Dark times for Okakarara (continued)

As already mentioned in the previous edition, the Town Council of Okakarara received a disclaimed audit opinion from the Auditor-General on its financial statements for the financial year ended 30 June 2011 which is the worst opinion an institution can obtain.
It means that the Auditor-General is unable to express an opinion on the financial statements of the town council due to serious shortfalls and extremely poor record keeping.
The financial situation and some of the issues leading to the disclaimed audit opinion have also been discussed in the previous edition. Here are some more:
VAT
The report of the Auditor-General mentions that, as in previous years, the Council appointed tax consultants to complete and submit VAT returns on its behalf.
The auditors were unable to conduct any audit on the VAT payable to the amount of N$ 2 240 594 as disclosed in the financial statements because all relevant documentation was at the consultant during the time of the audit.
There was also no provision for any interest payments or penalties raised by the Receiver of Revenue, if applicable.
Comment
How difficult can it be to obtain the necessary information? Surely the consultant has transport and there are also courier services all over the Country. Council should ensure that each agreement with contractors stipulates that the documentation belongs to the Council and not to the consultant. They should further ensure that all documentation is available for audit purposes.
Council should ensure that the interest and penalty matters are cleared with the Receiver by their administrative staff. Any discrepancies should be rectified and brought to account where necessary.
Trade and other payables
The financial statements of the Council indicated that no amounts were due to trade creditors at year-end. The auditors found that unrecorded liabilities amounted to N$28 292.
The report further states that the liability to NamWater of N$2 208 730 is overstated by N$1 241 458, according to the auditors. The statements of the supplier only indicates an amount due of N$68 150 as at 25 June 2011.
The audit revealed that the amount payable to the Regional Council under whose jurisdiction the Council falls, is understated by an amount of N$ 106 561. An amount of N$15 750 was paid to the Regional Council but could not be traced in the accounts of the local authority.
The balance of the provision for leave remained unchanged since the prior year but a movement of N$98 676 detected by the auditors could not be explained.
Comment
It is important to keep an auxiliary register available in which all creditors at year-end are recorded. The total amount should agree with the amount recorded in the main ledger. All invoices which have been received after year-end but where services or deliverables relate to the previous financial year must be recorded as creditors and the amounts charged to the various expenditure headings.  This ensures completeness of the financial statements and will help prevent such a negative audit opinion.
The provision for leave should be calculated on the days of leave credit available to each staff  member at year-end and equated to the amount payable should such a staff member resign, pass away or go on retirement.
House rental levies
Direct house rental levies to the amount of N$ 114 360 have been posted on the computerized system of the Council but could not be allocated to individual debtors accounts.
Comment
The bank should be approached where a direct deposit can not be traced to the depositor. The consumers should also be educated to make a clear reference on their deposit slips as to whom they are and for what purpose the deposit has been made.
Electricity surcharges
The annual financial statements of the Council indicate that an amount of N$21 197 has been received from CENORED. This amount could not be substantiated by any documentation.
The ledger account relating to surcharges on the computerized system of the Council indicates that an amount of N$51 357 has been received but it became clear that an amount of N$34 129 consisted of receipts relating to the previous financial year which were erroneously allocated to the financial year under review.
Comment
All transactions must be supported with supporting documentation. Receipts relating to a different financial period should not be recorded in a subsequent financial year. This is where the appropriation account comes in. Any corrections relating to the previous financial year should be cleared against this account.  
Road Fund Administration (RFA)
The auditors detected that the subsidy received from the RFA is overstated by N$ 59 603. No evidence could be submitted to prove that the subsidy amount was in fact correct.
An amount of N$ 327 397 was paid directly to a construction company which has not been accounted for in the books of the Council.
A claim of N$ 613 000 was supposed to be recorded as subsidies outstanding in the accounts receivable, as these monies were only received after year-end.
Comment
These are simple accounting errors which lead to a qualified audit opinion. One wonders where the problem lies. Is it just indiscipline of the accountants or is it a lack of knowledge?
NATIS income
The audit revealed that NATIS income has been understated by N$ 49 008 mainly due to invoices not processed or wrongly recorded on the system. Therefore accounts receivable are understated by the said amount.
Comment
The same comment as stated above is relevant.
Let’s hope that those responsible for such poor accounting will be taken to task. Without consequences things will not improve.