Office of the Auditor General

OFFICE OF THE AUDITOR GENERAL

THE REPUBLIC OF UGANDA

REPORT AND OPINION OF THE AUDITOR GENERAL

ON THE FINANCIAL STATEMENTS OF NTUNGAMO DISTRICT LOCAL GOVERNMENT

FOR THE YEAR ENDED 30TH JUNE 2014

REPORT AND OPINION OF THE AUDITOR GENERAL

ON THE FINANCIAL STATEMENTS OF NTUNGAMO DISTRICT LOCAL GOVERNMENT

FOR THE YEAR ENDED 30TH JUNE 2014

THE RT. HON. SPEAKER OF PARLIAMENT

Introduction

I have audited the accompanying financial statements of Ntungamo District Local Government for the year ended 30th June 2014. These financial Statements comprise of the statement of financial position as at 30th June 2014, statement of financial performance, statement of changes in equity, cash flow statement together with other accompanying statements, notes and accounting policies.

Management Responsibility for the Financial Statements

Under Article 164 of the Constitution of the Republic of Uganda and Section 8 of the Public Finance and Accountability Act, 2003 and section 64 and 86 of the Local Governments’ Act 1997 as amended, the Accounting Officer is accountable to Parliament for the funds and resources of the Local Government. The Accounting Officer is responsible for the preparation of financial statements, in accordance with regulation 68 of the Local Governments Financial and Accounting Regulation, 2007 and for such internal controls as management determines necessary to enable the preparation of financial statements that are free from material misstatements whether due to fraud or error.

Auditor’s Responsibility

My responsibility as required by Article 163 of the Constitution of the Republic of Uganda, Section 87 of the Local Government Act and Sections 13, 16 and 19 of the National Audit Act, 2008 is to express an opinion on these statements based on my audit. I conducted my audit in accordance with the International Standards on Auditing(ISA)/ International Standards of Supreme Audit Institutions (ISSAIs). Those standards require that I comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. 1

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 the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the Auditor considers internal controls relevant to the entity’s preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose 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 audit opinion. Part “A” of my report sets out my unqualified 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.

PART "A"

Unqualified opinion

In my opinion, the financial statements of as at 30th June 2014 are prepared, in all material respects, in accordance with the Local Government Financial and Accounting Manual, 2007, Section 31(6) of the Public Finance and Accountability Act 2003, the Local Government Financial and Accounting Regulations, 2007 and the Local Governments Act cap 243 (as amended), of the Laws of Uganda.

John F.S. Muwanga AUDITOR GENERAL

20th February, 2015

PART "B"

NTUNGAMO DISTRICT LOCAL GOVERNMENT DETAILED REPORT OF THE AUDITOR

GENERAL FOR THE FINANCIAL YEAR ENDED 30TH JUNE 2014

1.0 Introduction

In accordance with Article 163(3), of the Constitution of the Republic of Uganda I am required to audit and report on the public accounts of Uganda and of all public offices, including the courts, the central and the 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 Ntungamo District to enable me report to Parliament.

2.0 AUDIT OBJECTIVES 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. The audit was carried out with regard to the following objectives:- a. To verify whether the financial statements have been prepared in accordance with the requirements of the Local Governments Financial and Accounting Manual 2007; and the Local Governments Financial and Accounting Regulations 2007; and fairly present the income and expenditures for the year and of the financial position as at the end of the year. b. To verify whether all the funds of the entity were utilized with due attention to economy and efficiency and only for the purposes for which the funds were provided. c. To verify whether goods and services financed have been procured in accordance with the PPDA Act. d. To evaluate and obtain sufficient understanding of the internal control structure of the entity, assess control risk and identify reportable conditions, including material internal control weaknesses 3

e. To verify whether the management of the funds of the entity was in compliance with the Government of Uganda financial regulations. f. To verify whether all the necessary supporting documents, records and accounts have been kept in respect of all activities, and are in agreement with the financial statements presented.

