Red flags over Harare City Council's missing financial records

Harare City Council has come under renewed scrutiny after the Auditor-General raised concerns over weaknesses in the financial reporting of its commercial entities, warning that the omissions could undermine the accuracy and transparency of the local authority's financial statements.

In her latest audit report covering the 2022 and 2023 financial years, Auditor-General Vimbai Chikwenhere criticised the council for failing to consolidate the financial statements of its subsidiaries, contrary to public sector accounting standards.

The City of Harare oversees several commercial entities, including Sunshine Holdings, Rufaro Marketing, Harare Quarry and City Parking.

According to the audit report, the council failed to comply with International Public Sector Accounting Standard (IPSAS) 35 – Consolidated Financial Statements, which requires public entities to consolidate the financial statements of subsidiaries into their own accounts.

"The Council did not consolidate its subsidiaries, contrary to IPSAS 35 – 'Consolidated Financial Statements', paragraph 5, which requires the consolidation of subsidiaries in financial statements," Chikwenhere said.

The Auditor-General also noted that the council failed to disclose the carrying value of its investments in subsidiaries such as Harare Sunshine Holdings (Private) Limited, Rufaro Marketing (Private) Limited and Harare Quarry (Private) Limited, contrary to the requirements of IPSAS 38 – Disclosure of Interests in Other Entities.

The report warned that the omissions could result in material misstatements in the council's financial statements and reduce transparency regarding the performance and value of its investments.

Harare City Council's subsidiaries have for years faced criticism over governance and accountability, with concerns that inadequate oversight has created opportunities for financial mismanagement.

The issue also featured prominently during last year's Commission of Inquiry into the affairs of Harare City Council, where evidence suggested that several council-owned companies were operating with weak financial controls and poor governance practices.

Responding to the audit findings, the council said it had taken steps to strengthen oversight by establishing a Business Development Unit to coordinate its commercial entities and improve financial reporting.

The council acknowledged that its financial reporting framework during the period under review did not adequately support the production of segment-based financial information required under IPSAS 18, resulting in financial information being reported on an aggregated basis rather than by individual service delivery segments.

It said the newly established Business Development Unit is responsible for coordinating strategic business units, monitoring their performance and ensuring the submission of financial statements and other financial information required for reporting purposes.

According to the council, the unit has strengthened oversight of investee entities and will improve the collection of information needed for related-party reporting and statutory disclosures.

The local authority also said management is reviewing all investments and investee entities to ensure they are appropriately classified, disclosed and reported in line with IPSAS 35 and IPSAS 38.

In addition, the council said it is strengthening internal processes to facilitate the preparation of consolidated financial statements and maintain comprehensive records of its investments.