ATC120418: Report on Auditor-General on the 2009/10 Financial Statements of Magalies Water, dated 18 April 2012
Public Accounts (SCOPA)
DEPERTMENT OF CORRECTIONAL SERVICES
THIRD REPORT OF THE COMMITTEE ON PUBLIC ACCOUNTS ON THE REPORT OF THE AUDITOR-GENERAL ON THE 2009/10 FINANCIAL STATEMENTS OF MAGALIES 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 Auditor-General (AG) on the 2009/10 financial statements of Magalies Water. The Committee noted the qualified audit opinion, highlighted areas which required the attention of the Accounting Authority, and reports as follows:
1. Trade and other receivables
The Auditor-General identified the following:
a) The entity did not provide sufficient appropriate evidence to support the trade and other receivables balance of R101 884 626 disclosed in note 7 to the financial statements. The disclosed balance does not agree to the debtors age analysis.
b) Included in the trade receivables is R1 056 000 which constitute credit balances, and included in the trade payables is R1 722 551 which constitute debit balances.
The Committee recommends that the Accounting Authority ensures that:
a) Policies and procedures are developed and implemented to make sure that regular asset counts/verifications and subsequent adjustments to financial records are performed and monitored; and
b) Management monitors the implementation of the internal audit recommendation.
2. Investments
The Auditor-General identified the following:
The SCMB Zero Coupon Investment of R11 109 732 as disclosed in note 3 of the financial statements matures on 30 June 2011. South African Statements of Generally Accepted Accounting Practice, IAS 01, presentation of financial statements requires that an entity shall classify an asset as current when it expects to realise the assets within twelve months after the reporting period. Had the balance been correctly classified as a short term investment, the non-current asset for investments in the statement of financial position would be decreased and the current for investments in the statement of financial position would be increased by R 11 109 732.
The Committee recommends that the Accounting Authority ensures that:
Policies and procedures are developed to ascertain that management accounts and financial statements are reviewed regularly.
3. Property, plant and equipment
The Auditor-General identified the following:
a) The entity did not provide sufficient appropriate audit evidence to support property, plant and equipment of R 590 431 420 as disclosed in note 2 to the financial statements.
b) The disclosed balance for property, plant and equipment of R590 431 420 did not correspond to the balance of R590 321 705 per the asset register. The entity did not reconcile the difference of R 109 715 00 between the financial statements and the underlying accounting records. Assets of R144 980 were not recorded in the accounting records of the entity.
The Committee recommends that the Accounting Authority ensures that:
a) Policies and procedures are developed and implemented so that regular asset count/verifications are done; and
b) Subsequent adjustments to financial records are performed, monitored and records relating to this exercise are safeguarded.
4. Cash and Bank
The Auditor- General identified the following:
a) The entity did not provide sufficient appropriate audit evidence to support cash and bank of R301 214 disclosed in note 8 to the financial statements.
b) The entity did not provide sufficient appropriate audit evidence to support the reconciling items totalling to R1 676 329 between cash and cash equivalents stated in the statement of the financial position at R2 034 741 (overdraft) and the cash at banks amount stated on the year end bank reconciliation at R13 835 826; and cash at bank of R282 234 indicated on the bank reconciliation does not correspond to the amount of R27 700 330 confirmed by financial institutions.
The Committee recommends that the Accounting Authority ensures that:
a) Policies, guidelines and procedures are developed and implemented so that regular bank confirmations and reconciliations are performed;
b) Internal audit recommendations are implemented; and
c) Financial records are reviewed for completeness, accuracy and validity and that those records are safeguarded.
5. Reserves
The Auditor-General identified the following:
The entity did not provide sufficient appropriate audit evidence to support the revaluation reserve of R40 468 000 (2009: R 40 468 000) disclosed in note 9 to the financial statements. The entitys records did not permit the application of alternative audit procedures.
The Committee recommends that the Accounting Authority ensures that:
a) Asset counts are performed and reconciling items are followed-up and monitored; and
b) Supporting documents are stored and are provided for audit purposes.
6. Expenditure
The Auditor-General identified the following:
a) The entity did not provide sufficient appropriate audit evidence to support operating expenditure of R198 045 000 disclosed in the statement of comprehensive income.
b) Included in expenditure is an amount of R8 449 548 (2009: R263 213) resulting from duplicate purchase orders. The South African Statements of Generally Accepted Accounting Practices Framework for the Preparation and Presentation of Financial Statements definition of expenses encompasses expenses that arise in the course of the ordinary activities of the entity.
c) Included in expenditure is an amount of R630 086 resulting in duplicated accruals. As above, the accruals recorded in the accounting records of the entity do not meet the definition of expenses. Had the accruals been correctly reversed, expenditure would be reduced, net profit would be increased and the liability in the statement of financial position for accrual of expenses would be reduced by R630 086.
The Committee recommends that the Accounting Authority ensures that:
a) Policies and procedures are developed and implemented so that regular reviews of management accounts are performed and monitored; and
b) There is leadership stability in the finance section.
7. Irregular, fruitless and wasteful expenditure
The Auditor-General identified the following:
Payments of R1 335 103 were made in contravention of the supply chain management requirements. R1 312 103 was not included in the irregular expenditure, disclosed in note 13 to the financial statements, resulting in irregular expenditure being understated.
The Committee recommends that the Accounting Authority ensure that:
a) Officials follow the Supply Chain Management processes when they procure goods and services so as to avoid recurring of irregular, fruitless and wasteful expenditure;
b) Monies are recovered from employees who were responsible for incurring such irregular, fruitless and wasteful expenditure; and
c) Disciplinary actions are taken against officials responsible for incurring the fruitless expenditure in line with section 51(e)(iii) of the PFMA.
8. Conclusion
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 submits quarterly reports on all the above-mentioned recommendations.
Report to be considered
Documents
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