3.0 Audit Methodology

The following audit procedures were undertaken:-

a. Revenue Obtained all schedules of all revenues collected and reconciled the amounts to the cashbooks and bank statements of the entity.

b. Expenditure The payment vouchers of the entity were examined for proper authorization, eligibility and budgetary provision, accountability and support documentation.

c. Internal Control System Reviewed the internal control system and its operations to establish whether sound controls were applied throughout the period

d. Procurement Reviewed the procurement of goods and services under the various departments during the period under review and reconciled with the approved procurement plan.

e. Fixed Assets Management Reviewed the use and management of the assets of the entity during the period under review.

f. Financial Statements Examined, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessed the accounting principles used and significant estimates made by management; as well as evaluated the overall financial statement presentation. 4

4.0 Entity Financing Ntungamo District Local Government was financed by grants (Conditional and Unconditional) from the Central Government, development partners and locally generated revenues from taxes, fees, licenses and charges. During the year, the entity receivedgrants totaling to UGX.30,570,822,772 from the Central Government, UGX.593,523,000 from development partners, and UGX.533,099,170 from locally generated revenues. The total revenue of UGX.31,697,444,942 constituted 95.5% of its approved budget estimates of UGX.33,166,012,359.

5.0 Detailed Audit Findings

This section outlines the detailed audit findings, management responses thereof and my recommendations.

5.1 Local Revenue shortfall

Regulation 32 of the Local Governments Financial and Accounting regulations 2007 requires collection of all revenue as approved in the budget. However, out of the budgeted local revenue of UGX.860,022,587, only UGX.533,099,170 was realised resulting in a shortfall of UGX.326,923,417, representing 38% of the budget. Undercollection of revenue impacts negatively on service delivery. The Accounting Officer attributed the shortfall to poor performance of the livestock and produce markets arising from outbreak of foot and mouth disease and banana bacterial wilt respectively.

I advised the Accounting Officer to ensure that all budgeted revenue is collected.

5.2 Irregular payments

Regulation 40 of the LGFAR, 2007 provides that the Accounting Officer is the officer with the overall authority and responsibility for payments. However, a sum of UGX.8,000,000 was withdrawn from the production account without the approval of the Accounting Officer, as shown below:

Date EFT number Amount (UGX) 16/4/2014 5460112000259 5,000,000 20/6/2014 5460105000670 3,000,000 Total 8,000,000

The Accounting Officer explained that the matter was reported to police and the Ministry of Local Government for investigation and other appropriate actions.

I advised the Accounting Officer to follow up with the relevant authorities and ensure that funds are recovered.

5.3 Non-deduction of taxes

Section 119 and 20 of Income Tax Act, 1997, as amended, requires the imposition of withholding tax on eligible payment made for goods and services. However, the District made payments of UGX.68,393,772 to suppliers but did not deduct 6% withholding tax amounting to UGX.4,156,426, as shown in Appendix 1.

The failure to deduct taxes attracts fines and penalties from Uganda Revenue Authority (URA). The Accounting Officer promised to recover the tax amounts from the suppliers during subsequent payments.

I advised the Accounting Officer to ensure that tax recoveries are made and remitted to the Uganda Revenue Authority.

5.4 Unpaid Salary Arrears

Section B, Paragraph 25 of the Public Service Standing Orders, 2010 provides that salary arrears that accrue to a public officer within a financial year shall be paid through the payroll within the same financial year. It was noted that the district accumulated salary arrears for health workers and teachers amounting to UGX.55,400,735. Details in Appendix 2. Failure to pay employees’ salaries in time demotivates employees and negatively impacts on service delivery.

The Accounting Officer explained that the delay was caused by the Ministry of Public Service which was responsible for payroll management.

I advised the Accounting Officer to liaise with the line Ministry of Public Service and the Ministry of Finance Planning and Economic Development to ensure that the staff salary arrears are paid.

