Mohloai Mpesi
THE Lesotho Electricity Company (LEC)’s Urban Distribution Rehabilitation and Transmission Expansion Project (UDRTEP) is grappling with a hefty M5 million Value Added Tax (VAT) liability.
This is according to the Auditor-General Mathabo Makenete’s audit report for the year ending 31 March 2025. The report was forwarded to the Minister of Natural Resources, Mohlomi Moleko, on 30 September 2025 for presentation to Parliament, in line with section 44(1) of the Public Finance Management Act, 2011, and section 28 of the Audit Act, 2016.
The UDRTEP, funded by the African Development Bank, aims to upgrade and rehabilitate electricity infrastructure to improve network reliability and expand access. Key components of the project include strengthening the urban distribution network and extending transmission lines.
The report revealed several financial missteps, including non-compliance with section 27(1) of the Lesotho VAT Act, 2001. As a result, Ms Makenete issued a qualified audit opinion over the project.
A qualified opinion is issued when auditors identify misstatements in financial statements that are significant but not pervasive.
“I have audited the financial statements of the Urban Distribution Rehabilitation and Transmission Expansion Project (UDRTEP) for the year ended 31 March 2025. Except for the matters stated in the Basis for Qualified Opinion section, the financial statements present fairly, in all material respects, the financial position of the Project, its financial performance, and cash flows in accordance with International Public Sector Accounting Standards (IPSAS) and the Project Financing Agreement,” the report reads.
The VAT liability has escalated sharply, growing from M535 345 in 2020 to M5 603 586 by March 2025.
“The Project materially failed to comply with section 27(1) of the Lesotho VAT Act, which requires vendors to file a VAT return within 20 days after the end of each tax period. As at 31 March 2025, the Project had an outstanding VAT liability of M5 603 586.”
The report also highlights the directors’ acknowledgment of their responsibility for internal financial controls.
“The Directors acknowledge their ultimate responsibility for the Project’s internal financial controls and place considerable importance on maintaining a strong control environment. The Project Steering Committee has set standards to reduce risks of error or loss, including proper delegation, effective accounting procedures, and adequate segregation of duties,” the report reads.
It also states that while internal controls provide reasonable assurance for reliable financial records, they cannot guarantee absolute protection against misstatements or losses.
“The Directors believe that the systems of internal controls provide reasonable assurance that financial records are reliable for preparing financial statements. They have reviewed the Project’s cash flow forecast for the year ending 31 March 2026 and are satisfied that the Project has adequate resources to continue operations for the foreseeable future.”
The report further emphasises that internal controls are continuously monitored, with all employees expected to maintain high ethical standards. Risk management focuses on identifying, assessing, managing, and monitoring risks across the Project.
“While operating risk cannot be fully eliminated, the Project minimizes it through appropriate infrastructure, controls, systems, and ethical behaviour,” the report states.