Regional Council of the Oshikoto Region
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REPUBLIC OF NAMIBIA REPORT OF THE AUDITOR-GENERAL ON THE ACCOUNTS OF THE REGIONAL COUNCIL OF THE OSHIKOTO REGION FOR THE FINANCIAL YEAR ENDED 31 MARCH 2012 Published by authority Price (Vat excluded) N$ 31.65 Report no: 2/2014 REPUBLIC OF NAMIBIA TO THE HONOURABLE SPEAKER OF THE NATIONAL ASSEMBLY I have the honour to submit herewith my report on the accounts of the Regional Council of the Oshikoto Region for the financial year ended 31 March 2012, in terms of Article 127(2) of the Namibian Constitution. The report is transmitted to the Honourable Minister of Finance in terms of Section 27(1) of the State Finance Act, 1991, (Act 31 of 1991) to be laid upon the Table of the National Assembly in terms of Section 27(4) of the Act. WINDHOEK, January 2014 JUNIAS ETUNA KANDJEKE AUDITOR-GENERAL REPORT OF THE AUDITOR-GENERAL ON THE ACCOUNTS OF THE REGIONAL COUNCIL FOR THE OSHIKOTO REGION FOR THE FINANCIAL YEAR ENDED 31 MARCH 2012 1. INTRODUCTION The Regional Council for the Oshikoto region was established with effect from 31 August 1992 under Section 2(1) of the Regional Councils Act, 1992 (Act 22 of 1992). The financial powers, duties and functions of the Council are stipulated in Article 108 of the Namibian Constitution and Section 28 of the Regional Councils Act. Sections 39 and 40 of the Act require that accounting records of the Council shall be kept and its financial statements shall be prepared by its Chief Regional Officer. Figures in the report are rounded off to the nearest Namibia dollar. Deficits are indicated in brackets. 2. FINANCIAL STATEMENTS The Regional Council’s financial statements were submitted to the Auditor-General by the Accounting Officer in compliance with Section 40(1) of the Regional Councils Act, 1992, except that these were submitted during March 2013 for the financial year ended 31 March 2012. The Act allows a period of three months after year end. The abridged balance sheet, Annexure A, is a true reflection of the original. The following annexure are also attached to this report: Annexure B: Income and expenditure Annexure C: Cash flow statement Annexure D: Notes to the financial statements Annexure E: Detail income and expenditure statements 3. SCOPE OF THE AUDIT Management’s responsibility for the financial statements The Accounting Officer of the Regional Council is responsible for the preparation and fair presentation of these financial statements and for ensuring the regularity of the financial transactions. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies, and making accounting estimates that are reasonable in the circumstances. Auditor’s responsibility It is the responsibility of the Auditor-General to form an independent opinion, based on the audit, on those statements and on the regularity of the financial transactions included in them to report his opinion to National Assembly. The said firm conducted the audit in accordance with the International Standards of Supreme Auditing Institutions. Those standards require that the firm complies with ethical requirements and plans and performs the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatements of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair 1 presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. 4. AUDIT OBSERVATIONS AND COMMENTS MATTERS REPORTED IN THE PRIOR YEAR 4.1 NON-SUBMISSION OF RECORDS 4.1.1 General Expenditure General expenditure for the year under review, amounting to N$ 3 354 987 could not be verified due to non-submission of supporting vouchers. 4.1.2 Delegated Function- Expenses Delegated function-expenditure for the year under review, amounting to N$ 112 285 could not be verified due to non-submission of supporting vouchers. 4.1.3 Delegated Function- Income Delegated function-income for the year under review, amounting to N$ 34 895 683 could not be verified due to non-submission of supporting documents. 4.1.4 Leave pay provision An amount of N$ 1 792 087 for leave pay provision was disclosed under Trade and other payables in the financial statements. The auditors were unable to confirm the accuracy of the figure as no supporting documents were submitted for audit purposes. RECOMMENDATIONS It is recommended that the Regional Council improves its filing system and also comply with the provisions of the State Finance Act, 1991 (Act 31 of 1991). It is recommended that supporting documents should always be provided for audit purposes as required by Section 26(1)(b)(i) and (ii) of the State Finance Act, 1991. 