The Republic of Uganda Office of the Auditor General

THE REPUBLIC OF UGANDA

OFFICE OF THE AUDITOR GENERAL

ANNUAL REPORT OF THE AUDITOR GENERAL

FOR THE YEAR ENDED 30TH JUNE 2010

VOLUME 4

STATUTORY CORPORATIONS 1

Table of Contents List of Tables and Figures ...... 5 List of Acronyms and Abbreviations ...... 6 PART ONE...... 9 1.1 Responsibility of the Auditor General and Legal Framework ...... 9 1.2 Status of Accounts audited during the year ...... 11 1.3 Audits in progress ...... 21 1.4 Summary of major audit findings of the report ...... 22 1.5 Regional audits ...... 39 1.6 Status of business before COSASE...... 40 PART TWO ...... 42 FINANCE AND PLANNING SECTION ...... 42 2.1 Bank of Uganda ...... 42 2.2 Uganda Apex Private Enterprise Loan Scheme ...... 58 2.3 Uganda DevelopmenT Bank ...... 62 2.4 Post Bank Limited ...... 70 2.5 Uganda Development Company Limited...... 77 2.6 National Social Security Fund ...... 78 2.7 Public Procurement and Disposal of Public Assets Authority ...... 84 2.8 Uganda Bureau of Statistics ...... 88 2.9 Posta Uganda Limited ...... 90 2.10 National Housing and Construction Company Limited ...... 100 2.11 Uganda Insurance Commission ...... 102 2.12 National Planning Authority ...... 104 2.13 Capital Markets Authority ...... 109 2.14 Uganda Revenue Authority ...... 111 2.15 Divestiture & Redundancy Accounts ...... 132 AGRICULTURE & FORESTRY SECTION ...... 135 2.16 National Animal Genetic Resource Centre & Data Bank ...... 135 2.17 Uganda Coffee Development Authority ...... 141 2.18 Cotton Development Organisation ...... 144 2.19 Coordinationg Office for the Control of Trypanosomiasis in Uganda ...... 145 2.20 Dairy Development Authority ...... 151 2.21 National Forestry Authority ...... 153 2.22 National Water and Sewerage Corporation ...... 170 2.23 National Drug Authority ...... 178 2.24 Joint Research Clinical Centre ...... 180 HEALTH SECTION ...... 187 2.25 National Medical Stores ...... 187 2.26 Uganda Medical & Dental Practitioners‘ Council ...... 200 2.27 Uganda Nurses and Midwives Council ...... 202 JUSTICE, LAW AND ORDER SECTION ...... 205 2.28 Law Development Centre ...... 205 2.29 Amnesty Commission: Multi Donor Trust Fund 092061 ...... 211 2.30 NEC & Subsidiaries ...... 215 2

TRADE, TOURISM AND INDUSTRY SECTION ...... 219 2.31 Uganda Investment Authority ...... 219 2.32 Uganda Export Promotions Board ...... 233 2.33 Uganda Air Cargo Corporation ...... 239 2.34 Hotel and Tourism Training Institute ...... 242 2.35 Amber House Limited ...... 247 2.36 Uganda Property Holdings LTD ...... 250 2.37 Uganda NationaL Bureau of Standards ...... 253 2.38 Uganda Wildlife Authority ...... 256 2.39 Nile Hotel International Limited ...... 259 2.40 Uganda Tourist Board ...... 261 2.41 Civil Aviation Authority...... 261 TRANSPORT, INFORMATION, COMMUNICATIONS & TECHNOLOGY SECTION ...... 262 2.42 Broadcasting Council ...... 265 2.43 Uganda Communications Commision ...... 267 2.44 Uganda Printing and Publishing Coporation ...... 268 2.45 Uganda Institute of Information & Communication Technology ...... 271 2.46 Uganda Broadcasting Corporation ...... 271 2.47 New Vision Printing and Publishing Company Limited ...... 282 2.48 Public Libraries Board ...... 284 2.49 National Library of Uganda ...... 285 SOCIAL DEVELOPMENT SECTION ...... 288 2.50 NationaL Council for Children ...... 288 2.51 National Youth Council ...... 289 2.52 National Council for Disability ...... 291 2.53 Uganda National Cultural Centre ...... 299 EDUCATION AND SPORTS SECTION ...... 304 2.54 Uganda National Council for Science & Technology ...... 304 2.55 Management Training and Advisory Centre ...... 307 2.56 National Council for Higher Education ...... 312 2.57 National Curriculum Development Centre ...... 319 2.58 Uganda National Examinations Board ...... 322 2.59 National Council of Sports ...... 327 2.60 Nakivubo War Memorial Stadium ...... 332 2.61 Mandela National Stadium ...... 347 ENERGY SECTOR ...... 356 2.62 Sustainable Management of Mineral Resources Project ...... 356 2.63 Strengthening the Management of Oil & Gas Project ...... 361 2.64 Strengthening the State Administration of the Upstream Petroleum Sector Project in Uganda...... 362 2.65 Kenya-Uganda Oil Pipeline ...... 363 2.66 Power Sector Development Operation Project – UETCL (AGGREKO- Mutundwe Power Plant) ...... 364 2.67 Power Sector Development Operation Project ...... 365

2.68 Bujagali Interconnection Project ...... 366 2.69 UETCL – Twinning Project...... 367 2.70 UETCL – Twinning Project...... 369 2.71 Energy for Rural Transformation Project ...... 369 2.72 SIDA I ...... 370 2.73 SIDA II ...... 370 2.74 Uganda Energy Credit Capitalisation Company ...... 374 2.75 Uganda Electricity Transimison Company LTD ...... 376 2.76 Uganda Electricity Distribution Company LTD ...... 381 2.77 Uganda Electricity Generation Company Limited ...... 385 2.78 Kilembe Mines Limited ...... 391 2.79 Rural Electrification Agency ...... 392 2.80 Electricity Regulatory Authority ...... 395 2.81 Audited but not certified due to un submitted Accounts ...... 397 I Allied Health Professionals Council...... 397 II Hotel & Tourism Training Institute ...... 400 III. The Law Development Centre ...... 405 IV. Mandela NationaL Stadium Limited ...... 411 PART THREE ...... 421 3.1 Divestiture Accounts ...... 421

Appendix 1 ...... 430 Appendix 2 ...... 433 Appendix 3 ...... 435 Appendix 4 ...... 438 Appendix 5: ...... 444 Appendix 6: ...... 449

List of Tables and Figures

Tables Table 1 Corporate Governance Table 2 Unremitted statutory deductions Table 3 Asset Management Table 4 Compliance with PPDA Act and regulations Table 5 Information Technology Management Table 6 Outstanding Trade debtors Table 7 Management of Loans Table 8 Internal audit function Table 9 Absence of procedural manuals and regulations Table 10 Unaccounted for expenditure Table 11 Statement of financial standing Table 12 Reports considered by COSASE Figures Figure 1 Non remittance of statutory deductions Figure 2 Unaccounted for expenditure Figure 3 Comparison of types of opinions issued Figure 4 Proportion of types of opinions issued in 2010 Figure 5 Divestiture Methods

List of Acronyms and Abbreviations AC Amnesty Commission AHL Amber House Limited AHP Allied Health Professionals BC Broadcasting Council BOD Board of Directors BOU Bank of Uganda CAA Civil Aviation Authority CASSOA Civil Aviation Safety and Security Oversight Agency CCL Cable Corporation Limited CDO Cotton Development Organization CFR Central Forest Reserve CMA Capital Markets Authority COCTU Coordinating Office for Control of Trypanosomiasis in Uganda CSDP Cotton Subsector Development Credit DDA Dairy Development Authority EAC East African Community EIB European Investment Bank ERA Electricity Regulatory Authority ERT Energy for Rural Transformation EUL Eskom Uganda Limited HTTI Crested Crane Hotel & Tourism Training Institute IAS International Accounting Standard IPP Independent Power Producer JCRC Joint Clinical Research Centre JV Joint Venture KCC Kampala Company Centre KCCL Kasese Cobalt Company Limited KML Kilembe Mines Limited KSW Kinyara Sugar Works LDC Law Development Centre ULI Uganda Livestock Industries LVFO Lake Victoria Fisheries Organization

MEMD Ministry of Energy and Mineral Development MNS Mandela National Stadium MTAC Management Training and Advisory Centre NAGRIC National Animal Genetic Resources Centre and Data Bank NCC National Council for Children NCDC National Curriculum Development Centre NCHE National Council for Higher Education NCS National Council of Sports NDA National Drug Authority NEC National Enterprises Corporation & Subsidiaries NFA National Forestry Authority NHCCL National Housing & Construction Company Limited NHI Nile Hotel International NHL Nsimbe Holdings Ltd. NIC National Insurance Corporation Ltd. NMS National Medical Stores NPA National Planning Authority NSSF National Social Security Fund NWC National Women‘s Council NWMS Nakivubo War Memorial Stadium NWSC National Water & Sewerage Corporation NYC National Youth Council PAYE Pay As You Earn PDU Procurement and Disposal Unit PLB Public Libraries Board PPDA Public Procurement & Disposal of Public Assets Authority PPE Property Plant and Equipment PPP Public Private Partnership PSA Production Sharing Agreement PU Privatization Unit REA Rural Electrification Agency SCOUL Sugar Corporation of Uganda Ltd. SIDA Swedish International Development Agency

UACC Uganda Air Cargo Corporation UBC Uganda Broadcasting Corporation UBOS Uganda Bureau of Statistics UCC Uganda Communications Commission UCDA Uganda Coffee Development Authority UDB Uganda Development Bank UDC Uganda Development Company Limited UECCC Uganda Energy Credit Capitalisation Company UEDCL Uganda Electricity Distribution Company Limited UEGCL Uganda Electricity Generation Company Limited UEPB Uganda Export Promotion Board UETCL Uganda Electricity Transmission Company Limited UGCEA Uganda Ginners and Cotton Exporters Association UIA Uganda Investment Authority UIC Uganda Insurance Commission UICT Institute of Communication & Information Technology UMDPC Uganda Medical and Dental Practitioners Council UNBS Uganda National Bureau of Standards UNCC Uganda National Cultural Centre UNCST Uganda National Council of Science & Technology UNEB Uganda National Examinations Board UNMC Uganda Nurses & Midwives Council UPHL Uganda Property Holding Limited UPPC Uganda Printing & Publishing Corporation URA Uganda Revenue Authority URC Uganda Railways Corporation USL Uganda Seeds Limited UTB Uganda Tourism Board UTL Uganda Telecom Ltd. UWA Uganda Wildlife Authority VAT Value Added Tax WHT Withholding Tax

PART ONE

1.1 RESPONSIBILITY OF THE AUDITOR GENERAL AND LEGAL FRAMEWORK

This is volume 4 of the Auditor General‘s annual report to Parliament. The report presents a summary of audit reports issued for Statutory Corporations / entities audited during the period from 1st April 2010 to 31st March 2011.

1.1.1 Mandate and Legal framework The 1995 Constitution of the Republic of Uganda under Article 163 (3) as amplified by the National Audit Act 2008 Section 17, and other various Acts of Parliament establishing Statutory Corporations and State Enterprises require the Auditor General to examine and audit the accounts of these entities and submit annually a report to Parliament on the financial as well as value for money audits. In addition, the Auditor General is mandated to carry out special audits on any matter and report to Parliament. The National Audit Act under Section 18 also states that the Auditor General may inquire into, examine, investigate and report, as he or she considers necessary, on the expenditure of public monies disbursed, advanced, or guaranteed to a private organization or body in which government has no controlling interest.

1.1.2 The Auditor General‟s Responsibilities The scope of the Auditor General‘s work when conducting financial audits is to audit and report to parliament by expressing an independent opinion as to whether or not the financial statements, in all material respects, fairly state the results of operations of the entities in accordance with International Financial Reporting Standards and in the manner consistent with the respective Acts and Statutes establishing these entities as well as complying with the relevant laws and regulations applicable to financial matters. These standards require that ethical requirements are complied with and the audit is planned and performed to obtain reasonable assurance as to whether the financial statements are free from material error or misstatement.

The audit also includes obtaining sufficient and appropriate evidence supporting the amounts and disclosures in the financial statements to provide a basis for making an 9

opinion. The audit procedures selected depend on the auditor‘s judgment, including the assessment of risks of material misstatements of the financial statements, whether due to fraud or error. In making risk assessments, the auditor considers internal controls relevant to the entity‘s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances.

An opinion will also be expressed as to whether or not any matters came to the Auditors‘ attention that causes him/her to believe that material errors and non- compliance with laws and regulations, applicable to financial matters, had occurred.

1.1.3 Responsibilities of Public Organizations on the financial statements

It is the responsibility of The Directors of the audited entities to prepare financial statements which give a true and fair view of the state of affairs and operating results of their entities in accordance with International Financial Reporting Standards and the various Acts and Statutes establishing them. This responsibility also includes designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in their circumstances. The audit of financial statements does not relieve management, or those charged with governance of their responsibility.

1.1.4 Representations by management As part of normal audit procedures, the auditor will where necessary request management of audited entities to provide written confirmations or oral representations that have been received from management during the course of the audit

After conducting audits based on the scope of the auditor‘s responsibility stated above, the auditor shall report to management in writing, any significant weaknesses based on observations on the internal control system and other areas that come to

his/her notice which he/she considers necessary to be brought to management‘s attention by way of a Management letter.

1.2 STATUS OF ACCOUNTS AUDITED DURING THE YEAR The Directorate of Statutory Corporations was responsible for the audit of Seventy Three (73) statutory corporations and Twelve (12) projects as listed in appendix 1. The nature of the entities is such that their accounting dates are not co-terminus (do not all end on the same date). Four different accounting dates feature in the accounts of the entities as follows:-  Year ending 30th June,  Year ending 30th September,  Year ending 31st October and  Year ending 31st December.

1.2.1 STATUS OF COMPLETION OF AUDITS The Directorate of statutory corporations is responsible for the audit of statutory corporations, Regulatory Authorities and state enterprises. During the during the Period 1st April 2010 to 31st March 2011 a total of 194 financial statements were presented for audit of these 184 were completed and 10 are under progress by the time of this report as shown in the table below;

Status of Completion of Audits Total Number Accounts Audits in of Accounts Audited Progress Regulatory Authorities 39 39 0 Statutory Corporations 142 132 10 Projects 13 13 0 TOTAL 194 184 10

1.2.2 BASIS AND TYPES OF AUDIT OPINIONS ISSUED During the Period 1st April 2010 to 31st March 2011 a total of 194 audits were undertaken of which unqualified, qualified, adverse and disclaimer of opinions were issued as follows; 11

Audit of Statutory Corporations During the period under review for, a total of one hundred seventy one (171) audits were undertaken and of these; fifty five (55) opinions issued were unqualified, Nineteen (19) opinions issued were unqualified with emphasis of matter (EOM). Thirty eight (38) opinions issued were qualified, nineteen (19) opinions issued were qualified with emphasis of matter (EOM), Nine (9) opinions were issued with disclaimers, one (1) adverse opinion was issued, while examination of books of accounts were concluded for thirty (30) accounts but not certified due to done submission of financial statements by the entities and ten (10) audits were still under progress.

Audit of Projects During the period under review a total of 13 projects were audited; The cumulative number of audits undertaken during the period was 184.

Figure 4 showing the proportion of audit opinions in the current period

Types of opinions issued (2010) Disclaimer of Adverse Opinion opinion 6% 1% Unqualified opinion

Unqualified Qualified opinion opinion 53% Disclaimer of Opinion Qualified Adverse opinion opinion 40%

An analysis of the financial statements audited and type of opinions issued between 2007 and 2010 revealed the following;

Trend analysis of types of opinions issued in the last four years

Opinions Year 2007 2008 2009 2010 Unqualified opinion 35 45 53 74 Qualified opinion 16 30 50 57 Disclaimer of Opinion 2 3 7 9 Adverse opinion 1 0 1 1 TOTAL 54 78 111 141

Figure 3 Comparison of types of opinions issued in the last four years

70 60

50 Unqualified opinion 40 Qualified opinion 30 Disclaimer of Opinion Adverse opinion 20 10

0 2007 2008 2009 2010

Four year Trend analysis of audited and unaudited financial statements. Financial statements Year 2007 2008 2009 2010 Audits in progress 48 18 43 10 Completed audits 102 175 156 184 TOTAL 150 193 199 194

200 180 160 140 120 100 Audits in progress 80 Completed audits 60 40 20 0 2007 2008 2009 2010

Unqualified Opinion An unqualified audit opinion is issued when the Auditor is able to express an opinion and concludes that the financial statements of an audited entity give a true and fair view or are presented fairly, in all material respects, in accordance with the International Financial Reporting Standards of the various Acts and Statutes establishing the State Enterprises, Statutory Authorities and Commissions.

In the year under review fifty five (55) unqualified opinions were issued to (30) public organizations as shown in the table below;

Unqualified Opinions No Entity No of reports certified Financial year audited 1 Bank of Uganda 1 30th June 2010 2 Capital Markets Authority 1 30th June 2010 3 Dairy Development Authority 1 31st December 2009 4 JCRC 1 30th June 2009 Uganda Institute of Information & 5 Communications Technology. 1 30th June 2009 6 Uganda Investment Authority 1 30th June 2010 7 Amnesty Commission 1 30th June 2009 14

8 COCTU 5 30th June 06,07,08,09,2010 Uganda Medical and Dental 9 Practitioners 1 30th June 2008 10 National Planning Authority 2 30th June 2009,2010 Uganda National Bureau of 1 30th June 2010 11 Standards Uganda National Examinations 2 30th June 2009,2010 12 Board Uganda Institute of Information 1 30 June 2009 13 and Communication Technology Uganda Communications 1 30th June 2010 14 Commission 15 Uganda Insurance Commission 2 30th June 2009,2010 Lake Victoria Fisheries 16 Organization 1 30th June 2009 National Housing & Construction 17 Co. Ltd 1 31st Dec 2009 18 National Drug Authority(NDA) 1 30th June 2010 19 Electricity Regulatory Authority 1 30th June 2010 Public Procurement & Disposal of 20 Public Assets 2 30th June 2009,2010 New Vision Printing & Publishing 21 Corporation 1 30th June 2010 30th June 06, 07, 08, 09, 22 National Youth Council 5 2010 National Council for 23 Disability(NCD) 3 30th June 08, 09, 2010 24 National Council for Children 2 30th June 2009,2010 25 National Womens Council 2 30th June 2009,2010 26 Broadcasting Council. 2 30thJune 2009,2010 Amnesty Commission Multi Donor 27 Trust Fund Project 1 30th June 2010

European Investment Bank Apex/ BOU Private Enterprise loan 28 Scheme 1 30th June 2009 30thJune 01, 02, 03, 04, 05, 29 National Library of Uganda 9 06, 07, 08, 09 30 Post Bank Uganda Ltd 1 31st December 2009 TOTAL 55

Unqualified opinion with Emphasis of Matter (EOM) An emphasis of matter paragraph may be included in the Auditor‘s opinion to highlight material matters and significant uncertainty which in the auditor‘s judgment do not affect the financial statements of the entity, but may be of such importance that it is fundamental to the users‘ understanding of the financial statements. In the year under review Nineteen (19) unqualified opinions with emphasis of matter were issued to fourteen (14) public organizations

Unqualified opinion with Emphasis of matter No Entity No of Financial year reports Audited certified 1 Nile Hotel International Limited(NHI) 1 30th December 2009 2 JCRC 2 30th June 2008,2009 3 Cotton Development Organization(CDO) 1 30th October 2009 5 Uganda National Bureau of Standards 1 30th June 2009 6 Amber House Limited(AHL) 1 31st December 2009 Uganda National Council for Science & 1 30th June 2010 7 Technology 8 Uganda Development Company Ltd 2 31st Dec 2007,2008 9 Uganda Tourism Board 1 30th June 2010 10 Electricity Regulatory Authority 1 30th June 2009 Uganda Electricity Distribution Company 11 Ltd 1 30th December 2009

30th June 08, 09, 12 NAGRIC-DB 3 2010 30th June 13 National Council for Disability(NCD) 3 2005,2006,2007 14 National Library of Uganda 1 30th June 2010 TOTAL 19

Qualified Opinion An auditor expresses a qualified opinion when: (a) The auditor, having obtained sufficient appropriate audit evidence, concludes that misstatements, individually or in aggregate, are material, but not pervasive, to the financial statements; or (b) The auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion, but the auditor concludes that the possible effects on the financial statements of undetected misstatements, if any, could be material but not pervasive. In the year under review Thirty eight (38) qualified opinions were issued to Twenty three (23) public organizations as listed below;

Qualified Opinion No Entity No. of Financial year reports Audited certified 1. Uganda Revenue Authority 1 30th June 2010 2 Hotel Training and Tourism Institute 2 30th June 2006,2007 3 National Medical Stores 2 30th June 2009,2010 4 Law Development Centre 4 30th June 06, 07, 08 and 2009 5 National Council for Higher Education 30th June 07, 08, 09 (NCHE) 4 and 2010 6 National Medical Stores 2 30th June 09,2010 7 National Forestry Authority 1 30th June 2008

8 JCRC 2 30th June 2006,2007 9 Hotel Tourism and Training Institute 2 30th June 2006,2007 10 Divestiture Redundancy Accounts (PU) 1 30th June 2009 11 National Curriculum Development 2 31st Dec 2007,2008 Centre. 12 Uganda Air Cargo Corporation 1 30th June 2010 13 Uganda Bureau of statistics(UBOS) 1 30th June 2010 14 Uganda National Cultural Centre(UNCC) 1 31st Dec 2002 15 Management Training and Advisory 1 31st Dec 2009 Centre(MTAC) 16 Mandela National Stadium(MNS) 2 31st Dec 2005,2006 17 Civil Aviation Authority (CAA) 2 30th June 2009 and 2010 18 Uganda Electricity Generation Co. 1 31st December 2009 Ltd(UEGCL) 19 Uganda Wildlife Authority(UWA) 1 30th June 2010 20 Uganda Development Bank(UDB) 1 31st December 2009

21 National Social Security Fund (NSSF) 2 30th June 2009,2010 22 Rural Electrification Agency(REA) 1 30th June 2010 23 Uganda Property Holdings Ltd 1 30th June 2010 TOTAL 38

In addition Nineteen (19) qualified opinions with Emphasis of matter (EOM) were issued to Thirteen (13) public organizations as listed below;

Qualified Opinion with Emphasis of matter No Entity No. of Financial year reports Audited certified 1 Uganda Coffee Development Authority(UCDA) 1 30th September 2009 2 Uganda Investment Authority(UIA) 1 30th June 2009 3 Uganda Export Promotion Board(UEPB) 3 30th June 2007,2008,2009 4 National Curriculum Development 1 31st December 2009 Centre(NCDC) 5 National Enterprise Corporation(NEC) 2 30th June 2008,2009 6 Kilembe Mines Ltd(KML) 1 30th June 2010 7 Uganda Broadcasting Corporation(UBC) 1 30th June 2009,2010 8 Mandela National Stadium(MNS) 3 31st Dec 2004,2007,2008 9 National Forestry Authority(NFA) 2 30th June 2009,2010 10 Uganda Revenue Authority(URA) 1 30th June 2010 11 Uganda Printing and Publishing 1 30th June 2010 Corporation (UPPC) 12 Uganda Electricity Transmission Co. 1 31st December 2009 Ltd(UETCL) 13 Posta Uganda 1 30th June 2009 TOTAL 19

Disclaimer of Opinion The Auditor shall disclaim an opinion when the auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion, and the Auditor concludes that the possible effects on the financial statements of undetected misstatements, if any, could be both material and pervasive. The Auditor shall disclaim an opinion when, in extremely rare circumstances involving multiple uncertainties, the Auditor concludes that, notwithstanding having obtained

sufficient appropriate audit evidence regarding each of the individual uncertainties, it is not possible to form an opinion on the financial statements due to the potential interaction of the uncertainties and their possible cumulative effect on the financial statements. During the year under review; I disclaimed an opinion on the financial statements of Two (2) public organizations listed below; Disclaimer of Opinion No Entity No of Financial year reports Audited certified 1 Uganda Nurses & Midwives 4 30thJune 06,07,08,09 Council 2 Nakivubo War Memorial 5 31st Dec 05,06,07,08,09 Stadium TOTAL 9

Adverse Opinion The Auditor shall express an adverse opinion when the Auditor, having obtained sufficient appropriate audit evidence, concludes that misstatements, individually or in the aggregate, are both material and pervasive to the financial statements.

During the year one (1) adverse opinion was issued.

Adverse opinion

1 Posta Uganda Limited 1 30th June 2008

Accounts where examination of books of accounts have been concluded and management report issued but the accounts have not been certified

A total of Thirty (30) audits were concluded for Eleven (11) public organizations. However, I was unable to certify these audits because signed financial statements were not submitted to my office due to the following reasons,

 Boards of some audit entities had not yet approved the financial statements.

 Delays in submission of financial statements and non submission adjusted financial statements free of errors by time of issue of this report.

The following is a listing of these public organizations; No Entity No of Financial year under review years 1 Allied Health Professionals 4 30th June 2007,2008,2009,2010 2 Amnesty Commission 1 30th June 2010 3 Uganda Livestock Industries 8 31st Dec 02,03,04,05,06,07,08,09 4 Hotel Tourism and Training 3 30th June 2008,2009,2010 Institute 5 Lake Victoria Fisheries 1 30th June 2010 Organization 6 Law Development Center 1 30th June 2010 7 Mandela National Stadium 1 31st Dec 2009 8 European Investment Bank Apex/ BOU Private Enterprise loan Scheme 1 30th June 2010 9 Uganda Institute of Information and Communications Technology 1 30th June 2010 10 Uganda National Cultural Centre 8 30th June 2010 11 Uganda Nurses and Midwives 1 30th June 2010 Council TOTAL 30

The following are audit issues for public organizations whose audits were completed but did not submit financial statements.

1.3 AUDITS IN PROGRESS Ten (10) audits were under progress at the time of issue of this report these are listed below;

No Entity No of Financial year Remarks years under review 1 National Enterprise 1 30th June 2010 Directly Corporation and Subsidiaries audited 2 Uganda Railways Corporation 3 30th June Outsourced 08,09,2010 3 Divestiture and Redundancy 1 30th June 2010 Outsourced Accounts 4 National Council of sports 1 30th June 2010 Outsourced 5 Posta Uganda 1 30th June 2010 Outsourced 6 Uganda Development 1 31st December 2009 Outsourced Company Ltd 7 Uganda Seeds Company 2 30thJune 2009,2010 Outsourced Limited TOTAL 10

1.4 SUMMARY OF MAJOR AUDIT FINDINGS OF THE REPORT

1.4.1 Corporate Governance Corporate governance is a governance framework which includes a set of rules, guidance, and controls and coordinating mechanisms which regulate, direct and oversee human behavior in organizations with intent and objective of ensuring that systems and practices whether intended or emergent meet organizational objectives A critical element of effective corporate governance is that decisions are not only fair, open and accountable but are seen to be so. The framework for accountability in government are specified in Sections 15 and 19 of the Public Finance and Accountability Act 2003 and the respective Acts and statutes of the public organizations which requires Accounting officers and their Boards to be accountable for their entity‘s activities. It is mandatory for the management of public entities to put in place effective internal control systems to safe guard assets and resources from mismanagement and fraud.

The following commonly recurring corporate governance issues were noted; 22

 Public enterprises operating for long periods of over 2 years without Boards of Directors.  Late renewal and appointment of new Boards by the respective line Ministers responsible for the Public Enterprises and Organizations.  Absence of strategic plans  Board members of public enterprises involved in day to day management functions instead of providing policy decisions and supervising management.  Public enterprises operating without approved budget estimates.  Board members remunerating themselves without approval from the line Ministers.  Irregular Board meetings below or exceeding the required minimum.

During the year under review a total of Twenty four (24) Public organizations had governance issues as summarized in Table 1 below;

Table 1 Corporate Governance Audit entity Corporate Governance 1 Bank of Uganda  Absence of full Board composition National Housing and 2 Construction Company Ltd  Absence of an approved strategic plan  Audit Committee not constituted to provide oversight to the commission control and risk Uganda Insurance process. 3 Commission  Absence of a long strategic plan not yet in place. Cotton Development 4 Organization  Un constituted audit committee  Management of the council did not hold regular 5 COCTU council meetings contrary to the councils statute 6 National Forestry Authority  Lack of Budget and management accounts.  Council operated without existence of an Audit Uganda Medical and Dental Committee 7 Practitioners Council Uganda Nurses and  Council Board members involved in day to day 8 Midwives Council management functions. Uganda National Council for 9 Science and Technology  Absence of Board of Directors 10 National Children‘s Council  Absence of a strategic plan since 2008 Management Training and  Term of Governing council has expired and no 11 Advisory Centre new board in place. 12 Nile Hotel International  Lack of a strategic plan 13 Amber House Limited  Absence of an approved strategic plan Uganda Property Holdings  Board of Directors involved in management 14 Limited functions. Uganda National Bureau of 15 Standards  Absence of Board of Directors 23

16 National Planning Authority  Absence of full Board of Directors 17 Nagric DB  Irregular Board meetings 18 National Council for  Board involved in management decisions Disability 19 Hotel Tourism and Training  Lack of a governing Council Institute  Lack of approved budget 20 Nakivubo War Memorial  Conflict of interest of Trustee members Stadium 21 Mandela National Stadium  Board members involved in the day to day management functionality 22 National Examinations  Lack of a strategic business plan Board 23 Uganda export Promotions  The term of Board of directors expired. Board  Un approved budgetary expenditure 24 Uganda Air Cargo  Irregular terms for Board of Directors Corporation

In order to improve corporate governance systems in government I advised as follows;  Ministers responsible for these entities should ensure that appointment of new boards is timely.  In order to avoid conflict of interest, in as far as the oversight function is concerned Board members should avoid performing management functions.  Accounting officers of public enterprises should ensure that their budgets are approved by the Board and line Ministers.  Accounting officers of public enterprises should ensure that financial statements are prepared within the mandated statutory periods of these organizations and are submitted for audit.

1.4.2 Unremitted statutory deductions Shs.8,901,858,221 During the period under review, over Thirteen (13) public organizations failed to remit statutory deductions amounting to Shs.8,901,858,221 to the relevant statutory authorities. Of these amounts, un remitted taxes to Uganda Revenue Authority in respect of Pay As You Earn, Value Added Tax and Withholding Tax amounted to Shs.5,563,915,525 while deductions for Employee benefits relating to National Social Security Fund amounted to Shs.3,337,942,696 Details are shown in the Table 2 below;

Table 2: Unremitted statutory deductions

N Entity NSSF Taxes Amount o Shs Shs Shs PAYE,WHT,VAT 1 COCTU 7,843,500 7,843,500 2 Law Development Centre 811,311,756 1,040,533,603 1,851,845,359 3 National Council for Higher 82,337,834 82,337,834 Education 4 Uganda Broadcasting Corporation 544,918,578 1,376,383,606 1,921,302,184 5 Uganda Printing and Publishing 267,923,651 878,074,619 1,145,998,270 Corporation 6 Uganda National Bureau of 122,384,599 122,384,599 Standards 7 Uganda Bureau of statistics 179,442,081 246,872,159 246,872,159 8 National Enterprise Corporation 471,006,866 1,139,312,358 1,610,319,224 Consolidated 9 Hotel Tourism and Training 128,178,700 16,674,975 144,853,675 Institute 10 Mandela National Stadium 600,000,000 11,177,671 611,177,671 11 Management training and Advisory 43,498,270 254,067,837 297,566,107 Center 12 Uganda export Promotions Board 331,138,680 331,138,680 13 Uganda Air Cargo Corporation 139,966,195 388,252,764 528,218,959 TOTAL 3,337,942,696 5,563,915,525 8,901,858,221

Non Remittance of statutory deductions UACC COCTU UEPB MTAC 6% 0% 4% COCTU MNS 3% 7% LDC LDC 21% NCHE HTTI NCHE 2% 1% UBC NEC UBC 18% UPPC 21% UPPC UNBS 13% UBOS NEC UBOS 3% UNBS HTTI 1%

Figure 1 Non Remittance of statutory deductions

This is a critical situation of non compliance with the law and remedial measures should be taken and sought by the statutory corporations to avoid penalties which may be charged by the respective statutory bodies (URA and NSSF) for non compliance.

1.4.3 Asset Management A review of public organizations revealed that many were noted to have poor or improper management of noncurrent assets. There was apparent lack of ownership to properties as evidenced by absence of title deeds to many of the properties, absence of fixed assets registers or incomplete and outdated fixed assets registers, non revaluation of assets for a long period of time and impairment not tested periodically as required by the accounting standards. During the year under review a total of Thirty three (33) Public organizations had asset management weaknesses as shown in Table 3 below;

Table 3 Asset Management

Audit entity Asset Management  BOU property from city and municipal councils still in leasehold form and not converted into freehold land in line with Uganda Land Act. 1 Bank of Uganda Capital Markets 2 Authority  Fully depreciated fixed assets still in use by the entity National Animal Genetic  Centre has Land at livestock farms without titles Resources Centre and  Encroachment on Centre‘s land. 3 Data Bank  Poor and dilapidated inratructure. Uganda Coffee  Non Valuation of Property Plant and Equipment. 4 Development Authority  Uninstalled wet coffee processing machines National Water and  Impairment review for property plant and equipment 5 Sewerage Corporation last done in 2007.  Centre land at Mengo not valued and included in the 6 JCRC assets register. National Medical 7 Stores(NMS)  Unsecured land titles for plot NMS property National Council for  Council freehold land not valued and included in 8 Higher Education assets register, Law Development  Un-updated fixed assets register. 9 Centre  Encroachment on LDC properties Uganda Nurses and 10 Midwives Council  Absence of title to properties Uganda National 11 Cultural Center  No fixed assets register Uganda Broadcasting  Vested assets to UBC not valued 12 Corporation  Lack of title to properties Uganda Wildlife 13 Authority  Un updated fixed assets register Uganda Printing and 14 Publishing Corporation  No impairment testing for corporation machinery 15 Posta Uganda Limited  Un updated assets register. Uganda Bureau of 16 Statistics  Lack of title for statistics House. National Planning 17 Authority  Un engraved assets of the authority Uganda Investment  Unauthorized write-offs of assets from assets 18 Authority register. 19 Nagric DB  Land without titles  Un authorized disposal of animals

20 National Youth Council  Un engraved Council assets 21 Hotel Tourism and  Non revaluation of land and buildings training Institute  Written down values of HTI without revaluation 22 LDC  Encroachment on LDC Land  Impairment of Center‘s printing machine  Un updated fixed assets register  Non valuation of Land 23 Electricity Regulatory  Fully depreciated assets of Authority not yet revalued Authority  Irregular depreciation charges

24 Uganda Electricity  Lack of Capitalization policy for fixed assets Distribution Company  No physical verification of existing capital assets Ltd  Inaccurate assets listings  Fully depreciated assets not revalued yet still in use. 25 Kilembe Mines Ltd  Under valuation of Copper Tailings  Encroachment on Katadoba land 26 Nakivubo War memorial  Lack of a fixed assets register Stadium 27 Mandela National  No land title for stadium land Stadium  Encroachment on stadium land  Un completed fixed assets register 28 Management training  No valuation of land and buildings and advisory Center 29 National Council for  No valuation of Freehold Land Higher Education 30 National Curriculum  Non depreciation of motor vehicles and library books Development Center  Lack of a fixed assets register 31 Uganda National  UNEB assets not engraved. Examinations Board 32 National Council of  Lack of a fixed assets register Sports 33 Uganda Air cargo  Corporation Aircraft without registration logbook Corporation

I advised management as follows on making improvements on asset management.  Legal ownership of properties should be secured and land titles/deeds obtained from relevant authorities.  Revaluation of assets should be conducted and impairment tests carried out at periodically  Fixed assets registers should be put in place, regularly updated and properly maintained.  Land encroached upon should be secured.

1.4.4 Non Compliance with PPDA act and regulations The PPDA Act and Regulations 2003 together with guidelines and amendments issued periodically by the Authority (PPDA) prescribe procedures for public entities to follow while undertaking procurement and disposal functions. The PPDA Act and regulations require every Public organization to set up a contracts committee, Evaluation committee, PDU, in addition prepare Annual approval procurement plans based on approval entity budgets are also required to be submitted to the PPDA. However, it was noted that a total of sixteen (16) entities had several compliance weaknesses with the PPDA Act listed in Table 4 below;

Table 4: Compliance with PPDA Act and regulations Audit entity Compliance with PPDA Act and regulations  Procurement of goods and services worth shs13,201,600 1. COCTU without following PPDA procedures.  The Authority did not carry out procurement planning for the period  Allocation of NFA Land, forests without following PPDA procedures.  Sale of round wood valued at shs8,471,569,912 without PPDA disposal regulations National Forestry  Irregular procurements of goods and services worth 2 Authority shs584,773,483  Goods and services procured without preparation of procurement plans  Variation of construction contract for Lubowa Hospital by 34% at a price of shs2,073,917,606 without PPDA 3 JCRC approval. National Medical  Several direct procurements amounting to over 4 Stores(NMS) shs757,377,214 carried out contrary to PPDA regulations  Revision of contract price for Construction of Centre Law Development building worth shs679,435,796 without PPDA approval 5 Centre requirements.  No procurement plans prepared Management  Monthly procurement returns not submitted to PPDA Training and  Contracts committee not approved by Secretary to 6 Advisory Centre treasury. Uganda National 7 Cultural Center  Absence of an annual procurement plan Public Procurement and Disposal of Assets  Existing IT strategy expired in 2009 and has not been 8 Authority updated.  Procurement of goods and services worth shs National Planning 5,732,341,304 without following PPDA regulations and 9 Authority procedures 10 National Council  No contracts Committee in place

for Disability 11 Hotel tourism and  No procurement and disposal Unit training Institute  no contracts committee  No pre-qualified list of suppliers  Procurements totaling Shs. 79,188,904 made without following procurement guidelines 12 Nakivubo War  No contracts committee Memorial Stadium  No PDU  No procurement plan 13 Mandela National  No contracts committee Stadium  No PDU  Procurement of goods and services without following PPDA guidelines 14 National  Procurement of motor vehicle guards worth Shs. Curriculum 3,505,072 without following PPDA Regulations Development Center 15 Uganda National  Inadequate procurement work plans Examinations Board 16 Uganda export  Procurement of land worth Shs.2,000,000 without Promotions Board following PPDA laws and Regulations

I advised accounting officers of the respective statutory corporations to ensure that Procurement and disposal units are adequately staffed and supervised, and the relevant committees created; besides all public procurement of goods and services should be undertaken in a timely manner in accordance with approved work plans and should comply with procurement regulations and PPDA Act. 1.4.5 Information Technology Poor management of information technology (IT) systems and resources in one way or other hinder the smooth performance of organizations, this becomes critical where organizations‘ business processes rely heavily on Information assets and may impair their internal control systems. The following statutory organizations shown in Table 5 below were noted to have had weaknesses in management of information assets and resources; 30

Table 5 Information technology management

No Audit entity Information Technology management  BOU has users of IT with multiple concurrent login sessions on its Network which is a risk that can 1 Bank of Uganda compromise the IT system.  Lack of an enterprise- wide Comprehensive Business Continuity and Disaster Recovery Plan.  No clear change management process in place for IT environment. 2 Uganda Development Bank  User access accounts are not regularly reviewed  Lack of a Disaster Recovery Plan (DRP) National Housing and Construction  Backups of financial data not signed off and 3 Company Ltd regularly reviewed.  Lack of Disaster Recovery Plan (DRP) National Water and Sewerage documented or Disaster Recovery Site 4 Corporation implemented 5 Law Development Centre  Lack of an IT Policy 6 Uganda National Cultural Center  Lack of an IT policy  No IT steering committee Uganda Communications  Partial documentation for Business Continuity 7 Commission Plan(BCP) and Disaster Recovery Plan(DRP) 8 National Planning Authority  No IT policy in place 9 Nagric DB  Lack of IT strategy 10 Uganda National Examination‘s  No IT policy board

Management of these public organizations were advised to put in place reliable effective information Technology systems in order to safe guard, monitor and regulate their information assets and resources.

1.4.6 Management of Receivables and Loans Shs.84,658,561,676 During the year under review the audit revealed material amounts of outstanding receivables of and Loans. Several entities still had weakness in management of debtors;  Trade debtor policies were either lacking or not being effected for those in place;  Entities had debtors which had been outstanding for several years which they had failed to collect  Some debts had become bad and doubtful.  Repayments for others were very slow affecting working capital and liquidity of the entities. No reasons were given for non recovery of outstanding amounts furthermore no provisions were made in the financial statements for non recoverability of receivables in the financial statements.

Fourteen (14) entities were noted with significant outstanding trade debtors totaling over Shs.84,658,561,676 as listed in table 6 below; Table 6 Outstanding Trade debtors Audit entity Amount shs 1 National Drug Authority 216,341,187 2 Uganda Broad Casting Corporation 5,643,086,066 3 Uganda Printing and Publishing Corporation 1,100,000,000 4 Broadcasting Council 35,602,993 5 Uganda Communications Commission 5,500,000,000 6 Amber House Limited 3,905,232,441 7 Uganda Property Holdings Limited 6,470,935,356 8 Posta Uganda Limited 2,920,000,000 9 Privatization Unit 18,671,000,000 10 Hotel Tourism and Training Institute 159,047,732 11 Uganda Electricity Generation Company Ltd 32,800,000,000 12 Management Training and Advisory Center 548,004,506 13 National Curriculum Development Center 605,244,400 14 National Medical stores 6,084,066,995 TOTAL 84,658,561,676

Managers of these entities were advised to put in place aggressive debt collection systems with set targets. Besides, debtors should be regularly analyzed and aged on a monthly basis to monitor their performance so as to determine slow paying, bad and doubtful debts with intensions to isolate debtors with long outstanding balances for more stringent action. Shorter debtor‘s collection periods will improve on these entities‘ cash inflows and have a positive impact on their liquidity position.

 Management of loans It was also noted that some entities failed to collect large outstanding loans from their clients beyond agreed dates as per respective loan agreements as shown in the table 7 below;

Table 7 Management of loans No Audit entity Management of Loans 1 Bank of Uganda  Shs.21billion remained outstanding at year end.  Loan files of clients lacked updated latest audited 2 Uganda Development Bank financial statements.  A Loan of Euros 477,693 obtained from European investment bank (EIB) was still outstanding at year end, Uganda Development no evidence of loan repayment and continues to attract 3 Company Ltd interest 4 Posta Uganda Limited  Unreconciled DFCU loan balance of Shs.7.19million 5 Uganda Electricity  Outstanding loans due to G.O.U of Shs.91.1 billion Generation Company Ltd

I recommended that the respective statutory bodies carry out rigorous follow up of outstanding amounts and improve on their lending practices.

1.4.7 Internal Control Weakness a. Internal Audit function

Respective acts of Parliament and Financial manuals require reporting entities to establish internal audit units. This Unit is intended to examine and evaluate the adequacy and effectiveness of internal controls of the entity besides conducting value for money audits throughout the entity in order to ensure that proper system of internal control and accounting system exists. It was however noted that Twelve (12) entities did not have a functional internal audit units as detailed in Table 8 below;

Table 8 Absence of Internal audit function Audit entity Internal audit function  Commission operated without an internal audit function. Uganda Insurance  Lack of an approved Human resource manual to 1 Commission guide staff on Human resource matters 2 COCTU  COCTU operated without an internal audit function. Dairy Development  The Authority operated without an internal audit 3 Authority function. 4 National Forestry  Internal audit department lacked an internal audit

Authority manual.  The Council operated without an internal audit National Council for function. 5 Higher Education Uganda Medical and  The Council operated without an internal audit Dental Practitioners function. 6 Council National Council for  The Council operated without an internal audit 7 Children function. National Council for  The Council operated without an internal audit 8 Disability function. Uganda Broadcasting 9 Corporation  Un approved operational internal audit manuals. 10 Broadcasting Council  Absence of a functional internal audit unit 11 National Youth Council  The Council operated without an internal audit function. 12 Uganda Export  Lack of internal audit function Promotion Board

It was further noted that good governance practices and respective institutional mandates require the establishment and existence of audit committees in the entity for maintaining sound financial and risk management and internal control system as well as maintaining an effectively functioning system of internal audit. In addition, the committees assist respective accounting officers in overseeing;  The safeguarding of assets.  The operation of adequate systems and control processes.  The preparation of accurate financial reporting and statements in compliance with applicable legal requirements and accounting standards. All the above Statutory Corporations and State Enterprises did not have audit committees. b. Absence of operational procedural manuals and regulations During the year under review I noted that over Eighteen (18) statutory corporations and state enterprises either lacked or were not complying with financial accounting and staff manuals, as a matter of best practice each entity should have its own procedures or regulations in order to carry out business in an effective and efficient 34

manner. A detailed analysis of entities which did not have or were not complying with operational procedural manuals such as accounting and finance, human resource, stores are shown in Table 9 below; Table 9 Absence of Operational procedural manuals and regulations Absence of Operational procedural manuals and Audit entity regulations

1 Bank of Uganda  BOU accounting manual last updated in 2002  Outdated financial and procedurals manual last 2 Uganda Development Bank updated in 1999  Lack of an approved Human resource manual to guide 3 Uganda Insurance Commission staff on Human resource matters National Animal Genetic Resources Centre and Data 4 Bank  Lack of Accounting and Human resource manual. Uganda Coffee Development 5 Authority  Updated accounting manual not yet approved. 6 COCTU  Lack of Accounting and Human resource manual. 7 Law Development Centre  Lack of an approved Finance and Accounting manual.  The council also lacked an Accounting and Human 8 National Council for Disability resource manual Uganda National Cultural 9 Center  Un updated accounting and finance manual  Un approved operational procedures as Human Uganda Broadcasting resource manuals risk management policy and stores 10 Corporation guidelines and procedures manual. 11 Nile Hotel International  Absence of a financial and procedures manual  Absence of a financial and accounting and human 12 Amber House Limited resource manual Uganda National Bureau of 13 Standards  Un updated accounting and finance manual  Absence of an updated financial and accounting 14 Uganda Bureau of Statistics manual 15 Nakivubo War Memorial  Lack of human resource and accounting manual Stadium 16 Mandela National Stadium  Absence of financial and human resource manuals 17 National Council of Sports  Un updated financial accounting manual 18 Uganda Export Promotion  Lack of approved accounting manual Board

Absence of these operational procedural manuals may lead to inconsistent application of human resource, financial, and other matters; in addition absence of these documents affects management‘s ability to monitor and regulate internal operations and improve on internal controls. I advised of the affected entities to put in place operational procedural manuals as a way of strengthening internal controls in these organizations. c. Unaccounted for Expenditure shs 780,833,848 During the year under review Thirteen (13) Statutory corporations and state enterprises had material weaknesses in expenditure management. Advances made to staff for carrying out specific activities still remained unaccounted for at the year end. In addition, several payments were made which could have been avoided (nugatory expenditure) had proper planning and sound management practices been put in place. Instances of unrecovered revenues, unauthorized use of revenues and expenditure lacking supporting documents were noted. These are shown in table 10 below;

Table 10 Unaccounted for Expenditure Audit entity Un accounted for Expendituture Dairy Development  Payments amounting to shs 2,333,000 were incompletely 1 Authority vouched and remained unaccounted for at year end. National Council for  Unaccounted for expenditure of shs 7,500,000 at year 2 Higher Education end National Forestry  Payments advanced to various staff amounting to shs 3 Authority 119,735,959 remained unaccounted for at year end. Uganda Medical and Dental Practitioners  Stores procurement worth shs 18,941,000 not taken on 4 Council charge and therefore unaccounted for  Payments worth shs.33,878,500 remained Unaccounted for at year end.  Irregular payments shs 98,367,132 Law development  Expenditure of shs 2,129,000 lacked supporting 5 Centre documentation and remains unaccounted for. National Council for  Payments of shs 8,062,000 remained unaccounted for at 6 Children year end. National Youth  Advances to staff amounting to shs 9,680,000 remained 7 Council unaccounted for at year end. National Council for 8 Disability  Council incurred nugatory expenditure of shs 26,031,000 9 Uganda Bureau of  Advances to staff of shs235,523,900 remained

Standards unaccounted for at year end.  Payments of shs 335,212,000 lacked accountability documents 10 National Youth  Un unaccounted for funds Shs.5,900,000 Council 11 Nakivubo War  Un recovered concession revenue of shs. 181,756,580 Memorial Stadium  Advances of shs. 18,323,124 remained un accounted for. 12 National Council for  Doubtful expenditure of shs. 6,521,700 Higher Education  Lack of internal audit function  Un authorized use of revenue shs. 258,851,783  Advances to various of shs.7,500,000 remained un accounted for  Expenditure of shs. 3,027,051 lacked supporting documents and remained un accounted for. 13 Uganda export  Un accounted for advances of shs. 72,478,065 Promotions Board

Included in this expenditure weaknesses are outstanding staff advances amounting to Shs.333,243,965; Incompletely vouched expenditure shs.342,701,051; doubtful expenditure shs.104,888,832. During the course of audit the Accounting officers pledged to avail the accountabilities to these payments, however the relevant supporting documents were not submitted by the time of this report.

Unaccounted for Expenditure Category Amount shs

Unaccounted for advances 333,243,965 Incompletely vouched expenditure 342,701,051 Doubtful expenditure 104,888,832 Total 780,833,848

Figure 2 Unaccounted for Expenditure

Unacounted for Expenditure Doubtful expenditure 13%

Unaccounted Unaccounted for for advances 43% advances Incompletely vouched expenditure Doubtful expenditure

Incompletely vouched expenditure 44%

I advised the affected entities to ensure funds are accounted for or recovered from the concerned staff in accordance with the financial and accounting regulations.

1.4.8 Delay and Non submission of Financial Statements for audit The public finance and accountability Act requires statutory corporations, commissions, authorities and state enterprises to submit draft financial statements to the Auditor General for audit within three months after the end of the financial years to which they relate; however it was noted that fifteen (15) entities did not submit draft financial statements for audit while others submitted their financial statements late, many of them several years in arrears. This is a major problem which has been contributing to backlog of audits in the previous years.

1.4.9 Performance Review of Public Organizations Audit of financial statements of public organizations revealed that some entities have been operating profitably while others have been operating at a loss. Financial standing of these entities has been evaluated basing on the accumulated surplus or deficit as at 30th June, 2010, 31st December, 2009, 31st October 2009 and 30th September, 2009 depending on the year end of the financial years of these entities.

An analysis of financial statements of thirty eight (38) entities in Appendix 2 whose accounts were certified during the year revealed that ten (10) made losses totaling shs.55,188,685,981 as shown in the table 11 below ;

Table11 Statement of financial performance

No Statutory Authority/State Surplus/Deficit for the Accumulated Enterprise year Surplus/Deficit for the year

1 Bank of Uganda (BOU) (30,292,000,000) 980,554,000,000 2 Kilembe Mines Ltd (KML) (3,271,014,566) (29,890,538,143) 3 Electricity Regulatory Authority (165,436,249) 1,932,904,260 (ERA) 4 National Planning (191,831,632) 312,392,470 Authority(NPA) 5 National Forestry Authority (3,268,898,000) (4,155,140,000) (NFA) 6 Uganda Coffee Development (170,530,964) 1,646,769,710 Authority (UCDA) 7 Post Bank Uganda Ltd (167,039,944) 3,485,822,139 8 Uganda Electricity Generation (8,653,492,000) (74,236,290,000) Co Ltd (UEGCL) 9 Uganda Electricity Transmission (7,844,397,000) (33,373,998,000) Co Ltd (UETCL) 10 Uganda Revenue (1,164,045,626) 5,355,817,118 Authority(URA) Total (55,188,685,981)

It was further noted that four (4) of the ten (10) organizations that made losses during the year had accumulated losses from previous years. The earlier efforts are made to reverse this trend the better for the economy.

1.5 REGIONAL AUDITS Uganda is a member of the following Regional Intergovernmental Organizations namely;  Intergovernmental Standing Committee on Shipping (ISCOS)  Northern Corridor Transit Transport Coordinating Authority (NCTTCA);  Common Market for Eastern and Southern Africa (COMESA)  East African Community (EAC).  Lake Victoria Fisheries Research Organization

During the year, the Auditor General audited Lake Victoria fisheries organization (LVFO) financial statements for the year ended 30th June 2009 while financial statements for the year ended 30th June 2010 had not been submitted by time of this report to enable an opinion be issued to the Council of Ministers responsible for this regional organization.

1.6 STATUS OF BUSINESS BEFORE COSASE The Parliamentary oversight Committee on Statutory Authorities and State Enterprises (COSASE) is responsible for reviewing and making recommendations on audit reports and subsequently reporting to Parliament on their resolutions.

Finished reports awaiting consideration by the House Three (3) reports were finished awaiting consideration by the House on performance of the following audit statutory authorities and enterprises;

Table 12 Reports considered by COSASE No Audit Entity Financial years covered 1 Uganda Property Holdings Ltd June 2001 to June 2007 2 Amnesty Commission June 2001 to June 2008 3 Amber House Ltd Dec 2004 to Dec 2006

Finished report awaiting tabling to the House One (1) report was finished awaiting tabling to the House on the Performance of the Uganda Communications Commission for the period June 2000 to June 2007. Awaiting Committee Consideration  The Report on the Performance of the National Housing and Construction Company Limited from Dec 2000 to Dec 2005.  The Report on the Performance of the Uganda Revenue Authority from June 1997 to June 2008  The Report on the Value for Money Audit Report on the Distribution of Water to Urban Areas by the National Water and Sewerage Corporation from July2004 to December 2007.

 The Report on the Performance of the Cotton Development Organisation from October 1999 to October 2008.

PART TWO

This Section outlines the detailed audit findings, management response, and the recommendations in respect thereof;

FINANCE AND PLANNING SECTION

2.1 BANK OF UGANDA - JUNE 2010

2.1.1 Financial Control and Compliance Issues

a. Un updated accounting manual The Bank of Uganda accounting manual was last updated in April, 2002. The International Acc Stand. Board has made changes in a number of standards that affect the Bank and these changes have not been included in the manual. The amended standards include IAS 1, IFRS 7 Financial Instruments Presentation, among others. In addition, the following major accounting policies for the Bank are not included:  Recognition, measurement and derecognition of Financial liabilities,  Impairment of financial assets.

Delay in updating the accounting manual may lead to inability to apply the latest requirements. Taking into consideration that the bank‘s transactions are mainly in financial instruments, there is risk that recognition, measurement and disclosure of such instruments is not adequate and proper. I advised management to update the accounting manual to reflect changes in IFRS. I await the outcome.

b. Clearing of Cheques Denominated in Foreign Currencies During the year ended 30th June 2010, the Bank started clearing cheques denominated in foreign currencies with various commercial banks in Uganda. The Bank consequently opened accounts for the foreign denominated balances which included among others US dollars, GBP, Euros and KShs.

The clearing of cheques and all transactions with commercial banks is supposed to be done through the Real Time Gross Settlement (RTGS) to which the commercial banks have access. It was however noted that the RTGS system operated by Bank of Uganda can only support Uganda Shillings denominated transactions and therefore cannot support the foreign denominated transactions and currencies. Bank of Uganda therefore developed an in-house sub ledger (PAS) in which all foreign denominated clearing transactions with commercial banks are passed. Confirmations with the various commercial banks revealed a number of differences between the commercial banks foreign clearing balances and the balances held in the books of Bank of Uganda. The differences were mainly due to posting errors and untimely posting of transactions. Lack of a robust system that supports foreign clearing of commercial banks cheques leads to errors of posting and translation by the Bank resulting into losses. I advised the Bank to consider upgrading the RTGS system to support clearing of cheques denominated in foreign currencies. Management is instead considering changing the service provider. I await the outcome. c. Central Depository System (CDS) The Bank uses a Central Depository System (CDS) as a one stop point for the accounting of securities held on behalf of Government of Uganda.

Repurchase agreements (Repos) is one of the monetary policy tools used by Bank of Uganda in injecting or moping liquidity out of the market on very short terms of normally 14 days and below. Audit however noted that the repos transactions are done manually in excel and only face values are posted to the CDS. A review of the reconciliation for repos as at 30 June 2010 indicated the following:  Disbursements from treasury worth Shs.23.7 billion still appear as reconciling items on the reconciliation implying that they were not posted in CDS.  There was interest paid in the CDS and not in the ledger amounting to Shs.1 billion with some transactions dating as far back as 2002.  There was interest paid in the General ledger but not in the CDS amounting to Shs.755 million with some transactions dating as far back as 2002. 43

I informed management that manual preparation of reports relating to repos is prone to human error and that lack of timely resolution and investigation of reconciling items relating to repo interest might lead to errors not being corrected timely and meaningful action not being taken timely. I advised management to ensure that the issues relating to Repos interest are considered in the new Central Depository System that is being implemented to which it reaffirmed that this will be considered in February 2011. They further stated that the PSD will continue to work with other stakeholders (EDF and DFM & IT) to ensure that all outstanding issues are conclusively resolved before data migration to the new system. In the meantime, there is a task force of five people who look at the daily transactions and report on a daily basis. d. Staff loans The Bank prepares staff loan balances reconciliations between the sub ledger and the general ledger. It was however noted that the reconciliations had long outstanding reconciling items some dating as far back as September 2009. It was also noted that there are some loans due from staff who have left the Bank that have been outstanding for more than 5 years. Also lack of timely resolution of reconciling items might lead to transactions being omitted from the financial statements. Lack of timely recovery of amounts due from ex-staff exposes the Bank to the risk of loss of the outstanding amounts. I asked the bank to timely investigate and resolve all reconciling items. Management should also put in place measures to ensure that when staffs are leaving the Bank, there are adequate arrangements for recovering the outstanding loans and advances. Such arrangements could include recovering the outstanding amounts from terminal benefits. In their response, management stated that the recommendation is being implemented already but the terminal benefits are at times not sufficient to cover the loans/advances. Recovery of loans has also been handed over to external lawyers for possible litigation.

e. Compliance with Bank of Uganda Act & the Public Finance and Accountability Act (PFAA), 2003

According to the Bank of Uganda Act, Section 29 Credit and other operations (1) The Bank may grant advances to its customers (including Government) for fixed periods not exceeding three months against publicly issued treasury bills of the Government maturing within ninety three days. Section 33 Temporary advances; (1) The bank may make temporary advances to the Government and local governments in respect of temporary deficiencies of recurrent revenue; (2) The Treasury shall, at the beginning of each financial year, identify and submit to the bank all its requirements for temporary advances for that year; and the bank shall, operate within that requirement.

According to the PFAA, 2003 Section 20, Authority to raise loans; (3) With the exception of any loans raised for the purpose of treasury and monetary policy management purposes, the terms and conditions of any loan shall be laid before Parliament and shall not come into operation unless they have been approved by a resolution of Parliament. During the year, the Bank made advances to Government e.g. Ministry of Defence exceeding three months. The advances had not been projected by the Treasury and were not approved by Parliament.

Non compliance with the Bank of Uganda Act and Public Finance & Accountability Act 2003 might lead to legal cases being lodged against the Bank and incase of nonpayment, it may be difficult for the bank to enforce payments.

I advised the Bank to ensure that the Bank of Uganda Act and PFAA are complied with in regards to advances to Government. In case some of the provisions are no longer considered to be practicable, the need for amending the Acts should be explored and cross checked.

Although management responded that the Bank of Uganda Act notwithstanding, the Government is a shareholder of the Bank and may request for funding of critical activities from time to time and that a Memorandum of Understanding may be signed between the two parties, I did not get evidence of a Memorandum of Understanding between BOU and Government regarding advances. f. Bank of Uganda Reserves The Bank‘s performance has been affected significantly by the effects of the global financial crisis. For example, interest income decreased from Shs.114 billion for the year ended 30 June 2009 to Shs.38 billion for the year ended 30 June 2010, representing a decrease of over 67%. At the same time, the Bank‘s expenses increased from Shs.138bn for the year ended 30 June 2009 to Shs.204 billion for the year ended 30 June 2010, representing an increase of over 48%. Over the same period, the Bank‘s capital reserves including unrealized foreign exchange gains have reduced from Shs.1,080 billion to Shs.1,046 billion. However, on exclusion of the foreign exchange differences, the Bank‘s reserves have decreased from Shs.234,527 billion to Shs.90,651 billion. The trend of the Bank‘s operating results indicates that the Bank‘s capital reserves excluding foreign exchange gains have been significantly eroded. This is expected to continue as the Bank is projecting to make operating losses for the financial year 2010/11. Note that the foreign exchange gains are not realized and would change into foreign exchange losses in case of appreciation of the Uganda Shilling. The Bank‘s capital might be impaired in the near future and may require Government intervention as per Article 14(4) of the Bank of Uganda Act. I advised management that the Bank‘s operations should be critically monitored with a view of improving the operating results i.e. improve earnings and minimize operating costs. The Bank should also consider reassessing its investment policy with a view to improving and widening the sources of income. There is also need to control both operating and capital expenditure to minimize further erosion of the capital reserves.

In their response management stated that they were considering ways and means of enhancing the Bank‘s income and controlling expenditure, although they are constrained by the low interest rates still prevailing in the international markets. g. Loans to Basajjabalaba Hides & Skins Limited In 2003, the Bank guaranteed loans of Shs.21,091,491,676 (equivalent to USD 11 million) to Basajjabalaba Hides & Skins Limited (BSL) on behalf of Government. The guarantee was called by BSL bankers and the amount was outstanding at the time of audit. Bank of Uganda sued for the recovery of the amount and a consent judgment was entered into on 29 January 2010 which required BSL to pay to Bank of Uganda Shs.21,091,491,676 within six months. In the event that BSL does not pay the amount as agreed, the Bank was entitled to liquidate the securities (land titles) held as collateral. The outstanding amount had not been recovered as of 13 September 2010. It was not explained why the bank did not exercise the option of liquidating the securities. It was also noted that the Bank did not undertake a valuation of the properties held as collateral to establish if the value is adequate to cover the outstanding obligation. The outstanding balance may not be fully recovered in the event that the value of the properties held is not adequate to cover the entire obligation of Shs.21 billion. I advised the Bank to either liquidate the securities or follow up with Government (as the guarantors) and ensure that the outstanding amount is recovered. h. Distribution of profits & Losses between Government of Uganda and Bank of Uganda According to Section 16 of the Bank of Uganda Act, at the end of each financial year of the bank and after:  Making good the authorized capital and Reserve Fund balance.  Allowing for expenses of operation;  Making provision for bad and doubtful debts;  Making provision for depreciation of assets;  Contributing to any scheme or fund established under this Act, and  Taking into consideration any other contingencies,

Any net profits or losses from the Bank‘s operations shall be shared between the Bank and the Government in respective proportions of 25 percent and 75 percent. Article 16 further stipulates that, in determining the profits and loss at the end of each financial year, the accounts shall clearly distinguish profits or loss arising from the normal operations of the bank and those resulting from profits or loss from exchange fluctuation. The Bank incurred a net loss of Shs.142,077 million after taking into consideration the unrealized foreign exchange gains of Shs.109,767 million. The operating results imply that the Bank‘s reserves have been eroded and the Bank may strained in meeting its mandates if corrective action is not taken.

The Bank should comply with the provisions stipulated in Article 16 of the Bank of Uganda Act and ensure that measures are taken to minimize the impact of the 2010 operating results on the Bank‘s operations. The Bank agreed to present the audited financial statements to the Minister of Finance, Planning and Economic Development and the Board will advise the Minister accordingly.

2.1.2 NSSF and Taxation Issues

a. VAT Registration The Bank is not VAT registered on the basis that it deals mainly in financial services which are exempt supplies for VAT purposes. However, the Bank earns rental income which is a standard rated supply. The rental income earned in the year exceeded Shs.50,000,000 which is the registration threshold. The Bank also disposed off assets and imports services which are standard rated. The Bank is therefore required by law to have registered for VAT and thus account for VAT on its taxable sales. Non registration could expose the bank to tax obligations and penalties by the Tax Authority. I advised the Bank to engage a tax consultant to review its VAT registration status and implement the recommended actions.

b. NSSF on Staff Bonus The Bank paid bonus to staff in December 2009. This was subjected to PAYE but not NSSF. The NSSF Act requires that all wages are subjected to NSSF and the bonus payment wage should have been subjected NSSF. There is a risk of exposure to NSSF obligations and penalties. I advised management to always make NSSF contributions on bonus paid to staff as this constitutes a wage on which NSSF is due.

2.1.3 Information Technology Issues

a. Multiple Network Sessions During the review, it was identified that users are allowed multiple concurrent login sessions on the network, i.e. one user can sign onto the network on more than one computer on the same network at the same time, with the same user id and password. There is a risk that if a legitimate user account is compromised, the illegitimate user could login and access the system at the same time a legitimate user is accessing the system and this increases the risk of repudiation and lack of accountability in case fraudulent activities are being investigated. I advised management that;  Where technically feasible, all user accounts should be restricted to a single concurrent login.  For example, configuration of the number of allowable concurrent logins per user is possible for the following systems at BOU:  Windows 2003 Server for the Domain Controller, you can use the ―Limit Login utility‖ available in Windows.  For Oracle 10g database can enforce some limits on the session usage through profiles e.g. ―Sessions per user.‖

 If such a manifestation is not supported by the architectural design of the core applications, then management ought to consult with the vendor to implement this control.

 In the meantime, I recommended to management to implement compensating controls such as:  Logging all failed login attempts  Reviewing audit logs on a regular basis.  Periodic user access validation should be performed. b. Password Settings During the audit, the following weaknesses were noted as regards password controls:

i. EFT Interface Module EFT interface module does not have inbuilt capabilities to allow for adequate password configurations. Therefore a user can use EFT without needing a password since the system will not prompt them to create one.

ii. CDS Application level CDS application does not have enforced password settings at the application level. Users logon using a user name and ID, however, password complexity, minimum password length, and password history are not enforced.

This is not in-line with leafing practice, and increases the risk of unauthorized access to the network and applications. I advised management that password controls be introduced like;  Password change on first log on should be enforced;  Passwords should be reset after 30 day intervals;  Passwords should have a minimum of 8 characters;  A minimum password history of 6 should be maintained, to ensure that passwords are not repeated;  User access should be ‗locked‘ after 3 unsuccessful logon attempts, and subsequently reset by the IT department;  An automated ―log-out‖ of users after 15 minutes of inactivity on the network.  A log of unsuccessful logons should be maintained, and reviewed by senior personnel; and

The policy should be communicated and made available to all employees, stressing its importance and adherence. Management stated that the EFT interface will be discontinued with the implementation in internet banking through the BBS and that the current CDS will be replaced with a CSD System by February 2011 which has features to overcome the constraints, by February 2011. c. Monitoring User Access It was noted that although there is a monitoring of user accounts to identify dormant accounts on the domain controller, for other applications were reviewed i.e. CDS. EFT. Oracle IFS. FERMS, SWIFT and RTGS, there was no evidence to show periodic user access review. The risk involves people having access to bank data, information and resources, after they have left, have been transferred or are away from the office for an extended period of time. I advised the bank to periodically validate user access to identify any dormant accounts and those with insignificant usage. These accounts should be reviewed, and closed/locked. d. Lack of Regular Review of Audit Trails-Internal Audit Function It was noted that for the applications reviewed during the audit namely, EFT, FERMS, RTGS, IFS and SWIFT, there are audit trails. However, there was no evidence to show that the audit trails or event logs are reviewed periodically. It was further noted that CDS application does not have a sufficient audit trail inbuilt in the system and it is also unable to generate an audit trail report. In the absence of reviewing audit logs/trails the following could occur:  Security violations (by both authorized and unauthorized users) may not be detected; and  Accountability for unauthorized activities would be impossible to establish.

I advised management that audit features should be enabled and violation reports should be reviewed regularly and signed as evidence of review.

2.1.4 Follow up of Issues arising from Previous Audits

a. Board Composition The Constitution provides that the Board should constitute the Governor, Deputy Governor and five other non executive directors. Following the passing on of one Board member, in June 2008, no replacement has been made and the bank currently has four non-executive directors. The appointment of directors to the Bank‘s Board of Directors should be done timely to ensure that the Bank is in compliance with the Constitution. Management responded that the Minister of Finance has notified the President of the Republic of Uganda, as the appointing authority of the vacancy and they await his action.

b. Risk Management Methodology The risk management function of the Bank is carried out by the Business Continuity and Risk Management Office. We noted the following relating to the way risk management is carried out:-  Identification of risks and action plans for mitigating the risks are done by the individual departments.  There is no clear follow up monitoring of the action plans i.e. whether they are being actioned.  The Risk Management Committee met only twice during the year. The following recommendations were suggested:  Risk assessment should also be done taking into consideration the Bank as a whole.  Action plans should be followed up for all risks identified and time-lines set for their implementation. Implementation progress should be reported to the Risk Management Committee. The risk committee should meet regularly to discuss key results and challenges.

The following areas of improvement were noted: The basis used by management in identifying and assessing risks is subjective and only includes qualitative factors without any basis for quantitative factors that might affect the risk rating or gracing. The risks are identified in each department and the coordination of the same is done by the Head of Department without involvement of the BCRM office at the risk identification level i.e. BCRM‘s role is to compile the risks and report to the risk committee without having any technical input in the process and overall analysis of the risks at a strategic level in line with the Bank‘s objectives and strategies.

In their response management stated that they recognized the problem and the Audit Committee of the Board has taken up this issue and will make a proposal to Management to address the above problem. A new methodology of assessing risk including quantitative factors has been incorporated in the revised risk management framework and was implemented for the risk assessment for the quarter ended June 30, 2010. The departments own the risks and are responsible for the assessment of each risk. SRM has been involved by providing requisite training for the staff assigned to carry out the task. The Bank manages financial risk through the existing structures in the departments such as Financial Markets Department and pertinent committees. SRM in its report to the Risk Management Committee recommended that a framework for the management of financial risk should be put in place. c. Leasehold Land It was noted that the bank leases land from city and municipal councils. The Bank resolved to convert the lease arrangements to freehold in line with the Uganda Land Act. The Bank also revalued the land currently held under lease arrangements and recognized revaluation gains and amortization changes. The revaluation was done to reflect the substance of the lease arrangements and hence the value of the economic benefits derived from the land in the Bank‘s financial statements.

It was noted that the conversion process had been slow. By the time audit, only ten (10) properties were in the process of being converted from leasehold to freehold and no action had been taken for the other thirteen (13) properties. It was further noted that some municipal councils e.g. Gulu and Arua had objected to the Bank‘s initial application but the Bank has not taken any steps aimed at resolving the objection. I advised the Bank to expedite the conversion process to ensure that the intended objectives are achieved.

Management stated that the Bank has started the process of conversion; however, the process has been delayed because many municipalities do not want to lose revenue as a result of conversion of land under their jurisdiction to freehold. The Banks property Consultants promised to pursue special approval in respect of Bank of Uganda Properties. d. Overdrawn Government Accounts Section 20 (1) of the Public Finance and Accountability Act states that ―the authority to raise money by loan, to issue guarantees and to accept grants for and on behalf of the government shall vest solely in the Minister and no other person, public organization or local government council shall, without the prior approval of the Minister, raise any loan or issues any guarantee, or take any other action which may in any way either directly or indirectly result in a liability being incurred by the government‖. Based on audit review and discussions with management, the governments over drawn accounts are largely attributed to withdrawals from accounts with insufficient funds, errors in postings (double postings) and disputed charges on government accounts arising from open letters of credit and guarantees. We did not see any evidence of the Minister‘s approval for any of the government overdrawn accounts we reviewed. I advised management to investigate all government overdrawn accounts to ascertain the cause and corrective action be immediately taken to normalize these accounts.

It was further noted that there were accounts that were overdrawn since 30 June 2009. The overdrawn balance amounted to Shs.3.188 trillion. However, following the implementation of Bank of Uganda Banking System, management is in the process of resolving the overdrawn accounts with the Accountant General. Going forward, the new system will not allow payments where there are no funds on the account and this shall prevent the overdrawing of Government accounts. Management stated that the Accountant General promised to resolve all the government overdrawn accounts prior to June 2010. I await the outcome of the process. e. Government Payments are made without Reference to the Available Cash Balance on the Account Upon receipt of the EFT payment instructions, the necessary payment approval procedures are performed by the responsible officers in the banking department, before payments are processed and made to the respective payees. The payments are processed through the Electronic Clearing House Operations (ECHO), which interfaces with the Integrated Banking Application (IBA). It was however, noted that at the point of payment at ECHO, there is no link or reference to the integrated Financial System (general ledger) to ascertain whether there are adequate funds on the respective government accounts before any payment is made. Recommendation was that Management should review the EFT system with the view of introducing an automatic interface with the Integrated Financial System (general ledger) and IBA, to enable viewing of government account balances before the EFT instructions are approved for payment. The system should further, be configured to reject any EFT payments from the accounts with insufficient funds.

It was further noted that there were instances of accounts being overdrawn due to the fact that there was no check performed to confirm that there were sufficient funds on the account before the payments are honored. However, following the implementation of Bank of Uganda Banking System, the Bank can only make payments on accounts with funds and payments on accounts with insufficient funds cannot be processed by the system.

Management responded that;  The implementation of the BBS cannot make payment off an account without sufficient finding of approved overdraft.  All old systems i.e. IBA and PAS have been discontinued. f. EFT Payment Instructions Bank of Uganda introduced the Electronic Funds Transfer mode of payment for Governments in 2008/09. EFT payment instructions are sent to Bank of Uganda in a coded format from the Ministry of Finance, Planning and Economic Development through the Integrated Financial Management System (IFMS). The coded payment instructions are decoded by the respective staff in the Payment Section within the banking department using a standalone computer before they are uploaded onto the Integrated Banking Application (IBA) for processing of the payments. It was noted that the decoded payment instructions are in a text file format, which can be edited before effecting the funds transfer. Therefore, the EFT payment instructions are susceptible to alteration by the person(s) receiving and decoding the payment instructions. It was recommended was that Management should review the EFT system with the view of enabling generation of decoded payment instructions in a format that cannot be edited. i.e. ‗read only formats‘ or ‗view and print only screen‘. This will safeguard the integrity of the payment instructions.

It was still noted that EFT payments are still being sent in text format. We however, noted that following the implementation of the new BBS system, the Bank will no longer receive EFT instructions from government.

Management responded that;  With the implementation of BBS the files are now being processed on Straight through Process (STP) Basis without human intervention.  The EFT files are submitted in encrypted format.

g. NSSF on Gratuity Bank of Uganda paid out gratuity which was a cash emolument. However, the Bank does not compute NSSF deductions on the contribution on the gratuity payments. Also no NSSF deductions were computed on leave pay commutations. I recommended that the Bank engages NSSF and obtain a formal position on this matter. In case the position is NSSF is payable on gratuity payments, the Bank should compute and remit the NSSF on all cash emoluments.

In their response management stated that currently, there was no explicit guidance on whether gratuity qualifies as an employee benefit (‗Cash wage‘) that should be subjected to NSSF. There is a possibility that the gratuity could be deemed by NSSF as qualifying for NSSF deductions. I advise management to seek a legal opinion on this matter and take corrective measures, if necessary.

Management stated that they are still studying the issue further. However, their preliminary view is that payments meant to be effected under the NSSF Act are wages payable to an employee on a monthly basis and not other cash benefits e.g. long service awards, bonuses, etc. which an employee may get from the employer. h. Staff Canteen Bank of Uganda provides meals to its entire staff. The canteens are segregated into different levels i.e. Junior, Middle Executive, Executive and the Governor‘s canteen This can be construed to be provision of meals but not on an inequitable basis by the tax authorities. The Bank‘s position is that the meals are provided on equitable terms to all staff and this can be proved beyond reasonable doubt. However, this proof has not been discussed and agreed with Uganda Revenue Authority (URA). I advised that the Bank engages URA and obtain a formal position on this matter. In case the position is that the meals are a taxable benefit, the Bank should compute and remit all outstanding liabilities.

In response, management stated that it deems the meals are on equitable basis. However, this is subjective and URA could construe this to be provision of meals on

an inequitable basis. I advised the Bank to engage URA and obtain written advice on this matter. This should safeguard the bank from potential penalties.

2.2 UGANDA APEX PRIVATE ENTERPRISE LOAN SCHEME - JUNE 2009

2.2.1 Late repayment of funds to EIB Article 5.03 of the financing controls stipulates that the interest and principle due annually is payable to the European Investment Bank (EIB) on their due dates in each year and will be deemed paid when received by EIB.

According to Article 3.02 (Damages on overdue sums), if any funds here under are paid late, the Government of Uganda represented by the Ministry of Finance, Planning and Economic Development shall become liable to pay damages at an annual rate of 4.5% above the rate of interest determined under article 3.01A as 1% of the outstanding loan balance. This is computed on the unpaid sum from the due date to the actual date of payment.

From a review of remittances of principal and interest to EIB, it was noted that these funds were not paid on due dates and as a result penalty charges were imposed on the scheme as follows:

Apex Actual Interest Due date Actual Penalty scheme principal due/paid payment charged paid date /paid EUROS EUROS EUROS IIIA 1,250,000 187,500.00 2 Dec 2008 10 Dec 2008 2,070.22 IIIB 1,875,000 131,250.00 25 Nov 28 Nov 908.83 2008 2008 IV 2,500,000 286,434.17 01 Oct 20 April 84,701.23 2008 2009

This is an additional expense to the Government of Uganda.

Management was advised to liaise with the Ministry to ensure timely repayments of funds as stipulated in the finance agreements since failure to comply with the terms and conditions of the agreement may expose the scheme to penalties and hence an additional expense to Government of Uganda.

Management in response stated that Government of Uganda, through Ministry of Finance made a prepayment to EIB under Apex IV for loans that were pre-maturely paid off (Sokoni & Colline Hotel) on 15th July 2008. The Ministry consequently assumed that the amortization schedule would change following the prepayment and so no instructions were sent to Bank of Uganda to pay the debt. However, EIB billed as per original amortization schedule.

