Annual Report of the Auditor General for the Year Ended 30Th June 2012

THE REPUBLIC OF UGANDA

OFFICE OF THE AUDITOR GENERAL

ANNUAL REPORT OF THE AUDITOR GENERAL FOR THE YEAR ENDED 30TH JUNE 2012

VOLUME 2 CENTRAL GOVERNMENT

1.0 INTRODUCTION ...... 1 2.0 REPORT AND OPINION OF THE AUDITOR GENERAL ON THE GOVERNMENT OF UGANDA CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30TH JUNE, 2012 ...... 11 ACCOUNTABILITY SECTOR ...... 42 3.0 TREASURY OPERATIONS ...... 42 4.0 MINISTRY OF FINANCE, PLANNING AND ECONOMIC DEVELOPMENT ...... 58 5.0 DEPARTMENT OF ETHICS AND INTEGRITY ...... 127 WORKS AND TRANSPORT SECTOR ...... 131 6.0 MINISTRY OF WORKS AND TRANSPORT ...... 131 7.0 UGANDA NATIONAL ROADS AUTHORITY ...... 165 8.0 THE UGANDA ROAD FUND ...... 221 JUSTICE LAW AND ORDER SECTOR ...... 226 9.0 MINISTRY OF JUSTICE AND CONSTITUTIONAL AFFAIRS ...... 226 10.0 MINISTRY OF INTERNAL AFFAIRS ...... 238 11.0 UGANDA POLICE FORCE ...... 240 12.0 UGANDA PRISONS SERVICES ...... 243 13.0 JUDICIARY DEPARTMENT ...... 250 14.0 JUDICIAL SERVICE COMMISSION ...... 260 15.0 LAW REFORM COMMISSION ...... 261 16.0 UGANDA HUMAN RIGHTS COMMISSION ...... 262 17.0 DEPARTMENT OF PUBLIC PROSECUTIONS ...... 263 18.0 UGANDA REGISTRATION SERVICES BUREAU ...... 265 19.0 NATIONAL CITIZENSHIP AND IMMIGRATION CONTROL ...... 270 PUBLIC SECTOR MANAGEMENT ...... 276 20.0 MINISTRY OF LOCAL GOVERNMENT ...... 276 21.0 OFFICE OF THE PRIME MINISTER ...... 324 22.0 MINISTRY OF PUBLIC SERVICE ...... 356 23.0 PUBLIC SERVICE COMMISSION ...... 371 24.0 LOCAL GOVERNMENT FINANCE COMMISSION...... 373 25.0 KAMPALA CAPITAL CITY AUTHORITY ...... 377 26.0 ELECTORAL COMMISSION ...... 405 LEGISLATIVE SECTOR ...... 410 27.0 PARLIAMENTARY COMMISSION ...... 410 SECURITY SECTOR ...... 423 iii

28.0 MINISTRY OF DEFENCE ...... 423 29.0 OFFICE OF THE PRESIDENT ...... 429 30.0 STATE HOUSE ...... 431 AGRICULTURE SECTOR ...... 433 31.0 MINISTRY OF AGRICULTURE, ANIMAL INDUSTRY AND FISHERIES ...... 433 32.0 NATIONAL AGRICULTURAL RESEARCH ORGANISATION ...... 452 33.0 NATIONAL AGRICULTURAL ADVISORY SERVICES (NAADS) ...... 463 ENERGY SECTOR ...... 473 34.0 MINISTRY OF ENERGY AND MINERAL DEVELOPMENT ...... 473 HEALTH SECTOR ...... 504 35.0 MINISTRY OF HEALTH ...... 504 36.0 UGANDA BLOOD TRANSFUSION SERVICES ...... 561 37.0 UGANDA AIDS COMMISSION...... 563 38.0 HEALTH SERVICE COMMISSION ...... 566 39.0 BUTABIKA MENTAL REFERRAL HOSPITAL ...... 567 40.0 UGANDA CANCER INSTITUTE ...... 572 41.0 UGANDA HEART INSTITUTE ...... 578 42.0 MULAGO REFERRAL HOSPITAL COMPLEX ...... 582 REGIONAL REFERRAL HOSPITALS ...... 597 43.0 ARUA REGIONAL REFERRAL HOSPITAL ...... 597 44.0 MBALE REGIONAL REFERRAL HOSPITAL ...... 602 45.0 KABALE REFERRAL HOSPITAL ...... 610 46.0 LIRA REGIONAL REFERRAL HOSPITAL ...... 615 47.0 GULU REGIONAL REFERRAL HOSPITAL ...... 617 48.0 MBARARA REGIONAL REFERRAL HOSPITAL ...... 621 49.0 FORT PORTAL REFERRAL HOSPITAL...... 625 50.0 JINJA REGIONAL REFERRAL HOSPITAL ...... 630 51.0 SOROTI REGIONAL REFERRAL HOSPITAL ...... 644 52.0 MASAKA REGIONAL REFERRAL HOSPITAL ...... 647 53.0 MUBENDE REGIONAL REFERRAL HOSPITAL ...... 650 54.0 MOROTO REGIONAL REFERRAL HOSPITAL ...... 661 55.0 HOIMA REGIONALREFERRALHOSPITAL ...... 666 EDUCATION SECTOR ...... 667 56.0 MINISTRY OF EDUCATION AND SPORTS ...... 667 57.0 EDUCATION SERVICE COMMISSION ...... 709 58.0 MAKERERE UNIVERSITY ...... 710

59.0 MAKERERE UNIVERSITY BUSINESS SCHOOL ...... 738 60.0 UGANDA MANAGEMENT INSTITUTE (UMI) ...... 742 61.0 MBARARA UNIVERSITY OF SCIENCE AND TECHNOLOGY ...... 745 62.0 KYAMBOGO UNIVERSITY ...... 752 63.0 BUSITEMA UNIVERSITY ...... 781 64.0 GULU UNIVERSITY...... 786 WATER AND ENVIRONMENT SECTOR ...... 793 65.0 MINISTRY OF WATER AND ENVIRONMENT ...... 793 66.0 NATIONAL ENVIRONMENT MANAGEMENT AUTHORITY (NEMA) ...... 826 67.0 LAKE VICTORIA ENVIRONMENTAL MANAGEMENT PROJECT PHASE II ...... 838 SOCIAL DEVELOPMENT SECTOR ...... 844 68.0 MINISTRY OF GENDER, LABOUR AND SOCIAL DEVELOPMENT ...... 844 TOURISM, TRADE AND INDUSTRY SECTOR ...... 850 69.0 MINISTRY OF TOURISM, WILDLIFE AND HERITAGE ...... 850 70.0 UGANDA INDUSTRIAL RESEARCH INSTITUTE ...... 854 LANDS SECTOR ...... 859 71.0 MINISTRY OF LANDS, HOUSING AND URBAN DEVELOPMENT ...... 859 72.0 UGANDA LAND COMMISSION ...... 863 INFORMATION AND COMMUNICATION SECTOR ...... 870 73.0 MINISTRY OF INFORMATION AND COMMUNICATIONS TECHNOLOGY ...... 870 PUBLIC ADMINISTRATION SECTOR ...... 877 74.0 MINISTRY OF FOREIGN AFFAIRS ...... 877 75.0 EAST AFRICAN COMMUNITY AFFAIRS ...... 881 UGANDA MISSIONS ABROAD ...... 885 76.0 UGANDA EMBASSY, ABU DHABI ...... 885 77.0 UGANDA HIGH COMMISSION, ABUJA ...... 889 78.0 ANKARA EMBASSY ...... 892 79.0 UGANDA EMBASSY, BEIJING ...... 893 80.0 UGANDA EMBASSY, BERLIN ...... 895 81.0 UGANDA EMBASSY, BRUSSELS ...... 898 82.0 UGANDA HIGH COMMISSION, BUJUMBURA ...... 902 83.0 UGANDA EMBASSY, CAIRO ...... 904 84.0 UGANDA HIGH COMMISSION, CANBERRA ...... 908 85.0 UGANDA EMBASSY, COPENHAGEN ...... 909 86.0 UGANDA HIGH COMMISSION, DAR ES SALAAM ...... 909

87.0 THE PERMANENT MISSION OF THE REPUBLIC OF UGANDA TO THE UNITED NATIONS AND OTHER INTERNATIONAL ORGANIZATIONS IN GENEVA ...... 912 88.0 UGANDA CONSULATE, GUANGZHOU, CHINA ...... 914 89.0 UGANDA EMBASSY, JUBA ...... 915 90.0 UGANDA EMBASSY, KHARTOUM ...... 916 91.0 UGANDA HIGH COMMISSION, KIGALI ...... 919 92.0 UGANDA EMBASSY, KINSHASA ...... 921 93.0 UGANDA HIGH COMMISSION, LONDON ...... 921 94.0 UGANDA EMBASSY, MOSCOW ...... 923 95.0 UGANDA HIGH COMMISSION, NAIROBI ...... 925 96.0 UGANDA HIGH COMMISSION, NEW DELHI ...... 927 97.0 UGANDA PERMANENT MISSION TO THE UNITED NATIONS, NEW YORK ...... 928 98.0 UGANDA HIGH COMMISSION, OTTAWA ...... 929 99.0 UGANDA EMBASSY, PARIS ...... 930 100.0 UGANDA HIGH COMMISSION, PRETORIA ...... 933 101.0 UGANDA EMBASSY, RIYADH ...... 936 102.0 UGANDA EMBASSY, ROME...... 937 103.0 UGANDA EMBASSY, TOKYO ...... 943 104.0 UGANDA EMBASSY, TRIPOLI ...... 944 105.0 UGANDA EMBASSY, WASHINGTON ...... 945

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.

