The crisis at Telecel Zimbabwe deepened this week amid calls for a forensic audit to halt the decline after the third largest mobile network operator widened its loss to $18,2 million in the nine months to September 30.
In the seven months to July, Telecel posted a loss of $13,8 million.
The company which is saddled with a weak balance sheet, obsolete equipment and poor corporate governance has seen a high staff turnover ratio with an average of five employees leaving the company every month on poor remuneration.
Internal company documents seen by Business Times painted a gloomy picture as the company said it had received five summons and over 20 letters of demand as creditors force the company to honour its obligations.
This paper reported last week that one of the creditors, ZESA Pensions Fund has started moves to evict Telecel from its rented premises in Beitbridge as the mobile network operator owes $ 8 415,35 in rentals and operating costs. So dire is the situation that Telecel is failing to recruit an Internal Audit Manager.
The candidate who passed the interview has rejected the offer on the basis that the salary is low. Telecel is also struggling to recruit a Chief Commercial Officer with a candidate selected turning down the offer as the package offered is not commensurate with expectation.
As the mobile network operator is desperate, it will, however, hire the candidate as a consultant, sources have said. Business Times understands that a commercial bank (name supplied) contacted Telecel this week informing them it would not offer personal loans for Telecel’s employees.
“There is need for a forensic audit and address structural and leadership matters at the company to improve performance. Structural in terms of sanitising the shareholder issues as well as the imperative to restructure the balance sheet to allow company to access capital for both working capital and network expansion,” a source said. “The system is so broken and Government has to move in to stop the bleeding.”
It is understood that while Government’s representatives on the Telecel board have tried to engender good corporate governance practices, it was not shared by their colleagues from Empowerment Corporation.
According to documents seen by this publication, board chairman James Makamba told the April 11 board meeting that his son Zororo did a TV campaign for the company and had a new proposal for the Telecel to market its services during his POV video flightings.
It was resolved that board member Selby Hwacha would consider the proposal and give a recommendation.
At the July 3 board meeting, Telecel CEO Angeline Vere advised the members that Hwacha had written to Zororo Makamba concerning his request for the POV sponsorship highlighting the financial constraints that the company was facing.
“Mr. Hwacha indicated to the board the need to adhere to propercorporate governance in respect to related party transactions,” said minutes of the meeting seen by this publication.
This paper also understands that the company stands accused of failing to undertake due diligence prior to awarding first time/new vendors advance payments which resulted in some failed supplies with subsequent failure to recover funds.
Internal documents gleaned this week said the situation was coupled with several anomalies and breaches of protocol in the procurement process. As a result of that there were amounts paid in advance for the supply of goods and services which were never recovered. T
elecel lost $104 000 after a supplier failed to deliver two VW cars. It also lost $50 000 after a company was hired to do power connections but failed to do so despite being paid. A board member was overpaid board fees for 2009 by more than $40 000. The company could not act when an alert employee picked the anomaly.
“There is reconciliation in place to show the amount overpaid and proof that an email was sent to the FD for him to act on the matter,” the document said.
In 2013, Telecel also overpaid by $25 103,20 for the supply of goods to a company controlled by a board member. The company had supplied marketing materials and due to undue pressure for release of funds on the finance department, the amounts paid for the supply of goods and services was in total higher than the value and sum of goods provisioned, the internal document said.
The document said the purchase orders for the supply of these goods were also not subject to the tendering process in violation of the procurement policy.
“There is reconciliation in place to show the amount overpaid and proof that an email was sent to the FD for him to act on the matter,” the internal document said.
The call for a forensic audit comes as it emerged that Telecel’s balance is weak and needs restructuring. Telecel’s current assets cannot meet its current liabilities.
Current assets are $11,37 million against current liabilities of $141,8 million. This gives negative working capital of $130,43 million. This shows that in the short term, the company has no liquid assets remaining after short term liabilities have been paid off.
In the nine months to September 30, Telecel Zimbabwe has accounts payable of $49,37 million, made up mainly of management fees ($21,5 million), trademark fees ($8,239 million) and other operating creditors.
In April, Telecel’s auditors warned that the mobile network operator was facing a huge potential tax liability emanating from the thin capitalisation and accrued management fees. The Members requested Hwacha to analyse the legal opinions that Management and KPMG had obtained and map the way forward with management and the auditors. According to the Income Tax Act, accruing management fees are seen as deemed dividends and hence liable to withholding tax.