2.2.2 Transfer of receipts to the Uganda Consolidated Fund The Government of Uganda represented by the Ministry of Finance, Planning and Economic Development entered into an agreement with Bank of Uganda as the implementing agency for the Apex scheme on behalf of the Government. Bank of Uganda as the implementing agency received standing instructions from MoFPED in the letter dated December 31 2008 from the Accountant General requesting BOU to transfer all the receipts from Apex to the Uganda Consolidated Fund (UCF) as and when it is received.

Ideally the recoveries from the Approved Financial Institutions (AFIs) should be utilized to service the EIB debt and it was noted that Bank of Uganda bills semi annually- December for both interest and principal and, June for interest only.

However, a review of transfers to the UCF indicated that BOU only remitted the principal and not the interest received amounting to Ushs.3.3 billion as summarized in the table below. In addition, the last transfer of interest received to the UCF was done in March 2008 and as at the time of the audit, no transfer had been made thereof.

Apex scheme Interest received from the billings UGSHS II 860,232,766 III 1,734,832,537 IV 737,736,897 Total 3,332,802,200

Management is advised to ensure timely transfer of funds to the UCF because failure to remit funds as per standing instructions from the line ministry may be deemed a non compliance which could lead to strained relationship between BOU-Apex scheme and the line ministry.

Management in response acknowledged the omission and stated that the transfer affected in February 2009 was inadvertently considered to have included both principal and interest reflows.

2.2.3 Unresolved matters from previous audits Some issues highlighted for action in previous audit reports remained unresolved at the time of the current audit as detailed below:-

a. Expired channeling agreement The Government of Uganda represented by Ministry of Finance, Planning and Economic Development entered into a contract with Bank of Uganda as the implementing agency for the Apex scheme on behalf of Government. The contract highlights budget for such project activities are paid out of the Government on lending margin account in BOU.

The last channeling agreement was signed on the 15th September 2006 with a tenure of one year and there is no evidence of a new approved budget for meeting the project costs. Subsequently, expenditure for onsite monitoring of funded sub projects and costs of audit fees have been met by BOU.

From a review of correspondence on file, it was noted that BOU wrote to the Ministry requesting for a new channeling agreement to no avail. In order to sustain project monitoring, and also comply with the Finance Contract, BOU has continued to meet these expenses.

It was recommended that management should continue to pursue the channeling agreement to be used for monitoring the project until it is wound up. b. Foreign Exchange equalization Fund(FEEF) The finance contract between Government of Uganda (GOU) and the EIB stipulates that a Foreign Exchange Equalization Fund (FEEF) should be set up by the Development Finance Department (DFD) which would then be used for  Paying the realized foreign exchange losses on interest and principal payments due to EIB; and  in the event that there is an outstanding balance on the FEEF, the balance is to be transferred to the borrower (GOU).

However where the FEEF balance cannot cover the accumulated foreign exchange losses GOU can apply to EIB for a waiver of the outstanding principal/interest due to EIB.

Although loan repayments and interest have been made from the scheme funds, as a result of accumulated exchange losses the project will not have adequate resources to meet future obligations to the European Investment Bank (EIB).

It was recommended that the BOU/DFD APEX scheme management initiates discussions with GOU through MFPED to explain the circumstances that led to the accumulated exchange loss on the FEEF account and suggest other sources of money from which the loan will be repaid.

Management in response stated that they had informed Ministry of Finance to enable her plan and follow up with EIB accordingly, but noted that the Government debt is not paid directly from proceeds of the project reflows.

c. Commercial Advisory Fund The financing contracts between Government of Uganda (GOU) and the EIB do not incorporate a component of the commercial advisory fund which would be used for booking expenses incurred. It was recommended that the project management initiates a proposal to The Ministry of Finance and Economic Development to have riders to the finance contracts for APEX I, II, III prepared in order to incorporate a component of the commercial advisory fund from which expenses will be incurred. Management in response stated that the proposal was pending Ministry of Finance approval.

2.3 UGANDA DEVELOPMENT BANK - DECEMBER 2009

2.3.1 Outdated financial policies and procedures manual The bank is yet to update its accounting and procedures manual. The financial policies and procedures manual currently used by the finance department was last updated in 1999. Having no up to date financial policies and procedures manual means that employees in the finance and accounting department will not be aware of the latest accounting policies and operating procedures used by the bank implying that all activities will be from an uninformed point of view and they may not be aware of the relevant disclosures to be made in the financial statements. In addition, lack of procedure manuals that spell out in detail the policies and procedures guiding the company‘s day to day activities could lead to staff ignoring crucial procedures when executing their duties. Management was advised to consider the preparation and maintenance of a written and up to date standard accounting policies and operating procedures manual. Accounting staff should be trained to the extent necessary to understand and apply them. The manual should include, as a minimum:  Organization of the finance department  Accounting policies of the company  Accounting procedures and controls for each transaction type

 Financial reports to be prepared, and the checking and distribution of each of these  Chart of accounts

Managements stated that a consultant was being sourced/procured to develop, evaluate and update on accounting manual before October 2010.

2.3.2 Absence of a risk management policy The bank has not yet put in place a formal risk management policy framework which spells out the various risks it is likely to face, their causes and measures to be under taken to mitigate such risks. Taking into consideration the nature of business – banking (inherently risky), without a risk management manual or formal risk management framework in place, management may not be able to adequately and timely identify, monitor and respond to risks. I advised that management should design and document a risk management framework that takes into consideration all the risks to which the bank is exposed.

2.3.3 Out dated business strategy The bank is yet to formalise and update its long-term strategy. Top management has been relying more on short-term plans/budgets designed to guide the company through short successive periods. The Bank‘s long term strategy was last updated in 2004. Absence of a long term strategy with properly laid out goals and objectives deprives the company of the ability to anticipate problems, from both within and outside the company, and customize solutions accordingly. It also promotes adhoc decision making which may not be in the interest of long term development of the bank. I have asked management to design a long-term strategic plan to drive the company. The plan should incorporate at the least; mission statement, goals and objectives, business strategies, and critical success factors It is from the strategic plan that management should design short term plans to cater for shorter periods of time. A strategic plan will not only make the company more competitive, but will also ensure any problems are anticipated and solved in time.

Management stated that they are in the process of reviewing and updating the long term business strategy.

2.3.4 Lack of Audited accounts from the Associated Company UDBL obtained shares from Kajjansi Roses as part settlement for a loan given to Kajjansi Roses the client who had defaulted. On 1 July 2002 an agreement was signed between UDBL, Kajjansi Roses & Muljibhai Madhvani & co ltd in which shares were issued to UDB. As a result of this, Uganda Development Bank‘s interest in Kajjansi Roses increased to 28% turning the investment into an associate which according to accounting standards is to be recorded using the equity method. The bank does not however account for this investment in accordance with the requirements of the standard. This hinders decision makers from making informed decisions based on information provided in the financial statements, especially on the profitability and performance of the associate. It also makes it difficult for tax authorities to make a correct assessment of the bank‘s taxation payable which exposes the bank to corporation taxes including penalties compounded on such income I advised management to prepare and maintain the financial statements of the bank in accordance with the international financial reporting standards to ensure consistency and reliability of the information contained in the financial statements. In their response management stated that the audited accounts of Kajjansi Roses were not available because the Board of Directors of Kajjansi Roses Ltd had not met to approve the audited accounts and as such the bank could not account for its share in this investment. The accounts have since been signed. However, the bank is in the process of divesting its interests in Kajjansi Roses. They have received the June 2010 management accounts and are reviewing them. Management is advised to carry out a due diligence before divestiture to ensure a fair and transparent process to protect government interests.

2.3.5 Loan disbursement and filing procedures From a review of the controls around the credit monitoring and review process, the following deficiencies were noted:- Loan files that lacked copies of latest audited financial statements:

 GAF Apartments and Entertainment Centre ltd  Lake Mugogo resort company ltd  Garuga resort beach hotel ltd  Zigoti coffee works ltd

In addition, there was no evidence of insurance of securities held by the bank. And for some clients for example, Western Meridian Hotel ltd, Mbarara general enterprises ltd, Kumi hotel ltd, Victorious education services ltd and Zigoti coffee works ltd there was no evidence to suggest that the bank had carried out a due diligence review before issuing the loan. There may be difficulty in assessing the different customers‘ financial performance to ascertain their ability to continue servicing their loan facilities. Secondly, these weaknesses greatly impact on the adequacy of the securities held and may lead to loss of funds should the securities turn out to be inadequate in the event of default. Management was advised to ensure that copies of the latest audited financial statements are obtained to allow for easy financial performance evaluation and also insure all securities before loans are disbursed. Management explained that some of those securities held by the bank in 2009 were insured except for the securities of eight projects which the Bank is in the process of obtaining. I advised the bank to expedite the process.

2.3.6 Non performance of reconciliations for suspense accounts The bank had a number of suspense/ clearing accounts for which no reconciliation had been prepared. Reconciling these accounts took a long time and delayed the completion of the audit. The reliability of the financial statements is brought into question because of such accounts In addition, if management does not keep abreast of all the clearing/ suspense accounts, these may be used as avenues for perpetrating fraud. There should be a system in place to ensure that all suspense accounts are reconciled promptly. This will enable Management keep abreast of all the transactions in the

suspense account for ease of follow up and also reduce on possibilities of fraud and errors. Management acknowledged the observation and promised to improve.

2.3.7 Definition of impaired accounts The bank‘s definition of an impaired account is actually when management considers that an account is likely to be impaired, which is not consistent with IAS 39 whose emphasis is on an account showing ―indicators of impairment‖ For example one of the Bank‘s policy indicators of impairment is when an obligator/debtor is more than 180 days past due. IAS 39 on the other hand considers ―a breach of contract, such as a default or delinquency in interest or principal payments‖ as an indicator of impairment. Therefore, accounts which are 180 days or less past due as per bank policy may not be considered for impairment testing, whereas under IAS 39 such accounts may be included since there is evidence of a breach of contract (missed payments). For year end reporting purposes, we reviewed the entire portfolio for all accounts with indicators of impairment were reviewed as per IAS 39 criteria and noted few additional. These additional accounts were subjected to impairment testing together with the ones already identified by management and the resultant impairment loss was adjusted accordingly. There could be some accounts, which qualify for impairment assessment under IAS 39 and which may not be considered for impairment testing based on the bank‘s policy guidelines and as such the provision for impairment losses during the year may be misstated. I advised management to further assess the entire loan portfolio for any other accounts with other indicators as stipulated under IAS 39 noting that such accounts should be subjected to impairment testing on a routine basis during the year.

Management agreed that the bank‘s impairment policy was not consistent with IAS 39, and that a new monitoring tool is under development which is expected to capture early warning signals of distress or impairment and will be used for timely testing of impairment. I await the results of this development.

2.3.8 Financial statement close process Weaknesses were observed in the bank‘s financial statements close process. Some of the previous yearend audit adjustments had not been posted in the accounts. In addition, there were a lot of closing adjusting entries passed by the management during the course of the audit which delayed completion of the audit. This casts doubt on the reliability of the financial statements for decision making. Management was advised to make efforts to ensure that all audit adjustments are incorporated in the accounts at the time of completion of the audit. This will enhance the credibility and reliability of the accounts. In their response management explained that new modules led to the generation of adjusting entries and that this is not this is not expected to recur as staff are now more conversant with the system.

2.3.9 IT Issues

a. Business Continuity Plan (BCP) & Disaster Recovery Plan (DRP) The bank has not yet put in place an enterprise-wide, comprehensive Business Continuity/ Disaster Recovery Plan. Without a comprehensive, coordinated, documented and tested Business Continuity plan there is an increased risk that problems and time delays may be experienced when attempting to recover normal business operations and IT resources. This could result in prolonged disruptions of business activities and financial reporting or even loss of critical financial information in the event of a disaster or business disruption. I recommended that management comes up with a complete documented and tested Enterprise BCP that outlines how the critical business operations, will resume their functions in the event of a disaster. The designed BCP must be approved. Emphasis should also be placed on ensuring that the plans are updated and tested regularly.

Although management agrees with the observation, they stated that the possibility of establishing a DRP was quite costly at US D.13,000 per month and that the Bank is still searching for a cost effective way of using a back-up system in combination with a remote site.

b. Change Management Control

The bank does not have any formally documented procedures that are to be followed to initiate, authorize, prioritise, develop test and implement system changes made at program level.

Furthermore, there is no log of changes kept to indicate all amendments/changes made to the different applications. Failure to have a clear change management process in place may result in unauthorised, unapproved and untested changes being made to the IT environment. In addition, changes that might cause other data to be misinterpreted may not be identified and reversed, which can result in improper information being extracted, which in turn can negatively impact on other processes Management was advised that a clear, approved change management policy be put in place and followed by the bank. This should be in terms of a change request/approval form. These changes should also be monitored on a regular basis and all changes should be logged through a centralized registry for easier supervision/ monitoring. In addition, formal documentation should be done to indicate the following:  Changes have met user needs;  Test results are adequate; and  Evidence of user approval has occurred.

Management agreed with the observation and stated that procedures will be captured in the Information, Communication, Business and Technology (ICBT) handbook that is to be updated in the fourth quarter of 2010. c. Logical Access Controls

The following issues were noted in the bank‘s logical access control;

 There is no formal documentation indicating user access creation and rights‘ approval on user access forms.

 There is no form used for modification of user rights.

 Furthermore, there is no clear procedure followed to ensure deleting/ deactivation of accounts of terminated users. 68

 User access is not regularly reviewed. User access is never reviewed to make updates or changes corresponding to the ones made into the system.

 The IT function does not monitor all the user accounts to identify dormant accounts.

There is a risk of unauthorised access and/or changes to sensitive and confidential data, information and resources. Furthermore, there is a risk that accounts of terminated users may be exploited to gain unauthorised access if there is no timely deactivation of the accounts. I recommended to management to put in place sufficient documentation to indicate user access creation and rights approval. User access forms should be designed and used when creating new users in the system. On the form, the user‘s name, designation, user ID, and rights granted should be clearly indicated.

Furthermore, the users‘ head of department and head of IT should sign off on the form in acknowledgement of the fact a user has been created with appropriate privileges. Regular reviews should be done on the user access process There should also be timely, formal communication from HR to IT when a user is going to leave the organization. IT should ensure that a terminated user‘s account is disabled/ deleted timely. In their response, management promised to capture all the observations in the updated Information, Communication, Business and Technology (ICBT) handbook. d. Back up and restoration process

The following exceptions in the bank‘s back up and restoration practice were noted. Data stored off site is only updated once in a week. Though there is real time back up taking place, it was noted that both the original and the backup copy are stored on site. The offsite storage is only carried out at the end of the week.

Furthermore, it was observed that there is no procedure in place for signing off/ acknowledging successful completion of backups. Testing of backups is not very clearly documented.

Lack of an up to date/ real time offsite back up may result into loss of data in case of any disaster affecting the primary data centre. Failure to test backups for completion may result into unavailability of data at the time of need due to incomplete/failed back up routines that had not been identified.

I recommended that real time off site back up storage be implemented to ensure that an updated copy of the data is always available at a different location.

In addition all executed backups should be tested for completion and sign offs done by the individual who carried out the tests. Follow up measures need to be put in place for the unsuccessful backups.

Management noted the observations vis-a –vis the resource implication, and promised that offsite backup will be done twice a week.

e. NSSF computed on basic pay Uganda Development Bank Limited computes and remits NSSF contributions for its staff on a monthly basis. However it was noted that NSSF deductions are computed based on the basic pay rather than gross cash emoluments. The bank pays to its staff cash allowances such as; transport, fuel allowances and over time but these are not included while computing NSSF due. This is an exposure to the company as the company is remitting less NSSF contributions than it should be remitting. Under remittance of NSSF attracts penalties computed on a compounded basis. I have asked management to ensure that NSSF is calculated on all cash emoluments as required by law.

2.4 POST BANK LIMITED - DECEMBER 2009

2.4.1 Double payments of Electronic Funds Transfers (EFTs)

Post Bank is not a member of the clearing house and as such uses CitiBank Uganda Limited for clearing all payments made by EFTs or otherwise. Post Bank receives a soft copy from Citi bank and this is up loaded into check point system that credits the

individual customer accounts. During the audit, instances where customer accounts were erroneously credited twice were noted. As at 31 December 2009, a total of Ushs.19,879,013 forming part of the reconciling items on the Citi bank operational account was a result of double crediting customer accounts.

Management in response stated that double entries were erroneously made by staff who flouted procedures in place and disciplinary action has since been taken against them. Management were informed that crediting a customer twice, exposes the institution to risk of financial loss as it may be difficult to recover such money.

Ex staff maintained in the staff Giro accounts scheme

The Giro used for staff salaries, staff advances, and branch imprest do not attract any fee or commission charges for transactions. The institution is losing fees and commission charges which would have been charged on the ex staff accounts if they have been converted to the ordinary customer accounts.

During the audit it was noted that ex staff have been maintained in this category of accounts which does not attract any charges. Although management indicated that this was done for loan recovery purposes, a review of the Giro accounts general ledger established that ex staff members without loans are also still having active accounts within the Giro scheme. Management stated that the exercise of closing the Ex-staff Giro accounts had commenced and would be completed in March, 2010.

2.4.2 Charging of the fees and commission income and recovering them from the proxy accounts created The institution charges ledger fees and other charges for processing of transactions by effecting a debit to customer account. However, where a customer account has no sufficient funds, the debit defaults to a proxy receivable account in the balance sheet was be monitored for eventual recovery from the customer when funds are available. An analysis of the proxy accounts as at 31 December 2009 noted that transactions dating as far as 2003 remained unrecovered from this account. Details as per table below; 71

Accounts 2003 2004 Ushs 2005 2006 Ushs 2007 Ushs. 2008 Ushs. 2009.Ushs shs Ushs

Cheques - - - 1,490,953 1,850,427 1,939,578 3,016,790

Ledger fees 5,154 18 24,026 42,893,478 4,729,312 187,762,968 312,448,777

Premature 163,278 748,059 163,366 21,365,913 41,382,168 73,717,264 charges

Totals 5,154 163,296 772,085 44,547,797 27,945,652 231,084,714 389,182,830

Management was informed that inadequate monitoring of proxy accounts exposes the institution to financial loss arising from non recovery of the fees.

Management in response stated that they were continuously reviewing proxy accounts and the policy in place now requires that no items remain on the proxy account for more than three months.

2.4.3 Not recognizing interest income on accrual basis

The loan interest income is computed and accrued in Finical system daily but is not uploaded into the general ledger until the interest due date. It was noted that as at 31 December 2009, interest income amounting to Ushs.151,922,624 (2008: Ushs.104,378,452) was not accrued to reflect the extent interest income had been earned. Management recognises interest income only on the loan due dates. The company may not be recognising interest income on accrual basis as required by the International Financial Reporting Standards (IFRS).

Management in response stated that system controls to address the problem are being worked on and the problem will be addressed by 15th April, 2010.

2.4.4 Inadequate controls over payments against un-cleared effects

Postbank has a product called payments against un-cleared effects which is available to customers with high account turnover, good repayment record, integrity and high public reputation. This product is required to be approved by head office credit department and the amount requested should not exceed 50% of the total value of the un-cleared effects unless the managing director‘s approval is obtained.

However contrary to these provisions there was no evidence of the managing director‘s approval of the transactions above 50% , and some payments were approved by the operations department as opposed to credit department as required by the policy.

Other control weaknesses noted were :-

 The nature of the product is risky and makes it difficult for the organization officers to verify whether the un-cleared effects will actually clear. As a result of this, the un-cleared effects amounting to Ushs. 58,418,239 had not cleared as at 31 December 2009, some due to bouncing cheques.

 Liens were not activated on some of the customer accounts who had been advanced this facility and when the cheques were cleared, some customers withdrew all the money and the institution had to device other means of recovering the amounts.

 The Finnacle system does not generate a schedule of individuals who have accessed this product.

The above weaknesses expose the organization to credit risk and risk of loss of the funds advanced.

Management in response attributed the shortcomings to a lapse in policy implementation and stated that disciplinary action has been taken against the individual staff involved.

2.4.5 Not adjusting the interest rates for ex staff.

The institution advances loans to staff at below market rates that the institution advances to customers. When staff leave the institution, the credit department and ICT department are instructed to adjust the interest rates in the system.

The audit, noted that some of staff left the institution are still enjoying interest rates at below the market rate. See table below for detail.

Loan account Disbursement amount Interest rates

9110000001599 24,000,000 8%

9110000001723 7,000,000 8%

9110000001693 22,211,963 8%

9110000001599 24,000,000 8%

The bank was losing income by not applying market rates.

It was also further noted that some Ex Staff loans were in arrears as at 31 December 2009. Details as per table below:-

Date Scheme Loan Account Amount Balance as at Amount in Days in disbursed 31st December arrears arrears 2009

22-09-2006 CAR 9020000000008 12,000,000 7,045,650 7,045,650 492

2-May-09 RESL 9110006000014 30,000,000 30,929,035 2,297,500 158

18-01-2007 STFAD 9020000000066 800,000 666,666 666,666 1,011

14-01-2008 STFAD 9020000000349 1,200,000 349,641 349,641 553

25-06-2008 STFAD 9020000000531 2,570,000 2,141,666 2,141,666 492

8-Mar-07 STPL2 9010000001544 2,500,000 443,386 443,386 158

31-07-2009 RESL 9110000001693 22,211,963 22,321,866 903,225 66

Management stated that identified cases have since been adjusted to market rates and the adjustments will continue to be done for all staff who leave the bank

2.4.6 Inadequate monitoring of the loans after accounts have been flagged in the system The Finnacle system flags the loan accounts in arrears if a customer repayment does not match the pre set plan in the system. The system clearly details the account manager, the principle and interest in arrears and the number of days an account has been in arrears. When the number of days in arrears gets to 90 days the accounts are handed over to debtor collectors for recovery. It was noted that impairment losses currently reported as ushs.1,423,204,654 are consistently increasing and this may be an indication that loans are not closely

monitored. The institution may not be providing adequate support to the borrower whose account is in arrears, to enable that customer recover. Most loans accounts in arrears not monitored and addressed in a timely manner deteriorate and finally end up being written off. The institution had only two loan recovery officers even though the loan book of arrears has continued to grow. Management was informed that in adequate monitoring of loans and advances may expose the institution to high credit losses. In response management stated that monitoring and recovery efforts will be strengthened going forward.

2.4.7 Long outstanding reconciling items on bank reconciliation statements It was noted that there are some long outstanding reconciling items especially on the Citibank operation‘s account, some dating as far back as May 2008.Reconciling items should be cleared with in a minimum of 30 days and all outstanding items should be supported. Long outstanding items may represent errors or even fraudulent transactions and if not monitored and cleared regularly may lead to financial loss. Management in response stated that the reconciliation unit has commenced the process aimed at having all the cited entries passed and the exercise will be completed by 30th April, 2010.

2.4.8 Outstanding amounts due to customers not resolved and accounts payable reconciliation

Based on the audit of other liabilities as at 31 December 2009 it was noted that there were long outstanding balances amounting a total of Ushs. 200,023,245, with some items dating as far as April 2006. It was further noted that the listing of these other liabilities was not being reviewed and as such it is difficult to ascertain whether these liabilities still exist.

Management were informed that non payment of obligations as and when they fall due my expose the institution to reputational risk.

Management stated that the aging exercise will be undertaken and completed by 30th April, 2010 and the outstanding issues will be resolved and that in future ,

schedules for accounts payable which are reviewed monthly will be available in hard copies as evidence for the exercise.

2.4.9 Withholding tax on interest expense and supplies

Under section 123 of the income tax Act Cap 340, the institution is a withholding tax agent and is expected to withhold 15% of the amount paid to customers as interest and to remit within fifteen days from the month in which the interest is paid.

During the audit, we noted that the interest was accrued on monthly basis but no remittances were made within the fifteen days as stipulated in the Act.

Review of Withholding Tax account during the year indicated that the institution made one remittance amounting to Ushs.73,349,902 to Uganda Revenue Authority in February 2009 and accrued Ushs.64,743,299. As at the time of audit in February 2010, this amount had not been remitted to Uganda Revenue Authority. In addition, the institution paid interest to depositors in 2009 amounting to Ushs.298,112,160 but did not deduct withholding tax of Ushs.44,716,824 from these customer interest payments and that all outstanding amounts have since been duly remitted.

2.4.10 Non deduction of income tax from the staff advance benefit Under section 19(1)(b) of the income tax Act cap 340, taxable employment income is defined to include any benefits to staff that are obtained as a result of being in employment and are extensively explained in the fifth schedule of the Act. It was noted that, Post Bank makes advances to staff above one million Uganda shillings at zero interest rate for periods greater than 3 months. The interest benefit of 7.8% to the respective staff is not taxed. As at 31 December 2009, the total advances to staff greater than 1 million shillings amounted to Ushs.402,505,000. Out of this amount Ushs.220,526,960 remaining outstanding at year end. These amounts were not taxed by the Bank. Non compliance with the requirements of the income tax Act may expose it to penalties by the tax authorities. Management promised to comply with the Income tax.

2.4.11 High labour turnover. During the audit, it was noted that over 13 key staff at managerial and supervisory level left the institution. Whereas there has been increased labour mobility within the financial services sector, loss of critical staff in financial institution exposes the company to high operational risk. This also increases the institution‘s training costs . Management were advised to within their means, develop and implement the staff retention policy so as to minimize the high labour turnover. Management stated that Staff mobility in the Industry has been pronounced of recent following the entry of new banks and the general expansion of branch outlets by banks. Management has put in place a staff retention strategy and a succession plan to manage staff exits.

2.5 UGANDA DEVELOPMENT COMPANY LIMITED - DECEMBER 2008

2.5.1 European Investment Bank (EIB) LOANS The Company obtained a loan from European Investment Bank (EIB) which is still outstanding. The principal loan amount was Euro.477, 693. This was part of a loan provided to UDC but was lent to DFCU and subsequently converted to Equity. According to the Agreement, this loan amount was payable upon sale of interest in DFCU Limited. It was noted that the share interest was sold in 2004. There is no evidence of loan repayment and the loan continues to attract interest on the outstanding amounts further exposing the company to foreign exchange risk. I advised management to follow up this matter with Ministry of Finance, Planning and Economic Development and reconcile the loan account and make arrangements to repay the loan. Management agreed to the audit recommendations. I await implementation of this matter henceforth.

2.6 NATIONAL SOCIAL SECURITY FUND - JUNE 2009

2.6.1 Compliance with the NSSF Act

Section 8.(13) of the NSSF Act requires that, all contributions from employers left

th unpaid after the 16 of the following month after the month of assessment, is subject

to a 10% penalty of the outstanding amount payable per month until the whole amount including the penalty are paid. It was observed that NSSF does not have formal procedures in place to comprehensively enforce this requirement of the NSSF Act.

Currently NSSF‘s compliance department randomly selects candidate employers for compliance audits. In the absence of a formal plan, the fund may not be able to enforce this requirement and as such the outstanding contributions and penalties from defaulting employers may not be recovered.

Management explained that the enforcement section had been strengthened with staffing and coordination desk, in addition policies and procedures have been standardized in the draft operations manual pending final approval by the executive committee of the Board.

Management of the fund was advised to strengthen the compliance department with resources required to enable it operate effectively.

2.6.2 Membership of the procurement & disposal unit

Section 57(2) of the Public Procurement and Disposal of Public Assets Act (PPDA) requires that the accounting officer informs the authority (PPDA) of the membership and qualifications of the procurement and disposal unit within a period of 10 working days from establishment or change in staff and membership using PP form 221 and PP form 222.

Whereas NSSF has a Procurement and Disposal Unit (PDU), the membership was changed during the year. However, no evidence of NSSF‘s communication to the Authority concerning the change of the membership; in lieu of the suspension of the accounting officer (Managing director) who was part of the PDU as required was availed.

The fund may not be in compliance with PPDA and as such may be exposed to fines and penalties. In addition, non-compliance with PPDA requirements exposes the fund to reputation risk.

Management explained that there was an omission and membership of the PDU has since been communicated to the PPDA on the relevant form. Management was advised to ensure that PPDA is notified of the changes in accordance with the PPDA rules and regulations.

2.6.3 Financial Reporting

a. Journal posting

The process of origination, approval and posting of manual journals into the general ledger (JDE) from 1 July 2008 to 30th June 2009 was reviewed. Instances where there was no proper segregation of duties during the origination up to processing of manual Journals in the general ledger (JDE) were noted. Some finance staff are configured with rights to originate, approve and post to the general ledger. Without proper segregation of duties, errors or fraud may occur in the general ledger without being detected easily.

Management explained the department was understaffed at the time hence it was not possible to segregate data comprehensively. However, the recruitment of financial accountants in May and June 2009 had resolved this issue and the recommendations had been addressed.

I await the outcome of management‘s actions.

b. Review of financial reports presented to EXCO and Bank of Uganda On a monthly basis the Finance department prepares status reports for presentation to the executive committee, who use these reports as the basis for their day to day decision making. NSSF is also mandated to submit monthly financial reports to Bank of Uganda before the 10th of the subsequent month.

From the review of these financial reports generated by management, it was noted that the financial information reported to Bank of Uganda differ significantly from the financial information presented at the EXCO meetings as shown below:

Month Section Bank of Month Variance Uganda Shs „000 Shs „000 Shs „000

Dec 08 P&L before tax 6,381,084 4,102,298 2,278,786

Dec 08 Total assets 1,282,255,735 1,250,721,094 31,534,641

Mar 09 P&L before tax 6,089,753 796,219 5,293,534

Mar 09 Total assets 1,288,490,696 1,287,923,545 567,151

Jun 09 P&L before tax (26,267,747) (6,713,684) (20,736,916)

Jun 09 Total assets 1,334,878,362 1,357,496,861 (22,618,499)

Based on the review and discussions with management, the above difference can be attributed to adjustments which were still being processed by the finance department.

The inconsistency in the financial information generated for the different users, indicates that management is not being availed with correct information to enable them make informed decision. Management explained that they had consolidated the roles of preparing the management accounts and the financial reports with the CFO charged with the review role.

Management was advised to consider submitting reconciliations of the reports to external parties like Bank of Uganda and Board of Directors in order to mitigate the risk of having incorrect information for decision making. I await the outcome of management‘s actions.

2.6.4 Accounting issues

 Members Fund balance

Segregation of duties in upload of SF58 Schedules into JDE

During the process of capturing employee contributions from the SF58 Schedules into the JDE, data processing assistants (DPA‘s) verify that the data entered into the C- Speed schedule agrees to the physical SF58 schedule submitted by the employer. Thereafter the data captured in C-Speed is uploaded real time into the Members Fund in JDE.

It was noted that the DPA are responsible for capturing data into C-speed, review it against SF58 and also approve the data upload to members‘ Fund account maintained in JDE.

This therefore means that the DPA capture, review and effectively approve the upload without any review by an independent senior official.

Without an independent review of data captured, errors may be processed to members‘ Fund accounts without being detected. In addition, errors in members‘ accounts can misstate the Members‘ Fund balance in the General Ledger.

In their response, management explained that the segregation of duties in the JDE had been addressed by the Data integrity steering committee with approval of Data upload being done by Data integrity officers from Head office. Management was advised to set up an independent team of officers to verify the accuracy of the captured dates before it is uploaded to the members‘ fund. I therefore await action on this matter.

2.6.5 Maintenance and review of Contributions for Unregistered Members “SHEET B”

During the data capture process, data processing assistants (DPA‘s) extract members‘ monthly contribution data from the SF58 schedules and record in to C-Speed for upload into JDE. There are several instances where SF58 schedules submitted by employers exclude critical member information like the employee NSSF number hence

forming incomplete record. Usually such incomplete records are not uploaded to members‘ account in JDE, but rather captured in ―Sheet B‖ for further investigation.

Ideally ―Sheet B‖ should be monitored and reviewed by senior officials as it forms part of the support of the suspense account. However, based on upcountry offices that were visited, there was no evidence that ―Sheet B‖ was being monitored and reviewed by senior officials.

In addition, it was noted that NSSF does not maintain a centralized depository or register for all records in ―Sheet B‖ for ease of follow up and monitoring.

Without proper review and follow up of records in ―Sheet B‖, the existing suspense account balance in the members fund may never be resolved (i.e itemized) and considering that the contributing members are increasing, then suspense account balance may continue to grow without being itemized.

Management acknowledged that Sheet B was being quantified every month by the contributions coordinator on an office by office basis without the Data integrity committee monitoring its management. I advised management to initiate a review of all controls on all records captured in Sheet B with a follow up with the contributing employers for any missing information. The out come of management‘s action is awaited.

2.6.6 Investments

 NSSF Investment policy and its consistency with strategic Plan

Based on our review of investment activities during the year, the following were noted; The current investment mix stands at 70% fixed income, 20% real estate and 10% equity as opposed to 30%, 20% and 50% for fixed income, real estate and equity respectively. This contravenes the requirements set forth in note 3.1 of the investment policy. There was no documentation availed for review to explain the rationale as to why the allowable policy ranges and weights could not be met during the year and the

proposed or the re-balancing strategy adopted by management. This contravenes the requirements set forth in note 4.3 of the investment policy. Also, from the review of minutes of the various committees of the board of directors, it was not possible to verify whether a quarterly report indicating compliance with the established investment guidelines and detailing all investment executed within the management limits from the previous board meetings was presented for discussion as per the requirement of investment policy note 13.3. From the review of the investment made in public equities during the period, it was noted that there was no documented analysis for the purchase of shares in New Vision (U) Ltd and Uganda clays Ltd. it was also not possible to obtain any documentation indicating the performance of investments to ascertain the business rationale for further investment in the above shares. No rational was given for the selection of the valuation technique used as opposed to the use of the projected free cash flow method of valuation as recommended in the policy. Also we were not availed with a letter of no objection to the investments from the minister. From the review of the documentation underlying the purchase of short term investments, it was noted that in the first half (6 months) of the year, all short-term investments (fixed deposits, T-bills and bonds) made were purchased without the required quorum of the investment committee as stipulated in the manual. It was not possible to examine the rationale for several investment decisions as there was no record of minutes of the investment committee meetings during the year. The fund may not be complying with its own internal policies which exposes NSSF to financial loss in the long run if poor investments are made. Management explained that a revised investment policy has been prepared and had subsequently approved by the Board. They further explained that they were in advanced stages of carrying out an actuarial valuation of the Fund to support strategic asset allocation. Management was advised to consider updating its investment policy to ensure its relevance to NSSF operations, especially in relation to adjusting the investment mix and reporting requirements of the investment department. I hence await the outcome of management actions.

2.6.7 Recovery of long outstanding advance from Victoria Property Limited

NSSF in 2004 entered into a joint venture arrangement with Victoria Property Limited (VPDL) for purposes of developing the Lubowa housing estate. NSSF through premier development Limited owned 49% and Victoria Property Ltd 51% of the joint venture.

NSSF was to provide the Land and Funds required for the project while Victoria Property Ltd was to provide design, supervision and construction.

NSSF subsequently advanced money worth USD 1 million to VPDL for purposes of preparing master plan and other activities to kick start the project.

As at 30 June 2009, the advance was still outstanding and no evidence of recovery or accountability had been received from VPDL. In addition, the Lubowa Project has not yet started.

If recovery efforts are not undertaken, the Fund is exposed to high credit risk and as such the advance may never be recovered.

Management explained that they had sought for the legal opinion of the Solicitor General (SG) in respect of the existing joint venture with SBI. Management was advised to review the whole arrangement with Victoria Property Ltd in respect of the Lubowa Project. In addition accountability of USD.1 million should be obtained from VPDL. I subsequently await the outcome of management‘s action on this matter.

2.7 PUBLIC PROCUREMENT AND DISPOSAL OF PUBLIC ASSETS AUTHORITY – 30th JUNE 2009

2.7.1 Regulatory Issues

a. Monitoring of compliance with regulatory conditions Under regulation 339, the PPDA may permit a PDE to deviate from the use of procurement of disposal method or documents. Regulation 341 requires the Authority to monitor compliance with the terms of the deviations granted during compliance checks and procurement audits. Where non compliance is detected, the Authority may

require the Accounting officer to take steps to ensure compliance or revoke the deviation in writing. It was noted from the internal audit reports, that out of 29 PDEs that were sampled for audit, only one entity was audited to monitor compliance with the terms of the waiver granted. Monitoring of waivers is not carried out to evaluate the extent of compliance with conditions of deviations. Inadequate monitoring and control tools negatively affect the overall procurement function in public sector. Management explained that the committee responsible for monitoring has only one staff which negatively affects its activities. As a result, the Audit and Litigation department has been tasked to undertake the monitoring. However this has also not been effective since most audited entities were not necessarily the ones receiving waivers.

b. Review of monthly procurement reports

The procurement reports provided by the service provider and PDU‘s were reviewed and noted that they were inadequate in terms of depth. For example the reports refer to outputs without providing information on the expected output. Besides, timelines and performance targets are not stated. This implied that monitoring and performance measurement system was inadequate. Management stated that an innovative approach to address the issue of capturing online procurement and disposal activities of Entities under the Procurement Performance Measurement System (PPMS) has been adopted. I await a report on the performance of the system. 2.7.2 Failure By The Entity To Implement Some Sections Of The Act

a. Classified Procurements It was noted that Section 42 (3) and (4) which requires Defence or Security organs to agree annually with the Authority on categories of restricted items to be included on the restricted list of procurements had not been complied with. The Board briefly deliberated on this matter but did not come up with any decision on what concrete action to take.

The Authority and National Security Service institutions have therefore not complied with this provision of the PPDA Act requirement. Management explained that the security departments were still reluctant in availing information. b. Advisory Committee It was noted that the board had not set up an advisory committee under the terms of section 15(1) b of the Act to review the performance of the Authority, the procuring and disposing entities and the complaints review committee. It is therefore difficult to evaluate the Authority‘s performance overtime. Although management stated in their response that this was a discretionary issue, the formation of an advisory committee is a good governance tool which will review and evaluate management and organizational performance. Management promised to forward the issue to the Board for consideration.

2.7.3 Unrecognized Credits & Debits on the Bank Statements

It was noted that there were unhonored instructions by Bank of Uganda on Account No. 208209203.1 for cheque No. 000237 and Cheque No.000243 each of them for Shs.375,000 paid to NSSF. We noted further that, instructions to the Bank on account No. 208209204.1 for several payments totaling Shs.39,152,060 were not honored. These are in addition to several reminders that were made to Bank of Uganda during the financial year regarding payment to Tour and Travel Centre amounting to Shs.7,408,805 which were not acted upon. Failure by Bank of Uganda to credit/debit legitimate instructions may result into losses to the entity. Management responded that the observation were just a few out of several instructions that were not implemented by Bank of Uganda and have taken time to be resolved; and that fresh instructions relating to the payments were made in the subsequent financial year (2009/2010) and honored by the Bank. I advised management to always ensure timely reconciliations with the bank to avoid possible errors and fraud.

30th JUNE 2010

2.7.4 Lack of IT Strategy There was no IT strategy which incorporates a Business Continuity plan (BCP), a Disaster Recovery Plan (DRC) an IT training plan and a policy to secure information from unauthorized excess. The IT steering committee & Plan to regulate IT activities were also lacking. Lack of such a strategy on information systems may hinder smooth performance of an entity and may also impair the internal control systems. This exposes the IT resources to risks of unauthorized excess, fire, theft and breakdown. Management responded that they are in a process of reviewing the old strategy which expired in 2009 with the Ministry of Information Communications Technology and National Information Technology Authority and it will be issued in the next Financial Year. I urged management to expedite the process and ensure that the IT strategy is documented, communicated to staff and tested regularly.

2.7.5 Cash and Bank Balances - Unrecognized Instructions There were outstanding or unrecognized instructions amounting to Shs.75,482,618 to the bank. Some transactions were covering more than six months and had not been reversed. The accuracy, completeness and validity of balances of cash and cash equivalents could not be authenticated. Management responded that although bank reconciliations are done on a monthly basis, at times Bank of Uganda takes long to act on instructions and the honouring of instructions is over delayed. In such situation management then checks with the suppliers to establish whether they (suppliers) have not been paid, then fresh instructions are issued. I informed management of the risk involved whereby such delays and fresh instructions may cause double payments in case the bank also pays the supplier.

2.8 UGANDA BUREAU OF STATISTICS (UBOS) - JUNE 2010

2.8.1 Advances not accounted for - Shs.235,523,900 Advances totaling Shs.235,523,900 made to staff of the Bureau and other organizations to undertake various activities in the period under review remained unaccounted for by the end of the financial year. I could not confirm that these funds were put to proper use.

2.8.2 Un accounted for CIS and PNSD funds-Shs.335,212,000 Accountability documents for payments totaling shs.335,212,000 disbursed to various districts and agencies for Community Information System (CIS) and Plan For National Statistics Development (PNSD) were not availed for audit. Furthermore, evidence of monitoring of CIS and PNSD activities by UBOS as provided for in the Memorandum of understanding between UBOS and the Districts, was not availed for audit. I could not therefore confirm that these funds were used for the intended purpose.

2.8.3 Irregular payments to Data base coordinators During the year under review, a total of Shs.350,659,000 was paid to five Database Coordinators, who are staff of the National Planning Authority, for training local government staff in community information system (CIS) in 18 districts. It was noted that the payments were made directly to individual staff accounts of the National Planning Authority staff without any formal contracts with the individuals or the NPA.

I informed the accounting officer that funds paid directly to staff of other organizations without formal contracts and terms of reference in place is an irregularity and stand the risk of misuse and mismanagement. Management in response stated that the money was sent to the respective officers accounts on the advice of NPA Accounting Officer.

2.8.4 Provision of Medical Insurance for UBOS Staff The Bureau entered into agreement with a local medical institution for provision of medical services to staff and 4 dependants for a period of 8 months in the financial year at a total cost of shs160,000,000. The agreement was renewed on 1st March 2010 to

cover an additional period of 4 months at a cost of shs.76,127,334 bringing the total amount to shs.236,127,334. It was however noted that:-  Even though the Medical Service Insurer was supposed to prepare periodic reports on the services provided, the timing and frequency of reporting was not specified in the contract. Consequently only one annual report was provided.  Although UBOS was expected to monitor the standard of service provided, no monitoring mechanism/tool was put in place by the bureau. I informed management that these weaknesses may hinder a value for money service being delivered. Management in response stated that the contract was being reviewed and the monitoring framework shall be made part and parcel of the new agreement.

2.8.5 Lack of updated Finance and accounting manual. The bureau‘s financial manual which was written in 2006 has never been revised to take into account the changing circumstances such as the bureau‘s semi autonomous status and the new application of Integrated Financial Management System (IFMS) among other developments.

I informed management that lack of an updated financial manual to guide processing and documenting financial transactions may lead to inadequate monitoring, regulation, and reporting of financial matters. Management in response stated the Finance and Accounting Manual is being reviewed to cater for the continued changing demands in Financial Management reporting.

2.8.6 Statutory Deductions Statutory deductions remitted in respect of PAYE (Ushs246,872,159) and NSSF (Ushs179,442,081) were not supported by acknowledgement receipts from the relevant authorities. I could not confirm that these remittances were received by the rightful beneficiary authorities. These funds remain unaccounted for.

2.8.7 Lack of Land Title During verification of assets, the audit was not provided with the certificate of land title on which Statistics house is located. In the absence of a land title in the Bureau‘s names I could not confirm the ownership of the Land and Building housing the Bureau.

2.9 POSTA UGANDA LIMITED - JUNE 2008

2.9.1 Inadequate revenue supporting documents It was noted that entries to recognise revenue did not have supporting documents. For example,  Copies of tenants‘ invoices for the period July 2007 to March 2008 were not availed to for audit  Copies of EMS invoices for the period July 2007 to February 2008 were not availed for audit.  Copies of postage prepaid invoices for the period July 2007 to February 2008 were not availed for audit. Absence of supporting documents makes it difficult to confirm the completeness of income reviewed. In addition the company may be exposed to the risk of fraud. Management responded that new files had been opened for all invoices and all other revenue supporting documents and that it was against these documents that entries were made in the accounting system. I advised management to ensure that all entries to the system are properly and fully supported with the relevant documents.

2.9.2 Poor voucher filing and archiving system Payment vouchers were filed according to cheque numbers whereas information was recorded in Sun System using payment requisition reference numbers. There was neither a properly designated filing area nor an orderly filing system for vouchers that had been processed and settled. As such, a number of payment vouchers were not availed for audit. This increased the risk of loss of supporting documentation. Besides, it was difficult to trace and retrieve vouchers. Management responded that they acquired a designated filing area for the payment vouchers and proper shelves had been made.

I advised management to ensure that payment vouchers are filed in voucher number order to ease the retrieval process. Besides, adequate space should be provided for storage of voucher files and other accounting documents. A filing system that would ease retrieval of vouchers should be developed and put in place.

2.9.3 Compliance with statutory deductions

Late Submission of PAYE, VAT and NSSF Returns A review of the monthly NSSF, VAT and PAYE returns revealed that they were not submitted in time as per requirement of the NSSF, VAT and Income Tax Acts.

Management was advised to comply with statutory deductions in order to avoid fines and penalties. Management responded that with effect from January 2009, all NSSF, UCEPS and all other statutory deductions were being forwarded to the respective bodies as recommended by audit. 2.9.4.1 Debtors long outstanding receivables The Company had long outstanding local and international receivables of UShs.2.92 billion that may not be recovered. Management explained that they had engaged an audit firm to verify the company‘s receivables.

Name of Amount per Amount per Difference customer general customers‟ ledger confirmation Ishasha Basin Development (3,249,857) - (3,249,857) K.K Consulting Architects (1,445,581) - (1,445,581) Skynet International (8,461,557) - (8,461,557) Allied Bank(Bank of (777,495) 2,868,820 91

Africa Uganda Ltd) 2,091,325 Bayport Financial Services 13,976,000 - 13,976,000

Ciat 2,805,600 128,200 2,677,400 Crane Bank 1,146,800 997,500 149,300 National Drug Auth. – 45 3,584,300 34,400 3,549,900 National Medical Stores 3,570,920 - 3,570,920

UVAB – 31 1,444,600 - 1,444,600

Management was advised to ensure that the receivables verification exercise is exhaustively carried out. The results of the verification exercise should be used to write off any unrecoverable receivables, making appropriate provisions and putting in place a robust receivables control system. Management agreed with recommendation and promised to implement it as soon as the report is out.

3.9.4.2 International receivables The Entity did not maintain individual receivables‘ ledgers for international receivables. No supporting documents were availed to support international receivables balance of UShs.1.4 billion. Monitoring of the receivables becomes difficult where individual receivables‘ ledgers are not maintained. Management responded that they had designed a new system which would make it possible to have ledgers of individual countries. Management was advised that individual international receivables‘ ledgers should be set up after the receivables verification exercise.

3.9.4.3 Differences between receivables‟ amounts and customers‟ confirmations The results of some of the receivables‘ circularization indicated that the general ledger amounts differed from the customers‘ confirmations as shown in the table below:

There is a risk that debtors may not be recoverable when the customer‘s confirmation differs from that invoiced as per management.

Management explained that they suspected this problem and that it was against this background that a receivables verification exercise was undertaken. The report will be used to reconcile the ledgers. The receivables verification exercise should be used to reconcile the amounts receivable in Uganda Post Limited accounts and the customers‘ balances.

2.9.5.1Reconciliation of receivables ledgers The general ledger did not have a provision for control accounts and subsidiary ledgers. In addition, no reconciliation statements were prepared for receivables. There were credit balances for receivables‘ ledger accounts of Ushs.577 million for which no supporting documents were availed. The absence of control and subsidiary accounts and reconciliations may result in many errors in the receivables‘ balances. Management stated that they had designed a new system with provision for control accounts and that once this is implemented, reconciliations will be made on a monthly basis. Management was advised to set up control accounts for each category of receivables. Besides, subsidiary ledgers should be reconciled to the control ledgers on a monthly basis.

2.9.5.2 Staff receivables Uganda Post Limited did not maintain individual debtors‘ ledgers for staff debtors. No supporting documents were availed to support the staff receivables‘ balances of Ushs.902 million. Monitoring of the staff receivables becomes difficult where individual staff receivables‘ ledgers are not maintained. This has been done in the new system Individual staff receivables‘ ledgers should be set up and maintained for all debtors. Management was advised to maintain debtor‘s ledgers for staff.

2.9.5.3 Money orders The money orders account should have either a nil or a credit balance. This is because it reflects amounts due to customers for cash received for onward remittance. It was noted however that the account however had a closing debit balance of UShs.304 million. It was probable that excessive payments are being made out of this account either erroneously or fraudulently. This item may have to be written off against the profit and loss account.

Management responded that a reconciliation of the account had been done starting with Kenya Verses Uganda.

Management was advised to identify the items causing the anomaly and rectify them or request the board to authorize a write off. Meanwhile, in future, a schedule of outstanding money order payments should be regularly generated and reviewed by a senior official.

2.9.6.1 Agency remittances (MTN, Celtel & Stamps) It was noted that management of Posta did not maintain individual receivables‘ ledgers for Agency remittances. No supporting documents were availed to support Agency remittances receivables‘ balances of Ushs.260 million. Monitoring of these receivables become difficult where individual receivables‘ ledgers are not maintained. There are no receivables for MTN, Celtel as their physical cards are no longer sold by the company. Management stated that they were in the process of verifying and securing write off of all balances without economic value. As for stamps, there was a record of all stamp movements.

I advised management to ensure that individual receivables‘ ledgers are set up and maintained for all receivables.

2.9.6.2 Long outstanding local payables The Company has long outstanding local payables totaling to UShs.4.74 billion. It was noted that management has engaged an audit firm to verify the company‘s payables; Legal actions may be taken against the company in case of failure to recover the balances. Management responded that the cash flow projection was already in place as of financial year 2009/10.

I advised management to come up with proper cash flow budget to clear the long outstanding balances payable to creditors. Besides, the payables verification exercise should be used to reconcile the amounts payable in Posta Uganda accounts and the creditors‘ balances.

2.9.6.3 Reconciliation of payables ledgers The general ledger did not have a provision for control accounts and subsidiary ledgers. In addition, no reconciliation statements were prepared for payables. There were debit balances for payables‘ ledger accounts of Ushs.161 million for which no supporting documents were availed. The absence of control and subsidiary accounts and reconciliations may result in many errors in the payables‘ balances. Management responded that they had designed a new system with provision for control accounts. Management is advised to ensure that control accounts are established for each category of payables. Besides, subsidiary ledgers should be reconciled to the control ledgers on a monthly basis.

2.9.6.4 Intercompany balances On the split of the three companies-Uganda Post Limited, UTL and Post bank Limited, an inter-company balance was created which was still on the balance sheet with a balance of Ushs.261 million which may not represent economic value. Besides, the balances indicated as due to/from UTL may not be correct leading to misstatement of the financial statements.

Management was advised to review the economic substance of the inter company balances that are being maintained in the balance sheet so that the correct values are reported.

Management stated that they were reviewing the economic substance of all balance sheet figures and necessary action will be taken in the end.

2.9.7 Preparation of bank reconciliation statements For the twelve months reviewed, bank reconciliations statements were not prepared for some bank accounts. These bank accounts include Bank of Baroda, Centenary bank and Standard Chartered bank. There was no evidence that the bank reconciliation statements were reviewed by the Head of Finance. This may perpetuate errors and frauds without being detected.

I advised management to prepare bank reconciliations statements for all bank accounts on a monthly basis. Review of these statements by Head of finance should also be carried out.

Management stated that they had employed sufficient staff in the department, one of whom has been assigned bank reconciliation roles.

2.9.8 Closed post offices‟ bank accounts A number of post offices‘ closed bank accounts were identified but had balances as per prior year audited accounts. However, no explanation was given as to how the balances were resolved to nil as per general ledger. There was a possibility that the bank balances in the accounts were not accurate. Management responded that these were some of the items covered in the verification exercise and that it will take appropriate action after the exercise.

Management was advised that bank reconciliations statements are prepared for bank accounts prior to closure.

2.9.9 Treasury department There was no formal documented policy for the management of cash at hand at post offices and head quarter. There were un reconciled differences of cash at hand at post offices and head quarter between the general ledger and the stock sheets of Ushs.678 million. Besides, some post offices had negative cash balances totaling to Ushs.918 million for which no justifiable explanation was given. The cash balances can be subject to abuse by staff at the post offices and head quarter. Management responded that they were committed to have a policy in place.

Management was advised to have a formal documented policy for handling the cash put in place. Besides, any inexplicable differences arising should be investigated and resolved.

2.9.10 Provisional tax returns No provisional tax returns for the year were submitted to URA. The final income tax returns for the year ended 30th June 2008 that were due as on 31st December 2008 were not submitted to URA. Failure to comply with the income tax act leads to tax penalties.

Management was advised to comply with the Income Tax Act to avoid un necessary penalties and interests

2.9.11 External and internal audit recommendations It was noted that external and internal audit recommendations are not effectively implemented. As a result, weaknesses identified during past periods continue to persist. The risks identified can crystallize leading to non achievement of the organization‘s objectives Management stated that they were committed to reviewing all recommendation and providing auditors with the action taken on them.

Management was advised to develop an action plan that would address all the audit issues highlighted and recommendations for the last three years. The action plan

should identify the action or set of actions to address each issue identified, person responsible for the implementation, deadline and any additional resources that may be required for implementation. The action plan should be monitored by the audit committee.

2.9.12 Contingency and back up arrangements The company did not have the option of storing physical data and system backups at remote locations offsite, which are not connected to Uganda Post Limited‘s Local area network. Under the current arrangement, System back ups are performed on a daily and weekly cycles for both data and system. The back ups are however made on personal computers or servers located at either head office or on the local area network. If there is system failure as a result of an attack on the Posta Uganda‘s net work, a system recovery may prove to be difficult.

Management explained that they had tasked the IT department to arrange appropriate backup. As of now, data is backed up internally on a daily basis. I informed management that the current arrangement may be adequate for the current operations. But as there are plans to integrate the system, the implications of system failure are expected to be more significant in future. Having an offsite backup facility would provide additional security. This could be another post office say in Jinja.

2.9.13 Financial statement closing processes There were inadequate controls over financial statement closing processes. The Entity did not prepare management accounts on a regular basis; year end reconciliations, year end journal adjustments, balance sheet supporting schedules preparation were not done in a timely manner. All the above end-of–year-closing activities were carried out as the audit was progressing. There were inaccurate opening and closing ledger balances and existence of un reconciled differences. Thus there was an opportunity for financial reporting fraud. Management was advised that the Head of Finance carries out timely accounts preparation in accordance with IFRS, timely finalization and availability of the relevant adjusting journals, required reconciliations, and supporting schedules.

2.9.14 Credit policy Uganda Post Limited does not have a written credit policy. The process of giving credit was not controlled. Credit may be given to clients who are not credit worthy resulting into bad debts. Management stated that they were in the process of coming up with a credit policy. I informed management that a credit policy should be developed and approved by the Board. The credit policy should be followed and compliance should be monitored by management.

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2.9.15 Asset register not properly maintained It was observed that the asset register did not show pertinent details such as location and asset identification tag/code to enhance security of the asset and date of acquisition to enable computation of asset depreciation. These omissions may expose the Company Assets to risk of misappropriation or theft.

Management in response stated that some of the assets were acquired way back and therefore date of acquisition is not readily ascertainable. I advised management to ensure an up to date fixed assets register is maintained.

2.9.16 Un reconciled difference in loan balance The DFCU loan balance at 30th June 2009 was Ushs.286.5 million and yet the balance in the loan schedule from the bank was Ushs.279.3 million resulting in a difference of Ushs.7.197 million. This indicates that the management does not regularly reconcile its loan position with the bank thus exposing the company to the risk of under or overstating the loan balance. Management promised to review and regularly reconcile the DFCU loan account. I advised management to ensure that loan balances are periodically reconciled.

2.9.17 Absence of insurance cover for cash on the Uganda Posta premises During the year under audit, Posta Uganda did not have an insurance cover for cash held on its premises. An amount of Ushs.60 million was stolen from the premises and there was no insurance cover from which to recover this loss. Management stated that they will ensure that the insurance on cash in transit also extends to cash on the premises. Meanwhile management promised to strengthen security arrangements by increasing the number of security personnel and also will soon install Close Circuit Televisions (CCTV). I await action on this matter.

2.9.18 Trade payables The accuracy and completeness of a trade payables balance of Ushs.738 million due to Uganda Telecom (UTL) could not be verified. I could not therefore, confirm that the trade payables balance is fairly stated. Management in response stated that the UTL account was reconciled several times in the prior years but the results of the reconciliations were not captured in the accounting system. And promised to carry out regular reconciliations and ensure that the results are captured in the accounting system. I await management‘s action on this matter. 2.9.19 Provisional tax returns It was noted that provisional tax returns for the year were submitted to URA. Besides the final income tax returns for the year ended 30th June 2009 that were due as on 31st December 2009 were not submitted. Failure to comply with the Income Tax Act may results into penalties and interest being charged on the Company.

2.10 NATIONAL HOUSING AND CONSTRUCTION COMPANY LIMITED - DECEMBER 2009

2.10.1 Absence of an Approved Strategic Plan It was noted that the Company did not have an approved strategic plan in place for the year ended 31st December 2009. There exists a draft strategic plan covering the period to 2010 but it had not been approved by the Board by the time of audit; this

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impacts negatively on monitoring and measuring performance of the Company goals and objectives. Management explained that the current draft is being reviewed prior to submission to the Board for approval. Management was advised to have a clear and well documented strategic plan.

2.10.2 Assets not registered in Company Names It was noted that investments in Shelter Afrique (Shares) are not registered in the names of National housing and Construction Company as there were no share certificate in the name of National Housing and Construction Company. Management explained that they would seek authorization from the Board to effect a transfer in the names of the Company. I have recommended that steps be taken to transfer the investments in Shelter Afrique to the Company.

2.10.3 Information systems Review

a. Disaster Recovery Plan Testing

It was noted that NHCCL does not test their Disaster Recovery Plan (DRP). Testing of Disaster Recovery Plans is of critical importance to the company in event of an actual disaster or disruption. Management explained that DRP will be presented at the next Board meeting for approval. I advised management that the DRP should be reviewed and tested on an going basis to ensure that they sufficiently cover and address the information systems of the Company.

b. Back up of Financial Data

The following weaknesses were noted in the back up of financial data during the audit of the Company‘s information system: . There is no evidence to show that management reviews backups on a regular basis.

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. Backups are not signed-off to ensure that they were successfully done.

. There are no reports to show that backups are tested on a regular basis.

Management explained that manual/electronic backup register will be implemented and signed off regularly. Backup tests will be done every month and test results documented and kept.

I advised management to ensure that backups are reviewed regularly; appropriate sign offs as evidence of backups performed; and regular testing to ensure data accuracy, integrity, completeness.

2.11 UGANDA INSURANCE COMMISSION - JUNE 2010

2.11.1 Internal Audit function The Commission operated without an internal audit function. As a result there was lack of sufficient and timely assurance mechanism regarding the entity‘s risk management, monitoring and control as required by Corporate Governance. Thus, material misstatements committed by the Commission may not be identified and rectified in time. This observation received mention in my previous report. Management responded that they took heed of the recommendation in the earlier report and an Audit Charter and the engagement of an auditor to provide internal audit services have been approved by the Commission.

2.11.2 Human Resource Manual The Commission did not have an approved Human resource manual to guide staff on recruitment, training, allowances and other human resource matters. The Commission may not effectively implement the human resource function in absence of clear documented policies and procedures. Management responded that they are consolidating their staff terms and conditions of service and a number other guidelines into one Manual. The draft Manual was finalized and will soon to be presented to the Commission‘s Personnel/Recruitment Committee for review, after which it would be presented to the full Commission Board.

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2.11.3 Vacant Positions The Commission had 4 vacant approved positions. In addition, the position of Commissioner for Insurance which fell vacant in April 2008 had not been substantively filled. The delay in filling the approved organization structure affected timely implementation of planned activities and the overall performance of the Commission. Besides, the Commission may not be operating efficiently with under strength staff. Management responded that this issue which is high on the Commission Board‘s Agenda is already being addressed. Management was advised to ensure that vacant positions are filled in accordance with the approved structure in order to improve the operational efficiency of the Commission.

2.11.4 Effectiveness of Audit Committee Sec 2.1.3.2 of the Commission‘s Accounting manual stipulates the functions of the Audit Committee. A review of the Board minutes for the period under audit revealed that the Audit Committee was not constituted contrary to Corporate Governance principles. Absence of an independent oversight committee to review the financial reports, processes, risk management and internal control systems may lead to material errors and misstatements remaining undetected in the financial statements. Management responded that they had put in place a three man Audit Committee.

2.11.5 Compliance with Insurance Act The Commission is mandated under Sec 15 of the Insurance Act to safeguard the rights of policyholders and insurance beneficiaries to any insurance contract; to ensure strict compliance with the provisions of the Insurance Act and regulations made under it and any other law relating to insurance and to promote a sound and efficient insurance market in the country. A review of Board minutes revealed a backlog of unprocessed insurance claims and unpaid commission to brokers. We further noted several non-compliance issues by insurers from a review of inspection reports. The re-occurrence of these issues implies that measures taken do not deter non compliance with the Insurance Act. Management stated that non-compliance issues are handled as per the very law being quoted i.e the Insurance Act (Cap 213) Laws of Uganda, 2000 and where provided for, the recalcitrant player is disciplined. However there are times procedural

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obstacles hinder the prompt settlement of claims. Management was advised to ensure full compliance of the Insurance Act by all the Industry.

2.11.6 Procurement of Motor Vehicle PPDA Regulation 252(1) stipulates that no payment shall be made to a provider under a contract for works, services or supplies, without receipt of the deliverables specified in the contract. Sub-regulation (2) states that notwithstanding sub-regulation (1), payment may be made to a provider prior to receipt of deliverables where an appropriate payment security is obtained. However, the Commission advanced a local firm Shs.45,006,775 in respect of 40% contract price for a vehicle without an appropriate payment security. Thus the procurement regulations were flouted, besides, this amounts to a pre-financing to supplier. Management is advised to adhere to procurement regulations. Management stated that it was an omission and the recommendation will be adhered to in future.

2.11.7 Strategic Plan

The Commission did not have a strategic plan to define long-term direction and allocation of resources. Resources were not allocated in an efficient and effective manner in line with the strategic objectives. Management stated that the previous Strategic Plan came to an end as the term of the previous Commission (Board) expired. It was therefore practical for the incoming Board to participate in the development of the next plan, which they will have a chance to implement.

2.12 NATIONAL PLANNING AUTHORITY - JUNE 2009

2.12.1 Procurement Plan The Authority procured various goods and services worth Shs.5,732,341,304 from various suppliers using direct pro-rata apportionment of the budget figures into the four quarters of the year contrary to procurement regulations which require entities to prepare annual procurement plans. Management acknowledged the anomaly and stated that in the subsequent financial year 2010/11 the procurement plan shall be based on the work plan of the different user departments with detailed costing which will be a basis for the procurement plans. 104

I advised management of the Authority to ensure that annual procurement plans are prepared to enable comparison of plan implementation with actual procurements.

2.12.2 Motor vehicle repairs We noted that the Authority did not have formal written requisitions for repairs from either the official users of the vehicles or their drivers before the vehicles were repaired. Besides, contrary to PPDA laws and regulations, garages were not subjected to procurement process of prequalification, bidding and evaluation before being awarded repair jobs. In absence of requisition by users, it was difficult to ascertain whether the repairs were justified. Furthermore, lack of competition in the selection of service provider renders the procurement irregular and the price charged or quality of work done doubtful. Management responded that whereas there were some repairs which lacked formal requisitions during this audit, currently there is a formal request from the user or their drivers (a form) followed by the inspection of the work to be done, and that the prequalified providers list was being updated.

Management is advised to put in place proper control systems for motor vehicle repairs and to ensure that they are strongly adhered to. Meanwhile Procurement laws and regulations should also be complied with.

2.12.3 IT Policy The Entity did not have an IT policy in place. Therefore issues pertaining to training of personnel, disaster recovery plans, back up of information, security of computers and, the maintenance programme of the hardware were not addressed. Without an IT policy, information and other IT related resources are at risk of unauthorized access and damage. Management was advised to develop an IT policy which can address all the above issues and to ensure that all the controls in the policy are observed by all the staff of the entity. Management accepted recommendation and agreed to take steps in this direction.

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30th JUNE 2010

2.12.4 Appointment of Board of Directors The NPA Act, Sec 5(1) states that the Authority shall have a board comprising of a Chairperson, a Deputy-chairperson and three other members appointed by the President with the approval of Parliament. However, it was noted that since April 2010 the Board was composed of 4 members only. Failure to appoint the approved number of board members affects the efficiency of the implementation of strategic activities of the Authority. Management stated that they informed the appointing Authority and follow up will be made.

2.12.5 Approved Staffing Levels At the end of the financial year under audit, the Authority had 15 vacant approved positions. The delay in filling vacant positions affects timely implementation of planned activities and overall performance of the Authority. Management responded that they were not able to fill all approved staff positions in the organization structure due to inadequate funding. I advised management to lobby the MOFPED for funding to enable the entity fill all vacant positions as per the approved structure.

2.12.6 National Human Resource Survey A review of the 2009/10 policy statement revealed that during FY 2008/09, survey questionnaires and manuals were developed in respect of National Human Resource Survey under the EAC framework. The results of the survey were intended to facilitate the implementation of the EAC protocol on free movement of persons, labor, services and right of establishment and residence. At the time of audit, the survey had not been implemented. Thus the objective of the survey may not be achieved in time. Management responded that they had been budgeting and submitting the Man Power Survey Budget to MoFPED for funding, however funds have not been forthcoming. Management is advised to implement the survey to enable its objectives to be achieved.

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2.12.7 IT policy The Authority did not have an approved IT policy to provide guidance on issues relating to management and security of IT assets. It was also noted that a disaster recovery and business continuity plan was yet to be presented to the Board for approval. There was a risk of loss of the Authority‘s IT assets and of prolonged disruption of operations in case of a disaster. Management responded that they will fast track development and approval of IT policy and business continuity plan. I advised Management to put in place an IT policy and Business continuity plan to safeguard the IT Assets of the Authority.

2.12.8 Procurements It was noted that the Authority did not comply with the PPDA Act in respect of the following procurement issues;

a. Clearance from Solicitor General PPDA Regulation 225(2f) requires that a contract document, purchase order, letter of bid acceptance or other communication in any form conveying acceptance of a bid that binds a procuring and disposing entity to a contract with the provider, shall not be issued prior to among others, approval by all relevant agencies, including, the Attorney General. It was noted that clearance from the Attorney General for the purchase of 5 vehicles from two suppliers all valued at Shs.629,184,900 was sought after conclusion of the procurement process contrary to this regulation as detailed below; Management promised that in future they will seek clearance from Solicitor General before concluding the procurement process as required by PPDA regulation 225 (2F).

b. Payment to Victoria Motors PPDA Regulation 252(1) stipulates that no payment shall be made to a provider under a contract for works, services or supplies, without receipt of the deliverables specified in the contract. Sub-regulation (2) states that notwithstanding sub-regulation (1), payment may be made to a provider prior to receipt of deliverables where an appropriate payment security is obtained.

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It was noted that the Authority extended advances to a local company Shs.365,808,170 (JPY 16,243,702) for supply of two vehicles in excess of the guaranteed amounts of JPY 1,624,370 as per performance security ref MCLB/LG/077/2009. We further noted that although the Special Conditions of the Contract stipulated that the structure of payment was 100% on completion of the contract, full payment was made before the 2 vehicles were delivered. There was a risk that NPA could lose funds in case a service provider fails to perform. Besides, the advance amounts to a pre-financing of the supplier. Management stated that they made payments to the Company for two vehicles before delivery because there were the only two remaining vehicles in stock and that the company issued a performance Security to guarantee the payment. Management was advised to fully comply with the PPDA Act and regulations when making procurements.

2.12.9 Non Compliance with Income Tax Act

i. Late Submission of Statutory deductions It was noted that WHT deducted from payments to suppliers during the period under audit totaling Shs.44,194,208 was not remitted within the stipulated period as laid down in the Income Tax Act (2005 as amended). Late remittance of statutory deduction may attract fines and penalties from the Tax Authority. Management noted the anomaly and promised to comply with the provisions of the Act.

ii. Non deduction of PAYE – Honoraria Payment of honoraria under the Income Tax Act Sec 19(1a) is taxable as employment income. It was noted that the Authority paid shs.192,382,000 in respect of honoraria for its staff without deducting taxes. This was in contravention of the Income tax Laws. Management responded that they will ensure that taxes are dully deducted from such payment in future as advised by audit. Management is advised to fully comply with the requirements of the income tax Act in order to avoid fines and penalties.

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2.12.10 Replacement of Mobile Phone The Authority did not have a policy regarding purchase and replacement of mobile phones provided to Board members. Authority members purchased mobile phones at Shs.2,500,000 and later requested for refund without proper supporting documents. There was a possibility that the phones bought were not of the required quality and the Authority may not have obtained competitive prices. Management promised to develop guidelines on acquisition and replacement of mobile phones as advised by audit.

2.12.11 Repair of Motor Vehicle Repairs worth Shs.17,345,450 were carried out before express authority was given by way of LPOs to garages detailing the nature of repairs required. Management promised to follow the procurement process in future.

2.12.12 Engraving of Assets It was noted that a number of movable non-current assets at NPA offices were not engraved. They were therefore exposed to a risk of possible loss. Management promised to ensure that all movable non-current Assets are engraved as recommended.

2.13 CAPITAL MARKETS AUTHORITY - JUNE 2010

2.13.1 Property, Plant and Equipment

a. Fully depreciated fixed assets still in use by the entity The authority still has capital assets that are fully depreciated and yet also in use. Notably are the motor vehicles;

Motor vehicle Reg. number Date of purchase Initial cost (Shs) Toyota Prado UAA 422F June 2004 89,813,225 Mitsubishi Pajero UG.038F June 2002 65,429,154

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Also included in the list of fully depreciated assets still in use were office equipment and computers of a purchase cost 124,410,466 shillings as well as furniture of a purchase cost of Shs.273,487,573. Continued use of fully depreciated assets is not consistent with the framework and matching concept in specific. Whereas management could not incorporate the new values of assets in use following the revaluation exercise carried out last year as it could not establish the expected corresponding useful lives of the same assets, management was advised to continue pursuing the completion of this exercise with the valuers and adjust the fixed asset register accordingly. Management explained that the matter is being addressed following receipt of the valuers report. I subsequently await management action on this matter.

2.13.2 Internal audit recommendations During the review of the internal audit reports, a couple of internal audit recommendations that have taken very long to be resolved were noted. Notably was that there were several important activities that were not carried out during their planned time frame for example research in real estate and private offering as well as development of a contingency pension funds regulation framework. The underlying risk here is that important activities not carried out during their planned time may never be executed when their timing elapses. Management was advised to ensure that the internal audit department incorporates appropriate time frames for implementation of their recommendations in the internal audit reports to foster proper follow through of timely resolution. Additionally the Board can incorporate the implementation of the internal audit recommendations as part of the department managers‘‘ performance indicators. Management explained that;  The Authority had planned to undertake the research about real estates as per the strategic plan that expired 30th June 2010. However, this activity was not undertaken due to financial constraints. Funding for this activity is being sought and proposals have been sent to prospect funders.  As regards development of the framework for pension regulation, the activity was dropped/ not undertaken due to Government‘s decision to establish a separate pensions regulator under the Retirement Benefits Bill which is before Parliament.

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I hereby await management‘s implementation of this matter.

2.14 UGANDA REVENUE AUTHORITY - JUNE 2010

2.14.1 Corporate Services Department

a. Outstanding un-reconciling items

i. Bank Credits not traced to the Collection Cashbook/ledgers Verification of a selected sample of bank reconciliation statements revealed that several credits amounting to Shs.10,338,035,967 appearing in the individual bank statements could not be traced to the cashbook/collection ledger at end of the financial year as detailed below:-

BANK ACCOUNT AMOUNT (shs) HOUSIN G FINANCE BANK 186,412,075 CITI BANK 2,144,701,272 STANBIC BANK JINJA BRANCH 281,437,339 BUSIA STANBIC BANK 215,294,745 KASESE STANBIC 127,229,380 MALABA STANBIC 728,763,587 CRANE BANK KLA ROAD BRANCH CRANE IGANGA 308,702,361 BRANCH,CRANE LIRA, CRANE GULU STAN CHART JINJA BRANCH 281,437,339 EQUITY BANK 267,184,062 STANBIC KLA ROAD 3,507,794,436 BARCLAYS BUSIA 196,690,330 UBA 937,947,766 DFCU IMPALA HSE 1,154,441,275 ORIENT BANK 19,728,387 TOTAL 10,338,035,967

Journal Vouchers were raised to correct the inter-bank coding errors and temporarily posted to the collection cash books as miscellaneous income, three months after the closure of the financial year. However, the financial statements for the year ending 30th June 2010 were not adjusted. 111

Management should continue the reconciliation process and make the necessary adjustments to the financial statements.

I advised management to make the necessary adjustments in the financial statements for the year ending 30th June 2011. i. Cashbook Collections not traceable to the Bank Statements A review of a sample of selected bank reconciliation statements revealed that collections amounting to Shs.2,634,709,813 posted to the cash book could not be traced to the bank statements as at 30th June, 2010 as detailed below:-

Bank Amount (shs) BANK OF UGANDA 302,713,549 City BRANCH STANBIC BANK 135,847,858 STAN CHART SPEKE BANK A/C No : 150,000,000 STANBIC KLA ROAD 168,781,308 BANK OF UGANDA 1,248,349,225 ORIENT BANK 126,837,024 BUSIA STANBIC BANK 310,294,911 BARCLAYS BUSIA 61,853,480 DFCU BANK IMPALA HSE 130,032,458 Total 2,634,709,813

This omission implies that the collections were either not banked or were credited to other branch accounts and have remained un-reconciled.

Management should liaise with the affected banks to obtain bank till sheets containing details of the block amounts to ease the reconciliation process. b. URA Collections not Remitted by Commercial Banks to Bank of Uganda The URA Accounting Manual and the agreement between URA and Commercial Banks require collection banks to transfer collections to a designated account in BOU on a 112

weekly basis. However, contrary to the above requirement, collections by commercial banks to the tune of Shs.1,677,660,890 were not remitted to the URA collection account in Bank of Uganda as indicated below:- BANK AMOUNT (shs) BARCLYS BANK JINJA -A/C No: 6000000718 241,370,601 CRANE BANK KLA ROAD BRANCH, IGANGA, 842,863,090 LIRA, GULU ORIENT BANK 593,427,199 TOTAL 1,677,660,890

Failure by commercial banks to remit collections constrains the Government cash flows and may lead to loss of revenues already collected.

Management is advised to undertake proper reconciliation of the accounts in question. For the banks that did not comply with the requirements of the agreements, the penalty clause should be invoked.

Similarly, Shs.149,852,218 worth of collections on the BoU collection account could not be traced to the bank statements of individual URA collection commercial bank account as indicated below:- BANK ACCOUNT AMOUNT (shs) MBALE STANBIC 149,852,218 TOTAL 149,852,218

Management explained that Stanbic Mbale branch had written to BoU to provide the source documents detailing the untraceable funds.

Management should have these reconciling differences properly investigated and financial statements accordingly adjusted. reconciling differences affect the stated revenue figures in the financial statements.

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i. Un-recovered Revenue Collections from closed Banks According to note (10) to the financial statements on page (69), several former UCB and ICB bank accounts had un-remitted balances to Bank of Uganda amounting to Shs.492,250,872 as detailed below:-

Closed Banks 2008/2009 2009/2010 UCB Branches - CUE 331,909,762 381,193,813 UCB Branches - IRD 110,840,079 68,834,032 UCB Branches - VAT 7,823,888 7,823,888 ICB Branches - IRD 12,724,491 12,724,491 ICB Branches - CUE 1,328,480 1,328,480 UCB Foreign Exchange - CUE 20,346,168 20,346,168 TOTAL 484,972,868 492,250,872

To date these funds have not been recovered. There is a risk that these balances may not be recovered. Management explained that shs.346,208,002 is irrecoverable and has written to MoFPED requesting for authority to write it off. A total of Shs.125,324,251 was still under investigation by management. Management is advised to expedite the follow-up of the matters in question. c. Non –Adherence to Human Resource Management Manual It was noted that three staff were dismissed due to forged academic transcripts which the authority never verified before their assumption of duty as required under Section 2.5.5 of the Human Resource Management manual. These staff earned salary amounting to Shs.32,830,522 on false documents they presented. In addition, URA incurred costs towards recruitment of these unqualified persons which resulted into wastage of funds.

Management should ensure that verification and authentification of documents is properly undertaken during the recruitment process as required by the Human Resource Manual. In addition, such staff should not only be dismissed but also prosecuted to deter similar actions in future.

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i. NSSF Contributions In 2005, NSSF conducted an audit of URA payroll records for the period March-June 2001 with a view of establishing the outstanding NSSF arrears. At the conclusion of the exercise, the outstanding contribution arrears stood at Shs.7,404,601,840 (included was interest amounting to Shs.767,147,133). Consequently, management agreed to make an annual payment of shs.1 billion for seven years towards offsetting the outstanding arrears. However it was noted that the arrears have since increased over the years.

Further examination of the accounts revealed that Shs.3,582,319,630 had accumulated as interest since 2005.

It was noted that, clearing this bill was not prioritized because management has been reallocating funds earmarked for the purpose. For example, Shs.345,000,000 was reallocated from NSSF Employer‘s contribution to other expenditure codes other than clearing NSSF arrears.

Delayed settlement of the NSSF arrears will result into increased penalties and interest which are avoidable.

Management should consider seeking supplementary funding with a view of clearing these arrears to avoid further accumulation of interest, as well as a possibility of legal suits from staff.

