Audit evidence deemed insufficient at several local authorities
Auditor general issues disclaimers of opinion due to municipal corporations’ failure to submit appropriate documents
Published:Tuesday | January 21, 2025 | 12:06 AMEdmond Campbell/Senior Staff Reporter
The failure of several municipal corporations to submit financial statements with audit evidence, and other records to support transactions and account balances in the handling of billions of taxpayers’ money, has resulted in Auditor General Pamela Monroe Ellis dishing out disclaimers of opinion for at least six local authorities.
A cloud now hangs over the Hanover, Clarendon, Westmoreland, St Mary, St James and Portmore municipalities, for which the auditor general declared she was unable to express an opinion on their financial statements.
A disclaimer of opinion is issued when the auditor is unable to obtain sufficient appropriate audit evidence on which to base the audit opinion, and the auditor concludes that the possible effects on the financial statements of undetected misstatements, if any, could be both material and pervasive.
Significant challenges
For the Clarendon Municipal Corporation (CMC), the auditor general said she was unable to “express an opinion on the financial statements due to the pervasive absence of sufficient and appropriate audit evidence to support the transactions, account balances and disclosures in the financial statements”.
The auditor general had audited the financial statements for four fiscal years spanning 2011-2012 to 2014-2015. Over this period, the municipality handled revenues amounting to more than $1 billion and expenditure of $2.42 billion.
The management of the municipality indicated that due to the age of the financial statements, there were significant challenges in providing some source documents within the time frame in which the audit needed to be executed.
As a result, the auditor general was unable to perform key audit procedures to determine whether the transactions, account balances, and disclosures were fairly presented in the financial statements.
However, the auditor general said she disagreed with the management’s assertion that the timeline given to provide the relevant documents/records was inadequate.
The auditor general states that the department’s records revealed that a letter, dated October 18, 2017, was sent to the CMC requesting the relevant documents to facilitate the audits for the financial years 2008-2009 to 2012-2013.
The fieldwork for these audits was scheduled to end on January 26, 2018. However, as at February 16, 2018, the audits for financial years 2010-2011 to 2012-2013 were delayed due to management’s failure to provide the relevant documents in a timely manner to facilitate the completion of the audit of the 2010-2011 financial statements.
A follow-up letter, dated November 7, 2022 was sent to the CMC requesting information for the financial years 2010-2011 to 2014-2015. This was followed by a letter dated December 9, 2022 from the permanent secretary in the Ministry of Local Government to all municipal corporations, requesting that the chief executive officers give priority to completing all the outstanding financial statements.
According to the auditor general, a meeting was subsequently held on August 8, 2023 between the audit team and the management of the CMC, where the audit approach and the proposed timeline for the audits were discussed.
She said the minutes of that meeting did not record any objections from management in relation to the proposed timeline.
Despite attempts to complete these audits, starting from as far back as 2017, management was still not able to provide sufficient and appropriate evidence to support all the relevant transactions and balances selected for testing.
Theft and damage of computers
In the case of the Portmore municipality, the auditor general could not express an opinion on the financial statements due to “the pervasive absence of sufficient and appropriate audit evidence to support the transactions, account balances and disclosures in the financial statements”.
The financial years for which an opinion could not be expressed covered the period 2014-2015 to 2016-2017. For the three financial years, the municipality pulled in revenue amounting to $1.28 billion and handled expenditure of $1.22 billion.
The management of the municipality told the auditor general that it was unable to confirm the completeness and accuracy of the general ledgers and trial balances that were submitted, due to an incident that occurred in September 2017, resulting in the theft and damage of its computer hardware.
“As a result, I was unable to perform key audit procedures to determine whether the transactions, balances, and disclosures were fairly presented and complied with the relevant financial reporting framework,” Monroe Ellis said.
At the St Mary Municipal Corporation, the management reported that they could not locate the majority of the accounting records due to the lapse of time. This relates to the financial years spanning 2011-2012 to 2014-2015. During this period, the corporation handled nearly $2 billion in revenue and $2.06 billion in expenditure.
Management subsequently indicated that the “corporation will continue to conduct a deep dive into all storage areas to retrieve the documents that were not located in time for the short audit period. When located, they will be presented to the department”.
In relation to the Westmoreland Municipal Corporation, the management reported that for the 2013-2014 fiscal year, the local authority was unable to locate/retrieve some financial documents/records as they were illegible, damaged, or lost.
System failure
The St James Municipal Corporation indicated that it was unable to provide the relevant accounting records to support the significant account balances, transactions, and disclosures in the financial statements due to a system failure, which resulted in the loss of accounting information for the periods under review.
Additionally, management indicated that they were unable to locate some of the supporting documents due to the passage of time. As a result, the auditor general said she could not perform key audit procedures to determine whether the transactions, account balances, and disclosures were fairly presented in the financial statements for fiscal years 2014-2015 to 2017-2018. The sums under review for the period include revenue of $4.79 billion and expenditure amounting to almost $5 billion.
The management at the Hanover Municipal Corporation (HMC) reported that it could not provide the majority of the accounting records to support the significant account balances, transactions, and disclosures in the financial statements. It said this was due to the passage of time and an IT system failure that occurred in December 2022, which resulted in the loss of accounting information for the periods under review.
Monroe Ellis said the HMC was not able to confirm the accuracy and completeness of the financial reports that were submitted for audit.
The municipality further stated it was “unable to satisfy some of the requests made by the Auditor General’s Department for information due to” among other things, “the inadequacy of the time that was given to provide documents and related information dating back to several years”.
However, the auditor general disagreed with management’s response that the time given to provide the relevant documents was inadequate.
She said an audit commencement letter was sent to the HMC on December 6, 2022 requesting the relevant documents to facilitate the audits. This was followed by the December 9 letter from the permanent secretary in the Ministry of Local Government to all municipal corporations.
A follow-up letter was sent to the corporation on January 13, 2023. The corporation subsequently responded via a letter dated February 20, 2023 indicating that their accounting software had malfunctioned, resulting in the loss of all data. Consequently, the corporation was unable to retrieve both historic and current information for the periods to be audited.
At the time of reporting, the auditor general said 86 financial statements had not been submitted by the responsible officers, as mandated by the Local Government (Financing and Financing Management) Act.