ATC120418: Report on Independent Auditors on the 2009/10 Financial Statements of Bushbuckridge Water, dated 18 April 2012

Public Accounts (SCOPA)

DEPERTMENT OF CORRECTIONAL SERVICES

SECOND REPORT OF THE COMMITTEE ON PUBLIC ACCOUNTS ON THE REPORT OF THE INDEPENDENT AUDITORS ON THE 2009/10 FINANCIAL STATEMENTS OF BUSHBUCKRIDGE WATER , DATED 18 APRIL 2012

 

The Committee on Public Accounts (the Committee) heard evidence on and considered the contents of the Annual Report and the Report of the Independent Auditors on the 2009/10 financial statements of Bushbuckridge Water. The Committee noted the qualified audit opinion, highlighted areas which required the attention of the Accounting Officer, and reports as follows:

 

1 . Valuation of debtors

 

The Independent Auditors identified the following:

 

a) The estimated cash flow related to trade receivables were determined as R nil for the outstanding debt of R 167 630 525 and R26 478 120 owed by the Bushbuckridge Local Municipality and the disestablished Bohlabela District respectively;

b) The provision for outstanding debt is only R82 399 855 resulting in trade receivable being materially overstated.

 

The Committee recommends that the Accounting Authority ensures that:

 

a) Management considers and implements an appropriate basis for the preparation of financial statements;

b) An agreement between the Municipality and National Treasury is reached with regard to the debt owed to the Bushbuckridge Water Board; and

c) Impairment testing on all assets included in the balance sheet in accordance with International Accounting Standards 36 (IAS) (AC128) and IAS 39 (AC 133) are performed.

 

2. Going Concern

 

The Independent Auditors identified the following:

 

a) The Bushbuckridge Water Board experiences a going concern relating to the payment of water sold to Bushbuckridge Local Municipality.

b) During the year ending 30 June 2010 an updated service level agreement was signed which provided for a payment of only R5 000 000 (including VAT) per month for water supplies. This falls short of the monthly invoices issued which amounts to an average of R7-R8 million. A similar service level agreement was also signed in 2007-08 and 2008-9.

 

The Committee recommends that the Accounting Authority ensures that:

 

Bushbuckridge Water Board signs and enforces a service level agreement with the Bushbuckridge Local Municipality whereby the full invoice amount would be settled.

 

3. Fixed Assets

 

The Independent Auditors identified that:

 

Fixed assets were transferred to the Bushbuckridge Water Board during the 1999/2000 financial year without transferring the ownership there-of. In terms of section 73 (2) (a) of the Water Service Act 1997 ( Act 108 of 1997), no water services works owned by the Minister of Water Affairs and Forestry may be transferred without the approval of Parliament if its value exceeds an amount specified by notice in the gazette from time to time.

 

The Committee recommends that the Accounting Authority ensures that:

 

a) Ownership of fixed assets accrues to Bushbuckridge Water Board;

b) An asset register is developed and updated regularly.

 

4. Inventory

 

The Independent Auditors identified that:

 

Note 25 of the financial statements refers to the findings of the forensic audit whereby an amount of R644 655 was irregularly paid during the 2003/04 financial year. These amounts have not yet been recovered.

 

The Committee recommends that the Accounting Authority ensures that:

 

The Board together with the municipality and the Department of Water Affairs

address the matter of non payment of water by the Municipality with the urgency it deserves.

 

 

5. Non-Compliance with Regulatory Requirements

 

The Independent Auditors identified the following:

 

a) As required by section 3.2.7 of the Treasury Regulations, Bushbuckridge Water did not have the following plans:

· A three year rolling internal audit plan;

· An annual audit plan for the first year of the three year rolling internal audit plan;

· Plans indicating the proposed scope of each audit in the annual internal audit plan; and

· A quarterly report to the audit committee detailing its performance against the annual internal audit plan, to allow effective monitoring and possible interventions.

 

b) Bushbuckridge Water did not have a procedures manual for the procurement of goods and services during the year under review as required by section 2 of the Preferential Procurement Policy Framework Act (Act 5 of 2000).

 

The Committee recommends that the Accounting Authority ensures that:

 

a) An internal and annual audit plan is developed and adhered to at all times;

b) The entity develops the scope of the audit plan and this should be included in the annual internal audit plan; and

c) Policies, procedures and procedural manuals that guide the day to day operation of the entity are developed and implemented accordingly.

 

6. Conclusion

 

The Committee recommends that the Executive Authority submits a progress report on all of 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 submits quarterly reports on all the above-mentioned recommendations.

 

Report to be considered.