NBS pays US$8 million for houses that were never ...

NBS pays US$8 million for houses that were never built

Audit fails to verify millions more obscured in murky accounting systems

Nyashadzashe Ndoro

Chief Reporter

The latest report from the Acting Auditor-General, Rheah Kujinga, has uncovered significant irregularities at National Building Society Limited for the years 2022 and 2023.

The report highlights two major findings, including the society's ineffective due diligence processes in engaging contractors for housing projects and the lack of integration between the core banking system and the accounting and financial reporting system.

Regarding the first finding, the report states that NBS made an upfront payment of US$11 million to a contractor for the delivery of 400 housing units, but the contractor failed to meet the terms of the agreement.

"The Society's due diligence processes on the engagement of contractors for housing projects was not effective during the period under review. The Society made an upfront purchase price of US$11 million for the delivery of 400 housing units to a contractor on the Newmara project. The contractor breached the terms of the agreement by failing to obtain the necessary permits, approvals and consents and failing to construct and deliver the 400 units. The contractor only managed to partially complete 153 out of the agreed 400 housing units which had structural defects," notes the auditor.

"The Society therefore received 3 portions of land being the 153 partially completed units, the land on which the 247 housing units were supposed to sit on and an additional piece of land as compensation following an arbitration. The land was subsequently valued at US$3.3 million in 2021 resulting in a loss of about US$7.7 million."

The report recommends, "The Society should carry out full due diligence on developers/contractors before entering into offtake agreements to assess the capacity of the developers to construct and complete projects."

Management acknowledged the issue and committed to conducting thorough due diligence on all developers and contractors.

The second finding relates to the lack of integration between the core banking system and the accounting and financial reporting system.

"The Society's core banking system was not integrated with the accounting and financial reporting system. Manual intervention through the use of journals was then applied when transferring information between the two systems.

"The use of manual intervention to transfer information between the two systems resulted in variances between balances in the core banking system and balances in the accounting and financial reporting system for loans and advances, deposits and suspense accounts. In addition, the Society's other liabilities of ZWL$3.9 billion included a balance of ZWL$30 million relating to a settlement suspense account. I was unable to obtain sufficient appropriate audit evidence to substantiate the balance in the settlement suspense account," the report states.

"Management should consider integrating the core banking and financial accounting systems," the report advises.

Management responded that they are aware of the deficiency and had budgeted for an FBEQ system upgrade in 2023. They have submitted a procurement request to the Procurement Regulatory Authority of Zimbabwe and are awaiting approval.