2 4.2 PROVISIONS FOR DOUBTFUL DEBTS An amount of N$ 2 045 950 was provided for doubtful debts, however no explanation could be given on how the amount was calculated as the Oshikoto Regional Council Credit Control Policy and Procedures dated 21/11/2005 does not mention the provision for doubtful debts. Furthermore, according to the calculation of auditors provision for doubtful debts was over- provided for by N$ 1 022 695. RECOMMENDATION The Chief Regional Officer is recommended to revise the Oshikoto Regional Council Credit Control Policy and Procedure and provide for aspects such as provision for doubtful debts. 4.3 DEBTORS The auditors found that various customers paid for connection fees of water, but were not billed for any consumption of water during the year under review. RECOMMENDATION The Chief Regional Officer is recommended to ensure that customers are billed for water consumption at all settlement areas. 4.4 STOCK/INVENTORY During the year under review the Council did not prepare the mini-stock report for consumables at year end. RECOMMENDATION It is recommended that the Council prepares a report on consumables at financial year end and disclose it in the annual financial statements. CURRENT YEAR OBSERVATIONS 4.5 FIXED ASSETS The audit found that the Council General Ledger disclosed two unexplained balances of N$ 1 811 034 credit balance with a description of “Transfer to Omuthiya TC” and N$ 232 189 debit with the description of “transfer from WIP” under Land and Building. The audit also noted that the Council’s asset general ledger had unexplained references, wrong cheque number allocations and payments which Council could not explain. The audit noted that items purchased and recorded in the General Ledger were deleted and no explanation was given to the auditors, although these items are still in the Council’s possession. Recommendation Council is recommended to update its General Ledger to reflect the correct number and value of assets. 3 4.6 CASH AND BANK 4.6.1 Bank accounts The audit noted that two bank accounts with a combined balance of N$ 4 160 396 as at 31 March 2012 were not included in the Annual Financial Statements of the Council. Recommendation The Council is recommended to disclose all amounts and figures which pertain to the year under review in the annual financial statements. 4.7 INTEREST CHARGED ON OVERDUE DEBTORS’ ACCOUNTS The Government Gazette dated 15 July 2011 states that a percentage of 2.5 shall be charged on late payments of water bills per month. However, the audit revealed that no interest was charged on overdue debtors’ accounts as per the gazetted tariffs. RECOMMENDATION The Council is recommended to ensure that interest is charged on overdue debtors’ accounts as per the gazetted tariffs. 4.7 DEBTORS It was noted that several customers' accounts amounting to N$ 258 765 dating as far back as 2009/2010 financial year were not billed. The auditors were unable to verify the reason for the decision as no supporting documents were submitted for audit purposes. RECOMMENDATION The Chief Regional Officer is recommended to keep evidence supporting the decision for not billing some customers’ accounts. 4.8 EMPLOYEE COSTS 4.9.1 RECONCILIATION BETWEEN GENERAL LEDGER AND MONTHLY PAY SHEETS A difference of N$ 284 483 was observed between the General Ledger and the Salary Sheets. RECOMMENDATION The Regional Council is recommended to ensure that monthly reconciliations are done. 4 4.9 GOOD CORPORATE GOVERNANCE 4.9.1 AUDIT COMMITTEE The Regional Council does not have an audit committee; hence the following risks have been identified: • Lack of audit committee will result in the Internal audit unit’s audit plan and charter not being approved; • no reviews will be done on any significant findings of internal investigations; and • Lack of an enforcement mechanism by management on recommendations by the internal auditors. 4.9.2 CONTROLS AROUND INFORMATION TECHNOLOGY - The Council does not have an IT strategic plan which could result in IT goals not contributing to the departments’ strategic objectives and related costs and risks. - The Council does not have an IT steering committee, and this could result that IT governance which forms part of the organizational governance structure not adhered to. - Lack of defined IT training programmes could result in IT function failing to meet operations as well as creating reliance on key staff members.