2.14.2 Domestic Tax Department

a. Value Added Tax (VAT) During the period July 2006 – June 2010, 13 Ministries, Agencies and Local Governments (MALGs) using the Integrated Financial Management Systems (IFMS) paid suppliers a sum of Shs.30,470,306,640 in respect of 18% VAT on goods and services procured. However, the following matters were observed:-

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b. Non filing of VAT returns A total of 41 tax payers who supplied Government with goods and services in the districts of Lira, Soroti, Mbale and Jinja did not file their VAT returns despite having invoiced government and been paid Shs.878,951,927 including VAT amounting to Shs.133,618,280. There was no evidence of penalty computed and charged to the default companies. The head of branches attributed this to lack of enough staff to audit tax payer‘s files.

It was also noted that five tax payers from Soroti DT station were found to have failed to furnish corporation tax returns for several years of income, in contravention of Section 92(1) of the Income Tax Act CAP 340, that requires every tax payer to furnish a return of income for each year not later than (6) months after the end of that year. In addition, the Directors of two companies did not file their returns. This could lead to loss of revenue to Government.

Management explained that some tax payers were audited and assessments of any unpaid taxes raised. I await the outcome of the audit.

Non-Traceable supplier files in URA branches A number of suppliers files registered with the Districts inspected were not availed for audit review. Some of these suppliers were paid by government agencies for supplies amounting to Shs.2,431,065,183 with VAT of Shs.368,148,190. Management explained that some of these tax payers had been traced and had been profiled for audit. I advised management to trace all the tax payers, and subject them to tax audits. c. PAYE returns filing gaps Scrutiny of a sample of the tax payers‘ files for the year under review revealed that the returns were not comprehensively filed for the entire financial year. Such omissions may result into revenue leakage.

Management explained that estimated assessments have been made for the tax payers in question but actual collections were still awaited.

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I advised management to investigate these firms further and ensure that taxes due are collected. d. Under declared VAT returns Comparison of suppliers invoice amounts on some transactions captured from IFMS and monthly VAT returns for the same period revealed under declaration of sales on VAT returns. In many instances, a NIL return was declared despite these suppliers invoicing Government a total of Shs.615,300,527 during the period in question. This amounts to false declaration and consequently results into revenue leakage.

In Soroti DT station, three tax payers were found to have concealed incomes earned from the district amounting to shs.275,421,417.

Management explained that provisional assessments and penalties have been raised and issued to the queried tax payers although actual payments are awaited.

Management is advised to strengthen the authority‘s monitoring systems to minimize concealment of incomes earned by tax payers. e. De-registration of active VAT tax payers from the VAT register A list of firms recommended for de-registration was obtained from a sample of five DT stations inspected and was compared with IFMS payment details from the respective District Local Governments. The objective was to establish whether the de-registered firms as per URA lists are still active in business and whether they have declared all such incomes by making returns to URA.

The analysis revealed that several tax payers categorized by URA as dormant and listed for de-registration were in fact supplying the District Local Governments without making VAT returns to URA although they had been paid a total of shs.976,758,018. Failure to disclose earned incomes contravenes sections 31(1), (53) and (59) of the VAT Act CAP 349.

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The respective station heads explained that several attempts to request for tax payer information from the District Local Governments to update URA data and the VAT register were futile.

Management should review the registration status of the listed tax payers with a view of re-registering them and also subjecting them to tax audits to ascertain their tax position. f. Tax Credit Certificate (TCC) claims by tax payers During the year under review, the Tax Credit Certificate claims by tax payers were reviewed to ascertain the accuracy and completeness. A review of the corporation tax file number 47/51030 with TIN number B93-1001-3268-E for one tax payer at Lira DT station revealed that the tax payer claimed for WHT tax credits certificates irregularly. The tax payer claimed tax credits under certificate number 0665792 of 15th November, 2006 for Shs.9,338,637 and Certificate Number 0641034 of 10th August, 2006 for Shs.3,340,200, which resulted into total base income of Shs.211,304,950 as opposed to the incomes disclosed in the financial statements submitted by the firm. This non disclosure resulted into understatement of incomes to the tune of Shs.100,289,350 as well as the applicable corporation tax due.

Management should ensure that all TCC claims are subjected to proper analysis and the results compared with the incomes declared before consideration of the claims. The Accounting Officer promised to address the matter henceforth and also explained that, the above tax payer is currently under audit to establish the correct tax position. The results of the audit are awaited. g. Outstanding Collectible Domestic Tax Revenue The Domestic Tax Department maintains a tax arrears schedule for all stations. This schedule reflected the stock of arrears at Shs.105,698,843,158. The most remarkable arrears included the following:-

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Tax Payers Tax Heads Amounts (shs) Remarks Ministry of Agriculture VAT 5,701,376,415 Agency Notice issued Ministry of Finance O/standing BPAFs 1,886,054,911 Agency Notice issued Ministry of Education VAT 1,469,022,563 Issued Agency notice Ministry of Education A/C Dott Services 1,129,637,363 Issued Agency notice Ministry of Defence A/C Tororo 1,192,220,774 Issued Agency Cement & Roofings notice Mulyoowa Michael Ezra Individual Tax 1,467,458,790 Tax Payer reportedly on the run. Stirling Civil Engineering PAYE 493,169,642 Installment payments sanctioned. Kampala International PAYE 465,769,583 Issued 3rd Party University Agency Notice

The following matters were further observed:-  Outstanding BPAFs issued to Ministry of Finance Planning and Economic Development (MOFPED) amounted to Shs.1,886,054,911. MoFPED explained that these outstanding amounts relate to exempt organizations including projects, that did not qualify to be paid under the Gross Tax System. They acknowledged the debt and promised to have it paid.  Ministry of Agriculture accumulated VAT arrears of Shs.5,701,376,415. According to URA, the Ministry failed to respond to Demand Notes (DNs) issued to them. Management in the Ministry explained that they are aware of only two DNs relating to PAYE of Shs.733,475,612, and WHT of Shs.32,164,526. These funds were actually agreed upon with the Accountant General and the funds were later settled in September 2009 from the Ministry TGA.  Ministry of Education has VAT arrears worth Shs.1,469,022,563. The Ministry also pledged to settle taxes on behalf of M/s Dott Services amounting to Shs.1,129,637,363. These amounts had agency notices issued against them 119

through the Accountant General, though no action has been taken yet. Management in the ministry explained that they were aware of the cases but also indicated that a Demand Note had been issued for M/s Excel construction whose amounts could not be established at the time of audit. Accumulation of large stocks of domestic arrears may pose collection and recovery problems.

It was noted also noted cases that had not been included in the schedule provided hence understating the arrears position. These included the following:-

 M/S Dura Cement Dura Cement has corporation tax arrears worth Shs.10,715,232,000. This was in relation to compensation which attracted tax in line with Section 61 of the Income Tax Act (ITA) CAP the Income Tax Act (ITA) CAP40. At the time of audit the arrears had not been collected.

 M/S Haba Group Haba Group has tax liabilities totaling shs.21,481,951,784 as detailed in the table below. This was also in relation to compensation and corporation tax arising from tax audits as assessed pursuant to Section 61 and 96(3) of the ITA CAP 340.

Company Tax Tax Per Audits Compensation Tax on Total Tax Due Name Period Head s Amounts Compensations (shs) (shs) Sheila 2004 & Corp. 107,100,000 24,160,763,956 7,248,229,186 7,355,329,186 Investments 2005 First Jan Corp. 3,128,910,987 5,652,231,084 1,695,669,325 4,824,580,312 Merchant 2005- Internationa Dec l Trading 2006 Co. Ltd. Victoria Corp. 4,395,161,600 1,318,548,480 1,318,548,480 Internationa l Ltd. Yudaya Corp. 22,075,937,056 6,622,781,116 6,622,781,116 Internationa 120

l Ltd. Regency VAT 984,944,690 984,944,690 Group of Hotels -do- Corp 375,768,000 375,768,000 Grand Total 21,481,951,784

Despite management efforts to issue Agency Notices to the PS/ST to enforce recovery at source from payments made in respect of compensation these arrears have remained outstanding. Management should ensure that all outstanding arrears are followed up accordingly.

3.14.3 Customs and Exercise Department

a. VAT Deferment on Plant, Machinery & Equipment VAT deferment is a facility granted to VAT registered taxpayers who apply to the Tariff section (Customs Headquarters) for postponement of payment of VAT on importation of plant and machinery to a future date. The Domestic taxes section then collects the VAT on production of final goods or services, where applicable.

The beneficiary of the VAT deferment facility is usually given (30) days within which to install the imported plant/machinery. After the thirty days, the Officers from the Tariffs section are supposed to inspect the premises to ascertain if machinery where VAT was deferred is being utilized. A verification account to that effect is normally produced as a basis for issuance of the discharge notice which completes the deferment process.

Information extracted from the ASYCUDA++ system for the Customs Business Centre (CBC) Nakawa revealed that, customs entries with a BIF value of Shs.920,221,025 that were granted this facility had an outstanding VAT deferment of Shs.165,639,785 (being18% thereof) as indicated in the table below:-

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Year Station Entry Importer Description CIF Value (shs) VAT Amount (shs) 2010 UGKLA C9198 Seven Lakes Other 19,361,366 3,485,046 Trading (U) prefabricated Ltd. buildings 2009 UGKLA C89934 Hima Cement Other 188,839,867 33,991,176 Ltd. machinery and apparatus for filtering or purifying gases. 2005 UGKLA C30534 Luuka Plastics Air compressors 21,627,377 3,892,928 Ltd. mounted on a wheeled chassis for towing 2004 UGKLA C13463 Celtel (U) Ltd. Electrical lamp 690,392,415 124,270,635 and lighting fittings TOTAL 920,221,025 165,639,785

Out of the un-discharged VAT of Shs.165,639,785, a total of Shs.128,163,563 representing 77.4% relates to the prior years. There appears to be laxity on the part of management in following up these cases.

In addition, it was noted that VAT deferment was allowed on non-qualifying goods including electrical lamp and lighting fittings (worth Shs.124,270,635) and other prefabricated buildings (worth Shs.3,485,046), contrary to regulations. These entries had remained un-validated beyond the thirty days, with some dating as far back as 2004. The possibility of sale or change of ownership of these items without payment of deferred VAT cannot be ruled out.

Management should ensure strict follow up of all VAT deferment cases. In addition, the waived taxes on thenone qualifying importations should be collected as they do not fall in the category of Plant and Machinery.

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b. Outstanding Taxes Under the Customs Department, tax arrears arise from government transactions with URA or through authorized installment tax payments by individuals and companies with memorandum of understanding with URA. Analysis of tax arrears under this department revealed substantial amounts that remained un paid at the end of year as follows:-

3.14.4 Outstanding government taxes a. Information obtained from the ASYCUDA++ system revealed that a total of Shs.5,615,613,627 (compared to Shs.3,337,763,547 last year) remained outstanding during the year under review out of which Shs.1,829,910,801 representing 33% relates to the prior year.

Management explained that these accumulations are a result of releasing the imported goods before they are paid.

There were also other weaknesses observed in the procedures relating to clearance of Government Imports. For instance, there is no prescribed time period the credit would be allowed and beyond which penalties would be imposed to compel entities to make timely payment. In addition, although all government arrears are supposed to be settled within the financial year they are incurred or committed, management follow- up appears to be inadequate.

Management should liaise with the Treasury to ensure that these outstanding balances are cleared.

b. Personal arrears under MOUs All requests to pay customs taxes in installments should be authorized by the Commissioner -Customs, with an MOU prepared and approved by the Commissioner General. A schedule obtained from the ASYCUDA++ system indicates that personal arrears amounted to Shs.127,708,608 with some dating as far back as October, 2007. The

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bulk of these (i.e. Shs.93,304,791 equivalent to 73%) relate to the prior years, an indication of weaknesses in arrears management. For proper management, all customs installment payments are supposed to be limited to within four months of signing the MOU.

Management should adhere to the laid down procedures to enable proper and timely management of personal arrears. c. Un-Validated Transit Bonds (T1‟S) Section 85(1&2) of the EACCM Act gives the Commissioner Customs powers to authorize goods under customs control to be moved under bond either inwards (imports), outwards (exports/re-exports) or through transits to neighboring states. In addition, section 87 allows termination of transit on presentation of such goods and all entries (documents) at the office of destination within the statutory period. Transit bonds usually comprise of insurance covers held by various traders in respect of collectable taxes for the goods in transit. The transit period as prescribed by the Commissioner Customs is normally (7) days for through transit and (2) days for inward or outward transit. On exit or clearance of goods for home consumption, the transit bonds are validated both in the ASYCUDA++ system using rotation (inwards/outwards) numbers and manually in the customs transit register.

During the year under review, un-validated transit bonds (T1‘s) were obtained from the Transit Monitoring unit (TMU), analyzed and the following matters observed:- d. Outstanding Transit Bonds (T1‟s) Transit bonds amounting to Shs.222,891,424 at various Customs stations to which they were destined remained outstanding beyond the statutory period. The cases were at different levels of management as indicated in the table below:- Category Values (shs) Forwarded for calling penalty to bond 128,064,229 Cases under investigations 44,663,997 Under court cases 50,163,198 Total 222,891,424

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Delays to call penalty to bond against the insurance covers executed by clearing agents expose URA to difficulties in realizing the revenues or legal challenges with the insurance companies.

The Customs department is advised to strengthen controls over management of T1‘s in order to ensure timely validations. e. Dumped transit fuel URA has a Transit Monitoring Unit (TMU) whose major task is to ensure that all goods destined for the neighboring states of Rwanda, DRC and Southern Sudan are monitored until they exit the country. This is meant to ensure that such transit goods do not get dumped in Uganda and the collectible taxes lost in the process leading to un-fair business competition.

A review of the TMU reports revealed that a fuel consignment with total CIF value of Shs.42,177,850 transiting from Busia to the border post of Bunagana was dumped in Uganda. The truck involved had a registration number KBD644Y/KV1403BA on T1 number D18705. Management explained that the truck had been impounded and the matter was under litigation.

Management is advised to expedite the litigation process or have the truck auctioned before it depreciates in value. f. Outstanding Temporary Imports on CB10 Temporary importation is a procedure provided for under Section 117 of the EACCM Act, whereby some imports are exempt from liability to import duties. The procedure allows qualifying companies to temporarily import some machinery and equipment for use in Uganda for a particular contract or project. Import taxes are not paid on the equipment on condition that the equipment will be re-exported to its country of origin after its use in Uganda. Such imports have to be secured by execution of bond covers annually.

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During the year under review, temporary imports on CB10 with a bond value of Shs.12,762,396,617 remained outstanding with some dating way back to February, 2009. It was noted that there was no evidence to show that these goods were either re-exported and the respective bonds retired or were entered for home consumption on IM4 with the due taxes collected. Regulations require that annual renewals should be made in case goods are still in use for more than a year; however, there was no evidence that this was adhered to. Outstanding CB10s pose the risk of goods being dumped in the local market without payment of taxes. Management should further strengthen the system of using temporary imports on CB10 through regular monitoring and enforcement to ensure that there is no revenue leakage. g. Entries Not Accounted for M/s Reynolds was a company contracted to construct the Jinja – Iganga – Bugiri road during the year 2005/06. The company imported mostly machinery and equipment among others without paying taxes. At the end of the contract the company was supposed to re-export these equipment and machinery or enter them for home consumption upon payment of taxes.

However, it was noted that the contractor closed business in Uganda without accounting for imports with a BIF value of Shs.16,324,612,730

Management explained that the importer had requested to change the status of the goods to home consumption to enable payment of taxes.

Management is advised to follow-up the matter without further delay to avoid loss of revenue. h. Outstanding Demand Payment Notices Demand Payment Notice (DPN) is a revenue document used to collect additional taxes due. Additional taxes can arise through compliance checks like post clearance audits, under declarations, miss-declarations, under valuation, or misclassification.

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Where taxes are underpaid, a Demand Payment Notice (DPN) is given to the importer to make a top up of the shortfall. If the DPNs are not paid within a period of 30 days the goods which are still under customs control should go through the customs ware house process for further management (tagged for auction).

Inspection of four (4) customs stations was carried out to establish whether DPNs are properly managed in line with the stated guidelines. According to the records obtained from these stations, outstanding DPNs amounted to Shs.617,044,436 as shown below:-

Station AMOUNT (shs) CBC Entebbe 302,678,491 CBC Busia 151,565,630 CBC Jinja 4,620,195 CBC Kampala. 158,180,120 Total 617,044,436

Some of the outstanding DPNs date as far back as July 2008, a period beyond the allowed (30) days for management to take enforcement measures. There was no evidence that management was following up these tax payers to enforce collection. Government appears to be losing revenue on these outstanding DPNs.

Additionally, in the quarterly report by the URA Internal Audit department, it was noted there were instances where ‗multiple DPNs‘ were issued for the same declaration. For example two DPNs were issued on 18th September, 2009 for declaration number C67500/08.09.2009, one for Shs.168,212,182 and the other for Shs.2,527,922. There were no explanations as to why multiple DPNs were issued for the same declarations. There is a risk that multiple DPNs may be abused by Clearing Agents to defraud tax payers by presenting a wrong DPN with a large amount of due taxes to a taxpayer instead of a correct DPN that may have a smaller amount.

Management should ensure that all outstanding DPNs are accounted for.

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i. Renewal of licenses of clearing Agents URA has continued to renew the licenses of clearing Agents known to have bond outstandings worth shs.669 billion. This could partly explain why enforcement of penalty to bond is difficult. Renewal of the licenses of noncompliant Clearing Agents sends a wrong message that URA is not concerned with the acts of default. I have advised management to ensure that this practice is stopped henceforth.

3.14.5 Legal Department

a. Pending and Delayed Legal Cases During the year under review, the Authority incurred expenditure amounting to Shs.1,120,290,255 on legal fees to dispose off a number of outstanding cases. Indeed, the performance levels stood between 70% to 80%. Examination of the records revealed that out of the contested cases1 worth Shs.56,245,125,506, URA realized a total of Shs.25,973,644,087. Pending cases as of 2nd November 2010 amounted to Shs.50,013,801,914.

It was noted that the time taken before the cases are brought before a Judge and have them ruled upon, range from 145 to 489 days. Delayed cases may lead to loss of revenue to the Authority especially in the event of death of individuals or winding up of companies.

Management is advised to devise means of expediting processing of the pending cases.

Management explained that they have started sensitizing the Judiciary about improvements in tax collections, challenges attributed to delayed ruling of cases and their effects on the economy.

1 Contested cases in a appendix 13 128

3.14.6 Field Inspection

3.14.6.1 Port Bell Customs Post

a. Poor state of the Customs warehouse (stores) In my previous audit report, I pointed out infrastructural deficiencies at Port Bell Customs Post. It was hoped that urgent measures would be undertaken to prioritize this case. However a recent inspection has revealed further deterioration of stores number 2 & 3 at Port Bell, which URA uses for Customs warehousing services. The stores were found to be in a very sorry state. The walls are weak and have even developed holes. The ceiling is almost collapsing and access from neighboring stores is not restricted. The floor is cracked and the fencing which forms part of the upper wall demarcation, is broken, making it easy for illegal access. There are no pallets to hold the goods off the floor yet when it rains water enters the stores.

All the above deficiencies pose a great risk to the goods deemed to be under Customs control which may be subjected to theft, damage and deterioration in value and hence loss of revenue to government. In addition, legal claims by tax payers can also be instituted in case of damaged goods.

Although management in the previous audit report explained that the infrastructure at Port Bell is managed by Rift Valley Railways and that the management of Rift Valley Railways has been requested to improve on the premises to facilitate customs operations, this is yet to be achieved.

Management should consider undertaking remedial refurbishment and retooling of this station to safeguard the tax payer goods and avoid possible legal claims which may arise from thefts and damage due to the poor state of these stores.

b. Open filling cabinets Filing cabinets are meant to secure official documents and restrict accessibility to only authorized persons. During inspections, it was noted that the station keeps about 70% of the files in open cabinets. The un-lockable filling cabinets pose a safety risk to

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these files. Since the office is a single room manned sometimes by a single officer as was the case during the inspections, the possibility of loss of these files to clients with tax issues cannot be ruled out. Lockable filling cabinets should be provided to replace the current open ones to ensure restricted accessibility to vital documents. c. Docking time-table for small ships It was noted that the major ship (i.e. Umoja) which plies the Mwanza – Kisumu – Port-Bell route has reduced her voyage times giving room to numerous small ships which handle most of the goods received at the station. However, it was noted that these numerous small ships have no established docking time-table since they arrive any time including at night, without any notice. This makes it difficult for the Customs Officers‘ to monitor and prevent any likelihood of smuggling which may lead to loss of revenue. Management should ensure that adequate monitoring measures by the enforcement staff are put in place especially at night, to reduce on the possibilities of smuggling. d. Lack of transport for night operations Port-bell is not among the Customs station which operate 24 hours in shifts or the hard stations where staff benefit from hardship allowances. It was established that the major ship Umoja and other small ships as noted above, sometimes dock at night with limited time allowed for offloading. However, it was noted that the station lacks transport especially for night operations, yet staff are not provided with accommodation at the station. Staff are often left with the challenge of hiring transport at night to manage the operations, yet no mileage or taxi hire refunds are provided. These circumstances may affect the staff morale as well as their performance. Management is advised to provide transport to staff to facilitate night operations. e. Health safety arrangements at the station The Customs staffs at Port-Bell carry out verifications of iron products and maize-mill spare parts among others which may cause physical harm in case of accidents, yet no health facility exists nearby. The idea of a first aid box at the post was a good idea.

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However, it was noted that the first aid box could not open during the inspection exercise. The Officers at the station confessed to not having opened it during the last six months. The medicaments (if any) in the box could even have expired due to non- usage. This leaves the staff exposed in case of need of first aid and also defeats the well intentioned objective of establishing it in the first place. Management is advised to ensure that the first aid box is checked and restocked regularly.

3.14.6.2 Entebbe Customs Station

a. Operation of un-licensed bonded warehouses During the inspections, it was established that the two bonded warehouses (i.e. EBTR1-ROKA and EBTR2-ENHAS) were in operation, handling most of the warehoused cargo imported through the airport. An analysis of the approved list of bonded warehouses for the year 2009 and 2010 revealed that these two warehouses were not licensed contrary to section 62(7&8) of the EACM Act.

Operation of un-licensed bonded warehouses leaves the goods therein un-secured since no bond will have been executed or any other form of insurance entered to cover the taxes and duty expected from the warehoused goods.

I have advised management to adhere to the requirements of the EACM Act.

b. Need for URA – Airlines electronic interface It was noted that currently, customs relies on manual information provided by the Airlines and their agents/handlers on arrival at Entebbe Airport for clearance of both cargo and passengers.

However, it has become apparent that there is need for information for use by Customs and other Airport agencies (e.g. Immigration, Police and other security organs) to be relayed and received prior to arrival of the aircrafts. The use of

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international standard advance passenger information would facilitate the customs control of travelers and clearance of goods carried by them.

Advance information would also facilitate application of risk management in the processing of passengers and cargo thereby enabling the non-risky passenger and non-dutiable cargo go through the green lane, hence improved clearance time. It would also enhance enforcement capacity by enabling targeting of potential high risk offenders, and time saving on data capture since it would be provided electronically.

Reliance by URA on information for the Airlines clearance from cargo handlers posses the risk of inaccuracies in data received which may lead to revenue loss in case of under declaration, wrong goods descriptions and HS Codes.

Management should consult with other stake holders, like CAA, cargo handlers, and Airport security with a view of putting a joint request for an electronic interface with the Airlines operators to facilitate the efficiency of their operations.

c. Inadequate staff uniforms at Entebbe Custom Post During inspections, it was noted that only a few staff have uniforms (tops only). This makes it difficult to quickly distinguish customs staff from clearing agents, cargo handlers or CAA staff. This implies that the corporate identity is not being proudly upheld.

Management explained that most of the uniforms are now old and need replacements, which are awaited from head office. I advised management to ensure that all customs staff at all border entry points wear uniforms while on duty.

2.15 DIVESTITURE & REDUNDANCY ACCOUNTS - JUNE 2009

2.15.1Diversion of funds from divestiture account.

Contrary to Section 26 of the PERD Act, which stipulates the activities on which divestiture funds should be spent, funds amounting to Ushs.11 billion were 132

transferred from the divestiture account to the operational /administrative account for use by PU on activities which are not specific to the divestiture. Management did not give a response on this matter; I subsequently await an explanation.

2.15.2 Negotiations for Debt swap between Privatization Unit (PU) and GOU

a. Long outstanding receivables

The project has long outstanding receivables and most of which are debts due from government and state corporations. PU revealed that these debts are a subject of a debt swap between PU and GOU. A disclosure under Note 7 to the financial statements states that an amount is due from Government of Uganda in respect of Uganda Consolidated properties of Ushs.18,671 million ( 2008: Ushs.14,801 million). Negotiations for the debt swap have been on going without a clear indication of when they will be concluded. There is a risk that the receivables may not be recovered and the assets may be overstated. No provision has been made in the financial statements in this regard. Management did not offer any explanation on this matter.

b. Assumed liabilities

Related to the receivables due, Note 11.2 to the financial statements shows a credit balance of Ushs.9,561 million (2008: 9,676 million) arising from liabilities from divested enterprises taken over. The determination of these liabilities is subject to the outcome of the ongoing negotiations for the settlements between the Government of Uganda and respective parties as part of the divestiture process.

c. Dormant DFCU Account.

A review of bank reconciliations revealed that the DFCU bank account has been dormant since 2006.Such dormant bank accounts expose the entity to the risk of being used for fraudulent activities and yet the entity pays an unnecessary cost for their maintenance. I recommended that the account be closed.

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d. Unimplemented matters from previous reports.

Observations from the previous report of 2008 have remained unresolved as follows;

i. Fraud policy

ISA 240 requires management to put in place measures to prevent and detect fraud in the entity. It was noted that there is no fraud policy in place to guide the fraud management process. ii. Cut-off policies in claiming and settlement of terminal benefits.

There were no cut-off policies in claiming and settlement of terminal benefits. During the year ended June 2009 payments of Ushs.2.3 billion (11 billion:2008) were made as terminal benefits for Uganda Electricity Board staff relating to benefits payable in 1999. iii. Nile Hotel international limited

The hotel was required to pay interest on loan at a rate of 15% per annum on the principal amount of Ushs.1.2 billion. However there was no interest accrued in the books of account. It was also noted that although Nile Hotel signed this agreement, Government of Uganda did not sign on their part. iv. Non compliance with the PERD Act

There were delays in the preparation of divestiture completion reports for Diary Corporation Limited, Uganda Railways, and New Vision. The Kinyara Sugar works report is still in draft form. There was no evidence that these reports had been prepared. I subsequently await management‘s action on these matters.

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AGRICULTURE & FORESTRY SECTION

2.16 NATIONAL ANIMAL GENETIC RESOURCE CENTRE & DATA BANK - NAGRC- DB JUNE 2008

2.16.1 Late Submission of Accounts Management did not prepare and submit Final Accounts to the respective authorities within 3 months after the end of the Financial Years as required by the Public Finance and Accountability Act 2003, Sec 31(b). Delayed submission of accounts is irregular and the information may not be useful for decision making. Management attributed late submission of accounts to shortage of staff. They were however advised to keep proper books of Accounts to be able to meet statutory reporting requirement.

2.16.2 Personnel Matters The majority of staff has not had their contracts renewed; some expired as far back as 2007. Some staff served on contracts of a term of 6 months and don‘t receive any benefits in form of gratuity or NSSF contribution. The structure that was approved by the Board three years ago had not been implemented. The rights of employees are violated and may attract heavy penalties to the entity in case of litigation. Management responded that at least one staff contract has been renewed while the others are yet to be submitted to the Board for approval. Management was advised to update staff records and ensure compliance with employment laws.

2.16.3 Internal Control Systems It was noted that the internal audit department is weak and not capable of assessing the effectiveness of internal controls to recommend measures for improvement and guide in the day today operation of the company. This was compounded by lack of documented and approved operational manuals like the Accounting and Human Resource manuals. A weak internal control system can lead to loss of centre assets, poor information and lack of control. Management attributed the problem to lack of staff. They were however advised to establish a proper functioning internal control

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system, including writing operational manuals specifying procedures for accounting, for revenue, expenditure and safe guard the centre‘s Assets.

2.16.4 Land Without Land Titles It was noted that five of the ten farms owned by the centre do not have Land Titles. These include; Nshaara, Sanga, Aswa, Bulago and Maruzi. There were massive encroachments in Sanga, Maruzi and Njeru stock farms. Management responded that efforts are being made to survey and process the land titles. The process is however, taking too long.

30th JUNE 2009 2.16.5 Late Submission of Accounts Management did not prepare and submit Final Accounts to the respective authorities within 3 months after the end of the Financial Years as required by the Public Finance and Accountability Act 2003, Sec 31(b). Delayed submission of accounts is irregular and the information therein may not be useful for decision making. Management attributed late submission of accounts to shortage of staff. They were however advised to keep proper books of Accounts to be able to meet statutory reporting requirement.

2.16.6 Personnel Matters The majority of staff has not had their contracts renewed; some expired as far back as 2007. Some staff served on contracts of a term of 6 months and don‘t receive any benefits in form of gratuity or NSSF contribution. The structure that was approved by the Board three years ago had not been implemented. The rights of employees are violated and may attract heavy penalties to the entity in case of litigation. Management responded that at least one staff contract has been renewed while the others are yet to be submitted to the Board for approval. Management was advised to update staff records and ensure compliance with employment laws.

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2.16.7 Internal Control Systems It was noted that the internal audit department is weak and not capable of assessing the effectiveness of internal controls and recommend measures for improvement and guidance in the day today operation of the company. This was compounded by lack of documented and approved operational manuals like the Accounting and Human Resource manuals. A weak internal control system can lead to loss of centre assets, poor information and lack of control. Management attributed the problem to lack of staff. They were however advised to establish a proper functioning internal control system, including writing operational manuals specifying procedures for accounting for revenue, expenditure and safe guard the centre‘s Assets.

2.16.8 Land Without Land Titles It was noted that five out of ten farms did not have Land Titles. These include; Nshaara, Sanga, Aswa, Bulago and Maruzi. Besides, there was massive encroachment on these stock farms. Management responded that efforts were being made to obtain the land titles. They were advised to survey and process the land titles. The process is taking too long.

2.16.9 Farm Infrastructure Inspections carried out on some farms noted inadequacies in transport, water supply, accommodation, fire protection, and road infrastructure. Two of the farms which had interventions from the Ministry of Agriculture Animal Industries and Fisheries (Ruhengere and Kasolwe) had short falls in delivery.

a. Ruhengyere – National Livestock Productivity Improvement Project.

 End users are not involved in decision making, there were no project documents on site, no regular site meetings, poor quality materials on site (pipes, poles) and undefined project implementation span.  Open trenches resulting into loss of animals, but no compensation was realized and no details were provided.

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b. Kasolwe Farm

 No visible results on site(renovation of houses)  Delays in bush clearing  Involvement of end users not evident

The project objectives may not have been achieved. Management attributed the problem to be lack of funds. c. Failure to Sensitise Local Communities The centre was expected to form breeding association and societies to benefit the communities surrounding the farms but the surrounding communities appeared not to have appreciated the existence of the farms in their locations. The breeding centers were not formed during the year under review. This has resulted into thefts of animals, vandalisation of facilities, fire out breaks and threats to lives of the farm workers. Management attributed the problem to lack of staff and stated that efforts were being made to sensitize the communities. Management was advised to come up with sensitization programs among the communities in the area surrounding the farms of the benefits the existence of farms bring to them. d. Urbanization/Encroachment Two farms (Sanga and Njeru) are facing a threat of encroachment. They are located within growing townships which are expanding into the farms. In Njeru farm, the local Council has allocated plots irregularly and individuals have since erected permanent structure on the farm land. In Sanga, the communities have curved out land for development and trespass on the farm in search of water. This has resulted into reduction of farm acreage. Management responded that the two firms are located in urban centers where land was prime and encroachment was common. They also attributed the problem to lack of land titles. Management was advised to secure the land by acquiring land titles and fencing. Where possible, security patrols should be employed.

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e. Strategic Plan- Evaluation It was noted that the entity has a strategic plan for the period 2005 – 2010. The plan has six core objectives of which the following were not achieved. These were;

i. To establish, develop and promote livestock breeding structure  Breeding associations and breed societies were not formed.  Performance and progeny testing schemes were not implemented  Fish breeding facilities not established

ii. To provide sound governance and over sight of the centre‘s activities. There was no Board of Directors constituted during the period under review. As a result the Organization Structure and the staff Terms and conditions of service were not approved /reviewed. Failure to implement stated objectives had a negative impact on overall performance of the organization. Management attributed the problem to the organization structure not having been fully operationalised because of lack of funds. I advised management that corporate goals should always be prioritized in resource allocation and implementation

f. Obsolete Stock/And Dilapilapited Building We noted that the entity has huge piles of obsolete tools, spares and equipment and dilapidated building structures. They do not add value to the development of the entity and yet they occupy space. The dilapidated structures also pose a risk to human life. I advised management to constitute a Board of Survey with a view of disposing them off and generating revenue for productive services. Management acknowledged that a Board of survey is to be instituted to dispose off the old equipment, and that the old buildings will be renovated.

30th JUNE 2010

2.16.10 Land without Land Titles It was noted that five of the ten farms were not secure. Their boundaries were not opened and they did not have Land Titles. These include; Nshaara, Sanga, Aswa,

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Bulago and Maruzi. The farms of Njeru, Maruzi, Lusenke, Saanga, Nshara have been adversely encroached on. The absence of title and clear demarcations resulted into massive encroachments in sanga, Maruzi and Njeru stock farm. Management promised to work on the Land Titles. I advised management to ensure that the farms are surveyed and land titles secured.

2.16.11 Information Technology It was noted that although the entity had a functional IT Unit, it did not have an IT strategy, Security policy, an inventory of IT assets and disaster recovery programme in place. Management procedures were not properly guided in the process of acquisition, and usage of IT resource. As a result, the full benefits of the IT resources may not be achieved. Beside the IT resources could be exposed through unauthorised access, theft and misuse. Management stated that plans to make consultations with other semi-autonomous bodies were on going to have the policy in place.

2.16.12 Governance During the financial year under review, audit noted that the Board of Directors held only 3 meetings contrary to the mandatory 4 meetings. Management was advised to always schedule the minimum number of meeting of the Board in order to facilitate their supervisory role.

2.16.13 Internal Audit The organization did not have a functioning internal audit department to assess the internal control and recommend measures for improvements. The organization initially used the internal Audit Function of the Parent Ministry but there was no evidence that the audit reports were reviewed. Management stated that they had been given a go a head by the Board a go ahead to recruit an internal auditor and we are working towards recruiting one.

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2.16.14 Fleet Management Although the entity had a number of vehicles for use in its business operations, it lacked a fleet management policy. Some of the vehicles were non functional. Records of some of the vehicles were not availed for verification. There was no system for acquisition, allocation, management, maintenance and use of the entity‘s transport assets. The absence of a complete record of the fleet made it difficult to ascertain existence and ownership of the entity‘s fleet Management stated that they are in consultations with the parent Ministry to develop a fleet management policy that will give guidance in the day-to-day business operations and disposal of old vehicles.

2.17 UGANDA COFFEE DEVELOPMENT AUTHORITY - SEPTEMBER 2009

2.17.1 Land and Buildings The value of the Authority‘s land and building is reflected as Shs.7,306,644,181 in the financial statements against which a depreciation of Shs.108,478,303 has been provided. IAS 16 requires land buildings to be dealt with separately for accounting purposes even when they are acquired together. However, it was noted that management has not identified separately the cost of land and buildings. It was therefore not possible for audit to determine the actual value of the Authority‘s land and buildings separately and to confirm the depreciation charged.

2.17.2 Revaluation of Property, Plant and Equipment IAS 16 requires property, plant and equipment carried at revalued amounts to be revalued with sufficient regularity to ensure that the carrying amounts do not differ materially from that which would be determined using fair values at the Balance Sheet date. The Authority has not carried out any subsequent revaluation of Assets for over a period of 10 years. Consequently the Authority‘s Property, Plant and Equipment may not be fairly stated in the financial statements.

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2.17.3 Investments in Wet Coffee Processing Machines The Authority invested Shs.834,815,878 in Wet Coffee processing machines under the Strategic Exports Program. The objective of investing in the machines was to improve the value addition of Uganda coffee through the beneficiaries of the machines installing them and processing Uganda coffee at farm gate level. The machines were sold to farmers in 2003 under the DFCU leasing facility at a discounted price of 50% under a finance lease which gave the beneficiaries the option of purchasing them at 2% of the discounted value at the end of the lease period. Recovery of the loans was to commence after commissioning of the machines. It was noted that,  Five (5) Wet coffee processing machines have remained uninstalled at the beneficiaries‘ premises.

 Three (3) Wet coffee processing machines have been partially installed but are still far from completion.  Three (3) Wet coffee processing machines have been installed and are operational but are not commissioned resulting in delays of commencement of the loans recovery.

I raised the matter of delay in implementation of the Wet Coffee processing scheme in my previous reports and the effect it had on the government objective of value addition under the Strategic Exports Program. Management explained that they had communicated to all beneficiaries of uninstalled machines requesting them to return the equipment for re-allocation. They however, indicated that they were carrying out a feasibility study to establish how best the Wet Coffee processing machines could effectively be financed and utilised. I have advised management to expedite the process of installation and commissioning of the Wet Coffee processing machines in order to enable coffee farmers realize the benefits of Value addition of Ugandan coffee.

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2.17.4 Accounting and Financial Manual

It was noted that the Authority‘s revised draft accounting manual has not been presented to the Board for adoption and approval. As a result, there is a risk that effective implementation of the Authority‘s policies may not be achieved.

Management explained that the draft revised financial manual will be presented to the Board for approval before the end of the coffee year 2009/2010.

I advised management to follow up on this matter with the Board at its earliest sitting and have the manual approved and implemented.

2.17.5 Un recovered utility payments Shs.28,031,682 It was noted that a total of Shs.28,031,682 was paid to National Water and Sewerage Corporation in respect of water consumed by the tenants who occupy the Authority‘s rented properties. This was contrary to Section 1 -5 (i) of the tenancy agreement between UCDA and the tenants which requires each tenant to pay separately for water charges among other utilities and services pertaining to the rented premises. We further noted that management paid an additional Shs.3,488,000 to National Water and Sewerage Corporation (NWSC) for the supply and installation of 32 metres at Shs.109,000 each to the 32 flats of Block 33 Bugolobi of the Authority. The metres were, however, not installed because the Authority failed to complete the piping work. Management acknowledged the audit observation and explained that water supply to the block of flats is by a single metre; which necessitates the Authority to pay the water bills and thereafter effect recovery together with rent.

I have advised management to recover the money from the tenants and complete the piping works to enable NWSC install the metres. I await management‘s action on this matter.

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2.18 COTTON DEVELOPMENT ORGANISATION - OCTOBER 2009

2.18.1 Lack of an Audit Committee Section 8(6) of the Public Finance and Accountability Act PFAA (2003) requires all government entities to have audit committees to be charged with the responsibility of reviewing issues raised by internal audit in accordance with best practice. It was noted that the organization did not constitute an audit committee. In the absence of an audit committee, control weaknesses in the audit reports may not be discussed objectively and brought to the Board‘s attention. Management explained that the CDO Board discussed the matter in their 21st board meeting held in April 2010 and agreed to constitute an audit committee in accordance with the requirements of the Act.

I advised management to ensure that the Board constitutes an audit committee so as to strengthen the internal controls in the organization.

2.18.2 Internal Audit Unit

It was noted that the organization‘s internal audit unit was staffed by one person contrary to the revised statute which provided for an audit assistant. With an ineffective internal audit unit, errors and weaknesses in the organization‘s internal control may not be detected in time. Furthermore, monitoring of activities to ensure achievement of organization‘s goals and objectives may not be effectively carried out. Management explained that they had recommended for recruitment of an audit assistant to the Board to strengthen the internal audit unit which board had approved and that the recruitment process would be effected in the year. I await management‘s implementation of this matter.

2.18.3 Sale of Organic Lint and Seeds to Phenix (U) Ltd

It was noted that a local textile company which is the sole buyer of organic cotton failed to utilize 1,445 bales (268,350 Kg) of organic lint meant for its factory. As a result CDO intervened and procured the cotton from farmers and later sold it to the open market at Shs.802,214,205. The amount realized was far less than what was 144

incurred on the acquisition of lint and seeds from cotton farmers Shs.1,501,885,142 resulting into a loss of Shs.699,690,397. Management explained that they got approval from the Minister of Finance ,Planning and Economic Development to dispose of the organic cotton lint bales when it became evident that the company was not going to utilize the cotton, and that the amount realized was low due to depressed cotton prices at the time.

I advised management to seek compensation from government for the loss and stop depending on one buyer.

2.19 COORDINATIONG OFFICE FOR THE CONTROL OF TRYPANOSOMIASIS IN UGANDA 30th JUNE 2006

2.19.1 Lack of Qualified Accounts Personnel The Entity did not have a substantive accountant; the highest designed staff are at the level of accounts assistant. This affected the production of accurate, complete and reliable financial statements as a result. Accounting records are not up to date and financial statements availed for audit were incomplete.

Management concurred with audit observations and explained that the lack of staff in accounts and audit dated back to 2003 and the matter was brought to the attention of the Permanent Secretary, Ministry of Agriculture, Animal Industry and Fisheries and the Public Service indicating there was a need to operationalise the COCTU Organization; in addition job description were developed

I advised management to recruit competent staffing accordance with the COCTU establishment. I wait management action on this matter.

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30th JUNE 2007

2.19.2 Lack of Qualified Accounts Personnel The Entity did not have a substantive accountant; the highest designed staff are at the level of accounts assistant. This affected the production of accurate, complete and reliable financial statements as a result. Accounting records are not up to date and financial statements availed for audit were incomplete.

2.19.3 Nugatory Expenditure shs.2,940,00 Shs.2,940,000 was paid as allowances to the National Steering COCTU. However, there was no evidence of committee minutes to confirm that meeting did take place. Besides, there was no evidence that the Council was ever constituted in accordance with section 6 of the Uganda Trypanosomiasis Control Council statute 1992 or that at least 4 meetings were held by the Committee in accordance with Section 10 of the same statute. The allowances may not have been used for the intended purpose. Management in their response explained that the steering committee was properly constituted/ appointed and appointment letters are available for verification. I advised management to provide accountability and supporting documentation and constitute the National steering Council to provide oversight and policy for COCTU.

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30th JUNE 2008

2.19.4 Late Submission of Financial Statements for Audit Management of the Council did not prepare and submit Final Accounts to the respective authorities within 3 months after the end of the Financial Year as required by the Public Finance and Accountability Act 2003, Sec 31 (b) and the COCTU Statute 1992 sec 26(2). For instance financial statements for June 2008 were submitted in August 2009 (i.e. 11 months later). Non compliance with the law on financial reporting is an offence. Management acknowledged the late submission of financial statements and explained that the cause was due to capacity gaps in the Human resource finance department and absence of qualified accountants thus causing delays in consolidating the two financial statements of COCTU and ADB project. I advised management to comply with all statutory requirements regarding financial reporting.

30th JUNE 2009

2.19.5 Compliance with Statutory Obligations It was noted that deductions totaling shs.7,843,500 in respect of PAYE from salaries to employers was not remitted to URA. Non compliance with tax laws may attract penalties and fines to the entity. Management in their response acknowledged the non remittance to URA of the taxes and explained they were spent in error in good faith on non wage obligations and promised to recover and remit the Shs.7,843,500 during the 3rd and 4th Quarter of 2009/10. I advised management to comply with all the relevant tax laws; I subsequently await management‘s compliance on remittance of taxes.

2.19.6 Procurement of goods and services shs.13,201,600 It was noted that procurement of some goods and services was done without following the Public Procurement and Disposal of Assets Regulations, 2003. Procurement plans based on approved budget were not made and submitted to the

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Procurement and Disposal Unit. Instead, procurement was done in an adhoc manner and without requisition from the user department. Besides, there were no procurement committee minutes approving the transactions. There is a risk that the organization did not get value for money from procurement. Management acknowledged that all the Public procurement and Disposal of Assets Regulations were not strictly followed but stated that procurements were made with requisitions from user departments. The procurements were mainly vehicle service and repair; repairs and services were carried out by one of the approved shortlisted Garages for the Ministry of Agriculture, Animal Industry and Fisheries to provide such services during the period under review. COCTU mainly undertakes procurement of consumables (stationary, computer and photocopier accessories, utilities). The organizational structure of COCTU as it stands now does not adequately cater for the formation of a fledged Procurement Unit and formation of a contracts committee due staff limitations. I advised management to adhere to the requirements of the procurement laws and regulations when procuring goods and services.

2.19.7 Internal Control System It was noted that the internal control system of the Organization was weak in the following areas:-  Internal Audit Department Council did not operationalise the internal audit function as provided for in the Council's organization structure.

 Accounting and Human Resource Manuals The entity did not have Accounting and Human Resource Manuals to guide the operations of the Council.

 Payment Vouchers All payment vouchers and their supporting documents were not cancelled with "paid" stamp during the financial years under review. The possibility of duplication of payments could not be ruled out.

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 Assets Registers The assets register was not updated on regular basis to ensure that all asset acquisitions, disposals, their condition is documented. There was a risk that weak internal control systems can lead to errors, misstatements or loss of the council's assets.  Internal Auditor: It's true the council does not have an internal auditor. Arrangements have been made to advertise for the recruitment of an internal Auditor. The job description has been developed and is available for verification. We are only waiting for release of funds to initiate the process of recruitment during 2009/10.  Accounting and Human Resource Manuals. It's true these are not available. Consultations are ongoing to identify a minimum of three competent firms to develop these manuals. It's anticipated that these will become available during the 2010/11 FY.  Payment vouchers. It's true that payments vouchers and their supporting documents were not cancelled with "PAID" stamp at the time of audit. This has since been rectified and a retirement of expenditure "PAID" stamp is available and verifiable as can be seen here. I advised management to recruit an Internal Auditor, develop procedural manuals, vouchers and all supporting documents should be cancelled to avoid re use.

2.19.8 Statutory Board and Management Meetings Uganda Trypanosomiasis Control Council had only one Board meeting for the whole financial Year instead of 4 as stipulated in their Statute of 1992, sec 10(1). This is contrary to Sec 10(1) of the Council‘s Statute 1992. There is a risk that this will result in inadequate supervision and monitoring of Council activities. Management acknowledged the observation and stated that meetings of council be held in a year. This however was not possible and only one meeting was held. However, 4 technical meetings which feed the Council were held. This was a result of prioritization while making the necessary preparations and arrangements to host the 3oth International Scientific Council for Trypanosomisis Research and Control which was successfully held 22-26th September 2009. A major constraint however; remains

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on the non wage budget component. The issue of improving COCTU budget is going to be discussed during 21st and 22nd December/2009 by the technical and council meetings. I advised management to hold regular meetings in accordance with the law.

30th JUNE 2010

2.19.9 Lack of an Internal Auditor and Accounts Personnel

The Entity did not have a substantive Internal Auditor and accounts personnel. This affected production of timely and complete financial statements; besides absence of an Internal audit implied that there was no adequate mechanism to monitor the internal controls and to provide a timely assurance on the organisation‘s risk management system. Management is advised to fill the vacant positions as approved by the Council.

a. Staff Contracts

Contracts of the Executive Director and that of the Deputy Director expired in January 2010 but they continued to stay in office irregularly. This irregular tenure in office may be challenged. Management in response stated that a Technical evaluation committee advised Council to renew the contract for a period of four years and this was communicated to the Minister as the appointing authority.

b. Lack of an Accounting and Human Resource Manual

The organization continued to operate without an accounting and human resource manual contrary to best practice. There was a risk that inconsistent application and treatment of human resource and financial matters may result in omissions and errors. Management attributed this anomaly to lack of funds.

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c. Lack of ICT Policy

The Organization did not have an ICT Policy to guide management of information resource assets and plans as well as regulate IT activities. As a result, the information systems and resources of the Council are at a risk. Management promised to make consultations with various relevant institutions with a view of putting in place an ICT Policy during F/Y 2011-2012.

2.20 DAIRY DEVELOPMENT AUTHORITY (DDA) - DECEMBER 2009

2.20.1 Incompletely Vouched Expenditure Payments of Shs.2,333,000 remained unaccounted for in the period even after verification of the management response. I was unable to confirm whether the funds were put to proper use. Management attributed the problem to not attaching accountabilities on payment vouchers, they were advised to account for the funds.

2.20.2 Internal Audit Function Best practice requires that the internal audit function is guided by an internal audit manual duly authorized by the Board. This serves to give professional guidance to internal audit on the steps and activities to be undertaken while carrying out its duties. It was noted however, that the Authority did not have an internal audit manual to guide the internal audit function. Management responded that the internal Audit manual was being developed.

2.20.3 Local Service Tax Provisions of Local Service Tax which require deducting local service tax from officers whose annual income is above 1,560,000 have not been implemented by management since their inception in 2008. Non compliance with statutory authorities may attract fines and penalties to the entity. Management responded that they deducted the Local Service tax from staff but there were no clear guidelines on where to submit it despite numerous consultations and request for clarification from Kampala City Council. 151

Management is advised to comply with all the provisions of the law.

2.20.4 Debtors/Creditors Policy The Authority did not have Debtor/Creditor Management policy. The ageing list of debtors was not in place. There was no provision for doubtful debts. Besides, notes to the accounts do not explain the figures of debtors and creditors as presented in the Final Accounts. Lack of ageing list of debtors was an indication of poor debtor/creditor Management. Management is advised to develop receivables and Payables management policies to give guidance to staff in debt/creditor management. Management responded that they intend to review their Financial Policies and Procedures manual to include the management of the Authority‘s debtors. In addition, the computerized accounting system is being configured so that debtor‘s reports and information can be produced.

2.20.5 Internal Audit Reports The Authority rents out 8-flats at Ntinda, 3 residential houses in Mbale Municipality, part of the milk plant at Entebbe, part of the milk plant at Mbale and a commercial building at Lugogo show ground comprising of 2 offices. The following were the anomalies noted:

 There was no valuation report to ascertain the fair value before the tenancies were entered into.  The flats are let out at Shs.300,000 per month. Some agreements for Ntinda flats were signed in May 2007 and others in January 2008 for the lease period of 24 months without evidence of renewal of the agreements.  The Authority pays for the water bill for all the flats at a rate of approximately Shs.250,000 per month which is not recovered from the tenants.  The rent agreements for 2 offices at Lugogo were signed in 2004 for a lease term of 24 months. The rent paid was Shs.400,000 and Shs.500,000 for down stairs and upstairs respectively per month. However, the tenancy agreements do not define how the rent is to be revised.

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 Part of milk plant in Mbale was in a poor state and required repairs to the leaking roof and chain link that makes the fence. There was evidence of land encroachment. The Authority did not receive a fair value in the rented properties. Besides, the payment of water bills erodes the gains that would otherwise have been utilized for other entity activities. Management is advised to appoint an independent valuer to determine the fair value of the rented properties and the agreements revised accordingly. Management has noted the recommendations and promised to ensure that they are considered for implementation.

2.21 NATIONAL FORESTRY AUTHORITY - JUNE 2008

2.21.2 Lack of budget and management accounts NFA does not carry out a periodic budget analysis to establish variances to provide feedback information that could help monitor income and expenditure in line with the approved budget and work plans. Further more, budget approvals by both the Board and Minister in line with section 60(1) – (3) of the National Forestry and Tree Planting Act, 2003 were not provided, rendering the Authority‘s incomes and expenditures irregular. I advised management to always ensure that budgets are approved in accordance with the Law and that budget performance is monitored.

2.21.2 Business plans Although management of NFA has in place a business plan for the period 2009-2014, Board approval of this plan was not availed. In addition there is no effective monitoring and evaluation to ensure that corporate goals and objectives are achieved. NFA Management stated that they have a fully fledged Monitoring and Evaluation Unit which regularly carries out monitoring activities to measure the achievement of corporate goals and objectives. However, evidence of follow up action taken on recommendations made by the monitoring team was not availed. Absence of follow up action defeats the purpose for which monitoring and evaluation is undertaken. I

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have urged management to always ensure follow up of recommendations after evaluation is undertaken.

2.21.3 Consultancy costs Shs.36,334,171 The Authority contracted a local Consultancy firm to recruit staff for three vacancies at Director level at a cost of Shs.36, 334,171. However, the results and recommendations from the Consultancy were ignored by the Board, which instead opted to promote serving officers to fill the three positions. This action rendered the expenditure on the consultancy wasteful. Besides, the transparency and competitiveness of the process may have been compromised. Management in response stated that the Board of Directors considered the results of the consultancy in making the necessary appointments. There was however, no evidence to that effect.

2.21.4 Internal Audit The internal audit function is very critical in the establishment and evaluation of systems of internal control and advising management on risk. A review of the functioning of the Internal Audit department revealed that the department is inadequately staffed and does not have an internal audit manual in place. Besides, the NFA board did not have an audit committee in place to discuss the recommendations of the internal audit and ensure that they are implemented. Without such controls and functions, the entity‘s processes and procedures are prone to abuse, fraud and errors. Management in their response stated that they are in the process of developing an audit manual and that audit reports are always submitted to the executive director who is secretary to the board. I await the implementation of the development of the audit manual. I have also requested management to avail evidence of review of internal audit reports done by the audit committee.

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2.21.5 Procurement Process

a. Procurement Planning Contrary to the provisions of procurement regulations under the PPDA Act 2003 procurement and disposal planning was not done for the period under review. Procurement planning is necessary to enable minimize adhoc procurement and disposals, integrate disposal budgets with revenue programs, avoid emergency disposals, aggregate disposal requirements and ensure that NFA obtains best bargains through planned disposal. Contrary to the provisions of regulations 291 – 299 of the PPDA Act 2003, procurement planning was not done during the period under review. Management acknowledged this anomaly and promised to update its harvesting plan that will be integrated into the procurement and disposal plan.

b. Disposals and Arbitrary Allocations by the Board and Executive Director Management allocated several properties to various persons/business entities without going through the stipulated/laid down procedures. These include:

i. Residential property A former commissioner of forestry was allocated a house in Nakawa Central Forest Reserve and provided with a title. However, a review of records and documents on the transaction revealed that;  The beneficiary did not appear on the official list of bona-fide tenants.  The offer contravened a political directive which suspended sale of institutional houses in Banda and Nakawa until necessary guidelines were in place.  The sale had been stopped by the Minister of state for lands but this was reversed by the chairman NFA Board of Directors.  The instrument degazetting the land before a title could be issued was not availed.

The management responded that the legal status of the said property and was not clear and that the Uganda Land Commission issued a title without the knowledge of NFA who are the designated managers of Nakawa CFR.

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To date this matter remains unresolved. I advised management to carry out further investigations to establish the status of the property. ii. Award of mature trees in Katugo Central Forest Reserve The authority advertised to dispose Katugo Central forest plantation in June 2006 and two local companies responding to the advert where one of the companies was declared the successful bidder. The other party however, disputed the procurement process and following an administrative review, the process was halted and the bids cancelled.

Subsequently, and contrary to procurement and disposal regulations, rather than commence a new procurement process the contract was awarded to the same company earlier declared on the Authority of the Board.

Further scrutiny revealed that the Authority‘s pricing committee was also never consulted on the pricing of the products as the existing price list was never used. Consequently, the contract to harvest 100,0000 cubic meters of pine round wood in Katugo was awarded at Shs.62,500 per m3 yet the same species in the same reserve were being offered at Shs 86,000 per m3 in 2005. I could not therefore confirm the reasonableness of this price which may have resulted in a financial loss of at least Shs.2,350,000,000 to the Authority. Management acknowledged failure to follow procurement and disposal regulations but added that at the time the mature crop was dying and thus the sale was done to avoid further losses. Management further indicated that because the company is still harvesting (expected to complete in 2012), the Board investigated the matter and has since initiated a process of reviewing the contract to reduce the extent of the loss. iii. Lendu (Okavu-Reru) Forest Plantation – Loss of revenue Shs.760,000,000 M/s Nile ply was awarded a casual license to harvest 40,000 cubic metres of round wood of eucalyptus trees in Lendu (Okavu-Reru) without following PPDA regulations meant to foster competitiveness and transparency. The contract was awarded at an

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offer price of Shs.46,000 instead of Shs.65,000 per cubic meter thus resulting in a loss of revenue of Shs.760,000,000 to the Authority. Management in response stated that the NFA board was investigating this matter. I await the outcome of the investigation. iv. Loss of revenue Shs.100 million A local firm applied for and was offered to harvest 10,000 poles in Mwenge Plantation at a price of Shs.35,000 per cubic metre. However, contrary to the requirements of PPDA regulations, the evaluation committee was composed by one instead of the requisite three people and following an appeal by the bidder, the offer price was drastically and arbitrarily reduced to Shs.10,000. In addition comparison with prices for similar poles from an earlier transaction, in Lendu indicates a reasonable price should have been Shs.20,000. The Authority consequently incurred a loss of income of Shs.100 million as a result of these irregularities. Management acknowledged the observation. I advised that Management investigates these irregularities with a view to recovering the loss from the culpable parties.

2.21.6 Governance A review of the governance issues and conduct of the board revealed that:-  Board members claimed sitting allowances while purportedly attending board meetings while in Ghana (Shs 11,700,000) and South Africa (Shs.9,000,000) in addition to their per diem. No justification was given for having board meetings abroad.  Other irregular Monthly allowances paid out to board members over and above the usual entitlement of retainer, night allowance, transport refunds and sitting allowances amounted to Shs.38,560,000 in the year. I advised that irregular transactions involving board members undermine the integrity of the Board as supervisors, policy makers and oversight body of the Authority. The total sum of Shs.59,260,000 irregularly paid is recoverable from the Board members.

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30th JUNE 2009

2.21.7 Litigation-unrecognized liability. A local firm sued NFA in the High Court of Uganda over breach of Contract for the development and operation of an Eco-tourism site at MP26 Kyewaga, and was awarded costs of $1,612,000 following consent judgment. The facts and circumstances of the agreement to the consent judgment notwithstanding, this liability is not provided for in the books of account of the National Forestry Authority.

2.21.8 Compliance with Disposal Regulations A total of 201,981.17 cubic meters of round wood valued at Shs.8,471,569,912 was sold in casual form without following the PPDA disposal regulations meant to foster transparency and competition. In the absence of a competitive bidding process, I could not confirm that the wood was sold at a fair price. Furthermore bid licenses for round wood for 216,069 cubic metres valued at Shs.11,198,781,354 were not communicated to PPDA on PP form 201 as required by regulations. Management responded by stating that some of the casual licenses were issued without following PPDA regulations because they were spread across the country. I advised the Authority to comply with all procurement and disposal provisions.

2.21.9 Outstanding accountable stationary (Forest Produce Declaration Forms) A review of the Register for Forest Produce Declaration Forms revealed that two stations (Mwenge and Katugo) did not properly account for the pre-numbered and accountable Forest Produce Declaration Forms which facilitate the movement of timber and other forest products from the production point to the headquarters for hammering (marking). Hammering serves as a key control for revenue collection and in the absence of returns, I was unable to confirm the completeness of revenue collected. Management in response stated that, the carbon copies for all the declaration forms are kept at the respective stations and pledged to have all copies of the forest produce declaration forms returned to Headquarters in order to facilitate audit trail.

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I await the implementation of the pledge of management.

2.21.10 Internal Audit The internal audit function is very critical in the establishment of internal controls, evaluation of systems of internal control and advising management on risk. A review of the functioning of the Internal Audit department revealed that the department is inadequately staffed and does not have an internal audit manual in place. Besides, the NFA board did not have an audit committee. Management in response stated that they are in the process of developing an audit manual and that internal audit reports are always submitted to the Executive Director who is secretary to the board. I advised that internal audit reporting to the Executive Director is an anomaly and the above weaknesses hinder the effective functioning of the Internal Audit department and should be addressed.

2.21.11 Absence of Regulations to Operationalize the NFA Act, 2003) Since enactment of the National Forestry and tree Planting Act 2003, regulations to operationalize the Act as stipulated under section 92 have not been developed. As a result, guidelines as to how these forests, trees and forest products should be managed in implementing the NFA Act 2003 are not in place. Management in response acknowledged failure and stated that whilst they currently use sections of the old regulations, draft regulations have been presented to the Ministry of lands which is responsible for policy and regulation of the Authority.

2.21.12 Lack of a motor vehicle fleet management policy It was noted that the NFA operates a big fleet of motor vehicles without a documented policy on fleet management in place. During the period under review, Motor Vehicle running, repairs and maintenance costs increased by more than 50% and the ratio of staff to motor vehicles is approximately 1:1. Audit was not provided with key information on Fleet size and deployment; Registration/log books; Management and control of movement of vehicles; Maintenance and repair expenditure record per vehicle; Control and management of

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fuel used. As a result we were unable to verify necessity or reasonableness of expenditure on motor vehicles in the year 2008/09 amounting to Shs.2,592,537,405

Management stated that a draft fleet management policy is in the pipeline and that currently NFA has procedures and guidelines through which it manages its fleet, such as forms for private mileage, field visits, fleet manager, fuel cards. They added that the high increase in expenditure was due to fluctuations in fuel prices and the age of the fleet. I advised management to put in place a fleet management policy for efficient management of vehicle fleet. 2.21.13 Kalangalo Sand mines

The authority licensed several individuals to extract sand in Kalangalo Forest Reserve in the Lakeshore range from September 2007 to March 2009. The total area permitted was not more than four 4 hectares. However, management did not keep appropriate records and did not put in place control measures to ensure adherence to contractual obligations concerning period of extraction and acreage. As a result an audit inspection established that:-  Actual sand extracted from this area covered an estimated area of over 20 (twenty) hectares instead of the contracted four hectares.

 Degradation of the area in the forest reserve was occasioned without any evidence of restoration activity.

 Extensive illegal sand mining was still ongoing by the time of inspection in spite of the expiry of the licensed permits.

In the inexplicable absence of records on site and at NFA to monitor the activities, the extent of this damage and loss could not be quantified. Management in response stated that they were working on improving guidelines for sand mining in the central forest reserves.

2.21.14 Harvesting reports

A review of the NFA plantation harvesting plan and performance for the period 2005- 2011 revealed that out of 791,992 cubic metres of round wood available in 2005, 160

201,981.17 cubic metres were harvested through casual licences while 216,069.2 cubic metres were sold through bids to various harvesters. Another 43,927 cubic metres were harvested by NFA leaving an expected balance of 330,014.63 cubic metres. However, harvesting records to monitor/confirm actual harvest were not availed for audit to confirm whether the actual cubic metres stated in the licenses were the actual volume/quantity harvested. A review of available records and physical inspections carried out in December 2009 could not confirm the physical existence of the remaining 330,014 cubic metres of round wood. Management in their response stated that the harvesting plan was not strictly followed partly due to natural death of some trees and forest fires, consequently forcing a decision by management and the Board to salvage the trees. The accountability for the 330,014 cubic metres of round wood is awaited.

2.21.15 Non Performing Tree Planting Permits An area totaling 5,075.65 ha was allocated to private tree planters to plant trees in fulfillment of the government policy of community involvement in conserving the environment and enhancing income from forest produce. However some allocatees , some with licences dating as far back as 2004, turned these areas into subsistence farmland for growing food crops like maize, beans and rearing cattle. No steps have been taken to cancel and reallocate the permits to other persons even when the intended policy objectives are being frustrated. Management indicated that they are vigorously following up the issue and had so far cancelled 204 offers out of which 896 ha were recovered. However, a follow up verification revealed that only 1100 ha out of 5,075.65 ha of non- performing tree planting licenses have been reviewed by management.

2.21.16 Encroachments It was noted that the Authority last updated the data base on encroachment of Central Forest Reserve (CFR) in 2005. Although the NFA‘s mandate is to preserve these forest reserves, current information on the extent and damage occasioned on

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the CFR by unauthorized individuals and institutions and evidence of action taken by the Authority against them was not availed for audit.

Individuals, Activity & Structures Number in the forest reserves Number of encroachers 178,888 Number of Households 8,957 Area under cultivation (ha) 56,237 Number of livestock being grazed 133,903 Number of individual houses 34,816 Number of schools 70 Number of Churches 58 Number of Mosques 10 Number of land titles/leases 100 Number of Permanent houses 1,427 Number of cattle dips 374 Number of Health Centers 11 Number of Cattle kraals 3,453 Number of Markets 12

Management acknowledged the challenge and stated that the Authority has successfully convinced encroachers to voluntarily vacate in Bujawe Central Forest Reserve, Mt. Kai Central Forest Reserve in Yumbe district, Igwe Central Forest Reserve in Bugiri district and Kyewaga Central Forest Reserve in Wakiso district. I advised management to ensure that all forest reserves are free from encroachment.

2.21.17 Audit inspection of National Tree Seed Centre – Namanve. An audit inspection carried out at National Tree Seed center Namanve revealed the following: a. Unauthorized expenditure Shs.95,000,000

A sum of Shs.95 million was spent over and above the approved workplans/budgets without the approval of the board. This expenditure is irregular. 162

b. Irregular Procurements Shs.584,773,483

Shs.584,773,483 was spent on procurements of goods and services without following the laid down procurement procedures in the PPDA regulations. In addition, documentation and records pertaining to recruitment and terms of employment for the casual laborers who were paid wages amounting to Shs.182,760,870 was not availed, thus rendering the expenditure doubtful.

c. Security of stores

The Centre stores did not have adequate security safeguards such as burglar proofing and safes. This weakness could have occasioned thefts of cyprus and pine seeds worth Shs.228,265,000 which occurred after the balance sheet date.

d. Governance A review of the activities and conduct of those charged with governance revealed that management irregularly paid out to board members monthly allowances over and above their usual entitlement of retainer, night allowance, transport refunds and sitting allowances amounting to Shs.41,220,000 in 2008/09. It was further noted that this amount is recoverable from the Board members. I advised that irregular transactions involving board members undermine the integrity of the Board as supervisors, policy makers and oversight body of the Authority.

30th JUNE 2010

2.21.18Inventory

The entity inherited 3000 hectares of mature crop from the former Forest Department of which 940 hectares was still held at the time of audit. However, a valuation of the crop was not made in this respect and included in the balance sheet. Instead disclosure was made by way of a note to the accounts. This treatment is not in line with IAS 41 Section 13 and 17 which provides for valuation of mature stock at fair market price value. Since the market for such stock exists, then valuation should be based on market prices.

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Management responded that due to inadequacy of funds, the inventory of the whole crop could not be done. I informed the Accounting Officer that currently the inventory is understated in the accounts and that he should devise means to undertake a phased valuation. 2.21.19 Non Remittance of Statutory Deductions

A review of note 11 (Accounts payable and Accruals) revealed that the entity was indebted to NSSF by Shs.744,484,242, Withholding tax arrears of Shs.391,994,532, and PAYE of Shs.667,658,650. The inability to remit monies deducted was in violation of both the Income tax Act and NSSF Act which may attract penalties and fines. I advised management to always comply with all relevant Laws applicable to avoid loss of public funds.

2.21.20 Contingent Liability USD1.9M

Under note 13 to the financial statements management disclosed that a court ruled against the NFA in a legal suit over ownership of land in the Kyewaga Central forest reserve. The NFA was required to pay ushs. 2.4 billion in damages and legal fees.

The Authority appealed against this Court ruling, but lost the appeal thus crystallizing the liability for damages of USD1.9m. This cost is a wasteful expenditure since the award of damages by court arose from the Authority‘s unlawful termination of the contract followed by a consent judgment which was entered into irregularly. The judgment also awarded a lease on the land to the developer for 25 years.

2.21.21 Un-Accounted for Funds Shs.119,735,959 It was noted that a sum of Shs.119,735,959 advanced to various officers to carry out specific activities, had not been unaccounted for at the time of audit contrary to regulations which require all public money disbursed to be accounted for promptly. I could not confirm that these funds were put to proper use for the intended purpose.

I urged management to ensure all funds are accounted for promptly otherwise disciplinary measures be instituted on defaulting staff.

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2.21.22 Governance Issues

a. Regulation Operationalising the NFA Act, 2003

It was noted that regulations have not been developed to operationalise the National Forestry and tree Planting Act as stipulated under section 92. As a result, management has no clear guidelines as to how forests, trees and forest products should be managed.

Although, in their written response last year, management concurred with my observation and promised to follow up, a year later no evidence has been availed on the action taken to have the issue addressed. They have further stated that the responsibility lies with the Forestry Sector Support Department (FSSD) at the Ministry of Water and Environment. I advised the Accounting Officer to follow up with the department and ensure the operationalization of the Act.

b. Acting positions

The entity had staff strength of 351 personnel. A review of the employment status however revealed that the entire top management of the organization were employed in acting capacity. Whereas the Human Resource Manual was silent on the period for which one could act, other laws such as the employment Act provide for six months.

I informed management that delays in filling substantive positions affect both the motivation and efficiency of staff hence overall performance of the entity. Management responded that recruitment of substantive officers to fill those positions is in progress. I urged management to expedite the recruitment process to fill all vacancies in the organization.

c. Increased Board expenses

It was noted that, Board expenses increased by 203 % during the year from Shs.158,958,410 to Shs.323,268,103. A review of the nature of expenses on this item revealed the following:

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i. Conflict of interest

One board member, was authorized by the Board to review the Forest management Plans in view of his expertise in forestry. His facilitation was computed on the basis his membership to the board although he was paid as a forest professional for the work which would ordinarily require a consultant. The work took 42 days for which he was paid Shs.9,100,000. This was apparently direct procurement which ordinarily would require PPDA authority/approval. Payments to Board members to execute work that would ordinarily be procured creates conflict of interest which should be discouraged.

ii. Irregular Payments

It was noted that board members including the chairman raised claims even when they are not on business of NFA. Management acknowledged the anomaly and promised not to honour such claims again. I informed management that such payments made for no work done are recoverable.

iii. Sitting Allowances

During the period under review, the board of directors was invited to Thailand by the Royal Forest Department for an official study tour. On return, they were paid Shs.4,500,000 for sitting allowances while in Thailand. Since this was a study tour, it was doubtful that the board had any meeting. Besides, there were no minutes taken to justify the allowance. It was also not clear how the BOD decided to have the meeting overseas. I informed management that unless a notice of meeting, Agenda, record of proceedings (minutes) are availed, such payment for sitting allowance is irregular and recoverable from the members.

2.21.23 Nugatory Expenditure arising from a Compensation Claim

Shs.15,000,000 was paid to the legal Counsel of an individual who was knocked down by a motor bike ridden by a staff of the Authority. However, the following were noted:  According to the police report, the officer was riding under the influence of alcohol at the time of the accident.

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 The motor bike number UAD 239U belonging to NFA was insured by NIC (third party) which should have compensated the victim. However, there was no evidence of proper follow up of the matter regarding compensation by the Insurance Company.

 No attempt was made by NFA to recover the funds incurred from the negligent officer.

Management responded that normally the statutory ceiling for insurance covers is Shs.2,000,000 for comprehensively insured vehicles while Shs.1,000,000 is for third party insurance only as per the act. The excess arising out of the claim is normally paid by the policy holder (Insured) and in this case NFA took over the liability after the NIC refused to pay because of the police report which indicated that the staff was drunk at the time of this incident. I advised management that measures should be taken to recover the funds from the officer involved.

2.21.24 Review Internal Audit Operations

In my previous report, I indicated that there was inadequate staffing in the Internal Audit Department despite its wide scope. I recommended that the office be strengthened in terms of staffing. By the time of this report, management had not taken any steps to address the matter although approval of the Board had been granted. The continued understaffing of such a vital department undermines the operations of the office. In their response, management stated that and the Board attaches a lot of importance to the internal audit unit but could not immediately recruit additional staff in the unit due to financial constraints. Provisions would be made in the 2011/2012 financial year.

2.21.25 Audit Inspections

An audit Inspection was carried out in the Eastern and Northern regions revealed the following;

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a. Namatale sector - Mbale

There was a reported loss of computer due to theft by armed thugs who broke in the office. Investigations were not complete by the time of audit b. Walugogo - Central Forest Reserve (CFR)

This reserve is located in a prime location in Iganga town council. However, its boundaries have not been opened. The inspection established that, there was no activity taking place except for fencing off, local community and brick laying activities. There is a risk that being located in an urban Centre, this Forest Reserve is prone to illegal encroachers and possible unauthorized allocation to private individuals. Management responded that they had faced hostility in its attempts to preserve this Forest Reserve. However, they were considering other possibilities of restoring its integrity. c. Namasiga Beat

At the time of inspection, the Forest Supervisor for Namasiga Beat was on interdiction for suspected involvement in the illegal harvesting of 400 trees worth Shs.36,000,000. Management stated that the case was still in Court. d. Soroti

At the time of inspection, the Forest Land at Katete had been illegally sold off by the sub- county chief in Pingire. Details of final action taken by management were not availed. However management stated that a meeting between NFA and the Sub–county Officials was held to resolve the matter. Arising therefrom, all building works have stopped except for one individual against whom court action was being considered. As a potential eco-tourism site, management was considering investing in eco-tourism development in this reserve.

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e. Achwa Range

i. A local firm was remitting lease rentals to Gulu District Local Gov‘t instead of National Forest Authority to whom the land belongs. Management responded that since the firm purports to have a Land Title over this land, they are considering Court action against Gulu Local Government. ii. Gulu University has defaulted in paying Shs.72millions, in respect of compensation for NFA land given out to the University to establish the faculty of Medicine. Management stated that several meetings have been held with the University but without success on this matter. Management has advised its Legal Unit to start legal proceedings against the University. iii. A Lorry registered as UAJ 088 M, Tata lorry belonging to a local transport Company was found packed at the range office. Information availed indicated that the lorry was impounded after the licensed harvester breached contract and failed to pay Shs.27,000,000. There was no information on what the entity intended to do with the impounded truck. However, at the time of audit, the owner of the truck had started legal proceedings against NFA. Management stated that they were pursuing the matter.

f. Key crosscutting issues to both ranges:

The inspection also identified several issues that cut across both the Eastern and Northern ranges as detailed below:-

i. Contractors are not paid in time, a practice that has affected the activities of the Ranges. Management responded that the delay in payment was due to the financial constraints the organization has faced since the accounts were frozen in 2009 arising from a high court ruling. ii. Boundaries of all Forest reserves not well defined. Management responded that progress was being made in an attempt to open forest boundaries iii. Encroachers have reduced the acreage covered by forest in a number of forest reserves e.g. Namatala CFR in Mbale, Walugogo CFR in Iganga, Kapcwora CFR in 169

Sebei, Bulange CFR and Magada CFR in Namutumba District, Bunya CFR in Mayuge, Saala CFR in Budaka District etc. Management responded that the issue of encroachment was still a challenge to NFA due to the Presidential Order on evictions in Central Forest Reserves. However, NFA has been carrying out evictions on a case by case basis. iv. Assets were not engraved mainly in Mbale Sector. Management responded to have taken note of the matter and action will be taken to have all assets engraved. v. District Local Governments in Lira, Apach and Kitgum were allocating NFA land without consent of the Authority. Management responded that the issue of land allocation in Central forest reserves was a challenge to NFA and it was being handled on a case by case basis. I informed management that;  The authority may lose land to encroachers if appropriate measures are not taken to redeem forest land and there is need to have all forest land surveyed and protected.  Failure to pay Contractors may make the authority fail to achieve her main objectives and targets.  Funds receivable from Gulu University and North view may be lost if NFA does not follow up.

 District Leaders should be sensitized on significance of forest Reserves and stopped from allocating of forest land.

2.22 NATIONAL WATER AND SEWERAGE CORPORATION - JUNE 2010

2.22.1 Depreciation rates for Property, Plant and Equipment The Corporation has property, plant and equipment with a cost of Shs.499 billion as at 30th June 2010 (2009: Shs.450 billion). These assets include buildings (32%), static machinery and pipes (29%), electromechanical assets (23%) and technical structures (7%). Set out below is a selection for the period over which the Corporation depreciates the assets:-

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Class of Assets Depreciation rate Civil Structure and buildings 1% Technical structures, pipe works and 3% electromechanical equipment

It was observed that depreciation of civil structures over a period of 100 years may not be prudent. Additionally, the depreciation of items of electro mechanical equipment should be applied to individual assets over their useful lives instead of application of a uniform rate of 33%. There is a risk that the carrying value of these assets and depreciation expense may be misstated.

Management explained that the civil structures were designed to last at least 100 years. The majority of the structures in Kampala and Jinja were constructed in 1928 and to date no significant rehabilitation has ever been done on those structures. The rate of 1% is therefore appropriate. Management explained further that they plan to carry out an asset revaluation within the next two years and to review the depreciation rate for the electromechanical equipment.

Management was advised to review the fixed assets depreciation rates for civil structures on a regular basis to ensure they are still reasonable and in line with industry practice; Furthermore, depreciation of electro mechanical equipment should be computed on a component by component basis since the various items have varying useful lives.

2.22.2Internal Audit It was noted that the internal audit department performs mainly pre-audits which is a management function and should be part of the management accounting and internal control procedures. Further still, the internal audit department is not large enough to sufficiently cover all areas. Benefits of having an independent internal audit department include: • Independent and regular checks on the company's systems and internal controls. • Weaknesses and loopholes will be identified on a timely basis

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• Key management can focus on core business activities within their division and at the same time receive independent feedback on the performance of their departments.

There was a risk that operational efficiency of the internal audit department may not be attained Management explained that they have a dedicated team to carry out post and pre audits, independent of management and that the internal audit department reports directly to the board.

2.22.3 Impairment testing of assets Although Management indicated that impairment reviews are done regularly, it was however, noted that the last impairment review was performed in 2007. Considering that several of the assets have been in use for over 25 years, there could be a high risk of impairment of the Corporations assets Management explained that they have established procedures for carrying out impairment tests. In the year 2004/5 it was carried impairment tests and incorporated the results in the financial statements. They stated further that they will continue performing tests for impairment of assets whenever there are indicators of impairment and that this is to be documented each time is carried out. I await follow up action on this matter.

