Chinamasa.

Pursuant to the operation of this decree, a prosecution of a matter in the name of this dismembered company was successfully done in the name of justice.

As a member of the C2C initiative and an active South African citizen in my right, I thought that it was in the interests of justice to bring this matter that poses so grave a risk to public confidence and trust in relation to the proper administration of justice, to the administrative head of the court that dealt with this matter expecting that he would rise above the parochial interests of protecting injustice, I was surprised at the tone and language used by the Acting Judge President, Mr. Justice Arthur Sutherland, who contemptuously dismissed the matter.

It cannot be disputed from the sentiments expressed by the Chief Justice that: “We wield extensive power as the South African judiciary. There is almost nothing we cannot do through the instrumentality of the Constitution,”

Janice further stated that “It turns out that this dispute that provoked her to be outraged could have been avoided had the JSC led by Mogoeng performed its constitutional duty to show zero tolerance to the precedent set by the Mojapelo led court where a conflict of law exists.

This is worthy noting especially in this case of the draconian Reconstruction of State Indebted Insolvent Companies Act, a law that was aptly described by exiled former Minister of Higher Education, Professor Jonathan Moyo as barbaric and satanic and which also conflicts with the South African Companies Act.

Under the South African Companies Act, the control and direction of a company is vested in its board while in Zimbabwe’s Reconstruction Act, the said control and direction is vested in a state-appointed Administrator.

The question that I needed clarity on and which remains unanswered is whether the South African judiciary has discretion to recognize and enforce a law that offends public policy and is inconsistent with the South African Constitution.

A precedent was set by Judge Willis who proceeded to recognize and enforce the thuggish manner in which the rights of SMM were confiscated and expropriated without compensation only to have the South Africa judiciary play an active role in giving life to this nonsensical law in this jurisdiction with impunity.

The cavalier and condescending response by Judge Sutherland has fortified my position that not all is well in the SA judiciary.” Janice said.

The Chief Justice asked the question – What is wrong with society? – to inform his submissions at the lecture without knowing that under his watch the justice system is rotten to the core.

The JSC was alive to the implications of the South African judiciary being Mugabe’s partner in undermining the rule of law yet the Chief Justice dismissed the complaint whose facts and circumstances have not changed since 2004.

In this case, it is critically important that if the courts are independent and impartial tribunals, how is it that a company without directors appointed by shareholders could be recognized as a legitimate and legal litigant.

The fact that this matter was prosecuted with the active participation of South Africa lawyers and senior advocates like Kirsty Simpson of ENS Africa and Advocate Christo Bothma is baffling.

What would give confidence to lawyers, as officers of court, to prosecute a matter on behalf of a foreign state disguised as a company without the resistance of the court unless the practice of defeating the ends of justice is deep seated and widespread?

It is our duty as citizens to take notice of this conduct which reduces public trust and confidence in the judiciary as a guardian of justice and fairness.

Judge Sutherland closed the doors of justice on me and I should like to believe that he is not the only judge in taking the position that he is not accountable to persons of no significance to him like me.

Who needs the Zondo Commission when its principal actors act as if they are the law?” said Ms. Janice Greaver, a management consultant by profession.

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