Forensic audit exposes massive NRZ fraud

A FORENSIC audit report on the National Railways of Zimbabwe procurement system has revealed that fraudulent activities could have cost the rail company millions of United States dollars.

Conducted by Baker Tilly Gwatidzo Chartered Accountants, the forensic audit covered the period 2010 to 2015.

The report was presented in Parliament by Transport minister Joel Biggie Matiza, but is still to be dealth with by the Public Accounts Committee chaired by Tendai Biti, which is busy with the forensic report on power utility, Zesa Holdings.

"During the course of the review of the procurement systems in place within the NRZ, potential corrupt activities were identified through three different ways; whistleblowers, review of the procurement systems and results in other NRZ systems," the forensic audit report read.

"Investigations reveal that there were instances during the period under review where NRZ purchased spares and there were oversupplies and under-supplies that were never rectified."

The auditors said there was a public-private partnership (PPP) agreement between the NRZ and Strauss Logistics and it appeared the rail company lost huge amounts of money to price inflation by the logistics company.

NRZ was obligated to provide 40 tanks to transport Strauss fuel within Zimbabwe for five years.

Strauss was supposed to provide spares for the repairs of the tankers, but the auditors found that they were providing those at inflated prices.

"Purchase order 4500006074 dated March 2016 was made out to Strauss Logistics for the supply of various materials for use in the repairs of the tanks. The total value of the order was $109 697,56 for 126 materials.

"An inspection of the order revealed that among the materials ordered from Strauss were rubber products, which are traditionally purchased from Rubber Products Manufacturing (Pvt) Ltd, and oxygen and acetylene, which are traditionally supplied by BOC gases."

The auditors said, however, no quotations were requested for the purchases of those materials and other materials from traditional suppliers, and informal tender procedures were used.

As a result, there were price discrepancies which resulted in NRZ being prejudiced of thousands of dollars.

In another case, the NRZ is said to have entered into an agreement with Hethimex for the purchase of spares, and US$67 million worth of locomotive spare parts were acquired from 2006 to 2009 without going through formal tender processes.

Although the auditors said the NRZ was allowed by the State Procurement Board under authority PBR 0350 of 2005 to forgo tendering, the NRZ management then entered into direct invitation of suppliers which opened up opportunities for fraudulent transactions such as clandestine dealings with suppliers.

"It also presents the pre-approved suppliers with an opportunity to collude and charge higher prices when they realise that the procuring entity can only buy among them. There is, thus, the possibility that spares were overvalued and are not worth US$67 million on the open market. Total orders made out to Hethimex for the period 2005 to 2006 were US$35 million," the report said.

There were instances where Hethimex was the only supplier invited to tender despite the presence of other suppliers such as BOISE Rail and RTI Turbo.

"Due to the lapse of time, we could not determine the prejudice to the NRZ," the forensic audit report said, adding that all purchases above US$10 000 were supposed to have been advertised to ensure compliance with the Procurement Act.