Online Reporter
Ray Bande
Senior Reporter
THE Auditor General (AG) has exposed glaring inadequacies in financial management and accountability among local authorities in Manicaland – defects that are considerably hindering effective service delivery and creating weaknesses for potential employee fraud cases.
The report highlighted that most local authorities in the province are not up to date with remitting statutory deductions, including LAPF, NSSA, ZIMDEF, and PAYE, apart from struggling with basic bookkeeping and accountability standards.
Chipinge Town Council, in particular, received an adverse opinion from the AG regarding its operations — having been facing challenges in filling critical staff positions, including a substantive town engineer, administration and human resources officer, chief security officer, and town planner.
Efforts to obtain a comment from the Ministry of Local Government and Public Works spokesperson, Mr Gabriel Masvora, regarding the latest findings by the AG were unsuccessful.
Despite his promise to respond to questions sent to him, Mr Masvora had not done so by the time of publication.
However, The Manica Post has obtained a report from the AG that reveals several anomalies and misdemeanours within local authorities — including Chipinge Town Council, Rusape Town Council, Chipinge Rural District Council and Makoni Rural District Council.
While noting anomalies, the report gave a good rating of City of Mutare.
As regards other local authorities, the report highlights various issues, such as unaddressed audit findings and concerns over financial management and governance.
On Chipinge Town Council, the report noted: “Foreign currency denominated transactions and balances during the financial year were translated into ZWL$ using the inter-bank exchange rates. This was contrary to IPSAS 4 — “The Effects of Changes in Foreign Exchange Rates” which requires foreign currency denominated transaction to be translated using spot exchange rates.
The interbank exchange rates used did not meet the definition of a spot exchange rate as the rate was not available for immediate delivery. Had the council complied with the requirements of IPSAS 4 — the financial statements would be materially different.
“In addition, the council last revalued its assets in 2009, contrary to the requirements of IPSAS 17 (Property, Plant and Equipment) — which requires revaluations to be made with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the reporting date. Had the council revalued its property, plant and equipment, the carrying amount of property, plant and equipment disclosed would have been materially different,” reads the report in part, which detected in the local authority’s poor handling of revenue from schools.
“The council did not account for the revenue, expenses, assets and liabilities for its five schools in the financial statements. This was contrary to IPSAS 1 (Presentation of Financial Statements) Paragraph 27, which requires financial statements to fairly present the financial position, financial performance and cash flows of an entity. As a result, no segment information was reported in respect of the council’s education services segment contrary to IPSAS 18 (Segment Reporting) Paragraph 52 to 57, which requires an entity to identify and disclose its separate segments. Had the council complied with IPSAS 1 — and IPSAS 18 — in accounting for its schools, the financial statements would have been materially different.”
Chipinge Town Council is also not up to date in remitting its statutory deductions like LAPF, NSSA, ZIMDEF and PAYE, and owed ZWL$780,2 million (ZWL$52,75 million (2022)) in statutory deductions at the end of year, risking financial loss due to penalties and fines.
Rusape Town Council’s latest audit report reveals some concerning trends, and despite receiving a qualified opinion, the council failed to address prior year audit findings and implement recommended changes.
According to the report, three key findings from the 2023 annual report remain unaddressed, which lack of progress raises questions about the council’s commitment to transparency and accountability.
The AG report highlights the need for improved financial management and governance within the council.
“The council did not make progress in addressing findings that I raised in my 2023 annual report. I raised three findings that were not addressed as indicated below — 2.1: The Effects of Changes in Foreign Exchange Rates — The finding was not addressed. Foreign currency denominated transactions and balances of the council were translated into ZWL using the interbank exchange rates. 2.2: Financial Reporting in Hyperinflationary Economies — the finding was not addressed. The council used inappropriate base numbers.
“2.3: Property, plant and equipment and investment property — the finding was not addressed. Council did not separately recognise beerhalls and houses as investment property.”
The report noted that such a scenario creates the risk or implication of misstatement of financial statements.
However, in its response, noted in the AGs report, RTC argued: “We take note of the recommendation. The exercise to separately categorise and disclose the beerhalls and the council house as investment property will be done in the future period.”
The AG issued a qualified opinion to Mutare City Council even though some financial irregularities were noted.
“Included in the consolidated financial statements are payables and receivables from schools. However, the schools did not maintain adequate accounting records such as ledgers for payables and receivables during the year under review. As a result, I could not ascertain the valuation and completeness of the receivables and payables amounting to ZWL$1,37 billion and ZWL$420,99 million, respectively disclosed in the financial statements.”
The report also detected irregularities in Mutare City Council’s deal with a certain supplier.
“The council entered into a contract with a supplier on servicing and installation of PABX system on January 20, 1999, for a yearly rental fee of ZW$20 520.
“However, council paid a total of ZWL$63,5 million rentals to the supplier during the year under review, which was not adequately supported by documentation and review of the contract. This was contrary to the Public Procurement and Disposal of Public Assets Act [Chapter 22:23] Section 78 (e), which requires the contract to be updated on price.”
The report noted the risk or implication of financial loss due to fraud.
In its response, the local authority management pledged to ensure that an addendum is signed with the supplier to comply with Public Procurement and Disposal of Public Asset Act.
To its credit, Mutare City Council, made progress in addressing findings raised in the 2023 annual report. About 20 findings were raised and 11 were addressed, five partially and four were not addressed.
An adverse opinion was issued to Chipinge Rural District Council.
“The council did not avail supporting documents such as listing, staff loan agreements and salary advances applications for ZWL$1,62 billion disbursed to staff. As a result, I could not satisfy myself with the accuracy of the receivable balance in the financial statements.
“The council did not update the customer database which forms the basis for invoicing the customers. As a result, revenue from leases, levies, licences and permits amounting to ZWL$3.30 billion were invoiced based on an outdated database. I could not satisfy myself regarding the completeness of the revenue and receivables,” reads the report in part.
For Makoni Rural District Council, the report noted: “The council did not recognise construction materials inventory in its financial statements. This was contrary to International Accounting Standard (IAS) 2 (Inventories) Paragraph 6 which requires material or supplies to be consumed in the production process or in the rendering of services to be recognised as inventories.
“Had the council recognised construction materials in the financial statements, the carrying amount of inventory disclosed in the financial statements would have been materially different. The council was not remitting statutory obligations such as NSSA and PAYE on time due to cash flow challenges.
As a result, as at December 31, 2023, the council had an accrual of ZWL$386 million for PAYE and ZWL$18,83 million for NSSA.”
In basic auditing terms, an adverse opinion is the most negative auditor’s report, stating that a company’s financial statements are materially misstated, and do not present a fair view of its financial position or performance, often due to significant non-compliance with accounting standards.
On the other hand, a qualified opinion is a formal statement from an auditor that the company’s financial statements are presented fairly, except for specific issues that are material, but not pervasive.
These issues can arise from a scope limitation, where the auditor cannot obtain sufficient evidence, or from a departure from accounting principles.