5.5 Lack of land titles

Regulation 58 (4) of the LGFARs, 2007 requires that the properties and assets of a Local Government, including land, be properly registered and titles issued. It was observed that the District did not have titles for the various pieces of its land. Council land is exposed to risks of encroachment and land disputes. The district attributes the shortcoming to lack of sufficient funds to facilitate the exercise of obtaining titles.

I advised the Accounting Officer to engage the relevant authorities for funding and ensure that land titles are acquired.

5.6 Understaffing

The approved staff structure of the Council had 261 positions. However, out the 261 approved posts only 181 positions were filled, leaving 80 posts vacant, representing 31% of the establishment, as detailed in Appendix 3. Staffing gaps adversely affect the ability to effectively deliver services to the community.

The Accounting Officer explained that the low staffing position was due to the ban on recruitment by the Ministry of Public Service.

I advised the Accounting Officer to engage the Ministry of Public Service to ensure that the vacant posts are filled.

5.7 Expired Drugs

The National Medical Stores is responsible for collecting expired drugs for disposal. Inspection of the drug stores at Itojo Hospital revealed the existance of expired drugs as shown in Appendix 4. Expired drugs may end up on the market.

I advised the Accounting Officer to engage the National Medical stores to ensure that the expired drugs are collected and disposed of.

APPENDICES APPENDIX 1: RETENTION FUNDS SECTOR SN PROJECT CONTRACTOR CONTRACT RETENTION AMOUNT LGMSD 8 5 Stance latrine Gremu trading Company 16,947,750 675,038 Construction at Kagamba Primary School

9 5 Stance latrine Ntu Quality builders 16,992,000 676,800 Construction at Nyakariro Primary School

10 5 Stance latrine Jomu enterprise 16,848,000 791,856 Construction at Kihanga Primary School

11 5 Stance latrine Tunku Construction 16,883,000 792,501 Construction at Rwankora Company Primary School 12 5 Stance latrine Blago Company ltd 16,913,000 794,911 Construction at Katahoka Primary School 13 5 Stance latrine Gremu trading Company 16,923,000 846,150 Construction at Mahwa Primary School 14 3 Classroom block at Rangewide Engineering 53,115,000 5,311,500 Mujwa Primary School WORKS 15 Construction of 3 stance OKKA Construction and 319,148,000 7,163,000 draining Latrine Engineering Company

16 Construction of five hand NICTECH 16,362,500 818,125 dug shallow wells

17 Construction of five hand Turwamu Construction 16,470,000 823,500 dug shallow wells Company

18 Mechanised maintenance GAK Engineering 319,215,000 7,980,375 of Rwembogo- Construction Company Kabagyenda Road

19 Construction of five hand ZEPH Construction 16,542,000 827,100 dug shallow wells Company

20 Construction of 5 hand Blago Company ltd 16,415,000 820,750 dug shallow wells

21 construction of 2 shallow Turwamu Construction 499,500 wells Company 9,990,000

22 construction of 2 shallow ZEPH Construction 500,000 wells Company Ltd 10,000,000 23 construction of 2 shallow TMA Transporters Ltd 497,000 wells 9,940,000 24 construction of 2 shallow Blago Company ltd 499,300 wells 9,986,000 25 Rehabilitation of Kyangara ZEPH Construction 531,999 Gravity flow scheme Company Ltd 10,639,970

26 Construction of 3 shallow Turwamu Construction 749,250 wells Company 14,985,000

27 Construction of 3 shallow Blago Company ltd 748,950 wells 14,979,000 28 Construction of 3 shallow TMA Transporters Ltd 745,500 wells 14,910,000 29 Construction of 3 shallow Marvpa Enterprises 749,850 wells 14,997,000 30 construction of 4 shallow Vitu Company Ltd 999,000 wells 19,980,000 31 completion of Kihanga Vitu Company Ltd 1,762,616 Gravity flow scheme 34,252,360 32 construction of 3 shallow NICTECH 749,250 wells 14,985,000 33 construction of 3 stance OKKA Construction and 639,400 drainage Latrine Engineering Company 12,788,000

