REPORT OF THE AUDITOR-GENERAL FOR LOCAL GOVERNMENTS

ON THE ACCOUNTS OF THE EIGHTEEN LOCAL GOVERNMENTS OF

ONDO STATE FOR THE YEAR ENDED 31ST DECEMBER, 2018

STATEMENT OF FINANCIAL RESPONSIBILITY

It is the responsibility of the Heads of Finance and Supply of the eighteen Local
Governments of Ondo State to prepare and present the Financial Statements in accordance
with the provisions of the constitution of the Federal Republic of Nigeria, Ninety (90) days
after the expiration of the financial year.

STATEMENT OF RESPONSIBILITY OF AUDITOR-GENERAL

It is my responsibility to form an independent opinion based on Financial

Statements and accompanying accounts prepared and submitted to me by the Heads of
Finance and Supply of the eighteen Local Governments of Ondo State and to report
thereupon in consonance with the Part II, Section 12 (2) (a-f) of Ondo State Audit Law 2018.

STATE OF ACCOUNTS

Statement of Compliance and Basis of Preparation – IPSAS 1

The Eighteen (18) Local Government areas financial statements have been prepared
in accordance with International Public Sector Accounting Standards (IPSAS). The
financial statements were presented in Nigeria Naira (N) and Kobo (K) which is the
functional and reporting currency of the Local Government areas.

The accounting policies have been consistently applied in preparation of the

Financial Statements, in the year under review. These have been prepared on the basis of
historical cost, and accrual transitional otherwise stated. The cash flow statement was
prepared using the direct method.

The accounts of the eighteen Local Governments of the Ondo State have been
audited and reported upon. Audit noted a great level of non-compliance with laid down
procedures of retirement of payment vouchers as contained in Financial Memorandum
1
chapter 14 Paragraph 4-10. This development is against probity, accountability and
prudency that are hallmarks of good accounting system and good governance. The
Inspection Reports for year 2018 had been issued and forwarded to the appropriate
quarters as required.

(a) REVENUE ACCOUNTS

Revenue Recognition

(i) Revenue from Non-Exchange Transactions –IPSAS 23

Fees, taxes and fines: The Local Governments recognized fees, taxes and fines when the
event occurs and the asset recognition criteria are met. To the extent that there was a
related condition attached that was given rise to a liability to repay the amount, deferred
income was recognized instead of revenue. Other non-exchange revenues were recognized
when it was probable that the future economic benefits or service potential associated with
the asset flow to the Local Governments’ accounts and the fair value of the assets were
measured reliably. The eighteen Local Government generated and recognized Two
hundred and four million, eight hundred and fifty-three thousand, three hundred and
sixty-six naira, forty-seven kobo(N204,853,366.47) in year 2018 financial year.

(ii) Revenue from Exchange Transactions – IPSAS 9

Rendering of services: The local governments recognized revenues from services

rendered by reference to the stage of completion when the outcome of the transaction can
be estimated reliably. Where the contract outcome could not be measured reliably, revenue
was recognized only to the extent that the revenues potential associated with the
transactions was flow to the local governments’ accounts. The eighteen Local Government
earned and recognized thirteen million, two hundred and forty-four thousand, four
hundred naira, (N13,244,400.00).

(b) Receivables from Exchange Transaction and Non-Exchange Transaction-IPSAS 9

and 23

Receivable from exchange transactions were recognized initially at fair value and
subsequently measured at amortized cost using the effective interest method, less
provision for impairment. A provision for impairment of receivables was established when
there was objective evidence that the Local Governments would not be able to collect all
amounts due according to the original terms of the receivables.
2
 A total sum of nineteen billion, seven one hundred and ninety-five million, two
hundred and eighty-nine thousand, one hundred and sixty-one naira, thirty-four kobo
(N19,195,289,161.34) only was earned as total Revenue as at 31st December, 2018 out of
which only 4% - two hundred and four million, five hundred and eighty-seven
thousand, three hundred and sixty-six naira, forty-seven kobo (N204,587,366.47) only
was generated as independent revenue by the eighteen Local Governments. Besides, it was
observed in the Financial Statements that insignificant improvement in the independent
revenue of the eighteen Local Governments was noticed when compared with year 2017
revenue generation. The Management of the eighteen Local Governments should ensure
that numerous potential revenue sources available to the Council should be harnessed.
Deliberate efforts should be made to improve upon the independent revenue to be earned
by the Local Governments.

