This Town Council has an extremely poor accounting history due to a lack of proper accounting records, internal controls and insufficient record keeping in general. The latest available tabled Auditor-General report is the one covering the financial years ended 30 June 2007 and 2008. This report was signed by the Auditor-General in January 2011. The Council received a disclaimed audit opinion which means that the accounting records were in such a poor state that the Auditor-General was unable to express an opinion on the financial situation of the Council.
The following reasons for this disclaimer were highlighted in the report:
Insufficient systems of internal controls. No proper accounting records were kept at the Town Council.
All revenue transactions must be covered by a relevant receipt. These receipts must be reflected in numerical order in the cash-book.
Every payment made must be covered with the relevant payment voucher and kept in a file in numeric cheque order. Every such payment must also be recorded in the cash-book.
At the end of each month a bank reconciliation must be performed in order to ensure that all revenue and expenditure is recorded in the bank account.
The total of all income and expenditure transactions must then be recorded in the general ledger.
A monthly trial balance would also be helpful to ensure that the books balance.
A fixed asset register must be implemented in which all assets of the Council are reflected to ensure that these are existing and relevant. The values, depreciation, write-offs, purchases and description should be contained in such a register of which the total balance must reconcile with the general ledger balance.
These are examples of proper accounting records and the Council and the community would benefit greatly if these are in place.
Fixed assets were understated by an amount of N$197 thousand for the 2008 financial year.
It is important that the balance shown in the fixed asset register is reflected in the general ledger at the same amount. Fixed asset purchases have to be reflected in the relevant account in the general ledger and not in the normal income and expenditure transactions.
No inventory values for store materials were reflected in the financial statements.
If a Council keeps a significant value of stores such as water pipes, electricity cables, spare parts, etc. in stock, these values must be reflected in the general ledger to ensure that the Council reflects a true value of its assets in the balance sheet.
Consumer deposits reflected in the annual financial statements were insufficient. The consumer deposits only reflected 0.2% of the total outstanding debt.
It is always wise to request a deposit based on an average monthly consumption charge for services in advance when services are connected. This ensures that should the consumer be in default with the monthly payments, services can be cut and the deposit used to cover the costs. Losses of the Council are as such minimized.
Unrecorded liabilities of N$ 92 thousand for 2008 and N$ 74 thousand for 2007 were found. The Nampower creditor balance of N$ 923 thousand as at June 2008 could not be verified.
A commitment register showing the amounts which have been committed but not yet paid could help to control liabilities. A list of all unpaid bills as at year end is important to control creditors. The total of such a list must agree with the balance in the general ledger. Unrecorded liabilities lead to an incorrect balance sheet.
Unexplained significant payroll reconciliation differences of N$ 781 thousand – 2008 and N$ 4.2 million – 2007 were found.
Pay sheets must be properly compiled indicating the basic monthly salary, allowances, bonuses, deductions, etc. The total pay roll must agree with the cash-book payment. Without proper reconciliation one would not be able to whether all staff did receive correct payments, the deductions have been paid to the relevant insurance company and the correct tax deduction has been paid to the Receiver of Revenue and so forth.
The provision for doubtful debts was understated by N$ 14.6m – 2008 and N$ 4.2m – 2007.
These understatements mean that the balance sheet indicates that the mentioned amounts are recoverable and are as such an asset for the Council, which is not the case according to the Auditor-General. It further means that the Council’s debt collection system does not function. People thus receive services but fail to pay for them. No Council can survive such a situation. The system needs urgent attention and services need to be limited to those who can afford them.
The auditors were unable to verify the bank balance of the Council as no bank reconciliations have been performed.
Monthly bank reconciliations are of utmost importance to ensure that all revenue and expenditure transactions have been accounted for.
The opening balance of the accumulated funds has incorrectly been brought forward in the 2007 financial year by an amount of N$ 1.7m.
The closing balances of a previous financial year must agree with the opening balances of the ensuing financial year. Should this not be the case, unrecorded transactions may have been passed, which is unacceptable.
The Council reflects an accumulated deficit of N$ 23.1m at the end of the financial year 2008. The total current liabilities exceed the current assets by N$ 21.4m, this means that the Council is bankrupt. The total reserves in the Capital Reserve Fund – N$ 341 thousand and in the Housing Fund – N$ 6.3m have been utilized to cover part of the deficit. The Council owes creditors an astronomic amount of N$ 38m and outstanding debts to the Council by consumers amount to N$ 20.5m. The whole accounting division of the Council needs a revamp.