THE REPUBLIC OF

OFFICE OF THE AUDITOR GENERAL

ANNUAL REPORT OF THE AUDITOR GENERAL FOR THE YEAR ENDED 30TH JUNE 2015

CENTRAL GOVERNMENT AND STATUTORY CORPORATIONS

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Table Of Contents LIST OF ACRONYMS AND ABBREVIATIONS ...... xvi

SECTION ONE ...... 1

1.0 INTRODUCTION ...... 1

2.0 STATUS OF COMPLETION OF AUDITS ...... 1

2.1 RISK PROFILING OF AUDIT OBSERVATIONS ...... 9

2.2 KEY FINDINGS CENTRAL GOVERNMENT ...... 10

PART "B" ...... 49

1.0. INTRODUCTION ...... 49

2.0. BACKGROUND INFORMATION ...... 49

3.0. AUDIT SCOPE ...... 50

4.0. AUDIT PROCEDURES PERFORMED ...... 50

5.0. BUDGET PERFORMANCE ...... 51

6.0. FINDINGS ...... 52

ACCOUNTABILITY SECTOR ...... 65

7.0 TREASURY OPERATIONS ...... 65

8.0 MINISTRY OF FINANCE, PLANNING AND ECONOMIC DEVELOPMENT ...... 69

8.1 PRESIDENTIAL INITIATIVE ON BANANA INDUSTRIAL DEVELOPMENT (PIBID) ...... 75

8.2 FINANCIAL MANAGEMENT AND ACCOUNTABILITY PROGRAMME (FINMAPII) ...... 80

8.3 BUDGET MONITORING AND ACCOUNTABILITY UNIT ...... 81

8.4 COMPETITIVENESS AND ENTERPRISE DEVELOPMENT PROJECT (CEDP) COMPONENT 2- 5 ...... 83

8.5 MICROFINANCE SUPPORT CENTRE (MSC) ...... 85

9.0 DEPARTMENT OF ETHICS AND INTEGRITY ...... 86

WORKS AND TRANSPORT SECTOR ...... 90

10.0 MINISTRY OF WORKS AND TRANSPORT ...... 90

JUSTICE, LAW AND ORDER SECTOR ...... 116

11.0 MINISTRY OF JUSTICE AND CONSTITUTIONAL AFFAIRS ...... 116

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12.0 JUSTICE, LAW AND ORDER SECTOR SECRETARIAT ...... 124

13.0 MINISTRY OF INTERNAL AFFAIRS ...... 148

14.0 UGANDA POLICE FORCE ...... 159

15.0 UGANDA PRISONS SERVICE ...... 169

16.0 JUDICIARY DEPARTMENT ...... 179

17.0 DIRECTORATE OF PUBLIC PROSECUTIONS ...... 182

18.0 DIRECTORATE OF CITIZENSHIP AND IMMIGRATION CONTROL ...... 184

PUBLIC SECTOR MANAGEMENT ...... 191

19.0 MINISTRY OF LOCAL GOVERNMENT ...... 191

20.0 OFFICE OF THE PRIME MINISTER ...... 253

21.0 MINISTRY OF PUBLIC SERVICE ...... 255

SECURITY SECTOR ...... 261

22.0 MINISTRY OF DEFENCE ...... 261

23.0 OFFICE OF THE PRESIDENT ...... 267

24.0 STATE HOUSE ...... 270

AGRICULTURE SECTOR ...... 272

25.0 MINISTRY OF AGRICULTURE, ANIMAL INDUSTRY AND FISHERIES ...... 272

26.0 NATIONAL AGRICULTURAL RESEARCH ORGANISATION (NARO) ...... 290

27.0 EASTERN AFRICA AGRICULTURAL PRODUCTIVITY PROJECT (EAAP) ...... 298

ENERGY SECTOR ...... 300

28.0 MINISTRY OF ENERGY AND MINERAL DEVELOPMENT ...... 300

HEALTH SECTOR ...... 315

29.0 MINISTRY OF HEALTH ...... 315

30.0 MENTAL REFERRAL HOSPITAL ...... 330

31.0 ...... 331

32.0 REFERRAL HOSPITAL COMPLEX ...... 333

33.0 REGIONAL REFERRAL HOSPITAL ...... 338

34.0 REGIONAL REFERRAL HOSPITAL...... 339 iv

35.0 KABALE REGIONAL REFERRAL HOSPITAL ...... 340

36.0 GULU REGIONAL REFERRAL HOSPITAL ...... 341

37.0 REGIONAL REFERRAL HOSPITAL ...... 342

38.0 FORT PORTAL REGIONAL REFERRAL HOSPITAL ...... 342

39.0 JINJA REGIONAL REFERRAL HOSPITAL ...... 343

40.0 REGIONAL REFERRAL HOSPITAL ...... 344

41.0 MUBENDE REGIONAL REFERRAL HOSPITAL ...... 345

42.0 MOROTO REGIONAL REFERRAL HOSPITAL ...... 346

43.0 CHINA-UGANDA FRIENDSHIP HOSPITAL NAGURU ...... 346

EDUCATION SECTOR...... 349

44.0 MINISTRY OF EDUCATION AND SPORTS ...... 349

45.0 UNIVERSAL POST PRIMARY EDUCATION AND TRAINING PROJECT ...... 360

46.0 UNIVERSITY ...... 362

47.0 BUSINESS SCHOOL...... 365

48.0 UGANDA MANAGEMENT INSTITUTE ...... 371

49.0 MBARARA UNIVERSITY OF SCIENCE AND TECHNOLOGY ...... 373

50.0 UNIVERSITY ...... 374

51.0 ...... 380

52.0 GULU UNIVERSITY ...... 381

53.0 MUNI UNIVERSITY ...... 384

GENDER AND LABOUR SECTOR ...... 387

54.0 MINISTRY OF GENDER, LABOUR AND SOCIAL DEVELOPMENT ...... 387

WATER AND ENVIRONMENT SECTOR ...... 393

55.0 MINISTRY OF WATER AND ENVIROMENT ...... 393

53.1 JOINT WATER AND SANITATION SECTOR PROGRAMME SUPPORT (JWSSPS) - SOUTH WESTERN BRANCH (WSDF-SWB) ...... 396

56.0 MINISTRY OF TOURISM, WILDLIFE AND ANTIQUITIES ...... 397

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LAND SECTOR ...... 399

57.0 MINISTRY OF LANDS, HOUSING AND URBAN DEVELOPMENT...... 399

57.1 LEVERAGING MUNICIPAL IMPROVEMENT INFRASTRUCTURE INVESTMENT (LMIII) PROJECT ...... 402

57.2 COMPETITIVENESS AND ENTERPRISE DEVELOPMENT PROJECT (CEDP) LAND ADMINISTRATION REFORM COMPONENT ...... 403

57.3 ALBERTAIN GRABEN REGION PROJECT ...... 405

57.4 UGANDA SUPPORT TO MUNICIPAL INFRASTRUCTURE DEVELOPMENT PROGRAM (USMID) PROJECT ...... 406

INFORMATION AND COMMUNICATION SECTOR ...... 410

58.0 MINISTRY OF INFORMATION AND COMMUNICATIONS TECHNOLOGY ...... 410

PUBLIC ADMINISTRATION SECTOR ...... 414

59.0 MINISTRY OF FOREIGN AFFAIRS ...... 414

60.0 EAST AFRICAN COMMUNITY AFFAIRS ...... 415

TRADE SECTOR ...... 417

61.0 MINISTRY OF TRADE, INDUSTRY AND COOPERATIVES ...... 417

MISSIONS ...... 421

62.0 UGANDA HIGH COMMISSION, ABUJA ...... 421

63.0 UGANDA EMBASSY, BERLIN ...... 422

64.0 UGANDA EMBASSY, BRUSSELS ...... 423

65.0 UGANDA HIGH COMMISSION, BUJUMBURA ...... 425

66.0 UGANDA EMBASSY, CAIRO ...... 426

67.0 UGANDA HIGH COMMISSION, DAR ES SALAAM ...... 427

68.0 THE PERMANENT MISSION OF THE REPUBLIC OF UGANDA TO THE UNITED NATIONS AND OTHER INTERNATIONAL ORGANIZATIONS IN GENEVA ...... 427

69.0 UGANDA CONSULATE, GUANGZHOU, CHINA ...... 428

70.0 UGANDA HIGH COMMISSION, KIGALI ...... 428

71.0 UGANDA EMBASSY, KINSHASA ...... 429

72.0 UGANDA HIGH COMMISSION, KUALA LUMPUR ...... 430 vi

73.0 UGANDA HIGH COMMISSION, LONDON ...... 432

74.0 UGANDA EMBASSY, MOGADISHU ...... 433

75.0 UGANDA CONSULATE, MOMBASA, KENYA ...... 434

76.0 UGANDA HIGH COMMISSION, NAIROBI ...... 435

77.0 UGANDA HIGH COMMISSION, NEW DELHI ...... 436

78.0 THE UGANDA PERMANENT MISSION TO THE UNITED NATIONS, NEW YORK ...... 438

79.0 UGANDA HIGH COMMISSION, OTTAWA ...... 438

80.0 UGANDA HIGH COMMISSION, PRETORIA ...... 441

81.0 UGANDA EMBASSY, RIYADH ...... 444

82.0 UGANDA EMBASSY, ROME ...... 445

83.0 UGANDA EMBASSY, TOKYO ...... 446

84.0 UGANDA EMBASSY, TRIPOLI ...... 447

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STATUTORY CORPORATIONS UNDER CENTRAL GOVERNMENT

SECTION TWO ...... 449

AUDITED ENTITIES ...... 449

DETAILED AUDIT FINDINGS ...... 450

WORKS SECTOR ...... 450

83.0 UGANDA NATIONAL ROADS AUTHORITY ...... 450

83.1 TRANSPORT SECTOR DEVELOPMENT PROJECT (TSDP) ...... 500

83.2 ROAD SECTOR SUPPORT PROJECT 1 (2013/2014) ...... 503

83.3 ROAD SECTOR SUPPORT PROJECT 2 (2013/2014) ...... 504

84.0 THE ...... 507

JUSTICE LAW AND ORDER SECTOR ...... 508

85.0 JUDICIAL SERVICE COMMISSION ...... 508

86.0 UGANDA LAW REFORM COMMISSION ...... 509

87.0 UGANDA HUMAN RIGHTS COMMISSION ...... 511

88.0 UGANDA REGISTRATION SERVICES BUREAU OPERATIONS ...... 513

89.0 UGANDA REGISTRATION SERVICES BUREAU – LIQUIDITY ACCOUNT ...... 515

90.0 ...... 516

PUBLIC SECTOR MANAGEMENT ...... 530

91.0 PUBLIC SERVICE COMMISSION ...... 530

92.0 LOCAL GOVERNMENT FINANCE COMMISSION ...... 531

93.0 CAPITAL CITY AUTHORITY ...... 532

94.0 ELECTORAL COMMISSION ...... 544

LEGISLATIVE SECTOR ...... 545

95.0 PARLIAMENTARY COMMISSION ...... 545

95.1 PARLIAMENTARY PENSION SCHEME ...... 547

HEALTH SECTOR ...... 548

96.0 UGANDA AIDS COMMISSION ...... 548 viii

EDUCATION SECTOR...... 550

97.0 EDUCATION SERVICE COMMISSON...... 550

AGRICULTURAL SECTOR ...... 551

98.0 NATIONAL AGRICULTURAL ADVISORY SERVICES (NAADS) ...... 551

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TABLE OF CONTENTS

SECTION THREE ...... 559 STATUTORY CORPORATIONS ...... 559 99. STATUS OF ACCOUNTS AUDITED DURING THE YEAR ...... 559 100. KEY AUDIT FINDINGS ...... 562 101. SUMMARY OF GENERAL AUDIT FINDINGS ...... 564 ENERGY SECTOR ...... 574 102. LIMITED - YEAR ENDED 30TH JUNE, 2015 ...... 574 103. UGANDA ELECTRICITY DISTRIBUTION COMPANY LIMITED- YEAR ENDED – 31ST DECEMBER 2014 ...... 575 104. UGANDA ELECTRICITY GENERATION COMPANY LIMITED - YEAR ENDED 31ST DECEMBER, 2014 ...... 577 105. UGANDA ELECTRICITY TRANSMISSION COMPANY LIMITED - YEAR ENDED 31ST DECEMBER, 2014 ...... 579 106. ERT II – RURAL ELECTRIFICATION AGENCY –YEAR ENDED 30TH JUNE, 2015 ...... 580 107. ESDP- - MASAKA POWER LINE – YEAR ENDED 30TH JUNE 2014 ...... 584 108. ERT II – UGANDA COMMUNICATIONS COMMISSION – YEAR ENDED 30TH JUNE ..... 584 109. INTERCONNECTION OF ELECTRICAL GRIDS OF EQUATORIAL LAKES COUNTRIES (NELSAP) UGANDA – YEAR ENDED 31ST DECEMBER 2014 ...... 585 110. MBARARA NKENDA & POWER TRANSMISSION LINES PROJECT – YEAR ENDED 31ST DECEMBER 2014 ...... 587 111. UGANDA ELECTRICITY TRANSMISSION COMPANY LIMITED BUJAGALI INTERCONNECTION PROJECT FOR THE YEAR ENDED 31ST DECEMBER 2014 ...... 588 112. RURAL ELECTRIFICATION AGENCY FOR THE YEAR ENDED 30TH JUNE, 2015 ...... 589 113. ENERGY FOR RURAL TRANSFORMATION PROJECT II (FUNDED BY THE GOVERNMENT OF NORWAY) FOR THE YEAR ENDED 30Th JUNE, 2015 ...... 591 HEALTH SECTOR ...... 592 114. ALLIED HEALTH PROFESSIONALS COUNCIL-YEAR ENDED 30TH JUNE 2015 ...... 592 115. - YEAR ENDED 30TH JUNE 2015 ...... 593 116. NATIONAL MEDICAL STORES – 30TH JUNE 2015 ...... 594 117. THE UGANDA NURSES AND MIDWIVES COUNCIL – YEAR ENDED 30TH JUNE 2015 .. 595 118. JOINT CLINICAL RESEARCH CENTER- YEAR ENDED 30TH JUNE 2015 ...... 597 EDUCATION & SPORTS SECTOR ...... 599 119. – YEAR ENDED 31ST DECEMBER 2014...... 599 120. NAKIVUBO WAR MEMORIAL STADIUM- YEAR ENDED 31ST DECEMBER 2014 ...... 604 121. NATIONAL COUNCIL OF SPORTS- 30TH JUNE 2015 ...... 611 122. NATIONAL COUNCIL FOR HIGHER EDUCATION-YEAR ENDED 30TH JUNE 2015 ...... 613 x

123. MANAGEMENT TRAINING AND ADVISORY CENTRE- YEAR ENDED 31ST DECEMBER 2014 ...... 615 124. UGANDA NATIONAL EXAMINATIONS BOARD- YEAR ENDED 30TH JUNE 2015 ...... 615 INFORMATION AND COMMUNICATION TECHNOLOGY ...... 617 125. NATIONAL INFORMATION TECHNOLOGY AUTHORITY UGANDA (NITA-U) – YEAR ENDED 30TH JUNE 2015 ...... 617 126. - YEAR ENDED 30TH JUNE 2014 ...... 619 127. UGANDA BROADCASTING CORPORATION – 30TH JUNE 2015 ...... 622 128. UGANDA COMMUNICATIONS COMMISSION – YEAR ENDED 30TH JUNE 2015 ...... 629 129. UGANDA PRINTING AND PUBLISHING CORPORATION – 30TH JUNE 2015 ...... 631 130. UGANDA INSTITUTE OF INFORMATION & COMMUNICATION TECHNOLOGY- YEAR ENDED 30TH JUNE 2015 ...... 635 131. UGANDA NATIONAL COUNCIL OF SCIENCE & TECHNOLOGY – 30TH JUNE 2015 ...... 637 132. UGANDA POST LIMITED - YEAR ENDED 30TH JUNE 2015 ...... 639 TOURISM AND TRADE SECTOR ...... 643 133. HOTEL AND TOURISM TRAINING INSTITUTE – YEAR ENDED – 30TH JUNE 2015 ..... 643 134. NILE HOTEL LIMITED – 31ST DECEMBER 2014 ...... 643 135. UGANDA DEVELOPMENT CORPORATION – YEAR ENDED 30TH JUNE 2015 ...... 644 136. UGANDA INDUSTRIAL RESEARCH INSTITUTE FOR THE YEAR ENDED 30TH JUNE 2015647 137. UGANDA EXPORT PROMOTION BOARD – YEAR ENDED 31ST DECEMBER 2014 ...... 649 138. UGANDA PROPERTY HOLDINGS LIMITED FOR THE FINANCIAL YEAR ENDED 30TH JUNE, 2015 ...... 651 139. UGANDA NATIONAL BUREAU OF STANDARDS –YEAR ENDED 30TH JUNE 2015 ...... 653 140. UGANDA TOURISM BOARD – YEAR ENDED – 30TH JUNE 2015 ...... 655 141. UGANDA WILDLIFE AUTHORITY – YEAR ENDED 30TH JUNE 2015 ...... 657 142. UGANDA WILDLIFE TRAINING INSTITUTE – YEAR ENDED 30TH JUNE 2015 ...... 658 143. UGANDA WILDLIFE EDUCATION CENTRE – 30TH JUNE 2015 ...... 659 LANDS AND HOUSING SECTOR ...... 662 144. NATIONAL HOUSING & CONSTRUCTION COMPANY- YEAR ENDED 31ST DECEMBER 2014 ...... 662 SOCIAL DEVELOPMENT SECTOR ...... 665 145. NATIONAL LIBRARY OF UGANDA – YEAR ENDED 30TH JUNE 2015 ...... 665 146. NATIONAL SOCIAL SECURITY FUND – YEAR ENDED 30TH JUNE 2015 ...... 666 147. UGANDA RETIREMENT BENEFITS REGULATORY AUTHORITY (URBRA) ...... 668 FOR THE YEAR ENDED 30TH JUNE, 2015 ...... 668 148. NATIONAL YOUTH COUNCIL – YEAR ENDED 30TH JUNE 2015 ...... 670

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149. UGANDA NATIONAL CULTURAL CENTRE – YEAR ENDED 30TH JUNE 2015 ...... 671 AGRICULTURE SECTOR ...... 672 150. COORDINATING OFFICE FOR CONTROL OF TRYPANOSOMIASIS IN UGANDA- YEAR ENDED 30TH JUNE 2015 ...... 672 151. DAIRY DEVELOPMENT AUTHORITY FOR THE PERIOD ENDED ...... 672 31ST DECEMBER 2014 ...... 672 152. COTTON DEVELOPMENT ORGANISATION FOR THE YEAR ENDED 31ST OCTOBER, 2014 ...... 675 153. NATIONAL ANIMAL GENETIC CENTRE & DATA BANK- YEAR ENDED 30TH JUNE 2015 678 154. UGANDA SEEDS LIMITED – YEAR ENDED 30TH JUNE 2015 ...... 679 WATER AND ENVIRONMENT ...... 682 155. NATIONAL ENVIRONMENT MANAGEMENT AUTHORITY – YEAR ENDED 30TH JUNE 2014 ...... 682 156. NATIONAL FORESTRY AUTHORITY – YEAR ENDED 30TH JUNE 2015 ...... 683 157. NATIONAL WATER AND SEWERAGE CORPORATION –YEAR ENDED 30TH JUNE 2015 686 ACCOUNTABILITY SECTOR ...... 688 158. – YEAR ENDED 30TH JUNE 2015 ...... 688 159. BANK OF UGANDA PROJECTS ...... 689 159.1 THE EUROPEAN INVESTMENT BANK/REPUBLIC OF UGANDA APEX PRIVATE ENTERPRISE LOAN SCHEME YEAR ENDED 30th JUNE 2015 ...... 689 159.2 AGRICULTURE CREDIT FACILITY – BoU YEAR ENDED JUNE 2015 ...... 690 160. CAPITAL MARKETS AUTHORITY – YEAR ENDED 30TH JUNE 2015 ...... 691 161. INSURANCE REGULATORY AUTHORITY – YEAR ENDED 30TH JUNE 2015 ...... 693 162. MICROFINANCE SUPPORT CENTRE LIMITED – YEAR ENDED 30TH JUNE 2015 ...... 696 163. NATIONAL PLANNING AUTHORITY – YEAR ENDED 30TH JUNE 2015 ...... 698 164. FINANCIAL INTELLIGENCE AUTHORITY FOR THE YEAR ENDED 30TH JUNE, 2015 .... 700 165. PRIDE MICRO FINANCE LIMITED – YEAR ENDED 31ST DECEMBER 2014 ...... 701 166. PRIVATIZATION AND UTILITY SECTOR REFORM PROJECT-DIVESTITURE AND REDUNDANCY ACCOUNT (PUSRP) – YEAR ENDED 30TH JUNE 2014 ...... 702 167. PRIVATIZATION AND UTILITY SECTOR REPORM PROJECT- OPERATIONS ACCOUNT – YEAR ENDED 30TH JUNE 2015 ...... 704 168. PUBLIC PROCUREMENT AND DISPOSAL OF PULIC ASSETS – YEAR ENDED 30TH JUNE 2015 ...... 705 169. UGANDA BUREAU OF STATISTICS- YEAR ENDED 30TH JUNE 2015 ...... 706 170. UGANDA DEVELOPMENT BANK LIMITED (UDBL) – YEAR ENDED 31ST DECEMBER,2014 ...... 715 171. UGANDA INVESTMENT AUTHORITY – YEAR ENDED 30TH JUNE 2015 ...... 716

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172. – YEAR ENDED 30TH JUNE 2015 ...... 719 SECURITY SECTOR ...... 722 173. CORPORATION – YEAR ENDED 30TH JUNE 2015 ...... 722 NEC & SUBSIDIARIES ...... 724 174. NEC HEADQUARTERS – YEAR ENDED 30TH JUNE 2015 ...... 724 175. NEC CONSTRUCTION, WORKS & ENGINEERING YEAR ENDED 30TH JUNE 2015 ...... 727 176. NEC FARM KATONGA-YEAR ENDED 30TH JUNE 2015 ...... 728 177. NEC-LUWERO INDUSTRIES – YEAR ENDED 30TH JUNE 2015 ...... 730 178. NEC TRACTOR HIRE – YEAR ENDED 30TH JUNE 2015 ...... 732 179. NEC TRACTOR PROJECT – YEAR ENDED 30TH JUNE 2015 ...... 735 PUBLIC WORKS AND TRANSPORT SECTOR ...... 737 180. CIVIL AVIATION AUTHORITY – YEAR ENDED 30TH JUNE 2014 ...... 737 181. UGANDA RAILWAYS CORPORATION YEAR ENDED 31ST DECEMBER 2012 ...... 739 182. UGANDA RAILWAYS CORPORATION YEAR ENDED 31ST DECEMBER 2013 ...... 742 183. UGANDA RAILWAYS CORPORATION FOR THE YEAR ENDED 31ST DECEMBER 2014. 750 JUSTICE, LAW AND ORDER SECTOR (JLOS) ...... 766 184. AMNESTY COMMISSION – YEAR ENDED 30TH JUNE 2015 ...... 766 185. – YEAR ENDED 30TH JUNE 2015 ...... 767 APPENDICES ...... 770 APPENDIX 1: TWO-YEAR ANALYSIS OF AUDIT OPINIONS ...... 770 APPENDIX 2: AUDIT OPINIONS FOR BACKLOG AUDITS ...... 771 APPENDIX 3: CONSOLIDATED FINANCIAL STATEMENTS OF THE GOVERNMENT OF THE REPUBLIC OF UGANDA FOR THE YEAR ENDED 30TH JUNE 2015 ...... 772

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LIST OF ACRONYMS AND ABBREVIATIONS

AC Assistant Commissioner ACCA Association of Chartered Certified Accountants AEC Atomic Energy Council AG Accountant General AGM Annual General Meeting AHPC Allied Health Professionals Council AIDS Acquired Immune Deficiency Syndrome APLO Assistant Procurement and Logistics Officer ART Anti-Retroviral Therapy ASYCUDA Automated System for Customs Data Analysis ATM Automated Teller Machine B.Com Bachelor of Commerce BBA Bachelor of Business Administration BEL Bujagali Energy ltd BFP Budget Framework Paper BoQ Bills of Quantities BoU Bank of Uganda BTC Belgium Technical Cooperation BTVET Business, Technical and Vocational Education Training CA Continuous Assessment CAA Civil Aviation Authority CAES College of Agriculture and Environment Sciences CAO Chief Administrative Officer Cap Chapter CBC Customs Business Centre CCTV Close-Circuit Television CDC Center for Disease Control CDO Cotton Development Organization CDS Central Depository System CEDAT College of Engineering Design Art and Technology CEES College of Education and External Studies CEMAS Computerized Education Management and Accounting System

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CEO Chief Executive Officer CESS Export Levy CGV Chief Government Valuer CHOGM Commonwealth Heads of Governments Meeting CHS College of Health Sciences CHUSS College of Humanities and Social Sciences CIF Cost Insurance and Freight CIID Criminal Investigation and Intelligence Directorate CMA Markets Authority Capital CME Chief Mechanical Engineer COBAMS College of Business and Management Sciences COCIS College of Computing and Information Sciences COCTU Coordinating Office for Control Of Trypanosomiasis In Uganda COHRE Clinical Operational and Health Services Research COMESA Common Market for Eastern & Southern Africa CONAS College of Natural Sciences Committee on Commissions, Statutory Authorities and State COSASE Enterprises COSO Committee of Sponsoring Organisations COVAB College of Veterinary Medicine and BioSecurity CSD Central Securities Depository CUFH China Uganda Friendship Hospital DADIs District Assistant Drug Inspectors DBICs District Business Information Centres DCL Dairy corporation limited DDA Dairy Development Authority DFCU Development Finance Company Uganda DHO District Health Officer DNs Delivery Notes DPP Directorate of Public Prosecution DRIC Divestiture and Reform Implementation Committee DSCs District Service Commissions DT Domestic Taxes DTA Double Taxation Agreement

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EAC East African Community EACC East African Community Customs EACCMA East African Community Customs Management Act EALA East African Legislative Assembly EARC East Africa Railways Corporation EATTFP East African Trade and Transport Facilitation Project ED Executive Director EFT Electronic Funds Transfer EGI E-Government Infrastructure EIA Environmental Impact Assessment EMS Express Mail Services ERA Electricity Regulatory Authority ERT Energy for Rural Transformation ESAAG East and Southern African Association of Accountant Generals ESC Education Service Commission ETP Entrepreneurship Training Program FAR Fixed Asset Register FAR Financial and Accounting Regulations FERM-PC Foreign Exchange Reserve Management –Policy Committee FIEFOC Farm Income Enhancement and Forest Conservation FINMAP Financial Management and Accountability Programme FK Fredkorpset FOC Faculty of Commerce FUFA Federation of Uganda Football Association FY Financial Year GoU Government of Uganda GRN Goods Received Note HC Health Centre HIO Health Insurance Organization HIV Human Immunodeficiency Virus HMO Health Membership Organization Hon. Honourable HR Human Resource HSC Health Service Commission

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HTTI Hotel & Tourism Training Institute IAC Internal Audit and Compliance IAS International Accounting Standards ICGR International Conference for Great Lakes Region ICT Information and Communications Technology IDA International Development Agency IFMS Integrated Financial Management System IFRS International Financial Reporting Standards IICSP Integrated Intelligent Computer System Project ILO International Labour Organization. IPO Initial Public Offer IPSAS International Public Sector Accounting Standards IRA Insurance Regulatory Authority ISP Internet Service Provider IT Information Technology ITFC Institute of Tropical Forest Conservation ITMCo Iran Tractor Manufacturing Company ITSC Interim Technical Supervisory Committee IXP Internet Exchange Point JBIC Japan Bank for International Cooperation JCRC Joint Clinical Research Center JLOS Justice, Law and Order Sector JMS Joint Medical stores KCC Kampala City Council KCCA Kampala Capital City Authority KCCL Cobalt Company Limited KIBP Kampala Industrial Business Park KIU Kampala International University KM Kilometers KML Kilembe Mines Limited KYC Know your client KYU L.T.C ward Lymphoma Treatment Centre LAA Administering the Lease and Assignment Agreement

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LANs Local Area Networks LC Letter of Credit LCs Local Councils LDC Law Development Centre LIST Lira Service Territory LPO Local Purchase Order LST Local Service Tax LSTM Liverpool School of Tropical Medicine LTO Large Tax Payer M&E/MIS Monitoring & Evaluation/Management Information System MAA Memorandum & Articles of Associations MAAIF Ministry of Agriculture Animal Industry and Fisheries. MALG Ministries, Agencies and Local Governments MCCs Milk Collection Centres MCP Managing Compliance Program MDAs Ministries, Departments and Agencies MEACA Ministry of East African Community Affairs MEMD Ministry of Energy and Mineral Development MI Micro Insurance MICT Ministry of Information and Communications Technology MKCCAP Mulago Kampala Capital City Authority Project MNRH Mulago National Referral Hospital MNSL Mandela National Stadium Limited MoD Ministry of Defence MoES Ministry of Education and Sports MoFA Ministry of Foreign Affairs MoFPED Ministry of Finance, Planning and Economic Development MoGLSD Ministry of Gender Labour and Social Development MoGLSD Ministry of Gender, Labour & Social Development MoH Ministry of Health MoJAC Ministry of Justice and Constitutional Affairs MoLG Ministry of Local Government MoLHUD Ministry of Lands, Housing and Urban Development MoPS Ministry of Public Service

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MoTWA Ministry of Tourism Wildlife and Antiquities MoU Memorandum of Understanding MoWT Ministry of Works and Transport MSC Micro Finance support Centre MSI Millennium Science Initiative MTAC Management Training Advisory Committee MTEF Medium Term Expenditure Framework MTIC Ministry of Trade, Industry and Cooperatives MTWA Ministry of Tourism ,Wildlife and Antiquities MUBS Makerere University Business School Makerere University Establishment of Constituent College Order MUECCA (A) Amended MUK Makerere University MUST Mbarara University of Science and Technology MW Mega Watts MWE Ministry of Water and Environment NACOTHA National Council of Traditional Healers and Herbalists Association NAGRC & DB National Animal Genetic Resources Centre and Databank. NARC National Aids Research Committee NBC National Bio-safety Committee NBI National Backbone Infrastructure NCAA Ngorongoro Conservation Area Authority NCBS National College of Business Studies NCC National Council for Children NCD National Council for Disability NCDC National Curriculum Development Centre NCHE National Council for Higher Education NCS National Council of Sports NCSFVF New Connections Survey & Field Verification Form NDA National Drug Authority NEC National Enterprise Corporation Interconnection of Electrical Grids of Nile Equatorial Lakes NELSAP Countries NFA National Forestry Authority

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NGO Non – Government Organization NHCCL National Housing and Construction Company Limited NHIL Nile Hotel Institute Limited NHIS National Health Insurance Scheme NIC National Insurance Corporation NIP In-Land Port NISF National Information Security Framework NITA-U National Information Technology Authority Uganda NLU National Library of Uganda NMC Nurses and Midwives Council NMS National Medical Stores NPL Non- Performing Loans NRWL Nalukolongo Railway Workshop Limited NSSF National Social Security Fund NTC National Teachers College NTR Non Tax Revenue NWC National Women’s Council NWSC National Water and Sewerage Corporation OAG Office of the Auditor General OPD Out Patients Departments PAC Public Accounts Committee PAYE Pay As You Earn PFAA Public Finance and Accountability Act PFAR Public Finance and Accountability Regulation PIC Planning Investment Committee PPDA Public Procurement & Disposal of Assets PPS Private Patients Services PS Permanent Secretary PS/ST Permanent Secretary/Secretary to the treasury PSC Public Service Commission PSU Pharmaceutical Society of Uganda PWD People With Disability S.T.C ward Solid Tumor Centre ward TAI Treasury Accounting Instruction

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UAC Uganda AIDS Commission UBTS Uganda Blood Transfusion Services UCI UGX Uganda Shillings UHI Uganda Heart Institute ULC Uganda Land Commission UNHRO Uganda National Health Research Organisation UNICEF United Nations International Children's Emergency Fund URA Uganda Revenue Authority USD United States Dollar WAN Wide Area Network WRS Warehouse Receipt System

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SECTION ONE

1.0 INTRODUCTION

I am required by Article 163(3) of the Constitution of the Republic of Uganda and Section 13 and 19 of the National Audit Act 2008 to audit and report on the Public Accounts of Uganda and of all public offices including the Courts, the Central and Local Government Administrations, Universities and Public Institutions of like nature and any Public Corporations or other bodies established by an Act of Parliament.

Under Article 163 (4) of the Constitution, I am also required to submit to Parliament by 31st March annually a Report of the Accounts audited by me for the year immediately preceding. I am therefore, issuing this report in accordance with the above provisions.

This is Volume two of my Annual Report to Parliament and it covers financial audits carried out on Central Government Ministries, Departments, Agencies, Universities and Uganda Missions abroad.

In this introduction, I give an overview of the financial audit work carried out, status of completion of the audits, summary of the audit opinions issued on the financial statements of the entities audited and a summary of the key audit findings arising from the audit.

Section 2 presents my findings and audit opinion on Government of Uganda Consolidated Financial Statements including major observations.

Section 3 contains the detailed audit findings on each entity audited.

2.0 STATUS OF COMPLETION OF AUDITS A total of 109 entities comprising of Ministries, Agencies, Commissions, Departments, Uganda Missions abroad, Public Universities, Referral Hospitals and the Consolidated Government of Uganda Financial Statements, were audited during the year ended 30th June 2015. Accordingly, separate audit reports were issued for each of them.

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Out of the 109 entities audited, 85 entities had unqualified opinions, 23 had qualified and 1 had adverse opinion. The basis used to arrive at the audit opinion is described in the separate reports issued on individual entities. The table below summarises the types of audit opinions issued on each of the entities audited:- No Entity Category Sector Opinion Opinion 2014/15 2013/14 1 Education Commission Education Unqualified Unqualified Service Commission 2 Makerere MDA Education Unqualified Unqualified University Business School 3 Busitema MDA Education Unqualified Unqualified University 4 Uganda MDA Education Unqualified Unqualified Management Institute 5 Makerere MDA Education Unqualified Qualified University 6 Uganda Prisons MDA JLOS Unqualified Qualified 7 Uganda Police MDA JLOS Unqualified Unqualified Force 8 Directorate of MDA JLOS Unqualified Qualified Public Prosecutions 9 Ministry of Trade MDA Trade and Unqualified Qualified Industry and Tourism Cooperatives 10 Directorate of MDA Accountability Unqualified Qualified Ethics and Integrity 11 Gulu University MDA Education Unqualified Qualified 12 Parliament MDA PSM Unqualified Unqualified 13 Ministry of MDA ICT Unqualified Qualified Information and Communication Technology 14 Office Of The MDA Security Unqualified Unqualified President 15 State House MDA Security Unqualified Unqualified 16 Ministry Of MDA Security Unqualified Unqualified Defence 17 Judiciary MDA JLOS Unqualified Unqualified 18 Uganda Human Commission JLOS Unqualified Unqualified Rights Commission 19 Uganda Law Commission JLOS Unqualified Unqualified reform Commission 20 Ministry of MDA JLOS Unqualified Qualified Justice and 2

No Entity Category Sector Opinion Opinion 2014/15 2013/14 Constitution Affairs 21 Judicial Service Commission JLOS Unqualified Unqualified Commission 22 Ministry of MDA Water and Unqualified Qualified Water and Environment Environment 23 Atomic Energy MDA Energy Unqualified Unqualified Council 24 Ministry of MDA Agriculture Unqualified Unqualified Agriculture Animal Industry and Fisheries (MAAIF) 25 Uganda Road MDA Works Unqualified Unqualified Fund (URF) 26 Ministry of MDA Works Unqualified Unqualified Works and Transport (MoWT) 27 Uganda Land Commission Lands and Unqualified Unqualified Commission Housing (ULC) 28 Ministry of East MDA Public Sector Unqualified Unqualified African Affairs Admin 29 Ministry of MDA Public Sector Unqualified Qualified Foreign Affairs Admin 30 Ministry of MDA Energy Unqualified Qualified Energy and Mineral Development 31 The Electoral Commission Public Sector Unqualified Qualified Commission Admin 32 The Ministry of MDA Trade and Unqualified Unqualified Tourism,Wildlife Tourism and Antiquities 33 Ugandan Mission MDA Public Sector Unqualified Unqualified in Bujumbura Admin 34 Ugandan Mission MDA Public Sector Unqualified Unqualified in Geneva Admin 35 Ugandan Mission MDA Public Sector Unqualified Unqualified in Juba Admin 36 Ugandan Mission MDA Public Sector Unqualified Unqualified in Tripoli Admin 37 Ugandan Mission MDA Public Sector Unqualified Unqualified in Riyadh Admin 38 Ugandan Mission MDA Public Sector Unqualified Unqualified in Mogadishu Admin 39 Ugandan Mission MDA Public Sector Unqualified Unqualified in Kinshasha Admin 40 Ugandan Mission MDA Public Sector Unqualified Unqualified in Abu Dhabi Admin

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No Entity Category Sector Opinion Opinion 2014/15 2013/14 41 Ugandan Mission MDA Public Sector Unqualified Unqualified in Beijing Admin 42 Ugandan Mission MDA Public Sector Unqualified Unqualified in Guanzou Admin 43 Ugandan MDA Public Sector Unqualified Unqualified Embassy in Admin Tehran 44 Ugandan Mission MDA Public Sector Unqualified Qualified in Khartoum Admin 45 Uganda Blood MDA Health Unqualified Unqualified Transfusion Service 46 Uganda Cancer MDA Health Unqualified Qualified Institute (UCI) 47 Uganda AIDS Commission Health Unqualified Unqualified Commission (UAC) 48 Health service Commission Health Unqualified Unqualified commission 49 Equal SA/SE Accountability Unqualified Unqualified Opportunities Commission 50 MUNI MDA Education Unqualified 51 Ministry of MDA Social Unqualified Unqualified Gender, Labour Development and Social Development 52 Energy Fund MDA Energy Unqualified 53 Petroleum Fund MDA Energy Unqualified 54 Kabale Regional MDA Health Unqualified Unqualified Referral Hospital 55 Mbarara MDA Health Unqualified Unqualified Regional Referral Hospital 56 Jinja Regional MDA Health Unqualified Unqualified Referral Hospital 57 Soroti Regional MDA Health Unqualified Unqualified Referral Hospital 58 Masaka Regional MDA Health Unqualified Unqualified Referral Hospital 59 Mubende MDA Health Unqualified Unqualified Regional Referral Hospital 60 Moroto Regional MDA Health Unqualified Unqualified Referral Hospital 61 Regional MDA Health Unqualified Unqualified Referral Hospital 62 Mbarara MDA Education Unqualified Unqualified University of Science and Technology 63 Uganda High MDA Public Sector Unqualified Unqualified 4

No Entity Category Sector Opinion Opinion 2014/15 2013/14 Commission- Admin Abuja 64 Uganda MDA Public Sector Unqualified Unqualified Embassy- Addis Admin Ababa 65 Uganda MDA Public Sector Unqualified Unqualified Embassy- Berlin Admin 66 Uganda MDA Public Sector Unqualified Unqualified Embassy- Admin Brussels 67 Uganda MDA Public Sector Unqualified Unqualified Embassy- Cairo Admin 68 Uganda High MDA Public Sector Unqualified Unqualified Commission- Admin Canberra 69 Uganda MDA Public Sector Unqualified Unqualified Embassy- Admin Copenhagen 70 Uganda MDA Public Sector Unqualified Unqualified Embassy- Admin Washington 71 Uganda MDA Public Sector Unqualified Unqualified Embassy Dar-es- Admin Salaam 72 Permanent MDA Public Sector Unqualified Unqualified Mission of the Admin Republic of Uganda to UN (New York) 73 Uganda High MDA Public Sector Unqualified Unqualified Commission Admin Kigali 74 Uganda High MDA Public Sector Unqualified Unqualified Commission- Admin London 75 Uganda High MDA Public Sector Unqualified Unqualified Commission- Admin Nairobi 76 Uganda High MDA Public Sector Unqualified Unqualified Commission- Admin Ottawa 77 Uganda MDA Public Sector Unqualified Unqualified Embassy- Paris Admin 78 Uganda High MDA Public Sector Unqualified Unqualified Commission- Admin Pretoria 79 Uganda MDA Public Sector Unqualified Unqualified Embassy- Rome Admin 80 Uganda MDA Public Sector Unqualified Unqualified Embassy- Tokyo Admin 81 Uganda MDA Public Sector Unqualified Unqualified Embassy- Admin Moscow 5

No Entity Category Sector Opinion Opinion 2014/15 2013/14 82 Uganda MDA Public Sector Unqualified Unqualified Embassy- Admin Ankara 83 Uganda MDA Public Sector Unqualified Unqualified Embassy- New Admin Delhi 84 Uganda MDA JLOS Unqualified Unqualified Registration Service Bureau 85 Kampala Capital MDA PSM Unqualified Unqualified City Authority 86 Office of the MDA PSM Qualified Qualified Prime Minister 87 Directorate of MDA JLOS Unqualified Qualified Citizenship and Immigration Control 88 Ministry of MDA JLOS Qualified Qualified Internal Affairs 89 Ministry of MDA Accountability Qualified Unqualified Finance Planning and Economic Development 90 Kyambogo MDA Education Qualified Qualified University 91 Ministry of MDA Education Qualified Qualified Education and Sports 92 Local Commission PSM Qualified Qualified Government Finance Commission 93 Public Service Commission PSM Qualified Qualified Commission 94 Uganda Heart MDA Health Qualified Unqualified Institute 95 Mulago NRH MDA Health Qualified Unqualified 96 Ministry of MDA Health Qualified Qualified health 97 Butabika NMRH MDA Health Qualified Unqualified 98 China – Uganda MDA Health Qualified Qualified Friendship Hospital – Naguru 99 Uganda MDA Education Qualified Unqualified Management institute 100 Ministry of MDA Lands and Qualified Qualified Lands Housing Housing and Urban Development (MoLHUD)

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No Entity Category Sector Opinion Opinion 2014/15 2013/14 101 Mbale Regional MDA Health Qualified Unqualified Referral Hospital 102 Fort Portal MDA Health Qualified Unqualified Regional Referral Hospital 103 Consolidated MDA Accountability Qualified Qualified Fund 104 Treasury MDA Accountability Qualified Qualified Operations 105 Uganda National MDA Works Qualified Qualified Roads Authority 106 Uganda MDA Public Sector Qualified Qualified Embassy- Admin Kualalumpur 107 Ministry of MDA PSM Qualified Qualified Public Service 108 National MDA Agriculutre Qualified Qualified Agricultural Advisory Services 109 Ministry of Local MDA PSM Adverse Qualified Government

The table and graphs below provide a breakdown of the types of opinions issued:-

2010 2011 2012 2013 2014 2015 Unqualified 40% 59% 45% 58% 70% 79% Qualified 57% 40% 47% 38% 30% 20% Disclaimer 3% 1% 7% 4% 0% 0% Adverse 0% 0% 1% 0% 0% 1%

Figure showing the types of opinions issued for 2014/2015:-

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Figure showing Trends of Types of Opinions Issued since 30th June 2010:-

Figure showing comparision of types of opinions issued since 30th June 2010:-

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2.1 RISK PROFILING OF AUDIT OBSERVATIONS For the previous years the Office of the Auditor General has been producing three (3) Volumes on financial audits i.e. Central Government, Statutory Corporations and Local Government. These volumes contained all the findings in the various entities of government and as such were bulky. This had a drawback in terms of time taken to discuss the issues contained therein and also prioritizing on which issues Parliament should take time to discuss with the various Accounting Officers.

In order to the address the above drawbacks, the OAG developed a risk profiling guidelines that enabled selection of only issues of high significance to be included on the OAG report and accordingly discussed by the Accountability Committees of Parliament.

At the highest level, the table below shows the selection criteria for issues which have been forwarded to Parliament.

No Category Description 1 High significance Has a significant / material impact, has a high likelihood of reoccurrence, and in the opinion of the Auditor General, it requires urgent remedial action. It is a matter of high risk or high stakeholder interest. 2 Moderate significance Has a moderate impact, has a likelihood of reoccurrence, and in the

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opinion of the Auditor General, it requires remedial action. It is a matter of medium risk or moderate stakeholder interest. 3 Low significance Has a low impact, has a remote likelihood of reoccurrence, and in the opinion of the Auditor General, may not require much attention, though its remediation may add value to the entity. It is a matter of low risk or low stakeholder interest.

From the table above, issues that fell in the category of high significance are those that are contained in my report to Parliament this year. However, all the findings including the moderate and low have been included in the individual entity reports.

2.2 KEY FINDINGS CENTRAL GOVERNMENT

CENTRAL GOVERNMENT Government has undertaken various Public Finance Management (PFM) reforms which have led to improvements in public financial management notably the management of the payroll and the Treasury Single Account among others. However, Government continues to have challenges which require attention. The key findings below indicate selected areas of concern which require Government intervention.

A.1 Nugatory expenditure

Government paid UGX.26.1bn during the period under review as delayed settlements of obligations arising from contracts for construction services, Court awards, and contributions to international organizations etc. This expenditure is considered wasteful as the expenditure could have been avoided had these been settled in time. I noted that the payments are to continue in the near future as a number of the obligations have not been fully settled and there are no concrete plans to clear these obligations.

There is a need to have a central database where Accounting Officers submit the status of these obligations for better planning in terms of prioritizing settlement and monitoring the causes of the avoidable expenditure.

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A.2 Unsustainable pension liability

The Ministry of Public Service recorded an outstanding pension and gratuity liability of UGX.199,255,907,539 as at 30/6/2015 (up from UGX.108,681,159,047 as at 30/6/2014). It was noted that the gratuity and pension arrears continue to accumulate, a fact which the Accounting Officer has attributed to inadequate budgetary provisions over the years. I noted that the Ministry of Public Service does not have a comprehensive stock of past employees as well as a forecast of how the current Government employees will retire and therefore plan for their terminal benefits accordingly. It only relies on claims submitted by the retired staff or by their benefactors, in case of death of the retired employees.

I have accordingly advised the Accounting Officer to devise a comprehensive strategy for the management of gratuity and pension for the entire public service.

A.3 Irregular payments to pensioners

I noted that UGX.11bn was paid to pensioners who had exceeded their pensionable period of 15 years, yet no life certificates were availed as proof of their continued existence. Lack of evidence of continued existence of pensioners in form of life certificates to support pension payments implies payments to non-existent pensioners could arise.

In addition, I observed multiple payments amounting to UGX.1,161,382,909 to various pensioners. These include monthly pension payments were made to accounts of pensioners who had already received their monthly remittances for the particular months.

The above two scenarios present a risk of falsification of pension data/files as well as double payment of a particular category of pensioners.

I advised the Accounting Officer to institute an investigation into this matter and if confirmed, recovery measures of the amounts irregularly paid out should be initiated.

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A.4 Escalating contingent liabilities for Court awards and compensations

UGX.4,330,041,624,839 was recorded as contingent liabilities in court cases against Government as at 30th June 2015. The contingencies increased by UGX.34,737,542,214 from last year’s position of UGX.4,295,304,082,625. Given their magnitude, the contingency liabilities create additional burden on public resources.

As indicated in my previous report, there is need for Government to examine the issue further, with a view of establishing the likely causes to facilitate Government to arrive at a sustainable solution.

A.5 Outstanding court awards and compensations and other liabilities - UGX.479.26bn

It was noted that the outstanding amount in Court awards, compensations and other liabilities had accumulated to UGX.479.3bn by 30th June 2015. The bulk of this figure comprised of unsettled court awards and compensations which amounted to UGX 477.7bn, while the other liabilities amounted to UGX.1.52bn. The liabilities figure has been accumulating over time. The delayed payments led to penalties in interest and other related charges. There is need for deliberate action to settle this amount by Government.

A.6 Outstanding International obligations I noted that a number of Government entities are indebted to International Organizations such as PTA Bank, ADB, EADB, WTO, UNIDO, COMESA and Shelter Afrique. A sample of five entities revealed indebtedness of UGX.77,724,089,603 and US$.4,968,950.

Unpaid annual subscriptions limit participation of the country in international activities. For the sample of the affected organizations, this has led to denial of benefits accruing from the organizations, withdrawal of shareholding, interest charges for delayed payments and suspension of membership. This was attributed to underfunding on this budget line.

I advised the Ministry of Finance, Planning and Economic Development to prioritizes this area to ensure effective Government participation in International organization activities. 12

A.7 Inadequate planning for the excess electricity generation Over the years Government has invested a lot of funds in expansion of electricity generation capacity, which has grown by 8.45% since 2009/10, with the current generation estimated at approximately 685 MW. I however noted that this capacity has not yet been matched by the anticipated demand. Current peak demand is approximately 550MW creating a current excess capacity of 135MW. This has been mainly attributed to low demand and limited distribution and transmission networks.

In addition, some power plants are not generating electricity at full capacity, yet this idle capacity (also known as deemed energy) is paid for through tariffs and Government subsidies. For the last two years, Government has on average paid UGX.11.57bn annually for deemed energy purchases.

I also further noted that for the two thermal plants, with a capacity of 118 MW, government continues to pay capacity charges amounting to approximately UGX.68bn annually for the last two financial years, through UETCL, yet they are only contributing 7 MW power to the grid. One of the thermal plants is supposed to be taken over by government on expiry of the contract.

Committing Government into investment projects without adequate analysis of demand limitations may lead to Government failure to pay off the loans (through the tariff) hence the possibility of increase in subsidies further draining the Government meagre resources.

In light of the new anticipated investments in the cheaper hydroelectric power, Government could review the licensing policy of costly thermal plants and revert to them only when there is enough demand to accommodate the produced energy.

A.8 Procurement of contractors for Isimba and Karuma projects

Government of Uganda is undertaking the construction of two mega hydro power projects; Karuma Hydro Power Dam (600MW) and Isimba HPP (183.2 MW) at a cost of USD.1.65bn and USD.570m respectively. I noted that both Engineering, Procurement and Construction(EPC) contracts were directly procured contrary to 13

provisions of the PPDA Act, 2003 which require international bidding for such contracts. In the circumstances the fairness of the cost and quality of the works may not be guaranteed.

Government needs to ensure transparent procurement processes are followed in order to avoid possible costly and substandard projects.

A.9 Understocking of the Government petroleum strategic reserves In 2012, the Government of Uganda and a private petroleum company entered into a concessional agreement to refurbish, restock, maintain and manage the petroleum strategic reserve facility at Jinja. Despite the concession requiring the operator to ensure that 40% (12million litres) of the storage capacity of the products is available at all times, I noted during inspection in September 2015, there was only 274,000 litres of petrol and 331,000 litres of diesel in stock compared to the required stock levels of 20,000,000 and 10,000,000 litres respectively. My assessment is that the stock build up is not being achieved and consequently the national petroleum reserves are not serving the purpose for which they were established. I advised that the matter be taken up with the operator to improve on the strategic reserves as envisaged.

A.10 Construction of Kampala- expressway In order to establish the fairness of the project costs, a comparison of the costs of Kampala-Entebbe Expressway with a similar project also constructed by the same contractor from 2010 to 2014 was undertaken.

An analysis was done and adjustments for the different features of the two expressways were made. It was observed that the unit cost for the Kampala-Entebbe expressway was US$ 2.315 million per lane kilometre while the similar expressway was US$ 1.204 million per lane kilometre.

Furthermore, a cost comparison was made using experience in the East African region where costs for constructing a 2 lane highway with similar pavement structure range between US$.800,000 to 900,000 per km. Adjustments to this figure to take into account the four lanes and other infrastructure would amount to US$.4.140 million per km. This is less than half of the cost of Kampala-Entebbe Expressway

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which is US$.9.261 million per Km. The project costs could have been much lower if UNRA had procured the contractor through competitive bidding.

A.11 Duplication of consultancy services for Kampala-Entebbe expressway

The supervision for Kampala-Entebbe Expressway was awarded to a private firm which was also referred to as the employer’s representative on site. However, another international firm in association with local consulting engineers was assigned by UNRA to provide Project Management services in July 2013. The reasons for engaging the international firm to provide Project Management Services was said to be ‘The Procuring and Disposing Entity has insufficient capacity to provide full-time Project Management Services under the Kampala – Entebbe Highway Project as the project is complex and requires regular presence of Employer’s representative on site.

However, a review of the services provided by the consultant’s revealed duplication of activities as the originally recruited private firm serves the same purpose as the international firm.

There is need to review the international firm’s contract and take action that will address the shortfall and save unnecessary costs.

A.12 Mismanagement of funds under the Ministry of Local Government (MoLG)

There was mismanagement of funds noted at the Ministry of Local Government. Out of UGX.30,557,016,181 released; UGX.12,086,792,676 (40%) was spent on activities that had not been budgeted for under such line items. Notably, UGX.5,525,974,783 released for procurement of vehicles for the districts were diverted to fund allowances and other operational activities. There was no authority obtained from the Permanent Secretary/Secretary to the Treasury for reallocation of funds contrary to section 22 of the PFMA 2015.

Further review of the diverted funds revealed that UGX.3,827,011,454 remained unaccounted for and UGX.635,621,910 was questioned due to inappropriate accountabilities.

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This matter was brought to the attention of the IGG and it is currently under investigation. There is need for Government to enhance internal controls and closely monitor and supervise implementation of Government programmes.

A.13 Delayed contracts

It was observed that a number of Government contracts/projects totalling to UGX.87.5bn that had been on-going or started during the financial year lagged behind schedule or demonstrated signs of failure. It was also noted that a number of these contracts/projects had exceeded their completion dates while others had been abandoned. These delays ranged between two months to six years. The delays in contract execution were attributed to insufficient funding and inadequate supervision of contract implementation by the responsible entities. In the absence of a mitigation measures, it may result into further losses to Government and failure to achieve the intended objectives of the procurements/contracts.

There is need for closer supervision of these projects to ensure timely service delivery.

A.14 Unsustainable payment of mandamus

Government payments made under mandamus orders increased from UGX.88 billion in the previous year to UGX.114 billion in 2014/2015 being an increment of 30%. These increasing unplanned payments may not be sustainable without impacting on other Government programmes. I advised Government to explore strategies that would reduce mandamus payments.

A.15 Case backlogs I noted in the previous audit report, the Judicial Service Commission has been slow in handling cases brought against judicial officers. At the closure of the previous year the figure for case backlog stood at 749. According to the Commission’s annual report, 2014/2015, during the year under review, the Commission registered 137 cases, bringing the total number of cases to 886 of which only 106 cases were cleared. The un-cleared cases at the closure of the year stood at 780.

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The Accounting Officer attributed this to the operations of the Commission which involves non-permanent commissioners and as such regular sittings for case settlement are not possible. It was further noted that the Commission has no formulated policy on prioritizing the cases to be handled. In the circumstance, some cases have remained unattended to over the years.

A.16 Accumulation of labour disputes at the industrial court The Industrial court was established under the Labour Disputes (Arbitration and Settlement) Act, 2006 to arbitrate labour disputes, adjudicate questions of law arising from references to it by any other law and to dispose of the labour disputes without undue delay. However, the cases before the court by the end of October 2015 had accumulated to; 322 claims, 273 references, 26 appeals, 23 mediations and 36 miscellaneous applications. The accumulation of the cases was attributed to understaffing and underfunding of the Court. Delays in adjudication of labour disputes may result into industrial unrest.

MoGLSD should liaise with MoPS and PSC to have the staffing gaps resolved.

A.17 Land matters

I noted that Uganda Land Commission (ULC) had land management issues that included irregular land leases, lack of an up dated land register, insufficient data on land leases, failure to establish un-surveyed land, un-titled land, land with unknown current usage, among others. This was partly attributed to lack of a law spelling out the mandate of ULC in regard to lease and managing Government land. Notably was the 99 year lease for a flower company for land measuring 360ha which contained irregularities in the process of award. Although, this lease was cancelled the flower company has taken the matter to courts of law.

There is need for Government to streamline the operations of the Uganda Land Commission with a view to improving custody and allocation of Government land through enactment of a law clearly spelling out the roles of parties concerned.

A.18 Lack of follow-up on bilateral agreements/protocols

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The protocol agreement between Government of Uganda (GoU) and Democratic People’s Republic of China (DPRC) was signed on the 27th June 2008. It involved establishment of a demonstration centre under the National Agricultural Organisation. However, it was observed that after hand-over of the site by Ministry of Agriculture, Animal Industry and Fisheries to the DPRC, there was no proper follow up by Government on the project as such it was difficult to establish whether the anticipated funding of RMB YUAN 50,000,000 equivalent to UGX.26 bn was received and how it was applied to the project.

Further, Government as part of the protocol provisions was required to prepare operational guidelines and contracts to enable proper implementation of the project but this was not done. My inspection revealed that this project had been completed but there has been no hand-over.

There is need for vigilance on the part of Accounting Officer to closely monitor such projects so that value for money is obtained.

A.19 Fixed budget allocation for essential medicines and health supplies

I noted that the annual budget allocation of UGX.218bn for essential medicines and health supplies to all health facilities across the country has remained constant since 2011/2012 despite the remarkable increase in the number of patients. For example in Mulago National Referral Hospital the number of patients has increased from 1,356,870 in 2011/2012 to 1,641,390 in 2014/15. Similarly, in China Uganda Friendship Hospital Naguru the number of patients increased from 360,951 in 2012/2013 to 704,947 in 2014/2015. As a result, the health facilities continuously experienced shortages of drugs which affect service delivery.

I advised the respective hospital Accounting Officers to liaise with the Ministries of Health and Finance to ensure that the funding for essential medicines matches the increase in the number of patients as a way of providing minimum health care.

A.20 Budgeting for workman’s compensation

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Section 18 of the Worker’s Compensation Act 2000 requires every employer to insure and keep workers insured in respect of any liability which workers may incur. Section 2 of the same Act provides that insurance shall apply to all employment within Uganda except for active members of the armed forces in Uganda. The current practice regarding workers compensation is that both the responsible Permanent Secretary (MOGLSD) and Commissioner Labour have been responsible for compensation matters. Individual Ministries have not been budgeting for workers compensation. As a result, I noted that compensation of Government workers amounting to UGX.3.2bn had not been settled. In the circumstances, the entitled persons were denied their rightful claims and this may result into litigation.

I advised that the Permanent Secretary, Ministry of Gender, Labour and Social Development to liaises with the Ministry of Finance, Planning and Economic Development to devise means of securing adequate resources for the workers compensation.

A.21 Regional coordination and monitoring framework for Northern Corridor Integration projects

Government signed fourteen (14) protocols under the Northern Corridor Integration Projects where substantial amounts of funds have been invested and implementation is on-going. For example amounts totalling to UGX4.2bn was disbursed to fund the power interconnection and the Hoima-Lokichar-Lamu oil pipeline. However, the protocols do not provide for regional coordination and monitoring as well as the audit framework to provide an independent assurance on the utilization of joint funds. This renders it difficult to track the progress of the projects and follow up the accountability for the funds disbursed.

A.22 Non-alignment of Mission charters with budgets

A mission charter outlines the key result areas for each of the missions abroad, designed to guide activities aimed at achieving the objectives of the national foreign policy. I observed that although the Ministry of Foreign Affairs issued charters to the missions abroad, they were not aligned to the annual mission budgets, in various

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cases the expected outputs were not quantified, quarterly reports not prepared and charters are not time bound.

In addition, budgets are inadequate and are mostly applied to fixed costs such as Foreign Service allowances, wages and salaries, rent and utilities. In the circumstances, the charters do not adequately serve the intended purpose as the assessment of their implementation is difficult.

I advised the Ministries responsible for foreign affairs, finance and individual missions; to closely liaise, align budgets, and release funds to finance charter activities. Clear annual outputs should also be defined, and prescribed regular reporting be enforced.

A.23 Lack of an investment policy and a legal instrument guiding Government long-term investments

Government does not have an investment policy to clearly guide the processes of identification and evaluation of possible investment projects. This exposes Government to a risk of entering into less profitable investments which may result into losses. The lack of an investment policy may lead to non-alignment of Government investment priorities with the National Development Plan.

I further noted that there is no legal instrument in place which authorizes the Government to make long term investments. The Public Finance and Accountability Act, 2003, only provided for investments with a bank at call or subject to notice not exceeding twelve months.

I advised Government to establish a clear investment policy to guide and direct the Government investments in the areas identified in the NDP, in addition to compilation of an enabling law to guide all its long term investments.

A.24 Compensations of Project Affected Persons (PAPS)

Review of the compensations for the Project Affected Persons (PAPs) on the two projects of Mukono-Kyetume-Katosi road and LPC revealed inconsistencies in the names of the PAPs appearing in the Chief Government Valuers report and those

20 compensated. The land and properties surveyed did not specify block and plot numbers, compensation was made to unknown title holders, payments were made to individuals other than those whose land had been valued, and payments were made without land titles and sale agreements. A sum of UGX.1.3 bn paid without resolving the inconsistencies was questionable.

There is need to streamline the process of compensation of PAPs to ensure transparency and accountability in the process.

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B. GENERAL FINDINGS

B.1 Delayed Contracts

It was observed that a number of Governments contracts/projects totalling to UGX. 87,451,449,288 that had been ongoing or were started during the financial year lagged behind schedule or demonstrated signs of failure. A number of these contracts/projects had exceeded their completion dates while others had been abandoned. The delays were between 2 months and 6 years. The delays in contract execution were attributed to insufficient funding and inadequate supervision of contract implementation by the responsible entities. This may have resulted increased contract costs to Government and failure to achieve the intended objectives of the procurements/contracts. Table 1 below refers. Table 2: Delayed contracts

Name of Entity Name of Particulars of Contract Amount Start Completion Contractor project / (UGX) Date date Contract Office Of the Prime Aswangah Nalutuntu Health 09/03/2014 03/02/2015 Minister Construction Centre 1V- 681,900,266 Services Mubende Limited Office Of the Prime Africon Construction of 08/0 1/2014 31/12/2014 Minister Construction Provisional Relief 745,296,585 (U) Ltd Stores in . Office Of the Prime YOVEL Construction of 09/10/2014 09/09/2015 Minister Logistics Education 546,422,188 Limited. Infrastructure in Karamoja Office Of the Prime PEKASA Construction of 20/01/2015 10/07/2015 Minister Enterprises Butaleja 697,091,416 ltd. Warehouse NUSAF II Construction of 05/01/2014 01/12/2014 staff house at 73,206,055 Nabuyoga P/S NUSAF II Construction of 01/06/ 2014 01/12/2014 staff house at 74,206,055 Kiyeyi Primary School NUSAF II Construction of 20/2/2013 20/12/2013 staff house at 67,790,184 Aputiri Primary School Office Of The MEGGER Construction of the 02/01/2012 30/12/2012 President TECHINICAL RDC’s office in 661,828,731 SERVICES Abim District LTD Office Of The Pearl shelter Construction of the 21/3/ 2012 30/12/2013 President promoters RDC’s office in 605,221,056 Co.Ltd Otuke District

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Office Of The DELUX Construction of the 02/01/2013 30/12/2014 President ALMINIUM RDC’s office in 638,791,601 SYSTEMS Butalejja District Ministry Of Construction of a 1,507,894,518 02/01/2013 30/12/2014 Defence maintenance workshop at Moi Brigade headquarters, Nakasongola Ministry Of M/S Roester Construction of 5,981,499,609 03/01/2013 30/12/2014 Defence Construction priority works at Corporation SOFAAD training Ltd school Ministry Of Operationalization 04/01/2013 30/12/2014 Defence of Water Bottling 560,756,632 Plant at Directorate of Nabco Construction of 29/10/2008 23/1/2009. Citizenship and Enterprises Eregu/ Atiak 93,124,504 Immigration (U) Ltd Border post at Control Atiak along Uganda-Sudan border. Ministry of M/s Nabco Construction of a 28/1/2008 30/6/2008 Internal Affairs Enterprises Regional 436,445,468 (U) Ltd Laboratory in Gulu. Ministry Of Construction of a 1,507,894,518 02/01/2014 30/6/2014 Defence maintenance workshop at Moi Brigade headquarters, Nakasongola Ministry Of M/S Roester Construction of 5,981,499,609 02/01/2014 30/6/2014 Defence Construction priority works at Corporation SOFAAD training Ltd school Ministry Of Operationalization 02/01/2014 30/6/2014 Defence of Water Bottling 560,756,632 Plant at Kakiri Ministry of Local Saahib Gulu District. 20/09/2012 20/03/2013 Government/CAIIP Enterprises Hima-Pida Pageya. 443,667,315 II Ltd Contract Sub-county: Lakwana Contractor: Ministry of Local Agro General . 06/06/2015 06/03/2015 Government/CAIIP Builders & Budondo Sub- 126,427,035 II Carpentry county, Wagoina- (U) Ltd Namizi west (4.4 km) Ministry of Local Nambale Bukedea District. 07/05/2015 07/11/2015 Government/CAIIP Enterprises Kolir Sub-county. 353,517,150 II Ltd Kolir HC III- Kagolot-Acomai- Kamutur (11.7 km) Ministry of Local Wao (U) Ltd . 02/05/2015 02/11/2015 Government/CAIIP Ongino sub 290,403,225 II county. Ongino Oseera (10.0 km) Ministry of Local Spider Katakwi District. 20/01/2015 20/05/2015 Government/CAIIP Contractors Ngariam 400,226,883 II Ltd Subcounty. Ocwiin- Akore-Security (17.0 km) 23

Ministry of Local Emmaus Amuria District. 20/01/2015 20/05/2015 Government/CAIIP General Kapelebyong sub 287,856,870 II Workshop county. Kapelebyong- Okungur (14.4 km) Ministry of Local Lina Gulu District. 19/05/2 015 19/11/2015 Government/CAIIP Construction LujorAwinyi-Atyang 409,502,823 II Ltd (10.0 km). Lakwana sub county Ministry of Local Pehan Kitgum District. 19/05/2015 19/11/2015 Government/CAIIP Construction Lagoro sub county. 224,440,650 II Ltd Lalano Central- Aloto PS (10.0 km) Ministry of Local Kol Services Kitgum District. 20/01/2015 20/05/2015 Government/CAIIP Ltd Orom sub county. 832,512,420 II Akilok-Lucom (14.8 km) Ministry of Local Kol Services Kitgum District. 19/05/2015 19/11/2015 Government/CAIIP Ltd Orom sub county. 244,917,407 II Kona Pire-Lucomo P/s Ministry of Local RMK Uganda Lamwo District. 25/04/2015 25/10/2015 Government/CAIIP Ltd Padibe east Sub- 501,225,200 II county. Katum Central-Katum West (6.5 km) Ministry of Local RMK Uganda Lamwo District. 25/04/2015 25/10/2015 Government/CAIIP Ltd Paloga Subcounty. 631,058,575 II Lamojong-Larobi (11.0 km) Ministry of Local Nippon Parts Ntoroko District 3,993,285,513 28/1/15 28/7/15 Government/CAIIP (U) Ltd Lot 52- Bweramule III Sub county – Rwamabale – Bweramule Road 18.3 Km. ADB funded Ministry of Local Nippon Parts . Lot 2,286,555,075 01/03/2015 07/03/2015 Government/CAIIP (U) Ltd 42- Kilembe Sub III county- Mbuga- NyakazingaKalongo H/C- Kalongo T/C road – 18.5 Km. ADB funded Ministry of Local Semeo Kabarole District. 21/5/14 21/11/14 Government/CAIIP Enterprises Lot 48- Kisomoro 987,562,625 III Ltd Sub county Ministry of Local Pekasa Kabarole District. 22/ 5/2015 22/11/2014 Government/CAIIP Enterprises Lot 46: 564,420,150 III Ltd Ministry of Local M/S Mitooma District. 1,227,983,591 20/1/2015 20/7/2015 Government/CAIIP Networld (U) Lot 15, Katenga III Ltd Sub county. Ministry of Local M/S Mitooma District. 1,522,300,678 20/1/2015 20/7/2015 Government/CAIIP Networld (U) Lot 16 Mayanga III Ltd

24

Ministry of Local Ms Lina Mitooma District – 20/1/2015 20/7/2015 Government/CAIIP Constructions IDB. Lot 14 622,642,197 III Ltd Ministry of Local Ambitious Bundibugyo 1,544,314,249 01/02/2015 2/7/2015 Government/CAIIP Construction District. Lot 51. III Co. Ministry of Various Construction of 12 45,774,270,621 09/01/2013 30/9/2014 Education and contractors new seed Sports ADB IV secondary schools, expansion of 15 secondary schools, rehabilitation of 42 centres of excellence and 2 BTVET Institutions Ministry of Expansion of 12/01/2014 30/6/2015 Education and Dining Hall 239,601,642 Sports Reconstruction of 2,521,131,767 25/5/2013 29/11/2013 KCCA Mbogo Road

GRAND TOTAL 87,451,449,288

B.2 Mischarged Expenditure

Expenditures from various entities totaling to UGX. 83,528,574,008 were charged on item codes which do not reflect the nature of the expenditure. Such a practice impacts on the credibility of the financial statements, since the figures reported therein do not reflect true amounts expended on the affected expenditure items. I noted an increase in mischarge from last year’s figure of UGX. 51,728,901,102 in 2013/2014 to UGX. 83,528,574,008 in 2014/15. There is need for Accounting Officers to enforce strict adherence to the provisions regarding reallocation of funds. Tables 2 and 3 below refer.

Table 2: Mischarged Expenditure Entity Mischarged Expenditure 2014/2015 Ministry of Local Government 12,086,792,676 Parliamentary Commission 5,920,736,510 Office of the Prime Minister 4,611,211,067 Local Government Finance Commission (LGFC) 256,125,970 Ministry of Information and Communication 125,916,873 Technology Public Service Commission 689,678,544 Judicial Service Commission 34,227,104 Uganda Prison Services 66,000,000 Uganda Police Force 148,058,104 Directorate of Public Prosecutions 235,645,707

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Ministry of Public Service 14,657,510,377 Ministry of Internal Affairs 398,070,732 Directorate of Citizenship and Immigration Control 1,273,346,799 Uganda Cancer Institute 54,829,686 Ministry of Health 231,429,274 Mulago NRH 570,405,506 Butabika NMRH 114,382,051 Ministry of Agriculture Animal Industry and Fisheries 379,633,600 Ministry of Lands, Housing and Urban Development 319,793,166

Ministry of Works And Transport 157,861,512

Uganda Land Commission 193,235,549 Ministry of Finance Planning and Economic 515,586,527 Development Directorate of Ethics and Integrity 67,769,200

Kyambogo University 146,286,272 Ministry of Education and Sports 3,399,286,780 Makerere University Kampala 115,883,144 Ministry of Minerals and Energy Development 787,474,716 Electoral Commission 515,440,000 Uganda National Roads Authority 29,542,978,953 National Agricultural Advisory Services 5,912,977,609 TOTAL 83,528,574,008

Graph1: Trend of Mischarge

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B.3 Unaccounted for Funds

A total of UGX. 80,336,491,207 inform of advances to staff, payments to service providers, cash withdrawals, imprest, remittances to Districts, borrowings for carrying out activities in various entities remained unaccounted for by the end of the financial year contrary to the Public Finance Management Act 2015. Table 3 below refers. Delays in accounting for funds may encourage falsification of documents.

Table 3: Unaccounted for Funds Entity Outstanding Incompletely Total administrative vouched Advances expenditure

Ministry of Local Government 3,827,011,454 602,901,365 4,429,912,819 Parliamentary Commission 0 27,401,000 27,401,000 Local Government Finance 0 168,333,000 0 Commission Uganda Lands Commission 9,996,125 61,162,892 71,159,017 Makerere University Business 0 School 19,423,976 19,423,976 Busitema University 0 65,066,577 65,066,577 Muni University 0 19,579,075 19,579,075 Makerere University Kampala 511,171,395 0 511,171,395 Ministry of Energy Minerals and 0 188,239,500 Development 188,239,500 Northern Uganda Social Action 5,174,100,305 0 5,174,100,305 Fund 2 District Commercial Officers 458,400,000 0 Services Support Project 458,400,000 APL I – Ministry of Education 5,552,114,659 0 5,552,114,659 and Sports Uganda Sanitation Fund Project 274,961,905 0 274,961,905

Kampala Capital City Authority 20,226,786 0 20,226,786

Uganda National Roads 47,738,040,619 167,803,625 47,905,844,244 Authority National Agricultral Advisory 3,803,688,639 11,815,201,310 15,618,889,949 Services TOTAL 67,473,781,515 13,031,042,692 80,336,491,207

B.4 Non-Compliance with Income Tax Act

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During the year under review, seventeen MDAs did not comply with The Income Tax Act 1997 (as amended) in respect to taxes amounting to UGX.9,503,156,971 and USD. 1,358,070. The non-compliance was due to non-deduction of taxes worth UGX.2,193,568,652 and non-remittance of tax worth UGX 7,021,037,238 and USD 1,358,070. Table 4 refers.

The failure to deduct and remit taxes directly impacts on collections by the Uganda Revenue Authority. I advised Accounting Officers to comply with the tax law. Table 4: Non-deduction and Non-remittance of Taxes S/N Entity Non Deduction Non Remittance of Non of Taxes Taxes (UGX) Remittance of Taxes (USD) 1 Ministry of Local 121,521,220 Government - 2 Ministry of Local 75,562,770 Government-CAIIP 1 3 Ministry of Local 1,425,446,994 Government-CAIIP 1I 4 Ministry of Local 3,779,479 Government-CAIIP 1II 5 Ministry of Local 1,402,225,167 Government-DLSP 6 Office of the Prime 326,988,820 Minister - 7 Local Government Finance 31,861,439 Commission - 8 Ministry of Information 15,657,469 and Communication - Technology 9 Public Service Commission 29,372,544 10 Office Of The President 494,720,625 11 Directorate of Public 103,910,812 Prosecution - 12 Ministry of Water 79,896,660 13 Water and Sanitation 112,407,541 Development Facility- Central (WSDF-C)

14 Water and Sanitation 62,589,580 Development Facility- Central (WSDF-C) 15 Water and Sanitation 2,887,064,477 Development Facility- South West (WSDF-SW)

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16 African Development Bank 209,335,501 V 17 Nyabyeya Forestry College 9,398,240 18 China – Uganda 43,611,027 Friendship Hospital – Naguru 19 Uganda Management 4,280,465 1,185,688,797 Institute 20 Directorate of Ethics and Integrity 4,662,524 21 Makerere University 384,984,600 Business School 22 Ministry of Education and 199,639,139 Sports(UBTEB) 23 PU - Operations 249,660,071 - 24 District Commercial 1,376,010 Officers Services Support - Services Project 25 Improvement of health 1,358,070 service delivery in Mulago hospital in the city of Kampala project (MKCCA)

26 Atomic Energy Council 37,515,000

TOTAL 2,231,083,652 7,272,073,319 1,358,070

B.5 Outstanding Commitments

It was noted that a number of government entities have continued to enter into commitments beyond the available funds. This is contrary to the commitment control system which requires the accounting officer to commit Government within the provided funds. The total amount of domestic arrears increased during the year from UGX.1,280,336,143,330 in 2013/2014 to UGX.1,349,261,370,583 in 2014/2015 as illustrated in the table 7 and graph below:-

Table 5: Domestic arrears for the last three years S.NO ENTITY AMOUNT (UGX) 1 Ministry of Local Government 26,711,424 2 Office of the Prime Minister 86,484,721 3 Ministry of Information and Communication Technology 2,004,957,760

4 Public Service Commission 53,870,300 29

5 Office of The President 25,941,711,653 6 State House 1,934,490,635 7 Ministry of Defence 55,267,501,370 8 Judiciary 11,078,077,354 9 Uganda Law reform Commission 320,733,433 10 Ministry of Justice and Constitution Affairs 479,261,494,066 11 Uganda Prisons 35,242,239,339 12 Uganda Police Force 16,454,307,782 13 Ministry of Internal Affairs 1,525,960,626 14 Directorate of Citizenship and Immigration 79,856,210,631

15 Amnesty Commission 263,848,289 16 Nyabyeya Forestry College 50,186,001 17 Ministry of health 10,760,867,661 18 Uganda Virus research institute 4,141,674,611 19 Butabika NMRH 37,048,529 20 Busitema 3,305,042,690 21 Ministry of Gender, Labour and Social Development 3,726,312,583

22 Min of Lands 10,037,471,151 23 Uganda Road Fund 1,124,563,846 24 Uganda Land Commission 7,162,227,073 25 Gulu University 1,862,359,408 26 Busitema University 3,305,042,690 27 Kyambogo University 13,633,166,260 28 Uganda Management Institute 4,308,336,790 29 Makerere University 51,704,481,942 30 Ministry of Energy and Mineral Development 840,898,286

31 Office of The President 808,879,395 32 Ministry of Water 28,359,188,713 33 Water and Sanitation Development Facility-South Western 1,454,000,000

34 Ministry of Public service 200,252,608,998 35 Uganda Registration Service Bureau 17,526,195,243

36 Kampala Capital City Authority 36,070,594,330

37 Uganda National Roads Authority 239,445,625,000

38 Atomic Energy Council 26,000,000

TOTAL 1,349,261,370,583

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Graph 2: Outstanding Commitments

B.6 Budget performance-Budget shortfall

I noted that 21 entities budgeted to receive UGX. 2,272,017,747,273, out of which UGX. 1,481,698,945,173 was received translating into a 65% out-turn for the financial year. This left a funding gap of UGX. 790,318,802,100 (35%). Details are in the table 8 below: Failure to release the budgeted funds to the Entities affected implementation of the planned activities which affects fulfillment of their mandates in the long run.

I advised Accounting Officers to take up this matter with the relevant authorities to ensure all the budgeted funds are released so as to accomplish planned activities.

Table 8 Budget shortfall N Entity Revised Actual Variance/ Percen o. Budget Releases Shortfall tage 1 Ministry of Energy and Mineral 50% development 1,299,640,260, 646,389,594,8 653,250,665, 812 55 957 2 NUSAF 2 47% 74,300,497,59 39,119,771,85 35,180,725,7 0 5 35 3 JLOS/SWAP PROJECT 33% 52,699,149,06 35,570,796,25 17,128,352,8 8 8 10 4 BMAU 27% 1,125,000,000 826,020,101 298,979,899

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5 Ministry of Information 24% Communication and Technology 10,456,309,00 7,912,518,675 2,543,790,32 0 5 6 Ministry of Lands, Housing And 21% Urban Development 22,965,187,37 18,049,538,09 4,915,649,27 4 6 8 7 China – Uganda Friendship 16% Hospital – Naguru 5,413,628,891 4,528,632,262 884,996,629 8 Ministry of health 15% 55,017,135,36 46,747,991,91 8,269,143,45 8 5 3 9 Uganda Land Commission 11% 38,288,811,00 33,938,575,31 4,350,235,68 0 4 6 1 Ministry Of Local Government 11% 0 34,434,116,98 30,557,445,78 3,876,671,20 7 1 6 1 CAIIP 2 6% 1 47,905,083,92 45,210,034,80 2,695,049,11 1 3 8 1 CAIIP 3 23% 2 66,990,234,47 51,810,082,04 15,180,152,4 3 1 32 1 Ministry of Water & Environment 9% 3 185,587,393,9 169,233,787,5 16,353,606,4 42 22 20 1 Health service commission 9% 4 4,782,323,971 4,369,799,540 412,524,431 1 Ministry of Trade 9% 5 23,599,148,98 21,583,785,10 2,015,363,88 7 4 3 1 Ministry of Works And Transport 8% 6 103,193,294,9 95,229,558,46 7,963,736,51 72 0 2 1 Uganda Heart Institute 7% 7 12,092,930,26 11,240,114,28 852,815,978 4 6 1 Amnesty Commission 7% 8 2,482,734,000 2,308,589,848 174,144,152 1 Public Service Commission 6% 9 6,086,163,181 5,694,834,170 391,329,011 2 Ministry of Education and Sports 6% 0 209,589,967,9 197,019,268,4 12,570,699,4 12 85 27 2 Uganda Registration Service 15,368,375,56 14,358,205,80 1,010,169,75 7% 1 Bureau 0 2 8

GRAND TOTAL 2,272,017,74 1,481,698,94 790,318,80 35% 7,273 5,173 2,100

B.7 Wasteful/ Nugatory Expenditure

Good practice requires Accounting Officers to reduce cases of apparent waste, extravagant administration or failure to achieve value for money due to management’s laxity in the 32 conduct of operations. However, I noted wasteful expenditure to the tune of UGX 26,115,088,043. These arose as a result of interest on late payments, parking fees for grounded vehicles, breach of contracts, litigation costs among others. Table 9 below refers. This affected the implementation of activities in the entities and on the overall service delivery.

I advised management to adhere to the contract arrangements with a view of avoiding such expenses.

Table 9 Wasteful/Nugatory Expenditure S/N ENTITY Particulars Amount (UGX) 1 Ministry of Local Parking fees 41,435,800 Government 2 Office of The President Out of the Forty (40) 10,258,920 Accounting Officers scheduled to attend a retreat only 23 attended resulting in 12 Accounting Officers who did not attend to cause an un-utilised and not refunded amount of UGX.10,258,920. 3 Ministry of Defence A contract to extract 326,948,553 and distribute water to the barracks at Mburamaizi from River Kiruruma was not accomplished as the water project is not in operation' 4 Ministry Of Defence Bwera Water Supply 202,250,000 Contract.The contractor had stopped the works because the contract had been cancelled. 5 Ministry of Water & Breach of Contract on 1,420,396,559 Environment Bwizibwera Town Water Supply Systems

6 Ministry of Water & Compensation to KOL- 513,086,540 Environment CMIC Joint Venture as costs of stoppage on works at Nabweya Gravity Flow Scheme 7 Ministry of Water & Delays in payment to 93,466,737 Environment the contractor on construction of Lirima Gravity Flow Scheme 33

S/N ENTITY Particulars Amount (UGX) 8 Ministry of Agriculture Interest Paid to a 12,607,509,024 Animal Industry and Construction Company Fisheries on the outstanding balance for rehabilitating the following dams; Rwenjubu, Makukulu, Lyantonde and Dyangoma dams. 9 Uganda Land Legal fees paid to legal 50,000,000 Commission representatives to unblock the garnishee which was placed on the Commission bank account. 10 Uganda National Unwarranted arbitration 8,044,936,050 Roads Authority awards arising from poor management of the contract, interest on delayed payments, unwarranted legal fees and unwarranted expenditure for due diligence. 11 Ministry of Agriculture, Interest payment to a 1,284,638,215 Animal Industry And construction company Fisheries for works on Atar and Wangwoko dams. USD 367,039.49 12 Ministry of Agriculture, Failure to charge 1,200,042,088 Animal Industry And liquidated damages on Fisheries construction of a fish landing facility at Kiyindi and Lwampanga landing sites. 13 Ministry of Finance, Interest payment on 168,747,557 Planning And outstanding VAT Economic obligations for BIDCO. Development 14 Kampala Capital City Cancellation of contract 151,372,000 Authority due to lack of funds

TOTAL 26,115,088,043

B.8 Advances to Staff Personal Accounts

A number of Accounting Officers advanced a total sum of UGX.12,740,444,720 to their staff, through their individual personal accounts. Table 10 below refers. I noted an increase of 6% as compared to the previous year amount of UGX.12,014,225,502. Out of these funds, a sum of UGX. 4,057,059,804 remained unaccounted for. 34

I advised the Accounting Officers to avoid the practice as it is contrary to regulations, highly risky and exposes government funds to loss since accounting officers have no control over individual’s bank accounts. Management was advised to adhere to the regulations.

Table 10 Advances to Staff Personal Accounts N Entity Amount Amount accounted Amount o. advanced (UGX) for (UGX) unaccounted for 1 Ministry of Local Government 10,460,426,784 6,633,415,330 3,827,011,454 2 Directorate of Public Prosecution 403,708,657 403,708,657 0 3 Mulago National Referral Hospital 1,100,300,050 870,251,700 230,048,350 4 Makerere University 776,009,229 776,009,229 0 GRAND TOTAL 12,740,444,720 8,683,384,916 4,057,059,804

B.9 Irregularities in Procurements

I noted that a number of entities conducted procurements worth UGX. 197,634,523,585 and US$.3,504,698 in violation of the provisions of the procurement law and its regulations. Table 11 below refers. The violations were mainly in form of delays, un-planned procurements, use of non-prequalified suppliers, un-accomplished procurements, un- authorized direct procurements, non-delivery and insufficient procurement records.

I advised Accounting Officers to always adhere to the provisions of the procurement laws and regulations.

Table 11 Procurement Irregularity S/N Entity Lack of Breach of Contract Unauthorized procurement procurement management variation files & procedures weakness (UGX), eg (UGX) (ie records (UGX) ( Non- No contract Single or (UGX) compliance with manager, no cumulative PPDA implementation variation) procedures) plans, no supervision or progress reports, etc 1 Ministry of Local 1,416,000,000 922,845,962 - - Government 2 Office of the 35,000,000 Prime Minister 35

S/N Entity Lack of Breach of Contract Unauthorized procurement procurement management variation files & procedures weakness (UGX), eg (UGX) (ie records (UGX) ( Non- No contract Single or (UGX) compliance with manager, no cumulative PPDA implementation variation) procedures) plans, no supervision or progress reports, etc 3 Office of the 132,000,000 President 4 Ministry of 6,202,211,939 Defence 5 Uganda 61,365,436,633 246,373,000 Prisons service 6 Nyabyeya 49,302,558 Forestry College 7 Uganda 382,452,461 Cancer Institute (UCI) 8 Uganda aids 129,250,440 commission 9 China – 112, 663,163 453,849,200 29,191,225 Uganda Friendship Hospital – Naguru 10 Health service 115,871,999 commission 11 Uganda Road 520,000,000 Fund 12 Ministry of 2,848,433,727 Works 9,549,001,898 13 UNRA 962,160,722 and 1,370,308,253 USD 978,757 14 Makerere USD 7,977 University Business School 15 Kyambogo University 2,046,967,147 16 Ministry Of 21,551,360,306 Education and Sports

36

S/N Entity Lack of Breach of Contract Unauthorized procurement procurement management variation files & procedures weakness (UGX), eg (UGX) (ie records (UGX) ( Non- No contract Single or (UGX) compliance with manager, no cumulative PPDA implementation variation) procedures) plans, no supervision or progress reports, etc 17 Ministry Of USD 2,517,964 Education and Sports

18 Makerere University 36,041,465,758 Kampala

19 Ministry of Agriculture 51,252,918,000 Animal Industry and Fisheries 20 Equal 12,122,357 Opportunities Commission

TOTAL 1,416,000,000 73,677,088,798 122,265,870,562 275,564,225 (UGX) TOTAL (USD) 7,977 978,757 2,517,964

B.10 Outstanding Receivables

During the review, it was noted that receivables worth UGX. 155,608,264,685 were not collected by the various Ministries, Departments and Agencies and were therefore still outstanding as at 30th June 2015 as summarized in table 12 below: There is a risk that the activities for which these receivables were appropriated were not carried out and this could have affected the implementation of planned activities.

I advised the Accounting Officers to ensure timely collection of receivables.

Table 12 Outstanding Receivables NO ENTITY Amount (UGX) 1 Judiciary 322,997,771 2 Uganda Human Rights Commission 112,350,458

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3 Uganda Prisons 449,846,952 4 Uganda Police Force 3,750,014,453 5 Ministry of Internal Affairs 27,470,035 6 State House 590,200,000 7 Busitema 65,066,577 8 MUNI 19,579,075 9 Uganda Management institute 7,522,871,142 10 Uganda Land Commission 12,913,100 11 Ministry Of Works And Transport 614,837,134 12 Uganda Registration Service Bureau-Gou 2,998,910

13 Uganda Registration Service Bureau-liquidation 8,052,490,354

14 Kampala Capital Markets Authority 77,007,788,342

15 Uganda National Roads Authority 55,679,844,000

16 Atomic Energy Council 51,933,000

17 Uganda Road Fund (URF) 1,325,063,382

GRAND TOTAL 155,608,264,685

B.11 Staff Shortages

A review of the approved staffing structures of various entities revealed a total of 34,910 vacant posts. These included key staffing posts like Professors and Associate Professors at universities, consultants in various medical facilities and directors in various institutions. The Table 13 below refers. Inadequate staffing affects the timely implementation of entity activities. It may adversely impact on the entities in the achievement of its strategic objectives.

I advised Accounting Officers to make concerted efforts in liaising with all stakeholders to ensure that vacant posts are filled to enable the entities adequately deliver on their mandate.

Table 12: Staff shortages S/ ENTITY Established Filled Vacant percentage Key Posts N posts posts posts

1 Amnesty Commissioners Commission 38 36 2 5

38

S/ ENTITY Established Filled Vacant percentage Key Posts N posts posts posts

2 Busitema 384 1,932 Professors, University 2,316 83 Associate Professors, Senior Lecturers, Direct ors and Heads of Departments. 3 China – 277 Consultants Uganda 347 70 20 (ENT), consultant Friendship (Psychiatry), Hospital – Consultant Naguru (pediatrics) 4 Gulu 365 553 34 Professor s University 918 60 and 37 Associate Professors 5 Health Senior Human service 64 51 13 20 resource officers commission , System Administrator 6 Judicial Service 57 49 8 14 Commission 7 Judiciary 1,510 379 1,889 20 8 Kyambogo 837 719 Professors, University 1,556 46 Associate Professors, Senior Lecturers 9 Local Government 52 36 16 31 Finance Commission 10 Makerere 1,333 1,441 Profess ors, University 2,774 52 Associate Professors, Senior Lecturers 11 Ministry of 108 324 agriculture , 432 75 animal industry and Fisheries (MAAIF) 12 ministry of 114 agriculture 163 49 70 animal industry and fisheries, ( Bukalasa College)

39

S/ ENTITY Established Filled Vacant percentage Key Posts N posts posts posts

13 Ministry of Commissioner East African 75 59 16 21 Production, Affairs Commissioner Legal Affairs, Assistant Commissioner EA Affairs. POI. 14 Ministry of 317 116 Education 433 27 and Sports (UBTEB) 15 Ministry of 273 469 Gender, 742 63 Labour and Social Development 16 Ministry of 507 health 594 87 15 17 Ministry of Information 110 99 11 10 and Communicati on Technology 18 Ministry of 274 Justice and 298 24 8 Constitution Affairs 19 Ministry of 485 101 Co mmissioners, works 586 17 Principal Planners and principal engineers 20 Makerere 913 239 lecturers University 1,152 21 Business School 21 Mulago 2,181 480 National 2,661 18 Referral Hospital 22 Muni lecturers University 113 72 41 36 23 Office Of The 451 213 President 664 32 24 Parliamentary 411 Commission 485 74 15 25 Public Service Commission 90 69 21 23 26 The Uganda Wildlife 67 44 23 34 Education Center 40

S/ ENTITY Established Filled Vacant percentage Key Posts N posts posts posts

27 Uganda AIDS Departments of Commission 82 55 27 33 Communications (UAC) and Records & Information. 28 Uganda 153 119 Departments Cancer 272 44 include; Nursing, Institute oncology, (UCI) diagnostics, imaging and radiology 29 Uganda Heart 112 Institute 192 80 42 30 Uganda Law reform 69 60 9 13 Commission 31 Uganda 192 7 Professors, 7 Management 264 72 27 Associate institute Professors and 19 senior Consultants. 32 Uganda 67,460 41,838 25,622 Senior Police Force 38 commissioners of police, Commissioners of Police, Senior superintendents of police 33 Uganda 7,781 1,479 Prisons 9,260 16 34 Ugandan Deputy Head of Mission in 3 2 1 33 Mission Bujumbura 35 Ugandan Deputy Head of Mission in 3 2 1 33 Mission Tripoli 36 Uganda 155 141 14 9 Deputy registrar Registration General, Service Manager Bureau Liquidation TOTAL 96,436 61,526 34,910 36

B.12 Letters of Credit

Three (3) Entities had Letters of Credit worth UGX. 9,772,302,943 of which UGX 6,863,986,532 was unutilized at the end of the year. Outstanding letters of credit are an indication that the objectives for which the LC’s were opened were not achieved yet money was committed. Unperformed Letters of Credit attract interest which further commits 41

Government. I advised that closer supervision in respect of activities under Letters of Credit be undertaken.

Table 15 below refers. Entity Bank LCS b/f (UGX) Entered into LC Performance LCs at end of 2013/2014 during year in 2014/15 2014/2015 Parliamentary Bank of Commission Uganda - 1,939,527,324 - 1,939,527,324 Ministry of Bank of 1,174,444,755 1,174,444,755 Water Uganda - - Uganda Police Bank of Force Uganda 3,759,853,523 2,898,477,341 2,908,316,411 3,750,014,453 TOTAL 3,759,853,523 6,012,449,420 2,908,316,411 6,863,986,532

B.13 Untitled Land/ encroached land/ other land matters

Land matters have again remained an issue featuring in my current year audit report. A number of instances have been noted where Government entities have continued to lose out on land to encroachers because the land is not fenced, surveyed and titled. These entities Include; Uganda Police, Uganda Prisons and National Agricultural Research Organization.

Further, I noted that the Uganda Land Commission which is mandated to hold Government Land in trust does not have an updated register of all the land it holds in trust for Government. There is a need to address land issues in Government Institutions. Table 15 refers;

S/N ENTITY NO OF NO OF TOTAL PLOTS/LAND PLOTS/LAND NOT TITLED TITLED

1 Office of the President 42 0 42 2 Uganda Prisons 49 119 168 3 Uganda Police Force 102 313 415 4 Ministry of internal affairs 6 0 6

5 Ministry of Gender Labour and Social 1 0 1 Development

6 Uganda land commission 117 2 119

42

S/N ENTITY NO OF NO OF TOTAL PLOTS/LAND PLOTS/LAND NOT TITLED TITLED

7 Ministry of agriculture, animal 2 1 3 industry and fisheries9Bukalasa collage)

8 National Agricultural Research 21 0 21 Organisation TOTAL 340 435 775

B.14 Expenditure on Rent

During the year, I noted that a sample of 8 entities budgeted to incur rental expenditure of UGX. 33,870,132,050. However actual expenditure was UGX. 27,588,855,510indicating a shortfall in rental releases of UGX. 6,403,825,624. Table 16(i) refers. By the end of the year, I further noted that some entities remained with unsettled rent amounting to UGX. 14,821,140,393. Table 16(ii) refers. This rental expenditure is a constraint on Government resources. There is need for Government to evaluate continued payment of rent as opposed to construction of its own premises.

Table 16(i) Budgeted Vs Actual Expenditure N Entity Name Budgeted Rental Actual Rental Variance o Expenditure (UGX) Expenditure (UGX)

1 Ministry Of Local 1,349,000,000 1,240,217,277 108,782,723 Government 2 Parliament 2,395,923,000 2,339,116,750 56,806,250 3 Office of The Prime 1,341,753,060 950,354,083 391,398,977 Minister 4 Local Government 197,553,000 405,565,056 (208,012,056) Finance Commission 5 Judiciary 22,605,594,990 15,134,007,973 7,471,587,017 6 Uganda Prisons 100,000,000 161,274,604 61,274,480 7 Uganda Police Force 1,600,308,000 3,148,169,000 (1,547,861,000) 8 Uganda Road Fund 960,000,000 1,080,531,767 (120,531,767) 9 Uganda National Road 3,320,000,000 3,129,619,000 190,381,000 Agency (UNRA) Grand Total 33,870,132,050 27,588,855,510 6,403,825,624

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Table 16(ii) Accumulated Outstanding Rent as at 30th June 2015 N Entity Name Arrears from Rent accrued in Paid in Outstanding o 2013/2014 2014/2015 2014/2015 Rent obligations as at 30th June 2015

1 Ministry of Local Government 338,245,132 1,459,724,268 1,240,217,277 557,752,122 2 Office of the Prime Minister 117,874,181 1,193,987,769 950,354,083 361,507,867 3 State House - - 1,473,463,507 1,473,463,507 4 Ministry Of - - Defense 2,010,000,000 2,010,000,000 5 Judiciary 7,406,028,975 7,912,581,736 7,847,023,694 7,471,587,017 6 Uganda Prisons - 161,274,604 99,999,124 61,275,480 7 Uganda Police Force 2,063,229,294 2,043,598,495 3,148,169,000 958,658,789 8 Directorate of Citizenship and 780,979,138 1,197,264,489 355,441,733 1,622,801,894 Immigration Control 9 Amnesty Commission 200,127,100 198,729,700 215,294,850 183,561,950 1 Uganda Road 0 Fund 783,276,959 1,080,531,767 1,743,276,959 120,531,767

GRAND TOTAL 11,689,760,779 18,731,156,335 15,599,776,720 14,821,140,393

B.15 Outstanding International Obligations

I noted that a number of Government entities are indebted to International Organizations such as RESCA, PTA bank, ADB, EADB, Shelter Afrique, WTO, UNIDO, COMESA etc. A sample of five entities revealed indebtedness of UGX 77,724,089,603 and US$ 4,968,950 The table below refers:

No Entity Organization Amount (UGX) Amount (US$)

1 Ministry of Internal Affairs Regional Centre for Small 1,256,442,770 Arms (RESCA)

2 Ministry of Finance, PTA Bank, ADB, EADB 63,093,097,768 Planning and Economic Development

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3 Ministry of Lands, housing Shelter Afrique 4,968,950 and urban development

4 Ministry of Tourism, World Lusaka Agreement on 5,620,749,910 Life and Antiquities Cooperative Enforcement Operations, United Nations for World Tourism Organizations

5 Ministry of Trade, Industry South Centre Secretariat– 7,753,799,155 and Cooperatives Geneva, UNIDO, COMESA, WTO

TOTAL 77,724,089,603 4,968,950

Unpaid annual subscriptions limit participation of the country in international activities organized by the organizations and may lead to denial of benefits accruing from the organizations, withdrawal of shareholding, interest charges for delayed payments and suspension of membership. Management attributed the delayed subscriptions to underfunding of the Ministries.

I advised Accounting Officers to liaise with the Ministry of Finance, Planning and Economic Development to ensure that funds are set aside to settle the outstanding obligations. Prompt annual subscriptions would minimize accumulation of arrears.

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REPORT AND OPINION OF THE AUDITOR GENERAL

ON THE GOVERNMENT OF UGANDA CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30TH JUNE 2015

THE RT. HON. SPEAKER OF PARLIAMENT I have audited the accompanying consolidated financial statements of Government of Uganda for the year ended 30th June 2015. These financial statements comprise of the Statement of Financial Position as at 30th June 2015, Statement of Financial Performance, Statement of Changes in Equity, Cash flow Statement together with other accompanying statements, notes and accounting policies.

Management’s Responsibility for the Financial Statements Under Article 164 of the Constitution of the Republic of Uganda (as amended) and Section 45 of the Public Finance Management Act, 2015, the Accounting Officers are accountable to Parliament for the funds and resources of the Votes/Entities under their control. The Accountant General is also responsible for the preparation of Consolidated Financial Statements in accordance with the requirements of the Public Finance Management Act 2015, and the Financial Reporting Guide, 2008, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement whether due to fraud or error.

Auditor’s Responsibility My responsibility as required by Article 163 of the Constitution of the Republic of Uganda,1995 (as amended), and Sections 13 and 19 of the National Audit Act, 2008 is to audit and express an opinion on these statements based on my audit. I conducted the audit in accordance with International Standards on Auditing (ISA). Those standards require that I comply with the ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing audit procedures to obtain evidence about the amounts and disclosures in the financial statements as well as evidence supporting compliance with relevant laws and regulations. The procedures selected depend on the Auditor’s judgment including the assessment of risks of material misstatement of financial statements whether due to fraud or error. In making those risk assessments, the Auditor considers internal control relevant to the entity’s preparation and fair presentation of financial statements in 46 order to design audit procedures that are appropriate in the circumstances but not for purposes of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management as well as evaluating the overall presentation of the financial statements.

I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my opinion.

Part “A” of this report sets out my qualified opinion on the financial statements. Part “B” which forms an integral part of this report presents in detail all the significant audit findings made during the audit which have been brought to the attention of management and will form part of my annual report to Parliament.

PART “A”

Basis for Qualified Opinion

 Mischarge of Expenditure – UGX.73,776,161,890 A review of the expenditures revealed that various entities charged wrong expenditure codes to the tune of UGX.73,776,161,890. This practice undermines the budgeting process and the intentions of the appropriating authority as funds are not fully utilised for the intended purposes. The practice also leads to financial misreporting.  Unaccounted for Advances – UGX.52,515,160,697 A total of UGX.52,515,160,697, advanced to staff to carry out activities in various entities remained un-accounted for by the time of audit, contrary to the Public Finance and Accounting Regulations. Delays in accounting for funds may encourage misappropriation.

Qualified Opinion

In my opinion, except for the possible effects of the matters described in the Basis for Qualified Opinion paragraph, the consolidated financial statements of Governement of Uganda for the year ended 30th June 2015 are prepared, in all material respects, in accordance with the the Public Finance Management Act, 2015 and Financial Reporting Guide, 2008 of the Laws of Uganda.

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Emphasis of Matter

Without qualifying my opinion further, attention is drawn to the following additional matters which have been disclosed in the financial statements and are also included in part B of this report and my annual report to Parliament.

 Contingent Liabilities – UGX.4,892,599,283,368

As disclosed in the statement of contingent liabilities, Government contingent liabilities are reported at UGX.4,892,599,283,368 up from UGX.4,784,569,306,022 the previous year. The trend appears unsustainable in the event that a significant percentage crystallizes into liabilities.

 Classified Expenditure

As disclosed in note 7, a total of UGX.465,981,782,064 relates to classified expenditure. In compliance with Section 24 of the Public Finance Management Act, 2015 (Classified Expenditure), this expenditure is to be audited separately and a separate audit report issued.

Other matter

Without qualifying my opinion further, I draw your attention to the following matter other than what has been disclosed in the financial statements, which is also in part B of my report;

 Transfer of Funds to Staff Personal Accounts - UGX.23,129,945,049

An analysis of payments made during the year revealed that several entities transferred a sum of UGX.23,129,945,049 to personal accounts for undertaking various activities contrary to the requirements under Sections 227, 228 and 229, of the Treasury Accounting Instruction (TAI), which stipulate that all payments should be made by the Accounting Officer directly to the beneficiaries.

John F.S. Muwanga AUDITOR GENERAL KAMPALA

24th December, 2015

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PART "B" DETAILED REPORT OF THE AUDITOR GENERAL FOR THE FINANCIAL YEAR ENDED 30TH JUNE 2015

This Section outlines the detailed audit findings, management responses and my recommendations in respect thereof.

1.0. INTRODUCTION Article 163 (3) of the Constitution of the Republic of Uganda, 1995 (as amended) requires me to audit and report on the public accounts of Uganda and all public offices including the courts, the central and local government administrations, universities, and public institutions of the like nature and any public corporation or other bodies or organizations established by an Act of Parliament. Accordingly, I carried out the audit of the Consolidated Government of Uganda Financial Statements for the year ended 30th June 2015 to enable me report to Parliament.

2.0. BACKGROUND INFORMATION Under Article 164 of the Constitution of the Republic of Uganda, 1995 (as amended) and Section 45 of the Public Finance Management Act, 2015, an Accounting Officer shall be responsible and personally accountable to Parliament for the activities of a vote.

The Accountant General is appointed as the Accounting Officer and Receiver of Revenue for the Consolidated Fund. He is responsible for establishing and maintaining a system of Internal Controls designed to provide reasonable assurance that the transactions recorded are within the authority and properly record the use of all public funds by the Government of the Republic of Uganda.

Accordingly, the Accountant General is responsible for the preparation and fair presentation of Consolidated Financial Statements in accordance with the requirements of the Public Finance Management Act, 2015, and the modified cash basis of accounting.

The accompanying Government of Uganda Consolidated Financial Statements provide a record of the Governments’ financial performance for the year 2014/15 and

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the financial position of the consolidated fund as at 30th June 2015, in accordance with the Public Finance Management Act, 2015.

3.0. AUDIT SCOPE The audit was carried out in accordance with International Standards on Auditing and accordingly included a review of the accounting records and agreed procedures as was considered necessary. In conducting my reviews, special attention was paid to establish whether;

a. The consolidated financial statements have been prepared in accordance with consistently applied Accounting Policies and fairly present the revenues and expenditures of government for the year and of the consolidated financial position of the Consolidated Fund as at the end of the year.

b. All funds were utilized with due attention to economy and efficiency and only for the purposes for which the funds were provided.

c. Management was in compliance with the Government of Uganda financial regulations.

d. To evaluate and obtain a sufficient understanding of the internal control structures of government, assess control risk and identify reportable conditions, including material internal control weaknesses.

e. All necessary supporting documents, records and accounts have been kept in respect of all activities, and are in agreement with the consolidated financial statements presented.

4.0. AUDIT PROCEDURES PERFORMED The following audit procedures were undertaken;

a. Revenue and Expenditure

 Performed analytical procedures to confirm the accuracy of consolidation of both revenue and expenditure.

 I reconciled the NTR reported by all the consolidated entities with what was transferred to the UCF.

 Reviewed investments to establish any dividends owed to the GoU 50

 Reviewed direct grants/project support to the MDAs to give assurance on the amount of external assistance reported and the actual amount received in GoU entities.

b. Public Debt

 Reviewed the new debts obtained in the period to ensure that the necessary approvals were obtained

 Reviewed all the payments for principal, commission fees and interest were in line with the loan agreements

 Reviewed disbursements to confirm that all debt disbursements were made as required by GoU.

c. Internal Control System

 I reviewed the consolidation process with reference to the PFMA, 2015.

 I reviewed the internal control system and its operations to establish whether sound controls were applied throughout the consolidation process including the involvement of the internal audit function.

d. Consolidated Financial Statements

 For a sample MDAs, I agreed the line balances into the consolidation schedules and followed through the consolidated line-by-line items; I further compared this with the audited financial statements for the MDAs as well as evaluating the overall financial statement presentation.

5.0. BUDGET PERFORMANCE During the year under review, government realised domestic revenue amounting to UGX.10,269,548,892,748 out of the projected amount of UGX.10,884,200,000,000, representing a 94.35% performance. I noted that Government also received UGX.525,460,480,190 from grants and UGX.40,158,729,399 from HIPC relief making total revenue of UGX.10,835,168,102,337.

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I further noted that although a total of UGX.14,734,144,214,554 was appropriated, a sum of UGX.12,155,244,904,408 was released to MDAs. This represents 82.50% of the approved budget as summarized in the table below;

Table showing Budget Performance by Classification Summary Approved estimates – Actual released – Performanc UGX UGX e Ministries 4,393,869,232,578 3,607,589,262,991 82.11% Agencies 7,674,533,743,582 6,121,729,144,921 79.77% Referral Hospitals 141,324,242,393 123,545,017,095 87.42% Embassies/Missions 103,116,156,541 103,030,318,828 99.92% Abroad District Councils 2,201,344,625,306 2,049,514,663,402 93.10% Urban/municipal Councils 219,956,214,154 149,836,497,171 68.12% 14,734,144,214,554 12,155,244,904,408 82.50%

6.0. FINDINGS 6.1. Categorization of findings The following system of profiling of the audit findings has been adopted to better prioritise the implementation of audit recommendations; No Category Description

1 High Has a significant / material impact, has a high likelihood of reoccurrence, and significance in the opinion of the Auditor General, it requires urgent remedial action. It is a matter of high risk or high stakeholder interest. 2 Moderate Has a moderate impact, has a likelihood of reoccurrence, and in the opinion significance of the Auditor General, it requires remedial action. It is a matter of medium risk or moderate stakeholder interest. 3 Low Has a low impact, has a remote likelihood of reoccurrence, and in the opinion significance of the Auditor General, may not require much attention, though its remediation may add value to the entity. It is a matter of low risk or low stakeholder interest.

Accordingly, the table below contains a categorized summary of the findings that follow in the subsequent paragraphs of the report;

Table showing categorized summary of the findings No Finding Significance 6.2 Operationalization of the Contingencies Fund High 6.3 Consolidation of Local Government Accounts High 6.4 Losses of Public Moneys and Stores Reported High 6.5 Un-authorized External Assistance - Project Support Moderate 6.6 Government Contingent Liabilities low 6.7 Government Outstanding Commitments/Payables High 6.8 Implementation of the audit recommendations contained in the audit High report on the government payroll 52

No Finding Significance 6.9 Decentralized Payroll System High 6.10 Mischarge of Expenditure by MDAs Moderate 6.11.a Advances to Staff Through Personal Bank Accounts High 6.11.b Unaccounted for Funds High

6.2. Operationalization of the Contingencies Fund Section 10(1)-(3) of the PFAA 2003 established a Contingencies fund into which funds were to be appropriated by Parliament to cater for expenditure that could not be postponed without detriment to public interest. Section 26 (1) of the PFMA, 2015 (as amended), also requires that there shall be established a Contingencies Fund which shall, every financial year, be replenished with an amount equivalent to 0.5% of the appropriated annual budget of Government of the previous financial year.

I noted however, that the contingencies fund was not operationalized during the period. Failure to operationalize the Contingencies Fund undermines the purpose for which it had been created. Management acknowledged the observation and explained that the Consolidated Fund was not operationalized due to lack of detailed provisions for its implementation as laid out under Article 157 of the Constitution which requires a detailed legislation rather than regulations. It further clarified that the PFMA 2015 has since been amended for better operation of the Contingencies Fund.

I have advised management, to ensure that the Fund is operationalized without further delay, in line with the requirements under the Law.

6.3. Consolidation of Local Government Accounts Section 52(1)(b) of the Public Finance Management Act, 2015, states that the Accountant General shall within three months after the end of each financial year prepare and submit to the Minister and the Auditor General, Consolidated annual Accounts for the Local Governments. I noted however, that in the year under review, the Accountant General did not submit, consolidated annual Accounts for the Local Governments for audit.

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The Accountant General explained that the nature of operations and accounting policies of Local Governments are such that Urban Local governments use accrual basis of accounting yet the Districts use the cash basis of accounting. Since the PFMA was enacted three months to close of the financial year, there was not enough time to develop templates, and guidelines to enable government to consolidate them on a line by line basis. Therefore for the purpose of FY 2014/2015 transfers to these entities from the central government were included in the Consolidated Financial statement of the Central Government. He further explained that templates and guidelines are being developed and will be used in the Preparation of the FY 2015/2016 Financial Statements.

I await this action.

6.4. Losses of Public Moneys and Stores Reported I observed that the total losses being reported by the various Ministries, Agencies, Referral Hospitals and Missions abroad, has been increasing annually in some of the entities. The total losses increased from UGX.1.3 billion in 2009 to UGX.4.89 billion in the current year under review, as per the table below;

Table showing reported losses for the period 2009-2014 Entity Total Total Total Losses Total Total Total Total Losses at Losses at at 30 June Losses at Losses at Losses at Losses at 30 June 30 June 2011 30 June 30 June 30 June 30 June 2009 2010 2012 2013 2014 2015 Ministries 831,753,249 1,271,874,095 1,271,874,095 2,635,532,992 2,635,532,992 2,635,532,992 2,635,532,992 Agencies 422,381,650 431,593,650 1,069,707,536 1,783,816,267 1,783,816,267 1,915,914,327 1,915,914,327 Referral 8,035,416 8,035,416 3,300,000 220,308,183 220,308,183 220,308,183 220,308,183 Hospitals Missions 42,238,091 45,586,316 0 118,627,824 118,627,824 122,627,824 122,627,824 Abroad TOTAL 1,304,408,406 1,757,089,477 2,344,881,631 4,758,285,266 4,758,285,266 4,894,383,326 4,894,383,326

The Treasury Accounting Instructions (TAI) provides that any loss, fraud, theft or irregularity affecting cash, revenue stamps or counterfoil forms must be reported immediately through the Head of Department of the officer-in-charge of the cash or forms to the Secretary to the Treasury. The TAI also provides that in cases of loss, fraud or theft, the police must be informed immediately, and if proceedings are subsequently taken, it must be ensured that an application is made to the court for an order for restitution of the money lost.

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However the following observations were noted;

 There appears to be no system in place by the Accountant General to manage and monitor the proper reporting and reconciliation of losses. I was not availed with records of the loss reports by the ministries, agencies and embassies where such losses were reported. There was also no evidence that steps have been taken to follow up on the losses.

 I also observed that there are no mechanisms for the recovery of the cash lost. The TAI provides for an opening up of an account in the names of an Accounting Officer for purposes of recovery of the funds. There was no evidence that such accounts were set up.

 The Accounting Officer is expected to identify the person suspected to have caused this loss and the recommended disciplinary action to be taken against the said individual. I noted that whereas the TAI details how the perpetrators of loss of government money and stores should be handled, there is no clear evidence that the perpetrators of such losses are being handled accordingly. This has resulted in the growth of losses to the government in both cash and stores.

In light of the above, the unchecked loss of Government cash and stores is a possible avenue for abuse of public funds which must be carefully managed to avoid possible fraud.

Management acknowledged the observation and explained that there is a deficiency in the way stores are managed across government and that there is need for serious reform. I have advised management to strengthen the existing mechanisms to safeguard government resources. In addition, long overdue losses should be written off in accordance with the provisions under the TAIs.

6.5. Un-authorized External Assistance - Project Support Section 43(1) of the PFMA, 2015 requires that all expenditure to be incurred by Government on projects which are externally financed, in a financial year shall be appropriated by Parliament, section 18(1) (g) of the PFM Act, 2015 further states that the Minister shall by the end of February and October of each financial year, make a report to parliament on donations made to a vote if any. 55

However, a review of the consolidated accounts for the year ending 30th June, 2015 reveals that several entities especially Public Universities did not disclose such projects. Government does not appear to have put in place a mechanism to monitor and report on direct project support to the specific Votes as per the requirements of the PFMA 2015 in order to monitor the total public resources available in the financial year.

Under the circumstances, there is a risk that such funds may be solicited on behalf of government without the involvement of the Minister responsible for Finance. This may further create risks ranging from double financing by both GoU and donors; abuse of funds by recipients; uninformed allocation of GoU funds and using GoU achievements to account for donor funds, and generally undermining the intensions of appropriation by Parliament.

Management acknowledged the observation and explained that previously there was no obligation to declare grants to the ministry but with the enactment of the PFMA, entities have started seeking authority for receiving/disclosing such grants and that with further sensitization entities will comply.

I have advised the Accounting Officer to develop a mechanism to monitor all MDAs and ensure that they adhere to the established procedure of obtaining grants from the development partners and reporting on them, in accordance with the provisions in the law.

6.6. Government Contingent Liabilities A contingent liability is a possible future cash outflow whose occurrence is dependent on an event which is not in the control by an organization. Including any amounts in contingent liabilities implies that management’s assessment shows a possibility of a cash outflow in future.

A trend analysis of accumulation of government contingent liabilities over the period of 3 years indicated an upward increment as indicated in the table and graph below;

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Table showing amounts included in the accounts for contingent liabilities Financial Year Amount (UGX) Increment (UGX) 2012/13 2,275,442,213,858 - 2013/14 4,784,569,306,022 2,509,127,092,164 2014/15 4,872,945,285,484 88,375,979,462 Graph showing increments of contingent liabilities over a 3-year period Contingent Liabilities (UGX) 6,000,000,000,000

5,000,000,000,000

4,000,000,000,000

3,000,000,000,000 Contingent Liabilities (UGX)

Amount (UGX) 2,000,000,000,000

1,000,000,000,000

0 2012/13 2013/14 2014/15

Further analysis of this liability indicated that majority of the amounts are as a result of the legal proceedings lodged against government. The analysis in the table below refers;

Table showing proportion of liabilities attributable to legal suits Financial Year Amount (UGX) Legal Proceedings (UGX) Percentage (%) 2012/13 2,275,442,213,858 541,568,503,100 24% 2013/14 4,784,569,306,022 4,385,151,257,436 93% 2014/15 4,872,945,285,484 4,311,582,460,047 89%

Although I pointed out this matter in my previous report, the contingent liabilities have continued to rise, which if left unchecked, may get to unsustainable levels. In the event that all these liabilities crystalize, Government will continue spending substantial amounts which is likely to adversely affect the implementation of other government programmes.

Management acknowledged the observation and explained that these constitute majorly guarantees (PPP guarantees that are recognized when contracts are signed)

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and Court cases likely to be lost by the Government. With decentralization of court awards it is likely to reduce the incentive of accumulation of contingent liabilities.

It was further explained that Section 39 of the PFMA, 2015 introduced a criteria and stringent conditions for Government to guarantee a loan, which contributes to contingent liabilities. This will check the further accumulation of contingent liabilities.

I await the outcome of these actions by government.

6.7. Government Outstanding Commitments/Payables According to the commitment control system procedures, an accounting Officer is supposed to commit Government only to the extent of Available funds. During the audit, I reviewed the trend of government outstanding commitments/domestic arrears for the past four (4) financial years since 2011/12 and noted the amounts have drastically been reduced by the end of 2014/15 as seen in the table and graph below, which is a positive development; Table summarising government commitments Financial Year Total Outstanding Commitments as at Year End - UGX 2011/12 497,380,733,527 2012/13 797,383,242,259 2013/14 1,059,708,336,030 2014/15 633,097,487,332

Graph illustrating trend in commitments

Total Outstanding Commitments as at Year End

1,200,000,000,000

1,000,000,000,000

800,000,000,000

600,000,000,000 Total Outstanding Commitments as at 400,000,000,000 Year End 200,000,000,000

0 2011/12 2012/13 2013/14 2014/15

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Management explained that strict observance of the commitment control system has yielded a decline and halted further accumulation of arrears. This is in addition to the introduction of prepaid meters for water and electricity. However, some arrears arising out of contributions to International Organizations and court wards which still remain a challenge.

I advised that government should continue reviewing the current policy measures with a view of enhancing their effectiveness so as to continue the decline with an aim of eventual elimination.

6.8. Implementation of the audit recommendations contained in the audit report on the government payroll In March 2015, I issued an audit report on the comprehensive audit of the government payroll. This was as a result of a request from the Hon. Minister for Finance to undertake a comprehensive audit of the government payroll. In that report, critical recommendations were made and aimed at further enhancing the management of the government payroll. However, to date, there appears to be no evidence to show that the recommendations there in, have been implemented. Most critical, was the validation exercise that was undertaken on government employees, which was envisaged, to act as a basis for starting up a clean payroll, upon completion of validation by the Ministry of Public Service for the genuine employees who had missed the exercise. The communication from the Ministry of Public Service to PS/ST, dated 23rd November, 2015, referenced COM 96/282/01 confirmed the fact that nothing has been implemented ever since the report was issued.

This implies that the government payroll continues to be exposed to a risk of existence of ghost employees which ultimately continues to lead to loss of government funds. The inability to make use of the validated government employees and to address the weaknesses identified on the Intergrated Personnel Payroll System (IPPS) also imply that the system cannot be relied upon for maintenance of a clean payroll.

Management explained that the Ministry of Public Service (MOPS) has not been cooperative in the implementation of the payroll reforms, and that this has slowed

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their progress. However, NITA-U has been engaged to help and work with MOPS to secure an integrated system that works with IFMS.

I have advised management to make concrete steps aimed at addressing the payroll issues and also ensure that the recommendations contained in the report are addressed.

6.9. Decentralized Payroll System I pointed out in my previous audit report the benefits the decentralized payroll system had brought to payroll management, especially in the areas of timely salary payment, exclusion of ghosts, prompt inclusion on the payroll of newly appointed staff and fully assigning payroll responsibility to Accounting Officers.

I however pointed out several weaknesses in the system that needed to be addressed by management. Specifically, I pointed out the need to implement a “Human-less” interface, which enables the movement of encrypted payment related data from the payroll system to the financial system. I noted that during the year under review, this matter had not yet been addressed.

Accordingly, in my separate review of the decentralised payroll payment system, it was established that some entities, have been able to fraudulently effect changes on the payrolls released from the IPPS before payment through the IFMS. Accordingly, a total of UGX.4,194,520,514 was paid out irregularly. This practice therefore, continues to lead to loss of public funds.

Management explained that under the Decentralised system, any changes to payment files after upload into the IFMS is a responsibility of the Accounting Officer and where these changes result into fraud, such cases should be forwarded to the Ministry for action. I have advised management to consider undertaking further review of the decentralized salary payment system, with an aim of further enhancing its effectiveness and addressing the weaknesses that have led to the fraudulent practices by some MDAs.

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6.10. Mischarge of Expenditure by MDAs – UGX.73,776,161,890 The Government Chart of Accounts defines the nature of expenditures for each item code. The intention is to facilitate better and consistent classification of financial transactions and also track budget performance per item. Audit noted that during the year under review, several entities continued the practice of having money charged on items which do not reflect the nature of the expenditure i.e. mischarged, to the tune of UGX.73,776,161,890. This despite the fact that it has been pointed out in my previous audit reports.

Mischarge of expenditure impacts on the credibility of the financial statements since the figures reported therein do not reflect true amounts expended on the respective items. It further impacts appropriateness of the future budgets since the reported actual figures are misleading.

Management explained that a number of controls have been instituted to minimize mischarges which include among others, enhancement of system controls to protect the wage and pension items which are now tied to their respective pay-groups. I have advised that there is need to further streamline the budgeting processes and to enforce strict adherence to the provisions regarding reallocation of funds, in order to have this practice contained.

Table showing mischarged expenditure by entity Entity Mischarged expenditure - UGX 1 Uganda Cancer Institute 54,829,686 2 Ministry of Local Government 12,086,792,676 3 Parliamentary Commission 5,920,736,510 4 Office of the Prime Minister 4,611,211,067 5 Ministry Education, Science, Technology and Sports 3,399,286,780 6 Directorate of Citizenship and Immigration Control 1,273,346,799 7 Ministry of Energy and Mineral Development 787,474,716 8 Public service Commission 689,678,544 9 Mulago National Referral Hospital 570,405,506 10 Ministry of Finance Planning and Economic development 515,586,527 11 Ministry of Internal Affairs 398,070,732 12 Ministry of Agriculture Animal Industry and Fisheries 379,633,600 13 Ministry of Lands, Housing and Urban Development 319,793,166 14 Local Government Finance Commission 256,125,970 15 Directorate of Public Prosecutions 235,645,707 16 Ministry of Health 231,429,274 17 Uganda Lands Commission 193,235,549

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Entity Mischarged expenditure - UGX 18 Ministry of Works and Transport 157,861,512 19 Uganda Police Force 148,058,104 20 Ministry of Information Technology 125,916,873 21 Butabika National Mental Referral Hospital 114,382,051 22 Directorate of Ethics and integrity 67,769,200 23 Uganda Prisons Service 66,000,000 24 Judicial Service Commission 34,227,104 25 National Information Technology Authority Uganda 64,137,745 26 National Agriculture Research Organisation 66,500,000 27 Uganda National Roads Authority 29,542,978,953 28 Electoral Commission 515,440,000 29 Uganda Industrial Research Inst 2,374,824,057 30 Uganda National Bureau of Standards 599,569,111 31 Uganda Bureau of Statistics 7,975,214,371 Total 73,776,161,890

6.11. Management of Advances a. Advances to Staff Through Personal Bank Accounts Sections 227, 228 and 229 of the Treasury Accounting Instructions, state that all payments should be made by the Accounting officer directly to the beneficiaries. Where this is not convenient an Imprest holder should be appointed by the Accounting Officer with the approval of the Accountant General.

It was however noted that during the year under review, various entities continued to advance large sums of money onto personal bank accounts. Accounting Officers sanctioned field activities for which facilitation was made by making advances to personal bank accounts for officers implementing the activities. This was contrary to the accounting regulations specified above.

Such a practice exposes government funds to a risk of loss since staff are more tempted to divert such funds to personal gain, given that the entities do not have any control over such funds deposited on personal bank accounts.

Management explained that this is still a challenge and where identified the culpable accounting officers are tasked to explain. However this comes much later after transactions have happened. The Ministry intends to leverage on the mobile money platforms to implement e-cash solutions which will greatly reduce the risks

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associated with cash and will also provide clear audit trail. The concept is still under internal discussion.

I await this action.

Table showing entities with advances through personal bank accounts No. Entity Amount advanced (UGX) 1 MOLG 10,460,426,784 2 Directorate of Public Prosecution 403,708,657 3 Mulago NRH 1,100,300,050 4 Makerere University 776,009,229 5 UBOS 10,389,500,329 23,129,945,049

b. Unaccounted for Funds UGX.52,515,160,697 A sum of UGX.52,515,160,697, remained unaccounted for at the end of the year. This comprised of funds advanced to staff to carry out various activities in various Ministries, Departments and Agencies. This is contrary to the Public Finance and Accountability Regulations which require all such advances to be accounted for within 60 days on completion of the related activity. Delayed accountability for funds may lead to falsification of accountability documents.

I advised the Accounting Officers to adhere to Regulations by ensuring that before another amount is advanced, a previous one ought to be fully accounted for.

Table showing entities with advances unaccounted for Entity OUTSTANDING AMOUNT - UGX Ministry of Local Government 3,827,011,454 Uganda Lands Commission 9,996,125 Makerere University Business School 19,423,976 Busitema University 65,066,577 Muni University 19,579,075 Makerere University 291,772,085 Kampala Capital City Authority 20,226,786 Mbarara University of Science and Technology 52,281,500 Uganda National Roads Authority 47,738,040,619 Ministry of Energy and Mineral Development 188,239,500 National Environment Management Authority (NEMA) 264,082,000 63

Uganda Industrial Research Institute 19,441,000 Total 52,515,160,697

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ACCOUNTABILITY SECTOR

7.0 TREASURY OPERATIONS a) Non collection of Government Dividends According to the Summary Statement of Financial Performance of Public Corporations and State Enterprises for the financial year ended 30th June 2015; Limited made a dividend declaration of UGX.2,554,043,092 implying that GoU’s share was UGX.1,256,589,201.26. However, this amount was not received by GoU and was not recognized in the receivables balance for both the TOP and Consolidated Financial statements.

The failure to remit dividends deprives the government of revenue on investments which is a violation of its rights as a shareholder in the company. In the circumstances, it is highly likely that GoU is losing revenues through un-collected dividends and that the receivables balance is under stated by UGX.1,256,589,201.26 and any other uncollected receivables.

Management acknowledged the observation and appreciated the need for enhanced monitoring to compliment the efforts of PMU. It was further explained that the Accountant General has accordingly established mechanisms for timely remittance of Dividends once declared and that communication has already been sent to Housing Finance to confirm and remit any dividends declared.

I have advised the Accounting Officer to expedite the mechanism of ensuring that Government dividends once declared are collected and properly accounted for. In addition, all those companies with outstanding dividends should immediately be contacted for recovery. b) Payments in Respect of Mandamus During the period under review, I noted that UGX.114,037,786,253 was paid out from Treasury Operations to various beneficiaries in respect of court awards and compensations. However the following matters were noted;

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(i) Accounting treatment of Mandamus payments

A review of the consolidated financial statements indicated that only payments made in the year were captured in the accounts. However, I noted that these court orders have been enforced on government over a period of time, and were not recognized as payables at the time, yet there had been evidence that government had a future obligation to settle. Under the circumstances, the amount of outstanding payables in this regard may be much more than what has been disclosed as there is no clear system to record and manage such payments.

Management acknowledged the observation and explained that there is need to establish a procedure to record these cases, as disclosure could have implications to Government.

I have advised the Accounting Officer to expedite this action to enable a proper system of recording and managing all mandamus payments.

(ii) Payments categorized as Mandamus without evidence I observed that payments totalling to UGX.53,381,086,654 made by the ministry as mandamus were not supported by a writ of mandamus served on the PS/ST. A review of the documentation availed indicated that the claims upon which the payments were made, were supported by other documents other than writ of mandamus. Accordingly, these payments could have been paid from the Ministry of Justice and Constitutional Affairs where they were budgeted for as per their mandate, since they do not constitute a direct charge to the Consolidated Fund.

In his response, the PS/ST explained that he had obtained a legal opinion from the Hon. Attorney General indicating that it was lawful for the Secretary to Treasury to make such payments from Treasury Operations.

I have again advised government to ensure that in order to avoid distortions within the established payment frameworks, there is need to regularise this matter accordingly.

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(iii) Unsustainable Payment of Mandamus

I also noted that payments in respect of mandamus increased from UGX.88 billion in the previous year to UGX.114 billion currently. This increment of about 30% may not be sustainable without negatively impacting on other government programmes. For instance, the annual payments are more than the budget estimates of majority of government entities.

Management acknowledged the observation and explained that the Ministry is aware of the unsustainability of mandamus payments and is making efforts aimed at having this matter contained, through;  Increasing the budget of MoJCA particularly facilitation of State Attorneys. In FY 2015/16, a provision of Ushs.10bn has been provided aimed at improving representation in courts of law.  In the Budget Call Circular for FY 2016/17 dated 9th September 2015, all Court Awards & Compensation payments are to be decentralized to ensure that all Accounting Officers are fully accountable for their Actions.

I await the outcome of these efforts by government.

(iv) Absence of Reconciliation of Amounts paid by MOFPED and MOJCA

The Ministry of Justice and Constitutional Affairs (MOJCA) has the responsibility to represent government in cases before any courts of law and other legal bodies. The Ministry is also responsible for the payment of claimants who have succeeded against government in courts of law and where issues of compensation arise. During the current audit, a review of the schedule of liabilities maintained by MOJCA and the one availed to audit, revealed that the balances maintained by the two ministries are at variance as indicated in the table below;

Table showing Inconsistent balances between MOJCA and MoFPED File Name File No. Judgment Amount - Balance MOJCA - Balance at UGX UGX MOFPED - UGX

A.K P.M Lutaaya MA 294/011 489,400,000 293,481,780 394,541,096 Bakeine Amos 1022/01 21,294,000,000 12,805,814,800 10,555,263,988

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Bwambale Yovan MA 187/2013 39,150,673,250 33,692,766,920 29,857,596,640 & 913 others Capt. Samuel CS/547/07 534,828,204 566,728,204 1,500,000,000 Nsubuga Finishing Touches CS 144/2010 634,179,000 1,150,757,653 1,061,145,403 Intex Construction MA 632/2011 19,603,119,194 45,643,512,713 35,430,170,271 Ltd Kasozi Lawrence CS 669/2002 1,664,096,608 2,752,926,085 2,554,733,174 & 4 0thers Margaret Kasujja CS 106/2002 9,222,000,000 10,951,162,500 10,096,740,360 Okello Remizo CS 31/2014 7,566,350,000 7,566,350,000 8,096,350,000 Vambeco CS 492/2012 1,445,473,262 2,887,332,841 2,800,000,000 Enterprises Ltd TOTAL 101,604,119,518 118,310,833,496 102,346,540,932

I have however, not obtained a clear explanation as to why the two balances are not reconciling considering that they arise from the same awards of court. Further still, there was no evidence of reconciliation of the liability schedule from the two institutions.

In the absence of reconciled amounts, there is a risk of over payment of claimants by either institution. For example, some claims are shown as outstanding at MOJCA yet they are fully paid at MoFPED. There was also an instance of overpayment at MOJCA not shown at MoFPED. The table below illustrates the above scenarios;

Table Showing amounts pending in the MOJCA schedule of liabilities which have been extinguished through full payment by MOFPED File Name File No. Judgement Total Balance - UGX Amount - UGX payments to date - UGX

Kakyomya Farm and MA 0017/2012 2,133,944,150 1,069,114,430 1,064,829,720 Tea Estate Rwanyarare James 95/01 2,959,561,000 3,264,954,125 (1,748,898,375)

In their response, management explained that MoFPED regularly holds meetings with MOJCA and updates on mandamus payments made. Management further explained

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that MoFPED has already raised the issue of discrepancy in numbers to the Solicitor General and is still waiting for a response.

I have advised the accounting officer to ensure that the system of managing payments between the two institutions is streamlined.

8.0 MINISTRY OF FINANCE, PLANNING AND ECONOMIC DEVELOPMENT a) Budgeted for Expenditure for PU The Ministry of Finance remitted UGX.1,060,100,000 to the Privatization Unit account to cater for its operational activities. It was noted that PU operations were expected to be financed through divestiture proceeds as provided for in sections 23(4) and 26 of the PERD Act CAP. This implies that PU activities have always been financed from the divestiture proceeds and not from the UCF. However, the Ministry did not budget for this expenditure during the year under review. There is a risk that funds were diverted from other planned activities to finance the PU operations.

Management explained that divesture activities have ceased thus no source of funding was expected for PU operations. PU is in the process of winding up and has been downsized.

I await the outcome of the process of winding up PU. b) Payment of avoidable interest on VAT It was noted that as of November, 2014, the outstanding VAT obligations for BIDCO stood at UGX.744,420,170, included in this figure was late payment interest charge of UGX.168,747,557. Accordingly, a sum of UGX.700,000,000 was paid to URA towards settlement of the tax arrears.

It was further observed that this interest was not budgeted for and appropriated by Parliament as required.

Management explained that delays in paying the tax obligation was as a result of inadequate funds and that payment of this interest did not affect other planned activities. 69

I urged the Accounting Officer to ensure timely payment of tax obligations to avoid unnecessary penalties. c) Delays in implementation of agreed terms The Government of Uganda entered into an agreement with BIDCO for the development of the Oil Palm Industry in Uganda on the 4th April, 2003. Under Article 5(7) of the agreement, Government agreed to pay all VAT obligations on behalf of BIDCO for oil products for period of eleven (11) years from the date of agreement. After the eleven (11) years, BIDCO would start paying VAT directly on its own and from the 12th year start refunding to Government the VAT plus 5% interest for the first eleven (11) years in (8) equal installments over a period of (8) years. This condition was subject to fulfillment of article 4(3) of the agreement which requires Government to have handed fully to BIDCO all the agreed 26,500 hectares of land.

However, the above provisions have not been achieved due to delays in implementation of the agreed terms. For instance, Government obligations to pay VAT on behalf of BIDCO for eleven (11) years was supposed to end on 4th April, 2014. From 5th April, 2015, BIDCO was supposed to start meeting its own VAT obligations and by 4th April, 2015, the first refund instalment would be due to Government. Government has continued to pay all BIDCO VAT obligations and BIDCO is exercising their right under article 5(7) to delay the refunds to Government.

Management explained that the delay was due to unsuitable land offers from prospective sellers; otherwise Government is committed to acquiring the balance of 10,000 hectares of land as per the agreement.

I await the results of the Government commitment. d) Payment of annual subscriptions to International Organizations

(i) Outstanding Capital Subscription to PTA Bank - USD.2,135,779 The Government of Uganda subscribes to the PTA bank and as such was required to contribute a total of USD.8,160,120 in five instalments of USD.1,632,024 starting 1st January, 2009 to 1st January, 2013. Although Uganda was expected to have

70 completed its contributions by January, 2013, only a sum of UDS.930,000 had been paid as of 2013. In return Ugandan economy is reported to have benefited through credit facilities extended by the bank to various sectors to the tune of USD.191.1 million distributed to various sectors.

 During the year, a total of USD.3,187,444 was paid. The outstanding balance at the year-end stood at USD.2,135,779 inclusive of interest of USD.1,309,359.  Included in that payment was USD 1,173,460 in respect of interest charges on late payments of subscription that could have been avoided.

Accumulation of interest poses the risk of increased interest charges. It may affect the bank’s ability to grant credit facilities to Ugandan businesses.

Management explained that delays in capitalizing PTA Bank were a result of insufficient funding. The outstanding balance is anticipated to be settled in the financial year 2016/17.

I advised the Accounting Officer to ensure timely payment of subscriptions to avoid accumulation of interest.

(ii) Payment of the fourth instalment under ADB Subscription In August, 2010, the Governing Council of the African Development Bank (AfDB) under the sixth general capital increase of the bank allocated Uganda shares worth USD.19,759,798 payable over a 12 years period in annual instalments of USD.1,646,649.

It was noted that the payment of Uganda’s 4th instalment of UDS.1,293,299 which became due on 16th March, 2015 had not been made. As a result, the callable shares related to the missed instalment had been suspended in line with the Board of Governors resolution on the sixth general capital increase of the bank meeting. Delays in settlement of agreed annual subscriptions poses a risk of withdrawal of Uganda’s shareholding in the bank which may negatively affect our economy and international relations with member states.

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I advised the Accounting Officer to ensure timely payment of agreed annual subscription instalments to avoid possible suspension.

(iii) Payment of avoidable interest on arrears of EADB - USD.1,173,460 A review of the capital subscription statement for the EADB dated 2nd May, 2014 revealed that Government of Uganda has 1,800 shares @USD22,667 per share amounting to US$.40,800,600 and 20% was payable in five instalments worth US$.8,160,120 (i.e. US$.1,632,024 per year).

It was noted that there was a delay in settlement of due subscriptions especially for the period 2009-2012 leading to accumulation of interest of USD.1,173,460 which was eventually paid together with other arrears. Payment of the interest on such obligations is regarded as nugatory expenditure.

Management explained that the delay in subscribing to EADB Bank was as a result of insufficient funding.

I urged the Accounting Officer to ensure timely payment of annual subscriptions as they fall due to avoid accumulation of avoidable interest.

(iv) Forex loss due to delays in settlement of Subscriptions to International Organization Uganda has obligations to make on agreed upon annual subscription to a number of international organisations. There have been delays in settlement of such international obligations with arrears accumulating to the tune of UGX.63,093,097,768 at the year-end.

As a result of the delays in settlement of these obligations, forex losses were incurred while undertaking payments during the year. For instance, USD.3,187,444 and USD.1,000,000 respectively were paid to PTA and EADB respectively in July, 2014 at a rate of UGX.2,670 per US Dollar, the equivalent of UGX.11,180,475,480. However, higher exchange rates were used to make subsequent payments due to forex fluctuations. For instance, a sum of USD.1,600,000 was paid to the EADB at a higher rate of UGX.2,900 per US Dollar in January, 2015, equivalent to UGX.4,640,101,150. 72

From the above analysis it is noted that the forex loss amounted to UGX.367,000,000 in the case of EADB alone. There is a risk that all subsequent forex payments were made at a loss caused by delays to make payments as they fall due.

I urged the Accounting Officer to ensure timely settlement of agreed upon annual subscriptions to avoid forex losses occasioned by unfavourable fluctuations due to delayed payments.

(v) Inadequate budget provision for Subscriptions to International Organization According to the ministry approved estimates for the FY 2014/15, a provision of UGX.35.8bn was made for contributions to autonomous institutions, an amount lower than that of the prior year provision of UGX.52.86bn. Despite the reduction in the budget provision for the year under review, only UGX.31.2bn was released and utilized in meeting both arrears and current obligations.

As a result of inadequate budgeting, the arrears for contributions to international organizations remained at UGX.63,093,097,768 for the last two years. There is a risk that the arrears may increase beyond manageable levels with additional accrued interest.

Management explained that the Ministry has always been in arrears for subscription for International Organizations due to limited MTEF allocation. I advised the Accounting Officer to liaise with the PS/ST to ensure adequate budgets for payments to international organizations to cater for both outstanding arrears as well as current bills that fall due.

(vi) Recognition of tax arrears inclusive of interest for Quality Chemical Industries The ministry recognised in its financial statements outstanding obligation to pay taxes worth UGX.7,060,137,353 on behalf of Quality Chemical Industries Limited as tax incentive. The taxes were in respect of corporation tax (tax on profits) for the years 2014 and six months provision tax for 2015.

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It was noted that this figure includes interest on late payment of UGX.604,620,309. Recognition of tax liability inclusive of interest implies the ministry has committed to pay the interest component as well. On payment, the interest component becomes nugatory expenditure since it would have been avoided had timely payments been made.

The Accounting Officer explained that Government undertook to pay for Quality Chemicals corporation tax and other incentives. Any charges resulting from delayed payment are automatically the responsibility of Government.

I advised the Accounting Officer to re-consider the financial implications of accumulation and recognition of tax interest among the arrears; otherwise timely payments should be made.

(vii) Un-registered gaming and pooling companies The Lottery Board under the MoFPED mandated to issue licenses for the players in the Casinos, Pool and betting business. In the process URA collects these fees on behalf of the Lottery Board.

A comparison of the MoFPED list of licensed pooling companies as published in the New Vision Tuesday, 30th June 2015 with those registered with URA for the period 2014/15; revealed that a number of companies were registered and are subsequently remitting taxes to URA. However, 45 companies transacted business during the year under review without a licence. As a result, the expected NTR from license fees were not fully realized.

Management explained that Lotteries and Gaming Act, 2015, was recently passed and is expected to establish a fully-fledged organization to monitor and regulate the gaming industry.

I await the outcome of the Accounting Officer’s commitment.

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8.1 PRESIDENTIAL INITIATIVE ON BANANA INDUSTRIAL DEVELOPMENT (PIBID) (i) The Project Legal Status/Attachment to Line Ministry

The Presidential Initiative on Banana Industrial Development (PIBID) and its Board and Management Committee (BMC) was established by Executive Instrument in 2005 and its term renewed for another (5) years in 2011 which also expired in October, 2015. Following the expiry of the executive instrument the Minister of Finance wrote to the Attorney General in his communication referenced EDP141/278/01 of 16th March, 2015 seeking opinion on the legal status of PIBID and its Board and Management Committee. Accordingly, the Attorney General in his reply referenced FPC/33/62/01 of 10th September, 2015 advised as follows:  Under issue (10) that in his opinion, the legality of the Executive Instruments establishing PIBID and its Board and Management Committee are open to challenge.  In issue (15) he proposed that PIBID and its Board and Management Committee are established as a Public Agricultural Research Institute under the National Agricultural Research Act, 2005. He argued that an institute established under this Act is in many respects similar in nature and form to PIBID and its Board and Management Committee.  Issue (16) further explains that the primary function of a public agricultural research institute is similar to the primary function of PIBID and its Board and Management Committee.

Following the above facts and legal advice it’s clear that the legal status of PIBID and its Board and Management Committee remains questionable. It was therefore noted that by the time of writing this report, no evidence was available from PIBID management to show that the issue of the legal status had been or is being resolved. There is a risk that the project is currently operating without any authority and mandate in place.

I advised the Accounting Officer to liaise with relevant authorities to ensure that the legal status of PIBID is properly established as per the Attorney General’s opinion.

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(ii) Lack of an Approved Strategic Plan A strategic plan is an important tool in steering any organization towards achieving its vision, mission and its overall mandate. It is from this plan that annual activities of an organization are usually derived. It was noted that the PIBID project has been operating without an approved strategic plan. The strategic plan is supposed to guide the budgeting process by creating integrated link with the annual work plans which feed into the budget to ensure effective service delivery and achievement of set project objectives.

Management explained that PIBID operations have been guided by the project document 2005-2015 and the next (5) year strategy has been formulated awaiting approval.

I advised the Accounting Officer to prepare a strategic plan and have it approved by the board.

(iii) Lack of an Approved Business Plan A business plan is an essential document which describes the roadmap for business success and generally projects 3-5 years ahead and outlines the route a project intends to take to grow returns. It covers objectives, strategies, sales, marketing and financial forecasts. It also helps clarify the business idea, justify the heavy investment in research, identify potential problems, set out project goals and measure progress among others.

It was noted that the PIBID project has been operating without an approved business plan despite the banana research developing into a fully-fledged production level and expected to go into commercialization of the product. There is a risk that the project transition into full commercial production may not be justified.

Management explained that the pilot project phase did not envisage commercial operations necessitating a business plan, though PIBID has operated basing on annual work plans and budgets.

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I advised the Accounting Officer to develop a project business plan justifying the need for its commercialization that should be in line with the overall strategic objectives.

