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Analysis of the Report of the Auditor General : Appropriation Accounts FY2016-1

 

PARLIAMENTARY BUDGET OFFICE

 

 

Analysis of the Report of the Auditor-General for the Financial Year Ended December 31, 2016 on Appropriation Accounts, Finance and Revenue Statements and Fund Accounts

 

 

 

 
  Rounded Rectangle: Disclaimer
The Parliamentary Budget Office (PBO) is a non-partisan professional office of the Parliament of the Republic of Zimbabwe. The primary function of the Office is to provide professional advice and objective in-depth analysis of fiscal and other economic policies.
 

 

 

 

 

 

 

 


 

 

1.0              Introduction                           

2.0               

 

 

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Table of Contents

 

1.0       Introduction 1

 

2.0       Stations visited by the Auditor-General’s Office 1

 

3.0              Audit Opinions…………………………………………………………………………...2

3.1              Appropriation Accounts…………………………………………………………...3

3.2              Consolidated Finance Accounts…………………………………………………...5

3.3              Consolidated Revenue Statements………………………………………………...5

 

4.0              Findings…………………………………………………………………………………...6

4.1              Highlights of Findings…………………………………………………………….6

4.2              Number of Findings categorized by Appropriation Account……………………..7

4.3              Findings by Nature………………………………………………………………...8

 

5.0              Implementation of Audit Recommendations………………………………………….13

 

6.0              Conclusion………………………………………………………………………………16

 

References……………………………………………………………………………………….17

 

Annexure 1: Audit Opinions for Appropriation Accounts…………………………………..18

 

Annexure 2: Types of Modified Audit Opinions……………………………………………...19

 

Annexure 3: Deciding on the Appropriate Form of the Audit Report………………….......20

 



1.0              Introduction

The Auditor-General, (Mrs. Mildred Chiri), prepared and submitted to the Minister of Finance and Economic Development (Honourable Mr. Patrick Chinamasa) a report of her examination and audit of the public accounts of Zimbabwe. This was in line with Section 309 (2) of the Constitution of Zimbabwe Amendment (No. 20) Act 2013 and Section 10 of the Audit Office Act [Chapter 22:18]. The examination of the public accounts of Zimbabwe was after the accounts were submitted by accounting officers in terms of Section 35 (6) and (7) of the Public Finance Management Act [Chapter 22:19].

 

On 21st June 2017 the Minister of Finance and Economic Development laid the report of the Auditor-General for the Financial Year Ended December 31, 2016 on Appropriation Accounts, Finance and Revenue Statements and Fund Accounts before the House of Assembly in terms of Section 12 (1) of the Audit Office Act [Chapter 22:18] and Section 35 (12) of the Public Finance Management Act [Chapter 22:19].

 

The Parliament Budget Office (PBO) takes this opportunity to analyse and highlight the key aspects of the report on Appropriation Accounts, Finance and Revenue Statements for the Financial Year Ended December 31, 2016. Fund Accounts are analysed in a separate report by the PBO. The analysis aims to draw attention to major weaknesses in governance, risk management and the internal control system (ICS).

 

2.0       Stations visited by the Auditor-General’s Office

There was a reduction of stations visited by the Auditor-General in 2016 (316 stations) by 32.5% as compared to those visited in 2015 (468 stations). This may compromise the number of audit findings which are presented in her report.

 

Figure 1: Number of Stations Visited

 

Most Ministries are decentralized so there is need for increased audit coverage of the stations. Inadequacy of financial and manpower were the major reasons cited for the reduction in the audit coverage.

 

 

 

3.0       Audit Opinions

An auditor's opinion is the outcome of an auditor's review of an organization's financial statements. The audit opinion is formed as to the truth and fairness of the financial statements as a whole. There are four major types of audit opinions, namely:

*      Unmodified/Unqualified opinion

*      Qualified opinion

*      Adverse opinion

*      Disclaimer of opinion

 

Unmodified/Unqualified Opinion

It is the best possible outcome and is a clear “thumps up” or a clean bill. It is issued when an auditor is able to reasonably conclude that the information is free from material misstatement and is presented in accordance with generally accepted accounting principles. It is not a guarantee that there are no misstatements present within the information, regardless of their size or significance. The opinion provides only reasonable assurance about the information that is within the scope of the engagement. It is not indicative of a positive assessment of the entity’s overall activities.

