Audits should precede employment contracts
AFTER years of deliberating, Government finally said that employment and performance contracts for heads of ministries, parastatals and State-owned enterprises would be ready in the coming weeks.
The contracts will be guided by specific deliverables in line with the goals of Zim-Asset.
The intent to monitor the performance of the public sector is laudable as it has been proven that Government cannot be successfully run without some form of evaluation.
State enterprises are the largest and most valuable of all firms which, if successfully managed, can provide in excess of 30 percent of the country’s GDP.
However, past events and failures have revealed that the classical economic theory of moral hazard holds true. The theory tries to explain problems caused by asymmetric information and the lack of alignment of economic objectives of owners and managers of SEPs leading to the pursuit of self interest by the heads at the expense of Government business.
A closer analysis of the SEP failures not only reveals a shocking misalignment of objectives of the management and Government. It appears political loyalty, rather than performance was the criterion in some instances . . . as long as the senior employees are loyal; the principal turned a blind eye to performance.
It is critical therefore that Government first does an audit of all ministries and SEPs before it issues these contracts. It is only from this audit that deliverables can be set.
Firstly, the basics of effective governance need to be in place. Key indicators would include audit reports. The Comptroller and Auditor-General has commendably always released reports which relate Government’s shortcomings.
The latest report (for 2013) shows that governance weaknesses were observed in areas of internal control, record keeping, diversion of resources and reconciliation differences. Owing to weak internal control systems, ministries were easily defrauded, with the majority of cases going unreported.
In fact the Public Finance Management Act section 44 requires public entities to establish and maintain effective, efficient and transparent systems of financial and risk management and internal controls.
Another section of the same Act requires public enterprises to keep full records of their financial affairs. This has not been fully enforced. Governance systems have to be put in place to make goals achievable and measurable.
Secondly, Government needs to realign quickly or integrate some of its functions. There should be movement in laws alignment and the trimming of bureaucratic clusters that clogs up functions of ministries.
This makes monitoring the affairs of ministries and some of the State enterprises virtually impossible.
Thirdly, Government needs to set tangible goals aligned to the Zim-Asset blueprint. Zim-Asset has broad objectives for the long run while specific objectives should be set for ministries and State enterprises. For example, if TelOne is set an objective of a 5 percent increase in revenue over a certain period then performance contracts can be judged on whether the firm achieved it.
Overall, Government should show commitment in enforcing the contracts. This can only be done by ensuring that the contracts have neutral third-party enforcement mechanisms, such as audit companies which, with the Office of the President and Cabinet, can independently make reviews.