(iv) Disclosure and Accounting for Domestic arrears According to available communication dated 7th July, 2015, from the ED (PIBID) addressed to the PS/ST, it was indicated that the project had accumulated arrears of UGX.8,399,202,215 arising from release of only Vote on account for the year under review and decline by Parliament to appropriate the full budget. See details in the table below;

Item Particulars Amounts (UGX) Service Providers & Allowances Service Providers 653,230,851 Activity Funds 57,598,600 Per-Diems & Allowances 263,516,998 Sub-Total 974,346,449 Contractual Works/Certificates Water Works Pending Certificate 361,661,674 BEC Pending Certificate 50,015,925 Additional Works Pending Certificates 2,020,000,000 Arc Pending Certificate 12,383,815 Sub-Total 2,444,061,414 Dott Services (Variation on Prices) 3,565,794,352 Estimated Tax Liabilities on Imports 1,415,000,000 Grand Total 8,399,202,215

However, there was no evidence that these arrears had been verified, approved and included on the database maintained by the Accountant General. Besides, these arrears were not disclosed in the financial statements. Furthermore, the justification for accumulations of prices variations up to the tune of UGX.3,565,794,352 was not provided. The tax liability was a mere estimate without supporting documentation. The supporting schedules for the other arrears were also not provided. I could not confirm that the above arrears have been properly accounted for and disclosed.

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I advised the Accounting Officer to ensure that the arrears are approved, and the Accountant General disclosed this in the financial statements.

(v) Un-Resolved Status of the PIBID Patents Section 119(3) of the Constitution of the Republic of Uganda provides guidance that; the Attorney General shall be the principal legal adviser of Government. Sub-section 4(a) further guides that the Attorney General shall give legal advice and legal services to the Government on any subject.

The PIBID project has been running on five patents which have been researched and developed through Government funding since the financial year 2004/2005. However, it was noted that patent rights were registered as intellectual property under the names of an individual. It appears these patents were registered without guidance from the Attorney General and therefore it is difficult to know whether government’s stake in the patents was taken care of following the huge investment of over 50bn in the project through MFPOED. It was further noted that only (3) out of the five patents were registered in Uganda while the (2) were register with the African Regional Intellectual Property Organisation (ARIPO). See details in table below;

S/N Patent Entitle Patent Application No. Date 1 Extraction of low Amylose Matooke (Banana) UG/P/2004/00012 27/12/2004 starch from a triploid acuminate East Africa highland varieties and its application for industrial use. 2 Process for preparation of raw matooke AP/P/2005/003308 25/04/2005 (Banana) flour. 3 Processing for extracting banana wool and AP/P/2008/004542 03/05/2007 sponge 4 Preparation of pre-cooked instant banana UG/P/04/00010 22/07/2010 flour 5 Extrusion cooking process of matooke/non- UG/P/2004/00011 27/12,2010 cooking banana flour into extrudents which serve as raw materials for a highly soluble extruded banana flour.

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There is a risk that government interests in the patent may be forfeited or lost when the project is commercialised unless a follow up and legal advice is sought on this matter.

Accounting Officer explained that the State Minister for Finance had sought the legal opinion of the Attorney General, and no position regarding the Government interests in the patents had been communicated by the time of writing this report.

I advised the Accounting Officer make a follow-up with the Attorney General and resolve the status of the patents.

(vi) Status of the Land Located in Bushenyi The banana project owns land in Bushenyi together with other movable properties. However, it was noted that the land title is still in the names of the project without the legal mandate to continue owning this land of behalf on government unless the expired legal status is resolved following the legal opinion of the Attorney General to transfer the project under Agriculture sector.

There is a risk that Government may lose this land especially when the project is fully commercialized through a Private Sector arrangement under a PPP. Government has heavily invested in land, constructions, production equipment, transport facilities and banana plantations as a source of raw materials through this arrangement.

I advised the Accounting Officer to properly secure all Government land and other moveable assets under this project prior to its privatization.

(vii) Unfunded project planned activities - UGX.6,682,145,000 During the financial year 2014/2015, the PIBID project had a budget provision of UGX.9bn out of which only UGX.2.7bn was released as vote on account and as a result, activities worth UGX.6,682,145,000 were not under taken. The affected activities include: purchase and installation of machinery and equipment (UGX.2.5bn), Construction materials (UGX.1.457bn.), marketing of the tooke products (UGX.777,665,000) and procurement of transport equipment (UGX.780,000000). The practice of not funding the respective project work plan

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activities undermines the achievement of the project mandate and objectives relating to its establishment.

Management explained that efforts are underway to obtain additional funding to fully implement project activities. I await the outcome.

(viii) Advances to Personal Accounts It was observed that a sum of UGX.192,664,939 was paid to personal accounts for purposes of payment for services rendered to PIBID contrary to TAIs part 1 (227- 229). The payments included fuel, water bills, police allowances, staff meals, PIBID launch and allowance to participants. I could not confirm whether the funds were eventually received by the service providers for the services rendered to PIBID and how they were eventually accounted for.

Management explained that the payments were made adhoc due to the emergency nature during the time cash transactions were suspended.

I advised the Accounting Officer to have the amounts accounted for and ensure that all service providers are paid directly through their bank accounts in compliance with regulations.

8.2 FINANCIAL MANAGEMENT AND ACCOUNTABILITY PROGRAMME (FINMAPII) (a) Compliance with Programme Financing Agreement and GoU financial Regulations

The Programme complied with the covenants of the Programme agreement and Government Financial Regulations except for the following matters;

(i) Expenditure re-allocation During the review of the financial statements, I observed that the following expenditure re-allocations were made by project management without prior approval from the development partners. Expenditure re-allocations render the budgetary control ineffective. Examples included the following:

Date Voucher Description Amount Classified to 80

number UGX 29/5/15 2641 Facilitation for FINMAP asset 11,914,400 Workshops and verification exercise seminars 18/6/15 2766 Furniture for IFMS regional 48,679,940 ,, centers 27/5/15 2609 Facilitation for FINMAP asset 8,656,813 ,, verification Lira/Kitgum 27/5/15 2613 Facilitation for FINMAP asset 4,147,860 ,, verification Kampala 14/4/2015 1904 Airtime for MSU,IPPS, Data 7,084,400 Inland Travel Center, PFM etc. 15/12/14 636 Airtime for MSU,IPPS, Data 6,620,800 ,, Center, PFM etc.

It was noted that the funds in question were spent but charged to the wrong expenditure account codes.

Management promised that all future transactions will be charged to the appropriate budget lines and ensure that all adjustments are appropriately approved.

I await the Accounting Officer’s action on the matter.

8.3 BUDGET MONITORING AND ACCOUNTABILITY UNIT

(a) Compliance with the Financing Agreement and Government of Uganda Provisions

A review was carried out on the project compliance with the Grant agreement provisions and GOU financial regulations and it was noted that the project complied in all material respects with the provisions in the agreement and applied GOU regulations.

General Standard of Accounting and Internal Control

A review of the project financial management system was carried out and it was noted that management had instituted adequate controls to manage project resources except for the following matters;

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(i) Excess expenditure

A comparison was made between budgeted amounts and the actual expenditures incurred during the year to confirm compliance with budget limits. However, it was noted that two expenditure items were overspent by a sum of UGX.133,983,801 as per details in the table below.

Particulars Budget (UGX) Actual (UGX) Variance % (UGX) Office 13,600,000 17,154,581 3,554,581 26% Equipment Workshops & 81,200,000 211,629,220 130,429,220 160.63% Seminars Total 133,983,801

Excess expenditure results into diversions hence affecting performance of other budget lines.

Management explained that the excess expenditure on workshops resulted into an activity involving training the Finance and Gender Committees of Parliament. The original budget had been planned for only PAC members. Regarding Office Equipment, the budget line was overspent due to the need to procure a high end/resolution photographic camera and an LCD projector (originally not budgeted for) which were necessary for the performance of the newly recruited Communication Officer.

I advised management to always stick to the planned procurements. Should there be need to adjust the budget, authority should be sought from the development partners.

(b) Non Implementation of Research Topics

According to Annex 1 of the Project Document 2014-2015, 4 research topics were proposed to be implemented during the period. These were;

 Evaluate the effectiveness of IFMS and OBT. 82

 Evaluate the effectiveness/performance of development related grants to local governments.

 Assessment of the effectiveness of the Road Fund and

 Evaluation of effectiveness of collection and use of non-tax revenue by government parastatals.

However, it was noted that only one research topic ie. evaluating the effectiveness of IFMS and OBT was implemented and the rest were not. Non implementation of planned activities on a timely basis may result into unnecessary project extensions.

Management explained that the study on assessment of effectiveness of the Road Fund will be conducted in January, 2016, while the other proposal awaits the steering committee for approval.

I advised management to ensure implementation of the research topics as planned.

8.4 COMPETITIVENESS AND ENTERPRISE DEVELOPMENT PROJECT (CEDP) COMPONENT 2-5 (a) Compliance with the Financing Agreement and Government of Uganda Provisions

A review was carried out on the project compliance with the Grant agreement provisions and GOU financial regulations and it was noted that the project complied in all material respects.

Compliance with the Financing Agreement and GoU Financial Regulations

It was observed that management had complied in all material aspects with the financing agreement and GoU financial regulations except for the following matters;

(i) Delays in the recruitment of key project staff

According to the financing agreement, the project implementing entity shall, not later than three (3) months after the effective date (6th June 2014) appoint, in accordance with the provisions of section III of schedule 2 to the agreement, a civil 83 engineer, a monitoring and evaluation specialist, a financial management specialist, an environmental and social management specialist, a matching grants specialist and a tourism and hotel development specialist. However, it was noted that the environmental and social management specialist and tourism and hotel development specialist had not been recruited by the time of audit in September 2015.

There is a risk that the project might not be implemented effectively within the time agreed as per financing agreement.

Management explained that the recruitment of tourism and hotel development specialist was unsuccessful because it ended with no eligible candidate being identified. The procurement of the environment and social safeguards specialist is in advanced stages.

I advised the project management to ensure that the key staff are recruited to avoid delay in implementation of project activities.

(ii) Discrepancies between PAYE as Per Payroll and PAYE as Per URA return I noted discrepancies disclosed as PAYE as per payroll and PAYE submitted as per URA return forms in the months of December 2014 and May 2015 as indicated below;

Months Amount as Amount paid to Amount as Discrepancies per CEDP Uganda Revenue per URA UGX payroll Authority as per Return UGX payment voucher UGX and bank statement UGX December 2014 20,487,162 20,487,162 18,302,381 2,184,781 May 2015 45,214,104 45,214,104 44,022,104 1,192,000

The project is exposed to fines and penalties for submitting inconsistent returns to URA.

Management explained that there were challenges with URA system which could not accommodate PAYE deductions on arrears. However, URA has guided that submission can be done exclusive of the TIN for the arrears. 84

I advised the project management to ensure that a URA PAYE return with total amount deducted is filed with the tax authority accordingly.

8.5 MICROFINANCE SUPPORT CENTRE (MSC) (a) Non-compliance with the company’s loan write-off policy and impairment losses As per section 5.8 of the Operations Manual, a loan shall be written off the books of the institution after six months of being identified as a loss i.e. after the loan is past 270 days. Write off will be done at the end of the financial year with the approval of the Board of Directors. I however noted that loans worth Shs.7.5 billion above 270 days in delinquency had not been written off as at 30 June 2014. Included was accrued interest of Shs.977 million. Management did not comply with the company policy.

In addition, I noted that the company impairment losses increased from Shs.8 billion as at 30 June 2013 to Shs.10 billion as at 30 June 2014. High credit losses give an indication of increased credit risk in the company’s portfolio. Management explained that the process of identifying the loans for write off in FY 2014/15 has started and thereafter the report will be presented to board for approval.

I advised management to always comply with the company’s Operations Manual. Any loans written off should be consistently monitored and recoverability enforced. Management should also perform a comprehensive review of its loan portfolio to ensure all credit risks have been identified and accounted for. The company’s credit granting policies should be revisited to ensure the credit risk is minimized.

(b) Weaknesses in processing of loans The credit policy manual requires loans ranging between zero to Shs.100 Million to be processed within twenty eight days, twenty nine days (29) for those within Shs.100 Million to Shs.400 Million and thirty nine days (39) for those above Shs.400 Million. I noted lead time delays of up to 492 days between the date of application and the date of contract on seven (7) of the loan applications. Prolonged lead time increases the credit risk hence affecting the operations of the entity. 85

Management explained that most of the clients take too long to submit all the necessary requirements for loans. However they have taken bold steps to improve lead time to the days stipulated in the operations manual.

I urged management to ensure compliance with the credit procedures.

(c) Lack of review of income on fixed deposit investments From my re-computation of interest income on fixed deposits, a number of variances resulting from the amount credited onto the company’s bank accounts and what should have been credited as per the fixed deposit certificates issued at the start of the fixed deposit were noted. A review of the communication from a local bank of indicated that certificate of deposit TD510100000618 issued on 17th January, 2014 for 3 months was erroneously paid less by Shs.7,235,693. Similarly, another certificate of deposit TD510100000579 issued on 21st October, 2013 for 3 months was wrongly quoted at 14.25% per annum yet the correct rate should have been 13% per annum.

Failure to closely monitor and check whether the banks are correctly computing the interest income results into loss of funds by the company.

Management explained that it has put in place a system for monitoring short term investments. I urged management to always ensure that the interest income from fixed deposits is checked for accuracy.

9.0 DEPARTMENT OF ETHICS AND INTEGRITY 9.1 Mischarged Expenditure - UGX.67,769,200 The appropriates funds in accordance with the needs of the country and this appropriation is implemented through the budget in which funds are tagged to particular activities and outputs using account codes and MTEF codes. A review of the Directorate’s expenditure revealed that the entity charged wrong expenditure codes to a tune of UGX.67,769,200. The practice is contrary to the intentions of the appropriating authority and leads to incorrect financial reporting.

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The Accounting Officer attributed this to inadequate budget on some codes and yet work had to proceed. Management also attributed the problem to the de-linkage between IFMS and output budgeting.

I advised the Accounting Officer to undertake realistic budgeting and whenever necessary request for reallocations or virements, as provided for under the TAI. With regard to the de-linkage between IFMS and output budgeting, I advised the Accounting Officer to bring the matter to the attention of the Accountant General.

9.2 Vacant Positions

A review of the Directorate’s approved structure/establishment indicated that whereas 60 posts were approved, only 46 had been filled by the year-end leaving 14 vacant. The most critical positions affected include that of a Commissioner Legal Services, Assistant Commissioner Ethics, Senior Ethics Officer and Senior Policy Analyst among others. Lack of such essential staff may negatively impact on the entity's service delivery.

The Accounting Officer explained that the delay in recruitments was a result of non- existence of the Public Service Commission at the time but a request has now been submitted to the commission for action.

I advised the Accounting Officer to continue liaising with the responsible authorities and ensure that the key vacant posts are filled.

9.3 Outstanding Un-Approved Policies/Manuals

It was noted that a number of Directorate policies/manuals have remained in draft form due to delays in having the approvals. I appreciate management efforts in development of the policies for the efficient functioning of the entity business. However, it was noted that these documents cannot be put to use without approval. These include; the training Manual on Anti-corruption, Leadership Code and the Principles of Crime Act and the Bill. The status of these policies, manuals and bills are indicated below; Policy/Manual Status Training manual on Anti- Due to the need for wide consultations and pre-test

87 corruption of the Training manual on Anti-corruption, it was not possible to have the manual approved for printing. The comments from consultations and pre- test have been incorporated and await approval by TMT-DEI. Reviewed leadership Code At its meeting held on 1st July 2015, Cabinet under Minute 237 (2015) approved the Leadership Code (Amendment) Bill, 2015 subject to some amendments. Currently the first Parliamentary Counsel is incorporating the comments of Cabinet. It will soon be published in the Gazette and tabled before Parliament for enactment. Developed Principles of the The legal taskforce developed Legal Drafting Proceeds of Crime Act and the Principles for the proposed law which seeks to Bill provide for both conviction-based and non- conviction based recovery of proceeds of crime (civil asset recovery). Recommendations were made to have the proposed provisions of the law incorporated in the Anti-Money Laundering Bill and Anti-Corruption (Amendment) Bill which were already before Parliament. Unfortunately, the Committee of Parliament on Legal and Parliamentary Affairs only took up the proposals on conviction-based asset recovery and these are limited to offences committed under the Anti-Money Laundering Act, 2013. Further, the Sectorial Committee on Legal and parliamentary Affairs on the Anti-Corruption (Amendment) Bill, 2013, has recommended, inter alia, that the Minister for Ethics & Integrity in consultation with other relevant stakeholders should come up with a comprehensive law to deal with confiscation of assets acquired through crimes and not just limited to corruption. Currently the taskforce is conducting country benchmark on Statute books, processes, successes, best practices and practical challenges and pitfalls in the implementation of Mauritius’ Asset Recovery Act, 2011 and Ireland’s Proceeds of Crime Act, 88

2002.

The Accounting Officer explained that they are in the process of consultation with responsible entities and have the policies/manuals approved. I await the Accounting Officer’s action on the matter.

9.4 Failure to With-hold Tax for Service Provider

It was noted that withholding tax amounting to UGX.4,662,524 due to URA was not withheld from seven (7) service providers and as such, funds were not remitted. Failure to withhold tax exposes the entity to a risk of penalties and interest charges by URA which may lead to nugatory expenditure. Management explained that the funds were not with-held because of specific supplier set up issues within the IFMS. Some of the suppliers were erroneously not activated for with-holding tax and as a result it was difficult to with-hold the tax. These cases were, however, reported to Accountant General who promised to resolve the issue on a case by case basis.

I await the Accounting Officer’s action on the matter.

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WORKS AND TRANSPORT SECTOR

10.0 MINISTRY OF WORKS AND TRANSPORT a) Procurement anomalies

(i) Procurement planning and initiation - Delays in the procurement process

Delays at various stages of the procurement process were noted during the review of documentation and PPDA reports at the Ministry as indicated below:

 For the construction of a toilet block, remodelling and renovation of Mbarara Regional Mechanical Workshop building worth UGX.464,951,474, whereas approval to procure was made on 12th August 2013, the Accounting Officer confirmed funds on 9th September 2013 which was close to a month.

 For the construction of stone pitched masonry drains along the estates road in Nali – Kyankwanzi worth UGX.247,065,000, the availability of funds was confirmed on 13th December 2012, but an advertisement was run on 4th April 2013 which was a delay for a period of 4 months. The bids were opened on 10th May 2013 and evaluation took place on 25th June 2013 (One and half months later). Whereas the Contracts Committee approved the decision on the contract on 23rd August 2013, the notice of the best evaluated bidder was not displayed until 16th September 2013 and notification of award issued on the 18th of November 2013. The procurement lasted a whole year.

 The procurement of IT equipment for Local Government Ducar Data Centre (Project No. P092837 IDA Credit No. IDA46790) had a 7 month delay period between Contracts Committee approval to procure on 30th April 2014 and the publishing of the bid notice in the New Vision on 20th November 2014. At the time of the audit by PPDA, the procurement was at the evaluation stage.

 For the procurement of printed materials (1000 copies of Ministerial Policy Statement) worth UGX 97,822,000, whereas the contract was cleared by the 90

Solicitor General on 6th June 2014, the Ministry did not inform the best evaluated bidder (BEB) until 4th July 2014 (One month of delay).

 For the procurement for commercial private management of MV Kalangala worth UGX 2,800,433,727, whereas approval to procure was done on 31st July 2013, the Accounting Officer did not confirm availability of funds until 20th September 2013, almost two months later.

Unnecessary delays in the procurement process indicate inefficiencies in the procurement process and affect implementation of the procurement plan and service delivery.

Management acknowledged the anomaly indicating they would put in place internal control systems to address the delays by holding monthly procurement meetings to track the progress of procurements. Management also explained that the PDU developed a worksheet to track all the procurements and ensure these are processed in the required timeframes.

I advised the Accounting Officer to continue improving on the processes and ensure that the delays are minimised.

(ii) Lack of contract management plans It was noted that eleven (11) procurements valued at UGX.16,715,461,998 lacked Contract Implementation Plans on their respective procurement action files as per details below:

Contract Value No. Subject of Procurement (UGX)

Construction of a Toilet block, remodelling and renovation of Mbarara 1 464,951,474 Regional Mechanical Workshop building

Procurement of services for the provision of media and public relations 2 97,173,000 services for the promotion of non – motorised transport

Provision of non-consultancy services for the rapporteur during the 3 41,836,900 2013 JTSR Conference

4 Supply of four (4) number I drums 200 Litre capacity motorized bitumen 77,348,304 91

sprayer

Procurement of Printed materials (1000 copies of Ministerial Policy 5 97,822,000 Statement)

6 Supply of Spare parts of MV Kalangala 25,551,720

7 Supply of specialized Equipment for survey section 145,590,000

Procurement of construction materials for the application of second 8 bitumen surfacing of Sika-Mudaali – Bwanda Convent road (2.5km) in 229,663,500 Villa Maria.

9 Rehabilitation of selected community access roads 8,074,000,000

Supply and delivery of Bitumen 80/100 and Primer mc 30, road lime and 10 stone dust and crushed stone aggregates for additional estate roads in 331,931,400 Kyankwanzi. Construction of fourteen (14) small bridges in the North and North 11 7,129,593,700 Eastern Uganda – Lot 2 Total 16,715,461,998

This gap could lead to poor contract management and failure to obtain Value for Money.

Management explained that at the time of audit the listed procurement files lacked contract management plans but indicated that for the subsequent procurements, users/contract managers will forward contract management plans to the Procurement and Disposal Unit as required by the PPDA Law.

I await the outcome of the Accounting Officer’s commitment on this matter.

(iii) Procurement Executed without a contract I noted that management used the services of a local company to print Ministry materials at a cost of UGX.48,000,000 without following procurement guidelines. There was no procurement process followed and the payment was based on the suppliers pro-forma invoice.

I explained to management that engaging firms without allowing competition could lead to compliance in competitive pricing.

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In response, management explained that the Ministry received instructions that the company was already identified to produce a special magazine and therefore, there was no time to look for other competitive alternatives.

I advised the Accounting Officer to always ensure adherence to the procurement guidelines even in cases of emergencies like this. b) Mischarge of Expenditure Parliament appropriates funds in accordance with the needs of the country and this appropriation is implemented through the budget in which funds are tagged to particular activities and outputs using account codes. I noted that expenditure totalling to UGX.157,861,512 was inappropriately charged on budget lines to fund activities that were not planned for without authority. I explained to management that mischarge of expenditure translates into misrepresentation of expenditure balances in the financial statements.

In response, management explained that challenges exist in matching GOU budgeting principles and Public Finance Management Act, 2015.

I advised the Accounting Officer to streamline the budget process to ensure sufficient funds are allocated to significant account areas and should there be need for reallocation, authority for the virement should be sought before any reallocations are made. c) Audit inspection of MT. Elgon labour – Based Training Centre (MELTC), Mbale (i) Budget Performance – Funding from Central Government During the year, MELTC budgeted to receive UGX.4,200,000,000 from GOU through the MOWT however, analysis of receipts and expenditure for the financial year under review showed that UGX.3,128,994,158 was received leaving a funding gap of UGX.1,071,005,842 (25.5%). The funding gap affects implementation of planned activities in the long run which affects service delivery.

In response; management explained that MELTC received inadequate funds and this affected the training programs. 93

I advised the Accounting Officer to always liaise with MOFPED and have all the budgeted funds released to the centre to effect the planned activities.

(ii) Unbudgeted Revenue

I noted that Management did not disclose the other sources of revenue to the Centre totalling to UGX.8,320,156,603 from other revenue sources other than GOU as listed in the schedule below. Out of this, a total of UGX 4,287,445,770 comprising of balance brought forward, other income and fees which should have been budgeted for.

No. Source Amount 1. Balance c/f from FY 2013/14 3,828,166,384 2. Other Income 327,229,386 3. Fees Income 132,050,000 Sub-total (Should have been budgeted for) 4,287,445,770 4. DRRU East Funds (Force Account) 431,270,400 5. Low Cost Sealing funding from Cross-Roads 1,870,000,000 6. Lake Bisina Ferry Landing sites 472,446,275 Sub-total (Funds for designated activities) 2,773,716,675 Grand total 7,061,162,445

I explained to management that failure to budget and disclose all revenue sources to the centre, understates operational income which does not reflect a fair state of affairs of the Centre. I noted that the volume of activities carried out is not commensurate with the only GOU disclosed source of funding. Utilization of un- budgeted for revenue could lead to haphazard spending on non – priority activities.

In response, management acknowledged the shortcoming and explained that MELTC only budgets for the receipts expected from GOU during any given financial year which is reflected in the Ministerial Policy Statement of any given financial year. The rest of the funds are for specific project activities.

I advised the Accounting Officer to improve on the budgeting process and ensure procedures and responsibilities applicable to the Centre are applied in consultations 94 with Accountant General for appropriate guidelines. Besides, management should always disclose the other sources of funds clearly showing the related activities.

(iii) Unauthorized Excess Expenditure

Analysis of expenditure and budget for the year showed that UGX.2,185,440,580 was spent over and above the approved amount without authority as summarised below;

Codes Activities Approved Actual Over spent budget Expenditure Amount (UGX) (UGX) (UGX) 211103 Allowances 62,000,000 110,836,400 48,832,400 221001 Advertising and 60,000,000 246,764,640 186,764,640 public relations 221005 Hire of venue - 2,775,000 2,775,000 (chairs, projector and others) 221008 Computer 26,000,000 31,761,633 5,761,633 supplies and IT services 221009 Welfare and 15,000,000 22,836,700 7,836,700 entertainment 221014 Bank charges & 1,023,000 3,735,300 1,735,300 other bank related costs 226002 Licenses - 2,160,155 2,160,155 227004 Fuel, lubricants 116,000,000 192,221,733 76,221,738 and oils 228001 Maintenance – 40,000,000 59,700,347 19,700,347 civil 228002 Maintenance – 120,000,000 213,242,265 93,242,265 vehicles 228003 Maintenance. 10,000,000 29,316,736 19,316,736 machinery, equipment & furniture 228004 Maintenance - 375,000 375,000

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other 231003 Roads and 1,994,000,000 3,624,254,258 1,630,254,258 bridges 281504 Monitoring, 216,000,000 303,864,408 87,864,408 supervision and appraisal 231006 Furniture and 2,600,000 2,600,000 fixtures Total over spent 2,185,440,580

Failure to disclose all the sources of income at the budgeting stage could have accelerated excess spending during the year. There is a risk that some funds could have been spent on non-priority activities.

Management acknowledged the anomaly and explained that the excess was caused by the activities that transcend financial years, yet the reporting system compares the annual expenditure against the respective annual budget earlier prepared. Besides, there were expenses such as the funds earmarked for DRRU-East, Lake Bisina and Cross-Roads that were not included in the annual budget. Management explained that all revenues will in the next financial years be budgeted for and included in the work plan before expenditure is effected. I advised the Accounting Officer to spend within the limits of the approved estimates. Where expenditure needs beyond the approved budget are observed quarterly for virements, reallocations or supplementary budgets should be sought.

(iv) Unspent Balances

At the close of the financial year, the centre had unspent balances totalling to UGX.4,187,196,289. I explained to management that a big portion of unspent balances on the account imply that the centre management did not have priorities under which funds could be utilized which translates into underperformance. I noted that the funds should have been disclosed for appropriation.

In response, management explained that this was caused by UGX3,367,986,442 that was held on the Stanbic Bank Collection account as the funds were earmarked to replace worn out equipment and plant and MELTC, yet management does not spend 96 these funds at source; and UGX.819,209,847 mainly consisted of funds earmarked for Lake Bisina Ferry landing sites and DRRU. MELTC will be required to return all the unspent operational funds when the Rural Transport Infrastructure (RTI)/U-growth project ends on 30th June 2016.

I advised the Accounting Officer to plan adequately and ensure all the funds are utilized for effective service delivery.

(v) Unpaid compensation to UTC- Elgon

On the 3rd of April 2014, the MOWT on behalf of MELTC signed a Memorandum of Understanding with the Ministry of Education and Sports on behalf of Uganda Technical College (UTC) - Elgon for grant of possession of the Orion building and the enclosed area of about 1.835 acres that comprised of the newly renovated old building (Orion Block), the new wash rooms, dining, and kitchen, a computer laboratory used by district Engineers, a double storeyed hostel block for senior trainees with recreational facilities, laundry room and the gravity water scheme that supplies MELTC with water.

I noted that the compensation price agreed was UGX.3,307,000,000 payable over two financial years of 2013/2014 and 2014/2015 at a 50% split. However; during the financial year 2013/2014, UGX.1,153,500,000 was released by the Ministry to UTC - Elgon as the 50% first split. By the close of the financial year under review; UGX.1,153,500,000 (34.8%) only had been released to the college and UGX.2,153,500,000 (65%) remained outstanding.

I explained to management that failure to compensate the college in time violated the agreed terms as specified in the memorandum of understanding. There is a possibility that the Centre could face legal action for not honouring its obligations.

In response, the Accounting Officer explained that the matter was brought to the attention of the Ministry and action is awaited.

97 d) Funding Gaps at Regional Mechanical Workshops - UGX.5,141,152,540 During the review of the operations of the regional mechanical workshops of Mbarara, and ; I noted that the operations were hampered because of underfunding as analysed below;

Mechanical Workshop Approved Amount received Funding Gap (UGX) budget (UGX) Mbarara Regional 8,890,000,000 6,234,401,016 (70.1%) 2,655,598,984 (29.9%) Mechanical Workshop Bugembe Regional 7,347,632,048 4,862,078,492 (66.1%) 2,485,553,556 (33.9%). Mechanical Workshop Total 5,141,152,540

As a result; some long overdue road equipment repairs were not carried out at the workshops as listed below;

Mbarara Mechanical Workshop S/N Road equipment Registration Number Local Government Date brought in 1. LG 0016-053 Motor Grader Kiruhura 14/12/2014 2. LG 1543-1543W Faw Dump Truck DRRU – West 20/02/2015 3. UG 1545W Dump Truck DRRU – West 24/02/2014 4. UG 1576W Motor Grader DRRU – West 18/11/2014 5. UG 1480W Vibro Roller Pool Workshop 24/02/2015 6. UG 1557 W Dump Truck Pool Workshop 24/11/2014 7. UG 0843 W Dozer Cat 05H Pool Workshop Dec. 2014 8. LG 0080-50 Wheel Loader Kyenjojo 02/11/2013 9. LG 0146-31 Vibro Roller Mbarara District 04/03/2013 10. UG 0848 W Water Bowser Pool Workshop 07/03/2013 11. LG 0019-31 Motor Grader Mbarara District 24/05/2015

Bugembe Mechanical Workshop S/N Road equipment Registration Number Local Date brought in Government 1. FIAT KOBELCO M/Grader LG 0013 - 54 Sironko 22/09/2014 2. KTSU M/Grader GL 0003 - 37 Nakasongola 10/10/2013 3. KTSU M/Grader LG 0014 - 16 Kamuli 17/06/2011

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4. FIAT HITACHI M/Grader LG 0084 - 24 Kumi 07/03/2014 6. CAT 953C UR 2299 Kiboga 27/03/2008 7. KTSU M/Grader LG 0028 - 19 Kibaale 27/01/2014 8. KTSU M/Grader LG 0063 - 12 Jinja 22/09/2014

I noted that road equipment due for repair stays in the garages for long and hence its purpose of road works cannot be effectively carried out. In response; management explained that this was because of the funding gaps that have been experienced.

I advised the Accounting Officer to follow the matter with the MOFPED and ensure adequate funding is provided. e) Gulu Regional Mechanical Workshop Audit inspection of Gulu Regional Mechanical Workshop revealed the following anomalies;

(i) Lack of Service bay and Working Yard I noted that the Regional workshop was originally designed to handle all districts’ road equipment in Northern Uganda that were previously few at the time however; the workshop currently handles on average thirty one (31) districts. During the financial year 2013/2014, the Ministry established the Northern Uganda Force Account which rehabilitates selected district roads. I noted that this Force Account has road equipment whose repairs are also handled by the Regional Workshop. Inspection of the workshop revealed that the dilapidated working yard and service bay. I further noted that most of the repairs are carried out in an open dusty compound. See the pictorial description below;

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The dilapidated Working Yard The dilapidated service bay

Open and dusty Compound currently being used as Open and dusty compound currently being used as Workshop for repairs of Motor vehicles and Workshop for repairs of Motor vehicles and Road equipment. Road equipment.

I explained to management that lack of an organized service bay and a modern work shop could lead to failure to repair modern road equipment that has just been acquired by the districts.

In response; the Accounting Officer explained that Government is planning to rehabilitate the workshops and project profiles have been forwarded to MOFPED.

I await the outcome of the Accounting Officer’s commitment.

(ii) Old Grounded Crane -UG 0298W and Self Loader The Work shop’s core activity is to repair and maintain district road equipment in the Northern region of Uganda. Currently the workshop repairs and maintains road equipment of thirty (31) districts. Repairs and maintenance of road equipment is done at the Regional Workshop working yard and not at the respective districts that require the services. During the review, I noted the following anomalies;

 The work shop had only one self-loader which is used to carry the faulty road equipment from districts to the working yard. At the time of inspection (October 2015) the seemingly old self-loader was grounded implying that no equipment could be brought for repairs at the Zonal office, further affecting service delivery.

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Old and grounded Self Loader

 I further noted that the work shop had only one old crane that is used to lift the faulty road equipment engines when repairs are being carried out at the workshop. This crane was also grounded. Interview with management revealed that ever since the crane got grounded, lifting and carrying of Road equipment engines has become difficult. See the pictorial description of the state of the crane below;

The old and grounded Crane at Gulu workshop.

I noted that lack of sound and essential equipment in a stable working condition hinders repair works of the regional workshop. In response; management explained that at the time of audit the crane and self-loader were under repair.

I advised the Accounting Officer to plan and procure new special purpose equipment to ease repairs at the workshop.

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(iii) Renovated Board room without furniture I noted that the newly renovated office blocks were not operational due to lack of chairs and tables while others had very old chairs and tables. See the pictorial description of the board room without essential furniture to make it operational.

Board room without furniture

A review of the work plan for the year revealed that management did not plan to procure furniture for the rehabilitated offices. I explained to management that without essential furniture for the office; the operations of the mechanical workshop could be hampered. Failure to plan adequately could have accelerated the challenges affecting the operations of the workshop.

Management explained that the process of procuring furniture is on-going and the contracts committee decision has already been taken.

I await the outcome of the Accounting Officer’s action.

(iv) Failure to implement planned activities on Force Account

The Ministry started implementation of the Northern Region Force Account operations in the month of December 2014. The basis of the Force Account is that the District Local Governments hand over some of the identified and agreed on Local Government Roads to the Regional Force Account so that they are maintained to the motorable condition and then the Regional Force Account hands them back to the Local Governments.

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During the FYR 2013/2014, the Ministry approved Force Account work plans with the 3rd quarter work plan having an approved budget totalling to UGX.1,507,197,000 for the two identified and agreed on roads as indicated below;

S/No Road Name Length (Km) Approved Cost Estimates 1 Cwero – Omel - Minja 42.1 1,090,893,644.2 2 Minakulu – Okwir - Koroba 10.5 416,303,355.8 Total cost 1,507,197,000

I noted that the approved work plan was not implemented in the financial year 2013/2014 and consequently, the activity was rolled over to the financial year 2014/2015, however; the Ministry did not release the funds for the two roads. I explained to management that accepting to take over roads from the District Local Governments and eventually not maintaining them would further affect the inadequate state of the roads.

In response, management explained that the approved work plan was not implemented because there were no funds.

I advised the Accounting Officer to plan adequately and ensure effective implementation of maintenance of the roads. Meanwhile, the Accounting Officers should engage MoFPED for adequate funding in order to improve service delivery.

8.1 EAST AFRICA TRADE AND TRANSPORT FACILITATION PROJECT (EATTFP)

(a) Compliance With The Financing Agreement And Government Of Uganda Provisions

Project Management complied in all material respects with the provisions in the agreement and GoU regulations except in the following matter;

(i) Outstanding VAT Obligations The project had an outstanding obligation in un-cleared VAT of UGX.3,171,023,449 as at the end of the financial year under review. I noted that there was a delay in

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clearing VAT on paid certificates. I explained to Management that accumulation of VAT arrears could cause interruptions in the construction works with the contractors. Besides, there is a possibility that the amount may become unmanageable.

I advised the Accounting Officer to ensure the outstanding VAT is cleared.

(ii) Unreleased budgeted funds (IDA and GOU) Analysis of budget performance for the year showed that the Project expected funding from IDA and GOU totalling to UGX.30,405,740,000 (IDA- UGX.21,500,000,000 and GOU-UGX.8,905,740,000 respectively). However, UGX.26,102,702,295 (IDA- UGX.17,202,504,020 and GOU-UGX.8,895,653,224) was received translating into an overall performance of 86% performance for the year. UGX.4,307,582,756 (14%) of the total budget was not released to the project. Non-release of all budgeted funds affects smooth implementation of the planned activities.

In response, management explained that the shortfall in funding was majorly from the slow disbursement from IDA as a result of delayed completion of Mukono Railway ICD and construction works for Katuna OSBP. In regard to Katuna OSBP, progress was affected by lack of funding by the European Union (EU) where the project was later split into two separate contracts due to insufficient balances on the IDA Credit. The two contracts include; building works contract financed by IDA and GOU and road, parking and swamp reclamation works contract funded by the EU.

I advised the Accounting Officer to improve on supervision and monitoring so as to have the works completed in the scheduled time lines.

(b) General Standard of Accounting And Internal Control

A review of the project financial management system was carried out and it was observed that management had instituted adequate controls to manage project resources.

(i) Project Implementation

Inspection of One Stop Border Posts (OSBP) 104

I inspected the OSBPs at Busia, Malaba, Mirama Hills, Katuna, Mutukula, and the in land Container Depot - Mukono in the month of October 2015 to establish the progress of construction works and listed below were some of the findings;

Busia OSBP The construction of Busia OSBP was undertaken at a contract sum of UGX.15,898,641,294 for a period of 12 months that commenced on 29/08/2013 and was expected to be completed by 28/8/2014. The project completion date was further revised to 30th September 2015. During inspection; I noted the following issues;

 Delayed Completion of Additional Works Inspection of the construction works indicated that the contractor completed work for the construction of the staff quarters, the administration block and the structures were handed over to URA on the 12th September 2015. However, I noted that additional works currently funded by Trade Mark East Africa (TMEA) at a cost of US$.0.8m were behind schedule. This activity had been omitted in the original contract and this includes installation of fire-fighting equipment, relocation of the National Fibre Optic Hub and extension of the parking yard. At the time of inspection (October 2015), work was estimated to be above 85% completion.

Delays in implementation of project activities could lead to extra administrative costs.

In response, the Accounting Officer acknowledged the delay on the additional works mainly the parking yard and also attributed the slow progress to heavy rains that occurred in the project area in the recent months, making it unfavourable for major works to be executed especially earthworks. The situation has also been compounded by the rocky conditions in some parts of the project area causing frequent breakdown of contractor`s equipment. Management had stepped up its supervision. The remaining works would be completed in time.

I await the outcome of management’s commitment.

 Lack of funding for construction of Access Road - UGX. 4.2bn I noted that there was a delay to construct the access road to Busia OSPB which has now been taken over by GOU who will undertake the funding. At the time of reporting (December 2015), the Ministry was in the process of procuring a 105 contractor. The delay to construct an exit road has caused congestion of trucks and trailers at the border thereby interrupting operations of the Boarder post. Below is a pictorial description of the progress of works:

On-going works at the park yard, in the picture Un operational concrete batching plant is the non-operational concrete batching machine

On-going works, extension of the park yard that had been halted because of delayed shifting of the The un constructed access road at Busia OSBP police Uni-ports.

The inside area of the administration block and One item under the additional works, customs offices already in use installation of fire fighting equipment

In the picture is the borehole that is part of Fibre optic cable to be relocated after additional works that had been omitted construction of the yard.

There is uncertainty as to whether the road will be constructed within the time frame. At the time of reporting, there was no commitment by GOU towards resolving the issue. I explained to management that the continued delay in constructing the road will continue to interrupt operations of the Border post.

In response, management explained that the Ministry wrote to the Authority in charge of Roads in December 2013 to prioritise the construction of exit roads at 106

Malaba and Busia OSBPs but this was not done due to lack of funding and consequently, the Ministry of works was advised to implement. MOWT with support from World Bank and Trade Mark - East Africa who are financing Malaba and Busia OSBPs respectively have since been following up on the issue of funding for Malaba/Busia exit roads with MOFPED until May 2015 when MOFPED advised the Ministry to raise the required funding from its MTEF. With guidance from the project Financiers and the Solicitor General, the Ministry re-started the procurement process for the contractor of Malaba and Busia exit roads. Evaluation process has been completed and the draft contract agreement has been submitted to Solicitor General for clearance. It is envisaged that contract signing will be by end of December 2015 while civil works are hoped to commence in early January 2016.

I await the outcome of the Accounting Officer’s plan of action.

Malaba OSBP The construction of Malaba OSBP was undertaken at a contract sum of UGX.15,707,641,294 for a period of 12 months that commenced on 29/08/2013 and expected to be completed by 28/8/2014. The Project Completion date was revised to 30th September 2015, and hand-over is expected in February 2016. The construction of an exit road had not been embarked on as noted below:

 Delayed Construction of exit road At the time of reporting (December), the procurement process had started and was at evaluation stage. I noted that the delayed construction of the exit roads has affected the movement of trucks and trailers at the border as the exit gate is as well used for incoming trucks which cause a lot of congestion and delay of trucks to clear at the Boarder point. Below is a pictorial description of the constructed Malaba border post:

Inspection Photographs at Malaba One Stop Completed and handed over customs structures of Border Post Malaba OSBP

Completed renovation of the former customs offices

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I explained to management that inadequate planning could lead to failure to achieve the project intended objectives.

I advised management to expedite the procurement process so that construction work can be started.

Inspection of Internal container Depot (ICD) - Mukono The construction of the ICD at Mukono was undertaken by an international construction company for a contract sum of US$.8,688,112.11 for a period of 18 calendar months including 6 months of the defects liability period. I noted that the works were completed and the site handed over in July 2015. However; during the review, I noted the following issues;

 Non-payment of UGX.490m to Mukono District Council Following a land dispute with Mukono District Council, the project management agreed to compensate UGX.490m as a lump sum payment to the Council. To date, Management has not yet honoured its commitment. I explained to management that delayed payment of compensation funds could attract interest and a possibility of litigation could not be ruled out.

In response, management explained that the long standing dispute between the Ministry and Mukono District affected the progress of the ICD project and an understanding had been reached between the two parties. However in December 2014, the Ministry sought legal advice from the Solicitor General on the pending compensation of UGX.490m to Mukono District and the Solicitor General advised that there was no justification for the compensation since the District could not prove that it owned the structures. Therefore the Ministry could not proceed with this expenditure. Fortunately, works on the ICD works were completed and the facility was handed over in July 2015 to URC and RVR for operations.

I await the outcome of the Accounting Officer’s guided opinion on the matter.

 Poor workmanship on installation of pavers I noted that the paving works were not properly done as the pavers looked to be of low quality with rough finishing and gaps were identified in between. I explained to management that the poor installation of pavers may lead to high maintenance costs.

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Management explained that the contract is still under Defects Liability Period (DLP) during which the contractor will address this shortcoming. The operator company has been advised to adhere to the ICD operational requirements.

I advised the Accounting Officer to enforce supervision for enhanced benefits.

 Poor Handles for all Emergency Doors It was noted that all the handles for the emergency doors were broken as they were made of plastic and not steel as provided for in the initial designs. Other defects included the lower point in the compound as evidenced by the stagnant rain water in the park yard. This problem could be attributed to inadequately casted levels constructed before the construction of rails. Below is a pictorial description of the status of the completed project works (ICD Mukono):

Completed ware house after renovation. The completed administration block already in use by URA/RVR

The completed weigh bridge with dent on extreme left by a truck which was larger than the provided area for The Mechanical servicing wing exit. It was explained it is to be fixed.

In the picture is stagnant water due to Poorly constructed pavers with gaps in between casting problems that may need to be attended to urgently

I advised the Accounting Officer to correct the above defects early enough so that assets do not deteriorate quickly and or create unnecessary repair costs.

In response, Management explained that the above issues are included in the snag list (defects list) that the contractor is supposed to address during the DLP and has 109

been reminded of his obligation to correct all defects as provided for in the contract. Management will ensure that all defects are corrected before the expiry of the DLP.

I advised management to ensure the contactor puts right all the defects prior to the expiry of the defects liability period.

Inspection of Mutukula OSBP The construction of Mutukula OSBP was undertaken at contracted sum of UGX.18,793,900,206 and commenced on the 5th September 2013. The completion date was set for 5th September 2014, which was later extended to 30th September 2015. Work was completed and handed over to URA on the 25th August 2015. However, inspection of the border post showed the following issues;

 Delayed demolition of the Police Station Structures The Police Station that is so close to the verification shed has not been demolished as required. One of the conditions for demolition was relocation and re-construction of another Police Station which management has not yet implemented. Delayed demolition of the Police Station has hindered the completion of construction part of the verification shed, wet cargo and the loading area at the dry cargo. This hinders the operations of the border post.

In response, Management explained that the works for the new police post are on- going and will be completed at the end of December 2015. The community police is expected to relocate to its new office block in the first week of January 2016 to enable the contractor work on this area and complete the project.

I await the outcome of the Accounting Officer’s commitment.

 Delayed demolition of old URA building I noted that the old URA building has not been demolished and this has hindered completion of construction of the road to the exit gate and connection of the road to the scanner room, along gate number 1. I explained to management that this continues to affect the operations of the border post. Below is a pictorial description of the Mutukula Border post:

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Completed Administration Block at OSBP Mutukula

Completed staff quarters, there was no Verification Office provision for paving or grading the compound in the bills of quantities

Incomplete concrete work in this area due to un Incomplete work on wet cargo house due to demolished police quarters un demolished police station.

Further review showed that there was no provision for paving or grading of the staff quarters compound in the bills of quantities and at the time of inspection, grass had not been planted. I explained to management that mud and/or dust could make the environment unhealthy.

Management explained that the demolition of the old URA building could not be done unless the new facilities have been completed and staff relocated. This has been achieved and URA staff are expected to relocate to the new offices by end of December 2015. This will pave way for demolition of the old structure and completion of works around this area. Regarding the issue of staff quarters compound, the Ministry has already submitted a proposal to the financier (TMEA) which is being considered.

I await the outcome of the Accounting Officer’s commitment.

Construction of OSBP at Mirama hills The Construction of OSBP at Mirama Hills was undertaken at a contract sum of US$.7,817,703.32. The contract commencement date was 4th July 2013 and the 111 revised completion date was 19th September 2014. The completion date was further revised to 30th September 2015 and the hand over expected on the 2nd July 2015. The on-going works at the time of inspection were construction of the bridge connecting to Uganda OSBP to Rwanda. Construction was progressing well and expected completion date is 30th December 2015. Interview with the supervising consultant showed that they were ahead of time and hoped to complete by 30th November 2015. Below is the pictorial description of the completed works at the border post:

The inside part of the customs area. The Completed administration block

Behind view of the administration block Un demolished structures bordering the fence, pending demolition when road works begin.

Construction of bridge works at the gate Generator joining Rwandan border

In noted that the un-demolished structures bordering the fence of the border post could pause security threats to the border Post.

In response management explained that the construction of the bridge connecting Uganda to Rwanda is under a separate contract supervised by UNRA. Similarly, the un-demolished structures near the entrance gate and fence are being handled by UNRA under the on-going Ntungamo-Mirama Hills road upgrading project. The bridgeworks have been completed while progress on the Ntungamo-Mirama Hills 112 road is about 45%. Management will continue to follow up the matter to ensure close supervision and timely completion of the construction works.

I await the outcome of management’s plan of action.

Delayed Construction of Katuna OSBP and swamp reclamation works  Construction of the OSBP The construction of Katuna OSBP is undertaken at a contract sum of UGX.8,951,277,750 and Swamp reclamation for access road works estimated at UGX.12,000,000,000. The commencement date for the construction was 13th June 2014 and the estimated completion date was set for 13th June 2015. This was later revised to 30th December 2015. Inspection of construction works showed the following;

The MOWT re-started the procurement process for the contractor of the OSBP, access road and swamp reclamation in May 2013 after receiving a No- Objection from the Government of Rwanda to proceed with the development of the OSBP. After completion of the procurement process, the World Bank gave a no Objection based on the following conditions; a) GOU to confirm funding of US$.3.9m of which 15% should be made available during the FYR 2013/14. b) EU’s funding for access roads and swamp reclamation works is confirmed and; c) NEMA and World Bank clear the Environmental Impact Assessment review report.

The EU Confirmed funding on the 12th May 2014 and all the conditions set by World Bank were met including NEMA’s clearance that was received on the 30th April 2014. I noted that GOU was required to finance the building works for Katuna OSBP since IDA credit funding had been exhausted. The contract for construction of OSBP was finally awarded at a sum of UGX.8,951,277,750 on the 5th June 2014. The EU delayed to operationalize her support and the contractor could not commence on the major building works due to delayed reclamation of the wetland where the buildings were to be constructed.

I noted that finally EU pulled out from the funding of the swamp reclamation and construction of access roads and in resolution of this funding gap, a variation of the

113 existing contract was made to include some limited land reclamation covering areas proposed for construction of the buildings so that the building contract could progress. The variation was approved with a value of UGX.2,228,578,942 that was signed on the 25th May 2015. It is anticipated that all the works would be completed by end of April 2016. I explained to management that delayed completion of construction works may affect operations of the border post.

Management explained that they are now focusing on enhanced supervision with weekly programmes, bi-weekly site inspections and monthly site meetings. Below is a pictorial description of the progress of works at Katuna OSBP:

Hired manual labour instead of using Reclamation works at Katuna equipment

Un reclaimed swamp area due to lack of Building Works at 10% progress funding

I advised the Accounting Officer to enforce monitoring and supervision of the construction works in order to achieve the targeted goal.

Delayed completion of reclamation works Inspection of the site showed that the contractor was behind schedule on reclamation of the swamp and according to the contract; reclamation works were supposed to have been completed by 30th September 2015 but physical progress was

114 estimated at 40% by the time of inspection. Interview with management showed that the slow progress was attributed to the factors listed below;

 Lack of Equipment During the procurement process; the contractor specified a number of equipment to be used on site however physical inspection revealed that the contractor had employed man power of around five men to remove fines from the stone aggregates which work could have been done quickly if the equipment was used. This delayed the works under swamp reclamation.

In response, management explained that they have stepped up supervision and the contractor is now required to submit and adhere to a weekly programme though progress has been affected by rains. Construction works have commenced in some areas and all building works will be completed by end April 2016.

I advised the Accounting Officer to enforce supervision.

 Undelivered purchased material

It was noted that the contractor purchased material to be used on site but lacked capacity to deliver them. There is a possibility that this could delay construction works and besides; the risk of material getting spoiled or stolen could not be ruled out.

Management explained that heavy rains, poor terrain and lack of material sources in Katuna such as sand are the biggest challenges. The would be material sources such as hard core are not readily accessible due to the hilly terrain of the area and the contractor can only make a few trips only on a sunny day. For materials like sand, the source is Mbarara (about 150km) and the contractor can only make a few trips given that the road (Mbarara-Ntungamo and Kabale-Katuna) is under construction.

I advised the Accounting Officer to enforce monitoring of construction works closely to ensure works are completed in time.

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JUSTICE, LAW AND ORDER SECTOR

11.0 MINISTRY OF JUSTICE AND CONSTITUTIONAL AFFAIRS a) Escalating Contingent liabilities for Court awards and compensations UGX.4,330,041,624,839 was recorded as contingent liabilities in cases against Government as at 30th June 2015. The contingencies increased by UGX.34,737,542,214 from last year’s position of UGX.4,295,304,082,625. The contingent liabilities comprise of cases that have been filed against Government pending hearing and cases before Courts of law. The contingent liabilities are determined from estimated amounts of claims against Government by the litigants. Given their magnitude, the contingency liabilities creates additional burden to public resources.

I advised the Accounting Officer to ensure that his legal team takes all possible precautions to enable good defense of the Government. There is need for the responsible Government agencies to act more diligently to properly manage the effects of their actions resulting in these cases. b) Outstanding Court Awards, Compensations and other liabilities It was noted that the outstanding amount in Court awards, compensations and other liabilities had accumulated to UGX.479,261,494,066 by 30th June 2015. The bulk of this figure was comprised of unsettled court awards and compensations which amounted to UGX.477.7bn, while the other liabilities amounted to UGX.1.52bn. The liabilities figure has been accumulating over the last four financial years. The table below shows the outstanding amounts in Court awards and compensations at the end of each year for the last four financial years:

No Financial Year to Outstanding %Percentage increase Amount from previous UGX. year 1 30th June 2012 54,009,997,832 2 30th June 2013 164,163,101,576 204% 3 30th June 2014 253,000,000,000 54% 4 30th June 2015 477,734,633,849 89%

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I noted that some of the cases attract interest ranging from 6%-25% and even up to 40% in some cases, per annum on the court awards. As a result of the delay to make payments, several amounts have doubled and Government continues to lose money due to accumulated interest on the principal amounts.

Management explained that the liabilities have arisen due to limited funding and increasing number of cases due for Court Awards and compensations. I advised the Accounting Officer to prioritize this item during planning and budgeting, and to continue liaising with relevant authorities to improve funding. I further advised that prompt settlement of outstanding obligations would minimize penalties and the related charges. c) Budgeting for Court Awards and Compensations I noted that whereas the court awards and compensations have continued to accumulate over the years, budget allocations and releases have not improved to cover the obligations. The table below shows the Court awards and compensations at the end of each year, subsequent budgets and releases made to settle the obligations: No Financial Outstanding Approved Amount Paid Year Amount Budgete UGX. From at start d of Year Amount UGX. Year UGX. 1 1st July 2012 54,009,997,832 4,346,998,000 20,746,165,234 2 1st July 2013 82,342,100,818 4,346,998,000 5,361,160,000 3 1st July 2014 164,163,101,576 4,347,324,000 8,500,551,991 4 1st July 2015 253,000,000,000 4,347,324,000 18,900,000,000

From the analysis, it is clear that insufficient funds have been budgeted and released to cover the outstanding amount over the years. This has partly caused the accumulation of the arrears of this item.

Management explained that their persistent pleas to have this budget line increased have yielded little success.

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I advised that in the budget preparation process and provisions in MTEF ceilings on court awards and compensations, consideration should be made to provide for current and arrears of court awards and compensations. This should be done in liaison with Parliament and MoFPED to ensure that these cumulative arrears of compensations are cleared. d) Inadequate Records Management It was observed that records management of court awards and compensations is still inadequate because the Ministry’s case management filling system is a manual one. The case and advice request files require tracing, quick movement and action which is not easy in the manual environment. For example it was difficult to identify at a glance cases with high interest charges; hence tracing the documentation from manual records can be cumbersome. In other cases, amounts awarded were not specified. Below is a table indicating files for which case amounts were not specified:

S/N File Name File No. 1 Ibanda Meddie MC 132/2002 2 Kipayo Estates HCCS 1446/2000 3 Martha Kamukama CS 275/04 4 Morarji Dharamsy HCCS 453/1995 5 Mubiru Mohammed GK/312/2000 6 Ongei Bonifansio MA 35/1998 7 The Kabaka of CS 296/08 8 Mediation no 154/2012 (Kigo Prison Land) HCCS No.27/2010 9 Mzee Boniface Byanyima Compensation 10 Karuma - Pakwach victims 100/02 11 Prince Kabumbuli And Others CS 085/2009 12 Uganda Development Bank HCCS/31/2002 13 Jokkene Timothy SDC/420/3032 14 Elma Company Ltd Vs CS No.12 of 2013

It was also noted that some of the files reviewed were not captured in the schedule of liabilities of the Ministry even when the matters had been concluded and notice of the same issued to the Attorney General. For instance, I noted a case involving death as a cause of action, the plaintiff sued for compensation arising out of the death of his brother who was killed by a landmine which fell off a UPDF truck. The matter was defended in court and subsequently the Attorney General lost the case. The court made a judgment for an award of UGX.60,000,000 as loss of dependence

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alongside UGX.3,000,000 as general damages. This award was made in the year 2011 and has to date not been paid by Attorney General. I observed that this amount is not reflected in the verified schedules of liabilities of the MOJCA.

Inadequate communication between Directorate of Civil Litigation and Accounts section was also noted. There is a risk that the total liabilities in court awards and compensations will not be adequately captured.

Management concurred with the observation and explained that a consultant has been hired to computerize the system although the project has delayed due to insufficient budget allocation.

I advised the Accounting Officer to expedite the process so as to improve the records management as well as information flow. e) Inconsistencies in Payments Selection Criteria During review of records, I observed inconsistences in payment selection criteria. Whereas management indicated that payments are based on first in-first out, I noted that some files where being cleared in one month after filing the claim at the Ministry, while others were taking much longer, for example;  In the case of OT and 2 others, the plaintiffs brought an action against the Attorney General after a motor vehicle belonging to the Ministry of Education rammed into them. Two of the plaintiffs were seriously injured while the other died as a result of the accident. The court awarded plaintiffs UGX.123,885,000 on 28/10/2009. The claimants made several demands for payment but the same was not heeded to until 2013 when the first payment was made. I observed that the surviving plaintiffs wrote several demands underscoring the need for medical attention.

 I observed that there were files that were expeditiously paid out by the Attorney General in a period of one month after the award. The case of BKC & others was resolved by way of settlement out of court and expeditiously paid off by the office inspite of the existence of other files pending payment. The risk with this method of handling this matter is that it sets a bad precedent for matters concerning death as a cause of action in which the state is involved. 119

 It was further noted that several claims originating from the rulings from the Uganda Human Rights Commission (UHRC) out of cases of human rights violations remained unpaid despite the fact that these cases involved small amounts and in many cases no interest charged. In spite of the fact that many of the awards from the UHRC did not contain interest on the award and the amounts were very small, the amounts remain outstanding.

The inconsistencies in the payment criteria led to payment of files that have just been recieved by MOJCA, leaving those that have been pending for a long time as such questioning the criteria meant to be actully implemented.

Management explained that they have tried as much as possible to follow the payment criteria save for Human Rights Cases and Mandamus Orders which are given priority. However, some cases have been expeditiously paid on medical grounds for example, the one of BC referred to in the Audit. It must also be noted that for Awards by the Human Rights Tribunals, cases have been scheduled for payment and some claimants Bank Account details were not availed to the Ministry in order to effect payment.

I advised the Accounting Officer to ensure that there is adequate planning, and also ensure that the payment criteria is followed to ensure fairness in these payments. f) Unclear settlement of cases under mandamus Review of cases under mandamous orders at the Ministry revealed the following:  In the case of VM V Attorney General, I noted that the amount owing originates from a decree issued on 25 July 2002. In spite of continuous request from the judgment creditor, the AG has not paid the amount owing. As a result of the delay, the interest on the amount has continued to accumulate without any action from the Attorney General. I also observed that an order for mandamus was executed against the PS/ST by order of the courts in 2003. I observed that inspite of the writ of mandamus against the Secretary to the Treasury; no payment has been made against this debt.

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 Similarly, in the case of JE Ltd the complainant was awarded a UGX.64,516,000 in HCCS 934 of 1998 and due to the delay by the Government to make payment, he secured an order of mandamus against the Permanent Secretary/Secretary to the Treasury upon which he was paid a total of UGX.58,043,500. I observed that no further payment has been made. Evidence on file suggests that the beneficiary intends to make another application for mandamus to secure the balance.

The failure to pay such amounts is at variance with the mandamus requirements where it is expected that immediate payment is made upon receipt of a notice of mandamus application by the creditors.

Management explained that cases with Mandamus Orders are given priority in settlement but this is dependent on the releases of funds for Court Awards and Compensations. The Attorney General recently forwarded all Cases including those with Mandamus Orders to Ministry of Finance, Planning and Economic Development for settlement. A response is still awaited from MoFPED.

I advised the Accounting Officer that clear mechanism for settlement of cases under mandamus should be drawn for easier monitoring and evaluation. g) Defence of Government cases by the Attorney General I observed that in some of the UHRC cases, the Attorney General did not file a defense or failed to appear and defend cases filed against Government. Information obtained from UHRC indicated a sample of cases from Masaka sessions where cases against the Attorney General were concluded exparte despite summons being issued, served and received by the Attorney General. The failure of the Attorney General to appear before the Commission in disregard of summons being served upon them has resulted in many claims against the government going undefended and as a result costing the government resources that are allocated for that purpose. The following specific cases were observed;

AP Vs Attorney General I noted that there was a case where the Attorney General did not appear to defend Government. In this case of AP V Attorney General the State Attorney at the time 121 was instructed to write an explanation for his failure to attend court by his supervisor. There was however, no evidence on file that this explanation was ever given by the State Attorney in question.

Management explained that although the Ministry did not appear, the case was not resolved ex-parte because the Uganda Human Rights Commission is not constituted and could not have heard the case. Up to date the Commission is not constituted and all cases are pending. Besides, the State Attorney who was handling the file of AP V Attorney General resigned abruptly and the officer to whom the file was given had many files and unfortunately he did not follow up this case. The matter was regretted by Management.

I advised the Accounting Officer that the Attorney General should be accorded all the necessary support to ensure that government is defended in all cases.

Fuel Company vs AG HCCS 825 The Plaintiffs sued the Attorney General for recovery of UGX.59,801,899 as amounts wrongly deducted as Withholding Tax (WHT) from the payments for fuel supplied to the Ministry of Defence, interest thereon, general damages and costs of the suit. Court entered a default judgement and awarded UGX.59,801,899 as WHT wrongly withheld and costs at the rate of 25% from 24th October 2007 until full payment and costs of the suit. A detailed review of the case highted the following:-  The Attorney General did not appear and defend the case, as a result Government was not effectively represented.  The court ordered that the defendant may recover the monies paid to the plaintiff from URA in lieu of the monies refunded. The money has not yet been recovered from URA.  To date, the decree has not been satisfied yet the decretal sum and costs continue to accrue interest which as at 30/6/2014 had accumulated to UGX.114,261,333. The outstanding balance as reflected on the ledger card now stands at UGX.182,218,133.

There is a risk that Government will lose funds due to inadequate representation of Government in courts of law.

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Management explained that payment will be effected when the Ministry receives funds for settlement of Court awards and compensations.

I advised the Accounting Officer to ensure effective representation of Government in Courts of Law and also continue lobbing for adequate funding with relevant authorities to enable prompt settlements. h) Inadequate Information flow to Attorney General from other Government Agencies A review of cases and various communications revealed that a number of government agencies do not provide necessary information in time to aid the Attorney General (AG) to adequately prepare defence of the cases. This makes it difficult for the Attorney General to prepare a good defence where the matters can be resolved through good defence case and where possible to enable the AG arrive at a settlement which can save public funds. There was no explanation or credible justification for the failure by the said government agencies to give the instructions or witnesses for the cases against the government. This is causing the government financial losses.

Management explained that the Ministry has always contacted MDAs and will continue seeking for instructions to effectively defend Government. The Budget Call circular for FY 16/17 has proposed that MDAs be responsible for payment of their commissions/omissions. The Attorney General concurs with this proposal.

I advised the Accounting Officer that the Ministry of Finance, Planning and Economic Development should be informed to compel the Accounting Officers to provide the relevant information to enable the Attorney General adequately defend Government. i) Delayed approval of the Ministry’s proposed Macro Organization structure As noted in my previous report, no approval of the proposed organization structure has been made, though submission of the restructuring report had been made to the Ministry of Public Service for further action. According to the response from the Ministry of Public Service dated, 26th September, 2014, the recommended structure could not be approved by cabinet due to inability by the Ministry of Finance, Planning and Economic Development to issue a certificate on the financial implications. 123

Consequently, all Ministry of Justice and Constitutional Affairs Directorates are operating below the required staffing levels and Regional Offices have continued to operate without approved structures. This has been rated as a high risk in the Ministry’s Strategic Investment Plan.

Unless the proposed macro organization structure is approved and operationalized, implementation of the Ministry’s strategic Investment plan may be negatively impacted.

Management pledged to continue pressurizing the relevant authorities to approve the Ministry’s structure.

I await the outcome of the Accounting Officer’s efforts.

12.0 JUSTICE, LAW AND ORDER SECTOR SECRETARIAT

12.1 JLOS Secretariat and General Observations

12.1.1 Budget performance

(i) Shortfall in Budget releases for JLOS/SWAP - UGX.17,128,352,810 A comparison of the approved JLOS budget and work plan for the 2014/15 with funds released for the financial year revealed shortfalls in funding by 41%. The total releases from development partners of UGX.1,456,849,084 were far lower than expected as compared to previous year where development partner funds stood at UGX.38,303,158,060, resulting into 96% development partner funding gap.

Total approved budget for the year under review was UGX.52,699,149,068 and releases amounted to UGX.35,570,796,258 (67%) of the budget resulting into a budget shortfall of UGX.17,128,352,810 (33%) on the overall. The table below shows the analysis per funder:

No. Source Total Releases Total Releases % 2013/2014 UGX 2014/2015 UGX. Decrease/increase in funding 1 Government of 22,350,156,311 31,255,641,097 40% increase 124

Uganda- Treasury 2 Development 38,303,158,060 1,456,849,084 96% decrease Partners (Basket) 3 Reversed letter - 2,858,306,077 - of Credit(LC) and other Total 60,653,314,371 35,570,796,258 41% decrease

The low level of funding from development partners and general drop of releases impacted negatively on the implementation of planned programme activities and raises a red flag on sustainability of the programme under the Third JLOS Strategic Investment Plan (SIP III) that runs from 2012/13 to 2016/17.

Management agreed with the audit findings and explained that the sector has continued to lobby the Ministry of Finance, Planning and Economic Development for an increase in funding but there is no marked change as indicated in the budget allocations for 2015/16.

I advised the Accounting Officer to continue liaising with both the Ministry of Finance, Planning and Economic Development and Development Partners to ensure adequate funding for implementation of planned programme activities is adequate.

(ii) Underfunding of JLOS Institutions A comparison of the approved JLOS work plan and budget for the 2014/15 with funds released for the financial year revealed underfunding of the JLOS SWAP programme implementing agencies. The table below shows under funding of a sample of the institutions:

No Entity Budget (UGX) Release (UGX) Shortfall (UGX) 1 Uganda Law Society 560,940,000 234,700,000 326,240,000 2 Uganda Prisons Service 6,650,226,899 3,030,900,000 3,619,326,899 Uganda Registration Services 3 Bureau 530,560,000 363,209,300 167,350,700 4 Ministry of Internal Affairs 4,725,668,900 2,076,838,000 2,648,830,900 5 Uganda Police Force 5,890,738,000 3,119,817,000 2,770,921,000 6 Law Development Centre 1,617,480,000 1,136,337,000 481,143,000

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7 Judiciary 8,196,462,000 3,916,360,000 4,280,102,000 8 Directorate of Public Prosecutions 2,375,097,000 1,733,720,000 641,377,000 Uganda Human Rights 1,662,729,500 645,293,310 1,017,436,190 9 Commission 10 Ministry of Gender 799,158,455 591,163,000 207,995,455 33,009,060,75 16,848,337,61 16,160,723,14 Total 4 0 4

The underfunding impacts negatively on the implementation of planned activities under the programme.

Management responded that the Sector experienced a sharp shortfall because the Secretariat did not receive all the funding planned for the year, due to mainly funding cuts from development partners.

As explained earlier, I advised the Accounting Officer to continue liaising with the relevant stakeholders to ensure adequate funding for implementation of planned activities is provided.

(iii) Unspent balances of funds – UGX.19,198,203,678 During the year, the Justice, Law and Order Sector (JLOS) Secretariat received a total of UGX.35,570,796,258 to facilitate operations of the various JLOS components. At the beginning of the year, the Secretariat also had unspent balance of UGX.31,311,690,369. The total available funds for spending for the year amounted to UGX66,882,487,627.

UGX.47,684,283,949 was subsequently spent during the year by the various components leaving a balance of UGX.19,198,203,678 (29%) unspent, and these funds were subsequently returned to the Uganda Consolidated Account (UCF). The table below shows the opening and closing balances as well as expenditures by various entities:-

S/No Ministry/Dept Closing Amount Total funding Amount Spent Closing . . Balance (UGX) Received Available (UGX) Balance (UGX) (UGX) (UGX) Uganda Law 300,033,000 234,700,000 534,733,000 185,004,860 349,728,140 1 Society Uganda Law 240,887,000 1,617,075,000 1,857,962,000 1,757,959,000 100,003,000 2 Reform Commission 126

Local 97,941,000 348,789,000 446,730,000 446,554,040 175,960 3 Government Law 184,922,587 1,136,137,000 1,321,059,587 1,156,918,167 164,141,420 4 Development Centre Tax Appeals 67,375,611 184,148,000 251,523,611 232,309,172 19,214,439 5 tribunal 6 DPP 452,500,690 1,733,720,000 2,186,220,690 2,185,873,099 347,591

7 URSB 845,357,426 363,209,300 1,208,566,726 681,348,689 527,218,037 Ministry of 53,215,067 2,076,838,000 2,130,053,067 2,128,091,397 1,961,670 8 Internal Affairs Uganda Police 2,294,696,000 3,119,817,000 5,414,513,000 3,057,387,000 2,357,126,000 9 Force Uganda Prisons 2,025,427,764 3,030,900,000 5,056,327,764 5,056,323,374 4,390 10 Service Judicial Service 175,225,000 766,701,400 941,926,400 891,734,000 50,192,400 11 Commission Min. of Gender, 142,252,713 591,163,000 733,415,713 545,482,877 187,932,836 12 Labor and Social Dev’t 13 Judiciary 3,452,857,926 3,916,360,000 7,369,217,926 6,107,000,732 1,262,217,194

14 MOJCA(IFMS) 6,403,455 1,854,272,716 1,860,676,171 1,808,089,951 52,586,220 Administrator 125,723,027 500,000,000 625,723,027 521,380,779 104,342,248 15 General – Public Trustee Uganda Human 486,380,000 645,293,310 1,131,673,310 722,775,659 408,897,651 16 Rights Commission National 1,874,799,000 624,917,000 2,499,716,000 1,162,701,000 1,337,015,000 17 Citizenship and Immigration Secretariat 27,474,709 7,951,241,090 7,978,715,799 7,116,186,745 862,529,054 18 (IFMS) Secretariat 6,209,482,834 3,457,890,893 9,667,373,727 7,779,274,034 1,888,099,693 19 (Donor) 14 MOJCA(CBL) 27,187,719 347,559,422 374,747,141 353,088,700 21,658,441 JLOS House 12,221,547,841 0 12,221,547,841 2,815,081,113 9,406,466,728 21 Account Taxes on 0 1,070,065,127 1,070,065,127 973,719,561 96,345,566 22 Machinery 31,311,690,36 35,570,796,25 66,882,487,62 47,684,283,94 19,198,203,67 Total 9 8 7 9 8

Failure to utilize the available funds implies that planned activities were partially or not implemented. This may lead to failure by the management to attain the programme objectives.

Management explained that out of the UGX.19.1bn that remained on the sector accounts, over UGX.9bn was for the multi-year JLOS HOUSE project which is a long term project. UGX.2bn is meant for the 3 year programmes under Legal Aid and ADR supported by DGF and ADC respectively and the balance of UGX.8bn was committed under various ongoing construction projects, including retention fees for some of the completed projects still under defect liability periods. Management further, explained that the sector provided evidence to the Ministry of Finance, Planning and Economic

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Development but the funds were returned to the consolidated fund account based on the law.

I advised the Accounting Officer to properly supervise the ongoing works with a view of concluding the activities within the agreed timelines.

12.1.2 Lack of Computerized Project Management and Information System (PMIS) According to the Work Plan for the year, one of the priorities in SIP III was, “Strengthening records and information management”. Project Management Information System (PMIS) was intended to offer computer support to Project Management procedures and to the Data Management. However, a review of the available records revealed that the computerized information management system has not been put in place. The financial information of JLOS Programme has been running manually in all Institutions including the Secretariat. Lack of a computerized PMIS negatively impacts on the smooth management of Programme information in all vital aspects such as; scope, programme records organization and management, quality, cost, time and activity scheduling.

Management explained that there were no funds released for the activity to allow implementation.

I advised that the Accounting Officer continues liaising with the relevant stakeholders for funding to enable the sector establish and implement a Project Management Information System - (PMIS) for adequate and effective management of JLOS SWAP Programme.

12.2 Uganda Law Society (ULS) a) Budget performance – unimplemented activities A review of the approved JLOS budget and work plan for the 2014/15 against the funds released for the financial year revealed that out of the budgeted UGX.560,940,000, only UGX.234,700,000 was released, leading to a shortfall of UGX.326,240,000. This negatively impacted on the implementation of planned activities under the Programme. The following activities were thus not implemented:

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Activity Amount (UGX) Conduct weeklong legal Aid Open week UGX.57,000,000 in three districts Complete the review of the taxation and UGX.48,700,000 remuneration of cost rules Total UGX.105,700,000

Non-implementation of planned activities hinders achievement of Programme objectives.

Management noted the observation and promised to endeavor to follow up on the funding in the future periods. I advised the Accounting Officer to liaise with the Ministry of Finance, Planning and Economic Development to ensure adequate funding for implementation of planned activities.

12.3 Uganda Police Force (UPF) a) Budget performance- unimplemented activities During the year, UGX.3,119,817,000 (52,96%) was released to the Uganda Police Force to finance planned JLOS activities against the approved budget of UGX.5,890,738,000. The entity also had a balance of UGX.2,294,696,000 brought forward from the previous year bringing total funds available for expenditure to UGX.5,414,513,000. Out of the available funds, UGX.3,057,388,000 was utilized leaving a balance of UGX.2,357,124,000 that was returned to the consolidated fund. Analysis of the budget performance indicated that out of the unutilized funds, UGX.715,600,000 (30%) represents the planned activities which were not implemented at all. Details of unimplemented activities are in the table below:

Specific Activities Cumulative Release Cumulative Expenditure UGX'000 UGX'000 Develop and print simplified standard operating procedures for Districts and Police Units Develop a simplified SOPs 10,000 - Print SOPs pocket books 40,000 - Popularising the Strategic Policing Plan Print copies of the Anti-Torture Act, POM, Children Act, Domestic violence Act 129

Children Act 8,000 - Domestic violence Act 8,000 - Construct a Police Station in Kabale Advertising 3,000 - Procure 10 vehicles for enhancing investigations in the districts of Masaka, Kiira and Special Vehicles 300,000 - Train 500 Commanders on the disciplinary court procedures Facilitators 1,600 - Procure a vehicle for investigation of SGBV and Children related offenses Motor vehicle 120,000 - Construct 10 kennels upcountry 10 kennels 20,000 - Procure a vehicle and 10 tricycles to enhance transportation 10 Tri cycles 150,000 - Conduct monthly monitoring inspections (with DPP, UHRC, Judiciary)

Facilitation to officers on monitoring visits 30,000 - Procure software and computer forensic item 25,000 Total 715,600,000

Non-implementation of planned activities may result into failure to attain the programme objectives. It also depicts inadequate planning or lack of commitment on part of management to implement the activities in the work plan.

Management explained that the delays in implementation of the work plan are regretted. Management further explained that steps have been taken to improve on this by appointing specific liaison officers to follow up on each activity. I advised the Accounting Officer to ensure that funds are budgeted and requested for in accordance with realistic work plans and efforts undertaken to implement activities where funds have been released. Management effort on the matter is awaited.

12.3.1 Under-utilization of unspent balances brought forward At the beginning of the financial year under review, UPF had unspent balance of commissioned funds totalling UGX.2,294,696,000 which was brought forward from the previous years. During the year, only UGX.1,409,137,000 representing 61% was spent leaving a balance of UGX.885,557,000 (39%) unutilized. The unspent balance was eventually taken back to the consolidated fund.

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A further review of the records revealed that vital activities such as the procurement of the AFIS machine for forensic investigations, motor vehicles to facilitate investigation and SOCO kits for forensic support which relate to activities from the previous period were not implemented as shown in the Table below:

Activity Amount (UGX) Procurement AFIS machine 299,542,000 Procure 3 motor vehicles to improve 114,770,000 investigation Procure 50 sets of SOCO kits to support 250,000,000 forensic services Total 664,312,000

Failure to implement planned activities denies beneficiaries of the intended services. Non-implementation of the activities also hinders the Programme from achieving its intended objectives.

Management regretted the delay in implementation of activities and explained that the procurement was estimated at UGX.2bn and Justice Law and Order Sector had started releasing the funds in installments. Further, the vehicles have been procured and are now awaiting delivery.

I advised the Accounting Officer to make realistic plans and budgets cautiously and realistically and ensure that activities are implemented in accordance with the approved plans.

12.4 Judiciary a) Budget performance – unimplemented activities During the year, a total of UGX.8,196,462,000 was budgeted to cater for JLOS/SWAP activities at Judiciary. However,only UGX.3,916,360,000 was received creating budget shortfall of UGX.4,280,102,000. It was noted that a number of planned activities were not implemented. A sample of unimplemented activities is in the table below:

Particulars Specific Approved Cumulat Cumulat Balance Performanc

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Activity budget ive ive e Release Expendit ure OUT COME 1: UGX’000 UGX UGX UGX STRENGTHENED '000 '000 '000 LEGAL AND POLICY FRAMEWORK Strengthen the Bar 65,000 35,000 0 Nil For a in all 13 High 35,000 performance courts circuits(per quarter) in conjunction with ULS Remodeling Anti- 90,000 0 0 0 Funds not corruption court to availed accommodate additional 10 courts modified to 200,000 40,000 0 40,000 Nil include ramps for performance persons with disabilities Renovate Renovate 0 Nil Mpigi,Nebbi,Kitgum,A Mpigi 40,000 40,000 40,000 performance pac,Ntungamo,Bugiri Busia, Construction Justice 1,400,000 0 600,000 Nil centre at Kiruhura to 600,000 performance house court, DPP and Police Complete Re- 300,000 0 0 0 Funds not engineering of the availed court case Administration system

Non-implementation of planned activities in the stipulated time does not only lead to spill over of activities to the next planning periods but may also lead to non- achievement of the desired outputs due to the rise of prices of the inputs, subsequently hampering fulfillment of Programme objectives.

Management explained that the procurement process for the construction of a Justice centre in Kiruhura was delayed. Management further indicated that some activities were not done because of insufficient funding.

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I advised the Accounting Officer to requisition for the remaining funds and have the works finalized.

12.4.1 Rising Levels of Case Backlogs The JLOS Strategic Investment Plan (SIP III) 2012/13-2016/17, paragraph 74 requires Judiciary to take appropriate measures to meet service delivery standards including initiation of special programs to clear backlog; promotion and roll out of alternative dispute resolution mechanisms; adoption of appropriate technology to further reduce lead times and appropriation of the requisite resources (both human and financial) to ensure services are delivered to the population in accordance with legal and operational standards.

A total of UGX.1,818,060,000 was budgeted and released by JLOS Secretariat for clearance of case backlogs. Analytical review on case backlog trends revealed that out of station court sessions to clear the case backlog were funded 100% and over 20 Judges appointed to the Supreme Court, Court of appeal and the High Court. However, the trend of accumulating case backlogs increased by 3.8% overall during the year under review instead of the expected reduction. The table below refers:

Court Cases b/f Filed Disposed Pending Case growth rate Supreme Court 57 106 79 84 47.4% Increase Court of appeal 4,143 1466 400 5,209 25.7% Increase High Court 47,853 23,760 19,751 51,862 8.4% Increase Chief Magistrate Court 85,652 60,279 61,752 84,179 1.7% reduction Magistrate Grade 1 27,969 46,692 44,463 30,198 8% Increase Magistrate Grade 11 5,706 10,617 9,892 6,431 12.7% Increase Overall performance 171,380 142,920 136,337 177,963 3.8% Increase

The objective of reducing case backlogs in the judicial system has therefore not yet been achieved.

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Management agreed with the observation and explained that the case filling has increased due enhanced public awareness and growing confidence in the judicial system. They explained that case backlog disposal is being handled simultaneously with the newly registered cases, and that the situation has greatly impacted on case disposal hence the rising levels of case backlog.

I advised the Accounting Officer to put in place special court sessions aimed at clearing the case backlog.

12.4.2 Construction of Nwoya Community Justice House - Abandoned construction works Nwoya Community Justice Centre was constructed by a local company at UGX.1,516,916,000. The contract commenced on 11th July 2014. Audit inspection carried out at the site on 19th September, 2015 revealed that the contractor abandoned the work. There was no construction work in progress.

According to the District Information Officer (D.I.O), the workers on the project went on strike some time back. They were later convinced by the District Authorities to resume work but this was not the case. The D.I.O revealed that construction work ought to have been completed in June 2015.

The District Information Officer further explained that although Judiciary appoints the contract manager to supervise and monitor the construction works, there is need to involve the District authorities to ease the exercise because they are always on the ground. Refer to photos for incomplete works for the abandoned works:

Value for money may not be realized under the circumstances.

Management agreed with the observation and explained that the works have resumed after engaging the necessary parties. 134

I advised the Accounting Officer to follow up completion of the construction of the Centre.

12.5 Uganda Prisons Service (UPS) a) Budget performance – unimplemented activities Uganda Prisons Service had an approved budget of UGX.6,650,226,899 to implement approved JLOS activities for the financial year 2014/2015. However, only UGX.3,030,900,000 (45.6%) was received resulting into a budget shortfall of UGX.3,619,326,899. As a result of the shortfall, various planned activities were not implemented. Notably is the failure to construct all the needed water born toilets to eliminate the bucket system in the prisons, computerization of Prisons Information System and completion of prison wards to decongest the prisons. The table below refers:

Activity Input Approved Funds Funds Physical Physical Reason for Description Budget Released Spent performa performance physical F/Y nce % performance 2014/15 computerizatio completio 254,000,000 - - completion of No funds n of Prisons n of phase phase I not released (Phase 2 of the I done systems study report 0 implemented) Security of Procureme 96,000,000 - - 0 Procurement of No funds Prisons nt of hand hand - cuffs not released enhanced - cuffs done Completion of New 62,153,087 New No funds reception governme government released Centre at nt prison prison at Pader Kaabong, at pader not done Isingiro & 4 wards at Tororo - - - Balance 64,164,897 Balance on No funds on Isingiro Isingiro released reception reception cetre centre - - - not done balance 197,800,907 on 4 wards at balance on 4 Tororo wards at Tororo No funds prison - - - prison not done released 2 block of 12,980,365 staff houses at 2 block of staff soroti houses at soroti No funds prisons - - - prisons not done released Prisoners 61,924,087 ward & Prisoners ward fencing of & fencing of Paiddha Paiddha prison No funds prison - - - not done released Bal. On 80,873,556 - Bal. On kabong No funds 135

Kabong - reception centre released reception not done centre Purchase of Bus for Bus for upper vehicles of upper prison not delivery of prison purchased No funds prisoners 280,000,000 - - - released Mi.- bus - Mi.- bus 30 No funds 30 seater 280,000,000 - - seaters for released for Nabweru , Nabweru Wakiso and Wakiso Matuga courts and not purchased Matuga courts contract 800,000,000 350,000,00 350,000,0 44 56% of the work less funds sum for 0 00 not done released the Construction of constructi water born on of toilets in 40 water prisons to born eliminate the toilets bucket system

Unimplemented activities negatively affect the achievement of organizational objectives and service delivery.

Management explained that generally a number of activities were not implemented because of underfunding. I advised the Accounting Officer to follow up with the relevant stakeholders to ensure that planned and budgeted for activities are funded.

12.6 Directorate of Citizenship and Immigration Control (DCIC) a) Budget performance – non-implementation of planned activities During the year, the Directorate received a total of UGX.624,917,000 to facilitate operations of the various JLOS components. The entity also had a balance of UGX.1,874,800,246 brought forward from the previous year bringing total funds available for expenditure to UGX.2,598,725,246. Out of the available funds, UGX.1,261,710,179 representing 49% was utilized leaving a balance of UGX.1,337,015,067 (51%) unutilized and returned to the consolidated fund.

Details of the planned and funded activities that were either partially implemented or not implemented at all are in the table below:

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PLANNED Approved Actual Actual Absorpt Expected Actual Remarks KEY Budget amount Expenditu ion (%) Output output ACTIVITY (UGX) Released re (UGX) Printing and 10,000,000 10,000,000 0 0% 1,000 Nil All funds disseminating copies of released in Immigration the the first Policy immigration quarter of policy the financial printed and year. disseminate d Construct 200,000,000 200,000,000 0 0% Boarder nil Sebagolo; Sebagolo post offices procurement model border and staff abandoned. post with quarters at No land title. staff Sebagolo, Ishasha; quarters), Kikagati procurement Kikagati mini mini border abandoned border post post and due to lack and Ishasha Ishasha mini of structural mini border border post drawings, post border post building design and BoQs Kikagati; procurement; abandoned due to lack proof of ownership of land. Construction 12,000,000 12,000,000 0 0% Latrine at Nil All funds of latrine at Bunagana released in for Bunagana border post the first border post quarter of the financial year Procure 100,000,000 71,175,000 0 50 Stamps Funds were secure 0% immigration were not released in immigration security procured the 1st and security stamps 2nd quarter. stamps

Delayed or non-implementation of planned activities may lead to failure by the entity to attain the programme objectives. It also depicts inadequate planning or lack of commitment on part of management to implement the activities in the work plan.

Management explained that some activities could not be implemented because of land concerns where the border posts were to be constructed. Therefore the Directorate opted to first sort out the issue of land ownership and titling before proceeding with the construction.

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I advised the Accounting Officer to ensure that funds are budgeted and requested when such challenges are resolved. Management should however undertake to implement activities where funds have been released.

12.6.1 Under-utilization of un spent balances brought forward At the beginning of the financial year under review, DCIC had unspent balance of UGX.1,874,800,246 which was brought forward from the previous years. During the year, only UGX.852,147,246 representing 45% was spent leaving a balance of UGX.1,022,653,000 (55%) unutilized. Unspent balance was remitted to the consolidated fund.

A further review of the records revealed that vital activities such as the Automation of Business Process and construction of the Border posts and a Holding Center which were activities relate to the previous period were not implemented. The table below refers:

Activity b/f as at 1/7/15 (2014/2015) Unspent Balances as at 30-06- 2015 (UGX) F/Y Work-plan

Automation of business process 2012/13 224,805,000 Establish a call center 2012/13 40,000,000 Complete construction of Atiak border post 2012/12 50,000,000 Construct Kizinga border post 2012/13 129,955,000 Construct Ngom Oromo and Ntoroko border 2013/14 posts 262,991,000 Construct staff accommodation at and 2013/14 Oraba 138,430,000 Build ramps and modify counters at border posts 2013/14 46,472,000 Procure 3 Electronic billboards for immigration 2012/13 information at Entebbe 30,000,000 Holding center for apprehended aliens 2013/14 100,000,000 Total 1,022,653,000

The delay or failure to implement planned activities denies beneficiaries of the intended services. Non-implementation of the activities also hinders the Programme from achieving its intended objectives.

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Management explained that many of the activities were still in progress. However, the issue of construction at Ngom and Atiak, the matters are in high court over land ownership wrangles. I advised the Accounting Officer to follow up the matter and ensure that activities are implemented in accordance with the approved plans.

12.7 Ministry of Internal Affairs a) Budget performance – unimplemented activities During the year, the Ministry received a total of UGX.2,076,838,000 (44%) to facilitate operations of the various JLOS components against the approved budget of UGX.4,725,668,900. The entity also had a balance of UGX.53,215,067 brought forward from the previous year bringing total funds available for expenditure to UGX.2,130,955,067. Out of the available funds, UGX.1,915,942,710 representing 90% was utilized leaving the balance of UGX.215,012,357.

A review of the Ministry’s budget performance revealed that because of less release which was 44% of the approved budget, many planned activities were not implemented while others were partially implemented. Details of physical performance are below:

Approve Actual Actual Absorpti inputs to achieve Actual Remarks PLANNE d amoun Expendit on (%) output or Expected output D KEY Budget t ure output ACTIVIT Releas Y ed

Finalise 0 0 0 Pay final Contractual The The funds establishm 280,000, obligations for LIMS Laborator were not ent of 000 as part of the IJMIS y released Case Informati Managem on The Ministry ent Managem entered into System ent a contract (Laborator System with M/s y (LIMS) Labware informatio software Africa (PTY) n was on 25th managem installed October 2013 ent in all the at Contract system- eight (8) price of LIMS) at laboratori USD.150,695 DGAL es / . The division. provider was partly paid. Training 203,000, 0 0 6 DGAL staff trained NIL The funds and 000 in Computer were not certificatio Forensics and released. 139 n of certified selected DGAL staff in Computer forensics Procure 37,400,00 0 0 0 1 E-pop software. 3 NIL Funds not ICT 0 Desktop released equipment computers(UGX.15,00 to improve 0,000) ,2 Laptops planning (UGX.6,000,000), 2 and filing cabinets coordinati (UGX.1,400,000) on

Renovatio 300,000,0 0 0 0 Contractual obligation NIL Funds were n and 00 not released. partitionin g of The Ministry Ministry entered into offices a contract and with M/S structures Sembule

International

Ltd on 6th

December 2013 for a contract sum of UGX.171,689 ,109 Only UGX.114,708 ,284 has been paid to the Contractor. While the amount approved for the activity was UGX.50,000, 000 par JLOS work plan (for F/Y 2012/13) the ministry entered into a contract for UGX.171,689 ,109 without coordinating with JLOS Secretariat with a view of securing additional funding. Conduct 150,000, 0 0 0% Airing Jingel for 3 NIL The funds public 000 months each at were not awareness UGX.45,000,000 released. on TIP prevention Develop Radio Jingles 140 through in 5 languages each radio and language at TV talk UGX.3,000,000 shows, Jingles and adverts.

Management explained that they had expectation of receiving the budgeted funds but shortfalls have continued. When management tried to follow up with the JLOS Secretariat, the sector had financial constraints caused by underfunding.

I advised the Accounting Officer to further liaise with the relevant stakeholders for funding and have the planned activities undertaken.

12.7.1 Delayed construction works of regional laboratory in Gulu The contract for the construction of the regional laboratory was entered into on 28th January 2008 at a contract sum of UGX.436,445,468. The construction was to be executed within 22 calendar weeks commencing on 22nd February, 2008. The completion date was scheduled for 28th July, 2008. The scope of works comprised construction of a single block laboratory building including associated electro- mechanical installations and external works. During the financial year 2013/2014, the Ministry paid UGX.30,409,733 bringing the total payments to UGX.236.330,768 (54%) of the contract sum of UGX.436,445,468.

As mentioned in my previous report, a contract signed between the Ministry and the contractor was not availed for audit and there was no proof that the Ministry owns the land on which the laboratory is being constructed, and to date, the building has not been completed. In my previous report, I advised management to establish the loss as a result of abandonment of the site by the former contractor. However, I was not provided with evidence of action taken. Failure to complete the project impacts on the service delivery and undermines the objectives of the Programme.

Management explained that the contract met a lot of challenges and the work could not continue. The contract was under review following a number of communications with PPDA. PPDA gave a waiver and a contract is to be negotiated as per PPDA guidance. The project will be revived after seeking additional funding. Management is also engaging potential funders to provide more funds before the process of securing another contractor is undertaken.

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I await the results of the Accounting Officer’s efforts.

12.8 Law Development Centre (LDC)

a) Budget performance – non implementation of planned activities During the year, a total of UGX.1,136,337,000 was released for the implementation of LDC JLOS activities against the approved budget of UGX.1,617,480,000. There was a shortfall on the approved budget of UGX.481,143,000 (30% under-funding).

A review of the programme’s performance as per the cumulative performance report revealed that various planned activities for which funds had been released remained incomplete. These activities included completing construction of the Auditorium, reconciling criminal cases and training of JLOS Staff in human rights. The table below refers:

Planned Key Approved Actual Actual Expected Actual output Remarks Activity Budget amount Expenditure Output (UGX) Released (UGX) OUTCOME 1.STRENGTHENING LEGAL AND POLICY FRAMEWORK OUTCOME 2. ACCESS TO JLOS SERVICES ENHANCED 2.1.1.1 Complete 700,000,000 345,000,000 183,270,598 Construction No work in There was Construction of works done progress an under Auditorium, to performanc construct women completion e of100% cell, DPP office in terms of and reception for output. juveniles

2.3.22 Use of 50 60,000,000 59,000,000 59,000,000 Allowances 1156 cases There was Bar course for Bar registered for an under students to Course reconciliation, performanc reconcile 1200 students 735 handled e of 40% in criminal cases in and 421 terms of courts per year referred back to cases Court of reconciled. Nakawa Buganda Road, KCCA, Entebbe, Lira, Kajansi and Nabweru. OUTCOME 3 PROMOTION OF THE OBSERVANCE OF HUMAN RIGHTS & ACCOUNT 3.1.1.1 Train 80 200,000,00 JLOS staff JLOS staff in 91,000,000 91,000,000 in human human rights rights trained.

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Non-implementation of planned activities in the stipulated time does not only lead to spill over of activities to the next planning periods but may also lead to non- achievement of the desired outputs such as; increased confidence in the administration of justice, greater respect of human rights and reduced lead time for accessing JLOS service, among others.

Management responded that work on the auditorium delayed as a result of the delay in approval of variations in the contract price by the Ministry of Works. External works were later cleared and work is slated to be completed in December 2015. Management further explained that reconciliators who were attached to Courts far from Kampala, could not travel every day due to insufficient facilitation. This led to low number of cases registered and handled in those Courts. Management indicated that less funds were released for training.

I advised the Accounting Officer to carry out adequate planning and budgeting so as to ensure that activities are carried out in accordance with approved work plans.

12.8.1 Delayed Completion of Auditorium

The Center contracted a local company to construct the LDC Auditorium at a contract sum of UGX.3,971,880,902. The original completion period date for the construction works was June 2013. It was observed that in the process of executing the contract, the contractor incurred additional construction costs that were outside the contract worth UGX.953,251,416 which constituted 24% of the contract price. The contract manager however, approved only UGX.588,596,596 as additional costs. It was also noted that the LDC Contracts Committee did not approve the contract variations, and as a result construction work stalled for a period of two years.

A technical review by the Engineers from the Ministry of Works and Transport, advised the Centre to terminate the contract and the uncompleted works be completed with a new contract. A new contract of UGX.1,620,910,733 was drawn and has now been signed with the same company to complete the works bringing the total construction cost to UGX.5,592,791,635.

The LDC Contracts Committee refusal to approve the contract variations as approved by the project supervisor and delays by the technical committee to advise on time

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caused Government a financial loss of UGX.1,032,314,137. I find this expenditure wasteful.

The Accounting Officer explained that a new contract has been signed, and works are expected to be completed in February 2016. Status of the project is shown in the picture below.

The side view of the auditorium. The hind view of the auditorium

I advised the Accounting Officer to follow up and ensure completion of the auditorium within the agreed time.

12.9 Directorate of Public Prosecutions (DPP) a) Budget performance – unimplemented activities Review of the Directorate’s budget performance revealed that the approved revised budget for JLOS activities for the financial year 2014/2015 was UGX.2,375,097,000. This was expected from two sources; GoU and donor support for development component. However, only UGX.1,733,720,000 was received, hence a shortfall of UGX.641,377,000. As a result of the shortfall, a number of planned activities as indicated below were not undertaken, while others remained incomplete. The table below shows the unimplemented activities:

Activity Activity description Budget Released Un released % released code (UGX) (UGX) (UGX) 1.0 144

1.2.1.2 Develop a national 137,998,000 0 137,998,000 0 criminal prosecution policy 2.4.2.3 Conduct regional/ 70,000,000 0 70,000,000 0 public outreach programmes 3.4.1.1 Conduct DPP/CID Top 70,000,000 0 70,000,000 0 Management regional coordination meeting and workshops 3.4.3.1 Conduct prosecution 114,001,000 0 114,001,000 0 led investigations and prosecution 3.4.3.3 Conduct placement 39,378,000 0 39,378,000 0 training and visits to other criminal justice

Unimplemented activities negatively affect the achievement of organizational objectives and service delivery.

Management explained that they shall continue to liaise with the Ministry of Finance, Planning and Economic Development and other Development partners to obtain reasonable assurances on budget releases so as to achieve the organization’s intended objectives.

Management engagement on the matter is awaited.

12.10 Uganda Human Rights Commission (UHRC) a) Budget performance – partial implementation of planned activities During the year under review, a sum of UGX.1,662,729,500 was budgeted to cater for JLOS/SWAP activities at the UHRC. However, only UGX.645,293,310 was received creating budget shortfall of UGX.1,017,436,190. A review of the programme’s budget performance revealed that a number of activities were not implemented and others remained incomplete despite the release of these funds. Un-implemented activities during the year included;  Construction of UHRC office in Gulu for which UGX.193,000,000 was released did not take place. Instead invitation for bidders was later cancelled.  Printing of 1,000 copies of the client charter for dissemination to internal and external clients.

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 Printing of the Investigators Hand book.  Support to the preparation of the National Action Plan (NAP).

Details are in the table below:

Planned Key Activity Approved Actual Actual Expected Actual Remarks Budget amount Expenditure Output output (UGX) Released (UGX) (UGX) OUTCOME 1 STRENGTHENED LEGAL AND POLICY FRAMEWORK 1.3.1.2 Printing of 10,000,000 10,000,000 - 1,000 copies Nil Nil 1,000 copies of the of the client performance. client charter for charter dissemination to printed and internal and external for clients disseminated to internal and external clients OUTCOME 2. ACCESS TO JLOS SERVICES ENHANCED Construction of Gulu 80,000,000 13,000,000 8,021,987 Consultant Facilitation 0.1% Regional Office Phase I for for JLOS performance. consultant for preparation Consultancy preparation of of team architectural designs, architectural facilitated, BOQs, and drawings designs, but newspaper advert for BOQs, and Consultant the archtectural drawings not procured designs, preparation of procured. BOQs, and drawings Building of substructure Bulding walls ( crude estimates) preliminary building works 150,00,000 10,000,000 - Substructure Activity not Nil Roofing ( crude built. done. performance. estimates)

300,000,00 150,000,000 - Walls built. Activity not Nil 0 done. performance.

150,000,00 10,000,000 - Roofing Activity not Nil 0 done. done. performance.

2.3.5.3 Type setting 25,000,000 10,000,000 - Investigators Activity not Nil and printing of the Hand Book done. performance. Investigators Hand Printed. book

OUTCOME 3 OBSERVANCE OF HUMAN RIGHTS AND ACCOUNTABILITY OBSERVED. Support to the 121,335,00 115,583,000 - National No activity Nil preparation of the 0 Action Plan done. performance. National Action Plan (NAP) (NAP) Prepared.

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Non-implementation of planned activities in the stipulated time does not only lead to spill over of activities to the next planning periods but may also lead to non- achievement of the desired outputs due to the rise of prices of the inputs, subsequently hampering fulfillment of Programme objectives.

Management explained that the procurement process was on-going by the end of the financial year. In the case of UHRC office in Gulu, management explained that the architecture produced his designs and bills of quantities and the cost required to construct UHRC Gulu office was much higher than the budget and therefore they could not proceed until the additional funds are allocated.

I advised the Accounting Officer to carry out adequate planning and budgeting so as to ensure implementation of activities as per approved work plans.

12.11 Ministry of Labor, Gender and Social Development (MoGLSD) a) Budget Performance - unimplemented activities During the year, a total of UGX.591,163,000 was provided for the implementation of the Ministry-JLOS activities against the approved budget of UGX.799,158,455. The releases fell short of the approved budget by UGX.207,995,455. This impacted negatively on the implementation of planned activities under the Ministry as planned activities were not undertaken. Details of the budget shortfall are shown below:

Activity Activity description Budgeted Actual Underper code items/act formance ivities 1.31.2 Purchase of multipurpose wood machine 1 0 1 for Kampiringisa NRC 2.16.1 Purchase of Double Cabin pick up for 1 0 1 inspection of standards in institutions and one Van for Naguru Remand Home 2.3.5.1 Support Juvenile High court sessions staff 144 64 80 allowances on quarterly basis Mobilization of parents and guardians 16 11 5 Fuel for High court sessions 48 19 29 147

Management explained that MOGLSD presented a budget of UGX.2,257,393,455 for JLOS activities for the year of which the JLOS secretariat approved UGX.799,158,455 and only UGX.493,053,000 was released sighting donor funding gaps as all JLOS projects are donor funded. This impacted negatively on the provision of planned services.

I advised the Accounting Officer to liaise with the Ministry of Finance, Planning and Economic Development, and the JLOS Secretariat for funding.

13.0 MINISTRY OF INTERNAL AFFAIRS

13.1 Mischarged expenditure

The Parliament appropriates funds in accordance with the needs of the country and this appropriation is implemented through the budget in which funds are tagged to particular activities and outputs using account codes and MTEF codes. A review of the Ministry’s expenditures revealed that the entity charged wrong expenditure codes to a tune of UGX.398,070,732. This constituted 3.57% of total expenditure for the year of UGX.11,157,221,644.

Mischarges undermine the importance of the budgeting process and leads to misreporting of financial statement balances.

Management explained that the mischarge of expenditure was a result of insufficient budgetary allocations and severe cuts in respect of items referred to as consumptive items by the MOFPED. I advised the Accounting Officer to streamline the budgeting process to ensure that sufficient funds are allocated to each account. I also advised that authority should be sought for any reallocations.

13.2 Outstanding Payables

UGX.1,356,915,300 remained outstanding in payables at the end of the financial year. The outstanding payables included grants payable to RECSA of UGX.1,256,442,770 which represented 92.65% of the total payables.

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Management explained that domestic arrears arise from government failure to fulfil obligations in form of contributions to the Regional Centre for Small Arms.

I explained to management that accumulation of domestic arrears is in contravention of the commitment control system, and advised the Accounting Officer to pursue the matter of funding with the Ministry of Finance, Planning and Economic Development to avoid embarrassment to Government occasioned by non-payment.

13.3 Lack of certificates of title for Government land

The Ministry possesses various pieces of land in different parts of the country in which Government has invested. I was however, not availed with certificates of title to verify ownership. Details are in the table below:

Location Plot No. Occupied by Jinja Road Plot 75 Ministry Headquarters

Lyadda Road; Mbale Plot 15-35 Regional Government Laboratory - Mbale

Kitunzi Road; Mbarara Plot 7 Regional Government Laboratory in Mbarara

Princess road; Gulu Plot 4 C Regional laboratory - Gulu (Under construction)

Lack of ownership poses a risk of loss of the land and developments thereon.

The Accounting Officer responded that efforts of pursuing titles for all Ministry land from Uganda Land Commission are in the process. I advised the Accounting Officer to prioritize surveying of the Ministry land and secure the titles to avoid any loss.

13.4 Audit inspection of Government Analytical Laboratories

(i) Inadequate infrastructure and working environment at DGAL

Headquarters

The building housing the Directorate of Government Analytical Laboratories (DGAL) headquarters was built way back in 1927 and the building is currently in a dilapidated state and requires urgent renovations. As mentioned in my previous year’s report, the Directorate’s working environment appears unattractive and yet it plays an important role of providing scientific and analytical evidence in administration of 149

justice. The building houses eight scientific laboratories with expensive and sensitive equipment and information and yet the building is roofed with corrugated iron sheets which are old and require replacement; and in some areas there are leakages. The drive ways and parking area have potholes. DGAL headquarters photos are below:

Main entrance of the directorate headquarters: Falling facial boards; Stairs in a sorry state; Building looks abandoned

Leaking ceiling that needs urgent repairs/renovations

Front parking with big potholes filled with water.

With this state of infrastructure, the Directorate may find it difficult to obtain international accreditation and adequately meet its mandate.

The Accounting Officer explained that management is cognizant of this appalling situation and has always engaged MoFPED to increase the Ministry development budget but with limited success. The Ministry gets a paltry 103 Million as its

150 development budget, part of which was used to renovate the Pesticides residue lab; Microbiology Lab; and the Food and Drug labs. For the compound that is shared with other MDAs, management awaits pooling of resources as they continue lobbying government to release sufficient funds for major renovations on the building.

I advised the Accounting Officer to engage all stakeholders including JLOS Swap Programme to ensure that the Ministry secures funds to renovate the infrastructure.

(ii) Performance of the Directorate

The Directorate provides forensic expertise to back up police in complicated cases such as murders and fire out breaks, and also provides expert evidence in courts of law. As noted in my last year’s report to Parliament, again inadequate funding was provided to facilitate the movement of experts to crime scenes and courts of law. In 2014/15, the Directorate only managed to send experts to crime scenes and courts around Kampala and was therefore unable to handle upcountry areas. This has greatly affected the level of crime investigations and delivery of justice. With increasing levels of sophisticated crimes and emerging issues in the Oil and Gas Sector, terrorism, bio terrorism and poisons, it is apparent that the directorate is inadequately funded to execute its mandate.

During the year, the Directorate responded to 97.3% of the 75 court sermons received from Kampala and upcountry, and analyzed and disposed of 61.9% of the 1,692 cases received. Although there was a slight improvement from last financial year’s performance of 52.5% and 35% respectively, management attributed the continued under performance to inadequate funding to procure modern scientific equipment, chemicals and consumables. The Directorate has accumulated cases leading to case backlog due to shortage of chemicals and reagents to do forensic analysis. This has in many cases caused delays in providing expert evidence and government could be losing cases due to lack of evidence to guide prosecution to undertake its mandate.

I advised the Accounting Officer to engage all stakeholders to ensure that the Ministry secures enough funding for the directorate.

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(iii) Lack of maintenance contracts for DGAL Equipment

The Directorate has a number of scientific equipment for analyzing forensic and DNA specimens, checking water and waste water samples and analyzing proficiency testing samples, among others. The equipment in question include; Genetic Analyiser, PCR Machine, RT- PCR, Vortex Mixer/Mini shaker, Thermal Shaker, Electrophorus Machine, Autoclave sterilizer, Comparison Microscope and Electrostatic Detection Apparatus.

Except for the Generic Analyzer, the Directorate has continued to operate the machines without maintenance contracts for these key equipment.

The Accounting Officer explained that there was inadequate allocation of funds for servicing and maintenance of the equipment, calibration of GC/MS, HPLC, AAS and UV-VIS. The budget was still too low to commit service contracts maintenance as the equipment service providers are based abroad.

I urged the Accounting Officer to continue engaging all stakeholders to ensure that the Ministry secures enough funding to undertake this critical activity.

(iv) Breakdown of Gas Chromatograph-Mass spectrometer (GC-MS)

equipment

The GC-MS handles all toxicology/poison related cases for the whole country and is also shared by other labs for different functions in the Directorate like the analysis of Forensic Toxicology analysis (volatile compounds of poison), Pesticide Residue Analysis, and Metabolite component Analysis and Environmental Pollutant Analysis. However, the equipment broke down and the Directorate is currently in crisis of testing forensic cases requiring toxicological/poison analysis.

According to management, the machine had worked for 10 years (procured in 2005) almost non-stop due to heavy work load of poison cases submitted by Police, and was due for replacement. As such, the breakdown of the equipment has caused DGAL to accumulate case backlog of 3,044 poison/toxicology cases submitted by

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Police and continues to submit more. In the absence of this critical equipment, the public is denied timely and effective crime investigations and delivery of justice.

Management explained that the Ministry wrote a request for immediate funds release for the purchase of GCMS but the response was not favorable due to resource constraints.

I advised the Accounting Officer to continue requesting for funding from both Government and JLOS/SWAP Programme for the procurement of the GC-MS equipment.

(v) DGAL-Gulu – Delayed completion of the construction of a Regional

Laboratory in Gulu

The construction of the Regional Laboratory started on 28th January 2008 at a contract sum UGX.436,445,468 and was to be completed by 28th July, 2008 (after 22 calendar weeks). The scope of works comprised construction of a single block laboratory building; including associated electro-mechanical installations and external works.

However, at the time of writing this report, the construction had not been completed (after 7 years) and the site appears to have been abandoned. A total of UGX.236,330,768 (54,15%) was paid to the contractor and the building had been roofed, plastered and fitted with exterior doors and window burglars as shown in the photos below:

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Stalled construction works

The building has unnecessarily taken long to be completed which has impacted on service delivery to the people of the region and undermined the objectives of the project. It is likely that by the time the contract is resumed, the cost to completion will have increased due to deterioration of the building and changing prices of materials thereby leading to loss of public funds. Besides, the Ministry does not have title for the land on which the building is constructed.

The Accounting Officer explained that some effort to complete the building is underway and negotiations with the Contractor have been initiated in order to jump start process again. The Ministry is still pursuing the land issue with Uganda Land Commission.

I advised the Accounting Officer to expedite the completion of the laboratory building to achieve the objective for which it was constructed.

(vi) DGAL Mbarara – Delayed completion and non-use of the building

The laboratory building was constructed at a contract price of UGX.522,079,725 under JLOS funding. The contract was signed on 31st May 2009 and was to be completed within a period of twenty six (26) calendar weeks (by 31/11/2009). However, works were completed on 16/10/2013 after 4 years and 5 months from the date of signing the contract, and was handed over on 20/10/2014, one year after completion. The time lag to completion was abnormally long, a sign of poor planning and contract management.

I further noted that the building has not been equipped with laboratory equipment and put to its intended use more than two years after its completion. The samples collected from the region are sent to Kampala instead, for testing and analysis which greatly affects the timely crime investigations and delivery of justice.

Management explained that it has not been provided with funds to equip the laboratory.

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I advised the Accounting Officer to mobilize funds to equip the laboratory to serve the region.

(vii) DGAL Moroto - Unutilised Government Analytical Laboratory

building.

The laboratory building was constructed under JLOS Programme and the construction works were completed in February 2014. However, the building has not been equipped and utilised for the intended purpose. Information obtained indicated that samples collected from Moroto region are taken to Mbale regional laboratory for testing and analysis which impacts on timely administration of justice in the region. The photo below shows the laboratory:

The laboratory building in Moroto completed in February 2014 is yet to turned into a laboratory Management explained that efforts are being made to mobilize funds to equip the laboratory and have it operationalized.

I advised the Accounting Officer to continue liaising with the Ministry of Finance, Planning and Economic Development and JLOS Secretariat for funding to equip and operationalize the laboratory building.

13.5 Budget Performance – unimplemented activities

During the year, all the appropriated budget for the Ministry amounting to UGX.11,157,221,644 was released representing 100% release. A review of the Ministry’s budget performance for the year 2014/2015, revealed that some targets were not achieved despite receiving 100% of the approved budget. Details are in the table below:

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S/N Planned Approved Amount Actual Expected Output Actual output Remarks/ o Activity Budget Released Expenditur Under e performance Peace Building Amnesty Commission 1212 Improve 219,900,0 219,900,00 219,900,000  12 Dialogue and  Held 03 dialogues  09 dialogue 53 access to 00 0 reconciliation and reconciliation and Social meetings meetings reconciliation Economic between between meetings not reintegrat reporters and reporters and held (75%) ion of communities host communities  UGX.80m not reporters supported. for effective paid to UNRF  Partial fulfilment reintegration of II (40%) of residual reporters commitment  Paid UGX.120m (UGX 200M) to as residual UNRF II commitment to UNRFII Focal point 1212 Impleme 41,410,00 41,410,000 41,410,000  District Peace  Karamoja cluster and The 03 nting 0 Committees in the neighbouring situation Institutio Karamoja cluster districts trained and room was ns and the equipped. not strengthe neighboring operationali ned districts trained zed and equipped.  Situation room operationalized Forensic and General Scientific Services. 1213 Coordinat 902,199,0 818,763,000  Supervision of  Monitored the  No progress 03 ion , 00 regional progress of on Gulu monitorin laboratories construction at construction g and operations Gulu regional to monitor Supervisi undertaken laboratory;  GC-MS was on  Scientific  Scientific not equipment equipment maintained calibrated and calibrated and and it has maintained repaired (GCMS) broken down  Pesticide residue replacement of  Pesticide and DNA Labs Turbo molecular residue and accredited pump, servicing DNA Labs (Among others) of the DNA were not equipment and accredited repair of the cold room for toxicology exhibits);  Accreditation application submitted to the International accreditation body; Criminalistics Services 1213 Forensic 69,153,00 69,153,000 69,153,000  Forensic  1,273 new  Output 01 and 0 investigations forensic cases targets not General undertaken to were received specific to Scientific foster and a total of 628 determine Services administration of cases were performance justice analysed and  The software  Staff trained and reported (49.33% for the software acquired of received poison for the poison cases); information information centre was centre  Poison not acquired  Scientific and Information forensic expert centre /office was opinion provided designated; in the courts of law Community Service 1214 Effective 69,594,00 69,594,000 69,594,000  1500 offenders  1245 offenders 255 offenders 156

03 monitorin 0 rehabilitated and were not g and reintegrated to Rehabilitated and rehabilitated supervisio reduce recidivism reintegrated to and reintegrate n (among others) reduce recidivism (among others) (among others) NGO Registration and monitoring 1215 NGOs 65,113,00 65,113,000 65,113,000  200 selected  187 NGOs  13 NGOs not 02 monitore 0 NGOs monitored monitored; monitored d for Compliance.  22 District (6.5%)  50 District NGO Monitoring  28 District monitoring Committees Monitoring Committees operationalized Committees operationalised . not operationalise d (56%)

Unimplemented activities hinder service delivery, and the appropriating authority’s objectives may not be met.

The Accounting Officer attributed the underperformance to inadequate funding.

I advised the Accounting Officer to liaise with all relevant stakeholders to solicit for adequate funding and have the activities undertaken as planned.

13.6 Staffing gaps

It was noted that the Ministry has 36 vacant posts. These include key posts of: Principal Assistant Secretary, Principal Internal Auditor, two members of Amnesty Commission, DRT Member, Commissioner-DGAL, Assistant Commissioner-DGAL, Principal Government Analysts-DGAL, Senior Government Analysts-DGAL, Senior Lab. Technicians-DGAL, and the Probation and Welfare Officer. Accordingly, the most technical Directorate of Government Analytical Laboratories was most affected. Staffing gaps affect the performance and overall achievement of organizational goals and objectives. The table below refers.

PROGRAMME AFFECTED APPROVED VACANT POSTS POST/TITLE Finance & Principal Internal 1 1 Administration (F&A) Auditor Principal Assistant 1 1 Secretary Drivers 7 1 Amnesty Commission Members of 6 2

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(AC) Commission DRT Member 7 1 Accounts Assistant 1 1 Stores Assistant 1 1 Drivers 12 2 Office Attendants 2 1 Directorate of Commissioners 2 1 Government Asst. Commissioner 2 1 Analytical Principal Govt. Analyst 8 4 Laboratories (DGAL) Senior Govt. Analyst 11 6 Senior. Lab. 5 4 Technicians Personal Secretary 3 1 Steno. Secretary 2 1 Laboratory Assistant 9 1 Stores Assistant 2 1 Office Attendant 9 1 National Community Probation & Welfare 9 3 Service (NCS) Officer Non-Governmental Stenographer 1 1 Organization Board (NGO) GRAND TOTAL 36

Management explained that the recruitment of staff is constrained by the budget ceiling. Management further explained that submissions were being made to the Ministry of Finance planning and economic development, Office of the President and Ministry of Public Service to request for the filling of the vacant positions.

I advised the Accounting Officer to make concerted efforts in liaising with all stakeholders to ensure that vacant posts are filled to enable the Ministry adequately deliver on its mandate.

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14.0 UGANDA POLICE FORCE

a) Payables A review of the statement of financial position revealed outstanding payables of UGX.16,454,307,782. Payables worth UGX.10,500,682,162 were incurred during the year which implies that management continued to incur arrears without establishing sufficient mechanisms to monitor and control them.

Management explained that new payables were majorly a result of the electricity and water (92%) consumed during the year and hence not paid because of insufficient funding for the utilities. I advised the Accounting Officer to clear the outstanding commitments as a first call on the budget as guided by Accountant General and liaise with the relevant Government authorities for adequate funding.

b) Status of Police fleet The Force had 291 and 970 uneconomical and grounded motor vehicles and motorcycles representing 27% and 28% respectively of the available fleet of 1091 motor vehicles and 3452 motor cycles. I also noted that directorate’s budget for fuel based on intended activities but the budget is never fully funded leading to fuel shortfalls that affect the unpredicted police operations. With the high number of uneconomical fleet there is a risk of incurring high maintenance costs.

Management explained that the board of survey of FY 2014/2015 recommended some of the items for board off and the boarding off process is underway.

I advised the Accounting Officer to only maintain a fleet that can be economically repaired. I await the outcome of the boarding off exercise

c) Establishment of a Police Command and Staff College The Force acquired land and buildings at Bwebajja for the purpose of establishing a Police Command and Staff College. However, I noted that although the structures were meant for a school they do not fit the status of a modern Police Command and Staff College. For example some buildings were not fixed with tiles while others 159

lacked ceiling. The plumbing system was incomplete and toilets could not be used. Some buildings had broken door and window glasses and need remodeling and renovations to fit the required level of the Staff College.

In response, management explained that the facility was bought on as-is basis including the varying disrepair. The consultant has been procured to redesign the facility into a modern Police Command College. Funds have been earmarked in the budget for FY 2016/17 for the phased remodelling and renovation of the facility.

I advised the Accounting Officer to develop a master plan to improve on the buildings to suite the required level of a Police Command and Staff College. I also advised the Accounting Officer to request for a structural integrity test and technical evaluation on the buildings by the Ministry of works to ascertain their suitability and strength before any improvement is done on them. d) Land matters (i) Un-surveyed Police land Review of records of Uganda Police Force revealed that the Force has 715 pieces of land across the country occupied by over 600 police stations, barracks and posts. Out of this land, only 102 pieces (15%) have land titles, 145 (21%) are surveyed with deeds, while 428 (64%) are pending surveying and titling. Some of the untitled land is under lease hold with discussions going on with the Buganda Land Board, while the status of some land is not confirmed. Besides, Police land in prime areas like , Wamala Road, Busega, Mbarara and Police stations respectively need physical verification and formalization of ownership. This poses a risk of encroachment of the police land cannot be ruled out.

Management explained that the Force receives UGX.120 million annually for land purchase, compensation of squatters, surveying, titling and opening boundaries; which is insufficient compared to the number of activities required to be carried out on Police land. The Force requires approximately UGX.4.3 billion to undertake all the required activities as stated in 2016/2017 work plan.

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I advised the Accounting Officer to follow up with relevant stakeholders for purposes of securing the required funding so that all the land owned by government is surveyed and secured.

(ii) Under-funding of land section As mentioned in my previous year’s report, the lands section has remained underfunded. The budget of UGX.120m was again provided for the financial year 2014/2015, however, this was not enough to carry out the activity. This financial year (2014/15), UGX.3.7bn had been estimated to cover the surveying, titling, boundary opening, land purchase, land planning and design, compensation and inspection, however only UGX.120m was provided in the budget. At this trend, the Force may not be able to fully acquire ownership of its land in the near future. I advised the Accounting Officer to continue lobbying for more funds to secure ownership and safety of Police land.

(iii) Untraced Police Station land title A review of the land register shows that Kawempe Police Station land title was missing. According to the status information in the register, the search for the original land title for Kawempe Police Station is still on going. I raised this issue in my report of 2012/2013 where I observed the following:  The agreement for this land was signed between Uganda Land Board, Uganda Police Force and Kakungulu Family, duly witnessed by the Chairman Uganda Land Board for purchase of land valued at UGX.645,000,000.  The land was duly paid for by the Uganda Police Force in full.  A copy of the agreement and title was handed over to Uganda Land Board by the Kakungulu family. However it has since disappeared at the Uganda Land Board Offices.

To date, Uganda Police Force has not obtained the title to their land and management has not shown what steps it has taken since the report was raised to ensure that the documents are recovered. In the absence of a legally binding agreement and title, management of Uganda Police Force risks losing this valuable asset.

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Management explained that the title was surrendered by the family of Kakungulu and duly acknowledged by Uganda land commission. Having handed over the title to Uganda Land Commission, the matter is beyond the UPF.

I advised the Accounting Officer to follow up the matter with the Uganda Land Commission and ensure the title and a copy of agreement is obtained to guarantee ownership. e) Police Marines Unit The main role of Police Marine is to ensure maritime security and safety. This is achieved by ensuring maintenance of law and order within Uganda water bodies, collaborating and liaising with other maritime stakeholders locally and internationally, enforcing government regulations on immigration, fishing and smuggling on Uganda waters, monitor and coordinate search and rescue operations on water and, ensuring patrols on water to prevent trespassers and pirates. The marines’ headquarters is located at Kigo, . I reviewed the operations of this unit and observed the following:

(i) Lack of a marina (parking) Police has over 40 vessels including long distance patrol boats, firefighting boats, fiber glass boats and inflatable boats deployed in the detach units on all major water bodies of Lakes Victoria, Kyoga, Albert, Edward and George. However, the Force lacks a marina at Kigo marine headquarters for safe docking and parking of major boats. As a result, some big boats are docked/parked at Lake Victoria Serena Hotel for safety purposes, while others are dry docked (parked on land) at Kigo headquarters. The marines also lack a maintenance yard from where repairs and maintenance would be carried out.

A consultant was hired in January 2014 and came up with the architectural designs but to date, the contractor for the construction of the marina has not been procured. In the circumstances, the marine vessels are not properly maintained and are subject to vandalism.

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Management explained that funds to kick start the construction of a marina have been set aside but works have not begun pending formalization of land ownership issues with Buganda Land Board.

I advised the Accounting Officer to expedite the process of formalizing land ownership and construct the marina and maintenance yard to safe guard the available vessels.

(ii) Inadequate vessels A discussion with the deputy in charge marines revealed that the boats are still few. The unit lacks enough speed boats (interceptors) for proper and timely monitoring, enforcing government regulations, search and rescue operations, and ensuring patrols on water to prevent trespassers and pirates. For example, at Migingo Islands which is a sensitive island, Uganda Police has a fiber glass boat compared to their Kenyan counter parts that have a speed boat. This hinders the marines to effectively ensure maritime security and safety on the waters.

Management noted the need to have more boats but was hindered by a limited budget. They further explained that recently the Force received a donation of 2 fire boats from the Government of China and has planned to acquire four (4) more speed boat in the financial year 2015/2016 which will reinforce the Marine activities.

I await the outcome of the Accounting Officer’s effort to acquire extra boats to reinforce the Marines Unit.

(iii) Lack of adequate equipment Boat carriers The unit lacks boat carriers/trailers for removing the boats from water. It was noted that some boats had remained in water for two and a half years since they were lowered to the lake yet best practice requires boats to be removed from water every after a year for checking and thorough cleaning.

Lack of boat cleaning and thorough checking might impair their performance and lifetime, thereby putting the lives of the operators and users at risk.

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There is need to secure boat carriers/trailers to safeguard the lives of users and prolong the lifespan of the boats.

Lack of Simple salvage and Navigation equipment, an Automatic Identification System (AIS), and Diving equipment The Unit lacks tool boxes on boats with salvage equipment like airbags and compressors for use in case the boat develops issues on waters. There are no navigation systems on the lake like the GPS and radar systems, and night vision goggles to help the boat crew in case of bad weather and radar failure. The Unit also lacks an Automatic Identification System (AIS) to monitor the boat movements on waters from the office, and in case the boat gets a problem in the middle of the lake and there is no network, the unit headquarters cannot ably know and locate where the problem has occurred from.

Further, the diving services are not adequate for all the marine sites. The only ten (10) pairs of diving equipment available are centralized at Kigo marines’ headquarters and Jinja. The other unit detaches do not have diving equipments and yet are far from the unit headquarters which hinders timely rescue operations. According to management, at least seven (7) more diving equipments are required for other unit detaches. In the absence of these equipment and system, the unit cannot effectively patrol the waters and ensure maritime security and safety.

Management explained that the available funding cannot enable Police acquire all the relevant equipment. However, efforts are in place to acquire more equipment as the budget improves.

I advised the Accounting Officer to prioritize equipping the marines unit and mobilize funds to secure the required equipments and system.

(iv) Human resource-understaffing Marines unit has a workforce of 197 staff with over 40 vessels. A review of the unit nominal roll revealed that only 10 staff have mechanical/technical related qualifications while 6 have qualifications in fisheries. Through the discussion with marines’ top management, I noted understaffing of the Navigation and Diving

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Section, and the Engineering section and urged management to liaise with the MoFPED for additional resources to cover the staffing gaps.

Navigation and Diving Section The section has only 3 trained navigators. An interaction with the navigation team revealed that 15 navigators would be ideal to navigate the available boats. The current 3 navigators are overworked which poses a risk of accident due to fatigue while navigating the boats. A workforce of 15 navigators would allow working in shifts and avoid fatigue while navigating.

Management responded that police is still under the recommended International Police: Population ratio of 1:500. However, with the recent recruitment and pass out of Cadets and PPCs, 45 personnel were seconded to the Marine unit and have since been inducted and deployed to boost the staffing levels.

I await for the outcome of management efforts.

Lack of accreditation and adequate skills The current 3 trained navigators are not accredited and certified internationally. This is a requirement of the insurance companies without which, one cannot be compensated in case of any eventuality like accidents. To qualify for accreditation however, there is need for skills development through advanced training in marines. This too applies to divers. The recent scenario of pirates throwing a gun in the water is case in point. The gun could not be recovered because of deep waters, lack of trained capacity of divers and adequate diving equipment. Without a trained Force, the unit cannot be effective to achieve its mandate using the available resources.

Management noted my observation and attributed non-accreditation of navigators to the budget insufficiency. The Accounting Officer explained that the Human Resource Directorate has plans to train and have more officers accredited.

I await management commitment on the matter.

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Engineering Section The engineering section has 15 staff; some with general mechanical and elementary marine engineering skills, while 5 are specialists in boat building and not engine building. An interview with the in-charge engineering revealed need for advanced marine training to acquire specialized skills in marine boat engine building. Without adequate skills, boat engine maintenance remains a challenge to the unit and impacts on the operations of the boats and the marine unit.

Management in their response explained that a new Directorate of Human Resource Development has been created and tasked with drawing up a master plan for skills development in the entire workforce, Marines inclusive. The Accounting Officer further explained that some training is already underway both within and outside the country, and that in the current financial year, 45 staff are undergoing marine training by Korean instructors.

I encouraged management to improve the capacity of the marine staff and develop skills through recruiting more technical staff and arranging for advanced marine training courses for the current staff. Efforts should be put in place to have the technical staff from navigation and diving sections accredited to the international bodies.

(v) Inadequate accommodation The marines unit has two accommodation blocks with a capacity of 16 officers. This is insufficient as other officers use “self-help” system as accommodation. Lack of adequate accommodation demotivates staff from efficiently currying out their duties.

Management explained that the Force has an accommodation challenge due to inadequate funding but alternative plans under PPP were developed. With the passing of the PPP law the problem is planned to be addressed through partnering with private entities.

I await the outcome of the developed PPP arrangements.

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(vi) Inadequate fuel The unit detaches are provided with 200 liters of fuel for operations per month (6.4 liters per day) and yet the fiber boats at each unit consume 20 liters per hour. According to the in-charge, each unit detach requires at least 60 liters a day which puts the fuel requirement per month to 1,800 liters for the units to effectively monitor the waters. Lack of enough fuel affects the efficient monitoring and patrolling of the waters which puts the maritime security and safety at stake.

Management explained that due to the inadequate budget, the fuel allocations are insufficient. However, in financial year 2015/16 the fuel budget was revised slightly upwards and the fuel allocation to the Marine unit was also increased.

I advised the Accounting Officer to allocate more fuel to the marines unit to enable it secure the waters.

(vii) Condition of the boats Most of the boats are in a good running condition except for the 7 (seven) Interceptor Speed boats which need repairs. The interceptors are useful boats to the marines unit with inbuilt twin engines that provide enough speed for adequate patrols and interception of wrong elements like pirates on the waters. However, the boats are currently dry docked awaiting repairs. According to the engineer in charge, the engines are in good running conditions but there is a risk of further deterioration of the boats if repairs are not carried out in time and boats lowered into water for operations. Besides, there is a general delay in the procurement of maintenance parts for the speed boats because the spare parts are not on the open market which affects the timely repairs on the boats and impacts on securing maritime security and safety.

Management explained that the contract to maintain and refurbish the Marine boats was awarded and the speed boats will soon be repaired. However, funds available in the budget may not be adequate to have all the boats repaired but phased as the funds become available in the budget.

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I advised the Accounting Officer to mobilize funds and ensure that the interceptors are timely repaired to avoid further costs through deterioration of the boats, and under performance of the marines unit in securing the waters.

f) Budget Performance A review of the budget performance for the year 2014/2015 revealed that some targets were not achieved despite receiving 100% of the approved budget. Details are as per table below: Planned activity Actual activity Remarks Response 800 police officers Conducted a 728 officers not The 728 officers were not sensitized on the new sensitization sensitised sensitised due to a limitation laws (Public Order workshop for 82 in funding. The training was Management Act, senior officers in not all funded in the budget Anti-Homosexuality Field Force Unit as planned. The required Act, Prevention of (FFU) on Human training budget requested Torture Act, Female Rights Concepts, for in the MTEF was not fully Genital Mutilation Act, Public Order funded. Domestic Violence) Management Act, 2013, Prohibition and prevention of Torture Act, 2012 (PPTA) Canine units Opened 3 canine  6 canine units not There was a delay in the expanded to 9 more units in Kamuli, opened construction of Kennels in districts of Kyenjojo, Bugongi (Shema) the said districts as a result Kumi, Apac, Maracha, and Bugiri.  Deviated from the of late release of funds for Nakaseke, planned districts to capital, this led to the Mbulambuli, Katakwi, others canine reconsidering Kaliro and priorities to districts with Nakasongola higher crime rates with functioning kennels as noted in the actual activity and also was able to replace aging sniffer dogs in Lira, Mpigi, Rukungiri and Arua. Policing systems built Not implemented. Not implemented This activity was not funded on ICT Platform; the HRMS, Crime Records Management System, IPPS rolled out to regions A marina at Kigo Procured consultant Construction has not Construction of the Marina Marine Base who designed the commenced to commence in 2015/16 constructed. police marina and after formalisation of the made the lease of the land by the architectural Buganda Land Board. drawings and bills of quantities. 5000 personnel Trained 200 4800 personnel did The balance of the funds trained in specialized detectives in fraud, not get the was used to train Field Force skills cyber and homicide specialized training. Unit personnel due to

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(intelligence, fraud, investigation demand. cyber and money techniques. laundering, SGBV, Human Trafficking Forensic laboratory Not implemented Not done This activity was not funded equipped. Police College Concluded the Partially implemented The funds for completing established procurement process and equipping the college for the police college were not provided and partial payment made.

Unimplemented activities hamper service delivery, and the appropriating authority’s objectives may not be met.

Management explained that some activities could not be implemented because of inadequate funding.

I advised the Accounting Officer to ensure adequate planning and implementation of approved activities.

15.0 UGANDA PRISONS SERVICE

a) Un-titled land

I observed that although UPS has 247 prisons across the country, 49 of them are on surveyed land and titled, 119 are not surveyed and 79 are on Kingdom and District land.

There is a risk of loss of this land if these properties are not secured by way of titles.

Management explained that surveying and titling of land in the Kingdoms and Districts has not been easy as some need negotiations between the institutions and UPS while others have not given clearance to survey and title such land. This became more complicated with the return of kingdom properties including land titles as the kingdoms are demanding rent from UPS.

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Management further explained that on consultation, the Attorney General advised that UPS has four (4) options: to rent the land and pay dues, to lease the land, to buy the land, or opt to vacate the land.

I advised the Accounting Officer in the meantime to open the boundaries of the land not under negotiations and have it titled to safeguard from encroachment and possible reallocation to private developers. I further advised management to continue pursuing negotiations with the kingdoms to have land allocation formalized. b) Commitment of Funds for procurements

PPDA Regulation 105 (1) of PPDA Regulation, 2014 requies that before a procuring and disposing enity shall not initiate any procurement proceedings or activities for which funds are neiher available nor adequate.

It was noted that UPS made procurements which were in excess of the budgeted amount of UGX.246,373,000 without Secretary to Treasury’s written confirmation that the funds would be made available in the subsequent financial year. Details in the table below:

Subject of procurement Budgeted Actual Amount Over and above Amount Budget 120hp agricultural tractors 1,050,000,000 1,087,656,658 37,656,658 Service truck and tools 95,000,000 160,000,000 65,000,000 Spare parts(mf) 45,000,000 67,000,000 22,000,000 Spare parts (Renault) 33,000,000 40,397,833.36 7,397,833 Purchase of construction 161,300,000 255,597,612 94,294,612 equipments Purchase of pick ups 630,000,000 843,358,287 213,358,287 Purchase of 10ton 710,000,000 996,019,169 286,019,169 trucks,purchase of 5ton trucks, boat, tri-cycle Iron sheets 800,000,000 1,000,250,000 200,250,000 Iron bars 175,000,000 219,500,000 44,500,000 Valley gutters 100,000,000 101,623,000 1,623,000 Total 246,373,000

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Procurements in excess of the budgeted funds affects the budget allocation for other planned items and may result into accumulation of domestic arrears.

Management attributed the over commitment of funds on the procurement of agricultural and transport equipment, and spares to the drastic increase of the exchange rate of Uganda Shillings against the USD. Management further explained that after a lengthy procurement process, the continuous increasing rates of foreign exchange coupled with the urgency and demand for agriculture and transport equipment; it was considered cost effective to purchase items as planned rather than cancelling and repeating the procurement at a high price in FY2015/16. The extra funds were budgeted and included in FY2015/16.

I advised the Accounting Officer to ensure that all procurements conducted by the entity are within the approved budget provisions or where required, authority should be obtained from Secreatry to the Treasury on the future availability of funding. c) Funds not transferred to the Consolidated Fund at the end of the year

UGX.2,808,413,252 was reported in the statement of financial position as cash and cash equivalent at the end of the financial year. The unspent funds should have been transferred to the consolidated fund by close of the year however, UPS did not remit the funds to the condolidated fund.

Non-remittance of unspent balances to the Consolidated Fund is irregular.

Management explained that these were unspent balances which were supposed to be transferred to the UCF by BOU after closure of the financial year, and promised to get confirmation of transfer from BOU and adjust the accounts accordingly.

I await confirmation of transfer of the funds. d) Misalignment of Courts and Prisons Location - Access to Justice

It was noted that some prisons and courts are not well aligned/located in the same area for effective and timely delivery of prisoners to court. As a result, the cost of

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fuel and vehicle maintenance for delivering prisoners to courts is high. Some of the misaligned prisons and courts with the distances in between are shown below:

Prison Court Distance Bubukwanga Bundibugyo 16km Butiti Kyenjojo 21km Masafu Busia 15km Nebbi Paidha 20km Bubulo Rwakhaka 14km Namalu Nakapiripirit 28km Tororo Malaba 17km Nebbi Ragem 28km Buhweju Bushenyi 40km

Management explained that the issue of court and prisons location has been brought to the attention of all levels of JLOS leadership namely criminal justice working group, technical, steering and leadership committees at every fora including GoU - Donor review meetings. The long term strategy is to construct prisons near courts and the short term strategy is to continue purchasing vehicles and providing fuel for delivery of prisoners to existing courts.

On the short-term strategy, management further explained that UGX.4.7bn was required to procure 10 buses, 10 trucks, and 10 pick-ups against a provision of UGX.1.45bn (31%) leaving a short fall of UGX.3.25bn. Fuel and vehicle maintenance required UGX.3.1bn against a budget provision of UGX.0.609bn leaving a shortfall of UGX.2.49bn.

I advised the Accounting Officer to liaise with sister institutions under the Justice Law and Order Sector to consider putting up the justice centres nearer to prisons facilities for easy access of justice by prisoners. In the meantime through its budgetary function continue requesting for more funding to cater for transport and other related costs in order to deliver inmates to court.

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e) Inspections

1) General observations (i) Congestion in prisons It was noted that Uganda Prisons Services was planned to provide a total carrying capacity of a daily average of 16,517 prisoners. By June 2015, the population of prisoners stood at 45,092, exceeding the available capacity by 28,575 inmates (occupancy level is 273%). Some prisons are overcrowded, housing up to 3 times their designed holding capacities. Congestion in prisons has resulted to poor hygiene and outbreak of diseases. The table below refers on a sample basis:

Station Capacity Occupancy % F/Portal 314 1184 377 Ruimi 420 574 137 Mobuku 250 359 144 Isingiro 100 227 227 Kabale-Men 260 575 221 Kabale-Women 15 41 273 Jinja Main 336 1141 352 Jinja Remand 340 868 255 Tororo 280 572 204 Mbale 336 840 250 Soroti Main 444 536 121 Manafa 30 59 197 Arua-Men 250 828 331 Arua-Women 24 53 221 Lira-Men 260 676 260 Lira-Women 50 67 134

Management explained that the majority of prisons structures were constructed in 1920s and for smaller population, and have not expanded at the same rate with prisoners’ population growth rate of 7% per annum compared to the country’s population which is growing at 3.4%. The Accounting Officer further explained that a proposal for renovation and expansion of prisons was submitted to the Ministry of Finance, Planning & Economic Development and a phased approach over a period of 5 years was proposed. The total amount required for the renovation and expansion

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of 80 prisons including barracks was estimated at UGX.120bn with UGX.24bn required funding per year, which the Ministry promised to handle over the medium term.

I advised the Accounting Officer to continue liaising with the responsible authorities for more funding to put up more accommodation facilities / prisons to improve on inmate’s accommodation.

(ii) Inadequate Staff accommodation According to the Strategic investment Plan III UPS has about 6000 uniformed staff of which only 18% of the staff has accommodation leaving 82% of the staff without accommodation. In all the 20 prisons visited, including; Ruimi, Yumbe and Arua, staff are accommodated in acutely dilapidated quarters, canteens, recreational facilities and locally made grass huts, while others rent outside the barracks at their own cost. Staff quarters at Fort Portal main Prisons were roofed with asbestos sheets which pose a cancer threat to the occupants. Below are some of the inadeaqute staff accommodation observed during field inspections:

Dilapidated house in Arua Grass hut in Ruimi Grass hut in Yumbe

Management explained that UPS strategy of housing staff is to provide a two (2) bedroom house to each staff using Force Account. However, a budget of UGX.400bn is required to construct 5,000 housing units and renovate existing staff barracks. A phased approach is to construct 500 housing units per annum over ten (10) year period. This requires UGX.40bn per year compared to UGX.700m that was provided in the financial year 2014/15.

I await the outcome of management commitment to resolve the housing problem in UPS.

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(iii) Lack of adequate uniforms for inmates During audit inspections carried out in 2015, it was noted that both Prison warders and inmates were not provided with adequate uniforms. Whereas inmates are supposed to be provided with at least two pairs of uniforms, they were provided with only one pair of uniforms and in some instance some inmates did not have uniforms at all. For example, at Tororo Prisons, out of 572 inmates, 79 in inmates did not have uniforms while the rest only had one pair.

Lack of adequate uniforms makes it difficult for inmates to maintain hygiene and while the uniorm is washed, it takes long to dry, which poses a risk of inmates escaping from prisonson because an escape becomes difficult to differentiate between the prisoners and the non-prisoners. It is worse for inmates in Prison farms where they have to work in the gardens on a daily basis.

Management attributed lack of uniforms to the funding gap which has been brought to attention of MoFPED and Parliament through BFP and MPS. The Accounting Officer further explained that they have developed a strategy of capitalising tailoring workshop as a cost reduction.

I advise the Accounting Officer to ensure that each inmate is provided with at least two pairs of uniforms to maintain their hygiene and avoid possible. I further urged management to fully develop the tailoring strategy to reduce on the cost of buying uniforms.

(iv) Ratio of Remand to Convicts in the Prisons The UPS Strategic investment Plan III, sets a ratio of the remand to convict as 52.7:47.3. However during audit inspection, it was observed that the ratio of remand to convict in sampled stations was at 74:25 which was far from the required level as indicated in the table below.

Station Remand Convicts Remand Convicts ratio Jinja Main 95 1046 Jinja Remand 749 112 87:13 Tororo 273 294 48:52 Mbale 660 180 78:22

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Manafa 51 8 86:14 Average ration 74:25

Holding a big number of remand prisons implies that inmates take long in prison because they are not produced to court as required or their hearings are not fixed by court in time, leading to delayed justice to the prisoners. This also has an impact on feeding costs, uniforms, water consumption, warder staffing levels, and other congestion related challenges in the prisons.

Management explained that the issue of high remand population has been brought to the attention of all levels of JLOS leadership namely criminal justice working group, technical, and steering and leadership committees at every fora including GoU - Donor review meetings. The remand issue has resulted into Court case count which is ongoing at all courts in the country.

I advised the Accounting Officer to consult with the responsible institutions/government to timely try inmates that have been committed to high court to decongest the prisons.

(v) Remand for more than Two years Chapter 4 of the constitution requires speedy trial within stipulated time limits for capital and petty offences. The Justice Law and Order Sector under the Strategic investment Plan III, is committed to ensure inmates have better access to justice and lives in a safer and secure environment, which is more responsive to human rights and reduce the length of stay on remand from 30.3month to 15.1 month for capital offences and from 6 to 4.4 month for other offences. 34.3 percent of the total number of the inmates in the stations sampled. Details are as per the table below: Station Number of remand Total number of % of the remand more than 2 more than Two years remand years to Total number of the remand Jinja Main 10 95 10.5% Jinja Remand 465 749 62% Tororo 294 Not availed 176

Mbale 203 660 30.7% Soroti Main 141 536 26.3% Manafa 0 50 0 819 2,384 34.3%

Holding inmates on remand for more than two years without trial is a violation of prisoners’ rights to trial which denies them timely justice. This has also contributed to congestions in prisons with their associated challenges including lack of a secure environment to the inmates and to exercise their human rights.

Management explained that the issue of high remand population has been brought to the attention of all levels of JLOS leadership and awaits for action.

I urged the Accounting Oficer to continue engaging with the JLOS leadership for a practical solution.

(vi) Health services Section 69 of the Prison Act 2006, requires the inmates to have adequate health services. According to the Strategic investment Plan III, all inmates in need of health care should be able to receive first level health care within the prisons. The coverage of HIV/AIDS services is limited to only 15% of the health units in UPS. The staffing capacity of health workers in the availed UPS health facilities is low. Whereas the established post for health workers is 436, only 218 (50%) are filled leaving a 50% gap of 218 posts unfilled. This has impacted on health service delivery in the prisons and poses risk of more inmates getting infected.

During audit inspection in 2015, it was observed that HIV/AIDS and other contagious diseases were on the rise posing a risk to the health of the inmate if not well well attended to.

Further, a review of the health services status in UPS revaled the following:  There are staffing gaps in the Health Centres. Although Health Centre IIIs have an establishment of 19 health workers, all the health centres had between 4 to 7 health workers. 177

 Some of the staff working in the health Centres are seconded from the District and the UPS has no control over the them hence affecting the service delivery.  Most of the prisons visited lack isolation wards for the inmates that have chronic diseases.

The absence of adequate medical staff and appropriate equipment negatively impacts on the delivery of medical services to both the inmate and the prison staff. Besides, lack of isolation wards poses a risk of the contagious diseases spreading and affecting the live of other inmates.

Management explained that the package of HIV/AIDS services provision is determined by the level of health care and availability of specific cadres and equipment. However, to adequately provide health services in prisons requires an annual provision of shs.3.8bn against a provision of shs1.25bn leaving a short fall of shs2.55bn. A request to increase the wage bill to provide for more health workers at the prisons health centers has been submitted to Ministry of Public Service.

I advised the Accounting Officer to liaise with the Ministryof Public Service to have all the posts of the health workers filled for improved delivery of health services to inmates and staff at the prisons.

(vii) Shortage of warders The ideal ratio of Warden to prisoners is 1:3 but by the time of inspection, the ratio was at 1 warder for every 14 prisoners (1:14) at Fort Portal prisons, 1:7 at Isingiro and 1:10 at Arua. This was high and posed a high risk of prisoners’ escape. A case in point when 13 prisoners escaped from Fort Portal Main prison; 8 of them were recovered (re-arrested) and 5 are still at large; while in the last 24 months 10 prisoners escaped fron Arual men prison. According to the in-charge of Fort Portal Prison, the 8 recovered prisoners were re-arrested for different crimes committed.

Management explained that the issue of staff recruitment has been continuously brought to attention of Ministry of Public Service but and only 1000 warders were cleared for recruitment in FY2014/2015

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I advised the Accounting Officer to continue liaising with the responsible fund further recruitment of staff to minimize the risk of prisoners’ escape.

