Oshakati Town CouncilÔÇÖs books are poor, but development is good

The Town Council of Oshakati received a qualified audit opinion on its financial statements, meaning that all is not well.
The accumulated surplus for the year under review decreased from N$ 33 445 657 in the previous year to N$ 30 245 596.
The operating loss amounted to N$ 859 966 and negative adjustments to N$ 2 340 095. This is not a healthy situation.
Investments at banking institutions amounted to N$ 86 195 096 and cash to N$ 11 884 573 according to the cash-book. This gives a total cash balance of  N$ 98 079 669. The Capital Development Fund reflects a balance of N$ 88 355 714 and the Build-Together Fund a balance of N$ 11 926 713 which gives a total of 
N$ 100 282 427.
Taking into consideration the outstanding loans amounting to N$ 2 965 205 in respect of the Build-Together Housing Project and the amount of  N$ 5 771 242 lent to the electricity company, the special fund accounts appear to be fully cash backed.
The current assets (N$ 76 781 921) exceed the current liabilities (N$ 38 220 236) with N$ 38 561 685 which would mean that the financial position of the Town Council is safe and sound.
Capital expenditure for the year amounted to almost N$ 14.7 million, mostly for parks and sport grounds, streets, sidewalks and storm water, town planning and sewerage.
This is money well spent, which is good and may lead to increased income at a later stage.

The debtors age analysis did not agree with the financial statements by a material amount of N$ 10 861 287. The debtors’ age analysis still contained material receipts which had been incorrectly posted to debtors.
The assessment of recoverability was not possible to perform given the magnitude of the inaccuracy of the individual debtors’ balances.

This is difficult to correct. Every receipt needs to be checked for the correct allocation, amount and date thereof. Recalculations need to be done for each and every individual. Unfortunately this is the only way to avoid a future qualification by the Auditor-General in this regard.

Unrecorded liabilities
The council had material liabilities amounting to N$ 4 603 442 which have not been reflected in the financial statements.

All liabilities relating to the specific financial year need to be brought to account in that financial year.
The Council has three months after year end at its disposal to ensure that all creditors are accounted for.
Every invoice received after 30 June needs to be checked for the date and service delivery to determine whether the payment belongs to year ended 30 June.

Value Added Tax (VAT)
An unexplained difference of N$ 1 212 068 was found between the general ledger and the VAT reconciliation.
The VAT balance as per general ledger was overstated by N$ 4 980 648.

Records have to be kept of all input and output VAT and these have to be reconciled monthly with the return sent by the Receiver of Revenue.
Any deviations need to be cleared on a regular basis. Complete records of such reconciliations must be kept and filed for audit purposes.
Council should analyze the balance with its VAT invoices and receipts and any difference should be discussed and cleared with the Receiver.

Bank reconciliation
The auditors found an unexplained difference of N$ 2 986 719 between the bank reconciliation and the general ledger.

A correction would need a complete analysis of the bank reconciliations with the cash book for as many months back until the error is found.
All transactions reflected on the bank statement which are not in the cash-book need to be brought into account in the cash-book and all transactions reflected in the cash-book which do not appear on the bank statement need to be dealt with as reconciling items.

Suspense account
The financial statements reflect an uncleared suspense account for the Dyke Development to the amount of N$ 50 436 141.

The auditors commented that the financial statements had a suspense account relating to Dyke Development expenditure to the mentioned amount (Included in receivables).
They could not obtain information/assessments on the Dyke Development progress to enable them to assess the correctness of the accounting treatment.

Unrecorded accounts receivable
Accounts receivable amounting to N$ 1 494 429 are not reflected in the financial statements.
The amounts relate to accrued interest and royalties due from Oshakati Premier Electric Company (Pty) Ltd.

It is not clear why the Council omitted to reflect this rather large amount in the financial statements. If the auditors were able to trace this debtor, surely there must be sufficient records to prove it and the Council should have been aware of the debtor as well.