Home | News | HOW YOUTH FUND WAS LOOTED

HOW YOUTH FUND WAS LOOTED

24/03/2019 08:29:00 BY WELCOME DLAMINI

Font size:

MBABANE – Why is suspended Director of Youth Affairs Bheki Thwala not reinstated?

Our impeccable sources at the Ministry of Sports, Culture and Youth Affairs told the Times SUNDAY that explosive findings of an investigation into operations of the Youth Enterprise Revolving Fund (YERF), where Thwala was Acting Fund Manager, are the reasons he has been at home for almost three years now.

A forensic investigation conducted by the then Auditor General, Phestecia Nxumalo, unearthed massive mismanagement of money and other assets belonging to the institution, which is a Category A public enterprise.
Most of the looting happened during Thwala’s tenure, which began on January 10, 2014, while some occurred prior to his appointment, but Nxumalo’s investigation did not find him directly liable.
“There is no conclusive evidence that the Acting Fund Manager committed fraud but it appears that fraud occurred.” Nxumalo said in her report.

The investigation by Nxumalo came after a board member submitted an urgent application containing an allegation that the YERF was suffering from serious administration problems.

Fund turned to personal trust
It was alleged that the problems at the fund were intentionally perpetrated by Thwala for his personal gain.
The former AG alleged that Thwala had literally turned the fund into his personal trust fund by infiltrating every decision.
Further, it was alleged that the fund was losing thousands of Emalangeni monthly under his directive.

Another allegation made by the AG was that some of Thwala’s allies in the board consisted of individuals he had personally recommended to the former Minister of Sports Culture and Youth Affairs.
Nxumalo’s findings are mind-blowing!
One of the things she uncovered was that there was a manipulation of procurement rules and thresholds.

A huge concern was noted of an ‘unusually close association’ between the Fund and one supplier identified as Classic World Supplier.
It was found that the Fund was supplied by this one service provider for different items amounting to E339 859.45.
What Nxumalo found to be odd was that this supplier was an authorised dealer for all the items it supplied to the Fund as its licence was that of a general dealer, subject to the following conditions; medical equipment; sewing machines; and sewing machines accessories.

The items that the company was found to have supplied to the fund included conference clusters, leather high back chair, branded clock watch and air conditioner, HP machine, a photocopier and a steel cabinet.
“There is a risk that the cost of the services was not competitive. This may lead to negative impact on the overall budget given to the Youth Enterprise Fund,” said the former AG.
She recommended that in future, the fund should use different suppliers with reasonable prices without compromising the quality of services.
Among the questionable purchase was that of the photocopying machine, which the Fund ended buying for E226 508 (E198 691.98 plus Value Added Tax of E27 816.74).

quotations incomparable
There were two other quotations that were submitted to the Fund and one was of a lesser amount at E213 481.18 including VAT, while the third one was for E243 960 including VAT.
Nxumalo found that the three quotations had different specifications in terms of descriptions, features, size and capacity of the machines.
She said these quotations were incomparable because the one that was eventually purchased was described as able to produce 20 pages per minute, whereas the others produced 45 pages and 50 pages per minute, respectively.
Nxumalo even doubted the source of the suppliers as she said “the quotations were also not from recognised dealers of the photocopying machine. Therefore, they were meant to deceive the board members and other stakeholders,” she noted.
Nxumalo pointed out that despite the fact that the quotation price from Classic World Stationery excluded VAT; the fund opted to send an order to this dealer at an amount of E198 691.97.
“Previously, the same supplier in invoice number YEF 1007, dated 16 December 2013, charged VAT of E16 254 on office furniture and equipment that was supplied at E132 354. The 14 per cent VAT of E16 254 was paid. This implies that the supplier is VAT registered and charged VAT as required by law. Clearly, there was tax evasion in the procurement of the photocopying machine which facilitated an unfair advantage over the other suppliers,’’ reads Nxumalo’s report.