2.22.4 Physical Verification of fixed assets A physical verification of assets at Entebbe revealed that there were items which were on the premises that could not be traced to the asset register. From the review, these assets are unlikely to have a material impact on the financial statements. However, fixed assets are a material balance to the corporation and their record should be accurate and complete. Failure to physically track the location of assets may lead to misappropriation and/or incomplete records.

Management explained that they carry out verification of their assets annually and all assets acquired are entered into the Assets register kept at head quarters which the

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area staff may not have been able to access. However, an upgrade of the scalar accounting system from the single company platform to the multi company platform, will enable all Corporation areas to have direct access to their asset registers.

2.22.5 Debt age analysis It was noted that there are active customers with outstanding customer balances aged beyond 3 years. For a sample of customers selected to determine the last date of receipt it was noted that customers who had been paying their current bills still had old outstanding balances recorded on their accounts. The table below shows a sample for Jinja area:

Customer Name 3+ Yr Curr. bal. Reference 13967 Jinja Municipal Council 8,915,104 8,915,104 Props 10543 Kiira College Butiki 4,906,039 4,906,039 10678 Busoga College Mwiri 4,407,808 4,407,808

In addition, the billing system cannot generate a report showing the last receipt date and amount on the customer accounts to allow for investigation of the balances recorded per customer account.

The findings above imply that:  the debtor aging done by the system is inaccurate; or  customer disconnections are not being done in line with the 3 months arrears company disconnection policy, hence a loss of revenue.

In view of the above there is a risk of misstatement of the provisions made in the financial statements.

Management explained that they were aware of the incorrect treatment of some accounts in the debt age report. The matter has been escalated to the billing vendor‘s systems support desk and is expected to be corrected during the year.

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I await management implementation of the Debt age analysis report data clean up exercise.

2.22.6 Interfacing of High Affinity and Scalar It was noted that the billing system (High Affinity) and the accounting system are not interfaced. Although manual reconciliations are performed and reviewed to ensure that balances transferred are complete and accurate, there is an inherent risk of errors that may be undetected due to manual involvement in data transfer. There is a risk that transfer from the billing system to general ledger may be incomplete or inaccurate.

Management explained that this problem arose out of the decentralized configuration of the billing system-custima. Every Area Office was about to create/capture new customers and assign them numbers. A project to address this issue was undertaken and key issues to solve the problem have been identified as:  Ensuring that customer references are unique in all the areas.  Ensuring uniformity of services as captured in custima Completion date since this will be communicated after the resolutions have been agreed between Commercial and Finance Divisions. The interface problems are expected to be resolved by March 2011.

Management was advised to ensure that the billing system (High Affinity) and the accounting system (Scalar) are interfaced to eliminate errors that may arise as a result of the manual process. I subsequently await managements implementation of steps taken.

2.22.7 Access to the Accounting System It was noted that the several users in Internal audit, Procurement and Data input sections were given inappropriate access to the accounting system creating a risk of segregation of duties conflict where one user has access to initiate and complete a process without an independent reviewer. Inappropriate segregation of duties exposes the company to the risk of fraud.

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Management stated that the IT Department will move to standardize the user profiles and access rights so that each request of a new user is put into the correct profile and given the appropriate user right. All the already existing users will also be placed in their rightful profiles and have user privileges commensurate to their jobs. Management were advised that segregation of duties controls should be implemented in allocating access rights to the accounting system.

2.22.8 Access to the billing system Several users were given inappropriate access to the billing system as default user group or administrator rights with all permissible access rights set up. In addition, numerous administrator accounts had been set up on the system.

Even though a review of the system audit trail revealed that these accounts had not been used to process billing transactions for the period under review, too many users setup with these rights increase risk of unauthorized access to programs and data.

Management agreed with audit observations and explained that the respective user accounts shall immediately be deactivated. Management were advised that user accounts created for testing, system support or development should be monitored to ensure that they are activated and deactivated in a timely manner.

2.22.9 Disaster Recovery Plan There was no documented Disaster Recovery Plan (DRP) in place and no timelines had been set when this will be implemented.

There is a high risk that if a disaster were to occur to a critical location, the Corporation will suffer c damage to reputation, high costs of resumption and loss or even fail to continue in business.

Management explained that implementation of the plan was already in motion and outlined several critical steps taken in this direction. They stated that what is now left is the delivery of the hardware and software in the procurement process and the set

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up of the DR site. Management hopes that this will be in place and functional by June 2011. I advised management that a Disaster Recovery (DR) site should be implemented with periodic tests performed and test results formally documented.

2.22.10 Password management Several weaknesses were identified over password management and these include :-  Password expiry dates in billing system for some accounts were inappropriate with some expiry dates set for 31 December 2025; and  The password complexity in the active directory was disabled. These weaknesses in security could be exploited to gain unauthorized and extended access to the system.

Management explained that the password expiry anomaly in the billing system has been duly noted and will be rectified and that the complexity of Active Directory passwords was disabled after numerous complaints from users that the standards were too stringent. However, this will immediately be revised and reactivated as per the IT Policy and Procedures manual by. I have advised management to enforce password management controls at database level (for the billing system) and operating system level (for active directory).

2.22.11 Audit Tariffs It was noted that billing system and accounting system audit trail or logs are not reviewed. Management stated that it monitors user access to systems; however no evidence was availed to show that this was being carried out.

System audit trail or logs are maintained for mainly four reasons  Accountability - Log data can identify what user accounts are associated with certain events.  Reconstruction - Log data can be reviewed chronologically to determine what was happening both before and during an event.

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 Intrusion Detection - Unusual or unauthorized events can be detected through the review of log data, assuming that the correct data is being logged and reviewed.  Problem Detection - Log data can be used to identify problems that need to be addressed. For example, investigating causal factors of failed jobs. If management does not utilize the audit logs it hinders monitoring of system activities in a timely manner. System based activities may not be reviewed for determining trends such as system performance, exceptions, utilization and capacity planning.

Management explained that the software has already been acquired in the form of solar Winds, Microsoft Systems Centre Manager and Zabbix to monitor and report the performance of the links, hardware component and software of our key systems. Additionally, system logs in the billing system will be reviewed and a form provided to show evidence of these reviews. This form will be duly signed off by the officer who reviews the logs, showing the issues identified in the logs and recommended action for those issues. The accounting system, which has in-built management monitors will have to print periodic reports from the monitoring console (this period will be defined) and these will be filed away. I advised management that audit trails or logs for all key systems and applications should be formally reviewed and any exceptions should be followed up in a timely manner.

2.22.12 Multi-company set-up The accounting system, Scalar, does not have a multi company set up and users can access and post transactions to other cost centre‘s. Although a review is performed to ensure that transactions are recorded in the correct cost centre, it is time consuming identifying such errors. However, this does not impact the consolidated reporting at the head office.

There is a risk that management may not be able to perform objective assessment and analyses of cost centre performance and this may impact decision making.

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Management explained that the Scalar system has been converted to multi-company and the Area Offices have already started posting transactions in their respective ―companies‖. The plan for implementing modules such as Stock Control, purchase order and purchase ledger is available and the implementation has already begun and is ongoing and is projected to be completed by December 2010.

2.22.13 Segregation of duties in programme development No controls over segregation of duties were noted during program development process since the same person and environments are used for developing, testing and implementation.

Without appropriate segregation of duties there is a risk that inappropriate changes could be transferred to the live environment either inadvertently or deliberately, leading to errors, operational problems and/or fraud.

Management explained that the problem is due to lack of Policy and man power to effectively segregate duties; however the process for both has been initiated. Management was advised to ensure that segregation of duties controls is enforced during program development roles and environments.

2.22.14 Help desk log The help desk log dated June 2010 was reviewed and it was noted that there were long outstanding issues for up to 90 days.

Where faults reported and logged are not resolved in a timely manner, there is a risk that minor faults may escalate into major problems that may impact operational efficiency.

Management explained that measures are being taken to ensure that both IT staff and other staff list all their support requests in the IT help desk. This will be a measure of the work done for IT staff in their appraisal. To ensure that tasks are

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completed on time, all IT staff will be required to report on their completed activities in the help desk. Management was advised to ensure that issues logged on the help desk system are followed up in a timely manner.

2.23 NATIONAL DRUG AUTHORITY

JUNE 2010

2.23.1 Due debts from Ministry of Health (MoH) and Partners Debts amounting to Shs.2,216,341,187 from Ministry of Health and other related medical organizations have remained outstanding and are on the increase each year as shown below; Amount (Shs.) Ministry of Health 1,341,997,998 Uganda Global Fund 34,980,213 Joint Clinical Research Centre 790,442,773 National TB and Leprosy programme 48,920,203 Total 2,216,341,187

Less JCRC amount paid ($54,114)

Delays in recovery of debtors has a negative effect on the Authority‘s ability to fulfill its budgetary obligations. There is a risk that recovery may not be made as the Ministry‘s budget is always constrained. In their response management explained that they had communicated to these debtors and that the Ministry of Health had promised to incorporate the debt into their accounts as domestic arrears to enable NDA follow up with Ministry of Finance, Planning and Economic Development. As for JCRC‘s debt, USAID promised to redeem the debt of which $54,114 has been paid while Uganda Global Fund has paid up Shs.529 million reducing the outstanding amount to Shs.34m.

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Management was advised to liaise with the Ministry of Finance and Health to ensure that a specific plan is agreed and implemented. Meanwhile an operational procedure should be agreed upon such that current services are paid for as they are billed.

2.23.2 Internal Controls over Payments (Use of “PAID‟ Stamp)

Several instances where accountabilities and supporting documents for payments made were not cancelled with a PAID stamp were noted. This mainly happened in the regional offices. There is a risk that the same documents could easily be re-used in error or fraudulently to support multiple payments. Management was advised to ensure that all accountabilities are cancelled with a PAID stamp to avoid the same documents being re-used fraudulently or in error. Management agreed with the recommendations and promised to implement it immediately.

2.23.3 Unidentified Deposits of Shs.196,542,097 There were several deposits on NDA accounts which were not reconciled and whose details were not provided. The deposits totaling Shs.196,542,097 were with respect to regional bank accounts (Ushs.109,053,906) and Head-Office bank accounts (Ushs. 87,488,191). There is a risk that income may be understated by this amount. Management was advised to monitor the deposits by requiring the banks to send copies of deposit slips for proper posting. In their response management explained that they would request the respective banks to indicate the serial numbers of the bank slips and name of payees on the Bank statements in order for them to identify the payee.

2.23.4 URA Tax Receipts

Tax payments amounting to Shs.208,368,000 for tax arrears had no receipts implying that there was no record of URA‘s acknowledgement of tax paid. Management explained that the receipts are electronically sent to NDA on mail and have been printed and filed. Management was advised to avail receipts for taxes paid as proof of payment.

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2.24 JOINT CLINICAL RESEARCH CENTRE

30th JUNE 2006

2.24.1 Valuation of Land IAS 16 requires that items of property, plant and equipment that qualify for recognition should be measured at cost, this includes all capitalized costs to bring the assets into use. The centre was donated land at Mengo by Kakira sub county administration which land was not valued; but reflected at a cost of Shs.10,000,000 which was the compensation amount paid to squatters.In these circumstances, it was not possible to confirm the accuracy and fair value of land stated in the financial statements. Management explained that they had already initiated the process of having all JCRC land and buildings including the Kakira Land valued to reflect their current value.

I advised management to value its land to establish other fair values; I subsequently await the outcome of management‘s action.

2.24.2 Foreign Exchange Transactions During the year under review, management operated two foreign currency bank accounts in Barclays Bank and Stanbic Bank. However, the gains / losses arising from the foreign exchange transactions have not been reflected in the financial statement as required by IAS 21. There was a risk that the accounts are not fairly stated. Management responded that they had upgraded the system of Navision to effectively present gains and losses as advised by audit. I advised management to make adjustments to the financial statements to reflect proper values of the foreign exchange transactions; following upgrade of the Navision system.

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30th JUNE 2007

2.24.3 Valuation of land The Centre acquired 0.5 acres of land on plot 616 Block 2. It was noted however, that the land was not valued and recorded in the fixed asset register contrary to IAS 16 which requires items of property, plant and equipment to be measured at cost and any capitalized costs to bring the assets into use. Instead, only developments on the land were capitalized. As a result I could not confirm the accuracy, and valuation of the Centre land at Shs.989,062,130 shown in the financial statements. Management explained that prior to audit, they had noted it and resolved to have all land and buildings valued to reflect their current value in the books of Account according to IAS 16, and they contracted a government valuer who was to undertake the task. I advised management to carry out valuation of the Centre‘s land and reflect it at fair values in the financial statements.

30th JUNE 2008 & 2009

2.24.4 Lack of procurement plans

The Centre procured goods and services from various suppliers without a procurement work plan contrary to Sec.60 of PPDA Act which requires user departments to prepare work plans to be submitted to PDU for implementation and consolidation into procurement plan. There is a risk that procurements were not adequately planned and budgeted for leading to emergency procurements for items that may not have been required. Management responded that they had various procurement plans that had been agreed and signed with all donors concerned in the main Projects.

I advised management to comply with PPDA regulations and obtain waivers from the Authority where applicable.

2.24.5 Contracts Committee

Sec 27(2) of the PPDA Act (2003) requires members of the contract's committee to be nominated by the Accounting officer and approved by the Secretary to the Treasury. 182

In absence of approval letters from the Secretary to the Treasury, it was not possible to confirm whether the contract's committee of the centre was legally constituted. There is a risk that the activities of the contracts committees which is not legally constituted may be challenged.

Management responded that the contracts committee was constituted by Board having been nominated by the accounting officer and will be regularized in accordance with the law governing organizations constituted as a limited liability company.

I have advised the Accounting officer to seek approval from the Secretary to the Treasury and have the contracts committee members approved.

2.24.6 Lubowa construction contract

In 2007, JCRC undertook to construct a modern hospital at Lubowa at a contract price of Shs.6,111,600,964. The project was to be completed on 20th March, 2008. We noted however, variations were made to the contract to a tune of Shs.2,073,917,606 representing 34% of the original contract sum resulting into a revised contract price of Shs.8,185,518,570. The following were further noted:

 Sec. 261(2) of the PPDA Act(2003) state that "A contract variations or charge order may be issued with the approval of the contracts committee" However, the variations of the Lubowa constructions contact did not get approval of the contracts committee thereby contravening the above provision.  While the Lubowa construction contract provided for a variation, Sec 261 (6) of PPDA Act 2003 requires that a contract which provides for a variation shall include a limit on a variation which shall not be exceeded without a contract amendment. This contract variation did not result in an amendment to the contract.  Sec.262(6) states that where a contract is amended more than once , the total variations or amendments shall not exceed the total contract price by more than 25% of the original contract price. The cumulative variations of Lubowa construction contract exceeded the original contract price by 34% which contravenes this section. 183

 Sec.262(3) states that a contract amendment shall not be issued to a provider prior to; (i) Obtaining approval from the contracts committee. (ii) Commitment of the full amount of funding of the amended contract price over the required period of the revised contract and (iii) Obtaining approval from other concerned bodies including Attorney General, after obtaining approval of the contracts committee.

JCRC Management did not adhere to the above provision of the PPDA Act (2003). As a result, there is a risk that value for money may not have been obtained from the procurements where PPDA regulations were not followed.

Management responded that variations were due to additional work which was not part of the original contract. I advised management to comply with PPDA regulations.

2.24.7Project accounts not submitted for audit

The centre operated thirteen project accounts during the period under review. However project agreements and accounts for each project in respect of the following projects were not availed for audit . Only the general ledger accounts which contained a summary all donor funds received were presented for audit. The concerned projects are; TREAT –USAID, DART-RF, NIH, ACRIA-RFSDDCF, CWRU, COHRE, HPTN, ACTG, PLAN, MOH, CHAI, IAVI and ARROW.

It was further noted that Shs.19,281,263,310 in respect of projects have not been consolidated in the accounts. Management responded that JCRC has multiple joint research projects with different external organizations and institutions which carry out regular audits of their own. I advised management to avail project documents detailing all funds received under each of these projects listed above. I await management‘s compliance.

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30th JUNE 2010

2.24.8 Procurement

a. Contracts Committee Section 45 (1) of the PPDA Regulations provide that the accounting officer shall appoint a member of the contracts Committee in writing, by appointment letter using the appropriate standard format prescribed in the Regulations. However, contrary to the above provision of the law, there was no evidence in form of appointment letters that members of the contracts committee were duly appointed as required by PPDA Act and the Regulations there from. The activities of the contract committee may be irregular, since there was no approval from the Secretary to Treasury. Management responded that the contracts committee was constituted by the board and was regularized in accordance with the law governing organizations constituted as a limited liability company by guarantee and the Companies Articles of Association. The activities of the said committee are determined by the needs of the organization. Nevertheless, management is willing to review its procedures and align.

b. Lack of a procurement plan Section 96 (1) of the PPDA Regulations provide that a user department shall prepare a multi-annual rolling work plan for procurement based on the approved budget which shall be submitted to the procurement and disposal unit to facilitate orderly execution of annual procurement activities. However, the Center did not have procurement as provided for in the PPDA Regulations. Whereas the donors condition management to produce work plans for their direct sponsorship, all these should ordinarily be consolidated into one procurement plan for the entity. Lack of vital procurement documentations may undermine the credibility of the procurement process. Management responded that they had various procurement plans that had been agreed and signed with all donors concerned in the main JCRC Projects.

The Centre should comply with the PPDA Act 2003 by maintaining all the necessary documents and following the procedures.

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2.24.9 Stock Taking The stock taking exercise was conducted at the head office and in all the regional centers. Management issued guidelines inclusive of the fact that the storekeepers were prohibited from directly participating in the exercise. However, during the exercise however, it was noted that these guidelines were not sent to all centers of regional excellence, prompting the storekeepers, to carry out the exercise contrary to the set guidelines. Due to lack of segregation of duties errors or frauds may have been perpetrated and concealed in the records, hence undermining the whole exercise and reliability of the stock taking and valuation. Management responded that stock taking guidelines were issued to all the Regional Centre‘s of Excellence by Email. But due to limited numbers of staff and funding, we could not send a team of staff to these centre‘s to have the exercise conducted in the same manner as it was conducted at the head office. Our confidence was that since supplies to these centre‘s are dispatched in small quantities as a control measure by head office, we would rely on balances ascertained by our competent staff at each centre with reasonable assurance on limited material errors.

Management should ensure that consistency or uniformity in handling similar situations is observed. Besides, a post stock taking exercise should be conducted by management to confirm stock values reported from the regional centers on a sample basis.

2.24.10 Statutory deductions ( Income Taxes) Shs.265,374,870 Shs.265,374,870 in respect of Withholding tax and PAYE was not remitted to URA which contravened the Income Tax Act CAP. 340 sec. 123 - 124. This may earn the council fines and penalties that could have otherwise been avoided. Management accepted that they are indebted to the Tax body by the same amount and that the institution is negotiating with the relevant stakeholders like MoH and MoD among others to pay (at the agreed subsidized rates) for the services consumed to enable JCRC meet it‘s statutory obligations. Proper accountability for the money should be availed for audit review.

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2.24.11 Certificate of Bank Balances Certificates of bank balances were not availed to collaborate the bank balances with those in the bank statement. In the absence of certificates, it was not possible to confirm the correctness of balances of cash at bank at the end of the financial year. Management stated that they had request all the relevant banks to send the certified balances but did delay. But that all bank accounts‘ historic information can be immediately accessed online and perhaps for future purposes this method can be used while we await for the certified balances. Management were asked to avail the certificate of bank balances to justify those balances reflected in the bank statements.

HEALTH SECTION

2.25 NATIONAL MEDICAL STORES

30th JUNE 2009

2.25.1 Governance

 The NMS Act Capt 207 under section 8(3c) on Board of Directors-requires the Board of Directors to be selected from one expert-in each of the fields of company law / corporation. Management, pharmacy, medicine and primary health. However, none is required in the field of finance, accounting and auditing. This in effect impacts on the Board‘s ability to analyze and deal with finance, accounting and audit issues.

 There was inability on the part of the Board to ensure that the internal audit issues are implemented.

Not addressing the above issues weakens Governance and impacts on the performance of the corporation.

Management explained that as part of improving Governance over sight , the Board had been given Corporate governance training. They further explained that the composition and appointment of the Board is in preserve of the Hon. Minister of Health over which the Board has no influence.

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I advised the Board of Directors to address the issues to improve its governance oversight of the corporation.

2.25.2 Assessing implementation of the strategic plan:

The corporation does not have a proper system in place to review the extent of implementation of its strategic plan. Lack of such an assessment, limits management‘s ability to assess issues like where the Corporation is in terms of achieving its strategic goals, the challenging/risks it faces, and ultimately what should be done to ensure it achieves the strategic objectives.

Management indicated that plans to come up with a five year Corporate plan (2010- 2015) with clear monitoring and evaluations methods were underway.

I advised management to put in place a system to monitor the implementation of the strategic plan. As appropriate monthly, quarterly, or semi -annual reviews should be carried out to ensure that the strategy is implemented.

2.25.3 Business Process review

During the year under audit, a business process review was carried out which identified major challenges as listed below;

 Lack of management and Governance best practices.

 Business processes do not match well with the computerized business environment,

 The people factor contributed to lack of understanding of the different business links.

 The MIS had failed to provide the management with reports that have adequate integrity.

 The current system cannot meet the business requirements of NMS and therefore it must be placed.

The risk is that an inadequate IT system deprives management of useful and timely information for decision making, hinders fast information flow and in general increases the operational risk of the Corporation.

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Management explained that the process to replace the MIS was underway and that the resultant system will cover most of the identified gaps in management reporting, control and optimization of resources. Vacant positions in the MIS had since been filled.

I advised management that there is an urgent need to put in place;

 New business processes and MIS system that provide an interactive business management system

 Business processes supported by the IT functionality in real time

 Measures that eliminate manual processes and reliance on multiple paper approvals

 Online functionality with varying levels of approval authorization assigned to staff.

2.25.4 Lack of IT strategy

The corporation does not have a formally written down IT strategy that should be in tandem with the Corporation‘s overall Corporate (Strategic plan). Currently, the Navision accounting package which the Corporation is using has been upgraded over the years, but still does not meet the management information system requirements of the corporation.

The lack of a formal IT strategy will lead to constant management information system reviews and overhauls which are very costly and disruptive in nature. Further, without an It strategy, management may find it difficult to ensure that IT resources are appropriately planned, measured, controlled and aligned to support the Corporation‘s business goals and strategic plans.

In their response, management promised compliance with the observation and explained that the IT strategy will be developed in line with the new corporate plan (2010-2015)

I advised management that IT should act as a reactive support service in assisting the corporation to grow, rather than a proactive enabler for change and development. This is achievable if it is documented and communicated to all staff for coordinated achievement of the Corporation‘s objectives. Furthermore, management was advised

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to urgently come up with an IT strategy to cover the next three to five years and should be in tandem with the Corporation‘s overall Strategic plan. The plan should be long time in nature and should address the management information requirements of the corporation.

2.25.5 Property Plant and Equipment

a. No land title for plot 33-37 kampala Road Entebbe

There was no land title for plot 33-37 kampala Road Entebbe. Only a memorandum of understanding was seen on the file. Without a land title, ownership of the plot could be disputed.

I advised management that the memorandum of understanding is not a title document for the property and in addition, without a title document ownership of the plot could be disputed in future.

In there responses, management explained that the process for acquisition of the title commenced way back and should be concluded by the end of FY 2009/2010. I await for the results once concluded.

b. Expired leases

The leases for the following corporation land expired and had not been renewed:

LRV 3030 Folio 2, Plot 18, Lunyo Road, Entebbe Wakiso

LRV 30 21 FOLIO 2, Plot 5 Nsamizi Road, Entebbe, Mpigi

Expired leases impact on ownership.

Management explained that applications for renewal of the leases had already been lodged with the Wakiso District Land Board.

I advised management to have the expired leases renewed as soon as possible.

2.25.6 Debt collections

The Corporation does not have an aggressive debt collection plan. As such, the level of debts outstanding for over one year dramatically increased. This is an indication of a significant potential for bad debts and thus strains the operating cash flows of the corporation. 190

In their response, management explained that the Corporation has an aggressive but tactic debt collection plan.

Management should put in place an aggressive debt collection team with aggressive debt collection targets. Debtors should be regularly analyzed and aged on a monthly basis. It is good accounting practice to isolate long outstanding balances for more stringent action so as to avoid risk of bad debts. A short debtors‘ collection period will improve the Corporation‘s cash inflows and will have a positive impact on the Corporation‘s liquidity position.

30th JUNE 2010

2.25.7 Review of Prior Year Outstanding Issues

In my last report to Parliament, I mentioned that National medical stores had not secured titles on its properties at plot 33-37 on Kampala Road Entebbe. I mentioned further that Leases to several properties had expired and had not been renewed. This position had not changed by the time of writing this report. Consequently, it was still not possible to confirm the corporation‘s ownership to these properties. Management responded that Wakiso District Land board approved the renewal of the leases and the issuance of the certificate of titles is before the Commissioner Land Registration.

2.25.8 Un reconciled trade debtors balances

Included in the Medical Stores is Shs.6,084,066,995 due from the Ministry of Health in respect of services provided which has been outstanding for a long time. An attempt to confirm this figure with the Ministry of Health revealed that the Ministry does not recognize the debt in its financial statements which casts doubts on its recoverability. Management was advised to have the necessary reconciliations made and to pursue these debts with Ministry of Health and Ministry of Finance Planning and Economic Development.

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2.25.9 Procurement

a. Procurement Planning

A review of the procurement records and reports for the Entity Stores for the financial years 2006 to 2010 revealed that the procurement plan was not well integrated with the budget and forecasts for reorder levels were not done leading to emergency procurements. Management responded that the procurement plan for 2009/10 was integrated with the budget for the same period, presented and approved by the board on 29th June 2010 and subsequently submitted to the MOFPED as required by the PERD Act to which the Honorable minister gave no objection as per letter dated 24th September 2010. Suppliers of emergency requirements were not on the pre-qualification short lists for bidders.

b. Evaluation Committee Operations

It was noted, that the evaluation committee on many occasions made decisions to delay or even postpone procurements on grounds of lack of market despite the fact that form 20 requisitions have been fully signed and approved by the Accounting Officer. This action signifies limited knowledge on the part of the evaluation committee members of their role. Management responded that where the unit prices for the best evaluated bidder are higher than the one indicated on the PP Form 20, the evaluation committee has to undertake a market survey in order to justify the increases in prices above the one indicated in the PP Form 20. I advised management that the contracts committee should be sensitized members of the evaluation committee on their roles as stipulated in the PPDA Regulations and the Act on for appointment to the committee. c. Inadequate Procurement Planning Section 96 (1)of the PPDA Regulations provide that a user department shall prepare a multi annual, rolling work plan based on the approved budget which shall be submitted to the procurement and disposal unit to facilitate orderly execution of annual procurement activities.

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A review of procurements conducted during the period under audit revealed cases of inadequate procurement planning. There was continued use of the direct procurement method in situations that are not provided for under the Regulations which was an indication of poor planning. Examples are as shown below;

Details Procurement COST Remarks reference NMS/SUPLS/09- 3,320,000,000 Supply of Funds released early but procurement 10/04001/26 HIV Kits process delayed because of lack of market hence causing an emergency when demand arose. NMS/SUPLS/09- 270,000,000 Supply of Same as above 10/04001/28 vacutainer tubes NMS/SUPLS/09- 10,275,000 Supply of Same as above 10/04001/30 medical stationery NMS/SUPLS/09- 157,102,214 Supply of Direct procurement to overstock 10/04001/29 medical because of fear of renewal of project Stationery

As a result, benefits that would ordinarily accrue to the entity as a result of planned and competitive procurements may not have been realized. Management responded that it was not possible to predict with certainty how much of which type of medicine would be required by the patients in the country. This is also coupled with the fact that the laboratory items in question have a short shelf life. Therefore a delicate balance was to be struck to ensure that these items are available when required but also to guard against huge stock expiries when demand suddenly drops. Direct procurement is also reflected from direct manufacturers especially of HIV kits. Management was advised to ensure that the procurement plan is put in place and avoid situations of improper use of the direct procurement method to enable achievement of value for money.

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2.25.10 Other Procurements

a. Procurement of Insurance Services

The 94th Contracts committee approved extension of the contract to provide insurance services with an insurance firm for 4 months to 31st January 2010 at Shs.113,165,376. According to management the prequalification exercise for new suppliers was still ongoing. Citing the same reason of not being able to prequalify service providers in time, another extension for 5 months was granted by the contracts committee to the same firm run up to 30th June 2010. However it was noted that the PPDA waiver for the extension and the Solicitor General‘s clearance for the 4 months and 5 months were only sought in retrospect. It was noted further that three firms submitted bids to offer the insurance services at Shs.203,095,428, Shs.288,438,012.13, and Shs.222,195,256 respectively. However, with guidance from the Insurance Commission, it was noted that all the three firms quoted prices below the premium minimum rates and therefore all were disqualified. The contracts committee wrote to PPDA seeking for authority to instead renew the contract for provision of the insurance services to the existing provider for another six (6) months. This firm was also among the three and had bided 2nd lowest. Management stated that the prequalification was started in accordance with the procurement plan but couldn‘t be completed in time to procure a new provider. This necessitated an extension of the existing contract for four months (25%variation) as permitted by PPDA Act. The extension was in good faith and was at all times intended to safeguard the assets of the Corporation.

b. Financial loss: Furthermore, it was noted that the extension of the insurance contract by a further four months caused a financial loss of Shs.27,646,909. This arose from the fact that the prorated cost in respect of the extension was higher than the cost incurred for the same period. Whereas management responded that according to computation of the insurance premium, the shorter the period insured the higher the premium and therefore the amount paid is not prorated in the usual way, audit is of the view that this was not a

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new firm offering the service but just an extension of the firm‘s contract period which would not warrant new terms. Management was advised to comply with all the procurement regulations and ensure adequate planning to cater for the procurement process in future procurements.

c. Noncompliance with Contract Committee Decisions

It was noted that a member of staff mismanaged the procurement process of T-shirts where by the approved sample by the contracts committee was disregarded and instead another brand of T-shirts were delivered and accepted in stores. Management responded that the case was investigated by management and it was established that the contracts committee was referring to another tender. Adequate documentation to verify this position was not presented for audit.

2.25.11 Procurement of (2) 15 Tone Delivery Trucks

The evaluation committee which evaluated bids for the supply of the (3) 15 tone delivery trucks, declared Africa Motors and Machinery the best bidder with an evaluated bid price of USD. 356,082. However this was subject to negotiations over the tyres, wheels and the body of the truck, which was considered minor at the time. During negotiations, it was concluded that the provider could not meet the specifications required by the entity and therefore the tender was referred back to the PDU. However, a record of the negotiations on the PP form 51 was not signed by the procuring and disposing division of the entity. Management stated that a record of negotiation was dispatched to Africa Motors and machinery for endorsement but a response had not been received. Management/Contracts committee were advised to secure the minutes, provide them for verification and in future to observe the procurement guidelines.

2.25.12 Information Technology: Financial Accounting Software

It was noted from a review of the Board Minutes that the Entity received an accounting system (Mac Sage) through a donation. However management did not

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ascertain its compatibility, usage and impact in processing transactions. The following weaknesses were noted:  The system was immediately installed without prior validation testing; there was no detailed change over plan which would have required pilot testing to ascertain its operational efficiency.

 The system automatically allocates order numbers serially, however using a gap detector report (Computer audit analysis technique), it was noted that a number of orders were missing from the systems. Test checks using the extractor facility within the system could not be obtained. An audit trail of orders processed in the system could therefore not be obtained.

 A disaster recovery plan was not put in place; back up tapes and CDs were kept within the same IT office. Best IT practice requires them to be stored away in separate premises.

 The system lacked local expertise to maintain it. All support was received via telephone exchange which is not effective and feasible.

 A business process review of a report was done on the entity by WHO who recommended, Microsoft Dynamic Nav as the most feasible solution and core business solution for NMS. They further recommended MACS with SAP Business One together or MACS with compatible financial software to be considered as a second option. It is not clear why management settled for the second option in disregard of the professional advice.

The integrity and reliability of data produced by this system may be at risk given the above circumstances Management responded that NMS had depended on donor support for the installation of the new MIS system, the available donor, opted for this accounting system because it had installed it in other similar organization. They further stated that a post implementation review supported by the same donor has revealed that the system cannot support the business of NMS and management was preparing a Board paper for the way forward.

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On disaster recovery preparation, management stated that they had started a procurement process for a consultant to develop one and other stop gap measures were being undertake. I await the outcome of the given management actions.

2.25.13 Asset Management: Grounded Vehicles

The entity had a number of grounded vehicles which are not in a serviceable condition while others though moving were too old resulting into high maintenance costs. It was also noted that all these vehicles were comprehensively insured. As a result, the entity continues to incur in maintaining these vehicles which may be uneconomical. Management stated that the process of disposing off the assets has been initiated. Management was advised to dispose of these vehicles in accordance with PPDA disposal regulations.

2.25.14 Review of Internal Audit Operations

Un recovered insurance claim: A review of the reports produced by the internal audit revealed that there was unrecovered insurance claims worth Shs.17, 062,303 which arose from drug theft and theft of a laptop. Management stated that the loss as a result of burglary was disputed by the Insurance company claim and the matter was reported to police. I was not provided with any other information regarding the claim to enable me reach a meaningful conclusion.

2.25.15 Budgeting Section 16 (1) of the NMS Act provides that the GM shall not later than three months before the end of the financial year, prepare and submit to the board for its approval, estimates of the income and expenditure for the following year and may before the end of the each financial year prepare and submit to the board for approval any estimates supplementary to the estimates of the current financial year. The entity prepared two operating budgets during the financial year. One budget had total income of Shs.20.8 billion against expenditure of Shs.16.477 billion and

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approved by the full board on 31st March 2009. The second budget for shs.75 billion was appropriated by Parliament. Management responded that the budget and budget approval processes will be laid down in the financial procedures manual revision which is underway. It is important that the budgeting and budget approval processes are clearly laid down to guide the process of budget preparation.

2.25.16 Medical Stores Delivery Inspections An audit inspection conducted in health facilities to confirm delivery of the drugs and medical supplies to Health Centres and Districts hospitals revealed the following;

a. Orders not traced to destinations

The inspection revealed presence of orders that could not be traced in the stores records at the Health Unit. For instance, whereas, information obtained from NMS in respect of orders delivered for 2009/2010 for a particular facility indicated that the deliveries were delivered, the recipients denied ever receiving the purported deliveries. There is a possibility that the orders may have been diverted. Management was advised to ensure that delivery is acknowledged based on count of the contents in the boxes for each health Unit. Besides, the matter of orders not traced to destinations should be further investigated with a view of prosecuting those involved.

b. Incomplete Data Base

NMS supplies drugs and medical supplies to all government institutions across the country. It was noted however, that management did not have a data base of health facilities which should be supplied. Lack of a complete database for health facilities to be served can affect effective and efficient planning of procurements and delivery of medical supplies. In their response, management stated that they were making various interventions to increase the reliability of data which included communication with District Health officers and Ministry of Health.

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Management was advised to obtain an authentic update of all health facilities that it should serve. c. Undocumented Medical Supplies

The inspection revealed cases where drugs are delivered without any supporting documents. For instance, in Mbale Regional referral hospital, 3 boxes of Tab Efarirenz 600mg and Tab ARCO 125mg/50mg was delivered and received without a delivery note supporting invoice. These are indications of poor internal controls on stores which could result into theft of drugs and loss of funds. Management stated that they always dispatched medical supplies accompanied by invoices and delivery notes. By the time of this report management had not yet provided copies of the accompanying documents for audit review. d. Under Deliveries

A test check on Kinaitaka health center II in Bugiri district revealed a case of under delivery of drugs. This under delivery however, was discovered long after the delivery note had been signed. This creates accountability problems as both parties may disagree on the actual quantities delivered. Management responded that they are mandated to deliver any supplies for HC2, 3 and 4 to district headquarters, so that district officials would then transport them to health facilities. It is possible that some supplies that are delivered by NMS to districts headquarters do not reach the health centre‘s in time or at all. They stated further that they decided to take on the distribution of supplies further from the districts to the health facilities HC2, 3 and 4 to ensure that supplies reach the intended recipients.

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2.26 UGANDA MEDICAL & DENTAL PRACTITIONERS‟ COUNCIL

30th JUNE 2008

2.26.1 Late Submission of draft Financial Statements The Council management delayed to submit draft financial statements for audit for the year ending 30th June 2009 contrary to the Medical and Dental Practitioners Act which requires that accounts be submitted within three months after close of the year. This impacted on carrying out a timely audit of the financial statements. I was therefore unable to report on these financial statements in my last report to Parliament.

2.26.2 Staffing

Contrary to the statutory provisions of Medical and Dental Practitioners Act, it was noted that the council had several key positions vacant. These key positions include a Deputy Registrar, a Secretary, Accounts personnel, and a Records Officer. The current establishment of the council has only two drivers and an office attendant who also performs the functions of receipting and banking. The officer who maintains the database management system is a part time employee. I advised that this impacts negatively on the proper and efficient discharge of functions by the council and compromises the internal control system. Management in their response stated that position of Deputy Registrar is already filled and the process was on to fill the remaining vacancies.

30th JUNE 2009 & 2010

2.26.3 Corporate governance

a. Lack Of An Audit Committee

Contrary to the public finance and accountability Act, the council‘s governing body did not have an audit committee to review audit issues from the Council‘s operations

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and provide a timely assurance mechanism regarding the Council‘s risk management, monitoring and control. Management in response acknowledged the need for an audit committee and promised to follow up to have one appointed soon.

b. Lack of an Internal Auditor

Contrary to Sec 2.3 of the UMDPC‘s financial manual the council operated without an internal auditor in place depriving the council of a sufficient and timely assurance mechanism in risk management, monitoring and control. Management in response stated that the lack of Internal Auditor has been due to insufficient funds available to the council since Government stopped its subvention but management was going to initiate the process of appointing an Internal Audit function as soon as soon as funds permit.

2.26.4 Stores not taken on charge shs.18,941,000

Stores procurement of shs.18,941,000 in respect of stationary lacked the necessary accountability documents as delivery notes, goods received notes and were not posted to stores ledgers.

In absence of these key records, I could not confirm that the stationery was actually received and put to proper use. In response management stated that they have put in place a system to monitor receipts and issue of stationery and other stores by introducing the use of Goods Received Notes, Materials Issued Notes and other methods of stores control.

2.26.5 Remittance of 6% WHT

No acknowledgement receipts from URA were presented to support remittance of Shs.1,325,520 deducted from various firms as 6% withholding tax. There is a risk that the taxes may not have been received by the tax authority. Management in response stated that cheques were written for payment to URA but after 30th June 2010, they were not receipted because the council lacks a Tax Identification Number (TIN). Management is in process of acquiring a TIN for the

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Council and all deductions will be submitted to URA and receipts availed for audit verification in the shortest time possible. 2.26.6 Non- renewal of operating licenses

Contrary to Sections28(1) and 29 (5) of the Uganda Medical and Dental practitioners Council statute 1996, a number of Clinics did not hold practicing Licenses while others had not renewed their Licenses since end of 2006. While section 28(2) provided for penalties of a fine of up to 3,000 ,000 or jail term of up to 3 years there was no evidence of council‘s efforts to enforce the provisions of the UMDPC Statute against the offending clinics. I informed management that the Council is losing revenue by not implementing these provisions of the statute. Management in response stated that the council had a shortage of staff but a deputy registrar and two other staff members had been recruited and this will greatly increase our capacity to carry out inspections more effectively.

2.27 UGANDA NURSES AND MIDWIVES COUNCIL (UNMC)

30th JUNE 2006, 2007, 2008 & 2009 2.27.1 Preparation of annual financial statements It was noted that Management did not keep proper books of accounts and did not prepare a trial balance for the four financial years under review. Thus, the Uganda Nurses and Midwives Act, 1996 Sec 18(1) and the Public Finance and Accountability Act, 2003 were not complied with. I advised management to ensure that the requirements of the existing laws and regulations In respect of preparation of financial statements are complied with.

Management responded that arrangements had been made to recruit a competent and qualified Accountant to manage the finance section of the council. In the meantime, the Ministry of Health promised to post an Accountant to the Council to streamline the Books of Accounts in accordance with the financial regulations.

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2.27.2 Ownership of property Verification of non current assets of council revealed that the ownership (title) of the Property (Block 28, Plots 222 and 223) located at Makerere had not been transferred into the names of the Council by the time of audit. This was contrary to best practice and our earlier recommendations. It was therefore not possible to confirm the ownership of the property. Management attributed the delay to transfer the property in Council names to unforeseen circumstances, and stated that the necessary legal and administrative procedures were being taken to formalize the transfer of the property. In the meantime a caveat regarding the property has been lodged. I advised the Council to ensure that titles are obtained and the property is transferred in council names.

2.27.3 Governance It was observed that some members of the Council were fully involved in day to day management of the Council activities, including approval of payments and signing of cheques. Council members approving policies and proceeding to implement the same policies contravenes the governance structure of the Council and presents a Conflict of interest situation.

I advised that Council members should avoid involvement in the day to day activities of the Council and carry out only those functions that are stipulated in the Nurses and midwives Council Act, 1996.

Management attributed the problem to shortage of staff at the secretariat and stated that the Ministry of Health as the appointing authority allowed Council Members to participate in some selected management issues of council. They stated further that arrangements have been finalized by the Health Service to recruit a Deputy Registrar who will assist in the day today management activities.

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2.27.4 Non deduction and remittance of statutory deductions (NSSF and PAYE) on staff salaries of shs.9,600,000 Management did not deduct and remit statutory deductions in respect of PAYE (Shs.3,193,000) and NSSF (Shs.6,407,000) to the relevant authorities as required by the existing laws in the period under review. Non remittance of statutory deductions may attract fines and penalties. Management responded that they had entered into negotiations with the NSSF management of Kawempe Branch regarding the above payment with a view of streamlining payment of the dues including the arrears. Similarly, arrangements are underway to meet the management of URA to discuss the modalities of payment. Management was advised to deduct and remit all statutory deductions in the prescribed time.

2.27.5 Weakness in internal control system A review of internal control in Council was reviewed and the following issues were identified:-  There were no operational manuals in respect of accounting, administration and Asset management that could have guided staff in daily operations.

 The management of the Council was not canceling paid vouchers and their supporting documents with ―PAID STAMP‖.

 Fixed assets register was not maintained hence rendering verification of the assets of council difficult. The costs of the assets, their locations, categories, condition , depreciation amounts, and their fair presentation in the financial statements could not therefore be ascertained.

 The Council operated without an internal audit function.

The above weakness could lead to errors going undetected. Besides, failure to maintain an assets register renders the councils assets susceptible to loss.

I advised management to address the internal control system weaknesses in order to ensure that the council operates smoothly, with minimal risks.

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In response management acknowledged the above observations and promised to rectify them. They stated further that a local consulting firm was to be contracted to develop operational manuals in respect of accounting, administration and asset management to guide the staff in day to day operations of the council.

JUSTICE, LAW AND ORDER SECTION

2.28 LAW DEVELOPMENT CENTRE

30th JUNE 2007

2.28.1 Construction of the main hall shs.679,435,796 During 2003, a local firm was contracted to build a complex at the Centre comprising of a main hall, firm rooms, library, computer laboratory and other facilities at a cost of Shs.366,195,631. The contract sum was revised to shs.627,469,864 with the contractor citing unseen extra works which were not identified before. A further Shs.80,000,000 was also added to the contract sum purportedly for delays caused by the Centre and due to inflation on materials bringing the total contract amount to Shs.679,435,796. It was however noted that:-  The Solicitor General‘s prior clearance of the procurement contract was not obtained in accordance with the procurement act and the constitution.  There was no Certified structural building plan, and estimate of the cost of the works prior to the start of the project.

PPDA regulations have been violated and I could not confirm that value for money has been achieved from this expenditure.

Management did not provide explanations to these anomalies.

2.28.2 Advances to the legal aid clinic (LAC)

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The centre paid Shs.30,144,000 to Legal Aid Clinic as student‘s contribution for practical training. Accountability presented in respect of these expenditures was found to be lacking and un-satisfactory. This money remained unaccounted for by the year end. I was therefore unable to confirm that the funds spent were put to proper use for the intended purpose.

Management is advised to account for the outstanding advance and ensure that in future advances are always accounted for promptly before end of financial year.

2.28.3 6% unremitted withholding tax shs.1,516,246 Deductions of 6% withholding tax totaling shs.1,516,246 was not recovered from various suppliers of goods and services to the centre. Failure to recover withholding tax violates sections 119 and 124 of the income tax Act 1997 cap 340 and the centre may be liable to pay the amount of tax which was not recovered. I advised management to always promptly remit the tax deductions to the tax authorities in order to avoid penalties.

Even though management in response stated that they had remitted the money to URA, there were no receipts from URA to confirm this.

2.28.4 Financial management manual The centre did not have a Financial Management Manual to guide staff undertaking various finance related activities on behalf of the Centre. Without clear guidelines and procedures, proper recording of transactions and safeguard of assets of the Centre may not be guaranteed. Management responded that the financial manual has been prepared and awaiting approval by the management committee. Management is urged to put in place an approved accounting and a financial manual.

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30th JUNE 2008

2.28.5 Non remittance of statutory deductions It was noted that the centre did remit statutory deductions in respect of NSSF and PAYE of Shs.811,311,756 and Shs.1,040,533,603 respectively as at 30TH June 2009. This attracted penalties of Shs.3,345,923,770 in respect of NSSF.

I advised management to comply with the statutory obligations when they fall due in order to avoid the penalties and fines in accordance with statutory provisions.

Management attributed the problem to failure to recover PAYE from allowances like marketing, investigation, sitting allowances extra duty, long service awards and gratuity. This anomaly was rectified in July 2008. Management further stated that LDC does not dispute the arrears but it lacks capacity to pay. URA has already been paid Shs.292,500,000. Arrears of NSSF arose because LDC used to compute NSSF on just the basic salary. This anomaly has been rectified. NSSF is now computed on the gross pay.

Meanwhile outstanding PAYE of Shs.1,354,857,800 and NSSF of Shs.426,268,615 still remains unpaid.

2.28.6 Finance and accounting manual As noted in the previous year the Centre still does not have an approved financial and accounting manual to guide staff in undertaking various finance related activities on behalf of the Centre. The absence of an accounting manual may result in inconsistency in application of the policies.

Management responded that the draft has been prepared awaiting approval by the management committee.

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2.28.7 Fixed assets register For the period under review , the council operated without a Fixed assets register in place. We could not verify additions and disposals made in the year and consequently the amount of shs.25,043,723,650 presented in the balance sheet as at 30th June, 2008 in respect to non-current assets could not be appropriately verified or confirmed. I advised management to ensure that an up-to-date Fixed assets register is kept and that all costs/valuations of non-current asset acquisitions, disposals, are clearly reflected. Management insisted that they had a register but did not present it for audit.

2.28.8 It strategy Although the Centre had several computers and associated equipment, it did not have an institutional IT strategy in place to manage the information assets. Absence of an IT strategy & IT department has led to lack of needs assessment resulting in haphazard expenditures on IT. Furthermore, the Centre lacks of professional staff to manage IT resources and to identify problems on time. I advised the Centre to ensure that it has in place an IT department \ personnel to maintain its computers and related assets and to give professional guidance on IT, and clear IT strategy. Management did not provide an appropriate response.

2.28.9 Encroachment on LDC land Law development Centre has properties on plot 245, 221, 464 block9, 481, and 482 block 9 in Makerere also plot 1 and 69 in Bukoto. During the Audit, it was noted that these properties have been encroached upon by illegal occupants with permanent structures erected on them. It was further noted that an individual claims to be in possessions of the LDC Lease Hold Land Titles for plot 481 and 482 block 9. The Centre is yet to resolve this matter and is still exposed to the risk of losing these properties. I advised management to ensure that proper record of all its assets and properties and to ensure properties are safe guarded from encroachers.

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Management explained that they procured the services of Ms. Omunyokol and Company advocates to address this matter.

2.28.10 Unaccounted for payments to legal aid clinic shs.33,852,000 It was noted that Shs.33,878,500 paid to the centre‘s legal aid clinic still remained unaccounted at year end. In absence of supporting documentation and accountabilities, I could not confirm that these funds had been put to their intended use.

Management should ensure that all the funds given to Legal Aid Clinic are accounted for before the financial year ends and ensure that fresh advances are not given out before earlier ones are accounted for.

2.28.11 Irregular payments The Centre paid Shs.98,367,132 as special duty, extra duty, weekend, lunch, night allowances and dirty work bonus. However, there was no clear policy, guidelines and controls regarding payment of these allowances. The allowances were irregular. Management attributed the problem to lack of guidelines which have been developed, The Centre should come up with clear guidelines, policies and controls spelling out arrangements under which allowances should be paid.

2.28.12 Sitting allowances The Centre spent Shs.69,035,200 as sitting allowances for members of the various committees. However, the authority and budget approval supporting the set up of the committees was not availed. Management in response stated that they had budgeted for the approved committees; in addition the centre has now streamlined the payment of sitting allowances

I advised management of the Centre to streamline the operations and appointment of these committees.

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30th JUNE 2009

2.28.13 Medical Expenses The Centre spent a total of Shs.39,256,828 on purchase of medical drugs, laboratory reagents, refund of medical expenses and treatment of staff.

It was however noted that , there was no a clear policy on a medical scheme and the continued to purchase drugs for its medical unit while at the same time making payments to private medical units and as well effecting refunds of medical expenses to staff. This clearly shows lack of policy and control over the medical expenses. Absence of a clear medical benefits policy at the Centre provides a gap for abuse with staff taking advantage of the loopholes. I cannot rule out that the Centre may have lost funds in fictitious medical expenses. Management responded that they had suspended payment of medical refunds until a clear policy on the medical scheme in place.

2.28.14 Leave transport The centre paid its staff Shs.18,326,060 as leave transport. However a verification of this payment established that there was no approved leave roster to support the expenditure. Furthermore the council effected leave transport payments to their staff under 3 lots between December 2008 and January 2009 giving the impression that the whole organization went for leave at the same time.

The Centre also lacked a clear criteria on determining the geographical distances. The details are as follows:

Date Voucher No. Cheque No. Payee Amount 29/04/09 36 009939 S. 4,708,700 Tibanyendera 37 009940 Various staff 1,326,320 19/12/2008 55 009633 Various staff 7,010,720 27/01/2009 20 009666 LDC staff 4,701,700

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29/12/2008 59 009637 LDC staff 578,620 Total 18,326,060

The absence of clear policy, guidelines and control over the leave transport can be prone to abuse.

Management responded that they suspended payment of leave transport in August 2010 until a clear policy is put in place

2.28.15 Incompletely vouched expenditure shs.2,129,900 Expenditure of Shs.2,129,900 remained incompletely vouched during the period under review. In absence of the payment vouchers, audit could not confirm whether the funds were used for proper purpose. Management is advised to submit these payment vouchers to audit to ascertain the validity of the payments.

2.28.16Staff salaries Inconsistencies were noted in the salary scales of similar category of staff within the same department and across departments. Examples are as follows: a. LDC Publishers – binders are paid varying wages per month between shs.709,850, shs.619,850 and shs.483,500. b. Accounts department – Assistant Accountants receive varying wages between shs. 1,252,500, shs.1,212,500 and shs.1,104,000 per month. c. Procurement department – of the two Assistant Procurement Officers, one gets a wage of shs.1,326,500 while the other get shs.970,000 per month. d. Department of Law Reporting – Library Assistants are paid varying wages between Shs.1,104,000, Shs.970,000 and Shs.619,850 per month. e. Personal Secretaries – are paid different salaries across departments. A personal Secretary of one department earns Shs.1,104,000 while one of another department earns Shs.970,000.

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Having different pays for staff in the same salary scale and category is irregular. Besides, inconsistencies in salaries of similar category of staff may act as a de- motivator to staff who earn less and in the end can result into poor performance of the affected staff and the Centre as a whole. Management attributed the problem to originate from having no promotional ladders within the salary scales and having staff with different qualification e.g. certificates, diplomas and degrees holding the same post The Centre should ensure that the wages/salaries paid to staff are in accordance with the organization salary structure. Inconsistencies highlighted should also be addressed.

2.29 AMNESTY COMMISSION: MULTI DONOR TRUST FUND MDTF 092061 UGANDA EMERGENCY DEMOBILIZATION AND REINTEGRATION PROJECT - JUNE 2010

2.29.1Compliance to financing agreement

a. Capacity building: Computerization of the accounting System The grant agreement requires Amnesty Commission to install a computerized accounting system in a form and substance satisfactory to the World Bank. However, as noted my previous audit report, the accounting system had not been computerized by the time of audit of the financial statements for the year ended 30th June 2010. The terms and conditions of the Grant Agreement have not been adhered to in this respect.

Management explained that the Commission is still waiting for the Government to implement the IFMS which will be rolled out to all Government departments

b. Information, Counseling and Referral System (ICRS) The Amnesty Commission was expected to prepare a detailed TOR for the design, development and deployment of an Information, Counseling and Referral System (ICRS) that would be used as basis for procuring the services of a consultant to assist the Commission develop and manage an ICRS. However, it was noted that by the end

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of the financial year, the services of a consultant had not been procured. I informed management that a delay in the procurement process for an ICRS consultant has negatively impacted on the activities of information, counseling and referral system.

Management explained that the preparation of the Terms of Reference of the ICRS Consultant is over and the ICRS Consultant is now in place having signed a contract with a firm Cardno Emerging Markets UK in November 2010.

2.29.2 General implementation of work plan and activity components

a. Access to reintegration services A total of 8,223 reporters were expected by the project to access existing socio economic services at DRT offices during the period. However, only 3751 reporters utiised the existing socio – economic services at the DRT regional offices resulting in 46% performance. DRT Targeted Adults Children Cumulative Percentage of Reporters Total Achievement Mbale 592 246 101 347 59 Kasese 595 642 0 642 108 Gulu 1,810 672 0 672 37 Arua 2,528 482 0 482 19 Kitgum 2,315 1555 28 1583 68 Central 383 23 2 25 7 TOTAL 8,223 3620 131 3751 45.6%

The target objective was not achieved as 45.6% of is the actual performance. Management explained that the overall target for access to reintegration services was 28,800 reporters and 8,223 reporters mentioned was part of that target. However two factors affected the implementation of the reintegration process. First LRA did not disarm fully, making it difficult to reach the target. Secondly, we had not hired the ICRS consultant as had been agreed with the World Bank, to help the Commission carry out the integration.

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I advised management to put in put in place a mechanism of informing reporters about the existence of the socio – economic services at the DRT regional offices. Audit has since noted that the procurement process of the ICRS Consultant is over and the ICRS Consultant is now in place having signed a contract with a firm Cardno Emerging Markets UK in November 2010. b. Information, Counseling and Referral Services by DRT A total of 16,442 reporters were expected by the project to receive counseling and referral services at DRT offices during the period. However, only 4870 reporters managed to receive the services at the DRT regional offices resulting in the performance of 29.6%.

DRT Targeted Adults Children Cumulative Percentage of Reporters Total Achievement Mbale 1,184 343 41 384 32.4 Kasese 1,189 717 6 723 60.8 Gulu 3,620 969 20 1009 27.8 Arua 5,055 839 0 839 16.5 Kitgum 4,629 1523 139 1662 35.9 Central 765 257 16 273 35.6 TOTAL 16,442 4648 222 4870 29.6

The target objective was not achieved as 29.6% of is the actual performance

Management explained that the overall target for access to reintegration services was 28,800 reporters and 16,442 reporters mentioned was part of that target. However two factors affected the implementation of the reintegration process. First LRA did not disarm fully and secondly, we had not yet hired the ICRS Consultant to help the Commission carry out the reintegration.

I advised management to identify causes hindering planned implementation of the information, counseling and Referral system in order for objectives to be realized;

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audit has since noted that an ICRS consultant has since been recruited to help in the operalisation of the ICRS component.

2.30 NEC & SUBSIDIARIES 30th JUNE 2008 2.30.1 Un-remitted statutory deductions Contrary to the provisions of pertinent laws, statutory deductions in respect of PAYE (Shs.265,369,055) NSSF(shs.320,430,901) and VAT (Shs.1,033,966,804) totaling Shs.1,619,966,804 were not remitted by the Luwero Industries to the relevant authorities.

I informed management that non-remittance of statutory deductions may attract penalties and fines against the company.

Management in response stated that the accumulation of un-remitted statutory deductions was because of cash flow constraints, but management is negotiating with the Uganda Revenue Authority for a remittance schedule of outstanding balances of PAYE and VAT

30th JUNE 2009 2.30.2 NEC pharmaceuticals National Enterprise Corporation entered into a joint venture agreement on the 15th of July 2005 with Applied Industrial Development (AID) Limited and Healthworld International Services Limited (HIS Ltd) resulting in the incorporation of a Joint Venture Company (JVC) with limited liability under the laws of Uganda known as NEC Healthworld Pharmaceuticals Ltd.

According to article 6 of the JVC, NEC was allotted 40,000 shares of Shs.10,000 each representing 20% of the total issued share capital of Shs.200 million in consideration for the sub-leased land. Both AID and HIS Ltd deposited a sum of US$100,000 (one hundred thousand) as the initial capital of the JVC.

A review of the status of the Joint Venture revealed that:-

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 The chief executive officer representing AID & HIS, the joint venture partners

reported but disappeared soon after and has never reappeared.  Apart from the initial deposit made of $100,000 on the Joint Venture at the beginning, other obligations of operationalising the plant such as providing expertise and administration of the venture have not been fulfilled by the other partners.

 The National Drug authority declined to grant a drug producing license to the Joint Venture Company because the current state of the plant is considered to be below the expected standard.

 On inspection of the premises, it was observed that the existing plant had machinery which appeared obsolete and the technical person at the premises could not confirm whether the plant in its current form can produce drugs for commercial purposes.

 During the financial year ended 30th June 2009, NEC/Healthworld Pharmaceuticals was advanced Shs.56 million by NEC Headquarters as reflected in note 3 of the financial statements. However, due to the non operational status of the venture, the value of the NEC Investment in the venture may be severely impaired.

The Management in response acknowledged the observation and stated that the Joint venture partners have been rehabilitating the factory but have not attained the standard required by National Drug Authority for grant of production license. Due to the inactivity of the plant, NEC management informed its board of Directors who recommended re-entry after consulting with the Solicitor General. Management received guidance from the Solicitor General and is now in the process of re-entering the premises. As the Joint Venture is liquidated, the Management hopes to recover the 56 million advanced.

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2.30.3 Advances to a Subsidiary NEC Works Ltd Included among the debtors are amounts advanced to NEC Works Ltd (a subsidiary) which have steadily increased from Shs.160million in 2006/2007 to 219million in 2007/2008 and Shs.259million in 2008/2009. We noted however that, NEC Works Ltd reflected an operating cashflow deficit amounting to Shs.90million and Shs.177million in the financial years 2007/2008 and 2008/2009 respectively implying inadequate liquidity to enable the company meet it‘s obligations. Even though these are advances made within the group, repayment terms were not availed for audit and yet there is a high risk non recoverability due to inadequate liquidity and poor operating results at the NEC works ltd.

Even though Management in response stated they had managed to recover shs.149,300,000 leaving a balance of shs.110,030,360 outstanding I advised that clear repayment terms should be set out and formally agreed NEC Works Ltd.

2.30.4 Long outstanding creditors Analysis of the creditors showed that out of the outstanding balance, a cumulative obligation totaling Shs.2,479,931,098 has been long outstanding since the financial year ended 30th June 2005. Although in their response they attributed this to inadequate funding, I informed management that failure to pay debts due may lead to financial embarrassment and unnecessary expenses in litigation costs.

2.30.5 Long outstanding debtors shs.122,128,944 Under the Luwero industries, a subsidiary of NEC, it was noted that management of debtors continued to be poor an amount totaling Shs.122,128,944 remaining outstanding since June 2005. Even though the recoverability of these debts was doubtful, no evidence was provided to show that good efforts were made to have these debts collected.

Management in response stated that they were seeking the Board‘s approval for write off the debts.

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2.30.6 Un-remitted statutory deductions Contrary to the provisions of pertinent laws, statutory deductions in respect of PAYE (Shs.172,327,298) NSSF(shs.471,006,866) and VAT (Shs.966,985,060) totaling Shs.1,610,319,224 were not remitted by the Luwero Industries to the relevant authorities.

In addition another subsidiary of the NEC group, NEC Works did not remit PAYE totaling Shs.29,699,802 to The URA.

I informed management that non-remittance of statutory deductions may attract penalties and fines against the company.

2.30.7 NEC Farm

In January 2003, the Islamic Republic of Iran entered into a Memorandum of Understanding with the Republic of Uganda under which Uganda granted 17 square miles of farmland for a lease of 49 years to the Iranian Government in return for a tractor assembly plant to be set up in Uganda. The Iranian government fronted Iran Agro Industrial Group to invest in farmland. Subsequently, the land owned by NEC Farm Katonga Ltd was transferred to the Iranian government on a leasehold basis and the group started farming activities.

However, no valuation of the land was undertaken before it was given to the Iranian government. Consequently audit could not confirm the value of the land prior to the lease and fair value of payments in form of rentals for this farm land. Without prior valuation, value for money may not be realized.

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It was further noted that the fate of the Farm‘s entire animal stock of 815 animals valued at Shs.191,980,000 as at 30th June 2009 (2008: Shs.190,670,000) was not clear in the circumstances.

Even though I had informed management that loss of this core asset (Land) by the subsidiary threatens the survival and existence of the subsidiary in the foreseeable future, management in response stated that the Board of Directors of NEC recommended that the livestock at the farm be sold off and the subsidiary to be wound up in accordance with the law.

TRADE, TOURISM AND INDUSTRY SECTION

2.31 UGANDA INVESTMENT AUTHORITY

30th JUNE 2009 2.31.1 Capitalization of Umeme Shs.1,107,822,086 It was noted that the Authority paid a sum of Shs.1,107,822,086 to UMEME Ltd for acquisition of a metering unit of a 33kv line in the Luzira Industrial Park and acquisition of a transformer for the Park as follows:

 Particulars Amount  1 11 Kv metering KY and Diversion of 33 kv line 177,821,730  2 Transformer for Luzira Industrial Park 930,000,356  Total 1,107,822,086

In the unreferenced letter dated 19th December 2008, the chief Technical Officer of UMEME Limited communicated to Executive Director that the Ministry of Energy and Mineral Development was to provide funding for the project in respect of a permanent electricity supply to Luzira Industrial park. The funds would then be transferred to Uganda Investment Authority in a number of capital development releases. The total invoice value for the project was estimated at USD 3,507,696.00, inclusive of VAT and contingencies.

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Whereas, the funding should have come from Ministry of Energy and Mineral Development as per the above communication, there is no evidence produced for audit to confirm that this was the case.

In the absence of supporting documentation indicating the source of this revenue, I am unable to confirm whether capital commitments by Ministry of Energy and Mineral Development on the supply of electricity to the Industrial Park were honored.

In their written response management explained that there was an urgent power supply requirement to commission the Quality Chemicals factory at Luzira hence their funding of shs.1,107,822,086 to UMEME for a metering unit and a transformer.

Management further explained that although the Authority notified the Ministry of Energy on 19th December 2008 to provide funding for the UIA Electivity project, this never materialized.

I have advised management to recover the above amount from Ministry of Energy and Mineral Development following their earlier commitment to the project through UMEME Limited.

2.31.2 Irregular Payments to M/S Pageya Enterprises Ltd Shs.16,000,000 was paid to M/s Pageya Enterprises Ltd, being the last installment of the agreed amount of Shs.64,000,000 to construct a housing unit for the relocation of Prisons staff on plot 2, third ring road which was allocated to M/S Surgipharm. The following were however noted;

 There was no formal contract between UIA and Pageya Enterprises Ltd for the contract works done. The basis for this payment could not be established.  There was no competitive bidding for the job as required by the PPDA rules and regulations.  UIA management contracted M/S Pageya Enterprises Ltd without board approval.

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In the absence of a formal contract between Uganda Investment Authority and Pageya Enterprises and lack of board approval for this transaction the expenditure is irregular as value for money may not have been obtained by the Authority.

Management explained that the Authority was allocated land at Luzira adjacent to the Prison‘s facilities in trying to develop plots 2A-4A; the Prison‘s Authorities requested compensation for houses on the plot so that their staff could be resettled elsewhere.

The Prison‘s Authorities also requested facilitation of Pageya Enterprises to build the houses which company was on the Prison‘s prequalified list in using this firm the Authority stated the issue of procurement and contract management was delegated to and handled by the Prison‘s Authorities in accordance with PPDA regulations 62, 75 and 78.

Management further stated that allocation of land to Surghipharm was approved by the Board to provide vacant possession to the recipient promptly to avoid the possibility of litigation.

I advised management to always follow PPDA procurement regulations when acquiring goods and services in order to obtain value for money from goods and services procured.

2.31.3 Utility bills During the financial year the entity paid Shs.26,194,829 in respect of electricity bills and Shs.8,757,325 for water bills. The following observations were noted;  Although UIA was sub- metered on the main meter it has no access to the meter readings for reconciliation purposes, as this is done by the property manager.  Payments are made direct on the property managers account with Umeme  The water bill is equally apportioned amongst the four floors on the building, disregarding issues like number of occupants and frequency of usage.

With this arrangement the possibility of overpayment of utility bills in favour of the property manager could not be ruled out.

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Management explained that they requested the Landlord to provide a separate metre for power in order for the Authority to exercise full control over its bills. Unfortunately, the landlord indicated that the design of the building provided for a bulk metre and submetres for each floor. Although the Authority has access to the sub-metres it cannot get bills in their account as the billing is done on the basis of the bulk metre. The explanation given by the Landlord is as follows:  Building and power reticulation rules, require that there be a main distribution board of 400 Amps on the ground floor which divides up the power to 100 unit breaker to the respective floors  Upon exit of the main distribution board, each floor has a sub-meter upon which each tenant is metered  On each floor there is a 100 Amp Distribution Board that serves the floor.

Management also stated that the reason for bulk metering was due to power reticulation in big buildings which gives 3 level safety for circuit breakers as required in the building rules. This ensures that it‘s almost impossible to burn a building arising out of power shortage because of reticulation design.

As dictated by the Landlord, management indicated that they shall continue to engage the Landlord over this problem further as a lasting solution through acquisition of their own office accommodation is sought.

I advised management to demand for their own meters to ease the billing exercise.

2.31.4 Item Written off from the Assets Register The basic principle in IAS 16 is that items of property, plant and equipment that qualify for recognition should initially be measure at cost, this includes all capitalized costs to bring the asset into use.

Assets worth shs.431,488,160 of the Authority which were costs of freehold land originally capitalized were written off from the fixed assets register. It was noted that these costs were related to;

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Costs incurred to compensate bonafide occupants of Masese Land; it could not be established as to why after incurring the costs the Authority gave away the Land for free to BIDCO leading to their write-off in the financial statements.

Furthermore there was no board approval sought for the write-off. Unauthorized write off of assets distorts the fair value of assets disclosed in the Financial statements. In their response management explained that a series of events led to their actions as follows;  GOU advertised for competitive bids for development of the Vegetable oil sector in 1997.  GOU entered into an agreement with BIDCO under the Vegetable Oil Development Project in 2003. The agreement was signed by Minister of Agriculture as the lead agency; and the Minister of Finance on behalf of GOU.  The Project supported by IFAD is intended to support Vegetable oil development and create employment through out-grower schemes in Kalangala & Bundibugyo  The agreement was approved by Parliament and signed on behalf of Uganda by the Minister of Finance and witnessed by the Minister of agriculture, Animal Industry & Fisheries; assigned responsibilities to several Government agencies e.g. Min. of Agric, MFPED, URA, UIA, Jinja Municipal Council.  Article 4 (4) states; ‗The Government shall, through the Uganda Investment Authority, facilitate the acquisition of a legal title in the name of BIDCO or BUL or its other subsidiaries in respect of the land comprised in the letter of offer from the Jinja District Land Board.  UIA capitalized the cost of compensation as an interim measure to monitor its interest; and in anticipation of a freehold title which was not granted. UIA requested for a freehold title under letter UIA/LDD/10/03 dated 21st October 2003; while the Mayor, Jinja Municipal Council replied under Ref: May/BIDCO dated 14th January 2004 that the decision would require a Council resolution.  Jinja District Land Board issued a lease title directly in the name of BIDCO, as per the agreement, presumably to ensure that it retains the right to collect annual revenue.  The compensation could not be carried as an asset indefinitely given that UIA did not acquire ownership and BIDCO completed the construction of the factory.

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 The draft accounts for the period 2008/09 were considered by the Finance & Administration Committee, followed by the full Board on 19th November 2009.  In addition to the above, the Board considered your observation and approved the write off under a specific resolution on 19th November 2010 following a review of the background to the transaction.

I have requested management to explain the circumstances under which a write off was made without board approval and advised that any further write off of assets from the books of account should follow the proper procedures.

2.31.5 Non Compliance with Procurement Regulations The Authority through procurement reference UIA/SULP/08-09/0003 contracted Toyota Uganda Limited to supply 2 units of Toyota Land Cruiser. Two LPOs were issued in respect of this transaction: one dated 23rd October 2008 and another one dated 27th October 2008. The following issues were noted:

a. Pre-financing Supplier Review of payment information revealed that Shs.106,979,657 (USD50,515 ) being 40% advancement payment was made vide EFT on 23rd October 2008. This was in accordance with the terms and conditions of the supply as submitted by the would be supplier. The fact that the payment was processed and made prior to concluding the procurement process amounted to a pre-financing and ought to be explained, this is contrary to Section 249 (1) of the PPDA Regulations which provide that except where best practices or market forces dictate , a PDE shall not enter into a contract that requires an advance payment. Section 249 (2) further provides that where the payment is consistent with best practice, an advance payment security shall be required. However, contrary to this requirement, evidence of a performance bond or advance security was not availed for audit.

Further, Section 2 of the terms and conditions of the contract provide that the payment was to be made in two installments: 40% advance payment and the balance on collection of the Vehicles at Toyota Uganda limited showroom. However, audit

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noted that the payments were made and completed before delivery of the vehicles which was done on 9th March 2009.

It was noted further that the two LPOs were for different amounts and therefore it was not possible to confirm the contractual amount the advance payment was based on. b. Variation after procurement award Ms Toyota Uganda Ltd in her bid submission form, offered to supply two land Cruiser Prado station wagons in accordance with the order. Whereas in the communication to the firm accepting its bid, the Authority clearly indicated that the transaction was in respect of two Land cruiser prado vehicles, Ms Toyota Uganda Ltd in its acknowledgment letter dated 23rd October 2008, deviated from its original offer and instead made a counter offer of supplying one land cruiser and one Fortuner. This change, under the Provisions of Section 261 (2) of the PPDA Regulations, required approval of the Contracts Committee.

The change in the make of the vehicle was fundamental and would require a repeat of the procurement process. The change and subsequent acceptance of a counter offer without subjecting it to competition denied the entity advantages that would have accrued from competitive bidding. c. Excess payment LPO number PO100185 dated 24th October 2008 indicated a total price for the two delivered vehicles as being Shs.252,197,136. However, a reconciliation of the payment information revealed that a Shs.271,966,789 was paid, thus occasioning an over payment to the supplier of Shs.19,769,653.

The excess payment is therefore recoverable from the payee. The procurement was carried out in violation of the PPDA rules and regulations.

Management explained that the Contracts Committee approved purchase of 2 Prado Landcruiser Units at US$ 133,106.00. Unfortunately, there was an attempted

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interference with the decision so that a Prado Landcruiser and a Fortuner could be delivered immediately as they were available ex- stock at a cost of US$ 126,288.00. This led to the issue of a wrong procurement award and LPO for a Prado & a Fortuner. However, the system of internal checks and balances was able to prevent the anomaly as the 2 types of vehicles are not identical and could not be purchased using the same terms of reference. A remedial process was done to purchase 2 Prado Land cruisers at a price of US $ 133,106.00 with partial delivery as per the suppliers‘ quotation. Therefore the transaction did not involve any overpayment as the total contract price was US$ 133,106.00 and not US$ 126,288.00. The supplier has written to confirm that we have no obligation under the LPO for US$ 126,288.00. The advance payment was based on the fact that 1 unit was actually available ex- stock and the reputation of the Supplier. In addition, the advance usually is applied to meet import duties in the vehicle business. Whereas no loss occurred, prepayment will be avoided in future. This was an isolated case and not the usual practice. The anomalies were brought to the attention of the Board and management will take extra precautions to comply with PPDA regulations in all transactions in future.

I advised management to comply with the PPDA Act, rules and regulations when making procurements; management acknowledged anomalies in the procurement and promised to take extra precautions and comply with PPDA regulations.

2.31.6 Group Gratuity Scheme The entity maintains an internal contributory scheme in which the employees contribute 5.7% of their monthly net salary and the Authority contributes 11.4% of the employees gross monthly salary. This is paid to the employees at the end of their contracts. Shs.296,032,496 was collected as gratuity by the year end but a separate bank account was not maintained for the collection and the custody of these funds. There was a risk of diverting the gratuity money to other activities in absence of a separate account.

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Management attributed the problem to insufficient budget allocation from MFPED. We have taken steps to engage MFPED to provide adequate resources so that we move to the desired position of operating a fully funded scheme. The process may take time given limited resources at MFPED but the Ministry will be kept informed of the problem until it is fully addressed. Management did not give a satisfactory answer to this effect. I advised them to open a separate bank account for gratuity collections and strictly monitor transactions on the account to ensure that gratuity obligations are met whenever they arise. I subsequently await management‘s action on this matter.

2.31.7 Road Construction at Luzira Industrial Park The Authority contracted Spencon Services Limited to construct a 2 kilometer road in the Luzira industrial park, at a contract sum of Uganda Shs.2,043,528,689. However the following ambiguities were noted in the contract.

Whereas the contract sum was quoted in Uganda currency, Article 4 of the contract Agreement provides that UIA will pay 90% of the fees in United States dollars and 10% in the local currency. Given that the contract price was determined and fixed in Ugandan shillings, the clause appears to vary the contract price which is against the PPDA Regulations.

The contract price was not fixed and will vary with the exchange rate fluctuations which may lead to UIA incurring extra costs. Besides, this contract may result in several variations in favor of the contractor.

In their response management stated that they were aware of the problem and have taken measures to avoid a repeat of similar unfavorable clauses in contracts. The problem arose from the bidding documents and standard ITB (instructions to bidders) clause 16.1 to 16.4, coupled with the international financial crisis which emerged after bidding for the contract. The problem was identified before the audit and several attempts made to minimize the impact of exchange rate movements through meetings with Spencon and seeking guidance from Ministry of Works, who are the overseer. In addition, extra Road Works

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in Luzira, which ordinarily should have been given to Spencon through addenda, have been handled through competitive bidding to avoid an escalation of the problem. We have also sought PPDA‘s assistance through capacity building on contract management to minimize a repeat of similar clauses. Whereas it is not possible to avoid foreign exchange contracts, UIA will strive to ensure that clause 257 of the PPDA regulations and ITB are to our advantage as far as possible in future contracts.

I have advised management to fully comply with PPDA regulations when procuring goods and services.

2.31.8 Un Reconciled Items In UIA Bank Accounts The Authority‘s Bank reconciliation statements for various accounts reflected transactions dating as far back as June 2006, implying that unreconciled items for previous periods were not being followed up. Similarly uncleared payments in the bank were not credited in the cash book, while other direct transactions in the bank remained unadjusted for in the cash book. Opening and closing balances of the various accounts may not reflect a true position in the financial statements

Management in their response stated that all Bank balances at financial year end are based on reconciled balances. We only had a delay of reconciliation in 2007/08 when staff were terminated during a restructuring exercise. However, the reconciliations were still done by year end. The transaction attributed to 2006 relates to a direct credit which actually occurred in 2007/08 on the ICEIDA Project account. There was a problem in the date formatting when reconciling items were carried forward to the new year. This is also apparent from the fact that this item did not appear in the reconciliation for June 2007. There were also had challenges with direct credits due to EFTs which can only be posted after their details are fully verified as we do not operate suspense accounts. We nevertheless appreciate the observation and will do our best to limit reconciling items to un-presented and un-credited payments during periods of transactions.

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I have advised management to always ensure that timely bank reconciliations are made to guarantee correct balances are recorded.

2.31.9 Mbale Industrial Park An audit inspection of Mbale Industrial Park carried out on 30th June 2010 established the following;

 The land for the industrial park was acquired form Bugisu Co-operative Union at a consideration of Shs.3,095,000,000.  The land encompasses two villages namely DOKO-Nsambya and Masanda.  At the time of acquisition there were squatter on the land whom the vendor agreed to help the Authority resettle.

Present status Currently, there are over 100 families settled on the land and apparently 32 families have sued the Authority for compensation before vacating the land. The park managers informed the team that verification exercise was carried out on the squatters for purposes of preventing further encroachment on the land and to establish the right number of people to be compensated when funds are realized.

Meanwhile the valuation report by the government valuer for compensating the settlers was released in January 2010, and puts the required amount of funds at Shs.3,577,744,500, which figure is even above the purchase price. Whereas the vendor undertook the commitment to help Uganda Investment Authority free the park of the squatters, this commitment has not been honored and therefore no activity can take place.

Management in response explained that they submitted a request for funding to MFPED as soon as the valuation report was received from the Chief Government Valuer. Unfortunately, no additional funds were provided. MFPED released Ushs. 5.2 billion against a budget of 7.445 billion for the year 2009/10 which was intended for other commitments.

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We are prioritizing this amount and have accrued this liability in the accounts for 2009/10 to ensure that it is settled at the earliest opportunity. It is important to appreciate that the land in Mbale is situated in a gazetted industrial area and therefore would have cost more per acre, if it did not have squatters. Management is advised to resolve the issue of squatters on the Industrial Park in order for the prime objective of developing the park to be achieved.