2) Other observations on specific prisons The following specific issues were also observed in specific prisons:

No Issue Prison Jinja Mobuku Ruimi Isingiro Kabale Arua 1 Inadequate workshop × 2 Land ownership (lack of land × × × titles) was observed in , Isingiro and Kabale. 3 Lack of a tractor in Mobuku × 4 Weak Fence was observed in × Mobuku 5 Poor sanitation was noted in × × × × Mobuku, Ruimi, Kabale and Arua. 6 Misuse of prison facility in × Mobuku 7 Inadequate prison wards in × Isingiro

Management explained that overhaul of sanitation in all stations has been prioritized and included in the renovation proposal submitted to MoFPED. Management further explained that construction of prisons, provision of water, transport facilities and the issue survey and tiltiling of land require funding which is unavailable.

I advised the Accounting Officer to mobilise funds to address the concerns raised.

16.0 JUDICIARY DEPARTMENT

16.1 Accrued Expenditure Commitments on Rent

The Public Finance Management Act, 2015 section 23(1) provides that the Accounting Officer shall not to enter into a contract, transaction, or agreement that

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binds Government to a financial commitment for more than one financial year or which results in a contingent liability except where the financial commitment or contingent liability is authorized by Parliament. A review of the financial statements indicated that out of the outstanding sundry creditors of UGX.11,038,979,655, an amount of UGX.7,471,587,017 is accrued on rent alone. Adjusted accrued rent for previous financial year stood at UGX.7,406,028,975. It was further observed that the multi-year expenditure commitments were not authorized by Parliament. Delayed payment of rent leads to possible eviction of the Courts, to the embarrassment of the Judiciary. The Table below refers:

Accrued Rent Accrued Total Rental Amount Paid Accrued Rent Adjusted Rent During the year Commitments during the year commitment C/F expense B/F under review 7,406,028,975 7,912,581,736 15,318,610,711 7,847,023,694 7,471,587,017

The Accounting Officer acknowledged the observation and explained that efforts were made to obtain additional funding for rent and only UGX.3bn was approved for financial year 2015/16 to offset the accrued bills. The escalation in outstanding bills was also attributed to the increase in the USD exchange rate since some of the tenancy agreements are quoted in US Dollars.

I advised the Accounting Officer to pursue the matter further with the MoFPED in order to settle the outstanding obligations.

16.2 Budget performance - unimplemented activities

The total approved budget for the Judiciary was UGX.87,160,268,764 and the entity received 100% of the allocated funds. Total payments amounted to UGX.87,040,959,545 resulting into unutilized amount of UGX.119,309,219. Although there was good performance in utilization of the funds, I noted that some planned activities were not implemented. The Table below refers:

Activity Description Planned Actual Under Cost of Cost of % Output Output performance planned Actual performance out put output Disposal of Civil Appeals 35 18 49% 6.7 bn 4.8bn 71.6% Appeals in Criminal 45 5 88.9 the Appeals Supreme Constitution 10 5 50% 180

Court Appeals Disposal of Civil Appeals 200 151 24.5% 7.3bn 5.4bn 74% Appeals and Criminal 400 97 75.8% Constitution Appeals Matters in Constitution 20 20 - the Court of Appeals Appeal Disposal of Appeals 600 208 65.3 26.6bn 19.5bn 73.3% Appeals and Suits 14,400 10,222 29% Suits in the Persons 600 0 100% High Court Offered legal aid through justice centers Small claims Targeted 0 Procedure figure further rolled not out indicated Information Targeted 0 Desk set up in figure selected not courts indicated Public Targeted 0 relations figure strengthened not indicated Mediation Targeted 0 strengthened figure through not Justice indicated Centers Disposal of 129,839 suits 129,839 66,688 48.6% 24.4bn 18.2bn 74.6% Suits and disposed of in Appeals in Magistrate the Courts; Magistrate Guidelines for Targeted 0 Courts Management figure of not Registries indicated developed; Open days Targeted 0 conducted figure not indicated

The underperformance has escalated the case backlog in the Judiciary.

The Accounting Officer explained that unimplemented activities majorly arose due to lack of headship in the first 3 quarters of the financial year which affected work in the Supreme Court, missing records on appeal in the Court of Appeal due to highly manual processes that affected the case disposal and lack of staff on the lower bench coupled with uncommitted lawyers. This has continued to affect case disposal at magistrate courts. Notwithstanding the above, the Judiciary is implementing new and faster procedures like plea bargaining in criminal matters, small claim procedures, and alternative dispute resolution in civil matters in order to increase on 181

case disposal. The Judiciary also plans to decentralize the Court of Appeal as well as rationalize magisterial areas through gazetting more courts.

I advised the Accounting Officer to ensure that all planned activities for which funds are released are completed to enable the department deliver its mandate.

16.3 Staffing Gaps

A review of the Judiciary structure revealed staffing gaps in the staff establishment as 379 posts remained vacant during the year. These included among others; 4 Justices of the Supreme Court, 4 Justices of the Court of Appeal and 32 Judges of High Court.

Lack of staff in vital positions of the organization affects the performance and overall achievement of organization’s goals and objectives. This has a negative effect on service delivery and is a contributory factor to case backlogs.

The Accounting Officer explained that approved positions remain vacant due to the wage ceiling. In the financial year 2015/16 the additional wage allocation was UGX.1 billion only. Inadequate staffing level in the Judiciary is being addressed. For example, recently 5 Supreme Court Justices and 7 Justices of the Court of Appeal were appointed. Submissions to fill vacancies in the High Court and the lower bench have also been forwarded to the Judicial Service Commission. For the other Judiciary staff, submissions have been made to the relevant appointing authorities.

I advised the Accounting Officer to continue liaising with the relevant stakeholders to expedite the process of filling these vacant posts.

17.0 DIRECTORATE OF PUBLIC PROSECUTIONS

17.1 Budget Performance – Unimplemented Activities

A review of the entity’s budget showed that UGX. 22,515,226,113 was released against an approved budget of UGX.23,151,496,616, representing 97% of the approved budget. A further review of the physical performance for the year

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2014/2015 revealed that some planned activities were not implemented as shown in the table below:

Budgeted Approved Actual Short fall Actual Comment output / Budget release output/ Planned activity activity  WAN covering 4,975,351,000 4,971,751,000 3,600,000 Some  Procurement process 30 offices and items done and contracts HQs established have signed. The items been have however not  Unified delivered been delivered and communication but installed. Contract established in others performance has 31 offices have not. delayed. Installati  Network ons have  Payments for management not been PROCAMIS software and made amounted to UGX hardware yet. 3,959,697,902 acquired. during the year but the system has not been installed. There is need to acquire an optimum database engine such as Oracle to support PROCAMIS

Un-implemented activities could hinder achievement of the workplan, hamper service delivery, and the appropriating authority’s objectives.

Management explained that delivery of the IT communication equipment was delayed because of security concerns by the countries of origin but these concerns have now been addressed and the contract will be completed as soon as possible. Further it was indicated that Oracle software for PROCAMIS had been delivered and system development is on-going.

I advised the Accounting Officer to ensure that the contractor fulfils the contractual obligations and have the activity finalised.

17.2 Non-deduction of WHT from rental payments to NSSF

The Directorate paid a total of UGX.1,731,746,849 to NSSF for rent during the financial year. However, 6% WHT amounting to UGX.103,910,811 was not deducted and therefore not remitted to URA contrary to provisions of the income tax Act. Details are as shown in table below: 183

Pay't Date Inv. No EFT. No. Purpose Amount 6% WHT 7/17/2014 GO/JUL- 1412793 Deposit for Rent - 240,776,640 14,446,598 15/6 Qtr 1 Jul-Sep 14: Head office 9/2/2014 GO/AUG- 2144036 Part settlement 215,231,941 12,913,916 15/994 for Head office at workers house 11/20/2014 GO/NOV- 2879240 Part Settlement 189,533,000 11,371,980 15/25 of invoice 16730 for Qtr 2 Rent Head office 12/9/2014 GO/DEC- 3203486 Part settlement of 614,051,019 36,843,061 15/522 Rent Arrears 1/30/2015 GO/JAN- 3875589 Part Settlement 231,477,609 13,888,657 15/242 of invoice17703 UGX 240,776,640 - rent for the period January - March 2015 4/22/2015 GO/APR- 4637465 Settlement of Q4 240,776,640 14,446,598 15/72 Rent charges for head office per invoice70916 Total 1,731,846,849 103,910,811

Non-deduction of withholding tax could attract penalties and surcharges from the tax authority.

Management explained that NSSF had been exempted from WHT in the FY 2013/14 which was however not renewed in FY 2014/15. The Directorate continued paying rent without deducting WHT with the belief that NSSF was still WHT exempt. The omission was regretted and management was in talks with NSSF to recover the tax from the subsequent rent payments.

I await the outcome of the Accounting Officer’s interaction with NSSF.

18.0 DIRECTORATE OF CITIZENSHIP AND IMMIGRATION CONTROL a) Outstanding payables A review of the statement of outstanding commitments revealed that at close of the financial year 2014/2015, there were outstanding payables of UGX 79,856,210,630.

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Within the payables, there were sundry creditors of UGX. 53,554,188,415, up from UGX.22,059,059,238 in the financial year ended 30th June 2014, representing an increase in sundry creditors of UGX. 31,495,129,177 (143%).

Further, it was noted that UGX 874,264,954 owed to Uganda Printing and Publishing Corporation (UPPC) in respect of rent has been outstanding for more than two years.

Accumulation of outstanding commitments is a violation of the commitment control system.

Management responded that the increase in payables was as a result of unforeseen challenges during the implementation of the National Security Information System Project as indicated below:  There was no budget provision for movement of registration officers from Sub County to parishes (2days per week) at a rate of UGX10,000 per officer.  There was also no budget provision for transportation of kits during continuous enrolment exercise. The total cost for this activity was UGX.588m for a period of 5months (August-December 2015).  The budget provision was based on only 10 regions yet the pyramidal structure adopted provided for 23 regions  Insufficient funds in the budget for hard to reach areas including island areas among others. The total expenditure on this line item was UGX.207m.  Delivery and retrieval of mass enrolment materials also had no budget provision.

Due to the critical nature the ID project caused by the electoral process timelines, the project did not have enough funds to pay for all the contractual obligations hence leading to the accumulation of the Domestic arrears.

With regard to the outstanding debt with UPPC, Management explained that the matter is being addressed administratively after guidance from the Solicitor General.

I advised the Accounting Officer to liaise with Ministry of Finance Planning and Economic development and ensure that the outstanding payables are cleared.

185 b) Mischarged Expenditure The Parliament appropriates funds in accordance with the needs of the country and this appropriation is implemented through the budget in which funds are tagged to particular activities and outputs using account codes and MTEF codes. A review of the Ministry’s expenditures revealed that the entity charged wrong expenditure codes to a tune of UGX.1,273,346,799. This constituted 0.7% of total expenditure for the year of UGX.185,941,664,257.

Mischarges undermine the importance of the budgeting process as well as the intentions of the appropriating authority and lead to misreporting.

Management explained that the mischarge of expenditure was a result of insufficient budgetary allocations and severe cuts in respect of items referred to as consumptive items by the MOFPED.

I advised the Accounting Officer to streamline the budgeting process to ensure that sufficient funds are allocated to each account. I also advised that authority should be sought for any reallocations. c) Absence of Approved Strategic Plan As reported in my previous reports, the entity has continued to operate without a corporate plan that spells out the long and medium term plans. Absence of an approved strategic plan affects the overall guide to planning and priority setting. The achievement of the organizational mission and objectives are likely to be negatively affected.

Management explained that a draft strategic plan is ready pending validation and adoption by top management and other stakeholders.

I advised the Accounting Officer to expedite the approval of the strategic investment plan. d) Missing generators Records showed a total of 1451 generators owned by the Directorate. A total of 1380 generators were in the field in various parts of the country, 41 generators were 186

in the stores at , out of which 40 were non-functional. The balance of 30 generators remained unaccounted for.

It was also noted that the asset register maintained by the Directorate captured only Generator Engine numbers but did not capture frame numbers, the model of the Generator was merely recorded as “Generator” instead of “EP 2500 CX Generator”, and the values of the generators were not recorded in the manual register.

There a risk of loss of the Government assets due to lack of proper records.

Management explained that the exercise of up-dating fixed asset register is ongoing.

I advised the Accounting Officer to expedite the process updating the fixed asset register and also account for the thirty generators. e) Procurement of NSIS equipment The Accounting Officer contracted out the procurement of additional machinery and equipment for the National Security Information System were (NSIS) to Internal Security organization (ISO) in the financial year ended 30th June 2014. The machinery and equipment were worth UGX.83,187,152,448 and USD.6,637,239. As shown in the table below:

PROC REF. DATE OF SUPPLIER SUBJECT OF LOT Contract Sum SIGNING PROCUREMENT No. (UGX) CONTRACT OP-ISO/SUPPLS/13- 31st January MFI Document Supply of Additional 1 52,997,031,083 14/00012/01/01 2014 Solutions Ltd Machinery and Equipment for NSIS Project OP-ISO/SUPPLS/13- 30th January Netsoft Consulting Supply of Additional 2 1,527,253,600 14/00012/01/02 2014 Services (PVT) Ltd Machinery and Equipment for NSIS Project OP-ISO/SUPPLS/13- Not dated MFI Document Supply of Additional 3B 24,469,171,711 14/00012/01/3B Solutions Ltd equipment for NSIS project OP-ISO/SUPPLS/13- 30th January Honda (U) Ltd Supply of Additional 4 1,716,066,684 14/00012/01/04 2014 Machinery and Equipment for NSIS Project OP-ISO/SUPPLS/13- 31st January MFI Document Supply of Additional 5 1,722,834,370 14/00012/01/05 2014 Solutions Ltd Machinery and Equipment for NSIS Project OP-ISO/SUPPLS/13- 30th January Supply Masters (U) Supply of Additional 6 754,795,000 14/00012/01/06 2014 Ltd Machinery and Equipment for NSIS 187

Project

Total (UGX) 83,187,152,448 OP-ISO/SUPPLS/13- 29th May 2014 Muhlbauer Id Supply of Additional 3A USD.6,637,239.2 14/00012/01/3A Services GmbH Machinery and Equipment for NSIS Project Total (UGX) USD.6,637,239.2

I was unable to carry out the audit of the procurement last year, because the related documents were not readily available. However, the documents were later availed by management, and below are the findings in respect of the audit of the procurement:

(i) Use of brand names in the bid document Regulation 265 (1) of the PPDA 2003 states that “No specification shall be issued with reference to a particular trademark, brand name, patent, design, type, specific origin, producer, manufacturer, catalogue or numbered item”. Where there is no other sufficiently precise or intelligible way of characterizing a requirement the description shall be used, followed by the words "or equivalent", and shall only serve as a benchmark during the evaluation process.

However, the technical specifications and general requirements in the bid documents for the purchase of 4258 cameras under Lot 1 were specified as “Canon EOS 1100D or its equivalent“. Although the word equivalent was included, It does not suffice in this regard as the camera can sufficiently and precisely be characterized without use of reference as provided under Regulation 265(2). Use of branded names when preparing specifications limits competition and may imply that the PDE intended to push out certain providers in favour of some.

Management explained that reference to the brand name “Canon” was used as a benchmark for evaluation purposes basing on Regulation 265 (2) since there was no other sufficiently precise way of describing what was needed. Besides the phrase “or equivalent” was inserted after the brand name “Canon” in order not to eliminate competition.

I advised the head of Procurement and Disposal Unit to desist from using branded names when preparing specifications of requirements.

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(ii) Delayed deliveries There were delays in deliveries of the equipment in the various lots as indicated in the table below: Lot No DATE OF Contract Amount Expected Actual Period of Delay SIGNING CONTRACT (UGX) Delivery Date Delivery Date

1 31/01/2014 52,997,031,083 20/02/2014 31/05/2014 99 days (over 3 months)

2 30/01/2014 1,527,253,600 19/01/2014 07/04/2014 47 days

3B 17/04/2014 24,469,171,711 06/03/2014 02/07/2014 79 days

5 31/01/2014 1,722,834,370 20/02/2014 26/04/2014 94 days

6 31/01/2014 754,795,000 20/02/2014 28/02/2014 8 days

Management attributed the delays in the deliveries to late release of 40% down payment to the supplier by 3 weeks. Further, management explained that the delay was caused by the Chinese Annual New Year holiday, which ran from 30th January to 9th February 2014.

Delayed deliveries affected the commencement of the enrolment exercise for two months which impacted on the timely implementation of the mass enrolment program.

I advised the Accounting Officer to ensure that procurements are planned in time and to give the providers realistic delivery periods.

(iii) Lack of individual unit price schedule

The bidding document required all bidders to submit a price schedule for supplies and related services using a format provided in section 4-bidding forms where all items were to be priced separately.

However, the provider did not indicate the unit price for each individual enrolment kit item but instead provided a lump sum price of UGX.52,552,031,065.74. This made it

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difficult to make a comparison of the bids. Further, it was not possible to compute the liquidated damages due as a result of late delivery of 3246 spare batteries and 3258 USB hubs.

Management explained that the End-user asked for the Enrolment Kit as a Unit and the price estimation was based on the Kit. In the Price Schedule, the Enrolment Kit was stated as a “Biometric Kit”, with country of origin, quantity, unit price and taxes specified.

I advised the Accounting Officer to always ensure that all bids received conform to the bid instructions provided to all the potential bidders for proper comparison and subsequent evaluation.

(iv) Liquidated damages not claimed - UGX 178,614,181 The terms and conditions of the contracts provided for liquidated damages 0.2% of the value of undelivered supplies per week of delay in case the provider failed to deliver the items in time. However, the providers failed to deliver the items as per contract terms and the entity did not claim liquidated damages. Details of the liquidated damages that should have been claimed: Lot No Contract Amount (UGX) Period of Delay Liquidated Damages (UGX)

2 1,527,253,600 47 days 6,358,748

3B 24,469,171,711 79 days 147,474,726

5 1,722,834,370 94 days 24,780,707

Total 178,614,181

Failure to charge the liquidated damages as per contract demonstrates inadequate contract management.

Management explained that the delay by the suppliers to deliver within the stipulated period was due to the late payments.

I advised the Accounting Officer to always adhere to the terms of the contract and charge damages where applicable. 190

PUBLIC SECTOR MANAGEMENT

19.0 MINISTRY OF LOCAL GOVERNMENT

a) Mischarge of Expenditure

A review of the Ministry of Local Government’s expenditure revealed that the entity charged wrong expenditure codes to a tune of UGX.12,086,792,676. This constituted 40% of total actual expenditure for the Ministry of Local Government. Whereas the funds were spent on items for which they were not originally budgeted for, the accounts have been presented in a way that reflects that the amounts were spent on the earlier budgeted items. Further, included in the UGX.12,086,792,676 are a number of diversions that I took special interest in the findings which have been summarized in 8.1.1 and 8.1.2 below.

I explained to management that mischarges undermine the importance of the budgeting process as well as the intentions of the appropriating authority and lead to misreporting. Under the circumstances, the financial statements are not fairly presented.

Management explained that the mischarge was caused by inadequate budget ceilings which were insufficient to meet key mandated activities and unforeseen interventions that required swift actions.

I advised the Accounting Officer to make realistic budgets, and also incur expenditure in line with approved budgets. In case reallocations are required, appropriate authority should be sought.

(i) Diversion of funds meant to procure 111 District Chairperson’s

vehicles

During the year, the Ministry planned to procure one hundred eleven (111) and six (6) vehicles for the District chairpersons and the Ministry respectively. This involved a total contracted amount of USD 4,590,568 for all the vehicles inclusive of taxes. Funds totaling to UGX.7,013,611,179 (inclusive of taxes) were released to cater for part payment of the district vehicles and full payment of the Ministry vehicles.

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However, it was noted that only UGX.1,487,636,396 was spent on the vehicles procured from M/s Toyota Ltd and the balance of funds (UGX.5,525,974,783) was diverted and utilized on recurrent expenditure without authority from the PS/ST. These funds were subsequently transferred to staff personal accounts – UGX.4,361,949,108, payments for African Day of Decentralization (ADDLD) celebrations – UGX.118,277,664, cash withdrawals – UGX.120,000,000, fuel - UGX.28,000,000, hotel bills – UGX.110,844,899, refund of borrowing to DLSP project and DTRF - UGX.315,674,140, rent – UGX.196,859,360 and others. I reviewed the advances to personal accounts and my observations were summarized in Paragraph 8.2. Use of Development funds to cater for recurrent expenditure is contrary to financial regulations.

Although management explained that the releases were inadequate to fund the key Ministry activities and the procurement process for the vehicles was not concluded within the financial year; thus the need for utilization of funds on unfunded activities.

I advised the Accounting Officer to ensure that any reallocations should be supported with authority from the PS/ST.

(ii) Other diversions of funds for planned activities/Budget

performance

A review of the performance of the entity for the year, revealed that some targets were partially or not achieved despite release of funds to the vote functions. A bulk of funds were diverted as stated hereunder;  GOU counterpart funding for MATIP activities to undertake consultancies and payment of VAT were not undertaken.  Construction of Local Government administrative units was not undertaken  Transfers to the districts were not fully done.

The table below refers:

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The table below provides the details of other diversions of funds of planned activities:

Vote function Item description Planned outputs / Amount Amount Actual output/ Remarks Management output Quantity (UGX) released Quantity responses budgeted (UGX) Project 1307- 134972-Government  Disbursements to 735,000,000 514,750,000 - Buvuma town Despite receiving The release of money was Suppprt to Building and local Governments council - 70% of the funds demand driven. The Ministry of Local Administration UGX.100,000,000 only balances of the money Government Infrastructure - Kibiito town UGX.243,845,400 was spent on the critical council - were transferred to key ministry’s activities UGX.20,000,000 the districts - Masaka district representing only general fund - 47% of the funds UGX. 23,485,400 received. - Kayunga District - UGX.100,000,000 134979-Acquisition of  Naguru Nakawa 100,000,000 75,000,000 No consultancies Despite receiving The project was other Capital Assets housing project done 75% of the funds, transferred to Office of supported/consultanc no consultancy was The President and funds ies done were spent on supportive related activities i.e. verification of MOU’s, tenant registration, archiving documents etc. Project-1292- 132203-Conflicts  International 200,000,000 200,000,000 - No conference Despite receiving all Conference did not take Millennium between appointed conference with IPC held the funds no place because of logistical villages project II and elected officials conducted conference was held issues however funds in Local governments were spent on other resolved project related activities. 132205-LG’s support  Consultancy work 338,000,000 338,000,000 - No workshop Despite receiving all The amount was to Local Economic MVP II co finance held the funds no transferred to the project Development and the implemented consultancy account and used to pay Community Driven workshop was held consultants. Dev’t

Project 1088- 132105-  Complete re- 230,000,000 230,000,000 - Complete All funds were All funds spent on Market and strengthening local settlement of vendors resettlement of received but training resettlement of vendors Agriculture Trade service delivery and back in completed vendors of urban councils and training will be done Improvement development markets and vendors was after. Project not done. Two out  Continue to mobilize of three planned and sensitize vendors activities were implemented.  Conduct training of urban councils and vendors associations in market management

132172-Government  Construction of Jinja, 1,840,388,885 1,754,172,000 No payments Despite receiving The liability was waived Buildings and Lira and Gulu Markets made for non- 95% of the funds no off by the GOU for the Administration completed residential payment was made financial year and funds Infrastructure building for the non- were used on the residential building ministry’s key activities i.e. such as consultancy, inspections, outreaches VAT but rather and conflict resolutions. funds were diverted to personal accounts TOTAL 3,552,388,885 3,220,922,000

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Diversion of funds distorts and inhibits the intention of the appropriating authority. Besides, diversion of funds without authority is contrary to the regulations.

Management explained that the releases were inadequate to fund the key Ministry activities. The procurement process for the vehicles was not concluded within the financial year, thus the need for utilization of funds on unfunded activities.

I advised the Accounting Officer to streamline the budget process to ensure that sufficient funds are allocated to each account. Further, authority should be sought for any reallocations as guided by the law. b) Advances to Individual Personal Accounts of UGX.10,460,426,784

(i) Non-Compliance with Treasury Accounting Instructions

Sections 227, 228 and 229 of the Treasury Accounting Instructions (TAIs), Part 1 finances require that all payments should be made by the Accounting Officer directly to the beneficiaries. Where this is not convenient, an imprest holder should be appointed by the Accounting Officer with the approval of the Accountant General. However, it was observed that UGX.10,460,426,784 was advanced to Ministry staff through their personal bank accounts to undertake direct procurements and carry out other Ministry activities contrary to the regulations. Such a practice of depositing huge funds on personal accounts exposes Government funds to risk of loss since the Ministry does not have any control over funds deposited on personal accounts.

Management explained that Ministry activities require multiple disciplinary teams going to different local Governments to carry out different mandates costing more than UGX.40,000,000 which warrants advancing money to various officers to minimize the risk of advancing money to one or two officers.

I advised the Accounting Officer to ensure strict adherence with the requirements under the Treasury Accounting Instructions.

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(ii) Questioned Advances to personal accounts

A review of the advances to personal accounts of UGX.10,460,426,784 in 8.2.1 was carried out and the following anomalies were noted:

(iii) Unaccounted for UGX. 3,827,011,454

Personal advances to the tune of UGX.3,827,011,454 were not accounted for by the respective officials. As such, I could not ascertain whether the funds were used for the intended purpose. It was also noted that the unaccounted for funds were not reflected as advances receivable in the financial statements at the end of the year. The financial statements were therefore misstated by UGX.3,827,011,454.

Management explained that IGG had taken all financial records of the Ministry for investigations and appropriate administrative actions will be taken when investigations are concluded.

I await results of the IGG investigations on the matter.

(iv) Funds requisitioned without involvement of departmental

heads – UGX.2,441,881,736

It was noted that a bulk of funds not accounted for worth UGX.2,441,881,736 were requisitioned by initiators and approved by the Permanent Secretary without approval by the respective department heads of the initiators. This is contrary to the Treasury Accounting Instructions (TAI) that require approval of claims by respective heads before being finally approved by the Accounting Officer.

Management explained that activities were in line with approved departmental work plans and budgets and that in some instances the heads of departments were not at the station at the time of requisition. The Principal Internal Auditor was asked to review the matter but the IGG took all the documents for detailed investigation. Appropriate action will be taken when investigations are concluded.

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I advised the Accounting Officer to ensure that in future, heads of departments are involved in the authorization of expenditure of funds under their care as required by the financial regulations.

(v) Excess payments for night subsistence allowances –

UGX.499,590,000

Public standing orders 2010 travel allowances (E - b) provide for a maximum claim of 150 days in night allowances per year. However, it was noted that an officer claimed up to One thousand thirty six (1036) nights in one year. UGX.499,590,000 was paid in excess of the allowable expenditure and I found this irregular. The table below refers.

S/N NAME NIGHTS RATE AMOUNT LIMIT LIMIT EXCESS EXCESS PAID PAID(B) DAYS AMOUNT DAYS AMOUNT (A) PAID

1 A 478 120,000 57,360,000 18,000,000 39,360,000 150 328

2 B 333 120,000 39,960,000 18,000,000 21,960,000 150 183 3 C 282 120,000 33,840,000 18,000,000 15,840,000 150 132 4 D 309 120,000 37,080,000 18,000,000 19,080,000 150 159 5 E 278 110,000 30,580,000 16,500,000 150 128 14,080,000

6 F 414 110,000 45,540,000 16,500,000 29,040,000 150 264 7 G 290 110,000 31,900,000 16,500,000 150 140 15,400,000 H 857 110,000 94,270,000 16,500,000 77,770,000 8 150 707 9 I 519 120,000 62,280,000 18,000,000 44,280,000 150 369

10 J 304 110,000 33,440,000 16,500,000 154 16,940,000 150

11 K 326 110,000 35,860,000 16,500,000 176 19,360,000 150

12 L 1036 120,000 124,320,000 18,000,000 886 106,320,000 150

13 M 218 120,000 26,160,000 18,000,000 68 8,160,000 150

O 304 120,000 36,480,000 18,000,000 154 18,480,000 14 150 15 P 396 120,000 47,520,000 18,000,000 246 29,520,000 150

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16 Q 310 150,000 46,500,000 160 24,000,000 150 22,500,000

TOTAL 6654 783,090,000 283,500,000 4254 499,590,000

Management explained that allowances received by individual officers were paid to other officers for outreach programs and inspection. Further, management indicated that weekend travelling was also paid for but was excluded in the excess days computation. IGG is undertaking detailed investigations and appropriate administrative actions will be taken when investigations are concluded.

I await the results of the IGG’s investigations into the matter.

(vi) Disallowed expenses of UGX.635,621,910

Accountability of UGX.635,621,910 were disallowed due to the following anomalies;  One officer claimed to have paid for accommodation, meals and venue for 70 participants at a guest house. However, when audit contacted some of the participants, they denied having been accommodated. My contact at the guest house also denied having hosted the function. Besides, the contact indicated that the guest house has the capacity of only 18 rooms and could not have accommodated 70 participants as indicated in the claim.  It was observed that voucher number R378-R379/May 2014 clearly had two drivers receiving allowances. However fuel receipts indicated usage of four vehicles i.e. Reg No. UG2223R, UG3011R, UG1176R and UG2925R, casting doubt on how two drivers could have utilized four vehicles at the same time.  Some officers requisitioned for the same activities in the same places more than twice. For example inspection of training centres for Katakwi TC, Katakwi District and Kaberemaido District and TC was requisitioned twice using requisition voucher number R592/Aug and R155/Nov. Also voucher numbers R246/Aug-2014, R153/NOV and R247/AUG were used for requisitioning funds for the inspection of training centers in Lira MC, Lira DC, Oyam, Dokolo DC, and Amolatar by the same officials. This resulted into duplication of activities and therefore loss of government funds.

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 Some officials produced activity consolidated reports even before the field officials had completed the collection of data from the respective areas that they had been deployed.  Some officials accounted for funds before receipt making it appear like they had lent Government money.  Some officials requisitioned funds to carry out inspection of project activities (under MATIP) in areas where the project was not operating such as Sheema, Ntoroko and Kiruhura. Besides, these officials were not project staff.  In some instances officials claimed to be performing different activities at the same time in different places. For example an official is purported to have carried out an activity of monitoring Community Driven Development (CDD) programs in eastern region of Jinja and Kamuli on 1st – 4th September 2014, however the officer again claimed to have carried out an activity in Mpigi and Buvuma in the same period (8th-14th September using R518/Aug 2014 and R481/Aug 2014 respectively).

Management explained that advance holders were informed about the observation and asked to provide further explanations on accountabilities. However as noted earlier IGG took all documents for investigations.

I await the results of the IGG’s investigations.

(vii) Direct procurements instead of using suppliers

UGX.248,927,671 was used to procure goods and services (such as procurement of t-shirts for youth day, stationery and construction materials) using single sourcing method, in situations that were not of an emergency nature. The procurements were also above the threshold of UGX.5 million and as such could not have been micro procurements. This practice not only contravened the procurement law but also exposed the Ministry to a risk of unfair prices. Besides, suppliers were not subjected to withholding tax worth UGX.14,935,660.26 (6% of UGX.248,927,671) nor were purchases verified by internal audit and taken on charge.

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Management explained that procurements undertaken with the funds had competitive prices and some were urgent interventions.

I advised the Accounting Officer to adhere to procurement regulations irrespective of how urgent the matter may be. Adequate planning on the work-plans generated by management minimizes cases of emergency.

(viii) Fuel deposited on personal accounts of staff

UGX.1,111,725,800 was deposited into staff personal accounts to procure fuel instead of being deposited on the Ministry fuel cards. Out of this amount, UGX.378,557,300 was not accounted for. It was noted that most of these activities were carried out in areas where fuel cards could easily be accessed, for example; Mbale, Mbarara and Soroti.

Management explained that indeed fuel cards should be used where there are petrol stations with such facilities, however the officers were advanced to enable them access fuel in rural areas without the facilities.

I did not find merit in the management explanation, given that for areas such as Mbale and Soroti, the fuel card system operates adequately. As such I advised that the policy on the use of fuel cards be complied with.

(ix) Funds held on staff personal accounts after end of year

It was noted that one officer held funds in her personal account even after the closure of the financial year. However no adjustments were made to reflect receivables in the accounts of the Ministry.

I could not rule out the possibility that a number of staff who held funds in their personal accounts fall in this category. Details are in the table below:

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INVOICE DESCRIPTION EFT NO. DATE AMOUNT NUMBER R307/Feb-2015 advance of funds to facilitate 3931889 16/02/2015 19,939,326 the CAIIP 1 closure workshop R307/Feb-2015

R306/Feb-2015 advance of funds to facilitate 3934283 17/02/2015 9,000,000 the CAIIP 1 closure workshop R306/Feb-2015

R306/Feb-2015 advance of funds to facilitate 3934283 17/02/2015 10,938,000 the CAIIP 1 closure workshop R306/Feb-2015

R305/Feb-2015 advance of funds to facilitate 3942132 17/02/2015 19,945,000 the CAIIP 1 closure workshop R305/Feb-2015

R304/Feb-2015 advance of funds to facilitate 3956036 19/02/2015 19,940,000 the CAIIP 1 closure workshop R304/Feb-2015

TOTAL 79,762,326

The above flaws rendered the accountabilities in question doubtful. In this regard, I was unable to confirm whether the amount involved was applied for the intended purposes.

I recommended for an extensive investigation into the accountabilities by the IGG and Police. c) Irregular Transfers and refunds to Project accounts

(i) Irregular borrowing from project accounts-UGX.356,194,140

Section 42(c) of the Treasury Accounting Instructions, Part 1 Finance empowers the Accountant General to issue accounting warrants to Accounting Officers authorizing them to commit or incur expenditure for the purposes and up to the amount specified in the warrants. The Accountant General’s warrants are based on cash limits as determined and advised by the Secretary to the Treasury.

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Contrary to the Treasury Accounting Instructions, it was observed that the Ministry borrowed a total sum of UGX.356,194,140 from 4 Project Accounts (District Livelihoods Support Programme, District Transport Revolving Fund, Uganda Good Governance Programme and SWAP Development), to fund Ministry’s activities. Authority to borrow from the respective donors was not availed for verification. Besides, accountability of UGX.242,520,940 was not availed to enable me confirm genuineness of the refunds. As such I could not confim that the activities were undertaken. Details are as per table below;

Invoice/Vr EFT No. DESCRIPTION Amount Unaccounted Payee No. (UGX) for (UGX) R034/Feb-2015 3915128 Refund of borrowed 14,270,000 - Uganda Good funds for tuition Governance fees for Mwijukye Programme Charles R034/Feb- 2015 R122/May-2015 4996027 Refund of funds 2,514,940 22,514,940 District borrowed for the Livelihoods travel of the Hon. Support MoLG and Ag PS to Programme travel to Nairobi Kenya to attend the 25th session of the governing council for Habitat 111 R122/May-2015 R123/May-2015 4996027 Refund of funds 17,410,000 17,410,000 District borrowed to cater Livelihoods for the facilitation of Support Ministry officials Programme who attended the retreat at the National Leadership Institute Kyankwanzi (NALI) R123/May-2015 R123/May-2015 4996027 Refund of funds 23,546,000 23,546,000 District borrowed to cater Livelihoods for the facilitation of Support Ministry officials Programme who attended the retreat at the National Leadership Institute Kyankwanzi (NALI) R123/May-2015 R325/Feb-2015 3942131 Refund of funds 66,268,800 - District borrowed to clear Transport outstanding internet Revolving bills R325/Feb-2015 Fund

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R326/Feb-2015 3942131 Refund of funds 33,134,400 - District borrowed to clear Transport outstanding internet Revolving bills R326/Feb-2015 Fund R070/Aug-2014 1643644 Refund of funds 26,250,000 26,250,000 SWAP borrowed to Development facilitate the - Local verification of Government Market Vendors digesting of vendors register and allocation of market facilities in Mbale Central Market R070/Aug-2014 R070/Aug-2014 R053/Mar-2015 4275609 Replenishment of 152,800,000 152,800,000 District funds spent to clear Transport urgent bills Revolving R053/Mar-2015 Fund

356,194,140 242,520,940

Management took note of the anomaly and explained that the related documentation were taken by IGG’s office for investigations.

I advised the Accounting Officer to avoid the practice and ensure strict adherence to commitment control guidelines and donor guidelines. Meanwhile, I await the results of the IGG’s investigation on the matter.

(ii) Transfer of Millennium Villages Project (MVP) Phase II GOU

counterpart funds to intermediary Project bank accounts

The Ministry undertook implementation of the Millennium Villages Project Phase II with funding from IDB and Government of Uganda (GOU). GOU budget was UGX.538,000,000 out of which UGX.526,999,165 was received. The funds were to be transferred to a project account number 00011008000047 held in Bank of Uganda.

Review of the Ministry transfers for project co-funding revealed that two project bank accounts (UGOGO and DDP III) were used as intermediaries to transfer the funds to the project bank account purportedly due to delayed set up of the account number on the IFMS system. Out of UGX.526,999,165, UGX.149,384,000

203 was transferred through UGOGO and UGX.377,615,165 was transferred through DDP III.

Account set-up on IFMS system: It was noted that it takes only two weeks to set up a bank account on the IFMS system according to Accountant General. However, the Ministry failed to set up the account for the whole year under review and kept on transferring funds through the intermediary bank accounts that exposed the funds to risks of misuse.

Under-remittance of funds from UGOGO bank account: It was noted that UGX.14,270,400 was under-remitted to the project account as a result of UGOGO remitting UGX.135,113,600 to the project account on 28/5/2015 instead of UGX.149,384,000 received by the Ministry TSSA for onward remittance on 19/5/2015.

Transfer of funds to closed project bank account: Guidelines issued by the Accountant General with regard to completed projects require that the Ministry writes to the Accountant General requesting for closure of project bank accounts. I noted that the DDP III programme funded by UNCDF/UNDP programme activities ended in December 2012. Project closure processes were fully undertaken which disbanded the implementing teams at the Ministry and a project completion report duly issued. I could not ascertain the rationale for maintenance of the DDP III closed project bank account and depositing UGX.377,615,165 for onward remittance to MVP.

Transfer of funds to other Project accounts exposed the Ministry to risks of under- remittance of co-funding funds to the intended Project which affected project performance resulting into ineligible expenditure.

Management explained that the project account has now been set up. With regard to under-remittance, management explained that this was a recovery of borrowed funds by the Ministry from the project. Management further explained that DDP III is still operational with funding from UNCDF and UN women. 204

I explained to the Accounting Officer that project closure procedures should not have been undertaken and advised that this account is closed henceforth and a new bank account opened officially for the new funds that are being received from UNCDF and UN women as advised by the Accountant General.

I also advised the Accounting Officer to transfer the under-remitted funds.

(iii) Diversion of development funds to closed project bank

account - District Development Programme III

The DDP III programme was funded by UNCDF/UNDP and closed in December 2012 as stated earlier, and project closure processes were undertaken and a completion report duly issued.

A review of the Ministry expenditure revealed that the Ministry continued remitting funds to the project. UGX.300,000,000 had been remitted for activities relating to the financial year 2014/2015 specifically to cater for expenditure relating to procurement for machinery and equipment raising several concerns as indicated below;

Authority for funding: The financial year appropriation by Parliament for the Ministry did not provide for the project and as such this transfer was a diversion of Ministry funds.

Procurement of machinery and equipment: It was noted that no procurement of such nature was carried out but rather the funds were diverted to cater for recurrent expenditure mainly salaries for project support team, petty cash, solar inspection, development of E-lib etc. This practice undermines the importance of the budgeting process and suffocates approved programmes where the funds are diverted from.

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Although management explained that the project is still operational with some funding from UNCDF and UN women, however, I was not satisfied with this explanation because there was no budget provision for the project especially on procurement of machinery or equipment in the circumstance.

I advised the Accounting Officer to close this project bank account and should there be need for a new account, management should seek authority from the Accountant General.

d) Cash Withdrawals

(i) Unaccounted for Cash Withdrawals of UGX.277,405,900

Section 226 of the TAI’s Part 1 Finance requires cashiers to keep records of payments made by them in Cash Books and to stamp all the vouchers with a “PAID” stamp and file such vouchers immediately a payment has been made. In addition, Section 181 requires all vouchers to contain full particulars of each service or goods and be accompanied by such supporting documents as may be required so as to enable them to be checked without reference to any other documents.

Contrary to the Accounting instructions, UGX.277,405,900 withdrawn in cash was not accounted for as no documentation to support the utilisation of the funds was provided at the time of audit.

I advised the Accounting Officer to avail the accountabilities for audit review or institute recovery measures.

(ii) Office Tea Imprest funds unaccounted for

Ministry staff were advanced UGX.46,690,000 through their bank accounts and yet they were not authorised imprest holders. The funds were purposely for office tea imprest for various departments on a quarterly basis. Besides, appropriate records

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such as accountabilities, cashbooks and journal vouchers were not kept and maintained.

I have from time to time pointed out that the practice of depositing funds into personal bank accounts exposes Government funds to risk of loss since the Ministry does not have any control over such funds after they are deposited on personal accounts.

Management explained that the ministry is in the process of appointing departmental imprest holders to manage the operational imprest.

I advised the Accounting Officer to stop the practice of depositing imprest funds into personal bank accounts of staff who are not authorised by the Accountant General. Meanwhile, I advised the Accounting Officer to recover UGX.46,690,000 from the responsible officers. e) Forex Payments

(i) Unsupported travel abroad of UGX.278,805,465

A review of the travel abroad payments revealed that UGX.278,805,465 paid to Ministry officials for purposes of facilitating travel to various destinations outside Uganda were not adequately supported by accountability documents. Specifically the following were not provided:  Copies of the passport pages bearing exit and entry immigration stamps of the countries where the officers purportedly travelled to.  Boarding passes, visa receipts, and electronic air tickets were not availed.

In the absence of the travel documents, the number of per diem days claimed, staff undertaking travels and expenditure incurred could not be confirmed, rendering the whole payment doubtful.

I advised the Accounting Officer to ensure that officers are not advanced additional funds prior to accounting for previous travels. Besides, management

207 should also ensure that the concerned officers avail the supporting documentation or recoveries be enforced.

(ii) Travel days in excess of Prime Minister’s approval

UGX.22,301,600 was incurred outside the Prime Minister’s approved limits because staff travel allowances paid were in excess of the Prime Minister’s approved entitlements. These payments were initiated by using request for clearance before approval by the Prime Minister. Irregular payments affect the Ministry cash flow position and adversely affect service delivery.

Management noted my concern and promised to ensure adherence to the regulations.

(iii) Air-tickets arrears

It was observed that travel abroad payments to officers in form of per-diem allowances, visa fees, conference fees, warm clothing etc. were made either in cash or through personal accounts for travel and all air-tickets were procured from travel agencies to facilitate officers’ travels.

A review of the payments in this category revealed that no single payment of air tickets was made during the entire year contrary to the Government commitment control system that bars Accounting Officers from incurring expenditure without confirmation of funding. Outstanding air tickets worth US$.77,953 were ascertained although the actual amount incurred might have been higher because there were no quotations on some payment requests. The Ministry risks litigation costs from the service providers which could have been avoidable and also mischarging expenditure.

Management explained that this was caused by the budget cuts experienced in the year. The list of domestic arrears had been submitted to Ministry of Finance, Planning and Economic Development requesting for additional resources to offset the outstanding bills.

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I advised the Accounting Officer to always ensure adherence to the commitment control system. Meanwhile, I await the results of the engagement with MOFPED in settlement of these arrears.

f) Procurement irregularities

(i) Procurement of solar packages for the districts of Kabarole,

Sheema, Rakai and Lwengo

The Ministry undertook six (6) procurements of solar packages for four (4) districts at a contracted sum of UGX.922,845,962. A review of these procurements revealed the following anomalies;

Procurement splitting and Limitation of bidders Section 6(1) of the PPDA regulations 2014 (1) requires a procuring and disposing entity not to split a procurement requirement, where it can be procured as a single contract.

I noted that the procurements for supply and installation of the solar packages were split into six procurements during the year with each procurement estimate below UGX.200 million thus enabling the Ministry to use the restricted bidding procurement. Management invited six firms and five firms returned bids. Two (2) firms were awarded contracts who shared the six (6) procurements. Details are analyzed below;

Procurement Date of Estimate Firms Firms Firm Amount of reference no. initiation price shortlisted responding awarded contract by user (UGX) price department (UGX) MOLG/suppls/14- 17/7/2014 160,000,000 -DSN -Africa -Africa 150,000,000 15/00017 International Visionary Visionary (U) Consult(U) Consult -Africa Ltd (U) Ltd Visionary -Kross Consult(U) holdings (U) Ltd Ltd -Kross holdings (U) Ltd -Proc. 209

Technical services Ltd MOLG/suppls/14- 8/8/2014 -DSN -Africa -Africa 79,834,400 15/00024 80,000,000 International Visionary Visionary (U) Consult(U) Consult -Africa Ltd (U) Ltd Visionary -Kross Consult(U) holdings (U) Ltd Ltd -Kross holdings (U) Ltd -Proc. Technical services Ltd MOLG/suppls/14- 30/10/2014 198,000,000 -Stoat -Stoat Stoat 196,378,283 15/00062 Holding Ltd Holding Ltd holding Ltd -Kross -Kross holdings (U) holdings (U) Ltd Ltd - DSN International (U) MOLG/suppls/14- 30/10/2014 195,000,000 -Stoat -Stoat Stoat 195,386,143 15/00063 Holding Ltd Holding Ltd holding Ltd -Kross -Kross holdings (U) holdings (U) Ltd Ltd - DSN - DSN International International (U) (U MOLG/suppls/14- 23/01/2015 160,000,000 -African -African Stoat 159,925,062 15/00116 visionary visionary holdings consult (U) consult (U) Ltd Ltd Ltd -Stoat -Stoat holdings Ltd holdings Ltd - Kross Holdings Ltd MOLG/suppls/14- 23/01/2015 140,000,000 -African -African -African 139,920,901 15/00117 visionary visionary visionary consult (U) consult (U) consult (U) Ltd Ltd Ltd -Green power - DSN co. Ltd International - DSN (U) International (U)

3 of the contracts were awarded to Stoat Holdings Ltd and African Visionary Consultant (U) Ltd at contract prices very close to the estimated prices. By awarding the contracts to the 2 companies only, the Ministry may not have achieved value for money.

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Management explained that funds for the solar packages were released on a quarterly basis and thus the splitting into quarterly basis. I explained to management that the regulations are very clear and provide for commitment for a contract only after confirmation of funding but do not bar the entity from undertaking the procurement process at once.

I advised the Accounting Officer to always aggregate all similar requirements and procure at once as required by PPDA regulations. Besides, open bidding should always be prioritized in huge procurements before resorting to fall back positions.

Irregular costing of bid prices Withholding tax deducted from service providers by Government entities is a credit against the corporation tax the suppliers must pay to URA during the year and is backed by tax credit certificates issued to the suppliers. It was noted during the review of the solar package evaluation reports that UGX.39,410,289 was irregularly charged on top of the suppliers’ total costs as 6% withholding tax payable by the Ministry of Local Government. Details are in the table below;

Contractor Total Price 6% WHT Contract Procurement Ref Number (UGX) Sum MOLG/suppls/14-15/00062 SHL 185,262,532 11,378,283 196,378,283 MOLG/suppls/14-15/00063 SHL 184,326,550 11,059,593 195,386,143 MOLG/suppls/14-15/00116 SHL 150,872,700 9,052,362 159,925,062 MOLG/suppls/14-15/00117 AVC 132,000,850 7,920,051 139,920,901 39,410,289

The Ministry was therefore overcharged in the circumstance.

I advised the Accounting Officer to ensure that withholding tax is not charged on costed supplies, works or consultancy services by service providers. The funds charged irregularly should be recovered.

Non-deduction of withholding tax from payments Withholding tax to the tune of UGX.36,561,220 from payments of UGX.922,845,962 to SHL and AVC for supply and installation of solar packages in 211

the districts of Kabarole, Sheema, Rakai and Lwengo was not deducted for onward remittance to URA contrary to the tax law. Details are below:

WHT WHT VR. NO. EFT NO. DESCRIPTION AMOUNT WHT DUE DEDUCTED OUTSTANDING SUPPLIER R102/Jan-2015 3592559 Invoice No 150,000,000 9,000,000 7,627,119 1,372,881 0011 LPO No.2453 AVC R025/Mar-2015 4263764 Invoice No 80,000,000 4,800,000 4,067,797 732,203 0018 LPO 2463 AVC R011/Apr-2015 4774776 Invoice No 198,000,000 11,880,000 - 11,880,000 0220 LPO No 2472 SHL R436/May-2015 5343108 Invoice No 195,000,000 11,700,000 - 11,700,000 087 LPo No 2473 SHL R043/Jun-2015 5695309 Invoice No 159,925,061 9,595,504 - 9,595,504 089 LPO No 2492 SHL R027a/Jun-2015 5702329 Invoice No 139,920,901 8,395,254 7,114,622 1,280,632 1760 LPO No 2493 AVC 922,845,962 36,561,220

The Ministry risks losses due to fines and penalties that may be imposed by URA for non-adherence to the tax regulations.

Management explained that this was due to a system error on the IFMS system that has since then been rectified.

I explained to management that despite the rectification, there was an error and the funds should be recovered from the service provide since it was earlier paid.

Doubtful company ownership of winning bidders Audit review revealed that only two firms (SHL and AVC) won all the six contracts awarded during the year. However scrutiny of their bid documents revealed that they both shared an address as “P.O. Box 9784, Kampala” raising doubt as to ownership of the two companies given that at some point they were the only bidders who responded to the bids.

The relationship between the firms is an ethical issue that would have necessitated the PDU, Evaluation Committee, Contracts Committee and Accounting Officer‘s 212

scrutiny before shortlisting, evaluation and award of contracts. This position was confirmed when I cross checked with the Uganda Registration Services Bureau and the information received revealed that the two companies have one shareholder in common implying same ownership. The Ministry may not have got value for money on the procurements as the same person may have bidded thus colluding the price charges.

I advised the Accounting Officer to report the companies’ unethical behavior to PPDA so that prescribed penalties are imposed.

Overpayments to contractors It was observed that invoices with higher amounts were entered on the system leading to overpayments of UGX.1,787,317 as per details in table below;

Vr. No. EFT Description Amount paid (UGX) Payee Contract Overpayment amount (UGX) R025/Mar-2015 4263764 Settlement 80,000,000 79,834,400 165,600 of Invoice No 0018 LPO 2463 AVC R011/Apr-2015 4774776 Settlement 198,000,000 196,378,283 1,621,717 of Invoice No 0220 LPO No 2472 SHL 1,787,317

Management explained that letters were written to the suppliers for recovery of the funds.

I await the Accounting Officer’s efforts on the matter.

(ii) Twenty months storage of road, sanitary and firefighting

equipment- FAW Africa Group Ltd

A local company was contracted by the Ministry to provide storage space for the various roads, sanitary and fire-fighting equipment procured under a Chinese loan in 2011/2012 financial year from their parent company. The providers were paid

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UGX.1,416,000,000 during the year 2014/15 for 20 months storage of the equipment delivered. A review of the procurement file revealed the following;

Lack of supporting procurement forms and reports It was noted that only the Contracts Committee decision on a submission (PP Form 209) approving the evaluation report and contract award at a monthly fee of UGX.70,800,000 were available on file. However, the Solicitor General’s approval and contract agreement were on the procurement file. No initiation of procurement, invitation of potential bidders, record of receipt of bidders, evaluation report and PDU submission of Evaluation Committee report to Contracts Committee were on file to support the award. Without these documents, I could not satisfy myself with the Contracts Committee decision that FAW’s rate was lower than rates obtained through competitive bidding, vide minute 118/5/12 of their meeting held on 18/5/2012.

Conflicting pro-forma invoices from M/s FAW group A review of the availed documentation revealed that two conflicting pro-forma invoices were submitted by the firm with one quoting a monthly fee of US$.14,160 VAT inclusive for ten months, that is; from 1st June 2012 to 31st March 2013 totaling US$.141,600 and dated 17/5/2012 and another one dated 2/1/2012 quoting a monthly fee of UGX.70,800,000 VAT inclusive for twenty months without clarifying the particular months.

I was unable to ascertain the genuine pro-forma invoice but found the former more reliable because it was within the contract timelines and was issued after temporary bond status approval while the latter was before approval by URA of the temporary bond facility.

I also noted that by January 2012 all deliveries were expected to be in Uganda by November 2012 and thus distribution would have been finalized by March 2013 which makes the former quotation more reliable. However, the pro-forma with higher amounts was used to effect payment.

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Doubtable storage months (20) It was noted that the first batch of equipment was expected in March 2012 and the second batch in mid June 2012. 80% deliveries were made from September 2012 to 7th November 2012, leaving a balance of about 49 trucks implying storage of at most nine (9) months for the two batches. The final batch which arrived in August 2013, was commissioned by the president in October 2013 and handed over to police on 19th December 2013 implying storage of at most five (5) months. This makes fourteen (14) total months of storage as opposed to the 20 months billed resulting into a loss of UGX.424,800,000.

Wasteful expenditure I noted that the equipment was urgently needed by the beneficiary MDAs and all beneficiaries had been pre-determined before the arrival of the equipment. Storage for a period exceeding three months after delivery was wasteful. This was purportedly occasioned by inadequate planning majorly because the equipment had taken long to be cleared of taxes. It was also observed that there were equipment that were stored even when taxes had been cleared. This action resulted into another wasteful expenditure.

Management explained that documents related to the transactions had been taken by IGG and are under investigation.

I await the results of the IGG investigation.

Non-deduction of withholding tax from M/s FAW Group It was noted that withholding tax to the tune of UGX.84,960,000 from payment of UGX.1,416,000,000 to the contracted company for storage space was not deducted for onward remittance to URA contrary to the above regulations. The Ministry risks losses due to fines and penalties that may be imposed by URA for non-adherence to the tax regulations.

Management explained that this was due to the IFMS system which failed to deduct the amounts. 215

I advised the Accounting Officer to liaise with the system administrators at the Accountant Generals Office and ensure such errors are resolved on time. In the meantime, a refund is awaited.

(iii) Procurement of motor vehicles under (MOLG/SUPLS/2014-

15/00120)

The Ministry undertook to procure 8 vehicles under 4 lots at a total cost of US$.544,120 from two suppliers (Toyota Uganda Ltd-US$.421,981 and The Cooper Motor Corporation (U) Ltd- US$.122,139). However, review of the procurement files revealed several anomalies as highlighted below;

Evaluation of bids: Compliance and responsiveness of a motor company’s bid Part 1: Section 1 (instruction to bidders) section 30.2(b) required a responsive bid to conform to all terms, conditions and specifications of the bidding document without material deviation. Further, the bid data sheet ITB 45.1 provided no advance payment and the special conditions of contract GCC 16.1 specified structure of payments as 100% upon delivery.

However, the firm submitted a bid that stated payment terms of 30% advance payment on contract signing and 2.5% monthly interest on delayed payment. This firm would have been eliminated at preliminary examination since its bid was not compliant. By passing this firm at this stage, the Ministry risked procurement review requests since other firms may have opted out of the bid due to lack of advance payment provision in the bid documents. The firm was thus considered favored by not being eliminated at this stage.

Award for supply of Mini bus under Lot 4: In this procurement, the evaluation methodology used was technical compliance evaluation which specified that the lowest evaluated bid was one with the lowest

216 price, compliant and substantially responsive subject to post qualification for determination of capacity and resources to effectively execute the procurement.

However, it was noted that despite firm A being ranked first at, financial evaluation with a bid of US$.49,200 and firm B coming second with a bid of US$.65,047, the evaluation committee recommended firm B with a reason that they considered the proven performance of the firm B’s cars while conducting Local Government inspections in country on routine basis.

I found this irregular since no post qualification disclaimer was in the report regarding firm A’s inability to execute the contract. Besides, the evaluation criteria did not have “Proven performance of machines” as a benchmark and it was very subjective. It was also noted that the same criteria was not applied to firm C under Lot 3 where the lowest bid of US$.122,139 was awarded against firm A’s US$.138,167.

Management explained that preliminary examination of bids is done to determine the eligibility of bidders and assess their administrative compliance but not to review proposed payment terms. Management further explained that the task for the mini bus was heavy and thus they had to consider mechanical robustness and spares availability.

I did not agree with management’s explanation as payment terms are a key eligibility criteria otherwise undertaking the process without consideration may lead to a repeat of the process when the winning bid terms are not agreeable to the ministry. Reasons on robustness cannot be supported since they were not in the bid document and yet the bidder had passed all technical requirements.

I advised the Accounting Officer to adhere to the PPDA regulations while undertaking such procurements.

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(iv) Motor vehicle repair and maintenance

I reviewed three procurements undertaken during the year for motor vehicle repair and maintenance under references MOLG/SRVS/2014-15/65, 66 and 67 and the following anomalies were observed:

Domestic arrears payments: UGX.103,025,861 was spent on repairs which were undertaken in the previous years, that is; 2012/13 and 2013/14 but the outstanding amounts had not been provided for in the procurement plan for the year, neither was there any domestic arrears released from Ministry of Finance, Planning and Economic Developement to settle these obligations. Funds were therefore diverted without authority.

Overpayments due to wrong invoice casting: It was noted that the PDU on two occasions posted wrong invoice amounts on summary schedules for payments to service providers leading to overpayments of UGX.16,761,600 as below;

Payee Invoice Invoice amount Amount posted to Over payment number (UGX) summary schedule (UGX) (UGX) Simba Service 3261 1,652,000 1,994,200 342,200 Garage 3602 1,640,200 16,402,000 14,761,800 Kyeyune Motors 225 0 1,657,600 1,657,600 Ltd Total 16,761,600

Inadequate procurement planning and overpayments hinder budget and cash flow planning for the Ministry which leads to accumulation of liabilities and non- achievement of planned budget outputs.

Management explained that they are in the process of recovering the overpaid bills.

I advised the Accounting Officer to ensure that all procurements undertaken are fully committed and that there is funding confirmation by the Accounting Officer. Besides, requests for domestic arrears financing should be duly submitted to 218

MOFPED so as not to affect appropriations for the subsequent year. I await management’s effort in recovery of the overpaid funds.

g) Failure to utilise Pension Funds

A review of the budget performance for the entity revealed that UGX.926,634,584 was requisitioned by the Ministry under supplementary funding to pay eleven (11) former staff. However, I noted that despite full release of the above sum, UGX.283,301,766 was paid to three (3) staff leaving the balance of UGX.643,332,818 unutilised and swept and as such, these funds were returned to the Consolidated Fund. Details in the table below;

Vote Item Planned Amount Amount Actual Remarks function description outputs/Quantity (UGX) released output/ output budgeted (UGX) Quantity Gratuity and 213004-  Payment of 846,972,582 846,972,582 Payment Despite Pension Gratuity Gratuity to 11 made to receiving retired officials three (3) funds as a supplementary only three officials were paid due to delay in processing files 212102-  Payment of 79,662,002 79,662,002 Pension Despite Pension for pension to 11 was paid to receiving General Civil ministry retired two funds as a Servants officials officials supplementary only two officials were paid due to delay in processing files Total 926,634,584 926,634,584

Delayed processing of pension files leads to accumulation of pension arrears and denies retired staff their due entitlements.

Management explained that the funds were not utilised due to a delay in processing files by Ministry of Public Service.

I advised the Accounting Officer to ensure that all budgeted pension payment are followed up and paid to entitled staff on time to avoid such mishap.

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h) Payment of irregular Staff Allowances

(i) Irregular Quarterly welfare allowances

Contrary to the above regulations it was observed that the Ministry paid UGX.691,680,000 to staff as entitled monthly allowances in form of night subsistence rates ranging from three to seven days for the various categories of staff. It was noted that this payment made in form of night subsistence allowances was paid irregularly because it was not supported with any administrative circulars/standing order instructions approving it from Ministry of Public Service. Such payments affect the Ministry’s cash flows hence affecting performance and implementation of planned activities.

Management explained that they are yet to liaise with the Ministry of Public Service to regularise these allowances.

I await the outcome of the Accounting Officer’s consultations.

(ii) Untaxed allowances

UGX.236,724,300 in taxes due to Uganda Revenue Authority was not deducted from several allowances paid to staff as entitlements in form of welfare, sitting, dinner, lunch and weekend contrary to the Income Tax Act which requires taxation at the 30% bracket. Summary in table below;

S/N Type of allowance Amount (UGX) Tax due at 30% (UGX)

1 Welfare 691,680,000 207,504,000

2 Sitting 85,777,000 25,733,100

3 Dinner, lunch and weekend 11,624,000 3,487,200

Total 789,081,000 236,724,300

This exposes the Ministry to the risk of losses due to fines and penalties that may be imposed by Uganda Revenue Authority for the outstanding tax liability.

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I advised the Accounting Officer to ensure that taxes due are always deducted and remitted to Uganda Revenue Authority within fifteen days after payment. Besides, recoveries from the next quarterly payments for all staff affected should be enforced and remitted to URA. i) Rental Payments to NSSF

(i) Rental arrears

A review of the rental expenditure revealed that only UGX.1,349,000,000 was provided for in the budget. Out of the budgeted amount, the Ministry paid UGX.1,240,217,277 during the financial year. However, it was noted that actual expenditure incurred on rent for the year was UGX.1,459,724,267.52 and the Ministry had arrears brought forward of UGX338,245,131. As a result the Ministry had outstanding rental obligations of UGX.557,752,122 as at 30th June 2015. Inadequate provisions lead to accumulation of domestic arrears. Details are as below:

Arrears from Rent accrued in Paid in 2014-15 Outstanding rent as 2013-14 (UGX) 2014-15 (UGX) (UGX) at 30th June 2015 (UGX) 338,245,131.84 1,459,724,267.52 1,240,217,277 557,752,122.36

Management explained that it had requested for additional funds to offset the arrears but had not received a positive response. Currently management is exploring ways of constructing its own premises through the public-private partnership to avoid such scenarios.

I advised the Accounting Officer to continue liaising with MoFPED to have the arrears budgeted for and provided in the next budget or a supplementary request is raised as an option.

(ii) Non-deduction of 6% WHT

Withholding tax to the tune of UGX.74,413,036 from payment of UGX.1,240,217,277 to M/s National Social Security Fund for rental space was not

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deducted for onward remittance to URA contrary to the above regulations. Details are as below;

INVOICE NO. DESCRIPTION EFT NO. AMOUNT (UGX) R606/Aug-2014 Settlement of rent arrears as at 6th 2020362 335,819,500 August, 2014 R606/Aug-2014 R061/Nov-2014 Settlement of Invoice No 16729 2826991 360,288,000 UGX.338,245,130.88 and Part settlement of Invoice No 16731 UGX.22,042,869.12 rent for October to December, 2014 R061/Nov-2014 R055/Nov-2014 Part settlement of rent arrears 4th Floor 2826992 100,000,000 Northern Wing balance UGX.196,859,360 R055/Nov-2014 R001/Jan-2015 Full settlement of rent arrears 4th Floor 3556370 196,859,360 Northern Wing RR001/Jan-2015 R667/Jan-2015 Part settlement of rent for the months 3897357 247,250,417 of January, February and March 2015. balance UGX.144,366,585 R667/Jan- 2015 1,240,217,277 Total

The Ministry risks losses due to fines and penalties that may be imposed by URA for non-adherence to the tax regulations.

Management explained that the property is managed by M/s Knight Frank which is tax exempt. I explained to management that since the payment is made to M/s NSSF and not M/s Knight Frank, tax should have been deducted.

I advised the Accounting Officer to ensure that due taxes are deducted and remitted to URA promptly to avoid the risk of penalties and fines, meanwhile, recovery of the un-deducted 6% WHT be effected from subsequent rental payment to NSSF.

j) Doubtful Hotel Services

(i) Over-Billed Hotel Services - UGX.13,261,000

Workshops and retreat expenses incurred in hotels are accounted for by provision of pro-forma invoices, invoices, attendance lists of participants and receipts from the service providers. During the year, UGX.213,070,660 was paid to three hotels

222 for provision of facilities for meetings, workshop and conference services by the Ministry. Further scrutiny of the documents attached to the payments revealed the following:

1) UGX.53,429,960 was paid to a hotel in Mbarara Ltd for provision of hotel services during the quarterly meeting of the Ministry with the Chief Administrative Officers and Town Clerks for three days from 9th July to 11th July 2014. I noted that the hotel over-billed the Ministry by UGX.5,893,000 caused as a result of the following:

 On 9/7/2014, while the Ministry was billed for 180 persons, attendance lists showed that only 131 persons should have been billed. An extra 49 people were billed causing a loss of UGX.833,000 to Government.

 On 10/7/2014 while the Ministry was billed for 180 persons, attendance lists had only 131 persons who should have been billed. An extra 49 people were billed causing a loss of UGX.1,638,000 to Government.

 On 11/7/2014 the Ministry was billed for 182 persons, yet the attendance lists had only 124 persons. An extra 58 people were billed causing a loss of UGX.3,422,000 to Government.

 I could not establish from the attached documents the identity and designation of 6 people who were provided with accommodation for three days at a cost of UGX.5,850,000 as invoiced on 8/7/2014 invoice number 14765 a day before the set dates. Invoice number 14765 was issued out of sequence to a later invoice number 14764 issued on 9/7/2014.

2) UGX.102,225,761 was paid to a hotel in Entebbe for provision of hotel services for a three day non-residential training of Chief Administrative Officers, Town Clerks and Planners from 16th September to 18th September 2014. I noted that the hotel over-billed the Ministry by UGX.1,518,000. This is because the Ministry was billed for 292 persons as per the demand note

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contrary to what was invoiced which indicated that on 17/9/2014 only 270 people attended.

Management explained that the attendance list attached to the accountability may have ommitted secretarial staff, ministry support staff and drivers/body guards. It is also likely that some participants left the workshop earlier than anticipaated due to urgent matters.

I advised the Accounting Officer to ensure that billed invoices are backed by corresponding attendance lists inclusive of any support staff. a) COMMUNITY AGRICULTURAL INFRASTRUCTURE IMPROVEMENT

PROGRAMME - PROJECT I (CAIIP I)

a) Shortfall in overall project funding According to section 5 of the Project appraisal document, the ADB and IFAD loan agreements, the funders had to contribute a total SDR. 55,050,000 towards the project for a period of five years ending September 2013. However, an analysis of the cumulative statement of receipts and payments over the loan period revealed that only SDR 49,079,699 was disbursed, creating a funding gap of SDR. 5,970,301 as indicated in the table below. The Government of Uganda (GoU) did not contribute 91% of its expected funding of SDR. 3,824,700 indicated that some activities were not undertaken.

IFAD loan IFAD loan GOU(UA) ADB (UA) Totals 784 (SDR) 724 (SDR) Allocation 4,200,000 10,900,000 9,950,000 30,000,000 55,050,000 Disbursements as 375,300 10,715,923 9,671,262 28,317,214 49,079,699 at 30th June 2015 Variance 3,824,700 184,077 278,738 1,682,786 5,970,301 % variance 91.1 1.7 2.8 5.6

Management explained that a number of activities as agreed upon in the loan agreement were undertaken except for Pay As You Earn under counterpart 224

funding. Arrangements have been made to clear this outstanding obligation in the financial year 2015/2016.

I advised management to liaise with Ministry of Finance, Planning and Economic Development to ensure that pending tax obligations are settled.

19.1 COMMUNITY AGRICULTURAL INFRASTRUCTURE IMPROVEMENT PROGRAMME - PROJECT II (CAIIP II)

a) Compliance with Financing Agreement and Government of Uganda Financial Regulations It was noted that management had complied in all material aspects of the financing agreement and GoU financial regulations except for the matters below;

(i) Budget Performance - Low Absorption Capacity The approved Project expenditure estimates for the financial year 2014/15 amounted to UGX.49,386,833,921. However, only UGX.20,521,038,578 was spent during the year, representing an absorption capacity of only 42%. Low absorption is likely to attract commitment fees charged on undrawn amounts and also affects project implementation of planned activities.

Management explained that low absorption was mainly due to delays in procurement of the last batch of community access roads which formed the bulk of funding under the budget. Shs.37.9 billion out of a total budget of Shs.47.9 billion, representing 79% of the budget, was earmarked for the rehabilitation of 1,533 km of Batch B & C community access roads and the construction of shelters for agro processing facilities. The procurement processes for the last batch of community access roads were concluded in May 2015 with the award of contracts. The implementation therefore has been rolled over to the FY 2015/16. Overall all planned activities will be implemented within the project period.

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Management was advised to expedite the implementation process to ensure that all planned activities are implemented within the set Project period to minimize on commitment fees and extra administrative costs.

(ii) Delay in procurement for Batch C A review of the annual work plan for the year revealed that civil works under batch C were expected to commence by July 2014. It was however noted that procurement for batch C had been delayed with some cases of contractors not yet on the site for the contracts already awarded. In other instances contracts had not been awarded. Such delays are likely to affect the implementation of the project.

Management explained that the delays were due to some mis-procurements given the limited capacity of the construction industry to meet the demands of the funding agencies. In addition, they were rigorous procurement processes involved and additional controls were put in place to ensure that the process was done equitably.

With regard to delays in mobilization by some contractors, this has been due to laxity by some project managers at the district level. However these cases have been addressed to ensure that work is finished on time.

I advised management to liaise with the funders to expedite completion of procurement and commencement of the remaining batch C contracts.

(iii) Inadequate contracts management According to terms and conditions of contracts on civil works, the contractors were to execute, complete the works and remedy any defect therein, in conformity with all aspects in the contract within a period of six months from the date the contract comes in force. It was noted that despite funds being paid for supervision and monitoring of civil works, contractors have occasionally failed to complete their contracts within the contract agreed period and no action has been taken by management to compensate for liquidated damages.

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Management explained that the delays were a result of different scopes of works involved with cases of swamp raising activities which require time on consolidation. For bridge works, time is required for setting. As a general standard, it was agreed that all contracts should be for six months. Despite the numerous challenges the funders have refused to have this time adjusted. Management further indicated that there is a rigorous certification and payment process emanating right form the beneficiary communities, the district and the coordination unit and the Accounting Officer to ensure value for money and guard against shoddy works. The delays resulting from these lengthy processes have an effect on the timely execution of the civil works.

Given the circumstances above, it has become difficult for management to charge liquidated damages.

I advised management to resolve issues that bring about such delays with a view of ensuring that the project is completed within the set project period.

(iv) Non-operational Agro–processing facilities A review of project 4th quarter report for the year under review, revealed that eleven (11) agro processing facilities( Maize and Grain mills) in the districts of Soroti, Amuria, Mbale, Amuru, Lamwo and Nwoya were not operational despite completion of construction of agro processing shelters and installation of the agro processing machines. Another eleven agro processing facilities in Kaberamaido, Kitgum, Wakiso and Mukono lacked grid extensions and hence could not operate.

An inspection of Agro–processing facilities in Mbale district confirmed that a number of facilities remained non-operational. The communities were therefore unable to benefit from the project intended objectives of improving household income. The photos below refer:

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Inspection Photos Audit Issue Management response MBALE The Agro-processing The delay to start facility at Nakaloke market operations was caused by cost UGX.133,245,756. failure to identify and source competent operator Among the facilities to be in time. put up was a parking area and an access road at UGX.4,647,500. While the access road was completed, the parking area was not consturcted.

The facility is located

inside a gazzeted market and there was limited space to set up parking area. MBALE The equipment were The delay to start installed and handed over operations was caused by on 5th/February/2015 but failure to identify and by the time of inspection source competent operator in August 2015 the in time. machines had not been

put to use.

Some of the idle equipment at the Grinding mill included a Huller, Maize Mill and seed cleaner.

The beneficiaries are denied the intended services.

Management explained that operationalization of agro processing facilities is a process which matures at different times for each facility and this depends on how active the Districts and Sub-Counties are, in carrying out the recommended processes according to the management guidelines which are provided to all districts. In many instances, the majority of the districts indicated failed to identify

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private operators in time which greatly affected the operationalization of the machines. PFT is dealing with these challenges on a case by case basis.

I advised management to ensure that any pending activities in the installation and operation of the Agro processing facilities are completed to enable the community benefit from project services. Any challenges identified should be dealt with expeditiously.

(v) Delayed Completion of road works in various districts It was observed that Batch B civil work in various districts had not yet been completed despite expiry of the completion dates. In some cases, it was noted that the roads initial completion dates were more than two years ago for example roads in Pader, Gulu, Kitgum and Lira districts. The intended objective of the project may not be achieved.

Details of the road progress are indicated below. District Contract Details Audit Management Current Pictures as per Remarks Response management response Gulu Hima-Pida Pageya Pending Major/critical works to be works on this Sub-county: issued to new road including Lakwana batch bridge Contractor: Saahib contractor as construction were Enterprises Ltd variation. substantially Contract Sum: Contract has completed by UGX 443,667,315 been Saahib Financial Progress: terminated. Enterprises Ltd Start Date: before 20/09/2012 abandonment of Expected End works and

Date: 20/03/2013 subsequent termination of contract. The road is therefore motorable throughout the year. The district was advised to engage the batch C contractor to complete 229

outstanding works after obtaining formal approvals.

Jinja Wagoina-Namizi Delayed west (4.4 km) works as physical Sub-county: progress is at Budondo 10% Contractor: Agro General Builders & Carpentry (U) Ltd Contract Sum: UGX 126,427,035 Financial Progress: % Start Date: 06/06/2015 Expected End Date: 06/03/2015 Bukedea Kolir HC III- Delayed Works are Kagolot-Acomai- works progressing with Kamutur (11.7 physical progress km) at 81%. Gravelling is at Sub-county: Kolir advanced stages Contractor: while construction Nambale of head and wing Enterprises Ltd walls is in Contract Sum: progress. UGX 353,517,150 Financial Progress: % Start Date: 05/07/2015 Expected End Date: 11/07/2015 Kumi Ongino Oseera Works are (10.0 km) progressing well with targeted 230

Sub-county: completion date Ongino of 2nd November, Contractor: Wao 2015. Physical (U) Ltd progress is at Contract Sum: 35% with UGX 290,403,225 earthworks Financial Progress: having been % completed, Start Date: dumping of 05/02/2015 gravel is on-going Expected End & installation of Date: 11/02/2015 culverts to start. Katakwi Ocwiin-Akore- Contract Progressing with Security (17.0 km) brought 1st certificate forward from cleared and Sub-county: Batch A, it targeted

Ngariam was formerly completion in Contractor: Spider terminated. November, 2015. Contractors Ltd Physical progress Contract Sum: is at 61% with UGX 400,226,883 gravelling on- Financial Progress: going, culvert % installation & Start Date: head wall 20/01/2015 construction Expected End ongoing. Date: 20/05/2015 Amuria Kapelebyong- Contract Gravelling and Okungur (14.4 brought other completion km) forward from works are in Batch A, it progress. Sub-county: was formerly Kapelebyong terminated.

Contractor: Emmaus General Workshop Contract Sum: UGX 287,856,870 Financial Progress: 36% Start Date: 20/01/2015 Expected End Date: 20/05/2015 Gulu LujorAwinyi- Contract This is a new Atyang (10.0 km) brought contract with new forward from roads under 231

Sub-county: Batch B. Batch C. No Lakwana contractor was Contractor: Lina previously Construction Ltd engaged on their Contract Sum: rehabilitation. UGX 409,502,823 The contractor Financial Progress: has received the 0% site and has now Start Date: commenced 19/05/2015 work. Expected End Date: 19/11/2015 Kitgum Lalano Central- Contract This is a new Setting out and bush clearing Aloto PS (10.0 brought contract with new has already been achieved. km) forward from roads under Shaping, watering and Batch B. Batch C. No compaction are in progress. Sub-county: contractor was Lagoro previously Contractor: Pehan engaged on their Construction Ltd rehabilitation. Contract Sum: The contractor is UGX 224,440,650 on site and works Financial Progress: are in progress. 0% Start Date: 19/05/2015 Expected End Date: 19/11/2015 Akilok-Lucom Contract The contractor is (14.8 km) brought on site and works forward from are in progress. Sub-county: Orom Batch B. It Contractor: Kol was formerly Services Ltd terminated. Contract Sum: UGX 832,512,420 Financial Progress: 43% Start Date: 20/01/2015 Expected End Date: 20/05/2015 Kona Pire-Lucomo Contract The contractor is P/s brought on site and works forward from are in progress. Sub-county: Orom Batch B. Contractor: Kol 232

Services Ltd Contract Sum: UGX 244,917,407 Financial Progress: 0% Start Date: 19/05/2015 Expected End Date: 19/11/2015 Lamwo Katum Central- Contractor The contractor is Katum West (6.5 has not on site and works km) reported on are in progress. site. He is still Bridge foundation Sub-county: concentrating structures have Padibe east on been completed. Contractor: RMK bridgeworks Construction of Uganda Ltd in Paloga abutments are Contract Sum: since it’s still now in progress. UGX 501,225,200 a dry season. The bridgeworks Financial Progress: are a major part 0% of the contract. Start Date: 25/04/2015 Expected End Date: 25/10/2015 Construction of Contractor The contractor is Nyimur Bridge on not on site on site and works Paracelle-Warigo yet are in progress. Road Bridge foundation structures have Sub-county: been completed. PalabekOgili Construction of Contractor: Zeep abutments are Construction (U) now in progress. Ltd Contract Sum: UGX 494,521,650 Financial Progress: 0% Start Date: 30/04/2015 Expected End Date: 22/10/2015

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Lamojong-Larobi Contract The contractor is (11.0 km) brought on site and works forward from are in progress. Sub-county: Batch B. The Bridge foundation Paloga contract is structures have Contractor: RMK however been completed. Uganda Ltd being Construction of Contract Sum: recommended abutments are UGX 631,058,575 for now in progress. Financial Progress: termination 0% Start Date: 25/04/2015 Expected End Date: 25/10/2015

Management should continue liaising with the contractors to ensure that any bottle necks in contracts’ implementation are solved for quality and timely completion of road works.

19.2 COMMUNITY AGRICULTURAL INFRASTRUCTURE IMPROVEMENT PROGRAMME - PROJECT III (CAIIP III)

ADB LOAN a) Diversion of Project counterpart funding Project Operations Manual Part two Paragraph 3.1 (sub-sections 111 Flow of funds) requires all project funds including GoU counterpart funding to be deposited to a special account held with Bank of Uganda. However, it was noted that GoU contribution amounting to UGX.187,654,400 was released by Ministry of Finance, Planning and Economic Development to the project through the Ministry of Local Government Treasury General Account where the funds were subsequently spent.

Further, out of the released amount of UGX.187,654,400, UGX.102,932,000 was diverted by the Ministry and used on non-project activities. These funds were meant to be used for training, supervision and monitoring activities.

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Management explained that with the migration of Government on to the IFMS system, all the GOU project accounts were closed. As such, the counterpart funds for the project were transferred to the Ministry General account. Internal controls will be enhanced to ensure that all funds are used on project activities.

I advised management to ensure that these funds are refunded to the project to enable implementation of project activities. b) Budget performance - Low absorption capacity It was observed that the approved Project expenditure estimates for the financial year 2014/15 amounted to UGX.66,990,234,473. However, only UGX.37,350,188,047 was spent during the year, representing an absorption capacity of 56%. This affects timely implementation of project activities.

Management explained that UGX.63.2 billion out of a total budget of Shs. 66.9 billion, representing 94% of the budget, was earmarked for the rehabilitation of 2,427.9 km of Batch A and B community access roads and the construction of shelters for agro processing facilities. The procurement processes for these activities were concluded in the course of the financial year and therefore, the implementation has been rolled over to the FY 2015/16.

I advised management to expedite the process of Project implementation to ensure that all planned activities are implemented within the set Project period for the achievement of Project objectives and also minimise commitment fees. c) Inspections (i) Delayed works on ADB roads Terms and conditions of Project civil works contracts stipulate that the contractors should complete the work within the specified period in the contract agreement. During inspection, it was noted that some roads had not been completed in the agreed timeframe as most of the civil works under batch B had just started. Delayed works lead to extra administrative costs. Details of audit observation are indicated in the table below;

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S/N Detail Audit Remarks Management Response

1 Ntoroko District Ongoing works (still Ongoing works where the entire Lot 52- Bweramule Sub grading). Physical 18.3km is filled by side county – Rwamabale – Progress at 30% yet borrowing. The side borrowed Bweramule Road 18.3 contract was material had to be given Km supposed to end on considerable time to consolidate. 28/7/2015 No Payment has been done to- Nippon Parts (U) Ltd date. Shs. 3,993,285,513 No sign post. Start date: 28/1/15

End date: 28/7/15 Physical Progress: 30% 2 Bundibugyo District The works were The delay was attributed to bad Lot 51- Ntororo Sub behind schedule and weather, extremely poor county by the time of vegetable soils which also needed inspection on 12th considerable time to consolidate. Rehabilitation of August 2015, the The contractor is however Kirumya- Ngamba road contractor was just progressing steadily (see (3.8 km) heaping gravel on the monitoring report of 18th August, Contractor: Ambitious road. 2015). Construction Co. Start date: 2/1/15 End date: 2/7/15 3 Kasese District Delayed works as the Complicated road with rock out Lot 42- Kilembe Sub contractor was just crops, major earthworks and county- Mbuga- opening the road by drainage works. The rock out NyakazingaKalongo H/C- the time of inspection crops required blasting which Kalongo T/C road – 18.5 on 12th August 2015. required lengthy approvals with Km Ministry of Defence and other stake holder (see progress Nippon Parts (U) Ltd No sign board photos). Shs. 2,286,555,075 installed. Start date: 3/1/15 The contractor was instructed to End date: 3/7/15 install bill board through the Physical Progress: 30% Project Manager. 4 Kabarole District Works ongoing Progress of works was affected

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S/N Detail Audit Remarks Management Response

Lot 48- Kisomoro Sub despite expiry of the by paralonged rains which made county- Kibwolo- Igasa contract period. it hard for the contractor to work Bridge- Kiryantama P/S in the poor vegetable soils which road 5 Km characterises the affected roads.

Progress of works was affected by lack of gravel wearing course material in the entire sub-county. The fair material used had to be No headwalls were overhauled for over 15Km. erected to support the Attached is a progress report to-

culverts. date. Nyakigumba – Kibworo-

Rubona road -5 Km No sign post. Headwalls will be last activities

after getting payment which is Kisomolo – Bulemezi- ongoing. Kitumba road 6.5 Km

Bridge along Kicucu- Kicucu- Kinoni road- 5.5 Kinoni Road was not Sign Posts have been installed Km constructed. though not using CAIIP colour Bridge at Gasa river codes. needs repairs as Kicucu-Kinoni Road Bridge decking on Yeria along 5.5Km. Kicucu - Kinoni Road is yet to be repaired as per BoQs (see it current status in Photos). Semeo Enterprises Ltd Semeo Enterprises Start date: 21/5/14 Ltd End date: 21/11/14 Start date: Bridge decking at Igasa on Extended until 30/4/15 21/11/2014 extended Kibwolo- Igasa Bridge- Physical Progress: 75% until 30/4/2015 Kiryantama P/S road is yet to be Financial Progress 16% Physical progress: repaired as per BoQs (see it

75% current status in Photos). Financial progress:

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S/N Detail Audit Remarks Management Response

16%

5 Kabarole District Physical progress was There is Laxity in Supervision by Lot 46: Kabonero Sub- at 75% yet the the Project Manager otherwise county contract had been this had been brought to his Kasunganyanja- extended to attention through our monitoring Kabonero-Kibiito Road 22/10/2015 reports. 17.5km and Kimotoka— Nyabwina Road – 2.5km Lacks maintenance On the Lack of maintenance, the contractor is still on site though Pekasa Enterprises Ltd No headwalls were the project is over delayed. The Shs. 564,420,150 erected to support the delay was also caused by Start date: 22/5/2015 culverts. prolonged rains which made it End date: 22/11/2014 had for the contractor to work in Extended to 22/10/2015 The contractor had the poor vegetable soils which Physical progress 75% graded only 0.9km of characterises the affected roads Financial progress 54% Kimotoka – Nyabwina in the initial stages. There has Road. however also been laxity by the Supervising Engineer/Project No Sign Post on Manager in compelling the Kimotoka – Nyabwina contractor to finish all the works Road and handover the site.

Trees not planted The extra length which he had previously missed has since been done though it needs further widening and proper shaping and compaction.

Management explained that overall compensation events affected the normal progress of works therefore leading to the delays. These include among others inclement weather, delayed approval of certificates due to unsatisfactory works that require rectification, unforeseen technical challenges requiring revision of the scope of works, low contractor capacities, lack of readily available road construction equipment, increased construction costs due to loss of value of the 238

shilling and inflation and land disputes on some roads whereby some contractors were denied access to some sections of the road.

I advised management to follow up the delayed works and ensure that the activities are completed within the agreed timeframe of the project.

IDB LOAN a) Delayed release of IDB funds According to the annual work plan for the year under review, the project planned to receive USD 4,679,895 from Islamic Development bank (IDB) to rehabilitate 375 kilometres of Community Access Roads in western Uganda. However, IDB did not release any funds to the project. This was contrary to the agreement signed between IDB and GoU.

Management explained that delayed release of funds was attributed to the releases that were tagged to civil works. This was however not achieved because the procurement for supervising consultant for the civil works was delayed. With the finalization of this procurement, funds will be disbursed expeditiously.

I advised management to expedite the procurement process and ensure that the required funds are released as planned to implement budgeted activities. b) Abandoned works on IDB funded projects It was observed that some roads were abandoned by the contractors. This was partly because the contractors were not paid as agreed in the contracts. Indeed a review of the projects bank statements indicated that there was no funding from the IDB to allow necessary works to continue. Delayed release of funds results into delayed completion of project activities thus hindering the achievement of projects objectives. Some of the projects visited are indicated below;

Photo Details Remarks

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1 Mitooma District No head walls Lot 15 Katenga Sub county Igambiro-Parliament- Lukaya T/C-Karire Bridge 4km Nyabubare-Rubare Nyamizi-Rwagashani 2.9km Road was not Rwentunda-Ruboroga 3km completed, however, A section of Nyamizi-Rwagashani- Nyihanda-Nyabubare 2.2km works are still no head walls Igambiro-Parliament-Nyabubare- ongoing. Rubare 3.9km Karire Bridge The bridge on Lukaya T/C-Karire Contract amount road is not yet UGX. 1,227,983,591 constructed. start date 20/1/2015 End date 20/7/2015 Physical progress 50% Unconstructed Karire bridge

2 Mitooma District The road was Lot 16 Mayanga Sub county abandoned. Ibiri Mayanga-Kishande- Mayanga Play Ground 3.2km Kagashe-Kenshomba- Kyabakama-Keteme 1.5km

Rusheregyenyi-Rwanyakatura-

Omuruti-Mayanga Modern P/S- sec 1(2.3 km) Rusheregyeni-Rwanyakatura- Omuruti-Mayanga Modern P/S Section 2 (1.7 km) Rutoome-Nyamisheshe-

Alakastore-Kakyeza P/S- Rusheregyenyi-Rwanyakatura- Omukikazi-Kanganga 2 (3 km) Omuruti-Mayanga Modern P/S-

sec 1(2.3 km) road- un

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constructed bridge( impassable for vehicles)

Rwamujori-Nyambabi-Kahama- Bukuma-Mutanoga (5.5 km) Rweitanzi Bridge-Kanyarohinda (1.2 km) Kanyarohinda Bridge 1

Contract amount UGX.1,522,300,678 start date 20/1/2015 End date 20/7/2015 Physical progress 60%

Un constructed bridge at Rweitanzi Kanyarohinda road(1.2 km) 3 Mitooma District –IDB Roads were Lot 14 Kanyabwanga Subcounty incomplete with Omukarere–Nyandago - Kati heaped murram. 2.6km

Omukebishuba – Kanyabwanga

- Rwenshama PS - Rwenkurija

Market Section 1 4.7km

Omukebishuba-Kanyabwanga - Rwenshama PS - Rwenkurija Market Section 2 1km

Omukebishuba – Kanyabwanga - Rwenshama PS - Rwenkurija

Market Section 3 2km Rwamuniori – Omukayaga -

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Butembe 2.6km Contract amount UGX.622,642,197 Start date 20/1/2015 End date 20/7/2015 Physical progress 60%

Management explained that civil works under IsDB funding were majorly affected by the delays in the procurement of supervising consultants because of rigorous evaluation by IsDB. In addition releases of funds from IsDB have been affected by donor requirement of recruiting an independent external auditor to undertake the verification of all payments. I advised management to liaise with the funders closely to enable overcome the bottleneck so that budgeted funds are released on time to enable smooth implementation of project activities.

c) Project performance against the logical Frame Work The Project was expected to commence in 2011 and run for 5 years ending 31st December 2016, however, operations begun in April 2012. A review of the project implementation plan and project progress reports revealed delays in the implementation of activities as indicated below;

Activity Target Progress to date

Rehabilitation of 2,845Km  Rehabilitation of 913Km of CARs completed and handed over to the beneficiary LGs Community Access Roads  About 1,316km of Batch A & B CARs are still ongoing with physical averaging 60% and are expected to be completed by December 2015.

 Contracts for another 574.6Km of the re-advertised Batch A & B awarded and works are expected to commence in October 2015.

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Supply and 79 assorted  Procurement of 79 assorted Agro processing facilities is now at contract award stage. Contracts Installation of APFs submitted to Solicitor General for clearance. Agro-processing Facilities

Execute civil works About  Civil works are ongoing on 58 APF shelter contracts in 29 districts. for shelters for 1,170Km agro processing facilities. Rural Electrification 100km  Procurement of contractors to extend grid to APF sites is now at evaluation stage. Evaluation report of APF sites submitted to the bank for review and no-objection

Financial 100%  32% disbursed and 70% committed

performance  Ongoing procurements of grid extension, supply and installation of assorted APFs and the re- advertised Batch A and B CARs will increase the project total disbursements including commitments to over 90%

Management explained that they have now put in place measures to ensure that all activities are implemented within the project lifetime.

I advised management to intensify the supervision and monitoring and ensure that the project implementation is fully undertaken within the agreed timelines.

19.3 MARKETS AND AGRICULTURAL TRADE IMPROVEMENT PROGRAMME PROJECT – I

a) Expiry of Loan from Arab Bank for Economic Development in Africa (BADEA) - US$ 10,000,000 According to the loan agreement signed on 16th July 2009 between Government of Uganda and the Arab Bank for Economic Development in Africa (BADEA), the loan amount of USD 10million was meant to construct five markets at Kasubi, Busega, (Kampala City), Kimaka (Jinja District) and Nyendo (Masaka District) and the executing Agency was required to acquire land for construction of the

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markets in the above mentioned locations before disbursement of funds. The agreement indicated that the borrower shall pay interest at the rate of one per cent (1%) per annum on the principal amount of the loan withdrawn and outstanding from time to time. The loan was declared effective on 21st January 2010 and the last disbursement expected on 30th March 2013. The project closure date was scheduled for 31st March 2015.

Out of the total loan amount of $10,000,000, the project has only received UGX.112,428,671 (approximately $40,000 at the prevailing exchange rate of UGX.2,810.72/US$ 1) which was released in the previous financial year (2103/14). The funds were spent on consultancy services to develop architectural designs and supervision of the construction of the five markets.

The commitment fees and interest has accrued on this loan account since its effective date. The delay has also affected the execution of works on Busega and Nyendo markets thus denying service delivery to the beneficiary communities.

Management explained that the loan closing date was again extended from March 30, 2015 to October 31, 2017. Management further indicated that there are still challenges faced in fulfilling one of the major conditions for the design of the markets which was the availability of land owned by the urban councils. There was no evidence of ownership to that effect and as such, designs could not be undertaken. Following the confirmation of availability of land for Nyendo and Busega, detailed designs were prepared, submitted to BADEA and contracts were awarded to the successful bidders. To date, construction of Busega and Masaka markets has commenced and the loan will be disbursed efficaciously. Substantial project time was lost because of the lengthy procurement process.

I advised management to make concerted efforts and ensure that the project is finalised on time. b) Diversion of GOU Counter-part funding According to the Provisions of the Loan Agreement, GOU is required to contribute funds towards the implementation of Programme activities. A review of the project

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budget revealed that a total of UGX.2,070,388,885 was budgeted as GOU counterpart funding. UGX.1,984,172,000 was released for Project activities resulting into a shortfall of UGX.86,216,885 (4%). The funds were provided to enable the project to pay VAT arrears on the construction of MATIP markets. During the year, the project spent UGX 1,970,454,091 under GOU counterpart funding. However all the funds were utilized on unplanned activities despite having VAT liability of UGX. 13,512,049,928 by the close of the year.

Management explained that the funds were partly used to fund other activities under the Community Mobilization Component.

I advised management to endeavor to implement activities according to work plans. In the meantime, the project funds should be refunded by the Ministry. c) Technical engineering audit of Jinja central market under MATIP project

In 2014 the Auditor General undertook a Value for money audit on the implementation of the market infrastructure component of the Markets and Agricultural Trade Improvement Programme (MATIP); the overall audit objective was to evaluate the implementation of the infrastructure development component of the Project. At the time of that audit, the progress of works for Jinja market was at 60% and technical audit could therefore not be comprehensively undertaken. Following the completion of the market and subsequent occupation by the vendors, there were public complaints about its construction such as;

 Allegations that the market was not built as per the plan.  Major defects such as cracks have been observed in the structure  Poor drainage in the market.  Improper electrical wiring and insulation.

Accordingly the OAG undertook a follow up value for money audit (technical /engineering audit) of the construction works of Jinja Central Market in Jinja Municipality.

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The overall objective of the audit was to provide an independent assessment as to whether the construction of the market structures was undertaken in accordance with sound engineering principles, agreed designs and specifications. The audit paid particular attention to;  Assessing whether the works were planned and executed within their agreed timeframes  Assessing the extent to which the contract costs were managed and controlled by the Project Manager and the ministry.  Assessing the quality of the works against the agreed contract designs and specifications  Assessing the functionality of the infrastructure and its facilities.

Originally the preliminary designs for the market considered four floors at an estimated cost of USD. 13.3 Million; however the cost estimate was found to be higher than the project ceiling of USD. 10 million. Accordingly the consultant was instructed to develop designs for only three levels bearing in mind that the existing registered vendors (4,700) had to be accommodated in the final design. The foundation and other support building elements were to be designed to accommodate more than two floors. The market structure built has three floors.

Below is a summary of the key findings arising from the audit; details can be obtained in the detailed report which was issued separately and forms an integral part of this report.

KEY AUDIT FINDINGS i. Time Delays in project implementation Generally there was a delay in completion of works; during the time of the first audit in February 2014, the physical progress was 68% against a time progress of 87.5%; at this stage there was outstanding works related to completion of superstructures for the second, third and fourth quarters and mechanical / electrical installations for the first and second quarters. Completion of works was extended by six months to April 2014, however after this date the contractor still

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requested for time extension without pay to execute the variations. This led to time delays in handover of the market facility to the intended beneficiaries.

In future, management should ensure that design changes and the necessary approvals are expeditiously handled in order not to delay the progress of the work by the contractor. In addition payment of interim payment certificates should be processed within the timelines agreed in the contract. This also calls for the strengthening of the contract supervision and monitoring capacity at the ministry to ensure that the consultant and contractor’s progress of works is adequately monitored for compliance against the contractual time obligations. ii. Works by private developer adjacent to Jinja Central Market As a result of inadequate enforcement of compliance to building regulations, a private developer adjacent to the Jinja central market is carrying out developments which have affected the operations of the market, the access road to the garbage skip of the market has been blocked and the garbage skip has been filled with scaffolding and building material; as a result the solid waste pipe, storm water line and clear water line for the market structure were damaged. This has affected the solid waste management in the market. This ongoing construction may weaken the substructure of the main market if safeguards are not enforced and adhered to.

I advised management to follow up the matter regarding the adjacent construction with Jinja Municipal Council and ensure that the instructions given to the Municipality in a correspondence dated 1st April 2015 is fully complied with. The Town Clerk of Jinja municipality is compelled to pursue the developer to correct damages caused to the market structure communicated in letter addressed to the developer dated 2nd November 2015 and cause the opening of the blocked access road. iii. Quality of works Verifications undertaken revealed that some defects that were identified and captured in the snag list had not been rectified yet the defects liability period had 247

expired.. Additionally destructive testing of concrete using cubes from the fresh concrete done earlier gave results that were above the specified concrete strength for the 7 days and 28 days respectively. However the test results obtained from the destructive testing of the sample of cores now show results which are below the design concrete strength. This could have been caused by Low/ high water content during mixing, Low cement content, Low compaction, Poor curing, Poor mix design or Contaminated materials especially with soil and organic substances.

I advised managed to monitor and observe performance of the structure given the destructive tests results which were below the required specifications; Additionally arising out of the results of the destructive tests observed, further independent investigations should be carried out on other parts of the structure (as they were carried out on a few columns and beams of the structure) for conclusive evidence and confidence on the structural integrity of the structure. iv. Functionality By audit-inspection on 9th October 2015, the work was completed and practical hand over was done on 3rd October 2014 and handed over on 26th November 2014. The defects liability period of one year (365 days) had already expired on 3rd October 2015. The business was booming and the market was fully occupied The design for JCM was meant to accommodate 4 floors; however due to funding constraints, only 3 floors were constructed. The available space cannot accommodate all the 4,889 registered vendors implying additional space or market is required to meet the vendor requirements.

I advised management to consider providing an additional floor or a new market structure to accommodate the growing number of vendors. Given the fact that the Market is occupied to full capacity,

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19.4 UGANDA GOOD GOVERNANCE (UGOGO) PROGRAMME

a) Compliance with the Financing Agreement and GoU Financial Regulations It was noted that the Programme management had complied material with Financing Agreement Terms and Government of Uganda Financial Regulations except in the following matters;

(i) Short fall in Counter Part Funding During the audit, it was noted that out of UGX.700,000,000 expected from the Government of Uganda, however, only UUGX.104,062,000 was disbursed. This led to a short fall of UGX.595,938,000. Failure to receive funding as per the work plan hinders implementation of UGOGO Programme activities which could lead to the suspension of donor funds.

Management explained that they will continue liaising with Ministry of Finance, Planning and Economic Development to ensure that GOU meets its obligation. Management follow up on the matter is awaited.

(ii) Budget Performance – non-implementation of planned activities A review of the budget performance of the year under review revealed that UGOGO project received funding from GOU amounting to UGX.109,000,000 for implementation of planned activities. It was noted that some planned activities were not implemented. Details are in the table below;

Vote Item Planned Amount Amount Actual Remarks Function Description outputs/ (UGX) Released output/Quantity Output Quantity budgeted (UGX) Project 132105-  Municipal 109,000,000 109,000,000 No public address The 1286- strengthening address systems were project Uganda local service system in 12 procured received Good delivery and municipal funds but Governance development and 14 town did not councils carry out procured. all the  Additional budgeted 250 activities. 249

accountants to professional level trained.  Additional 10 town councils supported with to implement their physical development plans.

Management explained that the releases were inadequate to fund the key Ministry funded activities and thus the need for utilization of these funds on other unfunded activities.

Management is advised to always seek authority should there be need for any reallocations.

(iii) Diversion of Program funds During the previous year audit, I noted that a staff of the Ministry of Local Government was loaned UGX.14,270,000 from UGOGO funds to cater for his tuition for a course on Sustainable Local Economic Developments in Netherlands on 19th March 2013. The borrowing was undertaken without authority from the donors.

I noted that the money was refunded by the Ministry of Local Government during the current year. However, instead of refunding UGX.14,270,000 that was borrowed, Ministry of Local Government credited UGOGO account with UGX.149,384,000 on 19th May 2015. Subsequently a sum UGX.135,114,000 was sent back to the Ministry Account without any formal documentation. The intention of refunding more than expected was not explained.

I advised management to explain the anomaly and in future obtain authority for any diversion of funds from the Programme.

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b) General Standard of Accounting and Internal Control A review was carried out on the system of accounting and internal control. It was noted that management had instituted adequate controls to manage project resources except in the following areas;

(i) Accountability and independent confirmation for Tuition Fees Inadequate Accountability of Tuition Fees for Local Government Staff UGX.904,754,928 spent in tuition fees for Local Government staff had insufficient evidence to support the student lists attached on the training requisitions. I was not provided with copies of their admission forms, students registration forms from ICPAU and ACCA as well as copies of the examination results to confirm genuineness of the students. My attempt to get direct confirmation from the district did not yield much as only 6 responses were obtained out of more than 112 requests. Further, I wrote to the CPAU enquiring about the registration of the students and the response was that they did not have students from MoLG. There is a high risk that payments may be made for non-existent students.

Management explained that this submission was done by the respective Local Governments.

I advised Management to ensure that every student benefiting from the programme submits his or her copies of results, letter of confirmation of studentship from the professional body and an admission letter from the training school to the programme management for proper accountability. In the meantime management should undertake investigations on the matter.

(ii) Supporting documents not date stamped “PAID” 251

Best accounting practices require an entity to stamp PAID all payment vouchers whose payments have been effected. However, during the audit, it was noted that payment vouchers worth UGX.66,735,000 were not supported and the vouchers were not stamped PAID. This exposes the project to the risk of double payment.

Management acknowledged the anomaly and stated that they had now started stamping the documents as evidence that they have been paid.

Management was advised to ensure that all payment vouchers and supporting documents are stamped PAID to reduce chances of making double payments for the same activity. Accountabilities are also awaited.

19.5 DISTRICT LIVELIHOODS SUPPORT PROGRAMME (DLSP) – MINISTRY OF LOCAL GOVERNMENT (MOLG)

(a) Compliance with Financing Agreement and Government of Uganda Financial Regulations

A review of the Programme implementation records revealed that generally there was compliance with the financing agreement and Government of Uganda financial regulations, except for the following:

(i) Government of Uganda (GOU) counterpart funding A sum of UGX.157,919,000 was received as GOU counterpart funding during the year out of the approved budget estimates of UGX.199,883,115. The receipts were credited to the Ministry of Local Government (MoLG) Treasury Single Account (TSA) and were to be transferred to the Project Account for its implementation. The following were noted during the audit;

Diversion of Project Funds GOU counterpart funding amounting to UGX.16,543,800 meant for project activities was diverted by the Ministry to fund non-project activities such as per diem and transit allowance on travel abroad. Such a practice undermines the

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objectives of the project as activities under the project work plan are not fully implemented.

Management explained that they are yet to release the funds to clear off part of the unmet obligations of the project

I advised the Accounting Officer to adhere to the provisions of the funding agreements in respect of project financing. In the meantime, the diverted funds should be refunded to the account.

Non-remittance of withholding taxes It was noted that Shs.1,402,225,167 deducted as 6% WHT from Project service providers was not remitted to Uganda Revenue Authority. Non remittance of withholding tax is a violation of the Income Tax Act which may result into penalties and fines being imposed on the project by the tax body.

I advised the Accounting Officer to remit the withholding tax to the tax body as required by the Income tax Act.

20.0 OFFICE OF THE PRIME MINISTER

a) Mischarge of Expenditure A review of the Office of the Prime Minister’s expenditures revealed that the entity charged wrong expenditure codes to a tune of UGX 4,611,211,067. This constituted 3.4% of total expenditure for the Office of the Prime Minister. This practice undermines the importance of the budgeting process as well as the intentions of the appropriating authority and leads to financial misreporting.

Management explained that some of these mischarges were occasioned by insufficient allocations to the consumptive items ceilings determined by Ministry of Finance, Planning and Economic Development, which do not take into

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consideration the unique challenges of OPM that has a broad and unique mandate while others required expenditure of a consumptive nature.

I advised the Accounting Officer to streamline the budget process to ensure that sufficient funds are allocated to each account and budget line codes. Authority should always be sought prior to any reallocations. a) SECOND NORTHERN UGANDA SOCIAL ACTION FUND PROJECT (NUSAF2)

(a) Compliance with the Memorandum of Understanding and GOU Regulations

(i) Unaccounted for Sub-project Disbursements - UGX. 5,159,940,305 Section 2.2 of NUSAF II Operational Manual requires that at least 80% of previous disbursements are accounted for before replenishment to a subproject. The policy also requires that all funds to subprojects should be accounted for within six months. It was noted that UGX.5,159,940,305 out of UGX.281,974,035,473 disbursed to subprojects remained unaccounted for as at 30th June 2015.

Under the circumstances, I was unable to establish whether the unaccounted for funds were used for intended purposes. Further, the delays in accounting for subproject funds affects Project implementation as the activities are not completed within project timelines.

Management explained that outstanding subproject funds stood at UGX. 53,390,492 as at October 30, 2015 representing 0.07% of total disbursement. These funds outstanding as at 30th October 2015 were for sub projects in Kaboong and Mbale districts which were in the final stages of completion.

I advised management to ensure that all project funds are fully accounted within the project timelines.

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21.0 MINISTRY OF PUBLIC SERVICE a) Unsupported Adjustments in the Cash Flow statement

Included in the Ministry’s Cash Flow statement are adjustments in respect of: increase in domestic arrears (UGX.48,213,776), transfer to treasury (UGX.200,000), EFT’s unapplied (UGX.2,834,276) and others (UGX.107,039,999). These adjustments were not supported and could therefore not be verified during the audit. It was further noted that the adjustments led to a negative cash position of UGX.(417,559,778) which was also reflected in the Statement of Financial Position as at 30th June 2015. However, given the Treasury Single Account (TSA) arrangement, this scenario should not be expected, as entities cannot be allowed to spend when the TSA has no funds. Accordingly, I am unable to establish the authenticity of the adjustments made by the ministry.

In their response, Management stated that numerous challenges were encountered in the reconciliation process due to large numbers of unapplied EFTs, and that efforts were being made to produce a fully reconciled statement.

However, by the time of writing this report, this had not been provided by management.

I advised the Accounting Officer to ensure that all amounts reflected in the financial statements are always properly supported. In the meantime, I await the outcome of the ongoing attempts to have a proper reconciliation by the ministry. b) Pension Mischarges - UGX.14,657,510,377 The GOU Chart of Accounts defines the nature of expenditure for each account code, with the intention of facilitating better and consistent classification of financial transactions and tracking budget performance per expenditure item. An analysis of the pension payment file and GOU chart of accounts revealed that out of pension payments amounting to UGX.284,338,103,274 paid during the year, UGX.14,657,510,377 was charged on account codes which do not reflect the nature of the expenditure described in the GOU chart of accounts. 255

Audit attributed the above scenario to improper budgeting for the pension obligation as well as relaxation of the budgeting controls on the IFMS, which would allow payments on items without sufficient funds. For example, scrutiny of the pension budget provisions revealed the following;  Certain pension budget items had no funds provided for in the IFMS system, but payments were made. They included; Pension Arrears for Defense, Local Governments, Civil service, and Teachers.  Certain pension budget items had a lot of funds provided for on the IFMS system, than they would actually need. For example; Emoluments paid to former Presidents and VIPs, and gratuity expenses. This resulted into under or over budgeting in some pension items with an overall under budgeting of UGX.5,673,003,274.

The above implies that the pension budget may not have been properly compiled.

In response, management admitted the mischarges, and attributed them to inadequate budgeting for the various items, and the reduction in the Ministry budget to support MDAs/LGs budgets to facilitate the decentralisation process for pension and gratuity.

I advised the Accounting Officer to strengthen the budgetary processes so as to ensure that realistic budgets are compiled and funded, and that all expenditures are charged on the approved budget lines during budget execution. c) Outstanding Commitments – UGX.200,252,608,998 It was noted that the Financial Statements reflected an amount of UGX.200,252,608,998 as a cumulative ministry debt as at 30th June, 2015. It was noted that the bulk of this amount (UGX.199,255,907,539) comprised of gratuity and pension arrears which have continued to accumulate uncontrollably (2014: UGX.108,681,159,047). I further noted that the ministry does not have a comprehensive stock of all potential claimants/retired employees as well as an indication of future retirees, to enable it establish the funds that would be needed 256

to sustainably manage the pension liability. This implies that the ministry has to rely on claims submitted by retired employees for it to establish the amount of resources to budget for, which eventually leads to under budgeting for gratuity and pension.

In her response, the Accounting Officer explained that her Ministry has no control over the accumulation of gratuity and pension arrears which forms the bulk of the arrears due to the inadequate budgetary provisions during the year and the preceding financial years.

I have advised the Accounting Officer to devise a comprehensive strategy for the management of gratuity and pension for the entire public service, including a compilation of a complete stock of both retired and current employees which could then be used in determining the expected liability over time. In addition, government could also explore a possibility of establishing a pension fund to guarantee availability of terminal benefits to civil servants, as and when they retire. d) Payment of Pensioners beyond the Pensionable Period – UGX.11,038,936,918 Section 18 (1) of the Pensions Act, Cap 286, requires that every pension or other allowance granted under the Act, should cease upon the death of the person to whom it is granted. For the avoidance of doubt, it is declared that a pension granted under this section be payable for a period not exceeding in aggregate fifteen years from the date of retirement of the deceased pensioner. Pursuant to the above therefore, all pensioners must furnish the Ministry of Public service with annual life certificates after the expiry of their 15 year pensionable periods as proof that they are still alive.

I noted that UGX.11,038,936,918 was paid to pensioners who had exceeded their pensionable period of 15 years, yet no life certificates were availed as proof of their continued existence. This similar observation was made in my previous audit report and the recommendations therein were not adhered to. Absence of 257

evidence of continued existence of pensioners in form of life certificates to support pension payments may imply payments to non-existent pensioners.

Although the Accounting Officer stated that the respective life certificates were available to justify the amounts paid out, these were however not availed for verification.

I advised the Accounting Officer to always adhere to the requirements under the Act and obtain life certificates, before making such payments. In addition, the life certificates of pensioners in regard to the questioned payments should be obtained and provided for review. e) Discrepancies between IFMS and IPPS Pension Data Files The primary source of data for effecting pension payments through the IFMS is the pension payroll generated from the IPPS. In order to minimize manual intervention, an IPPS/IFMS interface was deployed. Effective operation of the IPPS/IFMS interface is highly premised on the requirement that the data from IPPS will be accurate with minimal or no need of correction by the Accounting Officer. Ideally the two systems are expected to be consistent.

I however noted that payments to the tune of UGX.2,607,106,533 were made to beneficiaries who did not have corresponding records on the IPPS pension payroll. This implies that there could have been manual intervention in between the two systems that led to payment of the said funds. There is a risk that the payments were made to non-existent pensioners.

In response, management admitted that UGX.2,607,106,533 was paid out, off the IPPS, and that these were payments of pension arrears and gratuity, ex gratia, payments to past leaders and monthly pension processed on the legacy system before a shift to IPPS. I was however, not availed the relevant documentary evidence.

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I have accordingly advised the Accounting Officer to ensure that the IPPS is updated to include all pension information including arrears, to avoid the risky manual interventions on the interface with the IFMS. f) Multiple Payments to Pension Beneficiaries – UGX. 1,161,382,909 An analysis of the payment file and Bank of Uganda bank statements for the Ministry revealed multiple payments amounting to UGX.1,161,382,909 to various pensioners. Audit noted that monthly pension payments were made to accounts of pensioners who had already received their monthly remittances for the particular months. I also noted particular cases where pensioners were already on the pension’s payroll of the previous financial year (2013/2014), but were later paid in the current financial year (2014/2015) categorised as arrears. However, there was no evidence availed to show that the Ministry owed the same pensioners arrears as they were not on the pension arrears list in the previous year.

This was due to the practice of payment of monthly pension prior to payment of the commuted pension gratuity without proper records tracking, and/or due to poor controls in the process of data capture where pensions’ staff leave out critical information on the pensions database for categories including army veterans and retirees. The above two scenarios present a risk of falsification of pension data/files as well as double payment of a particular category of pensioners. I noted that less attention is given to this particular category of files since it is assumed that clerical work is done at the vote prior to the files being forwarded to the Ministry for payment.

In response, management admitted the presence of multiple payments totalling to UGX.1,161,382,909, but added that some of the payments could be attributed to unpaid monthly pension for several months for the Ministry of Defence beneficiaries who submitted letters of Administration late during the financial year yet payment had earlier been suspended. I was however, not provided with any documentary evidence to this effect.

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I advised the Accounting Officer to institute an investigation into this matter and if confirmed, recovery measures of the amounts irregularly paid out should be initiated, as well as disciplinary action to whoever is found involved in the practice.

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SECURITY SECTOR

22.0 MINISTRY OF DEFENCE a) Non- produced assets During the year the Ministry’s total expenditure on land acquired amounted to UGX.1,119,388,145. However, it was noted that the government policy of capitalising the acquired land from the financial year 2011/2012 did not give guidance on what to include as cost of land acquired. As such, this amount could not be verified due to lack of guidelines on treatment of land costs in the financial statements. There is a risk of misstatement on the amount captured.

I advised the Accounting Officer to engage the Accountant General and ensure that guidelines are provided to spell out clearly what should be capitalised as land acquired. b) Payment of Compensation of UGX.1,000,000,000 It was observed that a sum of UGX.1,000,000,000 was paid to an individual as part payment on a claim of UGX.2,958,668,733 for the compensation of 683 cattle and 119 goats which were handed over to 4th Division for safe custody during the insurgency period in 1986. Reviews of the available documents indicate that;  The Ministry of Defence requested for the original documents from the Solicitor General’s Office to effect the payment, instead payment was effected using photo-copied documents on account that the original documents got misplaced.

 It was not possible to confirm whether this claim had not been paid before since it is now 28 years since the purported supply of the animals.

 Available information indicates that the claimant was a quarter master of the Army Division at the time of handing over the animals which implies conflict of interest.

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 It also appears that these animals were for various people but instead the compensation was made to one individual

There is a risk of duplication of compensation payments.

In response, the Accounting Officer explained that this payment was based on the advice from the Ministry of Justice and Constitutional Affairs and the Solicitor General who guided that the claim be paid by Ministry of Defence since it was a contractual arrangement between MOD and the claimant. However, I was not availed with any evidence to that effect.

I advised Accounting Officer to ensure thorough scrutiny of documents prior to settlement of the final claim. c) Anomalies in the Procurement Procedures During the audit, the Ministry carried out a number of procurements however, in certain instances the procurement procedures were faulted as summarized in the table below;

Contract number and Description of the Issues raised Amount contract 1 MOD/SUPLS/2013- Industrial materials  Items were delivered before 14/00250 Amount for the renovation of accepting the bid. The letter of bid UGX.288,139,008 Mubende barracks acceptance from the Accounting Officer was dated 4/08/2014 and was acknowledged by the supplier on 8/8/2014 after the items had been delivered on 18th July, 26th July, 1st August, and 7th August 2014

2 MD/SUPLS/2013-14/00030  By the time the Call off order was Amount UGX.1,323,240,000 Supply different types issued on 18/11/2014 tyres worth of tyres to the UGX.1,323,240,000 had been Ministry depot at delivered to lower . Magamaga  Deliveries worth UGX.56,448,847 were made using photocopies.

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3 USD.842,599.60 equivalent Supply of assorted  By the time of signing the contract to UGX.2,467,974,228.4 clothing on 3/11/2014, items worth USD 948,681 equivalent to UGX.2,778,686,648 had already been delivered.

Date of delivery Amount (US$) 1/5/2014 200,709 8/3/2014 18,410 - 570,317 1/6/2014 169,000 1/7/2014 190,153 Total 948,681  The letter of bid acceptance which was signed on 24th July 2014 and the Call off Order issued on 29th January 2015 were both signed after the delivery of the different items.

4 Contract sum of M/S Kent Uniforms  Items worth USD.252,000 UGX.2,122,858,703 Ltd to supply equivalent to UGX.690,480,000 30,000 pairs of Digital had already been supplied to the BDU and Assorted Ministry on 11th April 2014, and Cap Budges for yet the contracts committee sat UPDF. on 22/4/2014 to approve the contract to supply uniforms.

 All the items supplied before the award of the contract did not have a Call of Order which is an indicator that the procurements were not authorized by the Accounting Officer.

I explained to the Accounting Officer that undertaking procurements in noncompliance with the PPDA laws could mean that value for money may not have been achieved from on the procurements.

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The Accounting Officer attributed these anomalies to the unique nature of the Ministry and promised in future to work within the provision of PPDA Act. I await the Accounting officer’s action on the matter. d) Un-reconciled Payments In my report to Parliament for the year ended 30th June 2014, I recommended that before any further payments are made to UMEME the Ministry should reconcile with Ministry of Finance, Planning and Economic Development and establish how much money was paid from Escrow Account to settle the Ministry electricity debt.

The Accounting Officer explained that the Ministry had communicated to PS/ST about the outstanding debt and promised to offset the amount paid from the Escrow account prior to making any payment. However, the Ministry with the approval of Ministry of Finance, Planning and Economic Development paid a sum of UGX.40bn from the classified vote to UMEME to offset the outstanding bills.

I noted that that after effecting payment no follow up has ever been made with the money paid from the escrow account. Besides, I was not availed with the reconciled outstanding amounts at the year end.

Management noted the matter and promised to follow it up. I advised the Accounting Officer that reconciliation for payment from the Escrow account should be undertaken in liaison with the MoFPED to establish the outstanding amounts. e) Breach of Contract for Construction Works The Ministry signed a contract with a local company on 14th June 2013 for the construction of a maintenance workshop at Moi Brigade headquarters, Nakasongola at a contract price of UGX.1,507,894.518. The contract was an admeasurement contract where interim payments are made based on certified works and was expected to be completed by 30th June 2014.

A review of the available documents revealed the following anomalies; 264

 Cumulative amount of UGX.533,493,648 representing 35% had been paid, however, the corresponding certificates for the works done were not availed for audit.  For the year under review UGX.167,823,272 was paid to the firm as part payment for the construction works without a record of certified work.  An inspection carried out on 24th September 2015 revealed that the project had not been completed and was behind schedule by one year and 3 months. The contractor has been onsite for more than two years and this may result into unnecessary extension costs.

Management attributed the delays to complete the project to inadequate funding.

I advised the Accounting Officer to enhance supervision of this contractor and have the works certified and completed. f) Land Compensation at Kabamba Barracks A total of UGX.65,000,000 was paid on 23rd October 2014 as part payment on a claim of UGX.3,135,792,749. Documents available indicate that Ministry of Defence signed a Memorandum of Understanding on 25th September 2014 to compensate interests and all developments of the owner of the land taken over by the Ministry. The following issues were noted;  The land in question is government land (Kabamba Barracks) which was erroneously leased out to an individual by Mubende District Land Board. By the time the lease was offered, Ministry of Defence had already occupied the land. It is not clear why the District leased out land which was already occupied.  The lease agreement between the District Land Board and the Land Lord was not availed to enable me review the terms under which they acquired the land.  The specific conditions for government leases do not permit the lessee to change the land use without the consent of the lessor. It appears the land use was changed without the consent of Mubende District Land Board.  The signed Memorandum stated that compensation was to cover the interest and development on the land but the Landlord never took possession of the

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land and therefore no development was made. There is a risk that government is compensating for development that never existed.  The method used to arrive at the amount of UGX.3,135,792,749 to be compensated was not clearly defined and the Ministry did not raise any objection.

In response the Accounting Officer stated that the Land Lord had acquired the land before MOD took possession. The Chief Government Valuer valued the land and it is on this basis that the Ministry is settling the obligation.

I advised the Accounting Officer to seek advice from the Solicitor General on matters of acquiring leased land prior to effecting further payments. g) Rental Arrears of UGX.2.01 Billion In 1988, Government took a decision that all land including houses overlooking Entebbe Air base be taken over by Ministry of Defence and that owners be compensated. By March 1989, all properties taken over by the Air force in Entebbe had been paid for by Government. However, National Housing and Construction Company (NHCC) after 17 years has now come up with a claim of UGX.2.01 billion in respect of rent arrears for the purported company property. I was not availed a tenancy agreement to determine the value. Besides, there was no supporting document for the ownership of the property but the Ministry of Finance, Planning and Economic Development has committed to avail the funds.

In response, the Accounting Officer explained that Ministry of Defence occupies twenty five (25) housing units at Bulime in Entebbe Municipal Council which belongs to National Housing and Construction Corporation Ltd and the Ministry was paying up to 2005.

I explained to the Accounting Officer the risk of paying rental arrears for the property that were taken over long ago and compensation effected and advised her to cross check the records before committing more funds.

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23.0 OFFICE OF THE PRESIDENT a) Lack of Land Titles

The Office of the President (OP) has land in Districts of; Dokolo, Nwoya, Sheema, Mitooma, Abim, Amuru, Butaleja, Kalangala, Kamuli, Napaka, Mayuge, Sironko, Kyenjojo, Kamwenge and other districts. However, it was noted that there were no land titles which expose the land to encroachment by private developers.

The Accounting Officer explained that efforts are being made to have the land titles processed from Ministry of Lands and the District Local Governments. Some deed plans have been produced and forwarded to ULC to process the titles.

I await the Accounting Officer’s efforts on the matter. b) Irregular rental of office Premises

Uganda Land Commission signed a tenancy agreement with a local company on 28th April 2014, for the rental of office premises for Uganda Media Centre at a monthly rate of UGX.11,000,000 exclusive of VAT. However, there was no procurement file to ascertain how the company was selected to provide rental premises. Management did not follow the PPDA regulation in the circumstance.

In her response, the Accounting Officer explained that there was no procurement files for this transaction because the premises were acquired on the recommendation from the then Director, Uganda Medical Centre. However, rent is paid basing on the Chief Government Valuer’s report.

I advised the Accounting Officer to follow PPDA regulations when entering into such engagements. c) Unutilised Gratuity funds

During the financial year 2014/15, the Office of the President received a total of UGX.2,022,221,669 to pay gratuity and pension for several employees on contract

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and those who had retired during the year. However, only UGX.1,632,498,668 was paid out to some of the beneficiaries. Forty seven (47) employees whose gratuity amounted to UGX.395,416,075 was not paid and the funds were subsequently returned to Treasury.

The Accounting Officer attributed the failure to pay gratuity to 47 employees on the late release of gratuity funds at the end of the financial year. Funds were released on 26th June 2015 and Accounting Warrant approved a day later. Before payment could be processed, the operations of the IFMS were frozen. All efforts are being made to ensure that the beneficiaries who missed their money are paid.

I await the confirmation of payment of the employees. d) Ageing Fleet of Motor vehicles

It was noted that most of the motor vehicles used by the RDCs and DRDCs have gone beyond the government recommended usage of five years but are still in use. Most of these vehicles operate in areas with difficult terrain across the country which increase maintenance and repair costs as they age. Continued use of such old vehicles greatly affects the monitoring and evaluation of government programmes in the districts. This has further worsened due to the creation of new Districts which requires more vehicles. There is a risk that the OP will continue to incur high vehicle maintenance costs if no action is taken.

In response, the Accounting Officer explained that the Ministry requires (20) twenty new double cabins annually to replace the ageing field vehicles but the current budget ceilings can only allow procurement of ten (10) new double cabins annually.

I advised the Accounting Officer to liaise with MoFPED in order to solicit for more funds to procure new vehicles.

268 e) Unpaid Utility bills

On 1st July 2013, Office of the President and Office of the Prime Minister signed a Memorandum of Understanding to manage common services for the new office blocks equally. The common services shared include electricity and water, standby generator, conference hall, canteen and compound maintenance. It was however, noted that before handing over the office blocks and the signing the MoU, there were accumulated outstanding bills of UGX.222,440,800 for electricity and UGX.5,061,311 for water. The responsibility of paying for utility expenses was put on Government of Uganda as per bilateral agreement between the Governments of China and Uganda during the construction period. Subsequently, the signed MOU required the bills to be shared equally between the two entities. A review of the Utilities Register indicated that UGX.724,791,678 and UGX.71,526,566 was still outstanding for electricity and water respectively at the end of the financial year. I was not availed with the settlement plan on how the OP intends to pay the outstanding bills.

I advised the Accounting Officer to carry out a joint reconciliation with Prime Ministers’ Office and have this outstanding amount settled. f) Understaffing

It was established that Office of the President had an approved establishment of 664 staff; however, only 451 posts were filled leaving a balance of 213 posts vacant. Understaffing affects service delivery and performance of the entity.

The Accounting Officer attributed the vacant posts to inadequate wage allocation to the Office of the President by MoFPED and promised to declare the vacant posts as soon as funds are allocated.

I advised the Accounting Officer to continue following up the matter with MoFPED for the required resources.

269 g) Non-remittance of taxes

Section 103 of the Income Act, requires that tax charged in any assessment shall be payable within forty-five days from the date of service of the notice of assessment. It was observed that the entity did not remit PAYE for the months of April, May and June 2015 worth UGX.494,720,625 to the tax Authority. This may attract fines and penalties which will affect the planned activities.

The Accounting Officer explained that the delay was occasioned by insufficient cash releases. The matter was however taken up by the MoFPED who have promised to resolve the matter.

I await the outcome of management action.

24.0 STATE HOUSE a) Rent arrears for Okello House

State House has been occupying Okello House for many years with a tenancy agreement that expired in 2013. However, it was observed that State House has not renewed the tenancy agreement and no rent payments have been made to the landlord despite continued occupancy. At the close of the financial year, a sum of UGX.1.272,363,507 was outstanding in rental arrears. I explained to the Accounting Officer that there are risks involved with the continuous stay in the premises without a valid tenancy agreement which could involve paying higher amounts with interest.

The Accounting Officer explained that it has not been possible to finalise the tenancy agreement as a result of a mortgage dispute between the landlord and the lender. Until this dispute is resolved, State House cannot enter into any tenancy agreement.

I await the outcome of the Accounting Officer’s action.

270 b) Plot of land for National Housing and Construction Corporation

National Housing and Construction Corporation owns properties on Plot 1 Kyagwe Road– which is currently occupied by State House. Documents indicate that National Housing has been demanding arrears of UGX.201,100,000 from State House. These arrears have not been reflected in the financial statements.

In response, the Accounting Officer explained that this plot of land is enclosed within the perimeter fence of State House Nakasero. Initially State House had offered to purchase the plot of land but it was overvalued making it prohibitive to procure. This matter was then referred to the Solicitor General with the view of acquiring the plot compulsorily.

I advised the Accounting Officer to follow up the issue with the Solicitor General and have this matter resolved to its logical conclusion.

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AGRICULTURE SECTOR

25.0 MINISTRY OF AGRICULTURE, ANIMAL INDUSTRY AND FISHERIES a) Mischarge of Expenditure The Parliament of Uganda appropriates funds in accordance with the needs of the country and this appropriation is implemented through the budget in which funds are tagged to particular activities and outputs using authorised account codes. However, expenditure totalling to UGX.379,633,600 was inappropriately charged to budget lines to fund activities that were not planned without authority.

I explained to management that mischarge of expenditure undermines the intensions of the appropriating authority as funds are not fully utilised for the intended purposes.

In response management committed to ensure that the budget process is streamlined to ensure sufficient funds are consistently allocated to significant account areas.

I await the outcome of management’s commitment. b) Nugatory Expenditure (i) Interest Paid to a Construction Company – Rwenjubu, Makukulu, Lyantonde and Dyangoma dams A construction company was contracted to rehabilitate 5 dams in August 2008 namely Rwenjubu dam at Isingiro District, Makukulu dam at Lyantonde District, Kibanda dam at Rakai District, Dyangoma dam at Mubende District and Kasejere dam at Kiboga District at a contract sum of USD 8,095,704.56. The contract intended completion date was eight (8) calendar months from start date (26/6/2008). Due to inadequate releases, the Ministry could not clear all the outstanding balance on this contract and hence an outstanding balance has been attracting compounded interest. During the year under review; the Ministry paid interest to the tune of UGX.12,312,392,823 as a result of delayed payments of 272 outstanding contractual obligations. I noted that the expenditure could have been avoided with adequate planning and budgetary provision.

In response, the Accounting Officer explained that the Ministry has been paying this claim as and when funds were available but because of inadequate releases all the outstanding balances on this contract could not be paid in time. It was also explained that the contractor was stopped from proceeding with the works by a court case over the ownership of land at Rwenjubu dam. The contractor then lodged in a claim for time extension and the Ministry sought guidance of the Solicitor General (SG) who advised that the contractor had a right to claim the extension with costs.

I advised the Accounting Officer to always make timely follow up with Ministry of Finance, Planning and Economic Development to avoid accumulation of Interest on outstanding contractual obligations.

(ii) Interest Payment to a Construction Company – Atar and Wangwoko dams Another construction company was contracted to rehabilitate Atar dam in Apac District and Wangwoko dam in Kitgum District under the National Livestock Productivity Improvement Project (NLPIP) at a contract sum of US$.2,772,352.70 in June 2008. According to available documentation the company had been paid a sum of US$.2,491,712.85 as at the time of this report. Documents reviewed further showed that there were delays in payment of the Government of Uganda (GOU) component of the contract due to inadequate releases and consequently the delays attracted interests for which the Contractor is demanding US$.647,679.40. During the year under review, the company was paid UGX.295,116,201 as payment of interest on outstanding obligations for rehabilitation of the two dams. This interest could have been avoided had payments been made on time.

In response, the Accounting Officer explained that delays in payments of the GOU component left a balance of US$.280,639.15. These delays on payments attracted 273

and will continue attracting interest overtime as per the terms of the contract for which the contractor is now claiming an amount worth US$ 647,679.40. At the time of this report, interest element had accumulated to US$.367,039.49.

I advised the Accounting Officer to take follow up the matter with Ministry of Finance, Planning and Economic Development to avoid further accumulation of interest charges. c) Failure to charge liquidated damages A construction company was contracted to construct a fish landing facility at Kiyindi and Lwampanga landing sites at a contract sum of UGX.11,087,327,613 on 11th December 2007. According to available documentation, the contractor had been advanced UGX.2,408,014,853, however, works were not completed within the agreeable time and there was an extension for extra 164 days. The contract was subsequently terminated without management charging liquidated damages amounting to UGX.1,200,042,088 as per clause 49.1 of the conditions of the contract.

I advised the Accounting Officer to always follow the contractual clauses to avoid losses. d) Status of Land Title Acquisition During the year, a sum of UGX, 16,200,000,000 was paid by the Ministry for acquisition of land to be leased for palm oil development under Vegetable Oil Development Project (VODP). Out of the 42 titles that had been procured during the year, 32 titles were verified but had not been transferred in the names of Uganda Land Commission. The remainder of unspecified 10 land titles were reported to be in possession of the consultant and by the time of reporting, the process was still on going.

It was further observed that a title for block 49, plot 2 measuring 640 acres was still under caveat which is likely to delay the transfer process. The Accounting

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Officer explained that the process of transferring the remaining titles in the names of ULC is on-going. The process of removing the caveat is also on-going.

I advised the Accounting Officer to follow up the process closely to ensure the transfer process is finalised. e) Staffing gaps During the review, I noted that the ministry was critically under-staffed. Out of the total approved structure of 432 posts; 108 (25%) were filled reflecting under- staffing gap of 324 (75%) vacancies. I explained to management that this leaves a significant leadership and technical gap that creates more work load on the existing workforce given the Ministry's nature of operations that cover the whole country. Under-staffing generally impacts negatively on the service delivery of the Ministry.

I advised the Accounting Officer to take up the matter with the Ministry of Public Service and have the gaps filled. f) Review of the operations of the Uganda China Friendship Agriculture Technology and Demonstration Centre (UCFATDC) Project The Uganda China Friendship Agriculture Technology and Demonstration Centre (UCFATDC) project is located at the NAFIRRI Institute - Kajansi Centre by the Chinese firm SICHUAN HUAQIAO FENGHUANG Group Co. Ltd. The operation of this Demonstration Centre started after the signing of the protocol between the GOU and the Peoples’ Republic of China (PRC) on Cooperation of the Establishment of the Agricultural Technology Demonstration Centre for Uganda on the 27th of June 2008. This followed the Agreement on Economic and Technical Cooperation between the two Governments signed on the September 18th 2007. The operationalization of the project by the Chinese company in Uganda started in October 2011. During the review of the project operations; I noted the following shortcomings;

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Status of Implementation of Protocol Obligations (i) Funding of the Project The protocol agreement indicated that RMB Yuan 50,000,000 was to be provided as total grant aid by the Government of the People’s Republic of China. The components included training and office buildings, residence for Chinese experts, hatchery workshop, feed factory, fish ponds and supply of necessary apparatuses and other equipment. However, I was not provided with financial records indicating how the funds were utilised. As such it was difficult to establish whether the funds were all dully received and accounted for.

In response; the Accounting Officer acknowledged that the project total grant was RMB Yuan 50,000,000 and the related expenditure breakdowns in areas of the activities undertaken at the centre were not available with MAAIF but could only be accessed from the Chinese Embassy.

I advised the Accounting Officer to ensure financial records of the project are in place.

(ii) Un-tarmacked road During the review, I noted that GOU had not yet tarmacked the road from the demonstration centre to the main Entebbe road. Management explained that the ongoing Southern bypass road works by UNRA hampered progress in tarmacking the road and was still hampering implementation of the planned projects at this research center. MAAIF further indicated they plan to engage UNRA on the best actions.

I advised the Accounting Officer to honour the protocol obligations

(iii) Lack of accounting records Review of the summary report of statistics of expenditure and income of UCFATDC from 2011 to Feb.2014 availed, showed that the project incurred expenditure to the total of UGX.3,395,065,128 and income totalling to UGX.2,411,697,770 reflecting a deficit of UGX.983,367,358. Article III of the Agreement on Economic 276 and Technical Cooperation provided that detailed accounting procedures for the implementation of this agreement were to be signed subsequently between the Bank of Uganda and the China Development Bank.

However, I was not availed with the accounting procedures followed in the keeping of books of accounts. There seems to have been lack of follow up on the issues.

I advised the Accounting Officer to enforce the monitoring of revenue and expenditure through dully approved procedures.

(iv) Lack of operation regulations According to the Protocol on Cooperation of the Agricultural Technology Demonstration center, the Institutions designated by both Chinese and Ugandan sides shall negotiate the specific matters on the operation and commercialization of the Demonstration Center after the expiration of 3 year technical cooperation as soon as possible. It was indicated that a separate agreement would be signed to provide regulations.

I noted that no separate agreement was drawn to clearly define the details of the operations and sustainability of the center. There is a risk that the Centre may not be operated in the interest of government. In response the Accounting Officer acknowledged the shortcoming and explained that the ministry will ensure that the existing project status is reviewed and an agreement drawn to clearly define new operations of the centre.

I await the outcome of the Accounting Officer’s commitment.

(v) Lack of supervision of the Project Article IV provides that GOU has a right to supervise the revenue and expenditure of this project and the Chinese Executive enterprise is duly bound to provide the financial report of the project to the GOU at regular Intervals. I noted that since

277 inception of the project; the revenue and expenditure was not supervised by the ministry besides; there were no financial reports availed for review.

In response, the Accounting Officer explained that this shortcoming was attributed to lack of detailed accounting procedures concerning implementation of this agreement which were to be signed subsequently between the Bank of Uganda and the China Development Bank.

I advised the Accounting Officer to ensure supervision of the income and expenditure.

(vi) Revenues and expenditure of the Centre I noted from the review of the minutes of the meeting on the Project of China-Aid Fishery Technology Demonstration Center for Uganda between the GOU and the PRC under number 6 others; that Ugandan Government promised that the profits earned by the company are allowed to be remitted outside of Uganda freely.

I explained to the Accounting Officer that surrendering the transfer of profits to move freely to the RPC meant that GOU has no stake in the Enterprise. In their response, management explained that the schedule of profits so far remitted to the PRC if any; is not available with MAAIF and follow up would be undertaken. It was indicated that MAAIF will work with NaFIRRI and the office of the Solicitor General to review the above clause to ensure both partners benefit from the profits reaped if any.

I advised the Accounting Officer to ensure both partners benefit from the venture.

(vii) Lack of a detailed Contract between the parties Article VII of the Protocol provides that the detailed matters of the Project shall be stipulated in the contract which would be signed by the Institutions designated respectively by the Governments of Uganda and China. I noted that there was no evidence of another contract signed that details the matters of the project and the current position puts the assets of the project at risk. 278

Management explained that the ministry will ensure that the existing project status is reviewed and an agreement drawn to spell out details of the operations of the project to ensure safety of the assets of the project including land.

I await the outcome of the Accounting Officer’s commitment.

(viii) Provision of free land Article VIII provides that in order to support the Chinese enterprise to develop the market–oriented operation for the sustainable development of the Centre, the Uganda government shall provide additional land free of charge for production (or lease/sale the land in favourable conditions), and provide facilities and preferential policies of the investment in their market-oriented activities.

However, I was not provided with the detailed terms and conditions for the give- away or intended give away of the land.

I explained to the Accounting Officer that there is a risk that land could be acquired unfavourably since terms are not well defined.

The Accounting Officer responded that anomaly on the land issue highlighted above is to be reviewed in line with the new PPP law to avoid any unforeseen risks that could arise.

I await the Accounting Officer’s plan of action.

(ix) Open ended protocol Article IX provides that the Protocol shall come into force from the date of signature (27th June 2008) and remain valid until the fulfilment by the two sides of all their respective obligations under the protocol.

I noted that the protocol is open-ended and this could lead to disagreements as the partners implement the provisions in the agreements. 279

The Accounting Officer acknowledged that the protocol is open-ended and indicated that it is to be reviewed to avoid any unforeseen misuse of GOU land and other assets.

I await the outcome of the above.

(x) Other related issues  There was no evidence of tracking the fulfilment of GOU obligations;  The project was open ended and did not consider how the project would continue without the Chinese funding if the profits mentioned are not reaped.  I noted that currently the status of operations of the project is not clear as there seems to be no one responsible for the operations of the centre since the expiry of the 4th year of the protocol April 2014.

The Accounting Officer responded as follows: The project is open ended and MAAIF is to review the project sustainability to ensure continued operations without the Chinese funding and if the profits mentioned are not reaped.

It was further stated that MAAIF will work with NARO to ensure Clear terms are structured and the operations of the centre clearly defined/spelt out and responsibilities for all relevant Authorities.

I advised the Accounting Officer to ensure clear terms for the operations of the project are adequately structured and streamlined. g) Bukalasa Agricultural College (i) Legal Status of the College Bukalasa Agricultural College operates under Universities and Other Tertiary Institutions Act 2001 and as a result, the College should be under the policy and supervision of the Ministry of Education and Sports since it is a training Institution. I however noted that the College is currently answerable to the Minister of 280

Agriculture, Animal Industry and Fisheries (MAAIF). All activities/plans (budget) are consolidated in the vote of MAAIF and hence the College implements policies of MAAIF and not that of Ministry of Education.

The Board/Governing council is appointed by the Minister of Education but reports to the MAAIF. I further noted that the College operates like a standalone institution to the extent that it formulates its own curriculum, contrary to other tertiary institutions that are controlled by separate examination bodies. I was not availed with evidence that the College is accredited to any supervisory Institution/Authority of higher learning. I explained to management that the college credibility is under risk and its output could be doubted with time as it does not seem to be having quality assurance reviews at the moment.

Management explained that in April 2010, Government transferred the Institution back to MAAIF, the transfer had a number of gaps. In an attempt to rectify these gaps the ministry has made various correspondences with other stakeholders since then. The Governing Council is currently holding meetings to review Policies meant to identify and highlight those laws and policies affecting the operations of the college. It is hoped this will allow MAAIF to play its statutory roles of providing an oversight watch over the college properly including the appointment of the Governing Council.

I advised the Accounting Officer to continue engaging the relevant authorities with a view of having the college legal status rationalized to avoid future challenges.

(ii) Non-payment of Rent It was established that the college has quarters that are occupied by staff and non-staff. Some of the occupants who are not staff of the college were reported to be staff of Luwero District Local Government while others included the retired civil servants. Except for the college staff, I noted that all others are occupying the college premises illegally. I noted that no rental income has been collected from the tenants since their occupancy. Further, there was no housing policy that guides the College management on management of the College facilities. Lack of a

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housing policy makes it difficult for the college to control those who occupy its houses and leads to continuous loss of income to the College.

Management explained that a committee was put in place to start formulating the Housing Policy and once they are finalised, the draft will be forwarded to the council for approval.

I advised the Accounting Officer to expedite the formulation of the policy and have it approved before its implementation.

(iii) Poor State of the College Premises During inspection of the college premises it was noted that some houses were dilapidated and not attended to as reflected in the picture below.

Management explained that the college premises were in a poor state, majorly due to budgetary constraints. Management also indicated that they are lobbying for funding and the Ministry is yet to be allocated some funds for infrastructure development.

I await the outcome of the Accounting Officer’s commitment.

(iv) Lack of Kitchen facilities I noted that the college lacks sufficient kitchen facilities. The existing old facilities like boilers are currently out of service and management improvised by using a makeshift structure as shown in the picture below;

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There was no indication that management has a plan of constructing a kitchen structure soon. The current situation puts the college at risk of health challenges.

I advised the Accounting Officer to seek urgent financing so as to undertake infrastructure development.

(v) Land Issues Inspection of the College premises revealed that there is continuous encroachment on the college land by Luwero District Local Government that also claims ownership of part of the College land. Review of the available records showed that the College was granted title for approximately 400 acres by the colonial government way back in 1931 however, subtitles have since been curved out and issued in the names of Luwero District Land Board within the same block of land occupied by the college. I further noted that a washing bay and a parking yard were operating within the environment of the college without express authority of the College administration, allegedly with authority of Luwero District. Allowing unauthorised persons to operate and occupy some college properties raises security concerns to the college staff and students and exposes the college land to encroachment

The Accounting Officer explained that a fence will be raised across the land and with the support of police patrol, the illegal encroachment will be stopped. As regards illegal occupants, a case has been opened against them and is before court.

I advised the Accounting Officer to ensure ownership of its land and ensure occupancy is regularised. Illegal occupants should be evicted henceforth.

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(vi) Staffing Gaps – 49 Vacant posts I noted that the college has a staffing gap of 49 positions against the approved structure of 163. Some of the positions not filled are critical to the operations of the college such as a Procurement officer. I explained to management that under staffing impacts negatively on service delivery and general performance of the college.

The Accounting Officer explained that interviews to fill up vacant posts were soon to be conducted. I advised the Accounting Officer to expedite the process.

25.1 VEGETABLE OIL DEVELOPMENT PROJECT PHASE II

(a) Compliance with Financing Agreement and GOU Financial Regulations A review was carried out on the project compliance with the loan agreement provisions and GOU financial regulations and it was noted that the project complied in all material respects with the provisions in the agreement and applied GOU regulations except in the following matters:

(i) Status of Un recovered Loans from Small holder growers - UGX.32.4bn A review of the status of Kalangala Oil Palm Growers’ Trust (KOPGT) loan Portfolio showed that as at 30th June 2015, a total of UGX.37,373,918,589 had been disbursed to the farmers as cash and input loans to support the farmers for oil palm growing activities. During the year, a sum of UGX.1,691,928,151 was recovered from smallholder growers reflecting cumulative total recoveries of UGX.4,949,465,054 leaving the unrecovered loan balance of UGX.32,424,453,535 (86.7%). Although the recovery period is 15 years after planting, the recovery of the outstanding loans seemed to be very slow. The slow recoveries could disadvantage other farmers from benefiting from the intended objective of poverty reduction.

In response, management explained that the oil palm plantations have not all yet reached maturity for harvesting and therefore the loan recovery have not commenced. It was further indicated that recovery of the loans from the oil palm farmers is linked to the harvesting and sale of oil palm fresh fruit bunches by the 284

farmers and as part of the project design, the farmers sell to the palm oil mill owned by Oil Palm Uganda Limited (OPUL), through KOPGT; where recovery of the loan is deducted at source after sale.

The speed of loan recovery is dependent on the yield which is influenced by age and agronomic management of the plantation; and the price at which the oil palm fresh fruit bunches are sold is influenced by international crude palm oil price.

I advised the Accounting Officer to ensure adequate monitoring and supervision of the project for timely recovery of loaned funds.

(ii) Under absorption of Released funds - UGX.12,519,116,730 During the year under review, the project received UGX.35,598,741,299 for purposes of undertaking planned project activities, however, UGX.23,079,624,569 was spent leaving UGX.12,519,116,730 unutilized representing a 35% underperformance. I noted that some planned activities were not implemented which included; designing of the MIS software for the Project, acquisition of a heavy duty scanner and a 12-14 seater motor boat. I explained to management that underutilization of the available funds could lead to unnecessary project extension costs because of failure to execute the planned activities timely.