Section 3 presents the major general observations cross cutting issues arising from the results of the audits carried out.

Section 4 contains the detailed audit findings on each entity audited.

1.1 STATUS OF COMPLETION OF AUDITS

1.1.1 Financial Audits

A total of 106 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 1

the year ended 30th June 2012.Accordingly, separate audit reports were issued for each of them.

Out of the 106 entities audited, 47 entities had unqualified opinions, 51 had qualified opinions, 7 had disclaimed opinions and one entity 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:- Table showing type of opinion for each of the audited entities UNQUALIFIED AUDIT OPINION QUALIFIED AUDIT OPINION 1 Office of the President 1 Ministry of Internal Affairs 2 Ministry of East Africa Affairs 2 Ministry of Agri, Animal Industry & Fish. 3 Ministry of Tourism, Trade & Industry 3 Ministry of Defence 4 Ministry of Lands, Housing and Urban 4 Ministry of Foreign Affairs Dev. 5 State House 5 Ministry of Water and Environment 6 Ministry of Gender, Labour and 6 Ministry of Local Government Development 7 Health Service Commission 7 Ministry of Education and Sports 8 Inspectorate of Government 8 Ministry of Information and Technology 9 Uganda Blood Transfusion 9 Ministry of Finance, Planning & Econ. Dev. 10 Local Government Finance Commission 10 Ministry of Energy and Minerals 11 Public Service Commission 11 Road Fund 12 Uganda Aids Commission 12 Uganda Industrial Research Institute 13 NEMA 13 Directorate of Public Prosecutions 13 National Agricultural Research 14 Parliamentary Commission Organisation 15 Uganda Human Rights Commission 15 Uganda Heart Institute 16 UgandaLand Commission 16 Uganda Cancer Institute 17 Education Service Commission 17 Uganda Police 18 Ethics and Integrity 18 Uganda Prisons 19 Uganda registration Services Bureau 19 Judiciary 20 SorotiReferralHospital 20 Law Reform Commission 21 LiraReferralHospital 21 Judicial Service Commission 22 KabaleReferralHospital 22 Electoral Commission 23 JinjaReferralHospital 23 NAADS 24 ButabikaReferralHospital 24 UNRA 25 HoimaReferralHospital 25 National Citizenship and Immigration 26 MbaleReferralHospital 26 MulagoNationalreferralHospital 27 AruaReferralHospital 27 MbararaReferralHospital 28 MakerereUniversityBusinessSchool 28 MasakaReferralHospital 29 GuluUniversity 29 FortPortalReferralHospital 30 BusitemaUniversity 30 MorotoReferralHospital 31 MbararaUniversity 31 GuluReferralHospital 32 Abu Dhabi Mission 32 MakerereUniversity 33 ParisMission 33 KyambogoUniversity 34 TehranMission 34 KCCA 35 KhartoumMission 35 Uganda Management Institute 36 CairoMission 36 TokyoMission 2

37 AbujaMission 37 TripoliMission 38 Addis Ababa Mission 38 RiyadhMission 39 BerlinMission 39 BrusselsMission 40 BujumburaMission 40 OttawaMission 41 CopenhagenMission 41 BeijingMission 42 KinshasaMission 42 CanberraMission 43 KigaliMission 43 Dar-es-Salaam Mission 44 NairobiMission 44 LondonMission 45 MoscowMission 45 New YorkMission 46 RomeMission 46 PretoriaMission 47 GuangzhouMission 47 Juba Mission DISCLAIMER OF OPINION 48 AnkaraMission 1 Office of the Prime Minister 49 Treasury Operations 2 Ministry of Justice and Constitutional 50 GoU Consolidated Financial Statements Affairs 3 Ministry of Health 51 Lake Victoria Environmental Management Project Phase II 4 MubendeReferralHospital ADVERSE OPINION 5 GenevaMission 1 Ministry of Public Service 6 New DelhiMission 7 WashingtonMission

The table and graphs below provide a breakdown of the types of opinions issued:- Types of Opinions issued since 2009 by numbers and percentage:- Type of audit Year ending 30th June opinion 2009 % 2010 % 2011 % 2012 % Unqualified 37 39.78 40 39.6 61 59.22 47 45 Qualified 54 58.06 58 57.43 41 39.81 51 48 Disclaimer 1 1.08 3 2.97 1 0.97 7 7 Adverse 1 1.08 0 0 0 0 1 1

Figure showing the types of opinions issued for 2011/2012:- Types of Audit Opinions Issued (2012) Disclaimer 7 Adverse 1 7% 1%

Unqualified 47 45% Qualified 51 48%

Figure showing Trends of Types of Opinions Issued since 2009:-

Trends of Opinions Issued since 2009 70

50 Unqualified 40 Qualified 30

Percentage Disclaimer 20 Adverse 10

0 2009 2010 2011 2012

Figure showing comparision of types of opinions issued since 2009:-

Comparision of Types of Opinions Issued Since 2009

Unqualified Qualified Disclaimer Adverse

58.06 57.43 59.22 45 48 39.78 39.6 39.81

7 1.081.08 2.97 0 0.97 0 1

2009 2010 2011 2012

1.1.2 Extended Scope Audits

During the year under review, I also carried out extended scope audits of the following entities:-

Entity Budget (Shs) Actual expenditure (Shs) Status of Appropriation

1 Ministry of Finance Planning and 215,370,888 180,574,946,061 Economic Development (MOFPED) 2 Treasury Operations 638,071,840,375 533,605,989,719

3 Office of the Prime Minister (OPM); PRDP 92,507,261,132 66,868,010,309

4 Ministry of Local Government (MOLG) 75,037,772,149 33,733,838,024

5 Ministry of Agriculture, Animal Industry 55,929,587,443 43,304,229,331 and Fisheries (MAAIF) 6 Ministry of Water and Environment 85,059,476,640 71,116,196,036 (MWE) 7 Judiciary 66,906,653,680 58,945,846,420

8 Ministry of Justice and Constitutional 64,984,329,206 89,399,160,654 Affairs (MOJCA) 9 Ministry of Education and Sports (MOES); 209,857,110,359 195,774,402,586 APL 10 Ministry of Health (MOH) 51,970,917,006 47,160,720,650

11 MulagoHospital 40,000,536,179 37,812,510,583

12 Ministry of Public Service 359,582,493,649 350,817,826,251

13 Ministry of Energy and Mineral 1,340,190,617,971 990,517,606,906 Development (MEMD) 14 Ministry of Works and Transport (MOWT) 100,237,124,396 67,183,423,119

15 Uganda National Roads Authority (UNRA) 1,100,872,432,392 1,242,373,040,361

16 Global Fund Project Components:-

TB Component 10,060,208,409

HIV Component 51,459,613,588 Malaria Component 10,938,195,635

The extended audits were undertaken, arising from the financial impropriety that occured in the Office of the Prime Minister as well as in the management of Pension in the ministry of Public Service. I have issued individual reports on each of the 14 MDAs and 3 projects that were covered. The detailed findings from the extended audits have also been accordingly included in this report.

1.1.3 Special Audits

During the period under review, I carried out the following six (6) special audits:-

1. Procurements undertaken by Insurance Regulatory Authority (IRA). 2. Financial Impropriety of public funds in the Office of the Prime Minister. 3. Financial Impropriety of Pension funds in the Ministry of Public Service 4. Operations of Community Agricultural Infrastructure Improvement Programme (CAIIP) in the Ministry of Works and Transport. 5. Review of the GOU Integrated Financial Management System (IFMS). 6. Presidential Initiative on Markets and Small Business Operators.

The reports for the above special audits have been issued separately.

