NBC bosses paid N$750 000 above pay cap
Government subsidies misclassified as grants
Auditors say the unapproved salaries violated public enterprises laws and undermined the line minister's authority.
Managers at the Namibian Broadcasting Corporation (NBC) were remunerated up to N$750 000 above the approved remuneration bands, in violation of the Public Enterprises Governance Act of 2019, and without the required concurrence from the relevant minister, auditor general Junias Kandjeke revealed.
This finding is detailed in NBC’s audit report for the financial year ended 31 March 2023. Kandjeke noted that due to the significance of the issues outlined in the basis for adverse audit opinion paragraph, the financial statements do not present a true and fair view of NBC’s financial position as at 31 March 2023, nor of its financial performance and cash flows for the year ended.
This conclusion is based on the International Financial Reporting Standards (IFRS) and the Namibian Broadcasting Corporation Act, 1991 (Act No. 9 of 1991).
“The auditors noted that some members of management were remunerated N$750,698 above the remuneration bands as per Section 4 of the Public Enterprises Governance Act, 2019 (Act No. 1 of 2019), which directs that the remuneration and other service benefits of the CEO and other management staff of a public enterprise must be determined by the board of the public enterprise with the concurrence of the relevant minister, with due regard to any directives laid down by the minister under Section 4. [NBC] has not obtained the minister's concurrence as required by the Act,” Kandjeke wrote.
Leave provision under scrutiny
The auditor general further observed that NBC’s human resources policy allows staff to carry forward up to 90 days of leave into the next cycle.
“However, the corporation only provided for leave days up to 45 days based on [NBC] application that is pending legal declaration by the Labour Commissioner at the year end, and yet the corporation has not changed the policy for settling the leave days of up to maximum of 90 days on termination of employment or retirement as at reporting date,” he added.
The relevant IFRS standard states that the amount recognised as a provision shall be the best estimate of the expenditure required to settle the present obligation at the end of the reporting period. The best estimate of the expenditure required to settle the present obligation is the amount that an entity would rationally pay to settle the obligation at the end of the reporting period or to transfer it to a third party at that time.
Impairment assessment of assets
The report also indicated that NBC budgeted for future operating losses and net cash outflows but failed to conduct an impairment assessment of its non-financial assets valued at N$245 million (2022: N$232 million), as required under IAS 36 paragraph 14.
“Consequently, the auditors were unable to obtain sufficient appropriate audit evidence about the recoverable amount of the NBC's non-financial assets with a carrying amount of N$245 million (2022: N$232 million) in terms of IAS [International Accounting Standards] 36 paragraph 14, which states that: evidence from internal reporting that indicates that an asset may be impaired includes the existence of actual net cash flows or operating profit or loss flowing from the asset that are significantly worse than those budgeted, a significant decline in budgeted net cash flows or operating profit, or a significant increase in budgeted loss, flowing from the asset; or operating losses or net cash outflows for the asset, when current period amounts are aggregated with budgeted amounts for the future.”
Misclassification of government subsidies
In another finding, the auditors flagged the treatment of operational subsidies received from the government. NBC received subsidies of N$372 million in 2023 and N$334 million in 2022 from the Ministry of Information and Communication Technology, which were recorded as government grants in the statement of comprehensive income, instead of as equity in the statement of changes in equity.
“The corporation received operational subsidies of N$372 million (2022: N$334 million) from the Ministry of Information and Communication Technology that were accounted for as government grant in the statement of comprehensive income instead of equity in the statement of changes in equity as per the requirements of IAS 20.2(c) read with IAS 1.106 (d)(ii). The subsidies were made by the government whilst acting in their capacity as shareholders of the entity. Consequently, the auditors could not obtain sufficient appropriate audit evidence with regards to the presentation and disclosure of shareholder funding and related financial statement areas in the annual financial statements.”
Going concern risk remains
Kandjeke added that the audit identified key matters that were of most significance to the current financial period, based on his professional judgment. “These matters were addressed in the context of the audit of the financial statements as a whole, and in forming the audit opinion thereon, and I do not provide a separate audit opinion on these matters,” he said.