In response, management explained that the procurement of speed boat was deferred due to the need to agree on the specifications with the Kalangala farmers while for the heavy duty scanner was due to inadequate provision of funds in the budget. The MIS was not procured because of change in the technical specifications and requirements by the user. This procurement process took long and thus affected the use of the funds under the oil seeds development component.

I advised the Accounting Officer to plan adequately and ensure uncompleted activities are handled within the stipulated time.

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(b) General Standard of Accounting and Internal Control A review of the system of accounting and internal control was carried out and in all material respects, the internal control system and measures to ensure proper accountability for the project funds put in place by management was satisfactory.

Status of Project Implementation A review of the status of project implementation revealed the following;

(i) Status of Acquired land (Acquisition of Land title) - UGX. 5,271,012,599 Expenditure totalling to UGX.5,271,012,599 was made to purchase 1,174.32 hectares of land for implementation of project activities in Buvuma Island in the period under review however at the time of reporting; land titles of the procured land had not been secured. Below is the status of possession of the highlighted land. S.No Land Registered Delivered No. of Tenant Status of Proprietor Hectares tenants compensation title (UGX) 1 Plot 3, Block Kato Sekabanja 412.193 202 767,467,726 In 28, Buluta, P.O. Box 2064, consultant’s Buvuma Kampala custody

2 Plots 1&4, George William 359.000 128 576,181,968 In Block 35, Muwonge P.O. consultant’s Bubale, Box 123, custody. Buvuma Mukono 3 Plot 1 Block Stephania 77.1 82 454,912,800 In 6 Bukaibale - Kyazike and Consultant’s Buvuma Nansubuga Custody District. Jane- Administrators Of The Estate Of The Late Atanansi Kirakasoro 4 Plot 1, 2 & 3, Fred Luyombya, 198.33 158 1,050,060,362 In Block 25 Simon Kivumu consultant’s Nsese and Mike custody Buvuma. Kaggwa, Administrators of The Estate of The Late Sefatiya Katamba

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6 Plot 19 Block Kiyimba Edward 181.30 103 1,295,493,260 In 6 Bukwaya - Administrators consultant’s of the Estate of custody the Late Muhammad Mukasa 7 Plot 9 Daniel 20.23 22 98,754,305 In Buvuma Wandabula consultant’s Block 1 custody Bunyiguza- Galigatya 8 Plot 1 Kibalama 46.54 39 374,408,045 In Buvuma Joseph and consultant’s Block 3 Kalenzi David - custody Bukaibale-- Administrators Galigatya of The Estate of The Late Barnabe Katte Plot 5B land Sekanjako Saul 80.12 70 653,734,133 In at Buyengo consultant’s FC 24659 custody Totals 1174.32 1039 5,271,012,599

I explained to management that the delay to acquire land titles slows down the progress of implementation of the project activities.

In response, management explained that the land titles for the specified land above were handed over to the project with transfer forms dully signed by the vendors, transferring the land to Uganda Land Commission (ULC) and these were handed over to the land consultants to start the process of transfer to ULC. Management further explained that as a control; these have been caveated to protect the land from any transfer without the knowledge of the project.

I await the outcome of the Accounting Officer’s actions.

(ii) Outstanding land compensation claims I noted that a total of UGX.3,804,475,474 was outstanding in land compensation claims in favour of a claimant. Although funds were available and the valuation process already undertaken, the claimant had not been paid as at the time of reporting in December 2015.

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I explained to management that unpaid claims may lead to litigation challenges that impact negatively on the project. Besides, it slows down the oil palm growing due to lack of adequate land.

Management explained that the payment in question is pending verification and due diligence of tenants on the land and payment will be effected thereafter.

Management effort to expedite the process is awaited.

(iii) Failure to hand over 5,000 hectares of land for oil palm nuclear estate In the project work-plan for the year under review; I noted that management planned to procure and clear all encumbrances on the 5,000 hectares of land in Buvuma district and hand it over to BIDCO Uganda Limited (BUL) to establish the oil palm nursery and begin setting up the nucleus estate. However; review of the activities carried out showed that this was not achieved.

In addition, management planned to identify and procure the remaining 1,500 hectares of land to achieve government commitment of 6,500 hectares for the nucleus estate to BUL however I noted that only 4,780 hectares were procured leaving a balance of 1,720 un-procured. At the time of reporting in December 2015, no land had been handed over to BIDCO. Consequently, no oil palm growing activity was undertaken including the planned establishment of the 10,000 oil palm nursery for seedlings of the small holder farmers. Failure to deliver as agreed could result into non-attainment of project objectives in the scheduled timelines.

In response, management explained that the process of land acquisition has been slowed by lack of updated documents like land titles; multiple claims on a piece of land, tenants and licensees; and dealing with absentee landlords. In order to hand over land to BIDCO, a total of 6,500 hectares of plant able land has to be available and efforts to acquire all the required land are on-going.

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I advised the Accounting Officer to expedite the procurement process and hand over the said land to the company to enable it commence.

(iv) Failure to establish Buvuma Oil Palm Growers Trust I noted that management planned to establish the Buvuma Oil Palm Growers Trust during the year and the recruitment process of the skeleton staff including recruitment of 250 smallholder farmers to start the smallholder oil palm scheme to facilitate modern oil palm growing. However, a review of the project performance showed that the trust was not established. Besides; the recruitment process of the skeleton staff has also not started. I explained to management that failure to start up the trust could affect the cultivation of oil palm activities as expected leading to failure to achieve the intended project objectivities.

Management explained that the smallholder farmers oil palm activities in Buvuma are tagged to the private sector partner BIDCO starting activities on the Island. Because hand over of land has not yet taken place in Buvuma, all the other activities are on halt, including recruitment of farmers to the smallholder oil palm scheme and setting up of the Buvuma Oil Palm Growers Trust.

I advised the Accounting Officer to ensure follow up and have the trust set up.

(v) Buvuma-Land encroachment During inspection; it was noted that there were reported cases of land encroachment on the project land. People have built up temporary structures and many gardens have been established. It was noted that there are no sign posts installed across the entire land that would clearly show or demarcate the project land.

I explained to management that allowing such activities to be carried out on the project land accelerates encroachment and land grabbing besides; there is a possibility that this could lead to litigation challenges while evicting the encroachers which may affect and or delay implementation of the project activities. 289

In response, management explained that in order to protect the acquired land from further encroachment, the project has started opening boundary roads around all the acquired land. All the tenants that have been compensated have been asked to vacate the land and from the compensation provisions, these tenants are expected to vacate the land within six months from the time of compensation. The project has also initiated procurement of security services to help undertake surveillance around the land to protect it from encroachment. In the meantime, the police were helping to protect the land by undertaking surveillance and inspecting the lands for any further encroachment.

I advised the Accounting Officer to speed up the exercise of acquiring the required hectares of land and hand them over to BIDCO as agreed.

(vi) Un-implemented activities under KOPGT I noted that the planned road maintenance (civil works) that was scheduled to be carried out under KOPGT during the year was not implemented. Failure to execute planned activities could affect fulfilment of project objectives in the project scheduled time and may cause project extension costs.

Management explained that the road works were affected by the breakdown of road equipment and indicated that the procurement process for repair was ongoing. A no objection from IFAD has already been granted to have the repairs done.

I advised the Accounting Officer to follow up the procurement process to ensure that the activities are implemented timely.

26.0 NATIONAL AGRICULTURAL RESEARCH ORGANISATION (NARO) a) Mischarge of Expenditure - UGX.66,500,000 The Parliament of Uganda appropriates funds in accordance with the needs of the country and this appropriation is implemented through the budget in which funds are tagged to particular activities and outputs using account codes and MTEF 290

codes. A review of the Organization’s expenditures revealed that the entity charged wrong expenditure codes to a tune of UGX.66,500,000. The practice is contrary to the intentions of the appropriating authority and leads to incorrect financial reporting.

I explained to management that the practice may result into diversion of funds and misrepresentation of expenditure balances in the financial statements.

Management explained that NARO sought for a research code from the Accountant General which has not been granted and indicated that other mischarges arose from work plan and the budget mismatch.

I advised the Accounting Officer to continue following up the matter with Accountant General to ensure a research code is set up. b) Status of NARO Ownership of Land It was noted that NARO did not have certificate of land titles as evidence of ownership for most of the land located at Research Institutions country wide. The land has either been encroached on or has been taken away illegally with ownership claimed by other people. In my previous audit reports; I indicated the status of land highlighting the extent of encroachment as summarised below; Institute Observation A NAFORRI Untitled Land. 425 hectares of land with no evidence of legal ownership. b Coffee Research 2 acres of land not titled. Center (COREC) - KITUZA C MBAZARDI, Lack of land Titles and land encroachment challenges. It was noted ABIZARDI KAZARDI, that there was no proof of land ownership for Mbazardi, ABIZARDI, BUZARDI KAZARDI, BUZARDI and Kakumiro land. The Mbazadi land has continued to get encroached on. D BUZARDI Land at Kakumiro; This land is held in trust by the Land Commission. It was noted that this land has been encroached on. Other challenges included; Land Commission (ULC) parcelling out pieces of land and allocating it to private developers. E NaFIRRI Land for construction of a pier Institute operates from a pier that belongs to Rift Valley Railways (RVR) but there was no MoU between the two Institutions. Other challenges included Irregular allocation of NAFIRRI Institute land to private developers: 291 f NaLIRRI Irregular use of NaLIRRI’s property (Plot 48 Osukuru Road) G BUGINYANYA Encroachment on the Institute’s land. (BUGIZARDI) Land measuring approximately 270 acres has triplicate title deeds in different individual names and the land was under threat of encroachment. H NASARRI SERERE Land Grabbing by Local community. Some encroachment was reported on the Institute’s land situated at Serere by the local community. In Kumi Town Council; un known persons had started putting up permanent structures. I Nabuin Un-Surveyed land/Lack of a title deed. All the land occupied by the NABUZARDI Institute estimated to be 1,300 acres has never been surveyed and hence no title deed to the same land. J Ngetta Land Nge ZARDI Ngetta Institute has land measuring approx. 540 acres. It was noted that the eastern side of the land that was formerly used for animal rearing has been encroached on.

I further noted that land encroachment has continued to increase hence threatening the existence of Organisation’s land country wide. Below is a summary status of land that has been encroached on and or given out under unclear circumstances.

INSTITUTE LOCATION AREA (Block) AREA AND NATURE OF Registered /ZARDI ENCROACHMENT proprietor NARL Kawanda Block 1: 399 55 ha; Stone quarrying by NARO Kawanda ha private individuals. Block2: 750 450 ha; Establishment of a NARO Kawanda ha market and commercial centre Botanical by war veterans. Gardens- Part of Plot 2 Berkeley Road ULC Entebbe allocated to M/s Shaol Group of Companies Block 260 Plot This land is under conflict 8 Busiro;- with Akright projects limited, Ssenge Kaddu Godfrey & Walusimbi’ family CS no. 211 of 2012 NaCRRI There is a threat of over 900 ULC acres leased to Premier Roses NgeZARDI Kitgum 79 ha 20 ha; Land allocated to ULC private developers by Kitgum District Land Board MbaZARDI Mbarara 590 ha 18ha; M/s Ngabo Academy ULC under Captain Bashaija of UPDF., 46.1 hectares leased to Hajuni Investments Ltd BugiZARDI Mayuge 97 ha 97ha; Clan of Mambala of ULC Baise Magumba. MuZARDI Mukono 45.5 ha Lease expired, with UCU Church holdings threatening to evict commission

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the institute. A court injunction hitherto has been obtained, but safety represented by not guaranteed. UCU Holdings NaFIRRI Jinja ULC Nile Area not All Land allocated by the ULC Crescent determined Uganda Land Commission to private developers. Plot 15B Area not All Land allocated by the ULC Nile determined Uganda Land Commission for Crescent private developers. Acacia Close Area not All Land allocated by the ULC determined Uganda Land Commission to private developers. Plot 76-82 1.208 ha 1.208 ha; land allocated by ULC Magwa the Uganda Land Commission Crescent to private developers. SERERE Soroti 1650 ha 20 ha; Private individuals ULC NaLIRRI Lugara 777 ha 250 ha; Private individuals ULC BuZARDI Kigumba 1735acres 12 acres leased to private ULC individuals by ULC

Besides, NARO does not have an updated register of land that clearly shows the status and type of ownership of land. Details such as the expiry of leases and actual sizes are readily available. I explained to management that there is a possibility that more land could get irregularly taken and or encroached on if appropriate measures are not established to secure the ownership of the land.

The Accounting Officer explained that NARO has compiled an inventory of all land and submitted to Uganda Land Commission to have them titled in the names of NARO. In the interim, the land audit is currently going on with a view of applying for allocation of the land and transfer.

I advised the Accounting Officer to ensure the issues of the titles for the institutes land are followed up immediately to its logical conclusion to avoid more loss.

(i) Lack of mark stones for land at Kutuza, Mukono I noted that NaCORI - Kituza institute has land measuring 195.461 hectares with land title in the names of Uganda Land Commission located in Kyaggwe, block

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259, plots 17 and 19. Physical inspection of the land revealed that management did not know exactly where the land boundaries were located as the boundary mark stones could not be seen. The land was not fenced and there were crop gardens and tree planting activities carried out by people neighbouring the institution. The land appeared to have been encroached on.

I explained to management that failure to understand the boundaries of land that NARO owns is a big weakness that facilitates land grabbing and encroachment.

In response, the Accounting Officer explained that NARO has planned to open boundaries and survey all its land during the FY 2015/16 in preparation for acquiring the land titles. The land audit exercise will be done first as advised by Solicitor General.

I advised the Accounting Officer to plan urgently and ensure the land boundaries are open to curb down the encroachment and grabbing of the institution’s land.

(ii) Irregular Lease of Land at Namulonge (NaCCRI) It was observed that part of NARO land at the National Crops Resources Research Institute (NaCRRI) - Namulonge measuring approximately 357.779 hectares on Volume 4542 (folio 4) plot 651 Kyadondo block 158 Wakiso was leased to Premier Roses Ltd for 99 years by the Commission.

A review of correspondences indicated that a lease was signed between ULC (the Lessor) and Premier Roses Ltd (the Lessee) on the 18th June 2015 for a term of 5 years effective 1st June 2015 for a consideration of UGX.440,000,000 which payment had been effected on 16th June 2015. As per the lease term;  During the said term of 5 years, the yearly rent of UGX.22,000,000 is payable by two (2) equal half –yearly payments in advance on the 1st day of January and the 1st day of July in every year.  Rent payable is revisable by the lessor at any time after the expiration of the first 5 years of the said term and at intervals of not less than 10 years thereafter. 294

 Land is for commercial, agriculture, horticulture, floriculture and educational purposes.  Lessee is required to erect buildings on the said land and to complete the said buildings for occupation and use to the satisfaction of the lessor on or before the 31st day of May the year 2029.  When the lessee shall have complied with the building covenant therein and if there shall not at the time be any existing breach or non-observance on the part of the lessee of any of the covenants and conditions in the lease whether expressed or implied, the said term shall be enlarged to 99 years from the 1st day of June the year 2015 automatically and the lease shall thenceforth be read and construed as if the said term of 99 years had been originally granted thereby.

I was not availed with a procurement file on grounds that the file had been taken away by other authorities. In the circumstances I could not therefore obtain adequate information on the matter. A review of scanty information revealed the following anomalies;

 Consultation with NaCRRI Procedure No.5 of the ULC for leasing land states that the Commission after establishing that it is government land will further establish the user department and seek a no objection from that department. However this was not the case. There was no evidence to confirm that a no objection was sought from NARO NaCRRI over the sale of Namulonge Land. It is highly likely that the firm operations could encroach on the existing crops and structures and yet there was no indication of compensation to NARO Institute on the existing developments including crops.

 Lack of MoU There was no MoU between ULC and NARO in reference to this lease before processing of the transaction. I was not availed with the Council minute nor any correspondence between ULC and NARO over the decision to lease this land since NARO had exclusive rights of use. 295

 Irregular issuance of lease There was no evidence that the status of the previous lease was reviewed before issuing this current lease. Interview with management of NARO showed that the original lease had a balance of 29 years to expire. I explained to management that issuing a land title while there is another title of the same land is irregular and may lead to litigation challenges that could cause financial loss to government. I could not confirm the balance of years remaining as the copy of the original title was not availed for review.

 Valuation of land The consideration of 440m and the annual rent of UGX.22m were not supported with the valuation report. I could not therefore confirm how the consideration was arrived at in view of the size of the land.

 Revision of offer A review of correspondences on file indicated a proposed lease of 49 years however I noted that the lease offered was revised to 99 years on grounds that the lessee does not breach the terms of the 1st term of 5 years. The basis of leasing out the land for the 99 years could not be established.

In his response; the Accounting Officer explained that a meeting with the Chairperson ULC, Commissioner Land Registration, Director Land and MAAIF was held. The meeting was informed that the title that had been issued to a flower company was made in error and it was recommended for recall and termination.

I await the outcome of the above decision. c) Shortfall of Government Release - UGX. 6,037,756,000 During the year under review, NARO budgeted to receive UGX.46,805,126,000. However, a sum of UGX.40,767,370,000 (87.1%) was released by the Treasury. This left a funding gap of UGX. 6,037,756,000 (12.8%). The non-tax revenue was the least performing item reflecting a shortfall of 60.1%. 296

In response, management explained that they projected a receipt of compensation of over UGX.2,000,000,000 from Uganda Electricity Transmission Company Ltd (UETCL) for the land occupied by electricity line in Kawanda and the payment was halted due to the land wrangles and awaiting court ruling. Further income worth UGX.1.836bn for compensation of land affected by the road works of Mbarara bypass by UNRA was also not received. It was reported that negotiations for the compensation were still on-going.

I advised the Accounting Officer to strengthen measures in collection of NTR. d) Uncollected NTR in Rent UGX 109,600,000 (i) Non Payment of Rent Bills by Gulu University NARO entered into a Memorandum of Understanding (MoU) with Gulu University to utilise NARO Facilities for teaching and instruction of students in various fields including maintaining the premises. Section 4 of the MoU requires the University to pay a consideration of UGX.5,500,000 per month to NARO. I noted that Gulu University owes NARO rent arrears to the tune of UGX.99,000,000. Further, it was noted that the University violated the terms and conditions as set in the MOU by failing to pay rent for 18 months equivalent to UGX.99,000,000.

Unless urgent action is taken, there is a possibility that the Institute could lose the stated revenue.

In response, the Accounting Officer explained that management made several and unsuccessful attempts to collect rent from Gulu University and has already communicated the intention to seek legal redress from courts of law.

I await the outcome of the Accounting Officer’s action.

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(ii) Non Payment of Rent by a tenant - UGX.9,600,000 A tenancy agreement was entered into in April 2003 between NARO and a tenant who occupies premises at Kitgum Station falling under Ngeta ZARDI at a monthly fee of UGX.80,000. I noted that for the last 10 years, the tenant has never paid rent and he continues to occupy the premises resulting into accumulated rent arrears of UGX.9,600,000. I explained to management that failure to collect outstanding rent adversely affect revenue and implementation of some activities by the ZARDI.

In response, The Accounting Officer explained that administrative measures have been taken to collect the rent but the tenant has failed to effect payment. It was indicated that the tenant has been served with the communication of intention to sue.

I await the outcome of the Accounting Officer’s action.

27.0 EASTERN AFRICA AGRICULTURAL PRODUCTIVITY PROJECT (EAAP)

a) Mischarge of Expenditure - UGX. 348,106,800 During the year, expenditure totaling to UGX.348,106,800 was spent on various project activities but charged on wrong expenditure codes contrary to the project guidelines and GOU financial requirements. The practice resulted into misrepresentation of expenditure balances in the financial statements.

Management explained that mischarges were attributed to research expenditures that lack research code. Efforts have been made to obtain a research code from the Accountant General’s Office with limited efforts.

I advised management to continue liaising with the Accountant General so as to service a research code. Should there be need for reallocation, authority for the virement should be sought prior to any reallocations.

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b) Under absorption of funds - UGX.10,358,052,524 The statement of receipts and payments indicated that the project had funds totalling to UGX.31,467,432,256 available for the year’s operations however; I noted that UGX.21,109,379,732 was spent leaving UGX.10,358,052,524 un-utilized which reflects a 32.9% under absorption capacity. As a result; the following activities were not completed.  The Generator house at NACCRI that is currently under Construction. Works were estimated to be completed in November 2015. The Generator is not yet fixed waiting to be installed.  Extruder and mixer equipment at NARL Kawanda awaits completion of the Food Bio-Sciences Laboratory where six product lines have been created upon which the equipment will be installed. (The Extruder –mixer is safely kept in store at NARL , Kawanda).  Laboratory Construction of Nakyesasa where works were estimated at 50% complete.

The slow rate of absorption of funds may lead to unnecessary extension costs that would be avoided if planned activities are completed within the scheduled time. In response, the Accounting Officer explained that most of the remaining funds are for construction works at the Institutes/centres that have been completed and are awaiting handover. All payments will be exhausted by the end of December 2015.

I advised the Accounting Officer to closely monitor the implementation of project activities to ensure timely completion.

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ENERGY SECTOR

28.0 MINISTRY OF ENERGY AND MINERAL DEVELOPMENT a) Review of Karuma and Isimba Hydro Power Projects (HPP) works Government of Uganda (GOU) is undertaking the construction of two hydro Power dams; Karuma Hydro Power Dam (600MW) and Isimba HPP (183.2 MW) at a cost of USD.1.65bn and USD.570m respectively. The two projects are jointly funded by GOU and a loan from of China in the ratio (15:85). I noted the following;

(i) Direct procurement of EPC contractors I noted that Government undertook the procurement of an EPC contractor for Karuma through an International bidding process, evaluation was undertaken and one company, China International Water & Electric Corporation was evaluated as the best bidder. However, following challenges in the procurement process, certain executive decisions were taken and M/s Sinohydro Corporation Limited was procured through direct method to construct both the Karuma Hydropower Dam and the associated Transmission Lines, at USD.1.65bn.

Relatedly, the EPC contract for Isimba Hydropower Dam was awarded to China International Water & Electric Corporation at a cost of USD.567m (inlc USD.27.7m for transmission lines and substations) through the same method of procurement (Direct), but the following were noted:-  There was no tendering undertaken and therefore no bidding done. The bidding process would be used by Government to evaluate the technical abilities of various bidders to identify the most capable firm to undertake the works. There is no evidence that this firm had the technical capacity to construct the dam.  Since there was no bidding, the contract price of USD.567m had no basis and I could not satisfy myself that this amount was arrived at in the most frugal way. There is a risk that the project costs for Isimba Hydropower project could be exaggerated 300

 Information available indicates that the firm, China International Water & Electric Corporation had been blacklisted by the World Bank because it had previously engaged in “sanctionable practices” in a hydropower project in Africa. Similarly the Inspectorate of Government and the High Courts of Uganda had established that the firm had misrepresented facts in their bid for the Karuma Hydropower project. I was not availed with evidence that management undertook appropriate due diligence to determine whether such practices would not affect the firm’s ability to undertake the Isimba Hydropower project.

There was no evidence that the direct procurement method used followed the requirements prescribed by the procurement law.

Management explained that the Karuma procurement was characterized by so many complaints from different parties including whistle blowers, “concerned citizens”, bidders as well as stoppages of the procurement process through court injunctions which spread for a period of more than two years. The process was then halted by IGG and later, Government made a strategic decision to finance the project using funds borrowed from the Government of the People’s Republic of China, and have M/s Sinohydro Corporation Limited directly procured to construct both the Karuma Hydropower Project and the associated Transmission Lines.

Management further explained that in the same vein, it was decided that China International Water & Electric Corporation should be directly procured to construct the Isimba Hydropower Project.

I advised management to ensure transparent and competitive processes to avoid possible costly and substandard projects. I also informed the accounting officer that direct procurements have procedures to be followed as per the PPDA laws and regulations.

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(ii) Payment of commitment and management fees I noted that the Ministry paid a sum of UGX.39,981,847,650 to Exim Bank of China in respect of loan management fees and commitment fees from its vote yet the current budget framework mandates Treasury operations vote 130 to budget and pay for those government obligations under expenditure item 241001 and 241002. The implication therefore is that funds appropriated for other specific project activities were diverted to pay obligations which fall under the mandate of another vote. Besides, the obligation was also being reflected in the debt management and Financial Analysis (DMFAS) system, operated by Treasury department, creating a risk of double payment.

Although management explained that the funds for management fees were part of the Ministry’s budget therefore no funds were diverted to pay management fees for both projects, this was not reflected in the MoFPED DMFAS system. The PS/ST has subsequently promised to adjust the obligations in the DMFAS system to exclude the obligations.

I advised management to follow up that commitment. b) Planned generation vis a’ vis Demand and Uptake Infrastructure Over the years government has invested a lot of funds in expansion of the generation capacity, which has grown by 8.45% since 2009/10, with the current generation estimated at approximately 685 MW as indicated in table 1 below;

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Table 1 showing generation capacities per company

NO Generator MW at Peak 1 Kiira & Nalubaale 215 2 Bujagali 250 3 Embedded-hydro max, Tibet etc 61 4 Thermal (Capacity)- Jacobsen (50), Electromax (68) 118 5 Tronder Power 13 6 Mpanga 18 7 Eco Power Isasha 6.5 8 Nyagak HPP 3.5 Total (approx.) 685

Source: ERA financial statements 2014/15

According to the ERA performance report 2014/15 the Authority expects an additional 1,217MW by 2019 (Karuma, Isimba, Ayago etc. I however noted that this capacity has not yet matched the anticipated demand. Current peak demand is approximately 550MW creating a current excess capacity of 135MW. The report further confirms that the projected growth in supply is likely to exceed demand. This challenge has been mainly attributed to low demand and limited distribution and transmission networks.

The implication is that most power plants are not producing at full capacity, yet this idle capacity (also known as deemed energy) is paid for through tariffs and government subsidies. Below are examples of such deemed energy charged.

Table 2: Sample of power generating plants that are unable to sell their excess power

Power plant Installed capacity Deemed power (MWs) (MWs) Kabalega mini hydro power plant (Hydromax) 10.0 6

Kinyara Co-Generation power plant 14.5 5.5 303

Thermal plants (Electromax, Jacobsen) 118 7 (maintenance) Total 142.5 18.5 Source: OAG analysis

For the last two years, government has on average paid UGX.11.57bn annually for deemed energy purchases.

I also further noted that for the two thermal plants, with a capacity of 118 MW, government continues to pay capacity charges amounting to approximately UGX.68bn annually for the last two financial years, through UETCL, yet they are only contributing 7 MW power to the grid. One of the thermal plants is supposed to be taken over by government on expiry of the contract.

Also committing government into investment projects without first analyzing demand limitations may lead to government failure to pay off the loans (through the tariff) hence the possibility of increase in subsidies further draining the government meagre resource.

Management acknowledged the concerns and together with MoFPED and other sector players are already evaluating the requirements to ensure that the generated power reaches the consumers through expansion of the grid network. A technical team headed by the Electricity Regulatory Authority was carrying out the analysis on the matter and will be tabling its findings shortly.

Through the Northern Corridor framework, possibilities of regional power exports are also being pursued.

I await the findings and outcome of the study. Meanwhile I advised management to ensure that government initiates aggressive programs to stimulate growth in demand and also address the infrastructure constraints in the distribution and transmission sectors.

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Furthermore, in light of the new anticipated investments in the cheaper hydroelectric power, government could review the licensing policy of such costly thermal plants, only when there is enough demand to accommodate the produced energy. c) Mining Sector Anomalies (i) Irregular hire of equipment Treasury Accounting Instructions require opening up a loan/hire register where details such as the identity of the person hiring, amount of revenue paid and the agreed date of return and authority are recorded.

During the year under review, the Ministry purchased Geophysical equipment worth UGX.1, 515,745,000 from Ms. PHOENIX Geophysics Limited which was delivered to the Department of Geological Surveys and Mines. During the stores inspection, I noted that some of the equipment had been hired out to a private individual soon after the equipment was delivered. There was however;  No hire register maintained to record details and terms of the hire  No evidence of payment of fees for hiring  No date of return  Particulars of the person to whom equipment was hired were scanty

I further noted that equipment had left the stores before being engraved.

There is risk of loss of revenue from hiring, loss of equipment and or high maintenance cost transferred to government after private use of the equipment. Management in response explained that DGSM received a request from one of its licensees (GIDS Consult Ltd) to have the geothermal equipment deployed to carry out MT and TEM geophysical exploration surveys in Bundibugyo and considered this request as an opportunity to have its staff have a hands practical training and application of the new equipment in a practical environment. Therefore DGSM accepted to the request and attached 2 Geophysicists to operate the equipment and collect the data during the field surveys. In return, DGSM benefited by testing the functionality of the equipment in the real geothermal field 305

(Buranga), staff trained and shared experiences with the Kenyan Geothermal Development Company Geophysicist experts that had been hired by the Licensee and shared geophysical data collected with GIDS Consult Ltd.

Although management stated that all the equipment was returned to DGSM Stores in sound condition, on completion of the geophysical surveys, there was no evidence to prove this.

I advised management to ensure that government property is not used for commercial and private use. Meanwhile, I advised management to draft a transparent asset hiring policy to address issues such as procedures for hire, rates, and operation and maintenance of such equipment.

(ii) Non Operational laboratory equipment In 2012 the department (DGSM) acquired an X-ray fluorescence (XRF) machine and an atomic absorption spectrophotometer (AAS) at a combined cost of USD.421,066. However, during an inspection of the laboratory, I observed that these machines were not operational. From a review of correspondences, it was noted that these had broken down.

Management attributed the breakdown of these machines on power fluctuations and lack of sufficient funds for the maintenance of the above equipment. Without a maintenance policy such expensive procurements are exposed to early wear and tear (damage).

On further review of the correspondences and status reports at the Ministry of Energy and Mineral Development, I also noted that the Department lacked a laboratory policy and a laboratory information system (LIMS) which are very important in the running of a well maintained laboratory.

Management explained that the supplier for XRF had diagnosed the problem and made a report while the procurement process to address the challenges of AAS

306 were underway. Management further stated that the LIMs will be upgraded to suit the digital and electronic laboratory.

I advised management to ensure that appropriate budgets are drawn for maintenance of assets to avoid premature deterioration.

(iii) Under collection of revenue During the financial year I noted that out of UGX.8, 903,015,816, the Ministry had assessed as minerals taxes/fees only UGX.8,402,704,787 was received indicating that an amount of UGX.500.311.029 remained outstanding. Failure to collect all assessed fees results into loss of revenues to government.

Additionally, during field inspections I noticed that a mining company (African Panther) had not declared to the Minstry 3.5m tonnes of Cassiterite (TIN) which it had mined contrary to the Mining Act. Such undeclared production denies the government it’s much needed revenue (royalties).

The Accounting Officer explained that management recognizes the gap within the revenue assessment and the collection system caused largely by lack of reconciliation between assessed BPAFs and unpaid BPAFs and promised to put in place corrective measures to recover Non Tax Revenue.

In addition, the defaulters’ names were published with their amounts due to government.

I advised management to ensure that all revenues due to government are collected through vigorous measures which could also involve penalties and non- renewal of licenses, for any defaulting firms.

(iv) Inspections of mining activities Four mining areas were visited during the inspections and I noted various anomalies which are contrary to the Mining Act. These included; lack of protective wear for the workers exposing them to health risks and injury, Lack of mining 307

records on site resulting into inaccurate information and assessments, Inadequate safety measures, Lack of environmental performance bonds, lack of financial guarantees which lead to speculative miners and non-submission of Geological information.

Such noncompliance leads to health risks, environmental damage and inadequate information for the Ministry.

I advised management to ensure that the miners strictly adhere to the provisions of the Mining Act 2003. d) Management of the Government Petroleum Strategic Reserves Jinja Storage Reserves: In 2012, the Government of Uganda and M/s Hared Petroleum Limited (Operator) entered into a concessional agreement to refurbish, restock maintain and manage the petroleum strategic reserve facility at Jinja. According to the agreement the Operator was required to manage the facility for a period of 10 years. The operator committed to building up the government reserves in a period of 6 months from the signature date. During the year I noted the following;

(i) Failure to Stock the Strategic Reserves Despite the Concession obliging the operator to ensure that 40% (12million litres) of the storage capacity of the products is available at all times as a strategic reserve and this to be released whenever there is a national petroleum supply shortfall the operator, at the time of inspection, in September 2015, there was only 274,000 litres of petrol and 331,000 litres of diesel in stock.

From an analysis of the total amount of petroleum in the tanks since commissioning I noted that the tanks have never had the 40% strategic reserves at any one time as shown in the table below.

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Table 6 showing monthly stock levels Month Required Stock Closing Monthly % Deficit levels/litres stock levels/Litres Diesel Petrol Diesel Petrol Diesel Petrol November 20,000,000 10,000,000 350,004 458,077 98% 95% 2014 December 20,000,000 10,000,000 326,139 491,230 98% 95% 2014 January 20,000,000 10,000,000 481,660 265,444 97.6% 97% 2015 February 20,000,000 10,000,000 468,519 319,365 97.7% 96.8% 2015 March 2015 20,000,000 10,000,000 469,698 319,282 97.7% 96.8% April 2015 20,000,000 10,000,000 314,383 237,958 98.4% 97.6% May 2015 20,000,000 10,000,000 346,788 307,928 98.3% 96.9%

From the above analysis it is evident that stock build up is not being achieved and consequently the national petroleum reserves are not serving the purpose for which they were established.

Management explained that the operator’s ability was constrained by unforeseen increased level of investment in the refurbishment that doubled and the challenges associated with the supply route of Mombasa. Management is also pursuing the option of capitalising the strategic reserve.

I advised management to review the terms and conditions of the agreement to streamline the operations of the reserves in view of the limited capacity of the operator.

(ii) Delayed Contract Implementation According to the concession agreement the operator (M/s Hared Petroleum Ltd) was to complete the refurbishment and restocking within a period of 6 months from the signature date (13th March 2012). However, the facility was commissioned on 31st October 2014 after the refurbishments, implying 2 years of delay.

According to the projected cash flow analysis in the agreement, it was estimated that the Government would earn USD.974, 659 in concession fees every year. The

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two years delay instead caused loss to Government worth USD.1,949,318. No written notice was on file to justify the delay as required by Par 19.6 of the agreement.

Management explained that, on handover of the facility, it was noted that the facility had deteriorated which changed the value and scope of the phase I- refurbishment of the facility hence the extension of time.

I informed management that is an indication of inadequate feasibility study undertaken before award of contract and to ensure that in future adequate scoping and needs analysis is undertaken before such major strategic alliances are undertaken. e) Mischarge of expenditure Treasury Accounting Instructions, 2003, require all virements to be approved in advance by the Minister (Secretary to Treasury) and that funds available under one item or sub-item of expenditure may not be transferred to another item or sub-item save on the authority of a virement warrant.

However, contrary to the above, a total of UGX.787,474,716 was charged on inappropriate budget lines. The bulk of the funds were diverted from Transfers to other government units, Engineering and Design studies, other structures, land and non-residential buildings. This practice is irregular and undermines the intentions of the appropriating authority.

Management attributed the anomaly to spending pressures for which a reallocation could not be made as the resources had already been warranted.

I advised management to always ensure that budget lines are allocated sufficient amounts of funds to undertake planned activities.

310 f) Understatement of payables I noted that a total of UGX 291,133,616 which related to amounts outstanding to a contractor were not included in the payables amount in the financial statements. The payables were thus understated by that amount.

I advised management to make necessary adjustments in the financial statements to ensure payables are stated at correct amounts.

Another UGX 549,764,670 in respect of gratuity for 164 contract staff which was still outstanding by the end of the financial year had not also been included in the payables figure. It was however established that, as of March 2015, the payment had not been effected. This is a breach of contract terms of employment and this is likely to affect staff morale and thus affecting their performance.

Management explained that the delay to pay Staff gratuity was as a result of lack of funds and had written to the Ministry of Finance, Planning and Economic Development requesting for additional funds.

I advised management to ensure all outstanding obligations are included in the financial statements to enhance follow up and tracking.

28.1 ELECTRICITY SECTOR DEVELOPMENT PROJECT – MEMD

a) Under-absorption of loan funds The Government of Uganda obtained a loan from the International Development Association equivalent to USD.120 Million for Electricity Sector Development Project (ESDP) on 2nd September 2011 with the objective of increasing the access of electricity supply in the south western region of Uganda. A review of the loan status revealed that the loan whose closing date is projected to be 28th February 2017 has had a low disbursement rate. Of the loan amount of USD.120 Million, only USD.12,990,465 (10.83%) had been disbursed by end of the current financial year.

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It was also noted that in the year under review, USD.1,026,987 remained unutilized from the funds already disbursed. The underutilization of funds negatively affects project implementation. Government also continues to incur unnecessary costs in commitment fees for any outstanding loan balances.

Management acknowledged the need to expedite project implementation and explained that all project Consultants had already been procured and contractors were being procured for the works that constitute 74% of total project activity costs. Management anticipated that the actual absorption is projected to greatly improve when the civil works commence.

I have advised the project management to expedite the implementation of the outstanding activities so as to improve on funds absorption and thus disbursement rates, so as to attain the project intended objectives.

28.2 ENERGY FUND

a) Delayed compensation of Project Affected Persons for the Isimba Hydro Power Project The Ministry of Energy and mineral development (MEMD) is undertaking the construction of the 183.2MW Isimba Hydro Power Project. A consultant was engaged to implement the Resettlement Action Plan (RAP) and related services for the Project Affected Persons (PAPs). During the year under review, management paid a total of UGX.24,808,050,208 to the PAPs leaving an outstanding sum of UGX.1,343,968,977.

Delayed compensation may result into contestation of the initial assessments owing to inflation and other factors. Additionally, taking into consideration the fact that the contractor has already started construction, such delays may lead to slow implementation of project works resulting in extra costs related to commitment fees and interest.

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Management explained that many people did not disclose their land titles at the valuation stage so their land was valued as customary land. However during the verification and disclosure exercise, they presented land titles and did not agree to be paid at the lower rates. Compensation of such claimants is awaiting the valuation report from the Chief Government Valuer.

I advised the Accounting Officer to expedite the compensation process to enable smooth implementation of the project.

28.3 ENERGY FOR RURAL TRANSFORMATION PROJECT II a) Compliance with financing agreement provisions and GOU financial regulations It was noted that Management had in all material respects, complied with the Financing Agreement provisions and Government of Uganda financial regulations except for the following matters:

(i) Use of donor funds to pay taxes Article IV of the funding agreement requires that the Agency uses GOU counterpart funds to defray any customs duties, sales taxes and other taxes, fees and levies on all equipment, materials and supplies financed by the grant and imported into Uganda for the benefit programme.

It was however noted that the Agency used UGX.4,235,457,988 from the donor funding to pay for taxes contrary to the financing agreement guidelines. Included in this figure is UGX.2,988,066,465 which has been outstanding from the previous financial year. Diversion of donor funding delays implementation of planned activities and may result into sanctions.

Management explained that the donor had agreed to the proposal to utilize the outstanding GOU counterpart funds on the extra construction works.

I await the outcome of Management’s commitment in this regard.

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(ii) Failure to remit the GOU counterpart funding The financing agreement required that the GOU provides the financial and other resources required in addition to the grant for the successful implementation of the project.

It was however noted that no funds were provided by GOU for the current and previous financial years towards the implementation of the project. Failure to provide the required counterpart funding demonstrates non commitment by the government towards counterpart obligations resulting into project implementation challenges and delays.

Management explained GOU was funding counterpart activities from the 5% transmission levy, and that these activities included; project monitoring, consultancies for wayleaves assessments and taxes.

I advised Management to ensure that GOU Counterpart funds are budgeted for and promptly released to the project to meet project expenditures.

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HEALTH SECTOR

29.0 MINISTRY OF HEALTH a) Expenditure over and above the available cash in the TSA

Review of the financial statements revealed that the Ministry spent UGX.2,356,211,612 well above the Transfers received from the Treasury in the Treasury Single Account (TSA), as shown below; Ser. Particulars Amount in ‘UGX’ no. 1 Transfers received from the Treasury 46,747,991,915 2 Total Operating expenses 49,104,203,527 Excess expenditure over revenue 2,356,211,617

The position affected the statements of financial performance, the cash flows, the financial position, and the statement of changes in Equity.

Further review of the payments file on IFMS revealed that invoices worth UGX.2,815,539,282 were entered and processed for payment between 29th June and 30th June 2015, contrary to the end of year closure procedures issued in May 2015 which among others advised the Accounting Officers not to process any EFT payment instructions after 25th June 2015 and to have submitted all invoices to Treasury by close of business on the same day. This followed the issuance of an additional quarter cash limit of UGX.2.6bn. The processing of invoices and posting of EFTs after the set date led to reporting of negative balances in the financial statements. Negative balances portray acquisition of overdrafts which are not permissible in the TSA arrangement.

In response, the Accounting Officer explained that the invoices were paid by the end of 30th June 2015 and posted in the General Ledger and the accounting for these payments was done before the end of the Financial Year. Funding of the TSA was done in July and payments were honoured on 3rd July 2015. The payments were for Interns’ Allowances, Recruitment of Health Workers and other outstanding commitments. 315

No further justification was given as to why the invoices and payment processing had to wait for the last day of the financial year. There is a risk with the last day invoices and payments as the practice can be used to slot in fictitious invoices.

I advised the Accounting Officer to always comply with the end of year closure procedures and avoid last minute invoice processing to avoid possible abuse. b) Outstanding Payables

Reported in the financial statements were payables of UGX.10,760,867,661 out of which UGX.10,443,672,449 had been outstanding for more than one financial year while UGX.317,175,212, in trade payables, was incurred during the financial year under review contrary to the commitment control system. Among the payables were: Umeme (UGX.3,131,972,718), NWSC (UGX.61,389,202), NMS (UGX.3,771,617,043), JCRC (UGX.1,198,080,000), Rent – Bageine Co (UGX.71,064,578), UTL (UGX.127,958,907), Carl Bro International A/S (UGX.132,282,720) and others which remained outstanding through the year. Late settlement of outstanding obligations may attract litigation and associated costs. In addition another UGX.3.9bn relating to outstanding salary arrears for bonded and non-bonded health workers was not included in the payables figures in the financial statements thereby understating the liabilities.

In response, the Accounting Officer explained that the Ministry had not been provided with resources from MoFPED to clear the Liabilities. It was further explained that arrangements were being made to switch the entity to the pre- payments system as a way of curbing utility bills. Meanwhile the outstanding salary arrears were not recognised in the accounts as reconciliations between the Ministry and the districts regarding the staff were still on going. However a disclosure had been made in the commentary to the accounts.

I advised the Accounting officer to conclude the reconciliation expeditiously and subsequently include the entire amount of the salary arrears in the financial

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statements. Meanwhile, I await the outcome of the implementation of the pre- payment system for utilities as directed by PS/ST. c) Refund to Global Fund

During the year an amount of UGX.3, 198,224,060, equivalent to USD.1, 363,024, was paid as a refund to Global Fund due to prior years’ loss of donor funds through fraud. Although the refund was authorised by PS/ST, this amount should have been recovered from the individuals involved in the fraud. I consider this a loss.

The Accounting Officer stated that although UGX.3,198,224,060 had been refunded, investigations revealed that only UGX.1,895,617,227 was refundable and a total of UGX.23,479,000 had been recovered from the individuals involved and remitted to the Consolidated fund. The balance of UGX.1, 872,138,227 is still outstanding with the beneficiaries still insisting that activities were actually undertaken.

I urged management to ensure the position is reconciled and harmonised with the donor to have this matter closed. All outstanding funds should be investigated and recovered as appropriate.

29.1 UGANDA GLOBAL FUND TO FIGHT AIDS, TUBERCULOSIS AND MALARIA

PROJECT - TUBERCULOSIS COMPONENT

a) Unexpended Balances A review of the Fund Accountability statement revealed that the TB component had unutilized funds amounting to UGX.2, 625,487,180 brought forward from the previous year. During the year, funds totaling UGX.18,131,924,330 were received resulting into a total of UGX.20,757,411,510 available for use, of which UGX.14,898,067,350 was spent leaving UGX.5,859,344,160 un-utilized.

Failure to utilize the funds in accordance with the work plan hinders achievement of the project objectives and this may be attributed to laxity of management. 317

In response, the Accounting Officer attributed the anomaly to protracted procurement processes and delays in disbursement of the funds to the project.

I advised the Accounting officer to enhance supervision of the procurement process and to liaise with Global Fund headquarters regarding timely disbursement of the budgeted funds. b) TB Prevalence Survey Review of Minutes of the TB Prevalence Technical Committee meeting held on Thursday 15th Jan 2015 and the review of the survey agreement that was signed on 05/06/2013 between the Ministry of Health and Makerere University School of Public Health (MUSPH) revealed various weaknesses as follows;

 Whereas the survey was scheduled for completion by 30th July 2014, it was on-going in July 2015 indicating a delay of 1 year.  There were low pre-visits to the survey sites and that the report for the quarter September-October 2014 was too shallow;  Some results showed abnormal chest X-rays yet no sputum was taken for the particular clients. The minutes of the 31st meeting held on 1st January 2015 refer.  There were inconsistencies in data given from labs without explanations and data storage was not proper as indicated in minutes of the 39th meeting of 27th March, 2015 and that there was a lot of late contamination of the TB specimens and high use of hydroxide.  Cultures were not available within three weeks and multiple samples were submitted by particular clients as per 37th meeting minutes of 13th March 2015.

Delay in implementation of the project milestones hinders healthcare services delivery and negatively impacts the achievement of the overall project objectives. Additionally, inaccurate data and poor data management may affect the results of the research. 318

In response, the Accounting Officer explained that;  This was a unique national study, the first of its Kind in Uganda with the aim of assessing and getting the best TB disease burden among adults (15 years and above). The study had a lot of multinational interests from WHO, CDC and Government of Uganda and not a routine activity.  The study tools needed to be first approved by the relevant government and international structures, quality assurance standards and a lot of preparations had to be made, piloted, and procurements had to be made and all the study team had to be recruited oriented by both local and international experts before actual measurement could start.  Once the final protocol was approved and all supplies were in place, the implementation ran smoothly.

I advised the accounting Officer and the project management to always ensure that adequate management and quality assurance procedures are put in place prior to commencement of the agreement to ensure timely achievement of research objectives.

29.2 UGANDA HEALTH SYSTEMS STRENGTHENING PROJECT (UHSSP)

a) Rejected Medical Hospital equipment A review of the progress report and the Aide Memoire of 18th May 2015 showed that there was delayed removal of the rejected medical equipment from the health facilities contrary to what was agreed upon earlier in the IDA Mission. It was noted that medical equipment estimated at a cost of USD.1,927,194 had been rejected and suppliers asked to remove and make good of this equipment within a period of five months from March 2015.

It was noted that one firm complied while the other one was declared bankrupt after the equipment had been rejected. Although the Accounting Officer indicated that the official receiver of the bankrupt firm had been appointed to collect the rejected items, this has not been done.

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There is a risk that the bank may demand for refund of the money involved if no action is taken.

I advised management to expedite the implementation of the agreed actions to avoid negative consequences that may arise if the bank takes recovery measures. The suppliers should be compelled to make good of the rejected equipment. b) Non implementation of planned activities Schedule 1 of the Financing Agreement for the Uganda Health Systems Strengthening Project describes the overall project objective of delivery of the Uganda National Minimum Health Care Package to Ugandans, with a focus on maternal health, new born care and family planning to be achieved through improving human resources for health; physical health infrastructure; management, leadership and accountability for health service delivery”. Part B of the Schedule describes the activities to be undertaken under Improved Infrastructure at Existing Health Facilities component.

Project management then planned for 9 hospitals (Anaka, Nebi, Moyo, Kiryandongo, Nakaseke, Mityana, Entebbe, Iganga and Moroto) to be constructed at UGX.69, 760,000,000. 13 other hospitals, (Pallisa, Kitgum, Apac, Bugiri, Abim, Atutur, Kitagata, Masindi, , Bukwo, Itojo, Mubende and Moroto) and 27 Health Centre IVs (Kasanda, Kiganda, Ngoma, Mwera, Kyantungo, Kikamulo, Kabuyanda, Mwizi, Kitwe, Rubare, Aboke, Aduku, Bwijanga, Buliisa, Padibe, Atyak, Obongi, Pakwach, Buvuma, Budondo, Ntenjeru-Kojja, Buyinja, Nankoma, Bugono, Kiyunga, Kibuku and Budaka, were scheduled for rehabilitation using an additional USD.90 million.

However, the request for the anticipated USD.90 million had not been approved by end of year and construction works had only been partly done using the available but insufficient funds. This is likely to leave the incomplete works in abeyance and at the risk of loss of the investments already made in these works.

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The Accounting Officer explained that negotiations had been concluded with passing of the Anti-homosexuality Law, the loan was deferred and no official communication was received as to whether the Application would be considered or was cancelled. However, using the savings within the current project, funds were mobilized to renovate part of the 26 HC IVs and works were ongoing. Efforts to mobilize funds to renovate the 13 Hospitals’ progress were limited since 2012.

I advised the Accounting Officer to look for funding from other sources for the completion of the works already started on to avoid loss of investments already made and to also renovate all the hospitals that had been planned under this loan.

29.3 MULAGO NATIONAL REFERRAL HOSPITAL SUPPORT TO THE

DEVELOPMENT OF A SPECIALIZED MATERNAL AND NEONATAL HEALTH

CARE UNIT IN MULAGO NATIONAL REFERRAL HOSPITAL (MULAGO III)

PROJECT

a) Delay in procurement activities (i) Civil works and Supervision of works During a meeting held on 17th July 2014, between SMNHUP Project Management Unit (PMU) and the Islamic Development Bank (ISDB) Project Implementation Assessment and Support (PIAS) Mission, it was agreed that the major procurement of consultants for supervision of works be finalized by December 2014 and civil works for the project commence by January 2015 latest. However, I noted that the contracts for supervision and civil works were signed on 19th May 2015 (4 months after the deadline period of January 2015) and Civil works commenced in June 2015.

Despite Management attributing this delay to a change in the ISDB procurement guidelines which required projects above USD 10 million to undergo a pre- qualification process before the bidding process, no correspondence relating to this change was availed for review.

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(ii) Medical Equipment, Furniture According to the work plan, draft specifications and tender documents should have been prepared and approved by the Ministry of health Contracts Committee by February 2015. However by the time of reporting, no work had been done in relation to this activity.

Management explained that the delay in civil works had a spillover effect on other activities like procurement of medical equipment, furniture since there would be no space to store these items once purchased and that they expect to begin the procurement process in the 3rd quarter 2015/16.

(iii) Specialized Training According to the work plan, the detailed training plan and solicitation for offers from potential providers (Universities/Hospitals) clearance and No-objection letter from the Bank should have been finalized by June 2015. However, I noted from the correspondences between the Bank and project management, that the project had not yet obtained a no-objection letter from the Bank by that time.

The correspondences further reveal that 12 health workers who had been selected to attend training in Urogyneacology and Perinatology in Cairo, Egypt scheduled for September 2015, only travelled in the latter part of October 2015. Management indicated that they were waiting for security clearance and that though the bank’s contribution of 40% towards this training was already availed; GoU still faced a challenge of funding its 60% of the training budget as per the Grant agreement.

I explained to management that these delays may impact negatively on the project implementation and attainment of project objectives.

I advised management to ensure that the project implementation timelines are adhered to for the attainment of project objectives.

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29.4 MULAGO KAMPALA CAPITAL CITY AUTHORITY PROJECT (MKCCAP) 30th

June 2015 a) Other unfulfilled agreements between the bank and the GOU

(i) Government contribution and payment of VAT

The Ministry of Health signed a contract with a Construction Company for the rehabilitation and upgrading of the Lower Mulago Hospital at contract price of USD.29,617,820.64 inclusive of Value added tax of USD.4,517,972.67 on 17th October 2014. Under the financial agreement, the government of Uganda is to contribute USD.1,358,069.88 (5.4%) to the construction cost and the VAT component of USD.4,517,972.67.

It was noted that GoU through the Ministry has not paid its counterpart funding of 5.4%. Outstanding VAT obligation by the contractor had also not been settled by Government. The outstanding VAT obligation by the contractor with URA which was an indication that GoU did not honour its contribution to the project. Non- contribution by GOU and delays to settle the VAT obligations are likely to delay the project implementation.

The Accounting Officer explained that the Ministry of Health was liaising with the Ministry of Finance Planning and Economic Development to ensure the VAT component of project contracts and the Government of Uganda co-funding to the Mulago contract are incorporated in the sector budget for financial year 2016/17.

I await the outcome of the Accounting Officer’s undertaking with the Ministry of Finance and Economic Development. b) Failure undertake adequate due diligence

Section 186 (1b-i-iv) of the PPDA Act requires a bidder to be eligible to participate in public procurement. However, an International firm was procured to supply and install Endoscopy and Urology Equipment at a cost of Euros 836,994 by end of May 2015. An advance payment of Euros 167,398.80 (20%) was paid to the firm but at the time of audit, only 3.3% of equipment worth Euros 27,620.80 had been

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delivered. Details available show that the supplier was declared bankrupt in April 2015.

Although the advance payment was fully recovered from outstanding payments to the firm and cashing of the performance guarantee, awarding a contract to a non- going concern firm is an indication that no adequate due diligence was done on the firm. As a result, the procurement process had to be re-done leading to loss of time.

I advised the Project Management to always ensure that they undertake adequate due diligence on the firms before they awarded big contracts to avoid a repeat of the above scenario.

c) Non-Compliance with delivery dates for front loaded equipment

It was noted that Contrary to the provisions of the contracts which specified delivery dates, there were delays in delivery for following procurements;

 Philips Pharmaceutical Ltd/Critical Care Solutions Ltd was procured to supply Intensive Care Unit Equipment at a cost of USD.1,331,864.11 by May 2015. However, by the year end, only 50% worth USD.665, 920 of the equipment had been delivered.

 Global Scientific Supplies Ltd was awarded contract to Supply and Install Physiotherapy and General Medical equipment worth USD.387,837.45. Only 90% worth USD.349,053.70 of the equipment had been delivered.

 Rima (E.A), Ltd was awarded a contract to Supply and Install Workshop Tools (Lot 9- ), at USD.587,062 by May 2015. The firm promptly delivered 95% of the goods worth USD.557,708.90 while items worth USD.29,353.10 (5%) had not been delivered by June 2015.

Non-compliance with the contract terms (delivery dates) by the respective firms amounts to breach of contract.

Although the Accounting Officer explained that all the outstanding items had been delivered by the respective suppliers, non-delivery within the agreed timelines can lead to delays in the implementation of the project, increases the costs of 324

inspection at delivery and can lead to supply of incompatible items especially where the equipment has to work as a unit.

I advised the project management to ensure that that the contract terms on delivery dates are complied with to avoid unforeseen financial losses due to delayed deliveries. d) Un-resolved Land dispute at Kawempe Hospital Site A review of the Aide Memoire dated for March 2015 and other project documents revealed that the General Referral Hospital at Kawempe was constructed on two disputed pieces of land comprised on plots 3883 and 1305. Details arising from the records of meeting between various stakeholders show that plot 3883 had an extra 10 decimals in excess of the size of the plot while plot 1035 had not been sold to KCCA. As a result, the family members and owners of the disputed land were threatening to sue KCCA.

If the land ownership issues are not solved, the implementation of the project is likely to be affected and the development could be a waste of government resources.

The Accounting Officer explained that the land matter was being handled amicably with the claimant in order to resolve it so as not to halt the hospital construction works already on going. He also indicated that the Ministry of Lands had provided documents from the Land Registry that clearly showed KCCA as the rightful owner of the Land on which the hospital was being constructed.

I advised the Accounting officer to ensure the land disputes are resolved urgently to avoid loss of government investments. e) Slow implementation of project activities

(i) General activities implementation level The financing agreement signed between Government of Uganda and ADB stipulated the overall project start and end dates and various timelines within which specific activities were to be implemented. A review of the progress reports

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on the implementation status per project expenditure component and categories according to the mission report of 23rd to 27th March 2015, showed that implementation was at an average of 30%. This is relatively low compared to the remaining implementation period. Slow activity implementation rates may result in inability to achieve the project targets and objects.

I advised the accounting officer to enhance monitoring and supervision so that the planned activities are implemented in the stipulated project period.

(ii) Delayed procurements for Goods, Services and Works Although the procurement processes for most of the Civil Works, Goods and Services had been concluded at the time of audit, various activities were still in progress. Some of these had implementation completion dates scheduled between December 2014 and December 2015 but had either delayed or were still on-going. The delays could have been mostly due to procurement procedures.

The Accounting Officer explained that management was to expedite implementation of all project activities that were on-going so as to achieve the project objectives within the project implementation time frame.

I await the outcome of the accounting Officer’s undertaking to avoid project time overruns.

29.5 UGANDA SANITATION FUND PROJECT 30TH JUNE 2014

a) Funds not accounted for (i) Advances to EA for operational funds and sub-grantees Treasury Accounting Instruction S217 requires that advances not accounted for within 60 days from date of payment shall be deducted from the monthly salary of the person to who/m the advance was made and that instructions shall also be given not to give a new advance to anybody with unsettled advance.

However, UGX.274, 961,905 advanced to various project staff and sub-grantees remained unaccounted for. The schedule below refers:

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Item(s) Amount (UGX)

Advances to Project staffs (EA) – Management costs 75,413,300

Advances to Sub – grantees - Bukedea 144,988,605

Inadequate accountabilities of funds to sub – grantees (Various) 54,560,000

TOTAL 274,961,905

Delayed accountabilities may result in falsification of falsification of documents. I advised the Accounting Officer to obtain accountabilities for verification or recover the funds accordingly.

(ii) Doubtful accountabilities Paragraph 120 of the Treasury Accounting Instructions, 2004 stipulates that all payment vouchers must be properly supported with appropriate documents or sub-vouchers. However, a review of the project accountability documents for UGX.70,180,000 revealed the following anomalies.  The activity reports attached lacked key information such as names of staff, signatures, number of field days and corresponding rates.  UGX.23, 895,000 was paid to M/s Akello Hotel Ltd of Soroti town for training of Community Led Total Sanitation (CLTS) for five days from 18th to 22nd June 2014 per expenditure voucher ST-13/6/2014, procurement reference no 00230 and LPO no 5123 had attendance lists that did not state the specific days/ dates when the training took place; instead, each attendance list had a date of 18th-22nd August 2014. Table below refers.

Dates From whom Purpose Amount Remarks (UGX) 19th August Ibuyat David Technical support in 2,315,000 Report not addressed to 2013 the districts of anybody, no writers name Bukedea, kumi, and signature 14/04/2014 Nakiboneka Monitoring visits in 1,590,000 Report not addressed to Priscilla kibuku and Pallisa anybody, no writers name and signature 19th August Ibuyat David PCM monitoring 2,480,000 - As above- 2013 25/6/14 Otai John Justin CLTS training 10,370,000 Report not addressed nor

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signed by the originator. Per diem days not specified 25/8/2014 Ibuyat David Sanitation week 3,423,000 - As above-

13/05/2014 Ibuyat David Technical support 8,468,000 - As above- supervision for Amolator, Dokolo,Kaberamaido 25/3/2014 Nakiboneka Accompanying Global 2,070,000 - As above- Pricsilla sanitation team 6/3/2014 Ibuyat David Capacity building of 4,589,000 - As above- districts on reporting 10/3/2014 Ibuyat David Pre visits to the 10,980,000 - As above- districts M/S Akello Hotel Attendance list did not 23,895,000 - Ltd state days/dates when training for Community Led Total Sanitation took place between 18-22 June 2014. TOTAL 70,180,000

With the above cases of inadequate documentation, it was difficult to ascertain whether the funds were put to proper use and whether the targeted goal was achieved.

I advised the Accounting Officer to provide an explanation to the above anomalies or recover the funds.

b) Review of financial statements (i) Excess Expenditure on Grants & Procurements A review of the USF Programme annual report for the period revealed that, since project inception July 2011, the project had received a total of USD.1,885,625 for purposes of Grants and Procurements. The corresponding cumulative expenditure however amounted to USD.2,417,609.28 creating an excess expenditure of USD.531,984.28. The source of funding for this excess could not be ascertained.

I explained to the Accounting Officer that excess expenditure without known source of funding not only renders the expenditure doubtful, but also lowers the

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integrity of the financial information. No response was made by the project management.

Meanwhile, I wait for the necessary explanation of the excess expenditure other- wise recovery may be the option.

(ii) Incorrect format of financial statements Chapter 5.1 (ii) of Grant Support Agreement (GSA) between the United Nations Office for Project Services (UNOPS) and the Government Of Uganda for the Global Sanitation Fund Programme in Uganda requires that financial reports, (Quarterly, semi-annual, annual and final financial reports of receipts and expenditures), certified and signed off by the authorized representatives of the Recipient and the executing agency (EA), shall be provided to the Country Programme Monitor (CPM) and to UNOPS in the form set out in Annex G.

A comparison of the annual report revealed that the following anomalies;

S/N. Statement Specific anomaly 1 Letter forwarding the The format and wording of the letter differs from that in the accounts GSA- incorrect formats for presentation of financial statements 2 Income and expenditure The GSA template was not the same as that of the final statement accounts 3 Cumulative expenditure The format was not adopted at all analysis including the budget 4 Current year expenditure The format was not adopted at all analysis including the budget

Failure to comply with the prescribed formats was attributed to staffing issues. I advised the Accounting Officer to ensure that the financial statements conform to the format prescribed in the GSA.

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(iii) Omission of incomes in the Executing Agency (EA) financial statement A review of EA financial statement revealed that USD. 360,000 was excluded from the cumulative income of the program resulting into understatements of revenues.

My advice to the Accounting Officer is to make the necessary adjustments to the financial statements was not taken.

(iv) Failure to make an attestation disclosure in the annual financial report Chapter 10.3 of the Uganda Sanitation Fund (USF) Executing Agency Terms of Reference stipulates that the Executing Agency (EA) must attest that the annual financial report does not contain any untrue statements or omission of any material information necessary for an accurate understanding of the financial status of the programme. However, a review of the Project annual financial report indicated that the EA did not make these disclosures contrary to the donor requirement. The anomaly was attributed to a change in the composition of the accounting staff who were still in the learning phase of donor requirements. I advised the Accounting Officer to attest to the financial statements prescribed in the Executing Agency Terms of Reference.

30.0 BUTABIKA MENTAL REFERRAL HOSPITAL

a) Mischarge of Expenditure

The GoU Chart of accounts which the hospital uses defines the nature of expenditure for each item code. The Chart of Accounts is intended to facilitate better and consistent classifications and also Track budget performance per item in line with the approved budget. During the budgeting process, funds are tagged to particular activities and outputs using the account codes and appropriated accordingly.

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On the contrary, UGX.114,382,050 (1.3%) was wrongly charged on budget lines for activities that are not provided for under those particular budget lines. This practice undermines the importance of the budgeting process as well as the intentions of the appropriating authority. It is also an indication of lack of budgetary management discipline.

The Accounting Officer regretted the anomaly but attributed it to inadequate budgeting under the allowances item code for the private patients service where staff are paid per shift.

I advised the accounting Officer to ensure that all financial transactions are correctly charged on the expenditure codes to allow proper tracking of budget performance.

31.0 UGANDA HEART INSTITUTE a) Inadequacies in the management of Non-Tax Revenue (NTR)

(i) Discrepancies in Revenue collected and banked

Para.344 of the Treasury Accounting Instructions 2003 requires that all government Revenue Collectors bank their revenue collection intact on the same day of collection or the day following that of collection or the next banking day. The following discrepancies were noted;

 A review of revenue collection receipts and banking-in-slips revealed that out UGX.2,378,813,820 that was collected in cash form, only UGX.1,914,727,940 was banked leaving a balance of UGX.464,085,880 unaccounted for. There were no records to show how unbanked money was used.

 A review of the revenue records availed for audit revealed that UGX.3,301,768,752 was collected by the institute but only UGX.3,037,797,976 was reported in the financial statements implying that UGX.263,970,776 remained unaccounted for.

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In another development, review of the handover report by the cashier who was proceeding on maternity leave showed that UGX.118,352,300 that was collected between 7th and 15th May 2015 was not banked. However, a loss of cash by the cashier for UGX.117,678,820 has been reported in the financial statements. There was no evidence that the case was being pursued in the Courts of law to recover the money from the cashier.

I advised the Accounting Officer to strengthen controls surrounding cash collections, including improved supervision of the cashiers and; automation of the billing and receipting processes.

Meanwhile, the case for loss of cash should be pursued in the Courts of law to its logical conclusion.

(ii) Weaknesses in internal controls surrounding NTR collection

I also noted that there were a number of internal control weaknesses that could have led to incomplete accountability of all revenue collections. These include;

 It was noted that there were no segregation of duties as the cashier who collected and receipted the money was at the same time responsible for banking it and posting entries in the cashbook. There were also instances where the reconciliations were done by the same person. There was also inadequate supervision of the cashiers by a senior person, making it conducive for the cashiers misuse the cash collected.

 Improperly posted cash books by not including all the required details of the receipts. Leaving out details of receipts while posting in the cash book could be used to hide potential omissions and commissions.

 The cash books were not always balanced off and bank reconciliation statements were lacking.

 A number of payment vouchers had also not been posted to the cash book at the time of audit.

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I advised the Accounting Officer to cause investigations into the discrepancies between the revenue records figures and the reported amounts in the financial statements. b) Staffing gaps A review of the approved staffing position for the Institute revealed that out of the 192 posts, only 112 were filled leaving 80 (41.1%) vacant. Out of the unfilled staff, 57 relate to medical personnel.

Inadequate staffing hinders the Institute’s ability to effectively achieve its strategic objectives and affects the level and quality of service delivery at the Institute and the clients.

Management attributed the staffing gaps to Health Service Commission not recruiting in time all the required staff to access the payroll within the stipulated financial year. The Accounting Officer also indicated that some positions do not attract applicants and have to be re-advertised the Commission recommending for re advertisement which does not beat the financial year deadline.

I advised the Accounting Officer to liaise with relevant stakeholders in the section i.e Ministry of Public Service and Health Service Commission to have the existing vacancies filled.

32.0 MULAGO REFERRAL HOSPITAL COMPLEX a) Mischarge of Expenditure The GOU Chart of accounts, which the hospital uses defines the nature of expenditure for each item code. The Chart of Accounts is intended to facilitate better and consistent classification of financial transactions and to also track budget performance per item in line with the approved budget. During the budgeting process, funds are tagged to particular activities and outputs using the account codes and appropriated accordingly. I noted that UGX.570,405,506 was wrongly charged on budget lines as shown below;

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Account Description Amount Amount Activities to which funds Code Allocated mischarged were diverted 221001 Advertising and 112,500,000 53,389,000 Payments for Cookers and Public Relations night allowances. 221003 Staff Training 267,100,000 106,269,178 cookers, stationery and sitting allowances 221007 Books, Sitting allowances were paid off Periodicals & 12,700,000 2,194,000 this item. Newspapers 221009 Welfare and Allowances to staff and hotel Entertainment 243,200,000 22,464,593 services 221011 Printing, 3,334,000 Advances and sitting Stationery, 258,000,000 allowances were charged off Photocopying this item. and Binding 221012 Small Office 2,851,000 Sitting allowances Equipment 32,400,000 221016 IFMS Recurrent allowances to staff Costs 30,000,000 14,820,000 221020 IPPS Recurrent Advances and allowances to Costs 25,000,000 2,973,901 staff 222003 Information and 13,045,782 Clearing of imported items and communications 56,400,000 allowances to staff technology (ICT) 224005 Uniforms, 112,900,000 29,206,000 Advances to staff and Beddings and allowances Protective Gear 228001 Maintenance – 137,924,000 Sitting allowances Civil 825,200,000 263106 Other current stationery, repairs and other Grants 98,000,000 31,934,092 costs 225001 Consultancy 2,205,909,000 149,999,960 electrical repairs, plumbing, services short purchase of stationery and term other items 570,405,506

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The practice of mischarging expenditure undermines the importance of the budgeting process as well as the intentions of the appropriating authority.

The Accounting Officer attributed the mischarges to activities that had to be attended to irrespective of whether funds were available under the particular code items or not.

I advised the Accounting to always undertake adequate planning and budgeting and ensure that all budget activities are given adequate funds. b) Drugs Supplied to Mulago Hospital (i) Fixed Budget Allocation for Essential Medicines and Health Supplies I noted that the annual budget allocation of UGX.11,365,600,000 for essential medicines and health supplies for Mulago National Referral Hospital had remained constant since financial year 2011/2012 despite the remarkable increase in the number of patients over the same period from 1,356,870 to 1,641,390 (21%) as shown in the table below; FY 2011-12 FY 2012-13 FY 2013-14 FY 2014-15 Inpatients (On 727,044 788,086 799,007 761,573 admission basis) Outpatients 629,826 684,763 755,022 879,817 Total 1,356,870 1,472,849 1,554,029 1,641,390

As a result, the hospital continuously experienced shortages of drugs which affect service delivery. The Accounting Officer explained that the current budget was too small for the Hospital and is expected to worsen when the hospital becomes fully specialized and start providing services like Kidney and other organ transplants where drugs and sundries are very expensive. He further stated that they were liaising with the Ministry of Finance and other key stakeholders in the Health sector to improve on the current budget provision for drugs.

I advised the Accounting Officer to liaise with the respective stakeholders especially Ministry of Finance and National Medical Stores to provide adequate funding for the 335

essential medicines and also plan for the upcoming change in the status of the hospital.

(ii) Under delivery of Drug Supplies from National Medical Stores The mandate of Mulago National Referral Hospital is to provide quality super specialized health care services as stated in its vision and mission. For the year under review UGX.11,366,157,000 was allocated to National Medical Stores (NMS) to procure, store and distribute essential medicines and health care supplies to the hospital. However, details at the hospital showed that medicines worth UGX.5,607,963,285 were requisitioned and only UGX.4,125,495,171 were received from NMS leaving a balance of UGX.7,240,661,829 worth of drugs. Of the orders placed, medicines worth UGX.1,482,468,115 were not delivered by NMS.

In his response, the Accounting Officer indicated that the Hospital placed orders for the medicines but National Medical Stores did not fully deliver

I advised the Accounting Officer to liaise with National Medical Stores management so that drugs allocated to Mulago National Referral Hospital are always delivered in their entirety. c) Inadequate Staff Establishment Section (A – c) 3 (a) of the Government of Uganda Public Service Standing Orders 2010 require appointments in the public service to be subjected to availability of a vacancy in the approved staff establishment. According to the 1999 approved staff structure, the hospital ought to have 2,166 staffs of which 2,181 are in place implying overstaffing by 15 positions. However, the hospital 5 – year strategic plan covering the period 2015/16 – 2020/2021 proposed 2,661 staffs owing to factors including new facilities such as kidney transplant which are under development.

The Accounting Officer explained that the hospital was still awaiting a new approved staff establishment from the Ministry of Public Service.

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I advised Management to liaise with the stakeholders such as; Ministries of Health and Public Service, Health Service Commission, to have the staffing needs of the hospital assessed especially in view of the new facilities being developed.

d) Advances to Personal Accounts Although the Ministry of Finance, Planning and Economic Development restricted payments of cash to individuals to undertake activities such as constructions, repairs and printing, it was noted that out of UGX.1,100,300,050 advanced to various individuals to undertake activities which would normally require contracting of private firms (providers), UGX.230,048,350 remained un-accounted for although the Accounting Officer stated that all transactions had been accounted for. These activities included civil works, repairs and printing services.

In other incidents, funds for allowances to third party individuals were being advanced to an individual to pass them over to the 3rd parties for example salaries of Private Patients’ staff, Interns allowances and security personnel allowances.

There is a risk of such funds not reaching the intended beneficiaries. Besides, part of the advances had not been accounted for, contrary to the provisions of the Treasury Accounting Instructions which require advances to be accounted for within 60 days.

In response, the Accounting Officer explained that;

 Advances to individuals were always in relation to micro procurements that in most cases were of emergency nature especially to staff under the engineering section and were mostly for sewage leakages, small civil works like roof replacements, electric and plumbing fittings and frequent pipe bursts while others were for activities conducted directly by the respective officers.

 Some of the payments in respect of third parties were advanced to officers because most of those beneficiaries keep being changed for example security guards and casual laborers.

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 These payments would drastically reduce after the general renovation works had been finalized.

I advised management to minimize the use of advances, and explore the possibility of having framework contracts with service providers.

REGIONAL REFERRAL HOSPITALS

33.0 ARUA REGIONAL REFERRAL HOSPITAL

b) Over Payment of Salaries Section (B-a) of the Public Service Standing Orders, 2010 requires salaries to be paid correctly, in accordance with the approved salary structure for the Public Service. However, Payroll analysis carried out revealed that 125 members of staff who were supposed to earn salaries amounting to UGX.54,764,038 according to their scales were instead paid UGX.98,707,208 resulting into a salary overpayment of UGX.43,943,170 as detailed in appendix 1.

The Accounting Officer explained that some overpayments were due to IPPS/IFMS interface errors, while other payments were normal and arose from various factors. The Accounting Officer stated that for overpaid salaries recovery schedules were made.

I advised the Accounting Officer to ensure the recoveries are made without delay.

c) Un-credited Government Grants to the General Account Paragraph 47 of the Treasury Accounting Instructions, 2003 states that on receipt of the cash release the Accounting Officer shall credit domestic government transfers.

However, a reconciliation of the Cash Release/ Treasury Credit Advices slips from Ministry of Finance, Planning and Economic Development against the Hospital

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general fund account revealed that UGX.253,245,434 was not credited on the Hospital bank account contrary to the regulations.

The Accounting Officer explained that the funds were not credited into the Hospital General Fund Account and on consultation with the Ministry of Finance, Planning and Economic Development they were informed that the funds were meant for pension gratuity.

I advised the Accounting Officer to follow up the funds with Ministry of Finance Planning and Economic Development to find out the whereabouts of the funds.

d) Service Delivery The Audit inspection on hospital infrastructure revealed the following shortcomings:- Facility Current state Hospital Main Laboratory  Two fridges were non-functional

 Blood was kept in the same fridge with other reagents hence exposing both to contamination

X-Ray Machine(Duo  It has not been operational for the last two years Diagnostic Machine)

I advised the Accounting Officer to liaise with the Ministry to ensure that the issues are addressed.

34.0 MBALE REGIONAL REFERRAL HOSPITAL

e) Unaccounted for Advances

Paragraphs 214(a) and 215(a) of the Treasury Accounting Instructions, (TAIs) 2003, require an Accounting Officer prior to approving an advance to staff to ensure that the concerned staff has settled any old advances and that the advance must be accounted for without delay.

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However, it was observed that UGX.111,387,226 advanced to various staff for various activities remained unaccounted for by the end of the Financial Year. This was attributed to absence of established controls over grant of and retirement of the funds advanced.

Consequently, I was not able to confirm that the funds were properly utilized. I advised the Accounting Officer to ensure that the funds are properly accounted or else recovery be made from the responsible officers.

35.0 KABALE REGIONAL REFERRAL HOSPITAL

f) Utilization of Non-Tax Revenue without Authority

Paragraph 94 of the Treasury Accounting Instructions (TAI), 2003 requires Non- Tax Revenue to be utilized at source with the authority of the Accountant General. It was observed that UGX.151,485,500 collected from the private wing was spent at source without authority.

The Accounting Officer admitted the shortcoming and promised to seek authority from the Accountant General.

I advised the Accounting Officer to comply with the regulation.

g) Lack of Hospital Management Board

According to Section 5 Paragraph 3 Part III, of the Ministry of Health National Hospital Act 2006, all hospitals ought to have hospital management boards. The board is required to provide strategic guidance to the hospital management team, review and approve the budget, monitor the use of the funds, approve re- allocation, ensure accountability is submitted to Ministry of Health and also that funds are not diverted to unapproved activities. However, it was observed that the hospital has been operating without a Board of Directors.

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The Accounting Officer admitted the shortcoming and explained that there was a challenge of getting nominations from the districts to constitute the board.

I advised the Accounting Officer to follow up the matter with the relevant stakeholders and ensure that the Hospital Board is constituted.

36.0 GULU REGIONAL REFERRAL HOSPITAL

h) Funds not accounted for

Paragraph 215 (a) of Treasury Accounting Instruction (TAI) 2003 requires advances to be accounted for without delay. It was however, observed that an amount of UGX.50,068,000 was not accounted for. Consequently, I was unable to confirm that the funds were utilized for the intended purposes. Delayed accountability may lead to falsification of documents.

I advised the Accounting Officer to ensure the funds are accounted for or else enforce recovery from the responsible officers.

i) Payables

Included in the Balance Sheet are payables of UGX.1,605,368,882 comprising of sundry creditors (UGX.598,600,156) and Committed creditors (UGX1,006,768,726). It was observed that the payables had remained outstanding since the previous years. Besides, the details of the payables were not disclosed in the financial statements as a schedule.

Non setlement of payables may lead to litigation and costs.

I advised the Accounting Officer to make arrangement for settling the creditors without delay.

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37.0 MBARARA REGIONAL REFERRAL HOSPITAL a) Expired Term of Office for the Hospital management board

Section 4.4 of Guidelines on Hospital Management Board for Referral hospitals (2003) requires that the Chairperson or any other member of the hospital board shall hold office for a term of not more than three years. The term of office for the hospital management board expired in December, 2014 and has since then not been renewed. Lack of a hospital board may hamper decision making in hospital management.

The Accounting Officer explained that communication had been made to the Permanent Secretary, Ministry of Health to bring it to the attention of the responsible Minister for appointment of the Board and his action is awaited.

I advised the Accounting Officer to follow up the matter with the Ministry and ensure that a new board is constituted.

38.0 FORT PORTAL REGIONAL REFERRAL HOSPITAL a) Diversion of Funds

Paragraph 156 of TAI 2003, Part I – Finance states that, Funds available under one item or sub-item of expenditure may not be transferred to another item or sub-item save on the authority of a virement warrant, nor may expenditure be charged to an item/sub-item merely because funds are available under that item/sub-item.

However, it was noted that UGX.41,214,270 was diverted from one sub-item to another without authority. This leads to under performance in the affected units due to insufficient funds as shown in Appendix IV. This is also indicative of poor budgting and lack of budgetary control on the part of management.

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The Accounting Officer explained that UGX.93,621,149 were not expenditures but inter Account Transfers of the same entity for management purposes. However, on verification the above balance remained outstanding as they were transfers to other items without authority. The practice is an indicator of budgetary indiscpline on the side of management and warrants expenditure without direction.

I advised the Accounting Officer to provide authority allowing the diversions and in future seek authority before diverting funds of one item to another.

39.0 JINJA REGIONAL REFERRAL HOSPITAL a) Payables

Regulation 411 of TAI 12004, states that It is the duty of all officers authorized to incur expenditure to watch the amount incurred, and the commitments entered into and to report at once to the officer from whom the authority was received whenever it may appear that the amounts provided will prove insufficient for the service of the year to which they relate.

However, a review of the financial statements revealed that the Hospital had outstanding payables of UGX.1,608,563,495 at the close of the year. The Accounting Officer explained that UGX.204,808,215 of the payables figure relates to a ganish order by URA on the Hospital accounts in standard chartered bank.

The Accounting Officer further explained that URA issued the notice in error due to failure to migrate the money from the manual system to the e-system. Currently, there is reconciliation between URA and the hospital administration. The outcome was still awaited.

Consequently, the amounts owed to a creditor has so far accrued interest of UGX.9,035,638.

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I advised the Accounting Officer to vigorously follow-up the issue with URA to its conclusion and have the creditors settled.

b) Lack of Land Titles for Plots

Regulation 58 (4) of the Local Governments Financial and Accounting Regulation (LGFARs) of 2007 requires that the properties and assets of a Local Governments including land be properly registered and titles issued.

It was observed that the Hospital does not have land titles for its land located in the following areas;  Plots 31-39 Nile Avenue (M-16):  Plot 26-32 Nalufenya Road:  Plot 34-40 Nalufenya Road:  Plot 52 Gabula Land:  Plot 47 Nile Garden known as School lane:

Lack of land titles exposes land to encroachment and disputes.

The Accounting Officer explained that applications have been made for titles but no response had been received from the district land commission and the Uganda Land Commission. I advised the Accounting Officer to follow up the matter to ensure that land titles are secured.

40.0 SOROTI REGIONAL REFERRAL HOSPITAL

c) Private Wing Remodeling

The Soroti Regional Hospital contracted a local firm for remodeling a building that was formerly constructed as a TFC into a private wing of the hospital at a contract price of UGX.206,991,710.

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By the time of inspection in June 2015 an amount of UGX.176,509,557 (85.3%) of the total contract price had been paid. However, it was observed that 18 months after the estimated completion date the civil works were still incomplete as shown below;  Painting not done  No rubber sealant as water barrier between the floor and the metal  No guard rails fixed on ramps  Site not cleared

Delays to complete the civil works may lead to extra administrative costs.

The Accounting Officer explained that the Hospital had terminated the contract and the procurement process is on-going to engage another contractor to complete the project.

I advised the Accounting Officer to ensure that works are completed.

41.0 MUBENDE REGIONAL REFERRAL HOSPITAL

a) Failure to fully constitute the Hospital Board Guideline 3 of the guidelines for Hospital Management Boards, 2003 for Referral Hospitals on composition of the Board provides that the board shall comprise of 9 members. It was however observed that only 8 out of the 9 members of the board had been appointed. Failure to fully constitute the Board denies the hospital the oversight function of a full board.

The Accounting Officer explained that submissions had been made and the hospital was waiting for the Minister’s approval.

The Accounting Officer was advised to follow up the matter and ensure that the Board is fully constituted.

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42.0 MOROTO REGIONAL REFERRAL HOSPITAL a) Staffing Gaps The hospital has an approved structure of 395 positions. However, only 162 (41%) were filled leaving 233 (59%) posts vacant.

The hospital also has only one consultant and no medical officer special grade who are key medical personnel.

Understaffing negatively affects service delivery.

The Accounting Officer explained that Council has made several correspondences with the line Ministries to have the gaps addressed.

I advised Accounting Officer to continue liaising with the relevant authorities and ensure that the vacant posts are filled.

43.0 CHINA-UGANDA FRIENDSHIP HOSPITAL NAGURU a) Irregular Withholding Tax payments A review of the hospital payment records and the IFMS data revealed that a number of suppliers were paid gross invoice amounts of UGX.726, 850,450 without deducting the 6% WHT. However, the hospital management later paid URA the equivalent of 6% WHT amounting to UGX.43, 611,027 as an additional cost to the hospital in respect of the affected suppliers resulting into total irregular outflow of UGX.87,222,054. There was no justification for this action as the tax credits from WHT benefit only the suppliers.

Relatedly, UGX.662, 979,307 was paid to suppliers without withholding tax of UGX.39,778,758 contrary to Sec 123 of the Income Tax Act. Besides, there was no evidence that the firms were exempted from WHT.

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Non deduction of WHT attracts penalties and/or fines against the entity.

The anomalies were attributed to weaknesses in internal controls over the payments.

I advised the Accounting officer to ensure that the extra payment to the providers are recovered without delay and that outstanding taxes be recovered and remitted to the tax authority. b) Underperformance of the Budget A review of the statement of Appropriation (based on services approved by Parliament) revealed that the Hospital had an approved budget of UGX. 5,413,628,891 out of which only UGX 4,528,632,262 was received resulting into shortage of UGX 884,996,629 (16%). Consequently, planned activities such as recruitment of more medical personnel were not implemented.

In response, the Accounting Officer explained that although all funds for the wage bill had been allocated to the vote, staff recruitment was hindered by restriction by Ministry of Public Service.

I advised the Accounting Officer to liaise with Ministry of Finance, Planning and Economic Development to ensure that all budgeted funds are released to enable implementation of planned activities. c) Payments for construction works without a payment certificate Review of the contract for construction of the drug store together with the payment records revealed that a sum of UGX.453,849,200 representing 60% of the contract sum was paid for works estimated at only 30%. The over payment was attributed to lack of certificates of works done. It was further noted that; The works stalled after the KCCA authorities stopped the construction because of lack of approved plans.

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There is no evidence that the advance payment was recovered since the payment was not based on payment certificate.

Further review revealed that architectural plans had not been approved by KCCA and the contract had expired. In response, the Accounting Officer explained that;  the payment was based on progress reports by the contract manager.  the contract had expired but emphasized that the contractor would be re- engaged upon getting approval from KCCA.

I advised the Accounting Officer to liaise with all the relevant stakeholders and have the necessary approvals made. In addition, all payments should be supported with payment certificates. Any over payments should be recovered accordingly. d) Lack of a Hospital Board According to paragraph 6.2 (e) of the Health Sector Strategic Plan III (2010/11- 2014/15), all Referral hospitals ought to have hospital Management Boards. The hospital Management Board is meant to provide strategic guidance to the hospital. However, it was observed that the Hospital Board has never been constituted in the case of China Uganda Friendship hospital there by impairing strategic leadership in the Hospital.

In response, the Accounting Officer explained that management had communicated to the relevant authorities on the matter and a response was awaited. In the meantime, efforts were underway by the entity to identify suitable Board Members to be appointed by the Ministry of Health.

I await the results of management action in this regard.

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EDUCATION SECTOR

44.0 MINISTRY OF EDUCATION AND SPORTS a) Mischarge of Expenditure The GoU Chart of Accounts, which the Ministry uses, defines the nature of expenditure for each item code. The Chart of Accounts is intended to facilitate better and consistent classification of financial transactions and also track budget performance per item in line with the approved budget. During the budgeting process, funds are tugged to particular activities and outputs using the account codes and appropriated accordingly.

On the contrary, UGX.3,399,286,780 (4.6%) was wrongly charged on items that are not provided for under those particular budget lines. This practice undermines the importance of the budgeting process as well as the intentions of the appropriating authority. It is also an indication of lack of budgetary management discipline.

The Accounting Officer explained that funds were not released as budgeted, warranting the use of the available limited resources to deliver services. I advised the Accounting Officer to ensure that all financial transactions are correctly charged on the expenditure codes to allow proper tracking of budget performance. b) Schools land ownership The Government Policy on Universal Education aims at investing heavily in Uganda child Education through UPE and USE programmes. This is confirmed by the Government continued investment in the school infrastructure and facilities like classrooms, laboratories and Teachers house. It was however noted that the huge investments are done on land where the Government has no legal ownership.

As a result a number of Government funded schools are faced with land challenges like; evictions, encroachment, land giveaways, while some schools are 349

being demolished with the support of the District Land Boards and the Uganda Land Commission. These bodies do not seem to be acting in the best interest of the Government and citizens.

The Accounting Officer indicated that a land committee had been formed in the Ministry to handle Education Institutional land matters and advise on a new policy for the management and protection of school land.

I advised management to ensure that appropriate action is taken to secure ownership of the school land in the whole country and put in place measures to protect against encroachment and give away. c) Expenditure on rent For lack of its own home (headquarters) the Ministry continues to rent various premises in Kampala to house the various departments. A total of UGX.2,937,116,784 is incurred annually as rent payments for these premises as indicated below;

Ministry departments Service Provider Annual Rent

Several Ministry Departments Rutungu Investments-Legacy 1,997,187,615 House APL 1 PDM U LTD 126,112,135

Physical education and sports Social security house 129,434,305

ADBIV,U Korean IV project Social Security House 79,556,729

Higher education students 238,000,000 financing Board UBTEB 130,000,000 UAHEB 103,986,000 UNMEB 132,840,000 2,937,116,784

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It was however noted that despite the Ministry budget being in local currency, the rental agreements were drawn in US Dollars whose movement against the local currency is unpredictable. This makes implementation of the budget difficult. The huge expenditure on rent also stifles the implementation of other activities.

It is not clear why contracts with local service providers should be quoted in a foreign currency.

Management explained that the determination of the currency in which rent is paid is market driven and during the bidding process, bidders were allowed to bid in the currency of their choice.

I advised management to put in place mechanism to address the rent challenge. d) Delayed review and operationalization of the Ministry Macro Establishment Structure Review of various correspondences revealed that an exercise was undertaken to review the organization structure, functions and operational systems of the Ministry with a view of recommending a rational and appropriate structure.

However, the following matters were noted;  The approved structure did not include bodies created by the Business, Technical Vocational and Training Act of 2008 namely UNMEB, UAHEB, and UBTEB.  Recruitment of staff could not proceed due to investigations and intention to sue arising out of the concerns of the need to review the 2010 organizational structure and the new portfolio of Science and Technology.  Vacancies are still existing in the approved structure. Out of 433 approved positions, only 317 (73%) were filled leaving 116 vacancies.

Inadequate staffing leads to work overload on the existing staff and limits the ability of the Ministry to effectively deliver on its mandate.

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The Accounting Officer explained that the restructuring had started but due to interferences it was halted. The process to fill the vacant posts, had delayed because of the investigations by investigating Agencies.

Management further stated that for non-contentious posts in the Ministry, approval was given and Education Service Commission had scheduled Interviews.

I advised the management to continue liaising with the relevant authorities to ensure that the staffing challenges are addressed to enable the Ministry deliver effectively on their mandate. e) Lack of contract Managers Regulation 51 (1) and (3) of PPDA (contracts) Regulations 2014, requires the accounting officer to appoint contract manager from the user department for each contract/procurement, who are expected to prepare contract management plans using Form 49 in schedule 2 and forward copies to the PDU for purposes of monitoring. The contract managers are also required to ensure that all contract managers to ensure all contract management records are kept and archived.

However, from a sample of contracts worth UGX.21,551,360,306.34, and USD.2,519,964.55, it was noted that they lacked contract managers, contract management plans and related contract management records such as progress reports, monitoring reports and copies of payments made among others.

I explained to Management that absence of Contract Management records makes it difficult to confirm whether supervision and monitoring of the contracts was carried out in accordance with the specified terms of agreement.

Management explained that the ministry had limited human resource capacity to effectively implement the Regulation and promised to build capacity in contract management.

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I advised Management to always ensure compliance with the Regulations in this regard. f) Emergency constructions in Primary schools The Ministry runs an Emergency construction program of Primary schools which started way back in 2005 with the following objectives;  To rehabilitate and strengthen primary schools damaged during disasters;  To supplement and support local initiatives by parents in the rehabilitation and construction of schools in order to achieve universal primary education;  To improve the pupil to classroom ratio.

During the financial year under review, the Ministry budgeted for UGX.1,754,900,000 in respect of the programmes. Accordingly, 19 primary schools were planned to be constructed.

Review of the records revealed the following matters:  The selection criteria does not address the most critical objective of emergency response. It was noted that primary schools which are hit by disasters/emergencies do not get immediate assistance and can take more than two financial years before they are assisted. Out of UGX.1,754,900,000 budgeted for construction and rehabilitation during the financial year, only UGX.1,720,000,000 was provided to assist only 14 out of the planned 19 primary schools.  The transfers lacked acknowledgement at the time of writing this report yet they were fully expensed under non-residential buildings.  Audit noted that the Emergency construction of primary schools unit does not have a data bank of requests received, the assessments made and the schools that have been assisted overtime under this arrangement.

Management explained that the schools do not get immediate response mainly because of budgetary constraints. They also indicated that the e-data bank for the requests, assessments made and the schools that have been assisted overtime under this arrangement would be put in place. 353

I advised management to liaise with MoFPED to improve on the funding for Emergency Construction Programme. Furthermore I advised the Accounting Officer to ensure the transfers to the beneficiary schools are accounted for or else enforce recovery.

I also advised the Accounting Officer to streamline the processes of identification, assessment and funding of the emergency constructions in the affected schools and to ensure that funds are properly accounted for.

g) Verification of delivery of Instructional Materials During the Financial Year 2012/13, Government of Uganda represented by Ministry of Education and Sports signed contracts with several local publishers indicated in the table below, to supply and Delivery of Text Books for upper primary (P.5 - P.7). The structure of payment provided that the suppliers were to be paid 20% on presentation of advance payment guarantee, 60% on presentation of complete set of shipping documents and 20% upon verification of delivery.

Contractor and contract details Contract sum Contract Expected date (UGX) date of discharge (120 days) M/S Longhorn publishers.(supply of p.5,p6& p.7 7,057,673,400 30/5/2013 30/9/2013 text books) M/S East Africa Educational publishers. (supply 519,135,760 30/5/2013 30/9/2013 ofP.5 Swahili text books) M/S St.Bernard publishers.(supply of p.5 math 500,916,000 30/5/2013 30/9/2013 text books) M/S Fountain Publishers. (Supply of p.5, p.6 & 2,588,953,878 30/5/2013 30/9/2013 p.7 text books). M/S M.K Publishers Ltd, (supply of p.5,p.6 & p.7 3,433,484,300 31/5/2013 30/9/2013 text books) M/S Mukono Book shop Printing and Publications 1,779,351,990 29 30/9/2013 (supply of p.5,p.6 & p.7 text books) /5/2013

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In my prior year audit report to Parliament I indicated Lack of Contract Management Records. A follow-up audit on the supply and delivery of the instructional materials in various schools revealed the following matters;

(i) Supply of Kiswahili Text books

Kiswahili text books were supplied to almost all primary schools. However, most of the schools lacked trained Kiswahili instructors/teachers and therefore the books are not being used. The rationale for procuring Kiswahili text books without first training and posting instructors to the schools was not explained by management. This is an indication of lack of proper planning and also failure to sequence the activities of training instructors and procurement of Kiswahili books on the part of the Ministry.

Management explained that the procurement of Kiswahili books was done in preparation for the training of teachers in readiness to teach the subject. They however indicated that the activity had been hampered by budget constraints.

I advised Ministry Management to plan for training of the Kiswahili instructors before further investments in the instructional material are procured. Alternatively the programme should be phased in schools that already have the instructors for the Kiswahili language.

(ii) Inadequate supply of books to schools

It was noted that copies of books distributed in Schools were not enough for all the pupils. For example 5 copies of P.5 Islamic Religious Education were supplied to a school with 60 pupils and were expected to be shared amongst themselves in groups of 12 pupils per book. As a result most Head teachers had not issued out the books for lessons.

I explained to management that inadequate supply of books does not only affect the performance of pupils but also makes it difficult for the school administrators to use the books during teaching.

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Management explained the number of books supplied per school is what was planned for given the small resource envelope.

I advised Management to source for more funding and ensure adequate supply of instructional materials in schools to ease the teaching, learning and for better performance of pupils.

(iii) Non-Involvement of the stakeholders during delivery of books

During the field inspection visits, it was noted that teachers, Head teachers and the District Education Officers (DEOs) were not consulted before the procurement of the books was carried out. This implies that the deliveries could have been carried out in an improper manner and not based on proper enrolment statistics.

Management explained that the stakeholders were consulted during the development of the curriculum and that the procurement was based on the developed curriculum developed by NCDC.

I advised management to always ensure full involvement of all stakeholders at all stages of procurement and delivery of instructional materials.

(iv) Books written in different local languages

It was also noted that areas such as Kaberamaido, Sironko and Amudat received books written in languages not compatible with their local languages. For instance Amudat received Akaromojong books and yet they use the pokot Language, Kaberamaido got Ateso books and yet their local language is Kumam while schools in Sironko received Lugisu books and yet their Local Language is Ludadiri. In Nebbi, schools received books written in lugbar instead of Alur. This therefore indicates that the Ministry did not carry out proper needs assessment prior to procurement as the books supplied cannot be used by schools in these communities. There is a risk that the schools in areas using the languages did not get numbers of the books and yet they are lying idle where they were delivered.

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Management explained that the Ministry embarked on use of local language as a medium of instruction following the roll out of the reformed primary school curriculum in 2007. Out of about 56 local languages in Uganda only 27 local languages have orthography while the rest are dialects.

I advised management to liaise with the relevant stakeholders in the affected communities for development of appropriate teaching materials in the dialects where the 27 languages are not readily acceptable or even understood.

(v) Poor documentation

Best practice requires that all schools should maintain, keep and update all records regarding receipt of deliveries, and issues out of the books for proper accountability and programmed usage.

Physical inspection of a sample of schools, (Oturgang Boys P.S, Orturgang Girls P.S, Nguthe P.S, Jopmwocho P.S, Ojigo P.S and Lwaboba P.S) revealed that they lacked proper records for the text books received. This makes it difficult for management to keep track of movement of books at different times. There seems to be lack of guidance from the Ministry to the school administration for them to appreciate the importance of record keeping and inventory management.

Management explained that the Ministry had developed the Instructional Materials usage manual and issued to all primary schools. There were plans in the next financial year to develop the capacity of school managers in inventory management.

I await management action in this regard.

(vi) Lack of proper storage facilities

It was also noted that certain schools like Ojinga P/S, Ssunga P/S, Ali Ragem P.S, Kaya P.S had text books stored at Head teachers home due to lack of adequate storage facilities at the schools. This exposes government property to the risk of

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misappropriation by unscrupulous staff and pupils through regular movements from classrooms to the head teacher’s residences.

Management indicated that the construction design for new facilities under Global Partnership for Education includes a book store.

I advised management to ensure that all schools have proper books storage facilities to minimize the risk of loss and spoilage during their movements to and from the undesignated storage areas.

(vii) Unutilized Books

The objective of procuring the books was to ensure that they are incorporated in the schools curricular and utilized on a day to day basis. However during the audit inspection, it was noted that a number of the books delivered in year 2012/2013 were still packed in boxes unutilized which casts doubt as to whether the objectives for the purchase of books will be achieved.

Management explained that the Ministry is experiencing a big challenge in effective usage of instructional materials in schools. Teachers do not include reference to text books as a lesson activity in the lesson plans.

I advised management to ensure the teachers are sensitized on textbook usage in the lesson plans.

(viii) Non-Delivery of Instructional Materials by one supplier

Among the publishers that signed contracts with the Ministry, one was required to supply 323,742 text books for P.5, P.6 and P.7 of UGX.1,779,351,990 within 120 days.

Although the Publisher was paid UGX.1,155,870,398 being part of 20% and 60% payment on presentation of bank guarantee and shipping documents respectively, the books had not been delivered to the schools at the time of audit inspections in

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July 2015, (two years after signing the contract). This action tantamounts to refinancing of the Publisher who may have used the money to finance his other activities.

Management explained that the contractor had financial difficulties earlier on and when the Ministry pursued the matter, the deliveries were being made.

I advised Management to always ensure that terms and conditions of a contract are always complied with by suppliers. I also advised the Accounting Officer to ensure that the Publisher delvers all the text books to the schools without further delay. h) Kololo SS (i) Unvouched Expenditure

Para 119 of TAI Part 1 2003 requires all payments to be vouched on Treasury forms 34A and 34B for cheque and cash payments respectively and Para 120 requires that all payment vouchers must be properly supported with appropriate documents or sub-vouchers before they are passed for payment of any form of expenditure.

Contrary to the above provisions, UGX.285,850,000 was paid to Kololo Secondary School on EFT NOs 2158922 and 2158904 for catering and accommodation for SESEMAT in service training for Central and North western without relevant supporting documents. In addition the funds remained unaccounted for by the time of writing this report.

Delayed accountability may lead to falsification of documents.

I advised the Accounting to ensure full adherence of the TAI requirements while effecting payments. Furthermore the Accounting Officer should ensure that the funds are accounted for or else enforce recovery.

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45.0 UNIVERSAL POST PRIMARY EDUCATION AND TRAINING PROJECT

a) Funds not accounted for Contrary to Guideline 4.18 of the School Based Procurement and Implementation Manual for Civil Works 2012 which requires accountability returns to be submitted to Ministry within one month after utilisation of funds, a total of UGX.7,096,791,549 is reported in the financial statements as outstanding advances to Schools as at 30th November 2014. This had only reduced to UGX.5,552,114,659 by March 2015, implying that there was slow accountability by the schools. I explained to management that without supporting documents I could not confirm whether the funds were properly utilized. Further more delayed accountability may result into falsification of documents and possible loss of funds.

Management explained that the matter was being investigated by CIID and IGG and that the Ministry was awaiting for the conclusion of the investigations by the two bodies.

I advised management to continue engaging all the relevant stakeholders to follow up on the accountability with the school administrators.

b) Outstanding Accounts Payable During the course of my audit I noted that UGX.3,315,697,874 an equivalent of USD.1,365,755 was returned to IDA Bank in New York on 20th January, 2015 as balances on both the operational and designated account. However at the project end, payables amounting to UGX.1,454,952,192 were outstanding despite the project having been granted an extension of four months to clear all the outstanding dues. I explained to management that failure to settle the outstanding obligations could result into litigations and their attendant costs.

Management explained that by the time the project closed most of the outstanding Payables did not have supporting documents to initiate the payment process and therefore payments could not be processed.

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I explained to management that payables without supporting documents casts doubt on the authenticity of the figures reported.

I advised Management to establish the authenticity of the payables and devise means of settling them to avoid possible litigations with their attendant costs. c) Project implementation status By 31st July, 2014, USD.139,255,886.51 (92.8%) of the credit had been disbursed and at the time of project closure a total USD.8,087,007.95 (5.4%) was cancelled. Another USD.2,657,105.54 (1.7%) from the disbursed portion of the loan was refunded to the bank. Although both the Government and the World Bank performance rating was indicated as satisfactory, 86 of the planned schools were not constructed. In the circumstances, the project did not fully attain the desired project development objectives.

Management explained that the implementation modality adopted by the Ministry and the World Bank regarding civil works was new and required strict adherence to procurement processes and preliminary activities which in effect led to the delay in project implementation. They indicated that 86 schools had been taken on by GoU and were to be completed in a phased manner starting this FY 2015/16. Already 25 schools had received funds for completion.

I advised management to study the challenges encountered during the project implementation under phase 1 and address them in the subsequent phases.

I await management’s commitment to the completion of the remaining schools.

d) Review of the Project Performance by Internal Audit Internal Audit sampled 243 schools with outstanding advances exceeding UGX.40,000,000 to establish the status of civil works completion, accountability and the amount of residual funding balances to be refunded to the Ministry Project Account in the selected schools. General and Specific findings indicated a number of anomalies regarding project implementation in these schools. These included 361

among others, lack of contract documents, lack of bank statements, overpayments to contractors, abandoned works, unaccounted for works, unrecovered advance payments, unremitted WHT deductions, diversion of works, undelivered furniture, unutilized funds, payment for irregular certified works, possible misappropriation of funds, unsupported extra works etc. However, there was no evidence that the internal audit recommedations had been implemented.

I advised the Accounting Officer to ensure that the internal audit recommendations are implemented.

46.0 MAKERERE UNIVERSITY a) Un-accounted for Funds – UGX.511,171,395 Section 4.6.4 of the Makerere University Finance Procedures Manual, 2014 requires that advances should be accounted for within 14 days following the completion of the exercise, but in any case not later than 60 days. I however noted that accountabilities totaling to UGX.511,171,395 of which UGX.219,399,310 were personal advances to staff which had remained outstanding for a period of more than one year, and UGX.291,772,085 as administrative advances remained outstanding. The funds were advanced to staff to carry out various activities of the University. In the absence of the relevant accountability documents, it was not possible to confirm that the funds were used for the intended purposes.

In his response, the Accounting Officer promised to follow up on all outstanding advances and where necessary, institute recovery measures, in case of total failure to account by the responsible staff.

I advised the accounting Officer to strengthen controls over advances to staff and ensure adherence with the University policy regarding accountability for funds. b) Non-Disclosure of Donor Grants During the year total donor grants reported amounted to UGX.10,983,905,581. However, this only related to the SIDA – SAREC projects. All other non-bilateral 362

donor grants/projects, such as; Africa Centre for Systematic Reviews & Knowledge Translation, Post Abortion Care Study, among others were not disclosed. Without proper disclosure of donor funding, I could neither ascertain how much the university received from other donors, nor confirm if those funds were used for the intended purposes.

In their response, Management explained that the university only discloses grants from bilateral sources.

I advised the Accounting Officer to make a complete disclosure of all donor funding received by the University, in line with the requirements under Section 43(1) of the PFMA, 2015 that requires that all expenditure to be incurred by Government on projects which are externally financed, in a financial year have to be appropriated by Parliament. c) Management of Pension Liabilities During the year, outstanding pension liabilities of the university had decreased from UGX.30,406,365,541 to UGX.29,927,548,933 indicating a meager payment of pension arrears of only UGX.478,816,608. However, the pension liability has taken long to be settled, yet it is amongst the reasons leading to staff strife at the University. It was noted that this has been outstanding for over 10 years.

The Accounting officer in his response stated that, several appeals and requests were made for these arrears to be settled by MOFPED. Besides, the University was taken to the Industrial Court and there is high risk of interest and penalties being charged if this obligation is not settled.

I advised the Accounting Officer to continue liaising with all the relevant stakeholders to ensure that the obligation is settled without further delay with a view of saving the government from unnecessary legal costs.

363 d) Transfers to Personal Bank Accounts – UGX.776,009,229 Treasury Accounting Instructions (TAI) part I (227-229) requires all payments to be made by the Accounting Officers directly to service providers and where it is not convenient, an imprest holder should be appointed by the Accounting Officer with the approval of the Accountant General to carry out such payments.

Contrary to the above provisions, it was noted that payments totalling to UGX.776,009,229 were made by various collages for supplies, and meeting costs of different activities through staffs personal bank accounts. There was no evidence to show that the staffs were appointed as imprest holders, and no reasons were given to justify the payments to the individuals’ bank accounts. The table below refers; College Amount (UGX) CAES 99,487,467 CHUSS 126,878,000 CONAS 220,901,120 CEDAT 139,130,130 CEES 88,408,252 COBAMS 95,501,260 COCIS 5,703,000 TOTAL 776,009,229

I informed management that, the practice of depositing funds on personal bank accounts is not only irregular, but also exposes the University funds to a risk of loss, since the Colleges did not have any control over staff personal bank accounts.

The Accounting Officer in his response stated that these payments were for activities which are field based. I advised management to desist from such practices and adhere to the requirements under the Treasury Accounting Instructions.

364 e) Leasing of University Land at Kololo According to Section 87(1c) of the PPDA, a procuring and disposing entity shall not dispose of any strategic asset, without the prior approval of the Minister. Contrary to this provision, it was established that the University leased out land located on Plots 34–36a on Prince Charles Drive, Kololo, to a private investor at a cost of UGX.1,500,000,000 without the full knowledge of the Minister. It was noted that the proceeds from the transaction were transferred directly to the university expenditure account and expensed. I further noted that this transaction was not disclosed and reported in the financial statements under the memorandum statement of disposal of physical assets. In absence of proper disclosure and respective reporting of the transaction, there is a risk that the proceeds from the transaction may not have been put to proper use.

In response, the Accounting Officer stated that, the transaction was approved by the University Council and that its respective proceeds were used to finance university pressing needs.

I advised the Accounting Officer to always adhere to the requirements under the Law, while disposing any University asset. For completeness and full disclosure, the disposal of such a strategic asset should in future be disclosed and reported on accordingly.

47.0 MAKERERE UNIVERSITY BUSINESS SCHOOL a) Irregular Payment of Work Related Allowances - UGX.582,225,925 According to Section 5.5.3 (g) of the School’s Human Resource manual, employees granted permission to pursue residential long term study programs abroad should forfeit work related allowances such as top up and administrative allowances.

A review of a sample of personnel files and the school’s payroll revealed that some staff pursuing residential long term study programs abroad continued receiving work related allowances in contravention of the provisions of Section 5.5.3 (g) of

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the School HR Manual. It was further ascertained that the said staff enrolled for the different study programs in the earlier financial years, but continued receiving allowances for an average period of over 10 months before they could be put off the payroll. Consequently, a total of UGX.582,225,925 was irregularly paid out to staff by the University. This amount is recoverable, as it was paid for no services rendered to the University.

In their response, Management explained that they stopped the payment of top- up allowances to staff pursuing residential long-term study programmes and has accordingly instituted recovery measures from the concerned staff. In addition, management has opened up advance accounts in the names of the concerned staff to facilitate recording of the recovery of the same. I await the outcome of this commitment by management.

b) Cash Payments to Suppliers- UGX.61,104,000 Section 3.7.1 of the MUBS Finance Policy and Accounting Manual states that apart from petty cash and other payment from petty cash accounts, the normal method of payment of money due shall be from the School’s Bank account. Section 3.7.2 (2) of the MUBS Finance Policy and Accounting Manual further stipulates that, with exception of petty cash items, all payments against properly rendered invoices will be made by cheque.

Contrary to the above, it was noted that a total of UGX.61,104,000 was drawn in cash by Cashier to pay for different goods and services supplied to the University. Cash withdrawals and payments are inherently risky and prone to abuse. Given that some of the cash payments were not appropriately accounted for since there was no evidence of Goods Received Notes, delivery notes, invoices and receipts from suppliers, audit could not confirm whether the amounts were expended on the intended purpose. There is a risk that the amount in question was not put to proper use.

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Furthermore, there was no evidence that Withholding taxes were deducted from these payments as required by the Income Tax Act. This exposes the School to a risk of imposition of penalties by URA.

In their response, Management did not provide satisfactory accountabilities for the cash payments made to suppliers.

I advised the Accounting Officer to limit cash withdrawals and payments as a measure to avoid the likely loss of money and/or manipulation of accountabilities. In addition, all the amounts should be accounted for.

c) Irregular Employment of Graduate Assistants The Human Resource function of the university is regulated by the University and Other Tertiary Institutions Act 2001, the MUBS Terms and conditions of service 2009 and the Public Service standing orders 2010. Accordingly, all permanent or temporary appointments into the University should be by the Appointments Board based on terms and conditions that may be determined by the University Council.

A review of the University’s personnel function for the period under review revealed that the University employed “Graduate Assistants” to assist the Academic staffs in conducting lectures, research and outreach to the community in line with the mission of the school and these were issued with letters of offer signed by the Human Resource Manager. A detailed scrutiny of the letters of offer showed the following terms and conditions of service, among others;

 The Graduate assistants are entitled to receive a scholarship to pursue Masters Programs in MUBS/any other place justified by the respective faculty Deans, at various rates.

 They are also entitled to a monthly stipend allowance of UGX.900,000.

 They were also supposed to teach 10 hours per week under the guidance of the Head of department.

The following anomalies were however noted;

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(i) Absence of a clear policy on the recruitment of Graduate Assistants

The School had no policy in place on the recruitment and employment of Graduate Assistants. As such the recruitment was therefore irregular, as it was based on a mere minute of the Appointments Board of MUBS.

(ii) Payment of Stipend Allowances - UGX.1,283,282,000

It was observed that, consequent to the irregular recruitment and employment of graduate assistants for the period under review, the University paid a total of UGX.1,283,282,000 as stipend allowance to the graduate assistants at a monthly rate of UGX.900,000 per person. However, this allowance is not provided for in the approved payable allowances of the University as detailed in the MUBS Human Resource Manual, as well as, the Public Service Standing Orders, 2010. It also lacked approval from Council. This implies that the payment was irregular.

I accordingly advised that management discontinues payment of this allowance or else consider taking steps to have it regularized, by amending the Schools Human Resource Manual to define and give circumstances where it can be paid.

(iii) Monitoring performance of the graduate assistants

I further observed that the process of monitoring the services provided by Graduate Assistants is not adequate. I did not obtain any evidence that the lectures delivered by the Graduate Assistants are closely monitored and recorded. Failure to monitor the lectures may lead to payment for undelivered services.

I advised management to closely monitor and record the delivery of the lectures.

(iv) Non-deduction of Statutory Obligations - UGX.384,984,600

It was noted that the stipend allowance was not an activity based allowance and therefore was subject to PAYE tax at a rate of 30%. However the University did 368 not deduct PAYE amounting to UGX.384,984,600. Non-remittance of statutory deductions is an offence which may attract penalties against the school by the Uganda Revenue Authority.

In their response, Management explained that the position of Graduate Assistant is a Studentship position and as such not required to subscribe to PAYE. I found this explanation not satisfactory, since the graduate assistants are no longer students of the University at the time they are engaged.

I accordingly advised management to engage the Uganda Revenue Authority to establish the tax status of the graduate assistants.

(v) Irregular Sponsorship for Master’s degrees

According to Section 5.5.1(b) of the Human Resource manual, a newly recruited employee is eligible for school sponsorship to undertake a long term academic training program, after serving for at least two (2) years, and must serve for at least 2 years on return. However a review of personal files of graduate assistants revealed that they were granted sponsorship before completion of two years in the school service.

Further scrutiny of the personal files of graduate assistants revealed that the school never bonded the graduate assistants who were sponsored to undertake masters programs. Given the circumstances, the school was exposed to a risk of loss of funds in situations where the graduate assistants left after completion of their courses. This constitutes wasteful expenditure incurred in training these staff.

I advised management to ensure that all recruitments of graduate staff as well as their subsequent training is guided by the existing regulations. In addition, the School should introduce bonding programmes as conditions for funding these trainings.

369 g) Staffing gaps

A review of the approved University staff establishment revealed that out of 1,152 posts, only 913 (79%) were filled leaving 239 (21%) posts vacant. A detailed review of the structure revealed that the category of academic staff was the most affected. Out of 552 required academic staff, only 345 (63%) posts were filled. This implies that the University does not have the requisite number of academic staff despite the fact that teaching is its core activity.

Further analysis shows that the most affected positions were those above lecturers, implying that the university is facing additional challenges of supervising academic work at a senior level. This negatively impacts on the university research initiatives.

Inadequate staffing further undermines the achievement of the strategic objectives and affects the level and quality of service delivery at the University, as well as, stretching the existing staff, thereby affecting their performance.

In their response management acknowledged the staffing gap but attributed it to government’s contribution to the wage bill of only 20% leaving the rest to be financed by the Internally Generated Funds (IGF). Management further indicated that they had continuously sought Government subvention towards additional funding to fill the academic staff establishment stemming way back to the FY2011/12 following a promise made by the Ministry of Finance Planning and Economic Development. Despite the several reminders on the promised funds to enhance the academic staff establishment, a response is yet to be received. MUBS Management has continued to liaise with the relevant authorities over the matter.

I advised management to continue engaging the relevant authorities to ensure that the staffing gap challenge is brought to their attention and accordingly addressed.

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48.0 UGANDA MANAGEMENT INSTITUTE a) Receivables not collected Receivables worth UGX.309,793,221 was collected out of UGX.7,642,135,737 that were outstanding at the close of the previous year. Receivables of UGX.419,132,192 were accrued during the year under review. This resulted into the outstanding receivables balance of UGX.7,751,474,711. Included in these receivables is UGX.7,522,871,142 from student debtors. The receivables have been accumulated over a period of seven years, as shown below;

Financial Year Amount (UGX.)

2008/2009 14,935,609

2009/2010 590,067,836

2010/2011 740,715,549

2011/2012 894,945,449

2012/2013 2,961,757,405

2013/2014 1,422,379,590

2014/2015 1500,962,440

Total 8,125,763,878

The accumulation of student debtors was attributed to their non-management in accordance with the Institute Credit and Debtors Management Policy that requires full payment of fees before writing examinations.

I informed management that an inadequate cash position undermines the settlement of liabilities as and when they fall due. b) Accumulation of payables Payables worth UGX.6,663,878,000 out of UGX.6,831,472,117 that were outstanding at the close of the previous year were settled while payables amounting to UGX.5,368,014,791 were created during the year under review. This 371

resulted into a new outstanding payables amount of UGX.5,535,608,908 at the close of the year under review. The outstanding payables are made up of Taxes (UGX.1,134,433,332), NSSF (UGX.45,863,786), Gratuity (UGX.1,335,742,180), LST (UGX.46,975,000) and Sundry Creditors (UGX.2,972,594,610). Payables expose the Institute to risks of litigations and the attendant costs. Besides, there was no payables management policy to enable the Institute monitor and pay its creditors.

Management acknowledged the lack of payables management policy but said was in the process of developing the Payables Policy.

I advised management to expedite the development of a Payables Management Policy to enable timely settlement of obligations. c) Suspected payroll fraud Best practice requires an entity to have a fraud management policy that provides a framework for employees in the prevention, detection, reporting and management of fraud. During the year under review, the Director General sanctioned a special audit by internal audit to establish the extent, to which the former Senior Accounts Assistant remitted staff allowances to his personal Standard Chartered Bank account between July, 2012 and December, 2014. The details of the report indicate that;  Staff allowances for trainers ofUGX.56, 087,334 were diverted to Senior Accountant’s personal bank account.  Staff allowances worth UGX. 9,973,012 were paid to non-institute staff  Staff allowances in excess of the approved amounts of UGX.1,680,000 were paid to two staff.  Payment documents for Associate Consultants for April and September 2013 could not be traced. This was caused by inadequate supervision of the Accounts assistant and the absence of a fraud management policy. I explained to management that there is a

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possibility that more funds could have been lost given the limitation of scope in respect to payments for Associate Consultants for April and September 2013.

Management stated that the case was referred to Jinja Road Police Station (ref CRB 119/2015), and all the necessary information provided to the Police to fast track prosecution. They indicate that the case was before the Director of Public Prosecutions (DPP). Management further said that it had designed and developed a Risk Management Policy pending approval by the UMI Council.

I advised the Accounting Officer to track the prosecution of the former Senior Accounts Assistant and putting in place the fraud management policy.

49.0 MBARARA UNIVERSITY OF SCIENCE AND TECHNOLOGY a) Outstanding Receivables Management reported a receivables balance of UGX.451,477,415 in the statement of financial position as at 30th June 2015. Review of the supporting schedule revealed that the debts were owed by sponsors of private students. Also noted was that some students sat exams without settling tuition fees contrary to the existing University policy. This is an indication of laxity on the part of the University administration to enforce the debt collection policy.

Accumulation of receivables hinders availability of funds for University operations.

Management explained that the University had introduced mechanisms for tracking defaulters which were expected to mitigate the problem. I await the outcome of management’s intervention in this regard. b) Advances to Personal Bank Accounts TAI 217 of TAI part I 2003 which requires advances to be accounted for within 60 days from date of payment.

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During the course of audit I noted that out of a total of UGX.495,673,182 paid to various staff through transfers to their personal accounts UGX. 52,281,500 remained outstanding beyond the prescribed number of days.

The practice exposes Government funds to risk of loss since staff may be tempted to divert such funds for personal gain and the University does not have any control over funds deposited on personal accounts.

In response, the Accounting officer explained that these were advances to staff to facilitate students on internship and other staff who did not have bank accounts.

I advised the management to ensure that funds are paid directly to the intended beneficiaries and that the funds should always be accounted for, within the stipulated time.

50.0 KYAMBOGO UNIVERSITY a) Unsupported adjustment of domestic arrears The University management adjusted the audited balance of UGX.4,983,181,363 by UGX.7,080,137,441 for domestic arrears through the statement of changes in reserves. However, I was able to verify only UGX.4,638,629,950 leaving a balance UGX.2,441,507,491 not supported with adequate documentation. I was also not availed with the supporting documents for the newly accrued payables of UGX.8,855,923,344 during the year. In the absence of supporting documents I could not confirm the correctness of the adjustments and accrued payables during the year.

There is a risk that fictious claims can creap through the system and they are paid as domestic arrears.

There appears to be no systematic approach of compiling and documenting all the payables at the end of the financial year.

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I advised the Accounting Officer to put in place proper procedures of tracking and recording all unpaid claims and invoices for their proper management and eventual settlement. b) Unauthorized Excess expenditure Paragraph 3.18 (5) of the Kyambogo University Management Manual 2014 states that “The vote holder in consultation with the University Bursar, are responsible for monitoring their expenditure to ensure that the budget limits of their Administrative departments or Faculties are not exceeded and to initiate requests for virement, reallocation and /or supplementary provisions when their budget limits are about to be used up”.

Review of the budget estimates and the actual expenditure revealed that a sum of UGX.4,987,135,363 was incurred well above the budgeted expenditure without the requisite approval of the Council and other relevant authorities.

I explained to management that over expenditure on one budget item suffocates the implementation of other planned activities. The practice also undermines the intentions of the authorities which approved the budget.

In response management indicated that the excess expenditure was due to inadequate budgeting. The expenditures were particularly on teaching and learning budget, arising from pressures to settle domestic arrears for this category of expenditure.

I have advised the Accounting Officer to always budget properly and avoid overspending by obtaining appropriate authority and adjusting the budgets where expenditure is expected to exceed the initial budgeted amounts.

c) Management of Receivables The University fees policy and Examinations regulations require that for any student to sit for University exams, he/she must have fully paid up all tuition and functional fees and duly registered with the University. Strict implementation of 375

the policy would mean that no debtors would arise from unpaid fees. I noted however, that the University reported receivables of UGX.4,809,987,553 relating to student’s fees. According to Note 18 to the Financial statements, UGX.3,482,873,320 has been outstanding for more than one year.

I explained to management that failure to collect tuition fees cripples the University’s ability to implement planned activities and impacts negatively on servive delivery. In response management explained that there was a reduction in the receivables accrued during the year compared to the previous years. They attributed this to the operationalization of the financial manual and introduction of revenue collection system E-kampus.

I advised management to collect the outstanding receivables and also implement the University fees policy with the aim of ensuring that all students pay their tuition fees before sitting for the university exams.

d) Accumulation of Payables Contrary to the Government commitment control system which requires the Accounting Officers to commit the Government entities to the extent of funds availability, payables amounting to UGX.8,855,923,344 accrued during the year as shown in the table below;

ITEM New outstanding Commitments Cumulative Outstanding Incurred during the Year commitments 30 June 2015 Employee costs 4,915,927,602 8,802,292,578 Goods and Services 3,939,995,742 4,830,873,682 Consumed 8,855,923,344 13,633,166,260

With the current level of revenues collected by the University, It is highly unlikely that the payables will be settled in the near future.

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I explained to management that failure to adhere to the commitment control system does not only violate the laid down Government policies, but also exposes the University to the risks of litigations with their associated costs and also to the possibility of industrial/labour strikes by unpaid staff members.

Management attributed the increase in payables to mandatory expenditures due to the nature of the University operations whereby some activities are implemented across the financial years, uneven cash flows as result of delayed students’ fees payments and spill over effect of students’ and staff unrest in the previous financial year.

I advised the accounting officer to adhere to the Government Policy and ensure that commitments are only allowed to the extent of the available funds.

e) Under-funding of University Capital Development budget Review of the University budget performance report revealed that the University has been grossly underfunded in terms of capital development over the last six year. Analysis of capital budget performance for the six financial years revealed that for these years, only UGX.16,060,057,000 has been allocated for capital development by both the central Government and the University through the annual budget allocations and Non-tax revenue respectively as shown in the table below; (figures in thousands). Financial GoU NTR Total Total Total %ge of Year Contribution Contribution to %ge of NTR to Capital capital GoU Collection Development Development Releases 2009/10 222,844 702,080 924,924 1.2 2.3 2010/11 167,133 2,077,838 2,244,971 0.7 5.7 2011/12 167,134 2,434,018 2,601,152 0.9 6.2 2012/13 167,138 5,066,687 5,233,824 0.8 11.6 2013/14 222,845 2,329,506 2,552,351 0.9 5.1 2014/15 55,711 2,450,124 2,502,835 0.2 5.5 Total 1,002,805 15,060,253 16,060,057

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I noted that the increasing student population has increased form 19,600 in 2013/14 to the current 25,000 in 2015/16. The small capital budget cannot permit development of adequate infrastructure to match the increasing student numbers but instead puts pressure on the old inadequate infrastructure. NCHE recommends on average 2.5m2 per student of classroom space which does not seem to be available given the current level of infrastructure development.

It was noted that most of that most of the houses (staff and others) are roofed with asbestos sheets, which have been outlawed and banned.

Management acknowledged the gross underfunding on capital development and indicated that the issue had been raised in various reports but no increments have been considered by the Government. They also indicated that the University management was in constant consultation with Ministry of Education, Science, Technology and Sports to review this trend.

I advised management to pursue the matter of funding with MoFPED and MoESTS with a view of ensuring that adequate capital development funds are provided to enable the University undertake infrastructure development to cater for the increasing student population. f) Staffing Gaps Review of the approved University staff establishment revealed that out of 1,556 posts, only 837 (54 %) were filled leaving a gap of 723 (46 %) posts. Out of 537 required academic staff, only 260 posts were filled, which was less than 50%. This implies that the University does not have the requisite number of teaching staff, despite the fact that teaching is the core activity. Most affected positions were those above lecturer position, implying that the University is facing challenges of supervising academic work at a senior level which impacts negatively on the University’s research initiatives. The low number of teaching staff is also contrary to the recommended numbers by NCHE.

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The recommended ratios by NCHE are as follows; Details Ideal Good Acceptable General 1:15 1:2 1:25 Arts and Social Sciences 1:15 1:25 1:30 Other Proffesions,Law, Education etc. 1:15 1:20 1:25 Science based Professions 1:10 1:15 1:20

The low numbers of PHD and Masters holders is also contrary to the recommended levels by NCHE which should be as follows;

Details Ideal Good Acceptable Ph.D Holders 60% of staff 50% of staff 15-50% of staff Masters Holders 70% of staff 60% of staff 50% of staff Contact hours for academic staff 10hrs/week 15hrs/week 20hrs/week

I explained to management that inadequate staffing undermines the achievement of strategic objectives and affects the level and quality of service delivery at the University.

In response, Management explained that the University did not have funds to recruit staff and that for the last three (3) years; the University has not attracted Professors and Associate Professors. As a strategy, the University had resorted to grooming its own Professors and Associate Professors through Promotions, Training and Research whereby 110 academic staff had enrolled for PhD and 41 had graduated. They further indicated that the University had also written to the Ministry of Public Service to solicit for enhancement of the wage bill to enable it recruit additional staff in the coming financial years.

I await the outcome of management efforts in addressing the staffing gap.

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51.0 BUSITEMA UNIVERSITY a) Accumulation of Payables The Commitment Control Policy of Government prohibits entities from entering into contracts without availability of enough resources to settle the obligations. However, Note 26 shows that the University was indebted with UGX.3,305,042,690 comprising staff gratuity (UGX.2,788,136,163) and a local firm’s invoices (UGX.516,906,527).

The accumulation of unpaid gratuity was attributed to failure by the Ministry of Public Service to transfer the funds to the University at the time of decentralization of such payments. I raised these matters in my previous report to Parliament and the risk of litigation remains.

Management explained that it was following up the payment of staff gratuity arrears with the Ministries of Finance, Planning and Economic Development, and Public Service.

I advised the Accounting Officer to continue liaison with the relevant government agencies and ensure that the outstanding gratuity is settled to avoid possible legal suits and their attendant costs. b) Inadequate staffing of the University Busitema University has an approved staff establishment of 2,316 employees for all her campuses. However, only 384 posts (16.6%) were filled leaving 1,934 vacancies. Some of the critical vacancies include those of Professors, Associate Professors, Senior Lecturers, Directors and Heads of Departments. Understaffing of critical positions may affect service delivery and the quality of graduates from the University.

Management attributed the understaffing to inadequate funding and indicated that efforts to have the University funding increased were being made through liaison

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with the Ministries of Public Service and Finance, Planning and Economic Development.

I advised management to follow up on the initiatives and ensure that the vacant posts are filled.

52.0 GULU UNIVERSITY a) Outstanding Receivables Management reported an amount of UGX.1,798,975,541 as student fees receivable under Note 18 to the final accounts contrary to the University fees collection policy which requires full settlement of fees by the 8th week of the semester in order to be registered as a student, be permitted to attend classes and sit for exams. I explained to management that failure to collect Internally Generated Revenue cripples the University’s ability to implement planned activities and impacts negatively on service delivery.

In response, management indicated that enforcement of the fees payment policy will be strengthened by computerization of the fees management systems and interfacing revenue collection with the banking system.

I await the outcome of Management’s commitment in this regard. b) Accumulation of payables Contrary to the commitment control system which requires the Accounting Officers to commit the entity to the extent of funds availability, in my analysis of payables I noted that payables of UGX.1,862,359,408 accrued during the year.

I explained to management that failure to adhere to the commitment control system does not only violate the laid down Government policies, but also exposes the University to the risks associated with delayed settlement of suppliers, such as litigations with their attendant costs.

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Management attributed the anomaly to unsettled staff gratuity, extra load claims, and salary enhancement without appropriate increase in internally generated revenue.

I advised management to adhere to the Government Policy and ensure that commitments are only allowed to the extent of the available funds. c) Accumulation of NSSF arrears Section 11(1) of the NSSF Act requires that on and after the appointed day, every contributing employer shall, for every month during which he or she pays wages to an eligible employee, pay to the fund, within fifteen days following the last day of the month for which the relevant wages are paid.

Contrary to the provision above, the University has not remitted an outstanding obligation to National Social Security Fund which dates way back to 2009/10 financial year and keeps accumulating interest. The figure has since increased from UGX.317,118,073 to UGX.563,617,875 with interest of UGX.246,499,823, which is considered wasteful expenditure since it could have been avoided with prompt remittance of the amounts to NSSF.

Management attributed the anomaly to the enhancement of staff salaries without corresponding increase in the employers’ contribution to the NSSF. This matter was also raised in my report for the previous year.

I advised management to liaise with the Ministry of Finance and ensure that funds are set aside to settle the statutory obligation. d) Staffing Gaps I noted that the University was grossly understaffed. Out of 918 posts existing in the approved structure, only 365 (40%) were filled leaving 553 (60%) posts vacant. Among the unfilled posts were 37 Associate Professors. This has negative effects on the University’s operations and service delivery. 382

In response Management explained that despite submission of the approved recruitment plan to the line ministries for the last 5 years no fund allocation has been made to enable recruitment in key positions with the Faculty of Medicine being the most affected in terms of Specialists and Consultants.

I advised Management to liaise with the relevant stakeholders and ensure that the University’s current establishment is filled in order for it to provide services in an effective and efficient manner. e) Absence of fully functional Information System A computerized financial management system carries along with it benefits such as; efficiency in management of financial resources, improved services delivery, real time analysis of information for decision making, timely budgeting and financial reporting. The University strategic plan 2009/10-2018/19 provides for the development of integrated ICT to improve all functions of the University.

In my review of the University computerization environment I noted that although the University has an IT policy and IT master plan in place, they have not been implemented six years into the implementation of the strategic plan. For instance, management of financial resources and the related records are not automated to ease the generation and preparation of the financial statements. I explained to management the risks that come with the absence of a functional information Technology system and this may result into inefficiencies in management of resources, delayed reporting and decision making.

Management explained that the Steering Committee has been established to spearhead the operationalization of the ICT Directorate and that the Ministry of Finance, Planning and Economic Development has contracted a firm for computerisation of the operations of Public Universities under the Computerization of Educational Management and accounting Systems (CEMAS).

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I advised management to undertake implementation of computerized financial management systems and develop a vibrant IT unit in order to achieve the Vision and Mission of the University.

53.0 MUNI UNIVERSITY a) Under Collection of student fees The University budgeted for UGX.608,250,000 as anticipated revenue from private students. However, the review of the statement of revenue collected during the year and other records revealed that only UGX.43,734,000 was collected resulting into under-collection of UGX.564,516,000.

Management attributed the under-collection to the late commencement of the University academic year and over estimation of private intake.

I advised management to always analyze revenue performance on a regular basis and seek for revision of the budget from the University Council whenever necessary. b) Inadequate staffing Muni University has an approved staff establishment of 113 employees. However, only 72 posts were filled leaving a staffing gap of 41.

I explained to management that staffing gaps negatively impact on the University's ability to deliver its core mandate and objectives. The Accounting Officer explained that staff recruitment was being progressively done to match expansion in programmes and activities. He however stated that it was difficult to attract and retain staff in the West Nile region and was pursuing Government to provide extra incentives to enable staff retention in the University.

I advised management to liaise with the relevant stakeholders to ensure that the University is adequately staffed.

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c) Incomplete Council Composition The review of Section 38 of The University and Other Tertiary Institutions Act, 2001 as amended in 2003 and 2006 revealed that the University Council was not fully constituted. The vacant positions on the Council are indicated below.

S/N Position Number

1. A representative of a sector relevant to the university depending on its 1 objectives and missions, appointed by the relevant body in that sector Two members of the academic staff elected by the academic staff Association of 3. 2 the public university A senior member of the administrative staff elected by the Senior Administrative 4. staff 1

A member of the national union of the education institutions; support staff 5. 1 elected by the branch in that university

Incomplete composition of the University Council contravenes the law and may result into litigation against decisions of the Council. The Accounting Officer explained that the Council is being filled gradually as members have to be carefully scrutinized.

I advised the Accounting Officer to liaise with the relevant stake holders to ensure that the Council is urgently constituted in accordance with the law.

d) Un-budgeted Income The University prepares annual budget estimates of revenue and expenditure which are approved by the University Council and Parliament. The budget is supposed to include all sources of funding and as much as possible all anticipated expenditures

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However, review of the Statement of Appropriation Account, Notes 3 and 4 of the financial statements revealed that the University recognized revenue of UGX.163,000,000 from Donors and UGX.48,993,000 from interest on bank account balances without an approved supplementary budget. The practice may result into extra budgetary funding and constrains the University Council in monitoring budget performance.

Management explained that the donor funds were a result of research proposals submitted during the financial year while interest income arose from the cash for construction that was on a bank account awaiting execution of works, and that the tool for budgeting did not allow for amendments.

I advised management to seek for guidance from the Accountant General on the issue of the budgeting tool and ensure that necessary approval is obtained before spending of additional revenue.

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GENDER AND LABOUR SECTOR

54.0 MINISTRY OF GENDER, LABOUR AND SOCIAL DEVELOPMENT a) Under-staffing The Ministry’s establishment structure provided a for total staff strength of 742 posts comprising 418 for the headquarters and 324 for its institutional bodies. However, examination of the Ministerial Policy Statement for Financial Year 2015/2016 indicated that the Ministry had total staff strength of only 273 comprising; Headquarters (180) and Institutional Bodies (93) as of April 2015 resulting into a total shortage of 469 staff categorized as; Headquarters (238) and Institutional Bodies (231). Some of the vacant positions are at the level of Commissioners, Principal and senior Officers which are of strategic importance to the Ministry.

I explained to management that staff shortages have the effect of constraining service delivery.

Management indicated that the Ministry was continuing to engage with the Ministries of Public Service and Finance, Planning and Economic Development to obtain sufficient wage provisions to cater for additional staff recruitment.

I await the results of management action in this regard. b) Non-payment of Workman’s compensation within the stipulated time Section 26(1) of the Worker’s Compensation Act requires the employer to pay workman’s compensation to the district labour officer who would pay the compensation to the worker or other person or persons entitled to receive it not later than two weeks after receipt of the claim. This implies that compensation should be paid either within two months after the date the accident occurred or within four months after the date the symptoms of the occupational disease became apparent if no reference to Court is made.

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However, audit noted that compensation in the sum of UGX.3,162,461,669 had not been settled.

I explained to management that in the circumstances, the entitled persons were denied their rightful claims and this may result into litigation.

Management stated that the Ministry of Finance, Planning and Economic Development had not been able to provide funds for settlement of the claims despite the numerous requests.

I advised the Accounting Officer to continue the liaison with the Ministry responsible for Finance and ensure funds are set aside to settle the liability. c) Accumulation of labour disputes at the Industrial Court The Industrial Court was established under the Labour Disputes (Arbitration and Settlement) Act, 2006 Cap 224, Laws of Uganda to arbitrate labour disputes referred to it under the Act, adjudicate questions of Law arising from references to it by any other law and to dispose of the labour disputes without undue delay. However, review of the case summary statistics revealed that the cases before the court by the end of October 2015 had accumulated to; 322 claims, 273 references, 26 appeals, 23 mediations and 36 miscellaneous applications. The accumulation of the cases was attributed to understaffing and underfunding of the Court.

I explained to management that delays in adjudication of labour disputes may result into industrial unrest.

Management stated that engagements are continuing with the Ministry of Public Service and the Public Service Commission to handle staffing gaps at the Industrial Court.

I await the results of management action in this regard.

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d) Audit Inspection of a sample of institutions under the Ministry Physical inspection of Naguru Reception Centre, and Naguru and Fort-Portal Remand Homes was carried out to assess their suitability for rehabilitation of the affected children. The following observations were made;

Institution Observations

Fort Portal Remand  Out of 17 staff only 9 were in post. Home  Lack of fuel to take children to the court.  The children lack proper clothing and wear tattered uniforms.

 Some buildings are still roofed with asbestos that were declared unfit for habitation.

 Broken windows and louvers for the dormitory thereby exposing the children to vagaries of nature.

Naguru Remand Home  The septic tank was constructed at a level above those of manholes and the sewerage cannot therefore flow properly.

 Incomplete fixing of tiles in the boys dormitory and bathrooms.  Window fasteners were not installed.

 Incomplete Civil works on the dormitory.  Ventilator nets and facial board in the BOQs were not installed.  Two vehicles broken down were parked in the yard and seem to be depreciating in value rapidly.

 Lack of fuel to take children to court.

Naguru reception  The buildings housing the office, residence, staffroom and the Center boys’ dormitory were leaking.

 Cracked floor and walls of the boys dormitory due to apparent poor workmanship.

 Ministry Vehicle no.UG 0438Y that was involved in an accident was towed to the Centre compound and abandoned.

 The newly fixed locks in the house of the in charge were not working.

 The water bone toilet was not in use due to lack of water.

 The walk way between the dormitory and the residential house was not worked on.

 Lack of transport for resettlement of children.

 Inadequate staff accommodation.

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In addition, review of the status of assets in other Ministry institutions revealed various weaknesses including;

 Lack of land titles,  Dilapidated infrastructure and  Encroachment of land.

Management stated that Naguru Remand Home, Naguru Reception Centre and Kampiringisa National Rehabilitation Centre had been renovated while renovation of Ruti Rehabilitation Centre was ongoing. It further explained that the Ministry has continued to lobby the Ministry of Finance, Planning and Economic Development for funds to facilitate the renovation and rehabilitation of all Ministry Institutions, and that titling of land for Institutions under the Ministry was an on- going process and that the Ministry of Lands, Housing and Urban Development had allocated a staff to the Ministry to support the acquisition of the land titles.

I advised the Accounting Officer to fast track the acquisition of land titles and to liaise with relevant authorities to secure funding for rehabilitation, equipment, staffing and operationalization of all the institutions. This will enable the children to harness their potential through skills development, Labour productivity and cultural growth. e) Inspection of Youth Interest Groups (YIGs) projects under the Youth Livelihood Programme (YLP)

(i) Inadequate monitoring Programme Guidelines require that there should be regular follow-up visits to offer technical support and advisory services to the groups by subject matter specialists. However, audit noted that the Sub County Chiefs/Town Clerks and the Community Development Officers who are the focal persons in the implementation of the Programme do not carry out the monitoring in some cases. In all the 98 projects visited, there was no evidence of progressive reporting and monitoring of the programmes.

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This was reportedly caused by inadequate funding for monitoring activities which is capped at 10%.

(ii) Non-recovery of revolving funds Section 6(1) of the Youth Livelihood Programme (YLP) document 2013 requires all project funds disbursed to each Youth Interest Group (YIG) to be treated as a revolving fund to be repaid in accordance with the project financing agreements between the District Local Government and the beneficiary Youth Interest Group witnessed by the area resident state Attorney. The agreements are accompanied by repayment schedules. However review of a sample of districts revealed that by November 2015, a repayment of only UGX.2,500,000 had been made by one group out of UGX. 237,911,900 advanced to groups in Kaborole district where recovery was expected to start from August 2014 leaving UGX.235,411,900 outstanding.

Management stated that although the financing agreements for this district were signed in August 2014, actual disbursement of funds in the groups’ bank accounts took up to 2 months due to delays in opening bank accounts and challenges of IFMS transmission of funds that resulted into delayed start of projects and hence commencement of repayment. This led into revision of the repayment schedules.

I advised management to ensure adequate and timely sensitization of group members about management arrangements and prompt disbursement of funds to enable the revolving fund benefit more youths.

(iii) Potential Loss of funds Field inspection of funded projects in 8 districts and Kampala Capital City Authority revealed that UGX.234,352,300 extended to various groups for various projects may not be recoverable because the projects collapsed or changed the nature of operations.

Management explained that the Ministry was taking actions to enhance the quality of the implementation of the projects and recovery of the revolving fund. In 391

addition, stakeholder meetings would be conducted in all districts aimed at assessing the performance of all projects with a view of establishing challenges and mitigation measures in each case. Meanwhile the problematic cases were being handled by the offices of the RDC, Police and DISO in line with the rewards and sanctions provisions under the Programme.

I advised Management to ensure adequate training and sensitization of the youths before extending funding to them and to enforce the recovery provisions in the Programme Guidelines so that the Programme is rolled out to all youth. f) Follow up of prior year outstanding observations Review of the implementation of the previous year’s audit recommendation revealed the following status; No. Issue Status 1. Staffing gaps – 333 vacancies Still exist due to lack of funds. However, 8 key positions had been filled and interviews for 9 senior positions had been conducted. 2. Repayments into the YLP Revolving Fund A total of only UGX.584,410,777 out of UGX.12,131,055,034 disbursed under phase 1 had been recovered. 3. Inadequate monitoring of the projects Not addressed 4. Inadequate training of the 3 committees Not addressed in a group

I advised Management to endeavor to implement all recommendations in respect of the above issues as they are intended to enhance efficiency of operations, accuracy of financial reporting and compliance with the applicable legislation.

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WATER AND ENVIRONMENT SECTOR

55.0 MINISTRY OF WATER AND ENVIROMENT a) Outstanding commitments Section 9 (1) of Public Procurement and Disposal of Public Assets (contracts) regulations, 2014, requires an Accounting Officer to ensure that adequate funding is set aside before entering into a contract.

Review of note 26 of the financial statements revealed that contrary to the above requirement, the Ministry had outstanding commitments amounting to UGX.28,976,858,605 of which a total of UGX.3,002,380,703 relates to the previous year. Notable among the outstanding commitments are contractual obligations (UGX.15,688,475,672), unpaid VAT (UGX.8,123,846,815), National Forestry Authority (UGX.1,189,239,222) and Bunyonyi Safaris (UGX. 355,246,301).

The unsettled financial obligations affect the cash flow of the suppliers and may result into slow implementation of planned activities. The contractors may also charge interest on outstanding balances, impacting negatively on the current year budget if no extra funds are allocated to the Ministry.

Management explained that contractual obligations were entered into based on the Ministry’s approved budget of UGX.185,587,393,942 of which only UGX.162,942,253,541 was received resulting into revenue shortfall of UGX.22,645,140,401. Management further indicated that some of the outstanding commitments relate to VAT on water related equipment which was re-introduced during 2014/2015 yet it had not been budgeted for.

I advised the Accounting Officer to liaise with the Ministry of Finance, Planning and Economic Development for adequate funding to settle the outstanding commitments.

393 b) Nugatory expenditure (i) Bwizibwera Town Water Supply Systems The High Court ruling of 19th October 2009 awarded total sum of UGX.1,420,396,559 to a private contractor for unpaid principal and the cost of the suit arising from breach of contract by the Ministry. Additionally, the Ministry was ordered to pay interest on the principal at the rate of 12% per annum from the date of judgment till payment in full.

A review of the payment voucher and supporting documents revealed that the Ministry delayed to settle the overdue obligation for a further 56 months. As a result, a total of UGX.1,604,566,796 in form of accumulated interest was invoiced by the contractor and paid during the year under review. This expenditure could have been avoided if, the obligations were settled in a timely manner.

The Accounting Officer explained that the contract was awarded in 2003 and during that period the Ministry received less funds in relation to its budget for three consecutive Financial Years. As a result, the contractual obligations of the Ministry could not be met in time resulting in claims of interest on delayed payments.

I advised the Accounting Officer to liaise with the MoFPED and prioritize settlement of contractual obligations. Meanwhile court orders should be obeyed in a timely manner to avoid wasteful expenditure.

(ii) Compensation to KOL-CMIC Joint Venture The Ministry contracted a firm on 4th April, 2013 vide contract ref; MWE/WRKS/12/1301466 for the construction of Nabweya Gravity Flow Scheme at a cost of UGX.13,791,151,517. The construction works were scheduled to be completed within 24 months. Under paragraph 4.7.1(a) of General Conditions of the contract, the Ministry was supposed to hand over the site to the contractor without any encumbrance.