34 construction of 3 shallow ZEPH Construction 750,000 wells Company Ltd 15,000,000 35 Construction of 3 shallow Baatuha Company Ltd 748,950 wells 14,979,000 39,492,171

APPENDIX 2: NON-COMPLIANCE WITH STATUTORY DEDUCTIONS UN DEDUCTED DATE PAYEE DETAILS EFT NUMBER AMOUNT TAX 24/09/2013 Faw Africa Ltd Repair of Grader 5460118000308 13,796,000 827,760 Repair of vehicle LG 02/05/2014 Otunga kenneth 0042-31 5460118000488 2,612,000 156,720 service & maintenance 19/05/2014 Faw Africa Ltd of LG0003-094 5460118000498 9,610,000 576,600 BAATUHA 06/06/2014 COMPANY LTD supply of sand 5460118000514 5,600,000 336,000 GEF Technical Supply of cutting 25/06/2014 services edges 5460118000704 21,610,000 1,296,600 Kobutungi 13/09/2013 Deborah overtime allowance 5460103000476 220,000 66,000 Adongo repair &servicing of UG 14/03/2014 Roseline 2716R 5460103000739 1,934,972 116,098 Repair charges for motor vehicle UG 08/23/13 Otunga Keneth 0178R 5460105000341 3,669,000 220,140 Repair charges for motor vehicle UG 08/29/13 Otunga Keneth 0178R 5460105000366 1,866,000 111,960 Repair of Vehicle Batista Registration number 08/29/13 Kiwarabye LG0023-39 5460105000367 2,463,800 147,828 12/04/13 Otunga Keneth repair of vehicle UG 5460107000415 3,012,000 180,720 01423M 09/26/13 Otunga kenneth repair of Vehicle UAA 5460107000346 2,000,000 120,000 643N 68,393,772 4,156,426

Appendix 3 Understaffing Sector/department Approved Filled Vacant Administration 19 15 4 Statutory 10 8 2 Finance Education 11 8 3 Production 44 22 22 Health 12 12 0 Works 24 18 6

Community Based Services 9 5 4 Natural Resources 9 6 3 Planning 5 4 1 Internal Audit 8 6 2 County Administration 139 100 39 Total 261 181 80

APPENDIX 4: EXPIRED DRUGS SN NAME OF ARTICLE QUANTITY EXPLANATION BROKEN,LOST,DAMAGED 1 Tab. mebendazole 1tin 1/4/2014 2 Zidovir 300mg 7tins 1/2/14 3 Zidovudine 300mg 105 1/7/14 4 RHZE 1106 1/4/14 5 RHZE 24 1/5/14 6 SSA 4ltr 06/5/14 7 Turns 50% 7ltrs 06/5/14 8 0.1 HCL 01ltr 06/5/14 9 0.2 Crystal violet 02ltr 06/5/14 10 Field stain B 1 ttr 06/5/14 11 leish man stain 1 ltr 06/5/14 12 Determine strip 220 strips 06/5/14 13 Hep B.strips 382 06/5/14 14 Pima cartrigdes 163 06/5/14 15 Fansider 2 tins 30/8/13 16 Bendroflozide 5tins 30/8/13 17 Adrenaline Inj.1mg 100 30/12/13 18 Rifampicin 60mg 240 30/12/13 19 RHZ 60m/30m 120 30/12/13 20 Pethidine 100 10/1/13 21 Monnitord 10 30/2/14 22 malaria Rapid (RDT) test 100 12/3/14 23 Copper T Contraceptive 66 10/1/11 24 Overette Tabs FP pills 97 1/6/12 25 Oval contraceptive FP pills 20 1/3/14