THE Zimbabwe Environmental Law Association (Zela) has challenged the parliamentary portfolio committee on Mines and Mining Development to investigate alleged illicit financial flows (IFFs) and corruption in the diamond sector following an exposé by Auditor-General (AG) Mildred Chiri’s 2019 report.
Zela said on Monday during a virtual presentation to the committee chaired by Shurugwi South Constituency Member of Parliament, Edmond Mkaratigwa, focusing on the Zimbabwe Consolidated Diamond Company (ZCDC) and the Minerals Marketing Corporation of Zimbabwe (MMCZ).
“The committee must visit ZCDC and investigate the adequacy and functionality of MMCZ’s systems on prevention of diamond leakages. The focus of the investigation should be on systems and procedures that relate to prevention of leakages, capacity of the corporation in maintaining records relating to production, storage, movement and sale of minerals, systems and procedures that relate to prevention of corrupt practices and collusion by officers in the system,” Zela programmes officer Tafara Chiremba said.
He said the auditor-general had also failed to get adequate information on $304 258 953 owed to ZCDC, according to its 2019 financial statement.
“The debt amounts that ZCDC is failing to properly account for and recover have been growing since 2016 and this is a cause of concern. In 2016, the figure was at
$20 307 027 whilst in 2018, the figure was at $24 347 454 … the risk is that ZCDC could be using non-existent companies as a conduit for siphoning public funds from ZCDC’s investments,” Chiremba said.
“The AG revealed that she was not able to verify the valuation of ZCDC’s investment, stating an amount of $178 799 841 in its subsidiary company named DTZ OZGEO (Private) limited. Again the issue is the AG failed to get enough documents to substantiate the figures. ZCDC failed to provide the financial statements of its subsidiary company to enable the AG to assess the fair valuation of the company’s investment in the subsidiary.”
Zela further said that local buyers could have benefited from buying diamond in local currency and exporting it to external diamond markets in United States dollars.
“The US$ was valued more than the ZWL$ on the parallel exchange market and this created arbitrage opportunities … As a committee you might want to invite MMCZ and ZCDC to get more clarification on this. This is a key IFFs risk that may actually require a special audit on MMCZ. The findings from the AG revealed that MMCZ’s monitoring manuals did not cover issues to do with quality analysis of the value addition processes in the production of high carbon ferro chrome and ferro silicone.
“A concern was raised that this was exposing the country to IFFs (loss of mining royalties) through under-declaration. In response to this, MMCZ indicated that quality checking is an on-going process, and the monitoring manual will be reviewed.”
According to Zela, there was also suspicion in the manner in which the diamond stock was being handled by the mining companies.
“In 2019, 297 660, 41 carats of diamond stock held at MMCZ was not counted at the time of the stock count. These parcels were packed for customers and held at MMCZ. However, at year end, during the stock count, these stocks were not included in closing inventories. In 2018, 41 699, 85 carats of diamond stocks held at MMCZ were excluded from the stock count. It was assumed at the time that these stocks had been sold to customers.”
“An additional 13 222, 85 carats were excluded from the final stock sheet in error. This means that before the adjustments were affected, ZCDC’s financial reports were not reflecting the true and fair position in terms of profitability and tax performance of the entity … the stock reconciliation problem was attributed to systems challenges – an accounting anomaly, but this may also speak to risks of fraud. There was an expectation that the internal audit would pick the issues and correct them before submitting financial reports to the AG.”
Zela also queried MMCZ’s efficiency as they failed to account for a client’s five carat of diamonds which the company said was due to its inability to retrieve CCTV footage as a result of internal control system failure.
“There is a high possibility that the diamonds were stolen. This clearly points to the failure by the corporation in its role to ensure effective accounting of natural resources and curb mineral leakages,” Chiremba said.