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Audit however noted that the contractor was denied access to the site by the Nabweya Hill community between 1st November 2013 and 2nd January 2014. As a result, a total UGX.513,086,540 was invoiced and paid under certificate number 4 for demobilization and subsequent mobilization of equipment, labour and other overheads costs incurred by the contractor during this period.

The Accounting Officer indicated that the stoppage of works arose from the Nyabyeya Hill community who were disgruntled because their area would not be served under Phase one of the project. The demands of the community have since been resolved and works are underway.

I advised the Accounting Officer to always ensure that all project sites are adequately secured before hand over to the contractors.

(iii) Interest Payments on Construction of Lirima gravity flow scheme The Ministry contracted a firm for the construction of Lirima Gravity Flow Scheme at a contract price of UGX.12,966,047,325 which was later revised to UGX.14,893,801,789, under Addendum 1 of 28th April 2015.

However, owing to the delays in payment to the contractors an additional interest claim of UGX.93,466,737 was charged and subsequently paid during the year under review. Payment of interest increases the cost of outputs and could have been avoided if adequate financial resources are set a side prior to commencement of works.

Management indicated that limited funds disbursed from Ministry of Finance, Planning and Economic Development (MoFPED) hindered the Ministry from effecting payments to the contractor on time.

I advised the Accounting Officer to ensure that certificates are paid in a timely manner.

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53.1 JOINT WATER AND SANITATION SECTOR PROGRAMME SUPPORT (JWSSPS) - SOUTH WESTERN BRANCH (WSDF-SWB) a) Outstanding VAT arrears Section 4.2.2 of the Program Document for South Western Towns Water and Sanitation-III (SWTWS-III) project requires the Government of Uganda, in addition to co-funding the project with 10% of the budget, to settle Value Added Tax costs.

However, at the closure of the financial year the Facility had outstanding VAT amounting to UGX.2,887,064,477. Non-payment of VAT exposes the Facility to penalties and also deprives Government of Uganda of the desired revenue.

Management explained that previously, water related works and supplies were exempted from VAT and it was only reinstated in June 2014 during the reading of the National budget. Management indicated that it had written to the Ministry of Finance Planning and Economic Development (MoFPED) requesting for funds to settle the VAT arrears and awaits their response.

I await the results of management action in this regard. b) Outstanding Liabilities Article 4.2 of the programme funding agreement (Ref-6528-00/2012) required GoU and the donor contribution to be used only for the activities carried out during the Project implementation period which commenced on 19th December 2012.

It was however noted that at the inception of the project in 2012 the Facility borrowed a total of UGX.1,454,000,000 from donor contributions to clear outstanding liabilities for a previous project (South Western Towns Water and Sanitation Project III). During the FYs 2013/2014 and 2014/2015 GoU counterpart funding was instead used to settle the donor liability.

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As a result of the cash flows constraints, the Facility had accumulated contractual liabilities of UGX.1,410,116,488 at the end of the financial year, June 2015. There is a risk of litigation if outstanding liabilities are not settled promptly. Management indicated that funds would be set aside for settling the liability in the budget and work plans for financial year 2016/2017.

I advised management to follow-up the matter with the relevant stakeholders and ensure in future all expenditures comply with the funding agreement.

56.0 MINISTRY OF TOURISM, WILDLIFE AND ANTIQUITIES a) Outstanding International Obligations The Ministry of Tourism, Wildlife and Antiquities is indebted to two International Organizations namely, Lusaka Agreement on cooperative enforcement operations (UGX.4,959,569,305) and United Nations World Tourism Organization (UGX.661,180,605) in unsettled annual subscriptions totaling UGX.5,620,749,910. The organizations aim at cooperative enforcement operations directed at illegal trade in wild fauna and flora, and encouragement of the implementation of global codes of ethics for tourism respectively.

Unpaid annual subscriptions limit participation of the country in tourism activities organized by the organizations and may lead to suspension of membership. Management attributed the delayed subscriptions to underfunding of the Ministry.

I advised management to liaise with the Ministry of Finance, Planning and Economic Development to ensure that funds are set aside to settle the outstanding obligations. Prompt annual subscriptions would minimize accumulation of arrears. b) Unbudgeted expenditure Examination of the Policy statement indicated that the Ministry would participate in various East African protocol activities involving Uganda, Kenya and Rwanda. During the year under review the Ministry undertook various activities related to the protocols which costed UGX.190,262,052. 397

It was however noted that the funds had not been budgeted for and were instead re-allocated from other items without necessary authority as follows: Unbudgeted expenditure S/N Item from Item to Amount (UGX.) 1. Rent to other Government Institutions Travel abroad 80,051,924 2. Consultancy services – Long term Travel abroad 110,210,128 Total 190,262,052

The practice undermines budgetary controls. Management explained that there were urgent protocol activities that necessitated the re-allocation.

I advised management to liaise with the Ministry of Finance, Planning and Economic Development to ensure that funds are set aside for protocol activities in the budget.

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LAND SECTOR

57.0 MINISTRY OF LANDS, HOUSING AND URBAN DEVELOPMENT a) Un-budgeted for Expenditure It was noted that the Ministry incurred expenditure totalling to UGX.339,654,591 that was not part of the budgeted and appropriated items by Parliament to cater for the activities below;  Payment of consultancy services amounting to UGX.36,931,691 to M/s Strategic Friends;  Payment to Uganda High Commission for Maintenance of Seconded Human Resource support arrears amounting to UGX.79,972,900;  Payment of UGX.222,750,000 owed to the Regional Centre for Mapping of Resources for Development.

I explained to the Accounting Officer that spending on un-budgeted activities leads to diversion of funds and hinders implementation of planned activities.

In their response, management explained that the budget does not adequately support payment of subscriptions which constitutes the biggest percentage of the amounts in question and yet these are mandatory for the continued membership. However, efforts are underway to ensure inclusion of all the amounts in the budget.

I await the outcome of the Accounting Officer’s commitment. b) Mischarge of Expenditure Parliament appropriates funds in accordance with the needs of the country and this appropriation is implemented through the budget in which funds are tagged to particular activities and outputs using account codes and MTEF codes. I noted that expenditures totaling to UGX.319,793,166 was wrongly charged on budget lines to fund activities that were not planned. Mischarge of expenditure results 399

into diversion of funds and misrepresentation of balances in the financial statements.

The Accounting Officer explained that this was inevitable due to the urgency of certain activities including critical areas like the survey of the Uganda-Kenya border that arose in the course of the financial year but had not been budgeted for.

I advised the Accounting Officer to always seek authority for the virement in accordance with the law prior to any reallocations. c) Investment in shares in Shelter Afrique (i) Non-disclosure of Investment in Shelter Afrique (SHAF) Shelter–Afrique a Pan–African Housing Finance and Development Institution based in Kenya was established in 1982 by the constituent charter of SHAF and is owned by 42 African Governments. The Government of Uganda is one of the founding members. Uganda is represented at the SHAF by the Ministry of Lands, Housing and Urban Development and the National Housing and construction company Ltd. SHAF is involved in mobilizing resources and implementing housing and related infrastructure projects in the African countries.

Uganda’s share capital contribution stands at US $ 1,253,000 (1,253 shares as at 10th September, 2015) but with outstanding subscription obligations of US $ 4,968,950 as indicated below; Issued Share Capital No. of Shares Amount at par Value Status date (US Dollars) Callable Capital 5,222 5,221,950 Issued and Called Capital 1,000 1,000,000 Total GOU Shares 6,222 6,221,950 As at 12th June 2013 Less Paid to date (1,253) (1,253,000) GOU Balance due 4,969 4,968,950 As at 10th Sept. 2015

During the year, the Ministry paid UGX.3,990,000,000 to SHAF as its share capital. I was not provided with share certificates to confirm investment in the institution. 400

The Accounting Officer explained that the investment was not disclosed by the ministry since 2012 because there was a Memorandum of Understanding between MOFPED and National Housing and Construction Corporation (NHCC) to the effect that NHCC would be responsible for the investment on behalf of GOU and thus the initial investment was reported in the books of NHCC for the earlier years.

I noted that these are preferential shares owned by GOU and thus cannot be owned by NHCC.

I advised the Accounting Officer to pass on the share certificates to the Accountant General for custody.

(ii) Undeclared dividends During the review; I noted that SHAF declared cumulative dividends to the tune of US $.16,354 i.e. US $.6,322 earned in 2012, US $ 5,591 earned in 2011 and US $ 4,441 earned in 2010, however these dividends have not been claimed by the Ministry. Besides, the dividends have not been disclosed in the Ministry records and there was no evidence indicating that the funds were subsequently used to acquire more shares.

Non-disclosure of investment earnings could understate Government revenue.

The Accounting Officer explained that the non-disclosure of dividends in the Ministry’s books was due to the fact that the investment was being handled by NHCC Ltd.

I advised the Accounting Officer to ensure full disclosure of the investment earnings in the financial statements.

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57.1 LEVERAGING MUNICIPAL IMPROVEMENT INFRASTRUCTURE INVESTMENT (LMIII) PROJECT a) Status of unutilized Project funds at Municipalities Funds totaling to UGX.246,700,300 disbursed to nine (9) Municipalities was not utilized as at the end of the financial year. I noted that the delay to utilize the funds was due to late issuance of guidelines on how to utilize the funds. During the review of the current status, only two out of the nine Municipalities (Tororo & Hoima) submitted accountability documents on how the funds were utilized and the seven (7) municipalities did not submit the status report of the funds released to them as summarized below;

Municipality Amount Utilized Unutilized disbursed (UGX) Amount (UGX) %age of Amount (UGX) % age of utilized funds funds Unutilized Entebbe MC 35,242,900 00 00 35,242,900 100 Fort Portal 35,242,900 00 00 35,242,900 100 MC Gulu MC 35,242,900 2,058,500 5.8 35,242,900 94.2 Hoima MC 35,242,900 35,242,900 100 Nil 0 Lira MC 35,242,900 00 00 35,242,900 100 Masaka MC 35,242,900 00 00 35,242,900 100 Moroto MC 35,242,900 00 00 35,242,900 100 Soroti MC 35,242,900 00 00 35,242,900 100 Tororo MC 35,242,900 35,242,900 100 Nil 0 TOTAL 317,186,100 72,544,300 246,700,300

I could not establish whether the funds for the seven Municipalities have been fully utilized.

In response, management explained that the municipalities in question were requested to provide evidence of the utilization of funds and submission have been received from Moroto, Lira, Masaka, Tororo, Hoima, and Soroti Municipal Councils.

Further, management explained that it had sought assistance of the Ministry of Local Government, the supervisors of the Municipalities to discipline the Town 402

Clerks of the Municipalities of Entebbe, Fort Portal & Gulu for their failure to provide accountability on the usage of the funds.

I advised the Accounting Officer to ensure utilization of the funds is in line with the specific purpose of the transfer of funds otherwise un-utilized funds should be returned to the donors in line with the financing agreements.

57.2 COMPETITIVENESS AND ENTERPRISE DEVELOPMENT PROJECT (CEDP) LAND ADMINISTRATION REFORM COMPONENT a) Compliance with the Financing Agreement and GoU Financial Regulations It was observed that management had complied in all material aspects with the financing agreement and GoU financial regulations.

General Standard of Accounting and Internal Control A review was carried out on the pension scheme’s system of internal controls and financial management and the following matters were noted;

(i) Lack of accounting package I noted that the project does not have an accounting package in place, but uses Excel worksheet for maintenance of its financial accounts and for the generation of project financial reports. The project cash books are therefore manually maintained. Manual maintenance of accounting records is prone to errors as the data is manually input.

Management explained that a request has been sent to Accountant General to migrate all the 3 Projects (USMID, CEDP & ARSDP) being implemented by Ministry of Lands, Housing and Urban Development to IFMS.

I await management’s commitment on the matter.

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(ii) Bank reconciliations not reviewed, checked and approved I noted that under section 345 (f),(g) and (h) of the Treasury Accounting Instruction manual issued by the Accountant General require that for any foreign and local currency bank accounts, bank reconciliations should be done, checked and approved by Finance and Accounting Officer on a monthly basis however, this was not done. In absence of reconciliations, errors, omissions or fraud may go on undetected.

In response management indicated that the bank reconciliation statements have now been fully reviewed and signed. Going forward, monthly reconciliations will be carried out on a monthly basis.

The Accounting Officer’s commitment on this matter is awaited.

(iii) Unsupported expenditure I noted that all the fuel expenses had no fuel statements from the supplier attached to the payment vouchers to enable me undertake the verification. Details are as below:

Date Payee PV No. Description Amount UGX 28/04/2015 Vivo energy D04/MAY/2015 Fuel advance for 14,400,000 (U) Ltd CEDP activities 19/05/2015 Vivo energy D15/MAY/2015 Fuel to facilitate 5,000,000 (U) Ltd officers on acquaintance of MZO’s oprtn 19/05/2015 Vivo energy D10/MAY/2015 Fuel Advance 2,300,000 (U) Ltd inspection of MZO’s LIS requirements

Lack of fuel statements from the supplier limited my verification on these amounts. I explained to management that all payment vouchers should be supported, authorised, checked and acknowledged by the recipients and fuel statements should always be obtained from the supplier on monthly basis for reconciliation purposes.

I urged management to ensure proper accountability of fuel expenditure.

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(iv) Projects assets not engraved During my review of the projects assets, I noted that some assets were engraved with the names of another project. Some examples are as noted below. Lack of proper identification could lead to loss of the projects assets.

Asset Engrave Code Condition Amount UGX Office Desk LHU/UDD/DK/0019- New 2,300,000 USMID Meeting desk LHU/UDD/TB/0020- New 1,200,000 USMID

In response, the Accounting Officer indicated that all project assets acquired under CEDP are engraved on delivery. This error may only affect identification of the asset with CEDP but will remain an asset for MLHUD as marked LHU/UDD.

I advised the Accounting Officer to ensure that all project assets are engraved with the project codes as a way of improving controls.

57.3 ALBERTAIN GRABEN REGION PROJECT a) Un-accounted for Funds - UGX.40,895,000 Funds totaling to UGX.40,895,000 advanced to staff for various project activities were not accounted for as at the end of the financial year.

Management explained that the matter was brought to the attention of the concerned staff to provide the required documentation. However, at the time fo verification, these accountabilities were not availed for review. I was therefore unable to confirm whether the funds were used for project activities.

In the absence of accountabilities management should consider recovery of the funds from the affected staff.

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57.4 UGANDA SUPPORT TO MUNICIPAL INFRASTRUCTURE DEVELOPMENT PROGRAM (USMID) PROJECT a) Under-absorption of Funds - UGX.11,756,455,837 A review of the financial statements revealed that UGX.11,756,455,837 was not utilized by the project head office as summarised in table 2 below;

Table 2: Unutilised funds

Revenue Items Amount (UGX) Opening balance (as per the statement of fund balance ) 14,668,169,284 Amount received (as per the statement of receipts and payments) 67,228,835,984 Available amount 81,897,005,268 Total Expenditure (as per the statement of budget performance) 70,140,549,431 Total Un-utilized 11,756,455,837

As a result; the following activities could not be executed during the year. See table 3 below. I explained to management that failure to utilize the released funds could lead to failure to fulfil the project objectives in the scheduled timelines.

Table 3: Activities that were not undertaken during the year

Activity Activity Budgeted S/N amount (US$ ) 3.0 Development of systems for urban development: 3.1 Annual land, housing and urban development sector review 280,000 3.2 Develop a GIS – based urban development management system 454,000 3.3 Engineering design for second batch of municipal infrastructure 1,219,000 investments 5.0 Retooling of MLHUD 5.2 Renovation of MLHUD headquarters at Parliamentary avenue 590,000 6.0 Program Management: 6.4 To conduct at least 1 PSC meeting 15,000 Total 2,558,000

Management explained that some activities that were not concluded were rolled to the financial year 2015/16 and are being fast tracked. Management further indicated that the progress is positive as indicated in the table 4 below. Table 4: progress of activities

Activity Activity Budgeted Current Status S/N amount (US $) 3.0 Development of systems for urban development 406

3.1 Annual land, housing and urban 280,000 The contractor to prepare the initial development sector review sector review documents has been procured. 3.2 Develop a GIS – based urban 454,000 The Terms of reference were drawn development management system for procurement of GIS. The RFPs for supply of GIS have been evaluated. 3.3 Engineering design for second 1,219,000 The Terms of reference were drawn batch of municipal infrastructure for procurement of the firm to carry investments out designs. The RFPs for designs have been evaluated 5.0 Retooling of MLHUD 5.2 Renovation of MLHUD 590,000 The design contractor is in final headquarters at Parliamentary stages of completing the designs. avenue Procurement of the construction firm shall be launched based on the approved design. 6.0 Program Management 6.4 To conduct at least 1 PSC 15,000 I PSC meeting was held in the month meeting of November, 2015. Total 2,558,000

I advised management to always plan adequately and ensure all planned activities are completed as scheduled. b) Capacity Building Funds not utilized - UGX.6,079,544,830 It was observed that all the 14 municipal councils had not fully utilized the funds released to them for capacity building to the tune of UGX.6,079,544,830 as summarised in the table 6 below. Failure to utilize all the released funds reflects lack of readiness and commitment to the fulfilment of project objectives. There is a possibility that planned activities may not be completed in the scheduled time which could lead to costly project extension. Some of the Municipal Councils activities were below the 50% mark. The table below refers.

Table 6: Unutilised capacity building funds

Amount Released Amount Balance not %age utilized utilized not 2014/2015 2013/2014 Cumulative Municipal utilize Council d Arua 472,563,420 438,553,614 911,117,034 424,059,256 487,057,778 53.5 Entebbe 472,563,420 438,553,614 911,117,034 466,119,813 444,997,221 48.8 Fort 472,563,420 438,553,614 911,117,034 559,028,251 Portal 352,088,783 61.4 Gulu 472,563,420 438,553,614 911,117,034 427,418,612 483,698,422 53.1 Hoima 472,563,420 438,553,614 911,117,034 692,766,199 218,350,835 24.0 407

Jinja 472,563,420 438,553,614 911,117,034 460,298,162 450,818,872 49.5 Kabale 472,563,420 438,553,614 911,117,034 520,865,283 390,251,751 42.8 Lira 472,563,420 438,553,614 911,117,034 596,743,780 314,373,254 34.5 Masaka 472,563,420 438,553,614 911,117,034 485,164,349 425,952,685 46.8 Mbale 472,563,420 438,553,614 911,117,034 402,884,627 508,232,407 55.8 Mbarara 472,563,420 438,553,614 911,117,034 402,884,627 508,232,407 55.8 Moroto 472,563,420 438,553,614 911,117,034 442,491,643 468,625,391 51.4 Soroti 472,563,420 438,553,614 911,117,034 465,661,809 445,455,225 48.9 Tororo 472,563,420 438,553,614 911,117,034 535,646,703 375,470,331 41.2 Totals 6,615,887,880 6,139,750,596 12,755,638,476 6,676,093,646 6,079,544,830 47.7 In response, management attributed the low absorption of funds to the fact that the Municipal Councils had not procured key retooling equipment for surveying, engineering and environment among others partly due to lack of technical capacity to procure such specialized equipment. In order to increase on absorption rate, the procurement process is being coordinated by MLHUD and the bids for equipment in all the 14 Municipal Councils have been received and evaluated.

I advised management to expedite the procurement process and have the activities implemented. c) Un-utilized Municipal Infrastructure Development Funds - UGX.57,062,020,785 An inspection of the Municipal councils also revealed that during the financial year 2014/2015, all the 14 municipal councils had not fully utilized the funds released to them under infrastructure development as summarized in the table 7 below;

Table 7: Un-utilized Municipal Infrastructure Development Funds

Municipal Council Amount Released Amount utilized Balance not %age (UGX) utilized (UGX) not 2014/2015 (UGX) 2013/2014 Cumulative utilized (UGX) (UGX) (UGX) 3,007,049,280 2,598,140,253 5,605,189,533 4,293,385,112 Arua 1,311,804,421 76.60 2,820,233,160 2,689,196,364 5,509,429,524 2,244,467,789 Entebbe 3,264,961,735 40.74 2,030,726,160 1,660,798,385 3,691,524,545 2,819,675,013 Fort Portal 871,849,532 76.38 9,946,929,720 8,162,893,132 18,109,822,852 14,022,012,840 Gulu 4,087,810,012 77.43 3,887,466,840 3,511,993,797 7,399,460,637 3,521,949,938 Hoima 3,877,510,699 47.60 2,931,537,180 3,193,080,598 6,124,617,778 2,299,958,573 Jinja 3,824,659,205 37.55 1,831,947,660 1,535,125,679 3,367,073,339 3,239,814,298 Kabale 127,259,041 96.22 4,275,509,370 4,967,345,128 9,242,854,498 6,459,147,057 Lira 2,783,707,441 69.88

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4,068,651,210 3,041,413,788 7,110,064,998 4,641,850,452 Masaka 2,468,214,546 65.29 3,326,050,860 2,911,815,489 6,237,866,349 2,465,583,027 Mbale 3,772,283,322 39.53 5,119,403,100 2,687,415,841 7,806,818,941 7,543,649,367 Mbarara 263,169,574 96.63 552,571,380 446,243,632 998,815,012 547,966,619 Moroto 450,848,393 54.86 1,892,904,810 2,482,947,308 4,375,852,118 1,783,409,110 Soroti 2,592,443,008 40.76 1,860,317,430 1,938,533,146 3,798,850,576 1,179,091,590 Tororo 2,619,758,986 31.04 47,551,298,160 41,826,942,540 89,378,240,700 57,062,020,785 Totals 32,316,219,915 63.84

Analysis of unutilized funds showed that for the past two (2) years now, Kabale and Mbarara Municipal Councils have not procured contractors to work on the planned roads. This was evidenced by the huge balances on their bank accounts as reflected by the huge percentages of unutilized funds. I explained to management that unutilized funds are a reflection of lack of effective implementation of project programs. Failure to utilize funds also delays the development of the planned Municipal Infrastructures and disadvantages the community who are intended to benefits from these activities.

In response; management explained that for Mbarara and Kabale, the Municipal Councils failed to attract responsive bidders twice and have now opted to re- advertise through Open bidding. The bids were received and are being evaluated while for the other twelve (12) Municipal Local Governments, contractors are now on site and works have commenced. Funds for the initial 3 years shall be substantially absorbed by the end of 2015/16 financial year.

I await the outcome of management’s commitment.

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INFORMATION AND COMMUNICATION SECTOR

58.0 MINISTRY OF INFORMATION AND COMMUNICATIONS TECHNOLOGY a) Outstanding Domestic Arrears

Treasury Accounting Instructions 2003 Part 1 Chapter IV section 188 specifies that an officer authorized to incur expenditure will ensure that no payments due in any financial year remain unpaid at the end of that year. Further, the established commitment control system requires management to commit the Ministry only when funding has been appropriated and confirmed.

A review of payables related to the Ministry revealed outstanding domestic arrears as at 30th June 2015 totalling UGX.2,000,167,012 as detailed below.

Arrears Amount (UGX.) Arrears as at 30/6/2014 1,251,589,543 Prior year commitments paid during 2014/15 (392,356,760) Outstanding commitments from prior year 859,232,783 Arrears incurred in 2014/15 FY 1,140,934,229 Total accumulated arrears 2,000,167,012

Domestic arrears expose the Ministry to risk of litigation from service providers. This could also lead to non-implementation of planned activities as the moneys could be used to settle outstanding obligations.

The Accounting Officer explained that the commitment Control System has always been adhered to but this year round, this has not been possible because of escalating foreign exchange rates, inadequate budget provision (budget ceiling) and insufficient releases.

I advised the Accounting Officer to ensure adherence to the commitment control system. The domestic arrears position should be drawn to the attention of Ministry

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of Finance, Planning and Economic Development for the resources to settle the obligation. b) Budget Performance – unimplemented activities

A review of the budget performance for the year under review revealed that some targets were partially or not achieved despite release of funds to the vote functions. Details are indicated in the table below:

Vote Item Planned Amount Amount Actual Remarks function description outputs (UGX.) released outputs output budgeted (UGX.) (000’) (000’) Project-0990- 054976- - 3 Heavy 143,000 112,925 - One (1) Despite strengthening Purchase of duty photocopier receiving Ministry of Office ICT photocopiers received. 78% of the ICT Equipment, procured - 2 desktop funds only including - 10 laptops computers two items software - 5 desktops procured were -18 iPads for bought, the senior rest of the management funds were diverted to refund project accounts and personal advances. 054978- - Shelves, 10 137,000 108,187 -3 Despite Purchase of Chairs and 5 executive receiving office and tables chairs 79% of the residential procured for procured funds less Furniture resource -8 chairs than half of and fittings centre procured the items -20 -Three (3) were

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executive desks procured chairs procured but rather procured -3 filling funds were -20 cabins diverted to executive procured refund desks -one (1) project procured conference borrowings -Fittings for table and paid offices procured personal installed accounts of Cabling for the Ministry internet staff. undertaken E-waste develop e- waste 29,993 11,99 Consultant By the time management waste management hired. of the audit project management guidelines three guidelines delivered by months 15th June beyond 2015 delivery timeline, the consultant had not yet completed the assignment and yet he had been paid 40% of the contract price.

Management explained that the Ministry received only 75% of its budget for the financial year under review. Out of the anticipated transfers from UCC of 3.25 billion only 1.5 billion was received. The shortfall subsequently led to a corresponding under performance of the planned activities.

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I advised the Accounting Officer to continue liaising with the Ministry of Finance, Planning and Economic Development to ensure all budgeted funds are released. c) Staffing Gaps

Ministry of Information and Communication Technology has an approved establishment structure of 110 staff however, a review of the staff list revealed that 11 posts were not filled representing a vacancy gap of 10%. Among these were senior management positions critical to the delivery of services. Details are indicated in the table below: Post Vacancy Commissioner, Information Technology 1 Assistant Commissioner, Information Management Services 1 Assistant Commissioner, Information Technology 1 Assistant Commissioner, Broadcasting Infrastructure 1 Senior Information Technology Officer 1 Senior systems Officer 1 Systems Analyst 2 Senior Office Superintendent 1 Steno Secretary 2 11

Service delivery may be hampered by the delays in filling the vacancies especially at senior management level.

Management explained that a number of vacant positions were cleared for filling by the Ministry of Public Service, however, due to the wage constraints, all the jobs could not be filled at the same time and the above positions are earmarked for filling during the FY 2016/17.

I await the Accounting Officer’s efforts with regard to the noted vacancies.

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PUBLIC ADMINISTRATION SECTOR

59.0 MINISTRY OF FOREIGN AFFAIRS a) Outstanding Domestic Arrears The Ministry of Foreign Affairs (MoFA) signed a number of protocols, entered into several bilateral agreements and obtained accreditation to a number of International Organizations. This was aimed at promoting and protecting Uganda’s interests abroad. In order to maintain its active participation and membership in these organizations, the Ministry was required to make annual contributions to the respective organizations.

It was however noted that the Ministry was indebted to international organizations in the sum of UGX.33.06 billion as annual subscriptions and other outstanding obligations amounting to UGX.5.34 billion, bringing the total outstanding domestic arrears to UGX.38.40 billion as indicated in the schedule below;

S/N Item Amount (UGX) 1. Contributions to international organizations 33,062,851,330 2. CHOGM arrears 3,434,763,201 3. OIC Conference 1,699,559,278 4. Carriage, haulage & transportation 97,989,667 5. Electricity 96,000,071 6. Property expenses 8,500,000 7. Withholding tax payable 4,065,901 Total 38,403,729,448

The practice may limit the country’s participation in activities organized by international organizations. It may also attract litigation and its associated penalties from other creditors.

Management explained that the inability to meet its international obligations and clear its domestic arrears was due to the insufficient budget allocations by the Ministry of Finance, Planning and Economic Development.

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I advised management to liaise with the MoFPED together with other relevant stakeholders to ensure that the outstanding domestic arrears are cleared as soon as it is practically possible.

b) Regional Coordination and Monitoring Framework for Northern Corridor Integration Projects The Government of Uganda between June, 2013 and July, 2015 signed 14 (fourteen) protocols with sister states of Kenya, Rwanda and South Sudan under the Northern Corridor Integration Projects. These protocols are aimed at enhancing regional trade in electricity supply, petroleum products, transport, Tourism, ICT, health and Security.

Amounts totaling to UGX.4,184,278,843 were disbursed during the year under review to fund the power interconnection and Hoima-Lokichar- Lamu crude oil pipeline projects. However, it was noted that coordination, monitoring and accountability arrangements were not provided for under the signed protocols. This renders it difficult to track the progress of the projects and follow up the accountability for the funds advanced. There is a risk of failure to account for the funds in a timely manner.

Management explained that a cabinet memo was drafted seeking to set up an Authority to monitor the NCIP projects and necessary approval is awaited.

I advised management to ensure that a coordination, monitoring and accountability framework is put in place to enable smooth implementation of the projects.

60.0 EAST AFRICAN COMMUNITY AFFAIRS a) Mischarge of Expenditure The Treasury Accounting Instructions require all government transactions to be recorded in the books of account applying the Government of Uganda chart of 415

Accounts as prescribed by the Accountant General. Accounting officers shall ensure that all financial instructions are properly coded. Contrary to the above, a sum of UGX.47,164,646 was charged on codes other than those for which funds were appropriated leading to mischarge of expenditure.

The practice undermines the intentions of the appropriating authority. Management attributed the anomaly to insufficient funds provided under the appropriate items particularly with respect to consolidated allowance for members of staff.

I advised management to always liaise with the Ministry of Finance, Planning and Economic Development (MoFPED) and ensure adequate funds are allocated to the budget items to avoid mischarging other items during the budget implementation.

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TRADE SECTOR

61.0 MINISTRY OF TRADE, INDUSTRY AND COOPERATIVES a) Mischarges The Parliament of Uganda appropriates funds in accordance with the needs of the country and this appropriation is implemented through the budget in which funds are tagged to particular activities and outputs using account codes and MTEF codes. It was noted that the Ministry charged wrong expenditure codes to a tune of UGX.919,795,830 and this constituted 4% of total expenditure. This practice undermines the importance of the budgeting process as well as the intentions of the appropriating authority and leads to financial misreporting.

Management acknowledged the shortcoming and promised to adhere to the approved expenditure.

I advised the Accounting Officer to streamline the budget process and ensure that sufficient funds are allocated to each account. Authority should always be sought for any reallocations. b) Outstanding Payables The Ministry had outstanding payables of UGX.9,273,243,483 as at 30th June 2015 properly disclosed in the financial statements. It was observed that out of this amount, a sum of UGX.4,322,188,283 (46.6%) has been outstanding for the last (3) years. Also included is a sum of UGX.7,753,799,155 related to outstanding annual subscriptions to International Organisations. Delayed settlement of creditors may lead to litigations by local creditors and may also deny Uganda’s representation on the affected international organisations.

In response, the Accounting officer indicated that the list of domestic arrears has been forwarded to Ministry of Finance, Planning and Economic Development for settlement.

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I advised the Accounting Officer to liaise with MoFPED on the matter and have these payables adequately budgeted for and settled in a timely manner. c) Nugatory Expenditure US$.6,925.42 The Government of Uganda through the Ministry subscribes to a number of International Organization such as COMESA, The South Centre Secretariat Geneva, United national Industrial Development Organization (UNIDO), world trade organization WTO etc. A review of the financial statements revealed that the ministry has defaulted to pay the annual subscriptions to a sum of UGX.7,753,799,151 as per domestic arrear schedule. As a result, the benefits accruing from such organizations have not been fully achieved as explained earlier in issue 7.3.

It was observed that separate ledgers were not maintained to keep track of the subscription. A review of available documentation revealed that delayed payments have resulted into interest charged by some organisations worth $6,925.42.

In the response, the Accounting officer explained that defaulting was due to MTEF limitation to provide for subscriptions in the budget to pay the International Organizations.

I explained to the Accounting Officer that interest on delayed payment is nugatory expenditure that should have been avoided had management paid the international contributions on time. I advised management to liaise with MoFPED and have the arrears settled.

I await the actions of the Accounting Officer to settle the contributions. d) Failure to approve Ministry Policies A review of the detailed planned outputs for the financial year 2014/15 as contained in the ministerial policy Statement revealed that the Ministry had planned to develop a number of policies for the efficient functioning of the Ministry’s business. It was noted that most of the policies had not yet been

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finalised and were still in draft form by the time of this report. See details in table below; Policy Status The Uganda Development Corporation Act Not yet finalised The Competition Bill Not yet finalised The Anti-Counterfeit Goods Bill Not yet finalised The Sales of Goods and Services Bill Not yet finalised The Competition and Consumer Protection Act Not yet finalised The EAC Accreditation Bill Not yet finalised The Cooperative Act Bill Not yet finalised The Amendment of cooperative Regulations and review of Not yet finalised Sugar Act of 1938 Industrial Technology and Development A draft of the Sugar Act To prepare and complete. Industrial Development Policies To prepare and complete. Cooperative Development Cooperative Society Act For Amend ment Sale of goods and Supply of Service Bill In draft form The draft Trading Licence Amendment Bill To be submitted to parliament

Management objectives in terms of policy development could have been affected. The Ministry is therefore operating haphazardly.

I advised the Accounting Officer to expedite the development and submission of the proposed legislation to Parliament for approval. e) Unimplemented Procurements A comparison of the procurement plan with the list of completed procurements revealed that the ministry had not implemented some of the planned procurements worth UGX.309,846,253, by the end of the year as per table below;

Name Of Procurement Source of Procurement Estimated Cost Funding Method (UGX) Procurement of works for border G.O.U RFQ 152,346,253

419 markets Refurbishment of Kakumiro warehouse G.O.U RFQ 100,000,000 Refurbishment of Kiryandongo G.O.U RFQ 57,500,000 warehouse TOTAL 309,846,253

Failure to implement procurements as planned implies that the entity may not have achieved its objectives. The needs of the user departments which initiated the procurement were not fulfilled.

Management explained that the implementation gap was caused by the shortfall in funding of UGX.2,015,363,883 between the revised budget of UGX.23,599,148,987 and actual releases of UGX.21,583,785,104. I advised the Accounting Officer to liaise with Treasury to seek additional funds to enable full implementation of the procurement plan.

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MISSIONS

62.0 UGANDA HIGH COMMISSION, ABUJA a) Excess Expenditure Section 25 (9) of the Public Finance Management Act ,2015 provides that any expenditure which is in excess of the appropriated budget of a vote and which is not in accordance with this section shall be treated as loss of public funds.

It was observed that the Mission in the statement of appropriation account (based on services voted by Parliament) reported total expenditure of UGX.1,499,240,369. This is in excess of the approved budget of UGX.1,373,000,000 by UGX.126,240,279. I was not provided with evidence that authority was granted to this effect and accordingly, the expenditure is considered not a proper charge on public funds.

This may be indicative of budgetary indiscipline and the laxity on the part management to enforce controls relating to expenditure.

The Accounting Officer attributed it to underfunding of the two items 211103 (FSA) and 227003 (carriage Haulage, Freight and transport) and explained further that the matter had been brought to the attention of the ministry of Foreign Affairs and that of Finance planning and Economic Development over time to increase substantially the allocation on the two items but all in vain.

The Accounting Officer is advised to follow up the matter with the responsible Ministries or seek authority where it is found necessary to incur expenditure beyond the originally approved budget.

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63.0 UGANDA EMBASSY, BERLIN a) Inadequate budget provisions (i) Recurrent Budget During the financial year, the Embassy was provided with UGX.3,125,000,000 as recurrent budget, including a supplementary of UGX.589,000,000 This is against the expected representation of the country in the nine (9) countries of accreditation which include Germany, Austria, Hungary, Czech Republic, Poland, Slovakia, Bulgaria, Romania and the Holly See and, to the UN Volunteers Office, Bio-Diversity Secretariat, International Atomic Agency in Viena, UN Framework Convention on Climatic Change, UN Convetion to Combat Desertification, UN Industrial Development Organization, UN Commission on International Trade Law, UN Office for Drug and Crime.

It was also noted that 84% of the recurrent budget was consumed by fixed costs including staff salaries, allowances (FSA), medical, social security and; rent, leaving a paltry 16% to cater for other activities and facilitation of staff to implement the Mission Charter in the areas of accreditation. For example, at the time of audit in in September 2015, the Ambassador had not presented his letters of accreditation in all the countries except Germany due to lack of funding, while a number of other activities to the tune of UGX.392.5million remained unfunded during the financial year under review.

The Accounting officer explained that although their ideal budget to allow them implement the Mission Charter is always presented to MoFPED, the MTEF ceilings are always lower. I advised the Accounting Officer to liaise with MoFPED and have the MTEF ceiling for the Embassy increased from the current position to enable effective representation of the country in the nine countries and eight UN organisations.

(ii) Capital Development It was noted that the Embassy was provided with only UGX.50 million as capital development budget. The Embassy lacks assets both at the Chancery and the

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Residence but the current budget provision is inadequate to allow for acquisition of the required assets. Most of the assets at the residence either belong to the landlord or are personal to the Ambassador. This is contrary to the provisions of the Uganda Public Service standing orders which require furnishing of the Ambassador’s residence.

Similarly, the Chancery lacked adequate furnishing and the current furniture used includes a number of old pieces of furniture that were picked from another embassy that was disposing them of.

The lack of Government’s own furniture increases the reputational risk of the Embassy and the Government of Uganda as a whole.

The accounting Officer explained that some capital development funds had been included in the 2015/16 and 2016/17 budget to allow management acquire some assets. I advised the Accounting Officer to follow up with Treasury and ensure that the funds are released in a timely manner to begin the procurement processes.

64.0 UGANDA EMBASSY, BRUSSELS a) Undisclosed Commitments Section 2(b) of schedule 5 of the Public Finance Management Act(PFMA) 2015 requires the Accounting Officer to prepare a statement of outstanding commitments as at the close of the financial year. The statement of outstanding commitments showed only UGX.59,053,146. However documentary review revealed a contract amount of € 37,626.18 (UGX 139,271,048) in respect of renovation of chancery that was not included in the statement of outstanding commitments as detailed below:

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Contractor Date of Contract Awarded Awarded Amount Amount contract contract Contract contracted contracted Amount Amount out out (UGX) (UGX) (euros) (euros) Pas vorm 30th Renovation 783,670,964.41 211,722.28 37,626.18 139,271,048 woning June of 2015 chancery basement

However, I did not obtain explanation for the omission.

I advised the Accounting officer to ensure that the commitment be disclosed in the financial statements. b) Unspent balances not returned to the Consolidated Fund Section 17 (2) of the Public Finance Management Act 2015 require a vote that does not expend money that was appropriated to the vote for the financial year, to, at the close of the financial year to repay the money to the consolidated fund. It was observed that UGX. 1,622,942,289 that was not expended at the close of the financial year had not been returned to the consolidated fund. There is a risk that the funds may be utilized without authority as its appropriation authority expired at the close of the financial year.

The Accounting Office explained that the funds had been ear marked for capital development for the renovation of its properties. However, the Permanent Secretary/Secretary to the Treasury had instructed them to return the funds.

I urged the Accounting Officer to comply with the Laws and ensure that the funds are returned.

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65.0 UGANDA HIGH COMMISSION, BUJUMBURA a) Implementation of the Mission Charter The Mission Charter outlines priority activities for the embassy as; supporting peace building initiatives in Burundi and the Great Lakes Region, facilitating attraction of at least 100,000 tourists from Burundi, lobbying FDI and deepening the process of Regional Integration.

However, scrutiny of the charter and the mission’s annual budget revealed lack of alignment of the two documents. There was also no evidence of achievement of mission targets.

Management explained that the implementation of the Mission charter was hampered by inadequate funding coupled with the political instability in Burundi which has negatively affected the attraction of tourists and transfer of investment opportunities.

I advised the accounting officer to liaise with the Ministry of Foreign Affairs and Ministry of Finance Planning and Economic Development to ensure that the embassy budget is aligned to the Mission Charter and that the necessary funding is provided. b) Lack of Segregation of duties It was noted that the current management arrangements at the mission do not favour the existence of a good internal control environment. Whereas the Ambassador is the Head of Mission, he was also signatory to the mission bank accounts. The practice contravenes principles of Good Corporate Governance.

Management indicated that the Ambassador would in future play his role as Head of Mission in compliance with principles of good corporate governance and allow the technical persons handle day- to- day operations.

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I advised management to ensure adequate segregation of duties in all aspects of the mission’s operations.

66.0 UGANDA EMBASSY, CAIRO a) Inadequate funding of the Embassy activities

In order to adequately implement the Mission Charter and effectively represent Uganda in all the designated countries of representation (Egypt, Israel, Syria, and Lebanon), and implement the Mission Charter in these countries, the embassy requires adequate funding.

It was however noted that other than paying salaries and other fixed costs, the staff are not adequately facilitated to perform all planned activities achieve the mission objectives.

More than 85% of the embassy budget is consumed by the fixed costs, such as FSA, salaries, rent, medical care, and utilities leaving very paltry amounts to facilitate the staff to undertake activities indicated in the Mission charter. For example, the following were noted;  The former ambassador resigned his appointment and posting after spending three years his tour in Cairo without presenting his credentials to the other Countries of representation partly because of lack of funds to cater for his transport and allowances.  There is no visible promotion of trade and tourism by the embassy staff.

The Accounting Officer explained that the issue had been discussed on several fronts but the budgets were always static given the fact that the MTEF ceilings have not change. She further indicated that of the small amounts, 85% is used to defray fixed expenses such as Rents and Salaries. She stated that management would continue engaging the responsible Ministries to ensure that the funding issue is resolved.

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I await the outcome of the Accounting Officer’s undertaking to engage the responsible Ministries.

67.0 UGANDA HIGH COMMISSION, DAR ES SALAAM a) Unspent Balances

Section 17 (2) of The Public Finance Management Act 2015 states that a vote that does not expend money that was appropriated to the vote in the financial year shall at the close of the financial year, repay the money to the consolidated fund. Though the Mission requested for authority to retain USD 157,757 no evidence was availed to indicate that authority was granted as requested.

The Accounting Officer was advised to ensure that the matter is followed up with the Permanent Secretary, Secretary to Treasury; otherwise the unspent balances are returnable.

68.0 THE PERMANENT MISSION OF THE REPUBLIC OF UGANDA TO THE UNITED NATIONS AND OTHER INTERNATIONAL ORGANIZATIONS IN GENEVA a) Loss of court case

A local staff who had been dismissed by the Embassy won a court case for unfair dismissal resulting into an order to compensate the individual a sum of CHFs. 184,895.35 plus an annual interest rate of 5%. The country was not represented in the case proceedings implying a possibility of negligence on the part of relevant agencies. There is a risk of absolute loss of public funds.

The Accounting officer in reply indicated that following further consultations with the Ministries of Foreign affairs and Justice and Constitutional Affairs, an appeal had been lodged and the matter was now before the Geneva civil court.

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I advised management to follow up the matter with the respective ministries and ensure adequate representation of the government.

In future there should be due diligence in handling staff matters and any subsequent court cases.

69.0 UGANDA CONSULATE, GUANGZHOU, CHINA a) Unauthorized over Expenditure

Regulation 37 (b) of Public Finance and Accountability Regulations, 2003, requires Accounting Officers to ensure that the provisions for services as authorized by accounting warrants are not exceeded. Any excess expenditure should be incurred with proper authority.

Contrary to the above requirement, a review of the Consulate expenditure revealed excess expenditures on various budget line items amounting to RMB 114,319. There was no evidence of authority in form of reallocations or virement warrants supporting the excess expenditure.

Management attributed the over expenditure to unexpected events during the year but pledged to improve on the Consulate’s budgeting processes to address the anomaly.

I advised management to ensure strict budget discipline and/or seek appropriate authority to spend in excess of accounting warrants as required.

70.0 UGANDA HIGH COMMISSION, KIGALI a) Extra Budgetary expenditure due to Foreign Exchange gains I noted that, although the Mission’s approved budget and receipts from Treasury were only Ugx 4,742,190,565, an amount of UGX 5,603,300,704 was incurred/spent on the following items: 428

Operating Expenses Approved Actual Amount Variance Budget spent Employee Costs 857,942,565 819,944,845 37,997,720 Goods and Services 853,848,000 972,226,214 (118,378,214) Consumed Consumption of Property, 3,030,400,000 3,811,129,645 (780,729,645) plant and Equipment TOTAL 4,742,190,565 5,603,300,704 (861,110,139)

This created an excess expenditure of UGX.861,110,139 spent without the necessary approvals from MoFPED. On further analysis I observed that out of that expenditure, UGX.765,107,995 was due to foreign exchange gains (on the capital development account) during the year. These gains arose due to the appreciation of the dollar internationally.

Such extra budgetary expenditure defeats the purpose for which budgets are made. Management, in their response, acknowledged the observation and pledged to seek the necessary approval from PS/ST.

I await the approvals from MoFPED.

71.0 UGANDA EMBASSY, KINSHASA a) Refund of Medical Expenses Section M (m-a) (14) of the Public Service Standing Orders, 2010 requires Foreign Service Officers, while serving in a mission abroad, to be covered by full medical insurance. Contrary to the above requirement, it was noted that the Embassy expended USD.3,759.75 on refunds for medical expenses for its officers.

There is a risk of making refunds based on false claims.

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I advised management to obtain full medical insurance cover for its officers as required by the standing orders.

72.0 UGANDA HIGH COMMISSION, KUALA LUMPUR a) Unsupported Foreign Exchange Loss - UGX.49,521,579 A review of the Statement of Financial Performance for the year, revealed that an amount of UGX.49,521,579 was reflected as foreign exchange losses incurred during the year. However, I was not provided with a detailed schedule of the build-up of the figure at transactional level. In the absence of a detailed schedule of foreign exchange transactions, I could not confirm the accuracy of the amount in question. There is a risk therefore, that this amount may be misstated.

The Accounting Officer explained that exchange rates vary daily for every transaction for the whole financial year. When transfers are received from Treasury, the USD rate against the UGX is very high making the Mission to receive less both in the USD and the local currency (Malaysian Ringgit). When payments are also made in the USD, the USD rate against UGX is lower making each payment made in UGX and Local currency to be higher. More so, the Mission has no NAVISION system installed to enable quick generation of the exchange loss Schedule.

I advised the Accounting Officer to liaise with the Accountant General to ensure a quick installation of the NAVISION accounting system to enable her prepare fully supported financial statements. b) Unspent Cash Balances - UGX.34,186,137 According to the Statement of Financial Position as at 30th June, 2015, the Mission indicated a closing unspent balance of cash and cash equivalent of UGX.40,906,109, which comprised UGX.34,186,137 being cash at hand (imprest), and UGX.6,719,972 being a bank balance on the expenditure account. According to the TAI, as well as the accounting policy “k” on page 28 of the financial statements, the unspent balance was supposed to be remitted to the Consolidated Fund.

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However, there was no evidence provided to indicate that the amount was transferred. Instead, the Accounting Officer explained that the amount was carried forward to the month of July, 2015 and expensed. This was irregular.

I advised the Accounting Officer to always ensure that unspent balances at the closure of the financial year are remitted to the Consolidated Fund. c) Over Release of funds - UGX.48,692,139 An analysis of the budget performance of the High Commission for the financial year under review revealed that a sum of UGX.1,896,187,697 was released against an approved budget of UGX.1,847,495,558 (comprising of Recurrent - UGX.1,587,495,558 and Capital development - UGX.260,000,000). This resulted into UGX.48,692,139 being released over and above the approved budget. Further inquiry into the matter revealed that this was an amount advanced to the Accounting Officer by Treasury, for the initial operations at establishment of the High Commission before bank accounts were opened.

The amount was supposed to be deducted from the Commission’s subsequent quarterly releases, which was not done, thus leading to an over release to that tune. I advised the Accounting Officer to liaise with the Accountant General over this matter.

In her response, the Accounting Officer acknowledged the observation and accordingly communicated the anomaly to the Accountant General vide: Ref. UHC/KL/FIN/7 dated 2nd November, 2015.

I await the action of the Accountant General, over this matter.

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73.0 UGANDA HIGH COMMISSION, LONDON a) Non Tax Revenue (NTR) collections and transfers to the consolidated fund The High Commission collects cash and postal orders from visa applicants before issuing them with visas. The Mission had balances on the account from the previous year of £44.352.48. During the year under review, a sum of £430,318.00 was collected as NTR, however only £295,595.48 was transferred to treasury leaving a balance of £61,255.61 yet to be accounted for. Management is at risk of utilizing this balance at source contrary to the Treasury Accounting Instructions (TAIs) that require all NTR collections to be transferred back to Treasury.

Management explained that the Mission was faced with major challenges mainly insufficient funding, increased utility and telephone bills, loss of poundage, lack of furniture for High Commissioner’s Office and Official Residence, high Insurance Bills among others, hence the Mission used NTR at source amounting to £114,733. A balance of £61,255.61 equivalent to UGX.318,907,731 will be remitted to Treasury during the course of financial year 2015/2016.

I advised the Accounting Officer to avoid spending NTR prior to seeking authority from the Permanent Secretary/Secretary to the Treasury. Meanwhile, UGX.318,907,731 not remitted should be transferred to Treasury as required by law. b) Irregular procurements Section 26 of the PPDA Act requires that the Accounting officer of the procuring and disposing entity shall have the overall responsibility for the executor of the procurement and disposal process in the procuring and disposal entity. At the time of audit, the Contracts Committee had been nominated by the Accounting Officer and approved by the Permanent Secretary/Secretary to the Treasury in line with Section 27 (2) of the PPDA Act and procurements worth £79,757.78 equivalent to UGX.415,766,335 had been approved for payment by the Contracts Committee. It was however observed that the procurements totaling £5,800 were not supported with Contracts Committee approval contrary to the law. Management risks procuring

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goods that are not planned for hence affecting the performance of the High Commission.

Additionally, the Procurement plan was not in place for procurements worth £.5,800. Details are in the table below; Procurements Amount paid (£) Furniture for the children’s room at official residence 1,324.00 Sofa set in the waiting area on 5th floor 1,650.00 Sofa set in the office of the Head of Mission. 2826.00 5,800

I advised the Accounting Officer to always follow the procurement guidelines by procuring goods and services approved by the Contracts Committee and also desisting from undertaking procurements outside the procurement plan.

74.0 UGANDA EMBASSY, MOGADISHU a) Implementation of the Mission Charter The Mission Charter details priority areas, in line with MoFA Strategic Plan 2010/11-2014/15 where its resources are supposed to be directed as follows: Promotion of regional peace and security, Enhancement of capacity building support of public institutions in Somalia, Provision of diplomatic protocol and consular services in Somalia and Promotion of general economic cooperation.

However, it was noted that there were no clear performance targets, indicators and/or milestones to guide the implementation of the stated charter activities. Besides, the mission’s budget as per the 2014/15 MoFA Ministerial Policy statement was not aligned to the Mission charter.

Without the key parameters for measuring performance, I could not ascertain the extent to which the Charter priorities and /or objectives had been accomplished. Management explained that the Embassy was liaising with MOFA to revisit the Charter priorities and set clear and measurable performance indicators, targets and milestones for each of the intended activities. 433

I urged management to expedite the process of streamlining Charter priorities and setting of measurable performance indicators as well as ensuring alignment of the budgets with the mission charter.

75.0 UGANDA CONSULATE, MOMBASA, KENYA a) Medical Insurance A Foreign Service Officer, while serving in a mission abroad, is entitled to full medical insurance. During the period under review, a sum of KShs.426,444 was paid to Jubilee Insurance Kenya as medical insurance for family of the head Consulate. It was however observed that there was no budget item for this activity thus the Consulate mischarged from allowance item 211103 to cater for this payment. I was also not provided with the agreement between the consulate and the service provider (Jubilee Insurance Kenya) to enable me understand the financing arrangement.

Management explained that the consulate will cater for this item in the budget of the financial year 2015/16. The insurance agreement in place is that of Nairobi High Commission. The consulate is yet to review the need to separate from the High Commission medical arrangement and establish their own.

I advised the Accounting Officer to urgently review the Medical Insurance Scheme and have a consulate agreement in place. b) Mission Charter and performance of the Consulate The Mission Charter outlines the road map that the mission intends to follow in the future to enable the achievement of its mandate. The Mission charter also enables the Missions and the Consulates to develop the annual work plans. It was however observed that the consulate did not have a mission charter but instead used the Nairobi High Commission Charter to develop its Work Plan.

I reviewed the Nairobi High Commission Charter and noted that the charter did not 434

breakdown activities into Consulate manageable activities. Activities such as facilitation of tourists to be attracted to Uganda from Mombasa, promoting Uganda exports, lobbying inward investments, handling requests for consular services facilitate acquisition, development and maintenance of Uganda property and lobbying inward inflows of students to education institutions in Uganda should have been broken down and form part of the Consulate work plan. In the absence of a separate and a well aligned charter, it becomes difficult to review the performance of the Consulate.

Management explained that the Consulate was opened after Mission charters had already been signed between Heads of Missions and the Minister. The Mission Charter of the Consulate is being followed up with Ministry of Foreign Affairs and the issue will be resolved in the next Ambassador’s conference with Heads of Mission.

I advised the Accounting Officer to follow up with the responsible ministry with a view of having a separate and manageable Mission charter.

76.0 UGANDA HIGH COMMISSION, NAIROBI a) Unspent Balances not Returned to the Consolidated Fund Section 17 (2) of the Public Finance Management Act 2015 require a vote that does not expend money that was appropriated to the vote for the financial year to at the close of the financial year to repay the money to the consolidated fund. It was observed that UGX 7,792,641,831 that was not expended at the close of the financial year had not been returned to the consolidated fund.

The Accounting Officer explained that most of the money related to funds meant for rehabilitation of the Uganda House project that has not taken off because of the litigation going on in the courts of law where the sitting tenants are reluctant to vacate the promises to allow for the renovation to take place. He further explained that the Mission has written to the Permanent Secretary/Secretary to the Treasury (PS/ST) requesting Authority to retain the unspent balances.

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I advised the Accounting Officer to follow up the matter with the PS/ST otherwise the funds are returnable in accordance with the law. b) Excess Expenditure The statement of appropriation account (based on nature of expenditure for services voted) revealed a revised budget amount of UGX. 819,059,674 in respect of goods and services consumed. However, the actual expenditure incurred amounted to UGX.920,489,555 occasioning an excess expenditure of UGX.101,429,881. The authority for the excess expenditure from the Permanent Secretary/Secretary to the Treasury was not availed for audit. Excess expenditure is irregular and distorts the implementation of planned activities.

The Accounting Officer explained that the excess expenditure was caused by costs of maintaining an officer and opening up of the Consulate in Mombasa which had not been budgeted for in the financial year. He further stated that the expenditure was authorized by the Ministry of Foreign Affairs on the understanding that the funds would be replaced once the Mombasa vote received its funds.

I advised the Accounting Officer to follow up the matter with the Permanent Secretary /Secretary to the Treasury and the Permanent Secretary Ministry of Foreign Affairs to address the issue of excess expenditure and ensure that the funds are refunded.

77.0 UGANDA HIGH COMMISSION, NEW DELHI a) Mission Charter A review of Management meetings at the mission established that although some steps had been taken in implementation of the Mission Charter such as attracting tourists and lobbying for investments through attendance of Confederation of Indian Industry, trade expos in Indian States and trade missions in Sri-Lanka and ASEAN countries, more still needed to be done in implementation of the charter activities.

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It was noted that there was no work plan for operationalization of the mission charter. The specific activities, their budgets and time frame for their implementation in line with the specific objectives and targets assigned in the charter were not in place.

I advised the accounting to prepare a costed annual activity work plan for implementation of Mission Charter Objectives.

The Accounting officer explained that the mission charter would be revised and work-plan linked to the charter. b) Compliance with the PPDA Act regulations in mission procurements The PPDA Act and regulations require every procurement and disposal unit (PDU) to amongst other requirements;  Prepare and submit to PPDA an Annual procurement plan based on the annual approved budget for that respective financial year;  Prepare and submit to PPDA quarterly procurement and disposal reports;  Produce a list of prequalified goods and service providers for the next three years.

A review of the mission procurement revealed that contrary to the PPDA Act and regulations the mission neither produced an annual procurement plan; quarterly procurement and disposal reports nor a list of prequalified service providers based on the appropriated funds for Vote 204.

The Accounting Officer explained that a procurement plan would be prepared and all procurements made in compliance with the PPDA Act and regulations.

I await the outcome of management’s commitment in this regard.

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78.0 THE UGANDA PERMANENT MISSION TO THE UNITED NATIONS, NEW YORK a) Staffing Structure Whereas the approved staffing structure for the Embassy is 1+5, it was noted that the current staffing is 1+8. Management explained that the issue of the approved structure of 1+5 not being adequate given the workload at the United Nations has been brought to the attention of the Ministries of Foreign Affairs, Public Service and Finance, Planning and Economic Development and the Mission will continue to follow up the matter of regularising the current staffing level and ensuring that the budget allocated caters for all the staff to avoid shortfalls.

I have raised this issue in my previous reports and continue to await results of the action taken by the concerned ministries and the Mission.

79.0 UGANDA HIGH COMMISSION, OTTAWA a) Delayed construction of the Chancery The Chancery is a two storeyed building with a basement located at 231 Cobourg Street Sandy Hill, Ottawa, Ontario. It was acquired in 1987 and has been occupied until July 2013 when it was vacated due to extensive cracking and basement damage. Since 2012 various consultants have undertaken reviews and inspections on the property. In 2013 a consultant carried out various surveys which recommended the following;  Remedial work to be undertaken within one year on installations and systems that were potentially unsafe otherwise significant escalation of costs would result if delayed.  Trees located within 8 meters of the building be removed since they demand too much water leading to shrinkage of foundation.

At the time of inspection, in July 2015, all the above recommendations had not been undertaken despite the fact that the MoFPED had cumulatively released an 438 amount of UGX.2,762,000,000 (approx. USD.1m) for that purpose. The trees were neither removed nor were the renovations undertaken within the recommended one year.

Besides, the delay in renovations causes further deterioration as earlier predicted by the Consultants. After two years without the renovations, the property has now been recommended for demolition by a Board of Survey (BoS) team from Uganda comprising MOFA, MoWT and MoFPED officials.

Management is advised to always undertake agreed construction works in a timely manner.

(i) Consultancy for the design and supervision of contract for development of a new Chancery

In March 2015 a new consultant, Ms Ten2-Four, was procured at a cost of CAN$397,590 to design and supervise the demolition and development of a new Chancery for a period of 36 months starting 20th March 2015. By the time of audit an amount of CAN$79,518 (20%) had been paid to the Consultant. I noted the following:

 Expired Performance Security

I noted that although the duration of the contract was for three (3) years up to 2018, the professional indemnity insurance, issued in lieu of the performance security, was valid for only up to 06/09/2015 which had expired. Without a performance guarantee, there is a risk that unsatisfactory services rendered by the Consultant may not be appropriately compensated.

Although the accounting officer had promised to renew the performance guarantee to match with the performance contract, by the time of reporting, this had not been done.

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 Delays in implementation

According to the inception report from the consultant, the proposed demolition and development will delay due to unapproved demolitions by the City Authorities. Apparently the approvals have been delayed because the building is located in an Heritage zone and has been designated as a heritage property under the Ottawa Heritage Act (OHA). The consultants estimated that this would take between 8 to 12 months before approvals are obtained.

Management stated that they have met with the relevant City officials and provided documentation.

Furthermore although the PPDA Act requires that prior approval is obtained from the Minister responsible for Finance before demolition of the building, this has not been obtained. This will impact on both the project timelines and cost. Management stated that the process of obtaining the necessary approval had been started by Ministry of Foreign Affairs (MoFA).

I advised management to expedite the process and to also ensure that prior approvals are obtained before committing government to such major projects.

 Proposed variations in scope

In June 2015 the Consultants requested for additional costs amounting to CAN$ 122,000 due to a revised scope of work for the Heritage Review and Site Plan Control. This variation amounts to almost 30% of the original contract. According to the PPDA Act, this would necessitate the prior approval of the Authority; however this had not been obtained by the time of reporting. Without prior approval the payments would be irregular.

In their response management stated that the inception report from the consultant was forwarded to the MoFA to analyze and make decision on the way forward. The MoFA informed the mission that consultations were being

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undertaken with PPDA and other stakeholders regarding all aspects in the inception report.

I await the outcome of the Consultations.

80.0 UGANDA HIGH COMMISSION, PRETORIA a) Non remittance of NTR - UGX.564,939,303 to the UCF account A review of the statement of arrears of revenue and the NTR report for the year revealed that the High Commission collected NTR totaling to UGX.871,120,249 from issuance of Visas, travel documents, passports and other sources. However, by the close of the year, only UGX.504,305,299 had been remitted to the Uganda Consolidated Fund (UCF) account, while another UGX.105,291,496 was cash-in- transit. This left a total of UGX.261,523,454 not remitted to the UCF account in the year under review.

I noted further, that the High Commission was not regularly remitting NTR as indicated by the failure to remit outstanding NTR arrears of the previous year (2013/14) totaling to UGX.209,383,035. In addition, outstanding miscellaneous income arrears of UGX.94,032,814, was not remitted. This implies that a total of UGX.564,939,303 remained unremitted to the UCF by the Mission.

Failure to remit NTR intact exposes the amounts to a risk of misuse, especially when it involves spending at source. The Accounting Officer admitted the anomaly and attributed this to expenditure at source on Capital Development budget; however, she anticipates a refund of the amounts during the financial year 2015/16.

I advised the Accounting Officer to always ensure that NTR collections are banked intact and remitted to the UCF promptly. In addition all arrears of NTR and miscellaneous income used at source should be recovered and the amount remitted to the Consolidated Fund account.

441 b) Unauthorized Excess Expenditure - UGX.996,551,948 The Public Finance and Accountability Regulations, 2003 (Regulations 39 & 40) require Accounting Officers to adhere to the budgetary allocation per vote or obtain prior permission before an over expenditure is incurred. However, a review of the financial statements for the year revealed that actual expenditure on Employee costs and Property, Plant and Equipment during the year under review exceeded the budget amount by UGX.996,551,948. This led to excess expenditure over and above the approved budget. Apparently, there was no evidence that authority to overspend was sought as required by the Public Finance and Accountability Regulations as well as the Treasury Accounting Instructions.

In response, the Accounting officer stated that the excess expenditure was from balances carried forward from FY 2013/14 of USD.294,707.57, and permission to retain the money to be used in FY 2014/15 was granted. She further explained that although she sought for authority to use NTR for renovation work, no response was received, but that there is a commitment to reimburse the funds from the releases of FY 2015/16 provided for in the Capital Development budget.

I have advised her, to always ensure a strict adherence to the requirements under the law. c) Unbudgeted for Non-Tax Revenue Section 5(1) of the Budget Act, 2001, provides for submission to the President, the preliminary estimates of revenue and expenditure by heads of all self-accounting units of Government. However, a review of the financial statements for the year revealed that the High Commission had not budgeted for NTR collection during the year, though UGX.871,120,249 was collected under this source. I pointed out this anomaly to the Accounting Officer, who stated that she was not aware of this requirement, despite the existence of the accounting code in the chart of accounts.

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Non-budgeting of NTR distorts the budget composition of the entity, and renders efforts to evaluate budget performance in this regard difficult due to lack of a basis for assessment. Lack of targets may also create laxity to collect revenue on the side of management.

The Accounting officer admitted the oversight and promised to comply with the provisions of the Budget Act, 2001, the Financial Reporting Guide 2008, and the provisions in the chart of accounts as issued by the Accountant General.

I await the outcome of this commitment by the Accounting Officer. d) Irregular Revision of the Contract Price Regulation 55 (10) of the PPDA Regulations, 2014, requires that a change in a contract which increases the price of the original contract beyond 0.1%, in the case of a single change or 1% cumulatively, should be effected by amending the contract. In addition, Regulation 55 (6) prohibits issuance of a contract amendment to a provider (contractor) without commitment of the full amount of funding of the amended contract price over the contract period, and approval of the Attorney General.

A review of contract management documents for the above contract revealed that the contract price was revised by UGX.248,083,910 (Rands.992,335.64) from UGX.1,795,614,230 (Rands.7,182,456.92) to UGX.2,043,698,140 (Rands.8,174,792.56), all prices are VAT inclusive, which represents 13.8 % increment in a single change to the original contract without adhering to the above mentioned provisions in the PPDA Regulations, 2014. This rendered the amendment to the contract price and subsequent payments irregular.

The Accounting Officer explained that the request for approval by the Attorney General was made, but was not responded to. In addition, in order to guard against further damage to the premises due to prolonged exposure of the structure to elements of weather, and the lengthy modalities of a fresh

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procurement once the contract was terminated, it was necessary that the works continued as the High Commission awaited the approval.

I advised the Accounting Officer to ensure that PPDA Regulations are always adhered to while undertaking any procurement and throughout contract management.

81.0 UGANDA EMBASSY, RIYADH a) Failure to Translate Documents Section (P-b) (7) of the Public Service Standing Orders states that, "If an officer receives documents written in a language other than English, and it is necessary to refer such documents to other departments or officers, he or she should arrange for the documents to be translated by a designated translator or professional and for such translations to be available to other interested departments or officers."

Contrary to the above requirement, a review of the mission's expenditure vouchers in the sum of UGX.2,068,713 representing 0.15% of total expenditure for the year, revealed that the supporting documents written in Arabic were not translated into English which is the official language of the reporting country rendering verification difficult.

Management explained that the anomaly was an oversight.

I advised the Accounting officer to always ensure that all supporting documents are translated into English before onward submission to the relevant entities in Uganda.

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82.0 UGANDA EMBASSY, ROME a) Mission Charter The Embassy has a mission charter that spells out the specific objectives to be achieved annually for its jurisdiction in Rome. The Embassy is also responsible for the following countries; Malta, Greece, Serbia and Montenegro, Macedonia, Croatia, Cyprus, Slovenia, Albania, Bosnia and Herzgovinia. However, there was no mention in the charter in respect of its responsibilities in these countries.

Further, there is no established mechanism to capture outputs arising out of the Embassy’s efforts towards the mission charter.

Management explained that the anomaly of omitting other important countries of accreditation at the time of making the Mission Charter was noted and Ministry of Foreign Affairs was informed and it is being addressed.

I advised the Accounting Officer to include outputs expected for all the countries under the jurisdiction in the mission charter and also establish a mechanism to capture the resulting outputs. b) Contracts for Local Staff The embassy employs 9 staff but the contracts are not subject to defined durations. Such contracts would contain specific deliverables and contract period to enable periodic measurement. Further, it was noted that two staff were working and remunerated without appointment letters.

Such practice is contrary to the regulations and could lead to unnecessary legal costs in case of any disagreements.

Management explained that all local staff at the Embassy were hired using appointment letters. They however explained that following advice from the Auditor General the Head of Chancery drafted contracts for all local staff in 2013 but none of the staff agreed to sign the contract.

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On the issue of the two staff, management explained that both staff were cooks to the Ambassador. One of the staff left his job in August and the Head of Mission is searching for his replacement.

I advised the Accounting Officer to put in place contract agreements for all staff.

83.0 UGANDA EMBASSY, TOKYO a) Mission Charter A review of Mission Charter established that although some steps had been taken in implementation of the Mission Charter such as attracting tourists and lobbying for investments through attendance at Tourism expos, TICAD and Trade shows, more still needed to be done in implementation of the charter activities as revealed by the following;  It was revealed that there was no work plan for operationalization of the mission charter showing specific activities, their budgets and time frame for implementation in line with the charter objectives.  The existing work plan for implementation of the Mission charter was not costed and did not have an activity plan.  It was noted that the quarterly performance reports produced by the mission could not be linked to the mission charter and be used to effectively assess performance.

Although the accounting officer indicated that quarterly progress reports were produced to assess implementation of charter targets; these were found to be inadequate.

I advised the accounting to prepare a costed annual activity work plan and regular quarterly progress reports which are linked to the Mission Charter performance targets.

446 b) Compliance with the PPDA Act regulations in mission procurements The PPDA Act and regulations require every procurement and disposal unit (PDU) to amongst other requirements;  Prepare and submit to PPDA an Annual procurement plan based on the annual approved budget for that respective financial year;  Prepare and submit to PPDA quarterly procurement and disposal reports;  Produce a list of prequalified goods and service providers for the next three years.

However, contrary to the PPDA Act and regulations ,the mission neither produced an annual procurement plan; quarterly procurement and disposal reports nor a list of prequalified service providers based on the appropriated funds of UGX.3,983,632,000 for Vote 215.

Consequently all procurements were made outside the procurement plan. I advised the accounting officer to prepare a procurement plan, prepare and submit quarterly procurement reports on procurements made by the mission in accordance with the PPDA regulations.

The Accounting Officer explained that a procurement plan would be prepared in the next financial year in accordance with the PPDA regulations.

84.0 UGANDA EMBASSY, TRIPOLI a) Implementation of the Mission Charter According to the Mission Charter, priority activities for the embassy included promotion of at least USD 100,000 worth of Uganda exports to Libya annually; Engaging Libya to be supportive of regional development initiatives including services, infrastructure projects, oil and gas exploitation and engaging Ugandan diaspora in Libya to actively contribute to development at home among others.

However, review of the charter and the mission’s annual budget revealed that the budget was not aligned to the charter priorities. The charter did not provide 447

measurable performance indicators and no reports were availed to show the embassy’s performance for the year and milestones attained in the implementation of the charter.

Management explained that the Mission charter was revised following the decision to relocate the Embassy to Tunis and later to Algeria. The revised charter contains realistic, measurable and timely targets.

I advised management to ensure that the annual budgets are aligned to the Mission Charter. I further advised them to ensure that performance reports are prepared to show how the charter activities are implemented. b) Lack of Segregation of duties It was noted that there was no segregation of duties at the Embassy since the Head of the Mission is also a signatory to the Mission’s Bank account and approves payments as well. In effect the Head of mission handles both the oversight and Accounting Officer’s roles contrary to principles of Good Corporate Governance.

The practice creates a conflict of interest and eliminates the safeguards intended for better financial management practices at the Embassy.

Management attributed the anomaly to the inadequate staffing at the mission thereby causing swapping of roles. They further stated that a high level meeting was held with the Ministry of Foreign Affairs in which it was agreed to fill the vacant positions.

I await the outcome of the steps taken to address the cause of the anomaly.

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SECTION TWO

AUDITED ENTITIES

Under this section, 16 entities have been included. The list of entities and their respective

No Entity Category Sector 1. Electoral Commission Commission Administration 2. Education Service Commission Commission Education 3. Uganda Aids Commission Commission Health 4. Health Service Commission Commission Health 5. Uganda Human Rights Commission Commission JLOS 6. Judicial Service Commission Commission JLOS 7. Uganda Law Reform Commission Commission JLOS Uganda Registration Services Bureau - 8. Operations SA /SE JLOS Uganda Registration Services Bureau – 9. Liquidation Account SA /SE JLOS 10. Uganda Land Commission Commission Lands & Housing 11. Parliamentary Commission Commission Legislature 12. Public Service Commission Commission PSM 13. Local Government Finance Commission Commission PSM 14. Kampala Capital City Authority SA / SE PSM 15. Uganda National Roads Authority SA / SE Works 16. The Uganda Road Fund SA /SE Works 17. National Agricultural Advisory Services SA / SE Agriculture opinions is below.

The detailed audit findings are presented below.

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DETAILED AUDIT FINDINGS

WORKS SECTOR

83.0 UGANDA NATIONAL ROADS AUTHORITY a) Mischarge of Expenditure Expenditure totaling to UGX.29,542,978,953 was inappropriately charged on budget lines to fund activities that were not planned for without authority.

I explained to management that mischarge of expenditure leads to misrepresentation of expenditure balances in the financial statements. The practice is also not in line with the intentions of the appropriating authority.

In response, management acknowledged the challenge and explained that the planning portfolio will be enhanced and this will improve the planning procedures so that funds are allocated in line with ongoing activities.

I await the outcome of the Accounting Officer’s commitment. b) Under Stated Infrastructure Assets The statement of financial position as at 30th June 2015 reflected the value of Infrastructure Assets at UGX.9,332,851,200,000. I noted that the figure excluded the value of the infrastructure assets acquired during the financial year. In addition; the Authority acquired land through compensations to the tune of UGX.40,948,696,342 during the financial year however; these were also excluded from the amounts disclosed. The assets of the Authority are therefore understated.

In response; management explained that the value of the Infrastructure assets was based on the valuation carried out during the financial year 2013/2014 and that management plans to revalue assets after intervals of three (3) years with an indication that a supplementary valuation would be carried out before the end of June 2016.

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I explained to management that there was no approved policy to support this treatment and advised that this anomaly is rectified and ensure that proper values of land are captured. c) Nugatory expenditure The Authority paid a total of UGX.8,044,936,050 in outstanding obligations and claims in interest on delayed payments for various payment certificates. I noted that the expenditure could have been avoided had management planned adequately, advised clients, processed the payments in time and/or attended to the contractors’ concerns in time. The expenditure is detailed in c (i) to c (iv) below:

(i) Nugatory expenditure- arbitration award A total of UGX.6,616,405,658 was paid to a local firm in arbitration that resulted from a dispute in the Centre of Arbitration and Dispute Resolution against Attorney General regarding a contract for the backlog roads maintenance programme for seven (7) roads in Kampala. The issues for arbitration included wrong information provided and Poor management of the contract by the respondent. I noted that the expenditure could have been avoided had management acted to resolve the issues with the contractor early enough.

In their response, management explained that the arbitration was instituted against the Attorney General who conducted the defence and as such UNRA could not control the practical conduct of the matter. The Attorney General appealed several times in vain until they consented to withdraw the appeal and finally management was asked by the Attorney General to comply with the results of the award.

I advised the Accounting Officer to always follow contractual clauses to avoid losses.

(ii) Nugatory Expenditure - Payment of Interest A total of UGX.1,116,168,862 was paid to an International Company as Interest on delayed payments for various payment certificates. Management’s delay to pay the

451 contractors in time coupled with delayed application of funds from the donors was attributed to the unnecessary expenditure. I noted that the expenditure could have been avoided had management planned adequately and processed the payments to the contractor in time.

Management explained that the funds allocated in the Medium Term Expenditure Framework (MTEF) are not sufficient to meet on going commitments as a result UNRA debt position at the end of every financial year. As such UNRA did not have funds at the time the certificates were generated and certified.

I advised the Accounting Officer to always plan adequately to minimise on such unnecessary expenditure.

(iii) Nugatory Expenditure – Payment to a legal firm I noted that UGX.254,102,450 was paid to a local firm in respect of legal fees for a an individual the plaintiff who sued UNRA for failing to give final advise on whether to halt or continue building a commercial building on plot No 587, Block 438 at due to the on-going road construction. The plaintiff had inquired with UNRA as to his commercial building would be affected by the road construction. UNRA did not respond and the plaintiff sued.

I explained to management that this expenditure could have been avoided if management had given appropriate advise and acted promptly.

The Accounting Officer explained that a defense was filed on behalf of the Authority and the case has steadily progressed from mediation process to trial.

I advised the Accounting Officer to always give timely advice to clients to avoid such costs.

(iv) Nugatory expenditure on Due Diligence for Katosi Road Payment of UGX.58,259,080 was made to an independent consultant to carry out due diligence on Eutaw Construction Company Incorporation for the road works on 452

Mukono-Katosi Road based on top Management decision to hire an independent consultant. While the contract for the Mukono-Katosi Road was signed on 15th November, 2013 the consultant was paid in July 2014 to travel to the USA for the exercise. I noted that the due diligence was carried out when the road works had already begun. The expenditure was therefore nugatory.

The exercise was for one month and the breakdown of the costs was as follows; Payment Description US($) Per-diem for 20days 9, 000 Air travel 6,000 Inland travel 4,000 Contingency 3,000 Total $22,000

Further review revealed the following anomalies;  There were no minutes regarding the decision taken by top Management;  There was no due diligence report at the time of writing this report and neither was there any supporting documents to confirm that the consultant travelled for the activity such as a photocopy of the visa or passport;  The payment was made in the names of a person who was not a staff of the Authority instead of the consulting firm as claimed. I explained to management that facilitating a person who is not a staff of UNRA is not only irregular but raises suspicion and could lead to causing financial loss;

I could not establish the terms of facilitation whether the payment was part of the contract sum since he was not a staff of UNRA.

The Accounting Officer explained that the report that was meant to be presented to the Board could not come in because the services of the consultant were already terminated.

I advised the Accounting Officer to investigate the matter further with a view to recovering the funds.

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d) Fraudulent Advances to ABC Capital Bank The statement of financial position under the value of other receivables showed that UGX.173,701,000 that was transferred fraudulently to a commercial bank has not has not been recovered up to now. There appears to be minimal efforts by management to follow up the matter and recover the held up funds. This issue was raised in my earlier reports to Parliament.

I advised the Accounting Officer to enforce recovery of the funds. e) Unaccounted for Advance - UGX.47.7bn to contractors to pay Project Affected Persons (PAPs) During the review of the financial statements; it was observed that a sum of UGX.47,738,040,619 was advanced to and is now held up by various contractors for property compensations to Project affected Persons (PAPs). At the end of the financial year; these advances were not yet accounted for because there was no status report submitted to me to verify the progress of the compensation. Note 4.13 (i) to the financial statements indicated that the advances to the contractors were based on valuation reports approved by the Chief Government Valuer. However, I noted that UGX.6.5billion advanced to an International Engineering firm for Olwiyo Gulu Project was not based on the valuation report approved by the Chief Government valuer which I found was irregular.

Management explained that the consultant had not begun settling the PAPs due to the fact that the Valuation report was not yet approved by the Chief Government Valuer.

I advised the Accounting Officer to ensure that there are adequate safeguards to avoid loss of Government funds. f) Outstanding creditors I noted that the Authority had outstanding creditors to the tune of UGX.239,445,625,000 as at the closure of the financial year reflecting a slight 454

improvement of 36% as compared to UGX.376,619,216,000 in the previous year. The current year’s balance comprised of a significant portion of UGX.238,301,433,000 for unpaid works and UGX.1,099,191,000 in salaries and wages. I explained to management that outstanding payments on construction works attract interest legal costs if not paid in time and may lead to delayed completion of road projects.

Management explained that UNRA runs development projects which straddle financial years and on average a typical Road upgrading project runs for 3 to 5 years hence the funds allocated in the budget are sometimes not sufficient to meet UNRA’s commitments. The agreed upon performance schedule of the contractor is therefore not met. Additionally, due to the lengthy nature of these contracts, there are significant variations in price that are very difficult to quantify in advance including foreign exchange effects. UNRA shall engage MoFPED on this matter with a view of minimising such payables.

I await the outcome of the Accounting Officer’s plan of action. g) Review of Budget Performance – Uncompleted Activities A review of budget performance for the year showed that a number of activities/programs were partly implemented or had not started at all despite the availability of funds. See the summary below;

SN Projects/ Targeted output Status of Management Activities Description performance Response/Current Status

1.0 Project 1033: 37 hectares of land 4.45 hectares of Compensation payment Design Hoima - and properties to be land were has been going on and Kaiso -Tonya acquired and 2243 acquired and 318.82 Ha of land have (85km) persons to be 2134 persons so far been acquired for compensated. have been the entire project. compensated 2.0 Project 1034 : 160 hectares of land 68.04 hectares of To date 289 Ha of land Design of Mukono - and properties therein land acquired have been acquired for Katosi-Nyenga to be procured the entire project. (72km) Acquisition process is ongoing.

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20% of the works to 7.20% of the 11% physical progress be completed. works completed achieved to date.

3.0 Project 1035: 249 hectares of land 61.385 hectares The TIN number Design Mpigi- and properties therein of land acquired requirement was relaxed Kabulasoke -Maddu to be procured by MoFPED and so far (135 km) 458.84 Ha of land have been acquired along the entire project. Acquisition process is ongoing. 20% of works to be 9.11% of the 13.7% of the works completed works completed completed. This represents progress on the entire 174km of Mpigi-Kanoni-Maddu- Ssembabule- Villa Maria road 4.0 Project 1038: 77 hectares including 9.87 hectares The Chief Government Design Ntungamo - properties therein to were acquired Valuer approved in Mirama Hills (37km) be acquired. January 2015. 36.2 Ha have so far been acquired and the process is on-going. 20% of works 11.09% had been completed by June completed 5.0 Project 1040: 250 hectares of land No land was The design process also Design Kapchorwa - acquired. acquired includes updating of the Suam road (77km) valuation report. Acquisition will commence upon approval of the valuation report. 6.0 Project 1041: 500 hectares of land No land was Three Consultants have Design Kyenjojo - and properties therein acquired been successfully Hoima-Masindi - to be acquired procured and contracts Kigumba (238km) signed. The Consultants have all commenced verification for compensation payment. 7.0 Project 1180: 200 hectares and 45.91 hectares of The disputes are being Kampala Entebbe properties therein to land were resolved overtime and Express Highway be procured. acquired and so far 197.83 Ha have properties therein been acquired and compensated Compensation payment is on-going. 8.0 Project 1274: Musita 100 hectares of land No land was A new Consultant was – and properties therein acquired procured and a contract LuminoBusia/Majanji to be procured signed in July 2015. So Road far no land has been acquired. The Consultant is updating the valuation report and 456

payment will be done once approval of the updated valuation report is obtained from office of the Chief Government Valuer. 20% of road works to The work had not be completed started by end of the financial year. 9.0 Project 1275: 300 hectares of land No land was Valuation report for Olwiyo – Gulu - and properties therein acquired Olwiyo-Gulu and Kitgum Road to be acquired Acholibur-Musingo road was approved on 2ndOctober 2015. Verification for compensation payment is expected to commence in November 5.5%. to be 4.2% had been completed completed 10. Project 1276: 100 hectares of land No land was This is a design and Mubende - and properties therein acquired build project. Acquisition Kakumiro-Kagadi to be acquired will be handled through Road the works contract. No acquisition yet done since it can only be done after design is completed. 10% of road works to No construction be completed work was done 11. Project 1277: 20 Hectares of land 1.92 hectares The Consultant was Kampala Northern and properties therein were acquired procured in January Bypass Phase 2 to be acquired 2015. So far 5.05 Ha of land have been acquired and acquisition is ongoing 15% of road works to 1.77% completed be completed 12. Project 1310: 100 hectares of land No land was Projects still under Albertine region to be acquired and acquired design. No land sustainable property therein to be acquisition activities development Project compensated have yet commenced 15% of road works to No construction be completed work was done

13. Project 1281: Tirinyi 200 hectares of land No land was No land acquired. – Pallisa and properties therein acquired Procurement of Kumi/Kamonkoli to be procured Consultant still on- Road going. 10%of the works to No construction be completed by the work was done end of the year.

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14. Project 1311: 50 hectares of land to No land was No land acquired. Upgrading be acquired and acquired Procurement of Rukungiri-Kihihi- property therein to be Consultant still on- Ishasha/Kanungu compensated going. Road Contractor and Consultant not Technical evaluation is Supervision consultant procured in progress for the to be procured and consultancy advance paid Bidding for Works is underway and submission is expected on 10th December 2015 15.0 Project 1312: 50 Hectares and No land was No land acquired; Upgrading Mbale – property therein to be acquired process yet to Bubulo - Lwakhakha acquired commence Road Contractor and Consultant not Supervision consultant procured to be procured and advance paid

Overall management indication of low performance was largely due to delays in procurement, inadequate planning and lack of follow up on compensations and valuations. I explained to management that continued delays in land compensations and valuations reflect negatively on the performance of the Authority and service delivery.

Management explained that the most significant issues affecting progress have been policy related and these will be resolved after the restructuring process. Further, management explained that it intends to start on the acquisition process early so that there is a free and unencumbered stretch of not less than 30% of the full road length and where it is not possible to carry out early acquisition, the contractor will be advanced money to make actual payments and embrace the policy of carrying out proper due diligence on all new contractors to ensure ability to mobilize on schedule and take stern action against contractors who cannot effectively meet their contractual obligations.

I await the outcome of the Accounting Officer’s plan of action.

h) Procurement Irregularities

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(i) Failure to carry out due diligence - Procurement for Supply, Installation and Commissioning of Two Multi Deck Weighbridges - US$.978,756.68 I reviewed the procurement for the supply, installation and commissioning of two Multi Deck Weighbridges and noted that an international company was selected as best evaluated bidder and awarded the bid worth US$.978,756.68 to undertake this activity. However it was observed that there was no due diligence process carried out as the capacity of the best evaluated bidder to supply, install and commission was not assessed.

Management explained that the selected company is an international firm operating in Kenya and Uganda in the business of manufacturing weighing scales of various categories and there was evidence to demonstrate that the company had undertaken similar assignments. The firm is competent to carry out the assignment and that the evaluators relied on the information contained in the brochure as submitted together with the bid.

I advised the Accounting Officer to ensure that due diligence procedures are carried out as required by the procurement procedures.

(ii) Violation of evaluation guidelines for consultancy services for supervision and Construction of Musita- Lumino, Busia - Majanji Road This procurement was to provide Consulting Services for the design, review and construction supervision of the upgrading of the above road measuring 104kms. The consultancy was awarded to an international consultancy firm. During the review of the procurement process; I noted the following anomalies;  There were no appointment letters issued to the evaluation committee members and subsequently acceptance letters by the members were not filed;  The Ethical forms were signed by only three (3) members as opposed to the five (5) nominated earlier;  Section 6 Para 2.5.1, 2.5.7 and 2.5.8 of part 3 of the Bid document required the production of the contractor's mobilization report however; this was not on file at the time of audit. 459

It appears there were flaws in the procurement of this consultancy.

I advised the Accounting Officer to ensure the provisions of the law are adhered to.

(iii) Violation of evaluation guidelines (Delays) on consultancy services to design parking areas, walkways, landscaping and fencing of four weighbridges at Malaba, Busia, Mutukulla and Elegu Evaluation Regulation 5 (1) (a) of the PPDA Regulations 2014 provides that an evaluation exercise shall for each type of procurement be concluded within the time period specified in this regulation.  Twenty working days for the evaluation of bids for the procurement of supplies or non-consultancy services from the date of opening of the bids; and  Where an evaluation committee is not able to complete an evaluation exercise within the time specified in sub regulation (1), the committee shall in writing explain to the Accounting Officer the reasons for this and request for extension of the time period for the evaluation exercise.

Contrary to the regulation; I noted that the evaluation of bids for the consultancy services to design parking areas, walkways, landscaping and fencing of four weighbridges at Malaba, Busia, Mutukulla and Elegu, took almost one and half years to complete the evaluation and produce the required report. The evaluation Committee was approved on 19/09/2013 and PDU released the appointment letters to the Evaluation Committee on 17/12/2013 with the stipulated date of 10/01/2014 when the evaluation report was supposed to be forwarded to the Contracts Committee.

The technical evaluation report was finalized on 10/12/2014 and approved on the 13/01/2015 to allow financial proposals from consulting firms to be opened and evaluated. The financial evaluation was completed on the 9th April 2015 and the Contracts Committee approved both the technical and evaluation report on the 09/04/2015 where a consultant with a contracted price of UGX.107,600,000 was awarded. 460

I noted that between the date when the evaluation Committee was appointed and the evaluation report finalized there were several correspondences addressed to the evaluation Committee by the Acting executive Director regarding the delayed evaluation report and no explanations were provided for the delays. Delays in the evaluation process showed the implementation of the Government planned and budgeted activities took close to two years. At the time of writing this report, the best evaluated bidder had not signed the contract.

I advised the Accounting Officer to put it place measures to avoid unnecessary delays.

(iv) Wasteful expenditure (Administrative Review) of UGX.510,256,942 on Tororo-Mbale and Mbale – Soroti Project Section 5 of the PPDA Regulations 2014 (Administrative Review) empowers the Accounting Officer to carry out an administrative review following a written complaint by the aggrieved bidder stipulating the reasons for the review. Furthermore; Section 11 of the same Regulations requires the aggrieved bidder to pay a prescribed fee depending on the value of the procurement/disposal.

During the review of the procurement files; I noted that the procurement value was approximately UGX.100bn and therefore UGX.15m was chargeable based on the schedule of fees for the administrative review. On the contrary; UGX.510,256,942 was paid following a complaint by the contractor and thus a loss of UGX.495,256,942 was registered which I found irregular. I further noted the following anomalies; The payment was made in the names of one of the directors instead of the law firm that had a contract with UNRA and no administrative review report was availed to confirm that the review actually took place. Whereas the Regulations give the Accounting Officer powers to carry out the administrative review, I could not ascertain how the firm was selected. There was no evidence to confirm whether the UGX.15m was paid by the contractor for the review as required by the law and besides; there was no acknowledgement 461

receipt from the recipient of the funds to confirm the receipt of the payment. Meanwhile; Withholding Tax of UGX.27,334,129 was not deducted contrary to the Income Tax Act 2003.

There is a risk that payments could have been made for no work done.

The Accounting Officer explained that the individual deceitfully caused UNRA to pay the amount into his personal account. This was discovered and the law firm also raised it. Management decided to suspend the engagement of his services and any further payments till the matter was resolved with fellow partners.

I advised the Accounting Officer to follow up the matter to its logical conclusion.

(v) Weakness in the Purchase and Consumption of Toner I noted that UNRA procures tonner in bulk; the day this tonner is received is the day it is requisitioned and issued. The date of the Goods Received Note (GRN) is the same date on the Stores Requisition Issue Form Voucher (SRIV). Below is a sample of items of tonner that were procured and consumed on the day of delivery and the frequency of purchases. Payment Goods Date of Goods Amount in Amount UGX Voucher Received Note Received Note Dollars paid through Number (GRN) and Stores indicated on Payment Requisition Issue Goods received Voucher Voucher (SRIV) Note AB412043 87324 & 87324 19/08/2014 $19,417.72 99,687,894

AB412083 90361& 90362 17/10/2014 $20,542.62 220,277,690 AB412083 90365 & 90366 27/10/2014 $18,593.56 AB412083 90355 &90356 8/10/2014 $19,569.34 AB412083 90372 & 90373 12/11/2014 $20,741.68

AB503018 90382& 90383 26/11/2014 $28,094.92 264,527,444.72 AB503018 90385 &90386 22/12/2014 $23,311 AB503018 90388 & 90389 5/12/2014 $17,470.79 AB503018 90398 & 90399 8/1/2015 $20,799.49

AB503154 95376 & 95377 23/02/2015 $21,809.94 266,752,760.94 AB503154 95359 21/01/2015 $21,179.53

AB506029 95392 19/03/2015 $18,078.49 275,282,635.71 AB506029 76658&76659 21/04/2015 $20,573.30 462

AB506029 76668 &76669 8/5/2015 $22,621,78 AB506029 76653&76654 31/03/2015 $27,139.12

AB506092 76680&76681 27/05/2015 $29,889.40 166,677,293.15 AB506092 76675&76676 18/05/2015 $22,094.91 Total 1,293,205,719

It was observed that the Stores Requisition Issue Form Voucher does not indicate the Location /Office/Department where each item of Tonner is to be used an indication that goods are not taken on charge. I explained to management that failure to indicate the location renders the verification of utilization difficult leading to loss of audit trail. Misuse of procured items cannot be ruled out.

Management explained that the toner is procured under a framework contract and delivered when it is required. Management noted the anomaly and indicated that the specific fields for office location and printer will be included on the Stores Requisition Issue Form (SRIF) as a new procedure.

I await the outcome of the Accounting Officer’s commitment.

(vi) Use of non-pre-qualified suppliers on UNRA publications UNRA short list notice provided for advertising and media services/agencies for provision of non-consultancy services for three years. A number of firms were contracted during the year and paid a sum of UGX 77,102,534 to run some publications. However; I noted that there were some four (4) firms under package 4 (Lot 1) that were not properly contracted. These firms were not among the pre- qualified suppliers and the transactions lacked initiation of the procurement by the user department; there was no contract or call-off orders from management and no Goods Received Notes, acknowledgement receipts and Issue Notes seen.

I explained to management that failure to contract pre-qualified firms is contrary to the procurement regulations.

Management explained that the LPOs were not issued because payments were to be made against copies of the highway code delivered to the targeted schools and 463 verification report by the user department. Each school that received the highway codes signed and stamped as acknowledgement of receipt.

I advised the Accounting Officer to always observe the PPDA law and ensure only Pre-qualified suppliers as engaged.

(vii) Doubtful supply of Equipment During the year under review; management acquired IT equipment worth UGX.111,472,265 from two (2) local companies. However, I noted that one of the company was paid UGX.26,310,508 for the supply and delivery of a variety of IT equipment, however, but the transaction lacked initiation of the procurement by the user department and the distribution of the items to the user department was not supported with documentary evidence.

Further, the other company was also paid UGX.85,161,757.87 for supply and delivery of Computers and IP Phones but the transaction lacked initiation of the procurement by the user department, and besides, there was no LPO and no evidence of distribution of the items to the user departments/units.

In such circumstances; I could not confirm whether the equipment were procured.

I advised management to always observe procurement and stores guidelines.

(viii) Payment to a hotel During the review, I noted that UGX.12,835,200 was paid to a hotel for hall hire for 14 days to accommodate a team that undertook an evaluation for Kyenjojo Kagadi-Kabwoya road. However; the hotel was not on the pre-qualified list of service providers, the evaluation report was not seen and the procurement was not in the procurement plan contrary to the PPDA law. I explained to management that non-compliance with procurement guidelines denies the entity benefits of competition.

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Management explained that a request for provision of hotel services was obtained at short notice and given the urgency and sensitivity of this evaluation exercise, management deemed it necessary to dispatch the Evaluation Committee to an undisclosed location which was relatively cheap based on the quotations obtained from the hotel and another hotel. Management further indicated that UNRA prequalification list of providers for hotel services is insufficient. This procurement was a one off and therefore there was no need to include it in the procurement plan.

I advised the Accounting Officer to always observe the Procurement guidelines. i) Irregularities in compensation of Project Affected Persons (PAPs) During the review of the compensation process to the PAPs on two (2) projects; Mukono - Kyetume - Katosi Nyenga Road and LPC Busega, I noted some anomalies as summarised in the schedule below;

Observation Implication and Recommendation Management Response 1. Missing PAPs in the Approved Land & There is a risk that I advised Property Valuation for compensation - compensations were made management to Mukono - Kyetume - Katosi Nyenga to non-existing PAPs retrieve the original Road - UGX.361,747,721; leading to loss of documentation and I noted that the land and property Government funds. avail for purposes valuation for compensation final report of verification. approved by the Chief Government Valuer Management explained and the strip map of the road that were that the original valuation provided were photocopies and some reports were submitted to names of the PAPs were actually missing. the commission of inquiry. Some names of the PAPs appearing in the summary final report with value attached of UGX.361,747,721 could not be traced in the detailed part of the report. I was also not availed the original valuation reports to confirm whether the missing PAPs in the detailed Land and Property Valuation report were genuine. Since payments to the PAPs were based on the summary; it was hard to verify the payments with the details of the land, property, crops and trees that were surveyed and valued. 2. Incomplete Information in the Paying the PAPs without I advised Valuation Report - Mukono – Kyetume indicating the correct Block Management that

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- Katosi /Kisoga –Nyenga Road - number and Plot number valuation of the UGX.743,980,938 could have resulted into right plots on the compensating non existing block where PAPs Review of the Chief Government valuer’s persons hence loss of properties are compensation valuation report and the strip Government funds. located on Katosi map revealed the following anomalies; road should be The land and the properties of the PAPs in Management carried out to avoid Kisoga B and Kisoga Central in Kyabaloga acknowledged that a errors. Parish, Nakisunga Sub County were number of payments for surveyed and valued but the Plot Numbers titled property/land were that were surveyed and valued on Block reflected in the valuation 256 are indicated by xxxx without report with missing specifying the real Plot numbers an information on the plot indication that the consulting Surveyor may numbers. not have actually carried out a search with Property with missing the Ministry of Lands, Housing and Urban information on plot Development before submitting the report numbers is as a must to the Chief Government Valuer for verified by the consultant approval; on obtaining the original certificate of title for such the Summary of the land and property areas and further searches valuation assessment report indicates that are conducted at the lands the PAPs were located on Block 256, offices to ascertain the however, the detailed land and property ownership status of the valuation for compensation indicates that title. It is likely that land in the PAPs are located on Block 252; question has several Kibanja owners that were The review of the strip map revealed that also verified and paid. PAPs were located outside Block 252 and Block 256 was not located on the strip Map. The land and property valuation assessment report with the important information missing was approved and signed by the Chief Government Valuer. I noted this is what was used for compensating the PAPs;

Under payment summary of expropriation of land for the road reserve, Form B: the payment provides sections where Block number and plot numbers would be indicated before the payment is effected to the PAPs. I noted that the Block number was filled as Block 256 which does not exist on the strip map. The Plot number was left blank for the PAPs that were paid instead. 3 Compensation to Project affected The valuation report that I could not confirm persons with Mailo land titles without does not specify the the above position real Plot numbers indicated surveyor’s reference as the supporting I noted that land, property, crops and trees number and Plot numbers documents were for some of the twelve (12) PAPs were creates ambiguities and not availed for surveyed and valued but the chainages of could have led to loss of verification. the road where the land is located was not Government funds to non- indicated and the surveyors reference existing PAPs. I was not 466

numbers were also not provided. availed with an explanation One of the PAPs had two plots of land that as to why management were surveyed and valued but were all adopted and used a located on Block 256 however; it was noted valuation report without that the Plot number on Kisoga – Nyenga specifying the surveyor’s Section was indicated by xxxx without reference number and Plot specifying the real Plot number. numbers.

The Plot number on Mukono –Kyetume – Management explained Katosi Section was reflected as that the Survey reference encumbered land without specifying the numbers and chainages Plot number. In some instances the names are basically used as of the PAPs were reflected as XXX and their guiding tools for the survey respective Plot numbers were also reflected team. They are not as xxx an indication that the surveying necessarily very essential consulting surveyor might not have actually components in a valuation visited the sites and payments could have report. They indicated that been made to non-existent PAPs. what would be most I was not availed with the original Land important in a valuation titles and the signed transfer forms to report are the property confirm the genuineness of the references which should compensation transactions to the PAPs guide the implementation. despite several requests made to have T these documents availed for audit. 4 Compensation to unknown title Surveying and valuing I advised holders - UGX.60,308,602 land, property and crops of management to The Consulting Surveyor surveyed and PAPs to identify the Plot resolve the issues valued land, Properties and Crops of numbers and the Block highlighted and several Bibanja holders at UGX 60,308,602 number and failing to ensure title holders on Plot 57 Block 380 in Ngogwe Town identify the names of title are disclosed. Village on Kisoga –Nyenga Section located holder(s) renders leaves on chainage 21 +475 to 21 +575 however; gaps in the valuation both the summary of the land and property process. I explained to valuation assessment report, the detailed management that in its land and property valuation for current form; the valuation compensation report indicated that the report is misleading and names of the title holders as un known. unreliable.

The surveyor surveyed and valued the Management explained land, property and crops of the Unknown that verification of title holder of Plot 57 Block 380 at individuals is conducted UGX.17,604,200 on the same section jointly by the consultant’s Kisoga –Nyenga. The unknown title holder team and the district was allocated reference number KN/1111 in leadership. Management the summary of land and property acknowledged that it could valuation for compensation report but be possible that at the time allocated reference number KN/1112 in the of assessment, a PAP is detailed land and property valuation for recorded as Unknown if compensation report and the surveyors he/she is not available on reference number. ground and the names not properly known but There was limitation of scope as I could not recognized as land access the original land title and the belonging to an individual transfer forms to confirm whether the by the local leaders and 467

compensation was genuine. UNRA community members. management did not avail the original title and transfer forms despite the several requests. 5. Change of Project Affected Persons’ This may have resulted I advised names at payment level. into genuine PAPs not management to Review of the strip map, approved land and being compensated review the property valuation assessment report creating an increase in the compensations on revealed that some names in the strip map, number of PAPs this project to land and property valuation assessment complaining not to have ensure that reports were changed at payment stage. been compensated by genuine PAPs are Change of names was based on the UNRA Management. cleared and all recommendations of the LC 1 officials. The situation is a reflection outstanding claims However; I noted that the recommendation of the current endless verified and people letters that were from different LC 1 had claims by PAPs on the fully compensated. the same format and grammatical English same project. indicating that the letters were drafted by Management explained the same person which creates suspicion of that change of name form compensating incorrect PAPs. was necessary as in some cases the names picked at Meanwhile, I could not verify these assessment may slightly complaints as management did not avail vary with the actual name the PAPs complaints file of Katosi Nyenga of the PAP. This happens Project for verification despite several because sometimes the requests and reminders which translate affected individuals are not into limitation of scope. present at the time of assessment and the names picked are based on information provided by the care taker and or local leaders. 6. Non-disclosure of chainages in the Without the chainage I advised valuation report indicated, it becomes management to I noted that in the valuation report a difficult to match the land always supervise number of beneficiaries from Bulaga A and on the strip map. There is the consultants and B, Kikaya, Bulenga A, Kamuli Wabigalo and a possibility of ensure the Kikuumambogo among others whose land compensating for wrong valuation report is and properties were compensated lacked plots/pieces of land. complete before chainages. Further review showed that the Consultant is under payment schedule No. 9, on Busega Management explained paid to avoid – Mityana road, Kalema Peter of Bulenga B that the anomaly was due challenges. LC 1 was compensated UGX.104,286,778 to the consultant’s Information for land and property however, the negligence and has since captured on the valuation report did not indicate the failed to complete the work strip map and the chainage on the strip map. There is a due to delays. UNRA has Valuation report possibility of double compensations arising requested the Consultant should always as the valuation report and summary to provide the match. sheets do not show the location/chainage accountability report and of the land. end the project. 7. Payments made without land titles I explained to I advised and sale agreements. management that without management to land titles; and without ensure the land Section LP 3.2 of Part B of the “UNRA Land sale agreements acquired is Acquisition Management System Manual”, processing of the land registered under 468

specifies what those entitled to titles by the UNRA would the Uganda compensation should present before the be difficult. National Roads payment is made that include; Management explained Authority. Valid identity papers (Identity Card, Driving that the valuation for Permit, Voters Card, Passport); if no valid Busega-Mityana was identification can be produced a signed carried out in stages. The letter from the LC1, approved by the Sub- first valuation report County Chief and the District Chief approved on 30thNovember Administrative Officer confirming identity 2011, was carried out on will be accepted, 2 Passport size photos for the realigned sections due identity verification and payment to the urgency of the confirmation, Land title/certificate where exercise because of the land is to be transferred to UNRA and bank presence of the contractors account details, where payment is to be on site while working with made by electronic funds transfer. the office of Chief Government Valuer it was I noted that the payment schedules agreed that assessment attached to Busega – Mityana road did not would be done for have copies of Land titles or sale improvements on land agreements to confirm the clear transfer of taking the kibanja interest title or ownership of land from the seller to only at that stage. This UNRA representing the Uganda Land would enable UNRA to Commission. In the circumstances; I could deliver the site since the not confirm whether the land that was paid other sections were for was genuine and existed. following the existing road alignment. 8. Un-declared ownership by Licensees There appeared to be no I advised compensated for land UGX.8,096,230 adequate controls in place management to According to the UNRA Survey and to verify the licensees. always ensure that Valuation report for emergency works and There is a possibility that compensation for hotspots for land take for road works along may not have had interest land is done to Busega – Mityana road of 20th may 2014, in the land and could have PAPs who are the by Wemo consultant planers and surveyors, defrauded the UNRA. In real owners of the section 2 categorizes a licensee as a person response, management land to be who has no interest in land for acknowledged the anomaly compensated for compensation and rather uses land on a in the recording of the and can easily short tenancy schedule. This category is in details of the two PAPs transfer the title in most cases for seasonal crops and temporal indicating that there was a land/ownership to structures such as a makeshift. During the typographic error but UNRA. review, I noted that two (2) licensees were actually the two PAPs own compensated for land without declaring land (kibanja interest) as their ownership in the land being occupied. shown on the strip map. There was no evidence that the tenancy However; I was not given schedules of the indicated persons were evidence to support the verified to establish the status before response. compensation.

Further, I noted that the commission of inquiry on UNRA has been undertaking in- depth investigation onto the matter.

I await the outcome of this investigation. 469

j) Lack of legally binding agreement between UNRA and Kalangala Infrastructure Services Ltd (KIS) KIS is a company operating Ferry transport services between Bukakata landing site in Masaka and Luuku landing site in the Island of Kalangala District. KIS signed an agreement with the GOU on 20th April 2012 to exclusively run and operate the ferry transport services in this water route and additionally maintain in motorable and all weather condition of 38 km of roads on Bugala Island and 66km of roads in Bwendero. The concession granted by the GOU to Kalangala Infrastructure Services (KIS) was for 13 years starting January 2012. A review of the Memorandum of Understanding and implementation agreements signed between KIS and the GOU and the subsequent payments to KIS revealed the following anomalies: I observed that there was no legally binding agreement between UNRA and Kalangala Infrastructure Services Ltd (KIS).

The Public Private Partnership (PPP) signed between the GoU represented by MoFPED and KIS did not provide the details of which Government Agency is responsible to implement certain terms and conditions in the implementation agreement signed.

UNRA over the last 4 years has been making both annual and quarterly payments to KIS in accordance with the signed implementation agreement with GOU. In the financial year 2014/2015, UNRA paid a total of UGX.17,882,012,502 to KIS as fulfillment of GOU obligation in the implementation agreement. However; a review of the agreements signed between GOU and KIS do not mention UNRA anywhere, besides, there is no documented evidence authorizing UNRA to budget and implement this agreement between GOU and KIS.

The legal basis upon which UNRA is remitting payments to KIS is questionable since UNRA does not have an agreement with KIS. UNRA management was unable to provide the evidence that MOFPED appointed UNRA as the implementing agency of the GOU with KIS. Interview with UNRA management showed an expression of lack of knowledge about the relationship between UNRA and KIS. 470

There is a possibility that UNRA might be implementing an agreement to which it is not party. Management is unlikely to follow up the payments with KIS in form of accountabilities.

In response, management explained that UNRA signed the Right to Use Agreement with KIS in Nov 2009 while Ministry of Finance, Planning and Economic Development signed the Direct Agreement in 2011. Management stated that UNRA worked on the understanding that it is the responsible GOU agency for ferries and national roads. It was indicated that MOFPED in 2012 wrote to UNRA requesting that the Authority follows up the projects on behalf of the GOU. The role of UNRA has been to implement the GOU obligations in the Implementation Agreement which has been discharged however; it is necessary to specify them in a memorandum of understanding between MOFPED and UNRA.

I advised the Accounting Officer to harmonize their positions with MOFPED so that documented evidence is adduced to specify each other’s roles and responsibilities in the KIS project which will help in planning and accounting for this activity. k) Improperly Budgeted for Expenditure - Support for KIS During the year, UNRA remitted a total of UGX.17,882,012,502 to Kalangala Infrastructure Services (KIS) in fulfillment of the obligation of GOU under the implementation agreement with KIS. The agreement required GOU to make such payments for Ferry operations, Road upgrade and maintenance.

UNRA inappropriately charged Account code 231003 (Roads and Bridges) expenditure code in respect of these payments and the payment vouchers had no accountabilities in respect of these expenses. Interview with management indicated that the agreement between GOU and KIS was drafted in such a way that only enabled them to pay but not to account for the funds. There was no evidence to show that the payments are in form of transfers. Instead the expenditure is budgeted for under development expenditure and charged on an expenditure item.

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I explained to Management the possibility of accounts and financial statements being misrepresented due to inconsistences arising out of inappropriate treatment and classification of this transaction including charging inappropriate expenditure codes when the substance of the transaction seemingly looks like a transfer.

In response; the Accounting Officer clarified that this was not a mischarge as the authority and approvals were requested and obtained from the Permanent Secretary/Secretary to the Treasury to incur the expenditure following the modalities on management of the KIS program as included in the agreement.

I advised the Accounting Officer to harmonize KIS operations so that they have a clear business like relationship which should be able to provide a way to deal with how the payments should be disclosed and classified. l) Lack of a performance Guarantee on Funds paid for ferry operations (KIS) Schedule 4 of part 1 Ferry Support Payments (b) of the Amendment No. 1 to the Implementation Agreement between GOU and KIS states that the Ferry Service Support payment will be paid as lump sum in advance prior to the start of each year that the Ferry service is being operated commencing on the commercial operations of the Ferry Services component.

During the year, UGX.8,934,204,538 was paid in respect of Ferry support payments to KIS in advance without obtaining an advance guarantee or performance guarantees from KIS contrary to Good practice that requires advance payments to be supported with an advance guarantee from the beneficiary. I noted that this provision was not provided for in the agreement with KIS. I explained to management that making advance payments without a performance guarantee endangers the safety of Government funds. There is a risk that Government could lose money in the event that KIS fails to perform its obligations under the current agreement.

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In response, management explained that the implementation agreement provides for the ferry payments to be made in advance though it was not indicated in the clause that there shall be an advance payment guarantee. Management further indicated that UNRA has never been advised by MOFPED on the matter while KIS indicated that GOU’s fall-back position is taking over the investments of KIS. Management noted this was however risky and promised to remind the MOFPED to effect the necessary risk mitigation measures.

I advised the Accounting Officer to review the agreement with KIS to minimize on the potential risks that exposes Government funds to losses and ensure urgent follow up with MOFPED. m) Technical (Engineering) Audit of a Sample of Road Construction Projects During the financial year 2014/15, UNRA implemented a total of twenty six (26) development road infrastructure projects whose contracts amounted to UGX. 3,560,039,968,569, Euro. 168,834,255,107 and USD. 476,000,000. As part of the audit of the financial statements for the year, the OAG undertook a technical audit of a sample of 4 road construction projects implemented by UNRA constituting a total contract sum of UGX. 260,993,077,039 and USD. 476,000,000.

The Specific objectives of the technical audit were to:  To evaluate the existence and effectiveness of internal controls, which are needed for the application of sound engineering principles and practices  To obtain reasonable assurance, that the constructed and rehabilitated/maintained roads, during the stages of planning, design, construction and maintenance, were actually done with reasonable quality, and in accordance with sound engineering principles, practice, technical management policies and specifications.

All the four projects were executed by contractors and supervision of the works including design reviews was carried out by Consultants. The projects selected included; Sn Project Contractor Contract Amount 473

1 Construction of Kampala- China Communications USD 476,000,000 Entebbe Expressway Construction Company (51km) Limited (CCCC) 2 Upgrading of Kamwenge – China Railway Seventh UGX 117,942,575,300 Fort portal Road (65km) Group Ltd.

3 Upgrading of Mpigi- Kanoni Energoprojekt- UGX 123,770,604,739 Road Niskogradnja AD

4 Emergency Replacement of Armpass Technical 19,279,897,000 Ntungwe and Mitaani Services - FETL JV in Bridges in association with JM Rukungiri/Kanungu Districts Kariuki Consultants Ltd

Below are the summarized key audit findings arising from the audit. Details can be obtained in the detailed report which was issued separately and forms an integral part of this report.

KEY AUDIT FINDINGS

1) CONSTRUCTION OF THE KAMPALA – ENTEBBE EXPRESSWAY (51.4KM) THROUGH DESIGN AND BUILD CIVIL WORKS CONTRACT

i) Inappropriate procurement methods Supervising Consultant The procurement of the SR was through Restrictive International Bidding process and the names of the 2 (two) firms to be approached for proposals were provided by the Chinese Embassy in Uganda following UNRA’s request. The names provided were Ms Beijing Expressway Supervision Co. Ltd (BESC) and Wuhanjiaoke Engineering Consultant Co. Ltd. UNRA requested for more names but eventually it was the two firms which were invited to bid for the assignment. The procedure for selecting a firm was stated as ‘Fixed Budget Selection’ and the maximum budget was mentioned as US$5million.

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On evaluation of the proposals only MS BECS passed the technical score and their financial offer was opened. After negotiations they were awarded a ‘Time Based Contract’ for supervision of the works for US$4,998,300 under ‘Time Based Contract. The following matters were observed;  Approaching two firms only for proposals limited competition and might have resulted in the high cost for the supervision works  It is not understood why the selection procedure used was ‘Fixed Budget Selection’ procedure. This method is supposed to be used when the assignment is simple and can be precisely defined and when the budget is fixed. This is not the case for this project as the project is actually complex and the budget was not fixed.  It is not clear as to why the contract is ‘Time Based Contract’ and not ‘Lump Sum Contract’ while the consultant was selected using ‘Fixed Budget Selection’ procedure.

Civil Works Contract It was observed that UNRA directly procured the contractor for the Kampala- Entebbe expressway with the justification that it was in accordance with the Loan Agreement conditions whereby the China Exim Bank stated that the contractor should be M/s China Communications Construction Company (CCCC). However, this was found not to be the case because the Design –Build Works Contract Agreement (Conditional) was signed between UNRA and CCCC on 26th October 2010; while the Preferential Buyer Credit Loan Agreement signed between GoU and China EXIM Bank was signed in May 2011. No document was availed to the effect that the contractor was specified by the Exim Bank of China. A project of such magnitude and complexity should have been competitively bided in order to get the best offer for its construction.

ii) Analysis of the project planning and design Amongst the stated projects’ objectives are: a) Improvement of traffic conditions through decongestion of the urban areas functioning both as bypass and distributor

475 road, and b) contribution of urban development by inducing new land use and betterment of the urban and road environment. However, the following were observed:  As the expressway starts from Busega it will not reduce the congestion experienced on the existing Kampala – Entebbe road since most of the vehicles using existing Entebbe road from the city centre do not necessarily go to Entebbe. These will continue to use existing Entebbe road and congestion will still be there. The objective of decongesting urban roads might not be met.  The first 25km of the expressway will be ‘access controlled’ and the traffic will not be able to divert to the surrounding areas. This section can therefore not be considered as a ‘distributor road’. The objective of the road to improve ‘urban development by inducing new land use’ will not be met through this project.

The low number of ESAL on the two sections of the road does not need a very strong pavement as the one adopted for this project.

UNRA should always undertake design audits so as to ensure that the designs offer value for money.

iii) Analysis of the project costs In order to establish the reasonableness of the project costs, a comparison of the cost of Kampala- Entebbe Expressway was made with the Addis-Adama Expressway of Ethiopia also constructed by CCCC from 2010 to 2014. The analysis is as shown in the table below: Item Kampala-Entebbe Addis-Adama Remarks Cost ( million USD) 476 612 Road length , km 51.4 84.7 No. of lanes 4 6 Design speed, kph 50 to 100 100 to 120 Interchanges, No. 1 6 Entebbe was to have 8 interchanges Overpasses, No. 30, not clear 36 Underpasses, No. 43

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Main toll gates, No. 3 2 Ramp toll gates, No. 0 13 Link roads,km 14.13 18 Frontage roads, km 7.2

Source: Ethiopian Roads Authority website and UNRA contract documents for Kampala- Entebbe Expressway

From the table above, the unit cost of the Kampala- Entebbe expressway is USD 2.315million per lane kilometre while that for Addis –Adama expressway is USD 1.204million per lane kilometre. It is also noted that the Addis- Adama expressway has more features than the Kampala- Entebbe expressway.

Cost comparison can also be made using the experience in the East African region where costs for constructing a 2 lane highway with similar pavement structure as Kampala-Entebbe Expressway range between USD800,000 to 900,000 per km. If the higher figure is multiplied by 2.3 to accommodate 4 lanes with a median the cost is USD. 2,070,000 per km. Multiplying this with a factor of 2 to accommodate the other infrastructure (over/under bridges, interchanges, toll gates) then the cost is USD. 4.140 million per km. This is less than half of the cost of Kampala – Entebbe Expressway project which is USD 9.261 million per km.

UNRA should avoid ‘single source’ procurement for such complex projects. The project costs could have been much lower if the contractor had been procured through competitive bidding.

iv) Duplication of Consultancy Services for Kampala- Entebbe Expressway The supervision of works for Kampala- Entebbe expressway was awarded to Ms Beijing Expressway Supervision Co. Ltd (BESC) and ere referred to as the employer’s representative on site. However, another firm, Ms Mott MacDonald Ltd (MML) of UK in association with Ms Kagga & Partners Consulting Engineers of Uganda was assigned by UNRA to provide Project Management services in July 2013. This assignment was through an Addendum No. 2 to the contract signed

477 between UNRA and Mott MacDonald in mid-October 2011 which was for ‘Consulting Services for Feasibility Study, Detailed Engineering Design, Tender Assistance and Project Management for CAPACITY IMPROVEMENT PROJECTS LOT D: KAMPALA (ZANA) – ENTEBBE ROAD (29KM)’. The reasons for engaging Mott MacDonald to provide Project Management Services was said to be, quote : ‘The Procuring and Disposing Entity has insufficient capacity to provide full time Project Management Services under the Kampala – Entebbe Highway Project as the project is complex and requires regular presence of Employer’s representative on site’.

Addendum No. 3 to the contract was signed on 5th December 2014 and the objective was said to be ‘for construction monitoring services to ensure that there is full time staff allocation to effectively monitor the onsite construction works on the project’.

The earlier Addendum No. 1 to the contract signed end of December 2012 is for ‘Additional RAP Preparation and RAP Implementation including Land Expropriation and Titling Services on the new Kampala – Entebbe Highway (51.4km)’.

The following matters were observed;  Whilst UNRA knew of the planned Kampala – Entebbe Expressway project from early 2010 it continued with the process of procurement of the services for Capacity Improvement Projects Lot D Kampala (Zana) – Entebbe Road (28km) which were no longer required. The procurement of these services should have been cancelled and the process of procuring a services provider for RAP preparation and RAP implementation through appropriate procurement procedures undertaken.  The scope of services for the supervision consultant BESC as per the Statement of Requirements / Terms of Reference section 3 is ‘furnishing complete engineering services in all respects, including all field and office work in strict adherence to the highest standards of the civil engineering practice and with proper interpretation and full understanding of the duties and responsibilities of the Employer Representative’. This implies that the consultant BESC is

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considered as Employers representative and there was no need / justification to have another consultant for same position and purpose.  The rates for the Team Leaders of the two assignments differs by 50% while it is the same person is on the position.

Considering the noted duplication of services between BECL and MML, there is a need to review the MML’s contract and take action that will address the shortfall and save unnecessary costs.

v) Road Safety Issues and OHS It was observed that public vehicles are allowed to use the uncompleted works and mixes with construction traffic. There were no adequate warning signs to alert the drivers of the dangers due to ongoing works.

Most of the workers at the site were seen with protective gear (mostly helmets, boots and reflective jackets).

The residents of the areas where the access controlled section passes have been seen crossing the road at various locations. It is not known whether the access will be controlled to these people as well.

Barriers/fence should be placed on both sides all along the access controlled section of the road. On sections that the road is not access controlled adequate pedestrian crossing facilities should be provided.

vi) Quality of Works The audit team conducted field density tests (FDT) using sand replacement method to check the field densities/compaction levels on completed pavement layers. Thicknesses of the pavement layers were checked and compared to the specifications. The results showed that the quality of the subgrade, subbase, base and binder course meets the specifications.

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A rebound hammer was used to check the quality of the concrete works and the results showed that the concrete works are of good quality.

The auditors collected a sample of CRR from the stockpile at and cored AC20 from Ch. 1+190 and Ch. 3+600 to check their compliance to specifications. The results showed that the grading is within tolerable limits.

Laboratory tests carried out on the Asphalt Concrete (AC) cores indicated low air voids and indirect tensile strength. Too low an air void content, may lead to flushing, a condition where excess binder squeezes out of the asphalt mixture to the surface. A low tensile strength indicates that the asphalt pavement cannot tolerate higher strains before failing (i.e. cracking). The lower tensile strength of asphalt concrete is related to fatigue cracking and susceptibility to moisture. UNRA should compel the supervisor to always ensure that the contractor adheres to contract specifications and revised work methods to ensure that the asphalt concrete meets the specified quality.

2) UPGRADING OF KAMWENGE- FORT PORTAL ROAD (66.2KM) FROM GRAVEL TO PAVED (BITUMEN) STANDARD

i) Delays in the Works Contractor Procurement Process The procurement process involved prequalification of bidders before final bidding for the works. The 2nd stage of procurement process was delayed until 11th July 2013 due to verification of information related to experiences which should have been done at the Pre-qualification stage.

The World Bank had also advised against pre-qualification citing the delays associated with the process and the fact that there’s a risk of collusion amongst the pre-qualified bidders. The bank had recommended International Competitive Bidding (IC) with post qualification.

UNRA should ensure that for similar future Procurement arrangement under ICB, the Post-qualification is included in the Evaluation criteria and comprehensively 480 conducted to verify all the information submitted by the best evaluated bidders at the pre-qualification stage before the second stage of the bidding is conducted. ii) Planning and design for road works

Pavement design The original design for the road works was carried out by M/S Consulting Engineering Services (CES) of India in Association with KOM Consult (U) Ltd in 2009. The pavement design recommended was as follows:- 20mm first seal and 10mm second seal, 200mm imported crushed stone (CRR fine type) compacted to 100% of BS-Heavy for Base course, 150mm gravel material (natural gravel G30) compacted to 95% BS Heavy for subbase and 300mm improved subgrade with material G15 compacted to 95% BS Heavy.

Tender documents were prepared with BoQs reflecting the pavement structure as per original design which did not consider mechanical stabilisation of sub base. It was however noted that the BoQ in the contract has pay items B38.04 and B38.05 for mechanical stabilization. It is not clear at which point these pay items were added and priced for by the contractor. The rates for these work items may therefore not have been competitively priced. The design review was conducted by H.P Gauff Ingenieure GmbH & Co.KG-JBG in association with Gauff Consultants (U) Ltd who are supervising the works. The consultants compared three (3) alternatives of pavement designs based on Traffic class, T4 classification Although the three alternatives were all for Asphalt Concrete surfacing, the design review consultant recommended a pavement structure with DBST surfacing due to the potential substantial savings.

Whereas the design review consultant recommended a pavement with 200mm natural gravel G30 material, the cost estimate for the works in the design review report includes a cost for mechanical stabilization of the G30 material with crushed stone amounting to UGX. 5,001,186,330. This implies that the stabilization of gravel was included in the BoQs without clear basis.

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In the BoQ of revised design the pay item 37.02(b) for natural gravel G30 has a quantity of 151,689cum which is approximately the quantity that will be required if natural gravel is used on its own i.e. without CRR. However, with the use of Gravel modified with CRR with proportions of the stabilized material of 67% gravel and 33% CRR, then the quantity of gravel should be approximately 102,000cum, resulting in cost savings of the G30 material of 46,689cumics equivalent to UGX. 971,131,200.

iii) Inadequacies in the design review Process

Deviations from the requirements of the Design Manual for Flexible Pavements (2010) were noted in the design review process as follows:

 During the design review the subgrade DCP survey was carried out at intervals of 2.0km. However section 5.8 of the Design Manual specifies an interval of 100m for such surveys. Test pits surveys on the subgrade were done at 5.0km intervals while the Design Manual specifies the maximum interval for test pit surveys as 1.0km.

 One trial pit was excavated for investigation of natural gravel material from a potential borrow pit. This was not enough to know and judge the properties of the materials in the borrow pit. A minimum of four (4) trial pits have to be excavated to check the consistency of the material within the borrow pit.

The above deviations may result into the inaccuracies in estimation of quantities of earthworks i.e. cuts and fills where differences in ground conditions are encountered from those predicted at design review stage.

UNRA or the responsible consultant should provide justification for the inclusion of pay items for mechanical stabilization of the sub base in the BoQ after the tender was floated UNRA should also compel the consultants to always recommend the pavement materials that meet the specifications and whenever stabilization is recommended then clearly explain the reasons for the choice.

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The quantities in the BoQ for natural gravel G30 should be checked against the actual requirement since the 200mm of the sub base will contain approximately 33% CRR fine and potential savings documented.

iv) Works Progress

By end of September 2015, the works progress was at 49% against planned progress of 87%. It is therefore certain that the contractor will not be able to complete the works by the completion date of 31st January 2016. The delays are attributed to the following factors:

 Delayed compensation of properties in the right of way; due to lack of prior discussion and agreement with property owners at planning

 Suspension of earthworks and quarry operations from 1st July 2014 due to contractors’ non-compliance to standards and laws in relation to environmental/social issues. Suspension on earthworks was lifted on 27th August 2014.

 The contractor has not mobilized some of the necessary equipment for the works; whereas the work methodology in the contract and Section B3903 (c) of the special specification requires the crushed stone base course it to be laid using a paver; the contractor is currently using a grader

 The progress report for September 2015 indicates that the contractor is currently using old equipment from Kazo-Kamwenge road which has frequent break- downs. The contractor, in his bid, planned to purchase new equipment for the project.

 Whereas the contractor indicated that they would use part of the advance payment to purchase equipment, this has not been the case as indicated in the Engineer’s letter to the contractor dated 13th October 2015.

The contractor has failed to show that he is committed to completing the works on time due to failure to mobilise well-functioning equipment as specified in the contract.

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UNRA should ensure that the contractor commits to accelerate works to ensure completion and that he meets his obligations in the procurement of equipment for the works. In addition contractual penalties should be evoked to ensure that the contractor provides adequate resources for the works as indicated in the contract schedules.

UNRA indicated that the contract was being wound up and another contractor will be procured to complete the works. v) Inspection of Works

Drainage Works It was observed that a few cross culverts were constructed perpendicular to the road and therefore do not allow for easy flow of water from the side drains through them, they should have been skewed to guide water flow.

It was noted that a number of culverts were initially constructed using a wrong alignment and had to be lengthened in order to follow the correct alignment of the road. This has resulted in very long culverts that do not collect water from the side drains along the road; adjustments need to be made to direct water into the culverts. Further, these present higher maintenance costs for UNRA.

It was also observed that these long culverts had been paid for even though they were not constructed according to the design length. vi) Road safety Issues and OHS

The road alignment in a few section have S-curves which could have been reduced as at most places they were in swamp areas and therefore not expensive to acquire the right of way.

484

Environment Protection

The contractor is obliged under the contract to formulate an environment action plan, decommissioning plans and reporting. However, there’s no approved action plan. The progress report for September 2015 indicates that the contractor has not fully adhered to the environment protection provisions in the contract as evidenced by the following:

 The contractor had not obtained a water abstraction permit for the borehole at the camp as well as water for construction which is drawn from the swamps along the project road.

 Poor management of hazardous wastes which include used oils at mechanical workshops and bitumen spills.

The Engineer should ensure that measures are put in place to allow for smooth flow of water in the culverts from one side of the road to the other. UNRA should also instruct the contractor to correct the unnecessarily long culverts, and payments adjusted in subsequent certificates to cater for only the design length. vii) Quality of Works

The Supervising Engineers quality control test results were reviewed. These were seen in a file at the site offices. The results showed that most of the works tested met the specifications. The tests conducted on gravel from borrow pits at Ch. 153+660 LHS and Ch.167+577 LHS showed that the gravel has slightly high PI and

485 tests on stone from quarry at Ch. 147+700 showed that it has the qualities required.

The audit team conducted field tests on various completed works to ascertain their quality. The results showed that the gravel used for the subgrade layer is of good quality and the required degree of compaction has been achieved.

The blended gravel for the subbase was also of good quality, however a low CBR value (18% instead of 30%) was obtained at Ch.148+740 LHS indicates that the compaction of the road edges/shoulders was not adequate.

A rebound hammer was used to check the quality of the concrete works and the results showed that the concrete works are of quality specified. Gradation test were carried out in the laboratory for the crushed stone material (CRR) laid for subbase at Km 152+140-153+260 and the grading was found to be within tolerance.

UNRA should task the Contractor to ensure that, the compaction of the pavement layers is carried out uniformly throughout the road width including the shoulders.

The Consultant should also ensure that, the field tests have been taken throughout the road width to ascertain the level of compaction on the shoulders as well. Where the results do not meet specifications, the contractor should be instructed to re-do the works. viii) Overpayment for clearing and grubbing activity

Section 3102(b) of the General Specifications for Road and Bridge Works specifies the area for clearing and grubbing as follows; “The shoulders on each side of existing carriageways are included in the clearing and grubbing, but not the existing carriageway itself”. However, review of IPC 9 for June 2015 shows that the whole width of the road is paid for under clearing and grubbing. The auditors computed quantities for a 2km section from Km 143+100 to 145+000 and it indicated an overpayment of UGX 18,081,931 for that section alone. 486

Additionally the quantity for clearing and grubbing in IPC No.9 was overestimated due to calculation errors resulting in an overpayment of UGX 12,595,940 for a 2km section between chainage 143+000 to 145+000. These errors will increase over the 66km length if not corrected.

Inadequate checks of the quantities in the contractor’s monthly statements resulted in overpayments for work and unjustified increases in project costs.

UNRA should compel the Consultant to cross check all measurements for this item in previous IPCs to ensure that the quantities are correctly computed. All the errors noted should be corrected in subsequent IPCs. ix) Computation of Payments for Variation of Price

In the computation of VoP for works up to June 2015, the current indices used were those for August 2014. It is not clear why indices being applied are those from a year back when more current indices are available. Provisional indices are meant to be applied when the current indices are not available and once published, the price adjustment computation should be updated to reflect the actual indices for the periods when the works were executed. No updates were seen on the payment certificates. The auditors cross checked the VoP payment for IPC No.12 and noted that there was an overpayment of UGX 23,915,265 due to errors in calculation of the price adjustment for the foreign component.

UNRA should compel the Consultant to ensure that the indices for computation of VoP are updated and previous payments to the contractor adjusted accordingly to indicate actual price fluctuations experienced. The consultant should also re- compute payments for price adjustment and any errors corrected in subsequent IPCs. x) Supervision of Works Whereas the consultancy contract indicates that the consultant’s personnel shall not be changed unless approved, the current Resident Engineer (RE) was not the one 487

stated in the contract, and no approval by UNRA for his appointment was found on the correspondence files. The contractor had not provided a functional laboratory for the engineer by 22nd September 2014, one year, after project start. No effort on the side of UNRA to ensure that the contractor complies with contractual obligations was seen.

UNRA should avoid having unapproved staff supervising the works and issuing instructions as results of their actions or inactions could have undesirable consequences when things go wrong.

3) UPGRADING OF MPIGI – KANONI ROAD FROM GRAVEL TO BITUMINOUS STANDARD (64Km)

i) Analysis of the project design Pavement design According to the design report, the design consultant had looked at 3 pavement alternatives using the TRL Overseas Road Note, Ministry of Works and Transport design manual and the AASHTO design manual. However, the recommended pavement structure for sub-base layer was not consistent with any of the 3 pavement options. The design consultant estimated costs for the project based on the TRL Overseas Road Note design alternative only and did not provide the costs for the alternatives based on MoWT and AASHTO design manuals as well as for the recommended design. Therefore the selection of the best alternative did not take into account the cost implications of all the options.

It was also noted that for the section of Mpigi-Kanoni, the design consultant had allowed for 1.5km of swamp treatment works. Upon commencement of the works, it has been realised that the length of swamps was more than 7km. It is therefore doubtful that the design was thoroughly done through inspection of the entire project road length and review of the available road data maintained by UNRA.

UNRA should ensure that;

488

 the design consultant is tasked to explain the deficiencies in the quantities for the length of swamps. UNRA should also critically review design reports and the basis for designs compared with data maintained by UNRA

 the supervision consultants are engaged before the contractor commences work to ensure that deign reviews are ready for the contractor to execute works

 the recommended pavement structure should be from the alternatives analysed

 the associated costs for all the pavement design alternatives are provided to enable an informed decision making.

ii) Works Progress By end of October 2015, the contract time elapsed was 63.38% against the actual physical progress of 22.74%. The slow progress was attributed to several factors including; Delayed acquisition of land, Change of the geometric design, Poor project management by the contractor and Slow response by the client to the Engineer’s submissions e.g. Client has not approval for changed quantities since March 2015.

Delays in execution of works result in additional costs to the project through costs incurred to maintain the supervising consultants and costs due to price adjustments. UNRA should task the consultant to compel the contractor to execute works within the contractual period. They should demonstrate that efforts have been made to improve progress. iii) Inspection of Works Drainage Culverts had been installed at the swamp section at Ch 14+700 and a few other places. Culvert installations in other places already carried out had not been approved by the consultant due to their deficiencies in the quality requirements. However, no instructions from the consultant for removal of the defective culverts were availed to the auditors.

489

Rejected culverts at Ch 4+000

UNRA should task the supervisor to ensure that defective works are immediately demolished/ removed to avoid them being incorporated in permanent works. iv) Quality of Works The field densities of completed layers have indicated to achieve good degree of compaction and satisfy the requirements set in the general specifications. The natural gravel materials from borrow pit at km 21+930 has more plasticity (PI=20.5%) than required in the table 3702/5 of Uganda general specifications. The Engineer’s laboratory results indicated that the materials from different stone quarries have good strength and assure the client on durability of the completed works. The auditors conducted snap test checks on the quality of works done and materials used on the road. The results showed good quality of subgrade material and sub base layer and good degree of compaction.

Non-destructive tests using Schmidt Rebound Hammer were done on pre-cast pipe culverts installed at km 14+110to to check the quality of the concrete and the results showed that the concrete structures met the specified quality requirements. v) Computation of amounts for price adjustment It was observed that the computation of price adjustment due to the contractor was not computed on a monthly basis as specified in the Special Conditions of Contract clause 13.8. This implies that quantities of works were adjusted using indices that are not for the period during which the works were executed which may result in wrong computations where the indices are different for the different months. 490

UNRA should ensure that the Engineer measures works done on a monthly basis and adjust the value of work done as required.

vi) Non-adherence to contract conditions by the contractor The Consultant has a laboratory to check the quality of works but some equipment for testing compaction was yet to be supplied by the Contractor. The auditors reviewed the documentation on tests conducted by the Consultant’s laboratory and were convinced that the quality of works is being properly controlled.

It is recommended that the client evokes the contract conditions applicable when the contractor does not fulfill their obligation.

4) EMERGENCY REPLACEMENT OF NTUNGWE AND MITAANO BRIDGES IN RUKUNGIRI/KANUNGU DISTRICTS

i) Analysis of the project planning and design

Foundation Design Depths place opinion after the facts The audit team noted that the foundations for each of the bridges were designed at a depth of 3.0m. Although UNRA explained that the foundations were laid at 5.7m below river bed level, there was no evidence to this effect .It is the opinion of the auditor that the foundation design depth is shallow compared to the spans of the bridges and the ground conditions. To partly address the problem, the Contractor had made a provision of gabions to protect the foundation against the loss of bearing capacity (stability) due to scoring, weathering, ground water in the foundation. UNRA should consider the use of deep foundation on soft grounds rather than shallow ones to avoid the necessity to provide protection works which may also be damaged by river action.

It is also strongly recommended that pile foundations be used for bridges of this kind.

491 ii) Non-fulfilment of some of the Contractual obligations by the Contractor

Review of correspondences, progress reports and instruction notices reveals that at several times, the contractor had failed to fulfil his contractual obligations as detailed below;

 The employer’s requirements for the design and build contract required the contractor to provide laboratory facilities and relevant apparatus for use by the Engineer. These were further costed under item 14.08(a) in the price schedule for both bridges. However, by the time of audit, these facilities had not yet been provided to the engineer thereby making the engineer unable to control and check the results obtained from the contractors laboratory randomly

 Item 14.07(a) of the price schedule for Mitaano and Ntungwe bridges requires the contractor to provide and maintain survey equipment for the Engineer. Review of the progress report for October 2015 shows that the Engineer was s yet to be supplied with this equipment thus making him unable to check and control the bridge levels and alignment

. The appendix to bid clause 6.5 states that the normal working hours are from 0700hrs to 1800hrs, however in a letter dated 05 May 2015, the Engineer noted that the contractor undertook casting of the pier cap at Mitaano Bridge on 3/5/2015 in the night after 9pm without giving any prior notification to the Engineer. The supervising consultant further noted that the same happened for concrete blinding works for the Mitaano Bridge foundation on 4/5/2015. This also violates clause 7.3 of the contract as work was done without prior notice and Engineer’s inspection.

UNRA should ensure that the Client should always ensure that the contractor provides the required facilities to the Engineer timely.

Since the contractor did not provide the laboratory and surveying facilities to the Engineer, UGX.28,000,000 as per bill items 14.07(a) and 14.08(a) should not be paid out to the contractor. It is also recommended that Works undertaken in the

492 absence of the supervising consultant should be rigorously checked to ensure they meet the quality requirements stipulated before being approved. iii) Delayed Progress of works The works completed represented 89% of total works as of November 2015. The works were scheduled to be completed on May 1st, 2015. No extension of time had been awarded to the Contractor. This therefore implies that the works had delayed by 6 months. Review of the progress reports shows that the contractor has been using the same set of resources in terms of plant, equipment and manpower for the two bridges thus hindering simultaneous operation of the same activities at both bridge sites.

Review of the Interim Payment Certificate No.4 of June 2015, shows that liquidated damages estimated at shs.1,735,190,730 have not been charged to the contractor as required by sub clause 8.7 of the particular conditions of the contract.Since no extension of time has been awarded to the contractor, the client should ensure that the liquidated damages amounting to UGX.1,735,190,730 (as of audit time) are charged in accordance with sub clause 8.7 of the particular conditions of contract. iv) Delayed Appointment of the Supervising Consultant

Whereas the design and build contract for the works was scheduled to commence on 2nd May, 2014 and be completed on 1st May, 2015, the contract for supervision of the works was signed on 17th February 2015 and commencement order for the supervision given on the 9th March, 2015. This therefore implies that the supervision activities by the consultant commenced 52 days before the scheduled completion date for the design and build works.

UNRA should always ensure that for Design and Build contracts; the contract management consultant is engaged on time to review the draft designs prepared by the contractor.

493 v) Commencement of the Construction Works before Approval of the Final Design Report

Whereas the contractor gave the client notice for the commencement of construction works on 7 January 2015, the final detailed design report for the said works was submitted to the client/engineer for review and approval on 2 April 2015 (i.e. 84 days after notice for commencement of construction works). This is contrary to clause 5.2 (ii) of the general conditions of contract that requires the approval of contractor’s documents by the client/engineer before the commencement of any part of the works.

The monthly progress report for October 2015 indicates that the final design report was submitted at a time when civil works had progressed by 25% and procurement and supply of the modular steel parts had been carried out. In a letter dated 28 March 2015, the supervising consultant noted that the foundation design for Ntungwe Bridge had been modified from the already submitted draft design and works were being carried out without getting any approval from the Engineer.

Considering that the construction works were commenced prior to the submission of the final design report for review and approval, this left almost no room for the consultant to undertake a design review with the aim of improving the final design as was required by the scope of consultancy services. The execution of construction works prior to the approval of the final designs of the works could result in the construction of poorly designed facilities. UNRA should always ensure that for Design and Build Contracts, final designs are approved before commencement of works. vi) Delayed Payment of the Contractor

Clause 14.7(b) of the special conditions of contract require the Employer to pay the contractor each interim payment certificate within 56 days after the Engineer receives the statement and supporting documents. Audit noted that IPC No.2 was submitted to the client on 21/11/2014 and payment made 130 days later on 1/4/2015 thus delaying by 74 days. In a letter to UNRA Ref 2015/s01898/P13-08- 29/CL-15 dated August 17, 2015, the contractor complains of delayed payments for 494

IPC’s No. 3&4. The audit team could not access the payment schedule to verify when payment for these certificates was effected by the client. Delayed payment of certified works affects the contractor’s cash flow, contributes to slow progress in execution of works and can also result in the payment of interest on delayed payments as per clause 14.8 of the contract.

UNRA should always pay the contractor within the stipulated contractual time so as not to affect the contractor’s cash flow and be liable to pay interests on delayed payments. vii) Inspection of works

The Audit team inspected the bridge works on 24/8/2015 accompanied by the Supervising Consultants and on 5/11/2015 accompanied by staff from UNRA, Supervising Consultants and Contractor. The following were observed: Visual observations of quality Poor/uneven concrete jointing was observed on the abutments and wing walls of both bridges

LHS - Poor/uneven jointing on Mitaano and RHS Ntungwe Bridges

The audit team observed that the bolts had not been fixed to the bearing plate at the free ends on both bridges

495

Bearing plate with missing bolts on Mitaano and Ntungwe Bridges

It was noted that some of the shear connectors on Mitaano Bridge had deformed and if unchecked could compromise the quality of the end product

Deformed shear connectors at Mitaano Bridge

The audit noted that the contractor had not provided a site office for the supervising team at Ntungwe Bridge as required by the contract.

Safety Issues and OHS With regards to safety issues, it was observed that the contractor had put in place warning signs to alert road users. On the issue of OHS, the audit team noted that the contractor’s personnel were provided with the necessary Personal Protective Equipment (PPEs) and this applied to the visitors to site as well. The ladder constructed for workers to use when going to the bridge slab was made of scaffolding pipes and unsafe.

496

Unsafe access ladder at Mitaano bridge made of scaffolding pipes

The audit team observed that the site was generally untidy characterised by poor storage of construction material/equipment. Furthermore, it was observed that the pit latrine erected by the contractor was in poor state and susceptible to collapse.

Toilet facility at Mitaano Bridge site in poor condition (L) poorly stored batch boxes (R)

UNRA should ensure that that the Contractor always provides safe facilities on site so as to avoid accidents. In addition appropriate action should be taken by the contractor on the pit latrine facility so as to avoid any calamities

viii) Environmental Issues and Other Social Safeguards It was noted that the final detailed design report did not include any environment compliance requirements such as an EIA as was required by the Client. The monthly progress for October 2015, reports that the contractor had not submitted any plans or reports in regard to environment management issues. In addition, the

497 contractor was required to obtain a construction permit as per the Uganda Water Act. The presence of this could not be verified by the Audit Team.

The contract requires that the Contractor undertakes HIV/AIDS alleviation and gender awareness activities alongside construction works during the contract period. The monthly progress report for October 2015, reports that no HIV/AIDS alleviation and gender awareness activities had been carried out by the contractor. No reports on these activities were seen by the audit team.

UNRA should ensure that the contractor always adheres to the stipulated environmental requirements and all the necessary reports are prepared and necessary permits are acquired on time.Contractors should also implement the required HIV/AIDS alleviation and gender awareness activities as stipulated in the contract.

Since the HIV/AIDS alleviation and gender awareness activities had not been implemented, the contractor should not be paid a total of UGX.36,000,000 as per bill items 18.02(a) for Mitaano and Ntungwe Bridges. ix) Quality of Works

The Audit team reviewed the quality assurance program of the Contractor through the available documents at the UNRA office. It was noted that the available concrete test results were few compared to the quantities of concrete works completed. The three (3) samples of cube tests taken for each day’s work would not give good indicative strength statistically. The contractor should have taken enough samples of cubes for testing as specified in the general specifications section 7205 (g) table 7205/3.

In addition, the auditors did not see concrete design mix which was approved and used for the concrete works.

The field tests for concrete strength using a rebound hammer indicated that the strength of the concrete structures met the specified quality requirements. 498

UNRA should always ensure that quality control is done according to the specifications and concrete design mix are always approved before commencement of concrete works. UNRA should also ensure that all tests are conducted on all the elements of the bridges. x) Financial Aspects and Quantities Verification

The audit team took measurements of some of the elements on both bridges; these were compared with the measurements as per the approved final design and the client’s requirements. The span length required for Mitaano bridge is shorter than that required by the client by 8.0m however, all the other elements measured by the audit team meet the requirements specified by the client.

UNRA should ensure that the supervisor makes an assessment of the savings in cost due to reduction in the span of the bridge and the amount deducted from the contractor’s dues. Any changes in design which reduces the size of the bridge should take into consideration the design flood and return period of the flood. xi) Quality Control of the Works

It was noted that the contractor had neither been provided with a fully equipped laboratory nor surveying equipment on each of the bridge sites as required by the contract. As such the Consultant could not independently undertake any quality tests to ensure quality of works executed or check for the levels/alignment of executed works.

UNRA should ensure that the supervising consultant is adequately mobilized as provided for in the contract. In addition the surveying equipment should be provided as soon as possible given that the contractor is already compacting pavement layers.

