ATC120418: Report on Independent Auditors on the 2009/10 Financial Statements of Botshelo Water, dated 18 April 2012
Public Accounts (SCOPA)
DEPERTMENT OF CORRECTIONAL SERVICES
FIRST REPORT OF THE COMMITTEE ON PUBLIC ACCOUNTS ON THE REPORT OF THE INDEPENDENT AUDITORS ON THE 2009/10 FINANCIAL STATEMENTS OF BOTSHELO WATER , DATED 18 APRIL 2012
The Committee on Public Accounts (the Committee) heard evidence on and considered the content of the Annual Report and the Report of the Independent Auditors on the 2009/10 financial statements of Botshelo Water. The Committee noted the qualified audit opinion, highlighted areas which required the attention of the Accounting Authority, and reports as follows:
1. Property, plant and equipment
The Auditor-General identified the following:
a) As disclosed in note 17 to the financial statements, the corresponding figures for property, plant and equipment has been restated by R3 264 714 in order to address a prior year misstatement. No supporting documentation was available for the restatement. Consequently, sufficient, appropriate audit evidence to verify the existence, rights, completeness, valuation and allocation of the property, plant and equipment corresponding to R 15 463 891 was not obtained.
b) The entity did not review the residual values and useful lives of property plant and equipment at each reporting date in accordance with Standard of Generally Accepted Accounting Practice (GRAAP), IAS 16 (International Accounting Standards 16), Property, plant and equipment, as evidenced by property, plant and equipment with a historical cost amount of R16 732 481 being included in the financial statements at a zero net carrying amount, whilst being used.
The Committee recommends that the Accounting Authority ensures that:
Policies and procedures are developed and implemented to ensure that regular asset counts/verifications and subsequent adjustments to financial records are performed and monitored and records relating to this exercise are safeguarded.
2. Investment properties
The Auditor-General identified that:
There was no sufficient appropriate audit evidence to verify the entitys rights to investment properties of R2 620 000, included in investment properties.
The Committee recommends that the Accounting Authority ensures that:
a) The entity has an investment policy that will clarify and guarantees the properties that it has in place; and
b) Policies are developed, implemented and be made available for audit purposes.
3. Trade and other receivables
The Auditor-General identified the following:
a) The accounts receivable balance of R131 734 438, as disclosed in note 4 to the financial statements, does not correspond to the balance of R151 666 697 per the sub-ledger. The entity did not reconcile the difference of R19 932 259 between the financial statements and the underlying accounting records. Consequently, the accounts receivable balance is understated by R19 932 259. The effect on other account balances or classes of transactions contained in the financial statements was not determined.
b) The entity could not provide sufficient appropriate audit evidence to support the journal entries of R242 635 170 debited to trade and other receivables. There were no satisfactory alternative audit procedures that could be performed to obtain reasonable assurance that all trade and other receivables were recorded properly.
The Committee recommends that the Accounting Authority ensures that:
a) Policies and procedures are developed and implemented to ensure that regular debtors and bank confirmations and reconciliations are performed; and
b) Training and transfer of skills to employees are performed.
4. Inventories
The Auditor-General identified that:
Appropriate audit evidence considered necessary to support inventories of R1 276 001, included in the statement of financial position and note 5 to the annual financial statements could not be obtained. The entitys records did not permit the application of alternative audit procedures. Consequently, sufficient appropriate audit evidence could be obtained to evaluate and allocate inventories.
The Committee recommends that the Accounting Authority ensures that:
a) Guidelines, policies and procedures are developed and implemented so that regular inventory counts/verifications and subsequent adjustments to financial records are performed and monitored and records relating to this exercise are safeguarded; and
b) Proper record keeping is in place.
5. Cash and cash equivalents
The Auditor-General identified the following:
a) The entity could not provide sufficient appropriate evidence to support the reconciling items totalling R1 543 444, between the project account of R2 184 419 as per bank statement and project account balance as stated in the statement of financial position at R640 975 (2009:R575 331).
b) The current account balance of R21 112 030 (2009:R8 096 304), as disclosed in note 6 to the financial statements, did not correspond to the balance of R286 529 confirmed by financial institutions. Furthermore, the entity did not reconcile a difference of R20 825 501 between the balance per the general ledger and the amount per bank statement. The entitys records did not permit the application of alternative audit procedures.
The Committee recommends that the Accounting Authority ensures that:
Guidelines and procedures are developed and implemented to ensure that at least weekly bank confirmations and reconciliations are performed.
