The struggling City of Harare may have lost US$4.5 million in a murky loan deal in 2017 to one of its business units, Harare Quarry, as there is little documentation showing how the money was utilised.
An investigation by Truth Diggers revealed that no loan agreement was signed between the City of Harare and Harare Quarry amid fears that the money was embezzled.
Truth Diggers is an investigative arm of Alpha Media Holdings (AMH), publishers of The Standard, NewsDay, Southern Eye and the Zimbabwe Independent.
AMH also runs the online radio HSTv.
At least US$56 000 was paid to scores of suspected ghost workers at Harare Quarry, while other millions could not be accounted for as there were no payment vouchers and other documentation, a forensic audit report that council has been keeping under wraps shows.
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Harare Quarry, City Parking and Rufaro Marketing are some of the City of Harare’s business units.
City Parking, a vehicle parking Management Company, has emerged as one of the council’s main cash-cows with some Zanu PF politicians now angling for its takeover to fund party operations.
Former Zanu PF Chegutu West lawmaker, Dexter Nduna, is leading the onslaught against City Parking amid reports that a company that he is linked to wants to grab vehicle parking management from City Parking.
Harare Quarry has been dogged by reports of mismanagement and corruption amid indications that plans are afoot to have its portfolio put under City Parking to make it profitable.
Truth Diggers has obtained the special audit report conducted by Parker Randall Chartered Accounts for the period December 1, 2017 to June 30, 2019 that exposed the murky US$4.5 million loan deal to Harare Quarry.
The audit report was never made public.
Parker Randall was engaged on June 22, 2021 to conduct the forensic audit.
Its terms of reference included reviewing the breakdown of the loan utilisation, investigating if the money was properly utilised and within the reasonable time, reviewing procurement procedures and establishing the effects of exchange rate fluctuations on the utilisation of loan amounts.
The local authority advanced the loan to Harare Quarry in November 2017 when the business operation was failing to pay its workers on time, purchase water treatment chemicals and provide critical services due to shortages of foreign currency.
The loan was purpotedly for the purpose of recapitalisation and financing business operations of Harare Quarry.
At the time when Harare Quarry received the loan, City of Harare was not listed as shareholders, according to statutory documents listed with the Registrar of Companies on August 10, 2016.
Harare Quarry was said to be owned by Josephine Ncube and Philip Mabingo Pfukwa who allegedly took one share each out of the authorised shares amounting to 20 000 as appearing on the memorandum of association dated August 10, 2016.
“Having individuals listed as shareholders of Harare Quarry, a company purported to be a subsidiary of Harare City Council exposes both Harare City Council and Harare Quarry to potential litigation as the ownership can be disputed based on the company's registration documents lodged with the Registrar of Companies,” the auditors said.
A breakdown of how the money was utilised indicated that US$3 485 818.50 was spent on capital expenditure, US$32 930.32 on directors fees, US$739 092.05 on salaries and US$308 566.74 was listed as other expenditure bringing the total loan amount to US$4 566 407.61.
“However, there was no signed agreement for the loan amount that was advanced by Harare City Council to Harare Quarry,” the audit report reads.
According to the report, management at Harare Quarry failed to utilise the loan from December 2017 to May 2018 because of lack of a loan agreement as the City of Harare was not forthcoming despite several follow-ups.
“This represents poor corporate governance as loans between separately registered parties (regardless of being related parties) must be based on signed loan agreements, which state terms and conditions that include interest rate, repayment terms and repayment period,” the report reads.
The money was deposited into Harare Quarry’s CABS Bank account on November 28, 2017, according to bank statements.
“The above total amount of US$4 566 407.61 as appearing in Table A was incurred without evidence of authorisation as there were no filed payment vouchers nor signed payroll summaries as evidence of authorisation of payments,” the audit report added.
“Absence of third-party supporting documentation for payments totalling US$917 115.71...and payment vouchers for all payments amounting to US$4 566 407.61 made during the period under audit ...made it difficult to ascertain whether the payments were made for the business of the company.
“There were no GRVs that were issued on receipt of all purchased non-current assets acquired during the period under audit and we could, therefore, not verify if these non-current assets paid for as appearing for breakdown of capital expenditure amounting to US$3 485 818.50...were actually delivered to Harare Quarry.”
The auditors said this exposed the company to financial losses arising from unauthorised payments made for non-company business.
Former accounting officers at Harare Quarry allegedly told the auditors that payment vouchers were prepared and filed.
However, the payment vouchers could not be located.
“Absence of payment vouchers implies either payments made during the period under audit were not authorised or management that was in office during the period under audit deliberately removed payment vouchers from office thereby concealing audit trail,” the auditors said.
Harare Quarry also spent a staggering US$56 437.79 on scores of suspected ghost workers between December 1, 2017 to October 31, 2018 with the highest having received US$8280.
