INTEGRATED ASSIGNMENT
DEPARTMENT X: MANAGEMENT LETTER: REGULARITY AUDIT EXTRACT
The Accounting Officer
Department X
Private Bag X1
Eastern Cape
Dear Mr Tokoza
MANAGEMENT LETTER: REGULARITY AUDIT PERFORMED AT DEPARTMENT X
FOR THE 20X1-x2 FINANCIAL YEAR
Extract:
MATTERS POTENTIALLY AFFECTING THE AUDIT REPORT
- GOODS AND SERVICES
Expense allocated to the incorrect financial period
Audit Finding:
The following invoice was dated 16 of March 20X1 and paid on 6 April 20X1, however was recorded in the 20X2 financial year instead of the 20X1 financial year:
Date of payment / Account description / Vendor / Voucher No. / Amount6-Apr-X1 / F14 - Maintenance of office equipment / Weinvest CC / INV45224 / R200,000
Root Cause:
(Respond)
Risk:
Expenses for the 20X2 financial year will be overstated.
Recommendation:
Exception reports should be drawn where the payment date of the invoice differs from the respective financial period. These exceptions should be followed up by management.
Management Comments:
The delay in the payment of suppliers and creditors is due to our dependency on the XX and lack of the processing function. It will however be ensured that there are regular follow ups on all payments to eliminate such possibilities.
Name: M Seitsho
Date: 16 January 20X2
Designation: Chief Financial Officer
- FIXED ASSETS
Asset register do not agree to the financial statements
Audit Finding:
Assets with a total value of R 2 300 000 on the asset register was not disclosed in the financial statements.
Root Cause:
(Respond)
Risk:
Asset value in the financial statements understated.
Recommendation:
Management should perform monthly reconciliations between the asset register and the general ledger.
Management Comments:
These assets were stolen during the year and were therefore not included in the financial statements.
Name: M Seitsho
Date: 16 January 20X2
Designation: Chief Financial Officer
- PAYROLL
Employees on payroll could not be verified for existence
Audit Finding:
The following employees on the payroll could not be physically verified. There are no employee files for these employees at the HR department.
Name / Employee code / SalaryMr A Mokaila / 653992 / R 24 000 p/m
Me D Hlongwane / 648963 / R 12 000 p/m
Mr F Mphazalala / 639075 / R 5 500 p/m
Root Cause:
(Respond)
Risk:
Possible ghost employees and fraud.
Recommendation:
Payrolls must be verified every month by each departmental manager and also by the HR manager.
Management Comments:
Mr A Mokaila died on 6 August 20X1
The other two employees were transferred to Department Y.
Name: M Kgomotso
Date: 16 January 20X2
Designation: HR Manager
- INCOME
Equitable share on the financial statements does not agree to the allocation as per the DORA.
Audit Finding:
Equitable share differs as follows:
Fund / Source / AmountEquitable share / Financial statements / R 43 000 000
Equitable share / DORA / R 48 000 000
Difference / R 5 000 000
Root Cause:
(Respond)
Risk:
Understatement of income, misallocation, debtors understated.
Recommendation:
Income transfers into the bank account of the municipality should be verified by performing a monthly reconciliation and following up the source of the income to allocate it correctly.
Management Comments:
The treasury has not made the final transfer yet.
Name: M Seitsho
Date: 16 January 20X2
Designation: Chief Financial Officer
- SUPPORTING DOCUMENTATION
Payment vouchers and tender documents not submitted for audit
Audit Finding:
No supporting documentation could be provided for the payment (Cheque Nr: 5679 dated 29 September 20X1) of a consultant namely FGH Consulting Services CC to the value of R 5 000 000. Also no tender documentation could be provided for audit.
Root Cause:
(Respond)
Risk:
Possible violation of supply chain management policies and fraud. Poor file tracking system.
Recommendation:
For any payment, proper supporting documents should be kept for auditing.
Management Comments:
Will look into the issue and respond at a later stage.
Name: M Seitsho
Date: 16 January 20X2
Designation: Chief Financial Officer