Village Council of Gibeon 2011

The Village Council of Gibeon received a qualified audit opinion from the Auditor-General, which means that the books and records of the Council are not in a good shape. The fact that the report on the 2011 financial year was only finalized during November 2013 is also disturbing. Unfortunately the report does not state when the financial statements were received by the Auditor-General for auditing.
 According to the law, the statements need to be submitted within four months after year-end and the Auditor-General needs to complete his report before the end of the next ensuing financial year.
The Village Council experienced an operational deficit for the year amounting to 
N$ 2 660 264 which brought the total accumulated deficit to N$ 4 659 013. An unexplained adjustment of N$ 2 764 930 then decreased the accumulated deficit to 
N$ 1 894 083.
A note made by the auditors explains that the Council does not operate an appropriation account in which prior year adjustments can be made and that the adjustment amount as shown merely serves to balance the books with the financial statements.

The current liabilities, N$ 3 907 593, exceed the current assets, N$ 3 104 514, by 
N$ 803 079, which means that the Council is so to say bankrupt.

The Auditor-General qualified his opinion based on the following shortfalls:

Stock
No stock was disclosed in the balance sheet for the year under review.

Comment:
The auditors should at least try to determine what the value of the stock is. If it is significant, then it will of course give a distorted picture of the Council’s assets.

Consumer deposits
The auditors found the consumer deposits to be inadequate

Comment:
The inadequacy of consumer deposits in itself should not form the basis for a qualified audit opinion as the figures are represented correctly in the financial statements.
It should, however, give rise to concern, as such deposits safeguard the Council against consumers who fail to pay for services. The deposit should cover at least one month of consumption so that the Council can cut off services of those who do not pay for them on time. The unpaid portion should then be recovered from the deposit. This will only work if it is strictly applied on a month end basis. If the Council lets the debt run up for two or more months of consumption, the deposit will never be sufficient to prevent losses to the Council.

Source documents
The auditors found that numerous source documents relating to expenditure and fixed assets could not be submitted for audit purposes.

Comment:
There appears to be a filing problem. All expenditure vouchers must be filed in the sequence as the payments are made and no payment should be approved if it is not supported with the necessary supporting documents. It is disturbing to note that some of the payments are not supported with such evidence. Council is advised to look seriously into this issue.

Creditors
The report states that no creditors’ reconciliations were performed for the year under review.

Comment
Council should ensure that a system is in place which clearly indicates what services have been rendered to the Council or what supplies have been delivered. The record should show the date of the commitment, the invoice number once received and a reference to the payment made. This would ensure timely and correct payments and avoid double payments.

Provision for leave
According to the report, no provision for leave payments was made by the Council. The auditors are of the opinion that at least N$ 150 183 should have been provided.

Comment
It is important to keep proper leave records to determine the days of leave credit for each staff member at the end of a financial year and to provide for the payment thereof. Although it is impractical that every staff member employed by the Council will resign or leave at the same day, it is good financial practice to have such a provision in place. Any payment will then not have a direct impact on the budget of the respective financial year.

Bad debts

The auditors are of the opinion that the provision for bad and doubtful debts has been over provided with N$ 709 369.

Comment
Considering the rather small size of the Council, this is a substantial overprovision. Currently the provision stands at N$ 3 342 312 in comparison with the total invoices for services rendered for the year amounting to 
N$ 680 225. This shows that the provision has grown out of proportion and should be cleared with a Council approved write off.

There are five more reasons for the qualified audit opinion which will be discussed in the next edition.