The good news is that the Commission received two unqualified audit opinions on its four accounts from the Auditor-General for the financial year which ended 28 February 2010.
One is on the books of the Commission and the other on the Development Fund. The two accounts which received negative opinions, in other words, a qualified audit opinion, are the accounts of the Employees’ Compensation Fund and the accounts of the Maternity Leave, Sick Leave and Death Benefits Fund.
The Auditor-General raised only one concern in relation to the Commission’s own accounts and that was as follows:
Cost sharing ratio
The Commission is administrating the other three Fund Accounts but is only charging administration fees from two Funds, namely the Employees’ Compensation Fund and the Maternity Leave, Sick Leave and Death Benefit Fund.
The ratio is 35/65 and is, according to the auditors, not justifiable. They are of the opinion that charges which can be identified clearly to which fund they relate, should be charged to that specific fund. Other costs should be divided according to a fair formula which should be reviewed every year.
This has been an issue now for many years. It is pleasing to note that the management of the Commission contracted actuaries of the funds to investigate the matter and to recommend an equitable cost sharing ratio for costs which cannot be charged directly to a fund. They also confirmed that direct costs will now be charged to the relevant fund.
The qualified audit opinion received for the two funds mentioned above is based on the following short falls:
Employees’ Compensation Fund (ECF)
1. Completeness, existence, accuracy and valuation of accounts receivable and assessed income
The recoverability and existence of the accounts receivable is doubtful since the tests of the auditors revealed that some of the accounts receivable are potentially not recoverable but are not impaired.
The auditors were not provided with a provision for bad debts listing and bad debts suspense accounts listing which tie up with the ledger balances of N$ 19.5m and N$ 5.7m respectively.
Credit balances relating to amounts receivable to the amount of N$ 4.9m resulting from lower wage bills on final assessment, were not reclassified as creditors for proper disclosure.
The accounting system is able to produce an age analysis but is not used effectively to manage accounts receivable. The law in following up long over due accounts receivable is not being expeditiously enforced.
There is an inherent risk of incompleteness of the employers registered under the Employees’ Compensation Fund (on which assessment income is derived from) due to the lack of regular updates of the data base.
One can only agree with the recommendation made by the auditors namely that continuous efforts are made to harmonise the billing process, debt collection process and the revenue collection policy to ensure that the assessment income, accounts receivable and related financial statement areas are valid, accurate and complete. It is pleasing to note that the management of the Commission is continuously taking steps to address the above-mentioned issues.
Valuation of the investment property
The auditors found that the investment property was not fairly valued in the year under review (the last fair valuation was done in 2006) in accordance with the requirements of the International Accounting Standards (I.A.S.) Section 40 – Investment Property paragraph 33 on the fair value model. Non-compliance with I.A.S. 16, paragraph 34 dealing with the frequency of the valuation of Property, Plant and Equipment was also criticised.
The auditors recommended that the fair value of the investment should be carried out annually as prescribed. Even though the management is convinced that its investment property is stated fairly, the amount should be supported with proper valuation documentation. Regular valuations should be made as recommended.
Maternity Leave, Sick Leave and Death Benefit Fund
1. Accuracy, existence, completeness and valuation of accounts receivable and of contributions income
Recoverability and existence of accounts receivable is doubtful as the auditors’ tests revealed that some of the accounts receivable are potentially not recoverable but they are not impaired.
Unknown deposits of N$194 673 are long outstanding. These have not been reconciled to the accounts receivable balance.
There is an inherent risk of incompleteness of the employers registered under the Fund (on which contribution income is derived) due to the lack of national centralised data of active employers.
Audit tests revealed problems of under- and over-invoicing. This resulted in accounts receivable with credit balances of N$25.8m.Comment:
The auditors made the same recommendations as stated in par.1 of the ECF above. It is with appreciation to note that the Commission is committed to address these issues.
2. Completeness of the provision for reported claims
The auditors raised concern that all maternity benefit payments for which claims were lodged before the year end but not paid were not provided for and that the I.A.S have not been complied with relating to provisions.
In order to disclose a reliable balance sheet all payments which are due in a financial year must be recorded by way of a provision in such statements. Although management does not appear to regard the amounts as material, care should be taken that provisions do contain all relevant amounts. It is good to see that management intends to do just that.
Valuation of investment property
The same concerns and recommendation mentioned in par.2 of the ECF were raised relating to this fund.
It is good to see that all accounts held by the Social Security Commission are in good shape and the Commission is commended thereon. The next edition may contain a reflection on a performance audit report of the Auditor-General. Don’t miss it.