Audit observed that the proportion of revenue bases contracted out to consultants
by some of the Local Governments were not encouraging when compared their
performances with the budgeted provisions during the financial year under review.

The following deficiencies were noticed:-

(i) Remittance were not made as agreed.

(ii) Appropriate records/accounts were not prepared as required by

the Standards.

(iii) Losses of funds were recorded

All the aforementioned problems contributed immensely to poor independent

revenue earned during the financial year under review. Audit is of the opinion that all the
Local Governments should stop the engagement of consultants in this category and make
use of their staff (Revenue Collection Officers) under thorough supervisions.

(c) RECEIVABLES/PAYABLES

A total sum of three billion, eight hundred and eighty-one million,

seventy-four thousand, six hundred and fifty-five naira, twenty-one
(N3,881,074,655.21) kobo only, and three billion, five hundred and seventy
million, nine hundred and eighty thousand, one hundred and thirty-five naira,
nineteen (N3,570,980,135.19) kobo only were accrued as receivables and
3
payables respectively during the period under review. Audit observed that the amount
proposed for payment of salaries and wages as against the amount paid in the financial
year under review constituted the greater proportion of the receivables /payables noted in
the financial statement.

(d) STATEMENT OF CHANGES IN NET ASSET/EQUITY

During the year under review, all the eighteen Local Governments prepared
and presented statements of changes in net asset/equity purposely to correct all
errors, omissions, and variances detected after year 2017 financial statement had
been closed and approved by the appropriate authorities.

It was observed that a total sum of one hundred and twenty-two million, six
hundred and fifty-five thousand, three hundred and ninety-five naira, ninety-six
kobo (N122,655,395.96) only was recorded as salaries and wages’ variances. Audit
observed that the consolidated statement of change in Net Asset/Equity prepared
and presented reflected receivables of three billion, eight hundred and eighty-one
million, and seventy-four thousand, six hundred and fifty-five naira, twenty-one
kobo (N3,881,074,655.21) only while payables amounted to three billion, five
hundred and seventy million, nine hundred and eighty thousand, one hundred
and thirty-five naira, nineteen kobo (N3,570,980,135.19) only. The analysis of
these variances were stated in Appendix ‘C’ - see attached Adjusted Trial Balance.

(e) REVALUATION OF ASSETS

Assets of the eighteen Local Governments were revalued as expected by the

Standard (IPSAS 16 and 17). It was observed that the total sum of twenty-nine
million, seven hundred and six thousand, twenty-two naira, fifty-eight
(N29,706,022.58) kobo only accrued as the Revaluation Gains as at 31st
December, 2018. This was reflected under the non-operating activities in the
statement of Financial Performance for the period - see attached Consolidated
Trial Balance.(Appendix ‘A’).

(f) RESERVES
 The reserves of the eighteen Local Governments stood at nine billion,

two hundred and thirty-four million, seven hundred and sixty-seven thousand,
seven hundred and eleven naira, fifty-seven kobo (N9,234,767,711.57) only during
the financial year under review – see individual statement of financial position of
the eighteen Local Governments for the details; note 17

(g) BUDGET INFORMATION – IPSAS 24

The annual budget was prepared on the accrual basis that is, all planned costs and
incomes presented in a single statement to determine the needs of the Local Government.
As a result of the adoption of the accrual basis for budgeting purposes, it stated the
differences that arise from reconciliation between the actual comparable amounts and the
amounts presented as separate additional financial statement in the statement of
comparison of budget and actual amounts.