 

An unmodified opinion with an “emphasis of matter” or “other matter” paragraph is used when the auditor is largely satisfied that the financial and service performance information is fairly reflected in the financial statements but the reader’s attention needs to be drawn to certain matters. In such instances, the auditor draws readers’ attention to matters such as fundamental uncertainties, breaches of law, or concerns about probity or financial prudence.

 

Modified Opinions

Modified opinions are covered by International Standard on Auditing 705 (ISA 705) Modifications to the opinion in the independent auditor's report, which identifies the following three types of possible modification:

 

Qualified Opinion

A qualified opinion is expressed when the appointed auditor, having obtained sufficient appropriate audit evidence, concludes that misstatements, individually or in aggregate, are material, but not pervasive, to the financial statements. In simple terms, pervasive means found everywhere or spread everywhere. Pervasive misstatements are those that have a wider effect on an organisation’s financial statements.

 

Adverse Opinion

An adverse opinion is the most serious type of modified opinion. The auditor shall express an adverse opinion when the auditor, having obtained sufficient appropriate audit evidence, concludes that misstatements, individually or in the aggregate, are both material and pervasive to the financial statements.

Disclaimer of Opinion

The auditor shall disclaim an opinion when the auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion, and the auditor concludes that the possible effects on the financial statements of undetected misstatements, if any, could be both material and pervasive. Therefore, the auditors recuse themselves.

 

3.1       Appropriation Accounts

The audit opinions on Appropriation Accounts and Finance and Revenue Statements varied from one account to the other.

 

Figure 2: Comparison of Audit Opinions for Appropriation Accounts (2015 and 2016)

 

There was a general improvement in terms of the number of Appropriation Accounts with an unqualified opinion whether with or without other material issues from 2015 to 2016.

 

Figure 3: Audit Opinions for Appropriation Accounts FY 2016

 

 

 

 

Figure 4: Audit Opinions for Appropriation Accounts FY 2015

 

The proportion of Appropriation Accounts with qualified audit opinions also improved in 2016 after taking cognizance of the fact that thirty-eight (38) Appropriation Accounts were audited for FY 2016 as compared to 30 for FY 2015. The relative percentages indicate improvements for FY 2016.

 

Neither adverse nor disclaimer audit opinions were issued for Appropriation Accounts in both financial years.

 

A “traffic lights” analysis for Appropriation Accounts (financial years 2014, 2015 and 2016) is provided in Annexure 1. The Appropriation Accounts which have maintained unqualified opinions (clean bills) include:

 

ü  Office of the President and Cabinet

ü  Information, Media and Broadcasting Services

ü  Small and Medium Enterprises and Co-operative Development

ü  Energy and Power Development

ü  Women’s Affairs, Gender and Community Development

ü  Judicial Services Commission

 

The Appropriation Accounts which have continued to be on the negative side include:

 

*      Finance and Economic Development

*      Industry and Commerce

*      Agriculture, Mechanisation and Irrigation Development

*      Mines and Mining Development

*      Environment, Water and Climate

*      Foreign Affairs

*      Local Government, Public Works and National Housing

*      Health and Child Care

 

3.2       Consolidated Finance Accounts

The audit opinions expressed in terms of the Consolidated Finance Accounts were as follows:

 

Figure 5: Audit Opinions for Consolidated Finance Accounts

 

The audit of Consolidated Finance Accounts revealed a worsening situation with qualified and adverse opinions being passed in FY 2016. There was only a slight improvement in terms of disclaimer opinions (Figure 5).

 

3.3       Consolidated Revenue Statements

There were also slight improvements with regards to audit opinions which were expressed for Consolidated Revenue Statements.

 

Figure 6: Audit Opinions for Consolidated Revenue Statements

 

There was a reduction in terms of qualified audit opinions and an increase in unqualified audit opinions (Figure 6).

4.0       Findings

The Auditor-General highlighted her major audit findings/observations which were common to most Ministries and Departments. Those charged with governance (TCWG) are urged to pay urgent attention and seek remedies for these findings. A call was made to improve transparency and accountability in the public sector as stipulated in Section 298 of the Constitution of Zimbabwe Amendment (No. 20) Act 2013.