499

83.1 TRANSPORT SECTOR DEVELOPMENT PROJECT (TSDP) a) General Standard of Accounting and Internal Control A review was carried out on the system of accounting and internal control. It was noted that management had instituted adequate controls to manage project resources except for the following matters;

(i) IT general controls Management did not have formalized user access matrix for accounting software. The Chief Accountant instead had IT administrative access rights in Pastel accounting software. This is an indicator of IT system control weakness and as such there is a possibility that the controls would fail to prevent or detect misstatements in the financial statements. b) Compliance with the Financing Agreement and GoU Financial Regulations It was observed that management had complied in all material aspects with the financing agreement and GoU financial regulations except for the following matters;

(i) Failure to implement World Bank (WB) supervision recommendations Management did not implement some of the World Bank supervision report recommendations especially those related to social safeguards and environmental issues as noted in the paragraph below.

Delayed overall contract implementation process and non-compliance with contract agreements in respect of social and environmental safety It was noted that the contractors of Gulu – Atiak road and Fort Portal – Kamwenge road failed to comply with the following:  Renewal of insurance contracts and agreements on Gulu-Atiak road. This includes; - Contractor’s worker’s compensation (Policy No. P/KLA/351/2540/14/59) issued by Jubilee insurance which expired on 23rd July 2015. - Contractors all risks (covering Material damage and third party Liability), (Policy No. P/KLA/301/2570/12/8) issued by Jubilee Insurance which expired on 12th April 2015. 500

 The contractors were not adequately implementing environmental, health and safety provisions as stated in the signed contracts. This was evidenced during the visit of some quarries and barrow pits.  During inspection of Gulu-Atiak road, it was observed that landscaping and grassing were not done according to the expectations in the contract.  Mobilization by the contractor of adequate resources on Kamwenge-Fort Portal road yet advance was timely paid.  Provision of work schedules to consultants on Kamwenge-Fort Portal by the contractor.  Adequate monitoring and supervision of project implementation that has led to the suspension of Kamwenge-Fort Portal road construction by World Bank causing overall delay of 18 months on the project.

Failure to comply with contractual agreements delays implementation of the project activities, probable price variations, delayed handover of sites to contractor thus increasing contract costs. Further, in the absence of appropriate time and resources, quality of work could be compromised.

Management explained that they have urged the contractor to urgently renew the insurance policies up to the envisaged project completion date on Gulu - Atiak road. Management further explained that several interventions had been undertaken on the Kamwenge - FortPortal road, that is; UNRA had progressed in paying compensations for acquisition of the right of way, issuance of a Notice to Correct issued to the Contractor in late October 2015 which includes a requirement to mobilize adequate resources failure of which leads to consideration of reclaiming the advance payment, change of the Consultant’s Resident Engineer and assessment of the contractor’s submitted claim of extension up to October 2016.

I advised management to strengthen the monitoring process to reduce the delay in implementation of projects.

501 c) Unrealistic budget allocations During the year under review, TSDP was allocated UGX.20 billion for implementation of project activities. However, only UGX.12.49 billion was utilized. The balance of UGX.7.5 billion was spent on other projects without approval from the Ministry of Finance, Planning and Economic Development (MoFPED). Diversions affect project implementation and expected timelines.

Management explained that they are in the process of restructuring. The budgeting function is one of the business processes that is being realigned to ensure budget discipline. I advised management to always seek prior approval of inter project transfers. UNRA should expedite the restructuring process with a view of streamlining the budgetary process and match the project implementation progress before funds allocation and approval. d) General Standard of Accounting and Internal Control A review was carried out on the system of accounting and internal control. It was noted that management had instituted adequate controls to manage project resources except for the following matters;

(i) Lack of control accounts for advance payment, recoveries and IPC retention from contractors It was noted that UNRA did not maintain control accounts for advance payments, recoveries and IPC retentions from the contractor’s payments. Lack of control accounts causes reconciliation problems especially the contractor’s accounts.

Management explained that according to their structure each road contract is managed by a technical team which is comprised of a Project Engineer, Project Manager and a Director responsible for all aspects of contract supervision and management, both technical and financial, on behalf of the client and in accordance with the conditions of the contracts.

502

I advised management to maintain a control account for all contractors to track advance payments, recovery and retentions for proper monitoring and recording in the financial statements.

83.2 ROAD SECTOR SUPPORT PROJECT 1 (2013/2014)

a) Transfer of ownership of land to UNRA/Government of Uganda On compensation of a project affected person, ownership of land title (fully or partially) should revert to UNRA. UNRA compensated individuals whose land was acquired for the purpose of the construction of the Kabale – Kisoro- Bunagana/Kyanika road. However, I was not availed with the land titles for which UNRA paid compensation worth Shs.8,496,488,000. Additionally, I could not verify whether ownership of the land titles has been officially changed in favor of UNRA. Change of ownership processes should have already been concluded considering that the project ended during the financial year 2013/2014. Delays/failure to officially change ownership of the land titles could lead to loss of government property.

Management explained that the individual portions of acquired land within the road reserves are amalgamated into one title for the road registered in the names of UNRA as the registered proprietor. For the case of Kabale-Kisoro-Bunagana/Kyanika road, the consultant’s contract was not clear about land expropriation (titling). The UNRA land acquisition unit has initiated procurement for a service provider to complete titling the road reserve.

I advised UNRA management to liaise with the compensation consultant, and ensure that land registration in UNRA names is completed expeditiously.

503

83.3 ROAD SECTOR SUPPORT PROJECT 2 (2013/2014)

a) Project internal borrowings and lending There is no internal signed off policy governing inter-project lending and borrowing. In the financial year under audit, management of the project borrowed Shs.29,953,546,617 from other projects, and also lent out a sum of Shs.8,509,685,430 to other projects resulting into an accumulated position of Shs.32,018,642,422 and Shs.13,845,909,138 respectively as indicated in Table 1 and Table 2 below. I was not availed with the necessary approval documents for the transfer of funds to and from other projects.

This action could have resulted in delays in implementation of other high priority projects.

Table 1: Borrowings from other projects

Payables to other Projects Balances at Borrowings this Balances at Project 30.06.2013 year 30.06.2014

Transport corridor 1,236,724,904 - 1,236,724,904

Nyakaita-Ibanda 650,143,338 - 650,143,338

FortPortal –Bundibugyo 171,367,763 - 171,367,763

Consultants 6,859,800 - 6,859,800

Kampala--Zirobwe - 1,601,339,826 1,601,339,826

1037 - Mbarara-Kikagati - 4,795,591,925 4,795,591,925 0954 - Muyembe-Nakapiripirit- Moroto - 1,203,697,700 1,203,697,700

02a65 - Atiak-Moyo Road - 747,738,089 747,738,089 1274 - Musiita-Lumino-Busia-Majanji Road - 3,837,600,607 3,837,600,607

0957 - New Nile Bridge - 3,659,704,636 3,659,704,636 1277 - Kampala-Northern Bypass Phase2 - 11,152,780,626 11,152,780,626

0953 - Kawempe Luwero-Kafu - 2,955,093,208 2,955,093,208

2,065,095,805 29,953,546,617 32,018,642,422

504

Table 2: Advances to other projects

Advances to other projects

Road Project Balance as at Additional Balance as at 30-06-2013 transfers in 30-06-2014 current period

Ushs Ushs Ushs Road Maintenance 1,701,908,986 - 1,701,908,986 account Kampala Gayaza 1,320,664,504 - 1,320,664,504 Zirobwe Road Awoja Bridge 308,998,626 - 308,998,626 Kazo-Kamwenge 886,109,374 - 886,109,374 Transport Corridor 948,118,058 - 948,118,058 Nalubaale Bridge 169,333,237 - 169,333,237 UGA-SURV 1,090,923 - 1,090,923 Hoima-Kaiso-Tonya - 8,256,168,382 8,256,168,382 Atiak-Nimule - 253,517,048 253,517,048 Total 5,336,223,708 8,509,685,430 13,845,909,138

Management explained that there was need to pay outstanding IPCs for the contractor who had completed the construction of the Fort Portal-Bundibugyo- Lamia Road, which IPCs had been outstanding for a very long time and were thus accumulating interest.

I advised that management should put in place a formal process for Inter project borrowing and lending clearly laying down authorized signatories, reasons and approved variations of costs proposals, and these should be strictly adhered to before any inter-project borrowing/Lending is undertaken. b) Unaccounted for Statutory obligations The Income Tax Act Cap 340 section 125 & 126 provides that a withholding tax agent shall deliver to the payee a tax credit certificate setting out the amounts of payment made and the tax withheld during the year. I observed that withholding tax payments in respect of one service provider amounted to Shs.988,215,532 in the year under audit; however I was not presented with evidence that the WHT 505

Certificates had been delivered to the Payee, neither was I presented with Withholding tax receipts from URA for review. Failure to keep track of tax receipts delays tax reconciliations.

Management responded that the deductions for WHT were made and indeed paid to URA in respect of each Consultant’s invoice paid; however, management was not able to secure the Withholding Tax Credit Certificates in a timely manner. They committed to pursue the matter with URA.

I advised that WHT certificates should always be expeditiously issued to the payee upon payment, and management should always pursue URA for the relevant tax receipts. c) Defects in Land compensation Best practice for payments of this nature demand proper identification documents to be attached to payment vouchers; however, I noted that the entire batch of about 600 payments for land compensation totalling to Shs.3,563,634,956 lacked address details, telephone numbers, copies of Identification cards or TIN number details. None of these payments was supported by a copy of a valid ID (Either Resident ID/Passport or Voters Card/Driving Permit). Lack of proper payee Identification creates loopholes for paying 'ghost claimants'. Also, insufficient information may result in future complaints in case payments are directed to the wrong claimants.

Management responded that it was an oversight at the time as it relied solely on the village LCs for identification of the beneficiaries. Currently, every person being compensated provides a copy of a valid ID before she/he is paid.

I advised that Land and property compensation payments are a sensitive matter and valid IDs should always be a mandatory element before payments are effected.

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84.0 THE UGANDA ROAD FUND a) Increasing Outstanding Commitments UGX.1,124,563,846 I noted that at the close of the financial year, the Uganda Road Fund (URF) had outstanding commitments (Payables) totaling to UGX.1,124,563,846. This represented an increase of 889% compared to UGX.113,721,073 of the previous financial year. Accumulation of payables is an indication of inadequacy in the management of commitments. This could lead to litigation challenges against the Fund.

In response, the Accounting Officer explained that at the close of the financial year; the Fund carried forward commitments totalling UGX.1,124,563,846 that were mainly contracts not concluded by the 30th June 2015 and hence payments could not be effected. It was indicated that these commitments were reprogrammed in the FY2015/16 work plan.

I advised the Accounting Officer to ensure earlier planning to enable completion of the projects timely. b) Outstanding funds recoverable from implementing agencies During the year under review, various implementing agencies had outstanding amounts totalling to UGX. 1,325,063,382 that were to be recovered and refunded to the Uganda Road Fund. The amounts arose as a result of funds garnished from court orders and Uganda Revenue Authority, inaccurate measurements, overpayments to contractors, ineligible expenditure and unaccounted for funds among others. Some of these funds have been outstanding for more than one year.

Management explained that this issue was referred to the Ministry of Local Government as the supervising authority to handle the defaulting Local Governments.

I advised the Accounting Officer to take interest on the matter to ensure funds are utilised for the intended activities. 507

JUSTICE LAW AND ORDER SECTOR

85.0 JUDICIAL SERVICE COMMISSION a) Case Backlogs The Judicial Service Commission (JSC) is mandated under Article 147(a) to receive people’s complaints and recommendations concerning the Judiciary and the administration of justice and generally to act as a link between the people and the judiciary. Upon receipt of public complaints, the Disciplinary Committee for judges is expected to immediately hear such cases for administrative action.

However, as noted in the previous audit report, the Commission has been slow in handling cases brought against judicial officers. At the closure of the previous year the figure for case backlog stood at 749. According to the Commission’s annual report, 2014/2015, during the year under review, the Commission registered 137 cases, bringing the total number of cases to 886 of which only 106 cases were cleared. The un-cleared cases at the closure of the year stood at 780. The Table below refers. Cases b/f Cases Cases to dispose Cases concluded Cases c/f to from 13/14 registered off 14/15 14/15 15/16 14/15 749 137 886 106 780

It was further noted that the Commission has no formulated policy on prioritizing the cases to be handled. In the circumstance, some cases may remain unattended to over years.

Delays in clearing case backlog affect the timely administration of justice.

The Accounting Officer explained that the case backlog that has been experienced in the year under review is attributed to first, the part-time nature of the members of the Judicial Service Commission thereby, making it difficult to realize the quorum and therefore expeditious handling and disposal of Cases against Judicial Officers. This would however, require amendment to Article 146 of the Constitution of the 508

Republic of Uganda to make all members of the Commission full time to enable expeditious execution of its mandate. Secondly, the funding allocated to facilitate the Disciplinary Committee activities was inadequate and this impacted on the Commission's ability to investigate, hear and conclude cases in time.

I advised the Accounting Officer to engage the relevant stakeholders to consider changing the Commission status to full time. Further, the Commission should engage the MoFPED to consider providing additional resources to enable the Commission deliver its mandate.

86.0 UGANDA LAW REFORM COMMISSION a) Budget Performance – unimplemented activities The Public Finance Management Act, 2015 section 45(3) requires an Accounting Officer to enter into an annual budget performance contract with the Secretary to the Treasury which shall bind the Accounting Officer to deliver on the activities in the work plan of the vote for a financial year, submitted.

I noted that Uganda Law Reform Commission’s approved budget for the year under review stood at UGX.7,440,481,811, comprising of Recurrent UGX.7,185,515,408 and Development UGX.254,966,403. A total of UGX.7.344,000,000 was released during the year. However, although the budget was realised 99.4%, under performance was noted on certain planned activities for the year. Details are in the table below: Budgeted Output Actual Output Variation Budgeted Amount Amount spent Reform and Study report and The following 2.762bn 2.733bn simplification of laws bills produced activities were not (98.9%) Finalize reform of the and submitted to finalized following line ministries  Prisons Act. laws; for;  Evidence Act  Internet Banking and  Internet Banking  Succession laws Mobile Money Transfer and Mobile (Phase II) and  Electoral laws Money Transfer development of  Prisons Act. (EFT); and regulations on  Electoral Laws. management of Initiate studies for reform  Money lenders Proceeds of crime. of the 509 following laws: Study report and Reason for Variance  Evidence Act draft bills Awaiting completion  Proceeds of Crime Act produced for studies on Births and and Succession laws;  Prisons Act. Death Registration Act  Evidence Act and Money Lenders Simplify the following Act which had rolled laws: over from the  The Mortgage FY2013/14. Act, 2009 and  Local Governments Act, Cap.243 Revision of laws  14 volumes of Printing of the 0.880bn 0.869bn  Revision of Subsidiary the fair draft Compendium of (98.8%) Laws, revised Principal Labour Laws will be  Preparation of a laws of Uganda; done in Qtr1 Compendium of Labor  list of queries; FY2015/16 Laws  report on laws for No reason given for reform/repeal; the variance. and  Report on fees and fines for conversion into currency points. Publication and  Law Revision  Approved Draft 0.537bn 0.537bn translation of laws Manual manuscript of the (100%)  Constitution translated published Uganda Living law into Runyoro/Rutoro; Journal. To be  Commission annual published in Qtr1 FY report 2014, 2015/16. The  Revised Strategic Plan Commission was and Ministerial Policy unsuccessful in Statement printed; procuring a  Translated Constitution consultant for into translating the Runyankole/Rukiga. Constitution into  1000 copies of the Runyankore/ Human Resource Rukiga. Manual printed  The Human Resource Manual in place but will be printed in Q1 of FY 2015/16.

This under-performance negatively affects service delivery.

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The Accounting Officer explained that the bulk of the outputs of the Commission (Law reform reports and bills) cannot be produced within a cycle of one financial year. The gestation period is an average of 18 months.

I advised the Accounting Officer to make realistic budgets/targets and ensure that all planned activities for which funds are released are completed to enable the Commission deliver its mandate.

87.0 UGANDA HUMAN RIGHTS COMMISSION a) Activity Performance A review of the ministerial policy statement and the annual performance report for the financial year revealed under or non-performance of some of the planned for activities. Details are in the table below: Description Planned Actual % Management Response Output Output achievement

To hire 6 data entrants 6 0 0% There were no funds to for 6 months for inputting recruit data entrants as the information. planned. To carry out 1300 823 63% Investigations were still on - investigations into 1300 going as at the time of backlog cases reporting. Fully concluded cases 222 190 85% The low percentage of fully concluded cases is attributed to absence of commissioners whose term expired in April 2015. Conducting 10 10 0 0% The lengthy procurement constitutional and civic procedures delayed the educations using a well branding of the civic branded and specialized education van but the vans film van fitted with loud were later branded and are speakers. being used in civic education.

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Form 278 human rights 278 85 30% The Commission clubs in different schools. concentrated on strengthening the existing human right clubs rather than formulate new clubs. Install and operationalize 16 0 0% There were no funds to 16 telephone toll free support the installation of the lines in all regional offices toll free line in regional and and all field officers field offices. Construction of Gulu 1 0 0% When the architecture regional office premises produced his designs and bills of quantities, the cost required to construct UHRC Gulu office was much higher than the budget and therefore we could not proceed until the additional funds are allocated. Negotiations are on- going between UHRC and JLOS for additional funds.

Non-implementation of activities affects the achievement of planned outputs and service delivery.

Management explained that the core activities of the Commission are funded 100% by Development Partners because funds from Government are inadequate and only used for operational activities. Sometimes the priorities of Development Partners keep changing and often different from planned activities of the Commission while other development partners fund one off activities.

I advised the Accounting Officer to make realistic budgets and ensure that all planned activities for which funds are released are completed to enable the Commission deliver its mandate.

512 b) Delayed Appointment of the Commission Chairperson and Commissioners The chairperson and members of UHRC are responsible for policy formulation and direction of the affairs of UHRC. During the audit, it was noted that as of the month of May 2015, the appointments of four commissioners including the chairman who had been in office since April 2009 for a period of six years had expired. There was thus no fully constituted Commission to run the entity business. In the absence of the Chairperson and the Commissioners, the responsibility of policy formulation and direction of the affairs of UHRC is not adequately undertaken.

Management explained that the Chairperson and Members of the Commission are appointed by the President of the Republic of Uganda with approval of parliament as per Section 2(1) of the Uganda Human Rights Commission Act, thus the appointment process is beyond the powers of the management of the Uganda Human Rights Commission. However, the Chairperson and four members of the Commission have recently been appointed and four members were in November 2015 vetted in Parliament with the exception of the Chairperson who is yet to be vetted.

I await for the finalization of the appointment of the Chairperson and the Commissioners.

88.0 UGANDA REGISTRATION SERVICES BUREAU OPERATIONS a) Under Performance on Collection of Non Taxable Revenue (NTR) - UGX.16,770,557,323 Analysis of local revenue collection trends over the years indicated that management has made tremendous improvement in its revenue collections rising from UGX.730,717,625 in 2010/2011 to UGX.23,479,442,677 in 2014/2015. This has been due to the streamlining of registration services by management among other factors. However, during the year, the Bureau had budgeted to collect UGX.40,250,000,000 from administrative fees for the various services the Bureau offers, but only UGX.23,479,442,677 of the budgeted local revenue was realized

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creating a short fall of UGX.16,770,557,323 equivalent of 41.7% underperformance. Details below refer:

2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 Budget 24,000,000,000 21,291,100,000 40,250,000,000 Actual NTR 730,717,625 20,695,712,485 20,377,930,626 23,479,442,677 collected (UGX) Variance 3,304,287,515 913,169,374 16,770,557,323 Under 13.8% 4.3% 41.7% performance

Management explained that much as the Bureau has continued to streamline and strengthen controls for NTR collections, the target of collecting UGX.40bn was based on the fact that Ministry of Finance, Planning and Economic Development provides an additional funding of UGX.10bn to enhance revenue collection, of which only UGX.1bn was provided as a supplementary.

I advised the Accounting Officer to further strengthen its controls in order to close the gaps that may lead to revenue leakages and also pursue further for additional resources for revenue enhancement from the MoFPED. b) Outstanding Rent Arrears A four year tenancy agreement was signed between the Uganda Registration Service Bureau and a Landlord in respect of rental space for total rental dues of USD$.2,160,648 per year. During the year under review USD$.1,999,791 amounting to UGX.5,653,341,912 was paid resulting into outstanding rent arrears of USD$.160,857 (approximately UGX.462,463,875). Delayed payment of rent leads to accumulation of unpaid rent arrears and may result into litigation and the related costs.

Management concurred with the observation but explained that this was beyond the Bureau’s capacity to implement since the Ministry of Finance, Planning and 514

Economic Development had not been funding the rent requests in the previous budget allocations. The Bureau is further engaging MoFPED on the matter.

I await the outcome of the Accounting Officer’s efforts on the matter.

89.0 UGANDA REGISTRATION SERVICES BUREAU – LIQUIDITY ACCOUNT a) Receivables The receivables for the liquidation funds as at 30th June 2015 stood at UGX.8,052,490,354. This comprised of funds payable to the office of the official receiver by companies in liquidation and funds borrowed by other agencies from the liquidation funds account as shown in the table below:

Debtors Amount (UGX) Ministry of Justice and Constitutional Affairs 3,353,802,640 UEB to PMB 58,125,725 Ministry of Defence 1,266,600,000 UEGCL 1,134,989,464 MOJCA debt on behalf of Mwesigwa (deed of assignment) 124,432,500 Kenya Railways debt 1,582,215,752 Tashobya debt 57,324,273 Crown Enterprises 475,000,000 Total 8,052,490,354

Included in the above figure is UGX.3,353,802,640 borrowed by the Ministry of Justice and Constitutional affairs to pay rent for the department of the Registrar General in the Ministry.

I observed that there were no formal agreement between the office of the official receiver and the Ministry of Justice and Constitutional Affairs regarding the borrowing of these funds and no formal communication between the two parties regarding the debt was presented for audit verification. The recovery of the above funds appears remote and the continued holding of such funds by the debtors increases the risk of the debts turning into bad debts. 515

Management explained that they have continued to remind and engage the debtors and some have complied. During the year, management was able to recover UGX.600,000,000 from Ministry of Defence and UGX.795,600,000 was paid in the FY 2015/16. Management will continue to engage with the debtors.

I advised the Accounting Officer to be more vigorous in recovering the receivables.

90.0 UGANDA LAND COMMISSION

a) Mischarge of Expenditure - UGX.193,235,549 Parliament of Uganda appropriates funds in accordance with the needs of the country and this appropriation is implemented through the budget in which funds are tagged to particular activities. However, expenditure totaling to UGX.193,235,549 was inappropriately charged on other budget lines to fund activities that were not planned without authority.

I explained to management that mischarge of expenditure implies misrepresentation of expenditure balances in the financial statements.

In response, the accounting officer explained that this was a result of inadequate funds allocated to items whose activities cannot be covered by the amounts appropriated.

I advised the Accounting Officer to ensure that sufficient funds are allocated to each item and in case of need to vire, authority should be sought.

b) Outstanding Creditors The statement of financial position reflected committed creditors totalling to UGX.7,162,227,073 that remained outstanding as at the end of the financial year. I noted that there was no significant change from the last year’s position of UGX.7,163,296,958.

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I explained to management that this does not reflect well on the Commission as there appears to be limited commitment to clear outstanding arrears which may attract ligation challenges against the commission.

Management attributed the challenge to failure by the Ministry of Finance, Planning and Economic Development (MOFPED) to release funds to clear the outstanding obligations.

I advised the Accounting Officer to continue following up the matter with MOFPED to ensure the obligations are cleared. c) Land Management Issues

(i) Compensation of Land at Entebbe Airport Following the verification of the claim by Kampala Arch Diocese (KAD) for compensation of their land at Buzindere, Entebbe Air Port, Government compensated KAD with a sum of UGX.12,970,000,000. The land had initially been acquired by Government under Statutory Instrument No. 122 of 1969. The value for compensation paid was undertaken by the Chief Government Valuer (CGV).

It was however noted that the land title for this land was not with ULC. I was also not availed with documentation on how the land was initially acquired and as such necessitated further payments.

Management indicated during the exit meeting, that they had written to KAD to avail a copy of the land title. At the time of writing this report, a copy of the land title had not been provided for verification.

I advised management to follow up the matter to ensure the title is secured and payments effected and duly supported.

(ii) Irregular Lease of Land at Namulonge (NaCCRI) It was observed that part of NARO land at the National Crops Resources Research Institute (NaCRRI) - Namulonge measuring approximately 357.779 hectares on 517

Volume 4542 (folio 4) plot 651 Kyadondo block 158 Wakiso was leased to Premier Roses Ltd for 99 years by the Commission.

A review of correspondences indicated that a lease was signed between ULC (the Lessor) and Premier Roses Ltd (the Lessee) on the 18th June 2015 for a term of 5 years effective 1st June 2015 for a consideration of UGX.440,000,000 which payment had been effected on 16th June 2015. As per the lease term;  During the said term of 5 years, the yearly rent of UGX.22,000,000 is payable by two (2) equal half –yearly payments in advance on the 1st day of January and the 1st day of July in every year.  Rent payable is revisable by the lessor at any time after the expiration of the first 5 years of the said term and at intervals of not less than 10 years thereafter.  Land is for commercial, agriculture, horticulture, floriculture and educational purposes.  Lessee is required to erect buildings on the said land and to complete the said buildings for occupation and use to the satisfaction of the lessor on or before the 31st day of May the year 2029.  When the lessee shall have complied with the building covenant therein and if there shall not at the time be any existing breach or non-observance on the part of the lessee of any of the covenants and conditions in the lease whether expressed or implied, the said term shall be extended to 99 years from the 1st day of June 2015, automatically and the lease shall thenceforth be read and construed as if the said term of 99 years had been originally granted thereby.

I was not availed with a procurement file on grounds that the file had been taken away by other authorities. In the circumstances, I could not therefore obtain adequate information on the matter. A review of scanty information revealed the following anomalies;

 Consultation with NaCRRI Procedure No.5 of the ULC for leasing land states that the Commission after establishing that it is government land will further establish the user department

518 and seek a no objection from that department. However, this was not the case for NACRI. There was no evidence to confirm that a no objection was sought from NARO-NaCRRI over the sale of Namulonge Land. It is highly likely that the firm’s operations could encroach on the existing crops and structures and yet there was no indication of compensation to NARO Institute on the existing developments including crops.

 Lack of MoU There was no MoU between ULC and NARO in reference to this lease before processing of the transaction. I was not availed with the Council minute nor any correspondence between ULC and NARO over the decision to lease this land since NARO had exclusive rights of use.

 Irregular issuance of lease There was no evidence that the status of the previous lease was reviewed before issuing the current lease. Interview with management of NARO showed that the original lease had a balance of 29 years to expire.

I explained to management that issuing a land title while there is another title of the same land is irregular and may lead to litigation challenges that could cause financial loss to government.

I could not confirm the balance of years remaining as the copy of the original title was not availed for review.

 Valuation of land The consideration of 440m and the annual rent of UGX.22m were not supported with the valuation report. I could not therefore confirm how the consideration was arrived at in view of the size of the land.

 Revision of offer A review of correspondences on file indicated a proposed lease of 49 years however, I noted that the lease offered was revised to 99 years on grounds that 519 the lessee does not breach the terms of the 1st term of 5 years. The basis of leasing out the land for the 99 years could not be established.

In his response; the Accounting officer submitted verbally during the exit meeting that he was given instructions that ULC allocates this land to Premier Roses. The sale was cancelled and the lessee obtained a court order stopping the cancellation of the sale and thus the transaction seems to be in balance.

I explained to management that Government is likely to spend a lot of money in litigation charges and advised that ULC follows up the matter to its logical conclusion.

(iii) Lack of an up dated government land Register Section 49 of the Land Act, CAP 227 empowers the Uganda Land Commission to hold and manage any land in Uganda which is vested in or acquired by the Government in accordance with the constitution and to procure certificates of titles for all Government land. Part (b) of the other objectives is to develop and maintain an updated inventory and data base for all Government Land and Property.

Although the land register is a valuable information bank that requires due attention, the Commission has for a very long time failed to updated the lands register. Analysis of records available, showed that Ministry of Agriculture Animal Industry and Fisheries (MAAIF), Office of The President, Uganda Prisons and Courts of the Judicature data on the register reflected gaps including lack of critical information on leases. I explained to management that lack of sufficient data on government valuable assets (land) impairs its efforts to properly plan considering the central role land plays to society. It further poses a risk of loss of land.

In response, management explained that Land records are kept in individual files for each applicant, so information is available in the Commission Registry. Management further indicated that the World Bank is funding one of the projects in the Lands Sector; which will soon computerize all the records in the Registry. Plans

520 are underway towards developing an electronic land inventory information management database system. So far, a concept paper has been produced.

I advised the Accounting Officer to ensure the development of the government electronic register is expedited to enable proper recording and custody of Government land.

(iv) Insufficient data on Land leases A review of the ULC Lease Register showed that the Commission registered government properties in at least 36 districts. From the three (3) districts sampled namely Kampala, Mukono and Mpigi; I noted that the districts have at least 2,572 properties and the rest of the districts equally have several properties. Analysis of the register, however, showed that it was not comprehensive enough as some key information was lacking such as the lease period, status of present land usage/occupancy, particulars of occupants, status of fees payments such as the premium and ground rent.

I explained to management that lack of un-updated data on the properties makes it difficult for the Commission to ascertain the current status of government properties leading to inability to mobilize revenue accruing from leases due for renewal and annual ground rent.

Management explained that a consultancy has been made towards the development of a computerized database management system for all government land and is awaiting implementation. There is also a proposal for development of an electronic comprehensive innovative land inventory support system that will help on reminding lessees on ground rent due and arrears payable.

I advised the Accounting Officer to ensure a computerized data base management system is set up for effective service delivery and enhanced revenue collection.

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(v) Un-surveyed Land During the review of a sample of four entities that have huge chunks of land such as Ministry of Agriculture, Animal Industry and Fisheries (MAAIF), Ministry of Defence, Uganda Prisons and Courts of Judicature, I noted that the number of pieces of land owned by the four votes was 211 out of which 115 (54.5%) was not surveyed, as indicated in the schedule below.

I explained to management that failure to survey government land makes it vulnerable to grabbing, encroachment and misappropriation.

Summary of inconsistencies in the Land Register. Entity Pieces of land Land not Land not Surveyed No status registered. Surveyed. titled. but size not of current indicated. use MAAIF 88 33 83 17 22 Uganda 38 22 24 4 0 Prisons Office of the 45 39 45 9 0 President Courts of 40 21 33 2 0 Judicature. Total 211 115 185 32 22

In response, management stated that surveying of land was an expensive venture which requires a lot of resources.

I advised the Accounting Officer to ensure that all government land is surveyed, well demarcated and titled to ensure it is well protected.

(vi) Untitled land One of a critical objective under Section (C) of “other objectives of the Commission” is to ensure that all Government land is titled and secured. However, a review of the land register revealed that several MDAs have pieces of land that were surveyed way back during pre and post-independence periods but have not been titled to-date. From the sample of 211 pieces of land 185 (88%) of the land had no land titles as summarized below;

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Entity Pieces of Land Not Land not Surveyed but No land Surveyed. titled. size not status of registered. indicated. current use MAAIF 88 33 83 17 22

Uganda Prisons 38 22 24 4 0 Office of the 45 39 45 9 0 President Courts of 40 21 33 2 0 Judicature. Total 211 115 185 32 22 I I explained to management that absence of land titles compromises government's ownership rights and obligations and as such claims could be contested by other interested parties. Besides this could cause unnecessary litigation that is costly to Government. Management noted the concern and stated that this was an expensive venture for the Commission to undertake at the moment.

I advised the Accounting Officer to take measures towards processing titles for all government land for its effective protection.

(vii) Land with unknown current Usage A review of records taken from a sample of 211 pieces of land taken from the land register as indicated above, revealed that 22 (10%) pieces had no status of current use. I noted that the land usage of several pieces of land is not known. I explained to management that lack of data on the status of current land use could accelerate land giveaway as it is assumed that such land is idle. There is a risk that Government could lose its land as the current status of all its land is not regularly updated and not well known by the Commission.

In response, management stated that it was true that there are some pieces of land that appear not to be linked to any Government Ministries, Departments or Agencies. The Commission has not yet managed to establish them and a process is underway to kick start the activity.

I advised the Accounting Officer to plan and have the status of land usage updated in liaison with the votes/entities with exclusive rights of usage. 523

(viii) Land whose size is not established It was observed that that out of the 211 pieces of land sampled, the sizes/acreage of 32 (19.1%) of pieces of land were not stated even though records showed that the land was surveyed.

Management could not explain the circumstances under which the size of the surveyed land remains unknown. The current situation makes it difficult for the Institutions with exclusive rights of use to know their boundaries and hence inability to protect the land from encroachment or grabbing early enough. There is a possibility that Government will continue to lose land due to failure by the Commission to establish the Government land boundaries and sizes of the land it owns.

In response, management explained that surveying of land is a very expensive venture which requires a lot of resources and personnel. Of late, this area has been comprehensively covered on the deed plans once land has been surveyed but long ago it was a challenge.

I advised the Accounting Officer to plan and carry out a re-survey of the affected land and ensure boundaries of all Government land are opened, obtain certificates of titles and update the entities with the rights of use so as to effectively safeguard it from encroachment.

(ix) Land not linked to any Government Ministry, Department or Agency Analysis of records showed that some pieces of land recorded in the register were neither linked to any identifiable user nor its current status of utilization stated. This gap makes it difficult to verify the existence of such land against a background of incomplete records. Such land is vulnerable to encroachment as there isn’t adequate information to trace the users and could get disposed of for private benefits.

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Management acknowledged that there are some pieces of land that appear not to be linked to any Government MDA but in reality, there are user ministries, departments and agencies except that they did not manage to establish them.

I advised the Accounting Officer to update the land register clearly capturing exclusive users of the pieces of this land.

(x) Non Registration of bonafide occupants During the review, I noted that the Commission has been acquiring land from absentee landlords for the purposes of settling the bonafide occupants in some parts of Kibale, Buyaga and Bugangaizi. The valuation reports availed for review indicated that the Local Council (LC) Authorities were involved. However, it was noted that the role of the LCs were not clearly spelt out as no evidence was availed to show that they were used to clearly identify and help in the registration of the bonafide occupants.

The LCs would help so that the persons compensated or their immediate family members cannot continue using the compensated land. A review of the commission’s performance report revealed that registration of 1,000 bonafide occupants was planned and up to UGX.31,649,100 was spent on this activity but there was no evidence of registration of these occupants.

There is a possibility that some of the compensated persons or immediate family members could continue using the same land.

In response, management explained that the process of registration involves a number of activities which include sensitization and consultation of bonafide and lawful occupants, training, demarcation and survey tenants that would carry out systematic demarcation before actual registration. It was stated that the Commission is still carrying out this lengthy activity.

I await the outcome of the Accounting Officer’s plan of action.

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d) Review of Budget performance During the review; I noted that the Commission budgeted to receive UGX.13.814bn however; there was a supplementary release of UGX.20.47bn for compensation to Kampala Arch Diocese increasing the total budget to 34.227bn. Analysis of performance for the year showed some performance gaps as summarised below;

Output Performance achieved Variance Remarks Management target response 1 025101 Production 1,200 copies 800 (40%) Expenditure was Funds were used Regulations of 2000 (60%) 103% while to print 1200 and Guidelines copies of performance was copies of land Budget amount the land 60%.Overspent fund regulations UGX.0.075bn fund but and 400 copies Amount spent Regulations. underperformed. 0.078bn Management of the Land Fund (103.6% should explain Management the cause of Report underperformanc e. 2 025103 Issue 500 934 Gov’t 434 (86.8%) Underperformed It is true that Government Government leases issued. performed in NTR some leases leases leases and 3.27bn of well on leases collection. Risk issued were not Budgeted collect UGX NTR realized but that that some yet paid for by 0.154 4bn in NTR. underperform leases issued out the time of Spent ed of NTR by were not paid UGX.0.145bn 0.73bn for. reporting due to (94.2%) (18.25%) Management the delays in should explain payment by the the cause of lessees poor NTR collection. 3 025104 Process 40 28 titles 12 (30%) Under performed Spending is Government Gov’t land (70%) Despite made on Land titles Issued. 1000 (100%) expenditure of processes/activiti Inventory. not registered 103.3%. es prior to Budgeted Register Management processing the UGX.0.375bn 1000 0 should avail Spent 0.387 bonafide authority for titles which bn(103%) occupants overspending for include verification. Commission meeting and inspections of Land which are yet to be surveyed and titled. 4 Gov’t property Pay 7 urban 3 urban 4 urban Underperformed. The output here rates councils councils paid councils not A small % age of is 025171 Budget (42%) paid (48%) 19.7% remained Acquisition of 0.060bn unspent. Land by Spent UGX. Government. The 0.037 (61.7%) budget performance of 526

249.6% results from the UGX 20.47bn supplementary that was specifically spent for compensation to Kampala Arch Diocese thus increasing the expenditure of this output. In addition, we usually budget to spend on land especially in the priority area of Kibaale which is relatively low but during payment some areas which are expensive are usually paid mainly due to political, economic and social pressure. 5 Vote Function Acquire 3,401.315 Under Amount spent The output here cost 4,000 hectares performance was 249.6% is 025171 UGX.13.645bn hectares to acquired of 14.9% contrary to Acquisition of Budget spent secure (85.03%) despite actual Land by UGX.34.059bn bonafide availability of performance Government occupants. funds. which was less by 14.9%. No The budget reasons were performance of given for the 249.6% results underperformanc from the UGX e. 20.47bn supplementary that was specifically spent for compensation to Kampala Arch Diocese thus increasing the expenditure of this output. In addition, we usually budget to spend on land especially in the priority area of Kibaale which is relatively low but 527

during payment some areas which are expensive are usually paid mainly due to political, economic and social pressure. 6 025175 Procure 3 2 Double 1(33%) Underperformed Funds availed . Purchase of double cabins (67%) Management could only Motor vehicles cabins. should explain procure 2 double and Other the cause of cabin pickups transport underperformanc Equipment. e. Budgeted/relea se. Spent.UGX.225 bn 7 025102 All land Actual land No evidence of Evidence of land Financial and acquired transferred to actual land transferred land administrative transferred ULC transferred to into ULC is services to ULC the ULC. available. Management should explain the cause of underperformanc e. 8 025104 Gov’t Develop Consultations Electronic data land Inventory electronic on draft base data base report for pre management managemen implementati system for t system for on study for government land government the design inventory not land and developed yet. inventory. development of an electronic data base system for ULC Pre pared.

I explained to management that failure to deliver services as planned, denies stake holders enjoyment of goods and services.

I advised the Accounting Officer to always plan adequately and ensure all planned activities are executed.

528 e) Lack of Motor Vehicle Post Repair Reports - UGX.61,162,892 A review of expenditure vouchers showed that a total of UGX.61,162,892 was spent on repair of vehicles, however, there were no supporting documents like post repair verification reports and or motor vehicle repairs register. Without evidence of certified works, I could not confirm that appropriate repair works were carried out.

I advised the Accounting Officer to always ensure pre and post repair works are carried out.

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PUBLIC SECTOR MANAGEMENT

91.0 PUBLIC SERVICE COMMISSION a) Mischarge of expenditure The Parliament of Uganda appropriates funds in accordance with the needs of the country and this appropriation is implemented through the budget in which funds are tagged to particular activities and outputs using account codes and MTEF codes. A review of the Public Service Commission’s expenditures revealed that the entity charged wrong expenditure codes to a tune of UGX.689,678,544. This constituted 12% of total actual expenditure for the Public service Commission. Mischarges undermine the importance of the budgeting process and results into financial misreporting.

The Accounting Officer responded that the Commission finds it hard to effect payments based on items given that most activities are process activities that may need charging various items as funds are only received in quarters. They therefore find it convenient to pool the resources in one basket and effect payments according to priorities of the Public Service Commission. Management further indicated that in the preparation of budget estimates for FY of 2016/17, there has been an improvement in the budgeting process by aligning funds to all planned activities and priority areas.

I advised the Accounting Officer to streamline the budget process to ensure that sufficient funds are allocated to each account, and also ensure that budget controls are fully adhered to such as seeking authority for any reallocations. b) Non-remittance and delayed remittance of PAYE from salaries Section 124(1) of the Income Tax Act 1997, amended requires a withholding agent to remit the tax deducted within fifteen days after month end. It was noted that the Commission deducted monthly Pay As You Earn (PAYE) from staff salaries but did not remit UGX.29,372,544 relating to the month of November 2014 and on some occasions delayed remittances to URA as detailed below; 530

Month Amount Amount Date remitted Remarks Delay deducted remitted period Sept. 27,971,152 27,971,152 -1/10/2014 and UGX.11,662,46 15 days for 31/10/2014 in 2 was remitted 2nd two instalments on 30/10/2014 instalment November 29,372,544 0 No remittance Outstanding 7 months February 33,761,902 33,761,902 27/4/2015 Delayed 1.5 months March 30,713,252 30,713,252 27/4/2015 delayed 12 days April 30,277,256 30,277,256 19/5/2015 Delayed 4 days May 30,158,096 30,158,096 10/6/2015 Delayed days

The Commission risks fines and penalties that may be imposed by URA for delayed and non-remittance of statutory funds.

Management explained that there were delays in remitting the PAYE deductions and management regretted the anomaly. They indicated that they have however, improved on the system and are now remitting on time.

The Accounting Officer was advised to adhere to the time requirements under the Income Tax Act and also remit the outstanding amounts.

92.0 LOCAL GOVERNMENT FINANCE COMMISSION

a) Mischarge of expenditure The Parliament of Uganda appropriates funds in accordance with the needs of the country and this appropriation is implemented through the budget in which funds are tagged to particular activities and outputs using account codes and MTEF codes. A review of the Commission’s expenditures revealed that the entity charged wrong expenditure codes to a tune of UGX.256,125,970 which constituted 5.6% of total expenditure. This practice undermines the importance of the budgeting process and leads to financial misreporting.

531

Management in their response acknowledged the mischarges and attributed it to the inadequate budget allocation for gratuity and allowances which are statutory obligations.

I advised the Accounting Officer to streamline the budget process to ensure that sufficient funds are allocated to each account. Authority should be sought prior to any reallocations. b) Unaccounted for expenditure on fuel It was noted that UGX.168,333,000 was deposited with a fuel company to be loaded onto Fuel cards for commission officials town running and official activities. However, I was unable to carry out an analysis of the fuel consumption because the consumption statements were not availed and as such I could not confirm that all the fuel was duly used for intended activities.

Management attributed the non-availability of fuel statements to delays in providing the statements from the service provider and promised to avail as soon as the statements are accessed.

I advised the Accounting Officer to ensure that consumption statements are regularly obtained to enable monitoring of fuel consumption.

93.0 KAMPALA CAPITAL CITY AUTHORITY a) Outstanding Receivables (i) Accumulation of Outstanding receivables The trade and other receivables presented in the statement of financial position increased from UGX.63,232,221,289 to UGX.77,007,788,342 (representing 22% increase from the previous year’s balance). Included in the receivable balance is property rates and ground rent that rose from UGX.62,674,727,078 and UGX.13,970,034,025 in the previous year to UGX.66,396,029,910 and UGX.13,993,742,152 during the year under review respectively implying low revenue recovery of the entity debts. The uncollected outstanding receivables may 532 eventually necessitate writing off the debts thus causing financial loss to the Authority.

The Accounting Officer explained that the accumulation was majorly due to property rates arrears due from MDA’s as at June 2015 and wrong classification of properties as commercial. The properties in question are actually residential owner occupied. Going forward, management has put in place measures aimed at recovering the receivables such as enforcement of staff adherence to the arrears management guidelines, granting instalment payment option for tax payers, issuing reminders and engaging PS/ST to advise the Accounting Officers of affected MDAs to make budget allocation to settle KCCA taxes.

I await the results of management’s debt recovery initiatives.

(ii) Specific Provision on Outstanding Balances of Receivables KCCA accounting policy on provision for bad debts requires that specific provision is made on an entire amount on the ledger where there is certainty of non-recovery. Further, a general provision of 10% is made for all outstanding balances at year end. A review of the receivables ledger revealed that Management made specific provisions on several ledger balances where they were certain of non-recovery, such as; property rates, markets, parking fees, advertising, street parking, public convenience and local hotel tax. According to the financial statements, a sum of UGX.7,611,799,344 was off set 100% being provision during the year. I was not availed with evidence that necessary steps had been undertaken by Management in terms of necessary reminders, negotiations, legal redress etc, to be certain of entity’s inability to recover. In absence of detailed debtors review report, the Authority risks writing off public moneys that are collectable.

The Accounting Officer explained that all specific provisions made on outstanding receivables were arrived at after evaluation of the necessary actions that had been taken to recover the said sums. Management promised to review the existing policy in light of the audit observation and recommendation.

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I await results of the Accounting Officer’s review report indicating action taken to enable me assess the policy provision. b) Increasing provision for legal costs Management provided for legal costs of UGX.28,120,651,033 relating to projection of potential liability drawn from claims in various civil cases already filed against the Authority, and currently pending before the courts of law. It was noted that the provisions on legal costs for the current year increased from 2.4 billion in the previous year to 28.1 billion in the current year. In case these provisions crystalise, the Authority planned cash flows and service delivery will be affected.

The Accounting Officer explained that no court judgments have been rendered to crystallize any liability to the stated amounts. At the inception of KCCA in April 2011, there were over 133 cases already pending against its predecessor Kampala City Council in various courts with some cases dating as far back as the late 1990’s and early 2000’s. Another 65 court cases are pending against the KDLB involving huge sums of money, some of which are likely to be decided against the Board.

I advised the Accounting Officer to closely follow up on the proceedings of these cases with a view to ensuring the liability that may crystalise is minimized. In the meantime controls should be strengthened to ensure that the new cases are minimized. c) Constructions (i) Delay in completion of road works During the year under review, a sum of UGX.189,685,616 was paid to the contractor for certified works on Mbogo road and UGX.970,158,313 for upgrading of drainage black spots. I reviewed the documentation related to this payment and noted that KCCA entered into contractual obligations with a local construction firm to reconstruct Mbogo road (2.08 km) in division and upgrade of drainage black spots in Kampala at contract sums of UGX.2,521,131,767 and UGX.4,181,073,515 respectively. The contract start date for Mbogo road was 29/05/2013 and the expected completion date was 29/11/2013. The completion 534 date was extended to 04/02/2014 but despite the extension, the contractor failed to rectify the defective works, and also failed to perform the works within the maximum liquidated time of 100 days.

KCCA subsequently terminated the contract in July 2014 and declined to pay for the works done. The value of the uncompleted works was assessed as UGX.1,595,515,818.

Delayed works affect performance of the Authority.

The Accounting Officer explained that despite the adequate supervision of the two projects, the contractor failed to deliver as expected thus the termination of the contracts. Further, subsequent review revealed that the adjudication process was undertaken but ended without agreement and the issue is before an arbiter.

I await the outcome of the arbitration process.

(ii) Supply of Construction Materials A review of a sample of records for supply of construction materials worth UGX.1,405,999,005 was undertaken and it was noted that the providers of these materials were given framework contracts for the supply of these materials. These materials were either delivered at specific sites where they were to be utilized or at the respective division yards.

Scrutiny of the documentation and interview with staff revealed that the Authority was not adhering to the TAIs as KCCA lacked the equipment like weighbridge services to measure the tonnage of the deliveries of materials. Management only relied on the tonnage of the trucks as provided for by the manufacturers which I could not place reliance to independently verify for accuracy.

The Accounting Officer explained that although KCCA has no weighbridge, random checks on the trucks delivering materials were undertaken by utilizing the MCD weighbridge in Nakawa as there were no funds to procure the weigh bridges. 535

Management will continue to utilize the URA weigh bridge as they plan to acquire one. Further, management indicated that in order to eliminate this problem, the new framework contracts for supply of materials have been structured to have cubic meters (m3) as the unit of measure and contractors were required to provide registration and volume capacities for the vehicles they intended to use in the delivery of materials to the Authority.

I advised the Accounting Officer to consider prioritizing funding of an internal weigh bridge in subsequent budgets and have the equipment procured.

(iii) Nugatory expenditure-Compensation for lost business KCCA entered into Joint Venture (JV) contractual obligations with a local firm to construct the Aquaculture One-Stop Centre and Fry project at Komamboga and a letter of bid acceptance (which amounts to a contract) was signed. However, a review of procurements related to this JV revealed that KCCA eventually cancelled the contract due to lack of funds and as a result, the local company submitted a claim of UGX.204,040,000 as compensation for losses incurred as a result of KCCA’s failure to conclude the procurement process.

At the time of this report a sum of UGX.151,372,000 had been paid to the firm. Compensations for un-delivered goods or services is wasteful and affects service delivery.

The Accounting Officer explained that mandatory approval of the contract from the office of the Solicitor General delayed leading to delay in the issuance of the letter of bid acceptance and by the time the bidder submitted performance security, and was ready to sign the contract, the new financial year had already began and the funds that had been earmarked to finance the project had been returned to the Consolidated Fund as required by law.

I advised the Accounting Officer to ensure prudence in taking decisions with financial implications.

536 d) Non-remittance of 15% NSSF deductions The Authority had outstanding arrears of NSSF contributions to the tune of UGX.1,047,092,247 dating back from the period April 2011 to March 2015 majorly for the former staff of KCC. These arrears exclude the transitional team amounts because it is yet to be computed. Further, it was noted that the Authority had committed to pay the arrears inclusive of the 5% workers contribution that was never deducted from their wages which is irregular. Details as below;

S/N Staff cadre Total gross salary 15% NSSF Contribution 1 Mayors and deputy mayors 1,032,983,675 154,947,551 2 Revenue officers 204,577,056 30,686,558 3 Enforcement officers 298,583,751 44,787,562 4 Casual workers 5,444,470,500 816,670,575 5 Transition team Not yet computed 0 Total 1,047,092,246

Failure to remit Employees NSSF contributions results into penalties and fines to KCCA and delayed remittance denies employees interest earnings on their savings. Furthermore, committment for payment of 5% deductions from KCCA funds is a loss of taxpayers money.

The Accounting Officer explained that the delay in the remittance of NSSF contribution of the four categories of staff and the political leaders was due to the contention regarding the eligibility of the individuals in each of the categories to subscribe to NSSF. Management further explained that an agreement on the individuals eligiblility to subscribe to NSSF as per the Act was reached and a repayment plan has been agreed upon with the Management Team of NSSF and all staff have been registered and monthly deductions and remittances have been made to NSSF since April 2015.

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I advised the Accounting Officer to ensure that all NSSF deductions are remitted as required by the law and the 5% employee contributions previously not deducted should be recovered from the salaries of the staff and not KCCA funds. e) Under-collection of revenue and Shortfall in Government Grant The Authority estimated to receive UGX.267,191,851,780 as taxes, grants from the Central Government and non-tax revenue for the year under review, however, only UGX.220,820,871,000 was received creating a short fall of UGX.46,370,980,780 as detailed below;

S/N Budget (UGX) Actual (UGX) Variance (UGX) 1 Taxes 32,690,378,562 31,887,855,282 802,523,280 2 Government transfers 172,718,959,472 140,267,456,872 32,451,502,600 3 Non-tax revenue 61,782,513,746 48,574,369,879 13,208,143,867 4 Miscellaneous 0 91,188,967 -91,188,967 Total 46,370,980,780

Failure by Government to release all budgeted funds to the Authority and under- collection of Non-Tax Revenue by the Authority affected implementation of some programs.

The Accounting Officer explained that they have continuously engaged the MoFPED to release all budgeted funds for full implementation of approved work plans but to no avail. NTR shortfall was due to non-operationalization of some revenue intervention measures such as implementation of the Commercial Road user fees and proposed upward revision in some tax rates.

I advised the Accounting Officer to engage further the MoFPED and ensure that budgeted funds are released. I also advised the Accounting Officer to follow up the intervention measures with a view of improving revenue collection. f) Youth Livelihood Programme (YLP) The programme (YLP) aims at addressing the unemployment challenge in the country, which is more pronounced in the urban areas as a result of rural urban

538 migration. YLP targets the poor and unemployed youth aged (18-30) in all districts country wide and it’s implemented under the Ministry of Gender, Labor and Social Development (MoGLSD). The following were observed:

(i) Non-compliance with loan repayment agreement It was noted that a total of 103 Youth Interest Groups (YIG) have so far benefited from the funds totaling UGX 1,025,531,040 since inception of the programme. These funds are supposed to be recovered on monthly installments over a period of time as per the various MOUs ranging from 16- 30 months and the recovered funds are to re-finance the YIG’s that did not benefit or were deferred.

However, it was noted that monthly installments were not regularly paid contrary to the provisions of the MoUs. Out of the expected recoveries of UGX.384,743,425, only UGX.69,519,950 had been collected and transferred to MoGLSD leaving an outstanding arrears amount of UGX.315,223,475. This represents only 18% recovery rate which is low with as low as 9%. The anticipated benefits from the project may not be realised.

The Accounting Officer explained that they had undertaken recovery strategies such as routine and joint monitoring visits during which reminders to pay the funds are issued, issued demand notes to all groups with arrears and are working with police and monitoring unit to apprehend the non-compliant groups.

I advised the Accounting Officer to follow up on the recovery to ensure compliance with the MoUs.

(ii) Failed Projects It was observed that projects to the tune of UGX.223,526,600 were mismanaged and collapsed majorly due to diversion of funds. The objectives of the programme are not being achieved and this being a revolving fund, the deferred groups may lose out as no repayments are made.

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The Accounting Officer explained that the due process of community selection, desk appraisal, field appraisal and approval by MoGLSD as stipulated in the guidelines were followed. However, the guidelines provided for selection of groups that were loosely connected, with no legal binding and no strict sanctions to non-repayment were provided for which impacted on compliance by the groups. Despite the flaws in the guidelines, management identified and forwarded non-compliant groups to their internal Monitoring and Investigations unit for investigation and prosecution and as a result some of the project leaders were arrested and released on bond and investigations are still ongoing.

I advised the Accounting Officer to liaise with the MoGLSD for purposes of improving the guidelines to enable proper implementation of the programme. g) Job Stimulus Programme (JSP) (i) Unrecovered loan funds This programme was a result of 2011/2012 budget intentions to address structural bottlenecks in the economy in order to accelerate socio-economic transformation for prosperity. To kick start the programme; UGX.3.3 billion was advanced as first tranche which benefited 2,777 youths. A sum of UGX.4,715,876,000 has been advanced as at 30th June 2015. However, it was observed that many youths defaulted on the repayment and as such a sum of UGX.87,856,342 had not been recovered as at 30th June 2015 which the bank has subsequently debited against the fund. Default was attributed to some beneficiaries who did not have adequate business skills, eviction of some youth operating in kiosks and containers and disappearance of some beneficiaries. Project objectives may not be attained.

The Accounting Officer explained that efforts are being made to recover the funds from the guarantors.

I advised the Accounting Officer to ensure adequate verification of groups and guarantors prior disbursement of funds. In the meantime, I await the results of management’s efforts on recovery.

540 h) Failure to create a Metropolitan Police Force Part V Section 26 of the KCCA ACT 2010, provides for the Authority to form a Metropolitan Police Force which shall comprise of persons appointed under the Police Act and trained by the Uganda Police Force. It further empowers The Minister to make regulations for regulating the Metropolitan Police Force by statutory instrument, on the recommendation of the Police Authority.

Contrary to the above, the Authority has not formed a Metropolitan Police Force for the Capital City since its inception. The Authority has continued to rely on services of the Uganda Police Force who are not directly accountable to the Authority. Further, there is no Memorandum of Understanding (MoU) between KCCA and the Uganda Police Force indicating conditions under which the force is to perform its various roles.

The Accounting Officer explained that KCCA in consultation with the Minister have recommended certain proposals to enable the amendment of provisions in the Kampala Capital City Act which pertain to the Metropolitan Police and Parliament is yet to consider the proposals for amendment.

I await the Accounting Officer’s effort in this regard. i) Land board Operations The functions of a District Land Board (DLB) as prescribed in the Land Act, CAP 227 include holding and allocating land in the District which is not owned by any person, facilitation of the registration and transfer of interests in land and taking over the role and exercise the powers of the lesser in the case of a lease granted by a former controlling authority. In the performance of these functions the DLB is assisted with technical services provided by the District land office comprising the District offices of the Physical planner, land officer, valuer, surveyor and registrar of titles. Whereas KCCA is duly resourced with appropriate staff in the above offices, the DLB does not utilise the personnel in the discharge of its functions. This state of affairs has affected KCCA as highlighted in the meeting held on 9th March 2015

541 between KCCA and DLB. These matters raised in the meeting have been brought to attention of Parliament for appropriate guidance on the operations of the DLB:

(i) Allocation of the same parcel of land to more than one individual Plot 16 Luthuli Drive was allocated to a third party yet at the time of allocation there was a subsisting interest in favour of another individual. In all cases of this type the Authority is sued as a co-defendant since under section 90 of the Land Act, all rent, fees and other revenues from the Land Board form part of the KCCA revenues.

(ii) Retrospective Ground rent revisions For a long time the DLB did not exercise the right to revise the rents at the specific times stipulated in the various lease agreements. The board has purported to exercise this power recently and has sought to apply the revised rates retrospectively to the time when it was due and this has triggered volumes of complaints from land owners with one noted litigation proceeding against both the DLB and KCCA i.e. HCCS No.580 of 2014.

(iii) Creation of plots in existing roads and carriageways Many neighbourhoods in the city are traversed by planned but unconstructed roads to enable access to surrounding properties. It was noted that recently the DLB allocated one such existing road to a private developer who then processed a Title as Plot 9 Kololo crescent. This matter is being investigated by the IGG.

(iv) Conversion of lease into free hold Section 10 of the Land Act vests powers in the DLB to receive and consider applications for grants of land in freehold. Section 60 of the same Act however prescribes that in the exercise of its functions the DLB “shall take into account the national and District council policies on land.”

It was noted that whereas the national land policy 2013 expressly prohibits conversion of former public land into freehold, the board has in the recent past entertained and granted applications for conversion to freehold which is against the 542 existing national policy and also reduces the Authority’s revenues in light of the provisions of section 90, Land Act.

(v) Changes of user Government through the National physical planning board, approved and adopted the Kampala Development plan in the year 2013 as the principal planning and zoning instrument to define which activities shall be permitted and authorised in which particular parts of the city as a mechanism to ensure planned developments. It was noted that the DLB approves applications for change user without reference to the Kampala Physical development plan thereby impeding the regulation of uncontrolled developments that shall likely conflict with the approved planning schemes for the particular areas.

As a result of these transgressions, colossal sums are claimed for compensations and settlement of third parties which exceed the Authority’s annual budgetary provisions.

The Accounting Officer explained that KCCA has since created a fully-fledged Land Management Unit comprising an advocate of the Courts of Judicature, a registrar of titles, a physical planner, a valuer and a surveyor in line with the Land Act which compels the district (city) administration to designate their relevant and competent staff to render technical services to the Land Boards. Management further explained that the technical guidance has been appropriately provided which will eliminate the hitherto instances of bad decisions by the Board.

I advised the Accounting Officer to develop a work flow (checklist) that ensures KCCA technical involvement before final decisions are made so as to harmonise the current state of affairs.

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94.0 ELECTORAL COMMISSION

a) Mischarge of Expenditure Paragraph 405 (a) of the Treasury Accounting Instructions 2003 states that “All government transactions shall be recorded in the books of account applying the Government of Uganda chart of Accounts as prescribed by the Accountant General. Accounting officers shall ensure that all financial instructions are properly coded.”

It was however noted that a sum of UGX.515,440,000 was charged to codes other than those for which funds were appropriated leading to mischarge of expenditure.

Management admitted instances of mischarge of expenditure, but largely attributed it to the elections of Special Interest Groups (SIGs), youths and People with Disabilities (PWDs) which were budgeted for and scheduled for 2013/14 and then defered to 2014/15. The Commission was advised by MoFPED to fund the elections from the available resources leading to the apparent mischarge.

The practice undermines the intentions of the appropriating authority.

I advised management to always liaise with MoFPED to ensure that adequate funds are allocated to the budgeted items.

544

LEGISLATIVE SECTOR

95.0 PARLIAMENTARY COMMISSION a) Expenditure Classification (i) Mischarge of Expenditure – UGX.5,920,736,510 The Parliament of Uganda appropriates funds in accordance with the needs of the country and this appropriation is implemented through the budget in which funds are tagged to particular activities and outputs using account codes and MTEF codes.

A review of the Parliamentary Commission’s expenditure revealed that the entity charged wrong expenditure codes to a tune of UGX.5,920,736,510 constituting 1.8% of total expenditure for the Parliamentary Commission. It was noted that the commission majorly mischarged employee costs. This practice undermines the importance of the budgeting process as well as the intentions of the appropriating authority and leads to misreporting.

Management explained that the main cause of the mischarge was insufficient funding at budgeting time and this mainly affected travel abroad, medical treatment abroad, Committee operations and contribution to International Parliamentary Organizations. Management further explained that inflation and the escalating dollar exchange rate also affected the budgeted funding implying lesser amount could be obtained for the budgeted amounts.

I advised the Accounting Officer to streamline the budget process to ensure that sufficient funds are allocated to each account and cash flow budgets be prepared regularly for adequate planning.

(ii) Budgeting for Item code 221006 (Commissions and related charges) – UGX.13,156,346,546 Item code 221006 (Commissions and related charges) under general expenses in the GOU chart of accounts is to be charged with costs incurred to cater for 545 commissions and other charges payable to third parties for services rendered, that is; commissions paid to URA for revenues collected, retention fees to contractors for revenues collected and others.

Review of the Parliamentary Commission Policy Statement, approved budget estimates and financial statements revealed that Parliament’s standing committee services were budgeted and approved under line item 221006 (commissions and related charges), instead of various line items on travel inland, sitting allowances etc.

This distorts the GOU financial statistics system and misrepresents financial statements during consolidation as the item code totals from Parliamentary commissions financial statements; would be representing other expense items thus misleading the users of both statements.

Management explained that this practice was historical when the budget for Committee operations was lumped under one item code, 7010 (Committees, Councils and Board Expenses) before the new chart of accounts was introduced and as such the most appropriate code to replace the old one was item code 221006 which has been in use. Management further explained that following OAG’s concerns they intend to create a new programme under their vote for Committee operations which will enable correct distribution of committee operations to the relevant budget lines from which payments will be made commencing 1st July 2016.

I advised the Accounting Officer to ensure that budgeting is undertaken in line with the GOU chart of accounts or contact the Accountant General to create a separate code for Standing Committees.

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95.1 PARLIAMENTARY PENSION SCHEME a) Delayed remittances to NSSF Section 11(1) of the NSSF Act requires payment of NSSF contributions within fifteen days next following the last day of the month for which the relevant wages are paid. A standard contribution of 15 percent is calculated on the total wages paid during that month to that employee.

Contrary to the above requirement of the law, employees’ Standard Contributions for four months were remitted to the NSSF late as illustrated in table 1 below:

Table 1: Contributions that were submitted late Month of contribution Date of remittance August 2014 21/10/2014 July 2014 21/10/2014 October 2014 18/11/2014 September 2014 03/11/2014

I explained to management that the Scheme is liable to penalties that are attributable to non-compliance with the provisions of the NSSF Act.

Management explained that it is yet to institute measures to ensure prompt payment of NSSF contributions.

I advised management to always ensure that employee contributions are promptly remitted to NSSF to avoid losses to the Scheme.

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HEALTH SECTOR

96.0 UGANDA AIDS COMMISSION a) Losses of Cash and equipment A review of the statement of reported losses of public moneys revealed that a total of UGX.3, 850,000 was lost in the previous year. This comprised of loss of equipment (UGX.1, 850,000) and undisclosed item valued at UGX.2M. During the year other losses worth UGX.48, 138,492 were reported comprising equipment worth UGX.14, 483,391 and cash totalling UGX.33, 655,551.

It was noted that the lost resources incurred during the year under review belonged to the Global Fund Country Coordinating mechanism and the commission was required to make refunds owing to the memorandum of understanding between the two bodies. In response, management stated that the matter was still under investigation by the Police.

I await the results of police investigation. b) Governance Issues

(i) Delayed Formulation of the Board Charter The institutional review report 2011 under section 3.2.2 suggested that a board charter should be put in place to spell out the definite terms of service for the board members, performance management and evaluation mechanisms, composition of committees, and the appointment of board members.

Although the draft charter and procedures manual had been prepared in October 2014, this has never been approved by the board.

Without a comprehensive Board Charter, there is a risk of conflicts and duplication of roles.

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In response, the Accounting officer explained that the matter would be prioritized in next Board sitting.

I await management actions in this regard.

(ii) Lack of strategic plan Best practice requires an entity to prepare a strategic Plan that spells out its long term direction. In the previous audit report, I indicated that Uganda AIDS Commission had not put in place medium and long term plans since its establishment in 1992. Management stated that a draft strategy plan had been made, but it was not availed for review.

Lack of a strategic plan implies that the implementation of activities aimed at achieving the entity‘s mission, vision and long term objectives may not be properly prioritized and co-ordinated.

In response, the Accounting officer explained that the strategic plan was still in a draft form and that management was using the National Strategic Plan on HIV/AIDS (NSP) and UAC Act as a guide in its activities. Meanwhile, a retreat to finalize the plan had been scheduled for January 2016.

I advised the Accounting officer to ensure that the strategic plan is put in place and implemented accordingly.

549

EDUCATION SECTOR

97.0 EDUCATION SERVICE COMMISSON a) Unutilized capital development funds One of the Commission’s strategic objectives is to construct the Education Service Commission office premise.

Review of the Commission’s annual budget performance report for the year 2014/2015 revealed that the Commission budgeted and received UGX.436,060,501 for purchase of Land. However, these funds could not utilized during each of the last two financial years because of being insufficient.

Management explained they could not proceed with the procurement as payment was expected to be effected as a lump sum at approximately UGX.1bn.

I explained to management that there is likelihood that the Commission may never acquire the expected land if adequate planning and budgeting is not done. I also advised them to carry out market research to come up with a realistic budget and engage MoFPED to release the funds as a lumpsum to be able to conclude the land purchase transaction and commence the construction.

550

AGRICULTURAL SECTOR

98.0 NATIONAL AGRICULTURAL ADVISORY SERVICES (NAADS) a) Record keeping I noted that the management did not properly maintain accounting records. Payments made from the NAADS Basket Account amounting to UGX.32 billion were not coded and posted to accounting ledgers, and comparative figures of 2013/14 did not include the cash and bank balances of UGX.1,308,055,000 that existed at 30 June 2014.

Management explained that the resource that was meant for District Local Governments which was transferred to the NAADS Project Account in Bank of Uganda could not be consolidated since it was not transferred to the NAADS Treasury General Account. Management has since consulted MFPED and has been advised to include the funds under transfers from other Government Units.

I advised that the transactions should be appropriately authorised, coded and posted to the accounting ledgers to enable timely preparation of financial statements. b) Mischarge of expenditure Parliament appropriates funds in accordance with the needs of the country and this appropriation is implemented through the budget in which funds are tagged to particular activities and outputs using account codes. I noted that expenditure totalling to UGX.5,912,977,609 was inappropriately charged to code 224001 (Medical and agriculture supplies) to fund activities that were not planned for and this was done without authority.

In their responses, management explained that NAADS mandate of extension services was changed after the budgeting process had been completed. As a result funds that were originally budgeted for operations were transferred through corrigenda to the goods and services expenditure item by the Ministry of Finance.

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The misclassified funds were as a result of costs associated with activities under distribution of goods and services. This financial year a budget item for management of distribution of inputs was created and this will not re occur.

I advised the Accounting Officer to streamline the budget process to ensure sufficient funds are allocated to significant account areas and should there be need for reallocation, authority for the virement should be sought before any reallocations are made. c) Tea Intervention Project (i) Payments to Lead agencies During the year, payments amounting to UGX.6,744,532,740 were made to the project two (2) lead agencies- for UGX.4,987,748,445 and UGX.1,756,784,295. I noted that these payments were not supported by evidence of extension services provided. The payments were based on deliveries of 49,959.502 tea seedlings in Kabale, Kanungu and Kisoro districts that were not independently verified by Operation Wealth Creation officers or district staff. In absence of evidence of independently verified supplies, I could not be certain that the payments to the lead agency were for actual supplies made.

(ii) Deliveries outside contract period NAADS Secretariat signed a contract with a local tea seedlings company on 19th June 2015 for supply of tea seedlings to farmers in Kisoro district. Supplies were undertaken and a payment of UGX.596,704,950 on 29th June 2015 for supply of 1,410,650 tea seedlings was made. However, I noted that deliveries relating to these supplies were made before the contract was signed as shown in the table below. Further still, the supplier did not acknowledge receipt of these funds. Deliveries presented in support of the payments may not be related to the above contract.

Date of delivery Recipient No. of tea seedlings 04/01/2015 Rugyegye Demo 355,080 06/01/2015 Nyabihonga Demonstration farm 700,000 08/01/2015 Olutolere Catholic parish 144,542 04/01/2015 Rugege Demonstration farm 211,026 Total 1,410,648

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 (iii) Supply of tea seedlings in Zombo and Nebbi districts NAADS secretariat signed a framework contract with a local Seeds supplier for the supply of tea seedlings to Zombo and Nebbi districts on 5th March 2015. Two call- off orders were made on 30th March 2015 for the supply of 6,657,308 and 2,030,000 tea seedlings to Zombo and Nebbi districts respectively and all deliveries were made in April and May 2015. However, after the issue of the call-off orders, the Executive Director received a technical inspection report in which the verified mature seedlings in the districts were only 1,600,000. The supply of the 8,687,308 tea seedlings to Zombo and Nebbi districts worth UGX.4,473,963,620 is questionable expenditure.

Management in their responses explained that Under the Lead Agency arrangement, the beneficiary District Local Governments adopted an approach whereby the tea seedlings raised by the local nursery operators are planted in the gardens of the beneficiary farmers prior to contract award. This is intended to avoid over growth of the tea seedlings in the nurseries which can result from the usually protracted procurement process. During this period, the garden acts as a ‘store’ for the seedlings.

I advised the management that it is necessary to review the collaboration arrangements with the lead agencies particularly the payment basis to ensure that payments are for actual services rendered. The deliveries by the local companies should be further reviewed to ascertain that the actual number of seedlings paid for was what was delivered.

d) Commitments through Local Letters of Credit at the year- end Funds amounting to UGX.15,510,127,219 were transferred to Bank of Uganda as commitments to open local letters of credit between 29th June and 30th June 2015. Included in the funds transferred was UGX.367,791,500 being commission for the letters of credit. However, the following were noted;

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(i) I observed that 6 months later after the commitment of the funds for the local purchases, UGX.2,938,368,827 remained unperformed local letters of credit while LCs worth UGX.1,680,593,664 had expired. (ii) The additional cost of UGX.367,791,500 in form of the local letters of credit commission paid to Bank of Uganda is avoidable. Such avoidable costs reduce funds meant for service delivery.

Management explained that this mode of payment was done because of increased funding for agricultural inputs for the various commodities to levels far beyond what had been earlier anticipated. This necessitated strategic procurement arrangements under framework arrangements in order to cater for contracts involving directly imported goods like motor vehicles, equipment such as milk coolers and maize mills where installation and test running required Letters of Credit arrangement facilitates. The other contracts involved procuring of agricultural inputs often restricted by rainy seasonal challenges.

I advised NAADS Secretariat to plan the procurements early enough to avoid such year-end rushes that result in a waste of resources. (iii) A further review of the correspondences between Bank of Uganda and the NAADS Secretariat revealed that record keeping in respect to Letters of Credit was not properly done. The Director Banking communicated the discrepancies between the Bank and NAADS records. Table below refers. Inaccurate records and the absence of ledgers to track payments to suppliers may lead to duplicate payments. Name of beneficiary Amount in NAADS Amount in Bank of records (UGX) Uganda records (UGX) Impact Associates Ltd 180,241,356 - Nagric and DB 136,159,793 57,149,903 Bed Saf General 185,000 59,052,000 Construction Bed Saf General 73,260,000 - Construction Nodic Investments 50,895,000 3,511,755 Kawaka Integrated 480,000,000 90,612,000 Development Ltd Total 920,741,149 210,325,658

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I advised Management to maintain ledgers to track partial payments made to suppliers.

(iv) I also noted that a Local Letter of Credit worth UGX.423,187,330 opened on 01/11/2013 in favour a local company was not captured as a Letter of Credit in the previous year as well as this year’s opening balance. Inaccurate records and the absence of ledgers to track payments to suppliers may lead to duplicate payments.

I advised Management to maintain ledgers to track partial payments made to suppliers. e) Unaccounted for funds advanced to staff The Treasury Accounting Instructions (TAI) 217 stipulates that advances not accounted for within 60 days from the date of payment shall be deducted from the monthly salary of the debtor. Contrary to the above, UGX.331,881,000 advanced to various officers to carry out official activities remained un accounted for at the end of the financial year. I further noted lack of adequate system of tracking advances based on the fact that and that advances are expensed when paid out instead of when they are accounted for. I could not confirm whether the funds were used for the intended purposes.

Management explained that the IFMS system does not have provision for tracking advances and therefore payments are expensed each time a payment is.

I advised the Accounting Officer to ensure the funds are fully and timely accounted for or recoveries be made from the affected officers. f) Irregular payment of legal costs NAADS made payments of UGX.92,120,000 and UGX.50,123,186 to an individual on 2nd June 2015 and 3rd July 2015 for legal costs and interest thereon respectively in the case against Kisoro District Local Government. I noted that NAADS was not a party to the law suit and therefore this payment was made without basis. I was not

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availed with a court judgment that required payment of the costs. Besides, the expenditure was wrongly charged on Medical and Agricultural supplies thus a diversion.

I advised management to institute measures to recover the loss. g) Absence of verification of inputs on delivery A review of the inputs delivery process at the districts revealed that whereas copies of the goods received notes at the secretariat originated from the districts, I noted weaknesses in the receiving process at the districts.

 The Goods Received Notes (GRNs) are supposed to be raised on receipt of the items however, Inputs like citrus, mangoes, cassava cuttings are delivered directly to sub counties and goods received notes (GRNs) were raised after the inputs had been distributed.  Other inputs like tea seedlings were acknowledged as received after planting especially in Kigezi sub-region.  The items were therefore not received by the district Stores person and were not verified by the Internal Auditor before they are distributed.

Management explained that the Secretariat requires that the District Officials receive agricultural inputs at the District Headquarters before they are distributed to the beneficiary Sub counties. However, in some cases, especially in the case of the hard-to-reach Sub counties and bulky materials such as cassava cuttings, the District Officials have found it more practical to dispatch the relevant staff to witness the delivery of the inputs from the beneficiary sub counties, and subsequently prepare the relevant documents. In addition, Management has however enhanced controls over the receiving process by making it mandatory for Operation wealth creation Officers to witness and sign delivery documents.

I await management implementation action on the matter.

556 h) Payment of terminal benefits I visited a number of districts that were paid terminal benefits with the objective of ensuring that terminal benefits were correctly computed and paid to genuine staff, statutory deductions properly calculated and remitted to respective departments, and that all bona fide employees qualifying for terminal benefits were paid. The following anomalies were observed;

i) I noted that 26 districts did not account for funds totaling to UGX.1,513,580.235 received as terminal benefits. In many instances, the Districts did not have financial records while others diverted funds to unrelated activities. I found this expenditure ineligible.

ii) I also noted wrong computation of terminal benefits in some districts. For instance;

 32 Diploma holder under the Agricultural Advisory Services Providers (AASPs) in Rakai District were paid gratuity at a rate of UGX.900,000 each instead of UGX.750,000. This caused overpayment of UGX.4,800,000. Further still, two AASPs whose employment contracts expired on 30th November 2012, according to the availed records, remained on the payroll and were paid terminal benefits of UGX.7,118,000. Using wrong salary rates to calculate gratuity and maintaining staff on payroll without valid employment contracts caused a financial loss to NAADS.

 Payment for gratuity was computed differently as some districts computed gratuity basing on instructions from the secretariat hence providing a full month gross salary while others like Nakasongola, Kibaale and Butambala districts, based their computations on staff contracts which was 25% of their basic salary, thus underpaying the staff. This could lead to litigation in courts of law and may result into losses to NAADS.

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 Some districts did not deduct PAYE worth UGX.15,534,000 on gratuity as indicated in the table below. These funds were not therefore transferred to URA contrary to the law.

District Gross Gratuity (Shs) PAYE not deducted (Shs) Amuru 16,710,000 5,013,000 Kibaale 35,070,000 10,521,000 Total 51,780,000 15,534,000 iii) I also noted that there were pending claims of terminal benefits in the 9 districts of Arua, Napak, Amudat, Abim, Gulu, Buhweeju, Bushenyi, Mubende and Sembabule. I could not verify and quantify their claims because most of the staff comprised of staff from Agricultural Advisory Services Providers who were recruited at sub counties and their employment files were kept at their respective sub counties.

Management explained that all District Local Governments were given clear guidance on how the funds for terminal benefits were to be utilized and they were required to remit any unutilized balances to the consolidated fund. Management is following up the matter with the Chief Administrative Officers to ensure compliance with both the guidance given to them and the financial regulations.

I recommended that;

 All Districts to provide accountability or refund all funds spent on ineligible expenditure.

 NAADS secretariat should verify the pending claims and provide for their settlement.

 District officials should be tasked to recover un-deducted PAYE and remit it to Uganda Revenue Authority.

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SECTION THREE

STATUTORY CORPORATIONS

99. STATUS OF ACCOUNTS AUDITED DURING THE YEAR

A total of 100 audits were undertaken in Statutory Corporations, Boards, Councils, Institutes and Projects during the period 1st April to 31st December 2015. Of the 100 audits, 2 were backlogs in Uganda Railways Corporation.

Accordingly, separate audit reports have been issued for each of them. Out of the 100 accounts audited, 78 accounts have unqualified opinions, 18 were qualified opinions while 4 had disclaimer opinions. The bases used to arrive at the audit opinions is described in the separate reports issued on individual accounts. Details in appendix 1 and 2, and tables and graphs below.

99.1 Audits in Progress

The following audits were still in progress.

S/N Entity Year of Audit 1. Civil Aviation Authority 2015

2. Amber House Limited Closure Audit-2014

99.2 Types of Opinions Issued

A total of 96 opinions and 4 disclaimers of opinion were issued as illustrated below;

S/N Type of Audit Opinion Number of Accounts 1 Unqualified 78 2 Qualified 18 3 Disclaimer 4 4 Adverse 0

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Figure 1: Proportion of audit Opinions in the period under review:

0 4 18

Unqualified Qualified Disclaimer 78 Adverse

An analysis of the financial statements audited and type of opinions issued between 2012 and 2015 revealed the following;

Opinion Types Year ending 30th June 2012 2013 2014 2015 Unqualified 41 45 66 78 Qualified 25 26 39 18 Disclaimer 4 1 2 4 Adverse 0 0 0 0 Total 70 72 107 100

Figure 2: Comparison of types of opinions issued in the previous four years:

90 80 70 60 Unqualified 50 Qualified 40 Disclaimer 30 20 Adverse 10 0 2012 2013 2014 2015

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99.2.1 Types of Opinions explained

(i) 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 stated financial reporting framework and the various Acts and Statutes establishing the State Enterprises, Statutory Authorities and Commissions.

(ii) 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.

(iii) Disclaimer of Opinion

The Auditor disclaims 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.

(iv) 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.

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100. KEY AUDIT FINDINGS

A summary of the key audit findings arising from audit of statutory agencies and state enterprises is highlighted below;

100.1 COMPENSATION OF PROJECT AFFECTED PERSONS (PAPs) The government is currently in the process of undertaking various projects which include: Transmission Lines (UETC), Distribution lines (UEDCL, REA, ERT)Power Dams (Karuma & Isimba) and the Refinery (Ministry of Energy), and these require compensation of land owners. Analysis of the current compensation arrangements revealed the following matters;

100.1.1 Delays in land acquisition There are frequent delays in acquisition of land for the projects and this was attributed to; Inadequate release of funds, delays between feasibility and actual compensation creating speculation and ultimately price hikes, diversion of Compensation funds, rejection of valuation rates approved by the Chief Government Valuer and land disputes amongst PAP claimants. As a result colossal amounts are still outstanding. For example Rural Electrification Agency:13.54bn, Mbarara Nkenda line 1.85bn and Karuma and Isimba projects:1.34bn. In the circumstances the progress of the projects was behind schedule and this impact on the timely attainment of the projects’ objectives. In addition there is a likelihood of resource overruns.

100.2 INVESTMENT IN INTEGRATED INTELLIGENT COMPUTER SYSTEM (IICS) PROJECT

Government through UNCST has invested a sum of UGX.4.1bn since 2010/11 towards the design and implementation of an Integrated Intelligent of Computer System (IICS) to capture and update patients data in real time and provide a platform for facilitation data sharing among Health Centres and Hospitals. During inspection of Mulago National Referral Hospital, it was observed that there has been resistance by medical administrators’ to have this project take off. The objectives of placing, processing and management of orders for supplies internally were not evident. Stores management of pharmaceuticals and medical supplies to reduce over ordering and or identify expired drugs was not manifested.

Currently, government has committed to fund this project and a sum of Shs.30bn is yet to be budgeted to rollout the system within the public sector from 2016/2017 562

after training over 67 Hospital and Health Centres. If government does not compel the Hospital administrators to use the system, the funds so far spent would have been wasted.

100.3 LACK OF STANDARDS AND GUIDELINES ON RADIATION MANAGEMENT The National Environment Act (1995) requires the National Environment Management Authority to establish criteria and procedures for the measurement of ionizing and other radiation; standards for the minimization of radiation; protective measures to be taken against radiation; the control of the effects of the radiation and safe practices to protect persons involved in activities prone to radiation exposure. The Authority is also required, in consultation with the Uganda Revenue Authority, to maintain a register of all radioactive substances imported into Uganda in such form and manner, and containing such information as may be prescribed.

Contrary to the above, the radiation standards and guidelines have not been developed to help in the minimization of ionizing and other radiation in the environment. The register of all radioactive substances imported into the country is also not being maintained. Lack of standards and guidelines expose persons involved in radiation activities and the Country at large to risks like cancers and other health related diseases.

I advised the Accounting Officer to expedite the consultations on establishment of Standards and guidelines, as this will guide national responses to risk associated with radiation.

100.4 PERFORMANCE OF RIFT VALLEY RAILWAYS UGANDA ON CONCESSION FEES According to the performance review conducted in 2014, it was noted that the sharing ratio of 60:40 between Kenya and Uganda as provided in the concession agreement was irregularly altered to 80:20 respectively which disadvantaged URC and led to a significant drop of revenue by 50%. In the year ending December 2014, Uganda should have earned UGX 5.6bn as concession fees but only earned UGX2.8bn. This poses a grave concern. I advised that RVR reverts to the original concession.

100.5 INADEQUTE MONITORING, FOLLOW UP AND RECOVERY OF LOANS WRITTEN OFF

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I noted weaknesses in monitoring, follow up and recovery of delinquent loans under the Microfinance Support Centre. The company wrote-off loan accounts to a tune of UGX.6.198 billion and UGX.8.091 billon in the years 2012/2013 and 2014/2015 respectively. This is a loss to government. There is urgent need to revisit the procedures and processes of lending out the government funds.

100.6 MANDATE OF THE UGANDA NATIONAL BUREAU OF STANDARDS

Uganda National Bureau of standards (UNBS) is currently not able to effectively enforce its mandate of enforcement of National Standards due to inadequate funding, lack of core staff and old fleet of field vehicles. As a consequence of inadequate funding;  UNBS can only deploy limited staff in 18 out of 54 entry points in the country;  of the required 400 national standards, only 150 can be developed;  of the more than 3000 locally made products, only 500 can be certified during the year;  only 800 market outlets can be inspected out of over 5,000;  of an estimated 1,000,000 weighing scales and other measuring instruments, UNBS can only verify 500,000.  Only 800 out of over 20,000 product samples can be tested for compliance in the UNBS laboratories.  Only 50,000 imported consignments out of 100,000 can be inspected.

There is a risk of counterfeit and substandard products entering the market and consumers not being able to obtain value due to them. I advised Government to improve funding of the Bureau to enable it execute its mandate.

101. SUMMARY OF GENERAL AUDIT FINDINGS

101.1 Delayed Completion of Contracts It was observed that government contracts/projects in UETCL, UCC and DDA with various funding amounts and had been on going or were started during the financial year lagged behind the implementation schedule or demonstrated signs of failure. It was noted that these contracts had exceeded their completion dates by up to three years. The delays in contract execution were attributed to insufficient funding and inadequate supervision of contract implementation by the responsible entities. The delays are potential causes of increased project costs and failure to achieve objectives of the project.

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Table 1: Examples of delayed contracts

Extended Contract Status by Name of Start Completion date of Name of project Amount 31/12/14 & Entity Date date completion (UGX) 30/6/ 15 (if any)

RCDF Digital UCC 1/7/2009 31/12/2014 Not complete Migration 39,600,000,000 Fencing, DAIRY Plumbing and DEVELOPMENT painting and AUTHORITY roofing works) of 454,707,251 30/ 5/ 2015 Not complete (DDA) the Dairy Training School in Entebbe Mbarara /Nkenda, Tororo UA 52.5m April Not UETCL March 2015 Transmission GOU 63.6m 2013 completed lines (132Km) Hoima-Fort Not Portal-Nkenda completed NOks 300M July UETCL 273KM Jan 2013 UGX.39.36 2008 Transmission lines (220KM) Kawanda-Masaka Not USD.9.58m Jan August UETCL Substation completed GOU. 2.74 Bn 2012 2014 220/132Km NELSAP- ADB UA.7.59M July UETCL Bujagali-Tororo, JPY 5.41M Jan. 2015 2013 Mbarara-Mirama UGX.66.4Bn

101.2 Mischarged Expenditure Expenditures from 6 entities totaling to UGX. 4,205,808,383 were charged on item codes which do not reflect the nature of the expenditure. Such a practice impacts on the credibility of the financial statements, since the figures reported therein do not reflect true amounts expended on the affected activities. I however noted an improvement over the last three years where mischarged expenditures have been reducing .There is still need for accounting officers to enforce proper budgeting and strict adherence to the budget provisions regarding reallocation of funds. Details are shown in the table below.

Table 2: Mischarged Expenditure Amount Mischarged S/N Entity (UGX) 1. The Uganda Tourism Board 309,819,107 2. National Agriculture research Organisation 66,500,000 3. National Animal Genetic Resource Centre and Data Bank 855,096,108 4. Uganda Industrial Research Institute 2,374,824,057 5. Uganda National Bureau of Standards. 599,569,111 Total 4,205,808,383

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101.3 Unaccounted for Funds A total of UGX.495,066,683 inform of advances to staff, payments to service providers, cash withdrawals, imprest, remittances to Districts, borrowings for carrying out activities in various entities, remained unaccounted for by the end of the financial year contrary to the Public Finance Management Act 2015 and the Treasury Accounting Instructions. Table 3 below refers. Delays in accounting for funds may encourage falsification of accountability documents.

Table 3: Unaccounted for Funds S/N Name of Entity Category Amount (UGX) 1. National Youth Council Un supported expenditure 66,489,000 2. National Enviroment Management Unaccounted Advances 264,082,000 Authority. 3. Uganda Tourism Board Incompletely Vouched 66,348,200 expenditure 4. Uganda Tourism Board Unvouched expenditure 231,647,412 5. Uganda Tourism Board Doubtful expenditure 18,117,600 6. Nakivubo War Memorium Un acconted for Advances 539,438,714 7. Nakivubo War Memorium Un supported expenditure 134,753,962 8. Uganda Industrial Research Institute Unaccounted Advances 19,441,000 9. Uganda Export Promotion Board Unaccounted Advances 4,871,600 10. Uganda National Bureau of Un supported expenditure 167, 903,493 Standards 11. Uganda Broadcasting Corporation Unaccounted Advances 400,456,283 12. Uganda Broadcasting Corporation Incompletely Vouched 76,856,000 13. Uganda Broadcasting Corporation Doubtful expenditure 17,754,400 Total 495,066,683

101.4 Non Compliance with Income Tax Act During the year under review, 14 entities did not comply with the Income Tax Act 1997 in respect to taxes amounting to UGX, 21,366,805,681. The non-compliance was in respect of non-deduction of taxes worth UGX,73,457,960 and non-remittance of tax worth UGX22,214,880,311 as shown in table 4. Failure to deduct and remit taxes to the Tax Authority may attract fines and penalties from URA. While the practice impacts on the collections by URA.

Table 4: Non-deduction and Non-remittance of Taxes S/N Entity TAXES Non Non-

Deduction remittance 566

1. Uganda National Cultural Centre 7,842,482 0 2. Uganda Tourism Board 29,472,595 0 3. Uganda Electricity Generation Company Limited 0 813,549,792 4. National Council of Sports 21,767,327 0 5. Mandela National Sports Limited 9,042,196 644,431,692 6. Nakivubo War Memorial Stadium 0 563,341,936 7. Uganda Export Promotion Board 0 184,476,210 8. Posta (U) Ltd 0 4,152,532,580 9. Uganda Broadcasting Corporation 0 14,750,294,491 10. Uganda Institute of Communication Technology 2,463,000 0 11. NEC Headquarters 2,870,360 0 12. NEC Tractor hire scheme 0 119,402,190 13. NEC tractor project 0 42,411,461 14. NEC Works 0 96,365,329 Total 73,457,960 21,366,805,681

101.5 Outstanding payables It was noted that a 29 entities entered into commitments beyond the available funds. This is contrary to the commitment control system which requires the accounting officer to commit Government within the provided funds. As a result, the above entities have outstanding domestic arrears to the tune of UGX. 216,289,941,996 and Euros - 83,228 as shown in table 5 below. Accumulation of payables beyond what the available funds can accumulate may result into unnecessary litigation and their attendant costs.

Table 5: domestic arrears for the last three years Amount Entity S/N (UGX) 1 Uganda Health Practitioners Council 10,760,867,661 2 National Forest Authority 10,493,376,000 3 Hotel and Tourism Training Institute 465,855,464 4 Kilembe mines ltd 4,700,000,000 5 Uganda Electricity Generation Company Limited 33,828,000,000 6 Nakivubo war memorial stadium 242,894,129 7 Mandela National Sports Limited 192,640,777 8 Uganda Registration Service Bureau 17,526,195,243 9 Law Development Centre 353,327,000 10 Uganda Broadcasting Corporation 30,841,178,841 11 Uganda Communications Communication 30,323,585,989 12 UICT 140,580,436 13 Uganda Retirement Benefit Regulatory Authority 14,671,295 14 NEMA 192,572,000 15 UNBS 1,113,468,063 16 Uganda Export Promotion Board 75,703,033 17 National Enterprise Corporation 598,631,982 18 NEC Headquarters 44,961,595

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19 NEC Tractor hire scheme Ltd` 553,670,387 20 Uganda Railways Corporation 24,091,141,949 21 Posta 15,549,969,730 22 Uganda Revenue Authority 28,067,458,424 23 Uganda National Council for Science and Technology 78,885,000 24 Uganda Development Corporation 76,636,000 25 Capital Markets Authority 477,744,000 26 UIRI 769,038 27 Uganda National Cultural Centre 976,911,224 28 National Library of Uganda 230,886,736 29 Joint Clinical Research Centre (PAYE arrears) 2,383,190,000 30 Joint Clinical Research Centre (Trade Payables) 1,894,170,000 Total 216,289,941,996 31 Bank of Uganda Euros - 83,228

101.6 Budget performance Budget shortfall I noted that nine (9) entities budgeted to either receive or collect a total of UGX.94,930,480,954, out of which UGX.53,570,228,911 was collected translating into a 56.4% out-turn for the financial year. This left a funding gap of UGX.41,360,252,043 (43.6%). Details are in the table 6 below. Failure to realize the budgeted funds by Entities affects implementation of planned activities limits the achievement of their mandates. And many times, the quality of service delivery by those entities established is greatly affected. Table 6 Budget shortfall N Revised Actual Entity Variance o. Budget Releases 1 National Animal Genetic Resource 4,049,550,000 3,608,801,076 440,748,924 Centre And Data Bank (NAGRIC) 2 Dairy Development Authority (DDA) 5,044,202,000 4,340,000,000 704,202,000

3 Coordinating Office For Control Of Trypanosomiasis In Uganda 1,270,000,000 1,254,901,000 15,099,000 (COCTU) 4 Uganda Railways Corporation 36,670,948,000 4,580,568,000 32,090,380,000 5 UICT 4,999,465,250 3,803,775,979 1,195,689,271 6 URBRA 6,000,000,000 5,900,000,000 100,000,000 7 Uganda Registration Service Bureau 15,368,375,560 14,358,205,802 1,010,169,758

8 UNBS 12,500,000,000 12,053,557,979 446,442,021 9 Uganda Development Corporation 4,482,787,000 2,077,998,475 2,404,788,525 10 UWTI 4,545,153,144 1,592,420,600 2,952,732,544 TOTAL 94,930,480,954 53,570,228,911 41,360,252,043 568

101.7 Irregularities in Procurements I noted that a number of entities conducted procurements worth UGX.15,848,456,938 and USD 252,947in violation of the provisions of the procurement law and regulations as shown in table 7 below. The violations were mainly in form of failure to supply as per specification in the bid documents, failure to follow the evaluation criteria, procurements not reported to PDU, non existence procurement units at the entities, absence of procurement plans, and reports, non-functional Procurement and Disposal Units (PDU), Unsupported Public Private Partnership arrangements, Direct procurement, use of non prequalified Suppliers, un supported procurements, and emergency procurements with unjustified reasons such procurements do not realize Value for Money and are prone to abuse. Some may lead to outright loss of government funds

Table 7. S/N Entity Amount 1 National Women’s Council 74,100,405 2 National Forest Authority 59,790,000 3 National Council For Higher Education 33,618,160 4 Uganda Tourism Board 7,499,999 5 Nakivbo War Memorial Stadium 200,000,000 6 National Council of sports. 27,015,600 7 Uganda Industrial Research Institute 3,843,526,574 8 Uganda Investment Authority 4,579,200,000 9 Uganda Property Holdings Limited 7,000,000,000 10 Uganda Broadcasting Corporations 23,706,20 Sub Total 15,848,456,938 11 Uganda Railways Corporation USD 252,947 Sub total USD 252,947

101.8 Outstanding Receivables I noted that receivables of UGX. 155,130,467,299 and Euros 2,967 remained uncollected by the various Government and Agencies by 30th June 2015 as summarized in table 8 below. There is a risk that the activities for which these receivables were appropriated were not carried. The accumulation of payables could be partly attributed to the uncollected receivables by the various entities.

Table 8: Outstanding Receivables Amount S/N Entity (UGX) 1 Uganda Health Practitioners Council 251,500,000

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2 Uganda Tourism Board 9,000,000 3 Electricity Regulation Authority 910,736,547 4 Nakivubo War Memorial Stadium 580,695,592 5 Nambole Stadium 1,648,653,367 6 Uganda Registration Service Bureau-Gou 2,998,910 7 Uganda Registration Service Bureau-liquidation 8,052,490,354 8 Law Development Centre 431,970,800 9 Uganda Property Holdings Limited 6,870,971,287 10 Uganda Railways Corporation 16,325,102,000 11 Posta Uganda 12,727,659,702 12 National Information Technology of Uganda 11,185,631,926 13 Uganda Broadcasting Council 20,961,027,331 14 Uganda Communications Commission 29,744,805,694 15 UICT 549,557,013 16 Uganda Coffee Development Authority 1,403,008,069 17 National Environment Management Authority 9,515,724,000 18 National Enterprise Corporation Headquarters 317,666,860 19 National Enterprise Corporation Tractor Project 700,469,444 20 National Enterprise Corporation Luwero Industries 563,566,368 21 National Planning Authority 3,648,966 22 Public Procurement and Disposal of Public Assets Authority 98,438,073 23 Uganda Revenue authority 16,719,701,607 24 Uganda Investment Authority 8,926,515,389 25 Uganda Development Corporation 197,379,000 26 Capital Markets Authority 270,385,000 27 Microfinance Support Centre 282,984,000 28 Joint Clinical Research Centre (Long Term) 3,031,130,000 29 Joint Clinical Research Centre (Receivables) 2,595,550,000 30 Allied Health Professionals Council 251,500,000 Sub Total 155,130,467,299 31 Bank of Uganda Euros - 2,967

101.9 Staff Shortages A review of the approved staffing structures of various Entities revealed 1584 vacant posts in a number of entities, as shown in table 9 below. Inadequate staffing affects service delivery by the affected entities which adversely impacts on the entities achievement of their strategic objectives. The Accounting Officer attributed this to inadequate funds to cater for the related wage bills.

Table 9: Staffing Gaps Approved Filled Vacant %age S/N Entity Positions Positions Posts 1 Electricity Regulation Authority 67 53 14 20.9 2 Kilembe Miles 14 3 11 78.6

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3 National Forest Authority 556 312 244 48.2 4 Uganda National Cultural Centre 60 32 28 46.7 5 Uganda Allied and Health Practitioners Council 45 34 11 24.4 6 Uganda Revenue Authority 2,392 2,264 128 5.4 7 Financial Intelligence Authority 39 18 21 53.8 8 Uganda Industrial Research Institute 560 225 335 59.8 9 Uganda National Bureau of Standards 562 236 326 58 10 Uganda Export Promotion Board 42 20 22 52.3 11 Uganda Investment Authority 78 52 26 33.3 12 Insurance Regulatory Authority 42 25 17 16.7 13 Uganda Railways Corporation 106 104 2 92.5 National Information Technology Authority 14 Uganda 208 53 155 36 15 Uganda Communication Commission 179 151 28 8.9 Uganda Institute of Communication and 16 Technology. 109 63 46 38.5 Uganda Retirement Benefit Regulatory 17 Authority 56 23 33 58.9 18 COCTU 24 15 9 37.5 19 Uganda Revenue authority 2,392 2,264 128 5.4 Total 7,531 5,947 1584 21%

101.10 Corporate Governance Organisations established by Acts of Parliament, the Public Enterprises Reform and Divestiture Act (Cap 98) and The Companies Act, Cap 110 are required to have governing bodies and other structures to enable good stewardship of public resources under their care. Review of governance practices in a number of organisations revealed weaknesses as summarised in the table 10 below refers;

S/N Entity Remarks 1. Management Training and Advisory Centre  Non- existence of Internal Audit 2. Nakivubo war memorial stadium  Lack of strategic plan 3. The Nile Hotel International Limited  Un limited tenure of the Board.  Non implementation of the strategic plan 4. Uganda Broadcasting Corporation  Lack of Governing Board  Lack of Corporate plan  Non-existence of Internal Audit  Non-existence of Audit Committee  Lack of stores  Lack of Board of Survey report  Lack of a debtors policy 5. National Enterprise Corporation-HQs  Term of the board expired 6. National Enterprise Corporation-Luwero  Lack of governing board industries 7. Uganda National Council for Science and  Lack of governing board Technology 571

8. Uganda Development Corporation  Lack of governing board  Lack of Internal Audit

101.11 Land matters Land issues continued to affect a number of entities and a number of instances have been noted where entities have continued to lose land through encroachment. A number of others had not valued their land while others had not updated their Asset Registers with the details of their land. I noted that the Uganda Land Commission which is mandated to hold Government Land in trust does not have an updated register of all the land it holds in trust for Government. There is a need to address land issues in Government Institutions. Table 11 below refers;

Table 11: Land Issues No updated No titles/Expired asset Assets not leases/land No Entity register/No valued encroachment/dilapidate asset /revalued d structures/Impairment Register of Assets 1 MTAC √ √ 2 Kilembe mines √ Uganda Electricity Generation 3 √ Company Limited Mandela National Sports 4 √ Limited 5 Law Development Centre √ √ Uganda Broadcasting 6 √ corporation 7 Uganda Railways Corporation √ 8 Posta √ 10 Dairy Development Authority √ 11 Bank of Uganda √ 12 UIRI √

101.12 Expenditure on Rent During the year, I noted that a number of entities remained with unsettled rent arrears amounting to UGX. 1,191,356,006. This rental expenditure is a constraint on Government resources. There is need for Government to evaluate continued payment of rent as opposed to construction of its own premises. Table 12 refers;

No. Entity Name Arrears 1. Uganda Registration Service Bureau 462,463,875

2. Financial Intelligence authority CFIA 214,000,000

3. Uganda Retirement Benefit Regulatory Authority 447,492,131

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4. National Library of Uganda 67,400,000

Grand Total 1,191,356,006

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ENERGY SECTOR

102. KILEMBE MINES LIMITED - YEAR ENDED 30TH JUNE, 2015

102.1 Uncleared loan balance

Included in the Non-current liabilities, under Note 12, is a Loan from Ministry of Finance, Planning and Economic Development (Privatisation Unit) amounting to UGX4,700,000,000 which has remained outstanding for a long time inspite of the fact that the company’s role has changed and is now there to monitor the performance of the concession only. With no clear income sources, it is highly unlikely that the loan will be settled.

I advised management to have the loan settled through the concession proceeds that are paid directly to Privatization Unit.

102.2 Impairment loss

As explained in note 3, Kilembe Mines Limited (KML) impaired its investments in Kasese Cobalt Company Limited (KCCL) by UGX.11,085,885,120. This was after KCCL posted a negative total equity of USD.40.9 million and had ceased its business operations of cobalt processing. The investment has never economically been viable and no dividends were ever paid by KCCL. As at 31st December 2014, the major shareholder (75%) had an outstanding Shareholder loan of USD.48.96m therefore KML is likely to incur more costs in settlement of outstanding liabilities from the venture.

102.3 Lack of an investment Plan

Section 3.2.7.2 of the concession agreement requires that the Concessionaire prior to the procurement or acquisition of any one or group of conceded assets financed by the concessionaire, submit to KML an investment plan consistent with the applicable feasibility report, in a form to be agreed by KML and the Concessionaire indicating: a) The proposed specifications of the assets to be procured or details of the investment to be made. b) The number of assets to be procured and amounts of other inputs required. c) The proposed procurement methods, for information only; and d) The estimated cost separated into the aggregated cost of items to be procured and other costs to be incurred, for information only at this stage.

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Contrary to the above, the Concessionaire had not provided KML with an investment plan by the time of the audit despite procuring items worth USD3,796,121. None of the procured items were agreed upon between the concessionaire and KML. This violates the terms and conditions of the concession agreement, and also casts doubt on whether the procured equipment would achieve the intended purpose. Management explained that the submission date of the feasibility report was 30th September 2015 and that although the investment plan has not been submitted, any items so far procured by the Concessionaire before the investment plan is availed will not be part of the Assets accounts to be maintained by KML.

I advised management to ensure timelines are adhered to and that the concession agreement is complied with.

103. UGANDA ELECTRICITY DISTRIBUTION COMPANY LIMITED- YEAR ENDED – 31ST DECEMBER 2014

103.1 Non Compliance with the Lease and Assignment Agreement

According to the Lease and Assignment Agreement (LAA) the Government of Uganda was required to open an escrow account and liquidity facility which provides a pool of funds meant to reimburse UMEME Ltd for losses in case of the specified events occurring.

The account is managed by , the escrow agent who determines when withdrawals can be made by UEDCL in line with the set limits. At the end of the concession, the fund is expected to have reached USD. 20million.

In 2012, the Regulator, (ERA) suspended UMEME Escrow account funding obligation through lease fees under the Concession agreement, citing high tariffs. During the audit, it was noted that whereas UEDCL had made efforts to ensure that the suspension is reviewed by ERA, the Escrow account had a negative balance of UGX.33,000,000 as at 31st December, 2014 instead of growing it towards the expected level of USD 20 million. This is composed of charges incurred by UEDCL to service the account. This not only implies non-compliance with the Lease and Assignment Agreement provisions which may negatively affect future investments in the sector but also wasteful expenditure by UEDCL which drains their meagre resources.

Management explained that UEDCL will continue to engage all the parties until all the provisions in the LAA are fulfilled.

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I advised the company management to ensure that the parties to the Lease and Assignment Agreement comply with all provisions of the LAA.

103.2 Irregular capitalization of UMEME assets using Work in Progress (WIP) During the field visits to verify existence and status of completion of asset additions submitted by UMEME to UEDCL for capitalization, we noted that some assets had been forwarded for capitalization by UEDCL as of 31st December 2014 and yet work was still on- going during the subsequent year (as at 28 February 2015). For example, Technical Loss Reduction Ssisa feeder had UGX.2,468,772,374 capitalized by UMEME and delivered to UEDCL and yet works were still on going as evidenced by release of materials dated 06/01/2015 and 19/01/2015 among others.

Further review of documents at UMEME revealed that 85% of the works had been completed as at 29th December 2014. Although the Project Manager explained that the project was 100% completed and that 15% of the contract amount was withheld to ensure that all materials were returned by the contractor, his explanation contradicted the continued release of materials for works. Earlier capitalization would mean a higher return on the capitalized assets by the end of the concession agreement. This may be deemed incorrect reporting.

Efforts to get clarification from UMEME on the same matter were rendered futile as the project management did not pronounce themselves on what exactly was capitalized and how the additional materials were treated thereafter. On the other hand, it was noted that UEDCL lacked adequate capacity to monitor/ carry out verification of assets added by UMEME on the grid to determine the level of completion.

Inadequate capacity by UEDCL to monitor/ verify assets added by UMEME on the grid could also lead to gaps for non-compliance to the Lease and Assignment Agreement by UMEME and there is a possibility that assets are not fairly stated in the financial statements.

Management explained that they only inspect what has been declared completed and capitalized by UMEME. Only assets presented on the assets addition register as required by the LAA every 1st February of the following year are inspected for their existence, completeness as previously approved by ERA, before being considered for ROI. The mentioned Kisubi project had not yet been verified due to having not been approved by ERA as an investment to be implemented in year 2014.

They further stated that materials reconciliation continues, even after project physical completion to check how the contractor deployed materials against the approved BOQ’s. The final reconciliation is done upon expiry of the defects liability period. Any variances are

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then netted off / off- set from the retention due to the contractor. The final asset value is arrived at after the field verification and a computation is done against actual inputs and other costs involved.

104. UGANDA ELECTRICITY GENERATION COMPANY LIMITED - YEAR ENDED 31ST DECEMBER, 2014

104.1 Impairment of Assets In my previous reports to Parliament, I had observed that the company’s plant was operating below 50% of the installed capacity which was an indication that the plant could be impaired. During the year, the Company performed an impairment assessment of the plant as required under IAS 36 which resulted into an impairment of UGX.138 billion. However, the corresponding impairment loss (UGX.138bn) has not been accounted for in the Company’s financial statements. In the circumstances, the reported PPE and Equity have been overstated by UGX 138bn respectively while the Loss before tax for the year has been understated.

In response, management explained that UEGCL Board decided not to write off the value of the plant worth UGX.138 billion; but to pursue the restoration of full concession fees billing to be approved by ERA in setting the electricity tariff rate- through MOFPED. I advised management that, as they pursue the option with ERA, they should ensure reporting standards are adhered to by recognising the impairment loss.

104.2 Debt Service and Depreciation Fee Components In my previous report to Parliament, I noted that whereas the Concession and Assignment Agreement between the Company and the Operator of the plant, Eskom Uganda Limited, granted the former a right to charge debt service and depreciation components as part of the concession fees, they were not included in the tariff methodology for the year approved by Electricity Regulatory Authority. A review of this matter revealed that that the status had not changed by the time of audit. Therefore, the revenue for the year is understated and the interest and depreciation expenses are not matched with revenue.

In response, management explained that ERA has continued to deny UEGCL the right to bill depreciation and Return on Equity to Eskom contrary to the Concession and Assignment Agreement. Management further indicated that as regards the debt service, Government allowed the Company to convert the debt to equity. This position would thus necessitate an amendment of the Concession and Assignment Agreement, which was not done.

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I advised management to take up the matter with the Authority with a view to reviewing the Concession and Assignment Agreement.

104.3 Conversion of Government of Uganda Loans to Equity In my previous report to Parliament I observed that Government of Uganda loans were converted to equity effective 31st December, 2013. However, the conversion was not adequately supported with the necessary approvals including filing of shareholders’ resolution with the Registrar of Companies and Parliament’s approval as at the date of the conversion.

The status has not changed during the year. In the circumstances, the conversion is unauthorised thus the amounts reported in loans and equity are understated and overstated respectively by UGX 105.2 bn.

In response management indicated that in addition to the AGM held on 20th June, 2014, where it was agreed to covert Government lending to Equity as supported with the letter the Permanent Secretary/Secretary to the Treasury, MoFPED dated 10th February 2014, the PERD Act allows them to convert loans to equity without Parliamentary approvals. I informed management of the requirements of the Public Finance and Management Act (2015) that require the Minister to seek Parliamentary approvals prior to conversions of loans.

104.4 Long Outstanding Balances due to Government In my previous report to Parliament, I noted that the amount due to Government of Uganda of UGX.33.828 billion included under Note 22 in the financial statements was not adequately supported with specific documents and confirmation from Government of Uganda. Although management had indicated that these balances related to the depreciation charge on property, plant and equipment for the year 2001 and accumulated accrued interest taken from Uganda Electricity Board and had scheduled to request a write- off at the next AGM, this was not done. The supporting documents have also not been presented.

In view of the foregoing, I could not confirm whether the reported amounts were derived from underlying records.

I advised management to provide the necessary supporting documentation.

104.5 Contributions from Government of Uganda As indicated in note 20, during the year, the Government of Uganda, through the Ministry of Energy and Mineral Development disbursed UGX.5.99 billion to facilitate the supervision 578

of Karuma and Isimba Hydro Power Projects.

104.5.1 Wrong Classification of as Equity The contributions have been accounted for under equity. The classification as equity is, however, not supported with shareholders’ resolutions and would also require a Parliamentary approval. Furthermore IPSAS 23 requires that such grants are treated as either Grant Revenues (grants without conditions) or Liability (grant with conditions). In the circumstances, the company’s equity is overstated.

Management promised to follow up the approvals in the next AGM. I advised management that in the absence of such approvals, adjustments to the financial statements be made.

104.5.2 Double Funding Of Activities Of the amounts received, UGX.1,999,669,600 was spent during the year. The amounts spent during the year included UGX.1.8 billion, relating to project staff salaries for the Karuma and Isimba projects, which had already been budgeted, approved and paid from the concession fees. In addition to having budgeted and received approval from ERA to finance those payments, UEGCL also went ahead and sought financing from MEMD for the same activities. Much as the project staff were paid only one salary, there is a risk that the company could use the extra funding for expenditure on unbudgeted activities.

Management explained that the Ministry of Energy and Mineral Development (MEMD) transferred staff within its Hydro power unit to UEGCL in 2009 to support supervision of new hydro power plants development (i.e Karuma, Isimba,etc); but there was no funding from the MEMD until December, 2014. For each of those years 2009-2013 funding for HPU was done under concession fees except 2014 when UEGCL got funding from MEMD- This was the only practical solution in the circumstance. More so, UEGCL never gets full funding from Eskom as per the CAA agreement. They also stated that the UGX.1.8bn which was recovered from MEMD had been put on fixed deposit account.

I advised management to ensure proper reconciliation of activities included in the various funding sources, so that they are not funded by more than one source.

105. UGANDA ELECTRICITY TRANSMISSION COMPANY LIMITED - YEAR ENDED 31ST DECEMBER, 2014

105.1 Deemed energy purchases

UETCL has contracts with power producers where by it is obligated to purchase all available 579

units of electricity whether or not they are consumed. The power paid for but not evacuated is referred to as deemed energy purchases. It was noted that the company incurs high costs relating to deemed energy purchases, as indicated below; Table showing annual deemed energy purchases Power Cost incurred in 2014 Cost incurred in 2013 (UGX) Producer (UGX) Hydromax 8,610,000,000 12,499,000,000 Tronder 113,000,000 394,000,000 Eco power 793,000,000 732,000,000 Total cost 9,516,000,000 13,625,000,000

This challenge is mainly attributed to low demand and limited distribution and transmission networks.

Payments for deemed energy purchases is nugatory and puts a constraint on funds available for working capital requirements and operations.

Management explained that deemed energy cost in IPP capacity contracts are a standard norm in Energy Sector contracts worldwide.

I have advised management to address the infrastructural constraints in the transmission networks to ensure more power is evacuated.

105.2 ERT - UGANDA ENERGY CREDIT CAPITALISATION COMPANY – 30TH JUNE 2015 105.3 Mischarged expenditure

During my review, I noted that management charged a sum of USD 3,145.41 on inappropriate budget line items which did not reflect the nature of the expenditures. This practice not only makes tracking of budget performance per item in line with the approved budget difficult but also results into misrepresentation of expenditure balances in the financial statements.

I advised the Accounting officer to ensure adherence to the approved budgetary provisions and to seek authority for reallocation from the board whenever there is a justifiable need.

106. ERT II – RURAL ELECTRIFICATION AGENCY –YEAR ENDED 30TH JUNE, 2015

106.1 Malpractices in the implementation of the solar subsidy program

The Rural Electrification Board signed contracts with various solar PV companies with an objective of installing subsidized solar panels to various end-users (individual and commercial). Upon verification of the installations by the auditors, REA disburses the subsidy amounts to the companies.

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An independent audit of the operations of the solar PV companies by the Internal Audit department revealed a number of anomalies, some of them with intention to defraud the Agency;  Some companies invoiced REA for systems installed using the cash supply method contrary to the contracted credit facility method or pay-plan model. This increased the risk that a company would sell the panel at full cost and still invoice REA for the subsidy.

 Subsidies were claimed for beneficiaries reported as being members of SACCOs where as they were not so as to cover up the cash sales.

 Some companies claimed for non-existent installations.

 Some companies invoiced REA for systems at the commercial rate yet they were in fact solar home systems.

 REA was invoiced for solar panels that had been donated by third parties or fully sponsored by NGOs.

 Instances were found of the same systems billed twice with different names and phone numbers.

 Many beneficiaries continued to pay for after sales services even in the warranty period i.e. bulbs, transport, panel cleaning etc.

Despite the above findings it was noted that the companies implicated continued to operate under the solar subsidy program and were paid a total of UGX 732,428,850 during the year.

Doing business with service providers who are not truthful has a high reputation risk.

The Accounting Officer explained that;  An investigative review was carried out and each of the companies with anomalies was asked to respond accordingly. The companies that had immaterial anomalies were then asked to rectify them before any further payments were made.  Three (3) solar companies that were suspected to have committed fraud were given letters of intent to terminate the respective subsidy agreements and no further payments have been made to them.  The Board terminated the services of the PVTMA Contract Management team for gross negligence and also instructed management to determine the full extent of the anomalies against the implicated companies as a basis of taking more measures against them.

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I advised the Accounting Officer to strengthen the monitoring of these operations and hold the implicated companies accountable. All funds improperly invoiced and paid to these companies should be recovered.

106.2 Non-compliance with contractual obligations by board and solar companies

Clause 7.12 of the contract between the Rural Electrification Board and the solar companies requires representatives of the board and the Solar companies to meet on a quarterly basis to evaluate the progress or implementation of the project.

It was however noted that no quarterly meetings have been held by both parties. Without the expected meetings and regular monitoring, it is difficult to continuously assess performance of the scheme and take any corrective measures in case of any shortcomings.

I advised Management to ensure that the quarterly meetings are convened and progress reports prepared and reviewed for any possible intervention.

106.3 Lack of an efficient solar subsidy awareness program

Under the PVTMA Manual and in their respective contracts, the solar companies were not obliged to create awareness of the subsidy. As a result it was noted that there were no sensitization programs to enable end users of the solar equipment to understand and appreciate the subsidy. It was also noted that the end-user auditors with-held information from the system owners.

Without the awareness programs, there are risks such as the consumers not being aware of the pricing and how much they were required to pay.

The Accounting Officer explained that this program targets a specific segment of the population (the rural poor) residing in locations distant from the national grid who cannot afford to meet the upfront cost of the initial installation. The most effective communication strategy was therefore to develop and distribute materials to these specific audiences. In addition the end-user auditors were also required to sensitize the beneficiaries usually at the time when they went out to undertake field verifications prior to making recommendations for subsidy disbursement.

I advised the Accounting Officer to put in place a proper sensitization program so as to mitigate the risks and possible losses.

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106.4 Improper management of Audits by end-user auditors

The Rural Electrification Agency Board signed contracts with various private engineering consultants to undertake end-user auditing and verification of solar PV systems installed by PV companies through the PVTMA program to enable REA disburse consumer subsidies. However, details from the review of the internal audit report indicated that the private auditors did not do what they were engaged to do. The following issues were particularly noted;

 The end-user auditors did not consistently verify the PV installations as a result, the consultants invoiced REA and got paid for services not done in respect of systems they did not actually inspect.

 REA was furnished with insufficient and inaccurate information about beneficiaries.

 Some consultants surrendered 19 of their audit system verification stickers to 2 PV companies for purposes of affixing them to installations without carrying out physical inspections.

 A number of inspection reports had beneficiary information that had been altered by the end user auditors or the company like phone numbers, names and locations

As a result of not having this undertaking well executed, there were a number of anomalies as observed above in paragraph 6.4.

The Accounting Officer explained that the group of 3 (three) end-user auditors who were the subject of the investigative audit review had been identified and had pending claims for professional fees of UGX. 17.6 million which will not be paid to them because of their involvement in the mismanagement of the PV Subsidy Program. He also indicated that any payment that was made for non-existent installations will be refunded by the companies. As a way forward, Internal Audit was undertaking field verifications before payments for professional fees are effected.

I advised the Accounting Officer to strengthen the monitoring of these solar PV operations and ensure proper verification of the work of the end-user auditors before they are paid.

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107. ESDP- KAWANDA- MASAKA POWER LINE – YEAR ENDED 30TH JUNE 2014

107.1 Delays in funding of the project

I noted that the flow of funds from Ministry of Energy and Mineral Development to Uganda Electricity Transmission Company Limited for project implementation is slow. According to budget estimates for the Resettlement Action Plan (RAP), out of UGX.49,812,025,242 expected to have been received by December 2014, only UGX.31,052,912,826 was received thus causing a shortfall of UGX.18,759,112,416. This shortfall adversely affected the compensations made to PAPs which eventually will delay the handover of the transmission corridor.

Management explained that they had engaged the stakeholders and brought the issue to their attention. They expected that adequate releases for the project will be made in future.

108. ERT II – UGANDA COMMUNICATIONS COMMISSION – YEAR ENDED 30TH JUNE

108.1 Project Progress

The project registered different levels of progress at the end of June 2015 as outlined below:

a. Computers for Health ICT facilities During the bidding process, Farmco Ltd emerged the best evaluated bidder at USD 285,000 compared to the budgeted figure of USD 380,000. To date, Farmco Ltd has completed deploying ICT equipment in 19 Health centres. ICT equipment for additional 11 health centres have been procured using savings on the Education and Health ICT budget. The deployment of this equipment has been completed by Access IT (U) Ltd.

b. Last mile broadband project Due to the closure of the project, no activities took place during the year under review.

c. New Communication Information Centers Due to the closure of the project, no activities were carried out during the year.

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109. INTERCONNECTION OF ELECTRICAL GRIDS OF NILE EQUATORIAL LAKES COUNTRIES (NELSAP) UGANDA – YEAR ENDED 31ST DECEMBER 2014

109.1 Diversion of RAP funds

RAP funds were diverted to meet expenditures not related to RAP. For example, it was observed that USD 755,656 was used to pay for customs taxes on equipment for construction of sub stations and transmission lines. As a result, compensation of PAPs was delayed thereby delaying vacation from the corridor.

Management explained that the GoU Budget speech for FY 2014/15 allocated funds and did not segregate whether GoU contribution was in form of taxes or not and that government contribution includes all expenditure that is not donor funded. The payment of taxes using available funds was a mitigation measure to alleviate a crisis with the in-transit cargo.

I informed management that the initial RAP budget did not include taxes and that all government contribution should be allocated towards defined project codes or items. Appropriate approvals should be obtained before EPC taxes are paid out of RAP funds.

109.2 NELSAP Physical implementation

I noted significant delays in implementation of the project and it is still not clear when the completion of the projects will be attained.

A field inspection audit of the project was undertaken. Through meetings and interviews with contractors, PAP supervising team, project supervisors and document review, a number of weaknesses were identified as highlighted below together with their associated risks and management response:

a) There were delays in handover of sites to the contractor as a result of delay in settling the claims of PAPs and RAP. Details below;

Description LOT A LOT B

Total tower spots required to be cleared by UETCL 402 208 Total cleared tower spots reported by UETCL PAP team 353 193

There where cases where revalued PAPs rejected the compensation mainly the Mbarara - Mirama power line. Delays in handover lead to the vicious cycle of low absorption of

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funds, probable price variations of contract prices by contractors and ultimately late project delivery.

Management explained that RAP has posed challenges like land disputes, repeated rejections of valuations approved by the CGV. The outstanding PAPs cases have been escalated for compulsory acquisition while re-engaging them in further negotiations. Meanwhile a constitutional change in the land law has been suggested and a cabinet decision is awaited. b) There was a delay in processing of EPC payments to contractors with invoices for EPC amounting to USD 1,821,360 during the year ended December 31, 2014. This may result in interest payments and ultimately escalation of project costs to the Government. This also constrains the contractor’s cash flows hindering them to perform as per contract terms. Management explained that the delays were routed from Invoice reviews and reconciliations but that the process has improved. c) Failure for contractors to mobilize resources in time. For example LOT A and B had not procured sufficient material for tower erections and stringing. This causes further delays. Management explained that some of the material quantities could not be determined earlier on due to lack of access to the tower spots because of compensation constraints. Complete orders for materials could not be effected then. Nevertheless, for Lots A & B, the contractor has to date placed orders for the materials. d) The power line contractors and UETCL PAP field supervision teams do not have adequate physical security to access locations of the hostile PAPs on the transmission lines. There is a risk of PAPs physically attacking staff hence putting their lives in danger. Management promised to consider provision of security for UETCL staff. e) UETCL-NELSAP management has not implemented AfDB supervision recommendation within the stated time frame. Such non-compliance to funder’s requirements may lead to funding cuts.

Management stated that some of the issues are tagged on handing over the corridor to the contractor. Engagements with the CGV, Land Ministry, and other stake holders have been made and will continue until the compensation process is complete.

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f) The borrow pit at the new Mbarara substation is not restored after use contrary to the NEMA Act. Such Non-compliance with the NEMA guidelines may lead to accidents for both contractors and the surrounding stakeholders.

Management promised to issue instructions to restore it in the event that its use will not be required. g) Lot A & B do not have health and safety team members at the sites contrary to HSE provisions. Management stated that the contractor has been implored to comply with the HSE requirements in the contract. Arising out of the above observations and risks identified, I have recommended to management that:

 As they pursue the option of constitutional review to allow them compulsory access and acquisition of land, currently the acquisition of right of way should be expedited to allow the contractors access to the corridor. This will require engaging PAPs, Chief Government Valuer (CGV) and district local governments to have the challenges involving land disputes and compensation addressed.

 In future, proper planning should be undertaken to ensure that acquisition of land is done immediately after securing external financing but before engagement of contractors.

 They ensure prompt processing and payments of contractors’ invoices as agreed upon in the contract.

 they should consider applying liquidated damages to contractors in cases where the delay is caused by them.

 Health and safety standards are enforced.

110. MBARARA NKENDA & TORORO POWER TRANSMISSION LINES PROJECT – YEAR ENDED 31ST DECEMBER 2014

110.1 Litigation relating to Resettlement Action Plan UETCL is a defendant in legal cases relating to unsettled disputes with Project Affected Persons (PAPs). The total estimated cost of settlement in case judgments were passed against the project is UGX.1,850,000,000 (USD 688,771). This would have an effect on project cash flows hence affecting project implementation.

Project management is in the process of negotiating with the claimants and has settled some of the disputes out of court.

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111. UGANDA ELECTRICITY TRANSMISSION COMPANY LIMITED BUJAGALI INTERCONNECTION PROJECT FOR THE YEAR ENDED 31ST DECEMBER 2014

111.1 Reallocation of RAP Funds to pay project taxes According to the Financial Policies and Procedures Manual March 2014, section 4(4.1) the Company shall prepare its budgets in line with the Corporate Business Plan, with the budget acting as the key determinant for the allocation of resources. Contrary to this provision project management reallocated Resettlement Action Plan (RAP) funds amounting to UGX.419,674,042 to settle import taxes.

Delayed compensation of Project Affected Persons (PAPs) hinders acquisition of the Right of Way (ROW) thereby impairing implementation of the project activities.

In response management attributed the anomaly to change of government policy, whereby gross tax system for clearance of custom taxes was deferred in the 2014/2015 budget speech and instead the cash payment system was introduced thereby necessitating use of RAP funds to pay taxes.

I advised management to always adhere to the budgetary provisions to ensure timely implementation of planned RAP activities.

111.2 Failure to recover VAT

It was further noted that whereas Section 28 (2) of VAT Act, Cap 349 states that; “Where section 26 applies for the purposes of calculating the tax payable by a taxable person for a tax period, a credit is allowed to the taxable person for any tax paid in respect of taxable supplies to, or imports by the taxable person where the supply or import is for use in the business of the taxable person.” Also section 31 (2) requires this information to be presented to the commissioner in form of monthly returns, showing the input tax and credit refund claimed.

It was however noted that UGX.419,674,042 paid as VAT by UETCL in respect of imported transformers was not claimed as credit refund or offset during submission of the monthly returns to the tax authority.

Failure to offset or make necessary claims may result into loss of funds as subsequent taxes are paid in cash.

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In response management attributed the anomaly to delayed submission of Goods Dispatch/Exit Notes by the company clearing Agents and indicated that the claims shall be submitted as soon as practicable.

I advised management to follow up the claim without further delay.

112. RURAL ELECTRIFICATION AGENCY FOR THE YEAR ENDED 30TH JUNE, 2015

112.1 Outstanding Compensations for Way Leaves According to the laws of Uganda, REA is required to compensate property owners in respect of property acquired along the way leaves. However, it was noted that a total of UGX.13,540,014,003 in respect of compensations for way leaves remained unpaid at the year end. Audit further noted an annual increase of 69% from UGX.8,009,101,923 of the previous year.

Continued failure to pay these obligations may result into costly legal challenges, interest payments and also stalled electrification projects.

In response, management explained that the matter had been raised with the Ministry of Finance, Planning and Economic Development to either provide adequate funds for settling the liabilities or to amend the relevant laws to make way leaves for rural electrification projects free as the case is in other African Countries.

I await the outcome of the consultations.

112.2 Outstanding Receivables Included in the receivables of UGX.54,964,286,007 is a sum of UGX.44,237,351,985 due from UETCL (UGX.41,532,351,985) and Ferdsult (UGX.2,705,000,000), some of which dates as far back as F/Y 2010/2011. The amount owing from UETCL is in respect of the 5% transmission levy on bulk purchases of electricity from the generation companies while that from M/s Ferdsult stems from lease rentals not paid by the company over the years. Responses from M/s Ferdsult attributed the receivables to failure to meet their connection targets against which the lease rentals are pegged. This has not yet been verified by the Agency.

These receivables, which equate to almost 50% of the Agency’s budget, affect the entity’s operating cash flows and hence delay implementation of other projects and activities.

In response, management explained that UETCL maintains that MoFPED has not refunded them the money that was used to pay generation companies and yet the regulator refused

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to include the 5% fee due to REA in the tariff. Besides, UETCL is unable to remit the 5% Levy because Umeme has withheld payment due to non-payment by MDAs.

I advised management to engage the various stakeholders and ensure that outstanding receivables are settled without further delay.

112.3 Outstanding Payables Included in the statement of financial position is a payables balance of UGX.20,803,450,430 relating to sundry creditors, committed creditors, outstanding compensations and withholding tax. This amount has increased by 35 % from the previous financial year.

These liabilities have accumulated over the years and may attract additional costs in form of litigation and associated interest charges if not settled.

In response, management explained that apart from the bulk of the outstanding payables that relate to way leaves compensations, the other creditors arose because of the suspension of the remittance of the 5% Transmission Levy by UETCL. This has affected the Agency’s cash flows.

I advised management to ensure that funds are mobilized to settle the outstanding commitments before they become unmanageable.

112.4 Failure to refund donor funds I noted that UGX.4,235,457,970 relating to tax rebates for donor funded projects were paid out of the NORAD (donor) account irregularly. The amount has been outstanding since the previous financial year. This is contrary to the guidelines set out for donor funded projects and could subsequently lead to a termination of donor funding for the project thus causing project implementation delays.

In response, management explained that during the financial year, REA did not receive adequate funds from Government to enable a refund to be made to the NORAD account. In addition, the 5% Levy from UETCL which could have been used as a fall-back position to effect the refund was also not forthcoming.

I advised management to liaise with MoFPED, ERA and UETCL to find a lasting solution to funding of the Agency to ensure such liabilities are settled to avoid depicting a bad image of the country.

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113. ENERGY FOR RURAL TRANSFORMATION PROJECT II (FUNDED BY THE GOVERNMENT OF NORWAY) FOR THE YEAR ENDED 30Th JUNE, 2015

113.1 Use of donor funds to pay taxes

Article IV of the funding agreement requires that the Agency uses GOU counterpart funds to defray any customs duties, sales taxes and other taxes, fees and levies on all equipment, materials and supplies financed by the grant and imported into Uganda for the benefit programme.

It was however noted that the Agency used UGX.4,235,457,988 from the donor funding to pay for taxes contrary to the financing agreement guidelines. Included in this figure is UGX.2,988,066,465 which has been outstanding from the previous financial year. Diversion of donor funding delays implementation of planned activities and may result into sanctions.

Management explained that the donor had agreed to the proposal to utilize the outstanding GOU counterpart funds on the extra construction works.

I await the outcome of Management’s commitment in this regard.

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HEALTH SECTOR

114. ALLIED HEALTH PROFESSIONALS COUNCIL-YEAR ENDED 30TH JUNE 2015

114.1 Failure to transfer subvention funds by Ministry of Health Council budgeted for UGX.75, 000,000, as subvention from the Ministry of Health, for purposes of facilitating Council activities during the financial year 2014/2015. However examination of the accounts revealed that no funds were received and thus no expenditure was reflected to this effect.

The Accounting Officer acknowledged that they could not recognize the funds as revenue because the Ministry of Health did not send the money to AHPC.

However, a follow up with the Ministry of Health indicated that payments were made to individuals in the Council by the Ministry instead of transferring the money to AHPC to be spent on their planned activities. This practice by the Ministry does not only deny the Council management to monitor the use of their resources, but could also lead to diversion of the funds.

I advised the Accounting Officer to follow-up with the Ministry management and ensure that the subvention funds are transferred to AHPC bank account to enable them plan for and use the funds for their prescribed activities.

114.2 Slow rate of recovery of Receivables Best practice requires that an entity institutes debt recovery mechanisms that ensure debts are recovered promptly. It was noted that the Council was not promptly collecting its debts as only UGX.40,700,000 (13.9%) realized was collected from the outstanding receivables of UGX.292.2m reported in 2013/14 financial year.

Long outstanding receivables represent idle assets which constrain availability of funds for the Council’s activities.

This was attributed to poor collection methods, failure to set payment terms that favor the operations of the Council and staffing gaps.

The Accounting Officer explained that measures to recover outstanding debts from professionals had been put in place by giving 10% commission to Regional Supervisors on recovery of penalties and sending SMS alerts to debtors reminding them to pay their dues.

I advised the Accounting Officer to institute a comprehensive debt management policy and enforce it accordingly.

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115. NATIONAL DRUG AUTHORITY - YEAR ENDED 30TH JUNE 2015

115.1 Litigation Cases at the Legal Department During audit, it was noted that NDA was involved in a number of litigation cases which were at diverse stages. Although these cases are of interest to stakeholders, the outcomes and/or the amounts of the obligations cannot be measured with sufficient reliability. Due to this limitation, their impact on the financial statements could not be determined. The outstanding cases include the following.

No. Case Summary Amount Involved 1 Mavid Pharmaceuticals Ld vs. NDA and 2 others, Civil 3,082,895,000 suit No. 383 of 2010 2 NDA vs. Samuel Kasozi and 2 others High Court Civil 398,130,876 Suit No. 148 of 2009 4 Dr. Livingstone Kityo Semakula and others vs. NDA and 118,000,000 Jeffery Kamya Semakula 5 Signa- Chemie Enterprises (U) Ltd & 519 others vs. 110,000,000,000 NDA

Management in its response acknowledged the cases in court and stated that as a body corporate and a regulator, it was prone to litigation.

I advised management to ensure due diligence is always undertaken in carrying out its work in order to have higher chances of obtaining favourable court outcomes.

115.2 Understaffing at head office and regional centres

In my review of the authority structure both at head office and regional offices, I noted significant vacancies leading to gross understaffing. Notable of these cases were: a substantive executive director, Head of Finance, Internal Auditors. There was only one staff for quality management and seven drug registration departments and only one regional Inspector of Drugs in south western regional centre covering over eighteen districts. Management indicated that the Recruitment process to fill the vacant position of the Executive Director and heads of departments is on-going and near completion. The officers are expected to be on board by February 2016.

I advised management to liaise with the Public service commission to have the vacant positions filled expeditiously.

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115.3 Unconsolidated regional work plans I noted during review that work plans for all regional centers were not aligned to the Centre budgets. I explained to management that failure to align work plans to the budgets deprive management of the necessary guidance required during the decision making process.

Management explained that regional offices make work plans during the planning phase which are aggregated to make the department work plan. The department work plan is then used to make the department budget which takes care of all regional activities. I advised management to ensure that work plans are aligned to the budgeted amounts and copies of approved work plans with their budgets should be given to every Regional Inspector of Drugs to track performance against set targets.

115.4 Potential Conflict of interest at Board Level During Audit, I noted that the NDA Board Structure as provided for in the NDPA Act is composed of some Members who are practicing pharmacists. The scenario breeds potential conflicts of interest where a board member is or was a Local Trade Representative, or operates Retail or Wholesale Pharmacy, or any facility regulated by NDA. I explained to management the risk that decisions taken by such members may not be in interest of the Authority.

Management explained that the composition of the board was under review with the proposed amendment of the NDPA law. I advised management to liaise with the appointing authority to ensure that adequate measures to address the areas of potential conflict of interest by board members are put in place.

116. NATIONAL MEDICAL STORES – 30TH JUNE 2015

116.1 Failure to Hedge Against Foreign Exchange Loss Section 45(2) of the Public Finance Management Act 2015 requires an Accounting Officer to put in place effective systems of risk management, internal control and internal audit. However, audit noted that although NMS procures medicines and other health equipment largely using foreign currency, it did not put in place mitigation measures against currency fluctuation risks (hedging). Consequently, UGX.6,631,542,000 was disclosed in Note 26 as a net foreign exchange loss.

The lost funds would have been spent on service delivery if the risk of loss was mitigated.

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In response, the Accounting Officer explained that by government policy, all vote funds were managed and controlled by the Accountant General and therefore NMS did not have access to the funds for hedging.

I advised the Accounting Officer to liaise with the Ministry of Finance, Planning and Economic Development and explore possibilities of undertaking hedging against foreign currency fluctuation risks in order to minimize loss of funds.

116.2 Fixed Budget Allocation for Essential Medicines and Health Supplies The budget allocation of UGX 219bn as government contribution to essential medicines and health supplies for various health centres and hospitals has been fixed since financial year 2011/2012. This is against the increased number of patients and the depreciated local currency over the years. For instance, patients registered at Mulago National Referral Hospital increased from 1,356,870 to 1,641,390 (21%) while China Uganda Naguru Hospital registered an increase of 704,947(29%) during the above period. The budget is not backed by statistics from the health facilities, the ultimate beneficiaries of the medicines.

A fixed budget allocation for essential medicines and health supplies against an increasing population of patients and depreciating shilling leads to declining quality of the health care by increasing the stock outs of medicines in the health facilities. The Accounting Officer explained that NMS had on previous occasions requested for additional funds through the ministerial policy statement and the requests put under unfunded priorities. He further indicated that under the Laboratory budget line, NMS requested for UGX 50bn but no funds were availed and the Corporation had to reallocate UGX5bn from the availed resources.

I advised the Accounting Officer to liaise with the respective stakeholders like Ministry of Finance and Ministry of Health, among others, so that the budget allocation for essential medicines and health supplies is increased to meet the increased demand.

117. THE UGANDA NURSES AND MIDWIVES COUNCIL – YEAR ENDED 30TH JUNE 2015

117.1 Revenue Shortfall

Best practice requires entities to prepare balanced budgets for revenue and expenditure after setting achievable priorities for the financial year. It was however noted that the Council approved a budget of UGX.2,139,300,000 but only UGX.1,481,067,103 was collected resulting into a revenue shortfall of UGX.658,232,897 (31%). Significant budget

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shortfalls indicate either unrealistic revenue budgeting or weaknesses in revenue collection which hampers implementation.

I response, the Accounting Officer explained that Council had not received anticipated funding from Ministry of Health, and grants from UNFPA (a major funder). The decline in collections of professional fees arose from late release of results of Nurses and Midwives by Uganda Nurses and Midwives Examination Board (UNMEB), which was beyond the Council’s mandate.

I advised the Accounting officer to make realistic budget projections to avoid setting priorities that are not likely to be funded.

117.2 Lack of Internal Audit Function and risk management policy Paragraph 13.2.1 of The Uganda Nurses and Midwives Council Financial and Accounting Policies and Procedures Manual August, 2012 requires the council to have a separate internal audit function to assist management in assessing the strength of internal controls, risk management and good governance practices. Despite this importance, it was noted that the Council did not have an Internal Audit function. This may result into weaknesses in the internal control structure remaining undetected. Lack of internal audit was attributed to lack of funds to recruit an internal auditor.

The Accounting Officer explained that the Council had planned and budgeted to recruit an Internal Auditor before the end of the financial year 2015-16. I await Council’s action in this regard.

117.3 Failure to Gazzette names of Nurses and Midwives, Nursing and Midwifery private health facilities and Health Training institutions Section 33 of the Nurses and Midwives Act, 1996 requires the Council to cause the gazzetting of health centres and maternity homes being run by nurses, indicating the name, address, qualifications and the date of registration of the Health practitioner to be included in the Gazzette.

Although the Council planned and prioritised this activity to be undertaken during the financial year, there was no evidence that the gazzetting was done.

This exposes the public to the risk of using non-practitioners and the related consequencies. The Accounting Officer explained that the Council had made a budget provision in the current financial year to enable the gazzetting of training institutions and the registered/enrolled nurses and midwives. He also indicated that an updated list of the

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enrolled/registered nurses and midwives had been deployed awaiting publication in the Gazzette.

I await the outcomes of the Accounting Officer’s undertakings and actions.

118. JOINT CLINICAL RESEARCH CENTER- YEAR ENDED 30TH JUNE 2015

118.1 Outstanding Long Term Debtors Various Government departments owed JCRC UGX.3,031,130,000 as at 30th June, 2015 having increased from the previous year’s UGX.2,759,610,000. These include: MoH, Ministry of Defence (MOD), Vice President’s Office and Ministry of Finance, Planning and Economic Development (MoFPED). It was noted that the debts represent idle assets and constrain the cash position of the Centre.

In response, management stated that measures such as monthly billing, debtor account reconciliations and preparing quarterly reports to Management had been put in place to track debtors so as to collect revenue earned.

I advised the Accounting officer to consistently implement the agreed measures so as to improve on the cash position of the Centre.

118.2 PAYE Arrears A review of Note 24 in the financial statements revealed outstanding PAYE liabilities of UGX 2,383,190,000 which have been outstanding since the financial year 2011/2012. Tax liabilities may attract penalties in accordance with the Income Tax Act, 1997 (as amended), and/or lead to seizure of the JCRC bank accounts.

In response, the Accounting Officer stated that the Ministry of Health (MOH) had committed to settling the tax liabilities on behalf of JCRC.

I advised the Accounting Officer to follow up the matter with MOH to ensure settlement of the tax liabilities promptly, since there is a risk of imposition of penalties by the Tax Authority.

118.3 Failure to collect Receivables Paragraph 8.10.1 of the JCRC Financial and Accounting Policies Manual, 2014 stipulates the procedures to be undertaken in case debts are unpaid for 30, 60, 90 and 120 days. The procedures included telephone contact, reminder letter, warning letters, and suspension of service and litigation.

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It was however noted that management failed to collect UGX 2,595,550,000 representing 10.6% of total budget of the entity at the end of the financial year. Uncollected receivables affect implementation of planned activities. In response, the Accounting Officer stated that UGX1,831,000,000 (71%) of the outstanding receivables had been collected subsequently, leaving a balance of UGX 764,550,000.

I advised the accounting officer to ensure that debtors settle the receivables in accordance with the Centre’s policy manual.

118.4 Trade Payables Included in the Trade Payables was a figure UGX1, 894,170,000 in favour of a private firm that arose from provision of medical sundries. The amount increased from UGX. 1,505,840,000, reported in the previous financial year, implying an increment of UGX 388,330,000, which was attributable to foreign exchange differences. Besides, the debt has been outstanding since 2012.

Failure to settle obligations in a timely manner may result into additional costs such as interest charges and litigation fees.

I advised the Accounting Officer to ensure that the Centre’s liabilities are settled in a timely manner.

118.5 Ineffective service contracts for maintenance of CD4 machine The CD4 equipment preventative maintenance service contract Section 2 stipulates that visits to carry out preventive maintenance would be made subject to visa and transportation availability. The customer would provide the necessary sponsor letter to arrange visas for the visits. Additionally, the contract provided for two (2) scheduled maintenance visits per annum and two (2) emergency visits per annum. Contrary to the provisions of the regulations, audit noted that the CD4 machine had not been serviced for the last two years having been serviced as far back as 27th November, 2013.

I explained to management that delays in maintenance of the machine may result into premature damage and malfunctioning. In response, the accounting Officer explained that USAID, the sole provider of the machine had approved the servicing and that in future service contracts of this nature will be paid for, in advance to avoid lapses in servicing.

I advised management to ensure that servicing is undertaken as prescribed in the contract.

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EDUCATION & SPORTS SECTOR

119. MANDELA NATIONAL STADIUM – YEAR ENDED 31ST DECEMBER 2014

119.1 Treatment and disclosure of Chinese grant

In my prior audit report to Parliament, I reported that Management asserted in the Accounting Policies under 1(a) that the Financial Statements were prepared in accordance with international Financial Reporting Standards (IFRs). However, review of the current financial statements with regard to the treatment of the Chinese grant revealed that management has continually not complied with standards in respect of treatment of the grant as illustrated below;

a) IAS 20(24), Accounting for government grants and disclosure of Government assistance requires that a grant relating to assets may be presented in one of two ways: Either as deferred income or by deducting the grant from the asset’s carrying amount. However, Management did not state which of the two ways had been adopted with regard to the Chinese grant through GoU for the construction of the stadium.

b) The standard requires that the grant should be recognized as income over the periods necessary to match them with related costs, for which they are intended to compensate, on a systematic basis. However it was noted that no portion of the grant was recognized through the statement thus misrepresenting the grant in the income statement.

c) The standard further requires that such grants should not be credited directly to shareholders’ interests. The current treatment of the grant in the balance sheet under “capital and reserves” implies that the treatment appears to be contrary to the requirements of the standard and misleading.

d) A balance of UGX.26,379,809,188 was reported in the statement of financial position as a Chinese grant under capital & Reserves after deducting the accumulated deficit of UGX.4,082,009,812. The reduction was not explained and appears to be a misrepresentation.

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Management indicated that in their opinion, the provisions of IAS 20 do not apply but rather the Memorandum and Articles of Association may need to be amended to take care of all Government equity in the Stadium that existed before incorporation.

In the circumstances, the reported balance may not be fairly stated and management’s assertion that the financial statements were prepared in accordance with IFRSs may not be correct.

I advised management to comply with the requirements of IAS 20 which prescribes treatment of grants and Government Assistance or expedite the process of converting the grant into capital.

