Helao Nafidi ÔÇô from bad to worse?

In the previous audit report whose details were published in June last year, the Town Council of Helao Nafidi received a qualified audit opinion on 11 shortfalls raised by the Auditor-General on its financial statements.
This year the qualified opinion is based on 19 points. Ten of the points are the same as those raised in the previous audit report.
It is quite disturbing to note that nobody seems to be interested to make the necessary corrections and to strive for a clean audit opinion.
The accumulated surplus for the year under review rose from N$2, 7 m in the previous year to N$5m. The credibility of this amount is once again doubtful when looking at the reasons given for the qualified audit opinion.
The Special Fund accounts seem to be well catered for with investments and cash in the bank which cover the balances.
The current assets exceed the current liabilities with N$5, 2m.
This means the municipality’s financial position is fairly in order but for the under provision for bad debts set at N$3, 4m.
Capital expenditure for the year was N$10, 7m for town planning and development.
The Auditor-General qualified his opinion based on the following: Provision for leave pay and according to the auditors the provision for leave pay has been understated by N$ 177 513.
The accountants should be able to calculate this provision accurately at the end of each financial year and adjust the provision accordingly.
If proper leave records are kept one would be able to see exactly how much leave is due to a staff member, multiply the days with the daily pay rate and get the figures.

NamWater account
The auditors say the account balance has been understated by N$ 1 497 858.
It is very importance to keep proper records to avoid non-payment of accounts or even double payments. This can be done through a proper filing system which shows accounts paid and non-paid or to keep a register of received invoices and the date and reference when these have been paid.
Appropriation account
Unexplained prior year adjustments of N$760 113 have been made in the appropriation account as well as an unexplained bank reconciliation difference amounting to N$2 324 704 which was set off against the accumulated surplus.

All adjustments made in the appropriation account need to be supported with proper evidence.
As already mentioned in the edition of June 2012, bank reconciliations are carried out to ensure that all items in the cash-book but not in the bank statement or items which appear in the bank statement but are not in the cash-book are accounted for.
The cash-book balance should thus always reconcile to the bank balance. Reconciling items normally consist of cheques which would have not yet been presented to the bank for payment, bank charges, interest earned or paid, direct deposits and so forth.
Every difference needs to be analysed and cleared. The difference mentioned above is serious and needs immediate attention.
This problem has now been raised for the third time in the audit reports but it has still not been attended to.
The auditors found an unexplained VAT difference of N$221 125 between the annual financial statements and the VAT reconciliation.
The amount in the General Ledger has to be reconciled with the VAT reconciliation. A simple journal entry should do the trick.
Investment in equities
The investment in equities of the Local Authorities Electricity Company (Pty) Ltd is not reflected in the financial statements.
This could be a substantial sum of money by which the financial statements are misrepresented. The Council should look into this matter and determine the actual value of such an investment and then reflect it in the financial statements.

Fixed assets
The original value of the flats owned by the Council in Ohangwena has not been recognised in the books and this consequently does not been reflect in the fixed asset register and the financial statements.
Council can make use of a sworn valuator to determine the current value of the flats and bring it into account in its books to solve the problem. Fixed assets are as such materially understated.

The value of inventory at hand at the end of the financial year has not been disclosed in the financial statements. All purchases are expended despite the fact that some items are kept in stores to be used at a later stage.
A cardex system can be helpful to control the inventories kept in a store for later consumption. This system should reflect the quantity and value of the items purchased and the value of issued/written off and the balance and value on hand at the end of the financial year.
The total value should then be reconciled with the General Ledger account and reflected as such in the financial statements.
There are 12 more reasons for the qualified audit opinion which shall be disclosed in the next edition.