Statement of comparison for Budget and Actual for the year ended 31st December, 2018,
prepared and presented reflected some anomalies. The amount budgeted by all the
eighteen Local Governments did not show the correct position of dependent revenue
expected in the Financial Statements. Thirty-six billion, five hundred and thirty-six
million, nine hundred and sixty-one thousand, five hundred and sixty-five naira, and
three (N36,536,961,565.03) kobo only was budgeted while sixteen billion, twenty-four
million, and fifty-six thousand, four hundred and eighty- three naira, twenty-three kobo
(N16,024,056,483.23) only was earned. The total sum of twenty-two billion, three hundred
and seventy million, one hundred and fifty thousand, three hundred sixty-two naira,
fifty-nine (N22,370,150,362.59) kobo only was budgeted for the re-current expenditures
but sixteen billion, four hundred and forty-seven million, nine hundred and four
thousand, one hundred and eleven naira, sixty-six kobo (N16,447,904,111.66) only was
actually incurred, and sixteen billion, two hundred and ninety-eight million, three
hundred and twenty-eight thousand, seven hundred and twenty-eight naira, thirty-seven
kobo (N16,298,328,728.37) only was spent in the year 2017. There was no justification for
this position.

Besides, it was observed that some Local Governments have not strictly adhered
to the National Chart of Accounts that is presently in place for the preparation of budget.
This attitude should be discouraged.
5

(h) FISCAL OPERATION REPORT (FOR)

 i. The Personnel Expenses: Total recurrent expenditures ratio shows that
92% of revenues were incurred on salaries and wages of the eighteen
Local Governments. Therefore the personnel expenditure took greater
percentage of total expenditure for the period.

ii. Current Ratio: The Current asset: Current liabilities resulted to ratio
1:1.16 It means current liabilities was 1.16 times, more than current
Assets. The current creditors could not be guaranteed.

iii. Equity : total Assets:- It was observed that the ratio of equity to total
assets yielded 74%. The implication of this is that each asset of the
Local Government yielded 26% to the economy of the Local
Governments.

iv. During the 2018 financial year, it was observed that capital
expenditure in the Local Governments took less than 1.6%. The
greater percentage of revenue earned were spent on recurrent
expenditures most especially salaries and wages. This was not
good enough for the development of the Local Government area.

(I) INTERNAL CONTROL AND INTERNAL CHECK

During the period under review, the Internal Audit of the eighteen Local
Governments of Ondo State was not effective in operation as expected by the audit
as most of the lapses observed by Audit Inspection officers ought to have been
discovered and corrected. In reality, the internal control system in all the eighteen
Local Governments in Ondo State was weak. None of the Internal Auditors wrote
quarterly reports for the attention of their Chairman and the Auditor-General
during the period under review. In the light of the foregoing, Internal Auditors in
all the Local Governments must be made to be alive to their responsibilities
henceforth.

(j) CONTROL OVER EXPENDITURES

 (i) Current Queries

It would appear that sufficient control has not been exercised over
expenditures incurred by the Local Governments authorities. The extra-budgetary
expenditures during this period was sixty-eight million, two hundred and seventy-
two thousand, three hundred and seventeen naira, sixty-nine kobo
(N68,272,317.69) only See Appendix ‘E’.

(ii) Investment Property – IPSAS 16

Investment properties were measured initially at cost, including transaction

costs. The carrying amount includes the replacement cost of components of an existing
investment property at the time that cost were incurred if the recognition criteria are met
and excludes the cost of day-to-day maintenance of an investment property. The carrying
amount of investment properties of the eighteen local government amounted to two
hundred and ninety-six million, eight hundred and sixty-nine thousand, nine hundred
and three naira, twenty-seven kobo (N296,869,903.27) only in the statement of financial
position.