30th JUNE 2010 2.31.10 Internal Audit

The Authority did not have an internal audit function from July 2009, until December 2009.The organization structure provides for an internal audit section with only one approved position at the level of Director. Given the size of the entity and the activities involved, the unit was grossly understaffed. Management stated that though the restructuring done in April 2008 identified the existing gaps, there has been no increase in funding to cater for all the required staff. Management was advised to continue liasing with MoFPED to ensure that they put in place a functional internal audit unit to improve on the Authority‘s risk management and control strategy.

2.31.11 Staff Gratuity

UIA contributes to NSSF and at the same time has an Internal contributory scheme where employees contribute 5.7% of their net salary. In the previous reports for June 2009, I pointed out that the Authority did not have an account on which the monies are deposited. At the end of the financial year under audit, the organization had accumulated arrears of Shs.350,739.991. It was further noted that in absence of a dedicated Gratuity/staff benefits Bank account, the possibility that staff contributions may be diverted to finance other activities could not be ruled out. In their response management stated that the scheme is designed to have at least four staff to manage it. They further explained that due to lack of funding it was not possible to have these staff on board. I advised management to open a separate Bank account for the contributions to enable proper management of the funds.

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2.31.12 Sale Of Plot 28 Kampala Road

The entity disposed off its building on Kampala Road to a local firm at USD 1,720,000. A review of the procurement file revealed the following;

 Bid security

The Bid document stated that a bid security of Shs.30,000,000 ―May‖ be required. It was further stated that the Bid security shall be determined by the PDE in accordance with the guidelines. Under part E of the Bid document it was provided that the evaluation of the bids shall be based on price only. A review of the evaluation report revealed that whereas five firms purchased and even returned the bid documents, three firms were eliminated at a preliminary stage because of lack of a bid security which was not mandatory. Their elimination was therefore erroneous and not in accordance with the procurement Regulations and guidelines.

 Evaluation report

Section 195 (2) Of the PPDA Regulations provides that the evaluation report shall be signed by all members of the evaluation committee. Contrary to this requirement, out of the five members on the committee only three signed the report. The failure on the part of the other two to sign was not explained.

 Utilization of Sale Proceeds

The main reason for the disposal of the building was to enable the entity to procure or even build its own home. We noted, however, that a year after the disposal, the entity was still renting office premises and was yet to put the money to its intended use. During the year that ended 30th June 2010, the entity spent shs.416,447,756 on rent expenses. The disposal may not have yielded value for money as the authority continues to rent office premises and may not be able to procure a similar property at the same price at a future date.

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Management stated that the funds are presently held in hard currency and had appreciated to about Shs.292 million by the year end.

2.31.13 Procurements of Construction of Bweyogerere Industrial Estate A review of the procurement documents in respect of the above project revealed that two evaluation reports were issued. One dated 5th February 2010 and another dated 13th January 2010. It is noted that the evaluation reports all refer to different best evaluated bidders; whereas the one of 13th January refer to one Company as the best evaluated bidder the one of 5thFebruary indicated another Company as the best evaluated bidder. Management stated that the issue of application of discounts was an area of contention. They stated that the second Company offered a discount which was only discovered during evaluation process and therefore the Company emerged the best evaluated bidder. I advised management that this was contrary to PPDA regulations.

2.31.14 Luzira Industrial Park Roads Phase II

A sum of Shs.486,248,371 was paid to a construction firm on presentation of certificate No. 1 for work done in respect of Luzira Industrial park Roads phase II. This was in addition to shs.681,349,808 already paid. The firm had entered into a contract with UIA at a total contract sum of shs.2,043,528,689. A review of the contract agreement revealed that under Article 4, the contract price or such other sum as may be payable shall be paid to the contractor in the proportions of 90% in United States dollars and 10% in Uganda Shillings. At the time of signing of the Contract, the exchange rate stood at shs.1723.28 to a dollar. Whereas, the contract price should be specific, the clause of having part of the payment effected in foreign currency as opposed to Uganda Shillings varied the contract price which is against the PPDA regulations on contract pricing. At the time of payment of certificate number 2, the exchange rate had increased to shs.2200 resulting into a loss to the Authority. I advised management to ensure that all contracts are negotiated at specified exchange rates or in Uganda Shillings.

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2.31.15 Review of Tenancy Agreement

 Tenancy Term

Article 1(d) of the tenancy agreement for premises occupied by UIA provides that the Tenancy shall commence on the 15th of September 2007 and shall continue for a term of five years ending on the 14th of-September 2017. This is a period of ten years (10). Management‘s failure to detect this detail prior to signing the agreement is an anomaly.

 Valuation:

We noted that UIA did not obtain an independent valuation from the government valuer or any other valuer as a basis for negotiating the rent. In the absence of an independent valuation therefore, I could not confirm that the rent payable at Shs.414,447,756 p.a is a fair charge. I advised management to request the landlord sign an addendum to the main agreement so as to address all the issues addressed above.

2.32 UGANDA EXPORT PROMOTIONS BOARD

31st DECEMBER 2007 2.32.1 Lack of approved Accounting Manual There was no approved accounting manual that gives clear procedures and guidelines for treatment of various revenue and expenditure items. Besides, the accounting cycle was not documented, making the accounting records susceptible to errors and inconsistent treatment of various estimates and transactions in the financial statements. Absence of an accounting manual may result in inconsistent application and treatment of transactions in financial statements. Management responded that the financial manual was yet be approved once a new Board is appointed.

2.32.2 Lack of an Internal Audit Unit

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The Entity did not have an internal audit unit in place, as a result there was no sufficient and timely assurance mechanism regarding the entity‘s risk management, monitoring and control as required by Corporate Governance. It was therefore not possible to place reliance on the controls. Besides, misstatements in the accounts and financial statements could go undetected. Management attributed the problem to insufficient resources. Management is advised to put in place an Internal Audit Unit to improve on the Council‘s risk management and control strategy.

2.32.3 Unremitted statutory Deductions of Shs.425,030,078

The Entity did not remit statutory deductions for the years 2006, 2007 as follows; Type Authority Amount 2006 Amount 2007 Shs. Shs. PAYE URA 324,197,838 371,651,489 NSSF NSSF 43,368,155 53,378,589 TOTAL 367,565,993 425,030,078

Non remittance of statutory deductions is an offence which contravenes the income tax and NSSF Acts and may attract penalties and fines. Management stated that their finances were cut over the years without related reduction in either personnel or their remuneration forcing her to pay only net salaries. A petition to MOFFED was made and arrears for NSSF and PAYE were verified and paid in 2008/2009.They further stated that they are now complying fully with all statutory obligations. However during verification of the management response it was noted that the arrears cleared were for 2006. Receipts number 407734 and 407733 worth UGX 28,731,730 and receipt number 4112846 in respect of PAYE from URA worth UGX 149,420,749 were seen. Thus the arrears remained outstanding. Management should ensure that all statutory deductions are remitted on time.

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2.32.4 Unconfirmed Debts and Bank Balances

A debtor‘s balance was shown with a negative figure of shs.3, 673,751 an explanation was not given of what constitutes the negative balance. The debtor‘s figure may be misstated. Besides, Bank certificates confirming balances stated in the financial statements were not availed for audit. In the circumstances, audit could not confirm the accuracy of the bank balances figure reflected in the accounts. Management agrees with the observation and has since requested for the Bank Balances Certificates to confirm the stated Balances. Management is advised to obtain bank statements and prepare bank reconciliations based on the Certificates. Furthermore adjustments should be made to the debtors account.

31st DECEMBER 2008 2.32.5 Purchase of Land at Kibira A private firm was contracted by the Board to survey 4 acres of land situated at Kibira at a cost of shs.2m vide VR 700848 and 701749. However, the procurement was not subjected to the normal procurement procedures. PPDA laws and regulations were not followed. Besides, value for money may not have been obtained from purchase of the land since it was not subject to competitive procedures. Management considered the sourcing of the surveyor as a micro procurement that didn‘t require Contracts Committee approval. Besides, the securing of the lease was a Government to Government negotiation in which, only concessions have been made without any cash movements. The concessions were directed by HE the President and further executed by the Prime minister.

Management is advised to follow and comply with PPDA rules and regulations when making procurements.

2.32.6 Lack of an Accounting Manual As mentioned in the previous report, the entity continued to operate without an accounting manual contrary to best accounting practice.

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Absence of an approved accounting manual may result in inconsistent application and treatment of transactions in the financial statements. Management responded that the financial manual was yet be approved once a new Board is appointed. Management is advised to put in place an accounting manual.

2.32.7 Lack of an Advances Ledger Shs.22, 604,283 was advanced to staff in form of salary. However, there was no advance ledger in place to facilitate monitoring recoveries. Control over granting and recovery of salary advances is weak. Management responded that the book keeping error was rectified in 2009 and all due advances were recovered effectively through the payroll.

2.32.8 Statutory Deductions Withholding Tax was not deducted from payments to suppliers and remitted to URA. A test audit on a sample of payments revealed that Shs.77,003,218 in respect of Withholding tax was not deducted contrary to Section 120 (1) of the Income Tax Act. Besides, a sum of Shs.236,115,440 was deducted from the employees‘ salaries being PAYE for the financial year that ended 31st December 2008 but was not remitted to URA contrary to Section 124 (1) of the Income Tax Act. There was violation of income tax Act. Management responded that the institution was receiving insufficient budgetary support to submit statutory payment over the years. A petition to MOFFED was made and the stated arrears verified and paid in 2008/2009.The Board is now complying fully with all statutory obligations. However no information was availed to prove the claim. The Board is advised to comply with all the provisions of the Act to avoid penalties and fines.

31st DECEMBER 2009 2.32.9 Un approved Accounting Manual The Finance and Administration committee of the Board indicated that an accounting manual for the entity be finalized and approved in the 1st quarter of financial year

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2009. However, we noted that the Entity continues to operate without an approved Accounting Manual. Management stated that the financial manual will be approved once a new Board is appointed.

2.32.10 Corporate Governance The tenure of the board expired in September 2008 and the entity has been operating without a board since then. Under section 8 (3) of the UEPB Act, members of the Board of Directors are appointed by the minister on the recommendation of the ministries or bodies they represent as the case may be. Lack of a substantive board deprived the entity of strategic direction on key decisions affecting the Board. Management stated that they were awaiting action by the appointing authority (The Minister of Tourism, Trade and Industry) whose attention has been drawn to the matter. I implored management to liase with the appointing authority to ensure that the Board is appointed in accordance with the Law as matter of urgency.

2.32.11 Unapproved Budgetary Expenditure Under the provisions of section 9 (b) of the UEPB Statute, it is the responsibility of the Board of Directors to approve the annual budget and action plans of UEPB. The Board is required under Section 14 (2) to submit the estimates to the minister for final approval. According to Section 14 (3) of the UEPB statute, no expenditure should be made out of the funds of the Board unless that expenditure is part of the expenditure approved by the board of directors under the financial year in which such expenditure is to be made. During the year, the entity continued to operate without the Board of Directors and therefore its budget was not approved contrary to the requirements of the Act. I informed management that all the expenditure incurred during the year was irregular and remains unauthorized. Management stated that they await action by the appointing authority whose attention has been drawn to the matter.

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2.32.12 Lack of an Internal Audit Unit The Entity did not have the internal audit function to check and advise management on the strength and weaknesses of the Internal Control system as required by Corporate Governance principles and best practice. Management attributed the problem to luck of funds. I advised management to ensure that the internal audit unit is established.

2.32.13 Statutory Deductions Contrary to the requirements of the NSSF Act, the entity did not remit the employees deductions over a period of time. We noted that the NSSF audit report dated 15th June 2009 communicated to management its arrears position of Shs.331,138, 680 for the period between 2000 to June 2009 inclusive in a report dated 15th June 2009. Non compliance with statutory obligations is an offence which may attract penalties and fines. Management responded that MOFPED together with NSSF and URA performed a joint exercise in July 2008 to verify the arrears caused by the underfunding of the previous years to 2008. However, emerging from further NSSF reconciliations, more arrears were discovered to have been left out and were resubmitted to MOFPED to be included in the Budget. Management was advised to comply with the provisions of the act to avoid penalties and fines.

2.32.14 Personnel Issues The entity had an established staff structure of 42 employees, out of which five vacancies existed, at the time of audit. While the Board of Directors had passed a resolution that all temporary employees should be employed for only six months, a review of personnel records, revealed that there were many temporary employees in the service of Entity beyond the prescribed period. I advised management to seek authority to have all the vacancies filled.

2.32.15 Un Accounted for Advances Shs.72,478,065 Shs.72,478,065 was advanced to various officers to finance official activities had not been accounted for by the time of audit. I could not confirm that the advances had been put to the intended use.

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2.32.16 Internal Controls There were weaknesses in the entity‘s accounting software– Tally. For instance the system does not keep consistent financial records from previous years and can be edited any time. The security controls in the software are weak making the organization prone to fraud and error. Management stated that they were in the process of securing a robust and capable accounting software and it had been included in the Budget estimates for 2010/11. I await management action on the matter.

2.32.17 Non Deduction of Withholding Tax Contrary to Section 120 (1) of the income tax act, Shs.45,064,500 in respect of WHT was not deducted from payments to suppliers and remitted to URA. I informed management that failure to withhold tax may attract penalties and fines as provided for under section 125 (1) of the Income tax Act.

2.33 UGANDA AIR CARGO CORPORATION -JUNE 2010

2.33.1 Irregular term for Board of Directors The Corporation‘s Board of Directors were appointed for a three year term from 4th February 2008 to 3rd February 2011 contrary to the Corporation Act Part (iii), Sec 6 (3) that requires Directors to be appointed on a 2 (two) year terms. I advised that management communicates to the appointing authority on the importance of making appointments of the Board in accordance with the law. . 2.33.2 Lack of Internal Audit department and Board Audit Committee The corporation operated without an internal auditor and did not also have a board audit committee in place. I informed management that this leaves the corporation without sufficient and timely assurance mechanism to address the Corporation‘s risk management, monitoring and control systems. Management in response stated that they had requested The Ministry of Defence to second one of their officers to work as an Internal Auditor for the Corporation.

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2.33.3 Non Compliance With PPDA Act 2003 Contrary to provisions of the PPDA act and regulations, the corporation‘s procurements in the year were made mainly through single sourcing and direct procurement methods without prequalifying the suppliers. It was therefore not possible to confirm that value for money was achieved from procurements made by the company in this manner. Management in response stated that the core business of the corporation is unique and if procurements were fully pegged to the current PPDA laws, the corporation activities would be stifled. Management added that they had written to PPDA requesting for a waiver from some of the PPDA regulations and a response was still being awaited. In the meantime the corporation was currently utilizing the services of the Ministry of Defence Contracts Committee.

2.33.4 Statutory Deductions

a. Un-Remitted Statutory Deductions During the period under review, the corporation failed to remit statutory deductions to the relevant agencies totaling to Shs.371,489,486 ($165,180) and shs139,966,195 ($62,235) for PAYE and NSSF respectively. I informed management that non-remittance of statutory deductions violates the pertinent laws and may attract penalties and fines against the corporation. Although management in response stated that they had met and discussed payment plans with officials from Uganda Revenue Authority and National Social Security Fund, no details such minutes of these meetings, agreed payment plans (memorandum of understanding) and evidence of remittances in accordance with the plans were provided for verification.

b. Non deduction of Withholding tax

Contrary to provisions of The income tax Act which require 6% withholding tax to be deducted from any payment in excess of Ushs1,000,000 for onward remittance to Uganda Revenue Authority, withholding tax totaling Ushs.16,767,278 was not deducted from suppliers of the corporation.

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The Income tax act requires that a withholding agent who fails to deduct this tax shall be liable to pay the amount of the tax but is entitled to recover the amount from the payee. Although management in response acknowledged the anomaly, evidence of payment of this tax to URA or subsequent recovery of these amounts from the suppliers was not provided.

2.33.5 Ownership of Y12 Aircrafts The Corporation obtained two Y-12 aircrafts from the Ministry of Defense which were registered and allowed to operate as 5X-UYZ & 5X-UYX by the CAA. Although the planes are included among the corporation`s fixed assets in the financial statements, no registration cards or other purchase records were availed for audit to support ownership of the aircrafts by the corporation. Furthermore, there was no Memorandum of understanding or agreement between Ministry of Defence and Uganda Air Cargo Corporation stipulating the terms under which UACC operates the aircrafts. I was therefore unable to confirm ownership of Aircraft , the terms under which the aircrafts are to be operated and whether the subsequent utilization of revenue proceeds from these operations is in order.

Management in response stated that they had requested The Minister of Defence to officially hand over the Y 12 aircrafts.

2.33.6 Depreciation of Aircrafts The Corporation‘s Aircraft, Airframe, Engines and interior are depreciated at a uniform rate of 5% yet they each have different economic useful lives. IAS 16 requires that were significant parts of an item of property, plant and equipment have been separately identified in accordance with the standard, they should be depreciated separately in accordance with the different life spans of the separate parts or components. Even though there were Aircraft revaluations at 30th June 2010, the depreciation charge in financial statements may not be fairly stated. Management in response stated that they are consulting on this matter to obtain the different depreciation rates used.

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2.33.7 Clearing and Forwarding Services During the year under review, the corporation procured clearing and forwarding services from a local firm at a total of Shs20,627,194. However it was noted that the firm was engaged through single sourcing without PPDA`S approval and there was no formal contract agreement signed. Further scrutiny revealed Shs.10,944,605 billed for customs documentation, verification, incidental charges and other costs remained un-accounted for. The firm also billed the corporation Shs350,000 as intervention to another firm that handled clearing papers for a mini bus but also charged an additional Shs230,000 as agency fee for clearing the same mini bus resulting in a double charge and a total clearing fee of shs570,000.

The firm also inexplicably charged inconsistent rates as agency fees ranging from ½ % to 2 %, of the CIF cost of the goods imported. Management stated that the firm has been contacted to provide documentation for the funds not accounted for and future outstanding bills would be charged if it fails to account.

2.34 HOTEL AND TOURISM TRAINING INSTITUTE

30th JUNE 2006 2.34.1 Property, Plant and Equipment

a. Presentation of Land and Buildings Land and Building had been reflected in the previous years‘ financial statements together as one account balance. Under IAS 16, Land and Building are separate assets and are dealt with separately for accounting purposes even when they are acquired together. Although management endeavored to identify separately the cost of Land and Buildings from historical cost information available, there was no evidence that a professional valuer was engaged to confirm the separate values of land and buildings as presented by management in the financial statements.

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It was therefore not possible for me to confirm the actual value of the Institute‘s Land and Buildings separately. b. Revaluation of Land and Buildings The Institutes acquired Land on 1st September 1960 under leasehold register Vol 496 folio 17 comprising 5,672 acres on which the hotel is located. The Buildings on this Land were valued by the government valuer in 1996 at Shs.800,000,000.

IAS 16 requires that items of Property, Plant and Equipment which are carried at revalued amount be revalued with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the Balance Sheet date. The Institute has not carried out any subsequent revaluation of the revalued assets since 1996, this constitutes non compliance with the revaluation requirements of IAS 16.

Due to this limitation I was unable to confirm the accuracy, completeness and valuation of the property, Plant and Equipment shown in the balance sheet. c. Written down values of Property Plant and Equipment(PPE)

i) Several classes of the institutes assets under Property, plant and equipment which include, Machinery and Equipment, Motor vehicles, Crockery and Cutlery, Linen and Uniform have been fully depreciated yet are still in use and provide economic benefits to the institute.

IAS 16 requires the residual value and useful life of PPE to be reviewed at each financial year end and if expectations differ from previous estimates the change be accounted for as a change in accounting estimate in accordance with IAS 8. Management has not carried out a review of the useful life of these assets nor a valuation to ascertain their values and useful life.

ii) Furthermore, a review of the financial statements for the year revealed that depreciation charge on Machinery and Equipment, Furniture and equipment,

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pool tables ,Crockery Cutlery and glassware, Linen and Uniform was wrongly computed resulting in a misstatement of PPE by Shs.5,192,503. Management did not correct the financial statements for this error.

Due to these limitations I was unable to confirm that the value of PPE was fairly stated in the financial statements.

2.34.2 Grants Government Grants IAS 20 requires that the nature and extent of the government grants received be appropriately disclosed in the financial statements. The standard also requires that asset related grants including non monetary grants at fair value be presented in the balance sheet either by setting up the grant as defined income or by deducting the grant in arriving at the carrying amount of the asset. The Institute received a grant of Shs.350 million in 2005 for construction of classroom blocks. This transaction was not treated in accordance with IAS 20 in the financial statements. Due to this limitation, I could not confirm that the balance for grants was fairly stated in the financial statements.

2.34.3 Unremitted statutory deductions Included in the creditor‘s balance in the financial statements for the 2005/06 are statutory deductions amounting to Shs.149,079,228 which remained unremitted to the respective statutory bodies NSSF– Shs.77,830,770; PAYE-Shs.60,868,295 and VAT- Shs.9,380,163 contrary to the provisions of the pertinent Acts. These deductions have since attracted interest charges and penalties due to delayed remittance increasing the balance from the original Shs.102,056,112 to the current figure of Shs.149,079,228. I informed management that Penalties and fines paid as a result of non compliance with law do not provide any additional economic benefit to the institute and are a nugatory expenditure.

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2.34.4 Bad debts Management made a provision for bad debts of Shs.79,423,100 as indicated in note 4 to the financial statements, in respect of fees from former students who are no longer in the institute. The recoverability of this amount is highly unlikely. Management was advised to recommend to the Board to authorize these debts to be written off.

30th JUNE 2007

2.34.5 Property, Plant and Equipment

It was therefore not possible for me to confirm the actual value of the Institute‘s Land and Buildings separately.

b. Revaluation of Land and Buildings The Institutes acquired Land on 1st September 1960 under leasehold register Vol 496 folio 17 comprising 5,672 acres on which the hotel is located. The Buildings on this Land were valued by the government valuer in 1996 at Shs.800,000,000.

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revaluation of the revalued assets since 1996, this constitutes non compliance with the revaluation requirements of IAS 16.

Due to this limitation I was unable to confirm the accuracy, completeness and valuation of the property, Plant and Equipment shown in the balance sheet.

c. Written down values of Property Plant and Equipment(PPE)

i) Several classes of the institutes assets under Property, plant and equipment which include , Machinery and Equipment, Motor vehicles, Crockery and Cutlery, Linen and Uniform have been fully depreciated yet are still in use and provide economic benefits to the institute.

ii) Furthermore, a review of the financial statements for the year revealed that depreciation charge on Machinery and Equipment, Furniture and equipment, pool tables ,Crockery Cutlery and glassware, Linen and Uniform was wrongly computed resulting in a misstatement of PPE by Shs.5,192,503. Management did not correct the financial statements for this error.

Due to these limitations I was unable to confirm that the value of PPE was fairly stated in the financial statements.

2.34.6 Grants Government Grants IAS 20 requires that the nature and extent of the government grants received be appropriately disclosed in the financial statements. The standard also requires that asset related grants including non monetary grants at fair value be presented in the balance sheet either by setting up the grant as defined income or by deducting the grant in arriving at the carrying amount of the asset. The Institute received a grant of 246

Shs.350 million in 2005 for construction of classroom blocks. This transaction was not treated in accordance with IAS 20 in the financial statements.

Due to this limitation, I could not confirm that the balance for grants was fairly stated in the financial statements.

2.34.7 Unremitted statutory deductions Included in the creditor‘s balance in the financial statements for and 2006/07 are statutory deductions amounting to Shs.139,865,373 which remained unremitted to NSSF and URA in respect of social security Shs.68,690,986 and PAYE Shs.71,174,387 respectively contrary to the provisions of the respective Acts of Parliament. Non compliance with laws and regulations on statutory deductions is an offence which may attract fines, penalties and litigation. I informed the Hotel management that penalties and fines paid as a result of non compliance with law do not provide any additional economic benefit to the institute and are a nugatory expenditure.

2.35 AMBER HOUSE LIMITED

31st DECEMBER 2009 2.35.1 Trade and other Receivables

Trade debtors increased from Shs.3,292,378,610 as at 31/12/2008 to Shs.3,905,232.441 as at 31/12/2009. We noted further that no recovery was made from UEB debt of Shs.1,633,953,201 which has been outstanding for a long time. Delays in debt collection can lead to excessive bad and doubtful debts. Management responded that Ministry of Energy continued to enjoy tenancy at the premises without paying rent; this had led to continued increase in debtors. I have advised management to improve on debt collection methods to reduce on risk of these trade debts becoming bad and doubtful.

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2.35.2 Lack of Finance & Accounting and Human Resource Manual

The company did not have a Financial Manual and Human Resource Manual from which one would get guidance on financial operations and management of the personnel respectively. There is a weakness in managing internal control risks. Management acknowledged the anomaly and stated that they are yet to develop the manuals. I have advised management to put these manuals in place to ensure efficient financial and human resource management. 2.35.3 Management Meetings

There was no single management meeting held by Amber House Limited management during the year as evidenced by the absence of records of management decisions taken which would normally be found in the management minutes. Besides, all decisions and deliberations of AHL were never documented. There is a risk that management did not follow laid down procedures. Besides, monitoring performance without reference to documented decisions becomes difficult. Management explained that because of limited staffing levels at Amber House consisting of 3 management staff, the practice was to consult informally. However, this will be revised and formal management meetings will be conducted in future. I advised management to have properly documented minutes of management meetings to enable the company monitor performance against management decisions reached and implemented. I still await the outcome of this matter.

2.35.4 Strategic Plan The company did not have a strategic plan in place for the year ended 31st December, 2009. There is a risk that company goals and objectives may not be properly formulated, effectively measured and monitored. Besides, management may not be in a position to measure its performance between the current and the previous period. Management stated that they would advise the Board so that a strategic plan is developed and costed. The outcome of the recommendation is awaited.

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2.35.5 Part time managing Director The Company employs a Managing Director on a part –time basis. He has no appointment letter spelling out the terms of his appointment. It was further noted that the Managing Director had no job description. Without formal terms of employment it may be difficult to assess his performance. Management explained that they had brought this matter to the attention of the Board to have a formal appointment of the Managing Director, spelling out his duties and responsibilities. I advised management to ensure the Board makes a formal appointment spelling out the Managing Director‘s job description. I subsequently await the outcome of this matter.

2.35.6 Incompletely vouched expenditure shs.251,133,995 Payment vouchers with expenditure totaling Shs.27,593,160 remained incompletely vouched during the period under review. In absence of supporting documents, it was difficult for audit to confirm whether the funds were used for the proper purpose. I advised management to submit supporting documents to enable confirmation of the validity of these payments.

2.35.7 Status of Ministry of Energy & Mineral Development The tenancy agreement for Ministry of Energy and Mineral Development expired on 30/6/2008. At the year end, the Ministry had accumulated rent arrears amounting to Shs.1,870,074,495. Besides, Amber House continues to meet costs relating to cleaning, water, electricity & VAT on behalf of the Ministry yet no payments are received for the services rendered. Management explained that they had requested Ministry of Finance which is a shareholder to Amber House to intervene in this matter. I subsequently advised management to clarify on the status of the tenancy and avoid reflecting unrealistic revenue from this tenant if payments will not be forthcoming. I subsequently await the outcome of this matter.

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2.36 UGANDA PROPERTY HOLDINGS LTD - JUNE 2010

2.36.1 Debtors Management Policy

There was no policy on debtor‘s management. At the end of the financial year under review, the Company had debtors of shs.6,470,935,356 out of shs.4,741,740,000 which is due from government and been outstanding for a long time. Management has not carried out an age analysis of the debtors and provided for bad and doubtful debts. There is a risk that debtors are not fairly stated in the financial statements. Management responded that most of the debtors of Shs.4,741,740,000 are due from Government and they were pursuing to recover them. In addition, a drafted debtors‘ management policy was awaiting Board‘s approval. Management was advised to develop a debtor‘s management policy.

2.36.2 Outstanding rental revenue from Mombasa It was noted that revenue from rental properties of Shs.1,618,582,004 and Car port of Shs.1,652,804, 400 had remained outstanding and may not be collectable. There is a risk that debtors are not fairly stated. Management stated that they had stepped up efforts to collect the revenue outstanding in addition to starting the process of terminating the management contract with CPC Fright Services Ltd. on grounds of not honoring their payment obligation. Management is advised to take necessary measures to ensure that all revenue due is promptly collected. Meanwhile a provision for bad and doubtful debts should be made in the accounts to reflect debtors at fair values.

2.36.3 Governance It was noted that the Board was engaged in the following management functions in addition to its monitoring and oversights role;  Performed Human resource functions such as short listing staff contrary to regulation 3 (2 d) of the staff rules and regulations August 2000.

 Performed functions of the contract Committee contrary to PPDA Regulations.

 Board members were signatory to Company Bank accounts.

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The performance of day to day operations of company activities as well as making policy decisions by board members may lead to conflict of interest. Management responded that the Board was asked to participate in those activities when management staff was ―thin‖ on the ground. Management team is now big enough and will handle all the recruitment roles under their mandate. Management should advise Board members to perform board functions and leave executive functions to management in accordance with principles of corporate governance.

2.36.4 Annual General Meetings (AGM) It was noted that the Company has never convened an Annual General Meetings since its inception. Failure to convene an AGM of shareholders meeting contravenes the Companies Act. As a result, issues concerning the Annual performance report, audited Accounts and payment of dividends are not discussed. Management attributed the problem to the Shareholder being the Chairman of the Board and stated that Board and Share Holders have now agreed to hold an AGM as soon as the Audit report for the year 2009/10 is issued. Management was advised to take up the initiative and ensure that the annual General meeting is held in order to deliberate on issues of the company.

2.36.5 Strategic plan The Company‘s Strategic Plan did not address the current corporate and industrial challenges. It concentrated on items like the requirements/roles of each manager, Organization structure, compositions and duties of the Board Committees which are already specified in other company documents like the Human Resource manual and Board manual. Management promised to review the strategic plan to bring in issues of strategic concern and eliminate those that are addressed at lower levels. Management is advised to develop a comprehensive strategic plan covering the Company‘s intended goals and objectives.

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2.36.6 Lack of defined policy on Government Departments tenancy Some of the tenants occupying the Company‘s premises include government departments with rent arrears that have been outstanding for a long time. Some of these tenants have shown intentions of taking ownership of all real Estate properties of the Government of Uganda Abroad and any other that the Uganda Government might wish to vest in the Company and to manage or to hold and administer all such property or properties. It was further noted that some of the Government departments were not paying rent thereby making it difficult for the company to maintain the properties. Management stated to have brought the issue to the attention of the Cabinet and still awaiting their response. Management was advised to design tenancy agreements which compel tenants to promptly pay for the services to enable proper and timely maintenance of the assets.

2.36.7 Inspection Reports from Kenya and UK Properties An inspection of properties in Mombasa and UK was carried out during the period under review and the following was noted;

Inland Cardeport at Makupa Cause way Mombasa Plot Number MN/VI/2448- Makupa The property was still in very good condition except for the low business operations. At the time of this audit, the facility was operating at less than one percent of its capacity. MSA Block 1/238 housing worldwide express Ltd. There are no toilets to that effect. MSA Block 11/291 houses the offices of UPHL, United (E.A) Ltd Mugenga Holdings and MGS Int (K) Ltd. The structure is still in a good state except for the unexpected presence of birds. There is need to seal off openings where these birds enter from. However, the property does not have toilets. MSA Block 1/240 and //239 was in a poor condition hence requiring urgent attention. The Company is operating at low capacity with these properties not fully repaired affecting the value for money assessment of the investment.

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Management responded that there was low business at plot MN/VI/2448 Makupa because the client had delays in obtaining the operational license which they had since obtained and business was expected to pick up. They stated further that fumigation had been done on some of the properties to drive out the birds and any other insects. Management was advised to do everything possible to ensure that renovations to properties are carried out so as to attract clients.

2.37 UGANDA NATIONAL BUREAU OF STANDARDS

30th JUNE 2009 2.37.1 Un updated Finance and Accounting Manual A review of the financial manual of the Bureau revealed that it had not been updated to incorporate changes in the procurement process and authorization floats for headquarters and regional offices. The purpose of the manual as a source of reference for financial/accounting and administrative issues is diminished. Management explained that they had a draft financial manual that had incorporated the necessary changes but was awaiting approval. I await management‘s implementation of this matter.

2.37.2 Non Remittance of Statutory Deductions The Bureau did not remit deductions of PAYE amounting to Shs.122,384,599 as at 30th June 2009. Of this amount Shs.113,204,599 was outstanding at the beginning of the period under review. Management explained that there was a delay in remitting the statutory deductions, due to budget shortfall. However, a repayment plan has been worked out with URA to offset the arrears. I advised management to comply with statutory deductions in order to avoid penalties and fines.

2.37.3 Fuel marking The Bureau signed a memorandum of understanding with the Ministry of Energy and Mineral Development to implement a fuel marking scheme programme. However, the

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documents relating to the process of selection of the firm to provide fuel marking services was not availed to audit. In this respect audit could not confirm whether the selected firm was procured in accordance with PPDA procedures and that value for money was obtained from the respective expenditure of Shs.297,662,000. Management explained that the process of identifying firms to provide fuel marking services was done by the Ministry of Energy and Mineral Development and Fuel Marking was a project under the Ministry of Energy. I advised management to obtain the relevant information relating to this procurement since a memorandum of understanding between UNBS and the Ministry of Energy & Mineral Development provided for provision of work plans and information by both parties. I still await provision of the necessary information to ascertain the validity of payments to this scheme.

2.37.4 Non –deduction of Taxes Payments totaling Shs.22,063,930 was made to service providers without deducting 6% withholding tax amounting to Shs.1,323,836 contrary to Sec.119 (1) of the Income Tax Act. In addition PAYE amounting to Shs.16,767,000 was not deducted from Shs.55,890,000 paid to staff December, 2008 contrary to the Income Tax Act. Non deduction of taxes can lead to penalties and fines. Management agreed with the audit observations and explained that it was true deductions were erroneously made; however, management has made firm arrangements to recover WHT and PAYE from the suppliers and staff respectively and the taxes would then be paid to URA immediately. I await the completion of deductions and final remittances of the taxes to URA.

30th JUNE 2010

2.37.5 Mechanics fees

A review of internal audit reports revealed that UNBS licensed technicians who moved with UNBS staff to repair weights and weighing scales at inconsistent fees to clients. Field audit inspections confirmed this practice. The application of varying charges in

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enforcement of UNBS Standards without clear guidelines may affect and hinder compliance by clients in implementing uniform measures. In response, management stated that the technicians are private individuals licensed by the Bureau to repair weighing scales and their charges depend on the nature of repairs carried out on particular equipment. Management promised to take corrective action to moderate and minimize repair charges. I advised management to ensure that this weakness is addressed. I subsequently await the outcome on this matter. 2.37.6 Disposal of assets Inspection of regional offices revealed that UNBS had equipment and unclaimed weighing scales in its stores. These items are outdated and obsolete. As a result, the Bureau is incurring costs of maintaining items which have no economic and operational value. Besides, these items occupy storage space which could have been used for new items.

Management explained that they had already contacted the Ministry of Works and Transport to give reserve prices of these assets before they are disposed off. As soon as the report is received, the assets shall be disposed off immediately in accordance with PPDA guidelines and procedures. It was further stated that as for the unclaimed scales, these will be disposed off in a normal way, especially if the notice to the owners has expired.

I advised management to ensure that obsolete items are disposed off at regular intervals.

2.37.7 Governance: Absence of National Standards Council (NSC) During the period under review, it was noted that the Bureau operated without a National Standards Council which is the governing body contrary to Sec. 4 of UNBS Act.

I informed management that absence of a governing council makes it difficult for the Bureau to make strategic and policy decisions thereby affecting effective business operations of the Bureau.

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Management acknowledged the audit observation and stated that the National Standards Council (NSC) which is appointed by the Minister of Tourism, Trade and Industry was dissolved by the Minister. Management is pursuing the matter to have a new council appointed by the Minister.

2.38 UGANDA WILDLIFE AUTHORITY - JUNE 2010

2.38.1 Non Compliance With IAS 12 Income Taxes The Authority did not comply with IAS 12 Income Taxes requirement. No income and deferred tax workings were availed to us and no tax returns were filed as per Income Tax requirements regardless of the entity not having evidence of being tax exempt. Management in their response explained that the matter is being addressed. I advised management to comply with the Income Tax laws and resolve their Tax status with URA.

2.38.2 Concession Incomes There were inadequate control on concessions incomes which results into discrepancies in amounts of revenue remitted by concessionaries to the Authority; hence completeness of concessions income could not be verified. Besides, the data collection system used by the Authority was unreliable and incomplete to enable an accurate determination of the concession income due thus exposing the Authority to potential loss of income. For instance the Authority was dependent on information provided by the concessionaires to determine the Franchise fees payable hence there was a high risk that franchise fees being paid by the concessionaires are inaccurate. In addition, UWA did not obtain audited Financial Statements of the concessionaire to verify whether the franchise fees paid are in line with the revenue being generated by the concessionaire.

Management responded that negotiations were underway to ensure that the Audited financial statements of the Concessionaires are availed for verification of the concession revenue received. I have advised management to equip all staff in the different protected areas with capacity to make independent assessments and their records should be used by head

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office to ensure clear computations of concession fee payable rather than relying solely on information from the concessions only.

2.38.3 Inventories The entity had a variety of inventory in nature, but a few were captured in the financial statements as inventory. Some inventories especially resale items were captured in the Protected Areas stock count but not included in overall stocks in the Financial Statements. Besides, there were a lot of damaged items which were included in the stocks. These items were recommended for disposal but nothing has been done.

Management explained that inventories such as resale items that were not included in the overall stocks in the financial statements had already been expensed previously and stock quantities maintained at PA level. In addition reconciliations of all quantities to financial statements will be done to ensure compliance, accuracy and completeness of inventory records. I advised management to ensure that a responsible official is in charge to reconcile all quantities to the financial statements to ensure compliance, accuracy and completeness of inventory records. In addition, measures to identify damaged stocks and take the necessary procedures to dispose them off should be set up.

2.38.4 Cash And Bank The Authority maintained 78 bank accounts both at headquarters and Conservation Area level. I informed management that maintenance of all these accounts leads to excessive bank charges. In response management explained that 14 PAMSU (World Bank) accounts from Protected Areas had already been closed and another 4 in Bank of Uganda were to be closed soon. They stated further that the separate bank accounts maintained were necessary as they ease accountability for funds from the different sources to the organization. I have advised management to reduce the accounts in order to reduce on the bank charges incurred by the Authority.

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2.38.5 Fixed Assets The Authority did not have updated fixed assets registers especially in protected areas. This makes it difficult for the Authority to know the fixed assets it had and the working condition. In addition the person who prepared the register was the same one that reviews it. Management explained that the fixed asset register is maintained at Headquarters on the Sun systems database and an officer (Warden Accountant) at UWA headquarters in charge of updating the register and supervised by the Management Accountant. I have advised management to ensure that the fixed assets register is updated and reviewed by senior officials.

2.38.6 Trade and Other Receivables The Authority gives its employees car loans; however, these loans were not insured therefore the Authority takes a high risk incase employees fail to pay. In addition the cars are supposed to be comprehensively insured as per procedures manual but this was not enforced by management. Meanwhile, included in Trade receivables is an imprest balance of Shs.84,133,450 million for which no subsequent accountability was provided contrary to the Authority‘s procedures that spells out that imprest should be accounted for within a period of 7 days after completion of duty.

Management explained that staff with outstanding imprest as at 2010 have now accounted and noted that the outstanding imprests were advanced to staff towards the end of the financial year where the planned activities could not be covered; management promised to adhere to the Authority‘s policy. I have advised management to ensure that all employees adhere to the car loan agreement to avoid loses in future.

2.38.7 Legal Matters Although a lawyer‘s letter was sent to the UWA legal office, a response to the matters raised has not been duly received. This has hindered an appropriate disclosure concerning contingent liabilities to be made in the financial statements. Management promised to make a follow up.

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I have advised management to make a follow up on this issue so that unnecessary delays are avoided in providing financial statements that give a fair presentation of the entity.

2.38.8 Rent Expense The Authority rents some offices especially in Protected Areas but the rent agreements were not availed during the audit on request hence it was not possible to ascertain whether the value of rent in financial statements is fairly stated. Management stated that all agreements are kept with respective Protected Areas since the agreements are between the Landlords and PAs on UWA‘s behalf.

I advised management to ensure that all relevant documents are well kept and availed for review whenever the need arises.

2.39 NILE HOTEL INTERNATIONAL LIMITED - DECEMBER 2009

2.39.1 Long Outstanding Liabilities Shs.13,369,679 The Hotel had long outstanding items under current liabilities that had been outstanding for more than 3 years as shown in the table below:

Particulars (Payables) Amount (Shs) Comments Clear Chanel Industries Ltd. 3,851,339 Outstanding for over 3 years Global Investment Management 510,705 Outstanding for over 3 years I Q Ltd 476,936 Outstanding for over 3 years MTN Uganda 2,261,132 Outstanding for over 3 years Ndere Troupe 2,150,000 Outstanding for over 3 years The New Vision 1,920,000 Outstanding for over 3 years Mr. Mpagi Steven 162,000 Outstanding for over 3 years Bukulu Aggrey 400,000 Outstanding for over 3 years Nyondo Clinic 206,900 Outstanding for over 3 years Scorpio Keg. Engravers 68,328 Outstanding for over 3 years Uganda Human Rights Commission 1,288,750 Outstanding for over 3 years Vid Comp 36,000 Outstanding for over 3 years MMAKS Advocates 37,589 Outstanding for over 3 years TOTAL 13,369,679

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Management explained that the question of debtors is being handled by the Board of Directors, some debts are owned by private firms and individuals and others by Government entities; in addition lack of supporting documentation for tracing the debtors has affected collection of the debts. I advised management to consider seeking Board approval for writing off outstanding amounts; meanwhile management has not paid outstanding payables and they still pose a significant risk should the creditors seek legal action to recover their debts. By the time or writing this report no progress had been made. I still await management action on this matter.

2.39.2 Financial procedures manual The Entity did not have a financial procedures manual. There is a risk that there will be no guidance to staff in implementing of the Hotels financial matters. Management explained that they have made a provision for the procurement of consultancy services to prepare a new financial services manual. I advised management to put in place a financial procedures manual.

2.39.3 Government Advances to TPS Uganda Ltd. Shs.1,898,972,567 Government advanced Shs.1,898,972,567 to the Conference Centre; however, the Chairperson of Nile Hotel Limited wrote to the Permanent Secretary Ministry of Foreign affairs expressing concern about the draft agreement, that the financing is not a loan to Nile Hotel Limited but part of its CHOGM preparations expenditure which will increase the Government‘s shareholders value in NHIL; this letter was not responded to. Without an agreement, there is a risk that proper classification and disclosure of this transaction may not be effected. I advised management to follow up this matter such that a final agreement is reached to enable them know the liability of the Company. Management explained that the matter would be handled by way of a debt – equity swap between the Government and the Company. I still await the outcome of management‘s action on this matter.

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2.39.4 Concession Fees An agreement has not been reached on whether to forfeit the outstanding concession fees of 9 months when Serena Hotel was undergoing renovation. There was a risk that the Nile Hotel‘s receivables may not have been fairly stated. Management explained that this matter is being handled by the Privatisation Unit in accordance with legal advice from the Solicitor General. I advised management to ensure that an agreement is reached to resolve this matter. By the time of writing this report the matter was still unresolved. I await management‘s action on this matter.

2.39.5 Absence of a Strategic Plan Nile Hotel has not had a strategic plan to drive the Company through the future; instead management relies on short term plans prepared for short term periods. There is a risk that management will not effectively anticipate problems within and outside the environment within which it operates. Management explained that they had budgeted for the procurement of consultancy services to help them prepare a Strategic plan during the financial year. I advised management to develop a long term strategic plan clearly detailing;  The objectives of the Company and resources to achieve them

 Long term perspective of the Company.

2.40 UGANDA TOURIST BOARD (UTB) - JUNE 2010

2.40.1 Payment of Utilities Contrary to regulations there was no register maintained to record details of utilities, their invoices and payments made in this respect. Lack of a register to record utilities contravenes the Board‘s financial regulations and failure to obtain receipts makes it difficult to confirm that the payments were received by the actual rightful beneficiaries. Management in response stated that the registers were now available for review. I advised management to maintain a register for utility payments. I await implementation of this matter.

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2.40.2 Banking of NTR Contrary to financial regulations there were delays in banking Non Tax Revenue (NTR). In October 2009 of the Shs.29.1 million collected only shs.17.7 million was banked during the month, with the balance being banked the following month. Management was advised that all revenue should be banked intact and regularly as holding of large sums of money un-necessarily creates risk of fraud and misuse. Management acknowledged the audit observation and explained that clients are now required to pay directly in the bank and bring pay slips to the Board.

2.40.3 Corporate Governance and UTB Mandate. A review of the corporate governance and the UTB mandate revealed that several important functions set out under section 7 of the Act some of which could have raised additional Non Tax Revenue (NTR) to the board were not being implemented. These functions include Section 7 (g);to delegate to local Governments responsibility related to tourism, (h);To manage tourism development levy,(j); to Enforce and monitor standards in tourism sector, (k); to inspect, register, licence and classify tourist facilities. Management in response stated that the organization is undergoing a restructuring process and it anticipates that by the end of the financial year, all issues will have been addressed. I advised the Board to implement its entire mandate. I hereby await the outcome of this matter.

TRANSPORT, INFORMATION, COMMUNICATIONS & TECHNOLOGY SECTION

2.41 CIVIL AVIATION AUTHORITY – JUNE 2009 & 2010

2.41.1 CHOGM Loan Accounts In previous audits, it was established that out of Ushs.72 billion loaned to CAA to from four Banks to Finance CHOGM activities only Ushs.71,022,365,146 was expended. However the balance of Shs.977,634,860 was not booked anywhere in the accounts and remained unaccounted for.

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A review of activities outstanding from previous audits established that this matter is not yet resolved and there was no certificate of bank balance to confirm that this amount was unspent.

2.41.2 Loan interest computations Interest computation schedules to support loan interest charged for the period of Ushs.8,962,031,013 were not provided. It was therefore not possible to confirm that the interest charges were in accordance with agreed loan contract terms. This matter has been raised in previous audit reports. Management did not satisfactorily respond to this matter.

2.41.3 Custody of land titles The Audit was not able to ascertain how and where all CAA Land titles and Certificates are kept. A register of all titles and certificates was not presented. It was recommended that land titles should be obtained, documented and kept in a safe fire proof place and there should be a register of titles. Management in response stated that land titles are documented and are kept in the office of the Corporation secretary. This will be verified in the next audit.

2.41.4 Cash collection points Examination of revenue collected at the general car park established variances between amount collected from the machine and the daily sales print outs as detailed

in table below:- Amount Daily sales print out Date collected (Ugx) (Ugx) Variance (Ugx) 01.12.2009 4,351,200 4,303,000 48,200 02.12.2009 3,929,200 4,539,200 -610,000 03.12.2009 4,092,100 2,949,000 1,143,100 04.12.2009 5,333,500 6,251,600 -918,100 05.12.2009 5,594,600 3,965,300 1,629,300 06.12.2009 5,075,600 5,072,300 3,300 07.12.2009 4,117,200 4,525,400 -408,200 08.12.2009 4,900,400 4,690,000 210,400 09.12.2009 4,027,800 3,379,100 648,700 10.12.2009 4,729,300 4,789,500 -60,200

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11.12.2009 5,532,200 2,855,200 2,677,000 12.12.2009 4,307,900 3,356,600 951,300 13.12.2009 4,873,100 4,850,200 22,900 14.12.2009 3,591,000 3,511,700 79,300

Lack of reconciliation of these figures creates a risk of loss of cash through errors or fraud. Management in response stated that variances between car parks amount collected and the system figure are caused by lack of classification marker for motorcycles in the car park system plus long term parking, and that arrangements are underway to modify the system by providing a separate entrance lane and equipment for motorcycles.

2.41.5 Controls over receipt books There was no clear system used in monitoring receipt books issued and receipt books returned after use. It was established that contrary to section 5 & 6 of the accounting manual new receipt books were issued to the Airside and up country Airfields before receiving full accountability for the previous issues. It was further noted that receipt books were used for collection of revenue yet they were not issued from stores for the period audited and not all receipt books that were issued by stores for the period under review were returned after the end of the period. These control weaknesses create a situation were the Authority may lose revenue through fraud or error. Management in response stated that a register was introduced to monitor and control all receipt books in stores. A system of accountability has been put in place in that previously issued books must be returned first before new ones are issued.

2.41.6 Independence of the Internal Audit Department The Internal audit department was involved in day-to-day operations like verifying payments, rather than focusing on its core function of independent appraisal of the organization‘s activities. This compromises the independence of the department. It was also noted that there was no evidence that internal audit reports were discussed and recommendations considered. This was further compounded by the fact that the Authority did not have a board in place from July 2009 to June 2010. Management stated that according to CAA accounting procedures manual, Internal 264

audit is required to verify payments but will consider a review of this procedure in future. In addition management will ensure that in future all the proceedings of meetings of the Select committee discussing the internal audit reports are minuted.

2.41.7 Direct Postings to Equity Under IAS 1, a gain or loss is recognized directly in equity only when a standard (or interpretation) permits or requires it. Examples include the revaluation of Property, Plant and Equipment, foreign exchange differences on the translation of foreign entities and the effects of cash flow hedging. During the year under review, CAA passed several entries totaling Ushs. 340 million relating to payments for meals; income from prior years; and retirement of accruals directly in equity. These entries are not specifically permitted by any standard as required by IAS 1. Unless recognition in equity is permitted specifically by a standard, the gain or loss must be recorded in profit or loss.

Management in response stated that the entries posted to reserves were majorly adjusting entries relating to previous years plus the current year a but promised to investigate the issue further as advised by the Auditors.

2.42 BROADCASTING COUNCIL - JUNE 2009 & 2010

2.42.1 Internal Audit and Audit Committee The council did not have a functional Audit unit and an audit committee. As a result, there was no sufficient and timely assurance mechanism regarding the council's risk management, monitoring and control. This implied that material errors and misstatements in the transactions could go undetected. Management was advised to put in place an internal audit unit and audit committee to improve on council's risk management and control strategy.

2.42.2 Digital Migration

Digital migration is a process during which services that operate on analogue network are transferred to digitally based network over a specific period of time.

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In the Regional Radio communication conference (RRC – 06) held in Geneva, Switzerland in the year 2006, Uganda took part in the digital broadcasting planning process and in accordance with the international obligation of switch over from analogue to digital broadcasting. It was imperative to have in place the necessary framework to ensure the smooth transition to Digital Broadcasting in Uganda. However, it was noted that the Council has not put in place the necessary framework to oversee this process. Failure to put in place a framework for migration to digital information broadcasting implies that the timeliness set in the Geneva agreement may not be met. Besides poor quality service will continue to be offered to consumers while the current technology becomes obsolete. The Council should put up the necessary framework to oversee migration to digital broadcasting technology in accordance with the Geneva agreement in order to have better service delivery in the communication sector and reduce the risk of obsolesce of the current technology.

2.42.3 Regulation of Video/Cinematographic Operations

Sec. 21 (1) of the Electronic Media Act Cap 104 requires all persons operating a video or cinematography to be issued with a license. However, Council did not put in place any guidelines and regulations on how to licence these operators. As a result no revenue was billed and collected from these operators. Failure to regulate video and cinematographic operators could lead to lack of control of un ethical conduct by the operators and loss of revenue to the Council. Management is advised to develop regulations and guidelines for video and cinematographic operators.

2.42.4 Debtors

The amount of debt owed by licensed TV and Radio stations increased by Shs.109,386,632 from Shs.235,602,993 in the year 2003. Failure by the Council to follow up on these debts will result in them becoming bad and doubtful. Revenues from TV and Radio Stations may not be realized; besides, council programs for the year may not be fully implemented and services may not be availed to end

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users. Council was advised to come up with a clear debtor‘s management policy for proper management and control of debtors.

2.43 UGANDA COMMUNICATIONS COMMISION - JUNE 2010

2.43.1 Trade Debtors/Receivables

Included in trade debtors is Shs.10b in respect of amounts outstanding for more than 90 days, of which Shs.5.5b relates unpaid spectrum fees from one Telecommunications Company. Management stated that it has since taken the company to court. I await the outcome of the suit. Management further explained that the delay in collection of other debts (Shs.4.5b) was due to low staffing in the Finance department and that the Commission has since recruited a Manager Revenue to take charge of debt collection.

2.43.2 Review of IT General Controls A review of UCC General Controls was done and the following were noted;

 The environmental controls for minimizing damage to IT equipment and threat to IT personnel due to fire outbreak are inadequate. The Commission does not have gas powder sprinklers and thermostats in the server room.  Logical access controls regarding password files encryption and access file restriction is weak. Access to password files cannot be logged and monitored since the Commission does not have password management software. Passwords cannot be securely transmitted since they are not encrypted  Computer usage reports though produced and used as input to the operations of the Network Administration Unit are not scrutinized by management.  There was no way of monitoring the usage of IT resources by various staff.  The Commission has not set the minimum acceptable level of satisfactorily delivered system to allow the Network Administrator monitor its functionality.  The IT steering committee was not functional as there was no evidence of any meeting during the year.

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 There was no organization-wide business continuity plan to provide for response procedures to continue critical operations when disaster strikes. There are no formalized and properly documented arrangements to enable critical processing to continue in the event of prolonged system failure regarding data preparation where appropriate. For now electronic information is relayed to a remote site but this is only part of the overall business resumption process.  Business continuity and disaster recovery plan is partially documented. The testing only happens for electronic data.

IT resources were not safeguarded and there was a risk that in case of the disaster critical operations may not be executed. Besides, the entity is exposed to unauthorized access to vital information. Management responded that the Commission relays all its data automatically to a remote site outside its premises to ensure that in case of a disaster, they can recover critical data for business continuity. They however, recognize the need for fire suppression gas and thermostats in the server room to ensure that critical equipment is not affected by a fire. The procurement of these items was in progress. They further stated that they have formulated an organization wide business continuity plan and a draft plan was still under review.

2.44 UGANDA PRINTING and PUBLISHING COPORATION - JUNE 2010

2.44.1 Debtors Provision The Corporation had outstanding debtors amounting to ushs.1,092,182,120 as at 30 June 2010, with some debtor accounts being outstanding for more than 10 years . A provision for specific doubtful debts of UShs.509, 602,083 was made against the debtors in 2005 and has remained the same ever since. However, this unchanging provision over the last 6 years indicates that management has not subsequently provided for the risk of loss commensurate with the ageing of the debtors. The recoverability of the debtors remains doubtful. Although management responded that these were domestic arrears and that the Corporation had contacted the Ministry of Finance to enforce direct recovery, I could not confirm that the balance in the financial statements is collectable.

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2.44.2 Trade Creditors

Although current liabilities are meant to be balances which are due for settlement within 12 months, the financial statements reported several payables amounting to shs.2,579,619 which have been outstanding for more than 3 years.

Management was advised that some of the insignificant creditor balances be considered for write–off.

2.44.3 Old Machinery Included in the Fixed Assets are Plant and Machinery with a net book value of Ushs.141,558,581. Most of the machinery in UPPC was purchased over 10 years ago and is currently facing frequent breakdowns. During the year ended 30 June 2010, the repairs and maintenance of machinery cost the Corporation shs.27,712,800, thus contributing to higher costs of production. The foregoing indicates that the company‘s asset may be impaired and may require a review in line with IAS 36 to ascertain fair values. Furthermore, the frequent repairs and breakdowns have forced the Corporation into outsourcing some jobs to meet the client‘s deadlines this also resulting in higher costs of doing business. Although management has written to government requesting recapitalization, no response from government on this matter has been received to date.

2.44.4 Statutory Arrears-NSSF & PAYE

The Corporation failed to settle statutory deductions with respect to NSSF totaling Ushs.267,923,651 inclusive of penalties and fines for non compliance. Penalties and fines charged do not provide added value to the company and are a nugatory expenditure. This amount has increased progressively from 18,419,425 in 2006/2007 to 112,055,340 in 2007/08, 178,344,478 in 2008/09 to the current figure. Further more, The Corporation failed to remit Uganda Revenue Authority taxes ,amounting to Ushs.878,074,619 relating to unremitted PAYE ,WHT and VAT this amount having accumulated from Ushs.479,409,013 in 2008/09.

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This increasing failure to remit statutory deductions brings to question the ability of the Corporation to discharge its liabilities in the normal course of its operations. Further more, Penalties charged to the Corporation affect the cash flows of the organization.

2.44.5 Fraud-Cash Receipts A review of the internal control system revealed that there was inadequate segregation of duties between marketing & sales and cash Collection from clients , and as a result the marketing agent received Ushs.7.8m from a client MUBS but did not deliver it to the Corporation causing a financial loss to the Corporation. This fraud was also facilitated in part by the company collecting debts in cash rather cheque form. Management in response stated that disciplinary action is being taken against Mr. L.Wakida and that a debt collector has been hired. I advised management to discourage the receipt of cash and also ensure proper segregation of duties between marketing and cash office.

3.44.6 Fraud-Receipt Books It was established that there were receipt books in circulation with the UPPC logo that were not among the series in the official possession of the Corporation. A receipt dated 05/08/2010 receipt no. 310105 was issued to a Daudi Kiwanuka amounting to 120,000. But, this receipt number is not part of the receipt series officially allotted to UPPC. Although this confirms that the Corporation is being defrauded of its collections, the extent of the loss due to this fraud could not be readily established. I advised that management carries out investigations into this matter. Management stated that a computer generated receipt system was being finalised for implementation.

2.44.7Obsolete/Slow- Moving Stock An inspection of inventory, identified slow moving and obsolete inventory amounting to Shs.21,335,000. International Financial Reporting Standards require that obsolete inventory must be written off as soon as it is identified, and slow moving inventory be

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written down to net realizable value. In the absence of these necessary adjustments, I could not confirm that the value of stock is fairly stated in the financial statements. Management in response stated that a market survey was being conducted to confirm the prospective end uses and if possible any realisable value before taking the decision to write off.

2.45 UGANDA INSTITUTE OF INFORMATION & COMMUNICATION TECHNOLOGY -JUNE 2009

2.45.1 Absence of Approved Human Resource Manual The Institute lacks an approved human resource manual that would specify policies and procedures to guide staff administration in recruitment, discipline, training, etc. Management explained that the appointments sub-committee of the Communications Council had advised them (management) to seek advice of a human resource professional before submitting it to the governing council for approval. I have advised management to speed up the approval and implementation of the manual.

2.46 UGANDA BROADCASTING CORPORATION - JUNE 2009

2.46.1 Inherited Fixed Assets under Vesting Orders Following the merger of the UTV and Radio Uganda to form Uganda Broadcasting Corporation, an instrument vesting property, assets and liabilities of these departments to the Corporation was issued in May 2006. Since no values were attached to this instrument, management was urged to carry out the valuation of all the inherited assets and incorporate them in the financial statements which had not been carried out. There were no alternative procedures that could independently be carried out to ascertain the value of the vested assets. In light of the above, a material uncertainty exists over the accuracy and completeness of the Corporations Property plant and equipment. Management acknowledged that not all assets transferred in the vesting order to UBC are reflected in the financial statements but explained that the valuation process would follow after the Board has given its input on the matter. 271

I advised management to carry out the valuation of all inherited assets and incorporate them in the financial statements. I subsequently await management‘s action on this matter.

2.46.2 Title to Properties The Corporation has not secured title to all its Land, except for Land at Kibira road, Broadcasting House and Naguru hill. Absence of land titles makes the corporation‘s property susceptible to encroachment. Due to these limitations, I am unable to confirm the value of Corporation‘s properties without titles as disclosed in the financial statements. Management explained that they have sourced the services of independent surveyors and advocates to acquire land titles for the remaining UBC land and have registered significant progress. I have advised management to expedite the process of acquisition of land titles for its land.

2.46.3 Non Compliance with laws and regulations; Non deduction of statutory contributions

The Corporation did not remit statutory deductions amounting to Shs.1,921,302,184 as at 30th June 2009 Shs1,801,872,550 as follows; Statutory deduction Authority Amount Shs. Amount Shs. 2008 2009 VAT URA 755,265,098 833,900,076 PAYE URA 742,397,537 542,483,530 NSSF NSSF 304,209,915 544,918,578 TOTAL 1,801,872,550 1,921,302,184

Non compliance with laws and regulations is an offence which may result in fines and litigation besides the amount has a material effect on the financial statements whose deficit for the year is Shs.803,010,834 and the cash and bank balance of Shs.23,715,676 is an insufficient amount to offset this liability. In their response management attributed the delays in remitting statutory contributions to limited advertising revenue and government support. They explained

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that the Corporation has endeavored to remit current deductions to the respective institutions while depositing money on arrears. I advised management to ensure that all statutory deductions are remitted within the statutory period.

2.46.4 Trade and Other Receivables Trade debtors increased from Shs.1,766,625,528 to Shs.2,463,461,975 an increase of 39.45% during the year. Over 75% of the total debtors had been outstanding for more than 4 months. Delays in debt collection affected the liquidity of the Corporation and may lead to some of the debts becoming bad debts and consequently crippling the activities of the Corporation. Management explained that most of the delayed payments arose out of credit facilities extended to agencies which represent the major clients in the media industry and that they have taken measures to improve on debt collection by;

 Sourcing the services of 4 debt collectors  Formulating a debt management policy which is awaiting board approval.

I await approval of the policy and subsequently its implementation.

30th JUNE 2010

2.46.5 Fixed assets The inherited assets which were transferred to UBC under the vesting order, only property at Faraday Road Bugolobi, Kibira road and Naguru hill are reflected in the financial statements. I informed management that the assets of the Corporation are understated in the financial statements. Management attributed the delay to value all the vested assets to have been attributed to the fact that most properties were in remote areas and some of the identified assets needed thorough scrutiny to avoid including obsolete equipment. The Corporation had finalized with the full list of all assets for valuation to be forwarded to the Government valuer and these will be incorporated in the financial statements for the coming year.

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Management was advised to carry out the valuation of all the inherited assets and incorporate them in the financial statements in order to present fairly the asset position of the Corporation.

2.46.6 Land titles It was noted from review of Board minutes that UBC did not have land titles to its land and some of it had been encroached.

In their response Management stated that the Corporation sourced the services of independent surveyors and advocates to acquire land titles for remaining UBC land. So far the following has been achieved; i. Deed prints for Kyeriba, Namatala and mawagga have been secured ii. Securing of UBC land in Gulu is in in the final stages by M/s MB Gimara Advocates iii. Title deed for Dakabella was secured

I advised management to expedite the processes of acquisition of land titles for its land in order to secure its ownership. The boundaries should also be secured by way of fencing where possible.

2.46.7 Management of debtors As mentioned in the previous report, the Corporation‘s trade debtors increased from Shs.2,507,265,714 as at 30th June 2009 to Shs.5,643,086,066 as at 30th June 2010. We noted that 43.4% of the total debtors had been outstanding for over 4 months.

Delays in collecting debtors can lead to loss through bad debts. I informed management that in the absence of a provision for bad and doubtful debts, the debtors may not be fairly stated in the financial statements.

Management attributed the a normally due to credit facilities extended to agencies which represent the major clients in the media industry which take more than necessary credit period to pay because of the delayed remittances from the clients they represent. They further stated that out of the outstanding debts, 35% were due

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to world cup sales which were invoiced in June 2010, while 26.6% are non-trade arising out of the sale of UBC land at Kibira road. In addition to the above a specific provision for bad and doubtful debts of Shs.326 million had been made. However, despite having an outstanding balance of Shs.5.6 billion as at 30 June, 2010, the Corporation was able to collect 62,2% of the due debts in the FY 2009/10

I advised management to improve on collection methods to reduce on possibilities of carrying bad debts including making a specific provision for bad and doubtful debts.

2.46.8 Delay in payment of trade creditors As noted in the previous audits, the Corporation delayed to settle its obligations on time. The amount outstanding as at 30th June 2010 was Shs.1,585,744,501, 70.5% of which had accumulated for the period of over 4 months. I informed management that non-payment of creditors in time may lead to litigation and disruption of corporation activities. Management affirmed that due to financial constraints, limited funding from government coupled with inadequate revenue from advertising, amidst increasing operational expenses and the required capital development to sustain the corporation and at the same time remain on air, the Corporation is compelled to rely majorly on credit facilities. The Corporation within the limited resources endeavors and will continue to pay its creditors on time. During the FY 2009/10, the Corporation managed to pay 42% of its due debts.

2.46.9 Revenue budget The Corporation budgeted for Shs.500 million in respect of revenue to be remitted by Mega fm radio. However, this amount was not realized. The shortfall in remittance from Mega FM affected planned implementation of activities.

Management acknowledged this observation and stated that Mega FM contributed US$25,000 towards the securing world cup and also contributed UGX 15 million towards the procurement of cameras. Management further stated that Mega FM although operating in a semi-autonomous manner, it is now fully part of UBC main stream. In essence, UBC was supposed to be funding its capital development

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programmes which are being funded at source with the help of the head office. This arrangement had shortened the long process of transferring funds first to UBC as remittance and then UBC sends it back in support of the capital development projects.

I advised management to establish a reasonable mechanism of collecting all revenues due, in addition to making realistic budgets.

2.46.10 Budgetary performance The Corporation projected to collect revenue totaling to Shs.24.6 billion during the period under review. However, only Shs.13.4 billion was realized representing 54.5% of the planned income.

The effect of the 45.5% revenue shortfall has been failure to implement planned activities to achieve the Corporation‘s planned objectives and set targets.

Management attributed the anomaly to uncertainty during budgeting process, that it had been envisaged that the Corporation would generate revenue from its planned projects and advertising revenue. Other than revenue from government and sale of land which can be determined with certainty, the timing of revenue from advertising only depends on how the prospective advertisers plan to spend. This can not be determined with certainty and will continue to depend on market forces and planned advertising spend.

I advised management to make realistic budgets. In addition a reasonable mechanism of collecting all revenues due should be put in place.

2.46.11 Governance The following draft manuals were presented but are yet to be approved by the Board of Directors.  IT policies manual (drafted on 19th November 2008)  Human resource policies and procedural manuals (revised in October 2009)  Internal audit manual  Stores guidelines and procedural manual (drafted in December 2009)

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 Risk Management Policy I informed management that because of lack of these manuals, employees do not have guidelines to use while executing their duties. This can result in operational decisions being made haphazardly. I recommended management to advise the BOD of the need to approve these operational manuals.

2.46.12 Expiry of employment contracts Review of management minutes Min.35/2009(6) revealed that although employment contracts for its staff had expired, staff continued to work without valid contracts. It was further noted that an appraisal exercise was finalized but to-date these contracts have not been renewed.

Employment laws were violated which creates uncertainty amongst staff regarding their terms and conditions of employment during the period before contract renewal. Besides staff are working illegally and decisions taken may be challenged in courts of law.

Management acknowledged that it was true a number of employment contracts had expired as at 30th June 2010 and that appraisal exercise was finalized. The Board engaged a consultant to carry out a restructuring exercise in January 2009. The exercise was completed in June 2009 at the time when the Board term of office was expiring, and that amidst other matters, the new Board is in the final stages of implementing the recommendations by the consultant and thereafter staff will be issued with new contracts of service.

I advised management is advised to ensure timely renewal of employment contracts of these staff.

2.46.13 Gratuity obligation It was noted that as at 30th June, 2010 UBC had accumulated gratuity obligations amounting to Shs.1,508,669,713. This amount includes gratuity for staff whose contracts expired by 30th June 2010.

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There is a risk that the Corporation may not be in position to honor gratuity obligations as employees retire which ultimately affects staff motivation.

In their response management stated that there was a delay in paying staff gratuity due to financial constraints. The Corporation has however planned to use part of its proceed from the disposal of its non core assets to such the said staff obligations.

I advised management to plan for gratuity obligations by setting up a special fund where savings over the life of the employee should be made to avoid liquidity problems.

2.46.14 Payment to contractors PPDA Regulation 252(1) stipulates that no payment shall be made to a provider under a contract for works, services or supplies, without receipt of the deliverables specified in the contract. Sub-regulation (2) states that notwithstanding sub-regulation (1), payment may be made to a provider prior to receipt of deliverables where an appropriate payment security is obtained. It was noted that the Corporation advanced the contractors Shs.3,000,000 without performance bonds and Shs.6,600,000 in excess of the guaranteed amounts. I informed management that UBC risks losing funds in case the service provider fails to perform.

Management acknowledged that it is true that Corporation made advances to contractors without performance bonds or in excess of the guaranteed amounts. In one of the cases UBC land at Kibira Road (35 acres) was under threat of encroachers who had gone ahead by securing land titles. The Corporation in an emergency situation engaged the services of surveyor to open up boundaries and secure titles for UBC at a cost of UGX 34 million. The surveyor worked ahead of schedule and by the time the initial payment was made, the surveyor had covered a substantial part of the work over and above the guaranteed amount. In the second case UBC transmitter house in Arua was hit by a storm blowing the roof top. The house was accommodating equipment worth billion of shillings. In an emergency situation, a

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local contractor was engaged to re-roof the house without any delay to avoid causing damage to the equipment. The said payment of UGX 3 million was done as an emergency to avoid the damage that could have occurred to the equipment worth billion of shillings.

I advised management to comply with PPDA procurement regulations.

2.46.15 Remittance of statutory deductions The Corporation was fined a statutory late payment interest amounting to Shs.202,477,525 arising from delay in remitting VAT and PAYE funds totaling to Shs.1.319,927,028 and Shs.606,679,036 respectively. The Corporation further incurred a penalty of Shs.919,239= for late filing of PAYE returns.

The interest payments and penalties constitute nugatory expenditure which negatively affects the liquidity of the Corporation.

Management affirmed that it was true the Corporation was fined a statutory late payment interest arising from delay in remitting VAT and PAYE funds. The delay was due to the financial constraints that has been facing the Corporation. They stated further that efforts have been made to have the interest waived by Uganda Revenue Authority, and that the Corporation now files all returns on time and will endeavor to continue paying all the statutory deductions to the relevant authorities within the available minimal resources.

I advised management to ensure that statutory returns are filed and deductions remitted in accordance with the respective laws.

2.46.16 Field inspections The following were observed during audit field inspections; Masindi Station – Kigulya hill  Station lacks air conditioners

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 The TV transmitter was off air from 2/11/2010 at the time of inspection (3/11/2010) Hoima station – Ibamba hill  Faulty voltage regulator for over a year  No generator, station is off air most of the time  The road to the station is in a sorry state  There is need for a proper air conditioner, currently using a duct fan The equipment is not fully protected from power surges and overheating which may lead to loss.

Management explained that the Corporation is in the process of procuring air conditioners for the station. The power supply to the TV exciter developed a problem and was carried to the workshop and repaired hence cause of being off air at the time of inspection. The repair was completed and transmission at Masindi restored.

The voltage regulator at the station is old and spares to put back in use have become difficult to get hence the delay. However, the procurement process for the new regulator is ongoing and will be replaced as soon as possible. Related to the above, the generator for the station, air conditioning and the repair of the road are all under the procurement process.

I advised management to ensure that the equipment is safeguarded to ensure efficiency in service delivery.

2.46.17 MEGA FM

a. Stores ledger It was noted during audit that Mega FM Stock ledger cards were not properly updated. At the time of audit the ledgers had been posted up to 26/06/2010. Management attributed this anomaly to understaffing as evidenced by the Accounts Assistant who also works as a storekeeper. Poor record keeping in the stores may pose a risk of misuse of inventory and may also lead to over/under stocking.

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I advised management to have the ledgers updated regularly to ensure reliable stores information. b. Stores management Inspection of the stores revealed that the store is too small and congested. Items were kept on the floor since there were no shelves to store the items in a proper way. It is not possible to establish the number and condition of items in the store.

Management attributed the problem to limited space and stated that the station was expanding and management plans to relocate the store to a better location within the premises which shall be well organized with shelves.

I advised management to ensure proper stores management. c. Land titles The station had not secured land titles for its land in Moro, Bobi and Olya at the time of audit. In absence of land titles I am unable to confirm that stations ownership to these properties. Besides, the land if not secured can be encroached upon.

Management stated that the Corporation sourced the services of independent surveyors and a firm of advocates to acquire land titles for Mega FM at Bobi, Moro and Olya road.

I advised management to speed up the process of acquisition of titles in order to secure ownership of its land.

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2.47 NEW VISION PRINTING AND PUBLISHING COMPANY LIMITED - JUNE 2010

2.47.1 Status of Prior Year Recommendations Most of the issues raised in the prior year‘s report were satisfactorily addressed by management, except the exceeding of credit limits, which has been repeated in this year‘s report and marked with an Asterix for ease of identification. Management was advised to endeavor to address all issues raised in reports to management as these are intended to improve the efficiency and effectiveness of the accounting systems as well as business operations. Particular attention should be give to issues repeated from previous periods. A detailed report of the action taken on matters listed in the audit report should be prepared by the officers entrusted to oversee their implementation and the report reviewed by senior management regularly.

Management responded that it sets the credit limits and are revised once a year. Amounts above credit limits are extended deliberately as a business decision to accommodate big orders which come in between the review dates. These exceptions are discussed and decisions consciously made and amounts in excess of Shs.50 million are approved by the management finance committee. Debts are also managed by both limits and age.

2.47.2 Corporate Governance Compliance

a. Board audit committee One of the strong tenets of good corporate governance is an effective and independent internal audit team that reports to a board audit committee on a regular basis. The New Vision policies require that the board audit committee does meet quarterly. For example, for the year under review, only two board audit committee meetings convened to discuss internal audit reports i.e. one on 4th September 2009 and another on 8th July 2010. This is indicative of inefficiencies in the company‘s overall audit function since the strongest component of an effective audit function is timely review of audit reports and effective implementation of recommendations.

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Management stated that reports from internal audit are sent to the board on a quarterly basis. Committee meetings have been few because of a thin board, but arrangements have been made to increase the number of board members. Thereafter, quarterly committee meetings shall be held. It was recommended that the board audit committee meets every quarter to discuss internal audit reports. The Board Audit committee should also ensure adequate implementation of internal audit recommendations, without fail.

b. Directors‟ Responsibility One of the key responsibilities of directors is to provide oversight to management by attending regular board meetings and discussing issues pertaining to management of the company. This is the reason most companies pay retainers to directors on consideration for the amount of time they are expected to devote to the company. During the review of the board minutes during the year, it was noted that one of the directors did not attend any of the five board meetings held between July 2009 and August 2010. Although there is no regulatory requirement for compulsory attendance of board meetings by directors, the company should consider directors who not only have expertise that can spur the company to greater heights, but also the commitment towards their responsibility.

Management stated that this particular director has since resigned from the board because of her tight schedule. It was recommended that the board ensures that all board members adhere to good practices of corporate governance by full attendance at board meetings with each member bringing a unique perspective to the business for growth and development of the company and ensure stakeholders‘ wealth is maximized.

2.47.3 Tax Matters

a. Tax health check In the prior year, the company incurred tax penalties relating to untaxed benefits to senior staff in form of club subscriptions and benefits to foreign consultants on which

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no withholding tax was charged. Although most of the cases were borderline cases which had also been appealed to the Commissioner General, the company needs to have an independent tax audit (health check) review. This will achieve two key goals:

 To ensure that the company is fully compliant with all the tax requirements imposed by the relevant government and thereby avoid the incidence of tax penalties.  To ensure that in making any business decision, tax matters have been considered to not only avoid non-compliance, but more importantly to ensure that the overall tax cost for the company is minimized through appropriate tax planning.

Lack of regular independent tax health checks could result in further tax penalties as some contentious tax treatments continue to be applied. Management stated that the tax audit covered a period of six years with an option to take the case to the Tax Appeals Tribunal against the Commissioner General‘s decision which was not considered economical given the amount. The proposal for regular tax health checks will be considered but at times the cost can be prohibitive.

It was recommended that management considers contracting the services of a professional tax consultant to carry out periodic tax health checks.

2.48 PUBLIC LIBRARIES BOARD – 2000 to 2002

2.48.1 Lack of Accounting Financial Procedures Manual It was noted that the Board did not have a financial procedures manual. There is a risk that there will be lack of guidance on; treatment of various items of revenue and expenditure; and Management and accounting for assets. Management in response stated that an accounting manual has been drawn up and will be presented to the Finance Committee of the Board for approval.

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2.49 NATIONAL LIBRARY OF UGANDA – 2003 to 2010

2.49.1 Title to Property The National Library of Uganda was allocated 0.857 hectares on Plots 4-6 , Estate Road, Nakawa by the Uganda Land Commission and the title given to that effect under a Freehold register Volume 457 folio 6 dated 29th June 2007. Costs for surveying of 4 million were incurred by the Board following instructions to survey through a letter dated 15th November, 2006 from the commission (Ref: ULC/151/3685. It was noted however, that before management commenced any developments, the land has been encroached upon with permanent structures erected. Follow up by management only met an unwritten response that the land was withdrawn from the Board and reallocated. To date The Uganda Land Commission has not communicated to management to justify why it re-allocated the Land.

I advised management to take all the necessary steps to recover the allocated land. Management in response stated that the matter of land at Nakawa has been followed up regularly through correspondence and meetings with the ULC Chairman as shown by letters to the Chairman of the Uganda Land Commission {Ref, E/4/3 II (25) dated 18th June 2009, E/4/3 II (26) dated 27th August 2009, E/4/3 II (54) dated 12th March 2010, E/4/3 Vol. 2 (55) dated 26th July 2010 E/4/3 Vol. 2 (56) dated 20th August 2010, E/4/3 II (57) dated 29th September 2010}. No response in writing has been received.

2.49.2 Absence of the Board of Directors The National Libraries Act and best practice charges the Directors of the Board with the role of preparing financial statements that give a true and fair view of the state of affairs of the company as at the end of each financial year and of its profits and loss, in addition to the responsibility of safeguarding the Assets of the company.