Auditors said this exposed the company to financial losses from payment of “ghost employees" and payment of salaries that wereabove the salary amounts on contracts of employment.
“Although the company started preparing monthly payroll summaries from November 2018 onwards, no signed or reviewed monthly payroll summaries for this period were accessed.”
There was also no evidence of staff recruitment, training and development as the majority of employees were seconded from the City of Harare.
The majority of employees also had zero experience and education qualifications.
Harare Quarry could also not account for how some service providers were engaged as there was no evidence of applications for tenders.
The auditors said the absence of such information regarding the awarding of tenders indicates possible abuse of company funds through awarding contracts by management to suppliers of their choice for personal gain.
The audit reports also indicated that delays in utilisation of the loan amount for a period of five months resulted in the figure significantly losing value because of government monetary policies.
In October 2018, the central bank instructed banks to separate and create ‘distinct’ bank accounts for depositors namely RTGS foreign account and nostro foreign account.
This resulted in a separation of transactions on the local RTGS payment platform from those relating to foreign currency.
“The value of the loan amount received from the Harare City Council was reduced by the requirement to separate FCA nostro and RTGS nostro as RTGS nostro could no longer settle invoices presented in foreign currency, and this was the cost and financial loss suffered as a result of delay in utilisation of the loan amount,” the audit report revealed.
In February 2019, authorities re-introduced the local currency using an interbank rate of US$1-RTGS2.50, further reducing the bank balance of the loan amount.
Harare Quarry chairperson Oswell Binha said he was only appointed to the Harare Quarry board in 2021 second quarter.
"I am no longer the Chairman. My tenure ended and I did not renew " he said.
"My tenure ended, Jacob (the Mayor) insinuates he dissolved the board. I did not seek renewal too.
"The story assumes, by inference HQ board was given the 4.5million loan under review under my chairmanship. It is incorrect."
Binha recently told the Justice Maphios Cheda-led commission of inquiry into operations at the Harare City Council that the city council, as a shareholder, was frustrating the process of resuscitating operations at the SBU.
President Emmerson Mnangagwa appointed the five-member commission to investigate the City of Harare’s management and council in May this year.
Harare mayor Jacob Mafume said the municipality had taken note of the audit report, and resolved to take over operations of Harare Quarry.
“We have dissolved the current board. We have instituted a system where we are going to put up a new board and make sure that the documentation of the company is put in order,” Mafume told Truth Diggers when contacted for comment.
“We have recommended that we go after the individuals that abused the loan, what it was used for, if it was not used for the purposes for which it was not designed, or indicated, then we will institute measures to recover the amounts that were used.
“We are also going to make sure that these companies are going to be run in a professional manner with a new board, and also a way to make sure that we put people that would not abuse the company funds.”
Harare Quarry was led by a five-member board, with only two independent members, while the other three are City of Harare employees.
Harare Quarry’s poor performance leading to a shortage of asphalt, a crucial material for road repairs, came up for discussion during the ongoing commission of inquiry into the operations of the council.
Harare Residents Trust director Precious Shumba said they had been asking asking questions about the loan and the local authority was evasive.
“We have been raising this issue in various meeting, and we have been made aware that it was a corrupt deal because the money has no trace in terms of documentation, but it is there in terms of several council meetings where it is alleged that the money came directly from the City of Harare under very suspicious circumstances," Shumba told Truth Diggers.
"When the money was released, it was said instead of purchasing modern equipment, the directors under dubious circumstances purchased obsolete equipment that never got used at the Harare Quarry.
"This is why Harare Quarry has been largely dysfunctional and not bringing monetary value to the council.
“To us this represents the height of corporate misgovernance at the City of Harare.
"As long as the money is not accounted for, it means the residents of Harare are deprived of their money, and our expectation is that these people must be held accountable."
Political analyst Rejoice Ngwenya said he was not surprised that Harare Quarry was looted as it was seen as a cash cow when it was formed.
“Harare Quarry was a subject of privatisation – among other projects likeHarare Farms, Cleveland Dams and Mabvazuva Lodges,” Ngwenya said.
“The quarry was considered a cash cow, so I am not surprised the money vanished in a cloud of quarry dust.”
He said the chaos that currently prevails at City of Harare is instructive on the conflict of interest perpetuated by councillors and officials who benefit from bad governance.
“There is no interest or commitment to accountability in that city,” he said.
“The audit report is a drop in the ocean on what really transpired in there — a complex web of political interests driven by the central government that waives benefits at corrupt councillors with unquenchable economic needs.”
A senior council official commented: “As far as l’m concerned, what is happening at Harare Quarry is microcosmic or a consequence of council’s total failure to implement effectively the Harare Transformation Roadmap.”
The Harare Transformation Roadmap 2015-2025 was formulated with the financial and technical assistance from the German government through the Frederich Numman Foundation.