1.1.4 IT Audit (IFMS)

During the period under review, I also carried out another review of the GOU Integrated Information Financial Management System (IFMS). The general objective of this IFMS audit was to provide assurance regarding the integrity of

IFMS data for the period spaning July 2011 to June 2012. The Specific objectives were:-

To make a follow up on the implementation of recommendations made in the previous audits that had been undertaken by the Office of the Auditor General and PricewaterhouseCoopers Uganda. Evaluate the controls and policies relating to security management at the IFMS for suitability to ensure the safety of the information assets of the organisation.

A separate report containing my comments and recommendations regarding the improvement of the controls was issued to the Accountant General.

1.2 KEY AUDIT FINDINGS

Section 20(3) of the PFAA 2003 provides that the terms and conditions of a loan shall be laid before Parliament and shall not come into operation unless they have been approved by a resolution of parliament. However, it was noted that 13 new loans equivalent to shs.1.3 trillion had their loan agreements signed prior to parliamentary approval.

A number of Accounting officers mischarged expenditure through charging wrong budget codes without following set procedures. The mischarges at times amounted to as much as 81% of the budget of the entity. As a consequence the funds were diverted and not utilised in accordance with the Appropriation Act and the guidance of Parliament. The audit review revealed mischarged expenditure amounting to Shs.256,976,089,1131. It is important that the budgeting process and its implementation are improved upon to enable attainment of government intentions.

A special audit was undertaken in the Office of the Prime Minister on allegations of impropriety in financial management and financial irregularities such as diversions, fraud, un authorised approvals of

1 The figures used in these key findings are mainly an extract of the analysis from the 14 entities where expanded scope audits were executed. 7

payments and irregular withdrawal of funds. As a consequence of these irregularities Shs 58bn is estimated to have been misappropriated.

Another special audit was undertaken in the MOPS on the financial impropriety of pension funds. It was established that a number of financial controls were circumvented and as a consequence an estimated amount of Shs.165 billion was misappropriated. Shs.93billion related to the financial year 20011/12.

During the implementation of CAIIP under the Ministry of Local Government, Parallel structures were created in the Ministry of Works & Transport and the Ministry of Agriculture Animal industry and fisheries in form of supervision units to support the implementation. However the same provisions were provided under MOLG. As a consequence, Shs.6,338,779,538 was lost in duplicate payments under these units.

A number of Accounting Officers advanced funds to officers through their personal accounts to carry out official activities. These funds should as much as possible have been paid to the beneficiaries directly. The practice is contrary to the regulations, highly risky and exposes government funds to loss since Accounting Officers have no control over private individual accounts. Examination of a total of Shs.67,085,008,004 involved revealed that Shs.25,934,774,910 remained not adequately accounted for.

Good financial management practices discourage the use of the cash given the huge risks associated with it. Entities were found to have drawn out huge amounts of money in cash for execution of government activities. A portion of these funds were then advanced to officers resulting in similar risks identified in advancing funds through individuals accounts mentioned above. A large portion was also utilised within the Ministry cash offices. A total of such funds found not accounted for was Shs.27,869,964,417.

Shs.47 Bn was overpaid by Uganda National Roads authority to various contractors on three road construction contracts arising from errors in the application of variation of price (VoP) formulae used in computing compensation amounts

On 14th July 2011, a sum of Shs.11,942,283,906 was transferred by Ministry of Justice and Constitutional affairs from case backlog account to Heritage Arbitration account in BoU. At the time of audit, only Shs.189,677,090 was spent from the Heritage Arbitration account leaving a balance of Shs.11,752,606,816 to date. It was noted that the account has not been active for the last 8 months (November 2011 to June 2012) and therefore funds had not been put to use.

A total of Shs.44bn has been accrued in the Ministry of Justice and Constitutional Affairs financial statements, and Shs.10bn paid in relation to compensation of internally displaced people following the insurgency in Lira in Northern Uganda. The claims submitted in relation to these claims were found to have several inconsistencies that rendered them doubtful.

Shs.5bn has been paid for similar claims for the Acholi region and inconsistencies in relation to the number of claimants has kept rising from 1,700 in 2006 to 8,989 in 2011 giving an apparent indication of inflation of numbers. The numbers have continued to increase and the current claims amount to over shs.100bn. This figure may not be sustainable.

Government undertook additional foreign investments worth shs.33 billion during the year under review without investment plans and project appraisals. In addition, it was difficult to link these investments to the overall government investment objectives.

Although government has been investing in private companies, the investments are not evidenced and supported with share certificates. In this respect, I noted investments amounting to shs.27,143,378,000 lacking such certificates.

A special audit on Presidential Initiative on market vendors and small business operations fund revealed that funds amounting to shs.2.4 billion out of shs.10 billion provided was misappropriated. As such, the intended objectives of creating a revolving fund have not been achieved.

The Ministry of Water entered into several MoUs with Non Governmental Organizations and private companies and provided for tax waivers within these MoUs. As such, the Ministry had to meet several tax obligations on behalf of these companies arising out of the agreements made. I found this irregular as the mandate for provision of tax waivers lies solely with the Ministry of Finance Planning and Economic development. As a result of these obligations the Ministry paid a total of Shs.439,830,069 on behalf of these organizations and companies. Audit further noted that a total of Shs.1,014,536,981 was paid by the ministry on behalf of NWSC, an independent organization, which should have dealt with its own tax issues/obligations.

Project 0941: Support to Energy Fund, was established in July 2005 with a sole objective of setting aside funds for financing large power projects in the country. The project financing seized in 2008/9. In 2009, by way of statutory instrument no.16, the Energy Investment Fund was created with exactly the same objectives as the preceding one. I found it irregular that the Ministry of Energy and Mineral Development is operating two Energy Funds. The creation of the Energy Investment Fund by way of a statutory instrument would have meant stopping all operations of the support to Energy Fund and transferring all the balances to the new fund. However, this was not done.

2.0 REPORT AND OPINION OF THE AUDITOR GENERAL ON THE

GOVERNMENT OF UGANDA CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30TH JUNE, 2012

THE RT. HON. SPEAKER OF PARLIAMENT

I have audited the GoU Consolidated financial statements for the year ended 30th June 2012, as set out on pages 11 to 77. These financial statements comprise of the Statement of Financial Position as at 30th June 2012, 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, 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 and fair presentation of Consolidated Financial Statements in accordance with the requirements of the Public Finance and Accountability Act 2003, and the modified cash basis of accounting, and for such internal controls 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 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. 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 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.

Except as discussed below, I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my qualified 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.

Basis for Qualified Opinion

Mischarge of Expenditure - Shs.256,976,089,113

A review of the expenditures revealed that the various entities charged wrong expenditure codes to the tune of Shs.256,976,089,113. 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 mis-reporting.

Unaccounted for Advances - Shs.25,934,774,910

Shs.25,934,774,910advanced 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.

Irregular Transfers of Donor Funds - Shs.20,171,576,247

A sum of Shs.20,171,576,247 was irregularly transferred by Treasury from Budget support Account in BoU directly to Office of the Prime Minister Crisis Management and Recovery Programme account instead of transferring the funds to the UCF. These funds were eventually misappropriated.

Qualified Opinion

In my opinion, except for the effects of the matters referred to in the basis for qualified opinion paragraph;

The financial statements together with the notes thereon fairly present in all material respects the financial position of Ministry of Finance, Planning and Economic Development as at 30th June, 2012 and its financial performance and cash flows for the year then ended, and comply in all material respects with the Public Finance and Accountability Act, 2003 and the modified cash basis of accounting described under note 2 (a).

The expenditure and receipts have been applied in all material respects for the intended purpose.

Emphasis of Matter

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

Signing of Loan Agreements Prior to Parliamentary Approval

Thirteen (13) new loans equivalent to Shs.1,344,839,797,800 had their loan agreements signed prior to Parliamentary approval.Some of these loans were signed eleven (11) months prior to Parliamentary approval. There is a risk of committing Government to obligations/ventures which may eventually be rejected by Parliament.

Irregular Write offs of non-performing on-Lent Loans 13

A sum of Shs.194,115,276,240 on-lent yet to be received by government were written-off without Parliamentary approval.

Advances to Individual Personal Accounts

It was noted that a total of Shs.67,085,008,004was paid on personal bank accounts of various Ministry staff for executing official activities rather than effecting payments to the final beneficiaries as required under section 227, 228 and 229 of the Treasury Accounting Instructions. The practice is irregular and exposes government funds to risk of misuse.

John F.S. Muwanga AUDITOR GENERAL KAMPALA

25thJUNE, 2013

PART B DETAILED REPORT OF THE AUDITOR GENERAL This Section outlines the detailed audit findings, management responses and my recommendations in respect thereof.

1.1 Supplementary Funding Through Reallocations

The greater part of the supplementary budget was funded through reallocation (vote to vote). Section 12 (3) of the Budget Act requires that ―Any reallocation of funds shall be made in consultation with affected Ministries, Departments, Institutions or Organisations.‖ However, it was noted that reallocations were effected on the system without sufficient consultations by the Accounting Officer as required by the Act. This practice greatly affects implementation of planned activities by the Accounting Officers whose performance contracts still stand even when the budgets are ―cut‖.

