Damning water audit
Volume: Volume 2 Issue 7 |  Tuesday, 11 October 2011 |  Craig Dodds  |  0 comment

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THE Water Affairs Department, already reeling from a leadership crisis that included the firing of its director-general and chief financial officer in the past year after the discovery of financial mismanagement and dodgy procurement practices totalling R1 billion, has again been hit with a damning report by the auditor-general for failing to account properly for billions in assets, income and expenditure.

The department received a qualified audit on the basis of deficient bookkeeping that in many cases did not provide “sufficient appropriate audit evidence” for the A-G to form an opinion, irregular expenditure of R69m and fruitless and wasteful expenditure of R13.5m, uncovered by the A-G after the department had incorrectly disclosed just R400 000 in this category.

Auditor-General, Terence Nombembe, complained in the department’s latest annual report that there was “no system of control over fruitless and wasteful expenditure on which I could rely”.

But the department’s woes were compounded by a disclaimer of opinion for the Water Trading Entity, which manages water resources and collects revenue from users, and which reports directly to the department.

The disclaimer means the books were in such a shambles that the A-G could not form an opinion about their correctness. This is the worst type of audit outcome.

Apart from irregular expenditure for the 2010/11 financial year of R334.1m, Nombembe found fruitless and wasteful expenditure of R9.76m – after the entity had disclosed none.

Again he complained that the lack of sufficient audit evidence made it impossible for him to verify the completeness and accuracy of the figure.

Among a litany of shoddy record keeping, Nombembe found:

R1.894bn in water-related services revenue for the recording of which there was no system of control on which he could rely;

Capital expenditure of R191m recorded as a negative under operating expenditure, for which he could not find sufficient audit evidence “to satisfy myself as to the occurrence, completeness, classification, accuracy and cut-off of these classes of expenditure”;

The employee cost of R853m was similarly not properly supported by audit evidence;

Infrastructure assets valued in the books at R59.7bn were revealed by the assessment of an independent valuer to be potentially understated by R11bn;

He said provision had not been made for the rehabilitation costs of dams requiring critical rehabilitation under the dam safety regulations and the cost was therefore “understated by a material undisclosed amount”;

There was not “sufficient and appropriate audit evidence” for credit balances amounting to R962.79m and R3.245m included in the accruals balance. Creditor confirmations for these could not be substantiated;

The value-added tax suspense account of R260.76m did not agree with the balance of R100.44m according to the underlying accounting records and the entity could not provide documents to support the difference;

It could not substantiate deferred income balances in non-current and current liabilities of R3.515bn and R68.46m respectively.

Water Affairs Minister Edna Molewa said in her foreword to the annual report that the A-G’s qualified opinion for the department was a “sore point” and she had appointed a “business process re-engineering team” to help it improve.

In April, Molewa announced that suspended chief financial officer Onesmus Ayaya had been fired the previous month. This was after the suspension of Ayaya, acting director-general Nobubele Ngele and the IT head, Bubele Vakalisa, in connection with a report by the A-G on irregular expenditure of R1bn.

Previously, the department fired director-general, Pam Yako, over procurement irregularities amounting to R300m.

Molewa has called in the Special Investigating Unit to help root out corruption in the department.