Investment properties acquired through a non-exchange transaction were measured at its

fair value at the date of acquisition. Subsequent to initial recognition, investment
properties were measured using the cost model and were depreciated over a 50-year
period as applicable.

Investment properties for the financial year were derecognized either when they have
been disposed of or when the investment properties were permanently withdrawn from
use or no future economic benefit or service potential were expected from its disposal. The
difference between the net disposal proceeds and the carrying amount of the assets were
recognized in the surplus or deficit in the period of de-recognition.

7
(iii) Property, Plant and Equipment – IPSAS 17

All properties, plants and equipment were stated at cost less accumulated
depreciation and impairment losses. Cost includes expenditures that was directly

attributable to the acquisition of the items. The carrying amount of PPE of the eighteen

Local Government in the year under review amount to nine billion, and seventy-nine
million, seven hundred and ninety-five thousand, four hundred and eighty-eight naira,
twenty kobo (N9,079,795,488.20) only after the accumulated depreciation has been
deducted. When significant parts of properties, plants and equipment were required to be
replaced at intervals, the Local Governments recognize such parts as individual asset with
specific useful lives and depreciates them accordingly.

All other repair and maintenance costs were recognized in Statement of Financial
Performance as incurred, to ascertain surplus or deficit. Where an asset was acquired in a
non-exchange transaction for nil or nominal consideration the asset was initially measured
at its fair value.

Depreciation on assets were charged on a straight-line basis at rates calculated to allocate

the cost or valuation of the assets less any estimated residual value over their remaining
useful life:

Particulars Life

Buildings 50 years

Machinery 10-20 years

Furniture and fixtures 5 years

Vehicle 5 years

Office Equipment 3 years

ICT 3 years

8
ia. CAPITAL DEVELOPMENT FUND(CDF) – STATEMENT 4

It was observed that Statements of Capital Development Fund

prepared by each of the Head of Finance and Supply of the eighteen Local
Government in Ondo State. The consolidated Capital Development Fund
amounted to three hundred and twelve million, one hundred and ninety
thousand, eight hundred and forty eight naira, fifty kobo (N312,190,848.50)
only. This is about 1.6% of total revenue in the year under review.

The total sum expended on Capital Projects during the year under review
was three hundred and forty-five million, four hundred and fifty-one
thousand, five hundred and fifty-nine naira, thirty-nine kobo
(N345,451,551,559.39) only and this sum was sourced from State – Local
Government Joint Allocation Accounts Committee (SLG/JAAC Account)
transferred from JAAC Account. All the projects were verified in line with
concept of performance Audit.

ib GENERAL PURPOSE FINANCIAL STATEMENT (GPFS)

The Financial Statement was prepared by each of the Local Government where
all funds allocated by the State Local Government/Joint Allocation Account
Committee (SLGJAAC) was recognized in the Financial Statements prepared by all
eighteen Local Governments which was also consolidated. - See consolidated
Financial Statements for the year ended 31st December, 2018. (Pages 11 – page 23)
(k) Subsequent Events – IPSAS 14

There was an event subsequent to the financial year and with a significant impact on the
financial statements. Receivables recognized in the General Purposes Financial Statements
was reduced as a result of event after reporting dated amount to three billion, five
hundred and seventy million, and seventy-four thousand, six hundred and fifty-five
naira, twenty-one kobo (N3,881,074,655.21) only, while payable amounted to three billion,
five hundred and seventy million, nine hundred and eighty thousand, one hundred and
thirty-five naira, nineteen kobo (N3,570,980,135.19) only.

(l) Capital Grant

During the period under review, it was discovered that the sum of three hundred
and forty-one million, five hundred and ten thousand, six hundred and twenty-five
naira, eighty-one kobo (N341,510,625.81) only was expended as Capital Grant; this was
used for the construction of One (1) km road in each local government. This contributed to
the equity of the eighteen local governments in year 2018.