Contrary to this provision, there was no Board of Directors in place for the period October 2003 to 2009. Absence of a substantially appointed Board of Directors

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deprives management of the Board of the oversight function of policy guidance and direction. I advised management of the Libraries to notify the appointing authority and have the Board duly appointed. Management in response stated that the appointing authority was notified of the expiry of the Board‘s term of office as early as August 2003 and repeatedly reminded about it. Evidence of this is available on file regarding these reminders. A Board was eventually appointed and inaugurated in February 2009.

2.49.3 Absence of Internal Audit Function The Libraries Board operated without an internal auditor function in place. As a result, management was not in a position to obtain timely assurance and feedback on the risk profile and status of internal control systems of the board.

I informed management that lack of timely feedback mechanisms on the operations of the board may lead to errors remaining undetected.

Management in response stated that the services of the Internal Auditor of the Ministry of Gender, Labour and Social Development had been sought.

2.49.4 Budgets The budgets for the seven consecutive financial years under review did not reflect the expected revenues. The budget estimates only reflected the expected expenditures without indicating how they would be financed. Further to this the draft budgets were never presented a board for approval. In the absence of approved budgets, the entity incomes and expenditures for the periods under review may be irregular. Management acknowledged the anomaly.

2.49.5 Lack of a Strategic Plan It is noted that the National Libraries Board operated without a strategic plan in place. The Board is being run without a clear vision or focus on the institution‘s key strategic objectives

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Management in response stated that after the establishment of the National Library of Uganda in 2003, the first few years were spent on consolidating the structure that had been set up by the Board. The staff drew up a draft policy in 2005 and then met at a retreat after which a draft strategic Plan was developed. This has not yet been approved by the Board.

2.49.6 Stock taking Although the National Library of Uganda has a stock of books among its core assets, there is no periodic board of survey and stock taking exercise done to ascertain the value, condition and state of books in place. It was noted that whilst the most recent stock taking took place in 2003 and 2008, there was no formal appointment of stock takers and there were no stock taking sheets availed for audit. There is also no accurate perpetual inventory record to provide a summary of the books being kept in the Library by the Librarian.

Further to this a review of staff book loans scheme revealed that the process is prone to abuse as librarians sign for books on behalf of other staff without written authorities.

As a result, there is a high risk of losses in the physical stock of books owned by the Board and I could not confirm that the value of stock included in the financial statements is fairly stated.

Management were advised to conduct board of survey/stock take at least once a year preferably at year end. In response management stated that a record of library books in stock is available on the computer catalogue in the Technical Services Department and in the Central Reference Library. On stock taking, the practice in libraries is that stock taking of books in library is done at intervals of several years as it is very involved and libraries attempt to avoid the disruption of to service to users. The recommendation is however noted and measures will be taken to put it in practice.

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2.49.7 Lack of a Procurement Plan The National Library of Uganda procured various goods and services from suppliers without a procurement plan contrary to the PPDA provisions under section 58. Procurements made on emergency or Adhoc basis deprive the Board of the benefits of procurement planning such as economies of scale from aggregating purchases.

In response management stated that Procurement has been done as part of the quarterly and annual plan. The point of keeping in accordance with the PPDA laws and regulations is noted and will be instituted immediately.

SOCIAL DEVELOPMENT SECTION

2.50 NATIONAL COUNCIL FOR CHILDREN - JUNE 2009

2.50.1 Late Submission of Financial Statements Section 23(2) of the National Council for Children‘s Act of 1996 requires the Council to produce statements of final accounts within four months from the end of each financial year. However, Council failed to comply with this legal provision. Management pledged to adhere to the law

2.50.2 Internal Audit Function National Council for Children operates without the services of an internal auditor. This may lead to errors and omissions going undetected and the entity could fail to achieve its set goals and objectives. Management promised to recruit the internal auditor.

2.50.3 Strategic Plan The entity did not have a strategic plan because the previous one ended in 2008. Management responded that there was a draft that needed to be aligned with the National Plan

2.50.4 Unaccounted For Funds Shs.8,062,000 Shs.8,062,000 remained un accounted for.

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Details Date Cheque Payee Amount Particulars Remarks 19/5/09 701377 URA 2,709,500 PAYE deducted No acknowledgement from staff receipt attached.

24/6/09 701389 URA 2,709,500 PAYE deducted fro No acknowledgement staff salaries receipt attached

5/11/09 701274 URA 2,463,000 PAYE deducted No acknowledgement from staff salaries receipt attached. Total 8,062,000

2.50.5 Duplication Of Roles And Responsibilities While the Council for Children is mandated to take care of the plight of Children in the Country, the Ministry of Labour has created another unit which is implementing the activities of Children instead of concentrating on policy matters. Management stated that at the moment there was a restructuring exercise going on and the council would be elevated to an Authority into make it more effective.

2.51 NATIONAL YOUTH COUNCIL - JUNE 2006, 2007

2.51.1 Unaccounted for funds Shs.9,680,000 Shs.9,680,000 remained unaccounted for out of an initial amount of Shs.18,701,000 advanced to cater for various council activities. Although management in their response stated that the original accountability was sent to the donors (GTZ), no photocopies were retained or submitted for audit. Therefore, I could not confirm that these funds were put to proper use. Management is advised to account for these funds or else effect recoveries.

2.51.2 Procurement of motorcycles and bicycles/Diversion of funds Shs.81,010,992 In the financial year 2005/2006, the National Youth Council received Shs.242,577,992 through the Ministry of Gender, Labour and Social Development (MoGLSD) to purchase motor cycles and bicycles for distribution to District and Sub county Youth councils. However, a review of documents revealed that only Shs.161,567,000 was 289

spent on the intended activities. The balance of Shs.81,010,992 having been diverted to meet other expenses without the necessary approval. Management in their response stated that whereas they set out to obtain 50 motorcycles for the district youth councils and 700 bicycles for selected sub county youth councils, the market prices which were high at the time of budgeting dropped drastically from shs.3 million to 2.2 million for a Motor cycle and Ushs.100,000 to 67,000 for a bicycle. Management‘s explanation was not satisfactory; I advised that the shs.81,010,992 spent was unnecessary and should have been returned to the treasury. Besides Council‘s consent and approval should always have been sought if reallocation of funds meant for specific activities was to be effected.

30th JUNE 2008, 2009, 2010 2.51.3 Internal Audit The Council did not have a functioning internal audit department which was to assess the internal control and to carry out risk management. Besides, the internal Audit Function of the Parent Ministry which carries out internal audits in the absence of the Council‘s internal audit did not produce any reports for management to make improvements on Council operations. In the absence of an internal audit function, errors and misstatements in the financial statements could go undetected. Management stated that they were reviewing their structure in which the recruitment of an internal auditor will be one of the key priorities in the F/Y 2011/2012. Management is advised to ensure that they have a functioning internal audit in place to assess the internal controls and monitor the risk management of the entity.

2.51.4 Assets Management The entity had assets like furniture and equipment which were not engraved contrary to best practice. In absence of serially engraved numbers, we could not confirm with certainty the completeness and accuracy of the assets owned by the organization. Management promised to ensure that with immediate effect the assets of the council will be serially engraved. Management is advised to engrave and document all its fixed assets and update the Council‘s register.

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2.52 NATIONAL COUNCIL FOR DISABILITY

30th JUNE 2005 2.52.1 Governance Section 14 (1) of the Council‘s Act states that the Executive Secretary is the chief executive and accounting officer of the Council. However, Board members were signatories to the Bank accounts which is against the principles of corporate governance. There was a possible conflict of interest. Management responded that as a result to the overseer being an employee of the Ministry of Gender Labour and Social Development there was a gap created and it was exploited by Council Members. The Board members should perform board functions and leave executive functions to management in line with principles of good governance.

2.52.2 Un approved budget The council operated without an approved budget during the period under review. Besides, management reports were not availed to audit indicating whether the draft budget was used to monitor or control expenditure. This implied that all the expenditures were not approved by the council and remained unauthorized. Management attributed the problem to the infancy the council which could not enable all the procedures to be followed. Management is advised to always operate with an approved budget.

2.52.3 Segregation of duties One of the key elements of internal controls in an accounting system is segregation of duties between functions of authorization, execution, payment and custody of assets. However, initiation, approval, and payment of transactions were done by one person. Besides, payment vouchers were neither serially numbered nor stamped ―paid‖. Errors or fraud may be perpetuated and concealed in accounting records since the work of one person is not checked by another person. Management attributed the problem to the infancy of the Entity and that to being headed by an executive secretary who was an employee of ministry of gender labour and social development as the overseer. Meanwhile the office bearers had not

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developed policy to guide these operations so they left the executive secretary and chairperson to conduct the operation alone. Management is advised to separate the functions of initiation, approval and payment of transactions and assign a senior financial officer to review and approve payments.

2.52.4 Compliance with PPDA regulations The Council did not follow proper procedures when procuring goods and services during the year. It did not set up a contracts committee and a disposal unit in accordance with the PPDA Act. This contravenes section 97 of the public procurement and disposal of Public Assets Act. Management attributed the problem to the infancy the council which could not enable all the procedures to be followed. Management is advised to adhere to the PPDA Act and regulations by setting up proper procedures and guidelines for procuring and disposal of goods and services.

2.52.5 Lack of a Human Resource and Accounting Manual Management of the Council operated without an accounting and human resource manual to guide staff in implementing financial decisions, policies and objectives for management of the Council. Accurate recording of transactions and security of assets of the Council may not be guaranteed, besides not being possible to appraise, recruit, promote and delegate staff. Management attributed the problem to the infancy the council which could not enable all the procedures to be followed. Management of the Council should ensure that human resource and accounting manuals are in place.

30th JUNE 2006 2.52.6 Governance Section 14 (1) of the Council‘s Act states that the Executive Secretary is the chief executive and accounting officer of the Council. However, Board members were

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signatories to the Bank accounts which is against the principles of corporate governance. There was a possible conflict of interest. Management responded that as a result to the overseer being an employee of the Ministry of Gender Labour and Social Development there was a gap created and it was exploited by Council Members. The Board members should perform board functions and leave executive functions to management in line with principles of good governance.

2.52.7 Un approved budget The council operated without an approved budget during the period under review. Besides, management reports were not availed to audit indicating whether the draft budget was used to monitor or control expenditure. This implied that all the expenditures were not approved by the council and remained unauthorized. Management attributed the problem to the infancy the council which could not enable all the procedures to be followed. Management is advised to always operate with an approved budget.

2.52.8 Nugatory expenditure shs.26,031,000 Shs.26,031,000 was paid to council members as allowances but there were no council minutes to confirm that the meetings took place. The payments may not have been used for the intended purpose. Management attributed absence of the minutes to the executive secretary who was the overall in charge of the institution but he did not handover to the current executive secretary. He had passed away at the time of Audit.

2.52.9 Segregation of duties One of the key elements of internal controls in an accounting system is segregation of duties between functions of authorization, execution, payment and custody of assets. However, initiation, approval, and payment of transactions were done by one person. Besides, payment vouchers were neither serially numbered nor stamped ―paid‖. Errors or fraud may be perpetuated and concealed in accounting records since the work of one person is not checked by another person.

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Management attributed the problem to the infancy of the Entity and that to being headed by an executive secretary who was an employee of ministry of gender labour and social development as the overseer meanwhile the office bearers had not developed policy to guide these operations so they left the executive secretary and chairperson to conduct the operation alone. Management is advised to separate the functions of initiation, approval and payment of transactions and assign a senior financial officer to review and approve payments.

2.52.10 Compliance with PPDA regulations The Council did not follow proper procedures when procuring goods and services during the year. It did not set up a contracts committee and a disposal unit in accordance with the PPDA Act. This contravenes section 97 of the public procurement and disposal of Public Assets Act. Management attributed the problem to the infancy the council which could not enable all the procedures to be followed. Management is advised to adhere to the PPDA Act and regulations by setting up proper procedures and guidelines for procuring and disposal of goods and services.

2.52.11 Lack of a human resource and accounting manual Management of the Council operated without an accounting and human resource manual to guide staff in implementing financial decisions, policies and objectives for management of the Council. Accurate recording of transactions and security of assets of the Council may not be guaranteed, besides not being possible to appraise, recruit, promote and delegate staff. Management attributed the problem to the infancy the council which could not enable all the procedures to be followed. Management of the Council should ensure that human resource and accounting manuals are in place.

2.52.12 Internal audit and audit committee The Council did not have an Internal Auditor and an audit committee. As a result, it could not be confirmed whether there was sufficient and timely assurance mechanism

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in the Council‘s management, monitoring and control. Errors in the accounts may go undetected. Management attributed the problem to the structural organization of the council which did not provide for the same and due to financial constraints Management is advised to put in place an internal audit unit and an audit committee to improve on the council‘s risk management and control strategy.

30th JUNE 2007

2.52.13 Governance Section 14 (1) of the Council‘s Act states that the Executive Secretary is the chief executive and accounting officer of the Council. However, Board members were signatories to the Bank accounts which is against the principles of corporate governance. There was a possible conflict of interest. Management responded that as a result to the overseer being an employee of the Ministry of Gender Labour and Social Development there was a gap created and it was exploited by Council Members. The Board members should perform board functions and leave executive functions to management in line with principles of good governance.

2.52.14 Un approved budget The council operated without an approved budget during the period under review. Besides, management reports were not availed to audit indicating whether the draft budget was used to monitor or control expenditure. This implied that all the expenditures were not approved by the council and remained unauthorized. Management attributed the problem to the infancy the council which could not enable all the procedures to be followed. Management is advised to always operate with an approved budget.

2.52.15 Segregation of duties One of the key elements of internal controls in an accounting system is segregation of duties between functions of authorization, execution, payment and custody of assets. However, initiation, approval, and payment of transactions were done by one person. 295

Besides, payment vouchers were neither serially numbered nor stamped ―paid‖. Errors or fraud may be perpetuated and concealed in accounting records since the work of one person is not checked by another person. Management attributed the problem to the infancy of the Entity and that to being headed by an executive secretary who was an employee of ministry of gender labour and social development as the overseer meanwhile the office bearers had not developed policy to guide these operations so they left the executive secretary and chairperson to conduct the operation alone. Management is advised to separate the functions of initiation, approval and payment of transactions and assign a senior financial officer to review and approve payments.

2.52.16 Compliance with PPDA regulations The Council did not follow proper procedures when procuring goods and services during the year. It did not set up a contracts committee and a disposal unit in accordance with the PPDA Act. This contravenes section 97 of the public procurement and disposal of Public Assets Act. Management attributed the problem to the infancy the council which could not enable all the procedures to be followed. Management is advised to adhere to the PPDA Act and regulations by setting up proper procedures and guidelines for procuring and disposal of goods and services.

2.52.17 Lack of a Human Resource and Accounting Manual Management of the Council operated without an accounting and human resource manual to guide staff in implementing financial decisions, policies and objectives for management of the Council. Accurate recording of transactions and security of assets of the Council may not be guaranteed, besides not being possible to appraise, recruit, promote and delegate staff. Management attributed the problem to the infancy the council which could not enable all the procedures to be followed. Management of the Council should ensure that human resource and accounting manuals are in place.

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2.52.18 Internal Audit and Audit Committee The Council did not have an Internal Auditor and an audit committee. As a result, it could not be confirmed whether there was sufficient and timely assurance mechanism in the Council‘s management, monitoring and control. Errors in the accounts may go undetected. Management attributed the problem to the structural organization of the council which did not provide for the same and due to financial constraints Management is advised to put in place an internal audit unit and an audit committee to improve on the council‘s risk management and control strategy.

30th JUNE 2008

2.52.19 Governance Section 14 (1) of the Council‘s Act states that the Executive Secretary is the chief executive and accounting officer of the Council. However, Board members were signatories to the Bank accounts which is against the principles of corporate governance. There was a possible conflict of interest. Management responded that as a result to the overseer being an employee of the Ministry of Gender Labour and Social Development there was a gap created and it was exploited by Council Members. The Board members should perform board functions and leave executive functions to management in line with principles of good governance.

2.52.20 Nugatory expenditure shs.26,031,000 Shs.26,031,000 was paid to council members as allowances but there were no council minutes to confirm that the meetings took place. The payments may not have been used for the intended purpose. Management attributed absence of the minutes to the executive secretary who was the overall in charge of the institution but he did not handover to the current executive secretary. He had passed away at the time of Audit.

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2.52.21 Segregation of duties One of the key elements of internal controls in an accounting system is segregation of duties between functions of authorization, execution, payment and custody of assets. However, initiation, approval, and payment of transactions were done by one person. Besides, payment vouchers were neither serially numbered nor stamped ―paid‖. Errors or fraud may be perpetuated and concealed in accounting records since the work of one person is not checked by another person. Management attributed the problem to the infancy of the Entity and that to being headed by an executive secretary who was an employee of ministry of gender labour and social development as the overseer meanwhile the office bearers had not developed policy to guide these operations so they left the executive secretary and chairperson to conduct the operation alone. Management is advised to separate the functions of initiation, approval and payment of transactions and assign a senior financial officer to review and approve payments.

2.52.22 Compliance with PPDA regulations The Council did not follow proper procedures when procuring goods and services during the year. It did not set up a contracts committee and a disposal unit in accordance with the PPDA Act. This contravenes section 97 of the public procurement and disposal of Public Assets Act. Management attributed the problem to the infancy the council which could not enable all the procedures to be followed. Management is advised to adhere to the PPDA Act and regulations by setting up proper procedures and guidelines for procuring and disposal of goods and services.

2.52.23 Lack of a Human Resource and Accounting Manual Management of the Council operated without an accounting and human resource manual to guide staff in implementing financial decisions, policies and objectives for management of the Council. Accurate recording of transactions and security of assets of the Council may not be guaranteed, besides not being possible to appraise, recruit, promote and delegate staff. Management attributed the problem to the infancy the council which could not enable all the procedures to be followed.

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Management of the Council should ensure that human resource and accounting manuals are in place.

2.52.24 Internal Audit and Audit Committee The Council did not have an Internal Auditor and an audit committee. As a result, it could not be confirmed whether there was sufficient and timely assurance mechanism in the Council‘s management, monitoring and control. Errors in the accounts may go undetected. Management attributed the problem to the structural organization of the council which did not provide for the same and due to financial constraints Management is advised to put in place an internal audit unit and an audit committee to improve on the council‘s risk management and control strategy.

2.53 UGANDA NATIONAL CULTURAL CENTRE (UNCC) - JUNE 2008

2.53.1 Bank reconciliation statements The Centre did not prepare bank reconciliation statements for the Accounts maintained contrary to best practice and the Centre‘s section 2.7 of the Financial Regulations and Accounting Manual. In absence of bank reconciliation statements, the accuracy of the cash/bank balances reported in the financial statements could not be confirmed. Besides misstatements, errors and fraud may go undetected. Management acknowledged the anomaly and stated that at the moment bank reconciliations are being made.

2.53.2 Status of Nommo Gallary Tenants Nommo Gallery situated in Nakasero is under the control of UNCC. Although a private Company owns a structure on the land measuring 6m x 20m, no tenancy agreement had been signed between them and management. It was further noted that the same company owns a Kiosk at the National Theatre Cultural village for which they don‘t pay rent and there was no tenancy agreement too. Failure to issue tenancy agreements affects the Centre‘s revenue collection. Management responded that management has taken up the issue and will write to Creations Ltd so as to formalize their tenancy of the Nommo Gallery space.

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2.53.3 Land and buildings The value of Land and buildings stated in the financial statements at shs.125,717 appears unrealistic. IAS 16 requires assets of the same class to be regularly revalued to reflect their fair values. Land and buildings have not been revalued to reflect their fair values. The financial statements may not be fairly stated. In their response, Management stated that a letter was written to the government valuer, however no action has been taken. I advised management that a revaluation should be carried out on land and buildings to determine their fair values.

2.53.4 Annual procurement plan There were no approved annual procurement plans as required by PPDA regulations during the period under review. Therefore performance of UNCC regarding to procurements could not be evaluated. Management confirmed that they did not prepare a procurement plan during the year. I advised management to prepare Procurement plans to enable them carry out procurement in an orderly and efficient manner.

2.53.5 Advances It was noted that Shs.4,340,590 was purportedly borrowed from the Box office (where tickets are sold). The purpose of borrowing was not stated. Besides, the funds had not been refunded by the time of audit. There is a risk that these funds may have been misappropriated. Management was advised to ensure that Cash borrowings from box office are discouraged and that all advances are documented and fully accounted for.

2.53.6 IT policy The Centre did not have an IT policy and strategy to guide staff on issues relating to information technology such as training, maintenance, security etc. In the absence of an IT strategy, there was a risk in the control and security of IT resources by way of under –utilization and loss of vital information through un authorized access. The Centre was advised to develop an IT policy for board approval.

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2.53.7 Stock cards and registers According to the Accounting manual, a stock card should be maintained to record all printed tickets, those issued to box office for sale and a register for all the receipt books. It was noted, however, that stock cards as well as the register were not maintained. It was therefore difficult to establish how many receipt books and tickets were printed and delivered and how they were utilized. Failure to control accountable stationery exposes the Centre‘s revenue to abuse.

Management responded that the stock cards were not maintained in the period under review but a Register has now been put in place.

2.53.8 Internal audit services There was no internal audit carried out at UNCC throughout the year under review contrary to best practice. There is a risk that errors and irregularities may occur and remain in the financial statements undetected. Management stated that Internal Audit was not provided for in an organization structures and that they are subjecting this issue to the Board of Trustees to make a decision. Management was advised to put in place an internal audit function to improve on the internal control environment

2.53.9 Staff contract agreements It was noted that a staff restructuring report which was approved by the Minister of Gender, Labor and Social Development was used as a basis for restructuring the UNCC. The report states that the terms and conditions of service of staff on contract shall be spelt out in the employment contract. However, all personal files availed for audit lacked signed employment contracts. Performance evaluation of staff could not be done in absence of clear terms and conditions of service. Management stated that they had contacted the Personnel officer of Ministry of Gender to assist in the process and that the staff contracts were being worked on. Management was advised to endeavor to have employment contracts for all staff signed.

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2.53.10 Presentation of financial statements The financial statements for the year ended 30th June 2008 have not been presented in accordance with IAS 1. Financial information relating to Statement of changes in equity, comparative figures, categorization of line items and notes to the accounts have not been included. The financial statements are not in conformity with International Financial Reporting Standards (IFRS). In their response, Management stated that they will make adjustments to the financial statements.

2.53.11 Revenue misstatement A comparison between total receipts as per actual receipt book and reported revenue in the income statement revealed that there were some variations leading to an overstatement by revenue by Shs.132, 641,179.30. Revenue is misstated in the financial statements. In their response Management stated that they were still making adjustments.

30th JUNE 2009

2.53.12 Non submission of financial statements Management did not prepare and submit Financial Statements to the respective authorities within 3 months after the end of the financial year contrary to the Public Finance and Accountability Act 2003, Sec 31(b). Late submission of accounts is irregular and denies the decision makers/stakeholders timely information on which to base strategic decisions affecting the entity. Management did not give a satisfactory response.

2.53.13 Lack of insurance cover The Centre did not have an insurance cover against risk for its property and business operations contrary to the organisation‘s Financial Regulations. The entity‘s property is exposed to theft, loss, fraud, fire and other risks. Management responded that Insurance cover is given on the basis of the value of the assets. A government valuer had been contacted but had not responded. Once the proper value of the assets is obtained, an insurance cover will be procured.

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2.53.14 Fixed Asset Register The centre did not have a fixed asset register to record its assets. Consequently, it was difficult to confirm the existence, condition and location of the Assets. There is a risk that assets may be misappropriated/lost. Management confirmed that fixed assets register was not yet in place pending the government valuer‘s response. This response was, however, not satisfactory.

2.53.15 Failure to review and update the accounting financial manual Sec 14.0 of the Accounting Manual stated that the reporting date of the financial statements will be 31st December and presentation of the accounts to the authorities is four months after the reporting date. Starting July 2006, the reporting date was changed by the Board to 30th June and presentation to the authorities four months after. However, Section 14.0 of the accounting manual has never been amended. Management stated that they were in the process of revising it. I advised Management to review the accounting financial manual and bring it in line with the Public Finance and Accountability Act 2003, Sec 31 (b).

2.53.16 Internal audit function In order to achieve the objective of internal controls, the function of internal auditor should be put in place to ensure existence, implementation and compliance of internal control is done for the organization to achieve its objectives. However, the centre lacks an internal audit function. Lack of proper functioning internal audit unit deprives the entity of an early warning on weaknesses in the internal control system and can lead to errors remaining undetected in the financial statements.

Management responded that the Internal Audit function is included in the new organizational structure

2.53.17 Wasteful expenditure of shs.58,667,378 Uganda Revenue Authority carried out a tax audit which revealed that the Centre owed shs.226,105,883 in respect of VAT and PAYE arrears for the period January 2005 to September 2008. Consequently the Centre was charged interest of Shs.58,667,378. Failure to comply with URA led to loss of funds which should have

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been used in implementing the centre‘s activities. This expenditure is therefore nugatory. Management stated that it was due to limited funding.

EDUCATION AND SPORTS SECTION

2.54 UGANDA NATIONAL COUNCIL FOR SCIENCE & TECHNOLOGY - JUNE 2010

2.54.1 Manpower Plan and Budget It was noted that while the approved establishment of the council stands at 193, only 45 positions had been filled leaving 148 positions vacant. Lack of staff in vital positions of the organization affects the performance and overall achievement of organization‘s goals and objectives. Management responded that the 193 staff positions were planned on the basis of establishing 5 regional Science centers and availability for funding but funds are yet to be availed by the Ministry of Finance Planning and Economic Development.

2.54.2 Board of Directors The Entity did not have a board of directors during the year under review. As mentioned in my previous reports, the term of office of the former directors expired on 30th June 2006 but new Directors had not been appointed. This matter has remained unresolved for so long. The absence of a substantively appointed Board of Directors contravenes the principles of good governance and impacts negatively on the decision making process and strategic direction of the Council. Management attributed the delay to the Minister of Finance, Planning and Economic Development who have just initiated the process of appointment.

2.54.3 Projects a. Production and Industrial Application of Phytolacca Dodecandra (PD) to Control Vector Borne Diseases Project The P.D is a three year project based at Mbarara University of Science and Technology (MUST). The main objective of the project is to eradicate vector borne diseases caused by water snails through industrial production and use of Phytolacca

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Dodecandra. Government of Uganda has been supporting the project through the UNCST since the beginning of FY 2007/2008. The following issues were noted:

Late acquisition of land for the project has made the implementation of the project fall behind schedule.  Loss of seedlings at NFA, Mbarara Town; Over 3000 plants of PD which were planted in the PD nursery at Mbarara town were all destroyed because they had overgrown and could not be transferred to the Sanga garden. The NFA on whose land they were planted requested the project to quit their land because the lease period had come to an end. The PD Nursery was cleared and is now being used by NFA for other plants. The value of the seeds was not established.  Project offices are being sold thereby affecting the operations of the project.  Delays were noted in the preparation and submission of project progress reports. Because of the above problems, the project may not meet the intended objectives. Management responded that after acquiring land, the Project is now moving faster in implementation of activities. A possible project extension of one year was being considered to take care of the lost time. I advised management that in future Project implementation should be streamlined to avoid loss of time and other resources. b. Malaria Prevention at Household Level using Artemisia Annua-Avocado Powder-Lemon Grass Blend Beverage The ‗‗Artemisia Project‘‘ was based at Natural Chemotherapeutics Research Laboratory in Wandegeya. The Government has been supporting the project through UNCST since the beginning of FY 2008/2009. The following were noted:

 The project acquired office space in Bukoto white flats in Kampala, which is in a residential area. The project has however, not put up a sign post which makes the office difficult to locate.  There was lack of a timely comprehensive project procurement plan to enable adequate preparation and procurement of project requirements;

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 Delays in the preparation and submission of project progress reports for onward submission to MoFPED, to allow timely release of funds in order to avoid loss of valuable time. The Project has not been implemented was not as planned which may affect the achievement of the set goals Management promised to erect a sign post for easy identification of the project and also to submit timely project progress reports in future. c. Ecology of Malaria Vectors in Uganda and Control Based on Indigenous plant extracts and Larval Pathogens The ‗‗Larval Pathogens Project‘‘ was based at Uganda Virus Research Institute in Entebbe. The Government has been supporting this project through UNCST since FY 2008/2009. The following were noted:

 The project has made little physical progress due to delays in procuring equipment and reagents  There was Lack of management and field supervision function;  There was Lack of substantial involvement of the community in project work;  There was lack of a data bank for the project;  There was no collaboration with other support to science projects dealing with malaria control.  There was limited involvement by the host institution and sector ministry both of which are necessary for ownership and nation-wide utilization of the project results

I informed management that the above issues may affect the steady implementation of the project thereby negatively impacting on the final outcomes Management responded that the equipment and reagents were procured and the project was moving faster in the implementation of activities. I was however not availed evidence of data bank, supervision and stakeholder involvement which are requirements for smooth implementation of the project.

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2.55 MANAGEMENT TRAINING AND ADVISORY CENTRE - DECEMBER 2009

2.55.1 Governance

The governing council‘s term expired in June 2009 and had not been renewed by the time of audit. Lack of a governing council makes it difficult for the centre to make strategic and policy decisions thereby affecting business operations of the centre.

I advised management to request the responsible minister of the centre to appoint a new council Board.

Management explained that they had indeed written to the Ministry of Tourism and trade about the issue and the minister had stated that the centre‘s governing council members were nominated and are awaiting official inauguration. I subsequently await further implementation of this matter.

2.55.2 Non Compliance with the PPDA Act

Contrary to the PPDA Act 2003, and PPDA Rules and Regulations, several weaknesses were noted in the centre‘s procurement process as follows;

 There were no procurement plans prepared during the year.

 A pre-qualification of service providers and suppliers of the centre was not done.

 The contracts committee was not approved by the Secretary to the Treasury.

 The centre did not have a procurement officer in the centre.

 There was no evidence of evaluations forwarded to the contracts committee.

 The centre did not make monthly reports/returns and send them to PPDA in accordance with the procurement regulations.

It was further noted that the centre made procurements on an adhoc basis which contravenes Sec.34 (2) of the PPDA Act 2003 and regulation 60 which require user departments to prepare work plans for procurements based on approved budgets.

In their response management explained that they have since operationalised the contracts committee and a functional procurement committee is in place. In addition they have now pre-qualified suppliers of goods and services for the next three years

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and that a procurement officer has also been recruited to enhance the procurement function.

I advised management to adhere to the requirements of the PPDA Act and abide by all procurement regulations. I hereby await the outcome of management‘s implementation of the remaining procurement requirements.

2.55.3 Property, Plant And Equipment

The following were noted during a review of the Centre‘s non current assets;

a. Valuation of Property, Plant and Equipments

IAS 16 requires property, plant and equipment carried out at revalued amounts to be revalued with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair values at the balance sheet date. The Centre has not carried out any subsequent revaluation of assets since 1998. Consequently the centre‘s assets may not be fairly stated.

b. Land and Buildings

Under IAS 16 with regard to depreciation, Land and Buildings are separate assets and are dealt with separately for accounting purposes even when they are acquired together. The value of the Centre‘s land and buildings was stated at Shs.3,114,866,634 in the financial statements against which depreciation of shs.47.426,583 was provided. Management was not able to identify separately the cost of land and building. It was therefore not possible to confirm the actual value of the centre‘s land and buildings separately and the depreciation charged.

c. Additions in the Fixed Assets Schedule

It was noted that additions and valuations totaling Shs.2,177,710,427 to land and buildings were incorporated in the financial statements in 1998. However this amount was not supported by relevant supporting documents such as valuation reports, Land titles, Areas/size and location of building. In light of the above, the value of property, plant and equipment included in the financial statements at that time may not be fairly stated and it affects the current financial year values. 308

In their response management explained that they had written to the Chief Government Valuer to have the centre‘s assets valued, so that they could confirm the actual values of the centre‘s land and buildings separately.

I advised management to prepare financial statements in accordance with the financial reporting standards. I subsequently await management‘s action on this matter.

2.55.4 Lack of an Internal Audit Function The Centre operated without an internal audit function and did not provide for one in its organization structure contrary to its financial and accounting manual which also provided for an audit committee. Lack of an internal audit function affects the ability of the centre to evaluate internal controls and advise on how to mitigate risks. In addition errors and misstatements may go undetected.

I advised management to consider setting up an internal audit unit to strengthen its internal controls. Management concurred with the audit recommendation and indicated that the matter would be presented to the governing council. I subsequently await the outcome of management‘s actions.

2.55.5 Lack Of Fleet Management Policy During the year under review, the costs of repairs and maintenance amounted to Shs.19,771,200. However, there was no documented policy on fleet management. In addition, Audit was not availed with key management control information such as:-  Fleet size, capacity and deployment

 Registration/log books to confirm ownership and the particulars relating to the fleet.

 Management and control of movement of vehicles for various duties assigned.

 Maintenance and repair expenditure record on the fleet (per vehicle).

 Control and management of fuel used by the fleet

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In the absence of management information on Motor Vehicles, it was not possible to ascertain and justify the cost of repairs of the vehicles.

I advised management to develop a defined policy on motor vehicle fleet management and control. Management explained that they are in the process of developing the fleet management policy which they will present to the governing council as soon as one is in place.

2.55.6 Board of Survey Management did not carry out end of year Board of survey to confirm the existence, values and condition of the assets. As a result, accuracy of the figures on stores and cash reported at Shs.2,098,386 in the financial statement could not be confirmed. I advised management to always ensure that asset verifications and board of survey are regularly carried out to identify assets that appear uneconomical and recommend them for boarding off. Management promised to address the audit recommendations. I subsequently await management‘s action on this matter.

2.55.7 Late Submission of Financial Statements Management did not comply with the legal provision of submitting financial statements for audit by 30th April after year end. It was not possible to audit the financial statements and report to Parliament and stakeholders within the statutory period. Management was advised to always adhere to the provisions of the law regarding financial reporting.

2.55.8 Debtors Management Policy Debtors totaling Shs.548,004,506 remained un collected by the close of the year under review. There was no debtors‘ management policy in place and no aged list was provided for review. We noted further that a provision was not made for bad and doubtful debts. I could not confirm therefore that the debtors figure in the Financial Statements is fairly stated.

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Management explained that the centre is in the process of developing a debtor‘s management policy which will be presented to the governing council for approval as soon as it is in place. I advised management to ensure that a debtor‘s management policy is put in place to ensure that the information in respect of debtors reflected in the financial statements is fairly stated.

2.55.9 Statutory Remittances Shs.297,566,105 A sum of Shs.254,067,837 remained un remitted to URA in respect of PAYE while Shs.43,498,270 was not paid to NSSF as staff contribution towards their retirement package. This was contrary to the Provisions of the Income tax Act and the NSSF Act respectively. The unremitted statutory obligations which are increasing from year to year may attract penalties and fines. Besides, unremitted contributions to NSSF reduce employee‘s social security benefits and interest thereon upon retirement.

Management explained that the non remittance was due to cash constraints experienced by the centre in the previous periods and that remittances have since been made to the NSSF and URA and that an understanding had been reached between MTAC and NSSF/URA to settle outstanding Statutory obligations. I advised management to comply with all statutory obligations in order to avoid fines and penalties. I await further action on this matter.

2.55.10 Personnel Matters The following issues were noted from a review of staff personal files;  Two officers‘ contracts were renewed for a term of one and a half years as opposed to three. (1st July 2009 -31st Dec 2010)

 Two consultant trainees were irregularly appointed in positions for which they never applied for.

 Action was not taken on an officer who persistently absented herself from office.

 Bondage agreements were not availed for trained staff yet the human resource manual provides for bondage for staffs sponsored by the centre.

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Poor management of the personnel function may impact on the effective performance of staff in carrying out their functions.

2.56 NATIONAL COUNCIL FOR HIGHER EDUCATION

30th JUNE 2007

2.56.1 Valuation of Freehold Land

a. Noncurrent assets

As stated in note 1 to the financial statements, the Council received a donation of freehold land on plot M834 measuring 1.216 hectares which was not valued and disclosed in the financial statements. IAS 16 requires that when measuring an item of property, plant and equipment;

 The basic principle is that items of property, plant and equipment that qualify for recognition shall be initially measured at cost.  If valuation is undertaken, the fair value shall be based on market based evidence by an appraisal undertaken by a qualified professional valuer.

However values were not attached to this Land nor was a valuation carried out. Due to this limitation, I am unable to confirm the accuracy and completeness of property, plant and equipment as shown in the financial statements.

2.56.2 Doubtful Expenditure Shs.6,521,700 Funds totaling Shs.6,521,700 was paid to Goshem Uganda Limited for painting the Councils offices; however, it was noted that an independent evaluation of the work to be done was not carried. It was therefore not clear whether the work done was according to specification. In these circumstances I cannot confirm whether value for money was obtained for th8is work. Management agreed with the audit observations and indicated they would follow the proper laid down procedures in carrying out such work in future. Subsequently I await management‘s compliance on this matter henceforth. 312

30th JUNE 2008

2.56.3 Non-Current Assets

Valuation of Freehold Land A donation of freehold land on plot M834 measuring 1.216 hectares to the council was only disclosed in the notes to the financial statements but was not valued and disclosed in the financial statements; contrary to IAS 16 which states that when measuring an item of property, plant and equipment;  The basic principle is that items of property, plant and equipment that qualify for recognition shall be initially measured at cost.  Under IAS 16 if valuation is undertaken the fair value shall be based on market based evidence by an appraisal undertaken by a qualified professional valuer

However values were not attached to this Land nor any valuation carried out; due to the above limitation I am unable to confirm the accuracy and completeness of property plant and equipment as shown in the financial statements.

2.56.4 Staffing The approved structure of the Council has a provision for 39 technical staff, however a review of the payroll and personal files revealed that 15 of these positions had not been filled constituting 38% staff shortfall; specialized positions in procurement, transport, public relations and Humana resource had not yet been filled; this affects implementation of council objectives. Management explained that they had presented their budget to Ministry of Education for increased funding to cater for the financial requirements of the unfilled vacancies. I advised management to ensure that these vacant posts are filled to enable the council achieve its objectives.

2.56.5 Lack of an Internal Audit Function It was noted that the Council did not have an operational internal audit function as prescribed by Section 12 of the Council‘s Manual and the Public Finance and Accountability Regulations 2003. In its absence management lacks a mechanism to

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evaluate the system of internal control and advise on how to mitigate risks in addition errors and material misstatements may not be easily detected. Management explained that these services are currently being outsourced; however, with increased funding they would establish the position in-house.

Management is advised to consider creating an internal audit unit as prescribed in the NCHE Accounting Manual 2005.

30th JUNE 2009

2.56.6 Noncurrent assets Valuation of Freehold Land A donation of freehold land on plot M834 measuring 1.216 hectares to the council was only disclosed in the notes to the financial statements but was not valued and disclosed in the financial statements; contrary to IAS 16 which states that when measuring an item of property, plant and equipment;  The basic principle is that items of property, plant and equipment that qualify for recognition shall be initially measured at cost.  Under IAS 16 if valuation is undertaken the fair value shall be based on market based evidence by an appraisal undertaken by a qualified professional valuer

2.56.7 Unauthorized Use of Internally Generated Revenue Shs.258,851,783 It was noted that the council realized Shs.258,851,783 in revenue from its internal sources. However, the money was used at source without seeking authority from the Permanent Secretary/ST as required by the Public Finance and Accountability Act of 2003. An attempt to seek authorization in the un referenced letter dated 28th September 2009 was not successful. This expenditure was not a proper charge on the Council‘s accounts and the money is recoverable for onward transfer to the consolidated fund.

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Management explained that Sec.28 of the universities council to charge for the services it renders; they further explained that for funds charged and paid; these remain intact on a separate account until authority on utilization of funds is sought from the PS/AT. I advised management to adhere to the Public Finance and Accountability Regulations 2003 and always seek authority from the PS/ST in addition to having proper approval of expenditure by the Board of the council.

30th JUNE 2010

2.56.8 Procurement It was observed that the Contracts Committee sat for business eight (8) times during the year under review. Audit noted from the review of the contracts committee minutes that a lot of business was being referred to the Technical Evaluation Committee (TEC). Minutes of the 1st Contract Committee Meeting Min/CC/02/2009/10 and 3rdContract Committee meeting Min/CC/16/2009/10 refers. However, the minutes for the technical committee were not available for audit review. Furthermore, the Procurement Unit did not have a qualified procurement officer. Given the role played by the PDU in the procurement process, it is important that a qualified person is appointed in this position. Further still, record keeping was noted to be poor as several documents such as records of bid opening and closing, Contract management records, copies of all bids evaluated were absent from the procurement files.

Absence of a substantive procurement officer and Technical Evaluation Committees may lead to hiring of incompetent service providers and substandard work done. Besides, Lack of vital procurement documents affect the credibility of the procurement process.

Management responded that with increased funding Council will soon advertise for the position of Procurement Officer.

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Management is advised to appoint a substantive procurement officer and maintain all the necessary documentations. Besides, evidence of existence of a technical evaluation committee in form of minutes should be availed for audit review.

2.56.9 Personal matters It was noted that the Council had 11 vacant positions out of the total established structure of 29 positions. Among the vacant positions are; quality assurance and accreditation of other Tertiary Institutions Assistant Director, Procurement officer, HR and Administration Officer, Senior Education officers of Universities and other Tertiary Institutions, senior education officer for Data Analysis and statistics, which are very key to the functioning of the Council. Thus, Council may not be operating efficiently with under strength staff.

Management responded that they had recruited three Senior Officers in charge of Quality Assurance and Statistics. With increased funding in the future, and availability of space, Council will recruit more officers to fill the vacant positions.

Management should seek authority of the board to fill all the vacant posts in order to improve on its operational efficiency.

2.56.10 Lack of an Internal Audit function It was noted that the Council did not have an internal audit function contrary to Regulation 12 of the Council‘s Accounting Regulation. As a result there was no sufficient and timely assurance mechanism to address the Corporation‘s risk management, monitoring and control systems. Material errors in transactions and financial statements may not be detected or prevented.

Management responded that they are soon to advertise for the position of Internal Auditor after creation of office space now that funds have been provided.

Management is urged to put in place an internal audit function in accordance with the Council‘s regulations.

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2.56.11 Un-accounted for advances - shs.7,500,000 Advances of shs.7,500,000 paid to various officers to carry out specific activities remained unaccounted for by the end of the financial year. This contravened the Accounting Regulations which require that all public money disbursed must be properly vouched on payment vouchers, and should be accounted for within a period of 1 month. There was a risk that funds may not have been utilized for the intended purpose. Management responded that the receipts were issued and are available for audit. But attempts to verify them were fruitless.

Management is advised to ensure that advances are accounted for within the stipulated period. Meanwhile accountabilities should be submitted for audit else recoveries be made from concerned parties.

2.56.12 Compliance with Income Tax Act It was noted that taxes in respect of PAYE and WHT amounting to shs.82,337,834 were deducted from staff salaries and payments to suppliers of goods and services, however remittances to URA could not be confirmed because acknowledgement receipts were not availed for audit. There was a risk that these statutory deductions may not have been received by URA. Management responded that the taxes were remitted. Management is advised to avail all receipts for audit verification.

2.56.13 Certificate of bank balances Certificates of bank balances were not availed to collaborate the bank balances with those in the bank statement. Besides, the entity operated a dollar account but was not indicated in the notes to the accounts what exchange rate was applied during the preparation of the accounts.

In the absence of certificates, it was not possible to confirm the correctness of balances of cash at Bank.

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Management responded that the certificates for bank balances were available for audit and that the exchange rate applied in the dollar transactions was indicated in the notes to the accounts. However they were not presented for verification.

Management should avail the certificate of bank balances to confirm those balances reflected in the bank statements and indicate the translation rate applied to foreign currency in the notes to the accounts.

2.56.14 Incompletely vouched expenditure shs.3,027,051 A total of Shs.3,027,051 was paid as legal fees, to a firm of advocates however, the payments to this firm lacked supporting documentation. In absence of supporting documents to this expenditure, it cannot be confirmed that the payments were for the intended purpose.

Management responded that the supporting documents to this expenditure are available for audit.

Management should avail supporting documents to enable audit confirm the validity of the payments.

2.56.15 Trial balance un explained imbalance shs.593,522,666 The trial balance extracted by the council failed to balance with a difference of Shs.593,522,666. It was further noted that the following items were not reflected in the trial balance for the year under review; Accumulated fund b/f --- Shs.801,816,872 Cost of Fixed assets b/f—Shs.616,786,038 Accumulated Depreciation. Charge b/f—Shs.408,774,223 The financial statements do not show a true and fair position of the state of affairs of the entity.

Management responded that the accounting package in use did not provide for reflection of items mentioned thereof in the trial balance. However, the figures are provided on an excel sheet as attached.

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Management is advised to investigate and rectify the anomalies in the financial statements.

2.56.16 Non Current Assets In our report to parliament for the previous year, mention was made of a donation of freehold land on plot M834 measuring 1.216 hectares which was not valued and disclosed in the financial statements contrary to the provisions of IAS 16. Management has not implemented our recommendation regarding this matter. Property, plant and equipment may not be fairly stated. Management responded that they had written to the government valuer to have this Land valued.

Management should explain its inability to implement the audit recommendations.

2.57 NATIONAL CURRICULUM DEVELOPMENT CENTRE

31st DECEMBER 2008

2.57.1 Depreciation Policy The Centre depreciates assets using a straight line method and applies a fixed rate of depreciation on the cost of each asset category. It was noted however that depreciation was not charged to motor vehicles as required by the centre‘s depreciation policy. In addition depreciation was not charged to library books valued at Shs.8,806,906 contrary to IAS 16 which requires depreciable amounts of an asset to be allocated on a systematic basis over its useful life. As a result the net book value of Property Plant and Equipment of Shs.577,322,041 may not be fairly stated in the financial statements. Management agreed with the audit observations and promised to implement the recommendations in the next accounting period.

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2.57.2 Irregular procurement of motor vehicle guards Shs.3,505,072 The centre procured motor vehicle guards worth Shs.3,505,072. However the procurement was not carried out in accordance with PPDA regulations. There were no quotation obtained from the prequalified service providers to ensure best prices value for money were received. The procurement was done without approval of contracts committee. Management explained that they used direct procurement method and informed PPDA accordingly. However, documentation indicating approval from PPDA was not availed. I have advised management to follow the PPDA procurement and disposal of assets guidelines when making procurements.

2.57.3 Management of debtors

Debtors worth Shs.605,244,400 had not been recovered at year end. Records indicate that these debts have been outstanding since 2003 against which a provision of Shs.52,331,138 has been made. I have advised management to take reasonable steps to ensure that outstanding debts are recovered on time as the centre may lose money due to bad debts. By the time of writing this report, no progress had been made. I still await management‘s action on this matter.

31st DECEMBER 2009

2.57.4 Fixed Asset Register The Centre does not maintain a fixed assets register indicating the break down of property, plant and equipment and details of fixed asset particulars such as, location, condition values, cost and date of purchase. The Centre therefore was not able to effectively;  Allocate depreciable amounts of the property, plant and equipment over their useful life as required by IAS 16.  Facilitate fair presentation of fixed assets in the Centre‘s financial statements.

In these circumstances therefore it was not possible to confirm the accuracy, existence, completeness and validity of property, plant and equipment. 320

2.57.5 Absence of the Audit Committee As noted in the previous audit reports, the Council did not have a functional Audit Committee. As a result there was no sufficient and timely assurance mechanism regarding the Council‘s risk management, monitoring and control.

I informed management that lack of an independent organ to provide oversight and review the financial reporting process, risks and internal control systems may lead to material errors and misstatements in the transactions going undetected.

Management in response stated that the Centre has in place a Finance and General Purposes Sub-Committee identified in the NCDC Financial Regulations and Guidelines as a component of the NCDC Internal Control System. This was provided for under section 16, of NCDC Statute, on establishment of Sub-Committees.

2.57.6 Provision for Bad Debts Shs.48,499,778 Out of the debtors stated in the financial statements of shs.558,914,978, a provision for Bad debts of shs.48,499,778 was made to accommodate the unlikelihood of the debt not being recovered. However, there is no established debtors policy in place upon which long overdue debts qualify for provisions and write-offs.

Management in their response explained that 69% of trade debtors amounting to shs.335,826,397 are owed by a former Director who defrauded the Centre between 1998 and 2002; however they indicated that a debtors age listing would be generated. I advised management to come up with a debtor‘s policy on debtors and generate a debtors age listing to determine debt write-offs; I still await management action on this matter.

2.57.7 Contingent Liability The financial statements disclose a contingent liability of Ushs.1,117,894,208 being the total cumulative amount owed to staff as gratuity and other arrears. However, contrary to the provisions of IAS 37, there are no uncertainties relating to this

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amount and therefore it should have been recognized as a definite liability and not a contingent liability. I await management‘s action on this matter.

2.58 UGANDA NATIONAL EXAMINATIONS BOARD - JUNE 2009

2.58.1 Strategic Planning/Business Plan

For effective management of organizational goals and objectives, it is important that strategic plans setting out the short and long term vision of the Board be produced indicating goals and performance indicators against which it can be measured. It was noted that management does not have a strategic plan in place. Absence of a strategic plan affects achievement of Board objectives and goals; including measurement of its performance. In their written response management explained that the Board has a programme of activities which are reflected in the Annual Budget and each department plans and executes its tasks coordinated by the Executive Secretary. In addition, the Board has started working on a strategic plan where long-term and short-term plans are to be published.

2.58.2 Poor Storage Of Inventories

A physical inspection of stores of the Board at the printery premises (Kyambogo and Ntinda revealed that both stores have been rented out. As a result, some items have remained packed in the corridors in a disorderly manner. Poor storage of inventories and consumables may result in loss, theft or pilferage of stores items and difficulty in establishing stock values at year end if damaged and obsolete items are not properly identified. Management explained that the printer premises at Kyambogo and UNEB at Ntinda building are both properties of the Board and acknowledged that there was inadequate storage space for inventories owing to the small size of the buildings vis a viz the Board‘s space requirements.

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However, management explained that they would minimise losses through instituting adequate inventory control procedures in accordance with the UNEB financial and accounting regulations manual and would utilise the current space optimally. Management is advised to improve on its storage facilities.

2.58.3 Lack of an Audit Committee

Sec.(6) of the Public Financial Accountability Act PFAA (2003) requires all government entities to have audit committees to be charged with the responsibility of reviewing issues raised by the internal audit unit in accordance with best practice and make improvements in implementing Board decisions. In the absence of audit committees, audit reports and control weakness may not be brought to Board‘s attention for review and discussion. Management explained that the tenure of its current Board was due to expire and hence an audit committee could not be formed; however, they promised to have this carried out when the new Board is appointed. Management is advised to ensure that a new Board is in place.

2.58.4 Non Compliance with Statutory Deductions

In the period under review management delayed to remit PAYE for December 2008 in the stipulated time period. Consequently a penalty of Shs.2,063,145 was instituted on the Board; This loss could have been avoided had Sec 123(1) of the Income Tax Act not been violated. Management attributed the delay in remitting statutory deductions to cash flow problems and budgetary constraints. However, this explanation is not satisfactory.

Management is advised to always comply with the Income Tax laws in order to avoid tax penalties and fines.

30th JUNE 2010 2.58.5 Corporate Plan/Business Plan As noted in the previous audit report, management had not put in place a strategic plan for the Board. This affects the achievement of Board‘s objectives and goals, including measurement of its performance. 323

Management responded that because of the complex nature of work involved, the Board has voted funds for a consultancy to develop a strategic plan for UNEB. This will be effected in 2011/12 FY without fail. The Management was again advised to ensure that a strategic plan is developed and implemented.

2.58.6 Staffing: Vacant Posts Sec. 5.3(iii) of the Human resource manual states that vacant posts will be advertised internally and externally in the press, other than those to be filled on promotion from within. A review of the approved organization structure of UNEB and the staff list revealed that there were a total of 81 vacant posts not yet filled. Failure to fill vacant posts could affect the operational efficiency and performance of the Board. Management attributed the problem the limited contribution to wage bill by government. Management was advised to ensure that all the unfilled positions are advertised and filled to improve performance of the Board.

2.58.7 Implementation of the Training Policy Sec.12.1 of the Human Resource Manual requires all cadres of staff to be offered training opportunities to enable them improve on their work performance and personal development. Perusal of the budget for the financial year 2009/10 revealed that Shs.31,100 000 was approved to cater for both local training and training abroad. However evidence that the staff were trained was not availed for audit. Management responded that the current training policy puts emphasis on key rare areas like ICT, Research and Procurement. For general courses, UNEB allows staff to take time off and study. They follow courses of their interest as long as they sponsor themselves. For that matter, staff in junior ranks who came to UNEB with ‗O‘ and ‗A‘ level certificates now have first degrees and a number have Masters degrees. Guards and some messengers have also taken advantage of evening studies and some have attained degree qualifications. Management was advised to implement the training policy to improve on staff performance as well as career development.

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2.58.8 Existence of Audit Committee Although an Audit Committee was constituted, it had not carried out its oversight functions by discussing and evaluating the reports of Internal Auditors and External auditors to ensure management improvements in implementing Board‘s decisions. Independent review of internal controls was not done. Management responded that the Audit Committee was set up by the Board at its meeting held on 16th August 2010, a month and half after the end of the financial year ended 30th June 2010. According to the work plan, its first business was supposed to be consideration of the Auditor General‘s report for the year 2009/10 and the Internal Audit reports for the period 1./7/2010-31/12/10. As soon as these two reports come out, the Committee will start business. The Board of Directors should ensure that Audit Committee is made operational.

2.58.9 Engraving of Assets It was noted that a number of movable non-current assets were not engraved exposing them to a risk of possible loss. Management stated that they had taken steps in ensuring that all assets are engraved. A comprehensive inventory of all Board‘s assets was being carried out and those that are not engraved will be identified, classified and engraved. Engraving machines are also being procured. Management is advised to engrave all assets for easy identification and classification to avoid risk of loss.

2.58.10 Delays in Processing Procurements It was noted that procurement take longer to be concluded than required. Besides, some urgent items in the printery, such as repairs and supply of spares take as long as 5-8 months to be supplied. This negatively affects the efficiency in the implementation of work plans and achievements of strategic goals. Management responded that the delays in the processing of procurement may be caused by the lengthy statutory procurement periods, entity administrative time and the inefficient responses from the providers. Procurements should be made in time to facilitate effective performance of the organization.

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a. User Department Annual Procurement Work Plans Contrary to the PPDA requirements; user departments of the Board did not prepare detailed and adequate procurement work plans to aide management in decision making. Important information like proposed method of procurement, estimated length of procurement process, time frame when the item is required, date of initiation, level of authority, estimated quantity, unit cost and amount were missing. In the absence of complete information from user departments, planning proper procurements for the Board was not possible.

Management responded that users tried to prepare their work plans but not in detail. Some users feel it is not their role to go into those details but management is trying to overcome that by providing the users with the likely duration of each of the key stages early enough to facilitate procurement planning and timely raising of the procurement requisition Management was advised that User departments work plans should provide all the information required for planning procurements to avoid delays and other bottlenecks. b. Consolidated Procurement An analysis of the consolidated procurement plan revealed that there was no provision or time frame for conclusion of procurements. Besides, performance reports analyzing the implementation of user department‘s requirements were not availed to evaluate the implementation of organization procurement plan. Deliverables and efficiency could not be ascertained. Management responded that some of the contract managers tried and made performance reports, others are just coming up through the sensitization meetings for contract managers organized by PDU. It is hoped that this will also improve because most users are just learning all these requirements and it has been noted that they are proactive and are thus likely to be fully compliant in future. Management was advised that the time frame for implementing the activities should be provided. In addition, evaluation of the procurement plan should be carried out to assess performance against set targets.

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c. Non Existence Of ICT Policy The Entity has many computers in different departments and with computerized accounting package called ―SOLOMON‖, but with no IT Policy in place. The security of information systems assets and usage can be compromised. Management hoped that by the end year of 2011, the detailed UNEB ICT policy will be in place. Management is advised to ensure that it develops ICT policy for efficient operation of IT resources.

d. Revenue Shortfall Shs.3,912,181,000 It was noted that there was revenue shortfall on various items amounting to Shs.3,912,181,000. The possibility of unrealistic budgeting or laxity in revenue collection could not be ruled out. Management responded that the major cause of the shortfall was the non-release of the UCE/USE funds amounting to Shs.2.525 billion by the MOES that the Board had budgeted for during the period. However, funds are released to UNEB based on the actual number of candidates that have registered to sit a particular level of examinations. Since this number had not been determined fully by 30/6/2010 for UCE; no release could be made. UNEB was advised to enforce full realization of the budget to enable implementation of budgeted activities.

2.59 NATIONAL COUNCIL OF SPORTS - JUNE 2008

2.59.1 Fixed Assets The Council did not maintain a Fixed Assets Register giving such necessary details as asset Description, date of purchase, Cost or valuation, Asset identification number, Location and Useful life of the asset. As a result, management do not have a reference point for reconciling the physical assets in use ,thus exposing the Council to the risk of undetected losses of Fixed Assets. The Council‘s Fixed Assets (Property, Plant and Equipment) have also never been revalued since 1964 contrary to IAS 16.

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Management in response stated that they were of the view that a meaningful Fixed Assets Register should also reflect the current value of the Fixed Assets. Therefore, they intend to re-value the Company Assets but have not found the funds to do so.

2.59.2 Irregular selection of legal firm A local legal firm was selected by the Council to obtain a land title for their premises at a legal fee of Shs.140million. However, public procurement procedures were not followed in engaging this firm. It is therefore not clear how the legal fee of 140 million was arrived at. I could not confirm that the Council got value for money following this expenditure without tendering. Besides, the title had not been obtained two years later. Management in response stated that this matter was handled at ministerial level. I informed management that it is the responsibility of the Accounting officer to ensure procurement laws and regulations are followed.

2.59.3 Statement of changes in equity The entity did not prepare a statement of changes in equity contrary to financial regulations.

2.59.4 Prior year adjustments Under Notes 7 and 17 to the financial statements, there is a prior year adjustment amounting to Shs.88,728,620 was made to the accumulated fund without a proper explanation.

2.59.5 Write off of Debtors The debtor's balances for the year ended 30 June, 2007 amounting to Shs.11,595,397 were written off in the year ended June 2008. However, no council resolution was presented to support the write off. Management in their response stated that the debtors had been outstanding since 2000.

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2.59.6 Lack of bank reconciliations Best practice in financial management requires that bank Reconciliations be prepared monthly and the statement be reviewed independently by a senior officer. On the contrary, the Council did not prepare monthly Bank Reconciliations. I informed management that internal control over cash and bank is weakened by this omission since outstanding reconciling items may take long before they are promptly investigated and resolved.

2.59.7 Cash shortage Petty cash count at year end revealed a discrepancy with the cash book balance. Whereas the financial statements presented a figure of Shs.3,718,132 in respect of petty cash, the physical cash count at year end revealed only Shs.1,371,300. Management attributed the difference to IOUs which had not yet been expensed or cleared at the close of the financial year, I informed management that this practice in cash management is irregular. The difference of Shs.2,346,832 remains unaccounted for.

2.59.8 Rental income from oasis restaurant A total of Shs.7.5m due as rental income from a tenant for the 1st quarter ending 30.09.07 was not paid to the council. Although management in response stated that there was no payment made because there was an additional grace period granted to the tenant by the General Secretary, the authority of the grant was not provided for under the tenancy agreement. It was therefore irregular and funds remain recoverable.

30th JUNE 2009 2.59.9 Lack of a Fixed Assets Register

The Council did not maintain a Fixed Assets Register giving such necessary details as asset Description, date of purchase, Cost or valuation, Asset identification number, Location and Useful life of the asset. As a result, management do not have a reference point for reconciling the physical assets in use, thus exposing the Council to the risk of undetected losses of Fixed Assets.

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2.59.10 Cash at Bank Certificates of cash balances were not presented to support the balance of cash at bank totaling 43,493,771 disclosed under note 5 to the financial statements. I could therefore not confirm that the cash at Bank balance is fairly stated.

2.59.11 Prior years Adjustment Supporting documentation for a prior years adjustment amounting to Shs.26,782,729 charged against the accumulated fund under the Statement of changes in equity were not presented for audit. I could not confirm that the accumulated fund account is fairly stated in this regard.

2.59.12 Lack of an updated Financial Procedures Manual The financial procedures manual contains detailed documentation of the accounting system of the or the Council has never been updated since inception and was lacking in some key areas such ganization. It also details the accounting procedures and guidelines to help staff minimize errors in financial transaction processing. During the audit it was noted and pointed out to management that the financial procedures manual for as a policy on capitalisation of assets. Management in response stated that an updated financial manual has been drawn by a professional firm to be presented to the National Council of sports Board for approval.

2.59.13 Lack of bank reconciliations

As mentioned in my previous report, best practice in financial management requires that bank, reconciliations be done monthly and the statement be reviewed independently by a senior officer. On the contrary, the Council did not prepare monthly Bank Reconciliations. I informed management that without monthly bank reconciliations, discrepancies and irregularities on the council‘s bank account occur

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and remain undetected. Management in response stated that the failure to carry out monthly bank reconciliations is due to lack of staff.

2.59.14 Lack of rental agreements with Tenant Associations During the audit we noted that the Uganda Lawn Tennis Association (ULTA) did not have a signed tenancy agreement with NCS since 2007. It was also noted that the previous tenant Uganda Tennis Association (UTA) left outstanding utility bills and rental arrears totaling over 30 million Uganda shillings. There was no fall back guarantee such as a security deposit and the recoverability of this amount is doubtful.

2.59.15 Un-banked receipts A review of a sample of the revenue receipts indicated that cash received by the Council totaling Shs1,590,000 was not banked. Management in response stated that the cash was utilised at source due to emergency situations and late receipt of funds from the Ministry. It was noted however, that payments arising from such expenditure at source are not properly authorized. The funds remain unaccounted for.

2.59.16 Lack of performance appraisal A review of several staff personal files revealed that the council did not have staff performance appraisal system in place. There was no evidence of staff appraisal over the past 10 years. I informed management that Staff appraisals are necessary to monitor the performance, motivate, and develop individual staff while helping the organization achieve its objectives. Management in response stated that the Assistant General Secretary (Administration) has introduced Appraisal forms to be filled every year for the purpose of appraisal.

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2.60 NAKIVUBO WAR MEMORIAL STADIUM

31st DECEMBER 2005 2.60.1 Lack Of Underlying Records to Support the Amounts and Disclosures in the Financial Statements

Management failed to provide for audit appropriate underlying records that formed the basis of the preparation of the financial statements. Key information requested for and not provided for audit included:-  Books of prime entry such as cashbooks, ledgers ,and registers

 Bank statements, bank reconciliation statements, and certificates of bank balances.

 Evidence of ownership of assets (such as land titles)

 Debtors and creditors schedules.

I was therefore un able to verify the existence, accuracy, completeness, ownership or valuation of assets reflected in the financial statements, and the occurrence of the transactions supporting these figures.

2.60.2 Lack of a Fixed Assets Register Management did not maintain a Fixed assets register to record the stadium‘s assets cost/value, there location, and condition. It was further noted that most of the Assets were not engraved thus compromising their security and identification. I was therefore unable to confirm the completeness of the record of assets.

2.60.3 Depreciation of Loose Tools Under principles that apply to depreciation, IAS 16 requires that:-  the depreciable amount be allocated on a systematic basis over an asset‘s useful life  The depreciation method reflects the pattern of expected consumption. In addition, accounting principles dictate that accounting policies adopted be applied with consistency. Contrary to these provisions, Nakivubo Stadium depreciated their Loose Tools at a rate of 61.25% which was increased from 50% in the previous year.

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This accounting estimate was not based by any existing company policy and whereas management stated that the tools were bordering on obsolescence, the justification for change in depreciation rate is not provided for under IAS 16. The Non current Assets were therefore, not fairly stated in the financial statements.

2.60.4 Gate Collections The Turnstiles machines revenue collection system installed at the entrances broke down and as a result cash collected was reconciled manually with the ticket stubs at each gate. This manual reconciliation system lacks necessary controls to avoid the risk of collusion and fraud that may arise from printing and issuing counterfeit receipts. In the absence of alternative compensating controls, I could not confirm the completeness of revenue recorded in the books of accounts. Management explained that the machines needed repair which was to be considered in the coming year.

2.60.5 Corporate Governance- Unrecovered Advances To Board Members It was noted that Board members borrowed stadium funds which they had not paid by end of financial year. A total sum of Shs.4,247,000 (2004: Shs.6,825,500) remained unpaid by board members as at 31st December 2005. I informed management that borrowing by board members is irregular because it violates corporate governance principles and good practice and undermines the integrity of the Board as supervisors, policy makers and oversight body of the stadium. Meanwhile, a record of Board meeting was not availed for audit. Therefore, the frequency and occurrence of board meetings could not be ascertained.

2.60.6 Non-Compliance With Ppda Act / Regulations Management did not follow laid down procedures required by PPDA in the procurement of goods and services for a public Enterprise. The contracts committee and procurement and disposal units were not in existence during the year. As a result value for money may not have been obtained from hiring out of stadium facilities such as parking space, billboards, toilet facilities etc. I informed management that failure to set up a contracts committee and procurement and disposal unit contravenes sec 97 of the PPDA Act.

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2.60.7 Personnel Files A review of personnel records revealed that files of 16 staff were not up to-date. Some files were lacking details relating to appointment. We could therefore not confirm whether the affected employees were transparently recruited.

31st DECEMBER 2006 2.60.8 Lack of underlying records to support the amounts and disclosures in the Financial Statements

 Bank statements, bank reconciliation statements, and certificates of bank balances.

 Evidence of ownership of assets (such as land titles)

 Debtors and creditors schedules.

I was therefore un able to verify the existence, accuracy, completeness, ownership/ valuation of assets reflected in the financial statements ,and the occurrence of the transactions supporting these figures.

2.60.9 Lack of a Fixed Assets Register

As mentioned in my previous report, Management did not maintain a Fixed assets register to record the stadium‘s assets, their cost/values ,location and condition .It was further noted that most of the Assets were not engraved thus compromising their security and identification. I was therefore unable to confirm the completeness of the record of assets.

2.60.10 Gate collections

As mentioned in my previous report the Turnstiles machines revenue collection system installed at the entrances broke down and as a result, cash collected was 334

reconciled manually with the ticket stubs at each gate. This manual reconciliation system lacks necessary controls to avert risk of collusion and fraud that may arise from printing and issuing counterfeit receipts. In the absence of alternative compensating controls, I could not confirm the completeness of revenue recorded in the books of account.

2.60.11 Corporate Governance- Unrecovered advances to board members It was noted that Board members borrowed stadium funds which they had not paid back by end of financial year. A total sum of Shs.2,927,000 (2005: Shs 4,247,000 ) remained unpaid by board members as at 31st December 2006. Borrowings involving board members are irregular and violate corporate governance principles, besides undermining the integrity of the Board as supervisors, policy makers and the oversight body of the stadium.

2.60.12 Water Consumption Facilities The Stadium used a water hydrant line for industrial consumption contrary to regulations of the National Water and Sewerage Corporation which require hydrants to be used for emergency fire fighting. Consequently NWSC billed the Organization Shs.21,916,854 on the hydrant line(including penalties) and Shs.2,508,467 on the commercial line.

Use of hydrant waterline for industrial water consumption is irregular and resulted in penalties and high water bills.

2.60.13 Unaccounted for Funds Shs.7,275,577 It was noted that Management made payments out of gate collections to several Football clubs. However, acknowledgement receipts by some clubs that were paid a total sum of Shs.2,000,577 were not availed for audit .

In addition, a sum of Shs.5,275,000 paid to various individuals was not supported by relevant documentation such as Invoices, LPOs and receipts. I could not confirm that these funds were put to proper use. I was therefore unable to confirm that the funds were put to proper use.

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31st DECEMBER 2007

2.60.14 Lack of underlying records to support the amounts and disclosures in the Financial Statements

 Bank statements, bank reconciliation statements, and certificates of bank balances.

 Evidence of ownership of assets (such as land titles)

 Debtors and creditors schedules.

I was therefore un able to verify the existence, accuracy, completeness, ownership/valuation of assets reflected in the financial statements, and r the occurrence of the transactions supporting these figures.

2.60.15 Lack of a Fixed Assets Register

As reported in my previous report ,management did not maintain a Fixed assets register to record the stadium‘s assets, their cost/value ,location and condition .It was further noted that most of the Assets were not engraved thus compromising their security and identification of the Stadium Assets . I was therefore unable to confirm the completeness of the record of assets.

2.60.16 Gate collections

As reported in my previous report ,the Turnstiles machines revenue collection system installed at the entrances was out of order and as a result, cash collected was only reconciled manually with the ticket stubs at each gate. This manual reconciliation system lacks necessary controls to safeguard the Stadium against the risk of collusion and fraud that may arise from printing and issuing counterfeit receipts. 336

In the absence of alternative compensating controls, I could not confirm the completeness of revenue recorded in the books of accounts.

2.60.17 Corporate Governance- Unrecovered advances to board members It was noted that Board members borrowed stadium funds which they had not paid back by end of financial year. A total sum of Shs.3,772,000 (2006: Shs.2,927,000) remained unpaid by board members as at 31st December 2007. I advised management that borrowings involving board members is irregular because it violates corporate governance principles and good practice and undermines the integrity of the Board as supervisors, policy makers and oversight body of the stadium.

2.60.18 Concession Revenue Receivable / Nakivubo Park Yard.

The trustees of Nakivubo Stadium entered into an agreement with Kampala City Council (KCC) in which KCC agreed to pay the stadium 30% of collections from users of the Market stalls at the park Yard. We noted that KCC has defaulted on those payments. KCC has even reneged on a consent judgment of 1998 that was a result of a suit by Nakivubo stadium in which it made a commitment to buy al outstanding dues. We noted that KCC still owed Nakivubo stadium q Shs. 86,927,060 as 31st December 2007. Meanwhile, this long outstanding debt is not reflected in the financial statements of the Stadium.

31st DECEMBER 2008

2.60.19 Lack of underlying records to support the amounts and disclosures in the financial statements

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 Books of prime entry such as cashbooks, ledgers ,and registers

 Bank statements, bank reconciliation statements, and certificates of bank balances.

 Evidence of ownership of assets (such as land titles)

 Debtors and creditors schedules and ledgers.

I was therefore un able to verify the existence, accuracy, completeness, valuation of assets reflected in the financial statements, and the occurrence of the transactions supporting these figures.

2.60.20 Fixed Assets Register

Management did not maintain a Fixed assets register to record the stadium‘s assets, their cost/value ,location and condition .It was further noted that most of the Assets were not engraved thus compromising their security and identification. I was therefore unable to confirm the completeness of the record of assets.

2.60.21 Gate collections

As reported in my previous report the Turnstiles machines revenue collection system installed at the entrances broke down and as a result, cash collected was reconciled manually with the ticket stubs at each gate. This manual reconciliation system lacks necessary controls to safeguard the Stadium, from the risk of collusion and fraud that may arise from printing and issuing counterfeit receipts. In the absence of alternative compensating controls, I could not confirm the completeness of revenue recorded in the books of account.

2.60.22 Concession Revenue Receivable / Nakivubo Park Yard

As reported in my previous report, the trustees of Nakivubo Stadium entered into an agreement with Kampala City Council (KCC) in which KCC agreed to pay the stadium 30% of collections from users of the Market stalls at the park Yard. We noted that KCC has defaulted on these payments. KCC has even reneged on a consent judgment of 1998 that was a result of a suit by Nakivubo stadium (NWMS) in which it made a 338

commitment to pay all the outstanding dues. We noted that KCC still owed Nakivubo stadium Shs.237,278,270 as 31st December 2008. This debt is, however, not reflected in the financial statements of the Stadium (NWMS).

2.60.23 Non Payment of Statutory Deductions Shs.193,195,189 Statutory deductions in respect of NSSF (Shs.29,376,861), PAYE (Shs.9,371,136) and VAT (shs.154, 447,192) were not remitted to the relevant authorities contrary to the existing laws. I informed the stadium management that non payment of statutory deductions violates the relevant laws and may attract penalties and fines against the entity.

2.60.24 Ineligible Expenditure

A sum of Shs.12,000,000 paid to a local bus company for services purportedly rendered during the visit of the Libyan President was not properly supported or justified. Although management indicated that the payment had nothing to do with the Libyan president‘s visit, the documentation verified still reflected this position. This expenditure is therefore ineligible to be charged to the Stadium accounts

31st DECEMBER 2009

2.60.25 Lack Of Accounting Records Like Asset, Creditors and Debtors Ledgers. The entity did not maintain ledgers as mentioned in the previous report contrary to the Public Finance and Accountability Act 2003. In the absence of the necessary and vital books of accounts it was difficult to prepare reliable financial statements. Management responded that all the ledgers were in place but not up to date and that all efforts were being made to ensure that all the records are updated at the end of the subsequent accounting period. Management should ensure that all books of accounts are kept to for proper control and reporting.

2.60.26 Assets Management The asset value for land and buildings of Shs.1,771,040,951 reflected in the draft accounts for the year ended 31st December, 2009 was not arrived at in accordance 339

with the applicable International Financial Reporting Standards (IAS 16). There was no evidence of ownership of property, no guarantee that the land was free from encroachment and the depreciation policy was not properly applied. The assets may not be fairly stated in the Financial Statements. Management responded that thy titles were available but were not presented at the time of verifying the responses. They further stated that the valuation exercise for the property was under way and realistic values will be reflected in the year ending December 2010.

The property should be revalued and properly stated in the Financial Statements in accordance with the applicable accounting standards.

2.60.27 Concession Revenue/ Park Yard Of Shs.181,756,580 As noted in the previous audit report, the above sum of money accumulated from February, 2006 to December, 2009 at a rate of Shs.3,951,230 per month. This amount was as a result of unpaid 30% rebate by K.C.C to NWMS for use of the Park yard area as a market. This issue was subjected to a litigation process and a consent judgment was reached where K.C.C agreed to settle the outstanding amount to NWMS but the agreement was not honored. Failure to recover revenue affects implementation of priority programs and service delivery. Management responded that the advice given was going to be followed to ensure the outstanding amount are recovered and any bottlenecks encountered will be reported in the next financial report.

2.60.28 Revenue Collection

There was no proper system of assessment, collection, recording and accountability of all the stadium revenue during the period under review. The revenue declared from specific sources did not reflect fair value of the assets being let-out. For instance, rent received from lock-ups around the stadium is below market rates. Facilities that were tendered out like the bus and car parks on Namirembe road were not subjected to competitive bidding processes. Meanwhile there were no contract agreements, receipts, customer lists to enable meaningful verification. Thus, the amounts reflected

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as revenue in the Financial Statements may be grossly misstated due to lack of internal control systems.

Management agreed with observation made is true but this is as a result of factors beyond control For instance all these facilities came into operation on the basis of cost sharing by individuals occupying them who proposed with ready capital to develop them as they also pay some fee to the stadium. Management could not develop them due to lack of funds and hence this affects its bargaining power on how much to charge.

Management should ensure that a revenue management system is put in place for better performance and development of the stadium.

2.60.29 Park Yard Market Management

There was no formal arrangement between KCC and the management of NWMS with regard to the management of the Park Yard. What started as a temporary shelter for Owino Market Vendors during renovation of the main market had been turned into a market by KCC long after the rehabilitation of the market. This has resulted into loss of revenue to the stadium and legal costs to the stadium. Management Response that it has always been struggle & wish to ensure that there is formality in the operation of this market but due to political interference management has found itself at the receiving end without any say. However, with the advice given and when resources allow we intend to engage a Lawyer to handle the issue.

2.60.30 Management Style Management of the stadium affairs was centralized in the hands of the Board but which was too busy for the Stadium's business. For instance the NWMS Trust Act places the powers in the trustees with no particular accountable person. Besides, there was no proper Management structure in place. There were no clear schedules of duties for staff whose appointment letters of the members of the Board were not availed for review.

The stadium affairs were run on adhoc basis with little or no clear measurable outputs. The entity did not comply with modern management and Corporate 341

Governance principles and practices. It was difficult to measure and evaluate the performance of the stadium.

Management responded to have noted the matter with serious concern and that consultations were being made with all the stake holders to review the Trust Act and the organization structure to fit into the modern management and corporate governance principles & practices. Management is advised to review the organization structure and some sections of the trust act to separate Board from day to day running of stadium activities. The entity should have an accounting officer and a management team to implement the Board of Trustees resolutions to ensure accountability and transparency in running of the stadium affairs.

2.60.31 Lack Of Human Resource and Accounting Manuals The continued absence of the human resource and accounting manual puts the entity in a precarious situation in respect of implementation of human and financial matters due to lack of guidance. No efficient and effective control is exercised as no yardstick is in place to measure deviations. Management responded that the issue was noted with much concern in the previous audit report and management resolved to address it but due to the short timeframe between the last audit observation that involved four years and this very audit it was not possible to implement due to financial constraints as we solely rely on meager collections and this exercise requires much funds. Management should ensure the manuals are put in place for proper management of the entity's resources.

2.60.32 Understatement of Debtors And Creditors.

The debtors reflected in the draft accounts for the year ended 31st December, 2009 of Shs.4,814,833 was understated by Shs.138,293,050 due from KCC. The debtors and creditors figures were not fairly stated.

Management responded that figure of Shs.181,756,580 had been left out on the pretext that it had been written off. However, upon the auditor's scrutiny it was realized that there was no authority sanctioning the write off. Therefore, the figure is 342

to be reinstated in the final audited accounts.

Management is advised to ensure there is a proper system for accounting for debtors and creditors presented in the Financial Statements.

2.60.33 Payment for Utilities and Electricity Shs.17, 073, 978 Shs.17,073,978 was paid vide vouchers 6175/11/09 and 6168/11/09 for Shs.lO,073,978 and Shs.7,000,000 respectively for utilities without supporting documents like acknowledgement receipts. These funds were drawn cash and were not supported by any accountability documents, like invoices and acknowledgement receipts. This casted doubt as to whether the funds were paid for the right purpose. Management responded that the acknowledgement receipts had been misfiled at the time of audit but that they were traced. They were however not presented for verification. Management should ensure that all supporting documentations are availed and in future to avoid payments in cash to service providers as this is prone to abuse.