119.2 Unremitted PAYE Deductions

Section 123(1) of the Income Tax Act cap 340 requires a Withholding agent to pay to Uganda Revenue Authority (URA) any tax that has been withheld or that should have been withheld within fifteen days of the next month. However, PAYE deductions amounting to UGX. 63,865,019 were not remitted to the tax body.

I explained to management that failure to remit taxes may attract fines and penalties from Uganda Revenue Authority (URA), leading to loss of funds by the Stadium.

In response, management explained that statutory obligations have accrued over the years due to the Stadium’s historical leadership challenges such as; Frequent unplanned change of Stadium Boards of Directors, Leadership and Management teams, vandalizing and misuse of the Stadium assets and facilities and Lack of Government funding to the Stadium. The challenges have continued to hinder management to discharge the recurrent expenses as they arise.

I advised management to ensure that statutory deductions are remitted timely in compliance with the Income Tax Act.

119.3 Unconfirmed debtors

IAS 37 Provisions, Contingent Liabilities and Contingent Assets requires that appropriate recognition criteria and measurement bases are applied to provisions, contingent liabilities and contingent assets and that sufficient information is disclosed in the notes to enable users to understand their nature, timing and amount.

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Under Paragraph 7.2 of the financial statements , management observed that due to the complexity and un collectability of the debts from the government for accommodating the Chinese technical team (UGX.815,000,000) and UMEME Ltd for the Kireka Sub-station hosted on the land of MNSL (UGX.384,000,000), the said debtors have not been included in the year’s accounts. However, management did not provide any documentation or analysis such as contract references and period covered by the items attached to support the existence or occurrence of the respective amounts. There was also no evidence that efforts had been made to recover the said debts and failed.

In absence of supporting evidence I was not able to ascertain that the debts did exist and that the write-offs were properly made and in the circumstances the presentation is misleading.

I advised management to always make provisions in accordance with the financial reporting framework in presentation of financial information to avoid giving insufficient information to the users of accounts.

119.4 Long outstanding debtors

A review of the Debtors balances revealed an increase from UGX.1,001,519,619 to UGX.1,007,903,134 indicating an increase of UGX.6,383,515. Included in the debtors were FUFA (UGX.194, 863,217), National Resistance Movement (UGX.128,000,000), GTV (UGX.47,932,556), Equity Debtors-MOESTS and MoFPED (UGX.99,980,000), and Pioneer Easy Bus Limited (UGX.221,673,367). It was also noted that the Stadium does not have a debt management policy and this affected enforcement of recovery measures.

Management indicated that reminders to debtors to settle their obligations had been made.

I advised management to institute debt management policy and efficient collection of debts.

119.5 Failure to make provisions for bad and doubtful debts

Note 1 (c) of the Notes to the Financial statements provides that specific provision shall be made for all known bad debts. However, there were no such provisions made by management.

This implies that debts which appear to be irrecoverable due to failure to trace the debtors continue to be reported in the financial statements at full amounts.

Management stated that the recommendation will be presented to the Board for approval. 601

I advised management to make provisions for bad debts in conformity with International Financial Reporting standards.

119.6 Accumulation of Payables

Review of the financial statements noted that the stadium has high creditors’ obligations amounting to UGX.2, 839,694,548. The major creditors include URA for tax arrears of UGX.580, 566,673, NSSF, for arrears and penalties worth UGX.1, 752,846,860; staff Terminal benefits worth UGX.97, 544,711; Trans cargo Freighters Ltd worth UGX.103,947,985 and Meridian Sales services Limited worth UGX.88,692,792.

In response, management explained that the obligations have accrued over the years due to the Stadium’s historical leadership challenges but the Board and management were exploring possible ways such as engaging the shareholders for financial support to address the problem.

I explained to management that domestic arrears may attract litigation from long outstanding creditors. The NSSF and URA obligations could attract further fines and penalties.

I advised the Accounting Officer to ensure that the outstanding obligations are settled without further delay.

119.7 Going concern status of the Stadium

Sub section 25 of IAS 1 (presentation of financial statements) requires management to make an assessment of an entity's ability to continue as a going concern. If management has significant concerns about the entity's ability to continue as a going concern, the uncer- tainties must be disclosed. If management concludes that the entity is not a going concern, the financial statements should not be prepared on a going concern basis, in which case IAS 1 requires a series of disclosures.

I noted that there are conditions affecting the going concern status of the Stadium, for example;

 Current ratio stood at 0.38:1 while the acid test ration stood at 0.03:1 in 2014.  The stadium reported losses of UGX.336,825,521 for 2014. This trend continues to wipe away the capital base of the Stadium.  The long outstanding creditors is an indication of the Stadium’s inability to settle its obligations from its own sources of funds.

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 The deteriorating state of the Stadium’s assets without provisions in the budget to finance their maintenance is an indicator that the assets may not be able to generate the required income to finance planned activities and pay service providers.

The above factors are an indication of the Stadiums inability to sustain itself in the foreseeable future. Management attributed the state of affairs to frequent management and board changes. It was further stated that stability of staff and board had now been addressed and that management is working on strategies that can boost revenue generation to match the investment in the facility.

I advised management and the board to put in place proper governance structures to ensure stability in stadium liquidity.

119.8 Absence of a fire detection and fighting system/Equipment

Inspection of the stadium facilities revealed that the fire fighting equipment is obsolete and the stadium does not have any fire extinguishers in place while the water hydrants at the Stadium are all not functional. I also noted that the Stadium does not have CCTV cameras.

This implies that the Stadium does not have any capacity to fight fire outbreaks in case of any fire incidents. The current situation also puts the users of the Stadium at a greater risk of loss of lives and loss of property.

Management explained that the current fire detection system broke down but had secured a replacement donated by the Chinese government. However, the donated cargo has stalled in the bond for over two years due to lack of funds to clear the taxes and requests to the Ministry for financial assistance have not been fruitful and storage charges continue to accumulate.

I advised management to ensure that modern fire fighting systems are installed in the Stadium. Measures should also be put in place to solicit for funding to clear the fire fighting equipment lying idle in the bond.

119.9 Land management

The Stadium land is comprised of block 234 (1.660 hectares) and block 234 (48.54 hectares). However, the following facts were noted in relation to this land;

1. A review of the land status file indicated that the Stadium got a stamp duty waiver of UGX.1.6 billion for the transfer of this land from Uganda land commission into

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the Stadium’s names. By the time of audit, the land titles for the two pieces were not available for verification.

2. Through the review of the security reports from the Stadium security officer and inspection of the land boundaries, it was observed that the number of land encroachers have increased and if not stopped could claim most of the stadium land thus curtailing its future expansion and development programs.

The increase in land encroachment could also result into huge compensations in future. No action had been taken by management to remove these squatters from the Stadium land.

Management explained that they engaged surveyors who have opened the land boundaries and the next step is to plant permanent mark stones and devise means of evicting the encroachers.

I advised management to ensure that Stadium’s land is secured by removing all the squatters and fencing off the unutilised land.

120. NAKIVUBO WAR MEMORIAL STADIUM- YEAR ENDED 31ST DECEMBER 2014

120.1 Non-valuation and Disclosure of land leased out under PPP Arrangement

Review of the Stadium’s financial statements revealed that stadium land was disclosed at UGX.31,500,000,000. However, I noted that the Board of Trustees entered into a Public Private Partnership with a private developer to erect, construct, renovate, refurbish the perimeter wall of the Stadium and construct lock-up shops around it but the land under the PPP arrangement had not valued and therefore not adequately disclosed in the financial statements.

In my previous year’s report to parliament, I indicated that the project development processes leading to the PPP award, and the actual contract implementation process were not adequately supported with the necessary documents and records. These have still not been provided management.

In response management explained that construction works were still on-going and that upon receipt of certificate of completion from M/S Ham Enterprises, the valuation of land and building will be done and accordingly classified in the financial statements.

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I advised management to ensure the stadium land is revalued and the Financial Statements adjusted to reflect the proper value and classification of the stadium land.

120.2 Unsupported Expenditure on Professional fees

Review of the stadium financial records revealed that UGX.134,753,962 was paid out as professional fees (Legal, Security and Accounting Charges) to various firms lacked the necessary supporting documents. I was therefore not able to ascertain the correctness of the expenditure on profession fees. I noted that this was due to internal control weaknesses in respect of processing payments.

Although management stated that funds were paid to settle the court costs through their advocates the supporting documents were availed for examination.

I advised Management to ensure that internal controls are strengthened that ensure all payments are always supported with adequate documentation.

120.3 Unauthorized Excess Expenditure Sec 4.3 of the Financial and Accounting Instructions requires an application for sanction of excess expenditure to be made by management committee for the board to ratify the expenditure provided that such expenditure is within the expenditure limits established by the board. I however noted that the Trust incurred excess expenditure of UGX.122,953,962 in respect of professional fees over and above the budgeted amount of UGX.25,000,000 as a result without fulfilling the requirement.

In the circumstances, the intention of the appropriating authority was undermined.

Management explained that, the amount in excess of the budgeted was paid to settle court cases which emerged in the course of the period, yet it was necessary to adhere to the court’s decision. Management promised to seek Board approval in the subsequent meeting.

I advised management to always seek the necessary approvals prior to spending any money that are above.

120.4 Debtors and Creditors Management The trust’s management shall be required to maintain the level agreed by the board for that year’s budget. No expenditure may be carried over from one year’s approval to another. I noted that sundry debtors increased by UGX.259,502,259 from UGX.321,193,333 to UGX. 580,695,592. But there was no plan of collecting the debts.

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I also noted that sundry creditors increased by UGX.108,450,539 from UGX.134,443,590 to UGX.242,894,129 but there was no clear plan for settling the creditors.

Accumulation of debtors and creditors without debt/credit management procedures affects the working capital of the stadium.

In response, management explained that the debtors figure increased in the year 2014, because of the adjustment of 30% rental rebate of UGX.270m for Owino park yard and vendors being hesitant to pay for fear of the proposed redevelopment of the Stadium.

I advised management to put in place proper debt and credit management mechanism.

120.5 Outstanding Tax obligations 120.5.1 Outstanding VAT Arrears During my review of the financial statements I noted that the stadium has had an outstanding VAT obligation which keeps increasing due to interest and unpaid additions. At the beginning of the year under review, the obligation stood at UGX.455,239,018 but by year end it had increased to UGX.544,593,165 due to interest of 121,475,820 and additional year VAT amount of UGX.18,639,072. I further noted that only UGX.50,760,745 was paid to URA during the year despite the Stadium having signed an agreement with URA to settle this obligation in 24 instalments which run up to May 2015 with a provision for receivership in case of default.

There is a risk that the stadiums assets may eventually be attached by URA to recover the taxes.

In my prior audit report I had advised management to obtain a waiver from URA or restate the obligation in the subsequent year but in response management indicated that attempts to obtain a waiver from URA was never granted.

120.5.2 Long outstanding Corporation tax obligation Section 94 (1) of the Income Tax Act 1997 requires every taxpayer to furnish a return of income for each year of income of the taxpayer not later than six months after the end of that year. It was noted that the Stadium has had a long outstanding corporation tax obligation of UGX.12,650,926. I also noted that management did not apply to the Commissioner for extension of time to furnish the returns as required under the Act. In the circumstances, management is exposed to a risk of fines and penalties.

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Management explained that the non- settlement of the obligation arose from URA’s tax audit prior to acceptance of payment and indicated they were in contact with URA officials to ensure that all matters that relate to stadium’s tax obligations are settled.

I advised the stadium Management to ensure that the long outstanding tax obligations are settlement as they continue to consult with URA on the tax matters.

120.5.3 Unremitted PAYE The Income Tax Act requires a withholding agent to pay to the Commissioner any tax that has been withheld or that should have been withheld with in fifteen days after the end of the month in which the payment subject to WHT was made by the agent. I noted however that deductions in respect of PAYE amounting UGX.6,097,845 withheld from staff salaries had not been remitted to the tax body by the time of my audit.

Non-remittance of taxes attracts penalties and interest from the Tax authority.

Management explained that there was a delay to remit the statutory deductions because of cash flow problems faced by the Stadium as a result of the proposed redevelopment program.

I advised management to always ensure timely remittance of the deductions in accordance with the Income Tax provisions.

120.6 Lack of a Strategic Plan In my previous year report to parliament, I indicated that the Trust did not have a strategic plan, on which its achievements can be benchmarked and work plans and budgets derived. Although management had indicated that they were going to develop one during the financial year under review, I still noted that they did not act on the matter Management explained that they had since embarked on efforts to institute a strategic plan that will be gradually be implemented in the subsequent periods.

I advised Management to expedite process to come up with the strategic plan that should direct the Stadium to activities and operations.

120.7 Role of Board Members Principles of good corporate governance require separation of board and management responsibilities. I however noted that the Board Chairperson and other two members of (Chairperson Management committee and chairperson Finance committee) continued to be

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signatories to the stadium bank accounts and were involved in the day to day running of the stadium’s operations, such as approval of payments.

This has resulted into the fusion of management and oversight responsibilities leaving the stadium without clear sense of direction.

Management attributed the state of affairs to the Act which empowers some of the board of trustee members to manage the trust and indicated that the issue had been raised on several occasions and communicated to the Board of Trustees and to the Minister in charge of sports and management was awaiting response.

I advised the board and management to take up the matter with the Ministry and ensure that the board’s oversight’s roles are separated from the routine operations of the stadium and provide their rightful strategic direction.

120.8 Revenue Management

120.8.1 Undisclosed Revenue Collection

The Finance and Accounting manual of the Trust requires that all revenue to which the Trust is entitled is received ,recorded accurately and promptly in the books of accounts are a reliable basis for the preparation of true and fair financial statements.

I noted that during the year under review, payments of UGX.15,892,000 were made to agents to bring business to the stadium. However, it was noted that one of the commission of UGX.2,000,000 did not have basis. I further noted that the collected revenue for which the commission was paid was not recorded in the stadium books.

There is a high risk that the commission payments may be used to effect fraudulent claim. Commission payments reported in the financial statements. There is also a risk that collections from stadium hire of UGX.44,400,000 against a budget of UGX.120,000,000 could be understated.

I advised management to ensure that all funds collected should be recorded and banked intact in the collection account. Furthermore, all the undisclosed revenue should be accounted for.

120.8.2 Failure to collect revenue from park yard market

As reported in my prior year audit report, the stadium failed to collect revenue from the market vendors from park yard market, leading to operational challenges for the Trust.

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Management at the time attributed the failure to the fire that gutted the market in December 2013 and the political interference in the matter. Management stated that it had no control over the market. I noted that during the year under review, the statusquo did not change.

I advised management to explore all possible means of recovering the revenue from the operators of the market.

120.8.3 Anomalies in Rent of Parking space

I observed that the Stadium land has two parking spaces; one outside the stadium along Namirembe road, measuring 2,600 square meters and the other inside the stadium, measuring 800 square Meters. I however noted that;  The packing space along Namirembe road, was allocated to a local firm at UGX.1,700,000 per month for day and night parking, while the inside space was allocated to a different firm at UGX.2,400,000 per month for only day parking. The allocation was made on the same day 1st September, 2010 and was to run until

31st August, 2015. There was no clear basis allocating and charging an area covering 2,600 square meters parking day & night UGX.1,700,000 and area of 800 square meters at UGX.2,400,000 for only day parking.

 I also noted that the firm which was allocated space along Namirembe Road agreed to sell its interest in the parking space effective 30th September, 2015 to Ham Enterprises (U) Limited at UGX.154 Million without authority from the stadium management and the Board of Trustees. There is a possibility of fraudulent dealing could lead to the loss of the stadium’s land.

The above state of affairs could be denying the stadium the right amount revenue from its assets.

Management explained that all the contracts of the parking space expired and the parking spaces were a responsibility of the developers. No explanation was given in respect of the discrepancy in charges.

I advised management and the board of trustees to ensure utilisation of the stadium’s resources in accordance with principles of probity and propriety and to provide an explanation for this state of affairs.

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120.9 Procurement Irregularities

120.9.1 Non-Functional Procurement and Disposal Unit (PDU)

Review of the Stadium’s PDU revealed a number of weaknesses which included among others; lack of a substantive procurement officer, lack of records on individual procurement files such as issue, receipt and opening of bid documents and evaluation committee minutes and failure to submit monthly procurement reports to PPDA. I was not provided with any correspondence communicating the composition and qualification of the Stadium’s contracts committee members.

The above anomalies are an indication that the stadium cannot handle procurements in an appropriate manner. In response management stated that the observations would be presented to the board of Trustee for appropriate action.

I await the outcomes of the board’s deliberations on the matter.

120.9.2 Unsupported Public Private Partnership arrangement

During course of audit for the year under review I noted that the stadium management entered into Public Private Partnerships (PPPs) with two firms namely; M/s Nterenfune and M/s Feature land for redevelopment of the stadium. However,  I was not availed with any documents regarding the contracts between the stadium and the private developers to enable ascertain that the terms and conditions of the PPPs arrangement were fair to the stadium and were drawn in the best interest of the same.  The stadium received UGX.200,000,000 as commitment fee from M/s Feature land however; I was not availed with the expenditure and accountability thereof.

 The contractors have not commenced the redevelopment of the stadium because of pending investigations.

In absence of the procurement files and accountability records, I could not confirm whether the procurement of the PPPs was done in accordance with Public Private Procurement guidelines and procedures and whether the proceeds were properly utilised.

I advised management to ensure that the PPP arrangement with the two firms is done in a more transparent manner to avoid loss of the stadium’s assets (Land) in the process.

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121. NATIONAL COUNCIL OF SPORTS- 30TH JUNE 2015

121.1 Funds Not Accounted For The Treasury Accounting Instructions, paragraph 181 requires all vouchers to be accompanied by supporting documents as may be required so as to enable them to be checked without reference to any other documents. It was however noted that UGX.539,438,714 advanced to Uganda Basketball Federation and National University Sports Federation of Uganda remained unaccounted for at the time of writing this report.

In the absence of supporting documents I could not confirm whether the funds were put to the intended use.

The Accounting Officer explained that the concerned bodies had been directed to account for the funds.

I advised the Accounting Officer to obtain the accountabilities or recover the funds from the recipients.

121.2 Non-Deduction of 6% WHT Section 119 of the Income Tax Act, 1997, requires a withholding agent to deduct withholding tax from payments to suppliers for goods and services in excess of UGX.1,000,000. However, it was noted that payments were made to different service providers without deducting withholding tax of 6% (UGX.21,767,327).

Failure to deduct and remit taxes may attract fines and penalties from URA.

Management explained that the outstanding withholding tax would be recovered from the suppliers in the subsequent payments for remittance to the tax body.

I advised management to ensure strict adherence to the provisions in the Income tax Act and deduct the 6%WHT from eligible payments to service providers. Meanwhile, I await the outcome of management commitment to recovering the above amounts from the suppliers.

121.3 Untitled Land Management reported in the executive summary that they had finalized acquiring a land title for the Lugogo Sports Complex on Plot 2-10 coronation Avenue. However review of the valuation report revealed that the upper plots 10, 12, 14, 66 and 68 measuring 9,163 square metres and valued at UGX.2,593,545,000 with the developments thereon lie outside the boundaries of the title acquired by NCS. Failure by Council to acquire land for the entire land exposes the land to the risk of being grabbed. 611

Management explained that they had a challenge of inadequate funding but plans were underway to secure the titles for the upper plots.

I advised Accounting Officer to ensure that all Council plots of land are transferred into the names of the council and properly safe guarded from being grabbed. 121.4 High Loan financing costs The Council was financing two mortgage loan facilities amounting to UGX.762,500,000; comprising of Demand loan 1 of UGX.312,500,000 and Demand Loan 2 of UGX.450,000,000. One sanctioned for part repairing of the Office building and the other for preparation of Common Wealth games respectively.

During the year under review, interest expenses of UGX.127,761,916 were incurred on the two loans and this has the effect of escalating operational costs of the Council.

Management indicated that they opted for the loans due to delays in release of funds by the Ministry yet the activities were expected to proceed on schedule.

I explained to Accounting Officer that the Council could have opted for short term borrowing as they awaited the releases and pay off the loans after the funds were released to reduce on the interest expenses.

I advised the Accounting Officer to continuously engage MoFPED and MoESTS to ensure that adequate funds are provided to implement council activities.

121.5 Non -Implementation of Planned Activities Examination of the Council’s accounting records revealed that the Council did not implement the following planned activities worth UGX.143,000,000 during the year under review.

No. Activity Amount 1 District tours 20,000,000 2 District Sports workshop 11,000,000 3 National Associations, supervision of associations 15,000,000 4 Purchase of furniture and equipment 45,000,000 5 Purchase of computers and office equipment 12,000,000 6 Construction of toilets in the Cricket Oval 40,000,000 Total 143,000,000

Failure by the Council to implement its planned activities hinders the achievement of its overall objective of sports development in the country.

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Management explained that the challenge was inadequate funding to enable management implement some of the planned activities.

I advised management to always make realistic plans and prioritize activities that support the core mandate of the Council. In addition I advised them to liaise with MoESTS, MoFPED to ensure adequate funding for the development of sports in the country.

122. NATIONAL COUNCIL FOR HIGHER EDUCATION-YEAR ENDED 30TH JUNE 2015

122.1 Domestic Arrears Paid The Council paid UGX.50,171,500 to settle domestic arrears that had been incurred during the previous year but had not been disclosed as payables in the financial statements contrary to Para 435 of TAI part II 2003 which requires properly incurred payables during a financial year to be accrued by the Accounting Officer as Domestic Arrears at the year end.

It was noted that the payments were charged as expenditure in the current year’s financial statements. This implies that the Council’s performance for the previous financial year was understated while that of the current year is overstated.

Management explained that the particular payments were brought to their attention well after the period in which they were incurred, they could not therefore be disclosed as arrears in the previous financial statements yet it was inevitable that the payment had to be settled.

I advised the Accounting Officer to ensure proper treatment of payments for domestic arrears. In the current scenario the expenditure for the domestic arrears should have been adjusted through the statement of changes in equity.

122.2 Failure to implement planned activities I reviewed the budget performance of NCHE and noted that the Council did not implement key planned activities such as, gazetting of the statutory and legal development of framework with indicators of ODIs, update and validation of OTI directory, apprenticeship among others. Failure to implement planned activities affects the achievements of council’s objectives and impacts negatively on service delivery. Management attributed failure to undertake these actions to inadequate funding from Government and shortfall in internally generated revenue, which amounted to UGX.912,106,188.

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I explained to management that failure to implement planned activities implies that the Council did not achieve all its intended objectives and could impact negatively on the service delivery.

I advised Management to strengthen its internally generated revenue collection strategies and also liaise with the relevant stakeholders to fill the funding gap.

122.3 Irregular award of contracts

Regulation 37(a) of PPDA Regulations 2014(Rules and methods for procurement of supplies, works and non-consultancy services) requires the evaluation criteria to be used during the evaluation stage to be stated in the solicitation document and the evaluation to be conducted in accordance with the set criteria without any amendments. I noted that contracts worth UGX 10,988,160 for the purchase of computers and printers were awarded to a local firm who had failed the preliminary stage due to lack of evidence of bid validity and delivery period.

Management explained that the Evaluation Committee agreed in principle to differ from the criteria in order to work within the available budget for the computers and printers.

In another instance, a contract to undertake a needs assessment on Other Tertiary Institutions (OTI) worth UGX.22,630,000 was awarded to individual consultant who had scored 60% against the set criteria of 70% pass mark.

In this case management explained that the Evaluation Committee did not review the solicitation document and was not guided by the procurement officer on procedural issues to avoid deviations from criteria.

I explained to management that the contracts were awarded irregularly due to non- adherence to the evaluation criteria which could lead to the selection of providers who do not have the capacity to undertake the assignments.

I advised the Accounting Officer to play his overall responsibility in the execution of the procurement, and ensure that the procurement unit effectively plays its role and avoid unnecessary errors in the procurement processes.

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123. MANAGEMENT TRAINING AND ADVISORY CENTRE- YEAR ENDED 31ST DECEMBER 2014

123.1 Non valuation of land A review of the Centre's assets register revealed that it owns three plots of Land located at plot 7 Bugolobi, 49B Gloucester Avenue and M175 Jinja Road Nakawa. However, management in Note 7 of the financial statements reported Land at nil value as at 31st December 2014, contrary to the requirements of IPSAS. As a result the non-current assets figure in the financial statements is misstated.

In response, management indicated that a process of valuation of land in liaison with the Chief Government Valuer had commenced.

I advised management to expedite the process of establishing the current values of its land and ensure complete disclosure of information to the users of accounts. 123.2 Under collection of revenue

Out of the budgeted revenue of UGX.4,327,704,000 the Center realized only UGX.2,907,320,475 resulting into a shortfall of UGX.1,420,383,525 representing 33% underperformance. I explained to management that failure to collect budgeted revenue undermines the implementation of planned activities.

In response, management explained that several strategies were being put in place to improve on the Centre’s revenue performance.

I advised management to prepare more realistic budgets and devise a comprehensive system for revenue collection and management to enable full implementation of the planned activities.

124. UGANDA NATIONAL EXAMINATIONS BOARD- YEAR ENDED 30TH JUNE 2015

124.1 Increased borrowing of Funds to administer and manage national examinations

In my previous audit report to Parliament, I indicated that the Board borrowed upto UGX.11.068 billion to conduct national examinations. The liability increased to UGX.13.942 billion in the current year and the interest expenses amounted to UGX.317,605,208. I also indicated that borrowing to fund national examinations has got reputational risks and the Board is exposed to risks of litigation in the event of defaulting.

The increased borrowing worsens the situation and the Board may not be in position to repay the loan. There is a likelihood that the examination fees paid by students may subsequently increase to cover the repayments.

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Management explained that the board had continuously engaged Ministry of Education and MoFPED for the timely release and front loading of examination administration funds without much success. The Board was also hopeful that the situation would improve with the increase of the unit cost of running examinations and granting a vote status to the board with effect from financial year 2015/16.

I advised the Board management to continuously engage MoESTS and MoFPED to ensure adequate and timely funding for conducting National Examinations.

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INFORMATION AND COMMUNICATION TECHNOLOGY

125. NATIONAL INFORMATION TECHNOLOGY AUTHORITY UGANDA (NITA-U) – YEAR ENDED 30TH JUNE 2015

125.1 Increasing Outstanding receivables

The trade and other receivables increased from UGX.1,300,075,290 to UGX.11,185,631,926 (representing 754 % rise from the previous year’s balance).

Out of the receivables amount, it was noted that MDAs, an international company and UCC had outstanding balances of UGX.1,315,114,627, UGX.2,788,147,614 and UGX.3,800,000,000 respectively implying low revenue recovery measures for both arrears and current charges. Failure by management to recover outstanding receivables ties up funds that would be utilized for service delivery.

Management explained that it has undertaken several collection measures such as instituting an aggressive debt collection team with each member having an allocation of debtors to follow up on and make timely collections, sending out regular reminders to the debtors with outstanding debt to settle their due debts. Management has also engaged MoFPED to consolidate and transfer to the NITA-U Vote the budget for Internet Bandwidth of all MDAs that are connected to the NBI.

I advised the Accounting Officer to streamline its debt management policy and institute a revenue collection enhancement plan with a view of recovering all outstanding balances.

125.2 Under collection of Appropriations-in-aid The authority budgeted for appropriations-in aid of UGX.17,118,000,000 in the financial year 2014/15 from the commercialization of NBI/EGI, sale of internet bandwidth to MDAs and private firms, sale of bid documents and revenue from co-location. However, only UGX.11,456,182,277 representing 67% of the total budgeted revenue for the year was collected and UGX.5,636,909,916 was collected representing 33% of the appropriation budgeted. Failure to collect the budgeted revenue hinders implementation of budgeted activities.

Management explained that this was due to delays in last mile connectivity to the targeted number of 125 MDAs because of delays in the implementation of Phase III and other technical challenges which explains the low number (50 MDA’s) connected by the end of the FY. Further, management explained that they had not realized all projected revenue from UCC and this had an effect on the budgeted AIA.

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I advised the Accounting Officer to review its budgeting processes and ensure realistic estimates are provided for. Further, they should put in place a revenue enhancement plan to address their collection shortcomings.

125.3 Delay in reviewing the contract between NITA (U) and an International Firm NITA-U entered into an agreement with an international firm for the commercialization of National data Transmission Backbone Infrastructure (NBI) and the E-Government Infrastructure (EGI). The provider under section 3.2 of the contract agreed to generate minimum revenue which was to be shared on a 50% basis with the client as per details in table below;

Period Year 1 Years 2 Year 3 Year 4 Years 5 Total annual revenue 8,184,603 27,282,011 40,923,016 49,107,619 54,564,021 (USD) Percentage share for NITA 50% 50% 50% 50% 50% NITA Revenue (USD) 4,092,302 13,641,005 20,461,508 24,553,810 27,282,011

Further, Section 3.9 of the contract requires the client to notify the provider of its failure to meet the minimum revenue collection, discuss the providers report on failure and institute measures to improve the provider’s performance. The client (NITA-U) should then give the provider 12 months to improve on agreed measures and later terminate the contract at no cost upon failure to achieve the agreed measures.

The Authority received only UGX.450,978,948 approximately USD173,453.44 in the year 2013/2014 representing only 1% of the revenue expected to be generated. Further, in the current year (third year of the contract) under review the authority received only 5,151,134,951 (approximately US$.1,717,045 at 1 US$-3,000=) representing 8% of the expected/projected revenue. Delayed review of the contract results into poor budgeting as management lacks a realistic basis for cash flow forecasts. This hinders the Authority’s ability to implement planned activities including the achievement of the entity’s objectives.

Management explained that revenue projections were not met because NITA-U did not have an adequate budget to fulfill some of the conditions which were the basis for the revenue projections, that is; completion of Phase III, low installed capacity of network, lack of subscription to the network by Government agencies and others. Management further explained that NITA-U contract management team held a meeting with the provider with the aim of reviewing the terms of the contract and consequently a contract renegotiation was to be held in due course. 618

I advised the Accounting Officer to engage appropriate Government agencies to resolve some of the bottlenecks encountered like extension of the backborne and MDA connectivity.

125.4 Staffing gaps A review of the Authority’s staff establishment structure revealed that there are 155 posts which are not yet filled out of 208 in the established organization structure. Understaffing affects service delivery.

Management explained that they are engaging MoPS and MoFPED to lift the MTEF ceiling of the wage bill for NITA-U to enable the Authority execute her mandate and that discussions had yielded a modest increase in the wage MTEF for NITA-U of UGX.500 million only out of UGX.1.97 Billion originally requested to recruit additional twenty three (23) key positions for financial year 2015-16. Management further explained that the funds had been used to recruit the Computer Forensics and Incident Manager, Standards Officer, Application Architect/Developer and Marketing Officer.

I advised the Accounting Officer to continue engaging Ministry of Public Service and Ministry of Finance, Planning and Economic Development, with a view of lifting the wage ceiling for some more key staff.

126. NEW VISION- YEAR ENDED 30TH JUNE 2014

126.1 Absence of broadcasting licenses for radio and TV stations Section 26 (1) of the UCC Act, 2013 states that “A person shall not install or operate a television station, radio station or any related broadcasting apparatus without a license issued by the Commission”.

I noted that the company did not have a valid broadcasting license for the year under review for its radio and Television channels despite making the annual payments for licenses. This has been noted to be an industry wide issue with the recent change from analogue to digital.

Management explained that it had applied and made payment to UCC for the licenses but UCC has not issued the licenses despite several reminders.

I advised management to follow up with the regulator and obtain valid operating licenses for the TV and radio segments.

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126.2 Filling of VAT returns

Section 92, subsection 2 of VAT Act provides that a return shall be filled in a form prescribed by the commissioner.

I however noted that whilst filing VAT returns, all sales were classified as standard-rated, even though some had been classified as export and zero-rated. For example during the year 2014/15, the company had UGX.828 million in Zero Rated sales. Non- compliance with VAT Act may expose the company to fines and penalties from URA.

Management explained that disclosures will be made on subsequent returns as advised.

I advised management to always ensure that sales are correctly classified into zero-rated, exempt, standard-rated when filling VAT returns.

126.3 Lapses in preparation, approval and documentation over Journal entries

From my review of journal entries passed during the year, I noted lapses in the process of preparation, approval and documentation over journals. These included: - A case in which two journal entries for obsolete stock provision were raised by same person, approved and passed twice in the system. - Inadequate segregation of duties. - Preparer’s names, department and initials were often missing - Journal entry forms not filled completely with adequate narrations or supporting.

I explained to management that there is a risk that lapses in controls over preparation, review and approval of journal entries may weaken the financial reporting control environment.

Management explained that they have since improved by putting in place internal checks including segregation of duties. Moving forward, full narrations and related documents will be included in the file copy.

I advised management to always ensure that all journal entries are independently reviewed before being posted to the general ledger and the journals should adequately be supported with documentation (in form of proper narrations or third party supporting).

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126.4 Lapses in insurance cover of cash in hand at premises (i.e in safes or with cashiers)

I reviewed cash held at the office premises against the insurance limit and I noted lapses in days where cash held exceeded the insurance limits. My discussion with management indicated that the insurance limits are set annually and have been revised for the subsequent year (2015/16). There is a risk of financial loss in case of burglary.

Management explained that the growth in business volumes over the year overtook the insurance cash covers. The Insurance cover is now being reviewed and the figures will be adjusted in the subsequent renewals to capture the growth.

I advised management to always ensure that insurance limits are regularly reviewed and addendums carried out where need arises.

126.5 Lapses in insurance in credit monitoring: exceeding of credit limits

I reviewed customers credit terms and noted that some customers exceeded their given credit limits. Credit limits which have been agreed and set were exceeded without evidence of documented approval. There is a risk that lapses in controls could weaken the overall control environment and expose the company to loopholes over credit monitoring and management.

Management explained that credit limits reviews are done once a year to adjust for increased business and rates. When volume grows more than the limit before the review date, the control is to ensure that approval is sought for the amount in excess of the limit.

I advised that credit limits are regularly monitored and any changes to the set limits should be approved by the delegated senior officer, documented and filed appropriately.

126.6 Lapses in control over credit sales

A review of controls over credit sales revealed lapses in controls whereby sales orders on credit were processed and invoiced without evidence of approval from the credit department. There is a risk that lapses in controls could weaken the overall control environment and expose the company to loopholes over credit monitoring and management.

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Management explained they will ensure that some exceptional urgent cases booked on weekends or public holidays and run without credit approval get retrospective approval afterwards as long as there is client commitment to the booking. Management was advised to ensure that controls over credit sales are adhered to as per company policy prior to processing and billing.

126.7 Absence of a formally documented and approved Business Continuity Plan (BCP)/Disaster Recovery Plan (DRP) I noted that there was no evidence of a formally documented and approved BCP/DRP covering the entire business and its operations. From my discussions with IT and HR, I noted that the BCP was still being developed. An IT business impact analysis had been carried out as well as succession planning for a few key departments. I explained to management that absence of a formal BCP could expose the company to losses in case of unforeseen events and thus becoming increasingly critical to the operation of the business.

Management explained that the Business Continuity Management plan implementation is on-going. So far the processes have been reviewed and also identified critical areas where initial focus will be emphasised. The selected areas include Succession Planning, IT Disaster Recovery and Business Resumption. There is also a deliberate effort to study and recommend cloud computing as an alternative to the high cost of setting up a physical data centre. This has been proposed as a strategy option over the next 2-3 years and should be concluded and presented to management for discussion in time for approval and eventual commencement of implementation over the next financial year (2016/17).

I advised management to ensure that a formal business continuity plan is put in place for approved by the board before implementation. The BCP should not only consider the business process and technical aspects, but also recognize and addresses the human element. During the implementation process, management should ensure that the BCP is regularly reviewed and tested to ensure that it addresses the changing needs of the business in line with the primary economic environment.

127. UGANDA BROADCASTING CORPORATION – 30TH JUNE 2015

127.1 Valuation of Property, Plant and Equipment The Corporation’s fixed assets (property, Plant and equipment) are reflected as UGX.41,387,636,950 in the statement of financial position. A review of the supporting

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schedules in accordance with International Accounting Standards (IAS) revealed the following:

 No revaluation of Property and Equipment was undertaken contrary to IAS 16 which requires regular revaluation of assets. Failure to revalue the assets contravened the applicable Accounting Standards. Furthermore, it was also noted that impairment reviews were not undertaken by management on the assets during the year contrary to IAS 36 which requires that assets should not be carried at more than their recoverable amount. I was therefore unable to confirm whether the property and equipment disclosed in the financial statements are stated at fair value.

 The Corporation did not maintain a fixed assets register during the year contrary to chapter 16.3 and 16.5 of UBC Finance and Accounting Manual to enable me track the Corporation’s assets. What was in place was a listing of assets without date of acquisition, values/costs attached and as such I could not ascertain with certainty the value of property, plant and equipment.  The Corporation had no proof of ownership of some non-current assets like title deeds to enable verification and confirmation of ownership contrary to Paragraph 16.14 (1) of the Corporation’s Finance and Accounting Regulations manual that requires the entity to have proof of ownership.

I was therefore unable to determine whether assets of the Corporation are fairly reflected in the statement of financial position, and whether the assets are owned as stated.

Management explained that non-compliance to IAS 16 and IAS 39 on regular revaluations and detailed impairment reviews was a challenge due to the limited resources at their disposal to engage the technical experts that can guide Management on methodologies prescribed by the standards, which they anticipate to address in the future. Management further explained that a detailed listing of all fixed asset additions and disposals in FY2014/15, 2013/14 and 2012/13 had been compiled as part of UBC’s effort to create a Fixed Asset Register.

I advised the Accounting Officer to expedite the revaluation process and have an adequate asset register in place.

127.2 Trade and other payables It was observed that the Corporation has outstanding obligations of UGX.30,841,178,841 comprising of trade creditors (UGX.12,010,778,774) and other creditors

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(UGX.18,830,400,067). However, all the trade creditors (UGX.12,010,778,774) were not adequately supported with source documents like invoices, contracts completion certificates and agreements. It was further noted that the payables have been increasing for the last consecutive years. There is a risk of inclusion of non-existent creditors who may be irregularly paid leading to loss of funds by the Corporation.

Management explained that the supplier related creditors are being renewed to weed out unsupported balances.

I advised the Accounting Officer to ensure that all documents relating to payables are properly kept, filed and corroborative evidence should be obtained prior to payments to creditors is undertaken. Furthermore, an invoice register should also be put in place.

127.3 Cash at bank It was observed that UGX.4,358,415,377 was disclosed as cash at bank by the corporation. However a review of the balances revealed that no bank reconciliation statements were prepared for the whole year and thus there was no basis to confirm independently that cash at bank for the nine (9) bank accounts held was fairly stated in the statement of financial position and statement of cash flow contrary to Paragraph 8.22(iii) of UBC Financial and Accounting Regulations manual 2006 that requires cash reconciliations to be carried out daily. Without bank reconciliation statements, I could not confirm the accuracy of the cash and cash equivalent presented in the statement of financial position.

Management explained that Board of surveys will be implemented to include cash at end of reporting period as had been done for the inventory count.

I advised the Accounting Officer to ensure that regular bank reconciliations are undertaken to support the board of survey constituted at every end of the financial year for confirmation of the balances at hand/bank.

127.4 Trade and other Receivables A review of the receivables for the year of UGX.20,961,027,331 revealed that there were inadequate revenue collection measures as evidenced by the gross trade and other receivables low reduction of 0.1% from last year’s balance.

Failure by management to recover outstanding receivables leads to accumulation of receivables which may reach unmanageable levels and would require writing off thus causing financial loss to the Corporation. 624

Management explained that they had instituted and are implementing revenue recovery measures as evidenced by demand letters. Discussions are ongoing with the Clerk to Parliament as part of the recovery effort for the UGX.10.4billion. Finance and Marketing functions constituted teams to follow up clients with debtors. Appointment of two debt collection firms have been done whose efforts will soon be evident.

I await the results of the Accounting Officer’s efforts in this regard.

127.5 Provision for bad and doubtful debts The Corporation’s provisions for the year revealed that Management provided UGX.287,124,862 for bad and doubtful debts based on a 5% judgment on some debtors. IAS 37 requires the estimate of provisions to be determined by judgment of the entity’s management supplemented by the experience of similar transactions. Section 8.17 of the UBC Finance and Accounting Regulations Manual also requires any due debt to be subjected to debt recovery procedures as stipulated in the bad debt management manual. The following were however observed;

 This provision should ideally have been well documented in the debt management manual specifying rates for the various categories of debtors, however it was noted that while last year a blanket provision was made on all receivables, the current years provision was only on some debtors. Further, as noted in the last years audit the same rate was also provided on certain debtors like cash and salary advances which are within managements full control.

 The provision rate of 5% set by management was not backed with experience of similar transactions as required by IAS 37 given that some transactions have minimal chances of recovery and specific provisions would have been applied, that is; Parliamentary commission (UGX.10 billion- without a contract), M and B (UGX.0.4 billion- whose land UBC has reclaimed), and others.

Bad debts should be written off when all reasonable steps to recover them have been taken without success.

The blanket provision is inadequate without a proper review and analysis of the Corporation debtors and as a result the provision may be misleading to the users of the financial statements.

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Management explained that provisions based on Management’s judgment and experience on similar transactions will be implemented in subsequent reporting periods given that Finance and Marketing functions are working towards the same goals in this area.

I advised the Accounting Officer to expeditiously review and submit for approval to the Board the debt management manual with comprehensive provisions for the different classes of receivables.

127.6 Governance and strategic issues 127.6.1 Lack of Corporate Strategic Plan A strategic plan provides an organization with purpose and direction and it is a key requirement for organization survival, however I observed that the Corporation does not have a Corporate Strategy with the old one (2008-2013) having expired in 2013. Though the Corporation has a Mission to educate, inform, guide and entertain the public through maintaining a sustainable national coverage, its doubtable if it can be achieved without long term plans. Implementing projects without a strategic plan may lead to uncoordinated implementation of activities as the budget/work plans and the vital work done are not linked to developments.

Management explained that UBC had engaged the services of a consulting firm that has been working to put in place an owned and workable Strategic Business Plan and this has been scheduled for discussion with the Board before end of December 2015.

I await the results of the Accounting Officer’s effort in that regard.

127.6.2 Lack of Credit and Debt Management Policies Its best practice in corporate entities that debt and credit management policies are formulated and documented to help the organizations manage and control debt and its credit. During audit, it was noted that the corporation had not formulated both the credit and debt management policies despite my previous years recommendations. This has resulted into major weaknesses as noted below;

(i) Debtors

The corporation presented a receivables balance of UGX.20,486,267,489. Further analysis of this balance revealed that there was no approved credit period for debtors and consequently many debts were never collected. I did not obtain evidence that management put in the required effort to collect the debts. 626

(ii) Creditors

It was observed that the Corporation owes UGX.30,841,178,841 which is a substantial increase from the previous financial years position. Further, it was noted that the payables have been increasing for the last consecutive years and this could be attributed to lack of a credit management policy in place.

Management explained that UBC was now running like other businesses and where best practice has been lacking they had started implementing the same which would be followed with documentation of the practices, update of manuals and policies to ensure consistency and objectivity.

I await the results of the Accounting Officer’s efforts in this regard.

127.6.3 Staff without valid contracts and un-updated salary structure It was observed that 247 members of staff were working at the Corporation without valid contracts, some having expired as far back as 2009 contrary to Paragraph 2.9.4 of Uganda Broadcasting Corporation Human Resource regulations-2006 that requires contract employment to be renewable subject to good health and satisfactory performance. Further, a review of the UBC staff and the salary structure revealed that the salaries, terms and condition of service of the Corporation were last set in 2005 at the inception of UBC and have become out dated and inadequate contrary to the UBC act section 8 (d) that mandates the Board of Directors to determine from time to time the structure staff levels and terms and condition of service of staff. The salary ranges from UGX.150,000 to UGX.6,500,000 for the lowest paid to the highest paid officer

Failure to renew employment contracts violates the rights of employees which may attract litigation expenses. Further, maintaining a strong salary structure is imperative for any Corporation. If the salary structure gets out of sync with the overall labor market, UBC may find difficulty in attracting and retaining the desired staff.

Management explained that UBC was going to address the issues after drawing up the strategic plan.

I advised the Accounting Officer to ensure that the process is expeditiously handled. In the meantime, I await the results of management efforts.

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127.6.4 Unapproved draft policies The Corporation has several draft policies developed for the efficient functioning of the Corporation business however, it was noted that many of them are in draft form and cannot be put to application without board approval. Specifically the critical ones are the IT /Security policy and the risk and fraud control policies. Others are Internal Audit Manual, UBC Board Audit Committee Charter, Internal Audit Charter and Staff structure.

Without an approved IT/information security policy and IT strategic plan that aligns the IT requirements to the UBC Strategic plan, there is a risk of making investments in IT that are not well aligned with other business processes and objectives of the Corporation which could lead to wastage of resources. Further, lack of documented fraud control policies could result in failure to prevent and/or detect fraud or taking appropriate action where fraudulent acts have been identified in the organization.

Management explained that all policies were drawn to the attention of the Board for their review and comments as well as their subsequent approvals.

I await the outcome of the Accounting Officer’s efforts.

127.7 Diversion of Special Release During the year under review, Government transferred funds to Office of the Prime Minister as a supplementary release to UBC for onward remittance to UMEME for outstanding electricity arrears to the tune of UGX.4 billion.

UGX.5,000,556,117 as at 30th June 2015 was outstanding accumulated electricity bills for the past periods, however a review of payments to UMEME revealed that only UGX.3,599,543,717 was remitted to UMEME leaving a balance of UGX.400,456,283 that was diverted to cater for staff salaries and other operational costs contrary to the supplementary warrant as approved by Parliament. This action may lead to disconnection of electricity by Umeme which would adversely affect service delivery.

Management explained that when new managers came in June 2015, UBC had stalled planned activities in all functions due to lack of funds to implement themAs such management decided to utilize some funds to bring the UBC brand to visibility through a stable and clear signal, new studio graphics, improved quality sound on the radio brands so that internal revenues could be generated through new business and thus improved cash flows. Management further explained that they agreed to clear the arrears when the entity cash flows improve.

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I advised the Accounting Officer to ensure remittance of the balance to Umeme and abide by Government warranting conditionality for appropriated funds.

128. UGANDA COMMUNICATIONS COMMISSION – YEAR ENDED 30TH JUNE 2015

128.1 Outstanding Receivables It was observed that trade and other receivables increased from UGX.25,204,001,631 in the previous year to UGX.26,857,892,827 during the year under review representing 0.7% increment. Further, scrutiny of the outstanding amount revealed that eight firms had not paid over 70% of the total receivables and the balances are beyond the allowable 60 days provided in the financial manual. Key among the eight is a local firm that owes the Commission UGX.13,119,246,405 which is 49% of the outstanding receivables. Failure on the part of management to recover outstanding receivables beyond the recoverable levels may necessitate writing off hence creating a financial loss to the Commission.

Management explained that they had intensified debt collection efforts by taking legal action against the major debtor through their external lawyers after exhausting internal collection measures, however management efforts were curtailed when government communicated a Cabinet Decision to transform the entire debt into Uganda Government shares in the firm. Management further explained that for the other debtors, efforts have yielded some results from five of the firms and legal processes are still ongoing for the other two firms.

I advised the Accounting Officer to ensure that all receivables are collected within a stipulated credit period.

128.2 Revenue Shortfall During the year, the Commission budgeted to collect revenue worth UGX. 104,698,319,136. However, actual revenue collected amounted to only UGX 84,357,297,401 creating a shortfall of UGX 20,341,021,735 which is a 19% deficit. Details are as below; Final Budget Budget Out turn Variance Revenue Spectrum fees 41,017,381,563 30,766,249,514 (10,251,132,049) Broadcasting 1,551,451,153 1,492,303,404 (59,147,749) services Satellite services 419,380,000 263,737,000 (155,643,000) Licence fees 2,930,538,000 2,443,957,754 (486,580,246) Levy on GAR 31,844,502,852 44,792,508,734 12,948,005,882 International traffic 14,040,000,000 0 (14,040,000,000) 629

Other revenue 7,695,065,568 4,598,540,995 (3,096,524,573) Grants 5,200,000,000 0 (5,200,000,000) Total Revenue 104,698,319,136 84,357,297,401

Significant variations in revenue collections may imply unrealistic budgeting and /or inadequate implementation of collection strategies. As such management is constrained in the implementation of planned activities.

Management explained that the revenue shortfall was mainly due to unforeseen changes that occurred after budgeting like the reduction in use of microwave spectrum due to some operators adopting new technologies (fiber cables as an alternative to microwave spectrum), non-billing of UTL during the financial year for the spectrum held as processes for license revocation had already been initiated, introduction of an excise tax by the Income Tax amendment of 2013 on incoming international traffic which is being collected by Uganda Revenue Authority, set up of the one area network for northern corridor and lack of interest earnings from anticipated fixed deposits on idle funds.

I advised the Accounting Officer to ensure that the entity budget forecasts are revised in line with the prevailing circumstances. Further, management should expedite the procurement under the IDA grant and consider adopting new technologies in order to favorably compete in the market.

128.3 Absence of the Communications Tribunal Section 60 of the UCC Act, 2013, mandates the setting of the tribunal known as the Uganda Communication Tribunal. The tribunal shall have jurisdiction to hear and determine all matters relating to communications services arising from decisions made by the Commission or the Minister under this Act.

However it was noted that there was no Tribunal in place to resolve disputes among operators. Absence of a tribunal to boost amicable resolution of disputes among operators and the Commission stifles the communication sector’s operational environment in Uganda and affects the Commission’s ability to promote competition, including the protection of operators from acts and practices of other operators. It may also result into increased legal costs to the Commission in case of litigation.

Management explained that under Section 60 (2) of the Uganda Communications Act, 2013, the Uganda Communication Tribunal composed of a Judge and two other persons, is supposed to be appointed by the President on the recommendation of the Judicial Service Commission. This issue was brought to the attention of the relevant offices for action. 630

I advised the Accounting Officer to follow up my recommendation as this issue has been outstanding for the last two years. Management should liaise further with the relevant authorities with a view of having the Communications Tribunal instituted.

128.4 Lack of established internal mechanism to verify the operators GAR

UCC collects an annual levy on gross annual revenue (GAR) of telecom operators at a rate of 2%. It was noted that this levy constituted 27% of the commissions projected revenues in the financial year 2014/2015. UCC is now required to remit 1% of the operators’ GAR to the consolidated fund and it relies on the operators audited financial statements to raise invoices of the 2% levy on GAR.

A review of the revenue collection system revealed that the Commission has not yet built capacity to independently verify the revenue figures reflected in the operators audited financial statements to counter the likelihood of audit risk/ or collusion. As such, there is a risk of under collecting revenue for the Commission in the circumstance.

Management explained that Procurement of a traffic monitoring system is on-going which will enable monitoring of telecom traffic and verification of revenues submitted by operators.

I advised the Accounting Officer to consider developing internal capacity to carry out a risk based verification of operator’s GAR as they undertake procurement of the monitoring system.

129. UGANDA PRINTING AND PUBLISHING CORPORATION – 30TH JUNE 2015

129.1 Un-reconciled staff salaries

As per GAAP, Management is responsible for the preparation of financial statements and also put internal controls in place to enable the preparation of the financial statements that are free from material misstatements, whether due to fraud or error. I was however unable to verify the accuracy and completeness of salaries amounting to UGX.874,141,662 in absence of reconciliation between amount as per supporting documents (Payrolls, ledgers, and cashbook) and as per financial records of the corporation. There were no alternative audit procedures that I could adopt to confirm that salaries are fairly stated. Such weaknesses may signify inadequate internal controls, errors, and omissions. This renders financial statements unreliable thus affecting decision making.

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Management explained that the errors were caused by the shift from the old system to the new accounting package and promised to correct the discrepancy in the year 2015/2016.

I advised the Accounting Officer to revisit the new system and should there be need for training, then this should be implemented. In the meantime, a reconciliation should be done to ensure accuracy and completeness of salary balances.

129.2 Un-reconciled Gratuity I was unable to verify the accuracy and completeness of Gratuity amounting to UGX.395,618,959 in absence of reconciliation between amount as per supporting documents (Payrolls, ledgers and cashbook) and as per financial records of the corporation. There were no alternative audit procedures that I could adopt to confirm that Gratuity is fairly stated.

Such misstatements may signify weak internal controls, errors, and omissions. This renders financial statements unreliable and hence affecting decision making.

Management explained that the errors were caused by the shift from the old system to the new accounting package. This gratuity could not be ascertained on a monthly basis as the employees concerned were on permanent basis hence their gratuity/ terminal benefits could only be calculated at the point of exit. Management promised to correct the discrepancy in the year 2015/2016.

I advised the Accounting Officer to ensure accuracy and completeness of the accounting records maintained for reliable information that can enable management make rational decisions.

129.3 Unsettled tax and social contribution obligation The Income tax Act Cap 340 section 116 (1, 2 & 3) requires an employer to withhold tax while paying employees and remit it within 15 days of the following month. As noted in the prior year, the Corporation persistently failed to settle tax and social contribution obligation relating to PAYE, NSSF, WHT, VAT, and LST to relevant authorities.

During the year under review, the Corporation had unsettled tax obligations to the Uganda Revenue Authority (URA) amounting to UGX.3,318,924,958 and unpaid NSSF contributions of UGX.414,704,993. Non-compliance with the statutory deductions may result into unnecessary fines, penalties and interests charged for late remittance of statutory deductions. 632

Management explained that current dues are being paid promptly and that they have since entered into an arrangement to pay arrears relating to financial year 2013/2014 with URA and NSSF. An MOU has been signed between URA and the Corporation on LST. Effective September management has implemented a new payroll system where LST is being deducted and remitted to the relevant Authority.

I advised the Accounting Officer to ensure fulfillment of the MoUs to avoid unnecessary penalties and fines.

129.4 Uncertainty in recoverability of Trade Debtors It was observed that the receivables had accumulated to UGX.2,832,892,578as at 30th June 2015 a majority of which is owed by the Government of Uganda institutions. The biggest chunk of these debts have been outstanding for over 5 years and their recoverability appear uncertain. I further noted that no provision for bad debts was made to that effect. Non provision of debts overstates the receivables position of the Corporation.

Management responded that they are in the process of compiling a list of those debts that have been outstanding for a long time. Steps in form of meetings and several correspondences etc. are being taken to recover those debts where the Corporation has had assurances of recovery.

I advised the Accounting Officer to ensure adequate follow up of these debts before a decision to write off is arrived at. Management should also provide for bad debts regularly as recommended by IFRS.

129.5 Tax Recoverable As noted in my previous years report, the Corporation has a tax recoverable totaling UGX. 414,692,376 in its financial statements that has been outstanding since 2010. However no documentation was availed in form of withholding tax (WHT) certificates for further follow- up to enable the Corporation reduce on its tax liability with URA. Without supporting documents, misstatement of the Corporation’s asset balance cannot be ruled out.

Management explained that they are following up this issue in line with the debt collection policy of the Corporation.

I advised the Accounting Officer to follow up on WHT certificates from its clients to have this matter settled. This will help the Corporation to reduce on its tax liability with URA.

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129.6 Financial analysis of the Corporation

Basing on the ratios computed, I noted a significant decline in performance as evidenced by a comparison made in the performance of financial year 2014 and 2015. I observed that profitability and liquidity ratios have deteriorated significantly hence the current assets may not finance current liabilities and continue in operation. Refer to the table below:

Ratios 2015 2014 A Liquidity Ratios 1 Current Ratio Current Asset 3,934,088,866 4,351,116,124 Current Liabilities’ 5,571,379,217 3,686,909,768 C/R 0.71 1.18 2 Acid Test Ratio Current Asset 3,934,088,866 4,351,116,124 Current Liabilities 5,571,379,217 3,686,909,768 Inventory 535,970,839 928,941,624 ACR 0.61 0.93 Both liquidity ratios analysis highlights a reduction in the entity's liquidity from the previous financial year. And thus the entity could not pay off all its current liabilities due for payment using its current assets. B Profitability Ratios 1 Gross profit : Revenue Gross profit (912,808,215) 677,224,215 Revenue 3,388,974,015 2,823,667,152 G/R -27% 24% 2 Return on Capital Employed PBIT (1,451,629,396) 234,160,804 Total Assets 10,345,773,233 10,794,262,427 Current Liabilities’ 5,571,379,217 3,686,909,768 ROCE -30% 3%

The going concern of the corporation is at stake if no corrective measures are taken immediately to improve on the profitability levels.

Management explained that the deteriorating performance was affected by payments of terminal benefits of former employees which accrued from 1999 during transition from government printer to a Corporation. There is however a positive trend of improvement as shown by the trend in revenues and profitability as follows: in 2015 UPPC had a total growth of (22.92%) 3,734,977 compared to a deficit of (10.45%) (355,441) in 2014 and (7.30%)(263,545.52) in 2012. It was further stated that a new strategic plan is to be implemented to reorient the organisation.

I await implementation of the new strategy. 634

129.7 Impairment of Corporation assets Impairment is usually associated with a long-lived asset that has a market which has decreased significantly due to especially changes in technology. I noted that the core activity of the corporation is printing and publishing which changes with changes in technology. As noted in the previous audit, 70% of machinery in the production department is out-dated and non-functional and this has resulted into approximately 40% of jobs being outsourced. Some vehicles in the asset register are non-functional and beyond repair and were recorded in the books at NIL value.

Inappropriate machinery coupled with increased outsourcing activities may result into loss of customers that come with poor quality output and late deliveries.

Management agreed with the observation and explained that it had attempted to address the issue by appointing an expert and independent Engineer from New Vision who conducted an audit on the Machinery working condition and capacity. Management is yet to establish the recoverable amount which will guide in obtaining an impairment loss.

I recommended for disposal of old machines and purchase of new ones so as to match with the modern technology on the market. Minimizing on outsourcing to cope up with competition in the market should also be considered once replacement of old machines has been done.

130. UGANDA INSTITUTE OF INFORMATION & COMMUNICATION TECHNOLOGY- YEAR ENDED 30TH JUNE 2015

130.1 Review of legal status In the previous year’s audit report to Parliament, I noted the legal transitions the Institute had been subjected to, i.e from UCC to Ministry of Education, Ministry of Information and Communication Technology and finally back to UCC. I noted ambiguity in the interpretation of several provisions which directly affects service delivery and recommended for clarity in the legal framework in some areas. Management indicated that a statutory instrument had been drafted by UCC and was in the process of approval to harmonize operations; however to-date, no harmonization has been done. The areas of concern are as below:-

(i) Mandate of the Ministry of Education (MOES) and Ministry of Information and Communications technology (MICT)

Although UICT was transferred to the Ministry of Information and Communication Technology (MICT), the Ministry plays no role as regards to recruitment of technical staff

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as evidenced by the recent recruitment of the Principal which was undertaken by the Education Service Commission. Similarly, the responsibility for appointment of the governing council members could not be ascertained.

(ii) The Uganda Communications Commission It was noted that under Sec (w) UCC Act 2013, the Commission is mandated to “operate and manage” UICT. This provision is unclear as it does not clarify the responsibilities of the Ministry and UCC with regard to the following;

 Human resource: UICT employees are neither under the mandate of UCC, MICT nor Ministry of Public Service and no approved Human Resource manual is in place.

 Funding: Although the Institute is funded by UCC, there is no confirmed legal obligation on either the Commission or Ministry as regards to funding of the Institute and it was noted that the institute funding from UCC was cut by half in the year from 680 million last year to 340 million without any explanation and consideration of the Institute’s commitments.

Management explained that the issue was brought to the attention of the Ministry of ICT and UCC and in response the Ministry of ICT formed a taskforce to harmonize the legal framework. UCC instituted a legal team to interpret the terms “Managing and Operating UICT”.

I advised the Accounting Officer to raise the issue to the attention of the responsible stakeholders for an enabling law that ensures effective service delivery by having the parent ministry control all operations of the Institute in order to avoid multiple reporting centers and clarification of legal provisions to clearly define roles and responsibilities.

130.2 Absence of Approved strategic plan It was noted that the Institute does not have an approved strategic plan and yet the budgeting process of UICT should be based on the integrated link of the strategic plan and annual work plans to ensure effective service delivery. In absence of a strategic plan there is lack of strategic guidance in achieving the Institute’s objectives as the budget process is not linked with the strategic plan. There is also a risk that the strategic objectives of the entity will not be fulfilled in the long run.

Management indicated that the delay in the development of the strategic plan was due to the transition process from MOES to MICT and eventually to UCC. Management further stated that UCC has to develop a master plan in which UICT will be incorporated and thereafter UICT will develop a strategic plan. Management also reported that UCC hired a 636

consultant to develop the Institute Master Plan which will include a Strategic Plan and the Master Plan has been completed by the Consultant and is being reviewed by UCC before it is finally implemented.

I await the results of the Accounting Officer’s effort in this regard.

130.3 Trade receivables -Lack of a debtor’s policy Included in the receivables of UGX.544,990,638 is a sum of (UGX.296,398,482) attributed to school fees defaulters. The amount has increased by 50% from previous year’s position. It was noted that UICT lacked a debtor’s policy to provide guidance on the management of debtors. Furthermore, it was observed that the school fees debtors have continued to accumulate over time and continue to be reflected in the accounts which may be unrealistic especially in the event that a person ceases to be a student for various reasons. I could not establish which of these receivables are irrecoverable and probably should be written off. There was also no ageing analysis for the receivables and no evidence that efforts have been made to recover them.

Management explained that the Governing Council at its 24th meeting approved the Finance Committee recommendation to develop a bad debtors policy and they have started on the preliminary work to develop a debtor’s policy.

I await the results of the Accounting Officer’s efforts in this regard.

131. UGANDA NATIONAL COUNCIL OF SCIENCE & TECHNOLOGY – 30TH JUNE 2015

131.1 Investment in Integrated Intelligent Computer System (IICS) Project The Council entered into an agreement with a Consultant to design and implement an easy to use computerized system across the country that has the capacity to perform accurate diagnosis of diseases, recommend appropriate treatment, capture and update patient data in real time and provide platform for facilitating data sharing among National Health Establishment and also generate relevant patient and drug management reports. The project agreement was signed in January 2010 for a renewal of three years ending in December 2012. A sum of UGX.4,090,000,000 was budgeted for the project implementation across the country and was subsequently paid. However, I could not establish how many of the planned National Health Centers had implemented the programme. During an inspection of Mulago National Referral Hospital, it was observed that there has been resistance by medical personnel to have this project take off. The objectives of placing, processing and management of orders for supplies internally were

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not evident. Stores management of pharmaceuticals and medical supplies to reduce over ordering and or identify drugs that had expired was not manifested.

Management explained that the system generated a lot of interest within Government. Currently, government has asked the project to submit a budget of close to 30bn for the rollout of the system within the public sector from 2016/2017.

I indicated to management that this project would be considered nugatory expenditure if the end product is not used by the targeted community (Health Centers’) and advised management to train the beneficiaries in the use and application of the system for its adoption and minimize waste.

131.2 Management of Projects by Principal Investigators (PIs) (i) Cash payments UNCST has several projects it funds and the Council is responsible for the management of the funds it disburses. I noted that these projects use the funds given to them at their own discretion. Funds were deposited in individual personal accounts without the authority of the Board and as a result, a number of payments for motor vehicle repair and servicing were made in cash instead of paying the garages. Payments were also made in cash to undertake a number of procurements instead of paying the suppliers. I found this action contrary to the UNCST finance manual which requires cash to be made in cases were payments do not exceed UGX.100,000.

Management explained that stringent conditions have now been instituted to ensure that the project managers adhere to existing cash management policy.

I urged the Accounting Officer to enforce the policy for better management of resources.

(ii) Management of Council Projects UNCST developed policies to manage projects under its supervision. It was however observed that in some projects, the MoU were designed in such a way that the Principal Investigator (PIs) manages the projects as an individual. I noted that these projects are not managed in accordance with government policies and guidelines. For example, the PI recruits staff, determines salary and dismisses staff. This was a case in Aquaponics Farming and Research Project where the Principal Investigators set his own conditions of service without guidance from management of the Council and the Board. It appears this practice also cuts across all projects.

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Management explained that initially PIs were left to recruit special staff they needed but going forward, management will review the project staff terms of employment and carry out any future recruitments with the guidance of the Board.

I advised the Accounting Officer to review the Human Resource Manual in order to institute controls so that there is transparent recruitment of project staff.

(iii) Failure to hand-over project assets I noted that some projects under Support to Scientists (STS) which closed were required to submit project closure reports and return the project assets such as vehicles and office equipment by December, 2014. However some projects managers wrote back asking for more time and others give reasons why they would not return the assets. This is against the handover procedures.

Management explained that the new Board has been notified of this matter and are planning to verify all project assets and ensure that the scientists hand-over the government assets to Council.

I await the outcome of management action.

132. UGANDA POST LIMITED - YEAR ENDED 30TH JUNE 2015

132.1 Sustainability of services –Liquidity analysis I carried out ratio analysis of financial information and the following were observed for the attention of management for improvement purposes and ensure sustainability of services:

YEAR 2015 2014 2013 2012 IMPLICATIONS AND REMARKS

Current 1.08 1.04 1.01 0.90 Measures company’s ability to meet Ratio times times times times short term liabilities when they fall due. Current assets were not adequate to cover current liabilities in all the years. The higher the ratio the better and ideal is 2:1 This is not healthy for POSTA.

Quick 0.7 0.6 0.5 0.6 Measures ability of current assets Ratio minus stock/ Inventory to meet short term obligations when they fall due. Current assets were insufficient to cover current liabilities for the four years reported. The higher the ratio the better. This again is not healthy for POSTA. The ideal is 1:1

Average 0.9 0.23 0.19 0.19 This Ratio measures average number collection of days required to convert receivables into cash. It can be noted that it takes 639

Period 328 days (0.9 x 365) to collect cash from debtors and this is below the Posta 60 days debt recovery period policy.

Times 1.12 1.56 2.3 3.1 times In order for the company to benefit Interest times times times from debt financing, the fixed interest Earned payments that accrue to debt must be able to be satisfied from operating profits and have some excess profits. The higher the ratio the better. This was not healthy for the company as out of the UGX. 824,793,680 operating profit earned, UGX. 464,602,090 (more than half of profit) was incurred on interest expenditure.

Management explained that Uganda Post Limited (UPL) has a strong country-wide asset base ensuring its continued ability to provide services. Management is strengthening its credit management, management accounting as well as treasury management.

I advised the Accounting Officer to ensure that the debts are collected timely and also ensure that there are adequate controls over the debt portfolio and credit policies if they are to sustain service delivery.

132.2 Long overdue Trade and other Receivables The trade and other receivables increased from UGX.8,677,115,840 to UGX.12,727,659,700 (representing 47% increase from the previous year’s balance) contrary to Paragraph 8.4.4 of the Posta Uganda financial manual that requires all invoices to be collected within sixty (60) days from date of invoicing. Further, there was no ageing analysis schedule to allow me review the extent of recoverability of the debts and major debtors responsiveness. Non- enforcement of debt recovery measures hampers service delivery and affects the Company’s debt servicing which may attract interest on late payments.

Management explained that a debtor Management policy was formulated and approved by the Board Committee of Finance and this will be effective beginning of 2016. Reconciliation of receivables was ongoing with a view of writing off long overdue accounts. Management further explained that they had engaged a debt collection firm to collect overdue accounts. Management has also set up an in-house debt collection unit to collect recurring debts.

I advised the Accounting Officer to formulate a comprehensive debt policy that gives adequate guidance on debt management. I also advised that all receivables should be reconciled with a view of writing off long overdue accounts that are considered irrecoverable after undertaking some recovery options 640

132.3 Trade and Other Payables The trade and other payables increased by 29% from UGX.12,052,739,660 in 2014 to UGX.15,549,969,730 in the current year which is quiet significant and it was noted that 71% of the Payables (UGX.8,235,411,925) were well beyond 180 days contrary to the financial regulations that require that creditors to be settled promptly. Further, contrary to paragraph 2.5.4 (iii) of the financial manual that requires suppliers accounts to be reconciled monthly, the company was not compliant and this has created a numbr of adjustments relating to prior-year periods thus casting doubt as to the accuracy and completeness of the current year creditors balances. Without monthly reconciliations, I was not able to confirm that the company’s trade payables were complete, accurate and properly measured which could be misleading to the users. Further, the company is at risk of litigation for delays to settle their accounts.

Management explained that a draft Credit Management Policy was to be presented to the Board Committee of Finance for approval. Further, management explained that remedial action had been taken to correct book keeping errors and ledger adjustments were made to match payments to accruals.

I advised the Accounting Officer to settle obligations as they fall due and ensure that regular reconciliations of payables accounts are undertaken to eliminate the misstated and misleading balances. I await the results of management’s efforts in regard to approval of a credit policy.

132.4 Prior year adjustments Prior year adjustments of UGX.906,151,210 were made to the retained earnings brought forward from 2013/14 financial year with authorization of Head of Finance and approval by the Managing Director. At the time of writing this report, reconciliations were still on-going. A review of the journal vouchers relating to the adjustments revealed the following;

 Recognition of Electricity expenses for Prior Years

UGX.710,185,429 was recognition of Electricity expenses for Prior Years. This was due to the fact that Posta did not have a separate meter and was deposing cash with UTL and not recognizing it as an expense in prior years but as a prepayment. This has an effect on profits reported in prior years as they were overstated thus misleading the users.

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 Misstatement of prior year receivables and payables It was noted that a number of other adjustments apart from the one above were a result of non-recognition of revenue earned and expenses incurred in prior years with some dating back to the period 2008. Others were due to over invoicing of clients, invoicing non- existent clients, non-reconciliation of clients’ accounts on settlement of invoices, and as a result several debtors and creditors on the company’s books in the previous years could have been misstated.

I noted that such cases may continue to surface in subsequent years especially with long overdue receivables and payables. The errors impact on current years balances as comparatives for the prior years are misstated.

Management explained that the errors were a result of past capacity gaps in accounts section and the need to recognize revenue banked to UPL accounts by clients which had earlier not been captured in UPL books.

I advised the Accounting Officer to undertake a final review of the receivables and payable balances so as to present a true position probably through circularizing with a view of writing off the long overdue unsupported receivables and payables

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TOURISM AND TRADE SECTOR

133. HOTEL AND TOURISM TRAINING INSTITUTE – YEAR ENDED – 30TH JUNE 2015

133.1 Outstanding Payables and lack of Credit Management Policy The institute reported in the statement of financial position outstanding creditors of UGX.899,239,093 including statutory deductions of UGX.138,803,024 that attract fines and penalties. The schedule below refers;

Item Amount (UGX) National Social Security Fund 125,298,476 Value Added Tax 13,504,548 Total 138,803,024

It was also noted that the Institute lacks a credit management policy to guide management in the settlement of creditors.

Management explained that they had made efforts to reduce credit levels to manageable levels by paying current obligations and signing MOUs with some of the creditors. At the time of writing this report the payables had been reduced from UGX.899,239,093 to UGX.465,855,464.

I advised management to settle the outstanding creditors and put in place a credit management policy that would guide settlement of creditors.

134. NILE HOTEL LIMITED – 31ST DECEMBER 2014

134.1 Improperly stated value of buildings

The value of Buildings was reported at UGX.45,820,185,480 in the financial statements without subjecting them to depreciation contrary to IAS 16 which requires buildings to be depreciated. Under the circumstances, I was unable to confirm the accuracy of the reported balances in respect of buildings in the financial statements.

Management explained that a consultancy firm was contracted to review the valuation of the concession assets and a report was still being awaited.

I await the outcome of management undertaking in this regard.

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134.2 Unlimited Tenure of the Board of Directors

Section 3.8 of the NHIL Board manual, 2013 requires regular rotation of directors to ensure continuity and introduction of new thinking in the Board. This is amplified by section 3.9 which requires the term of office of directors to be 3 (three) years, renewable once.

It was however noted that NHIL directors had not been changed for over 20 years since the inception of the company in 1994. The Ministry of Finance (PERD) in its letter (Ref: PES 0900 dated 18/08/1997) instead extended the Board’s tenure.

Management explained that this matter was discussed at the AGM held in May 2014 where the tenure of the Board was extended by one year (or to the next AGM).

I advised the Appointing authority (shareholders) to appoint a new Board of Directors for NHIL as soon as it is practically possible in accordance with Board manual and ensure that their terms of reference are clearly defined.

135. UGANDA DEVELOPMENT CORPORATION – YEAR ENDED 30TH JUNE 2015

135.1 Lack of a law operationalizing UDC After the enactment of the Public Enterprise Reform and Divestiture Act in 1993, UDC was classified as a Class III enterprise in which GOU was to completely divest itself. Accordingly, all subsidiaries and affiliates of UDC were sold off as separate entities to different private sector actors, leaving UDC as a shell company. UDC was incorporated into Uganda Development Company Limited (UDCL), under the Company Act Cap 110, in 2003. In January 2008, Cabinet resolved to revive UDC as the “development arm of Government”. This was followed by the appointment of a Chief Executive Officer in February 2009, and the establishment of an operational office with start-up staff in June 2010. However, it was noted that the law to operationalize the Corporation has not been enacted by Parliament and this has delayed the constitution of the Board and recruitment of key staff as indicated in the paragraph (8.1.1 – 8.1.4) below.

Management explained that the matter is before the Sectoral Committee of Parliament on Tourism, Trade and Industry for discussion. Once this is finalised, the bill will be passed into law.

I urged the Accounting Officer to follow up the matter with the authorities to allow operationalization of the Corporation.

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135.2 Lack of a Board of Directors (BoD) Best practice requires that Uganda Development Corporation should have a Board of Directors in place to perform functions such as approving the policy guidelines, approve organisational structure, recruitment of staff, approval of the annual workplans and budgets and establishing rules and procedures to guide day to day operations. However, as explained in my previous report to Parliament, there is still no Board of Directors constituted and instead there is an acting Executive Director (ED) who reports directly to the Minister. This implies that the Corporation is not being guided properly with regard to strategic decisions. Management explained that it is awaiting the enactment of UDC Bill into law before the Board can be constituted.

I advised the Accounting Officer to continue liaising with the responsible Minister to ensure that the law is enacted and the Board appointed.

135.3 Lack of a substantive Director of Finance and Administration The Finance Policy and Procedures Manual was developed with the understanding that there will be a Director Finance and Administration, however, this has not been the case. Because of this gap, some payments were approved by Head, Human Resource (HR). The payroll was prepared by the Accountant and approved by Head HR yet this is a responsibility of Director Finance and Administration.

Management attributed this to lack of an approved structure and funds to recruit the officer.

I advised the Accounting Officer to liaise with the line Minister to ensure that a Director Finance and Administration is appointed so as to improve on the performance of the entity.

135.4 Lack of Internal Audit department UDC does not have an operational Internal Audit department but depends on the responsible Ministry Internal Auditors. Internal control errors may go undetected. For example, the Internal Auditor verified and reported on only one quarter of the year and the other two quarters were not reviewed.

Management attributed this to lack of an approved structure and enough budget to recruit its own Internal Auditor.

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Management was however encouraged to hire an internal Auditor who will help improve the internal controls of UDC.

135.5 Budget Performances During the period under review the entity budgeted for UGX.4,482,787,000 but only UGX.2,077,998,475 was spent, representing 46% budget performance. As a result some activities were partially undertaken while others were not undertaken at all as indicated in the table below.

Planned Annual Total Budget Status Audit Activities Amount UGX Observations Undertake an EIA for 40,000,000 By close of FY, Not done the project disposal procurement process site was ongoing Secure an EIA 12,000,000 Dependent on Not done certificate from NEMA completion of EIA for the waste disposal site Fence the solid waste 200,000,000 Procurement process Not done disposal site ongoing procure engineering 58,000,000 Not done. Prices kept Not done equipment’s increasing landscaping, leveling 110,000,000 Dependent on Not done & construction of the completion of EIA other facilities on the disposal site Recruit plant personnel 10,000,000 Was delayed due to Not done delay in commencement of factory construction by KOICA Procure a contractor to 10,000,000 Was delayed due to Not done install the ICT delay in commencement infrastructure of factory construction by KOICA Operating capital for 1,399,727,000 Dependent on Not done the fruit factory completion of factory construction Prepare a business 182,000,000 By close of FY, Not done plan for Soroti Fruits procurement was on Ltd going Market the fruit 48,000,000 Bench marking study Not done products in fruit done in Kenya processing factories& outlets EAC, and outlets. Total 2,069,727,000

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136. UGANDA INDUSTRIAL RESEARCH INSTITUTE FOR THE YEAR ENDED 30TH JUNE 2015

136.1 Mischarge of Expenditure The Parliament of Uganda appropriates funds in accordance with the needs of the country and this appropriation is implemented through the budget in which funds are tagged to particular activities and outputs using account codes and MTEF codes. The intention is to facilitate better classification of financial transactions and also track budget performance per item. However, UIRI charged wrong expenditure codes to a tune of UGX.633,529,182. This resulted into misreporting of figures in the financial statements.

I advised the Accounting Officer to ensure that budget lines are allocated sufficient amounts of funds to undertake planned activities. Should a reallocation be needed, management should always seek for authority in line with the law.

136.2 Undisclosed and un-revalued land UIRI owns land on plots 42A and 42B on Mukabya Road (Nakawa Industrial area) where the offices are suited. However, the land was not disclosed in the statement of financial position under non-current assets. UIRI has not revalued it’s land but still reports this asset at acquisition cost of UGX.2,668,000 in the Board of Survey report. Failure to disclose land implies the financial statements balances were misstated.

Management explained that they are in the process of engaging a valuer to determine the value of the land to be included in the financial statements for the financial year 2016/17.

I await the Accounting Officer’s action on the mater.

136.3 Lack of a strategic plan A strategic plan is an important tool in steering any organization towards achieving its vision, mission and its overall mandate. The strategic plan is supposed to guide the budgeting process by creating integrated link with the annual work plans which feed into the budget to ensure effective service delivery and achievement of set organization objectives. It was noted that the Institute has been operating without an approved

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strategic plan, since 2012 when the last one expired. In the absence of a strategic plan, the Institute’s desire to achieve its objectives may greatly be impaired.

Management explained that the new board is in place and the process is underway to write a new strategic plan

I advised the Accounting Officer to expedite the process and ensure that it is approved by the Board.

136.4 Understaffing A review of the entity’s organizational structure revealed that out of the approved 560 posts, only 225 posts were filled leaving 335 vacant. For instance, Directors of Product Development, Product Systems and Finance and Administration departments, as well as some regional project coordinators, scientists and engineers were not filled. There is a risk that service delivery may be hampered by delays. Staff fatigue and heavy workload may not be ruled out.

Management explained that for the last 2 financial years, UIRI has constantly requested additional funding of 1.2bn from Ministry of Finance Planning and Economic Development specifically for Staff recruitment and retention, especially of high caliber scientists and engineers and is still awaiting response.

I advised THE Accounting Officer to continue following up the matter with MoPFED and have the critical positions filled.

136.5 Lack of an Approved Internal Audit Charter Best practice requires Internal Audit to have an approved charter to guide its functions and operations. The internal audit charter provides for an independent and objective assurance function aimed at improving and adding value to the authority. The charter also outlines the responsibility for risk management which involves identifying key areas and ensuring that the process for risk that the activities undertaken may not be priority to the organisation.

The internal audit function has therefore been operating without a guiding document. Lack of internal audit charter poses the risk on the functionality of Internal Audit Department.

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Management explained that the delay to approve the draft Internal Audit Charter was because of lack of a Board. Management promised to fast track the renewal and approval process of the charter.

I advised the Accounting Officer to follow up the matter with the Board and have the charter in place.

136.6 Unimplemented Procurements It was noted that UIRI had budgeted to receive a sum of UGX.14,946,552,724 from treasury and a sum of UGX.15,949,383,660 was received. Procurements worth UGX.3,843,526,574 were however not implemented during the year. Despite full financing, core procurements related to construction of juice processing facility for Itojo fruit growers (UGx.718,225,307), construction of fruit wine processing plant at Maziba (UGX.621,219,806) and supply of extractors and associated accessories for juice project (UGX.447,731,200) were not procured as had been planned. Failure to implement procurements as planned implies that the entity may not have achieved its objectives.

Management explained that the procurement process was initiated to the point of contract placements and implementation deferred to 2015-16 financial year.

The Accounting Officer’s implementation of the matter is awaited.

137. UGANDA EXPORT PROMOTION BOARD – YEAR ENDED 31ST DECEMBER 2014

137.1 Non remittance of statutory deductions Included in the statement of financial position are payables amounting to UGX.526,541,945. Details of which are indicated in the table below. It was observed that the PAYE and NSSF arrears have been outstanding since 2013 financial year. The delay in settlement of the URA dues attracted interest penalty of UGX.118,840,995.

Particulars December 2014 December 2013 (UGX) (UGX) PAYE Arrears 184,476,210 184,476,210 NSSF Outstanding 342,065,735 342,065,735 Interest on Penalties by URA 118,840,995 Total 526,541,945 645,382,940

Management explained that it is following up the matter with the responsible Ministry in order to obtain funds to settle the statutory obligations and outstanding interest. 649

I await the Accounting Officer’s action on the matter.

137.2 Un-Supported Payables Included in the outstanding payables of UGX.471,822,575 is UGX.75,703,033 that lacked supporting schedules and invoices. I was unable to confirm the nature of the creditors and how they arose. The recorded balance may be inaccurate.

I advised the Accounting Officer to ensure that the accounts are supported by the relevant schedules for future use.

137.3 Fleet of Motor Vehicles The entity has a fleet of five (5) vehicles. Physical inspection revealed that some of the vehicles have moved a considerable distance above 250,000 Km mileage and are due for replacement. The financial statements indeed put these vehicles at a zero book value implying they have exceeded their useful life. Because of the age of these vehicles, maintenance costs increased by 91.76% from UGX.66,859,330 in the previous year to UGX.128,212,318 in the year of audit. This table shows mileage for each of the vehicles as at 08/07/2015;

MAKE NUMBER PLATE MILLEAGE (KM) Toyota Land Cruiser UG 0035 T 463,072 Toyota Hilux UAA 555 E 366,796 Toyota Land Cruiser UAA 286 F 289,019 Toyota Hilux UAJ 406 X 198,743 Toyota Premio UAA 262 F 193,545

Management explained that Ministry of Finance, Planning and Economic Development has promised to increase budget allocations to cater for brand new vehicles. Once the vehicles are procured, UEPB will initiate the process of boarding off of old vehicles.

I await the Accounting Officer’s action on the matter.

137.4 Dormant Bank Accounts Two commercial bank accounts had nil balances for the past two years and these accounts have been dormant since 2012. It was observed that these accounts have never been closed as the certificates of closure were not provided for audit verification. Details are indicated below;

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Account Bank Name Audit Remarks 0140007167301 Stanbic –Bank Uganda Limited City This Account has been dormant Branch since 2012. 0341185300 Barclays Bank Uganda Limited This Account has been dormant Kampala Road Branch since 2012.

In the absence of certificates of bank account closure, I was unable to confirm the status of the two bank accounts. There is a risk that the accounts are still open and may be used to make fraudulent transactions.

I advised the Accounting Officer to follow up the matter to its logical conclusion.

138. UGANDA PROPERTY HOLDINGS LIMITED FOR THE FINANCIAL YEAR ENDED 30TH JUNE, 2015

138.1 Long outstanding receivables It was observed that long outstanding receivables increased from UGX.6,295,994,435 to UGX.6,870,971,287 during the year under review. Included in the total outstanding balance is a sum of UGX.5,001,688,119 brought forward from the previous year prominent of which is UGX.4,741,740,000 owed by Government of Uganda arising from UPHL undertaking renovation of Bugolobi Tri Star factory on behalf of Government, UGX.230,000,000 owed by J.Z holdings and UGX.204,000,000 owed by Dr. Mashate arising out of a court award all of which have never been recovered. There is a risk that these receivables may become bad debts resulting into a loss of revenue to Government.

Management explained that efforts have been undertaken to ensure that the receivables are collected as per the debtors’ management policy but with some challenges such as going to court to have the money recovered. As for the Government debt, efforts have been made to recover the money from Ministry of Finance, Planning and Economic Development without success. UPHL will continue demanding the money from Government.

I advised management to continue demanding the funds and have the debts realized in line with the debt management policy.

138.2 Un-Realized Procurement Plan A review of the procurement plan revealed that the entity planned to procure goods and services totaling UGX. 8,675,500,000. However, out of the planned activities, only activities worth UGX.1,085,800,000 were undertaken representing only 13% performance. The bulk of the funds were meant for construction of an office block at Bugolobi worth

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UGX.7,000,000,000. Failure to undertake planned activities implies that the entity objectives were not be achieved. The table below refers;

Subject of Estimated cost Contract Targeted date procurement (UGX) signing date Office Generator 15,000,000 1//10/2014 22/10/2014 Repairs of Sewerage, 6,200,000 N/A Works to be completed Within Gate & Compound at the month of November 2014 plot 1776 Nyali Repairs of electric 10,500,000 28/11/2014 18/12/2014 meters & Sewerage System at plot 9695/12 Changamwe General repairs at plot 6,000,000 N/A Works to be completed Within 1/505 Nyali the month of December 2014 General repairs at plot X 6,000,000 N/A Works to be completed Within 349 Tudor the month of December 2014 Construction of Wall 30,000,000 28/11/2014 18/12/2014 fence at Nalukolongo WFP Warehouses Repairs of roof and 9,000,000 N/A Works to be completed Within toilet at plot 1/240 the month of January 2015 Shimanzi Construction of 70,000,000 05/06/2015 29/06/2015 Perimeter Wall fence at Tororo Warehouse (WFP) Repairs of leakages and 15,000,000 05/06/2015 29/06/2015 water system at plot 1/560 Nyali Washing of external wall 30,000,000 05/06/2015 29/06/2015 at Farmers House, Plot 6/8 Parliament avenue Drilling of Borehole & 12,000,000 05/06/2015 29/06/2015 Toilets at plot 9695/14/6M Changamwe Property valuation in 50,000,000 05/06/2015 29/06/2015 both Kampala & Mombasa Construction of an office 7,000,000,000 23/03/2015 To be completed in two years block at Bugolobi Reroofing of warehouse 200,000,000 17/10/2014 17/11/2014 at plot 1/293 Shimanzi Training 30,000,000 Workshops 20,000,000 Recruitments 10,000,000 Compound maintenance 25,000,000 09/02/2014 29/9/2014 Renovation of 45,000,000 28/12/2014 30/01/2015 warehouse at plot 1/357 Shimanzi Total 7,589,700,000

Management explained that the procurement was for building the office block at Bugolobi, could not been undertaken due to delay in approval of plans by KCCA. 652

I advised the Accounting Officer to always set plans that are realistic and achievable during the year.

139. UGANDA NATIONAL BUREAU OF STANDARDS –YEAR ENDED 30TH JUNE 2015

139.1 Mischarge of expenditure During the year, the entity charged UGX.599,569,111 to inappropriate expenditure codes on budget lines to fund activities that were not planned resulting into a mischarge. I explained to management that mischarge of expenditure undermines the budgeting process and the intentions of the appropriating authority as funds are not fully utilised for the intended purposes. Further, this could lead to financial misreporting.

Management explained that the entity had domestic arrears brought forward from previous years and the Ministry of Finance, Planning and Economic Development advised management to prioritize within available resources resulting into mischarges.

I advised the Accounting Officer to streamline the budget process to ensure that sufficient funds are allocated to each account. Authority should always be sought before any reallocations are made.

139.2 Accounts payable The Bureau had total payables of UGX.1,113,468,063 at the yearend (statement of financial position page -2 and Note -10 refers) which includes statutory obligations for URA tax arrears of (UGX.272,795,306) and NSSF outstanding dues of (UGX.66,774,578). The statutory obligations have been outstanding for over three years. The entity risks litigation by the statutory authorities and are likely to attract additional fines and penalties.

Management explained that these amounts involved were accumulated penalties and interests due to noncompliance with tax laws and NSSF Act in the period 2009 -2010 when UNBS was still a subvention and receiving only net salaries but will be budgeted and settled in 2015/16.

I advised the Accounting Officer to comply with statutory laws and regulations by settling the obligations to avoid unnecessary penalties.

139.3 Non-Disclosure of Contingent Liability

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Section 2.5.18(ix) of the Financial Reporting Guide, 2008 requires MDAs to provide in a memorandum statement a list of all pending courts in a statement of contingent quantifiable liabilities which are likely to result in obligations of government.

A review of an arbitration agreement between a Vehicle Inspection Company and Uganda National Bureau of Standards (UNBS) revealed that the two parties went for arbitration on a matter in dispute and UNBS lost the arbitration and the following awards made;

 Special damages for loss of income in the sum of $574,197.79 or Y53,951,625  General damages in the sum of $30,000.  Re-imbursement of UGX.79,084,012 being the respondents share of the costs of arbitration  Half of the claimant’s costs of the arbitration to be agreed between the parties within 30 days from the date hereof failing which to be taxed by the Tribunal as an additional award within a further 15 days therefrom.

However, it was observed that there was no provision made for contingent liabilities in the financial statements contrary to provisions of IAS 37 despite the fact that the liability was likely to crystalize.

Management explained that negotiations were still ongoing between the two parties to revisit the amount awarded so that appropriate provisions would be made in the financial statements.

I await the appropriate disclosures of the contingent liability by management.

139.4 Implementation of UNBS mandate UNBS is mandated to advance standards and allied quality and safety aspects to all sectors of the economy through formulation, promotion and enforcement of national standards to enhance competitiveness of products, promote fair trade and protect consumers. Accordingly, a National Standards and Quality Policy (NSQP) was developed in order to address its mandate. Despite SMEs comprising over 80% of the industry, the Bureau is not able to provide adequate support towards certification of their products to enable them export to international markets and earn foreign exchange for the country. The Bureau is currently not able to effectively enforce its mandate of standards development, promotion and enforcement due to the following;

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139.5 Lack of core staff The Bureau also lacks core staff to man all the gazetted entry points in the country, besides undertaking regular inspections of all local factory outlets and products on the market to enforce compliance to standards. Although the current establishment provides for 480 staff, only 240 can be supported by the budget.

For example, Uganda Revenue Authority which works closely with UNBS is able to deploy its staff in all the 54 entry points in the Country, yet the Bureau can only deploy limited staff in 18 of them. This leaves the rest of the entry points where UNBS is absent exposed to trafficking of substandard products into the country.

140. UGANDA TOURISM BOARD – YEAR ENDED – 30TH JUNE 2015

140.1 Un-supported expenditure

It was noted that management expended UGX 231,647,412 on purchase of various goods and services without relevant supporting documents contrary to Section 181 of the Treasury Accounting Instructions, 2003 which requires all vouchers to contain full particulars of each service or goods and be accompanied by such supporting documents as may be required so as to enable them to be checked without reference to any other documents. It was further noted that UGX.18,117,600 purportedly incurred on procurement of vehicles lacked necessary supporting documents. Unsupported expenditure is prone to misappropriation or abuse. Though management indicated that the supporting documentation was available, it was not presented for audit verification. I advised management to ensure that all its expenditure is supported by relevant documents as required by the Treasury Accounting Instructions.

140.2 Mischarge of expenditure

Paragraph 400 (a) of the Treasury Accounting Instructions, 2003 states that “all government transactions shall be recorded in the books of account applying the Government of Uganda chart of Accounts as prescribed by the Accountant General. Accounting officers shall ensure that all financial instructions are properly coded.” Contrary to the above requirement, a sum of UGX 309,819,107 was charged on codes other than those for which funds were appropriated leading to mischarge of expenditure. The practice undermines the intentions of the appropriating authority. Management explained that the Board in some instances had to and utilize budget lines with balances to cover critical payments of items whose budget lines were fully expended. 655

I advised management to always liaise with Ministry of Finance, Planning and Economic Development to ensure that adequate funds are allocated to the budget items.

140.3 Failure to collect Non Tax Revenue

According to the Ministry of Tourism Ministerial Policy Statement for the year 2014/15, the Board budgeted to collect UGX 1,158,000,000 as Non Tax Revenue (NTR).

However, a review of the statement of financial performance revealed that the Board did not collect any Non-Tax Revenue in the year under review. This has the effect of stifling the implementation of planned activities.

Management attributed the short coming to the delay in opening the collection account and the need to resolve the issue of types and collection points for licensing fees regarding Hotels and Tour Companies among others with MOFPED.

I advised management to liase with the relevant stakeholders and put in place adequate arrangements for collection of not Tax Revenue in a timely manner.

140.4 Diversion of funds from the wages and salaries item

Included in the employee costs in the statement of financial performance are wages and salaries amounting to UGX.1,067,292,872.

However, a review of the Board’s pay roll revealed that total salary payments during the year amounted to only UGX.910,712,637 creating variance of UGX.156,580,235. Management explained that the difference of the released funds under the salary budget was used to pay NSSF arrears and gratuity for the current year. Under the circumstances wages and salaries as well as general employee costs reflected in the financial statements were misstated. Besides, the re-allocation of salary funds without proper authority was irregular. I advised management to always budget for the wages and salaries appropriately and whenever there is need for re-allocation, necessary approval should be sought from the Secretary to the Treasury before release of funds.

140.5 Understated Social contributions

Included in the financial statements are social contributions amounting to UGX.116,425,200.

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However, a review of the NSSF payments for the year revealed total remittances amounting to UGX.157,241,389. This implies that social contributions were understated by UGX.40,816,189 in the financial statements. Besides, there were no supporting schedules to confirm the accuracy of the social contributions reflected in the financial statements. Management explained that there was a shortfall in the NSSF budgeted figures which were paid using the balance on the salaries account.

I advised management to always budget for social contributions appropriately and whenever there is need for virement necessary approval should be sought from the Secretary to Treasury before release of the funds.

141. UGANDA WILDLIFE AUTHORITY – YEAR ENDED 30TH JUNE 2015

141.1 Reduction in authority’s revenue performance Management reported total revenue of UGX.42,655,364,000 in the statement of comprehensive income for 2014/15 compared to UGX.56,008,111,000 realized in 2013/14, leading to a decline worth UGX.13,352,747,000; (24%). This ultimately led to the authority posting a deficit of UGX.12.6 billion) as opposed to a surplus of UGX.3.72 billion for 2013/2014. I explained to management that such a decline in revenues affects the entity’s ability to remain self-sustaining and meet its budgetary, current and outstanding obligations when they are due.

Management explained that in the financial year 2014-2015 there was a drop in the number of tourists visiting the Protected Areas from approximately 220,005 to 196,768 visitors (11% decrease) especially due to factors beyond management’s control and negative publicity.

I advised management to work hand in hand with the government to ensure that the effect of negative publicity both on local and international media is addressed to ensure stability in revenue inflows from tourists.

141.2 Accumulation of Revenue share funds Section 69(4) of the Wildlife Act Cap 200 requires the Authority to pay 20% of the park entry fees to the local government of the area surrounding the wildlife protected area from which the fees were collected.

Contrary to the above requirement, management reported accumulated community revenue share funds worth UGX.8,487,405,000 under Note 10.2 to the financial statements

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as trade and other payables. I explained to management that the objectives of revenue sharing as stipulated in the policy document may not be achieved if the funds are not promptly distributed to the beneficiary communities.

Management explained that the Accumulation of revenue share funds in the past had been due to delayed accountability of the funds earlier disbursed and approval of projects to be funded, as stipulated in the revenue share guidelines.

I advised management to put in place interventions, including providing technical support to the communities to ensure their share of revenue is promptly disbursed to them.

141.3 Lack of a Board of Trustees Management reported under corporate information in the financial statements the fact that the tenure for all trustees ended on 27th March 2015. This implies that the authority operated without the board of Trustees up to the closure of the audit year under review. I explained to management that this poses governance challenges, and affects the performance of the entity. Management explained that the mandate to appoint the board lies with the line Ministry. I advised management to engage the line Minister, who is the appointing Authority mandated by the UWA Act, to expedite the appointment of the Board.

142. UGANDA WILDLIFE TRAINING INSTITUTE – YEAR ENDED 30TH JUNE 2015

142.1 Budget performance

A review of revenue collection records and bank statements revealed that UWTI collected only UGX.1,592,420,600 (35%) out of its approved budget of UGX 4,545,153,144 thus creating a shortfall of UGX.2,952,732,544. This was attributed to the failure by the Mother Ministry of Tourism, Wildlife and Antiquities to incorporate the entire Institute’s budget into the main Ministry’s budget for funding.

Due to the above underfunding, the following planned activities were not implemented thus affecting the achievement of the institute’s objectives:

 In-service Training of Tour Guides, Vermin Control Officers and Tourism Police;  Procurement of Camping Gear  Curricula review  Construction of Girls Dormitory and Staff Quarters;  Procurement of three Vehicles

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Management explained that the underfunding was caused by the approval of a lower budget ceiling as subvention and inability of the institute to realise the anticipated funding from other sources.

I advised management to liaise with MoTWA and MoFPED to ensure that the Institute’s budget is adequately funded. I also advised management to improve on its internal revenue generation efforts in order to narrow the funding gap.

142.2 Implementation of UWTI’s Strategic Plan. It was noted that UWTI registered minimal progress towards the achievement of the Institute’s strategic objectives. Core among these objectives was the development of modern training and research infrastructure which was found to be grossly lacking. This was caused by Management’s inability to implement the Institute’s Strategic plan for the period 2011-2015.

Management explained that the implementation of the Institute’s strategic plan was hampered by underfunding of the Institute and an adequate legal framework to govern the institute’s operations.

The failure to develop modern training and research infrastructure as well as attain other strategic objectives limited the institute’s progress towards the realization of its core mandate of providing research, training and consultancy services for the wildlife sector.

I advised the Accounting Officer to liaise with the relevant stake holders and expedite the enactment into law of the Institute’s Bill. I also advised him to step up the internal revenue generation efforts as well as liaise with MoFPED to ensure adequate funding of the Institute’s activities.

143. UGANDA WILDLIFE EDUCATION CENTRE – 30TH JUNE 2015

143.1 Staff Savings Scheme At its 74th meeting on 10th May, 2007 (under resolution 4), the UWEC Board of Trustees resolved to put in place a staff Savings Scheme for all UWEC employees on new contracts. However, citing illegalities in the manner in which the scheme was created and being managed, in 2013 the Board resolved to suspend the scheme pending its formal registration and formulation of guidelines for its proper management.

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It was noted that at the time of audit (August 2015), the scheme was operational without the requisite guidelines and registration. As at 30th June, 2015 staff savings with the scheme amounted to UGX.129,282,728.

Management explained that the Board authorized the resumption of the scheme and that the Staff Savings Association is in the process of procuring a fund manager to manage the scheme in line with the new retirement benefits law. The funds are now under custody on a fixed deposit account.

Without registration and clear laid down guidelines for management of the scheme, there is a risk that the scheme’s funds may be misused or lost.

Management is advised to expedite the process for registration of the scheme and formulate clear guidelines for the management of the scheme.

143.2 Lack of a strategic plan It was noted that UWEC did not have a strategic plan to guide its activities. The previous strategic plan expired in 2013. Lack of a strategic plan implies that the Centre activities are run without proper guidance.

Management explained funding constraints delayed the process of formulating a new Strategic plan through a stakeholder consultative process. However, with support from United Nations Development Program (UNDP), the new UWEC strategic plan covering the period 2015-2020 has been formulated and was under print. I advised management to expeditiously conclude the printing of the strategic plan and to institute a mechanism of periodically monitoring progress in order to facilitate timely remedial action.

143.3 Staffing gaps and use of expired organogram A review of the organization structure revealed that out of an establishment of 67 staff, only 44 positions were filled leaving 23 positions (34%) vacant. It was further noted that management was still using the old organogram to guide its manpower planning and recruitment instead of the revised and approved organogram. The absence or limitation of members at the various levels of the organization affects decision making and stifles the Centre’s operations.

Management explained that the Institute was unable to fill the vacant positions due to lack of funds and an enabling law providing for extra mandates that required extra staff.

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However, with the enactment of UWEC bill, more funding is expected from the government to operationalize the organogram.

I advised management to liaise with the responsible authorities to ensure that vacant posts are filled.

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LANDS AND HOUSING SECTOR

144. NATIONAL HOUSING & CONSTRUCTION COMPANY- YEAR ENDED 31ST DECEMBER 2014

144.1 Mbuya Land Ownership Whereas the company has legal ownership of land in Mbuya, comprised in Freehold Register Volume 66, Folio 12 measuring 16.67 acres, the company does not recognize the land as an asset in its asset register. This implies that the value of the company assets is understated in this regard.

144.2 Kireka Land Included in the reported investments property in the Statement of Financial position is Kireka Land in Freehold register Volume 31 Folio 8, measuring 250 acres and carried at a value of UGX.68.75Bn determined on the basis that NHCCL holds a freehold interest in this land. However, I was not provided with evidence of ownership of freehold interest in this land; instead the company has a title deed stipulating ownership of lease hold interests. In that regard, the basis for the carrying value is not adequately supported

144.3 Unsupported Receivables - UGX.2,111,545,000 As a result of the accounting reversal of an earlier debt-dividend swap, the company now recognizes a debt of UGX.2,111,545,000 due from the Ministry of Defense (UGX.1,921,944,685) and State House (UGX.189,600,000) arising out of accumulated rental arrears. Audit however notes that the existence and value of this debt cannot be verified due to the following:-

 NHCCL does not have rent agreements or contracts with either the Ministry of Defense or Statehouse. In the absence of such agreements, I am unable to authenticate the value of the debt due from both government entities.

 Both the Ministry of Defense and State house do not recognize the liability due to NHCCL of similar amounts in their financial records.

Although NHCCL’s management has taken action to resolve this issue by offering to sell the occupied properties to the respective Ministries, negotiations for the sale are only considering the sale price of the property but not the outstanding rental arrears. I further noted that although the Company has engaged the services of a private lawyer to recover the amounts from Government, by the time of conclusion of this audit, the amount had not been recovered. I have advised management to expedite the negotiations in question and ensure that the issue of unpaid rental dues are also included in the said negotiations.

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144.4 Decrease in Fair Value of Crested Towers Building During the reporting period ended 31st December, 2014, the company carried out repairs on Crested Towers Building worth UGX.597,850,311. However, the subsequent internal revaluation by the Company of the same property resulted in a decrease in its fair value, from UGX.74.0 billion in the previous year to UGX.70 billion with the resultant decrease in value amounting to UGX.4 billion, this despite the enhancements undertaken by the Company. Under the circumstances, there is a risk that the company may not be undertaking adequate maintenance and repairs on the said property, to enable preservation and/or enhancement of its value.

I have accordingly advised management to ensure that appropriate measures are undertaken to avoid further loss in value of the property in question.

144.5 Held for Sale Assets – UGX.3,212,974,000 It is a requirement under IFRS 5 – Non Current Assets held for sale, that for an asset to be classified as held for sale, it must: be available for immediate sale; be actively marketed at its current fair value; and that the sale should be completed within one year.

It was however noted that, held for sale assets of UGX.3,212,974,000 include the Buganda road properties which do not satisfy the requirements under IFRS 5, since they are not available for immediate sale (i.e. within 12 months). This is because they have been classified as held for sale for a continuous period of 5 years without being sold and there is an ongoing court case making them unlikely to be sold within 12 months.

I have advised management to consider reclassifying the said properties in accordance with the requirements of the applicable accounting standard.

144.6 Bank Overdraft with Limited Included in the Bank Overdraft of UGX.3,765,935,000 in the Financial Statements, is an overdraft from Tropical Bank of UGX.2,537,691,000. I noted that this amount was not properly supported with proper documentation, such as a formal agreement with the bank. I also noted that the same amount used to be a long-term loan, but this has now been renegotiated into an overdraft without proper authorization by the Board and any documentation to support the transaction.

I have advised management to ensure that this matter is presented to the board for regularization and that they obtain documentation from the bank to confirm the new terms of the overdraft.

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144.7 Inadequate Disclosure of Contingent Liabilities As disclosed in the Financial Statements under note 30, the Company is faced with a number of court cases in which claimants have brought various suits against it. The company is actively defending itself against these court cases and believes that it has a chance of winning them. The company is also in court as a claimant. The outcome of some court cases cannot be determined at present with certainty.

Although management has made disclosure of the matter in the Financial Statements, the disclosure has not covered a number of other cases such as the ones indicated below;

No. Details 1 Buganda road sitting tenants’ court case 2 Advance payment guarantee against UAP insurance company limited 3 NHCCL versus MKP Builders SDN BHD Limited 4 Kiwana Sitting Tenants against NHCCL 5 court cases – NHCCL indicates that most of the court files for the cases have gone missing 6 Proposed out of court settlements 7 Dr. Banga Hope Alice 4 others vs NHCC – matter still pending 8 NHCC vs Daniel Ssebugwawo – relating to a plot of land in Nalyako Kyadondo; Matter still ongoing 9 Hosea Muyiira Kiwanuka and Another Vs. Aliganyira Ahmed and 17 others, NHCC and Abu Ayun Kasule – relating to ownership of block 221 plot 931 – case still ongoing 10 NHCC vs Sesam Energetics Ltd and 4 others – trespass at Lubya Lugala – Namungoona (150 acres) Where there is reasonable certainty, such as in the case of out of court settlements, NHCCL has not made provisions in the financial statements in accordance with IAS 37 – Provisions, Contingent Liabilities and Contingent assets. In addition, the company has not taken out any insurance against court costs (legal expenses insurance) despite budgeting for this in the year 2014.

I have advised management to always exhaustively disclose pending court cases and also consider securing insurance cover against such costs, as specified in its budget.

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SOCIAL DEVELOPMENT SECTOR

145. NATIONAL LIBRARY OF UGANDA – YEAR ENDED 30TH JUNE 2015

145.1 Book Discard Provision

In my previous report to Parliament, I reported on the accumulated fund balance of UGX.7,447,529,795 reported in the Financial Statements under the Statement of Changes in Equity, that was arrived at after taking into account a provision for book discards amounting to UGX.1,316,753,292. This year, another book discard provision of UGX.2,446,370,829 was made, resulting into an accumulated book discard provision of UGX.3,763,124,121.

I could not establish the reasonableness of this provision because the policy regarding book discard was not stated in the accounting policies of the Library. Management stated that a policy on book discard would be placed before the Board that has now been constituted to enable consistency. I await the outcome of management’s action.

145.2 Payables Note 6 at page 15 shows that the Library is indebted to the tune of UGX.230,886,736 due to the failure to settle contributions to the National Social Security Fund UGX.100,985,880, office rent UGX.67,400,000, gratuity UGX.49,025,013, There is a risk of litigations by the creditors and possible fines and penalties by the tax authority.

I advised the Accounting Officer to plan for settlement of these payables to avoid possible litigations, fines, and penalties.

145.3 Slow incorporation of ICT in the Library operations

Section 4(r, s & t) of the National Library Act, 2003 requires the Library to act as the agency for national and international lending and exchange of library materials; a national agency for national, regional and international information system and creating electronic databases in areas of national interest.

The Library planned to execute the above functions by having a Principal Librarian for Technical Services and an IT specialist in its organization structure. However, audit noted that;

 The position of IT Specialist had not been filled.

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 IT is only used for cataloging books, international Bar coding and limited digitalization of books.

 No ICT strategic plan had been developed to guide the operations and ICT investments.

The absence of a person responsible for articulation of ICT issues at a strategic level is a direct cause of the above.

Management explained that it lacked funds to fill the position of the IT specialist. I advised management to consider recruiting a multi-skilled Librarian to replace the one who resigned so that the available funds can cater for a person who can perform the duties of ICT Officer and Librarian.

146. NATIONAL SOCIAL SECURITY FUND – YEAR ENDED 30TH JUNE 2015

146.1 Board Appointments Section 3 of the NSSF Act (Cap 222) states that the Minister shall appoint a Board of Directors for a period of three years. During the audit, I noted that the term for all board members expired on 1st June 2015 and no board had been appointed until early September 2015.

Concurrent expiry of board terms creates a vacuum that renders the Fund management unable to undertake any activities that require board approval during that period.

Management’s explained that they had informed the Minister of the expiry of the Board three months in advance.

Although I advised the staggering of terms for board members to avoid the expiry at same time, management expressed concern on the practicability since one constituency may feel aggrieved by serving a shorter term than the other.

To reduce the time-lag during transition from one board to another, Management is advised to constantly engage the Minister to ensure timely appointments.

146.2 Loss of opportunities due to Delayed approval of investments Although the Investments Procedures Manual and Policy require all non-fixed income investments to be approved by the Management Investment Committee (MIC), the Investment and Projects Management Committee (IPMC), the Board of Directors (BOD), the Attorney General and the Minister of Finance, I noted instances where delays occur in

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the approval process hence impacting on the performance of the Fund and loss of opportunities. Instances of significant delays are noted below; a) In July 2013, the Fund attempted to purchase 3 million shares in Tanzania Breweries Limited (TBL) at a maximum share price of TZS 4,500 during a period when the company’s financial performance was better than its peers. Although all approvals of the MIC, IPMC and BOD were obtained and a letter sent out to the Minister of Finance, Planning and economic development (MoFPED) on 3rd October 2013 to approve the

purchase, there was no response received until 4 May 2015 (over 11/2 years later). Following the approval, the Fund initiated the purchase of 3.5 million shares in TBL at a maximum price of TZS 15,200. These were subsequently purchased in May 2015 at the trading price of TZS 14,500 per share. As a result of delayed approval and clearance the Fund missed out on capital gains of up to TZS 10,000 per share which translated to UGX.54.9 billion. b) On 5th May 2011, the Board consulted the office of the Ministry of Finance, Planning and Economic Development (MoFPED) to obtain approval for swap of the Fund’s shares in TPS (U) for shares in TPS Eastern Africa Ltd. The Minister required the Fund to conduct a commercial and legal due diligence upon which the results were to be submitted to the Minister.

Subsequent to obtaining legal advice from the Solicitor General to proceed with the share swap on 24th September, 2013, the Fund sought approval from the Minister on 4th October, 2013.

Following the initial request, the board again requested the Minister to make a pronouncement on the matter on 15th September 2014, as no responses had been received earlier. At the time of reporting no response had been received by the Fund. The fund could lose potential investment opportunities due to delayed approvals Besides, with the impending liberalisation of the pension sector, such delays in approval of investments would not ensure the Funds’ competitiveness. Although management stated that this was out of its control I advised them to seek legal advise as to what constitutes consultation and on the basis of such advise identify practical ways of consulting the minister without causing delays.

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147. UGANDA RETIREMENT BENEFITS REGULATORY AUTHORITY (URBRA)

FOR THE YEAR ENDED 30TH JUNE, 2015

147.1 Over Expenditure Treasury Accounting Instructions (TAIs), 2003 Chapter 152 states that expenditure not provided for in the approved estimate of the current financial year may not be incurred without authority of supplementary estimates warrant, reallocation, a virements or contingencies fund advance warrant. A review of the expenditure ledgers together with the approved budget for the year under review revealed that there was over expenditure on five (5) expenditure items totaling UGX.639,456,848. This constituted 11.2% of total expenditure of the Authority. In absence of the authority to reallocate, this expenditure is irregular. This practice also undermines the importance of the budgeting process and leads to misreporting.

Management explained that critical activities that were denominated in US dollars went up due to the change in the exchange rate. The change in exchange rate caused a deficit which necessitated virement.

I advised the Accounting Officer to always seek authority before spending above the approved budget.

147.2 Delays in the passing of Retirement Benefits Sector Liberalization (RBSL) bill The Retirement Benefits Sector Liberalization bill 2011 is aimed at liberalizing the retirement benefits sector by providing for fair competition for mandatory contributions among licensed retirement benefits schemes in both the informal and formal sector, ensuring portability and transfer of retirement savings to a licensed retirement benefit scheme of the employee’s choice and ensuring that all retirement benefits schemes are fiscally sustainable.

It was however noted that the retirement benefits sector Liberalization bill had not been passed since 2011 despite efforts by management to sensitize and dialogue with all stakeholders including Members of Parliament (MPs) on the clauses within

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the Bill. Due to delays in the passing of the retirement sector liberalization bill, the Authority may not achieve its intended objectives aimed at promoting long term capital development.

Management explained that the Bill has not yet been passed by Parliament. So far, management has and will continue to liaise with the Ministry of Ministry of Finance, Planning and Economic Development who is spearheading the process.

I advised the Accounting Officer to continue liaising with the relevant stakeholders with the view of having the retirement benefits sector liberalization bill passed.

147.3 Staffing Gaps A review of URBRA’s organization structure revealed that out of the approved 56 posts, only 23 are filled leaving 33 posts vacant representing 59% staffing gap. Of concern were the critical positions of Director Legal Services/Company Scretary, Director Research and Sector Development, Director Supervision and Compliance and Director Communication and Public Affairs that have remained vacant. It was also observed that some staff were in acting positions and these include the Managers of Human Resources and Admiistration, Legal Services and Senior Accountant. Lack of adequate staff coupled with the workload on the existing few staff may negatively impact on service delivery and achievement of the targeted outputs.

Management explained that the Authority embarked on a process of recruiting staff in January 2014. Advertisements were run both in the print media and on the Authority but the authority was unable to go ahead to recruit because the approved budget could not afford the anticipated recruitments. In view of the budget deficit, the Board prudently resolved to recruit a phased approach. Following the Board resolution, Management expects to fill the positions of Director Legal Services, Director Supervision and Compliance, Manager ICT and Senior Internal Auditor.

I advised the Accounting Officer to expedite the recruitment process to enable proper implementation of its mandate.

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148. NATIONAL YOUTH COUNCIL – YEAR ENDED 30TH JUNE 2015

148.1 Cash Payments

Guideline 14.3 of the National youth Council Financial Guidelines 2002 requires all payments as far as possible to be made by crossed cheque. However, examination of payment records revealed that UGX.700,802,650 out of the total expenditure of UGX.986,159,027 was expended using cash payments. Though the funds were accounted for, I explained to management that since cash payments are prone to abuse and there is only one staff in the Accounts department there is a risk of misappropriation of Council funds.

Management explained that the cash payments were due to the nature of the Council activities of inviting participants in meetings, workshops, trainings, monitoring and evaluation that require refund of perdiems, transport and allowances. Most of the key stakeholders and those who attend these meetings do not have bank accounts.

I advised Management to sensitize all Council stakeholders about the Council requirements to effect payments using cheques and request them to open bank accounts.

148.2 Expenditure not properly supported

Review of the Expenditure records indicated that a total of UGX.66,489,000 paid to the National Executive Committee members during the year under review for purposes of monitoring and evaluation activities was not accompanied by supporting documents. In absence of the supporting documentation, I could not confirm that the funds were spent on Council activities.

Management explained that payment was in respect of monthly monitoring and evaluation allowances approved by the Council, but accountability reports were not availed by the beneficiaries before their term of office expired.

I informed management that payment of monthly monitoring allowance was irregular and that they should follow up the beneficiaries to account for the funds.

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149. UGANDA NATIONAL CULTURAL CENTRE – YEAR ENDED 30TH JUNE 2015

149.1 Accumulation of Payables

The Statement of Financial Position shows that that payables increased from UGX.488,992,774 to UGX.976,911,224. Included in the payables were statutory deductions such as; (VAT (UGX.200,789,713), PAYE (UGX.147,861,102), Staff Gratuity (UGX.323,768,253) and KCCA-Property Rates (UGX.37,372,834) which may attract penalties and fines.

Management stated that most of the payables relate to previous years and agreements had been signed with URA, NSSF and KCCA to settle the liabilities due to them in instalments.

I advised management to prioritise settlement of liabilities to save the Centre from suffering late payment penalties and fines.

149.2 Accumulation of Rent from Nomo Gallery

The centre continues to accumulate un collected rent arrears from creations Ltd with respect to land and properties described as Nomo Gallery Located on plot 4 Victoria Avenue Nakasero. It was noted that the private firm occupies an area of 162.01 square meters valued at a rate of 50,000 per square meter which translates into UGX.8,100,500 per month in accordance with the chief government valuer’s estimate. The rent arrears date as far back as January 1997 and had accumulated to UGX.1,620,100,000 by October 2013, according to UNCC management.

Efforts to collect the rent arrears have been unsuccessful. The Accounting Officer stated that demand notes issued to the tenant have been fruitless so far.

I advised management to involve all the relevant stakeholders such as the Ministry of Gender, Labour and Social Development together with the Ministry responsible for Finance and ensure regularization of the rental payments and the tenancy.

149.3 Under-collection of revenue Out of the budgeted NTR of UGX.2,180,828,000, the Centre collected only UGX.1,762,527,427 resulting into a shortfall of UGX.418,300,573. Under-collection of revenue constrains implementation of planned activities.

Management attributed the under-collection of revenue to failure to receive the anticipated donor funding.

I advised management to always ensure realistic budgeting.

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AGRICULTURE SECTOR

150. COORDINATING OFFICE FOR CONTROL OF TRYPANOSOMIASIS IN UGANDA- YEAR ENDED 30TH JUNE 2015

150.1 Staffing Gaps

A review of the human resource establishment revealed that the structure provides for 24 staff. However, the current staffing level stands at 15 staff which reflects a staffing gap of nine (9). The key vacant positions included that of Programme Officer Finance and Administration, Data Manager, Economist, Field Assistants and Field Attendants. Vacant posts could lead to performance gaps and inadequate service delivery. There is a risk that the current staff numbers may not achieve the desired output targets. In response, the Accounting Officer explained that it could not recruit more staff due to limited funding appropriated and released to COCTU from Treasury.

I advised the Accounting Officer to take up the issue with the Council and the responsible Ministry with a view to recruiting key staff to enhance performance.

151. DAIRY DEVELOPMENT AUTHORITY FOR THE PERIOD ENDED

31ST DECEMBER 2014

151.1 Mischarge of expenditure-UGX.37,456,864 Parliament appropriates funds through the budget to fund particular activities and outputs using account and MTEF codes. However, I noted that expenditure totalling to UGX.37,456,864 was charged on wrong budget lines without authority for the virement. Mischarge of expenditure undermines the importance of budgeting and leads to financial misreporting.

In response, management explained that funds are allocated to priority areas at the planning time. However, some budget cuts by the Ministry of Finance, Planning and Economic Development (MoFPED) directly affect activities that must always be undertaken.

I advised management to allocate sufficient funds to each budgeted line according to priorities, and seek authority prior to undertaking any reallocations.

151.2 Lack of land titles During the audit, I noted that DDA owns 42 Milk Collection Centers (MCCs) throughout the country but all the properties do not have land titles. I explained to

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management that lack of land titles exposes entity land to risk of ownership wrangles and possible encroachment.

Management explained that applications for renewal of titles to various district/municipal authorities have been made though most of the local authorities do not have constituted District Land Boards (DLB) which have affected progress.

I advised management to follow up the matter closely so as to secure the land titles for all the properties.

151.3 Outstanding Receivables

It was noted that the position of outstanding receivables of UGX.111,086,000 has not improved since the previous year’s audit. Such funds locked up in debtors cannot be used to implement the Authority’s activities.

In response, management attributed this to an outstanding amount of UGX.93,600,000 to a company that has remained unsettled. However, the case was before the Courts of Law.

I advised management to follow up the court case and have the outstanding debt resolved.

151.4 Delayed Completion of Works

Three local construction companies were contracted to carry out renovation works (fencing, Plumbing and painting and roofing works) of the Dairy Training School in Entebbe at a cost of UGX.739,411,100. As at the time of reporting, the firms had been paid UGX.454,707,251 representing 62% of the contract amount. The expected completion date was 30th May 2015 which had expired. I noted that the contractors were behind schedule and this could lead to extra administrative costs on the contract.

In response, the Accounting Officer attributed the delay to absence of the Board of Directors and delayed resolving of a new signatory to the bank account. This subsequently delayed the payment of approved certificates.

I advised the Accounting Officer to follow up with the construction to ensure that the project is completed expeditiously.

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151.5 Lack of Board of Directors

Section 6 of the Diary Industry Act, 2000 provides for the composition of the Board of Directors to provide strategic direction of the Authority. However, the Authority operated without the Board after the expiry of the previous Board in October 2013. This implied that functions of the board as stipulated in Section 8 were not carried out during the year. I explained to management that operating without the Board affects the strategic decisions of the Authority.

In response, the Accounting Officer explained that a Cabinet memo was originated in April 2014 in respect of the appointment of the Board of Directors to the appointing authority and is waiting for the response.

I await the action of the appointing authority.

151.6 Under Collection of budgeted Revenue During the audit, I noted that the Authority budgeted to collect UGX.510,000,000 from various revenue sources but only UGX.310,454,356 was collected leaving UGX.199,545,644 (representing 39%). I explained to management that failure to collect budgeted funds may lead to failure to implement activities.

In response, management explained that the Authority faced challenges in the collection of levy accelerated by the raw milk traders that have protested selective application of the law given that CESS was abolished for processors. Management further indicated that there has been a policy shift prohibiting vending of loose milk in the city and municipalities which will further reduce the NTR collected.

I advised management to explore ways of improving on the revenue collection so as to facilitate execution of the Authority’s planned activities.

151.7 Non Accreditation of DDA Dairy Laboratory

The Dairy Analytical Laboratory plays a great role of Quality Assurance and Regulation within the Dairy Sector which is the major role of DDA. It ensures quality for milk and milk products by carrying out laboratory testing and analysis during market surveillance and monitoring. I noted that the laboratory is not yet accredited and hence, Ugandan dairy products may not compete favourably on the International market.

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In response, management explained that accreditation is a process and that DDA had already completed some of the phases. Further, management explained that Ugandan products are always accompanied by the certificate of analysis issued and signed by qualified Laboratory Technicians.

I advised management to expedite the accreditation process of having the facility accredited.

152. COTTON DEVELOPMENT ORGANISATION FOR THE YEAR ENDED 31ST OCTOBER, 2014

152.1 Delayed Contract - construction of Pader Seed dressing plant

Construction of the cotton seed processing plant at Pader was awarded to the 1st evaluated bidder at a contract sum of Shs.12,441,831,000 which was reduced in to Shs.8,835,206,880 as a result of scope reduction. However, I noted that the contractor failed to secure a performance security (10%) and an advance payment bond (20%) within the stipulated 28 days from the award date prompting the contracts committee to cancel the award letter on the 28th April, 2014.

The 2nd best evaluated bidder was then awarded the contract on the 6th May 2014 at a contract sum of Shs.13,179,422,997 but the contractor agreed to a reduction in scope of works to fit in the available budget of Shs.11,130,218,624. The contractor possessed the site on the 7th July 2014 for a contract period of 12 months, and the completion date was set for 7th July 2015. However, by the end of December 2014, the contractor had failed to come up with a qualified engineer as a contract manager resulting in breach of contract. On the 8th January 2015, the contract was terminated and the employer (CDO) immediately repossessed the site which was at the foundation level as reflected in the picture below;

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From the review of the contract performance, the following issues arise;

 The contractor was given an advance payment of Shs.2,226,043,725 as per the receipt dated 18th June 2014. I noted that there was no valuation of works carried out to quantify the works so far done in lieu of the advance already paid to establish if there was need for a refund.  I noted that management did not carry out due diligence on the contractor to establish the level of competence and experience.  I noted that there will be increased costs for security of the site and the machinery, equipment and materials because of the delays;

In view of the above, there is a risk that the budgeted funds for the project will not cover the remaining works. Besides, the failed contracts have resulted into the entity losing out on the services of the dressing station and could accelerate more challenges in getting a new contractor.

The Accounting Officer explained that the valuation of works was on-going and that the entity had written to PPDA for suspension of the contractor and the organisation was in the process of securing services of another contractor. Furthermore, management indicated that the performance bond of Shs.1,113,021,862 was retained by CDO while the advance payment was covered by an advance payment guarantee issued by Standard Chartered Bank.

I advised the Accounting Officer to expedite the necessary actions in consultation with the Solicitor General to avoid loss and also ensure that the project is completed.

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152.2 Key vacant positions in Procurement and Internal Audit

During the review, I noted that some key positions of the Assistant procurement officer and an Audit Assistant in the Procurement and Internal audit Units respectively remained vacant during the year. I explained to management that lack of such essential staff may negatively impact on the Organisation’s performance and service delivery.

Management explained that due to the fall in cotton production that affected its Non Tax Revenue (NTR); CDO has been operating under deficits for three (3) consecutive years thus it was not possible to recruit new staff since sustainability of their salaries would be uncertain. It was however indicated that recruitment would be done as soon as the financial position of the organisation improves.

I advised management to liaise with the stakeholders and ensure that the vacant positions are filled.

152.3 Uncompleted activities

During the review of budget performance, I noted that some planned activities were not undertaken during the year as indicated in the table below:

Output Approved Actual Performanc Management Response budget & performance e Gap. planned output 015201 Provision of cotton In 52 districts I district not Seed is supplied basing on demand. Cotton planting seeds; 2,106mt of fuzzy covered. One district was not served seed Develop budgeted cotton seed were 2,194 mt not because farmers did not register for ment 0.300bns, no of produced out of produced. cotton production. The demand for districts 53 4,300 Mt and planting seed and seed distribution 4,300 mt cotton in shs0.238bn was were affected by drought in July areas of the east. released and early August 2013 which Indicating 79.4% prevented farmers from planting. Activities were mainly funded by ginners. 015202 Organised seed 9,000 out of the 4,000 acres Drought during July and early Seed growers to planned 13,000 not planted August 2013 prevented seed Multiplica establish about acres were planted by seed growers from planting. Competition tion 13,000 acres of by seed growers growers. for land and labour with food crops seed crops in 5 and 2,000 Mt out of also contributed to less acreage seed multiplication the planned 4,400 being planted to cotton. areas and Mt of certified seed expected to produced. So far produce 4,400 Mt shs0.837bn was of certified seed spent representing shs0.941bn 88.9%

I explained to management that failure to undertake planned activities implies that the objectives of the organisation both in the short term and long run may not be achieved and

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I advised management to strengthen monitoring and supervision for improved cotton production.

153. NATIONAL ANIMAL GENETIC CENTRE & DATA BANK- YEAR ENDED 30TH JUNE 2015

153.1 Mischarge of Expenditure Parliament of appropriates funds in accordance with the needs of the country and this appropriation is implemented through the budget in which funds are tagged to particular activities and outputs using account codes. Contrary to the above, expenditure totalling to UGX.57,390,000 was inappropriately charged on budget lines to fund activities that were not planned for without authority. I explained to management that mischarge of expenditure translates into misrepresentation of expenditure balances in the financial statements.

Management explained that a finance committee has been established to review the matter and curb mischarging. I advised the Accounting Officer to ensure that sufficient funds are allocated to significant account areas and should there be need for reallocation, authority for the virement should be sought prior to making any reallocations are made.

153.2 Out-standing Staff Gratuity I noted that UGX.924,492,484 remained outstanding in staff gratuity at the end of the financial year. The figure increased by 8% from UGX.854,492,484 of the previous financial year. I explained to management that accumulation of staff gratuity demoralises staff and may lead to low organisational performance.

In response, the Accounting Officer explained that the matter was forwarded to Ministry of Finance, Planning and Economic Development (MoFPED) for funding.

I await the outcome of the Accounting Officer’s action.

153.3 Decline in Government Releases I noted that releases from government amounted to UGX.3,608,801,076 reflecting a decline of UGX.1,769,889,024 (33%) compared with the previous year’s release of UGX.5,369,690,100. Further, the review showed that the actual expenditure for the previous year was UGX.5,990,499,159 compared to the budgeted expenditure for the current year under review of UGX.4,352,200,451. This reflected a performance decline of

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UGX.1,638,298,708 (27%). I noted that the centre is underfunded and this could stagnate the development of the Institution.

In response, the Accounting Officer explained that the Centre experienced a decline in releases despite their efforts to explain to MOFPED for an increase in capital development.

I advised the Accounting Officer to continue following up the matter with MOFPED for adequate funding for effective implementation of the centre’s mandate.

154. UGANDA SEEDS LIMITED – YEAR ENDED 30TH JUNE 2015

154.1 Non - Revaluation of Property, Plant and Equipment

It was noted that the revaluation of company’s assets was last undertaken in the year 2005 and yet some of the assets are no longer in use and hence impaired. This is in non- compliance with IAS 16 which requires that items of Property, Plant and Equipment have to be revalued with sufficient regularity within a period of 3-5 years in order to ensure that the carrying amount does not differ materially from that which would be determined using the fair value at the Balance Sheet date.

As a consequence, I was unable to confirm the accuracy of the Property, Plant and Equipment disclosed in the financial statements of UGX.3,068,787,177.

Management noted the shortcoming and explained that plans are underway to engage a valuer to undertake the exercise.

I await the Accounting Officer’s effort in this regard.

154.2 Inadequate record keeping by the Lessees a) Nyakatonzi Growers Cooperative Union Ltd I noted that Nyakatonzi Growers Co-operative Union Ltd failed to maintain proper books of account regarding the transactions conducted during the year contrary to Section 8.6 of the lease agreement that requires the lessees to maintain proper books of account relating to their transactions and such record of transactions be kept in accordance with the best accounting practice and standards. I was only provided with the income and expenditure statement for the year ended 30/6/2015 indicating concession fees of UGX.490,000 which I could not rely on without vital records such as seed deliveries to the union, seed sales invoices, concession computation records and tenants registers.

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b) Farm Inputs Care Centre Limited (FICA) On the other hand FICA failed to make regular & reliable financial statements in accordance with the best accounting standards contrary to section 8.9 of the agreement. It was noted that information or records generated provided inconsistent reports. Several reports were not availed for audit i.e. monthly sales reports, sales ledger and general ledger. I relied on the processed seed report generated by the manager at Masindi and the sales invoices which i examined and computed the total Generated sales of UGX.3,108,711,500. This implies a corresponding 2.5% concession fee of UGX.77,717,788. As a result of the above i found it difficult to reconcile with the sales summary report generated at Kawempe Head Office which comprised of block sales of only UGX 1,585,719,126 inclusive of the rental income of UGX.61,769,400 and a corresponding concession fee of UGX.39,642,978.

I advised management to ensure lessees comply to proper maintenance of books of account as required in the lease & concession agreement for accurate and reliable financial statements.

154.3 Non-Compliance with Agreed Terms and Conditions as per the Lease and Concession Agreements Between the Lessor and the Lessees The lease and concession agreements between Uganda Seed Limited (USL) and Nyakatonzi Cooperative Union and Farm Inputs Care Limited provided that the leasee shall be responsible for all bills accruing related to the leasee assets. Further it was anticipated that concession fees from Nyakatonzi Cooperative Union Limited (NCUL) was expected to be at least Shs.7,000,000 for the year under review according to the projection production plan. However, the following were noted;

(i) Nyakatonzi Growers Cooperative Union.  The Ground rent for the leased land at Plot 15 Block 100 in Kasese to Nyakatonzi Co- operative Union Ltd. has not been paid since the assets were leased in year 2005. This contravenes clause 8.1 of the lease agreement. It was not possible to establish what was due at the time of audit as no demand notes were provided for verification.

 For the year under review only UGX.680,000 concession fees were received against an anticipated UGX.7,000,000 as per the projection production plan.

 The Company has never delivered to its expectations of seed production and has paid minimal concession fees to the lessor. Further, it has demonstrated incapacity to generate and supply enough seeds to the famers. This is contrary to the principle

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warrant contained in clause 7.3 and 7.7 that required the Lessee to have requisite power, authority and sufficient funds to execute and deliver the agreement and perform its obligations therein.

(ii) Farm Inputs Care Centre Limited (FICA) FICA LTD has also failed to comply with clause 3.4 which stipulates that upon the execution of the agreement and for the entire term of the agreement the Lessee shall pay an annual fee amounting to 2.5% of the company’s annual gross sales of the Masindi/Kisindi stations.

The cumulative unpaid concession fees as at 30th June, 2015 amounted to UGX.357,199,625. Although the company paid UGX.93,717,426 during the year under review, the outstanding amount is still high and has a significant impact on the operations of USL. Further, FICA ltd has also failed to maintain the leased infrastructure at Kisindi and Masindi stations.

Management explained that it has written a number of letters/memos to the Lessees regarding the above issues particularly to effect payments of ground rent and rates plus concession fees but no positive response has been received. Failure to comply may force management to apply section 14.1 of the lease agreement.

I advised the Accounting Officer to enter a negotiation arrangement with the lessees and have the matters resolved amicably.

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WATER AND ENVIRONMENT

155. NATIONAL ENVIRONMENT MANAGEMENT AUTHORITY – YEAR ENDED 30TH JUNE 2014

155.1 Outstanding Environmental Fees Debtors Para.5.5.9 of the Financial and Accounting Regulations Manual for NEMA requires receivables outstanding for more than 30 days to be subjected to debt recovery procedures.

However, review of note 2 of the Financial Statements revealed that an amount totaling to UGX.9,247,177,581 remained un-collected from the Authority debtors of which UGX.3,404,703,830 relates to previous years and there was no evidence that recovery procedures had been initiated.

Notable among the major debtors are Government entities namely; Ministry of Works and Transport; UGX.1,291,722,860, Uganda National Roads Authority; UGX.902,851,680, Ministry of Energy and Mineral Development; UGX.3,322,317,764, National Social Security Fund UGX.531,000,000, Civil Aviation Authority; UGX.521,194,000 and Kampala Capital City Authority; UGX.73,006,650.

Failure to collect debts constrains the liquidity of the Authority and affects implementation of planned activities.

Management stated that the Authority had recruited an officer with a specific assignment to follow up debts. Management further explained that a Memorandum of Understanding (MOU) had been signed with the respective Government entities to settle the debts.

I await results of management action in this regard. 155.2 Budget Preparation, Monitoring and Budget Commitments a) Un Authorized utilization of NTR Out of an amount of UGX.10,426,868,145 collected as Non Tax Revenue (NTR) from the National Environmental Fund (NEF), the Authority spent UGX.5,432,403,421 without approval from the Ministry of Finance Planning and Economic Development (MoFPED) contrary to the Public Finance Management Act, 2015 (PFMA).

b) Unbudgeted donor funds Audit noted that a total amount of UGX.3,385,815,000 received from donor funding was not appropriated by the Board contrary to Para.13.2 (i) of The Financial and Accounting

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Regulations Manual for NEMA, (FARM) 2003, which requires NEMA to prepare a consolidated budget for Board approval.

c) Budget Performance It was noted that although the Authority had an appropriation of UGX. 9,247,888,000 (GOU) for the year under review, a total of UGX.8,111,428,200 was received resulting into a shortfall of UGX.1,136,459,800, representing about 12.3% of the budget.

I explained to management that failure to obtain appropriation Authority from MoFPED and approval of donor funds from the board undermines budgetary controls. In addition, revenue shortfalls hinder implementation of planned activities.

Management pledged to put in place mechanisms to always include development partners’ funds within the consolidated budget effective from the FY 2015/16, and further explained that the shortfall in Central Government grants was due to inadequate 4th Quarter cash limits issued by the MoFPED.

I advised the Accounting Officer to:  always obtain approval from MoFPED before NTR funds are utilized.  Ensure all revenues are disclosed and subsequently approved by the board.  liaise with MoFPED to ensure that budgeted funds are released to the Authority to enable full implementation of planned activities.

156. NATIONAL FORESTRY AUTHORITY – YEAR ENDED 30TH JUNE 2015

156.1 Non Valuation of the Authority Land

(i) Paragraph 7 of the International Accounting Standards (IAS )16 requires an asset to be recognized if it is probable that the future economic benefits associated with the item will flow to the entity and the cost of the item can be measured reliably.

Review of the Statement of Financial Position revealed that UGX.6,002,748,000 was disclosed as the value of Property, Plant and Equipment; of which UGX.1,949,846,313 relates to the value of buildings owned by the Authority in various locations. However, audit noted that contrary to the requirements of IAS 16 the land on which these buildings were erected was not valued and disclosed separately.

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(ii) IAS 41 requires that biological assets (other than bearer plants) that are physically attached to land be measured as biological assets separate from the land. However, audit noted that the Authority did not disclose the value of the land for the plantation stock valued at UGX.104,303,594,000 in the statement of financial position. Furthermore, it was observed that the Authority did not maintain a detailed register showing the plantation land owned by the authority.

Failure to disclose land occupied by Authority’s buildings and plantations implies that the value of Property, Plant and Equipment disclosed in the financial statements was understated. Management indicated that it is liaising with the different land controlling Authorities and has initiated land acquisition process for the purposes of obtaining certificate of ownership. Management further stated that the Government Valuer shall be engaged in the process.

I advised the Accounting Officer to liaise with Uganda Land Commission on the valuation of the land being occupied by the Authority and make appropriate disclosures in the financial statements.

156.2 Accumulation of Payables Audit noted that payables increased from UGX.7,968,114,000 of the previous year to UGX.10,493,376,000 in the current year. The outstanding payables are equivalent to 81% of the internally generated revenue collections for the year (UGX.12,936,665,000) casting doubt on the Authority’s potential to settle these liabilities.

Included in the outstanding payables are statutory deductions such as PAYE (UGX.547,929,828), WHT (UGX.848,456,499), Gratuity (UGX.1,932,213,819) and NSSF (UGX.11,579,865) which attract penalties. Management attributed the accumulation of payables to inadequate funding.

I advised management to seek the support of the Ministry of Finance, Planning and Economic Development (MoFPED) in settling the long outstanding payables to avoid penalties.

156.3 Outstanding Receivables Out of the receivables amounting to UGX.7,621,138,000 for the previous year, only UGX.407,531,934 (5%) was collected. Audit also noted that receivables increased by UGX.2,882,016,934 resulting into an outstanding sum of UGX.10,095,623,000.

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Included in the receivables are; debtors such as Nile Plywoods Ltd (UGX.1,892,456,000), Ltd (UGX.2,202,929,280), Uganda Electricity Distribution Company (UGX.1,566,097,585), VIRCO Holdings Ltd (UGX.156,000,000), Farm Income Project (UGX.963,085,000), and Withholding tax credits (UGX.94,714,000). Long outstanding debts represent idle assets and may become bad debts, to the detriment of the Authority.

Although management indicated in the previous year that it had contracted debt collectors to enforce recovery of outstanding debts, no tangible results were observed.

I advised management to come out with a debtors’ management policy and enforce it without delay.

156.4 Weaknesses in budgeting and budgetary controls Section 5.1 of National Forestry Authority Financial Management Procedures Manual requires management to develop realistic financial plans to facilitate allocation of resources according to the NFA’s priorities. It further requires management to reflect revenue estimates in its annual budgets that are actually likely to be collected rather than the amounts that could be realized. However, a review of the revenue performance revealed that:

(i) UGX.2,083,472,381 was collected from established revenue sources which had not been budgeted for. This implies that the revenue forecasting is not adequate.

(ii) Only UGX.3,616,057,757 out of UGX.10,794,249,343 was realized from some of the budgeted line items for Range, Plantations and Government Grants resulting into a shortfall of UGX.6,707,877,486. Audit however noted that no corrective action was undertaken by management to enhance revenue collections for these budget items.

(iii) Audit further noted that UGX.11,345,541,331 was collected by ranges and plantations from revenue items initially budgeted at UGX.7,847,114,850 without preparing a supplementary budget. This is also an indicator that the Authority’s revenue potential is not adequately evaluated during the budget formulation process.

The discrepancies are partly attributed to the unrealistic budgeting for these revenue sources and laxity of management to monitor and evaluate budget performance.

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Failure to adequately provide for realistic revenue estimates does not only limit NFA from achieving the planned targets, but also renders the resources used during the entire budgeting process wasteful.

Management indicated that it will carry out a proper evaluation of the budgeting process to ensure that the Authority’s revenue potential is adequately identified during the budget formulation process.

I advised the accounting Officer to institute a realistic and comprehensive budget formulation process.

157. NATIONAL WATER AND SEWERAGE CORPORATION –YEAR ENDED 30TH JUNE 2015

157.1 Failure to Carry out Revaluation of Property, Plant and Equipment

In my prior year audit report, I reported that management of NWSC failed to carry out revaluation of the Corporation’s property, plant and equipment as required by the corporation’s Accounting Policy. The policy provides for a revaluation to be carried out every three years but the last revaluation exercise was done in January 2008. However, this position had not changed as at the time of reporting. I explained to management that in the absence of this information, the Assets figure in the financial statement could be misstated.

Management explained that the Corporation intends to utilize some of the funds under Kampala Lake Victoria Watsan project to carry out a comprehensive asset revaluation exercise. However management is also of the view that since the bulk of their assets are specialised and do not have a ready available market value, the revaluation impact may not be significant. Management will thus review the policy subsequently.

I advised management, meanwhile, to undertake the revaluation exercise expeditiously and in case of any changes in policy, these should be explained and justified in line with the IFRS’. 157.2 Land Ownership Included in the financial statements is UGX.276,674,000 disclosed as value of land acquired/taken over by the Corporation during the year under review. At the time of audit, all the land acquired/ taken over during the financial year did not have certificates of title in the names of the Corporation. I explained to management that the Corporation runs the

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risk of losing the property in the event that encroachments and disputes arise over the land.

In response, management stated that since most of the gazetted 44 towns taken over were mainly from government institutions, there is no risk of loss. The Corporation had, however, initiated the process of acquiring land titles at various designated land authorities and had obtained 25 land titles and 27 lease offers.

I reminded management of the inherent risks associated with government land and advised the accounting officer to ensure that titles are acquired for all property acquired/taken over in order to safeguard the Corporation’s interest and investments on the land.

157.3 Failure to integrate the e-billing system to Iscala accounting system The Corporation uses an electronic system (e-billing system) to produce customer bills. However, in assessing the accuracy, reliability and completeness of amounts in the Iscala accounting system used by the corporation, I noted that the two systems are not integrated and that data is migrated manually to the accounting system.

I explained to management that despite the fact that these figures are verified by both the commercial and accounts staff before updating the Iscala accounting system, manual transactions are inherently prone to errors.

In response, management explained that they are developing the final module in the e- billing system that will interface directly with the Iscala accounting software. I urged management to expedite this process in order to eliminate the manual interventions in the data transfer.

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ACCOUNTABILITY SECTOR

158. BANK OF UGANDA – YEAR ENDED 30TH JUNE 2015

158.1 Delays in conversion of leasehold land into freehold land In the financial year 2008/2009, the bank ceased the amortisation of leasehold land as it had commenced the conversion of the leasehold land into freehold land. However, I noted that as of 30 June 2015, the conversion of the land to freehold had not been completed as indicated in the table below: Leasehold Valuation (UGX) Status Old Building - 37/43 Kampala Rd, Kampala 19,960,000,000 Not Completed Mbarara Res - 25/27 Abdalla Lubwama Rd, 40,000,000 Not Completed Masaka Kampala - 12 Kawalya Kaggwa, Kampala 2,980,000,000 Not Completed Jinja Res. - 4 Kiira Rd, Jinja 357,000,000 Not Completed 41 Kampala Road, Masaka Municipality 153,000,000 Not Completed Mbarara Cc - 2 High Street, Mbarara 2,162,000,000 Not Completed 76 & 78 William Street, Kampala Clinic Building 6,149,999,999 Not Completed Masaka Res. - 26/28 Speke Road, Masaka 185,000,000 Not Completed Fortportal Res. - 12 Njara Rd, Fort Portal 592,000,000 Not Completed Plot 15 & Plot 17 Masaka Cc Laston Hotels Ltd- Bill 8b227 600,000,000 Not Completed New-Plot 13, Johnstone Drive, Mbarara 34,042,553 Not Completed Municipality Plot No.24, Kitgum Road, Gulu Municipality 53,000,000 Not Completed Kololo - 8 Summit View 3,465,000,000 Not Completed Mbale Res. - 2 Jackson Road, Mbale 15,000,000 Not Completed PLOT 2 BUSOGA AVENUE JINJA 2,500,000,000 Not Completed 5A JACKSON ROAD, KABALE, KABALE 68,000,000 Not Completed RESIDENCE-, KABALE NEW BUILDING - 1 SHIMONI ROAD, KAMPALA 7,599,999,999 Not Completed

Management explained that conversion of properties under Kampala District Land Board was affected by the protracted dispute between Kampala Capital City Authority and Kampala District Land Board regarding which entity had the mandate over land and property located within Kampala District. Conversion of the other properties of the Bank including the newly acquired ones is being done in a phased manner.

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I advised the Bank to expedite the conversion process and make a follow up with authorities to ensure that the process is finalised.

