3.0 Management Letter 3.1  VAT Returns - Prior Year Issue Unresolved  3.2  Central Medical Stores Receivable - Prior Year Issue Unresolved  3.3 Lease Agreements  The following were some of the significant matters raised by the  auditors and the management responses thereto: The auditors observed that zero rated and exempt sales were not  being recorded on the VAT returns. As a result sales per the VAT  returns were less than the ledger by P2.22 million. Further, it was  noted that the VAT returns were not reconciled to the ledger on  a monthly basis and that the VAT liability as per the VAT return  did not agree with VAT payable as per the ledger by P150 372. Management noted the comment and stated that they were  working around the clock to ensure compliance to the tax act  and had to this end sought advice from experts in order to  mitigate harsh penalties for late payments of taxes.  The auditors observed that Central Medical Stores (CMS) was  disputing some invoices issued to them and were not paying. At  year-end a balance of P6.37 million was reflected as owed by  CMS, but they only confirmed a balance of P4.03 million. This was  highlighted as one of the issues that contributed to the company  being under severe cash flow constraints as it was not receiving  a major portion of the invoices to CMS. In responding for the current year, management stated that the  issue was resolved during the audit because the receivable that  was coming from 2015 had been written off.  The auditors observed that the entity was making monthly lease  payments to related party, i.e. Botswana Postal Services. Documentation relating to these leases was provided but was  however not signed by the other party. The auditors indicated  that the company’s interest would not be protected in the event  of non-compliance with lease terms. This may result in potential  misunderstandings because of lack of documentation to refer to. Management responded by committing to resolving the issue by  31 December 2018.  113 