Management explained that sufficient explanation is provided at Cabinet level. They further stated that the Public Finance Bill currently before Parliament is expected to address the issue of funding for Supplementary through Operationalisation of the Contingencies Fund.

I await the passing of the Public Finance Bill and the subsequent transparency and communication in the reallocation process.

1.2 Gross Tax Account

1.2.1 Unpaid taxes

It was noted that three votes made tax commitments that were not settled during the year despite having a budget and funds released to them for the same purpose. See the table below:-

Votes Tax commitments not paid (shs)

NEMA 282,977,407 Tourism, Wildlife & Antiquities 39,505,029 East African Affairs 18,179,893

I have advised management to put in place mechanisms of ensuring that any unpaid commitments for the year are settled within the financial year.

1.2.2 Payments for Tax Commitments of the previous year

Treasury is supposed to crosscheck the gross tax budgets and amounts released and compare with the amounts committed to avoid payments outside the budget limits before processing payment from the Gross Tax Receipts Account.

During the year under review, twenty four (24) settlements were made from the Gross Tax Receipts Account for certain votes over and above the annual amounts committed by the entity. This poses a risk of paying non qualifying goods. The table below shows the details:-

Vote Entity Annual Actual Paid (B) Excess Paid (B- Commitment (A) A) 001 President's office 508,307,973 785,568,867 277,260,894 003 Prime Minister 5,657,204,292 5,968,303,848 311,099,556 004 Defence 0 6,134,429 6,134,429 007 Justice 764,130,397 1,116,583,142 352,452,745 008 Finance 13,851,996,293 17,305,847,809 3,453,851,516 009 Internal Affairs 25,354,373 2,314,305,874 2,288,951,501 010 Agriculture 847,769,769 1,325,569,998 477,800,229 013 Education 443,278,884 519,543,746 76,264,862 014 Health 1,424,000,865 1,884,719,961 460,719,096 016 Works 882,857,402 1,202,573,048 319,715,646 017 Energy 7,636,088,776 8,815,371,158 1,179,282,382 019 Water 3,006,927,631 3,402,253,246 395,325,615 020 Information and 67,438,829 110,227,515 42,788,686 Communications 103 IGG 106,940,514 142,828,374 35,887,860 107 Uganda Aids 0 49,399,708 49,399,708 Commission 110 UIRI 630,178,087 768,089,298 137,911,211 112 Ethics & Integrity 49,929,285 110,447,730 60,518,445 113 UNRA 2,718,658,870 3,175,230,092 456,571,222 16

132 Educ. Service Comm. 80,988,247 156,509,849 75,521,602 136 MUK 121,656,106 129,620,181 7,964,075 137 MbararaUniversity 184,498,179 236,575,339 52,077,160 142 NARO 678,559,295 942,684,231 264,124,936 144 Police 16,933,621 3,236,074,332 3,219,140,711 145 Prisons 281,340,102 305,939,953 24,599,851 146 PSC 0 37,696,581 37,696,581 TOTAL 39,985,037,790 54,048,098,309 14,063,060,519

Management explained that a system has been put in place to capture unpaid Tax commitments in subsequent FYs. Management also intends to inform URA to promptly submit claims so that they are all paid before the end of the financial year, allowing for a grace period in July to process all that relates to the previous FY. I await management‘s commitment in this regard.

1.3 Budget Performance

Budget performance provides an analysis of the budget execution during the year. It also illustrates the performance of public resources released and expended, giving an overview of achievements across Government. The various budget reports including the Appropriation and Supplementary Acts, approved budget book, IFMS reports and releases were analysed and the following noted;

1.3.1 Linkage between the NDP priorities and the Budget

The National Development plan (NDP) provides for sector allocations of funds over the five year period for which the plan is projected in order to achieve targeted NDP activities. All government budget activities are therefore expected to be geared towards achieving the NDP priorities.

Comparison of the NDP sectoral allocations with the Budget Framework paper (BFP) allocations for financial year 2011/12 revealed that there were several divergences. While some sectors like Education, Security, JLOS and Public Administration had allocations slightly above the NDP set targets, the critical sectors like Agriculture, Health and Works & Transport were allocated amounts below the NDP set targets.

This greatly affects the achievement of the set NDP targets by the respective sectors. Refer to table below for details:_

MTEF Sectors Budget % of Budge % of Releas % Releas % as per Budget as t Budget ed released ed relea NDP per NDP Estim Estima 11/12 11/12 10/11 sed 2011/12 2011/12 ates tes 10/1 11/12 11/12 1 Agriculture 557.58 6.0 433.97 4.51 01.55 3.69 293.17 3.40

Water & 408.89 4.4 271.28 2.82 136.55 1.67 178.27 2.07 Environment Tourism, Trade 176.57 1.9 53.22 0.55 52.1 0.64 32.88 0.38 & Industry Energy & 1096.57 11.8 1319.95 13.71 1,103.30 13.49 404.08 4.69 mineral development Information & 83.64 0.9 12.12 0.13 12.82 0.16 19.38 0.23 communication Technology Lands, Housing 55.76 0.6 32.41 0.34 24.9 0.30 19.91 0.23 and Urban development Works and 2202.42 23.7 1290.79 13.40 1228.41 15.03 809.37 9.40 transport Accountability 362.42 3.9 543.59 5.64 439.7 5.38 368.00 4.27

Social 139.39 1.5 50.45 0.52 18.42 0.23 25.45 0.30 development Health 1263.84 13.6 799.11 8.30 605.56 7.41 577.50 6.71

Education 1217.37 13.1 1416.27 14.71 1,364.98 16.70 1,113.55 12.93

security 566.87 6.1 974.87 10.12 984.07 12.04 2,054.76 23.86

Public Sector 576.16 6.2 986.21 10.24 727.3 8.90 869.94 10.10 Management Justice , Law 306.67 3.3 531.63 5.52 582.04 7.12 649.27 7.54 and Order Legislature 111.52 1.2 162.75 1.69 255.15 3.12 160.66 1.87

Public 67.27 1.8 231.78 2.41 338.91 4.15 508.17 5.90 Administration Interest - - 519.6 5.40 - - 527.60 6.13 payments Total 9,292.93 100% 9,630 100% 7,384.37 100% 8,611.96 100%

10 % of Budget as per NDP 2011/12 5 % of Budget Estimates 11/12

0 …

… % released 11/12 Health

security % released 10/11

Education

Legislature

Agriculture

Accountability

Social development Social

Works andWorks transport

Public Administration Public

Water &Environment Water

Justice Law Justice , andOrder

Lands, HousingLands,and Urban

Tourism, Trade Tourism, &Industry

Public Sector Sector Public Management

Information&communication Energy & mineral mineral &Energy development

The situation is made worse by further reducing the releases to MDA from what was planned for during budget execution. This implies that NDP targets will not be achieved since its success is greatly centred on whether or not financing is provided for as per plan.

Management agreed that the allocations under the MTEF are not exactly in tandem with the annual allocations under the NDP due to;

The NDP provides an overall framework that guides the planning and resource allocation over the NDP period and the cost of investments in a given financial year which are not resource constrained.

The MTEF, on the other hand, based on the NDP overall framework, allocates resources among the competing priorities within the available resource envelope.

Hence, the variance will arise because in an event where the projected cost in the NDP is higher than the expected resources in a given financial year adjustments will have to be made in the next plan too;

I have advised that management should link the budget and the related releases to the NDP priorities to ensure adherence to plans and eventual success.

1.3.2 Non adherence to the Maputo Declaration on Budget Allocation for Agriculture

During the Maputo Declaration on Agriculture and Food Security, a 10% national budget allocation to agriculture development was made. Key stakeholders in the agriculture sector endorsed the Comprehensive Africa Agriculture Development Programme (CAADP) as a framework for contributing to the reduction of food insecurity and poverty in Africa and to contribute to the Millennium Development Goal (MDG) of halving poverty and hunger by 2015. In order to ensure that adequate resources were made available, the 2003 African Union (AU) Maputo Declaration directed all AU member countries to increase investment in the agriculture sector to at least 10% of the national budget by 2008.

At the Second Ordinary Assembly of the African Union in July 2003 in Maputo, African Heads of State and Government endorsed the ―Maputo Declaration on Agriculture and Food Security in Africa‖ (Assembly/AU/Decl. 7(II)). The Declaration contained several important decisions regarding agriculture, but prominent among them was the ―commitment to the allocation of at least 10% of national budgetary resources to agriculture and rural development policy implementation within five years‖.

