Another Town Council heading into dire strait? (cont.)

Karibib Town Council received a disclaimed audit opinion from the Auditor-General, which means that the books and records of the Council are in such a poor shape that the Auditor-General is unable to express an opinion on its financial statements and its financial situation. This is one of the worst audit opinions an institution can ever receive. In the previous edition, six of the 14 reasons for the disclaimed opinion were discussed. Here are the other eight:
Trade and other payables
Creditors’ reconciliations were not performed by the Council, thus the creditors’ balance of N$6 353 956 could not be verified. The auditors could also not determine any unrecorded amounts due to lack of documentation.
Yes, it is bad when you do not know to whom to owe money and to whom you do not and that your record-keeping is in such a poor state that you are unable to find out whether or not any invoices, relating to the financial year under review, have been paid after year-end. Expenditure vouchers must be filed in a cheque numeric order so that it is easy to find the documents relating to each cheque. A register needs to be kept to indicate all the invoices that are due and it must show which ones have been paid and which ones have not been paid. If the creditors cannot be verified with the related documents, a negative audit opinion would be imminent as the correctness of the amount shown in the balance sheet cannot be confirmed.
Provision for leave
No proper information was available to test the accuracy of the provision for leave.
This is where the importance of proper leave records reflecting the leave credit given to the staff member, all leave taken and the balance of days still available, come in. Without such records, you get lost and are unable to determine how much leave you have to pay to a staff member upon resignation or retirement. The provision should thus be realistic.
3.    Value added tax (VAT)
Not all VAT returns for the year under review were rendered timeously to the Directorate: Inland Revenue. No provisions for any penalties and interests were provided for in the financial statements of the Town Council.
The Council should take up this matter with the mentioned directorate and compare notes as to what amount is owed to the Inland Revenue. The ledger amount in the books of the Council then needs to be adjusted if necessary.
4.    P.A.Y.E
Not all P.A.Y.E returns for the year under review were rendered timeously to the Directorate: Inland Revenue. No provision for any penalties and interests were provided for in the financial statements of the Town Council.
Timely submissions are important to avoid any penalties, which would have to be paid from the tax payers’ contributions for services rendered by the Council. It is also important to check the correctness of tax deductions from the salaries of the employees as these must balance with the summary of tax deducted and the amounts paid to the Receiver during the financial year.
5.    Supporting documentation - Expenditure
In some cases of expenditure items inspected by the auditors, the supporting documentation was not available. The auditors were as such discontent with the validity of the relevant expenses.

As explained earlier, expenditure vouchers must be filed in a cheque order sequence. Without vouchers, no auditor would be able to confirm the relevant expenses as Council expenses. A proper filing system is of utmost importance and somebody at the Council’s staff should be held liable for the poor record-keeping.
Salaries and wages
Neither the salary register for the full period under review nor the personnel files could be provided. The auditors were as such unable to verify increases, overtime and other personnel-related matters.
It’s extremely important to keep personnel files and related records to control salaries, leave, overtime, promotions, general salary increases and so forth. Without such records, a lot of irregularities can take place. Council is as such advised to implement these controls immediately.
7.    Income
Due to a lack of electronic data, the income transactions could not be tested by the auditors.
This is serious stuff. How can a council control the process that determines that all debtors have paid their dues or that the outstanding amounts are correct? Many may receive wrong invoices and opt not to pay anything at all until a satisfactory explanation for the outstanding amount is given to them. The Council should ensure that all electronic data is available and correct. The CEO should be requested to submit evidence that theses records have been updated and are available at their regular meetings.
8.    Appropriation account
Prior year adjustments to the amount of N$695 109 could not be verified due to a lack of documentation.
Nice one. It seems as if this amount was the amount required to balance? No adjustment should be made anywhere in the books of the Council, which is not supported with the relevant documentation or references to such documents.
Swakopmund is a role model municipality, which receives clean audit opinions year after year and the Karibib Town Council should seek its advice on how to keep its books and records. Where there is a will, there will be a way.
The next contribution will deal with another serious case: Lüderitz Town Council.