–As Auditor General savages utility’s accounting
Mohloai Mpesi
THE Water and Sewerage Company (Pty) Ltd (WASCO) suffered a whopping M47.1 million loss in the 2022/23 financial year.
The state-owned utility further recorded a loss on ordinary activities amounting to M279.6 million during the same period.
An ordinary loss occurs when expenses from regular business activities exceed revenues.
These revelations were contained in an audit report by Auditor-General, ’Mathabo Gail Makenete, for WASCO’s financial year ended 31 March 2023.
“…At 31 March 2023, the Company had an accumulated loss of M47.1 million compared to M92.2 million for the previous financial year. The loss on ordinary activities for the year amounted to M279.6 million,” Ms Makenete stated.
“The Board of Directors is not aware of any matters or circumstances arising since the end of the year or otherwise dealt with within this report or annual financial statements that would have a significant effect on the operations or the results of its operations.”
However, Ms Makenete slapped WASCO with a disclaimer opinion — the worst audit opinion an Auditor-General can issue — indicating that she could not obtain sufficient appropriate audit evidence to form an opinion on the company’s financial statements.
She enlisted the services of LETACC, a firm of Chartered Accountants, to assist in scrutinising WASCO’s financial records.
According to the audit report, the company is entangled in a myriad of irregularities, including lack of supporting evidence for figures in the financial statements and records that do not correspond with the statements presented.
Ms Makenete said she could not express an opinion on WASCO’s financial statements due to the absence of sufficient audit evidence.
“I do not express an opinion on the financial statements of Water and Sewerage Company (Pty) Limited. Because of the significance of the matters described in the basis of Disclaimer of Opinion section of the report, I have not been able to obtain sufficient audit evidence to provide a basis for an audit opinion on the financial statements,” she said.
In outlining the basis for the disclaimer, Ms Makenete noted that WASCO was inconsistent in applying its credit policy by assuming that government debtors are 100 percent recoverable.
“When confirming that the provision for doubtful debts has been made consistent with the company’s credit policy, we reviewed the policy and noted that the company assumed government debtors are 100 percent recoverable and therefore no provision was required.
“This meant that government debtors amounting to M39 910 600 were excluded when computing the provision for doubtful debts of M37 004 435.”
She further explained that, during testing of trade receivables, auditors were provided with an age analysis for the year ended 31 March 2023, which showed receivables outstanding for more than one year.
“Trade receivables are recorded under current assets because the company expects to convert them to cash within a year.
“Non-current assets are those that can be liquidated over a period exceeding one year. Therefore, receivables expected to be recovered after more than a year should be classified as non-current assets. These amounted to M135 145 176.”
Ms Makenete also disclosed discrepancies in stock records, resulting in a total variance of M18 351 362.
“During testing of the existence of inventory, quantities recorded in the stock sheet per the system as at 31 March 2023 were compared with the manual count.
“The system used for financial statements preparation reflected 394 972 stock items, while the physical count showed 30 730 items, resulting in a difference of 364 241 items, with a total cost variance of M18 351 362.”
She further revealed that loans from the Arab Bank for Economic Development in Africa (BADEA) did not appear in WASCO’s financial statements and that management failed to provide written agreements between the company and the government.
BADEA loans are provided to support economic and social development, mainly in Sub-Saharan Africa.
“To confirm that interest payable related to loans existing at year-end, it was established that two BADEA loans — BADEA 132 amounting to M22 912 880 and BADEA 133 amounting to M37 097 042 — used in the calculation of interest payable, did not appear in the financial statements.
“Management stated that the loans were classified as grants. However, no written agreement was provided between WASCO and the government of Lesotho confirming that the loans were cancelled and should be recognised as grants under equity. The total amount involved is M60 009 922.”
She added that discrepancies were also identified in government grant balances.
“To confirm that the correct amount had been used in the annual financial statements regarding government grants, amortisation schedule balances were reconciled to closing grant balances, resulting in a total difference of M26 473 891.
“The annual financial statements reflected a balance of M74 190 000, while the submitted schedule indicated a balance of M47 716 109,” she said.
The audit report further highlighted a substantial variance of M206 959 473 between figures in the financial statements and those in the submitted schedules.
“The submitted schedule showed a balance of M132 631 527, whereas the financial statements reflected a balance of M339 591 000,” the report stated.
Ms Makenete also said WASCO failed to provide agreements relating to grants amounting to M100 884 000, which management claimed the company would not repay as the government of Lesotho would service the obligation.
“Total grants disclosed in the annual financial statements include BSCR33-GOL EIB MWWP Loan Repayment amounting to M100 884 000,” she said.
“The related agreement was requested to confirm its existence, but management did not provide it. They explained that the grant relates to an EIB loan still being serviced by the government on behalf of WASCO, yet there is no written agreement stating that the company will not repay the amount to the government and therefore qualify for recognition as a grant.”
She further noted that grant agreements for total grants amounting to M415 734 000 disclosed in the annual financial statements were requested but not provided to the audit team.
On loan confirmations, Ms Makenete revealed a discrepancy of over M58 million relating to the Greater Maseru Water Supply project.
She said the Ministry of Finance and Development Planning confirmed the loan balance at M64 957 000, compared to M6 315 970.27 confirmed by WASCO, resulting in a difference of M58 641 130.
“In order to confirm the existence of loans reported in the financial statements, confirmation letters were sent to the Ministry of Finance.
“The response indicated that only M6 315 970.27 was confirmed for the Greater Maseru Water Supply loan, which differed significantly from the M64 957 000 recorded in the financial statements.”
She added that a loan amortisation schedule amounting to M120 382 000 was requested from WASCO but was not provided to the auditors.
The 2022/23 WASCO audit report is the latest to be prepared by Ms Makenete’s office.
