Has a qualified opinion become the norm of the Council?
The Town Council of Ondangwa has not yet succeeded in moving away from a qualified audit opinion of the Auditor-
General. Reasons for the qualified audit opinion were given as follows:
• The Vat account has been misstated with N$ 2,2 million.
• The Erongo Red investment has not been disclosed in the financial statements
• Interest income has been understated by N$ 1 336 181.
• A reconciliation of interest earned on investments of the Fund accounts revealed a difference of N$ 294 263. • VAT amounting to N$ 355 077 has been included in the value presentation of fixed assets.
• A refund of VAT amounting to N$ 3 943 693 has been allocated to the appropriation account instead of the VAT control account and revenue.
• No provision has been made for the 5% levy owed to the Regional Council amounting to N$ 626 570.
• No monthly or annual reconciliations of control accounts were found.
These reasons as well as other observations made by the
Auditor-General in his report are discussed below.
1. External loans
A difference of N$ 444 960 was found on the loan balances.
This was due to the fact that no proper reconciliations were done and incorrect cut off procedures were applied.
The redemption and interest charges relating to the financial year under review, revealed differences of N$ 14 478 and 20 981 respectively.
The opening balances when compared with the loan statements of the relevant financial institutions revealed a difference of N$ 357 190.
The report does not state whether the difference resulted in over or understatements of these liabilities. It is also not quite clear from what the redemption and interest charges differ. The fact remains that the figures are reflected incorrectly in the books of the Council and need to be corrected. Similar problems were mentioned in previous audit reports but remain unaddressed.
Council is advised to look into this issue and request the accounting officer to give them a monthly feed-back on the progress made to rectify the situation.
2. Unrecorded liabilities
Liabilities to the amount of N$ 88 420 have not been recorded in the books of the Council as well as a provision for the 5% levy amounting to N$ 626 570 owed to the Regional Council.
This also appears to be an ongoing problem and also needs to be addressed by the Council.
The non-disclosure of liabilities misleads a reader of the financial statements by giving him or her a wrong impression of the financial situation of the Council. All assets and liabilities relating to a specific financial year must be reflected in the statements of that financial year.
3. VAT Control account
An audit review of the VAT control account against the VAT returns revealed a material difference of N$ 2 263 403. The reason for this was reported to be VAT which was incorrectly extracted from the Finstel system while inputs on VAT returns were calculated separately on excel sheets. Disallowed input VAT and penalties on late submissions were not accounted for.
Although the financial statements reflect a receivable amount of N$ 2 358 699, the auditors expressed their doubt on the recoverability thereof.
Vat returns must be submitted to the Receiver of Revenue within the time frame allowed by the Act in order to avoid interest and penalties. Proper reconciliations also need to be carried out on a monthly basis and any difference between the statements received from the Receiver and the returns of the Council must be discussed with the staff of the Receiver and any discrepancies must be rectified immediately.
4. NATIS – Roads Authority income
The audit report states that income was materially understated by an amount of N$ 198 666. It further states that although payments were received from the Roads Authority, as verified to the bank statements, no allocation of this revenue was done due to the non-performance of monthly bank reconciliations.
It was also stated that outstanding invoices amounting to N$ 186 557 were not accounted for as a debtor.
It spells out serious trouble if the bank is not reconciled with the cash-book on a monthly basis. As audit tests are mostly based on samples, one wonders how many other transactions are concealed in the bank account which have never been recorded in the books of the Council.
Every invoice sent out by the Council needs to be recorded in the books on a daily basis to avoid mistakes like the one pointed out in the audit report. It appears that there is a serious shortage of the necessary skills in the accounting department.
5. Insurance expenses
A difference of N$ 111 880 was found. Insurance contracts for the months of July 2011, August 2011 and June 2012 could not be availed to the auditors.
The report unfortunately does not say between what and what the difference relates to. It also fails to disclose why monthly insurance contracts are necessary and what kind of insurances these are.
Further issues of concern will be dealt with in the next edition.