6. Revenue
The Auditor-General identified the following:
Sufficient appropriate audit evidence was not obtained to ensure that all receipts have been recorded. Furthermore, the entity did not perform readings of all the meters. The entitys records did not permit the application of alternative audit procedures regarding the completeness, classification and cut-off of revenue of R115 280 387, as stated in the statement of financial performance and note 10.
The Committee recommends that the Accounting Authority ensures that:
Policies, guidelines and procedures are developed and implemented to ensure that regular debtors and bank confirmations and reconciliations are performed.
7. Cost of sales
The Auditor-General identified that:
Sufficient appropriate audit evidence could not be obtained to verify cost of sales of R3 982 337 included in the statement of financial performance. The entitys records did not permit the application of alternative audit procedures.
The Committee recommends that the Accounting Authority ensures that:
a) Competent and skilled people are employed that have in financial management skills; and
b) Policies and procedures are developed and implemented so that management accounts are reviewed regularly.
8. Expenditure
The Auditor-General identified that:
Sufficient appropriate audit evidence to verify that all invoices have been recorded could not be provided. The entitys records did not permit the application of alternative audit procedures regarding the completeness, classification and cut-off of R19 276 558 as stated in the statement of financial performance and note 15.
The Committee recommends that the Accounting Authority ensures that:
Guidelines, policies and procedures are developed that require regular review of management accounts and financial statements for validity, completeness and accuracy of disclosed or recorded amounts.
9. Employee cost
The Auditor- General identified that:
The employee cost amount of R39 988 555, as disclosed in note 13 to the financial statements, does not correspond to the balance of R37 589 322 per the payroll system . The entity did not reconcile the difference of R2 399 233 between the financial statements and the underlying accounting records.
The Committee recommends that the Accounting Authority ensures that:
Regular reconciliations between the payroll and the ledger are performed on a monthly basis.
10. Account payables
The Auditor-General identified the following:
a) The project advance balance of R4 641 510 included in accounts payables of R74 045 704 (2009: R13 214 702), as disclosed in note 8 to the financial statements, does not correspond to the balance of R1 882 157 per the reconciliation. The entity did not reconcile the difference of R2 759 353 between the financial statements and the underlying accounting records. Consequently, project advance account is overstated by R2 759 353.
b) The entity could not provide sufficient appropriate audit evidence to support the journal entries of R24 053 579 debited to accounts payable. There were no satisfactory alternative audit procedures that could be performed to obtain reasonable assurance that all accounts payables were recorded properly.
c) Treasury Regulation 17.1.2 requires the sources of the transactions in a clearing account to be readily identifiable, as well as monthly reconciliations to be performed to confirm the balance of the account. This information could not be provided for the accounts payable clearing account balance of R2 982 471 included in accounts payables of R74 045 704 (2009: R13 214 702), as disclosed in note 8 to the financial statements.
The Committee recommends that the Accounting Authority ensures that:
a) Policies and procedures are developed and implemented so that regular creditors confirmations and reconciliations are performed; and
b) Internal audit recommendations are monitored and implemented.
11. Irregular, fruitless and wasteful expenditure
The Auditor-General identified the following:
a) Section 51(1)(a)(iii) of the PFMA requires the entity to implement and maintain an appropriate procurement and provisioning system which is fair, equitable, transparent, competitive and cost effective. Payments amounting to R1 357 499 were made in contravention of the supply chain management requirements. This amount was not disclosed in the note to the financial statements as irregular expenditure, resulting in irregular expenditure being understated by R1 357 499.
b) Sufficient appropriate audit evidence for awards of R3 849 539 made in terms of the entitys supply chain management policy could not be obtained. The entitys records did not permit application of alternative procedures. Furthermore, it was impossible to quantify the resulting misstatement. Consequently, sufficient appropriate audit evidence could not be obtained to verify the completeness of irregular expenditure.
The Committee recommends that the Accounting Authority ensures that:
Policies and procedures are developed and that all employees comply with laws and regulations.
12. Conclusion
The Committee is displeased by the absence of policies and procedures that should guide the day to day operations of the entity and also the record keeping of important documents that should be used for audit purposes.
The Committee recommends that the Executive Authority submits a progress report on all the above recommendations to the National Assembly within 60 days after the adoption of this report by the House.
The Committee further recommends that the Accounting Authority submit quarterly reports on all the above-mentioned recommendations.
Report to be considered
Documents
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