It was however noted that the Government has for the 6 years (up to 2012/13) on average allocated 4.5% of the budget to Agriculture well below the agreed allocation. This percentage reduces further as less funds are released at the time of budget execution as shown in the table below:-

Year Approved Budget Total Approved % age of Total (Sector) Budget (National) Approved Budget 2007/08 194.61 4,754.60 4.09 2008/09 223.22 5,85866 3.81 2009/10 310.73 7,044.50 4.41 2010/11 365.53 7,376.54 4.96

2011/12 433.97 9,110.4 4.51 2012/13 3.7 Average for 6 years 4.25

There is a risk that the goal of reducing poverty and hunger by half in the country by 2015 is not likely to be attained.

I have advised that in order to achieve success, management should ensure that the above commitments are adhered to.

1.3.3 Late Releases

It was noted that Treasury released a total of Shs.31,296,759,546 in the last week (5 days) of the financial year of which Shs.12,430,180,615 was released on the last working day of the financial year (i.e. 29/6/12) as shown in the table below;

Date Reference Payment Details Debit (S/P) (shs) 25-06-12 249685 Ministry of Internal Affairs 312,307,427 25-06-12 249687 State House 2,252,615,502 25-06-12 249688 State House 823,000,000 25-06-12 249689 Police 6,693,000,000 25-06-12 249690 National Environment Mgmt Authority 366,572,000 25-06-12 249691 ButabikaHospital 413,000,000 25-06-12 249693 Ministry of Education And Sports 2,600,000,000 26-06-12 249696 Ministry of Justice And Const Affairs 5,000,000,000 26-06-12 249698 UgandaLand Commission 209,084,000 26-06-12 249699 Finance, Planning & Economic Devmt 197,000,000 29-06-12 249708 Public Service 3,262,150,435 29-06-12 249709 Office of The Prime Minister 3,356,100,000 29-06-12 249710 Local Government 5,211,930,182 29-06-12 249711 Tourism, Wildlife And Heritage. 250,000,000 29-06-12 249712 Trade, Industry And Cooperatives. 350,000,000 Total 31,296,759,546

Late releases pose the risk of failure to execute a number of planned activities. 21

Management explained that over time MoFPED has tried to minimize the occurrence of late releases especially towards the end of the FY. However there are expenditures/activities that may not have been envisaged earlier like emergencies and urgent requests that could not be postponed.

I have advised that management efforts should be made to ensure that funds are released to the MDAs in time to avoid rushed end of the financial year transactions.

1.3.4 Releases above the Annual Cash limit/MTEF projections

Account Warrant vis-à-vis set Cash Limit

The account warrants were compared with the set cash limits to confirm compliance. It was however noted that the Account warrant for Ministry of Energy and Minerals of Shs.1,016,367,991,847 was way above the set cash limit of Shs.972,445,456,418. This resulted into an unexplained variance of Shs.43,922,535,429. This was an indication of overriding controls set to manage the budget and execution process.

I have advised management to ensure that there is strict adherence to budget execution controls.

1.4 Mischarge of Expenditure

The Parliament of Uganda appropriates funds annually in accordance with the needs of the country. 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 expenditures for a number of entities revealed that the entities charged wrong expenditure codes to a tune of Shs.256,976,089,113. The summary of mischarged expenditure per entity is in the table below:-

Vote Entity Amount %age Against Mischarged (shs) Total Expenditure 019 Ministry of Water & Environment 13,765,521,246 19.3 011 Ministry of Local Government 9,590,069,895 28.43 007 Ministry of Justice and Constitutional Affairs 4,554,501,722 5.09 005 Ministry of Public Service 4,912,020,604 1.4 017 Ministry of Energy and Mineral Development 32,100,319,984 3.24 22

016 Ministry of Works and Transport 16,640,241,647 24.7 014 Ministry of Health 27,464,268,277 58.24 013 Ministry of Education and Sports 25,186,694,366 12.87 161 MulagoHospital Complex 3,317,700,836 9.4 003 Office of the Prime minister 51,215,618,447 76.59 010 Ministry of Agric. Animal Industry & Fisheries 7,832,206,720 18 101 The Judiciary Department 15,527,280,027 26.74 008 Ministry of Finance Planning & Econ. Dev. 35,563,428,337 19.69 133 Directorate of Public Prosecution (DPP) 2,364,237,588 19.46 112 Directorate of Ethics and Integrity 176,521,614 6.30 020 Ministry of Communication and ICT 1,042,277,879 8.08 148 Judicial Service Commission 584,094,336 28.14 147 Local Government Finance Commission 46,541,879 1.11 144 Uganda Police 563,783,138 0.18 145 Uganda Prisons 195,324,362 0.24 105 Uganda Law Reform Commission 767,779,828 26.03 120 National Citizenship and Immigration Control 650,785,420. 1.21 009 Ministry of Internal Affairs 1,415,774,567 4.25 115 Uganda Heart Institute 49,629,750 1.25 006 Ministry of Foreign Affairs 110,947,393 0.59 114 Uganda Cancer Institute 376,658,595 8.73 174 MubendeRegionalReferralHospital 25,659,300 1.21 213 Uganda High Commission Kigali 60,818,498 3.21 151 Uganda Blood Transfusion Service 312,168,386 6.60 Farm Income Enhancement and Forestry 563,214,472 19.98 Conservation Project Total 256,976,089,113 ** Please note that extensive analysis was made mainly on the 15entities covered under the expanded audit scope.

The 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 mis-reporting.

Although the majority of the Accounting Officers attributed the occurrence to inadequate provision of funds to certain budget lines and budget cuts, I informed them that regulations prescribe procedures on how reallocations should be undertaken, which was not done.

I advised the Accounting Officer to streamline the budgeting process and ensure that funds are allocated to budget lines in accordance with priorities. Any reallocations should be undertaken in accordance with the regulations.

1.5 Advances to Personal Accounts

Sections 227, 228 and 229 of the Treasury Accounting Instructions require that all payments should be made by the Accounting Officers directly to the beneficiaries and where not convenient an imprest holder should be appointed by the Accounting Officer with the approval of the Accountant General.

However, during the year under review, Accounting Officers advanced huge sums of money to personal accounts of staff for activities that should have been paid directly to the beneficiaries. For the period under review Shs.67,085,008,004was advanced in this respect. These funds have remained unaccounted for in a number of entities. Advances to personal individual accounts have been rated as highly risky as a possibility of misappropriation is high. There is a need to strengthen the internal controls over advances to personal individual accounts.

Vote Entity Amount Advances not Advanced accounted for (shs) 019 Ministry of Water & Environment 14,000,000,000 2,052,431,568 011 Ministry of Local Government 2,801,211,388 005 Ministry of Public Service 741,701,631 741,701,631 016 Ministry of Works and Transport 10,282,962,400 010 Ministry of Agriculture Animal industry and 11,390,010,982 994,284,762 Fisheries 101 The Judiciary Department 3,630,121,204 667,067,500 013 Ministry of Education and Sports 713,128,154 206,451,934 Ministry of Public Service 741,701,631 741,701,631 003 Office of the Prime minister 19,727,324,730 19,727,324,730 014 Ministry of Health 2,272,226,554 713,128,154 161 MulagoHospital Complex 58,255,000 58,255,000 020 Ministry of Communication and ICT 693,936,330 0 147 Local Government Finance Commission 88, 608,374 88, 608,374 145 Uganda Prisons 32,428,000 32,428,000 TOTAL 67,085,008,004 25,934,774,910

1.6 Cash Withdrawals

a. Non Compliance with the Treasury Accounting Instructions (TAI)

It was however noted that several ministries made cash withdrawals amounting to Shs.36,523,962,868 from the Treasury General Account (TGA) to undertake several activities. The practice of drawing cash to incur expenditure was irregular. It also exposes funds to a risk of loss, since cash is inherently prone to being misused.

It was further noted that a total of Shs.27,869,964,417 withdrawn in cash remained unaccounted for as shown in the table below:-

Vote Entity Cash Withdrawals Un-Accounted Amount (shs

019 Ministry of Water & Environment 835,258,661 91,301,700 005 Ministry of Public Service 4,200,000,000 4,192,369,900 017 Ministry of Energy and Mineral 3,200,000,000 1,445,699,220 Development 007 Ministry of Justice and Constitutional 246,745,000 0 Affairs 101 The Judiciary Department 3,204,815,241 956,033,493 016 Ministry of Works and Transport 1,566,957,784 617,488,500 008 Ministry of Finance 1,014,635,040 240,022,500 003 Office of the Prime minister 16,626,028,556 16,626,028,556 161 Mulago Hospital Complex 5,629,522,586 3,701,020,548 TOTAL 36,523,962,868 27,869,964,417

I have advised Management to ensure adherence with the requirements under the Treasury Accounting Instructions.