 

4.1       Highlights of Findings

 

*      Maintenance of Accounting Records

*      Fraudulent Activities

*      Transfer of Moneys from Fund Accounts

*      Suspense Account Balances in Fund Accounts

*      Outstanding Payments to Suppliers of Goods and Services

*      Direct Payments

*      Unsupported Expenditure

*      Use of Fund Resources as Collateral Security

*      Budgetary Control

*      Loans to Private and Public Enterprises

*      Posting Financial Transactions to Closed Financial Years

*      Upload of Assets

*      SAP Audit Management Module and Audit Log

*      Violation of Procurement Regulations

*      Amounts not collected from Debtors

 

The Parliamentary Budget Office (PBO) analysed the findings in the audited Appropriation Accounts and categorized them as can be gleaned in Figure 6 below:

 

Figure 7: Appropriation Accounts Findings and their Frequencies

Findings with higher frequencies than the others were as follows:

 

*      Employment Costs

*      Inadequate or No Supporting Documentation

*      Management of Assets

*      Revenue Management and Cost Containment

*      System Variances

*      Inadequate Management Review and Reconciliations

*      Creditors Management

 

4.2       Number of Findings categorized by Appropriation Account

The highest frequencies of findings were observed in the Ministry of Transport and Infrastructural Development followed by Ministry of Tourism and Hospitality (Figure 7).

 

Figure 7: Number of Findings per Appropriation Account 

 

The lowest frequencies of findings by Appropriation Account are shown in Figure 8 below:

 

 

 

 

 

 

 

 

 

 

 

Figure 8: Number of Findings per Appropriation Account 

 

4.3       Findings by Nature

This section depicts the findings by their nature and values so that problematic areas are revealed at a snapshot and TCWG can concentrate on these major issues.

 

Outstanding Payables/Creditors

Accounts payable refers to money that an organisation owes to its creditors (i.e. outside individuals and other businesses) for goods and services provided. They are generally short-term obligations to pay a debt and interest would not normally be charged if paid on time (Chartered Institute of Internal Auditors).

 

There was a continued acquisition of goods and services from suppliers by Ministries despite the fact that they did not have the financial resources to meet the expenditure. Total outstanding payments rose by 57% from $53.5 million (2015) to $84.1 million (2016).

 

The Ministry of Health and Child Care had the highest outstanding payments in both 2015 and 2016. The figure rose by 52% from $46.2 million (2015) to $70.1 million (2016). The Ministry of Public Service, Labour and Social Welfare had outstanding payments amounting to $7.1 million for 2016 (Figure 9).

 

 

 

 

 

 

 

 

Figure 9: Outstanding Payables

 

Delays or payments that are untimely will damage Ministries reputation and may lead to misconceptions regarding their financial performance.

 

Potential impact:

• Late payments are made, incurring penalties.

• Non-compliance with Treasury Instructions.

 

Unsupported Expenditure

Payments made without supporting documentation were still occurring in 2016. The Ministry of Lands and Rural Resettlement topped the list with an amount of $7.2 million whilst the Ministry of Local Government, Public Works and National Housing had unsupported expenditure of $424 565.

 

 

 

 

 

 

 

 

 

Figure 10: Unsupported Expenditure

 

The implications of unsupported expenditure are that fraudulent payments may be processed and the expenditure may not be incurred.

 

Uncollected Receivables/Debtors

Accounts receivables are an essential part of any organisation's balance sheet. Often referred to as debtors, these are monies which are owed to an organisation by a customer (Chartered Institute of Internal Auditors).

 

The Public Service Commission emerged the highest with regards to uncollected receivables ($10.1 million: 2016) followed by the Ministry of Local Government, Public Works and National Housing ($6.0 million: 2016).

 

 

 

 

 

 

 

 

 

 

 

Figure 11: Uncollected Debtors

 

Potential impact:

• Loss of revenue to the Government.

• Cash flow issues.

 

Sub-PMG Account Balances not reconciling with the PFMS Balances

Some Ministries had their sub-PMG (Paymaster-General Account) balances which were not in sync with the PFMS (Public Finance Management System) balances. Reconciliations and establishment of the source of the differences was not done. Reliance could not be placed on the total expenditure figures in the Appropriation Accounts of those Ministries.

 

In 2015 the Ministry of Finance and Economic Development (Statement of Public Debt) had the highest variance of $53.9 million followed by the Ministry of Primary and Secondary Education with $6.8 million. The Ministry of Health and Child Care had a variance of $5.7 million.

 

 

 

 

Figure 12: Sub-PMG Account Balances not reconciling with the PFMS Balances

 

There was a significant decline in the variances for the FY 2016 as shown in Figure 13. The Ministry of Defence had the highest variance of approximately $2.5 million followed by the Ministry of Welfare Services for War Veterans, War Collaborators, Former Political Detainees and Restrictees with $315 117 and the Ministry of Small and Medium Enterprises and Co-operative Development.