159. BANK OF UGANDA PROJECTS

159.1 THE EUROPEAN INVESTMENT BANK/REPUBLIC OF UGANDA APEX PRIVATE ENTERPRISE LOAN SCHEME YEAR ENDED 30th JUNE 2015

Outstanding loan to EIB- Euros 11,097,000 The financing agreements between Government of Uganda and European Investment Bank (EIB) provided for funding equivalent to UGX.218,695,621,571 in Euros, which was duly received through financing various schemes under Apex I, II, III, & IV. The funds were to be repaid by way of interest and principal payments made annually and completed in 2019.

Subsequently BoU disbursed funds to the beneficiaries through Approved Financial Institutions and the funds have since then been fully recovered from these institutions.

As at 30th June 2015 the outstanding payments to EIB amounted to €.11,097,000. However, it was noted that due to adverse shift in the exchange rates since inception of the scheme, and the erosion of the Special Fund that was set up to cater for increase in exchange rate, the Government had an accumulated loss position of €.14,712,480 approximately UGX.54 billion. A further loss of UGX.13.7 billion is expected to arise between now and 2019. The table below refers;

Computation of the projected exchange loss on the Apex Loan

Description APEX I APEX II APEX III APEX IV Total UGX UGX UGX UGX UGX Total amount 19,638,255,391 38,536,040,000 91,801,525,000 68,719,801,180 218,695,621,571 disbursed by EIB Total amount paid 32,959,705,969 61,533,087,255 127,716,363,981 110,942,302,659 333,151,459,864 by GoU Exchange loss (13,321,450,578) (22,997,047,255) (35,914,838,981) (42,222,501,479) (114,455,838,293) FEEF balance 46,775,974,806 converted Net foreign (67,679,863,487) exchange projected loss

Whereas the scheme has had a positive impact on the beneficiary sectors, it has left an enormous burden to the GoU as a result of adverse fluctuations in exchange rates over the years. 689

Management explained that the concerns regarding the accumulated loss have continually been communicated to the MoFPED for purposes of consideration.

I advised management to continue pursuing the matter with MoFPED with a view of clearing the outstanding amounts immediately or seek a waiver to avoid further losses.

159.2 AGRICULTURE CREDIT FACILITY – BoU YEAR ENDED JUNE 2015 (iv) Absence of Guidance in the MoU on early recoveries of loans I observed that there was no guidance provided in the MoU regarding early loan recoveries from final borrowers by PFIs. However BoU provided some guidance in the participating agreement with PFIs as follows: Article III Sec 3.4 states that, ‘In the event of early repayments by the eligible borrower ,the PFI’s will refund the 50% Government to BOU immediately or pay penalty of 15% interest on the 50% Government contribution’

I noted that some borrowers settled their loans earlier than scheduled and as such a sum of UGX.179,705,699 from eight (8) projects alone was not remitted to Bank of Uganda due to this gap. This may in the long run cause constraint to the availability of funds for refinancing.

Management explained that PFIs are always reminded of their obligations whenever there are delays. Following reminders, Stanbic Bank paid off the amounts due to BOU arising from the early retirement of the loans. There has however been a challenge in BOU imposing penalties as provided for in the Participation Agreement signed between BOU and the Participating Financial Institutions because this issue was never provided for in the MoU between GOU and the Participating Financial Institutions. It was therefore difficult to enforce it. The MoU has since been reviewed and management has included a clause on early retirement of loans in the addendum to the MoU.

Management efforts and implementation is awaited.

(v) Handling of Non-Performing Loans Loan amounts totalling UGX.2,221,070,465 were classified as delinquent from nine (9) projects during the year. The following were observed;

Two sections of the MoU provide for the writing off of non-performing loans:

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Section 2.3 (ii) (a) of the MoU states that, “Under the IFRS, the GoU Escrow will provide 1st class security which will limit the profit and loss charge to a maximum of 50% of the outstanding loan amount”.

Section 2.3 (v) of the MoU states that “BoU shall within thirty (30) working days of receipt of the PFIs delinquency report acknowledge the claim and confirm in writing the amount of the GoU Escrow to be charged”.

However, it was noted that Bank of Uganda did not apply the above sections of the MoU to charge GoU escrow as advised by the MoU. I explained to management that charging delinquent loans to Escrow account within 30 days as proposed by the MoU may encourage further delinquencies.

Management explained that following the Solicitor General’s guidance that public funds are governed by the Public Finance Management Act 2015 Sections 34 (1) and Sections 34 (6), where public funds cannot be waived by way of MoU and therefore parliamentary approval to charge Escrow should be sought first, the MoUs are in a process of being reviewed to include the guidelines for write off of delinquent loans. The respective PFIs will continue to recover the funds in default although these are being frustrated by court injunctions imposed on them by the borrowers.

I await management implementation of the MoU review process.

160. CAPITAL MARKETS AUTHORITY – YEAR ENDED 30TH JUNE 2015

160.1 Support for broker dealer deposits It was noted that during the year under review the Authority had no listing to support the broker dealer deposits of UGX.125 million contrary to Capital Markets Regulations 10-12.

There is a risk that in the circumstances where the dealers require a refund or where the authority is obliged to make a refund it would be difficult for the Authority to make a refund or recognize the amounts as income.

Management explained that they have been implementing the regulations except in cases where brokers who paid the dealer deposits long time ago could not be traced. Otherwise they promised to trace the shareholders or authorized representatives of these companies and verify that they are the persons that were previously licensed by the CMA.

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I advised management to ensure that a listing for all broker deposits are maintained as stipulated in the regulations. Management should also make an analysis as to whether the broker/dealer deposits should be refunded to the respective brokers or be recognized as income.

160.2 Investment Strategy for Excess Funds on Account The Authority’s average monthly expenditure as per the 30th June 2015 audited financial statements is equal to or less than UGX.300,000,000 as detailed in the table below. Average monthly expenses as per audited financial statements Staff costs 197,000,000 Administrative costs 53,000,000 Other operating expenses 50,000,000 Total average monthly costs 300,000,000

However, during the period under review, the combined funds on the Bank of Uganda and Stanbic Bank accounts exceeded the monthly amounts as illustrated in the table below.

Month Month end balances per bank Funds that could have been invested Stanbic Bank Bank of Total Excess over 300 Uganda million Jul-14 1,049,063,665 609,521,136 1,658,584,801 1,358,584,801 Aug-14 453,005,238 111,194 453,116,432 153,116,432 Sep-14 245,217,955 111,194 245,329,149 - Oct-14 481,653,354 609,611,194 1,091,264,548 791,264,548 Nov-14 245,571,360 609,611,194 855,182,554 555,182,554 Dec-14 185,155,381 609,611,194 794,766,575 494,766,575 Jan-15 839,227,860 504,455,625 1,343,683,485 1,043,683,485 Feb-15 592,638,902 4,455,628 597,094,530 297,094,530 Mar-15 510,509,692 4,455,628 514,965,320 214,965,320 Apr-15 249,372,381 619,159,907 868,532,288 568,532,288 May-15 780,041,077 50,387 780,091,464 480,091,464 Jun-15 22,111,003 50,387 22,161,390 -

The excess funds not invested cost the Authority interest on any investments that could have been made.

Management explained that there was uncertainty in timing the receipt of funds which made it difficult to adequately plan the monthly liquidity needs. As a measure to maximize the Authority’s potential, an investment policy was put in place in June 2015 to guide the investment strategy and activities of CMA.

I advised management to maintain optimal funds on the bank account to cater for monthly operational costs and any excess funds should be invested to maximize any investment

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potential. Specific investment authorization limits and oversight should be included in the investment policy which should have Board approval.

161. INSURANCE REGULATORY AUTHORITY – YEAR ENDED 30TH JUNE 2015

161.1 Non enforcement of Workers Compensation Act Section 15 of the Insurance Act 2011 empowers the Authority to ensure effective administration, supervision, regulation and control of the business of insurance in Uganda. Section 18 (4) of the Workers Compensation Act CAP225 states that an employer shall provide information regarding insurance effected to meet the requirements of this section when reasonably requested by the Labour Commissioner or any person acting on his or her behalf.

Accordingly, I requested for a list of employers to establish whether there was compliance with the above Insurance Act provisions on accident and Life Insurance and this was not provided. This rendered the insurance provision un-enforced thus limiting the realisation of the mandate of the authority.

Management explained that several meetings have been held with Ministry of Gender, Labour and Social Development to explore mechanism for effective enforcements of the Act.

I await the Accounting Officer’s action.

161.2 Delayed de-registration of Un Licensed Insurance Firms Section 3.3 of the Insurance Act 2011 provides for suspension and revocation of a license in case the specified conditions in the Act are not met. The business is consequently deregistered from the list of insurance players by the registrar of companies after it has been Gazetted.

A review of the Audit Committee minutes revealed that there was a delay in the de- registration of five (5) insurance companies as there was no evidence to show that these firms were published in the gazette before they were deregistered from the insurance business.

Management explained that at the listed companies do not have licences and cannot legally transact insurance business because the authority publishes a list of authorised players at the beginning.

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I urged the Accounting Officer to de- register the companies in accordance with the established law.

161.3 Performance of IRA The Insurance Regulatory Authority (IRA) has developed the operational plan (2014 – 2015) to guide implementation of activities planned over the next twelve months. The key components of the operational plan were derived from the Strategic plan 2012/13 – 2016/17. A review of the status of implementation revealed that some of the planned activities in years 2012/13 & 2013/14 were not achieved as per the table shown below despite the entity collecting revenue in excess of the planned. According to the Authority’s approved budget of the financial year 2014/15, the authority budgeted to collect revenue totalling UGX.7,980,907,845. However, it was noted that by the end of June 2015, a total of UGX.8,892,959,503 had been collected reflecting an over collection of UGX.912,051,658. Non-attainment of planned activities impacts negatively on realization of the strategic objectives. It also affects the authority annual performance.

The Accounting Officer was advised to execute the entity activities in line with the operational plan.

Strategic goal Activities Response

1. Integration of policy -Develop a proposed The process of developing framework for the integrated policy framework an insurance policy for insurance industry. for the insurance industry. Uganda and a model East African insurance region policy is on-going. Two meetings have been held by various stakeholders. 2. Develop and implement Hold stakeholder The process of developing policies to enhance consultations to agree on an insurance policy for insurance depth. the insurance enhancement Uganda and a model East policy proposal African insurance region Hold action meetings with policy is on-going. Two policy leadership. meetings have been held by various stakeholders. IRA has written to Government to take up the insurance policy. 3. Operationalize the Initiate the appointment of At its 210th meeting held on Insurance appeals members and inauguration the 24th June 2015, the tribunal of the Tribunal Board approved the insurance Tribunal regulations. They will be forwarded to the 1st Parliamentary Council. 4. Develop and implement Develop action proposals for IRA has been in a strategy to partner mainstreaming insurance in communication with Ministry with other government relevant government and of labour, gender and social agencies to mainstream civil society service delivery development, Ministry of 694

insurance in their activities and promote a Trade, Ministry of Energy, activities culture of insurance in Uganda Police and other society. institutions to mainstream insurance in their activities. Hold stakeholder seminars to engage stakeholders on the action proposals and agree on forward action plan.

Establish MOUs with key stakeholder clusters to implement the mainstreaming action proposals. 5. Develop and Develop policy proposals for The process of developing implementation of insurance of Government an insurance policy for policies to support assets and employee. Uganda and the East African insurance penetration & region is on-going. industry business Hold policy level expansion engagement meetings and sessions to present proposals and seek approval. 6. Formulate policies to Develop policy proposals for We engaged the Industry facilitate and promote enhancement of insurance players to come up with the uptake of insurance industry incentives to proposals and we are yet to services by the public increase penetration and conclude on it. expansion of life products. Hold stakeholder consultation workshop to discuss and agree on policy proposals for enhancement of insurance industry incentives. Hold consultative sessions with policy stakeholders to present proposals for the enhanced insurance industry incentive framework. 7. Develop and implement Establish an incentive IRA will continue engaging an incentive strategy to scheme for development of Government for tax support insurers in insurance products in all key incentives and engage product development. productive sectors, to stakeholders for new enhance insurance access incentive ideas. and penetration Hold consultations with stakeholders and policy to agree on a feasible insurance products development incentive programme.

8. Develop a consumer Disseminate consumer Draft consumer protection protection policy protection policy regulations are under review. 9. Develop a framework to Develop mortality tables Consultant being sought at promote life insurance EAC level to advice on the use of mortality tables. 10. Establish policy holders Establish institutional A draft policy holder’s compensation fund arrangements and modalities compensation fund is being for establishment and reviewed. 695

management of the policy holder compensation fund. 11. Develop a framework Sensitise stakeholders about This will be developed as for regulation of the licensing guidelines. the new areas emerge e.g. emerging insurance Takaful, micro insurance areas among others 12. Establishment of Organising stakeholders’ A draft proposal is being guidelines for approval workshops to discuss draft reviewed. of texts of policies and guidelines. other insurance documents Finalise, print and disseminate guidelines to industry players. 13. Formulation of Carry out periodical re- Will be carried out as and guidelines for insurance development when needed with the help reinsurance workshops of PTA Re and Africa Re. 14. Linkage of insurance Establish a regional database The East African Insurance regulatory authorities in for sharing information to Supervisors Association the region as a strategy develop the market. provides for the necessary for growth of the linkages. We have also insurance services signed MOUs with other (harmonization of laws regulations within Africa. in the region)

162. MICROFINANCE SUPPORT CENTRE LIMITED – YEAR ENDED 30TH JUNE 2015

162.1 Compliance with the Financing Agreement and Government of Uganda Provisions A review was carried out on the project compliance with the grant agreement provisions and GOU financial regulations and it was noted that the project complied in all material respects with the provisions in the agreement and applied GOU regulations except in the following matter:

162.2 Low Level of Disbursements I noted that some loan products exhibited insignificant growth as detailed in the table below; Table 1: Loan products with insignificant growth rates 2014/2015 2013/2014 Disbursements Disbursements Disbursements Disbursements Loan Value UGX Number Number Value UGX'000 Product '000 Environmental 3 200,000 2 60,000 loans Teachers' 17 1,105,000 - - SACCO loans

Out of the UGX.9.3 billion available for Teachers’ SACCO loans, the company disbursed only UGX.1.1 billion during the year. There is a risk that stakeholder expectations may not be achieved hence the company’s failure to fulfil its mandate. 696

Management explained that they will intensify the marketing and sensitisation of the environmental product to the public. Management attributed the low disbursements on the teachers fund to negative pronouncements by UNATU advising the SACCOSs not to access the funds from MSCL.

I advised management to have a target weighting for all its credit categories to ensure that it is meeting its objective and mission.

162.3 Inadequate monitoring, follow up and recovery of loans written off I noted weaknesses in monitoring, follow up and recovery of delinquent loans as evidenced by low recovery rates from previously written off loan accounts. Of the written-off loans and advances amounting to UGX.6.198 billion in the financial year 2012/2013, only UGX.354 million has been recovered as of 30 June 2015. This represents a recovery rate of about 6% as a percentage of total write-offs as indicated in Table 1 below. The company wrote-off loan accounts in the current year which amounted to UGX.8.091 billion. There is a risk of financial loss hence the company’s failure to meet the strategic objectives.

Analysis of recovery rates from previously written off loans

2012/2013 2013/2014 2014/2015 Total Ushs'000 Ushs'000 Ushs'000 Ushs'000 Write-offs 6,197,730 - 8,091,110 14,288,840 Recoveries 33,808 174,489 145,867 354,164 %-age of recoveries from 2012/2013 write-offs to date 6%

Management explained that in February 2015 they established a Debt Collection Unit and its objective is to minimize the rate of default in addition to following up all delinquent and written off loans. In July 2015, management contracted Debt Collectors and Service level Agreements have been signed with a number of them. This is in addition to continuous follow up by Zonal Staff. Management is also in the process of ascertaining the collectable loans out of the written off loans so that performance in future is measured against collectable loans.

Management action on the matter is awaited.

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163. NATIONAL PLANNING AUTHORITY – YEAR ENDED 30TH JUNE 2015

163.1 Human Resource Management NPA has a functioning Human resource department. The following Human resource issues were observed during the course of the audit.

163.2 Understaffing As noted in the previous year, the entity has an approved staff structure of 118. However, only 69 positions had been filled as at 30th June 2015. These constitute only 58% of the required staff numbers. Although management took some steps and recruited five staff including one board member and the Executive Director during the year, 49 staff positions are yet to be filled. The table below refers.

Staffing gap per directorate Approved Filled Vacant Directorate/staff posts posts posts

Department of ICT 5 1 4 Dept. Human Resource Planning 5 1 4 Dept. of policy, Research and Innovation 9 2 7 Dept. of Macro Economics 4 1 3 Dept. of Infrastructure and Physical Planning 7 3 4 Dept. of Production, Trade and Planning 7 3 4 Directorate policy, Research and Innovation 2 1 1 Dept. of Governance 6 3 3 Executive Director and Associated Officers 12 8 4 Department of Economic & Strategic Planning 6 4 2 Dept. of Social Development Planning 6 4 2 Dept. Monitoring and Evaluation 6 4 2 Finance and Administration 27 20 7 Administration 13 11 2 Directorate of Development Planning 3 3 0 Total 118 69 49

Staff shortages are likely to affect the organisation in achieving its objectives. Management explained that they had written to Ministry of Finance, Planning and Economic Development and Ministry of Public Service to allow recruitment in stages until full capacity is achieved.

I informed the Accounting Officer of the need to complete the process of recruitment so as to improve performance.

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163.3 Non-compliance with the Workers Compensations Act CAP 225 Section 18 of the Workers Compensation Act requires every employer to insure and keep workers insured in respect of any liability which workers may incur. Section 2 of the same Act provides that insurance shall apply to all employment within Uganda except for active members of the armed forces in Uganda. A review of payments for the period revealed that no payment for the workers compensation to any insurance company was made. It was further noted that there was no budget provision for the insurance of workers.

Management promised to undertake consultation with relevant authorities specifically Ministry of Gender Labour and Social Development for guidance.

I advised the Accounting Officer to ensure that they adhere to these rules as provided in the HR manual.

163.4 Review of the National Development Plan 163.4.1 Lack of gender and disability aspect in developing National Plans Section 7 (2)(h) of the NPA Act, among other functions highlights the need to ensure that all national plans are gender and disability sensitive. A review of the expenditure documentation relating to the development of Vision 2040 in the ongoing course of the development of National Development Plan II, did not show evidence to confirm that the gender and disability expertise was considered in developing the national plans. There were no expenditures related to gender and disability sensitivity aspects. There is a risk that management may be omitting the aspects of gender and disability sensitivity in the development of National Plans.

Management explained that it facilitated a study of women economic empowerment and a technical committee of experts to analyze sector issues papers for NDPII with a view of assessing and integrating gender aspects and that report fed into NDPII development, these activities were funded under NPA-UN Joint Programme on Gender Equality project.

I advised the Accounting Officer to translate the learning experience from the study into practice while developing the next National Development Plan.

163.4.2 Lack of technical staff to review annual budgets for MDAS Section 13(7) of the Public Finance Management Act requires National Planning Authority to issue certificates of compliance of the annual budget of the previous year to accompany the current budget of all MDAs. However, the Authority’s staffing structure did not provide for sector experts/professionals to analyze the compliance of the various sectors in line with

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the prior year annual budgets. Besides, there was no evidence to show that the 2015/16 MDA’s respective annual budgets were reviewed and certificates issued prior to submission to Parliamentary Budget Committee for scrutiny and eventual approval by Parliament. There is a risk that the authority may not have the capacity to review the entire annual budget by MDAs in terms of compliance with the annual budget.

Management explained that Public Finance Management Act, 2015 was enacted towards the end of 2014/15 financial year and NPA used its internal staff to review the budgets and issued the first certificate of compliance. Management is reviewing the NPA staff structure to include experts to analyze sector budgets.

I await management action on the matter.

164. FINANCIAL INTELLIGENCE AUTHORITY FOR THE YEAR ENDED 30TH JUNE, 2015

164.1 Budget performance According to a report of Committee of Finance, Planning & Economic Development of Parliament on Ministerial Policy Statement and Budget estimates for Financial year 2014/2015 the committee recommended that the Minister of Finance, Planning and Economic Development identifies UGX.5,937,707,428 to fund the activities of the Authority. However, the approved estimates was reduced to UGX.1,880,952,805 creating a shortfall of UGX.4,056,754,623. As a consequence, I noted that a number of activities were not implemented .These include; training/capacity development of staff, software for data analysis, public awareness of the AML/CFT, staff recruitment, installation of security equipment and purchase of motor vehicles for FIA activities.

I explained to management that failure to implement activities has an effect on the attainment of objectives of the entity.

Management explained that FIA provided a detailed budget and work-plan to MoFPED, however, this was after the budgeting process had approved only UGX.100m as vote on account for FIA. As such, out of the required UGX.59bn, the Ministry only processed a supplementary of UGX1.7bn.

I advised the Accounting Officer to liaise with MoFPED and have the funds released to enable implementation of activities.

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164.2 Understaffing

Section 24(e) requires the Board to approve the organization structures and terms and conditions of service for all staff. I noted that the Authority has an approved structure of 39 positions but only 18 positions have been filled leaving 21 vacant, representing 46% of filled posts. Inadequate staff limits the authority from executing the mandate and hence poor performance. Management explained that they are yet to contact the relevant authorities and have the vacant posts filled. As explained in 8.1 above, this activity was affected by inadequate release of funds.

I await the Accounting Officer’s action to have the vacant posts filled.

165. PRIDE MICRO FINANCE LIMITED – YEAR ENDED 31ST DECEMBER 2014

165.1 Variances between the general ledger and sub-ledgers I noted a variance between the loan book and the general ledger of Shs.21 million. This increased the risk of misstatement of the financial statements.

Management explained that differences are continuously investigated on a weekly basis and resolved as and when the causes are identified.

I advised management to continue regular reconciliations of the sub-ledgers and the general ledger and seek a permanent solution to resolve the matter.

165.2 Inadequate physical controls at the branches The monitors of the surveillance/CCTV system at the City Centre, Entebbe Road, , , Kawempe and branches were located in the server room at the time of our visit. Failure to have real-time surveillance of the activities in the banking halls increases the security risk of the company. The surveillance system which could have otherwise been used as a prevent control, would now be used only for investigations in case of any irregularities.

Management explained that the CCTV monitor will be relocated to the Branch Manager’s offices to ease monitoring.

Management action on the matter is awaited. 701

165.3 Incident management application not used The company does not use the incident management application to track and resolve incidents. Incidents sent in by users may not be tracked and resolved in a timely manner. It may also be difficult to allocate incident tickets to the various process owners.

Management explained that currently incident management is being handled manually through the IT service desk. The current installed incident management application is a trial version. Management intends to install Microsoft service desk manager by end of July 2015 to track incidents.

The action to improve the incident management application is awaited.

165.4 Inadequate password controls for vision application A review of the passwords for vision application indicated that password complexity is not enforced. Password controls are weak in that the minimum password length is not enforced hence passwords of any length can be used. System inactivity timeouts are also not set. There is a risk of unauthorised access to the system resources and utilities.

Management explained that the ATM system vendor is working on an upgrade for the ATM Switch that will fix the password complexity gap and system inactivity timeout. The upgrade is expected at the end of Quarter 2 of 2015.

I advised management to adjust the password setting as recommended by IT general applications and also set a session time out set to about 15 minutes.

166. PRIVATIZATION AND UTILITY SECTOR REFORM PROJECT-DIVESTITURE AND REDUNDANCY ACCOUNT (PUSRP) – YEAR ENDED 30TH JUNE 2014

166.1 Un-Implemented Divestiture Work Plan Activities A review of the Divestiture budget and work plan for the year revealed that PU had planned to spend a total of UGX.10,546,000,000 on various activities during the year. However, it was noted that the planned activities were not implemented reportedly due to lack of funding. The unimplemented activities include valuation of shares in Kinyara Sugar Works, sale of government shares in Common Wealth Resort Limited, disposal of the remaining properties of Uganda Railways Corporation and UEDCL Pole Plant Divestiture among others.

The intended objectives of work-plan were therefore not achieved. 702

The Accounting Officer explained that it has written to Treasury and the Accountant General on several occasions communicating the need for funding the work-plan activities but did not receive positive response.

I urged the Accounting Officer to continue engaging the responsible authorities and ensure the necessary funding is availed.

166.2 Inspection of Kilembe Mines 166.2.1 Non availability of Exploration Guarantee Section19.6.1 of the concession agreement requires the concessionaire within ninety (90) days following the effective date to provide an exploration guarantee that is equivalent to 15% of the approved work program. However, a copy of the exploration guarantee was not provided for verification. The work program on which the exploration guarantee is based is derived from the 15% guarantee value of the work program that had not yet been approved by the time of writing this report. This may hinder the achievement of planned activities in the concessionaire.

The Accounting Officer explained that the Concessionaire’s work program as per the Concession agreement was later approved by the Commissioner, Department of Geological Survey and Mines on 22nd October 2015. Subsequently, PU wrote to Tibet requesting them to submit the required exploration guarantee. The Commissioner’s approval is awaited.

I advised the Accounting Officer to follow up the matter with the responsible authorities and have the guarantee in place.

166.2.2 Impact of the floods on the infrastructure Section 18.8.2 of the concession agreement provides that the Government shall use its reasonable efforts to assist the Concessionaire to integrate any item of infrastructure acquired with similar existing public utilities or facilities operated or provided by the Government and the Director Privatization Unit and the Chief Executive Officer of KML Act as the duly authorized representative for all purposes connected with the concession agreement.

During filed inspections, it was noted that following the flooding that affected Kasese District in May 2013, (see the picture below) and through a cabinet memorandum (CT 2014/52), a supplementary budget of UGX.25,064,258,167 through the OPM for Kesese District recovery plan was approved to construct flood walls. This activity had not been implemented. 703

Administration Block Destroyed by Floods Because the retainer wall that controlled floods collapsed, the concessionaire could not carry out some of the activities agreed as per the Terms of Reference (TORs) in the concession agreement due to interruptions that damaged most of the essential infrastructure mostly the roads, bridges and buildings.

Tarmac Road washed away by floods

Management explained that it is liaising with the Ministry of Disaster Preparedness in the Office of the Prime Minister to ensure that the retainer wall is constructed.

I await the outcome of the Accounting Officer’s follow up.

167. PRIVATIZATION AND UTILITY SECTOR REPORM PROJECT- OPERATIONS ACCOUNT – YEAR ENDED 30TH JUNE 2015

167.1 Shortfall of Government Funding The project budgeted for UGX.12,798,981,000 expected from the divestiture of public enterprises account and subvention from Ministry of Finance, Planning and Economic

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Development. However, only UGX.4,058,850,617 was received including a subvention of UGX.1,016,100,000. This led to a shortfall of UGX.8,740,130,383 representing 70% of the budgeted funds. Shortfall in releases affected implementation of planned project activities such as staff training UGX(2bn), replacement of two motor vehicles UGX(412 m), payment of office rent UGX(214m), statutory deductions- NSSF and PAYE UGX(945M), payment of salary arrears of UGX.235m were not undertaken.

Although management explained that they are in consultations with the Ministry of Finance, Planning and Economic Development to explore means of bridging the funding gap, I was informed by the Ministry that limited funds were allocated by the Ministry to PU on the basis that divestiture activities had ceased and the structure down-sized. I advised the Accounting Officer to liaise with the Ministry with a view to reviewing the justification or the continued operations of the project.

167.2 Non- remittance of statutory deductions During the year under review UGX.398,546,691 was deducted from staff salaries in respect of withholding tax, NSSF and P.A.Y.E from suppliers and project staff but these funds were not remitted to the relevant statutory authorities. This comprised NSSF of UGX.148,886,620, PAYE of UGX.239,599,252 and taxes withheld from the various suppliers of UGX.10,060,819.

Management explained that the Ministry of Finance, Planning and Economic Development has been consulted to provide funds to settle the outstanding statutory deductions.

I await the outcome of the Accounting Officer’s action.

168. PUBLIC PROCUREMENT AND DISPOSAL OF PULIC ASSETS – YEAR ENDED 30TH JUNE 2015

168.1 Accounting Manual not updated I observed that there was no updated documented financial management controls and procedures to support the current accounting processes and procedures because the Authority lacked an updated Finance and Accounting Manual as the existing one of 2004 required review. The introduction of the Output Budgeting Tool (OBT), IFMS, IPPS, Single Account System and PFMA, the manual has been seen to be inapplicable. The areas of budgeting, funds releases, EFT payments and accountability have changed over time.

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Management explained that they engaged a consultant to update the Authority accounting manual and the consultant failed to deliver as expected. The Authority has planned to re-budget for the activity and ensure the Accounting Manual is updated accordingly.

I informed the Accounting Officer of the importance in updating its financial manual and advised that the manual is urgently reviewed.

169. UGANDA BUREAU OF STATISTICS- YEAR ENDED 30TH JUNE 2015

169.1 Mischarge of Expenditure

The Government Chart of Accounts defines the nature of expenditure for each item code. The intention is to facilitate better and consistent classification of financial transactions and also track budget performance per item.

I noted that during the year under review, a sum of UGX.7,975,214,371 was charged on items which do not reflect the nature of the expenditure as defined per Government Chart of Accounts. Audit attributed the circumstance to lack of budgetary discipline by management. Notably among the most mischarged codes were advertising and public relations with a total of UGX.3.9bn, allowances UGX.825,677,749, and computer supplies and IT services UGX.1,303,137,933.

Mischarge of expenditure impacts on the credibility of the financial statements, since the figures reported therein do not reflect the actual amounts expended on the respective items. It further impacts on the appropriateness of the future budgets since the reported actual figures are misrepresented.

Management acknowledged the observation and accordingly promised to try as much as possible to implement as guided. I advised the Accounting Officer to ensure that all expenditures are charged on the approved budget lines during budget execution and always seek for reallocations in unavoidable circumstances.

169.2 Advances to Staff (vi) Transfer of Funds to Staff Personal Accounts

Sections 227, 228 and 229 of the Treasury Accounting Instruction (TAI), require that all payments should be made by the Accounting Officer directly to the beneficiaries. Where this is not convenient, an imprest holder should be appointed by the Accounting Officer with the approval of the Accountant General.

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However, an analysis of payments made during the year revealed that a sum of UGX.10,389,500,329 was transferred to personal accounts for undertaking various UBOS activities contrary to the above provisions in the TAI.

Management in their response appreciated the level of risk involved, but also noted that the nature of their activities is to collect data in the field and when doing so, they mainly deal with temporarily recruited people to do the work. In their view, it poses a higher risk to disburse these funds to temporary staff with all the allowances to cover the long period assignments in the field in order to reduce the risk of likely disappearance upon receipt of funds. Accordingly, the funds are disbursed to only those staff who have been with the Bureau and/or Supervisors of the field activity. They also noted that since the main activities of the Census have been concluded, they intend to seek help from the Accountant General on how best they can handle the field allowance issue without breaking the law.

I advised the Accounting Officer to always adhere to the requirements under the law, and seek permission and/or guidance from the PS/ST where circumstances do not permit application of the laid down guidelines.

(vii) Un-accounted for Funds advanced through personal bank accounts

Section 217 of the TAI requires that accountabilities for funds advanced should be submitted within 60 days from the date of payment. However, contrary to this requirement, a total of UGX.402,335,100 advanced to staff through personal bank accounts to carry out various activities, remained unaccounted for by the time of audit. Under the circumstances, I could not establish whether the amounts in question were expended for the intended purposes.

Although management had promised to provide the accountability in question, this had not yet been availed by the time of writing this report. I have advised the Accounting Officer to always enforce strict adherence with the financial regulations in place in order to ensure full accountability for all funds expended. In addition, the outstanding amounts should be followed up, failure of which, necessary recovery measures ought to be instituted from the concerned staff.

169.3 Unauthorized Excess Expenditure Contrary to Section 17 of the Public Finance and Accountability Act, 2003, an analysis of budget estimates and the actual expenditure of the Bureau for the financial year under review revealed an excess expenditure of UGX.23,434,276,656 by the Bureau. It was noted that, whereas Parliament appropriated UGX.111,556,460,695 to the Bureau and UGX.110,580,912,601 was released by Treasury, a total of UGX.134,990,737,351 was spent by the Bureau as seen in the table below; 707

Details Amount - UGX Expenditure from TSSA 110,580,912,601 Expenditure from Field-work account 30,341,591 Expenditure from NPHC 12-Opening balance 24,379,483,159 Total 134,990,737,351 Amount appropriated 111,556,460,695 Excess Expenditure 23,434,276,656

I further noted that the above was caused by the off-budget financing of UGX.24,434,244,439 that was kept on NPHC 12 account at the beginning of the financial year, which was not appropriated. The Bureau has also not reflected this expenditure, in its statements of appropriation, implying that the expenditure disclosed was understated by UGX.23,434,276,656.

The practice undermines the intentions of the appropriating authority and exposes such funds to a risk of misuse. I was not provided with evidence of any authorization for this excess expenditure.

The Accounting Officer in his response stated that all the transactions had been harmonized and accordingly incorporated in the financial statement.

I advised the Accounting Officer to always ensure budgetary discipline and where circumstances do not permit, Parliamentary approval should always be sought for a supplementary estimate, before incurring excess expenditures.

169.4 Examination of Transactions on NPHC 12 Account (Number 003430088000011)

In 2009, UBOS opened up a Uganda Bureau of Statistics - NPHC 2012 Bank Account No.003430088000011 in Bank of Uganda (BOU). According to the account opening documentation availed, the account was used to receive funds from development partners for the NPHC census activities that were due to take place in 2012. However, due to budget constraints, the Census never took place as planned, but the account was not closed. The following observations were noted;

(viii) Commingling of Funds

Contrary to the initial purpose, during the financial year under review, the account received funds from the TSSA and other project accounts. Whereas management explained that the account was solely for census activities, we noted that funds from this account were also paid out for none census activities. These included among other operational expenditures like security, Statistics House repairs, annual end of year facilitation, wellness and sports

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facilitation allowances, air tickets to UBOS staff, front office flowers, demarcation of Plot 9 Colville street, all totaling to UGX.5,986,474,376 in the year under review. These payments would have been paid from the UBOS TSSA not from the NPHC account.

Under the circumstances, there is a risk that census funds were diverted and that the entity was financing its operations outside the appropriated budget.

The Accounting Officer explained that the National Population and Housing Census (NPHC) was a national program and at its implementation, the entire UBOS was actively involved. All regular activities were scaled down and all UBOS operations were all targeted to the promoting and implementation of the census. All the identified activities including procurement of a bus, front office flowers and the face lifting of statistics house were for the purpose of promoting the Census. Therefore all funds to that respect were incurred to the implementation of the NPHC.

I advised the Accounting Officer to always ensure that the funds are utilized for the intended purposes and that commingling of funds is avoided to ensure proper accountability.

(ix) Transfer and utilization of funds on NPHC 12 Account

I noted that the Accounting Officer was granted authority by Treasury, to retain unutilised funds at the closure of the FY 2013/14. Accordingly, following this authorisation, an amount of UGX.18,315,717,031 was transferred from the Treasury General Account (TGA) to the NPHC 12 Account, which resulted into an opening balance of UGX.24,434,244,439 as of 1st July 2014.

I however noted that the entire balance of UGX.24,434,244,439 was erroneously written off as expenditure during the FY 2013/14 as opposed to recognising the cash balance on the NPHC 12 Account. I further noted that in the current year 2014/15, whereas disclosure and presentation in the financial statements has been made in the statement of financial performance and under note 15 of the final accounts, the disclosure is only done as a block figure categorized as ‘other expenses’ and does not reflect the nature of the expenditure incurred. This implies that management has not properly presented the underlying expenditure.

The Accounting Officer explained that the National Population and Housing Census is always categorized as a project and a disclosure as a project was made in the final accounts of the financial year 2013/14. I advised the Accounting Officer to always ensure

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that full disclosure of the Bureau’s financial transactions is made in the financial statements.

(x) Non-maintenance of ledgers for NPHC 12 account

Treasury Accounting Instruction 401 states that, “Accounts and records shall be kept by Accounting Officers to ensure that all monies received are properly brought to account, all payments are correctly made and properly authorized and that adequate control is maintained over assets and liabilities. TAI 402 further clarifies that Accounting Officers will maintain the following books or records: Cash books; Vote Control Register (book) and General Ledger and subsidiary ledgers.

I observed that apart from the cash book (maintained in Ms Excel), no ledgers and vote books were maintained for the expenditures on this account. This was contrary to the above regulation.

I have advised the Accounting Officer to always maintain proper books of accounts as required by the regulations.

(xi) Doubtful Expenditure

A review of payments totaling to UGX.27,080,000 revealed the following;

 There were no activity reports attached for the said activities. As such, we could not establish whether the activities were undertaken at all.  Payments for some activities were being made at UBOS headquarters directly to District Technical Officers (DTOs) and yet funds were also being sent to the districts for similar activities. There is a risk that some payments could have been duplicated.  Accountabilities attached were not sufficient to show that payments reached the intended recipients.

Under the circumstances, there is a risk that the above funds may not have been used for the intended purposes given the nature of the accountabilities that were submitted.

Management explained that these funds were paid to district technical officers from headquarters to beef up the team mainly in Kampala and Wakiso because of the staff shortages the two unique districts realized in the respective areas when the deadline of the actual enumeration had reached. I advised the Accounting Officer to obtain proper accountability for the funds in question or else initiate recovery measures from the concerned beneficiaries.

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(xii) Stores Not Recorded

A physical inspection of the stores and a review of the stores documentation/records as well as a reconciliation of receipts and issues from the stores revealed that some item balances did not tally with the physical balances in the stores. As a result, items valued at UGX.252,241,892 were found not recorded. I observed that the controls surrounding the management of stores were not adequate as there were no regular stock takings and reconciliations undertaken. There is a risk that the items in question may have been misused without management’s knowledge.

Management in their response explained that since the receiving and arranging of materials from districts was completed, they were now updating the stock cards for proper documentation. By the time of completing the audit (December, 2015), the updating exercise was ongoing.

I advised the Accounting Officer to strengthen the controls in the management of stores and complete the store records updating exercise with a view of accounting for all stores.

169.5 Review of Districts Accountabilities (xiii) Doubtful Accountabilities

Paragraph 5.6 of the Census 2014 Financial Management Guidelines requires that all original documents relating to the census activity shall be submitted to UBOS in their entirety at the end of the Census. In addition, paragraph 5.7 states that no accountability will be accepted if it does not match the expenditure line items against which it was advanced.

I reviewed accountabilities from a sample of districts and observed that a sum of UGX.101,744,600 was incurred on various activities, but the payments were doubtful as detailed in the table below;

DISTRICT AMOUNT - UGX Abim 10,441,000 Adjumani 36,921,000 Masaka 54,382,600 Total 101,744,600

The accountabilities were doubted due to the following matters;

• Some of the payment vouchers lacked the necessary supporting attachments, • Some of the accountabilities attached were inconsistent with the intended expenditure. For example, expenditure on fuel where the dates, prices and receipt numbers of the receipts were not in line with the activities. 711

• Signatures of purported beneficiaries in some instances were also inconsistent. • There were instances where payments were made to service providers for services that were beyond their capacities.

In such circumstances, there is a risk of misuse of the amounts involved.

Similarly, accountabilities totalling to UGX.92,535,000 appeared to be false as summarized in the table below;

DISTRICT AMOUNT - UGX Ajumani 3,780,000 Arua 7,850,000 Lira 14,997,500 Moyo 4,181,500 Jinja 17,550,000 Kumi 17,726,000 Mubende 4,500,000 Sembabule 4,300,000 Amuru 7,930,000 Lamwo 9,720,000 TOTAL 92,535,000

A review of the transactions relating to the above revealed the following anomalies;

• Signatures of beneficiaries of allowances paid in cash that appeared to be made in the same handwriting; • Where a single person would sign for funds meant for other beneficiaries without authorization; • Forged receipts; and • Vehicles drawing fuel beyond there tank capacities.

I further observed instances where districts were given funds to hire venues and other services, but instead used district facilities. From the sample, I observed that UGX.11,500,000 (i.e. for Agago – Ugx.5,500,000 and Amuria Ugx.6,000,000) was withdrawn and district receipts were issued. Such expenditures are irregular and avoidable as the district is expected to use its facilities free of charge. However, this would have been avoided had UBOS established the districts with such facilities before budgeting for hire of similar facilities.

Management in their response acknowledged the observations.

I advised the Accounting Officer to have all the funds properly accounted for or else initiate recovery measures for the amounts in question from the responsible officers.

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(xiv) Expenditures beyond District Budgetary Provisions

The main objective of the Census 2014 Financial Management Guidelines among others was “To ensure compliance to budget provisions and work plans”. It was further emphasised in the signed MoUs that all expenditure at the district level shall be implemented as elaborated in the detailed district budgets.

Analysis of the accountabilities from the sample of districts, revealed instances where districts spent funds beyond the amount allowed on individual budget items totalling to UGX.81,519,100 as summarised in the table below;

Amount over spent by Districts

District Amount (UGX) ABIM 34,578,500 BUKEDEA 9,255,500 ADJUMANI 2,120,000 NAKAPIRIPIRIT 28,264,600 ADJUMANI 2,120,000 MASAKA 5,180,500 TOTAL 81,519,100

I was not provided with evidence that the districts were authorized to spend over and above the budgeted provisions on certain items. This tantamounts to a diversion and implies that the other items that were budgeted for were suppressed.

Management in their response acknowledged the observations.

I advised the Accounting Officer to always ensure enforcement of the operational guidelines issued to the districts, in order to enhance budgetary discipline.

(xv) Funds not Accounted for – UGX.311,706,050

Chapter IV paragraph 181 of the Treasury Accounting Instructions, 2003, Part I – Finance, requires all vouchers to contain full particulars of each service or goods and be accompanied by such supporting documents as may be required so as to enable them to be checked without reference to any other documents.

From the review of accountabilities from a sample of districts, it was noted that UGX.311,706,050 advanced to various officers at the districts to carry out census activities was not accounted for as indicated in the table below;

DISTRICT AMOUNT (UGX) BUKEDEA 39,516,500 ADJUMANI 53,658,600

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NAMUTUMBA 2,841,000 NAKAPIRIPIRIT 3,185,000 ARUA 37,066,600 AMURIA 45,935,250 JINJA 20,557,000 KUMI 9,310,500 HOIMA 45,789,100 AMURU 2,500,000 LAMWO 8,954,000 MUBENDE 17,000,000 MASAKA 5,205,500 SEMBABULE 20,187,000 TOTAL 311,706,050

In absence of the relevant accountabilities, I was unable to confirm whether the funds were put to the intended purposes.

Management in their response acknowledged the observations.

I advised the Accounting Officer to strengthen controls over advances as prescribed under the regulations and also ensure that the funds are accounted for by the concerned districts.

(xvi) Non deduction of PAYE

It was noted that the districts paid honoraria and taxable allowances to various census officials. However, contrary to the tax law, UGX.394,264,000 in lieu of PAYE, was not deducted from these payments as summerised in the table below;

DISTRICT AMOUNT (UGX) ADJUMANI 3,090,000 AGAGO 9,075,000 APAC 12,360,000 ARUA 119,810,000 AMURIA 14,790,000 JINJA 21,225,000 KUMI 13,935,000 NTUNGAMO 25,520,000 BULAMBULI 60,825,000 KIBAALE 3,210,000 AMURU 37,860,000 LAMWO 34,740,000 MUBENDE 32,820,000 MASAKA 5,004,000 TOTAL 394,264,000

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Failure to deduct taxes exposes the entities to a risk of penalties and fines, and also culminates into loss of Government revenue.

Management in their response acknowledged the observation. I advised the Accounting Officer to institute recovery measures for the un-deducted amounts for onward remittance to URA.

170. UGANDA DEVELOPMENT BANK LIMITED (UDBL) – YEAR ENDED 31ST DECEMBER,2014

170.1 Significant delays in system implementation close out The Bank implemented a new system, Rubikon, which went live on 25th March, 2014. Whereas the initial plan was to have the system closed out by 21st April 2014, the system close out happened on the 15th February, 2015. Significant delays in the system closure could be an indication of inadequate oversight and management of the system implementation process.

Management explained that due to the various system issues that were experienced when the Rubikon went live, the project steering committee took the decision to extend the closure of the project until all the identified issues had been addressed by the vendor.

I advised Management to have a robust system change management process in place prior to system introduction to avoid significant delays in major future projects.

170.2 System inability to compute penalty charges accurately It was noted that the Rubikon system does not accurately compute penalty charges. As such, management manually computes the expected penalties which are then posted to correct the interest penalty charge. Manual intervention is susceptible to human error. There is therefore a possibility that income arising from penalty charges could be misstated. In addition this is an indication of a system malfunctioning.

Management explained that the new core-banking system, Rubikon, computes interest arrears based on the loan scheduled balances and as a result of this, the system currently only accrues penalty interest on the current outstanding scheduled balances. Management further explained that for facilities that have carried forward outstanding accrued interest from prior scheduled balances, the system is unable to compute the penalty interest on both the current outstanding balance and the carried forward outstanding balances and the issue had been highlighted to the system vendor for resolution.

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I advised Management to engage the vendor and ensure that the system is configured to accurately compute the penalty charges so as to perform as originally intended in support of the bank operations.

170.3 Difference between the loan listing and the general ledger I noted variances between the loan listing and the amounts recorded in the general ledger as at 31st December 2014. Details of the difference are highlighted below;

Details Amount (Shs) Loan listing 118,803,844,301 General ledger 118,743,359,287 Variance 60,485,014

Differences in the two financial records may lead to misstatement of the loan balances in the financial statements.

Management explained that this is a system issue as the General Ledger balance is a summation of the individual loan listing balances and should tally. Further, management explained that the variance of Shs.60million had been highlighted to the vendor for resolution. I advised management to investigate and resolve the differences. In addition, periodic reconciliations between the listing and the general ledger should be undertaken and any variances promptly investigated and cleared.

171. UGANDA INVESTMENT AUTHORITY – YEAR ENDED 30TH JUNE 2015

171.1 Over Expenditure A review of the financial statements revealed that the authority had initially budgeted to spend a total of UGX.6,420,940,000 under employee costs and goods & services consumed which was later revised upwards to a sum of UGX.6,433,740,000.

It was subsequently noted that a higher amount of UGX.7,368,573,560 was spent on the two items leading to over expenditure of UGX.934,833,559 without authority. This action resulted into a diversion of expenditure. Refer to table below;

Expenditure Initial Budget Revised Actual Expenditure Variance Items (UGX) Budget (UGX) (UGX) (UGX) 716

Employee Costs 3,191,265,473 3,411,242,146 3,574,668,235 163,426,088 Goods & Services 3,229,674,527 3,022,497,854 3,793,905,325 771,407,471 Consumed Total 6,420,940,000 6,433,740,000 7,368,573,560 934,833,559

Management explained that UGX.771,407,474 was part of payable carried forward and paid during the year. The extract on employee costs was a result of increase in medical insurance and promotions.

I advised the Accounting Officer to have realistic budget and spend within the budget provisions. Should there be need for reallocation, authority should be sought.

171.2 Human Resource issues 171.2.1 Understaffing A review of the Authority organizational structure revealed that out of the approved 78 posts, only 52 were filled leaving 26 posts vacant. For example, key positions of Deputy Executive Director, Deputy Director ICT and Senior Communications and Public Relations Executive were vacant. The core division of investment promotions does not have a Director with only (5) out of (14) Investment Executive required/provided. Lack of key staff limits the authority from achieving the intended results and creates heavy workload on existing staff.

Departments/ Divisions Approved Filled Posts Vacant Posts Posts Executive Director ‘s office 13 10 3 Investment Promotion Division 14 5 9 Investment Facilitation & Aftercare 10 6 4 Division Land Development Division/KIBP 18 11 7 Finance & Administration Division 18 16 2 SME Division 5 4 1 78 52 26

Management attributed the understaffing to inadequate funding. The Board and Ministry responsible have been notified of the matter. I await the results of the engagement of the Accounting Officer with the stakeholders.

171.2.2 Lack of training needs analysis report and training plan Section 6.3.2 (a-b) of UIA HR Manual requires the Authority to adopt a systematic approach to training involving identifying training needs and developing a training plan. It was noted that the authority lacked a training needs analysis report and training plan. This

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may lead to un-coordinated and unproductive training being awarded to staff not in line with their need hence leading to wasteful expenditure. Management promised to develop a Training Needs Assessment and Training Plan next financial year 2015/16.

I await the Accounting Officer’s action on the matter.

171.3 Un-Planned Procurement of Land During the year under review, UIA procured land adjacent to for a sum of UGX.4,579,200,000 for purposes of leasing to the Hospital for expansion. A review of documents available indicates that this amount was paid in two installments of UGX.3,874,003,200 on 10th June, 2015 excluding 6% WHT of UGX.274,276,200 and the balance of UGX.430,475,200 in July, 2015.

A review of the entity procurement plan revealed that the purchase of land was not planned. Since the funds were specifically released by the Ministry of Finance, Planning and Economic Development for the land purchase, it is likely that the procurement was not planned for hence, its omission from the procurement plan. There is a risk of breach of procedures since the board authority supporting the land procurement was also not provided for review.

Although management explained that procurement plan was subsequently revised, the revision was not provided for review.

I advised the Accounting Officer to always ensure that proper procedures for adjusting and approval of procurement plans are followed.

171.4 Shortfall in NTR Collections The Authority had budgeted to collect NTR of UGX.7,220,000,000 as per the statement of appropriation account on page (12) to the financial statements. However, only UGX.6,343,339,517 (87.85%) was realized leading to a shortfall of UGX.876,660,483. This was attributed to un-realistic budgeting on the part of management. There is a risk that the activities for which the NTR was budgeted to finance were not implemented.

Management explained that the shortfall was due to companies which declined to pay service fees of 0.5% as stipulated in the lease agreement.

I advised the Accounting Officer to enforce the collection of such fees in accordance with the Authority’s debt procedures.

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171.5 Failure to recover outstanding rent and issue current bills According to the schedule of outstanding rent arrears provided by the Mbarara Park Manager, it was reflected that a sum of UGX.194,770,000 remained un-collected by the end of June 2015.

Besides, the outstanding amount provided by the SME park manager varied from the ledger amount maintained by the finance division. The tenants were not invoiced on time and the response from them was equally poor. It appears management is not following up the debtors promptly which may result into the debtors not paying rent in time.

Management explained that a private law firm was engaged to recover the outstanding rent and utility bills from the park Manager and the contracted law firm who are following up the matter closely.

I await the Accounting Officer’s action.

172. UGANDA REVENUE AUTHORITY – YEAR ENDED 30TH JUNE 2015

172.1 Irregular tax refunds

Procedure (5) of the tax refunds policy referenced F1 provide that for tax refund claims where a prepayment audit by the Manager or Supervisor is required, the Accounts Officer – Tax Refund must ensure that this has been done before initiating the processing of payment.

It was noted that a local company was paid tax refunds of UGX.4,331,524,576. However, the authority is having court cases with the same company regarding irregular tax refund claims. Management did not provide the details of the court cases involving the fraudulent tax refund payments limiting the audit. The prepayment audit reports for these refunds were also not provided for review when requested.

Management explained that the matter has been under the Anti-Corruption court, and judgment was passed and the culprits were duly sentenced and 3.9 million recovered.

I urged the Accounting Officer to ensure full recovery and also establish strong controls to guide tax refunds prepayment audits.

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172.2 Retentions for Supplementary Funds Section 28 of the Public Finance Management Act, 2015 provides that the Minister shall authorise withdrawals from the contingencies fund for supplementary expenditure. According to communication referenced TPD 81/167/04 of 7th May, 2015, the Minister authorised the authority to retain a total of UGX.25 billion in two instalments between May and June, 2015. However, it was noted that these funds were charged to the revenue collection account instead of the contingencies fund.

In another communication referenced TPD 81/167/04 of 10th June, 2015, the Minister advised URA that the source of funding for the supplementary expenditure was the Tax refunds account and not the revenue collection account as had been done. Accordingly, Uganda Revenue Authority transferred a sum of UGX.25 billion from the tax refunds account to the Uganda Consolidated Fund (UFC) to replace the earlier charge to the revenue collections account. In both cases, the act requiring supplementary funding to be charged to the contingencies fund was violated. The authority to vary the law and finance the supplementary from the Tax refunds was not provided for review. There is a risk that the planned tax refunds were not achieved due to the diversion of funds to finance the supplementary expenditure; otherwise the tax refunds budget was over provided to the extent of the supplementary.

Management explained that the funds spent from the Tax refund account was a reallocation from tax refund account to expenditure accounts as authorised by the Minister and PS&ST.

I advised the Accounting Officer to always comply with the law by liaising with Treasury to ensure that supplementary expenditures are financed form the contingencies fund as required.

172.3 Retentions for Normal Operations During the year, the Authority retained a total of UGX.223,151,120,885 from the revenue collection accounts for normal operations as indicated in note (2) on page (83) of the financial statements. It was noted that the Authority’s releases have been based on retentions from the revenue collection accounts instead of a direct charge on the Consolidated Fund. The basis on which the retentions have been authorised was not explained. There is a risk that the retentions were in violation of the above cited sections of the law, hence non-compliance.

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Management explained that given the nature of the authority operations, the Minister authorises monthly retentions to avoid the delays through the consolidated fund account.

I advised the Accounting Officer to comply with the law by liaising with Treasury to harmonise the Act and the method of financing the authority.

172.4 Non-remittance of un-spent balances to the UCF Section 17 of the Public Finance Management Act, 2015 provides that every appropriation by Parliament shall expire and cease to have effect at the close of the financial year for which it is made and that unspent money at the close of the financial year shall be returned to the Consolidated Fund. According to note (11) (Bank and Cash balances) on page (90) to the accounts, the URA expenditure account had un-spent balances of UGX.4,784,227,114 at the year-end which was not returned to the Uganda Consolidated Fund as required. The authority did not comply with the Act.

Management explained that the Authority had outstanding commitments to settle in addition to EFT and cheque payments that had not cleared on the bank account as at 30th June 2015.

Although the funds were eventually replaced and transferred I urge management to always comply by making timely transfers to the Uganda Consolidated Fund immediately the appropriation of the funds as voted expires.

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SECURITY SECTOR

173. UGANDA AIR CARGO CORPORATION – YEAR ENDED 30TH JUNE 2015

173.1 Un-paid Salaries - UGX.1,343,905,985 It was observed that Uganda Air Cargo has failed to pay salaries for staff amounting to UGX.1,343,905,985 for a period of six months up to 30th June 2015. This amount is significant and may affect the smooth running of the corporation and in future may attract litigation costs. Failure to pay staff salaries demotivates employees and affects entity performance. It is also an indicator of a company with going concern issues.

Management attributed the failure to pay salaries to the revocation of the Air Operation Certificate (AOC) by CAA but promised to pay all salary arrears by the end of January 2016 since the Company has now secured the AOC and is operating normally.

I await the outcome of the Accounting Officer’s action.

173.2 Expired Lease in Entebbe Uganda Air Cargo Corporation was allocated land at Entebbe (Plot 103A-107A and Plot 137) by the Ministry of Defence in 2010 and the company embarked on the process of acquiring the land title from Uganda Land Commission. On 23rd October 2014, Uganda Land Commission awarded a lease of 5 years to Uganda Air Cargo Corporation commencing September, 2010. One of the conditions in the lease agreement was either to develop the said land before 31st August 2015 or else the land reverts to the ULC. However, no developments have taken place on the land. There is a risk that ULC is at liberty to allocate the land to another developer. It was also observed that this land was not included in the financial statements because the land has not been valued.

Management explained that they were following up on the extension of the lease with Uganda Land Commission.

I await the outcome of the follow up.

173.3 Grounded Aircraft – C 130-5x-UDF It was observed that aircraft C130-5X-UDF has been grounded for over a year and is due for a major modification to replace its center wing box. The amount involved as per the estimates from the company approved by the manufacturer to carry out the maintenance, repair and overhaul of such air crafts is USD.7,000,000. This amount cannot be raised by the corporation in the short run but should be incurred if the air craft is to fly again. The 722

company has continued to incur costs such as insurance, flight crews and technical support.

Management explained that the delay to repair the aircraft was a result of expiry of the term of the Board of Directors. A new Board of Directors have now been appointed and one of the immediate matter to be discussed is the repair of the C130-5X-UDF Aircraft.

I await the Accounting Officer’s action.

173.4 Withdrawal of assets by the Ministry of Defence It was observed that two air crafts (Y 12s) were withdrawn from the Corporation by the Ministry of Defence to assist in the fight against terrorism. Uganda Air Cargo has continued to incur costs worth US$.359,279 in respect of these air crafts in form of Air crews’ salaries, insurance and maintenance costs without any corresponding revenue from the Ministry. I noted that management of Air Cargo has prepared the handover report of the aircraft together with the corresponding costs incurred on putting the infrastructure on the withdrawn assets, however, the Ministry has neither signed the handover report as evidence of acceptance of responsibility of the assets nor reimbursed the costs. I explained to management the risks of sustaining the Corporation after the withdrawal of two aircrafts from the fleet.

Management explained that they are waiting for response from the Ministry of Defence on the matter.

I advised the Accounting Officer to follow up the matter to its logical conclusion.

173.5 Insurance Payable Included in Trade payables in the financial statements as at 30th June 2015 is an amount of USD 248,511.25 due to an insurance company for the services rendered to the corporation. This amount includes USD.38,782.75 payable to cover insurance of the Y 12s which were taken over by the Ministry of Defence. I was not given clear explanation as to why the Corporation has continued to incur insurance costs on assets which are now in use by the Ministry of Defence.

Management explained that the insurance cost of USD.38,782.75 for Aircrafts (Y12s) have been included in the claim for the reimbursables from the Ministry but has not been refunded. The Ministry has called for a meeting to discuss the claim with Uganda Air Cargo.

I await the Accounting Officer’s follow up of the matter.

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173.6 Debt collection charges It was observed that Uganda Air Cargo Corporation spent a total of UGX.187,890,300 on debt collectors during the year. I could not verify the corresponding revenue collected to justify this payment. Spending this huge sums of money on debt collectors is a waste of Corporation resources that could have been avoided if the policy on debt collection was effective.

Management explained that the debt collector was authorized by the Board and has so far delivered the certificate of payment from the Democratic Republic of Congo as evidence that the outstanding amount of US$.1m will be paid. All expenses incurred by the Corporation in collection of the debt will be recovered from the debt collector.

I await recovery of the debt from DRC.

173.7 Outstanding interest on Rent Included in the Trade payables is USD.90,962 equivalent to UGX.245,596,520 payable to Civil Aviation Authority in respect of interest charge which remained unpaid when the Government of Uganda took up all obligations of the Corporation to pay CAA up to 30th June 2006. While CAA passed on the principal amount to Government, the interest element was not included. As a result the interest outstanding has continued to attract interest to a tune of UGX.245,596,520. Management has contested the payment of this interest on grounds that CAA should have passed the interest to Government at the time for payment.

In response the Accounting Officer explained that they have held meetings with CAA management on this matter. It is on record that once CAA obtains approval from its Board of Directors to waive the interest disputed, the Corporation will be notified.

I await the outcome of the decision.

NEC & SUBSIDIARIES

174. NEC HEADQUARTERS – YEAR ENDED 30TH JUNE 2015

174.1 Land in Namanve Business Industrial Park Uganda Investment Authority allocated 10 acres of land to NEC in 2005. This land is located in the Kampala Industrial Business Park (KIBP) Namanve. NEC was required to pay US$.800,000 as premium in addition to UGX.2,000,000 to cover the cost of surveying the land. NEC embarked on execution of preliminary works that included grading, leveling and 724

construction of an access road. This was an urgent requirement after NEC had signed a Memorandum of Understanding (MOU) between GoU and the Islamic Republic of Iran to launch a tractor assembly plant.

UIA exempts organizations dealing in only Agriculture and ICT from payment of premiums for any land allocated in the park. However, UIA categorized NEC as a manufacturing metal and metal products and was required to pay lease premiums. Subsequently, NEC requested for a waiver of the premium from UIA since its activities were of Agricultural nature, but the waiver was not granted.

There is a risk that the land will be withdrawn for non-payment.

The Accounting Officer explained that they have requested again for a waiver from UIA since this business has been classified under agricultural category since the tractors and implements to be assembled specifically Tractor Assembling Plant. This will exempt NEC from paying the USD.800,000 premium.

I advised the Accounting Officer to follow up on the matter so that a waiver is obtained or source for funds to secure the land.

174.2 Expiry of the term of office for the Board of Directors (BoD) Section 6 of the NEC Act provides for the appointment of Board of Directors as the policy making organ of NEC. However, it was noted that the term of office for the BOD expired on 30th April 2015 and no new Board had been appointed. In the absence of a Board, strategic and policy direction of the company is greatly affected.

The Accounting Officer explained that they have notified the matter to the Minister of Defence who is the appointing authority regarding the expiry of the term of Board members.

I await the outcome of the Accounting Officer’s action.

174.3 Long outstanding debtors It was observed that debtors amounting to UGX.317,666,860 had been outstanding for a period of over three years. It appears NEC has taken minimal effort to recover the outstanding debt. Management risks losing out on the much needed cash-flows. The trend of non-recovery since 2012 would imply that there is difficulty in recovering these amounts. See the table below:

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Trade Debtors 2014/2015 2013/2014 2012/2013 (UGX) (UGX) (UGX) NEC Tractor Hire Scheme 22,386,500 22,386,500 23,386,500 NEC Health-world 56,000,000 56,000,000 56,000,000 Pharmaceuticals Stem Apparel 131,250,000 131,250,000 131,250,000 NEC Works 108,030,360 118,035,360 - Total 317,666,860 327,666,860 209,636,500

In response, the Accounting Officer explained that the amounts due from NEC Tractor Hire Scheme and NEC Works will be recovered when the revenue generation in these companies improves. Recovery from NEC Health-World Pharmaceuticals Limited is doubtful because the Joint Venture failed to take off. Management has instituted legal measures to recover the amount due from Stem Apparel.

I advised the Accounting Officer to provide for the doubtful debts in the financial statements. In the meantime recovery is awaited.

174.4 Investment in Subsidiaries It was observed that since 1989 when NEC was established, the following investments have been made:

Subsidiary Investment up to Investment during Cumulative 2014 (UGX) the year (UGX) Investment (UGX) NEC Works 4,504,557,083 927,500,000 5,432,157,083 NEC Farm Katonga 1,820,357,537 47,100,000 1,867,457,537 NEC Hire Scheme 2,682,301,572 361,500,000 3,043,801,572 NEC Tractor Project 586,513,872 33,500,000 620,013,872 NEC Luwero Industries 27,095,515,000 160,000,000 27,255,515,000 NEC Kamba Ltd 250,000,000 - 250,000,000 NEC Pharmaceuticals 2,460,326,736 - 2,460,326,736 Total 39,399,671,800 1,482,500,000 40,882,171,800

These investments were expected to generate profitable returns. However, it was noted that the entity continued to make cumulative losses of which UGX.721,590,467 relates to the year under review. Besides, assets of NEC Kamba Ltd were allocated to National Council for Science and Technology. The equipment of NEC Pharmaceuticals Ltd was installed in 1995 and since then the initial objective of production of drugs has never kicked off.

In response, the Accounting Officer was optimistic that with increased capitalization, the subsidiaries were to improve production of goods and services and generate more income

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and remit some of the profits to the holding company. In addition, NEC was seeking prospective partners to utilize the Assets of NEC Pharmaceuticals Ltd and was still awaiting for the acknowledgement of the allocated assets of NEC Kamba to National Council for Science and Technology to remove them from NEC books.

I await the outcome of the Accounting Officer’s action.

174.5 Overdue Creditors Analysis of the trade creditors revealed that creditors totaling to UGX.44,961,595 have remained outstanding for a period of more than 20 years, as per table below.

Trade creditors 2014/2015 2013/2014 2012/2013 Technology Consultants 1,750,000 1,750,000 1,750,000 Rosebell Kirungi 32,647,811 32,647,811 32,647,811 Computer Wise 670,000 670,000 670,000 Wamuco Motors 6,200,899 6,200,899 6,200,889 Airtel 3,086,784 3,086,784 3,086,784 N.I.C 607,000 607,000 607,000 Total 44,961,595 44,961,595 44,961,595

Management risks being taken to court over the matter resulting into avoidable litigation costs.

The Accounting Officer promised to consult the Accountant General on the matter specifically on treatment of such cases in the books of account.

I advised the Accounting Officer to devise means of paying them off or seek advice from the Board to write off creditors which no longer exist.

175. NEC CONSTRUCTION, WORKS & ENGINEERING YEAR ENDED 30TH JUNE 2015

175.1 Outstanding Gratuity I noted during the course of audit that NEC Works Ltd has not paid any gratuity to staff for a long time and by close of 30thJune 2015, outstanding gratuity had accumulated to UGX.233,890,066. I was not availed with management action on how these arrears will be settled. Non-settlement of gratuity arrears may result into litigation by the beneficiaries.

The Accounting Officer explained that they are in the process of sourcing for funds and once this is done, a reserve fund account will be opened to cater for future gratuities that accrue.

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I await the outcome of the Accounting Officer’s action.

175.2 Performance of NEC works A review of the budget of NEC Works revealed that management had planned to raise revenue from both running and anticipated contracts to the tune of UGX.3,192,000,000. Management had planned to strengthen the construction department through improved capitalization by borrowing UGX.1,000,000,000 from commercial banks and also obtaining subvention of UGX.500,000,000 from NEC Headquarter. The following matters were however observed:- i) I was not availed with the performance plan to enable me assess whether if the entity achieved its intended plans. ii) I could not assess how far management had reached in regard to capitalization of the entity. iii) Management indicated that it has 6 running contracts with Hospital, Makerere University Business School, Ministry of Defence, Post Bank (U) Ltd, Police and Office of Prime Minister. I was not availed with the progress reports for the running contracts to allow me establish whether there were delays or not. iv) NEC Works signed an agreement with Office of the Prime Minister on 30th July 2014 for the construction of four new blocks of semi-detached staff houses with sanitary facilities at a cost of UGX.1,073,719,920. The completion date was 12 months after the date of signing i.e. 30th July 2015. At the time of audit in November 2015, the project was incomplete yet the contracted period had expired.

In response, the Accounting Officer explained that the budgeted cash flows were not achieved due to low capital levels to compete for construction works. Capitalization of company is still lacking and the stakeholders have been notified. Management is also in consultation with the legal department to consider all legal procedures to enable the entity borrow.

I await the Accounting Officer’s action.

176. NEC FARM KATONGA-YEAR ENDED 30TH JUNE 2015

176.1 Land allocation to the Islamic Republic of Iran On 24th September 2003, Government of Uganda entered into an MOU with Islamic Republic of Iran where NEC Farm land measuring 17 square miles (4500 hectares) was allocated to the Islamic Republic of Iran with the intention to improve and develop agriculture in Uganda. The Islamic Republic of Iran went ahead and appointed Iran Agro

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industrial group to utilise the Katonga land. During the audit, the following issues were observed:-

 The lease granted to the Iranian Agro industries was agreed at 49 years with an initial lease of 5 years, renewable on condition that the requirements in the feasibility report submitted to Uganda Investment Authority were fulfilled. However, the five year initial period elapsed in 2010 and the investor failed to fulfill the conditions set in the initial lease.

 I also noted under-utilisation of the land as only 3 acres of maize were planted out of the 17 square miles land which is an indication that the investor has no capacity or interest to undertake the intended project activities.

Further, it was observed that the Accounting Officer of NEC was unable to take actions against the Iranian Agro Industry because this was a bilateral arrangement between two countries which can only be dealt with at a diplomatic level.

The Accounting Officer stated that he has notified the company through Ministry of Foreign Affairs of the intention to terminate the lease due to failure to fulfill the conditions set in the initial lease. I await the outcome of management action.

176.2 Encroachment on farm land I inspected the farm on 2nd July 2015, and observed that the farm land has been encroached heavily by Herdsmen and other encroachers who have fenced off part of the land. Management at the farm indicated that these Herdsmen transfer diseases to the farm and there was also theft registered at the farm. One of the encroachers had fenced off land measuring approximately 4 hectares and denied the farm cattle access to the water point. If management does not take action, this farm is at risk of heavy encroachment.

In response, the Accounting Officer explained that a decision has been taken to open up all boundaries and evict all encroachers within the farm boundaries and eventually fence off the land. I await the outcome of management action.

176.3 Losses I noted that although the entity losses have reduced from UGX.146,543,534 in the previous year to UGX.63,817,756 during the year under review. the entity’s performance is however still unhealthy.

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The Accounting Officer promised to embark on diversification by introducing dairy cows that produce more milk for sale and enhance revenue performance.

I wait the outcome of the Accounting Officer’s action.

177. NEC-LUWERO INDUSTRIES – YEAR ENDED 30TH JUNE 2015

177.1 Outstanding debts 177.1.1 Trade debtors A review of the trade debtors revealed that out of UGX.563,566,368 reflected in the financial statement, debtors worth UGX.335,121,026 which is 59% of the total debtors have been outstanding for a period of over three years. It appears minimal efforts have been made by management to recover the money. The age analysis of these debtors is indicated in the table below;

Trade debtors 2014/15 2013/14 2012/2013 2011/12 Amount Amount Amount Amount (UGX) (UGX) (UGX) (UGX) Allied Security System & 6,303,700 6,303,700 6,303,700 6,303,700 Investigation Alarm Protection Services Ltd 1,750,240 1,749,900 1,749,900 1,750,240 Bruce Wright 5,018,957 5,018,957 5,018,957 5,018,957 Car trucks (U) Ltd 14,200,000 14,200,000 14,200,000 14,200,000 Cobra Security Services 3,016,000 3,016,000 3,016,000 3,016,000 Brigadier Mugenyi Gavas 1,076,000 1,076,000 1,076,000 1,076,000 Col Katerega 1,503,000 1,503,000 1,503,000 1,503,000 Brigadier Kawaga 4,460,000 4,460,000 4,460,000 4,460,000 Complete Security 15,205,500 15,205,500 15,205,500 15,205,500 Detail Protection Services 21,428,000 21,428,000 21,428,000 21,428,000 Director Special Branch 1,289,977 1,289,977 1,289,977 1,289,977 Global Ps Lotts Investment 4,267,468 4,267,468 4,267,468 4,267,468 (U) Ltd G.M Tumpeco 1,404,000 1,404,000 1,404,000 1,404,000 K9 Patrol Ltd 17,260,000 17,260,000 17,260,000 17,260,000 Lt Bwomegi 13,019,924 13,019,924 13,019,924 13,019,924 Luwero District Administration 2,525,321 2,525,321 2,525,321 2,525,321 Mubuya Pinalson 1,027,500 1,027,500 1,027,500 1,027,500 Marshal Security Group 2,096,000 2,096,000 2,096,000 2,096,000 Mukunzi Alex 1,126,045 1,126,045 1,126,045 1,126,045 National Focal Point 1,563,200 1,563,200 1,563,200 1,563,200 Rhino Guards 2,125,000 2,125,000 2,125,000 2,125,000 Silver Shadow 4,147,200 4,147,200 4,147,200 4,147,200 Special Revenue Services 4,836,268 4,836,268 4,836,268 4,836,268 SPLA 204,471,726 204,471,726 204,471,726 204,471,726 Total 335,121,026 335,120,686 335,120,686 335,121,026

I also noted that other debtors (prepayments) of UGX.731,887,667 have remained outstanding for a long time. If these funds are not recovered, management risks having

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these as bad debts; thus affecting the entity projected cash flows and implementation of government programmes.

In response, the Accounting Officer explained that majority of the debts amounting to UGX.676, 865,787 represents Withholding Tax which was declared out of date and not claimable from URA. This matter has been brought to the attention of the Board for write off, and formed part of the bad debt provision in the accounts.

The Accounting Officer’s action on the matter is awaited.

177.2 Losses The company has accumulated losses of UGX.23,885,019 over the past years of operation; an indicator that the entity is not profitable and sustainability of business is questionable. This is so despite the fact that Government has continued to capitalise the business to a tune of UGX.30,517,642,452.

The Accounting Officer attributed the losses to break down of machinery and as such it made it difficult for the business to be profitable. However, new equipment have been installed and production will soon be at full capacity.

I await the outcome of management intervention.

177.3 Lack of Board of Directors (BoD) I noted that the company was operating without a Board of Directors since November 2014. In the absence of the Board, the company may have challenges in terms of long term strategic direction as well as corporate governance. This may negatively impact on the performance of the company.

Management explained that this matter has been pointed out to the Ministry of Defence for necessary action.

I advised the Accounting Officer to remind the Ministry of their obligation on the matter and have the Board instituted.

177.4 Non-disclosure of Gratuity Payable The terms and conditions of service of National Enterprise Corporation require a member of staff to be entitled to gratuity at the end of employment. The company therefore made a provision of UGX.1,020,000,000 being staff gratuity payable. I could not verify this amount because the staff gratuity account was being updated.

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I advised the Accounting Officer to have this matter resolved to avoid litigation that could arise.

178. NEC TRACTOR HIRE – YEAR ENDED 30TH JUNE 2015

178.1 Budget performance In order to realise the objectives of the entity, management developed an annual work- plan that detailed key activities for achievement of the objectives. A review of the annual work plan of NEC Tractor Hire Scheme Ltd revealed that most of the planned activities were not implemented as per the table below;

No PLANNED ACTIVITY Total (UGX) Status OUTPUT 1 Revenue  Hire out equipment to 3,963,527,750 Not implemented farmers. Supply up to 30% of the maize meal required Partially by MOD. implemented 526,400,000 only received  New Capitalization UGX.361,500,000 during the year. 2 Expenditure

Plough 96.000  Ensure that all the 12 241,150,000 All the activities acres annually tractors are refurbished and were not that repair and services are implemented done on time.

 Secondly reorganize the tractors to ensure that we concentrate on viable contracts like out growers of sugar factories where gardens are better prepared.

 Carry out a massive advertising campaign to sensitize our clients about our products.

 Continue to write proposals to the government seeking a grant to acquire bush clearing equipment.

 Continue to write proposals to the government seeking a grant to acquire bush clearing equipment.

 Bush clear 100 acres, transfer at least two tractors to Mubende and prepare the ground for the 732

August 2014 season.

 Recruit a farm manager to be based at Mubende. Additionally liaise with CPW to deploy experienced personnel as operational workers.  Clear a road to the selected location and contract NEC Works to construct the structures.

 Liaise with CPW to organise the casualties who are already growing maize and beans.

Process maize Acquire shelling and milling 1,593,839,520 Not implemented flour machines to be located in Mubende.

Failure to implement planned activities impacted negatively on the revenue performance of the NEC Tractor Hire Scheme.

Management explained that the contract to supply 30% of maize meal was not awarded to NEC by Ministry of Defence. A number of activities such as ploughing could not be undertaken because funds expected were never released. I advised the Accounting Officer to liaise with the Holding Company to seek ways of funding these activities.

178.2 Doubtful project sustainability Out of the thirteen (13) tractors owned by the Tractor hire scheme, only one tractor in Amuru is in working condition. Two other tractors in Amuru require minor repairs. The remaining ten (10) tractors are in the Tractor Project yard lined up for repair as listed in the table below:

S/N Registration Description Location Condition 1 UAM-271Q 285-4WD Tractor Project Yard Broken down 2 UAM-287Q 285-2WD Amuru Require minor repair 3 UAM-239Q 399-4WD Tractor Project Yard Broken down 4 UAM-241Q 399-4WD Tractor Project Yard Broken down 5 UAM-518Q 285-2WD Tractor Project Yard Broken down 6 UAM-269Q 285-2WD Tractor Project Yard Broken down 7 UAM-346Q 399-4WD Tractor Project Yard Broken down 8 UAM-535Q 399-4WD Tractor Project Yard Broken down

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9 UAM-365Q 399-4WD Tractor Project Yard Broken down 10 UAM-291Q 399-4WD Amuru Require minor repairs 11 UAM-537Q 285-4WD Tractor Project Yard Broken down 12 UAM-208Q 240-2WD Tractor Project Yard Broken down 13 UAM-234Q 399-4WD Amuru In working condition

Because of the status of these tractors, works worth UGX.75,608,960 were certified throughout the year of which works worth UGX.53,857,560 were from the Ministry of Defence. It appears the going concern of the Tractor Hire Scheme is uncertain.

In response, the Accounting Officer explained that the Board of Directors resolved to sell off six tractors and invest in upgrading the remaining seven which will be deployed to generate revenue to the company.

I await the outcome of management action.

178.3 Non remittance of Statutory deductions Management of NEC Tractor Hire Scheme did not remit UGX.78,515,833 and UGX.40,886,357 in respect of NSSF and PAYE respectively to the responsible statutory bodies contrary to the law. Details are in the table below.

Statutory Obligations 2014/2015 2013/2014 (UGX) (UGX) PAYE 40,886,357 27,657,510 NSSF 78,515,833 49,816,625 Total 119,402,190 77,474,135

Non-remittance of statutory deductions may attract fines and penalties from the statutory bodies in question.

Management explained that the entity had signed agreements with the concerned statutory bodies on how to clear the outstanding arrears.

I await the Accounting Officer’s action plan to settle the outstanding obligations.

178.4 Outstanding Creditors The Tractor Hire Scheme had an opening balance of creditors of UGX.368,523,462 and a closing balance of UGX.553,670,387 an indication of an increasing trend. Some creditors have remained un-cleared for quite a long time. Details of the outstanding creditors which have not been paid for the past three years are in the table below:

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Trade Creditors 2014/2015 2013/2014 2012/2013 (UGX) (UGX) (UGX) NEC Tractor project 340,696,499 243,497,699 243,497,699 NEC Hqrs 24,886,500 24,886,500 24,886,500 Total 365,582,999 268,384,199 268,384,199

Failure to settle creditors for such long periods could lead to litigation costs for the entity and impact on the going concern.

Management explained that the arrears will be cleared as soon as revenue improves.

I await the outcome of the Accounting Officer’s action.

178.5 Vacant Post of a General Manager Section 13 of the NEC Act requires every subsidiary company of NEC to have a General Manager who shall be responsible for management of the subsidiary. However, the company has been operating without a General Manager for over two years. In the absence of a General Manager, the company’s operational activities and strategic guidance are adversely affected. Management explained that this matter was brought to the attention of the Board.

I advised the Accounting Officer to remind the Board of its obligation in effecting the appointment of the General Manager.

179. NEC TRACTOR PROJECT – YEAR ENDED 30TH JUNE 2015

179.1 Un-sold Tractors worth – UGX.1,450,803,400 The company imported twenty one (21) tractors at a cost of UGX.1,768,946,400 from Iran in July 2013 for sale and also to be used as advertisement for the planned NEC tractor assembling plant at Namanve Industrial Park. However, since 2013 only two tractors have been sold on credit at UGX.279,044,000 with cash deposit of UGX.39,099,000. The remaining nineteen (19) tractors worth UGX.1,450,803,400 have not been sold.

Management attributed the low sales to competition from private companies and failure by government agencies to procure from this subsidiary. Besides, the tractor assembly plant has never been established purportedly due to limited funds.

The purpose for which this project was established may not be achieved.

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I advised the Accounting Officer to devise strategies to ensure tractors are sold and also pursue further the matter of having the tractors assembled locally.

179.2 Non remittance of statutory obligations of UGX.42,411,461 It was observed that a sum of UGX.25,193,678 and UGX.17,217,783 in respect of PAYE and NSSF had not been remitted to URA and NSSF respectively despite withholding the funds from staff salaries.

Non-remittance of statutory obligations attracts fines and penalties from the statutory bodies including freezing of bank accounts.

Management explained that they anticipate to make an improvement in sales in the near future and this will assist in clearing these obligations.

I await the outcome of the Accounting Officer’s action

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PUBLIC WORKS AND TRANSPORT SECTOR

180. CIVIL AVIATION AUTHORITY – YEAR ENDED 30TH JUNE 2014

180.1 Debtors position Included in the Statement of Financial Position is an amount of UGX.94.4 bn reflected as debtors, net of provision for bad debts (UGX.105 bn before provision for bad debts). The delayed collection of debtors hold Civil Aviation Authority’s working capital. There is a risk that some of the debtors may not be collected.

Management explained that it will engage the Ministry of Finance, Planning and Economic Development after the verification of the amounts.

I await the outcome of management’s efforts.

180.1.1 Work In Progress at time of project completion not capitalized It was noted that some projects completed over 4 years ago have remained disclosed under Capital Work In Progress. For example LPA Consultancy of year 2002 (UGX 91,450,000 and UGX.28,197,369); Point of Sale Equipment by Bloom Electronics PVT Ltd of year 2008 (UGX.76,914,360 and UGX.84,983,346); Professional Fees Kasese Project of year 2008 (UGX 210,000,000); Regravelling Jinja Airfield by Nicontra Limited of year 2009 (UGX.81,094,314); and Arua Terminal Building General Reconstruction and Maintenance of year 2010 (UGX.218,626,809).

Capital work in progress is overstated and Property, Plant and Equipment are understated by this treatment. Further, these are not charged depreciation, and as such depreciation was understated.

Management promised to address the issue and have the Work-In-Progress capitalized in 2014/2015.

I advised that all work in progress should be capitalized at the time of project completion or asset deployment.

180.2 Payables and Receivables 180.2.1 Long outstanding creditors I noted that some creditors/payables on the CAA payables schedule as of 30 June 2014 were long outstanding, yet there is communication from creditors demanding for payment. See table below for examples: 737

A/C Code Supplier Bal. as at 30 June 2014 UGX Last transaction date on statement 4C-C053 Cementers Limited 626,825,324 14 February 2012 4C-E029 Eastern Builders & 137,152,539 06 April 2004 Engineers Ltd 4C-N041 Nortrup Grumman 420,095,954 27 June 2011 4C-N059 Nicontra Limited 41,236,958 30 June 2011 4C-R007 Roko Technical Services 646,115,316 15 July 2012 1,871,426,091

There is a risk that these creditors could resort to courts of law.

Management explained that they will undertake a thorough review and reconciliation exercise of Creditors accounts in 2015. I await the outcome of management efforts on the matter.

180.3 Long outstanding CAA debtors A verification of the Authority’s debtors was undertaken and it was noted that Civil Aviation Authority had outstanding debtors amounting to UGX.105,116,790,491. The debtors were verified to comprise of Government debtors (UGX.54,422,156,502), Non-Government debtors (UGX. 48,477,132,246) and IATA debt (UGX.2,217,501,743). The findings are summarized in Paragraphs 7.6.1 to 7.6.3 below:

180.3.1 Government debts Government indebtedness to CAA verified as at 30th June 2014 was UGX.54,422,156,502. The amount is shown in the table below:

AS AT 30/06/2014

$ BALANCE AS UGX BALANCE AS BALANCE AS AT EXCHANGE AT 30/06/2014 AT 30/06/2014 TOTAL UGX CATEGORY 30/06/2014 $ RATE IN UGX IN UGX 30/06/2014 AVIATION 14,676,304.01 2,599.68 38,153,694,009 - 38,153,694,009

RENTAL 312,127.96 2,599.68 811,432,814 15,457,029,679 16,268,462,493

14,988,431.97 38,965,126,823 15,457,029,679 54,422,156,502

The above debt further increased to UGX.57,443,214,539 by 30th September 2014.

It was also noted that whereas some government entities signed contracts with CAA for the services provided, the majority did not. CAA prepared contracts and requested these entities to sign but they never responded. Only one Government Entity (National Drug Authority) had a running signed contract that was provided by CAA management for

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verification. The lack of contracts coupled with debts outstanding for a long time increases the risk of non-collection.

180.3.2 Non-Government debts The Non-Government Debt verified as at 30 June 2014 was UGX.48,477,132,246. The amount is detailed in the table below: Total balance as at CATEGORY 30/06/2014 UGX RENTAL NON GOVERNMENT 10,686,330,717 AVIATION NON GOVERNMENT 37,790,801,529 TOTAL NON GOVERNMENT 48,477,132,246

Analysis of the age of the debtors was undertaken and it was noted that there were a number of non-government dormant debtors (over two years) as at 30 June 2014, amounting to UGX.1,427,534,230 (Rental) and UGX.9,893,985,531 (Aviation). There is a risk that these debts may not be collectible.

180.3.3 IATA (International Air Transport Association) Debts The IATA debts relate to services provided to various air transport service providers that fly over Ugandan Airspace and are collectable by IATA International on behalf of CAA. The balance as at 30 June 2014 stood at UGX.2,217,501,743.

I advised that All CAA non-government debts that have been dormant for over two years are subjected to debt collection as per guidelines contained in the CAA Credit Policy. All possible legal effort should be put in place to collect these long outstanding debts. CAA Management should follow up with the Ministry of Finance, Planning and Economic Development for recovery of the Government Debt. Further, all Government entities should sign contracts with CAA for rental and aviation services provided.

181. UGANDA RAILWAYS CORPORATION YEAR ENDED 31ST DECEMBER 2012

181.1 Non – compliance with the revaluation model under IAS 16 Property, Plant and Equipment It was observed that the Corporation’s assets were last revalued in 1988. The revaluation model under IAS 16 Property, Plant and Equipment requires that, items of property plant and Equipment which are carried at the revalued amounts, be revalued with sufficient regularity to ensure that the carrying amounts does not differ materially from that which would be determined using fair value at the statement of financial position date. Although 739

revaluation of some assets was carried out for the purposes of concession in April 2005, the results cannot be relied upon for accounting purposes because of the valuation method adopted.

Management indicated that the costs involved in carrying out revaluation had been budgeted and the exercise will be conducted in the subsequent year. The procurement of an independent valuer has also commenced. But by the time of writing this report, this exercise had not commenced. Management did not therefore comply with the revaluation requirements of IAS 16.

I advised that all items of property, plant and equipment under the same asset category should be revalued to ascertain the fair value at which they should be reflected in the financial statements in accordance with the requirement of IAS 16.

181.2 Impairment of Investment in subsidiary The Corporation holds the controlling (98%) stake in Nalukolongo Railway Workshop Limited (NRWL). It was observed that the Corporation is still accounting for this investment in its books at cost – UGX. 1.7 billion. Pursuant to the concession agreement, NRWL’s assets were revalued and taken over by the concessionaire and as such the Corporation has no right to cash flows in form of dividends from NRWL. There is a risk of misstatement of the non - current assets.

Management explained that NRWL is under liquidation. They further indicated that the investment will be written off after all the supporting documents have been obtained from the Government liquidator. I await the results of management efforts.

181.3 Accounting for Government grants The Corporation management does not properly account for Government grants in the accounts. As at 31 December 2012, the Government of Uganda‘s contribution to the Corporation amounted to UGX.39.9 billion. These contributions comprise both non- monetary/capitalization grants and revenue grants which were used for asset acquisition.

According to the requirements of IAS 20, Government grants which relate to assets including non-monetary grants at fair value, shall be presented in the statement of financial position either as deferred income or by deducting the grant in arriving at the carrying amount of the asset of which the deferred grant income should be amortized over the useful life of the assets. However, the treatment of the grants by Management was not

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clear. Lack of clarity on the accounting treatment for the grant may lead to mis- classification of the obligations and probable sanctions for failure to meet the grant terms.

Management explained that when URC was formed in 1977, the value of the assets transferred from the defunct East African Railways and Harbours was treated in URC’s books as Government Contribution. Between 1977 and 1990, Government, using funds from the Ministry of Finance also acquired wagons, passenger coaches, wagon ferries and constructed the Nalukolongo Workshop on behalf of URC. Whereas URC treated the value of these assets as grants, the Ministry of Finance treats them as loans. Management is in discussion with the Parastatal Monitoring Unit who advised that URC reconciles these amounts with Ministry of Finance. Management will follow up after the review of historical records is complete.

I await the results of management efforts.

181.4 Long term loans – no repayment and review of the payment terms for the loans The Corporation recorded several long term loans in its books. This comprises of funds borrowed or mobilized by the Government of Uganda from various multilateral and bilateral funding agencies for onward lending to the Corporation. However, there was no movement in these loans over the years. Management did not provide any documentation for rescheduling the terms of payment. Failure to recognize and classify such borrowings may lead to penalties and sanctions.

Management explained that they are holding discussions with Ministry of Finance (PMU) to establish the status of these loans. An exercise to review historical records has been instituted and a final position is expected by 30th November 2014.

I advised Management to follow up on the terms of these loans and make the necessary adjustments if any in the financial statements.

181.5 Long outstanding trade and other payables I reviewed the Corporation’s payables of UGX.28.2billion. Included in this figure is accumulated interest on loans of UGX.9.5billion which did not show any movement over the last two years. Management did not circularize these loans to establish the actual status. Long outstanding payables may result into litigation risk and loss of funds by the Corporation.

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Management explained that the interest on loans of UGX.9.5billion is yet to be confirmed by government.

I advised management to establish the terms of the loans and related interest with Government. The other non-moving payables should be circularized so as to come up with a well reconciled position.

181.6 Inadequate system for tracking concessions income There was an inadequate system of control for concession income on which reliance could be made for the purpose of the audit. Management relies on concession income computations made by RVR as a basis to raise invoices. I was therefore unable to verify the completeness of concession income as stated in the financial statement amounting to UGX.4,451,405,955. There is a risk of under declaration of income by the Concessionaire resulting into loss of revenue.

Management explained that given the concession terms, URC cannot predetermine the income but rather relies on the information provided by RVR. They further explained that a Concession Monitoring Unit has been setup to carry out periodic verifications of the concession fees as declared by RVRU.

I advised Management to ensure that the URC officials liaise with the RVR management to provide timely reports of income statistics for reconciliation with reports from the concessionaires. Follow up of independent audit should be done as provided in the concession agreement so as to gain assurance on completeness and accuracy of concession revenue due to URC from RVR.

181.7 Corporation losses and liabilities The financial statements indicate that the Corporation incurred a net loss of UGX.2.27billion during the year ended 31/12/2012 and its liabilities exceeded its current assets by UGX.141.73 billion. Continuous loss position poses a threat to the Corporation continued existence and possibly bankruptcy.

I recommend that management reviews Corporation’s operational procedures so as to revamp it to profit making position.

182. UGANDA RAILWAYS CORPORATION YEAR ENDED 31ST DECEMBER 2013

182.1 Non-valuation of Property, Plant and Equipment

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Under IAS 16 Items of Property, Plant and Equipment should initially be recognized at Cost. However, for subsequent measurement the entity should choose either the Cost or Revaluation model. The Corporation adopted revaluation model for its subsequent measurements as its policy. Further, IAS 36 (Impairment of Assets) requires that assets should not be carried at more than their recoverable amount.

It was noted that Uganda Railways Corporation reflected a balance of UGX.111,663,550,000 in its financial statements for the year ended 31st December 2013 as being Property, Plant and Equipment. However, I noted that the Corporation last revalued its assets in 1988 despite indicative areas of impairment. The following examples are indicative of impairments;  Passenger boats MV Barbas and MV Mvule valued at UGX.1,600,000,000 suspended operations on lake Victoria and are anchored at pier due to declining marine passenger services. Whereas MV Mvule was conceded to RVR and returned, MV Barbus and MV Pamba are still at Port Bell and Barbus is due to be Disposed through sale while MV Pamba and MV Mwanga are awaiting repairs. MV Kaawa collided with MV Kabalega and sunk. MV Barbus, MV Mwanga and MV Pamba are not generating any economic benefits to URC.  The Corporation owns many rental properties in various towns in Uganda and Kenya which are dilapidated. However, the Corporation earns rental income from them which is far below market rates due to their state.

Management explained that impairment reviews will be done in the financial year 2015. Revaluation of the assets by an independent valuer is expected to commence during the year.

I await management action on the matter.

182.2 Un-serviced Long Term Loans The Corporation recorded a number of long term loans in its books amounting to UGX.22,067,482,000. This amount comprised of borrowed funds or funds mobilized by the government of Uganda from various multilateral and bi-lateral funding agencies for onward lending to the Corporation. However, these loans have not shown any movement from year to year yet there is no documentation for rescheduling the terms of payment. The balances have been outstanding in the Corporation’s books for over 28 years. In absence of documentation to support the reflected outstanding amounts, I am unable to establish whether the outstanding amounts are fairly stated.

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Management explained that a follow up with the Parastatal Monitoring Unit (PMU) of Ministry of Finance was done, and PMU recommended an exercise to establish the breakdown of this amount. This has been done, and the report will be sent to MoFPED with a request to treat these as grants, after appointment of the Board.

I await the results of management efforts.

182.3 Trade and other Payables The Corporation had a balance of UGX.17,774,682,000 outstanding as trade and other payables by the end of the year. It was observed that there was an increase of 23% in the component of trade payables from UGX.924,362,000 in the previous year to UGX.1,140,337,000 in the current year. Further, Note 24 did not disclose to whom the balance of interest payable of UGX.9,511,880,000 that constituted part of the payables, was due to. This balance has been outstanding for over five years i.e. since 2008 without any movement. The balances of items in the payables accounts were not supported by original documents (LPOs, Contracts, Inward Invoices, claims, demand notes, schedules etc.) and there was no effort to carry out payables age analysis including lack of an invoice register. It was also noted that the payables have been under-stated by UGX.864,284,608 after netting off of creditors with debit balances.

As such, I was not able to confirm that the Corporation’s payables were complete, accurate and properly measured. The Corporation is at risk of litigation and eventual payment of fines due to delays to settle these accounts.

Management explained that the anomalies will be sorted done during the Balance Sheet Clean up exercise. I advised Management to settle obligations as and when they fall due. I also advised that adequate disclosure of note 24 should be made with schedules and the supporting source documents to enable me confirm that the balances.

182.4 Insufficient disclosure of balance due to Related Party IAS 24 Related Party Disclosure requires entities that have a relationship to disclose the nature of transactions between themselves. It was noted that there was a transaction between Uganda Railways Corporation (Parent entity) and Nalukolongo Railway Workshop limited (Subsidiary) of UGX.2,306,482,000 which has not been substantially disclosed. Under note 19, URC has not disclosed the nature of relationship, information about the nature of transaction, the terms and conditions of transaction, nature of consideration and provisions for doubtful debts related to outstanding balances. Merely stating that the

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transactions with the related party were made on an arm’s length basis and the terms and conditions were similar to those that would be offered to other entities was not sufficient and should thus be substantiated. In the absence of detailed disclosure, I am unable to establish that indeed these were related party transactions.

I advised Management to disclose all information as required by the accounting standards.

182.5 Improper recognition of investment in subsidiary On 30 January 1998, the Corporation and Adtranz GmbH, a limited liability company incorporated in Germany entered into a contractual agreement that established a company, Adtranz Nalukolongo Limited, to jointly operate the Nalukolongo locomotive workshop.

With effect from 1 October 2001, Adtranz Nalukolongo Limited changed its name to Bombardier Transportation Uganda Limited. This was a result of the sale of Adtranz GmbH of Germany to Bombardier Transportation Inc. of Canada. A balance of UGX.1,787,408,000 disclosed as investment in subsidiary represents the Corporation’s contribution to the registered capital of Bombardier Transportation Uganda Limited. This was a non-cash contribution equivalent to US Dollars 600,000 and comprised spare parts and other components which was valued at 40% of the shareholding in Bombardier Transportation Uganda Limited. The joint venture expired and on 30 June 2004 it was mutually agreed by both parties to terminate it.

On 23 June 2004, the Corporation bought off the 60% shareholding owned by Bombardier transport (Management) Germany GMBH in Bombardier Transport (Uganda) Limited to become the majority shareholder owning 98% while Ministry of Finance and Economic Development and the Ministry of Works, Transport and Communications owned 1% each.

While the Corporation first acquired Nalukolongo under joint venture arrangement in 1998 at UGX.1.7 billion with 40% shareholding, it was noted that it is still accounting for this investment in its books at cost – UGX.1.7 billion yet it now has 98% shareholding. I was not able to establish the amount of consideration given in order to raise its shareholding from 40% to 98%. The accounting treatment is contrary to the requirements of IFRS 10 which requires full consolidation.

Further, pursuant to the concession agreement between RVR and the Corporation, NRWL’s assets were revalued and taken over by the concessionaire and as such the Corporation has no right to cash flows in form of dividends from NRWL now.

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Management responded that NRWL is under liquidation and that the investment will be written off after all the supporting documents have been obtained from the Government liquidator.

I advised Management to review all documentation relating to the investment and have it treated in line with the relevant IFRS.

182.6 Financial analysis and assessment of going concern I carried out ratio analysis of Financial Information and the following were observed for the attention of management with a view of ensuring entity survival:

Year 2013 2012 2011 2010 Implications and remarks Current Ratio 0.9 times 0.8 times 0.8 times 0.6 Measures ability to meet short times term liabilities when they fall due. Current assets were not adequate to cover current liabilities in all the years. The higher the ratio the better and ideal is 2:1 This is not healthy for URC. Quick Ratio 0.9 times 0.8 times 0.8 times 0.6 Measures ability of current assets times minus stock/ Inventory to meet short term obligations when they fall due. Current assets were insufficient to cover current liabilities for the past four years. The higher the ratio the better. This again is not healthy for URC. The ideal is 1:1 Average 1,029 813 Days 3,943 1,514 This Ratio measures average collection Days Days Days number of days required to Period convert receivables into Cash. It can be noted that it takes years to collect cash and this is worsened by lack of credit policies. Ideal debtors policy should be not less than 60 days. Accounts 0.3 times 0.4 times 0.09 0.2 This Ratio indicates how many Receivable times times times, on average, accounts receivables are collected during Turn-Over the year. It can be noted that the Corporation converted accounts receivables into cash only 0.3 times in 2013. Past years were not good either. Total Assets 0.044 0.045 0.027 0.029 This Ratio assesses managements’ Turn over times times times times efficiency in managing all the Corporation’s assets. The higher the ratio, the smaller the investment required and the more the profitability of the Corporation. It can be noted that the Corporation’s total assets turnover has worsened from last years but 746

better than 2011 and 2010. Debt Ratio 45.4% 48.7% 58.9% 48% This Ratio measures the proportion of all assets financed with debt. Use of debt involves risk due to fixed interest charges and principal repayments. Failure to satisfy the fixed charges may result into bankruptcy. Another risk is that a firm with too much debt has difficulty in raising additional debt finance when needed. It can be noted that the Corporation is facing high risks related to debt financing. Debt to Equity 1.49 1.70 2.65 1.78 This Ratio measures the riskiness Ratio times times times times of the Corporation’s capital structure in terms of creditors and equity owners. The higher the proportion the greater the degree of risk. It can be noted that the Corporation is facing a high risk related to debt financing.

The ratios are an indication that Uganda Railways Corporation may not be able to sustain provision of services and its mandate.

Management explained that the debts are historical arising out of un-reconciled pre- concession freight debts and inter-railway accounts, these are planned be handled during the Balance Sheet clean-up. Management further explained that policies will be formulated and forwarded to the Board for approval with a view of improving the affairs of the entity.

I await the results of management action.

182.7 Revenue 182.7.1 Inadequate system for tracking concession income

The concession agreement for 25 years signed between GoU/URC and Rift Valley Railways (RVR) in 2006 provided among the terms of the agreement a requirement by RVR to declare the revenue/income earned every month to URC upon which income accruing to the later/URC of 11.1% was to be paid to URC. Section K.1 (3) and K.2 of the agreement empowers URC to perform independent audits of concessionaire to establish and confirm Gross revenue earned by RVR from which the 11.1% concession fees are computed.

I noted that the concessionaire has been remitting funds and management has been relying on concession income computations made by RVR as a basis to raise invoices.

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There is a risk of under declaration of concession income by the Concessionaire thus loss of revenue to the Corporation.

Management explained that the procurement of an independent audit firm is on-going. The exercise is expected to commence by mid October 2015.

I advised Management to expedite the engagement of a competent firm to verify the amounts disclosed by the concession.

182.7.2 VAT Dispute between URC and RVR Uganda Revenue Authority carried out a tax audit in January 2008 and ascertained that Uganda Railways Corporation had not collected VAT on concession fees for the period November 2006 to January 2008. The amount then outstanding was computed as UGX.570,283,160 which comprised of Principal tax-UGX.483,086,641 and interest of UGX.87,196,519. URC made payments to URA from its own resources and by November 2013, it had paid UGX.2,115,465,715. VAT arrears had accumulated to UGX.3,202,015,672 comprising of Principal tax UGX.2,798,395,023 and interest of UGX.403,620,649 due to further accumulated arrears. Further, while the Uganda Railways Corporation was engaging RVR to recover the VAT from RVR, Uganda Revenue Authority went ahead to issue an agency notice in July 2013 to URC bankers whereby credit balances standing on bank accounts were garnished and URA recovered UGX.717,165,420.

There is a risk of the Corporation failing to sustain its operations given that already its earnings are below projections in the concession agreement.

Management explained that the matter is before the commercial division of the High Court for legal interpretation. However, Management will continue to hold consultations with MoFPED, MoWT, Attorney General and PU on the matter.

I await the outcome of the Management efforts.

182.8 Strategic Issues and corporate governance 182.8.1 Inappropriate Legal Framework for post concession URC Sections 2, 3 and 4 of the Uganda Railways Corporation Act 1992 outline the establishment, objects and functions of the Corporation. The second schedule of the Public Enterprise Reform and Divestiture Act recognizes a concession contract as a method of privatization.

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After the signing of the Concession agreement in November 1, 2006 between the Government of Uganda and M/s Rift Valley Railways Uganda Limited, some assets as well as Railway Freight services formerly offered by Uganda Railways Corporation were conceded to the Rift Valley Railways Uganda limited. Given the concession agreement and the proposed construction of the Standard Gauge railway line, the new post concession mandate and objectives of URC has changed yet there is no new legal framework to cater for the changes. As such the mandate is not aligned with the annual work plans of the Corporation.

Management explained that the Minister of Works and Transport has not appointed a Board to undertake this responsibility. A task force of stakeholders comprising of officials from MoWT, MoFPED, MoJCA and URC is being set up by MoWT to consider the issue of a new legal framework.

I await the results of management efforts.

182.8.2 Budget performance Section 3.1.7 (2) and (3) of the URC financial accounts manual 2007, entrusts the chief executive officer with the responsibility to ensure achievement of targeted growth and profitability, coordination and monitoring of the departmental targets and Head of Department’s targets in line with the strategic plan and annual budgets. It was observed that management did not perform as expected. Some targets were partially or not achieved at all during the year and thus a number of Corporation objectives were not met. Details are below;

Specific Specific plans Amount (UGX) Remarks objectives 1. Concessi (i) Perform an independent revenue audit 528,000,000 Unimplemente on monitoring of RVR to establish the correctness of d concession fee remittances to date. (ii) Procure a motor inspection trolley. 81,000,000 Unimplemented 2. Managem (i) Complete the disposal process of the Unimplemented ent of assets remaining 2,620 tonnes (79%) of 4,358,000,000 railway steel scrap. (ii) Update the Corporation’s fixed asset Unimplemented register to accurately reflect the 2,025,000,000 existence, condition and value of the assets. (iii) Rehabilitate and upgrade the wagon Unimplemented ferry MV Pamba and the motor service 13,912,350,885 launch MV Mwanga.

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(iv) Obtain marine class for the recently Unimplemented rehabilitated and re-commissioned 561,600,000 , surveys floating dry dock and then insure it. undertaken but not insured (v) Embark on the physical marking of the Unimplemented railway reserve boundaries using 1,000,000,000 reinforced concrete pillars and mitigate the increasing encroachment and illegal allocation of railway land.

Service delivery was hampered.

I advised Ma bnagement to ensure that realistic estimates are made and adequate supervision of the projects is undertaken.

182.9 Lack of Board of Directors URC lacks a Board of Directors in place since the previous one was dissolved. A board of directors exists to conduct the strategic business affairs of the Corporation as required by good corporate governance practices. However since dissolution of the interim board, the Corporation has not had a substantive board to manage its governance and strategic affairs since 13th December 2013. Lack of board of directors limits the Corporation from benefiting from the governance role.

Management explained that since the Board term expired in December 2013, there has not been a replacement. The responsibility of appointing a new Board lies with the Minister of Works and Transport. Consultations have been made and a new Board is expected by end of December 2014.

I advised management to follow up the matter and have the Board in place.

183. UGANDA RAILWAYS CORPORATION FOR THE YEAR ENDED 31ST DECEMBER 2014

183.1 Non-valuation of Property, Plant and Equipment Under IAS 16 Items of Property, Plant and Equipment should initially be recognized at Cost. However, for subsequent measurement the entity should choose either the Cost or Revaluation model. The Corporation adopted revaluation model for its subsequent measurements as its policy. Further, IAS 36 (Impairment of Assets) requires that assets should not be carried at more than their recoverable amount.

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It was noted that Uganda Railways Corporation reflected a balance of UGX. 105,906,512,000 in its financial statements for the year ended 31st December 2014 as being Property, Plant and Equipment. However, I noted that the Corporation last revalued its assets in 1988 despite indicative areas of impairment. The following examples are indicative of impairments;  Passenger boats MV Barbas and MV Mvule valued at UGX.1,600,000,000 suspended operations on lake Victoria and are anchored at Port Bell pier due to declining marine passenger services. Whereas MV Mvule was conceded to RVR and returned, MV Barbus and MV Pamba are still at Port Bell and Barbus is due to be Disposed through sale while MV Pamba and MV Mwanga are awaiting repairs. MV Kaawa collided with MV Kabalega and sunk. MV Barbus, MV Mwanga and MV Pamba are not generating any economic benefits to URC.  The Corporation owns many rental properties in various towns in Uganda and Kenya which are dilapidated. However, the Corporation earns rental income from them which is far below market rates due to their state.

Management explained that impairment reviews will be done in the financial year 2015. Revaluation of the assets by an independent valuer is expected to commence during the year.

I await the Accounting Officer’s action on the matter.

183.2 Un-serviced Long Term Loans The Corporation recorded a number of long term loans in its books amounting to UGX.22,067,482,000. This amount comprised of borrowed funds or funds mobilized by the government of Uganda from various multilateral and bi-lateral funding agencies for onward lending to the Corporation. However, these loans have not shown any movement from year to year yet there is no documentation for rescheduling the terms of payment. The balances have been outstanding in the Corporation’s books for over 28 years. In absence of documentation to support the reflected outstanding amounts, I am unable to establish whether the outstanding amounts are fairly stated.

Management explained that a follow up with the Parastatal Monitoring Unit (PMU) of Ministry of Finance was done, and PMU recommended an exercise to establish the breakdown of this amount. This has been done, and the report will be sent to MoFPED with a request to treat these as grants, after appointment of the Board.

I await the results of the Accounting Officer’s efforts.

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183.3 Trade and other Payables The Corporation had a balance of UGX.16,213,289,000 outstanding as trade and other payables by the end of the year. It was noted that though there was a decrease of 26% in trade payables from the previous year, the outstanding amount of Shs.848,391,000 in the current year was quiet significant. Further, Note 24 did not disclose to whom the balance of interest payable of UGX.9,511,880,000 that constituted part of the payables, was due to. This balance has been outstanding for over five years i.e. since 2008 without any movement. The balances of items in the payables accounts were not supported by original documents (LPOs, Contracts, Inward Invoices, claims, demand notes, schedules etc.) and there was no effort to carry out payables age analysis including lack of an invoice register. It was also noted that the payables have been under-stated by UGX. 955,401,493 after netting off of creditors with debit balances.

As such, I was not able to confirm that the Corporation’s payables were complete, accurate and properly measured. The Corporation is at risk of litigation and eventual payment of fines due to delays to settle these accounts.

Management explained that the anomalies will be sorted done during the Balance Sheet Clean up exercise.

I advised the Accounting Officer to settle obligations as and when they fall due. I also advised that adequate disclosure of note 24 should be made with schedules and the supporting source documents to enable me confirm that the balances.

183.4 Insufficient disclosure of balance due to Related Party IAS 24 Related Party Disclosure requires entities that have a relationship to disclose the nature of transactions between themselves. It was noted that there was a transaction between Uganda Railways Corporation (Parent entity) and Nalukolongo Railway Workshop limited (Subsidiary) of UGX.2,306,482,000 which has not been substantially disclosed. Under note 19, URC has not disclosed the nature of relationship, information about the nature of transaction, the terms and conditions of transaction, nature of consideration and provisions for doubtful debts related to outstanding balances. Merely stating that the transactions with the related party were made on an arm’s length basis and the terms and conditions were similar to those that would be offered to other entities was not sufficient and should thus be substantiated. In the absence of detailed disclosure, I am unable to establish that indeed these were related party transactions.

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I advised the Accounting Officer to disclose all information as required by the accounting standards.

183.5 Improper recognition of investment in subsidiary On 30 January 1998, the Corporation and Adtranz GmbH, a limited liability company incorporated in Germany entered into a contractual agreement that established a company, Adtranz Nalukolongo Limited, to jointly operate the Nalukolongo locomotive workshop.

With effect from 1 October 2001, Adtranz Nalukolongo Limited changed its name to Bombardier Transportation Uganda Limited. This was a result of the sale of Adtranz GmbH of Germany to Bombardier Transportation Inc. of Canada. A balance of UGX.1,787,408,000 disclosed as investment in subsidiary represents the Corporation’s contribution to the registered capital of Bombardier Transportation Uganda Limited. This was a non-cash contribution equivalent to US Dollars 600,000 and comprised spare parts and other components which was valued at 40% of the shareholding in Bombardier Transportation Uganda Limited. The joint venture expired and on 30 June 2004 it was mutually agreed by both parties to terminate it.

On 23 June 2004, the Corporation bought off the 60% shareholding owned by Bombardier transport (Management) Germany GMBH in Bombardier Transport (Uganda) Limited to become the majority shareholder owning 98% while Ministry of Finance and Economic Development and the Ministry of Works, Transport and Communications owned 1% each.

While the Corporation first acquired Nalukolongo under joint venture arrangement in 1998 at UGX.1.7 billion with 40% shareholding, it was noted that it is still accounting for this investment in its books at cost – UGX.1.7 billion yet it now has 98% shareholding. I was not able to establish the amount of consideration given in order to raise its shareholding from 40% to 98%. The accounting treatment is contrary to the requirements of IFRS 10 which requires full consolidation.

Further, pursuant to the concession agreement between RVR and the Corporation, NRWL’s assets were revalued and taken over by the concessionaire and as such the Corporation has no right to cash flows in form of dividends from NRWL now.

Management responded that NRWL is under liquidation and that the investment will be written off after all the supporting documents have been obtained from the Government liquidator.

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I advised the Accounting Officer to review all documentation relating to the investment and have it treated in line with the relevant IFRS.

183.6 Trade and other Receivables 183.6.1 Uncollected Trade receivables

There was no movement on the trade receivables account balance of UGX 2,936,156,000 for the last two year. This implies that the Corporation did not make any effort to recover debts. Further, it was observed that there were no comprehensive debt management policies to guide the staff while granting credit to clients. It was also noted from the review of the ledgers that the total receivables were under stated by UGX.1,214,504,667 as a result of netting off receivables with prepaid accounts.

The Corporation risks loss of income due to non-collection. Management explained that the trade debtors relate to pre-concession debts arising from freight services. Management plans to carry out a Balance Sheet clean up, for all debts and payables. In the meantime Management has written to all tenants to resume rental payments.

I advised the Accounting Officer to develop a comprehensive Debtors management policy and carry out regular ageing analysis to enable management make informed decisions.

183.6.2 Inappropriate provision for bad debts IAS 37 on Provisions, contingent liabilities and contingent assets requires that the provision recognised by management should be the best estimate at the end of the reporting period.

Contrary to the standard, it was noted that management provided the same amount of provision to its trade and rental debtors of UGX 1,084,826,000 for both the current and previous years and yet there was an increase in the outstanding amount from UGX. 3,892,984,000 to UGX.3,939,495,000 from previous year to current year.

There is a risk that the amount provided is not fairly stated. Management explained that the provision related to pre-concession debts arising from freight services. A determination of how to treat these debts will be reached at after the Balance Sheet clean up exercise.

I advised the Accounting Officer to make prudent provisions which are based on clear documented guidelines that are in line with IAS 37 to ensure fair disclosures of receivables in the financial statements.

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183.7 Non-compliance with IFRS 5 on assets held for sale I noted that the Corporation has quite a number of assets which they intend to sell or are due for phased disposal. Among the items are houses and properties in various towns, MV Barbus and an assortment of office items and equipment. However, contrary to the IFRS 5, these assets have not been presented and disclosed separately in the financial statements. Users of the financial statements cannot make informed decisions and projections about the financial position, profits and cash flows of the Corporation.

Management responded that compliance with IFRS 5 will be implemented in the financial year 2015.

Management was advised to adjust the financial statements and reflect the assets separately on the face of the statement of financial position and the results of discontinued operations to be presented separately in profit and loss as prescribed by the IFRS.

183.8 Accounting for Government grants The Corporation Management did not properly account for Government grants in the accounts. As at 31st December 2014, the Government of Uganda‘s contribution to the Corporation amounted to UGX 39.9 billion. These contributions comprise both non- monetary/capitalization grants and revenue grants which were used for asset acquisition.

The Government grant share was not accounted for in accordance with the requirement of IAS 20, which provides that Government grants which relate to assets including non- monetary grants at fair value, shall be presented in the statement of financial position either as deferred income or by deducting the grant in arriving at the carrying amount of the asset of which the deferred grant income should be amortized over the useful life of the assets. There were no movements in these amounts to reflect amortization during the year.

Management explained that a follow up with the Parastatal Monitoring Unit (PMU) of Ministry of Finance was done. PMU recommended an exercise to establish the breakdown of this amount, which has been done, and the report will be sent after appointment of the Board.

I advised the Accounting Officer to follow up the matter with the Board and have the disclosures done in line with IAS 20.

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183.9 Capacity Building loan A Capacity building loan of UGX.69,312,000 was acquired over eight years ago following a need to increase the Corporation’s wagon fleet and meet customer needs. The loans advanced were to be recoverable from freight bills within a period of three years. I noted that this obligation has been outstanding for a long time and without repayments of both the interest and principal amount. Further, the relevant loan agreements were not availed for verification and the obligation has not been sufficiently disclosed in the financial statements. Management risks litigation for failure to meet its obligations under the funding agreement and is likely to suffer fines or penalties.

Management responded that this was a pre-concession balance. Reconciliation will to be carried out during the Balance Sheet clean up exercise and the related adjustments made.

I await the results of the Accounting Officer’s action.

183.10 Net Inter-Railway accounts UGX.116,004,000 has been outstanding in URC books for more than a year with no effort to collect it from Kenya Railways as a result of inter railway transactions. While Uganda Railways Corporation owed UGX.40,376,715,000 to Kenya Railways Corporation, the later owed UGX.40,492,719,000 to the former.

This is due to failure by URC to follow up and demand payment from Kenya Railways Corporation. It is likely that the debt may not exist or may not be accurately stated since no effort was made to reconcile the amounts with the Kenya Railways. The receivables could be misstated in the financial statements.

Management stated that they will undertake the reconciliation.

I advised the Accounting Officer to reconcile the balances with the counter parts in Kenya, so that settlement of outstanding amounts effected.

183.11 Financial analysis and assessment of going concern I carried out ratio analysis of Financial Information and the following were observed for the attention of management with a view of ensuring entity survival;

YEAR 2014 2013 2012 2011 IMPLICATIONS AND REMARKS Current 0.9 0.9 0.8 0.8 Measures ability to meet short term Ratio times times times times liabilities when they fall due. Current assets were not adequate to cover current liabilities in all the years. The higher the ratio the better and ideal is 2:1 This is not healthy for URC. 756

Quick Ratio 0.9 0.9 0.8 0.8 Measures ability of current assets minus times times times times stock/ Inventory to meet short term obligations when they fall due. Current assets were insufficient to cover current liabilities for the past four years. The higher the ratio the better. This again is not healthy for URC. The ideal is 1:1 Average 1,422 1,029 813 3,943 This Ratio measures average number of collection Days Days Days Days days required to convert receivables into Period cash. It can be noted that it takes years to collect cash and this is worsened by lack of credit policies. Ideal debtors policy should be not less than 60 days. Accounts 0.2 0.3 0.4 0.09 This Ratio indicates how many times, on Receivable times times times times average, accounts receivables are Turn-Over collected during the year. It can be noted that the corporation converted accounts receivables into cash only 0.2 times in 2014 and has been worsening since 2011. Total Assets 0.033 0.044 0.045 0.027 This Ratio assesses managements’ Turn over times times times times efficiency in managing all the corporation’s assets. The higher the ratio, the smaller the investment required and the more the profitability of the corporation. It can be noted that the corporation’s total assets turnover has worsened since 2012 but better than 2011. Debt Ratio 46.3% 45.4% 48.7% 58.9% This Ratio measures the proportion of all assets financed with debt. Use of debt involves risk due to fixed interest charges and principal repayments. Failure to satisfy the fixed charges may result into bankruptcy. Another risk is that a firm with too much debt has difficulty in raising additional debt finance when needed. It can be noted that the corporation is facing high risks related to debt financing. Debt to 1.44 1.49 1.70 2.65 This Ratio measures the riskiness of the Equity Ratio times times times times corporation’s capital structure in terms of creditors and equity owners. The higher the proportion the greater the degree of risk. It can be noted that the corporation is facing a high risk related to debt financing.

The ratios are an indication that Uganda Railways Corporation may not be able to sustain provision of services and its mandate.

Management explained that the debts are historical arising out of un-reconciled pre- concession freight debts and inter-railway accounts, these are planned to be handled during the Balance Sheet clean-up. Management further explained that policies will be formulated and forwarded to the Board for approval with a view of improving the affairs of the entity.

I await the results of the Accounting Officer’s action.

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183.12 Un-updated Fixed Assets Register A review of property, plant and equipment and other assets revealed that the fixed assets register was not up dated as required by the corporation’s financial regulations and best practice. Some of the anomalies noted are as below;  Land and buildings sold are still on the register  MV Kawa was rehabilitated but the capitalisation was not recognised in the register  Rehabilitation of the floating dock not capitalised  380 railway wagons rehabilitated under the KFW project grant not capitalised  Culverts along Busembatya –Jinja road not captured  Kampala – Kasese line was uprooted but still in the register  Kampala-Malaba line had some lines uprooted but all are still in the register  Some wagons have been cut and used to repair others but they are still on the register

Absence of an updated fixed assets register weakens controls over fixed assets and the periodic reconciliation between the general ledger and the physical assets cannot be undertaken. In addition depreciation computation cannot be promptly and correctly ascertained as it is based on global figures rather than individual assets.

Management explained that uupdating the fixed assets register is one of the deliverables in the revaluation exercise to commence by mid October 2015. They further explained that after the revaluation exercise, Management will set up an asset management system.

I advised the Accounting Officer to set up a comprehensive updated fixed assets register for the Corporation with the details required by the Financial and Accounting Manual for better management of its fixed assets.

183.13 Revenue 183.13.1 Inadequate system for tracking concession income

The concession agreement for 25 years signed between GoU/URC and Rift Valley Railways (RVR) in 2006 provided among the terms of the agreement a requirement by RVR to declare the revenue/income earned every month to URC upon which income accruing to the later/URC of 11.1% was to be paid to URC. Section K.1 (3) and K.2 of the agreement empowers URC to perform independent audits of concessionaire to establish and confirm Gross revenue earned by RVR from which the 11.1% concession fees are computed.

I noted that the concessionaire has been remitting funds and management has been relying on concession income computations made by RVR as a basis to raise invoices.

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There is a risk of under declaration of concession income by the Concessionaire thus loss of revenue to the Corporation.

Management explained that the procurement of an independent audit firm is on-going. The exercise is expected to commence by mid October 2015.

I advised the Accounting Officer to expedite the engagement of a competent firm to verify the amounts disclosed by the concession.

183.13.2 VAT Dispute between URC and RVR

Uganda Revenue Authority carried out a tax audit in January 2008 and discovered that Uganda Railways Corporation had not collected VAT on concession fees for the period November 2006 to January 2008. As noted in my previous years report, Uganda Railways Corporation has continued to pay VAT on the concession earnings thus eroding its anticipated earnings.

Uganda Railways Corporation is likely to experience a strain on its cash flows, which cannot be sustained given the fact that its earnings are below projections in the concession agreement.

Management explained that the matter is before the commercial division of the High Court, for legal interpretation. However, Management will continue to hold consultations with MoFPED, MoWT, Attorney General and PU on the matter.

I await the outcome of the Accounting Officer’s efforts.

183.13.3 Under remittance of Funds from Ministry of Works to the Corporation

The Ministry of Works and Transport in the financial year 2012/2013 budgeted UGX 1,000,000,000 for Uganda Railway Corporation (URC) under the project code- 002 Institutional support to URC, marking railway reserve boundaries with reinforced concrete pillars (phase 1) and rehabilitation and upgrade of Wagon ferry Pamba. However, it was observed that Ministry of Finance, Planning and Economic Development released all the funds to Ministry of Works to undertake the above activities but only UGX. 909,893,145 was remitted to URC leaving a balance of UGX. 90,106,855. Under remittance of funds to the Corporation affects performance and service delivery to the public.

Management indicated that they will follow up with the Ministry of Works on the matter.

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I await the results of the Accounting Officer’s efforts.

183.13.4 Use of non-approved rates for collection of Port Fees

Best practice requires that for revenue to be properly assessed, collected and accounted for the entity should formulate guidelines relating to the types and rates to be collected. Port fees are mainly collected from operations in Jinja and Port bell ship terminals where dock hire charges, docking fees and gate collections are charged on a daily basis.

The Corporation experienced a decline in earnings from the port facilities during the year 2014 compared to the financial year 2013. Collections reduced from UGX 331,345,000 to UGX 192,733,000 (42% reduction) which was UGX. 138,612,000. It was further noted that no official port tariff is in place and the rates used were determined by the marine officer who is in charge of the two port facilities. There is a risk that fees collected are under- declared.

Management explained that the decline in earnings was due to the withdrawal of a major customer, M/S Barkhresa, from the southern route as a result of Government imposing import duty on his products. Management further explained that the rates being used were adopted from the RVRU tariff book, and that new tariffs have been determined after survey of similar ports around Lake Victoria and will be put in place after approval of the Board and the Minister of Works and Transport.

I await the results of the Accounting Officer’s action.

183.14 Strategic Issues and corporate governance 183.14.1 Inappropriate Legal Framework for post concession URC

Sections 2, 3 and 4 of the Uganda Railways Corporation Act 1992 outline the establishment, objects and functions of the Corporation. The second schedule of the Public Enterprise Reform and Divestiture Act recognizes a concession contract as a method of privatization.

After the signing of the Concession agreement in November 1, 2006 between the Government of Uganda and M/s Rift Valley Railways Uganda Limited, some assets as well as Railway Freight services formerly offered by Uganda Railways Corporation were conceded to the Rift Valley Railways Uganda limited. Given the concession agreement and the proposed construction of the Standard Gauge railway line, the new post concession mandate and objectives of URC has changed yet there is no new legal framework to cater

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for the changes. As such the mandate is not aligned with the annual work plans of the Corporation.

Management explained that the Minister of Works and Transport has not appointed a Board to undertake this responsibility. A task force of stakeholders comprising of officials from MoWT, MoFPED, MoJCA and URC is being set up by MoWT to consider the issue of a new legal framework.

I await the results of the Accounting Officer’s efforts.

183.15 Lack of Strategic plan It was observed that URC does not have a strategic plan in place although annual work plans and budgets were prepared annually. In the absence of the strategic development plans, URC’s performance may not be given due attention because annual work plans and budgets only focus on short term objectives which do not specifically address the long term challenges and ambitions.

Management explained that they are in the process of preparing a 5-year Strategic Plan (2016 to 2020).

I advised the Accounting Officer to expedite the formulation and approval of its strategic development plan to enable it prepare focused operational annual plans and budgets for the implementation of its activities.

183.16 Human Resource 183.16.1 Failure to Substantively appoint key staff

Section 21, 22 and 23 of the URC Act 1992 requires the Corporation to have a managing director appointed by the Minister on the recommendation of the board who shall hold office for a period of four years. The same sections further provide for appointment of other staff.

It was noted that the Board failed to execute its mandate of appointing a substantive Managing Director and the Chief Finance Officer for the last six years. Instead the two key officers serve on acting appointment contrary to paragraph 12.1.1.2 (b) of the Human Resource Manual that requires such appointments not to exceed a consecutive period of six (6) months from the date of appointment to such a position. Since 2006 the Corporation has had two Managing Directors and the Chief Finance Officer in acting assignments for more than five years.

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Management responded that the Minister of Works and Transport is yet to appoint the Board whose responsibility will be to appoint staff.

I advised that the Minister expeditiously appoint a new Board to undertake its mandate.

183.17 Performance of RVRU Concession Review of the RVRU concession agreement 2006 by the URC Chief Concession Officer revealed some shortcomings in regard to compliance with set timelines, targets and deliverables as outlined below; S/N Complianc Key areas Expectation Shortcoming e area 1 Business environme nt Investment Injection of USD RVRU did not meet this obligation in 6.7 mn in the time. conceded assets account by 23rd October 2012 Reporting – Quarterly and Both quarterly and annual reports are Annual/quart annual reports not submitted in time as per the erly and produced within 21 contract. For example, Quarterly financial days after the end company performance reports for reporting of each quarter and Quarter 2 and 3 for 2012/13 were by 31st October of submitted alongside the annual report every year dated 18th January 2014. respectively. 2 Concessio Revenue Sharing in the ratio Starting with August to October 2013 n fees sharing ratio of 60:40 between quarter, RVRU changed the ratio to Kenya and Uganda 80:20 for Kenya and Uganda respectively to be based on distance alone. This presents a significant drop in URC revenue to a tune of 50%, this poses as grave concern. VAT on Concession fees (i) Payments are made VAT exclusive. concession payable VAT Due to this, Uganda Revenue Authority fees and exclusive and WHT placed agency notices on to URC WHT deductions by RVR accounts and URC was forced to bear certificates to be accounted for this VAT. with tax credit The accumulated VAT payable is certificates $2.364mn as at end of July 2014 (ii) RVRU deducted Withholding tax on concession fees to a tune of US$ 275,000 and respective Withholding tax certificates are yet to be presented to URC. 3 Freight Freight Anticipated 2014 (i) 12 million net tonne kms on services volumes volumes targets of average which is still way below 24 million Net- target. tonne-Kilometer per (ii) With delayed investments, this month target spelt means that concession’s performance out in the has not achieved the desired concession objectives of upgrading and agreement rehabilitating the main railway line and 762

growing the freight volume by 75% by fifth year so RVRU has not achieved the stipulated target of 25% freight volume increase by the end of June 2014 4 Maintenan Infrastructur (i) RVRU is obliged (i) The track has not been maintained ce of e to rehabilitate and as per the stipulated standards and Conceded maintain the RVRU does not have an adequate track assets Railway track in maintenance regime in place and in accordance with addition, basic track maintenance tools Good Industry are lacking. This is resulting in a Practice. The active deteriorating railway track railway track (ii) RVRU has not upheld the Busoga measures 634 km Loop (Jinja - section) and the Pakwach Line (Tororo - Mbale section)1 to Concession Class 1 Track Standard. In fact, 80% of the railway track steel of 15km of the Busoga Loop (ii) RVRU to uphold (Jinja - Kakira section) has been busoga loop and vandalized. RVR must bear full Packwach line to responsibility for this loss concession class I (iii) The Mbale - Gulu section of the track standard. Pakwach line was re-opened by RVRU in September 2013 (one month late). (iii) Mbale –Gulu However, no revenue train has plied reopened in august the route ever since it’s opening. 2013 (pursuant to Therefore, it is the concession unlikely that this concessionaire amending deeds of obligation will be fulfilled. August 2010 after being rehabilitated) Locomotives Forty Three (43) (i) out of the conceded Forty Three Locomotives (43) Locomotives, 11 were working, 2 maintained were in Nalukolongo Work Shop for routine service and several repairs and 4 were in Work Shops for heavy Engine and other repairs. The remaining 26 are located at Nalukolongo Workshop, were stopped for heavy repairs rehabilitation and survey. Three (No 73U18, 73U29 and 73U07) have sustained grave accident damages since concession commencement. (ii) Inspection indicated that all active Locomotives are long overdue the OEM recommended overhauls and because of lack of the requisite repair spare parts, stopped Locomotives in Nalukolongo Work Shop have been heavily cannibalized by RVRU so as to be able to maintain the active locomotive Fleet. Workshop, Workshop equipment in Tororo, plant and Kampala, Nalukolongo and Port Bell equipment are not operational and has not been used by RVR since concession commencement. Also the equipment in Tororo had been cannibalized while others had been vandalized 763

5 Non Rolling stock Spares worth US $ On 1st November 2006, RVRU took Conceded spares 673,660.97 and over URC Rolling stock spares. These assets UGX.2,742,852,761 were not part of the conceded assets under except those at Nalukolongo workshop RVRU meant for conclusion of the overhaul and maintenance of the 62 class Kenyan locomotives. This implies that RVRU is obliged to pay for all the spares handed over. Motor Handover of all (ii) At the commencement of the vehicles hire vehicles not concession, URC motor vehicles were charges selected for shared as part of items to be concession after considered in the concession but RVRU three months of never selected these assets and are concession not considered in the Concession commencement. Assets Account computations but these vehicles have been and some are still being used by RVRU for operations. (ii) URC requests that hire charges be levied on the vehicles under RVR from the commencement of the concession. 6 Encroach RVRU is obliged to RVRU has not prevented further ment take the measures encroachment onto the conceded available to avoid railway reserves. Substantial further encroachment has occurred during the encroachment on concession. Of the existing 10.52 meters on encroachment, an estimated (at least) the immediate 64% (October 2010) has occurred railway land during the concession. This assertion is reserve based on encroachment estimate in a joint URC-RVRU encroachment baseline survey carried out in October 2010.

The performance of RVR up to 2010 was low and marginally satisfactory after change of shareholding thereafter. They had prior to 2010 defaulted on most of the key concessionaire obligations including payment of concession fees, maintenance of conceded assets and growing the rail freight volumes though performance review in 2014 portrayed an improvement of only 52% to Gross tones carried.

A Joint Railway Commission recommended an extension of up to 15 months to RVR to be able to overcome the poor performance and be able to meet its targets. It also recommended that RVR and Government of Uganda should agree on introduction of a commuter train service in Kampala by December 2014. However, this seems not to be plausible under the prevailing conditions.

Management explained that URC is monitoring the concession with RVRU in accordance with the concession agreements.

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I advised the Accounting Officer to continue engaging RVRU with a view of meeting the Freight Volume Targets which are largely dependent on critical investment in order to improve the track standards and reduce the areas under Temporary Speed Restrictions and increase capacity through rehabilitation and overhaul of the existing locomotives as well as the proposed purchase and lease of new locomotives.

183.18 Encroachment on Uganda Railways Corporation Land I reviewed the estates portfolio of URC and noted that a number of properties are spread all over the country. It was however observed that some individuals have encroached on the URC properties and have unlawfully gone ahead to put up developments without authority. URC is at risk of losing the properties if no action is taken against the encroachers.

Management explained that they have taken various measures such as litigation, eviction and also communicated to the Commissioner, Land Registration for cancellation of illegal titles in order to protect the Corporation’s land.

I advised the Accounting Officer to immediately take more steps to evict the encroachers and repossess the land.

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JUSTICE, LAW AND ORDER SECTOR (JLOS)

184. AMNESTY COMMISSION – YEAR ENDED 30TH JUNE 2015

184.1 Payables UGX.207,007,620 A review of the financial statements revealed outstanding payables of UGX.207,007,620 of which UGX.183,561,950 relate to rent and UGX.23,445,670 relate to outstanding balance on a motor vehicle purchased. Accumulation of the arrears implies that management did not comply with the commitment control system as guided by the Accountant General.

Management responded that payables were as a result of the budget shortfall. They further explained that UGX.23,445,670 arrears on a motor vehicle procured, was as a result of the sharp rise in the dollar exchange rate that translated into an increase in the cost price of the motor vehicle.

I advised the Accounting Officer to liaise with the Ministry of Finance Planning and Economic Development and ensure that the rental and motor vehicle arrears are cleared to avoid risk of litigation and the likely consequences of eviction.

184.2 Unfilled positions According to the Amnesty Act 2002, the Commission should have six commissioners chaired by a Judge while running the Commission business. A review of the Commission structure and staffing establishment revealed that there were two Commissioners who left the Commission sometime back but their positions have never been filled. The structure of the Commission has remained inadequate to accomplish its mandate, which may explain the underperformance of the Commission during the year under review. This matter was raised in my previous years’ reports to Parliament, however, no action has been taken to- date.

The Accounting Officer explained that they are following up the matter with the appointing authority.

I advised the Accounting Officer to keep liaising with the relevant authorities and have the vacant posts filled as per the Act.

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185. LAW DEVELOPMENT CENTRE – YEAR ENDED 30TH JUNE 2015

185.1 Land and Buildings 185.1.1 Valuation of Land and Buildings

As at 30th June 2015, the Centre’s Land and buildings were stated at UGX.19,900,000,000 and UGX.8,283,697,095 in the financial statements respectively. The Centre follows the revaluation model when measuring the value of land and buildings. This model requires assets to be revalued with sufficient regularity. In the period 2012/2013, the Centre only revalued part of its land. As stated in my previous report, the value of buildings and part of the land may be misstated because of failure to ascertain the correct current values.

Management explained that they are now procuring a private surveyor as advised by the Commissioner land registration to survey and value all its assets.

I await the results of the Accounting Officer’s efforts.

185.1.2 Un-titled plots

As noted in my previous reports, seven (7) plots (34, 508, 509, 510, 613, 614, 615) on Block 9 Makerere, Kampala were acquired by the Centre under the land acquisition instrument S.1 No. 74 of 1987-Kibuga block. However, it was noted that these plots do not have titles to evidence ownership. The plots were also not recorded in the assets register. There is a risk of loss of land since it is not appropriately recorded and titled.

Management regretted the delay in securing the titles, and indicated that they are following up the matter.

I advised the Accounting Officer to closely follow up on the title processing and obtain titles for the said plots. The land should be disclosed in the Fixed Assets Register (FAR) as required by TAIs.

185.1.3 Un-valued plots of land

I noted that six (6) plots of land disclosed in the fixed asset register did not have land titles and were not in the valuation report. The plots were allocated the following asset codes in the assets register; 167945, 157710, 933(2), 74, 933 and 334593 (1). The Centre’s land is at risk of loss and the value of land in the financial statements as such is understated.

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Management explained that they are now procuring a private surveyor as advised by the Commissioner land registration to survey and value its assets.

I await the results of the Accounting Officer’s efforts.

185.1.4 Encroached on Land

(a) Plots 245,221,464 As raised in my previous report, the Law Development Centre is the registered proprietor of Plot 221 block 9 Makerere as per instrument of Registration No.334591 of June 2003. Plots 245 and 464 were also acquired under statutory instrument No 74 of 1987. The three plots were valued at UGX.300,000,000 as follows; plot 221 (UGX.80m), Plot 245 (UGX.70m), Plot 464 (UGX.150m) as per valuer’s report of 2008. However, it was observed that the plots are occupied by occupants who have put up permanent structures thus encumbering any developments the Centre may wish to make.

Furthermore, the value of these plots has not been included in the value of the Centre’s land thus understating it by 300m. The land has also not been revalued since 2008 rendering the value attached to the plots not fairly stated.

Management responded that the legal process of securing the plots is ongoing in the Courts of law. I await the results of the court process.

(b) Plots 481 and 482 The Law Development Centre is also the proprietor of Plots 481 and 482 block 9 Makerere, Kampala as per instruments of registration 334593 of 30th June 2003 and 334603 of 30th June 2003. The two strategically located plots are also being claimed by an individual Mailo land owner. The plots have not been valued but have been included in the asset register for the Centre. This matter has been outstanding for the last three years.

Management explained that the LDC issued instructions to its advocate to handle the matter so that LDC can secure the plots. I await the results of the Accounting Officer’s efforts.

(c) Plots 1 and 69 Bukoto Estate, Kampala The Centre is also the registered proprietor of plot 1 Bukoto Estate (Private Mailo under Register Volume No 1693 Folio 22) as per Instrument of registration No KLA 167945 of 17th August 1994 and plot 69 Bukoto Estate (Private Mailo under register volume 1537 Folio 25) as per Instrument of registration No KLA 157710 of 12th March 1993.

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Part of this land is occupied by persons that claim to have bought the land from the caretaker and about 0.60 acres is occupied by the Northern by pass. I could not ascertain whether the Centre was compensated by the Uganda National Roads Authority at the time the Northern by pass was being constructed and if it was compensated how the funds were eventually accounted for.

Management explained that they have instructed their lawyer to handle the matter. I await the results of the Accounting Officer’s efforts.

185.2 Delayed Completion of Auditorium The Center contracted a local company to construct the LDC Auditorium at a contract sum of UGX.3,971,880,902. The original completion period date for the construction works was June 2013. It was observed that in the process of executing the contract, the contractor incurred additional construction costs that were outside the contract worth UGX.953,251,416 which constituted 24% of the contract price. The contract manager however, approved only UGX.588,596,596 as additional costs. It was also noted that the LDC Contracts Committee did not approve the contract variations, and as a result construction work stalled for a period of two years.

A technical review by the Engineers from the Ministry of Works and Transport, advised the Centre to terminate the contract and the un completed works be completed with a new contract. A new contract of UGX.1,620,910,733 was drawn and has now been signed with the same company to complete the works bringing the total construction cost to UGX.5,592,791,635.

The LDC Contracts Committee refusal to approve the contract variations as approved by the project supervisor and delays by the technical committee to advise on time caused Government a financial loss of UGX.1,032,314,137. I find this expenditure wasteful.

The Accounting Officer explained that a new contract has been signed, and works are expected to be completed in February 2016.

I advised the Accounting Officer to follow up and ensure completion of the auditorium within the agreed time.

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APPENDICES

APPENDIX 1: TWO-YEAR ANALYSIS OF AUDIT OPINIONS

TYPE OF OPINION S/N ENTITY 2014/15 (Current) 2013/14 (previous) 1. Uganda Medical and Dental Practitioners Council Unqualified Unqualified 2. National Medical Stores Unqualified Unqualified 3. Uganda Nurses and Midwives Council Unqualified Unqualified 4. Joint Clinical Research Centre Unqualified Unqualified 5. Electricity Regulatory Authority Unqualified Unqualified 6. Kilembe Mines Unqualified Qualified 7. Uganda Electricity Transmission Company Limited Unqualified Qualified 8. Public Procurement and Disposal of Assets Unqualified Unqualified 9. Uganda Revenue Authority Unqualified Unqualified 10. Financial Intelligence Authority Unqualified NA 11. PU – Operations Unqualified Unqualified 12. PU – Divestiture Unqualified Unqualified 13. National Planning Authority Unqualified Unqualified 14. Uganda Industrial Research Institute Unqualified Unqualified 15. Uganda National Bureau of Standards Unqualified Qualified 16. Uganda Export Promotion Board Unqualified Unqualified 17. Uganda Investment Authority Unqualified Unqualified 18. Insurance Regulatory Authority Unqualified Qualified 19. National Agricultural Research Organization (NARO) Unqualified Unqualified 20. Diary Development Authority (DDA) Unqualified Qualified 21. National Enterprise Corporation Headquarters Unqualified Unqualified 22. National Enterprise Corporation Luwero Industries Unqualified Unqualified 23. Uganda Air Cargo Corporation Unqualified Qualified 24. Credit Reference Bureau Unqualified Unqualified 25. National Council for Children Unqualified Unqualified 26. National Council For Disability Unqualified Unqualified 27. National Women’s Council Unqualified Unqualified 28. Uganda National Cultural Centre. Unqualified Unqualified 29. National Environment Management Authority. Unqualified Qualified 30. Uganda Wildlife Training Institute Unqualified Unqualified 31. The Hotel and Tourism Training Institute Unqualified Unqualified 32. National Curriculum Development Centre Unqualified Unqualified 33. Uganda National Examination Board Unqualified Unqualified 34. Uganda Communication Commission Unqualified Unqualified 35. Uganda Institute of Communication Technology Unqualified Unqualified 36. POSTA Uganda Limited Unqualified Unqualified 37. National Information Technology Authority Uganda Unqualified Unqualified 38. Uganda National Council for Science and Technology Unqualified Qualified 39. Uganda Development Corporation Unqualified Unqualified 40. Uganda Property Holdings Unqualified Unqualified 41. Capital Markets Authority Unqualified Unqualified 42. Uganda Development Bank Unqualified Unqualified 43. Bank of Uganda Unqualified Unqualified Centre for Control of Trypanasomiasis in Uganda Unqualified 44. Unqualified (COCTU) 45. Uganda Coffee Development Authority (UCDA) Unqualified Unqualified 46. National Enterprise Corporation Farm Katonga Unqualified Unqualified National Enterprise Corporation Tractor Hire Scheme Unqualified 47. Unqualified LTD 48. National Enterprise Corporation Tractor Project Unqualified Unqualified 49. Microfinance Support Centre Unqualified Unqualified 50. Management Training and Advisory Centre Qualified Qualified 51. National Council For Higher Education Qualified Unqualified 52. National Forest Authority. Qualified Qualified 53. Nakivubo War Memorial Stadium Qualified Qualified 54. National Council of Sports Qualified Qualified 770

55. Mandela National Sports Limited Qualified Qualified 56. The Uganda Tourism Board Qualified Qualified 57. Nile Hotel International Limited Qualified Qualified 58. Uganda Electricity Distribution Company Limited Qualified Unqualified 59. Uganda Electricity Generation Company Limited Qualified Qualified 60. Law Development Centre Qualified Qualified 61. Uganda Retirement Benefit Regulatory Authority Qualified Qualified 62. Uganda Broadcasting Corporation Disclaimer of Opinion Disclaimer of Opinion 63. Uganda Railways Corporation Disclaimer Disclaimer 64. National Drug Authority Unqualified Unqualified 65. ERT BOU Unqualified Unqualified 66. ERT PSFU Unqualified Unqualified 67. ERT REA Unqualified Unqualified 68. ERT UCC Unqualified Unqualified 69. ERT UECCL Unqualified Unqualified 70. ERT PCU Unqualified Qualified 71. ESDP Kawanda Masaka Unqualified Unqualified 72. National Library of Uganda Qualified Qualified 73. National Youth Council Qualified Qualified 74. Uganda Wildlife Authority Unqualified Qualified 75. Bujagali Interconnection Unqualified Unqualified Mbarara – Nkenda and Tororo – Lira Power Unqualified Unqualified 76. Transmission Lines Project 77. UECTL Statnett Twinning Project Unqualified Unqualified 78. Rural Electrification Agency Unqualified Unqualified 79. REA – NORAD Unqualified Unqualified 80. NELSAP Unqualified Unqualified 81. National Water and Sewerage Corporation Unqualified Unqualified 82. National Social Security Fund Unqualified Unqualified 83. Allied Health Professionals Council Unqualified Unqualified 84. New vision Ltd Unqualified Unqualified 85. Uganda Wildlife Education Centre Unqualified Unqualified 86. National Housing and Construction Company Ltd Qualified Disclaimer of Opinion 87. Cotton Development Organisation Unqualified Unqualified 88. National Animal Genetics Centre and Data Bank Unqualified Qualified 89. Uganda Seeds Ltd Qualified Qualified 90. Apex Agricultural Credit Facility Unqualified Unqualified 91. Pride Microfinance Ltd Unqualified Unqualified 92. Uganda Bureau of Statistics Qualified Unqualified 93. Civil Aviation Authority Unqualified Qualified 94. Amnesty Commission Unqualified Unqualified 95. Uganda Printing and Publishing Corporation Qualified Unqualified 96. Agricultural Credit Facility Unqualified Unqualified

APPENDIX 2: AUDIT OPINIONS FOR BACKLOG AUDITS

Entity Opinion 1 Uganda Railways Corporation (Dec 2012) Disclaimer of Opinion

2 Uganda Railways Corporation (Dec 2013) Disclaimer of Opinion

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APPENDIX 3: CONSOLIDATED FINANCIAL STATEMENTS OF THE GOVERNMENT OF THE REPUBLIC OF UGANDA FOR THE YEAR ENDED 30TH JUNE 2015

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