1.7 Dormant Accounts

During the year under review, it was observed that a number of entities had dormant accounts that had not been in operation for some time. Dormant bank accounts pose a risk of being misused to transact unauthorized and/or fraudulent transactions. The details of such accounts for the period under review are indicated in the table below.

Vote Entity Number of Dormant Accounts 019 Ministry of Water & Environment 29 011 Ministry of Local Government 84 005 Ministry of Public Service 19 017 Ministry of Energy and Mineral Development 81 010 Ministry of Agriculture Animal industry and Fisheries 81 101 The Judiciary Department 05 25

013 Ministry of Education and Sports 46 008 Ministry of Finance Planning and Economic Development 207 Office of the Prime minister 39

This was attributed to lack of monitoring of these accounts by the Accounting Officers and the central bank.

I advised that regular monitoring should be undertaken on all government accounts by the Accountant General, Accounting Officers and Bank of Uganda.

1.8 Gross Tax

In order to control government expenditure in respect of import taxes on government imports, the taxes incurred by MDAs are paid for centrally through the Gross Tax system. The basis of payments is commitment forms initiated by the respective Accounting Officers and submitted to Treasury for payment. The following matters were noted:-

(a) Inadequate Budgeting for Gross Tax

Analysis of the Gross Tax revealed that in the year under review, a total of Shs.214,736,007,883 was budgeted for, out of which actual expenditure amounted to only Shs.71,020,010,728 reflecting 33% utilization. Further analysis revealed that 24 votes had nil utilization despite having received gross tax funds amounting to Shs.3,181,448,187 released to them as indicated in the table below:-

Vote Entity Gross Tax Gross Tax Gross Budget (Shs) Released (Shs) Tax Utilized (Shs) 006 Foreign Affairs 260,000,000 173,333,333 0 012 Lands & Urban Development 29,102,400 19,401,600 0 015 Trade & Industry 729,000,000 485,999,998 0 021 EA Affairs 80,000,000 80,000,001 0 022 Tourism, wild life & antiquities 558,000,012 558,000,013 0 102 Electoral Commission 50,000,000 33,333,333 0 105 Uganda Law R.C. 35,000,000 23,333,333 0 108 NPA 175,000,000 116,666,666 0 111 Busitema University 500,000,000 333,333,333 0 114 Uganda Cancer Institute 100,000,000 66,666,666 0 139 Kyambogo University 200,000,000 133,333,333 0 141 URA 500,000,000 166,666,667 0 26

147 LGFC 50,000,000 33,333,333 0 148 JSC 43,019,872 28,679,913 0 149 Gulu University 150,050,000 100,033,333 0 150 NEMA 300,000,000 300,000,000 0 151 Uganda Blood Transfusion 30,000,000 20,000,000 0 Services 153 PPDA 64,000,000 42,666,667 0 157 NFA 300,000,000 199,999,998 0 159 ESO 50,000,000 33,333,333 0 163 Arua Hospital 100,000,000 66,666,667 0 164 Fort Portal Hospital 120,000,000 80,000,000 0 167 Jinja Hospital 130,000,000 86,666,667 0 Total 4,553,172,284 3,181,448,187

It was further noted that three votes (NEMA, Shs.282,977,407, Tourism, Wildlife & Antiquities Shs.39,505,029, and East African Affairs Shs.18,179,893) had made tax commitments that were not settled during the year despite having a budget and funds released to them for the same purpose.Appropriating funds for activities/expenses whose likelihood of occurrence is remote provides avenues for misusethrough building slacks in the budget.

I advised that adequate budgeting should be undertaken to ensure appropriate amounts are allocated to the votes.

1.9 Outstanding Commitments

Contrary to the established commitment control system, various entities continued to commit Government even when there were no funds available. Outstanding commitments at the end of the year stood at Shs.429,079,791,021 and Euro.89,380.93.Examples of entities with domestic arrears are shown below:-

Entity Outstanding Commitments Euros Shs Defence 19,011,373,978 DPP 434, 105,754 Ethics and Integrity 484,105,754 NARO 909,084,810 Soroti RRH 191,370,617 Police 38,457,244,017 Prisons 13,062,521,489 Uganda AIDS Commission 121,764,206 Kabale RRH 75,879,189 27

Mbarara RRH 389,524,850 Mulago 7,722,151,410 MakerereUniversityBusinessSchool 1,479,010,641 MbararaUniversity of Science & 34,923,541 Technology KyambogoUniversity 3,428,648,791 BusitemaUniversity 3,074,291,042 Arua RRH 52,038,550 HOIMA RRH 25,209,996 BRUSSELS 89,380.93 70,364,236 Local Government Finance Commission 17,525,048 Office of the President 8,210,414,998 Judicial Service Commission 10,167,272 Uganda Registration Bureau 1,127,161,083 Uganda Law Reform 486,899,069 Public Service Commission 211,703,796 Ministry of Information and Comm. Tech. 900,856,821 Ministry of Foreign Affairs 29,569,232,146 Uganda Embassy in Rome 54,634,269 Ministry of Trade, Industry and 4,335,117,462 Cooperatives Uganda Embassy in EthiopiaAddis Ababa 16,672,723 MakerereUniversity 40,234,384,265 Uganda Embassy Moscow 6,362,607 UgandaLand Commission 2,842,860,617 Ministry Of East African Community 1,710,073,200 GuluUniversity 2,436,450,267 Uganda High Commission, Abuja-Nigeria 8,058,319 Uganda High Commission , London 69,439,024 Embassy of Republic of 270,023,337 UgandaBeijingChina UNRA 247,538,141,827 89,380.93 429,079,791,021

The continued accumulation of such domestic arrears without a strategy to clear these commitments is a huge burden to resolve in the future. Further, these arrears are owned to mostly the private sector which in turn will be affected in terms of their continued existence. I advised the authorities develop a strategy to minimise the accumulation of these arrears and the clearing of the backlog. 1.10 Budget Performance

a) Performance by Individual MDAs

A review of the Government Annual Permance report revealed the the performance for the MDAs was as shown in the table below. The table shows that at least 20 MDAs scored less than 50% in their performance against initial set targets with Law 28

Reform Commission, Education Service Commission and Health Service Commission as the worst performers. Only 13 MDAs registered performance of above 70%. These were mainly MDAs whose funding was either not greatly reduced (cut) or funding was well above the initial provisions in the budget. The table showing the performance of the MDAs is below. The poor performance by the individual MDAs affects the sector performance and eventually contributes to non-achievement of the NDP objectives. Table Showing MDAs Performance levels VOTE MDAs Output Performance 001 Office of the President 82% 002 State House 100% 003 Office of the Prime Minister 53% 004 Ministry of Defence 100% 005 Ministry of Public Service 18% 006 Ministry of Foreign Affairs 25% 007 Ministry of Justice and Constitutional Affairs 25% 008 Ministry of Finance, Planning and Economic 55% 009 Ministry of Internal Affairs 50% 010 Ministry of Agriculture, Animal Industry and 68% 011 Ministry of Local Government 79% 012 Ministry of Lands, Housing & Urban Development 27% 013 Ministry of Education and Sports 28% 014 Ministry of Health 44% 015 Ministry of Tourism, Trade and Industry 40% 016 Ministry of Works, Housing and Communication 86% 017 Ministry of Energy and Minerals 58% 018 Ministry of Gender, Labour and Social Development 64% 019 Ministry of Water & Environment 35% 020 Ministry of Communication and ICT 50% 021 Ministry East African Affairs 80% 101 Judiciary (Office of Judicature) 50% 102 Electoral Commission 83% 103 Inspector General of Government‘s Office 50% 104 Parliamentary Commission 60% 105 Law Reform Commission 0% 106 Uganda Human Rights Commission 22% 108 National Planning Authority 67% 109 Law Development Centre 20% 110 Uganda Industrial Research Institute 91% 112 Directorate of Ethics and Integrity 44% 113 Uganda National Roads Authority 65% 117 Uganda Tourism Board 44% 118 Uganda Road Fund 83% 122 KCCA 46% 131 Office of the Auditor General 50% 132 Education Service Commission 0% 133 Directorate of Public Prosecution (DPP) 33% 134 Health Service Commission 0% 141 Uganda Revenue Authority (URA) 50% 142 National Agriculture Research Organisation (NARO) 67% 29

143 Uganda Bureau of Statistics (UBOS) 79% 144 Uganda Police Force 61% 145 Uganda Prisons Sevices 29% 146 Public Service Commission 100% 147 Local Government Finance Commission 100% 148 Judicial Service Commission 67% 150 National Environment Management Authority (NEMA) 33% 152 National Agricultural Advisory Services (NAADS) 67% 153 Public Procurement & Disposal of Assets 38% 154 Uganda National Bureau of Standards 59% 155 Cotton Development Organisation 64% 156 UgandaLand Commission 50% 157 National Forestry Authority 44% 159 External Security Organisation 100% 160 Uganda Coffee Development Authority 57%

I advised management to stregthen the budget performance monitoring framework with a major aim of ensuring that performance gaps are identified in time and corrective actions undertaken. b) Excess Expenditure

A total of 29 entities incurred expenditure in excess of the approved budgetary provisions to the tune of Shs.20,532,472,938.This was attributed to weaknesses in controls over budgetary expenditures or utilization of revenues at source without authority.