financial loss
The former AG found that the photocopier that was bought produced 20 pages per minute and its actual market value was about E60 000 depending on the equilibrium between supply and demand.
The average market price for a machine with comparable capacity was quoted at E69 052.
Nxumalo said it was therefore unethical to procure the photocopying machine at a price significantly above the fair value of similar assets and to evade payment of VAT.
“There is a financial loss of about E129 640 (E198 691.98 less E69 052) on the entity’s budget, which is about 187.7 per cent above the average market price of E69 052. This exorbitant high price cannot be justified by any increase in the consumer price indices. Further, the government lost E27 816.74 as a result of Value Added Tax evasion,” said the then AG.
Still on Classic World Stationery, Nxumalo discovered an inflation of prices where the Fund paid E93 424 to the dealer for assets worth E53 660.
This was in respect of 20 branded wall clocks which were supplied at the cost of E770 each totalling E15 4000 yet other suppliers were found to be selling them at E380 each, totalling E7 600, which means the price was inflated by more than double at E7 800.
Three HP Pro desk computers were supplied at a cost of E15 900 each, totaling E47 700 yet other suppliers were found to be selling them at E6 800 each, totaling E27 000, which means price was inflated by E20 400.

price inflated
There were also the steel cabinets which were supplied at E3 332 each, totaling E30 324 yet other suppliers were found to be selling similar items at E2 680 each, bringing the total to E18 760, which means the price was inflated by E 11 564.
Nxumalo said the fund suffered a financial loss, which could have been avoided had the entity considered value for money during procurement.
“It was noted that no other quotations were obtained, as per the YEF Finance Policy, which requires that three quotations should be obtained and approved by the board. Hence there is a variance amounting to E39 764,” she said.
Nxumalo recommended that procurement officers and management of the fund should always consider value for money in the procurement process.
In the purchase of a conference cluster for a price of E54 378, the ex-AG found that there were no minutes from the board supporting such approval, therefore violating the organisation’s policy.

overriding controls
“Non-compliance with the prescribed policy of the entity undermines the oversight role that should be played by independent board members in terms of value for money. This is an override of controls,” she said.
She advised management not to sideline the board in procurement decisions that fall within the ambit of its approval.
“The board should execute the penalty for overriding controls and breach of the rules and regulations,” she recommended.
In terms of money meant for loans, the then AG found that an amount of E4 million that was released for use by the YERF was not forwarded to the Fund’s bank account, instead it was used to cater for administrative or office expenses.

Funds should be kept in separate sub-bank accounts
The impact of this, according to Nxumalo, was that “the funds that could be lent to the youth were reduced by the diverted funds made by the management of the Fund. They use the revolving fund for the operations of the public enterprise instead of the intended purpose which is to lend seed capital to the youth of Swaziland (Eswatini).”
The then AG said this action did not add value to the main objectives of the enterprise which are to lend the funds at an interest so that it increases the lending capital for the benefit of the country’s youth.
She said in so doing, the board failed to appropriately take into account the interests of its key stakeholders, particularly the youth.
She recommended that the board should protect the sustainability of the Fund’s objective of being a revolving loan fund in order to ensure the ability of future generations to benefit from it and meet their business needs.
“Therefore, there should be distinct budget lines for the loan fund and for the administration of the enterprise. These funds should be kept in separate sub-bank accounts and comingling of these funds should not be allowed by the board of directors,” said Nxumalo in her report.

amount declared
unrecoverable
The investigation also revealed that out of a total amount of E10 million meant to be disbursed as loans to youth applicants, E9 567 608 had been distributed by 2013 and only E3 828 962.08 had been repaid by July 2015, leaving E7 449 426 considered outstanding.
An amount of E2 990 079 was declared unrecoverable, according to the then AG.
Nxumalo said the unrecoverable amount indicated lack of efficiency and effectiveness in the performance of the revolving fund.
“In a nutshell, the board failed to make the fund revolve successfully among the young businesspeople, as expected,” she said.
Further, she found that loans amounting to E4 868 238, with a projected return of E5 757 865.20 were approved for youth beneficiaries but only E1 496 627.26 was recovered and E4 261 237 is still outstanding yet the repayment period long elapsed.
She noted that the beneficiaries signed a loan agreement form which states that the loan should be paid within 24 months.