The working-in-progress (WIP) for the year under review amount to one hundred and
four million, three hundred and thirty-eight thousand, nine hundred and seventy naira,
forty-four kobo (N104,338,970.44) only. This is about 30% of Capital grant expended for
the period.

(m) OUTSTANDING QUERIES

Audit is not pleased with some items of expenditures made in previous years

(2010 - 2017) amounting to four hundred and forty- two million, five hundred and forty-
two thousand, and twenty-one naira, twenty-five kobo (N442,542,021.25) only in which
Audit queries were raised. These are yet to be responded to by the Local Governments.
See APPENDIX ‘F’ for details. Audit therefore, is of the opinion that Accounting officers
should henceforth take Audit queries with utmost seriousness it deserves, as Audit will
not hesitate to sanction any erring officer forthwith.

9
(n) DEVELOPMENT INITIATIVES
 In line with this office corporate plan of being in a high performance and model
organization. Audit is a continuous improving structures to ensure better and efficient
performance that strengthens office of the Auditor-General for Local Government’s
operations. This is through a systematic evaluation to improving the effectiveness of risk-
management, control and good governance processes.
During the period of reporting, training was conducted on practical approach to the
implementation of first set of standards and the latest set of standards put in place by
IPSASB for the public sector. In addition, on the jobs trainings was also conducted.

STATEMENT OF OPINION OF AUDITOR-GENERAL FOR LOCAL GOVERNMENTS.

In compliance with Part II, section 12 (2) (a-f) of Ondo State Audit Law 2017,

I have examined the Accounts and Financial Statements of the eighteen Local Governments
of Ondo State of Nigeria for the year ended 31st December, 2018.

The Audit was conducted in accordance with Ondo State Audit Manual 2017,
Generally Accepted Auditing Standards and in accordance with Public Administration
Law No.2 of 1978. In addition, Projects and Programmes were verified in line with the
concept of performance Audit.

I have obtained relevant information and explanation that I required, and that in my
own opinion, the statements of Financial Position as well as supporting accounts and
statements exhibit a true and fair view of the State of affairs of the eighteen Local
Governments of Ondo State as at 31st December, 2018 subject to the observations and
comments contained in the body of this reports.

ADARAMOLA F.O (FCA)

Auditor-General for Local Governments
Ondo State

10

AUDIT CERTIFICATE
 It is the responsibility of the Director of Finance and Supply of each of the
eighteen Local Government to prepare the Financial Statements, while it is my
responsibility to form an independent opinion based on my audit of those statements and
to report the opinion. The Financial Statements were prepared in line with International
Public Sector Accounting Standard (Accrual Basis).

The Audit was conducted in accordance with the International Standards on

Auditing (ISA), the Ondo State Public Finance Management Law and Ondo State Public
Audit Law, 2017. In addition, projects and programmes were verified in line with the
concept of value for money audit.

The Audit was also carried out in line with International Supreme Audit
Institutions (INTOSAI) guidelines, where INTOSAI code of ethics and Auditing
Standards was critically observed in the year under review. The International
Organization of Auditing and Assurance Standards Board’s (IAASB) procedures was
followed. It was observed that International Standards for Supreme Audit Institutions
(ISSAIs) was also considered in the course of preparation and presentation of the Financial
Statements of each Local Government by the Head of Finance and Supply.

The audited report was issued to Ondo State House of Assembly, the

State Governor, and all concern authorities in accordance with the relevant

Statutory Provision of the Law.

I have obtained relevant information and explanation that was required

and I certify as a result of my audit, that in my own opinion, the Financial Statements

were properly drawn up so as to exhibit a true and fair view of the state of financial

affairs of Ondo State Government as at 31st December, 2018 subject to the observations

and comments contained in the main body of this report.

ADARAMOLA F.O (FCA)

Office of the State Auditor General
for Local Governments

10a