This matter has continued to be report annually and there seems to be no action taken on the errant Accounting Officers

I recommended that strict enforcement of the provision of the Public Finance and accountability Act be undertaken in this regard. In addition, Accounting Officers are advised to ensure that activities are properly budgeted for and spending is undertaken within the allocated resources. The details relating to the various entities and the amounts spent beyond the budgetary provisions are indicated below:-

Table showing excess expenditure per entity VOTE MINISTRY/DEPA Actual Excess RTMENT Approved/Rev Expenditure Expenditure ised (shs) (shs) 1 106 Uganda Human Rights Commission 7,524,159,656 7,622,489,871 (98,330,215) 2 115 Uganda Heart 2,610,400,000 3,303,113,921 (692,713,921)

Institute 3 142 National Agriculture Research 52,472,879,000 57,680,544,18 (5,207,665,188) Organisation 8 (NARO) 4 143 Uganda Bureau of Statistics (UBOS) 28,811,998,000 32,506,985,50 (3,694,987,508) 8 5 145 Uganda Prisons 56,093,746,132 59,563,565,66 (3,469,819,531) 3 6 161 MulagoHospital Complex 38,253,408,000 38,481,719,06 (228,311,061) 1 7 163 AruaHospital 4,321,924,750 4,416,614,365 (94,689,615) 8 165 GuluHospital 4,383,618,539 4,791,966,765 (408,348,226) 9 166 HoimaHospital 3,086,247,000 3,803,790,513 (717,543,513) 10 167 JinjaHospital 5,543,140,000 5,623,321,759 (80,181,759) 11 168 KabaleHospital 3,806,187,814 3,866,249,809 (60,061,995) 12 169 MasakaHospital 4,315,024,400 4,548,405,647 (233,381,247) 13 170 Mbale Hosoital 5,262,119,200 5,305,890,031 (43,770,831) 14 171 SorotiHospital 3,797,170,986 3,974,785,245 (177,614,259) 15 172 LiraHospital 4,014,433,364 4,056,481,961 (42,048,597) 16 175 MorotoRegHospital 172,666,700 187,765,154 (15,098,454) 17 201 Ugandan Mission at the UN, Newyork 5,720,070,786 9,226,730,400 (3,506,659,614) 18 203 Uganda High Commission in 1,874,979,988 1,962,292,896 (87,312,908) Canada, Ottawa 19 205 Uganda High Commission in 1,060,218,384 1,099,393,592 (39,175,208) Egypt, Cairo 20 206 Uganda High Commission in 1,592,836,850 1,601,188,118 (8,351,268) Kenya, Nairobi 21 207 Uganda High Comm to Tanzania, Dar-es- 870,547,783 923,958,422 (53,410,639) salaam 22 210 Uganda High Comm to USA, Washington 2,990,294,916 3,584,857,500 (594,562,584) 23 213 Uganda Embassy in Rwanda, Kigali 1,390,288,195 1,492,434,575 (102,146,380) 31

24 215 Uganda Embassy in Japan, Tokyo 1,944,984,385 2,184,937,003 (239,952,618) 25 220 Uganda Embassy in Italy, Rome 1,753,716,427 1,787,649,765 (33,933,338) 26 223 Uganda Embassy in Sudan, Khartoum 1,084,845,097 1,110,043,737 (25,198,640) 27 225 Uganda Embassy in Germany, Berlin 1,880,916,620 2,097,575,761 (216,659,141) 28 228 Uganda Embassy in Canberra 1,140,673,084 1,262,357,788 (121,684,704) 29 230 Uganda Embassy in Abudhabi, UAE 1,595,006,000 1,833,865,976 (238,859,976)

(20,532,472,938 )

1.11 Arrears of Revenue

A total of Shs.21,116,475,045 collected as Non Tax revenue during the year is yet to be remitted to the Consolidated Fund. Delay in remitting such moneys exposes the funds to diversion. Details are in the table below:

Entity Actual amount Amount Due to collected (shs) remitted to consolidated consolidated funds (shs) funds (shs) 1 Uganda Reg. Services Bureau 7,505,532,830 7,452,132,030 53,400,800 2 Uganda Road Fund 8,850,000 0 8,850,000 3 Uganda Police Force 23,298,936,254 12,301,802,813 10,997,133,441 4 Uganda Prisons Service 5,499,653,332 342,370,562 5,157,282,770 5 Uganda Embassy Moscow 62,851,263 61,105,278 1,745,985 6 Uganda Permanent Mission To 1,678,563,786 0 1,678,563,786 The United Nations 7 Ministry Of Trade, Industry And 33,782,700 16,536,486 17,246,214 Cooperatives 8 Uganda Embassy – Berlin 338,152,352 272,274,454 65,877,898 9 Uganda High Commission - 1,475,424,376 0 1,475,424,376 London 10 Embassy of The Republic of 767,049,796 737,273,412 29,776,384 Uganda, Beijing China 11 Uganda Embassy - Brussels 303,190,515 274,878,687 28,311,828 12 Uganda High Commission, 821,781,433 413,885,420 407,896,013 Pretoria 13 Uganda Embassy In Ethiopia 263,990,722 248,912,035 15,078,687 Addis Ababa 14 Uganda Embassy Washington 1,458,143,965 359,679,357 1,098,464,608 D.C 15 Ministry Of Foreign Affairs 36,790,514 15,644,014 21,146,500 16 Uganda Embassy In Rome 60,894,403 49,251,130 11,643,273 17 Embassy of Republic of Uganda- 144,139,893 95,507,411 48,632,482 Khartoum TOTAL 60,522,096,063 39,405,621,018 21,116,475,045 32

The Accounting Officers have been advised to remit the NTR promptly in accordance with the NTR guidelines. Follow up should be undertaken by the Treasury to ensure that NTR is fully accounted for.

1.12 Utilisation of NTR at Source Without Authorisation

Several entities spent NTR at source worth shs.37,237,354,286 without authority from Permanent Secretary/Secretary to the Treasury as shown in the table below:- MDA Approved/Re Actual Actual Expenditure vised released Expenditure Above Releases Ministry of Lands, 17,617,451,025 11,747,923,670 12,209,962,152 (462,038,482) Housing & Urban Development Uganda National Roads 918,471,169,483 892,032,699,381 922,800,000,000 (30,767,300,619) Authority NARO 50,845,634,000 43,592,872,033 46,441,715,983 (2,848,843,950) UgandaMission At The 13,774,692,579 13,774,692,579 14,709,774,803 (935,082,224) Un, New York Uganda High 3,087,515,502 3,087,515,502 3,696,696,652 (609,181,150) Commission In The Uk Uganda High 1,381,190,000 1,381,190,000 1,615,581,868 (234,391,868) Commission In South Africa Uganda Embassy In 2,135,281,089 2,135,281,089 2,264,463,786 (129,182,697) China Uganda Embassy In 3,181,000,000 3,181,000,000 3,265,879,161 (84,879,161) Switzerland Uganda Embassy In 1,321,583,483 1,321,583,483 1,376,799,054 (55,215,571) Libya Uganda Embassy In 1,234,000,000 1,234,000,000 1,540,641,998 (306,641,998) Saudi Arabia Uganda Embassy In 2,865,000,000 2,865,000,000 2,885,607,352 (20,607,352) Paris Uganda Embassy In 2,706,000,000 2,706,000,000 2,724,878,701 (18,878,701) Berlin Uganda Embassy In 2,308,919,750 2,308,919,750 2,361,947,184 (53,027,434) Moscow Uganda Embassy In 1,440,793,060 1,437,594,060 1,596,431,477 (158,837,417) Juba Uganda Embassy In 1,601,478,000 1,601,478,000 2,154,723,662 (553,245,662) Guangzhou (37,237,354,286)

This practice contravenes the set guidelines. I have advised that entities to always ensure that all NTR is banked intact as per the provisions under the accounting regulations.