2.60.34 Non Compliance with PPDA Act A review of the procurement audit report by PPDA and our own reviews revealed several anomalies in the management of the procurement process function at the stadium. Notable were the following:

There was no procurement plan, no prequalification process was undertaken, procurement methods used were not specified, no bidding, no evaluation, no proper contacts management, no records of procurements and above all no contracts committee and Procurement & Disposal unit were constituted in accordance with the PPDA act and regulations.

Shs.64,335,695 was spent on construction works without following PPDA regulations and accountabilities were not availed for verification. It was further noted that most of funds were drawn in cash from the bank casting doubt to the effective utilization of the cash. Acting in total disregard of the procurement Laws and Regulations may lead to the entity not benefiting from competitive prices and not obtaining value for money. 343

Management responded that the PPDA procedures could not be followed due to the fact that they require enough resources and time which NWMS lacked due to lack of funds. The construction works were done in-house in bits and the accountabilities for the works are available for your verification. Management is advised to adhere to the provisions of the PPDA act and the Finance and Accountability act, and to avail accountabilities for the above amount.

2.60.35 Payment of VAT Arrears Shs.64,736,670

Shs.64,736,670 was paid as VAT arrears without acknowledgement receipts to support the payments. Besides, there was no ledger in place to verify the outstanding bill against the payments. Furthermore the payments were effected in cash. The funds may not have been received by the intended recipient while lack of the ledgers casts doubt to the accuracy of amounts paid and outstanding on the account.

Management responded that there was a problem in record filing that led to this anomaly at the time of audit However; copies of the receipts are now available for verification. The ledger was in place but was not maintained as required because URA kept on varying the amounts by adding on fines & penalties for whichever period elapses without prior notice. Cash payments were as a result of URA blocking the accounts and hence the only alternative.

Management is advised to ensure that acknowledgement receipts are obtained from the recipient and a ledger kept confirming the outstanding obligation is in place.

2.60.36 Expenditure lacking accountabilities

Shs.18,323,124 advanced to individuals and companies remained unaccounted for by the year end. There was a risk that the funds were not put to proper use or never reached the intended recipients.

Management responded that the individuals and companies have been notified of the development and they are to produce the accountabilities. Management is advised to ensure that all advances are accounted for and acknowledgements obtained from the 344

recipients.

2.60.37 Doubtful Entries In The Financial Statements A review of the PPDA report revealed that revenue of Shs.369, 959,969 was declared during the year under review but the draft accounts revealed an amount of Shs.296, 879,618 creating an unexplained balance of Shs.73j, 080,351. It was not possible to confirm the completeness and correctness of the revenue amounts disclosed in the financial statements.

Management responded that the PPDA report took gross revenue without apportioning what was actually earned for that year and advances accrued for the subsequent period. So, that difference is attributed to advances as reflected in the balance sheet items. Management should provide records and documents relating to revenue for verification.

2.60.38 Lack of direction

The entity has no annual/ quarterly work plans, business plans, and strategic plan and, objectives, mission and vision. Absence of the above tools implies that the entity may not have proper strategic direction which makes monitoring, evaluation and supervision difficult.

Management responded that they have tried to put in place some principles and practices which only need strengthening. For instance the accounts section has someone knowledgeable in the field to guide the Board appropriately.

Management is advised to develop and use sound listed principles and practices.

2.60.39 Poor revenue performance

The estimated revenue collection was Shs.519, 400, 000 while the final outturn was Shs.296,879,618 resulting into unrealized revenue ofShs.222,520,383. The entity could not realize its intended objectives.

Management responded that poor revenue performance is attributed to many factors which are not directly controlled by Management For instance the no longer enjoys the monopoly of hosting international matches which used to be the main source of 345

revenue

Management is advised to identify and address causes of poor revenue collection and rectify them for better service delivery.

2.60.40 Lack of Security/ Safety Measures An inspection of the stadium revealed that there are no security/ safety measures like escape routes, fire fighting measures and Insurance cover. The lives of the users of the facility are at risk in the event of fire or any other calamity. Management responded that it had always been in plan and interest to put security/ safety measures at the stadium but financial constraints was an impendent. However, that all efforts were being made to secure the station when funds are got. Management should put adequate security and safety measures in place to safe guard the lives and property of innocent public.

2.60.41 Structural integrity of the Stadium The stadium was constructed over 60 years ago and its structural designs were not available for review to ascertain its structural strength and worthiness of the facilities. The Board has never carried out structural integrity reviews to ascertain its current condition. In the absence of such reviews, the safety of the assets is not guaranteed. Management responded that the observation made was been noted and management was to present it to the Board for appropriate action.

2.60.42 Conflict of interest

The Chairman Board of Trustees was an employee of KCC which was a major source of revenue for the stadium: KCC has also defaulted on revenues due from the Park Yard for a long time. There was a conflict of interest and hence potential revenue due to the stadium may never be collected.

Management responded that the observation was noted with much concern and after consulting we have resolved that it should be brought to the attention of the appointing authority as advised. We hope it will be addressed in line with modern

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corporate principles requirements.

The appointing authority should consider addressing this anomaly.

2.60.43 Failure to implement legal requirements A review of the Act revealed that some vital sections of the Act have not been implemented i.e.

SA (6) requires that the Board appoints a secretary to the Board who is an officer but not a member of the board. No instrument of appointment was provided;

S.4 (7) mandates the Board to appoint a treasurer also an officer of the Board but not a member of it but instead appointed a member of the Board;

S.7 (1) requires the Board to prepare and present a performance report to the Minister. However, no such report has ever been presented to the Minister.

The Board did not comply with the statutory requirements. This affects the operation efficiency of the Board and ultimately performance of the Stadium.

Management responded that the issue was noted with utmost faith and after consultation with all stake holders it will be addressed as advised.

The Law should always be upheld at all times

2.61 MANDELA NATIONAL STADIUM

31st DECEMBER 2004 2.61.1 Segregation of Duties One of the elements of internal control in the accounting system is segregation of duties between the functions of authorization, execution and custody. However, the cashier who did the receiving and banking of revenue also performs the bank reconciliation. Under such circumstances, errors such as omissions could be perpetuated and remain undetected in the accounts, since the work of the cashier was not checked by another 347

for accuracy and completeness. Besides there is a risk of fraud being easily initiated and completed by one individual. Management responded that they were in the final stages of approving the human resource manual to address the problem.

I advised management to strengthen controls in this area by segregating the functions of receiving, banking and bank reconciliation.

2.61.2 Policy Manuals Both the financial regulations and personnel manuals which are currently in use are in a draft form and have not been officially approved by the Board. This is a weakness to the institution which affects the way financial transactions are initiated, processed and recorded. Lack of personnel manuals also creates uncertainty over recruitments, promotions, discipline and dismissal of staff. Management responded that they were in the process of reviewing the draft manuals for Board approval. We noted however that the process is taking long.

2.61.3 Employee Status The Stadium employs most of its staff on temporary terms for a long time. Although the Stadium has no policy on temporary employment, Public Service Standing Orders, the Employment Act and best practice recommend a period of 6 months. The situation creates a feeling of a ―lack of job security‖ and may cause staff tensions and demotivation. Management stated that they are in the process of restructuring whereby the issue of employee status is going to be equally addressed.

I advised management to explore possibilities of either engaging staff on permanent or contract terms.

2.61.4 Statutory Deductions During the year under review, the employees and the stadium did not contribute to NSSF as required by law resulting in NSSF arrears amounting to shs.600m. The Stadium risked penalties and court action by NSSF.

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Management responded that after putting in place the board of Directors and senior management to run the Company, the relationship with NSSF was regularized.

I urged management to urgently reconcile their position with the Fund and ensure that all staff begin contributing to NSSF to avoid penalties and court action.

2.61.5 Salary Structure The stadium did not have a standardized salary structure and scales for its staff. As a result, it was difficult to confirm the salary payable to each individual. This makes salaries paid arbitrary and budgeting for them difficult. Management responded that they are in the process of reviewing the human resource manual which will incorporate a detailed salary structure.

31st DECEMBER 2005

2.61.6 Land Title The Land on which the Stadium is located was registered in the names of Uganda Land Commission making it difficult to confirm its ownership. Management responded that they were in the process of transferring the land title from Uganda Land Commission to MNSL. I await implementation.

2.61.7 Organization Structure The Board had not approved the Human Resource manual that had been recommended for implementation by the consultants. This manual had the organizational structure of the stadium. Absence of an organizational structure means that lines of responsibility are not clearly defined which may affect the smooth operation and performance of the organization. We noted further that there was understaffing at the stadium. Management‘s attempt to assign extra duties to the few staff has not proved effective

I urged the Board to expedite the process and ensure that the human resource manual is approved and implemented.

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2.61.8 Fixed Assets Register The stadium did not have a complete fixed assets register indicating the description of each item of property, plant and equipment, their values/cost, location etc. I could not confirm completeness, ownership and values of the assets.

I advised management to ensure that a comprehensive fixed assets register showing assets values; description etc is in place and regularly updated.

2.61.9 Segregation of Duties There was no clear segregation of duties in major operational tasks. As a result the entity‘s operations in the accounts section were performed by one person. One Accounts Assistant acted as cashier, write cheques, make banking, withdraw cash and write vouchers. Fire fighting technicians double as sales officers in charge of banqueting, operations, monitoring and staff welfare. Lack of segregation of duties in operations could result in increased risk of material misstatements in the financial statements and transactions going undetected. Management responded that the human resource manual that is being reviewed by the Board is going to allow for staff expansion both in quality and number.

I have asked management to put in place adequate compensating controls as they await the recruitment of additional staff.

31st DECEMBER 2006

2.61.10 Compliance with PPDA regulations

Management did not follow procedures when procuring goods & services during the period nor did it set up a contracts committee and disposal unit in accordance with the PPDA Act.

Failure to set up a contracts committee and a procurement and Disposal unit contravenes section 97 of the Public procurement and Disposal of Public Assets. I

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could not confirm that all procurements made during the year were transparent and competitive. Management responded that they have since been applied PPDA Rules and Regulations in the procurement process.

31st DECEMBER 2007

2.61.11 Land Encroachment on the Stadium Land There was a potential threat of encroachment on the stadium land. Other squatters who may have been compensated by government for their partially acquired plots have taken advantage of lack of a fence and again encroached on stadium land. Besides, management had not replaced the beacons north and east of the stadium that were removed during the construction of the stadium.

Furthermore, although a consultant, was procured to survey, value and transfer the land and other properties into the company names, (MNSL) these were never accomplished. The land title is still registered in the names of Uganda Land Commission.

Management responded that once the land is registered in the names of the Stadium, then management will effectively control its occupancy.

I urged management to expedite the process.

2.61.12 Non-Current Liabilities of Shs.207,000,000 The financial statements show that Shs.207,000,000 disbursed to Mandela National Stadium Limited as budget support by PERD (Public Enterprises Reform and Divesture Unit) of Ministry of Finance, Planning and Economic Development had been disclosed as a Loan and not as a Grant as would have been the case. This is contrary to financial regulations. Management responded that they were consulting Privatization Unit on the treatment of the funds in accounts.

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I have however advised management that necessary adjustment be made in the financial statement of MNSL to reflect it as government grant.

2.61.13 Debtor Management There were weaknesses in the management of Debtors as reflected in the financial statements. Trade debtors increased from Shs.95,600,449 to Shs.250,228,480 during the year. No funds were collected from two accounts that had outstanding balances of Shs.32,983,800 and Shs.26,913,500 respectively for the past three financial years. Besides, there was no evidence to show that efforts had been made to have these debts collected. I informed management that uncollected debtors affects the liquidity of the organization and hence a debtors policy be instituted to efficiently manage debtors. Management stated that they have instructed their lawyer to collect all accumulated debts.

2.61.14 Sports Development Fund It was noted that Shs.12,134,078 (2005), Shs.3,500,000 (2006) and Shs.12,433,100 (2007) was remitted to the Sports Development Fund which is administered by the Minister in charge of sports in the Ministry of Education. However, there was no board resolution sanctioning the contributions, and official acknowledgement receipts for the funds by the ministry were not availed for audit. Management was informed that contributions made to other bodies without budget and approvals of the board are irregular. However, management responded that they were instructed by Minister in charge of Sports.

I advised management and the board to operate within the rules and regulations that govern limited companies. Such contributions should only be paid out of budgeted and approved expenditure. Meanwhile, acknowledgement receipts and accountability should be availed.

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2.61.15 Internal Audit There was no internal audit unit for the years 2005 to 2007. As a result it could not be confirmed that there was an adequate and sufficient assurance mechanism in the stadiums‘ management for monitoring risk and control of operations.

Absence of an internal audit function which acts as an assurance mechanism implies that material misstatements and errors may go un detected in transactions and financial statements. Management responded that the Human resource function is being reviewed by the Board and is expected to create room for the internal Audit department. I await the review outcome.

2.61.16 Procurement Guidelines Goods & services were being procured without following the procurement guidelines. Although this was deemed appropriate at the beginning, it was against the PPDA Act and the guidelines to continue operating in this way. Likewise, documents like delivery notes, invoices, acknowledgement receipts were lacking rendering the purchases doubtful. Management responded that they have since the recruitment of appropriate staff appointed them to committees that oversee the procurement function.

I advised management on the necessity to have all the relevant units as spelt out in the PPDA Act and regulations.

31st DECEMBER 2008

2.61.17 Land Title Mandela National Stadium is registered as a limited liability company. However, the land it occupies was registered under Uganda Land Commission. There was also increased fear of more people encroaching on the stadium‘s land which had not been fenced off and surveyed. In the absence of the Land title, I could not confirm the ownership of the land claimed by the Company.

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Management stated that with the help of Ministry of Finance, Planning and Economic Development the process of transferring the land title is ongoing. The process is however taking too long. I advised the Board to expedite the process.

2.61.18 Non Remittance of NSSF Contributions There were no contributions made to NSSF during the year. By 31st December 2008 arrears to NSSF contributions had accumulated to Shs.175,440,396 and attracted a penalty of Shs.463,390,216. The amount due to NSSF was therefore Shs.638,830,396. Non compliance with NSSF regulations may see the entity prosecuted in courts of law. Management stated that they had entered negotiations with NSSF authority on the amount due and mode of payment. The reconciliation process has taken over 5 years. Mean while amounts owing to NSSF are increasing. I advised management to expedite the process.

2.61.19 Governance It was noted that the Chairman of the board chairs meetings of the board, and among other roles of directing the board, he is also a principal signatory on all payments made by the entity, thereby combining the roles of management and oversight, which contravenes the principles of corporate governance. Involvement of Board members in operational and executive functions contravenes the principles of corporate governance and may lead to conflict of interest.

Management responded that the Board is in the process of appointing staff to help in the day to day management of the Entity for the purpose of separation of powers.

2.61.20 Human Resource and Accounting Manual Management continued to operate without an accounting and human resource manual to guide staff in implementing financial decisions, policies and objectives for management of the stadium. Without clear financial guidelines and procedures, accurate recording of transactions and safeguard of assets of the council may not be guarded. Besides, lack of Human Resource manual, makes it difficult to appraise, recruit, promote and discipline staff.

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Management responded that the draft manual had been circulated to the Board members for review and approval. The process of review should be expedited.

2.61.21 Staff appointments Some staff had been irregularly appointed without interviews while others had expired contracts. Besides, there was no salary scale attached to the different categories of staff positions. Neither the company nor the staff can enforce their rights because of the limitations in the appointments. This can negatively affect staff morale.

Management responded that once the human resource manual is approved, the process of regularizing staff appointment will be expedited.

Management and the board were advised to quickly regularize the staff appointments and design a salary structure that would accommodate all categories of staff.

2.61.22 Sports Development Fund It was noted that a sum of Shs.8,000,000 was remitted to the Sports Development Fund which is administered by the Minister in charge of sports in Ministry of Education. However, a board resolution sanctioning the contributions, and official acknowledgement receipts for the funds by the Ministry were not availed for the audit. The expenditure was also not budgeted for. Such contributions made to other bodies without the approval of the board are irregular. Management stated that they had been instructed by the Minister in charge of sports.

Management and the board were advised to operate within the rules and regulations that govern limited companies and if such contributions were to be made, they should be properly budgeted for and sanctioned. Meanwhile accountability and acknowledgement receipts should be availed.

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2.61.23 Internal Audit Function The company operated without the services of an internal auditor. This has made it difficult for the company to adhere and observe good accounting practices. Lack of internal checks by the internal auditor in the operations of the entity makes it hard to enforce the internal control systems. Errors in records and financial statements may not be detected in time. Management responded that this function is going to be created with the approval of human resource manual.

Management is advised to recruit an internal auditor who will assist in observing and strengthening controls in operations of the entity.

2.61.24 Withholding Tax Contrary to the Income Tax Act, withholding tax totaling Shs.11,177671 was not deducted from the suppliers to the company during the year under audit. The company may incur fines and penalties for non recovery of the taxes

Management was advised to always ensure that tax laws are adhered to.

ENERGY SECTOR

2.62 SUSTAINABLE MANAGEMENT OF MINERAL RESOURCES PROJECT – JUNE 2010

2.62.1 Mis-Matched Project Budgeted Outputs And Key Component Activities Whereas the Project Implementation manual (PIP) of SMMRP clearly states and identifies key Components of the Project, the activity outputs and expenditure categories stated in the Budget book differ from the Project categories approved in the PIP and the project reporting requirements. I informed management that this mismatch creates difficulties in performance evaluation and monitoring of the Project.

Management acknowledged that there is need to liase with planning unit of the Ministry in order to re-align the activity outputs (expenditure categories) to the project

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components so that the intended objectives of the project are fully achieved and performance evaluation is carried out without difficulties.

2.62.2 Uncompleted Project Activities A review of the performance reports for the activities and work-plans for year revealed that although the project is scheduled to end in June 2011, some activities have remained behind schedule. These activities include:

 No Operational Mining Cadastre and Registry System in place.  Un-implemented Institutional Model for Department of Geological Surveys & Mines (DGSM).  Delayed Construction and Renovation of DGSM Offices and Laboratory.  Air borne geographical data processing and interpretation; although data is available, DAP server is not yet installed thus affecting the planned activities.

Since the project is scheduled to end in June 2011, there is a risk that the above activities will not have been completed by the end of the project.

Management in response attributed the delays to the lengthy procurement process and the fact that the Project financiers (World Bank (IDA), AfDB, NDF) did not come on board at the same time.

I informed management of the importance to ensure that all projected activities are completed before the end of the project.

2.62.3 Gross Tax A total of shs.1bn was budgeted and released under GOU funding for payment of taxes under this Project .However these funds were never utilized and were instead deposited to the Gross Tax receipts account in BOU from where it was transferred back to the Consolidated Fund. I indicated to management that this is a sign of under utilization/absorption of funds and poor budgeting by the Ministry which may result in unnecessary holding up funds while suffocating other sectors of the economy.

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Management explained that they had anticipated settling taxes for the civil works activity whose implementation delayed and also other procurements of equipment that awaited completion of the civil works. I informed management to always ensure activity based budgeting.

2.62.4 Audit Inspections of the Activities Funded under the SMMRP Small Grants Program (SGP) and Related Issues

Under SMMRP various Associations and Groups received funds from the Small Grants Program (SGP) a Cost-sharing grants scheme that started with a pilot phase consisting of 18 groups in five Districts (Mukono, Kasese, Busia, Wakiso and Ntungamo) before being rolled out nationally. The primary objectives of SGP were to:  Promote economically, socially and environmentally sound practices in the Artisanal and Small-scale Mining (ASM) sector; and  Reduce poverty by supporting integrated sustainable development of communities impacted or dependent on ASM activities.

Several districts in the pilot project areas were visited apart from Busia and Kasese districts were the contact persons were not available.

a. JUA KALI Agencies: (Mukono) The group was registered in 2006 and deals in Brick laying.

i. Funding The Association applied for UGX 29,079,050= of which 17,972,500 was approved but were credited with only UGX 8,986,250.

ii. Findings

Of the planned activities it was observed that;  No other equipment was at the site apart from a shelter, incomplete store and a big sign post.  There was no pit latrine on site.

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 A small sign post was fixed near the site and a bigger one was still in the store purportedly awaiting town council clearance for space to fix it. It‘s value was not established.  The extruder machine though a key instrument funded by the SGP grant was not yet purchased by the time of the audit inspections.

UShs.4,000,000 was purportedly deposited as part payment for the purchase of the extruder. However, verification of the agreement and invoice of the purported supplier proved the documentation to be fictitious. A further confirmation with the purported supplier revealed that only Shs.80,000 had been paid to him. The balance of the shs.3,920,000 was not explained.

Further more, the group stated that the cost of the extruder and its components was Shs.7,500,000 yet another beneficiary had purchased the same equipment at Ushs.4,600,000 from the same supplier.

A balance of shs.1, 304,250 purportedly invested in brick works to raise more funds was not supported by any documentary evidence and thus the funds remain unaccounted for. b. Ecological Christian Organization (ECO); (Mukono) This was an indigenous non Governmental Organization working to improve the quality of life and sustainable livelihoods of the poor and vulnerable groups in Uganda and works with 75 unregistered groups engaged in brick making and Sand mining at Kisansa-Goma Sub-county Mukono District. i. Funding The group applied for UGX 29,079,050 of which UGX 14,651,000 was approved but were credited with only UGX 7,325,500 on 16th March 2010.

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ii. Findings

It was observed that:-  The two stance pit latrine is incomplete and not in use and does not seem to meet the expected standards of an ecosan pit latrine.  A comparison of physical work done on the pit latrine vis a vis the amount spent revealed that the expenditure of shs3,000,000 appears inflated since the bricks, sand, labour and security were provided by members as own contribution.  The site is next to a big heap of rubbish/garbage even though one of the project objectives is to improve the sanitation and hygiene of the group and to train the group in proper sanitation and hygiene. This exposes the members to health risks.  A Local contractor Mr. Alex Ssenkayi was paid shs.3, 089,550 for construction of the fish ponds, however, no work had been done. These funds remain unaccounted. c. Bunonko Misoli Progressive Entrepreneur Association (Wakiso) Shs.2,338,350 was deposited on the Association‘s account on 15th March, 2010 for the brick making project at Kigungu Ward, Division 1, Entebbe. i. Findings All the requirements were in place but there was no evidence of on going works. The brick making machine was lying idle in the Chairman‘s courtyard. Without an identified store in place there is a risk of theft, pilferage and damage. No proper books were kept and no file for records and documents. d. Akwata Empola Miners Association (WAKISO) A sum of Shs.5,614,000 was received on 15th March, 2010 by the Association from the Ministry of Energy for excavating and sale of stones/hardcore.

Findings Although the project (SMMRP) paid UGX.5,614,000 the Beneficiary (Akwata Empola) only acknowledged receiving UGX. 5,180,000.

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Record keeping was poor and there was no file for documents. There are no records to support the expenditure on hiring of tractor and fuel costs. A sum of Shs. 493,000 was not accounted for. Management in response stated that groups had only been disbursed 50% of the approved amount as first tranche and implementation of activities was still in progress. A review would be carried out by the Project Management in order to release the second tranche of 50%. The field reports will determine which grantees are to receive the second tranche of funds. Those that will be found to have not complied with the SGP requirements will have to forfeit the second tranche and those that have not at all used the money will be tasked to refund the money. I await the details of the review.

2.63 STRENGTHENING THE MANAGEMENT OF OIL & GAS PROJECT - JUNE 2010

2.63.1 Budget performance A budget analysis of the project established that the Project management budgeted for $ 2,143,307 for the six months for the 4 pillars of the project. However actual expenditure was only $851,090 representing only 39.7% of the budget performance, leaving a variance of $ 1,291,895 as detailed in table below.

PILLAR BUDGET ACTUAL VARIANCE .USD (6MONTHS) EXPENDITURE (6 USD MONTHS) USD Resource 826,721 505,057 321,664 Revenue 652,500 236,496 416,004 Environment 572,623 104,140 468,483 Prog.Admin. 91,463 5,397 86,066 TOTAL 2,143,307 851,090 1,292,217

I informed the accounting officer that failure to achieve approved work plans and budgets may lead to unnecessary extensions resulting in additional programme management costs.

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The Accounting Officer stated that although The Project was supposed to commence in July 2009, it actually commenced in November 2009 .There was also noncompliance with approved work plans and budgets and this was basically due to the delay in the approval of the Petroleum Resource Law and the Revenue Management Law on which basis most activities‘ implementation lies.

2.64 STRENGTHENING THE STATE ADMINISTRATION OF THE UPSTREAM PETROLEUM SECTOR PROJECT IN UGANDA - JUNE 2010

2.64.1 Lack of an Annual Procurement Plan

Procurements under the project were carried out without a procurement plan contrary to the PPDA provisions in section 58.

Annual procurement plans help to rationalize procurements and ensure economy while avoiding split procurements made on adhoc basis .This also enables subsequent comparisons of planned implementation against actual procurements.

Management stated that during Annual General Meetings with donors, performance of the project for the previous period is reviewed and Workplans and Budgets for the New Year are discussed and approved. At this meeting the Procurements to be made during the subsequent year are approved. So the Goods and Services that were procured during the period under review were done in line with the Work Plans and Budgets approved during the Annual Meeting.

However, the AGM events neither address the issue of rationalization to ensure economy, nor the propriety of the actual purchases.

I informed the Accounting Officer that after the necessary donor approvals, the work plans and budgets are supposed to be amalgamated and incorporated in the entire Ministry‘s procurement plan for rationalisation and aggregation to ensure efficiency and value for money.

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2.65 KENYA-UGANDA OIL PIPELINE (KUOP) - JUNE 2010

2.65.1 GOU Counterpart Contribution Government of Uganda was supposed to contribute USD.38,500 to meet 50% of the local cost of the Project activities. It was however noted that GOU counterpart contribution towards the project was not realized during the period under review. Failure to implement the financing provisions as stipulated in the agreement may lead to delays in implementation of planned project activities. This issue has persistently been raised in the previous financial years without any positive response.

2.65.2 Implementation Status of the Project

Audit has noted that although Tamoil East Africa Ltd (TEAL) was procured in January 2007 as the private sector project developer, to date four years later there was no evidence of construction of the pipeline.

For the year 2009/2010 only 2 meetings were held in Eldoret, Kenya. Considering that the project started as far back as 1999 and the grant of USD.404,043 from ADB to finance preparatory/definitional activities was exhausted in the current financial year, there is need for a comprehensive review of the project performance vis-a-vis and its intended objectives.

Management responded that the project is still at its definitional phase and due to Uganda‘s discovery of commercial crude oil, there was need to change the original project design to accommodate reverse flow of petroleum products from Uganda to Kenya. Management added that the parties are yet to agree on the requisite legal documents before TEAL can take a Final Investment Decision to commence the implementation phase.

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2.66 POWER SECTOR DEVELOPMENT OPERATION PROJECT – UETCL (AGGREKO- MUTUNDWE POWER PLANT) - DECEMBER 2009

2.66.1 Economy There were unplanned outages on the side of UMEME, due to forced outages as a result of faults. Also an analysis of dispatches showed that in the months March 2009 to May 2009 the requests by UETCL were far below the declared power by Aggreko. As a result the amount declared and paid for by Aggreko is higher than demand by UETCL consumed. These situations may lead to payment of unconsumed capacity. Management was advised that they should monitor the effectiveness of the UMEME system and also ensure that power requests are as per contractual capacity to prevent payments for unconsumed capacity. Management stated that the PPA is a take or pay in as far as capacity is concerned and that the IPP is only penalized when contracted capacity is not availed. They also stated that faults on the distribution system are outside their control. Management also stated that the less than capacity requests from UETCL between March and May 2009 were because total generation exceeded projected demand for the day (as a result of a planned shutdown) and this is done following a melt-order dispatch affecting all IPPS sequentially. There is need to review the consumption and capacity levels and to streamline the operations of UMEME so as not to pay for unconsumed capacity.

2.66.2 Environmental assessment An environmental report produced by a Consultancy firm stated that the noise levels at the various stakeholder residences were above the maximum permissible noise for the general environment as prescribed in the MEMA act. Management was asked to investigate and advise Aggreko to implement reduced noise levels. Management in response stated that environmental issues were taken care of by the implementation agreement signed between the IPP (Aggreko) and Government (MEMD) and these issues raised are being discussed currently. Management however added that as mitigating measures.

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i) Aggreko installed a gabion wall which reduced the noise levels on the southern end of the plant perimeter fence ii) A proposal was made to Aggreko to pay affected residents a two-year rent accommodation elsewhere from the plant for the remaining contract period. I await the outcome of this intervention.

2.67 POWER SECTOR DEVELOPMENT OPERATION PROJECT (MEMD) - JUNE 2010

2.67.1 Field surveys by UBOS to assess the impact of electricity shortages on households and industry

Shs.153,511,120 was paid to Uganda Bureau of Statistics from the Power Sector Development Operation Project to carry out household surveys to assess the impact of electricity shortages on households. This was done following a Memorandum of Understanding with the Ministry of Finance, Planning and Economic Development spelling out respective roles and responsibilities with regard to this study. It was established that although data collected by Uganda Bureau of Statistics was submitted to Ministry of Finance, Planning and Economic Development in October 2009, a final report had not yet been completed by the Ministry contrary to Memorandum of Understanding terms which specified 28th February 2009 as the deadline for its submission. In the absence of a final report from Finance ministry, I could not ascertain that funds were economically and efficiently utilized, and achieved the intended purpose in line with the project objectives. Although Management in response stated that the Poverty and Social Impact Analysis was in its final stage and the draft report of the analysis had been submitted for

1 relevant departments‘ comments, this activity is over 1 /2 years behind schedule.

2.67.2 Gross Tax During the year, an amount of shs.50bn was released as G.O.U counter part funding for taxes under the project. This amount was never utilized but was instead transferred back to the Consolidated Fund. This is an indication of either under absorption of funds or over budgeting by the ministry which has the effect/impact of

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holding up finds in areas which they are not needed while depriving other sectors with priority needs. Management explained that the allocation of taxes is top down and as a project they have no input in how much is to be allocated. I however advised management that they should take interest in knowing how much is budgeted and released under G.O.U since ultimately they are the final beneficiary of the funding.

2.68 BUJAGALI INTERCONNECTION PROJECT - DECEMBER 2009

2.68.1 Delays in Processing Project Affected Person‟s Titles As part of the requirements of the project resettlement and compensation program, Project Affected Persons (PAPS) are required to deposit their land titles with UETCL in order for the project to curve out and transfer land occupied by the line. Out of the 656 titles expected to be processed from land owners 225 belonged to public land and 431 for private individuals. Of the 431 only 268 titles had been received leaving a total of 163 titles. It is not clear how management intends to recover those titles especially after most of the land owners have already been paid/compensated. Furthermore, of the 268 titles received only 49 titles had been processed. It is now two years ever since the process of compensation began. Processing of titles is taking quite a long time. There is a risk that PAPS may refuse to transfer the land yet funds have been paid to them which may lead to loss of funds. In their response, management explained that they are in the process of placing caveats on this land. I advised that the process should be expedited to avoid disputes and legal suits from PAPS.

2.68.2 Contingent Liability Attention is drawn to note 3.3.11 in the financial statements which states that UETCL is a defendant in a number of legal cases relating to unsettled disputes with project affected persons (PAPs). The estimated cost of settlement in case judgments are

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passed against the project is shs.2,790,000,000. This has an effect on budgeting and cashflow management which may not be readily available. Management explained that they are in the process of negotiating with the claimants and that they have settled some of the disputes out of court.

2.68.3 Delays in Accounting for Activity Advances Shs.7,530,000 There were significant delays in accounting for activity advances. By the time of reporting an amount of Shs.7,500,000 paid as activity advance had not been accounted for. This creates doubt as to whether funds were used for the intended purpose.

2.69 UETCL – TWINNING PROJECT - DECEMBER 2008 2.69.1 Hotels Bills

The Project paid large sums of money as pre-payments to hotels in Oslo Norway, for accommodation of UETCL staff while on project activities. The total pre-payments during the period under review amounted to NOKS 267,410 (Equivalent to Shs.83,824,228). However, the pre-payments did not have supporting evidence such as hotel bills/guest lists, hotel receipts etc to acknowledge receipt of funds transferred from UETCL and there was no declaration of the balance of cash on the pre-payments at the departure of the UETCL staff from the hotel.

In addition The Project paid to Grand Imperial Hotel US $ 5,215.60 (equivalent to Shs.8,657,896), as a ―Retention charge‖ of unnamed room for 34 days. This bill did not indicate the staff/guest that stayed in the room. The management has not justified this payment.

These expenditures are therefore not properly supported in the financial statements.

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2.69.2 Lack of accountability for expenses charged to project accounts

The project was invoiced NOKS 1,509,088.73 for 1,658.22 man-hours for the period 1st November 2007 to 31st March, 2008. There was no evidence such as time sheets to justify this expenditure. In addition other items included in the invoices such as ―expenses‖ and ―UETCL cost of International consultants‖ were not properly justified. Similarly, some vouchers charged in the invoices differed with the supporting time sheets.

2.69.3 Internal control procedures Several internal control weaknesses were observed and brought to management attention as highlighted below.

a. Payment for consultancy services.

Payments to Statnett SF for consultancy services totaling NOKS 3,556,045 (Shs.1,171,716,682) were not processed through the official UETCL payment vouchers system; but were instead prepared on the basis of internal memo from the Manager Finance, Accounts and Sales. This was a violation of the internal control procedure.

b. Statnett Invoices

Two out of Four Statnett Invoices totaling NOKs 2,083,567 (Shs.686,535,326) were paid without Statnett SF Project Manager Certification as required by the Agreement.

c. Record of UETCL man-days input There was no system of recording man days input by UETCL to the project. Costs from UETCL Staff attributed to the project could not be readily ascertained.

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2.70 UETCL – TWINNING PROJECT - DECEMBER 2009

2.70.1 Hotels Bills Pre-payments amounting to NOKS 26,504.24 (Shs.56,681,149) were made to hotels in Oslo Norway, for accommodation of UETCL staff while on project activities. However, the pre-payments did not have supporting evidence such as hotel bills/ guest lists, hotel receipts etc to acknowledge receipt of funds transferred from UETCL and there was no declaration of the balance of cash on the pre-payments at the departure of the UETCL staff. These funds had not been accounted for by the time of audit.

2.71 ENERGY FOR RURAL TRANSFORMATION (ERT) PROJECT - JUNE 2010

2.71.1 Lack of a formal agreement between UDBL and BoU. The ERT project disbursement ended on 28th February 2009 with a grace period of up to 30 June 2009. Subsequently, the Ministry of Finance directed BOU to transfer the funds under development finance to UDBL (Uganda Development Bank Limited). However, BOU continued with the responsibility of collecting the reflows from PFIs (Participating Financial institutions) on a quarterly and semi-annual basis for interest income and the principal respectively. It was noted that the agreement between BOU and GoU was not amended to reflect the changes in the modalities of transfer of these funds thus it may be difficult to ascertain the respective responsibilities of BOU and UDBL if this agreement is not amended.

Management promised to schedule a meeting between BOU and Ministry of Finance to discuss the way forward. I await the outcome of the discussions.

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2.72 SIDA I

2.72.1 Late submission of invoices Contrary to the provisions of the Consulting agreement which requires that submission of invoices should be made within 15 days after the end of each calendar month, there were delays in submission of invoices for re-imbursement exposing the project to the risk of interest surcharge as provided for in the agreement. This also affects the cut-off for financial reporting purposes. Management responded that there were late submissions by the consultant to the Rural Electrification Agency. I advised that management should communicate to the consultants the consequences of late submission and which party bears the costs of surcharge/interest incase of such delays.

2.73 SIDA II - JUNE 2010

2.73.1 Inspection of Corner Kilak - Pader – Patongo – Abim power lines.

The project required construction of 150km of High Voltage (HV) and 34km of Low Voltage (LV) power lines. It also required installation of 34 transformers and connecting 1,580 single phase and 87 three phase power consumers.

It was completed and commissioned on time in 2009 with the Distribution and management of the power line handed over to ―Pader – Abim Community Multi – Purpose Electric Cooperative Society Limited‖ (PACMECS).

Detailed below are several anomalies that were noted following an inspection carried out;

a. During the one year defects liability period, five transformers were replaced by the contractor representing a high failure rate of 17%.This may increase the maintenance costs of the power line and adversely affect its sustainability.

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Management in response stated that transformers are good and were procured after carrying out factory acceptance tests (FAT) with the supplier. The failure was attributed to high instances of lightening strikes in the project area. Subsequently the contractor was instructed to reinforce the earthing to improve its resistance. b. There was concern over the cooperative‘s lack of both financial and technical skills to maintain the power line. c. From a review of the contract it was noted that several specifications in the contract were not adhered to as tabulated below:

Item Original quantity Final quantity Variance 1 HV line 150 kms 142.4 kms (7.6kms) 2 LV line 34km 54.71 km (20.7kms 3 Transformers 34 31 (3)

I pointed out that failure to construct in accordance with the contractual specifications of the power line may imply breach of contract.

Management stated that because conditions as envisaged at the design stage are never the same as at implementation stage, it is normal practice for the actual as- built route length of a grid network extension to differ from the conceptual design route length. The contractor is allowed to make adaptations and only actual quantities installed and later commissioned are paid for. d. The contractor connected 106 single-phase and 3 three-phase customers and was meant to hand over materials of the remaining 1,558 customers to PACMECS, to continue with the connections.These included 39km of solid wire and power meters. However, 10 months after hand over of the power lines the contractor has handed over only 9km of the solid wire and the cooperative has started buying solid wire, which has made connection expensive to the community.

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Failure to hand over connection materials by the contractor to the cooperative is breach of contract and has made connection expensive. This may cause failure to achieve objectives.

Management stated that amaterials reconciliation was carried out and the contractor has now handed over the reconciled quantities of service cable to PACMECS.

2.73.2 Inspection of Fortportal – Bundibugyo – Nyahuka line.

The project was completed, commissioned on time in 2009 and the distribution and management of the power line was handed over to Bundibugyo Energy CooperativeSociety Limited (BECS).

a. During the 1 year defect liability period, some poles got damaged and although the contractor was called to replace them as per the terms of the contract, he did not and the cooperative ended up meeting the cost of replacing the poles. I pointed out that failure to make repairs on power line during the defect liability period is a breach of contract by the contractor.

Management stated that under the concessionaire agreement, the operator is required to report materials defects on the network but at no time had BECS ever reported the damaged poles. Management further stated that following the audit inspection report, the contractor was instructed to replace the 2 (two) poles immediately and pole sounding inspection was done to confirm that no other damaged poles exist.

b. BECS reported that two transformers failed and were repaired by the contractor before being reinstalled. However, management in response stated that the transformers were supplied by ABB Tanalec (Tanzania) and had factory acceptance tests FAT‘s carried out in Tanzania prior to delivery. Only 1 (one) transformer was replaced because it was under-capacity during the defects liability period and no other transformer failures

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have been reported. BECS is obligated Under the Concessionaire Agreement to take out an ‗all risks‘ insurance policy to mitigate the financial impact of such failures after the defects liability period. There are however concerns over the cooperative‘s lack of both financial and technical skills to maintain such line.

c. The contractor connected 240 single – phase and 1 three – phase customers but was required to hand over the connection materials of the remaining 1,850 single – phase customers and 69 three – phase customers that were not connected. The materials included 46.25km of solid wire for single – phase and 2.07 km of service cable of three – phase connections and power meters.

However, the contractor has only handed over 18.25km of single – phase and 1.425km of three – phase with a balance of 28km of single – phase and 0.645 three-phase not handed over to BECS.

Management in response stated that a materials‘ reconciliation was made between REA, BECS, the consultant and the contractor and it was agreed that:-

 The contractor delivers the equivalent of 1,443 single-phase (36,075 meters of service cable) and 73 three-phase service materials;  BECS returns to REA thirty-six (36) three-phase prepayment meters for onward transmission to the contractor, while  REA pledged to make available to the system operator (not necessarily BECS) materials equivalent to 500 connections upon realization of 1,590 single-phase connections.

Subsequently,

 The contractor delivered 27,250 meters (9,000 on 9th December 2009 & 18,250 on 3rd March 2010) leaving a balance of 8,825 meters. This balance was delivered to BECS on the 6th January 2011.  BECS is yet to return the 36 single-phase meters to Ferdsult.

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It was established that by December 2010 only eight hundred forty-nine (849) clients were under BECS concessionaire; this is approximately 39% of the originally anticipated total number.

2.73.3 Inspection of Namuntere – Namayembe line Although the project contract required construction of 30km of power lines only 24km of power line were constructed. This may imply breach of contract.

In addition the power grid has been connected to UMEME who are the nearest distributor available, and therefore a separate concessionaire to manage the grid as envisaged in the project objectives is not in place.

Management stated that conditions as envisaged at the design stage were not the same as at implementation stage. In particular, due to a time lag between project inception (designs) and implementation, infrastructural developments in the targeted major load centers dictated the need for more LV materials to cover most of the loads.

The conceptual design for the line indicated 30 kms while the scope was to construct a 33kV line covering Naluwerere-Namayemba-Namasere-Muwayo-Namutere with actual ground distance of 23.7 km while the low voltage increased from 13km to 21.43km. The contractor is guided by the envisaged actual scope of the line as described in the bid, the start and end points and the main load centers in between.

2.74 UGANDA ENERGY CREDIT CAPITALISATION COMPANY - JUNE 2010

2.74.1 Discrepancy between the provisions in the subsidiary agreement and the global environment facility grant agreement (GEF)

a. Under the GEF grant agreement between International Bank for Reconstruction and Development and the Government of the Republic of Uganda, an allocation of US$ 3,100,000 was made for the Credit Support Facility (CSF).

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However the Sub financing agreement between the Government of the Republic of Uganda and Uganda Energy Credit Capitalization Company (UECCC) indicated that the amount allocated was US$ 3,300,000 resulting in a discrepancy of US$ 200,000 between the two agreements. I advised that both Government and UECC should ensure that the inconsistency is regularized urgently so as to avoid an extra financial liability to government. Management responded that the matter has been brought to the attention of the World Bank and a final position is going to be agreed, after which adjustments shall be done to the agreements accordingly.

2.74.2 Foreign exchange losses An amount of SDR 2.3 million (approximated as US$.3.5 Million) and US$ 3.1 million from IDA and IBRD respectively was made available to UECCC for on-lending to Participating Financial Institutions.

These amounts are translated to Uganda shillings for transactions in the course of the year at different spot exchange rates. At year end all Uganda shilling balances are translated to the reporting currency (US dollar) at the average rate for income and expenditure statement and closing rate for Statement of financial position respectively.

During the year the Uganda shilling depreciated against the United States dollar, from 2,074.41 to 2,277.38 thus resulting into a foreign exchange loss amounting to USD 5,878 in 2010.This amount is recognized and disclosed in the statement of income and expenditure.

However, a review of the Financing Agreements and UECCC Project Agreement revealed that there is neither a clause in the agreements relating to the treatment of foreign exchange losses or gains nor an expenditure line in the budget to which this loss or gain should be allocated thus creating ambiguity.

Although management stated that in the financing agreements it is implied that losses should be borne by the Government, this is not explicit. Besides, the rate at which the exchange rate fluctuates is such that the accumulated losses may become 375

unmanageable by government hence eroding the benefits that would accrue from this project.

I advised management to consider establishing a contingent exchange Fund from which funds may be drawn to cover the realized exchange loss.

2.74.3 Non-Remittance of NSSF contribution on gratuity allowance At the end of her one year contract, the General Manager who was on a one year secondment program to UECCC from BOU was entitled to a gratuity allowance payment based on her salary.

Contrary to the requirements of the NSSF laws, no NSSF deductions were made on the gratuity paid to her. The amount not deducted is shs.3,465,000.

Management in their response explained that their understanding of gratuity was that it is a terminal payment, which cannot at the same time be interpreted as a wage. I have however informed them that since the employee‘s contract was still renewed then this contract gratuity is not terminal benefits. Management took note of the interpretation, and promised to seek expert advice on the matter to inform future treatment of gratuity payments.

I urged management to expedite the process otherwise failure to comply with the NSSF laws and regulations may expose the company to fines and penalties.

2.75 UGANDA ELECTRICITY TRANSIMISON COMPANY LTD - DECEMBER 2009

2.75.1 Fixed Assets

a. Non compliance with IAS 16 – Depreciation of Assets

IAS 16 Property, Plant and Equipment, requires that Depreciation of an asset begins when it is available for use and in the location and condition necessary for it to be capable of operating in the manner intended by management. However the company‘s policy is not to depreciate assets in the year of acquisition, which is in contravention of

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the provisions of IAS 16. This led to misstatement of the company‘s financial statements by Shs.173,255,528.

b. Revaluation of fully depreciated assets

A number of fixed assets have been fully depreciated yet they continue to be used by the company to derive economic benefits. There does not appear to be any process for examining fully depreciated assets to determine whether or not they are still in use so as to dispose them off.

Asset category Cost (Shs)

Plant and Machinery 124,957,737,400

Scada equipment 7,103,953,000

Communication equipment 4,941,170,178

Motor vehicles 1,890,429,227

Computer equipment 1,107,685,507

Tools and equipment 1,067,946,824

Office machinery & equipment 267,427,435

Furniture and fittings 84,936,121

Total fully depreciated assets 141,421,285,692

Management was advised to regularly review the fixed assets register to identify the fully depreciated assets and assess whether they should be disposed of or else adopt he revaluation model under IAS 16 in measuring its fixed assets.

c. Ownership of land. It was noted that although UETCL has valuable assets on plot M12 Njara, the company does not have a land title or lease agreement for the land. It is common business practice that whoever owns land impliedly owns all undertakings on the said land and as such, UETCL stand the risk of losing some of its property located on this plot of land.

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2.75.2 Amounts Due to Third Parties

Included in the company‘s financial statements is a long outstanding balance of Shs.30.987 billion payable to UEGCL for price rebates in 2001/2 (at the commencement of the split of the UEB). This is also countered by a long outstanding receivable from UEDCL of Shs.37.1b dating back to the same time. These balances have been awaiting Parliament‘s approval for write-off since 2006. The validity of such long outstanding balances could not be verified. Management in response stated that they are aware of this long outstanding balance and awaits the statutory instrument after Parliamentary approval of the write off as tabled by the joint Boards of the power companies (UEGCL, UETCL & UEDCL).

2.75.3 Tax assessment by URA Shs.21 billion During the corporation tax audit in 2005, the Uganda Revenue Authority assessed a tax liability of Shs.21 billion on the company. This case has not been resolved but no liability has been disclosed in the company‘s financial statements since according to management, the tax liability does not arise. This is also the view of the company‘s consultants who are handling the case. I advised management to expeditiously follow up this issue with the relevant authorities.

Management stated that it attaches due importance to the resolution of this matter and has urged its Tax consultants to ensure that the case is resolved. However, the provisions of Income Tax Act do not allow Tax assessment beyond the five year period where UETCL had complied with Tax filing obligations at the time and no assessment was carried out by URA.

2.75.4 Inadequate insurance cover for the company‟s assets

The company had an insurance cover for industrial equipment to a sum of Shs.74,709,239,522 relating to sub stations, buildings, furniture, computers, tools and equipment and office machinery. In comparison, these classes of assets had a Net Book Value (NBV) of Shs.84,943,852,044 resulting in inadequate insurance cover.

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Without adequate insurance, the company could suffer huge financial losses should there be a calamity or disaster.

2.75.5 Power sale agreements UETCL sells energy to Ferdsult Engineering Services Limited, Bundibugyo Cooperative Society and Kilembe Investments Limited. However, the company does not have any agreements with these customers. This exposes the company to conflict due to ambiguities in relation to terms and conditions of trade in instances of change in management. Management in response sated that this is being addressed by the parties and the Regulator.

2.75.6 Power purchase agreements

A review of the power purchase agreements between UETCL and the various power suppliers revealed that some of the power purchase agreements had not been renewed. This implies that purchases are being done based on expired power purchase rates. Some of the un-renewed agreements relate to; Electrogaz and Kilembe Mines Limited.

Lack of up-to-date power purchase agreements resulted in difficulties in validating the rates used for power purchases from the aforementioned suppliers and could result in litigation should misunderstandings arise between the suppliers and the entity in relation to the pricing of power supplied. Management in response stated that they had taken action and most of the expired agreements were with the relevant parties for counter approvals and consents prior to effectiveness.

2.75.7 Escrow Accounts

Audit noted that the company operates various Escrow accounts in different banks as a requirement for operationalising loans and private partnership agreements. These accounts include: - Mbarara-Nkendo-Tororo 37bn (RAP) - Bujagali interconnection 38 bn (RAP)

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- Mutundwe Thermal Power etc – (unknown) - Namanve Thermal Power Generation – (unknown) These accounts have large balances at close of financial year. Audit has noted that although it is a requirement by donors and private investors to operate escrow accounts, scarce resources are held idle on accounts for a longtime. Most of the anticipated activities like resettlement plans usually take time to start as there are long procedures of identification, registration, valuation, surveying etc.

Management is advised to liaise with Ministry of Finance, Planning and Economic Development on how to efficiently utilize such deposits

2.75.8 Receivables

A review of the trade receivables ageing analysis, revealed that the balances outstanding for more than a year comprised more than 40% of the entire trade receivables balance of Shs.101,577,262,181, as indicated in the table below. It was recommended that more aggressive debt recovery procedures be instituted.

Shs.

Tanzania Energy 477,144,133

UEDCL 36,813,044,997

UMEME Ltd 4,621,263,508

Electrogaz 36,498,149

Total 41,947,950,767

Management in response stated that it has already instituted aggressive recovery measures except for the long outstanding debt of UEDCL which is being handled at sector-wide level and GOU.

Management further stated that the 4.6 billion owing from UMEME arose during a Special Promotions Period when there was power crisis in 2005 whereby Umeme invoked the provisions of power sales agreement because of the situation at the time.

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This amount has been fully provided for and is to be written off against the promotion.

2.75.9 Sub-stores inventory

An inspection of Inventory records revealed that sub-stores which include information technology, control centre received items for issue from the main stores. However no inventory valuations are maintained at the sub-stores; no periodic stock counts were performed for the stock held at the sub-stores; and there are no controls over receipt and issuing of stock to and from the sub-stores. (i.e No Goods Received Notes of Goods Issued Notes).

Also although the sub-store physical stock had been used up by year-end it had not been expensed in the company records.

Lack of proper inventory management procedures for the inventory items held in the sub-stores may lead to misappropriation of the company‘s inventory through thefts and the misstatement of the company inventory at year end as amounts recorded may not relate to inventory held. Management acknowledged the observations and promised to implement the recommendations.

2.76 UGANDA ELECTRICITY DISTRIBUTION COMPANY LTD - DECEMBER 2009

2.76.1 Going Concern uncertainty

Note 5 in the financial statements indicates that the Company‘s current liabilities exceeded its current assets by Ushs.62,700 million (2008: Ushs.68,104 million) and the accumulated deficit amounted to 70,751 million (2008: Ushs.84,154 million). These conditions indicate the existence of uncertainty which may cast significant doubt about the Company‘s ability to continue as a going concern.

In the note management states that the Company is a holding entity with its services fully paid for from the tariff or by other agencies it provides services to. The loans in the balance sheet were vested to the Company from UEB by the Government while it still managed and operated the distribution and supply of electricity. The principal and

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interest repayments for loans are fully paid from the tariff as part of the lease payments by the concessionaire. The operations of the off-grid stations are subsidized from the tariff. Construction of rural electrification schemes is fully funded by Government of Uganda through the Ministry of Energy and Mineral Development. The Company has also got substantial liquid investments which will continue to generate income in the foreseeable future.

Management therefore, asserts that the financial statements have been prepared on a going concern basis.

2.76.2 Interest on the Escrow US Dollar Account A review of the Escrow US Dollar Account revealed that no interest whatsoever was paid by the Escrow Agent into the Account during 2009. This is in contravention of Clause 5 (3) (ii) of the Escrow Agreement which expressly provides for interest on the US Dollar Account as well. It was further noted that, no interest was calculated in regard of the USD Escrow Account and hence it was not accrued for by management. Failure to follow up such a matter with the Bank may lead loss of interest income which the company is legally entitled to under the terms of the agreement between he parties. In their response Management stated that the Escrow agent has been asked to explain this anomaly.

2.76.3 Fixed Assets

a. Tagging of Fixed Assets

Contrary to the Financial Policies and Procedures Manual which requires the entity Assets to be numbered so as to differentiate them from assets belonging to other persons, new assets within the premises especially furniture and office equipment are not tagged for ease of identification as the company‘s property. Lack of Asset tagging may encourage theft of these assets as their movement in and out of the office premises may not easily be monitored. It may also lead to incorrect categorization during a physical count.

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b. Lack of Capitalization Policy for Fixed Assets

Our review of the Financial Policies Manual as well as interaction with management revealed that there is no capitalization policy in place for recording of Fixed Assets. This may result in additional record keeping and administration required with depreciating and tracking insignificant assets. It was recommended that a capitalization policy be put into place, which establishes a minimum level for capitalization.

c. No Physical Verification of Assets

It was observed that no physical verification of existing capital assets has been done to reconcile physical assets to the recorded assets.  This increases the risks of losses of assets not being detected for a prolonged period of time

 assets not existing in a location where they are thought to be

 inaccurate asset listings going undetected.

It was recommended that procedures be formalized to ensure the periodic physical verification of all capital assets. d. Fully Depreciated Assets.

A number of fixed assets maintained by the company categorized below, have been fully depreciated and yet continue to be used by the company to derive economic benefits.

Asset categories Cost Tools & equipment 4,368,847,444 Motor vehicles & peripherals 4,739,007,896 Furniture 296,364,878 Computers & peripherals 866,821,232 Communication equipment 183,050,503 Management information system 3,678,075,853 Office equipment 63,261,932 TOTAL 14,195,429,738

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Although IAS 16 (Property, Plant and Equipment) also allows the company the option of adopting the revaluation model in measuring its fixed assets, this has not been adopted by the company and therefore the value of its assets may not be fairly stated. Notional depreciation of these Assets in question for year ended 31st December 2009 is Ushs.4,000,360,736.

2.76.4 Terms of Contracts not Supported by Written Agreements A review of the company‘s operations for the year revealed that there was no service contract for security services rendered by Alert Guards and Security Systems Limited. This may work against the company in the event that a dispute erupts over the terms of the existing business relations between the company and its contractual suppliers. In their response management in acknowledging the anomaly stated that the Alert guards case is an isolated case with an old agreement which had expired. Procurement of security services was underway and new agreement was to be signed with whoever wins the tender.

2.76.5 Withholding Tax Certificates before concession The company has withholding tax receivable on imports worth Ushs.1,835,944,663, which dates back to the prior periods. However, although evidence has been provided to support the periods after concession, no withholding tax certificates have been provided in support of the periods prior to concession (before March 2005) because these have been reportedly archived and are not easily accessible. Lack of easy access to archived withholding certificates and other documents may lead to misplacement of some certificates hence misstating the amounts receivable.

2.76.6 Receivables-Lack of an Aging Analysis for Debtors A review of debtors account balances revealed that the company does not currently have an aging analysis that shows aging categories of various debtors. Lack of a debtors aging makes monitoring of overdue debts difficult and hence appropriate and timely steps may not be taken up to recover long overdue receivables.

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Management in their response stated that the current Billing system will be upgraded to provide for ageing facility.

2.77 UGANDA ELECTRICITY GENERATION COMPANY LIMITED - DECEMBER 2009

2.77.1 Government of Uganda Loans

As disclosed in note 18 to the financial statements, the company has long term loans from the Government of Uganda amounting to Shs.91.1 billion (2008: Shs.102.9 billion) for which independent confirmations indicate material unresolved differences. As at 31 December 2009, the confirmed Government of Uganda- UEB refinancing Loan amount was greater than the general ledger by Shs.2.7 billion and Government of Uganda- World Bank- IDA confirmed loan amount was lower than the general ledger amount by Shs.2 billion. No reconciliations of the loan balances had been done as at 31 December 2009. Accordingly the completeness and accuracy of the loans due to Government of Uganda could not be confirmed.

2.77.2 Related Party balances Included in note 20 to the financial statements are balances due from related parties as at 31 December 2009 amounting to Shs.31 billion and amounts payable of Shs.1.4 billion. These balances have been outstanding for long periods and independent confirmations were not received from these Companies. Management could also not confirm their recoverability. Accordingly sufficient appropriate audit evidence that these balances are not materially misstated could not be obtained.

3.77.3 Due to Government of Uganda Shs.32.8 billion (2008: Shs.32.8 billion) as at 31 December 2009 is due to the Government of Uganda and has been outstanding since 2001. This amount was transferred from Uganda Electricity Board (UEB) to UEGCL, who were supposed to collect UEB debtors and use the proceeds to pay the government. An independent confirmation was not received from the Government regarding the existence and accuracy of this amount. 385

Accordingly, the completeness, existence and accuracy of this balance could not be confirmed, and sufficient appropriate audit evidence that the amount is not materially misstated could not be obtained.

2.77.4 Impairment of assets

The installed capacity of the power complex (Nalubaale and Kiira) is 380 MW and during the year the average capacity generated was about 142.16 MW (2008: 170 MW). Management attributes the low generating capacity to low water levels, which has resulted into restricted amount of water released to the complex. Management has not carried out an impairment testing for the assets as required by the Company‘s accounting policy No.2 (l) and International Accounting Standards No. 36.

Accordingly sufficient appropriate audit evidence that the carrying amounts of the assets as at 31 December 2009 are not materially misstated could not be obtained.

2.77.5 Internal Audit Function

a. Independence of the Internal Auditor A review of the organization structure and the details of the reports prepared during the year revealed that although the internal auditor is supposed to report directly to the Board of Directors. There was no evidence of the Board‘s approval of the activity plans of the internal auditor. I advised management that this may impair the objectivity and independence of the internal auditor.

b. Assessment of the internal control system

For the year under review there was no work done on systems reviews by the internal audit and no evidence of the assessment of the internal control environment was available. It was further noted that the internal audit activity plan for the current period was not yet approved by mid- April implying that assessment and monitoring of the internal controls may be delayed for the year ending December 2010.

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Failure to assess the internal control environment exposes the company to financial loss arising from deficiencies in the internal controls and any errors that may not be detected and resolved promptly. Management in response stated that the delay was due to the long recruitment process which was recently concluded to have an internal auditor on board and that by year end the new internal auditor was still studying and appreciating the business and operations of the Company (UEGCL). It was recommended that the newly recruited internal auditor be empowered as soon as possible by fast tracking the approval of the audit plan.

2.77.6 Lack of a Board Charter

Best practice in corporate governance requires each entity to have a board charter which clearly states the responsibilities of the board, its composition, skills and other qualities of board members, meetings to be held, remuneration and other terms of reference for board sub committees. There was no evidence of a Board Charter in place and as such the role and responsibility of the board of directors is not documented and well defined. Failure to formalize a Board Charter may impair the oversight role of the board which is required to provide an appropriate strategic direction to the Company. Management in their response stated that the matter has been put to the Board to authorize Management to hire a consultant to develop a charter that will be circulated to all concerned and that training in Corporate Governance had been initiated at management and board levels in preparation for the implementation of the charter when developed.

2.77.7 Terms of the Heads of Agreement

On the 1st September 2006, UEGCL entered into a Heads of Agreement with Eskom Uganda limited (EUL), UETCL and GOU (represented by the Ministry of Energy and Mineral Development) to regulate the principles applicable to the interactive and interdependent relationships between EUL, UEGCL, UETCL and GOU in an effort to ensure implementation of a project (establishing a thermal generation project to generate 50 MW by Aggreko Limited). In accordance with clause 4.1 of the Heads of

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Agreement, the period of the agreement terminated on the second anniversary of the commercial operations date as provided in the Aggreko‘s Power Purchasing Agreement. It was noted that since the end of the agreement, no new agreement has been signed between the parties and this poses a risk to UEGCL in relation to the principles of interaction and interdependence of the parties. Management in response stated that the delays in renewing the Heads of Agreement was caused by:-  Short extensions that have been made to Aggreko to produce thermal power, which always lapse before completing the revision of Heads of Agreement are signed off.

 Failure of the Ministry of Energy to respond to a letter requesting for an indication when the Aggreko contract would end so that the information is built into the revised Heads of Agreement.

The Management of UEGCL was advised to ensure that the new Heads of agreement is obtained to avoid future disputes.

2.77.8 Wetlands Resource Permit

Regulation 23 of the Wetlands River Bank and Lakeshore Regulation of 2000 requires that a person who intends to carry out certain activities in and around a river/riverbank or lake/lakeshore makes an application for a permit to the Executive Director of National Environmental Management Authority (NEMA). The operations of UEGCL as asset owner are encompassed within the prescribed activities and as such it is required to obtain a permit. It was however noted that the entity permit expired and the renewed permit is yet to be obtained. Management in response stated that the process to renew the permit had commenced and it was hoped that a renewal of the permit would be obtained before end of 2010.

Management was advised to expedite the process to avoid possible penalties and litigations by NEMA.

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2.77.9 Penalty for Non Compliance With Income Tax & Vat Acts

During the year, there was late submission of PAYE and VAT returns for the months of March and August 2009. This is contrary to the requirements of the Tax laws. Consequently a penalty amounting to Shs.26 million was levied by URA on the company. This fine is a nugatory expenditure for which no economic benefits were derived by the company. Management in response stated that they were understaffed at the time and as such could not carry out timely tax reconciliations.

2.77.10 Medical Allowance Limits

UEGCL employees are entitled to medical allowance up to limits stipulated in each employee contract, depending on the employee position in the company. It was however noted that there was no adequate monitoring of the expenses incurred by the employees and as a result four employees incurred medical expenses in excess of the contracted limits by Shs.5,784,941 and even though this issue was highlighted in the internal auditor‘s report, no action had been taken to recover the excess amounts incurred by staff. It was further noted that at least one of the concerned staff has since left the company. Failure to monitor the medical expense may expose the company to financial loss. Management stated that the Board gives the MD the discretion on a case by case basis, to waive recovery from salaries of amounts exceeding the limits. Management was advised to review the current limits for reasonableness and clearly communicate to staff, and also to ensure that relevant approvals are obtained before any expenditure is processed.

2.77.11Un-Capitalized Expenses

UEGCL imported fixed assets during the construction of PIV project through M/s Alstom and incurred all the taxes on the equipment in accordance with the agreement between the parties. IAS 16: Property Plant and Machinery prescribes that the cost of the asset shall include its purchase price, import duties and non-refundable purchase taxes, after deducting trade discounts and rebates. 389

However due to failure to monitor import duty and non-refundable purchase taxes paid, a total of Shs.51,557,930 paid as import duty and other charges was not capitalised to the respective asset as per the requirements of IAS 16. Management were advised that non capitalisation of costs incurred which are directly attributable to bringing the asset to the location and condition for operating may result into a misstatement of the financial statements. Management promised to correct the anomaly.

2.77.12 Withholding Tax Certificates on Fixed Deposits

The company has investments in fixed deposits where it earns interest income. At maturity, the interest earned is remitted less withholding tax of 15% in accordance with the Income Tax Act. However, withholding tax certificates amounting to Shs.22,776,374 meant to be provided by the financial institutions to the deposit holders were not presented for audit. The certificates act as evidence of advance tax paid to URA to be used as tax credits in offsetting future tax liability. Failure to obtain withholding certificates may result in the company not utilizing the credit. It was further noted that tax credit certificates for withholding tax deductions on sales amounting to Shs.40,949,774 had not been obtained since 2002. Management stated that obtaining receipts from URA acknowledging the deposits takes long. However, interactions with the Tax Authority put blame on companies who don‘t pick receipts which are readily available. I advised management to improve their relationship with URA to ensure that receipts are obtained timely in future.

2.77.13 Un-Implemented Recommendations from Previous Reports

Several recommendations meant to address internal control weaknesses have been raised by Auditors over the past five years a number. A review of the status of prior year audit recommendations revealed that a number of issues had remained unresolved and unimplemented by management. Although management in response stated that some recommendations are to be handled in liaison with external parties who take a long time to respond, I have 390

informed them that insufficient follow-up on recommendations by management may lead to further deterioration in the internal control environment.

2.78 KILEMBE MINES LIMITED - JUNE 2010

2.78.1 Under-Valuation of Copper Tailings Shs.1,450 Included in the value of stock of Shs.52,157,500 are copper tailings , a byproduct of the copper smelting process, which is reflected at a value of 1,450 Uganda shillings only. This byproduct is a main raw material in the cobalt production process. It was noted that half the quantity of these tailings have been the sole source of raw materials used by the Kasese Cobalt Co. Ltd in the production of Cobalt over the last nine years, from which it has realsied turnover of USD 35,491,510 per year on average. A review of the financial statements of KCCL revealed that the value of investment in raw materials acquired from KML was stated as USD 4m. I informed management that the value of Copper tailing may be grossly understated. Management responded that they are in the process of hiring a company to provide services for revaluation of all Company assets. I await the outcome of this process.

2.78.2 Encroachment on Katadoba Land An inspection of Land owned by Kilembe Mines Ltd. at Katadoba under leasehold Reg.458 revealed that it had been encroached upon, with permanent structures erected. In the circumstances the company risks losing the property or incurring undue costs in compensations to encroachers. The value of this land may not be fairly stated due to these encumbrances. Management stated that they were currently in court over this matter, which it was noted, has taken over 5 years without court ruling on this matter.

2.78.3 Democratic Republic of Korea Loan Shs.4,678,087,965 Included in the financial statements is a loan of Shs.4,678,087,965 which the government of Uganda secured from the Democratic Republic of Korea in 1992. However, Under Note 10 in the accounts it is stated that ―there was no lending agreement between Government of Uganda and Kilembe Mines Ltd,‖ .In the absence

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of a formal agreement, the terms of this loan could not be verified and therefore the loan may not be fairly stated. In their response, management stated that they were pursuing the agreement documents from the Ministry of Finance, Planning and Economic Development.

2.78.4 Staff debtors 369,993,382 Included under staff debtors of Ushs.369,993,382 is an amount of Shs.309,712,235 owing from a former staff. The terms and authority under which this debt accumulated was not explained by management. It was further established that the former staff irregularly diverted Shs.54.8m from a client in respect of an annual license for mining but was not declared and delivered to the company. I informed management that this was an act of fraud and necessary steps to recover the funds should be undertaken.

2.79 RURAL ELECTRIFICATION AGENCY - JUNE 2010

2.79.1 Subsidy to Wenreco /Overpayment Of Ushs. 291 Million Rural Electrification Agency signed an agreement with the West Nile Rural Electrification Company Ltd (WENRECO) worth Shs.1,274,254,279 as a subsidy towards power generation. Subsequently an amendment to the contract increased the Agency‘s obligation on heavy fuel oil (HFO) from Shs.609,835,475 to Shs.893,007,951 due to fuel price increases. Under the contract, WENRECO was to contribute Shs.584,674,521 towards the purchase of heavy fuel oil (HFO) from Total (U) ltd. The audit established that REA paid for fuel to a tune of Shs.1,184,826,996 exceeding the contractual obligation by Shs.291,819,045. In addition, in spite of the subsidy, the tariff charged by WENRECO remained unchanged.

I informed management that a possible breach of contract by WENRECO could have deprived REA‘s budget of the extra funds paid and the funds ought to be recovered.

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2.79.2 Deposits held on behalf of Rural Communities a. Inappropriate accounting treatment of deposits We noted that REA receives 30% contribution from communities where power is to be connected for onward payment to UMEME. The current practice of treating this item as miscellaneous income distorts the substance of the transaction since these deposits are payable to UMEME. Any outstanding balances at the year end ought to be reported as a liability payable to UMEME. The current treatment leads to an overstatement of income. I advised Management is to ensure appropriate treatment of these deposits and to make the necessary adjustments to enhance the fair presentation of the financial statements.

b. Un Paid 30% Contribution Our examination for the year noted that REA paid Shs.712,694,444 to UMEME for power connections under this scheme even though contributions from the communities were short by Shs.69,104,954.This shortage was borne by the Agency. Rural Electricity Agency is required to fund 70% of capital contributions while the respective communities contribute the remaining 30%.

Although management in response stated that the 100% contribution was of the high voltage (HV) lines, details to confirm that the Ushs.69,104,954 extra amount paid pertains to high voltages and not low voltage lines were not provided to enable further verification.

2.79.3 Revenue from Concessions. The Agency entered into concession agreements with private companies to manage the commercial activity of power distribution. The terms of the agreements provide for:-  Annual payment of fees to the Agency (REA) and,  Insurance policies to ensure that the facilities are insured against possible calamity.

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A review of the 5 concessions running established that, these key provisions were breached resulting in a loss of revenue to REA, and in the absence of Insurance policies exposed the public facilities to risk. It was further noted that, the concession fees for Masaka and Kanungu areas were not amended to reflect new power extensions made after the signing of the initial concessions.

Management stated that concessionaires complain that they are struggling and are unable to clear their contractual obligations under the agreements and REA through a review confirmed that actual connections are below the anticipated connections projected during feasibility study. I advised management to ensure that good feasibility studies be undertaken before entering into such revenue agreements.

2.79.4 Transmission Levy The Rural Electrification Agency Statutory Instrument specifies the various sources of revenue for the Agency among which is the 5% transmission levy on all the power purchases by UECTL. During the year under review, Shs.27,388,831,134 was received in this respect as compared to the budgeted amount of Shs.29,699,999,900, representing a 7.8% shortfall. It was noted that the remittances are not supported by adequate documentation or reconciliation procedures to confirm the completeness of the levy on power purchases at UETCL. Management stated that UETCL provides copies of invoices issued to them by the generating companies but promised to, in future obtain monthly ―dispatch reports‖ from UECTL (the system operator). These will help reconcile the exact amounts due and received.

2.79.5 Rural Electrification Mini grids As I stated in my previous report, the board sourced and licensed two (2) local firms to run rural electrification Mini-grids at Kalangala and Ngoma. However, it appears, the Rural electrification model and implementation framework applied did not properly evaluate their viability. The two operators abandoned the mini-grids citing failure to make profits due to the high cost of diesel. This status remained the same in the financial year under review.

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Management in response stated that although an alternative implementation structure involving use of community cooperatives was put in place for the Ngoma mini-grid operation, the constraint of high fuel costs still persists. Management did not state the interventions being pursued with regard to the abandoned Kalangala mini- grid.

2.79.6 Wasteful Expenditure Shs.70,716,050 A total of shs 70,716,050 was paid to a contractor to carryout pole relocation along the Masaka –Bukakata high voltage power line (33kv).This resulted from poor surveys earlier carried out leading to the poles being erected in the road reserve and the contractor not following the advice of Ministry of Works who had intimated that the road design was to change hence necessitating the need to have the poles in a different location. I informed management that the relocation costs incurred totaling shs 70,716,050 was wasteful expenditure and could have been avoided if the surveys had been conducted more diligently. Management in response stated that REA normally utilizes road reserves to minimize way leaves claims, and that permission was sought from and granted by MOW to use the road reserve.

However, I noted that permission granted was contingent upon the contractor and REA having to first consult the District Engineer Masaka on the possibility of change of Road. REA /Contractor however never consulted the District Engineer and opted to erect the poles in an unapproved location.

2.80 ELECTRICITY REGULATORY AUTHORITY (ERA) – JUNE 2009

2.80.1 Property, Plant and Equipment Included in the financial statements are assets that are fully depreciated but still provide economic benefits to the Authority. These assets which include office equipment, computers and accessories, motor vehicles and furniture, fixtures and fittings have not been revalued. I indicated that the fixed assets balances may not be fairly stated and the depreciation charge may be understated.

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Management in response agreed to make necessary adjustments in subsequent accounting periods.

2.80.2 Irregular Depreciation Charges The Authority does not have a properly documented and approved depreciation policy. Depreciation amounting to Shs.18,887,967 was charged on office equipment at a rate of 20% and Shs.2,052,208 was charged on books and journals at a rate of 10%. These rates were not provided for in the accounting manual. Management in response stated that the policy exists but however, had not provided for all forms of asset categories like books and journals. Although management added that these categories have since been introduced in the revised manual, board approval of this new manual was not availed.

2.80.3 Energy Losses Included in the information in the Financial report to the Financial statements for the year ended June 30th 2009, management stated that for three years running , distribution losses have remained a big challenge with the loss factor (for all purchased energy)averaging 34% in the year. Although UMEME had undertaken to reduce the loss level to 28% by close of 2009 and to have progressive reductions thereafter, there was no evidence that this was achieved. In addition the company promised to work towards the installation of prepaid metering facilities which should increase the progress on loss reductions especially the commercial component that arises from billing. As a regulator, there is need for demonstrable evidence of investment by the key stakeholders in programs to cut these energy losses in accordance with the agreed targets.

2.80.4 Eskom Concession for Kiira/Nakibale Generation Plant The concession of Eskom has come to an end and renegotiation is ongoing. However, the effective generation capacity for the plant has averaged 138 MW over the years leaving 230 MW of installed capacity unutilized due to low water levels at Lake Victoria. The challenge during negotiation is that to what extent Eskom should invest

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in maintenance of the generation plant at Nakibale/Kiira, given the restricted hydrological position at the Dam.

2.80.5 Tariffs Because of low levels of generation at Kiira, coupled with the delays in Bujagali/Karuma Dam construction, over 50% of our energy sources are based on the rural generation power. As a result, oil price remains a key variable in the tariff setting process. To achieve an unchanged tariff, GOU has been increasing the subsidy level on a quarterly basis as fuel prices increase. Taking into consideration oil price volatility, the sustainability of such a policy is questionable. There is need for a Strategy to progressively value the share of thermal based generation to hydro thereby reducing the power acquisition costs. Management stated that the Ministry of Energy and Mineral Development has instituted a commission to investigate and review operations of the sector with a view of reducing the tariff and restructuring the Sector, and that one (1) report is out. I await the outcome of the review.

2.81 AUDITED BUT NOT CERTIFIED DUE TO UN SUBMITTED ACCOUNTS

I ALLIED HEALTH PROFESSIONALS COUNCIL (AHP) - JUNE 2007,2008,2009, 2010

JUNE 30TH 2007

 Unaccounted for funds: shs.457,000

It was noted that an amount of shs 457,000 advanced to council staff for official duties remained unaccounted for by the time of audit. Details are presented in Table below:- Voucher No Payee Amount 1 104/1/07 Registrar Shs.257, 000 2 103/12/06 Registrar Shs.200, 000 TOTAL Shs. 457,000

There is a risk that these funds may not been used for the intended purpose.

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 Unascertained funding from ministry of health (MoH) to the council Audit noted that the Council receives funding from M.O.H. under Programme 09 to cater for some of its activities. This budget line is not controlled by the council. It was further noted that documents submitted to the Council by M.O.H with regard to this funding are photocopies casting doubt to their authenticity. In this respect It was difficult to ascertain the total amounts due or received from Ministry of Health.

 Poor working environment: (Accounts Section) It was noted that the Accounts section of the Council is housed in what was originally a kitchen despite the fact that it keeps sensitive data, documents and equipment. This is a poor working environment and poses risk of loss of documents and equipment. There is a risk that the entity‘s data and other records and equipment are at risk of fire and damage by water proper office accommodation must be sought, to safeguard accounting data and documentation.

JUNE 30TH 2008.  Unacknowledged statutory deductions A sum of Ushs.1,389,650 deducted as PAYE and Withholding tax was purportedly remitted to Uganda Revenue Authority (URA) but no acknowledgment of receipts from the recipient were presented for audit. In absence of acknowledgment receipts we could not confirm whether the payments reached the rightful beneficiary. All statutory payments to Uganda Revenue Authority should always be supported by acknowledgement receipt as evidence of remittance.

JUNE 30TH 2009  Unaccounted for advances Shs.6,748,000 A sum of Shs.6,748,000 was paid out to officers of the Council to enable them carry out inspections and other official duties It was however noted that, back to station reports were not made by the officers as accountability for these purported inspections/safaris; in absence of inspection reports audit could not confirm whether the activities were actually undertaken

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 Unacknowledged Statutory Deductions A sum of Shs.4,808,950 deducted as PAYE and Withholding tax was purportedly remitted to Uganda Revenue Authority (URA) but acknowledgment receipts were not availed for audit; in absence of these receipts audit could not confirm whether the payments were received by the rightful payee. All statutory payments to Uganda Revenue Authority should always be supported by acknowledgement receipt as evidence of remittance.

30TH JUNE 2010

 Lack of security to receipt books During the year under review it was not possible to determine the actual revenue collected since the number of receipt books used by the council to collect revenue could not be ascertained. This was due to the fact that: a. The actual number of receipts received from the printing firm entered in a register did not indicate the number procured for that particular financial year. b. The serial numbers of the revenue books procured and delivered by the Printing firm could not be easily traced.

 Poor working conditions It was noted that the Accounts Assistant is operating from the kitchen where tea is prepared. The kitchen also operates as cash office where sensitive documents like receipt books, cashbooks, computer are housed. There is a risk that the Council may lose very important information in case of fire break out; Besides the Security of sensitive information is compromised.

 Expenditure Both the expenditure vouchers and expenditure cash book were not availed for audit. The Accounts assistant responsible attributed this to overwhelming work i.e. cash collection, writing the books, banking revenue etc. Audit could not confirm that expenditure items and amounts were fairly stated in the financial statements and that all relevant regulations were followed.

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 Submission of financial statements By the time of audit, the financial statements for the year under review had not been submitted for audit. Management did not comply with Sec 19 of the Allied Health Professional‘s Statute which requires submission of financial statements for audit within 3 months after the end of the financial year.

 Operational manuals The Entity operated without approved Human Resource and Finance and Accounting manuals during the period under review. Without such manuals, staffs lack the necessary guidance in their day to day execution of activities and may cause inconsistency in the treatment of various transactions.

