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Lilongwe, the capital of Malawi, is a sleepy place. The population is less than 800,000. The big employers are government and aid agencies. Only a few thousand attend university each year. It is harder to escape scrutiny than in most places. So people took notice last year when lots of civil servants were suddenly buying houses in the city’s new suburbs. In September a government clerk was found with $300,000 in his car. A week later a treasury official was shot outside his home. This was the genesis of the “cashgate” scandal, a systematic looting of public money, which has cost Joyce Banda the country’s presidency in the May 20 elections.
An independent report into the scandal published this week by Baker Tilly, a British accountancy firm, describes the scale of the theft and how it operated. Drawing on a sample of 501 suspicious transactions between April and September, the auditors found that around 6.1 billion kwacha ($14.5m) had been paid out to 16 companies for services that had not been supplied. Payments with no further documents accounted for a further 4 billion kwacha. The bean-counters also found that supply contracts had been inflated by 3.6 billion kwacha. All told, the state was defrauded of around $32m, almost 1% of Malawi’s annual GDP, in just six months.
A central element to the fraud was the manipulation of a government software system that was supposed to help control spending. In a typical cashgate transaction, the accounts of the tourism ministry or the cabinet office were hacked into. The hackers found a budget allocation, say for paper clips, and generated bogus payment orders until the allowance was exhausted. A cheque was then raised and paid into the bank account of a dormant company used solely for money laundering. Money was cashed and the transaction was then erased from the accounts so the fraud could be repeated.
No one checked whether any goods had been delivered. Baker Tilly found that basic filing was not applied. Cheques were left in printers overnight and made out in corridors rather than secure offices. Payment orders for large sums were honoured by the central bank even if they had only two of the three required signatures. In one instance high-value cheques with consecutive serial numbers for exact sums were cashed on the same day. The theft went unchecked in part because a reconciliation of bank payments by the accountant-general’s office had not been made for over a year.
The report doesn’t name any perpetrators but details have been passed to law-enforcement agencies. More arrests may follow the 68 that have already been made, including of Ralph Kasambara, who was the president’s justice minister. Ms Banda herself has not been implicated and has claimed that the looting began long before she became president in May 2012. Independent observers agree. But a reading of the Baker Tilly report suggests that the tempo of theft stepped up on her watch. That finding may hurt her when Malawi goes to the polls.
