The AG has however defended its actions, denying a lack of care or capacity.
Business last year reported on a R4.7bn “hole” in the city’s finances arising from material losses of electricity totalling R622m, water losses of R404m and an impairment of debtors to the tune of R3.7bn.
Finance statements also suffered from deviations of supply chain management regulations and various applicable laws and significant deficiencies in internal controls.
Two CA’s, who asked not to be named for professional reasons, both said they would have qualified the city’s statements.
The first one said the material losses, huge outstanding debtors and lack of internal controls would have been enough to issue a qualified report.
The second CA agreed, adding the audit report failed to address adequately the issue of the city’s creditors. He calculated that it took the City on average 121 days to pay creditors; the legislative requirement is payment should be made within 30 days.
Both CA’s are also very concerned about the restatement of the previous year’s statements due to the “correction of errors” and question the unqualified audit report it got.
The AG discloses the restatement in his 2012/13 report – of more than R867m with a net change in financial results of R293m. Nineteen of the 25 lines of the income statement are restated, said the first CA.
Both CA’s are critical of the fact that the AG did not pick these mistakes up during the audit.
The AG told Business the errors related to information that became available to management after the completion of the audit for 2011/12 – adequate grounds for a restatement under the Generally Recognised Accounting Practice (GRAP)3. The AG further said of the restatement: “No material findings were noted and an emphasis of matter paragraph was included in the audit report to bring these adjustments to the attention of the reader of the annual financial statements.
“Furthermore, due to the nature of audit, not every transaction is examined and the completeness and accuracy of the consolidated and separate financial statements are not guaranteed … there is an unavoidable risk that some misstatements may not be detected, even though the audit is properly planned and performed in accordance with (International Standards of Auditing, or ISAs).
“At the audit report signing date no evidence indicated to the auditors that the financial statements were materially misstated.”
The AG denied the extent of the errors indicated a lack of care or capacity in his office.
The CA’s are further concerned about a letter that was sent on 2 April 2013 by an executive director in the City of Tshwane to staff members, stating that accruals from outstanding invoices from 2011/12 resulted in “negative amounts in departmental budgets” in the subsequent financial year.
This indicates that invoices may have been purposefully held back towards the end of the financial year when budgets are depleted, presumably to prevent the municipality ending the year on a deficit. One of the CA’s says this practice is only possible with significant manipulation of the SAP-financial management system.
The AG said it was aware of the letter, but refused to comment “due to it being an internal memo directed at staff of the City and not for the attention of the AG’s office”.