First Published in my LinkedIn Account on 15 November 2018.
I have gone through the Audit Reports tabled before the Parliament of Zimbabwe by the Office of the Auditor-General (OAG). An effective public sector audit activity strengthens governance by materially increasing citizens’ ability to hold their government accountable. Auditors perform an especially important function in those aspects of governance that are crucial in the public sector for promoting credibility, equity, and appropriate behavior of government officials. Because government’s success is measured primarily by its ability to deliver services successfully and carry out programs in an equitable and appropriate manner, government audit activities should have the authority and the competency to evaluate financial and program integrity, effectiveness, and efficiency. Moreover, auditors must also protect the core values of the government, as it serves all citizens (http://agendasonline.greatersudbury.ca/index.cfm?pg=agenda&action=navigator&lang=en&id=422&itemid=5168). The importance of public sector auditing can therefore never be over emphasised. Pursuant to this, the Zimbabwean Government has, in line with section 309(2) of the constitution, and as read with section 10(1) of the Audit Act (22:18), established the Office of the Auditor General who mandate is chiefly to audit the accounts, financial systems and financial management of all departments, institutions and agencies of government, all provincial and metropolitan councils and all local authorities. In this article, I review the audit of Harare City Council for 2013, 2014 and 2015, as set out in pages 4 to 30 of the OAG’s report tabled in Parliament in 2017.I will make significant comparisons with the 2012 report of the same local authority that was tabled in Parliament in 2016. I note with concern from the onset the general delay by local authorities in the submission of their financial statements for audit. On average, local authorities in Zimbabwe submit their financial statements after four years, a far cry from the annual expectation. As this will be shown a little later on, these delays have a bearing on the significance and effectiveness of the audit exercise as a whole and impacts on the usefulness of the audit in achieving the intended goals of promoting an entity’s accountability to the public. In 2016, the OAG reported on the 2012 financial statements of Harare City Council. There was no opinion expressed, as is the case with all other reports for local authorities, going against what an audit sets out to do. However, there were clear signs that the OAG went through the financial statements of the council. One of the first and major findings reported was that there was no bank reconciliation done. The ledger and the bank statement had a variance of a whooping US$200 million. Not only so, but these amounts were bank overdrafts. There was no report of an authorised overdraft facility. The budget for the municipality in 2012 was $272 million and the unreconciled variance accounts for 74% of the budget. This gives an impression of high level fraud. Bank reconciliations are by their nature internal control activities and should be done regularly to ensure that all bank transactions are recognised in the financial statement and vice versa. Failure to do this by such a huge municipality, staffed by seemingly competent personnel is a cause for concern. The OAG highlighted that this is resulting in the misstatement of cash and equivalents. Whilst this is true, the absence of a bank reconciliation means also that income, expenses, assets, liabilities as well as any other section of the financial statement maybe misstated since all these have links to bank transactions. These misstatements are clearly of significant magnitude in light of the quantum of the variance mentioned. In response, the management highlighted that bank reconciliation is ‘currently being performed’. This means that in 2015, three years down the line, the bank was still unreconciled with the ledger. With the treasury department well-staffed, bank reconciliations were still undone. Such is the sorry state of public funds and public financial management within Harare City Council. With such an uncontrolled environment, fraudulent activities are prone to take place. In the subsequent audits for the years 2013 – 2015, there was no mention of this problem, and the reader of the audit reports is left wondering if the bank was finally reconciled. The 2012 management response, issued in 2015 said the reconciliations were being done then. This implies that in 2013 through to 2015, the bank was still not reconciled with the ledger. Despite this, the OAG was mum on the variance. This raises many questions on the competency of the OAG. Why would such a significant issue be left out? Instead, the OAG reported that they had made “material” audit findings which were itemised. Materiality is a quantitative expression, and is measured on the basis of the effect of a transaction on the financial statements as a whole. It is an expression of the relative significance or importance of a particular matter in the context of the financial statements as a whole. An item might be material due to its nature, value and/or impact.
Some of the ‘major audit findings’ that the OAG found ‘material’ included the following:
2013 Report
a. Uncut grass and litter
b. Flushing system not working in public toilets
c. Worn out water gutters
d. Piles of uncollected refuse
e. Bad odour not controlled at dump site
2014 Report
a. Non-compliance with the Urban Councils Act (29:15) with regards to borrowing to finance remuneration
b. Broken boom gates at Mbare Bus Terminus
c. Broken benches
d. 1% collections from billed amounts
2015 Report
a. Toilets without doors
b. Vending activities in the CBD
c. Unregistered taxis in the CBD
d. Potholes in the roads
e. Under qualified council schools’ bursars
f. Unclear PPP arrangement
g. Payroll deductions not remitted
h. Poor accounting for receipted cash
i. Lack of documentation to support accounting entries
j. Misappropriation of assets
What quickly comes to mind is: What is material about a broken bench? What effect does it have on the financial statements? What is material about uncut grass? There are clearly limited references to the financial statements and no reason is given for this departure. Readers of the 2013-2015 audit reports would probably be more interested in knowing if the council’s approximately forty (40) bank accounts have been reconciled and whether the signatory panels for these accounts are updated. With less than 40 banks in the country, it is a big wonder why the council was operating all these accounts. One is left guessing what the motive was in their opening. Readers would also be interested in knowing if the salaries of council officials were paid according to guiding legislation and if they had been properly disclosed in the financial statements. A general review on the fairness of the financial statements is absent. A report of a broken boom gate is of no reading value unless its material effect on the financial statements is adequately explained. Not only is it of no reading value, but it also makes one query the objectivity of the OAG. Harare is a large municipality that moves millions of dollars. Have there been no budget overruns? Has all expenditure been properly authorised? Have financial statements been prepared in accordance with a recognised and appropriate financial reporting framework? Have there been cash and inventory counts at year end? Have these been reconciled to the ledger? Has council operated within the requirements of the Urban Councils Act (29:15)? We want to know. Is there something we are not being told in these audit reports? Have these reports been censored or that is the level of reporting that the OAG has adopted? Is this not incentive enough for local authorities to sit back and relax? Have Parliament and the Public Accounts Committee taken decisive action? One is excused to believe that the 2013 – 2015 audits have not been carried out in accordance with International Standards on Auditing (ISAs) as stated by virtue of there being limited reference to the financial statements, directly or indirectly. I call upon local authorities to be more accountable to the public, and to the OAG to professionally and effectively deliver on its constitutional mandate.
Comments
Post a Comment