 

Figure 13: Sub-PMG Account Balances not reconciling with the PFMS Balances

 

The other Ministries had nil variances.

 

 

 

5.0       Implementation of Audit Recommendations

The Auditor-General acknowledged the Ministries which took steps in 2016 to implement her audit recommendations which she made in 2015. Recommendations state what an audit organization believes should be done to accomplish beneficial results. They do not direct what must be done but seek to convince others of what needs to be done. Recommendations should be action-oriented, convincing, well-supported, and effective. When appropriately implemented, they should get the desired beneficial results (United States General Accounting Office).

 

Through their recommendations, Government audit organizations regularly disclose a wide variety of ways to improve Government programmes and operations. The benefit from audit work is not in the recommendations made, but in their effective implementation. Important measures of an audit organization’s effectiveness are the type of issues it tackles and the changes/improvements it is able to effect. In addition, one of an auditor’s basic objectives is to have his/her work make a difference. When a recommendation is made to a Government Ministry or Department, its management is basically responsible for implementing it (United States General Accounting Office).

 

The progress in the implementation of audit recommendations for the various Appropriation Accounts is shown in three diagrams, Figure 14, 15 and 16.

 

Figure 14: Progress in Implementation of Recommendations

The Ministry of Agriculture, Mechanisation and Irrigation Development had fifteen (15) recommendations and only five (5) were fully implemented (Figure 14).

 

Figure 15: Progress in Implementation of Recommendations

 

A commendable number of Ministries managed to achieve a 100% implementation of audit recommendations (Figure 15 and 16). The Ministries are listed below:

 

ü  Office of the President and Cabinet

ü  Macro-Economic Planning and Investment Promotion

ü  Sport, Arts and Culture

ü  Home Affairs

ü  Public Service Commission

ü  Higher and Tertiary Education, Science and Technology Development

 

 

 

 

 

 

 

 

 

 

 

 

Figure 16: Progress in Implementation of Recommendations

 

The overall progress in the implementation of recommendations in Ministries is depicted in Figure 17 below:

 

Figure 17: Overview of Progress in Implementation of Recommendations

 

A total of one hundred and fifty-one (151) audit recommendations were raised for the FY2015. Implemented recommendations constituted 48% and 12% were in progress.

 

 

 

6.0       Conclusion

The Auditor-General’s report indicated that Government Ministries and Departments had various audit opinions. Recommendations should now be effectively implemented so that the Ministries and Departments accomplish unmodified audit opinions and beneficial results. The report also emphasized the fact that achievement of national objectives is hinged on good governance, transparency and accountability. There is also need for all entities to be up to date with reporting their activities.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

References:

 

Chartered Institute of Internal Auditors – CIIA (2016). Accounts Payable.

 

Chartered Institute of Internal Auditors – CIIA (2016). Accounts Receivable.

 

Chartered Institute of Internal Auditors – CIIA (2016). Following up Recommendations/Management Actions.

 

Controller and Auditor-General – New Zealand (2014). Central Government: Results of the 2012/13 Audits (Volume 2).

 

International Auditing and Assurance Standard Boards – IAASB (2014). Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements (Volume 1).

 

Office of the Auditor-General (2017). Report of the Auditor-General for the Financial Year Ended December 31, 2016 on Appropriation Accounts, Finance and Revenue Statements and Fund Accounts.

 

Office of the Auditor-General (2016). Report of the Auditor-General for the Financial Year Ended December 31, 2016 on Appropriation Accounts, Finance and Revenue Statements and Fund Accounts.

 

United States General Accounting Office (1991). How to get Action on Audit Recommendations.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Annexure 1:

Audit Opinions for Appropriation Accounts

 

Key:

Unqualified/Clean Bill

Qualified

Disclaimer

Annexure 2:

Types of Modified Audit Opinions

Source: International Standard on Auditing 705 (ISA 705). International Auditing and Assurance Standards Board (IAASB).

 

Source: International Standard on Auditing 705 (Para. 5). International Auditing and Assurance Standards Board (IAASB).

 

 

 

 

 

 

 

Annexure 3:

Deciding on the Appropriate Form of the Audit Report

Source: Central Government: Results of the 2012/13 Audits (Volume 2) – Controller and Auditor-General (New Zealand).

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