“Attention is drawn to the statement of financial position, which indicates that the Corporation has net current liabilities of N$246 million (2021: N$323 million), and note 30 of the annual financial statements that indicate that the ability of the corporation to continue trading as a going concern into foreseeable future is dependent on the Corporation having adequate resources if Government guarantees adequate subsidy to continue in business for the foreseeable future. The audit opinion is not qualified in respect of this matter,” he wrote.
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This finding is detailed in NBC’s audit report for the financial year ended 31 March 2023. Kandjeke noted that due to the significance of the issues outlined in the basis for adverse audit opinion paragraph, the financial statements do not present a true and fair view of NBC’s financial position as at 31 March 2023, nor of its financial performance and cash flows for the year ended.
This conclusion is based on the International Financial Reporting Standards (IFRS) and the Namibian Broadcasting Corporation Act, 1991 (Act No. 9 of 1991).
“The auditors noted that some members of management were remunerated N$750,698 above the remuneration bands as per Section 4 of the Public Enterprises Governance Act, 2019 (Act No. 1 of 2019), which directs that the remuneration and other service benefits of the CEO and other management staff of a public enterprise must be determined by the board of the public enterprise with the concurrence of the relevant minister, with due regard to any directives laid down by the minister under Section 4. [NBC] has not obtained the minister's concurrence as required by the Act,” Kandjeke wrote.
Leave provision under scrutiny
The auditor general further observed that NBC’s human resources policy allows staff to carry forward up to 90 days of leave into the next cycle.
“However, the corporation only provided for leave days up to 45 days based on [NBC] application that is pending legal declaration by the Labour Commissioner at the year end, and yet the corporation has not changed the policy for settling the leave days of up to maximum of 90 days on termination of employment or retirement as at reporting date,” he added.
The relevant IFRS standard states that the amount recognised as a provision shall be the best estimate of the expenditure required to settle the present obligation at the end of the reporting period. The best estimate of the expenditure required to settle the present obligation is the amount that an entity would rationally pay to settle the obligation at the end of the reporting period or to transfer it to a third party at that time.
Impairment assessment of assets
The report also indicated that NBC budgeted for future operating losses and net cash outflows but failed to conduct an impairment assessment of its non-financial assets valued at N$245 million (2022: N$232 million), as required under IAS 36 paragraph 14.
“Consequently, the auditors were unable to obtain sufficient appropriate audit evidence about the recoverable amount of the NBC's non-financial assets with a carrying amount of N$245 million (2022: N$232 million) in terms of IAS [International Accounting Standards] 36 paragraph 14, which states that: evidence from internal reporting that indicates that an asset may be impaired includes the existence of actual net cash flows or operating profit or loss flowing from the asset that are significantly worse than those budgeted, a significant decline in budgeted net cash flows or operating profit, or a significant increase in budgeted loss, flowing from the asset; or operating losses or net cash outflows for the asset, when current period amounts are aggregated with budgeted amounts for the future.”
Misclassification of government subsidies
In another finding, the auditors flagged the treatment of operational subsidies received from the government. NBC received subsidies of N$372 million in 2023 and N$334 million in 2022 from the Ministry of Information and Communication Technology, which were recorded as government grants in the statement of comprehensive income, instead of as equity in the statement of changes in equity.
“The corporation received operational subsidies of N$372 million (2022: N$334 million) from the Ministry of Information and Communication Technology that were accounted for as government grant in the statement of comprehensive income instead of equity in the statement of changes in equity as per the requirements of IAS 20.2(c) read with IAS 1.106 (d)(ii). The subsidies were made by the government whilst acting in their capacity as shareholders of the entity. Consequently, the auditors could not obtain sufficient appropriate audit evidence with regards to the presentation and disclosure of shareholder funding and related financial statement areas in the annual financial statements.”
Going concern risk remains
Kandjeke added that the audit identified key matters that were of most significance to the current financial period, based on his professional judgment. “These matters were addressed in the context of the audit of the financial statements as a whole, and in forming the audit opinion thereon, and I do not provide a separate audit opinion on these matters,” he said.
“Attention is drawn to the statement of financial position, which indicates that the Corporation has net current liabilities of N$246 million (2021: N$323 million), and note 30 of the annual financial statements that indicate that the ability of the corporation to continue trading as a going concern into foreseeable future is dependent on the Corporation having adequate resources if Government guarantees adequate subsidy to continue in business for the foreseeable future. The audit opinion is not qualified in respect of this matter,” he wrote.
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