II HOTEL & TOURISM TRAINING INSTITUTE (HTTI)

JUNE 2008

 Corporate Governance i) Legal Status of the Institute-Lack of a pertinent law governing the institute.

As observed in my previous report, the Institute still lacks a legal framework defining its legal status and governing its operations following change of line Ministry from Ministry of Education to Ministry of Tourism, Trade and Wildlife. To date no relevant legislation has been put in place to govern the institute following the change to the Minister of Tourism and Wildlife.

ii) Lack of a Governing Council & Lack of approval of the Institute‟s Budget. Further to the lack of a definite legal status, the Institute still operated without a governing council in the period under review. As a result budgets for the two years under audit were not approved by the Governing Council of the Institute.

iii) Revaluation of the Fixed Assets

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The Institute has failed to review the residual value and useful life of its fixed assets such as Machinery and Equipment, Motor vehicles, Crockery and Cutlery which are fully depreciated but are still in use. These assets have not been revalued to reflect the benefits accruing from their continued use. This is contrary to provisions of IAS 1 which require that financial statements must "present fairly" the financial position, financial performance and cash flows of an entity.

JUNE 2009 AND 2010  Procurements

Audit of the two financial years under review revealed that provisions of the PPDA Act 2003 were not complied with as detailed below;

i. The Institute operated with neither a Procurement and Disposal Unit nor Contracts Committee in place. ii. The stages of the procurement process designed to ensure a competitive process such as planning, solicitation from bidders, evaluation of offers, formal award of contract, and contract management was not followed. iii. There was no pre-qualified list of suppliers. iv. In the financial year ended 30th June 2010 ,Hotel equipment worth Shs199,998,200 was procured from M/s Prestige Services (U) Ltd P.O Box 22358 K`la without a signed formal contract and approval of the Attorney General as required by regulation 225 (f) of the PPDA Act 2003. v. Procurements totaling to shs32,609,950 in 2009 and shs79,188,904 in 2010 respectively were made on an adhoc basis through making advances to hotel staff to carry out cash purchases. Contrary to the PPDA regulations section 118, provisions pertaining to micro procurement were not followed.

 Staffing

a. Recruitment and Appraisal Section 28 (a ) of the Institute‘s staff terms and condition of service states that any post that falls vacant in the Institute shall be advertised in the press, while

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section 8.1(a) requires all institute employees to be subjected to periodic performance appraisal. However, contrary to these provisions it was noted that:-  There was no evidence on most files to indicate that employees are recruited through a competitive process.

 There was no evidence to indicate that employees are appraised regularly.

 Statutory Deductions i. Non deduction of Withholding tax During the two financial years, the Institute failed to deduct from suppliers WHT totaling to shs 2,336,640 for 30th June 2009 and shs16,674,975 for 30th June 2010 respectively as is required by the Income Tax Act 1997. (Appendix 2a and 2b refers). ii. Non remittance of statutory deductions The Institute has continued to fail to remit statutory deductions to the relevant authorities as note 7 in the financial statements for the year ended 30th June 2009 indicates. PAYE totaling Shs.2,118,295 was not remitted to URA and NSSF deductions totaling Shs.128,178,70 remains unremitted. Non-remittance of statutory deductions is an offence which may attract penalties against the Institute. iii. Unaccounted for Tax remittances. During the two years under audit, no URA acknowledgment receipts were not availed to confirm that taxes amounting to Shs.50,593,581 were indeed remitted to the tax authority. A total of Shs.43,361,100 is in respect of the financial year ended 30th June 2009 while Shs.7,232,481 is for the period to 30th June 2010. These funds remain unaccounted for.

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 Nugatory expenditure- Vandalisation and theft of property from vehicles at HTTI

During the year ended 30th June 2009, the Institute on two separate occasions paid a total of shs 2,700,000 as compensation to customers for loss of their money and property picked from vehicles parked in the hotel`s parking yard yet a security farm is employed to guard the premises. The Institute was not under any obligation to effect the refunds. The compensation made resulted into loss of Institute funds on unbudgeted and non value adding activities. This is a nugatory expenditure.

 Un accounted for funds Shs.19,600,480 During the financial year 2009/2010 advances amounting to Shs.19,600,480 were made to officers of the Centre to undertake various activities of the Institute but remained unaccounted for by the end of the financial year.

 Revenue Reconciliation

Although monthly reconciliation is carried out between payments and bankings, no similar reconciliation is done between receipts and bankings. As result, one cannot readily establish the unbanked cash at the close of the financial year nor match receipts with banking slips.

 Financial Statements for 2008/09 i. Presentation of Land and Buildings Land and Building was reflected in the financial statements as one account balance. Under IAS 16, with respect to depreciation, Land and Building are separate assets and are dealt with separately for accounting purposes even when they are acquired together. The Institute‘s Land and Buildings have never been formally valued separately. I cannot therefore confirm that the depreciation charge in respect of buildings for the year is fairly stated.

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ii. Cash and Bank Balances Although a certificate of bank balance was issued by the bank for Standard Chartered account no 0102000343200 for June 2009 reflecting a credit balance of Shs3,251,731 CR ,no bank reconciliation was done with the cash book records which reflected an over drawn balance of Shs.5,642,210. The financial statements for June 2009 also present the Bank of Africa account no. 0200407008 with an overdrawn balance of Ushs.756,722. However a bank reconciliation statement which was not independently verified and signed presents the cash book balance as Shs.207,228. These Cash and Bank balances are not properly supported in the financial statements and are misstated. iii. Trade Debtors: Shs.159,047,732 Most of the debtors to the Institute have been outstanding from as far back as 2006 and appear not to be performing. In addition it was noted that most of these debtors are not backed by supporting documentation to prove their existence. The recoverability of these amounts may be in doubt and their balance may not be fairly stated.

 Strategic objectives.

Audit noted that the Corporation was unable to achieve its set goals for the two financial years ended 30th June 2009 and 30th June 2010 as laid down in its 5 year Business Plan running from 2005/06 to 2010/11. Key strategic objectives not achieved include:-

 Establishment of HTTI Campus by September 2007.

 Establishment of a University faculty by January 2009.

 Elevation of the Hotel infrastructure to a 4- star Hotel by 2010.

The Corporation‘s goals and objectives for the period were not achieved.

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 Non Submission of financial statements for 2010 for

Management did not submit draft financial statements for the year ended 30th June 2010. In spite of lack of a pertinent governing statute, this contravenes best practice and provisions of the law which require that accounts be submitted within three months after close of the year; consequently certification of financial statements was not possible.

III. THE LAW DEVELOPMENT CENTRE - JUNE 2010

Outstanding audit Observations for the year ended 30th June 2009.

 Medical scheme

As mentioned in the previous year report the centre operates a medical centre where staff access free medical care and gives refunds to staff who procure medical services from other clinics. There was no clear policy on the medical scheme operated by the centre; an inspection of the medical centre established the following;  Unlimited access to free service at the medical unit to students, staff and their family members and dependants.

 Poor record keeping at the medical centre with no records of drugs received except drugs issued out.

 The building which houses the medical centre was found to be structurally defective with the roof and ceiling leaking and some parts almost falling in. The laboratory also acted as a tea room which is not proper for human health and safety.

 Staff obtaining treatment from other health units without recommendations from the LDC medical centre, in clear violation of LDC‘s administrative guidelines on medical treatment of staff.

Absence of a clear medical benefits policy at the centre may result in abuse of the medical scheme. Besides, unrestricted numbers of staff accessing medical services at

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the centre may lead to wasteful expenditure as un entitled persons can gain access to the services.

 Statutory deductions

Contrary to the requirements of the Income Tax Act, NSSF Acts the centre did not remit PAYE and NSSF deductions to URA and NSSF in time leading to accumulation of arrears as follows;

Statutory Obligation Accumulated Amount paid Amount arrears outstanding PAYE 1,046,533,603 914,612,177 131,841,426 NSSF 1,326,212,861 52,584,295 1,273,628,566 TOTAL 2,372,746,464 967,276,472 1,405,409,892

Non remittance of statutory deductions is an offence which may attract penalties and fines.

 Encroachment on land

The centre has properties on plot 245, 221, 464, 481, and 482 on block 9, in Makerere in addition to plots 1 and 69 in Bukoto. However, it was noted that these properties have been encroached upon by squatters. The centre has not taken action to remove encroachers. There is a risk that the centre may lose its property, besides security over this property may not be guaranteed in absence of titles.

 Lack of audit committee

It was noted that the Centre did not have an Audit Committee to review both the internal and external audit reports to cause improvements to the Centre through their recommendations. Material errors in the transactions and financial statements may not be detected or presented in time.

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 Audit inspection of the centre stores

Inspection on the centre‘s stores revealed the following; a. Lack of segregation of duties There were only two (2) staff in the main store responsible for receipt of goods where record issues and receipts in the Ledgers and at the same time issues items out of the stores. In the circumstances, this apparent lack of segregation of duties could result into loss as errors and omissions/commissions occasioned cannot be easily detected. b. Lack of space There was lack of space in the stores. The inventory items are being stored in very small different rooms that are not spacious and as such some of the stores items are not properly arranged. As a result, some items are stored in different locations which create tracing and accountability problems. Noted further, that other items such as old parts of vehicles, motorcycles, machinery, equipments and furniture have been left in open space in the compound to waste away. c. Expired Drugs There were expired drugs being kept together with other items (Law Reports). Whereas some of the drugs expired way back in 2005 no explanation was given as to why such expired stocks continued to be kept in the stores. Besides, the Centre did not have a policy for handling expired drugs in place. Poor management of stores function may result in stock losses, errors in stock valuation and failure to detect obsolete stock items (drugs in this case). d. Canteen services

It was noted that the Centre‘s canteen was operated by three (3) different Companies namely:-Rom Gardens for only six months, Kim‘s Food Zoo for one year and currently Food Empire between January 2009 and the time of this report. The following observations were made:-

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i. No contract had been signed by the centre and the 3 service providers. Therefore, the terms and conditions under which the service providers operate the canteen could not be readily established. ii. Rom Gardens and Kims Food Zoo left without notice to the management. There was apparent lack of monitoring and supervision by staff responsible for the estate of the entity. iii. Management laxity to supervise the operations of the canteen resulted into financial loss as the first two service providers defaulted on their obligations. Ms Roms disappeared with accumulated arrears of Shs.2,520,000 while Kims Food Zoo disappeared with rent arrears of Shs.10,500,000 all totaling to Shs.13,020,000.

Without formal contract with service providers it may not be possible for the entity to recover the arrears. e. Procurement of Civil Works

M/s Bikko Engineering and Contractors was contracted by the Centre to carry out external works at the Centre‘s premises at a fee of Shs.137,297,000.The following observations were made on the progress of the contract:-  The contract was supposed to be completed in 3 months - 8/6/2010. However, by January 2011 work hard not been completed.  The project was supposed to be supervised by the Project Manager and the Senior Estates Officer of LDC but no report on the project from the 2 officials was available for audit review.  According to the payment schedule appended to the contract, the contractor was entitled to an advance payment of 30% and final installment of 70% on completion of the work. This schedule was however abandoned and the Centre adopted a schedule of four installments as opposed from the previous one. No reason was provided for the change nor was the contract revised.

There was a breach of the terms of contract by both parties.

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f. Impairment of centre‟s printing machinery

The Centre operated a printery which publishes legal materials mainly for students, legal profession, LDC main and the general public. Inspection of the Machinery in the Printery revealed that one of major machines (Kord) in the Printery broke down 5 years ago and it had not been repaired. Resulting from this, the Centre could not operate fully in a competitive environment to generate additional income to the entity because the machines in use were less reliable. A delay in repairing the Kord machine and upgrading has affected operational efficiency of the centre in printing publications. g. Lack of IT Policy

It was observed that, the Centre had several Computers and related accessories but lacked an established ICT department as provided for in the Standing Order 2003. We noted further that the Centre did not have a policy for the operation, maintenance, storage of information and protection of these computers and the related information which would act as guide. Lack of the ICT department and ICT policy puts the Centre at the risk of losing the computers, information in addition to incurring high maintenance costs in repairs which might not be economical. h. Un updated fixed assets register

The centre maintains a fixed assets register which is not regularly upgraded. As a result, particulars of property, plant and equipment stores, asset locations, conditions, amounts are incomplete. The centre is therefore not able to effectively;  Allocate depreciable amounts of property, plant and equipment on their useful as required by UAS 16.

 Facilitate donor presentation of fixed assets in the financial statements

In these circumstances it is not possible to confirm the accuracy, existence, completeness and validity of property, plant and equipment.

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i. Understatement of land

The Centre‘s Land and Buildings were valued by Bageine & Company (Surveyors, Valuers & Real Estate Management Agents) at Shs.24,551,600,000 as at 15th February 2008. However, it was noted that this figure excludes the value of Plot Nos.481 (0.01hectares) and Plot 482 (0.06 hectares) at Makerere Hill which were reported at NIL value. This was as a result of the values being denied access to the plots by the occupants. Verification of the Land titles of the centre revealed that both plots (481 and 482 were property of LDC with a leasehold land of 99 years effective 1st February 2003. In the absence of a valuation report including these properties; the centre‘s land and buildings valued at Shs.24,551,600,000 may not be fairly stated. j. Human resource issues

A review of Human resource documents such as LDC Standing Order 2003, Staffing position and other related document revealed the following:-

a) Unfilled Vacancies It was noted that from a report on staffing position of the entity that out of the 345 established posts in the Centre, only 101 posts were filled leaving a total of 244 posts vacant. This represented 70 % of the total Established posts vacant. Key positions in some of these departments were not filled e.g. the positions of D/Director, Senior Principal Lectures, Principal Estates Officer, Senior Systems Analyst, Principal Accountants, and Principal Internal Auditor etc. This implies that work in these various departments could not been done to the expectations of the Center. However, a review of the whole approved staffing Structure as per the Standing Order 2003 revealed that the Structure cannot be maintained due to inadequate financial resources of the Centre.

b) Overstaffing above established positions

Review of the current Staffing position and the established posts revealed that the position of the Assistant Accountant was provided for in the Standing Order with

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approved staff number totaling to 4. However, review of number of employees in this category revealed that the approved staff position was exceeded by 10 staff. This means that extra costs are being incurred on excess staff at the expense of other department‘s programmes.

k. Lack of a functional internal audit unit

The review of the internal Audit function of the Centre revealed that, the department is headed by an Assistant Accountant who is serving in an acting capacity effective 1/12/2009. However, the Centre did not have a clear policy on acting position i.e. (specifying the time period for acting). Key positions such as Principal Auditor, Chief Auditor and Senior Auditor in the internal Audit Department were not filled. The internal Audit reports are being addressed to the Director and there is no evidence that actions are taken on the audit findings. In absence of a functional internal audit unit, it was not possible to place reliance on the existing controls. Besides material errors may occur and remain detected in the financial statements.

IV. MANDELA NATIONAL STADIUM LIMITED - DECEMBER 2009

Governance

It was noted the following governance issues: a. In February 2009 a new Board was appointed. Audit noted that the Board chairman also worked as the Managing Director creating a possibility of conflict of interest. His tenure was later cut short because at the time of audit a new Chairman and a Managing Director had been appointed. Both officials however did not have appointment letters. It was not possible, therefore, to ascertain their tenure and terms and conditions of service. b. In the financial year 2009, board expenses amounted to Shs.46,500,000 in respect of sitting and retainer allowances. However, the payment vouchers lacked supporting documents while board minutes to confirm that meetings took place were not availed for audit. It was further noted that the retainer allowances lacked approval from the

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appointing authority, were paid in advance, and statutory deductions in form of taxes were made from them. c. One of the Board members was a signatory to MNSL bank accounts. Since he is both a policy maker and an implementer, conflict of interest could not be ruled out.

A conflict of interest was identified where the chairman of the Board doubled as the Managing Director, and where staff of the privatization unit served on the board of the company they were meant to supervise. Payments made to the board members appear irregular since there were no minutes to support them.

Management a. Section 44 of the company‘s Memorandum & Articles of Association states that the Managing Director shall be appointed by the Minister on recommendation of the board. We noted however, that the current MD was not appointed though a competitive process. Instead he was appointed in acting capacity from among the Board Members. Besides, there was no letter of appointment on file making it difficult to establish his terms. b. The former Ag. Managing Director‘s name did not appear on the payroll. He was instead paid salary advances without statutory deductions like taxes. A total sum of Shs.42,900,000 had been advanced to him in this manner by the time of audit in addition to Shs.5,800,000 received as salary arrears. c. There is neither a marketing department nor a dedicated person responsible for marketing or promotion of the Stadium. Management acknowledged the need for greater marketing of the Stadium, and attributed its poor performance in this area to its weak financial position.

The appointments and remuneration to the Managers are irregular.

Personnel matters

Besides lack of a documented human resource manual and lack of organization structure, the following were further noted:

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a. All Staff were recruited on temporary terms and some of whom having joined the Company as early as 1997. There was an increased likelihood of staff de-motivation and negative attitudes in their performance to achieve Stadiums goals and objectives. b. Correspondences on personal files were not numbered, while most of personal files lacked academic qualification papers. It was not possible to ascertain the criteria for selection and recruitment. c. There was no clear salary structure for staff. Audit noted inconsistencies in salary payments in relation to qualifications. e.g. a hotel operations manager whose qualification is a diploma was earning Shs.1,387,218 while a maintenance engineer with a degree in engineering and currently pursuing masters earned Shs.900,000. d. There is no recruitment policy in place. Staff are handpicked and given senior key positions; advertising and interviews are not conducted while salaries are determined solely by the Managing Director.

There was no clear job description and salary structure as a result staff did not know their entitlement. This can result in low morale and lack of motivation for the staff leading to underperformance or exiting.

Internal control systems a. There were weak internal control systems in place. This was compounded by lack of documented and approved operational manuals like the Accounting and Human Resource manuals. b. There was no functioning internal audit department to assess the effectiveness of internal controls and recommend measures for improvement and guidance in the day today operation of the company. c. There was no clear booking system for the hotel section, conference and reception halls. As a result it was not easy to reconcile the exact revenues due, realized and the outstanding balance for the daily bookings. d. Most of the records of the company are maintained in a manual system and or in excel spreadsheets maintained on personal computers in the Finance manager office and the Human resource officer who works as the secretary to the Managing Director. There was no specialized accounting or other software in use.

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Lack of clear internal control and record keeping systems can lead to inaccurate financial information and possible misappropriation of funds by individuals.

Land management

MNSL owns 48.20 Hectares on land on two separate land titles. The land was last valued in 2004 at Shs.2,137,000,000. The following were further noted: a. Although MNSL is a limited company, the Stadium land title is in the names of Uganda Land commission and has not been transferred in the Company‘s names. The land has also never been revalued, therefore, the amounts presented in the final accounts may not be fairly stated. b. The land has been adversely encroached on by a number of people and institutions. These included Kira Town Council, Police which constructed police quarters; Sports View Hotel constructed a perimeter wall inside the Stadium land while a market in Bweyogere was constructed by unknown individuals. c. MTN Company rented and occupied part of the Stadiums‘ land at Shs.177,000,000 for a period of 10 years from February 2009. They constructed 3 antennas on the roof top on the Northern and Southern end and the space on the ground measuring 10 meters by 10 meters on each side of the stadium for two generators, two BBS, two RBS on each side and have been allocated to run cables along the property. However, there was no signed contract and no valuation report by the government Valuer to determine the fair value. Besides, there was no environment impact assessment carried out by NEMA as required by existing environmental laws. The circumstance under which the transaction was made were not clear as there was neither evidence of a Board/management involvement, nor was there proper procurement process followed to ensure that the transaction was transparent. d. During the construction of the Stadium, UMEME occupied 0.378 acres of the stadium land. While MNSL did not respond, UMEME has since upgraded their power substation without the Stadium consent. It was noted from the communication dated 19th November 2008 addressed to the chairman of the board that UMEME offered to lease the land at Shs.30million as ground rent for a period of 49 years. We noted that on the 10th of June 2009 the Ag. Managing Director sent a reply to UMEME preferring the rental option instead of a lease, suggesting an annual rental fee of Shs.24 million with 414

effect from November 2008. There was no evidence of any further communication on the matter and therefore we were unable to ascertain whether the offer was accepted or not. No payment had been received from UMEME for that land. It was also not possible to ascertain how the offer of Shs.24 million per year was arrived at by management.

Since the lease agreement between MNSL and MTN was not signed by both parties and land not surveyed by an independent valuer, it is not legally binding. UMEME is occupying the stadium land illegally since there was no contract between the two parties.

Consultancy services on human resource

The contract to carry out a job evaluation exercise was awarded to Ms Human Resource Development Consults Ltd at a cost of Shs.10,856,000 in January 2009. The final payment was made on 23rd September 2009. The following anomalies were however noted: a. Except for a copy of the solicitation document, record of bids received, the evaluation report and unsigned letter of bid acceptance to the winner, the procurement file was empty. It was therefore not possible to understand who initiated the procurement, how bidders were identified, the selection of the evaluation method used, and how the contract was managed. b. While the Consultant was paid all the money, it was noted that there was no contract spelling out the terms, deliverables, and the duration of the contract. Besides, no report has been presented by the company, ten months after the final payment was made.

Payments of Shs.37,293,080 to Ms Henriet & Partners Ltd

In December 2008 a procurement process was initiated for the service provider to develop a marketing strategy for MNSL. Under unclear circumstances the procurement halted. Surprisingly, however, in 2009 a firm was paid a total of Shs.37,293,080 to carry out Public Relations and Marketing activities for the stadium as detailed below.

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The circumstances under which the company was paid are not clear as there was no evidence of biding, evaluation and award of contract.

The following were further noted: a. The above funds that were paid as advances to the firm have never been accounted for. b. While the firm was advanced Shs.10,000,000 to organize a valantines day, ; MNSL only received Shs.200,000 from the event resulting into a loss of Shs.9.8million c. There was no memorandum of understanding/agreement spelling out the operating arrangement between the consultant and MNSL and how the Agency fee of Shs.1,770,000 per month was arrived at. d. Withholding Tax was not deducted from the payments contrary to the Income Tax Act.

Procurement laws/regulations were not adhered to. It was not possible to confirm that the firm was competitively sourced and charges were arrived at transparently. Meanwhile MNS does not appear to have benefited from this expenditure.

Contribution to sports activities On 23rd February 2009, Shs.50,000,000 was directly transferred from the Stadium account to Ministry of Education and Sports on the Sports Development Fund account No.213213011.1 held with Bank of Uganda. The money was allegedly a contribution to facilitate the Uganda Women National Rugby team that was to participate in the Dubai World Sevens Rugby Cup, 6-7th March 2009. Except for the directives received from the Ministry to make a contribution, this activity was not a mandate of the Stadium. Besides, the MNSL Board did not deliberate and approve the transaction and the Ministry did not acknowledge receipt or account for the money.

Without accountability, the funds may not have been utilized for the intended purpose. Besides, any contribution to outside organisations should be approved by the Board and should be within the mandate of the Stadium. It should be properly budgeted for with clear guidelines to which institution or sports activity to be funded.

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Receivables

During the years 2009 an amount of Shs.560,234,393 was recorded in the accounts. Audit verification of receivables revealed the following:

a. There was no credit policy. It was difficult to ascertain the credit maximum period, amounts, and which clients qualify for credit. b. Some of the companies on the debtors list have since wound up, including GTV Shs.50,020,000. Other debtors have been long outstanding, e.g Pan African Centre for Strategic studies, 3K Hotel and Table of the Sun that owe the Stadium Shs.9,912,000, Shs.26,913,500 and Shs.32,983,800 respectively since 2003. c. A significant amount of receivables was due from Uganda Police Force at Shs.390,165,795. This debt dates back to November 2007 when Uganda hosted the Common Wealth Heads of Government meeting. MNSL accommodated some of the officers of Uganda Police Force during that period and subsequent months up to December2008. However there was no evidence to confirm that management has made any efforts to recover those sums. d. Since November 2008 MNSL has been having 12 tenants. Audit however, that only 2 out of the 12 have tenancy agreements. Besides, although rent amounting to Shs.68,882,000 remained out standing by December 2009, the debtors have not been reflected in the financial statements of 2009.The receivables of 2009 were thus understated.

Without a credit policy there is an increased risk of non-payment by clients and increased bad debts.

Payables and accruals

In the accounts of 2009, the figure for payables and accruals was Shs.169,149,127. Further verification of this figure revealed that: a. Only Shs.3,646,923 was included in the accounts as the money due to NSSF for the financial year 2009 alone. However, there was long outstanding arrears to NSSF for the financial years 2004-2008 totaling Shs.638,830,216, of which Shs.175,440,180 was in respect of arrears and Shs.463,390,216 for penalties. These amounts are not reflected in the accounts. 417

b. Claims totaling Shs.52,666,071 were presented to management by the Hotel Section in respect of consumables. Scrutiny of the documents, however revealed that the supplies lacked purchase orders and were not taken on charge. It was not possible to confirm that the goods were actually delivered and consumed. Besides there was no explanation was given as to why the claims were approved and endorsed by the Managing Director without relevant supporting documents.

Deposit of shs.190,000,000 by Christian radio network

On the 13th November 2009, Christian Radio Network deposited Shs.190,000,000 on the Stadium bank account. This was a booking to use the Stadium for end-of-year annual night prayer services on every 31st December of each year for the period 2010-2014. It is not clear how the amount was arrived at. Besides, there was no agreement detailing the terms of this transaction. Meanwhile, the amount was not reflected in the statements as deferred income representing an obligation where a future service is required to be performed before it can be recognized.

Receipt of money without agreement can lead to misunderstanding and possible litigations in case of change of management by either party. Furthermore, without proper formal procedure and negotiations, the Stadium may not have got a fair deal.

Security at the stadium

It was noted that, the security of the stadium was manned by the Alert Guards, a security firm whose services were terminated on 31st October 2009 due to alleged thefts. Management opted to deploy theirown staff to take charge of security. Audit however noted that the stadium security lacked the vital equipment like metal detectors, cameras, intercom services or any form of security weapon used by the askaris. Further investigations revealed that there were other thefts of stadium property where a number of items including food stuffs, lights of the stadium and gardens etc were missing from the stores and offices. A more recent case being the theft of spares supplied in by the Chinese government for the repair of the Stadium and it is alleged that the culprits were some of the security staff.

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A lot of thefts have been ongoing due to laxity of security at the stadium.

 Planning and budgeting The Finance Department with the input from different sections prepares the plans/budgets and submits them to the board of directors for approval, but the board has always failed to examine and pass them. The Board has also failed to approve the operations Manual like the Human resource, Finance and accounting Manuals. The Stadium has been operating without approved budgets and this leaves management with its own discretion on how to spend without the Board approvals. Besides lack of operational manuals is a recipe for informal operation and lack of standard procedures followed by personnel in day to day running of activities.

 Revenue performance The following were noted: a. Sports The sports facility included a football pitch, Gymnasium, Basketball court, Facility for table tennis, 2 volleyball courts, 2 Lawn Tennis, and an Athletic Track. However, little revenue is generated from this area yet it is the primary sector. For the financial year 2009, was only 3.7%, of the total revenue was received from this sector. Besides, the Gymnasium had not been functioning since 2008 in the days of CHOGM because it was damaged by the police officers who were housed during that time. The Basketball Court, Table Tennis Facility, Volleyball Courts, Lawn Tennis and the Athletic Track hardly generate any revenue due to poor public promotion. b. Leisure and Entertainment There was a 60-bedroom hotel, function halls, a bar, a reception hall suitable for a café and a presidential suit. Over 50% of the Stadium revenue is generated from this area for the period 2008-2010 however, revenue declined from Shs.1.8billion in 2008 to 944 million in 2009 and it is expected to decline further we noted weaknesses in staffing where most of the workers were found to be unqualified. It was therefore not possible to confirm that actually all receipts due were received and if a further improvement in revenue could not be made in this area

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c. Conferencing & Banqueting The total available space for hire was 598.87sqm and charged at an average of Shs.10,000 per sqm per day. However, most tenants did not have tenancy agreements and have defaulted in payment. d. Advertising Space MNSL offers the following space for billboard advertising: Peripheral advertising, Approach to the stadium, advertising around the perimeter fence, Aerial advertising, Roof top advertising, in stadium advertising, Arena advertising and in house advertising. However, most of the bill boards are plain because of poor marketing and for the financial year 2009 only 4million was raised in this area. Although funds were requisitioned from the Privatization Unit to market this product, there was no evidence of work done There was poor accountability of revenue due to poor internal control systems in place, especially in the Hotel Section.

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PART THREE

3.1 DIVESTITURE ACCOUNTS; JUNE 2010

This chapter details with privatization of public enterprises during the year ended 30th June 2010.

During the financial year ended 30th June 2010, four (4) public enterprises namely, Sugar Corporation of Uganda Ltd (SCOUL), Cable Corporation Limited (CCL), UGMA Engineering Corporation Ltd (UGMA) and the balance of the GOU 40% shares of National Insurance Corporation Ltd (NIC) were divested at a total of Shs13.514billion.This brings the total divested public enterprises by Privatization unit to 136 (table 2) fetching a cumulative total of Shs446,146,462,206 using various divestiture methods as per the table below.

METHOD OF DIVESTITURE NO OF DIVESTITURE TRANSACTIONS 1 Auction 6

2 Concession 11 3 Debt Equity Swap 2

4 Initial Public Offering 5

5 Joint Venture 2

6 Liquidations/struck off Co register 39

7 Employee/management buy outs 3

8 Pre emptive rights 14 9 Share sale 26 10 Sale of assets 23

11 Repossession 5 Total 136

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Pie Chart presentation of Methods of Divestiture Transactions

No of Divestiture Transactions

Debt Equity Auction Concession Swap Initial Repossession Auction 2% 8% Public Concession 4% 4% Offering Sale of assets 4% Debt Equity Swap 17% Joint Venture Initial Public Offering 1% Share sale Liquidations/struck Joint Venture 19% off Co register 29% Liquidations/struck off Co register Employee/management buy outs Employee/managem Pre emptive rights Pre emptive rights ent buy outs 10% 2% Share sale

The divesture of the remaining 36 Public Enterprises is yet to be concluded. (Table 2 refers).

Contingent Liabilities Contingent liabilities from divested enterprises in respect of litigations against government dating as back as 2003 remain unresolved. These post-divesture issues require urgent (Government) intervention to prevent further build up of the burden. Table 1 provides a summary of these litigations and court cases). As mentioned in my previous report, the divesture process has accumulated a big figure of contingent liabilities (some quantified and others yet to be quantified) in form of litigation costs. Although the exact figure cannot be determined, these liabilities pose a big challenge to the divesture process which may require urgent government intervention. (Table 3 refers).

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It was further noted that due to the long judicial process, these litigations do accumulate interest and costs

Meanwhile the unit has failed to collect Shs.225,000,000 and USD 9,423,000 in respect of divestiture proceeds from different enterprises divested as far back as

1995. Details are as the table bellow;

Debtor PE Divested Sale Price Amount Paid Balance Shs Balance `000` `000` `000` USD `000`

1 Ms R.S. Patel African Textile Shs100,000 - 423 Mills 2 Government of Uganda Usd 9,000 - - 9,000 Uganda Consolidated Properties Ltd 3 Showa Trading Co Lira Hotel Shs250,000 Shs50,000 200,000 - 4 Three links Ltd Hill Top Hotel Shs35,000 Shs10,000 25,000 - Total 225,000 9,423,

Details of the status of divested enterprises are attached to this report under Tables 2 and 3 by the time of this report.

Divestiture Audits of Sugar Corporation of Uganda limited(SCOUL) (23.8% shares), Cable Corporation limited (CCL) (51% shares) and UGMA Engineering Corporation(51% shares)

Introduction The divestiture of Government of Uganda Interest in the Sugar Corporation of Uganda Ltd, Cable Corporation Ltd and UGMA Engineering Corporation was carried out at the same time and the Share sales agreement of government equity was one. This was partly due to the fact that the GOU and Mehta Group hand entered into one joint venture agreement for all the three firms together before prior to their incorporation.

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Objectives The audit of the divestiture process of Sugar Corporation Uganda Limited (SCOUL) Cable Corporation Ltd (CCL) and UGMA Engineering Corporation was carried out to establish the following: i) Whether the divestiture of government‘s shareholding of 23.85% in SCOUL , 51% in CCL and 51% in UGMA was in compliance with the Public Enterprises Reform and Divestiture (PERD) Act. ii) Whether the sale of the above shares was in accordance with the joint venture agreement between the GOU and the Mehta group and the Memorandum and Articles of Association. iii) Whether the divestiture process was carried out in compliance with the Companies Act. iv) Whether the asset and share valuations were carried out to prior to the divestiture. v) Whether a pre divestiture audit was carried out vi) Whether the agreement of sale and purchase was duly signed and both parties are meeting their obligations. vii) Whether share transfers was done as per the terms and conditions of the sale.

Business valuation of both Assets and Shares

1. SUGAR CORPORATION OF UGANDA LIMITED (SCOUL)

It was noted that in 2006 PUSRP had carried out business valuation of SCOUL through M/S F. Munghereza Kariisa & Co. which revealed that the value of 51% shares by government was negative. This together with Article II, Section 2.01 (a) of the Share Retention Agreement prevented government from selling its shares and exiting SCOUL.

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The Privatization unit through open & restricted bidding method invited sealed bids from six (6) firms on 25th June 2008 to present proposals for updating of business and asset valuation of SCOUL;CCL and UGMA. These were M/S PKF Uganda, PricewaterhouseCoopers, Ernst & Young, Deloitte & Touché, M/S Munghereza & Kariisa, Sejjaka Kawaase & Co. The tender was awarded the to Delloite & Touche and the contract was signed on 24th October 2008 (PURSP/SRVCS/08/09 - 00641 at a cost of UGX 274,986,462/50 (VAT inclusive) In the Valuation, Delloite applied three (3) different valuation methods namely Discounted Cash Flow (DCF), Net Assets Value (NAV) and Residual Income method. The results were as follows;

Sugar Corporation of Uganda (SCOUL) Valuation Method Equity Value No. 0f Value per share shs 000‟s shares fully Paid Discounted Cashflow Method (124,460,945) 556,976 Nil (DCF) Net Assets Value (59,064,195) 556,976 Nil

Residual Income (58,616,280) 556,976 Nil

The valuation of Sugar Corporation of Uganda Limited returned a negative net-worth value of UGX 59,064,195,000 with a significant debt burden from Mehta Group of UGX 140,000,000,000. A corresponding contribution of 23.8% GOU share towards the clearance of this debt would mean payment of UGX 33,320,000,000 by GOU to Mehta Group before exiting from SCOUL.

2. UGMA ENGINEERING CORPORATION

A business valuation had earlier been conducted on UGMA in 2006 by Munghereza & Kariisa Consultants limited and returned negative results for equity stake of GOU. The valuation was to be used in negotiating a price for the divestiture of GOU‘s 51% shareholding. However the divestiture was not completed in the year 2006 as envisaged. 425

The results of the valuation by M/s Deloitte returned the following values; Valuation methodology applied Valuation results (shs „000s) Discounted Cashflow Method (DCF) (63,318,864)

Net assets value (NAV) (49,087,908)

NAV (with loans capitalized) ( 1,211,336)

RESIDUAL INCOME METHOD (12,981,259)

The findings indicated that the equity value of UGMA was negative implying that GOU‘s equit in UGMA was less than nil.

3 CABLE CORPORATION LTD Deloitte applied two valuation methods to establish a range of values for the equity stake of GOU‘s interest in CCL and below are the results of the valuation: valuation method value in shs (000s) GOU net worth shs (000s) Discounted Cashflow Method (DCF) (7,284,441) NIL

Net assets value (NAV) (4,172,603) NIL

NAV (after partial conversion of 1,579,075 805,328 debt to equity)

The consultant established a negative value of CCL using both the DCF method and NAV method. But on further analysis, the consultant recommended financial restructuring of CCL‘s balance sheet in order to improve the company‘s net worth. The pro rata conversion of debt to equity was computed on the basis of current debt structure of the company where GOU is owed 9.8 billion while the Mehta Group is owed 2.8 billion. This resulted into the net worth of the company rising to Shs.1,579,075 billion implying that GOU‘s share, based on 51% shareholding, was Shs 805,328,000.

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Divestiture The above three corporations had been cartegorised as class III of the divestiture law (the Public Enterprise Reform and Divestiture (PERD Act, Cap. 98) being entities in which government was to wholly divest from. The GOU had 51% shares but diluted to 23.8% after capitalizing of loans to the company as agreed between the Senior Lenders of SCOUL and shareholders in SCOUL but it maintained the 51% shareholding in Cable Corporation and UGMA Engineering. The Government of Uganda (GOU) had wanted to divest its shareholding of 51% from this SCOUL, CCL and UGMA as early as 2006 but was not successful due to the negative value of its shares at the time. There was also a condition by Senior Lenders which restrained shareholders from exiting the company until all loans had been cleared by the company. Following the settlement of Senior Lenders loans in 2006, government decided to proceed with the divestiture of its 23.8% shareholding in Sugar Corporation of Uganda Limited (SCOUL), 51% in CCL and 51% in UGMA. On 2nd June 2009, the DRIC in its 362nd sitting approved the divestiture strategy proposed by the consultants, Delloite & Touche, pending the some guidance from his Excellency‘s guidance in view of the other government policies. This clearance was communicated by MOFPED on 14th October, 2009 to Privatisation Unit.

Share Sale and Purchase Agreement Following negotiations, Mehta Group agreed to pay GOU shs.4.88billion for GOU interest in all the three companies. The share sale and purchase agreement between Government of Uganda and Mehta Group was executed on November 6, 2009 (having been cleared by the Solicitor General on 5th November, 2009). Under the agreement, the Mehta Group was required to pay a total of shs.4,880,000,000 in the following installments shs.1,720,000,000 on signing of the agreement as required by clause 2.1 (a), shs.1,720,000,000 to be paid not later than six (6) months from the date of signing the agreement. The balance of shs.1,440,000,000 was to be paid in three (3) equal installments of shs.480,000,000 on February 2010, February 2011 and February 2012 respectively.

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Payments to-date

Mehta Group Management Ltd on behalf of IIC Ltd has paid a total of UGX 3,920,000,000 remaining with an outstanding amount of UGX 960,000,000 to be paid in two equal installments of UGX 480,000,000 by February 2011 and February 2012 respectively thereby complying with the terms of the sales agreement.

Share Transfers Apart from communications from Mehta Group and Privatisation Unit to MOFPED requesting for the transfer of GOU shares to Mehta Group, IIC Ltd, there was no evidence to show that share transfers had been effected as required by clause 2.4 0f the Share sale & Purchase agreement: for GOU shares of 23.8% in SCOUL, 51% CCL and 51% in UGMA to Mehta Group.

Observations a) A review of the Memorandum of Agreement between the Government of Uganda and the Family of the Late Nanji Kalidas Mehta, Memorandum and Articles of association of the companies indicates that there was provision no for pre emptive rights of the shareholder/Mehta Group. Also a legal report by Sebalu & Lule Advocates and Consultants compiled in October 1994 regarding the legal status of SCOUL, CCL and UGMA clearly stated under clause 4 that ,The Articles of Association of the company do not confer pre – emptive rights of ownership‘ except consent by the other shareholder. However, contrary to the above advice, the sale of government shares in SCOUL, CCL and UGMA was processed under the presumption of pre emptive rights of Mehta Group and in the case of CCL, even the Solicitor General in his letter dated 20th September, 2007 ref PUSRP 04.04.00 expressed a similar concern which was disregarded.

b) Since the sale was undertaken in the year 2009 implying that the latest audited accounts should have been for the year ended December 2008. It was, however, noted that the final accounts of Sugar Corporation of Uganda Limited (SCOUL) for the year ending 31st December, 2008 had not been audited, at the time of update and valuation of the business and assets of

428

SCOUL by the Consultant, Delloite & Touche as required by the consultant`s terms of reference no. 4 ‗Reporting Requirements, stating that the Net Book Value to be used would based on the latest audited balance sheet and revaluation of assets. Therefore the accuracy or correctness of the figures used could not be confirmed as reflecting the true position of the business as at 31st December, 2008. c) The proceeds of Shs.4,880,000,000 as shown in the sales agreement are for debts owed to Cable Corporation Limited (UGX 3,440,000,000) and UGMA (1,440,00,000) by Government of Uganda. Unless otherwise explained, this implies that the 23.8% shares owned by government in SCOUL and 51% in UGMA were sold at zero value. It was also not clear from the sales agreement whether UGX 328,000 (UGX 805,328,000 minus 805,000,000) was included in the purchase price as recommended by the Consultant. d) Despite the perpetual losses by the 3 companies, there seemed to have been laxity or over sight on part of government to have left management of the Joint venture solely in the hands of Mehta group who were shareholders and also lenders which may have resulted in conflicting interests. Government of Uganda should have hired independent managers to run those factories other than retaining the same managers who were being paid exorbitantly for poor results.

Conclusion The divestiture of SCOUL, CCL and UGMA using the preemptive rights method was an error by government and may have excluded other potential buyers who could have offered better terms than the Mehta Group and if the Mehta Group wanted to buy the shares, it should have participated like any other bidder.

429

Appendix 1 List of Seventy Two (72) public organizations and Twelve (12) Projects audited by the Directorate of Statutory Corporation Statutory corporations 1 Allied Health Professionals 2 Amber House Limited 3 Amnesty Commission 4 Bank of Uganda 5 Broadcasting Council 6 Capital Markets Authority 7 Civil Aviation Authority 8 Coordinating Office for Control of Trypanosomiasis in Uganda 9 Cotton Development Organization 10 Crested Crane Hotel & Tourism Training Institute 11 Dairy Development Authority 12 East African Community 13 Electricity Regulatory Authority 14 Kasese Cobalt Company Limited 15 Kilembe Mines Limited 16 Lake Victoria Fisheries Organization 17 Law Development Centre 18 Management Training and Advisory Centre 19 Mandela National Stadium 20 Nakivubo War Memorial Stadium 21 National Animal Genetic Resources Centre and Data Bank 22 National Council for Children 23 National Council for Higher Education 24 National Council of Sports 25 National Curriculum Development Centre 26 National Drug Authority 27 National Enterprises Corporation & Subsidiaries 28 National Forestry Authority 29 National Housing & Construction Company Limited 30 National Insurance Corporation Ltd. 31 National Library of Uganda 32 National Medical Stores 33 National Planning Authority 34 National Social Security Fund 35 National Water & Sewerage Corporation 36 National Women‘s Council 37 National Youth Council 38 New Vision Printing and Publishing Corporation 430

39 Nile Hotel International 40 Post Bank Uganda Limited 41 Posta Uganda Limited 42 Privatization Unit 43 Public Procurement and Disposal of Public Assets Authority 44 Rural Electrification Agency 45 Uganda Air Cargo Corporation 46 Uganda Broadcasting Corporation 47 Uganda Bureau of Statistics 48 Uganda Coffee Development Authority 49 Uganda Communications Commission 50 Uganda Development Bank 51 Uganda Development Company Limited 52 Uganda Electricity Distribution Company Limited 53 Uganda Electricity Generation Company Limited 54 Uganda Electricity Transmission Company Limited 55 Uganda Energy Credit Capitalisation Company 56 Uganda Export Promotion Board 57 Uganda Institute of Communication and Information Technology 58 Uganda Insurance Commission 59 Uganda Investment Authority 60 Uganda Livestock Industries 61 Uganda Medical and Dental Practitioners Council 62 Uganda National Bureau of Standards 63 Uganda National Council of Science & Technology 64 Uganda National Cultural Centre 65 Uganda National Examinations Board 67 Uganda Nurses & Midwives Council 68 Uganda Printing & Publishing Corporation 69 Uganda Property Holding Limited 70 Uganda Railways Corporation 71 Uganda Seeds Limited 72 Uganda Tourism Board 73 Uganda Wildlife Authority Projects 1 Sustainable Management of Mineral Resources Project 2 Strengthening the Management of Oil & Gas Project Strengthening the State Administration of the Upstream Petroleum Sector Project in 3 Uganda 4 Kenya-Uganda Oil Pipeline Project 5 Power Sector Development Operation Project – UETCL Component

6 Power Sector Development Operation Project MEMD Component 7 Bujagali Interconnection Project

431

8 Uganda Electricity Transmission Company Limited Twinning Project 9 Energy For Rural Transformation (ERT) Project 10 SIDA I Project 11 SIDA II Project

12 Amnesty Commission Multi Donor Trust Fund Demobilisation and Reintegration Project

432

Appendix 2 Summary of financial performance of Public organizations audited during the period 1st April 2010 to 31st March 2011

A Public organizations audited for financial years ended 30th June 2010

No Statutory Authority/State Enterprise Surplus/Deficit Accumulated for the year Surplus/Deficit for the year

1 Bank of Uganda (BOU) (30,292,000,000) 980,554,000,000 2 Capital Markets Authority (CMA) 20,849,000 1,108,779,000 3 Kilembe Mines Ltd (KML) (3,271,014,566) (29,890,538,143) 4 National Drug Authority (NDA) 790,522,256 1,061,254,558 5 Uganda Insurance Commission (UIC) 2,103,295,873 3,597,958,865 6 National Medical Stores (NMS) 4,573,231,000 5,546,037,000 7 Electricity Regulatory Authority (ERA) (165,436,249) 1,932,904,260 8 National Council For Disability (NCD) 81,485,470 87,689,976 9 Uganda National Bureau of Standards (UNBS) 3,672,158,611 5,504,762,932 10 National Planning Authority(NPA) (191,831,632) 312,392,470 11 National Water and Sewerage Corporation (NWSC) 7,678,591,000 48,289,988,000 12 Public Procurement and Disposal of Assets, 1,339,242,626 4,889,228,476 Authority(PPDA) 13 New Vision Printing and Publishing Corporation 734,786,000 19,003,749,000 14 Uganda communication commission (UCC) 9,830,973,805 37,732,760,730 15 Uganda Bureau of Statistics (UBOS) 964,465,646 1,875,740,808 16 Uganda Air Cargo Corporation (UACC) 2,862,639,154 (17,768,363,808) 17 Uganda National Council For Science and 1,352,489,000 431,837,000 Technology (UNCST) 18 Uganda Printing and Publishing Corporation (UPPC) 55,442,314 (1,948,601,107) 19 Uganda Property Holdings Ltd (UPHL) 1,492,815,573 1,678,185,166 20 Uganda Tourism Board (UTB) 69035628 68915132 21 Uganda Wildlife Authority (UWA) 1,301,325,000 (9,350,928,000) 22 National Forestry Authority (NFA) (3,268,898,000) (4,155,140,000) 23 Uganda National Examinations Board (UNEB) 399,441,771 22,078,844 24 National Council for Higher Education (NCHE) 151,975,995 953,792,865 25 Uganda Revenue Authority(URA) (1,164,045,626) 5,355,817,118 B Pubic Organisations audited for financial year ended 31st October 2009 26 Cotton Development Organization (CDO) 2,116,679,810 761,922,682 Public organizations audited for financial C years ended 30th September 2009 27 Uganda Coffee Development Authority (UCDA) (170,530,964) 1,646,769,710 Public organizations audited for financial D years ended 31st December 2009

433

28 Amber House Ltd (AHL) 708,371,335 4,668,584,393 29 Dairy Development Authority (DDA) 8,261,381,220 8,930,910,000 30 Management Training & Advisor Centre (MTAC) 65,954,671 (333,260,827) 31 National Housing and Construction Co Ltd (NHCCL) 2,398,018,000 57,885,954,000 32 Nile Hotel International Ltd (NHI) 372,805,707 (124,441,436) 33 Post Bank Uganda Ltd (167,039,944) 3,485,822,139 34 Uganda Development Bank Ltd (UDB) 1,436,872,000 21,379,659,000 35 Uganda Electricity Distribution Co Ltd (UEDCL) 13,403,149,000 (70,751,531,000) 36 Uganda Electricity Generation Co Ltd (UEGCL) (8,653,492,000) (74,236,290,000) 37 Uganda Electricity Transmission Co Ltd (UETCL) (7,844,397,000) (33,373,998,000) 38 Nakivubo Stadium 49,308,571 1,520,233,416

434

Appendix 3 Financial performance of Public Organizations No Statutory Accumulated Surplus/Deficit for the past four years Authority/Sta te Enterprise Public organizations audited with financial years ended 30th June 2010 NAME OF 30th June2010 30th June 2009 30th June 2008 30th June 2007 ENTITY shs Shs shs Shs 1. Uganda Air Cargo (17,768,363,114 (20,631,002,268) (25,524,703,335) (26,241,946,520) Corporation ) (UACC) 2. Uganda Wild Life (9,350,928,000) (10,652,253,000) (9,436,056,000) (6,140,516,000) Authority (UWA) 3. New Vision 19,003,749,000 17,665,149,000 16,660,953,000 13,444,426,000 Printing and Publishing Corporation 4. Bank of Uganda 980,554,000 1,012,129,000,00 241,018,000 100,428,000,000 (BOU) 0 5. Uganda Tourism 67,676,839 8,032,101 (27,598,967) (31,616,203) Board (UTB) 6. Kilembe Mines (29,890,538,143 (26,264,603,508) (20,171,252,442) (19,331,260,322) Ltd (KML) ) 7. National Women 86,375,434 (1,392,321) 6,594,549 3,547,759 Council (NWC) 8. Uganda Bureau of 1,916,863,118 2,881,327,764 4,343,583,000 3,328,955,377 Statistics (UBOS) 9. National Drug 10,612,545,758 11,219,059,934 8,795,462,112 4,662,305,779 Authority(NDA) 10. Uganda Property 1,678,185,166 425,135,340 (40,750,484) (129,330,512) Holdings (UPHL) 11. National Planning 312,392,470 626,597,199 1,259,548,385 957,300,475 Authority 12. National Water 48,289,988,000 36,696,814,000 20,574,775,000 9,419,424,000 and Sewerage Corporation (NWSC) 13. Uganda 37,732,760,730 38,327,394,491 20,057,043,957 10,884,169,530 Communications commission (UCC) 14. Uganda 3,597,958,865 2,074,840,354 1,228,009,826 688,923,381 Insurance Commission 15. Uganda National 431,837,000 1,042,700,627 3,851,833,549 5,224,867,770 Council for Science and Technology (UNCST) 16. Uganda Printing (1,948,601,107) (2,004,043,000) (2,008,978,000) (1,569,224,000) and Publishing Corporation 435

(UPPC) 17. Uganda Medical 154,769,849 99,460,461 97.062,855 90,853,420 and Dental Practitioners Council 18. National Council 953,792,865 801,816,872 513,602,620 750,082,865 For Higher Education 19. National Medical 5,546,037,000 1,021,095,000 9,224,522,000 Stores (NMS) 20. National Forestry (3,268,898,000) 952,449,000 329,718,000 (406,549,000) Authority 21. Public 4,889,228,476 3,557,712,937 4,830,751,521 3,384,583,650 Procurement & Disposal of Public Assets Authority 22. Electricity 1,932,904,260 2,125,972,688 2,603,897,429 1,715,874,128 Regulatory Authority 23. National Council 87,689,976 6,204,506 7,581,369 12,076,373 For Disability 24. Uganda National 5,504,762,932 1,832,604,321 (1,169,961,881) (440,149,582) Bureau of Standards 25. Capital Markets 1,108,779,000 1,087,930,000 1,826,648,000 Authority 26. Uganda 2,472,533,034 14,584,328,406 (1,239,048,054) Investment Authority 27. Civil Aviation (134,031,291,000 (124,301,271,000 (102,668,098,000 Authority (CAA) ) ) ) 28. Uganda Revenue 5,355,817,118 5,283,539,508 (2,856,169,106) (10,882,374,921,) Authority (URA) Public organizations audited with financial years ended 31st December 2009

NAME OF 31st December 31stDecember 31st December 31st December ENTITY 2009 2008 2007 2006 29. Dairy 8,930,910,000 669,528,780 (131,548,904) (107,148,000) Development Authority(DD A) 30. Management (333,260,827) (399,215,498) (558,739,866) (579,003,461) Training and Advisory Centre(MTAC ) 31. Amber House 4,832,111,111 3,960,213,059 3,148,253,309 2,450,592,899 Ltd (AHL) 32. Nile Hotel (124,441,436) 145,775,000 (695,460,000) (1,356,340,000) International Ltd (NHI) 33. Post Bank Ltd 3,318,782,195 3,485,822,139 2,542,195,834 1,763,683,238 34. National 57,885,954,000 28,167,013,000 21,366,545,000 14,842,297,000 Housing and 436

Construction Company Limited (NHCC) 35. Uganda (70,751,131,000 (84,154,680,000) Electricity ) Distribution Company (UEDCL) 36. Uganda (74,236,290,000 (65,582,798,000) (39,796,032,000) (31,853,239,000) Electricity ) Generation Company (UEGCL) 37. Uganda 20,555,047,000 18,054,208,000 6,635,207,000 6,048,148,000 Development Bank Ltd (UDB) 38. Uganda (33,373,998,000 (25,529,601,000) 31,491,984,000 30,968,410,000 Electricity ) Transmission Company (UETCL) 39. Nakivubo 49,308,571 (7,702,198) (106,930,373) (43,395,235) Memorial Stadium 40. National 3,199,064,879 2,222,433,632 2,342,713,721 2,020,621,291 Curriculum Development Centre (NCDC) Public organizations audited with financial years ended 31st October 2009

NAME OF October 2009 October 2008 October 2007 October 2006 ENTITY 41 Cotton 1,525,698,126 761,922,682 (1,411,487,556) (991,548,245) Development Organization (CDO) Public organizations audited with financial years ended 31st October 2009

NAME OF September September September 2007 September 2006 ENTITY 2009 2008 42 1,646,769,710 940,131,106 (2,539,598,232)

437

Appendix 4: Pending claims (litigation) against Government as at 30th June 2010

PUBLIC ENTERPRISE PARTIES PARTICULARS OF CONTINGENT CLAIM QUANTIFIED 1 Nyanza Textile Mill/ IGG vs. Gordon Compensation by minority NYTIL Ssentiba & Others shareholders in NYTIL for AG HCCS No.43/ 2006 their interest in the co. which according to the consent judgement would Us $ 10,510,052/61 amount to approx. Us $ 9 million against Principal amount of Us$ 2,770,239 The IGG successfully challenged the consent judgement in High Court and Court of Appeal and was set aside. The minority shareholders appealed to the Supreme Court and it ruled in their favour instructing GOU to pay the above amount including interest of 18% per annum from the date of its earlier ruling. 2 Uganda Electricity Bagamuhunda Vs Claim for terminal benefits Board(UEB) and UEB HCCS No 1044 0f computed based upon their Successor 2001 consolidated salary. UGX 16 billion companiess Judgement was in favour of Plaintiffs

Amount not Kalibbala Vincent & The Plaintiffs have sought ascertained yet others Vs AG HCCS declaration from Court that No 107 of 2008 some UEB former employees are entitled to pension arrears for the period 2006 - 2008 UGX 4, 849, Edison Mavunwa & 352,763 another (on behalf Claim by 203 former of 194 others Vs employees of UEB now UEGCL & AG HCCS working with UECL for No. 353 0f 2003 terminal benefits not paid when UEB was unbundled.

438

John Walugo & 175 Claim of 1500 former others Vs UEB, employees of UEB now UEDCL & UETCL working with UEGCL for HCCS No. 967 of 2006 terminal benefits not paid Josephine when UEB was unbundled. Nakafeero & 844 The Plaintiffs filed the above Approx UGX 40 others Vs UEB, suit against the defendants billion UETCL & UEDCL challenging the basis of HCCS No.760 0f 2006 payment of gratuity to them Kyambadde Henry, as terminal benefits for their Paul Nyamarere & period of service with the 636 others Vs successor cos. They said UEDCL & UETCL – that they ought to have HCCS No. 138 0f 2008 been paid pension in terms of UEB standing Instructions. 3 Uganda General UNIDRO Vs AG Creditors of Uganda General Merchandise HCCS no. 4 of 2007 Merchandise supplied merchandise that was never Not yet ascertained paid and instituted the suits for recovery of the monies due at the time of liquidation.

Uganda Transport George Zziwa and Not yet ascertained Company (1975) Ltd others Vs AG & DRIC HCCS no 3 0f Creditors of PTC sought to Peoples Transport 2007 recover debts for several Company Mugenyi and Co. supplies at the time of Advocates Vs AG liquidation. HCCS No. 663 of 1994

4 Uganda Transport Co. Ltd Ayoub Ibrahim Vs Claim for former employees AG HCCS no 192 0f for advances arbitrary Approx UGX 150 2003 deducted from their terminal million benefits

5 Apollo Hotel Corporation Kazooya & others Claim for terminal benefits Vs Apollo Hotel not paid after divestiture. Approx UGX 6 billion Corporation, Sheraton Hotel Ltd Claim for Association fees and AG HCCS no. 64 i.e. 25% of the terminal UGX 170 million of 2003 benefits Clement Othieno Vs UGX 170 million AG Elison/Kulemera to provide details David Lubega Vs AG 439

HCCS no. 601 of 2007

6 Kilembe Mines Limited Kaija Mugenyi and Claim for underpayment of (KML) 137 others vs. AG terminal benefits based on UGX 825 million HCCS no 755 of 2003 approved terms and conditions of service retrospectively.

7 East African Steel Mugalula & Others Claim arose out of the suit Corporation Vs MMCL & SCEAL, by the former workers UGX 1,200,000,000 HCCS no. 640 of 1994 contributory benefits under the NSSF Act

8 Uganda Railways NSSF vs. URC & AG Claim for un remitted Corporation HCCS no. 277 of 2008 workers contributory UGX 8, 752,301,200 benefits under the NSSF Act. Victor Byemaro Vs. NSSF contributions for 200 UGX 230 million URC HCCS no. 249 of URC workers 2009 A claim for compensation of Us$ 360,502.50 Bakheresa Grain cargo lost when MV Milling (u) Ltd Kabalega sunk versus URC HCCS No.19/200 Claim arising from computation of the tax Not yet ascertained liability of the Plaintiffs. Nkote Charles, They Plaintiffs alledge that Sabani Magemeso they were unlawfully taxed. Vs. URC & URA HCCS no. 107 of 2009 9 Kibimba Rice Co. Ltd Notice of intention to Claim for compensation for sue Peter Muwafu, land submerged after TILDA UGX 2,000,000,000 Wandera Basirita, took over operation of Samanya Eriasa Kibimba. and 181 others vs. AG 10 Dairy Corporation Ltd Morris Ogwal Vs. Claims are for payment of DCL, HCCS no. 614 of terminal benefits and other UGX 10,214,366,302 2003 allowances Otai Samuel Vs. DCL HCCS no. 800 of 2003 Agono Charles Vs.DCL, HCCS 814 of 2003 Behangana Richard 440

Vs. DCL HCCS no 883 of 2003

11 Other Diary Corporation Owor Alex Vs DCL Former employees claiming Ltd cases HCCS no. 320 of 2006 special damages for salary UGX 8,052,720 arrears, general damages, interests and costs of the Wekhasa Fred and suit. 6 others vs. DCL Terminal benefits, damages UGX 556,225,633 HCCS no. 1152 of for unlawful termination of 1998 employment. Claim for unlawful UGX 8,000,000 Gerald Muhumuza termination of employment UGX 15,000,000 Vs DCL HCCS no. 108 and general damages of 2004 Claim for payment of forced UGX 57,834,954 leave salaries, compensation Otai Samuel Vs. for earnings lost while on DCL HCCS no. 261 of forced leave and damages. 2003 Court entered judgement for UGX 8,575,295 inclusive of costs. This money was deposited in Court as a condition to stay execution of the judgement pending appeal TO High Court and review of the judgement. Claim for terminal benefits, Edward Keijuko Vs. salary arrears and DCL HCCS no. 813 allowances amounting to UGX 100 million 2003 UGX 57,834,954 with interest of 25% , general damages and costs. Supreme Court Appeal: UGX 15 million claim for recovery of milk Ephraim Kizito Vs. cooling plant and lost DCL and AG HCCS no revenue from DCL‘s UGX 10 million 71 of 1977 and Civil confiscation of the milk Appeal no. 26 of 2003 cooler Compensation for loss of the UGX 35 million Habib Kiggundu Vs. developments, damages for DCL HCCS no. 17 of trespass, mesne profits and 1995 costs Claim for unpaid salary plus, Mwesigwa Samuel and travel allowances on Over UGX 300 million vs. DCL HCCS no. 59 retirement, general of 2002 damages Claim for wrongful dismissal, Alonga John general damages, terminal UGX 590 million Charles Vs. DCL benefits and pension. HCCS no. 48 of 2004 Claim arising from computation of the tax Siraj Hassan Kajura liability of the plaintiffs. The

441

vs. DCL and URA Plaintiffs alleged that they were unlawfully taxed.

Casual labourers suing for Turyahoza Patrick & terminal benefits Others vs. DCL & AG HCCS No. 106/2009 12 Coffee Marketing Board CMBL vs. National Claim for underpayment of Limited (CMBL) Union of Clerical terminal benefits claim Over UGX 30 billion Commercial & Professional Technical Employees Misc application 74 of 2006 13 African Textile Mills, Nytil, Uganda Textile Claim for the recovery of Uganda Garment & Lira Garment Leather & Union fees arising from UGX 65 million Spinning Mill Allied Workers check off system of 3%. Union Vs. AG HCCS no. 58 of 2009 14 Kinyara Sugar Works Ltd Nyeko Smith and Claim for terminal benefits Others Vs. Kinyara by the former employees of Approx UGX 20 – 35 Sugar Works Ltd & National Sugar Works billion AG HCCS no. 009 of Kinyara (Masindi) 2009 15 Trans Ocean U Ltd Foods & Beverages FBL claimed Us $ 730,000 Ltd (FBL) vs. AG for haulage expense. Trans Us$ 500,000 HCCS No. of 2003 Ocean counter claimed for Us $ 230,000

16 Uganda Posts & Several former Claims for pension under Telecommunications UPTC employees Uganda Communications Amount unknown Corporation (UPTC) Employee Pensions Scheme (UCEPS). Bernard Mweteise, Declaration that former 825 Amount unknown Asaph Ndawula & former UPTC workers are 8223 others vs. entitled to pension Uganda Telecom payments arising before Limited, Post Bank unbundling UPTC (U) Ltd, Uganda 17 Posts Ltd, Uganda UGX 52,154,563 Tororo Cement Industries Communication Execution of bill of costs in Ltd Commission & AG respect of valuation of HCCS no 135 of 2003 property on plots 41-47 Zesui Rd, Mbale 18 Edirisa Wamena Amount unknown Foods & Beverages Ltd Namanyo vs Tororo Damages for wrongful Cement Industries dismissal by former General Ltd Manager of FBL, Mr Levi Zimbe

442

Levi Zimbe vs. AG HCCS No.466/94

443

Appendix 5: Divestiture transactions as at 30th June 2010

Public Buyer Method of sale Balance Enterprise Date Price Money collected (m)

Ms Laoo Ltd Sale of Assets 1 Acholi Inn May-95 Shs 235 m 108,000,000 122 African Ceramics Muhindo 2 Co. Enterprises Ltd May-96 Sale of Assets Shs.270m 270,000,000 -

African Textile P.S.Patel Share Sale 3 Mills Mar-96 Shs.1.4 bn 100,000,000 679 Agip Petrol Shs.1.675 4 Agip (U) Ltd International May-96 Share Sale bn 1,664,141,892 -

Agricultural Commonwealth Oct-93 Enterprises Ltd Development Corp US$ 12.7 Joint Venture 3,835,414,534 5 m - Apollo Hotel MIDROC Ethiopia 6 Corporation Ltd. plc Mar-01 Share Sale US$ 18m 32,040,000,000 - Associated Shares/Preempitv Match company Madhvani Group e rights 7 Ltd Jun-01 Sh. 46,164 46,164 - Bank of Baroda Shares/Preempitv 8 Bank of Baroda (India) Jun-99 e rights Shs 2.5bn 2,500,000,000 - Barclays Bank of Shares/Preempitv 9 Uganda Ltd Barclays Plc Oct-98 e rights Shs 5bn 5,000,000,000 - BAT Uganda BAT Investments Shares/Preemptiv (PHASE 1, 20% Ltd. e rights 10 of shares) Sep-99 US$ 7m 10,290,000,000 - BAT Uganda Initial Public 11 (PHASE 2) Various Jun-00 Offering - USE Shs 4.6 bn 4,608,794,753 - Uniliver Overseas US$ 12 Blenders (U) Ltd Holding BVC Aug-94 Share Sale 531,586 38,109,750 - US$ 13 Uganda Telecom Detecom Jun-00 Share Sale 33.5m 50,975,088,162 -

14 Dairy Corp Sameer Concession US$0.5 m 892,000,000 - Development Initial Public Fiance Company Shs 10.1 Various Offering - USE 15 of Uganda Jul-04 bn 18,369,374,559 - International East African Distillers & US$ 16 Distilleries ltd Vintners Nov-92 Share Sale 600,000 731,063,195 - Efforte Corp, US$ ENHAS Global Airlinks & Apr-98 Shares/Preemptiv 3.75m 17 Sabena e rights 1,226,193,448 - Foods & James Mbabazi 18 Beverages Ltd May-96 Auction Shs.670 m 670,000,000 - Eddie & Sophie 19 Fresh Foods Ltd Enterprises May-96 Auction Shs.0.9m 900,000 - Government Management and Management Buy Central Shs 1.09 Employees Out 20 Purchasing Jul-00 bn 1,091,276,000 - 444

Corp.

21 Hilltop Hotel Three Links Ltd May-95 Sale of Assets Shs 35 m 10,000,000 25 Reco Industries US$ 22 Hotel Margherita Ltd Aug-94 Sale of Assets 400,000 365,184,210 - International ROKO 23 television sales Construction Dec-96 Sale of Assets Shs 320m 320,000,000 - Kakira Sugar East African Shares/Preemptiv 24 Works Holdings Ltd. Jul-00 e rights Shs 3.5 bn 3,500,000,000 - Kampala Auto

Centre (Gomba Management Auction 25 Motors Ltd) Nov-95 Shs.110 m 8,200,000 - Kibimba Rice T Shs 1.607 26 Co. Ltd. ilda Holdings Sep-96 Share Sale bn 1,523,515,000 - Kinyara Sugar US$33.5 27 Works Ltd Rai Holdings Oct-06 Share Sale million 61,546,870,000 - Lake Victoria Crown Bottlers (U) Shs 6.46 28 Bottling Co. Ltd Ltd Feb-93 Share Sale bn 3,621,000,000 - Lake Victoria Shs. 3.06 29 Hotel (PHASE 1) Windsor Ltd Aug-95 Share Sale bn 2,962,387,928 - Lake Victoria Hotel Ltd (Phase Shares/Preemptiv 2) - Windsor The Windsor Ltd. e rights US$ 30 Lake Victoria Aug-00 1.75m 2,962,387,928 - Sunset 31 Lango Dev. Co. International Ltd. May-98 Share Sale Shs 100m 100,000,000 - Showa Trade 32 Lira Hotel Company Ltd Jan-95 Sale of Assets Shs 250 m 50,000,000 200 Ottoman US$ Sale of Assets 33 Masindi Hotel Engineering Feb-00 500,000 198,500,000 - Motorcraft and Andami Works Shs 0.200 34 Sales Ltd. Ltd. Sep-96 Share Sale bn 200,000,000 -

Bugisu

Cooperative Union 35 Mt. Elgon Hotel May-95 Sale of Assets Shs 650 m 650,000,000 - Mt. Moroto Kodet 36 Hotel International Nov-94 Sale of Assets Shs 40 m 40,000,000 - Mweya Safari Shs.1.821 Madhvani Group 37 Lodge Aug-95 Concession bn 1,821,112,067 - National Libyan Arab Housing & Foreign Construction Debt/Equity US$20.3 Investment Co. 38 Corporation Jun-05 Swap m 35,789,600,000 - National Insurance Corporation Ltd IGI Share sale US$3.625 39 (60%) Jun-05 m 6,307,822,446 - NEC

Pharmaceuticals Haupt Groupe Joint Venture 40 Ltd. Dec-99 US$ 1.5m - - New Vision Printing and IPO and Rights Publishing Co Various Issue 41 Ltd (20%) Sep-04 Shs 9.2 bn 2,040,000,000 -

Madhvani Group 42 Nile Breweries Apr-92 Repossession Shs 500m - - Serena Tourism Nile Hotel Promotion 43 International Ltd Services Jan-04 Concession US$1.2m 2,340,000,000 - 445

NYTIL Textile 44 Industries Ltd Picfare Ltd Mar-96 Sale of Assets Shs 7.0 bn 2,132,000,000 - PAPCO 45 Industries Ltd. Praful C. Patel Feb-99 Share Sale Shs 100m 100,000,000 - Uganda 46 Railways Corp RVR Concession US$ 2m 3,479,200,000 - Rafiki Trading 47 Republic Motors Company Dec-95 Auction Shs.395m 148,000,000 - Swisa Industries 48 Rock Hotel Ltd Nov-94 Sale of Assets Shs 300 m 300,000,000 - Rwenzori Share sale/ Highland Tea Finlays Groups Shs 1.45 Preemptive rights 49 Company Ltd May-02 bn - - Steel Rolling Mills 50 SAIMMCO Ltd. Sep-99 Share Sale Shs 202m 199,333,633 - Second National MTN Concession 51 Operator Mar-98 US$ 5m 6,664,000,000 -

Shell Petroleum Debt/Equity Shs 12.79 Co. Ltd 52 Shell (U) Ltd Dec-92 Swap bn 12,790,000,000 -

Speedbird Aviation

Services Ltd 53 Soroti Hotel Jan-95 Sale of Assets Shs 150 m 150,000,000 - Stanbic Bank 54 (U) Ltd. IPO Dec-96 Share Sale Shs 6.9 bn 35,812,000,000 - Stanbic Bank SBIC Africa Shs 55 (U) Ltd. Holdings Ltd. Nov-96 Share Sale 6.939bn 6,938,819,178 - Steel Muljibhai Corporation of Madhvani & Co. Shares/Preempitv East Africa Ltd Ltd e rights 56 (SCEA). Jul-00 Shs 320m 362,912,000 -

57 Total (U) Ltd Total Outre Mer Mar-96 Share Sale Shs.5.7 bn 5,645,992,433 - Transocen 1998 58 (U) Ltd Coin Ltd. Jul-01 Share Sale Shs 361m 361,000,000 - US$ 700,000 GM Company Ltd Share Sale +Shs 429 59 TUMPECO Aug-94 m 693,350,000 - Uganda Hire Shs.0.24 Tadeo Kisekka 60 Purchase Co. Nov-95 Auction m 240,000 - Uganda Cement Rawals Group of US$ 20.5 61 Industry - Hima Industries Dec-94 Sale of Assets m 17,948,945,000 - Uganda Cement Corrugated Sheets Industry - Shs.5.75 Ltd Sale of Assets 62 Tororo Oct-95 bn 5,864,857,750 - Uganda Clays Initial Public Shs 1.46 63 Ltd. Various Oct-99 Offering - USE bn 1,182,415,300 - Uganda Commercial Westmont Asia ltd Share sale Shs 64 Bank Oct-97 12,610m 12,610,000,000 - Uganda

Commercial Share Sale by Net Shs Stanbic Bank 65 Bank Feb-02 BoU 21.9bn 21,900,000,000 - Uganda Consolidated Properties GoU Sale of Assets 66 (PHASE 1) Apr-99 US$ 9m 11,250,000,000 US$ 9m 67 Uganda Motors Nov-95 Management Buy Shs.0.803 446

Ltd Management Out bn 300,000,000 - Uganda Electricity Distribution Co Umeme Concession 68 Ltd May-05 US$1.4 m 10,765,000,000 - Uganda Electricity Generation Co Eskom Enterprises 69 Ltd Nov-02 Concession US$0.5 m 993,000,000 - Uganda Nordic-African Fisheries May-95 US$ 1.1 m 105,600,000 Fisheries Co. Ltd Share Sale 70 Enterprises - Uganda Phoenix Logistics Garment Uganda Ltd. Sale of Assets 71 Industries Ltd. Aug-00 US$ 0.5 m 850,000,000 - Uganda Grain Calebs Milling International Share Sale 72 Co.(PHASE 1) Dec-96 Shs 5.3bn 5,336,000,000 - Uganda Management Buy 73 Hardwares Ltd Management Oct-95 Out Shs.298 m 18,200,000 - Uganda

Pharmaceuticals Shs 1.501 Vivi Holdings Share Sale 74 Ltd. Jul-96 bn 1,524,620,000 - Uganda

Industrial F.B. Lukoma Share Sale 75 Machinery Ltd. May-97 Shs 7 m 7,000,000 - Uganda Leather and Tanning Industry IPS (U) Ltd Sale of Assets Shs.1.71 76 (ULATI) Jul-95 bn 1,594,150,000 - Uganda Libyan

Arab Holding Co Preemptive Preemptive 77 Ltd Apr-08 Shs 2 M - Uganda Livestock Industries Ltd Ziwwa Ranchers Concession 78 _Kiryana Ranch May-02 Shs800 m 850,000,000 - Uganda Livestock Royal Ranchers Industries Ltd Ltd Lease of Assets _Kyempisi 79 Ranch May-05 Shs 391 m 391,000,000 - Uganda Meat Uganda Meat Packers Ltd Industries Ltd Sale of Assets 80 (Kampala Plant) Aug-95 Shs.700m 588,094,172 - Uganda Meat Teso Agric 81 Packers-Soroti Industrial Co Ltd. Nov-97 Sale of Assets Shs 300m 185,755,445 124 Uganda Seeds 82 (Kasese) Lease/concession Sep-05 Lease/concession Shs 326 m 273,000,000 - Uganda Seeds

(Masindi and US$350,00 Lease/concession Lease/concession 83 Kisindi) Sep-05 0 648,495,259 - White Rhino Dolma Associates 84 Hotel Ltd May-95 Sale of Assets Shs 200 m 200,000,000 - Kabale Development 85 White Horse Inn Company Ltd. Aug-94 Sale of Assets Shs 600 m 600,000,000 - Shs. 274 EMCO Works Ltd 86 Winits (U) Ltd Oct-95 Auction m 102,500,000 -

447

Cancelled-Assets belonged to 87 Printpak (U) Ltd Lonhro MBO n/a - - Uganda American Life American Insurance Insurance Company Repossession 88 Company Nov-92 n/a - -

Uganda Crane Buganda Kingdom 89 Estates Ltd. Jun-97 Repossession n/a - - Uganda Securiko (U) Ltd 90 Securiko Ltd Aug-93 Repossession n/a - - Comrade Cycles Uganda Motors 91 (U) Ltd. Ltd. Jan-97 Share Sale n/a - - Uganda Guostar Spinning Mills, Enterprises (U) Sale of Assets by 92 Lira Limited 1999 Court Order n/a - - Uganda Tea 93 Corporation Mehta Group May-94 Repossession n/a - - National Insurance Various IPO Corporation Shs7,269 94 (40%) m 9,594,000,000 - Sugar Pre emptive Corporation of Mehta Group rights 95 Lugazi Ltd UGMA Steel Pre emptive Shs4,880 Mehta Group 96 Corporation Ltd rights m 3,920,000,000 960 Cable Pre emptive Mehta Group 97 Corporation Ltd rights Total 446,146,462,206

Total Divestiture 97 transactions Liquidations 39 Total 136

448

Appendix 6: The remaining enterprises listed for divestiture as at June 2010

PERD GOU Share No Parastatal Comment Class % 1 Amber House Ltd I 100% Concessioned to Sameer Group III 2 Dairy Corporation Ltd. 100% Housing Finance Company of Uganda 3 Ltd. To be divested II 50%

4 Industrial Promotion Services Ltd Pre-emptive rights III 30% Kasese Cobalt Company Ltd (KCCL) 5 To be divested III 25%

6 Kilembe Mines Ltd. PPP / Concessioning III 99.996% Divested & remainder to be 7 Kinyara Sugar Works Ltd. divested through IPO III 49%

8 Mandela National Stadium Pending concessioning II 100% 9 Munyonyo Resort To be determined and divested 10 National Enterprise Corporation To be divested II 100% National Housing and Construction 11 Co. Ltd. Partial divestiture II 51% 12 National Medical Stores To be divested I 100% National Water & Sewerage 13 Corporation PPP / Concessioning II 100% New Vision Printing & Publishing Ltd. Partial divestiture through IPO 14 II 53% Concessioned to TPS Uganda 15 Nile Hotel International Ltd. II 100% 16 Post Bank (U) Ltd PPP / Concessioning II 100% 17 Pride Uganda Ltd. To be divested Tropical Africa Bank Ltd. (Libyan Arab 18 Holding) To be divested III 51% 19 Uganda Air Cargo To be divested II 100% 20 Uganda Commercial Bank/Stanbic IPO II 10% Uganda Consolidated properties Ltd / 21 Kulubya properties To be divested 93%

22 Uganda Crane Industries Ltd To be divested 100%

23 Uganda Development Bank II 100% 24 Uganda Development Corporation To be revived I 100% Uganda Electricity Distribution Co. 25 Ltd Concessioned to UMEME II 100%

26 Uganda Electricity Generation Co. Ltd Concessioned to ESKOM II 100%

27 Uganda Hotels Ltd (residual) To be wound up 100%

28 Uganda Libyan Arab Holdings Ltd To be divested 51%

449

Uganda Livestock Industries Ltd. Kiryana & Kyempisis ranches 29 concessioned out III 100% 30 Uganda Posts Ltd PPP / Concessioning II 100% Uganda Printing and Publishing 31 Corporation I 32 Uganda Prison Industries Ltd. PPP / Concessioning II 100% 33 Uganda Property Holdings Ltd Asset Holding comapmy I 100% 34 Uganda Railways Corporation Concessioned to RVR II 100% 35 Uganda Seed Ltd Concessioned out II 100% 36 Uganda Telecoms Ltd To be divested through IPO III 31% Residual PrintPak Uganda Spinning Mills, Lira

450