Auditor General Junias Kandjeke has given the Kavango West Regional Council an adverse audit opinion for the 2020/2021 financial year.
“The financial statements do not present fairly, in all material respects, the financial position of the Kavango East Regional Council as of 31 March 2020 and 2021, and its financial performance and cash flows for the year then ended in accordance with International Public Sector Accounting Standards (IPSAS),” Kandjeke says in his report, tabled in the National Assembly for scrutiny last month.
An adverse opinion is the most negative type of audit opinion. It is given when an auditor concludes that financial statements are significantly misstated and unreliable, containing material and pervasive errors that prevent them from fairly presenting a given entity’s financial position.
In his report, the top public auditor cites the unexplained material adjustments made to retained earnings as one of the bases for his opinion.
“The audit found that the council made adjustments by way of journals affecting its retained earnings balance amounting to N$21.9 million. However, no detailed explanations or supporting information were provided regarding the adjustments. Furthermore, the auditors noted that there was no indication that these adjustments were approved by the council,” Kandjeke said.
He also flagged non-compliance with IPSAS.
“The audit found that the Kavango East Regional Council did not disclose an opening statement of financial position as required in terms of paragraph 15 of IPSAS 33, which states that ‘a first-time adopter shall prepare and present an opening statement of financial position at the date of adoption of IPSAS.’ This is the starting point for its accounting in accordance with accrual basis IPSAS. An opening statement of financial position should show financial assets, financial liabilities, moveable assets and any other assets and liabilities,” the AG said.
The absence of an opening statement of financial position further results in the prior period (2019) balance not corresponding to the prior period signed audit report, he noted.
The council also failed to disclose related party information in the financial statements as required in terms of paragraph 34 of IPSAS.
It states that: “An entity shall disclose: (a) The aggregate remuneration of key management personnel and the number of individuals, determined on a full-time equivalent basis, receiving remuneration within this category, showing separately major classes of key management personnel and including a description of each class; (b) The total amount of all other remuneration and compensation provided to key management personnel and close members of the family of key management personnel.”
Assets
In addition, the auditors noted differences of N$26.3 million (2020) and N$29.6 million between the net book value amounts on the fixed assets register of N$70.3 million (2020) and N$66.7 million (2021) and the net book values disclosed in the financial statement amount of N$96.6 million (2020) and N$96.4 million (2021).
“The auditors noted that the council in the financial statements for the 2021 period disclosed cash control (cash in hand) and interbank transfers, both with unfavourable balances amounting to N$549 051, respectively; this is not in line with the nature of these types of accounts. There cannot be negative cash in hand, and the interbank transfer account should have no closing balance at the end of the period, as this is a suspense account. Additionally, the balance disclosed in the financial statements does not agree with the balance in the general ledger accounts,” Kandjeke said.
Taxes
In addition, the auditors noted differences of N$6.8 million for 2020 and N$7.7 million for 2021 between the value-added tax (VAT) balance disclosed in the council’s annual financial statements and the Namibia Revenue Agency (NamRA) statements as per year-end.
“The differences are because of the council’s failure to make adjustments for interest on debt balances and penalties on late submission imposed by NamRA, as well as adjustments due to disallowed invoices after VAT refund audits were conducted by NamRA,” the auditor said.
Moreover, during the 2021 financial year, a VAT refund of N$1.1 million from NamRA was incorrectly classified as sundry income, rather than being applied to the VAT control account.
The auditors furthermore observed that the council did not account for 5% rates and taxes in its accounting records or financial statements, with omissions totalling N$457 916 for the 2020 financial period and N$431 302 for the 2021 financial period. –emumbuu@nepc.com.na