As already stated in last week’s article, the Town Council of Rehoboth received a disclaimed audit opinion from the Auditor-General, which means he was unable to express an opinion on the council’s financial statements.
The financial position, water trade account, bank overdraft and trade payables were discussed together with five of the somewhat 14 issues on which the Auditor-General’s disclaimer was based.
Here are the other nine shortfalls:
Trade and other receivables
A difference of N$128 388 between the council’s debtors’ age analysis and the financial statements was detected. As a result, the auditors could not verify the accuracy, existence and valuation of the amount.
This is a reflection of poor record-keeping and a lack of regular reconciliations. The age analysis shown in the records should be in agreement with the amount shown in the financial statements.
Value Added Tax (VAT)
The trade and other receivables include an amount of N$1 511 445 for VAT receivable. No reconciliation of this amount could be provided to the auditors to enable them to verify the accuracy, existence and valuation of the amount.
Accurate records have to be kept on all transactions where VAT has been levied and/or paid. This information has to be supplied to the Receiver of Revenue on a monthly basis. The monthly invoices/credit notes received from the Receiver have to be reconciled with these internal records, to ensure the correctness thereof. Any difference should be taken up with the officials of the Receiver and clarified.
The council could only provide a listing of N$57 672. There is a difference of N$1 822 436 for which no documentation could be provided. The existence, accuracy and completeness of the deposit balance could thus not be ascertained.
Consumer deposits also do not cover one month’s consumption.
Consumer deposits are an important tool for the council to avoid losses stemming from consumers who do not pay their bills. The records of each deposit received must be very accurate and traceable to the consumer who paid the amount. Once such a consumer does not pay their dues, the council should immediately suspend the services and set off the deposit amount against the amount owing.
The council has various suspense accounts, which could not be traced to supporting documentation. These accounts are:
Debtors N$1 492 733
Bank reconciliation differences N$1 500 890
Service loans N$13 836 009
Suspense accounts come in very handy if one cannot carry out a transaction at a certain point in time. They do, however, have the nasty habit of the transactions becoming vague or even untraceable, if not attended to in a timely manner. There should be an auxiliary register in which each and every transaction, which is booked against such an account is recorded together with a short history of the reasons.
Provision for bad debts
Audit tests revealed the provision for bad debts may be overstated N$643 493 (2011: Understated by N$60 050 620).
At least a huge correction has been made in the year under review, which brought the financial statements much more in line with the reality. The overstatement can be corrected easily in the current financial year. Accuracy in determining the provision is important and the advice of the auditors should be sought in this regard.
Bank and cash
A difference of N$2 787 098 of the council’s bank accounts and financial statements was observed. Included in the difference is an amount of N$23 326, which was also included in investments. There are outstanding cheques of N$17 728 629, which date back up to 17/02/2010 and should have been written at year-end. As a result, the auditors could not verify the accuracy, existence and valuation of the amount.
A bank reconciliation serves the purpose of ensuring all cash transactions of the council have passed through its bank account. Accurate reconciliations are as such a necessity to ensure this. There is also no reason why outdated cheques are not written back timeously. Council should analyse the reasons pertaining to the difference pointed out by the auditors and do the necessary corrections.
P.A.Y.E. returns were not submitted to the Directorate: Inland Revenue on time. An amount of N$1 591 717 is still owed to the Directorate no provision for penalties and interests have been made.
It is a pity when officials neglect their duties and the taxpayers have to foot the bill. Would it not be a good idea to subtract any interest and penalty due to such neglect from their salaries? Certainly, all payments and submissions would then be on time?
Sale of erven
No supporting documents could be provided for the sale of erven and as a result, the auditors were unable to verify the accuracy, existence and valuation.
Every sale of an erven needs to be recorded. How else would one know from whom to recover assessment rates, basics and so forth? This is where the valuation roll comes in. Without such a register, the council is doomed.
Water sales were understated due to incorrect tariffs being used on the invoicing system.
No wonder the water trade account runs at a loss! Council should see to it that correct tariffs are used and should backdate the incorrect charges, to recover some of the losses incurred.
As a tenth comment, the Auditor-General expressed concern, stating; “The ability of the council to continue as a going concern is dependent on a number of factors. The most significant of these are the continuation of profitable operations, the recovery of long outstanding debtors and the maintenance of existing levels of finance by major creditors.”