1.13 Staffing Levels

A review of the staffing structures for a number of entities revealed various gaps in staffing. Understaffing hinders effective and efficient service delivery of the entity's planned outputs. I advised the entities to fill the gaps in accordance with the approved structures.Some of the affected entities are shown below:- Entity Approved Filled Staffing Structure Shortages

Makerere University 3008 1604 1404 Kyambogo University 648 66 582 Busitema University 1241 973 268 Ministry of tourism wild life and heritage 301 126 175 Fort Portal RRH 435 333 102 Hoima RRH 349 258 91 Jinja RRH 418 336 82 Kabale RRH 198 109 89 Lira RRH 392 301 91 Moroto RRH 256 96 160 Mubende RRH 322 170 152 Sororti RRH 331 265 66 Mulago Hospital 1534 1326 208 Kampala Capital City Authority 1332 334 997 Ministry of Agriculture, Animal Industry and Fisheries 683 289 394 Ministry Of Education 420 185 234 Ministry of Works and Transport 593 441 152

1.14 Losses

During the year, losses relating to cash and stores reported by various Ministries, Departments, Agencies and Institutions increased from Shs 2,711,659,014 reported as at 30th June 2011, to Shs.3,498,698,986 as of 30th June 2012, thereby increasing by Shs.787,039,772.These losses should be investigated to their conclusion and properly dealt with in accordance with Public Finance and Accounting Act, 2003 and the attendant regulations. Details are shown in the table below:- Entity Losses of Value of Losses b/f Cumulative Losses for (shs) losses (shs) 2011/012 (shs) Brussels Mission Visa books 23,138,762 - 23,138,762 State House Cash 590,200,000 - 590,200,000 Uganda Road Fund Cash & Safe - 15,300,000 15,300,200 National Agricultural - 193,188,555 193,188,555 Research Organisation Electoral Commission - 898,529,286 898,529,286 Arua Hospital - 3,300,000 3,300,000 Min. of Agriculture Equipment - 2,300,000 2,300,000 Uganda Aids - 1,850,000 1,850,000 Commission Min of Works - 932,773,100 932,773,100 Uganda Police - 175,765,960 175,765,960 Min of Defense - 91,729,495 91,729,495 Min of Internal Affairs - 84,790,000 84,790,000 Min of Water - 78,000,000 78,000,000 Min of Gender - 75,000,000 75,000,000 Uganda Human Rights - 58,589,135 58,589,135 Commission Min of Justice - 9,581,500 9,581,500 Butabika Hospital - 8,035,416 8,035,416 Judicial Service - 4,050,000 4,050,000 Commission Uganda Embassy in - 3,058,091 3,058,091 Germany Uganda Embassy in - 1,058,540 1,058,540 Switzerland Kyambogo University - 10,400,000 10,400,000 Uganda High - 41,179,551 41,179,551 Commission Uganda Embassy, Cash - 23,180,385 23,180,385 Rome UNRA Cash 173,701,010 - 173,701,010 TOTAL 787,039,772 2,711,659,014 3,498,698,986

1.15 Contracts/Projects Progress

It was observed that a number of Government contracts/projects for a total of Shs.260,508,300,217 and Euros.38,406,000that had been ongoing or were started during the financial year lagged behind schedule or demonstrated signs of failure. It was noted that a number of contracts/projects had exceeded their completion dates while others had been abandoned. There appeared to be inadequate supervision by the responsible entities and laxity in enforcing contract terms. This could have resulted into losses to Government and failure to achieve the objectives for which such contracts/projects were entered into. Details are in the table below:

Entity No Particulars of contract Contract Price Balance/Remarks (shs) Ministry of 1 Renovation Works at 4th 5,497,104,234 Supposed to have Defense Division-Gulu been completed September 2009. 2 Renovation of hangers at 1,333,404,248 Contract supposed EntebbeAirport to have started 2 years and 8 months ago. 3 Construction of RDCs‘ 600,932,075 Supposed to have offices in Amuru District been completed by August 2012 4 Construction of RDCs‘ 661,828,731 Supposed to have offices in Abim District been completed by August 2012 Uganda 5 Construction of 978,998,826 Some budgeted Prisons Kapchorwa Prison works had not been executed 6 Re-roofing of the Provision Nothing done. administration block and 80,000,000 electrical rewiring of Jinja prisons. AruaReferral 7 Construction of a medical 3,212,114,188 Completed but not Hospital ward and sewage lagoon put to use. JinjaRegiona 8 Construction of the 2,782,767,447 Supposed to have lReferralHos Private Patient wing been completed by pital 31st December, 2011. 9 Renovation of the eye 193,280,328 Completed but not ward put to use. KabaleReferr 10 Construction of a private 2,657,038,984 Walls, beams, alHospital wing. ceiling & electrical wiring poorly done. 11 Construction of nurses 2,457,035,984 Fittings and floor hostel. poorly completed. MbaleReferr 12 Construction of the 135,799,776 Delay of more than 36

alHospital Hospital Gate one year by the contractor to hand over the site. Various defects noted. 13 Construction of 144,249,675. -Part of the sewer Sewerage and Water line belongs to

System Mbale Municipal Council and not the Hospital. -Finishing inside the manholes seemed to have been done partially 14 Construction of Staff 3,155,880,670 Incomplete fittings Accommodation and various defects. SorotiReferr 15 Construction of a 1,375,829,979 405,503,812 alHospital Doctor‘s mess. Incomplete and has stalled 16 Construction of 787,436,443 Contractor failed to Therapeutic Feeding proceed and Centre (TFC) Building. another has also failed to complete. Ministry of 17 Renovation of Kobulin 275,275,167 Construction of the Gender, Youth Skills Centre two buildings had Labor and stalled at the ring Social beam Developmen t National 18 Works at Ruhengyere 894,149,655 Work not completed Animal stock farm and the contractor Genetic was not at the site Resource while most of the Centre and works had been Data Bank destroyed by rain.

MakerereUni 19 University road 893,753,476 Was expected to be versity completed by 11th October 2012. 20 Remedial works in the 155,612,277 Was expected to be main library completed by 20th November 2010 21 Renovation of Nanziri Expected to be KyambogoU Hall completed 10th niversity August, 2011. BusitemaUni 22 Renovation and 1,468,844,225 Contract signed in versity rehabilitation of the 2008/09 but works WorkshopBuildings, walk stalled during the way slabs/roof, year 2010 Laboratory block, Administration/Classroo m blocks, garage/service bay and Workshop 37

related electrical works, Refurbish and Renovate 6 staff houses. Ministry of 23 Universal Post Primary 1,327,127,000 In October 2012, Education Education and Training the company had and Sports (UPPET) Project-3 not commenced Contracts which work in any one of comprised of Kidoko S.S. the three sites. Tororo District, Pilkington College Muguluka Jinja District and Kidera S.S. Kamuli District Ministry of 24 CAIIP 1-Rehabilitation of 341,290,950 Should have been Local Nawaikoke-Nakyere p/s- completed by Dec Government Kivule Road, Mpulira 2010. Nawambete Nabwenyo road – Namutumba District 25 Rehabilitation of 301,822,500 Roads ought to Makenya-Kiwolomero – have been Buwaga- Nawandagala- completed and Mpumiro – Bunaibani handed over by road - Namutumba December 2010 District 26 Onyakedi-Ayac-Banya- 707,397,683 About 100m was Dokolo Boarder Road- completely Lira submerged 27 Lira-Palwo-Obolokome— 273,372,750 The contractor Alwe-Aculu Road – abandoned the LiraPalwoSubCounty project one year before completion 28 Achowa –Angolebwal 593,784,398 Incomplete, Acinga Road-Amuria inadequate culverts District. were provided for and washed away. 29 Agena –Lela –Tecuwa 1,316,462,602 Road works in Road, AloiSubCounty respect of the Lira – Palawo- contracts were Abolokome-Alwe P/S – abandoned and Aculu Road, remained LiraPilawoSubCounty incomplete. Onyakedi-Ayak-Banya- Dokolo Boarder Road, AmachSubCounty 30 Construction of Gulu 15,057,709,217 Incomplete, site main market. reduced and of the original 4,400 vendors only 1,800 will be accommodated. 31 Construction of Jinja 28,679,485,336 Work was behind Central Market. schedule by three months 38

32 MarachaPrimary School 90,000,000 Expected to have Classroom Construction, been completed by NyadriSubCounty - January, 2012. Maracha District Min of 33 Construction of a 23,326,246,255 Expected to have Finance housing/factory for the been completed by pilot banana processing Aug 2010. plant,quality assurance laboratory block. Min of 34 Renovation of Kobulin 275,275,167 The two buildings Gender Youth Centre, Napak had stalled at the District ring beam. 35 Rehabilitation of Lokichar - 4,841,766,500. Bridgeworks had Turtuko - Nyakwae Road stalled. (50.08Km) & Construction of NyakwaeBridge (21m Span)

36 Construction of 400,037,000 The Contractor

OkokorBridge in Kumi undertook to complete Min of District the bridge works in Works 40-45 days from 5th December 2011 and again on 11th January 2012 in 2.5 months but both targets were not achieved 37 Construction of Mwikaye, 1,757,075,472 Delayed completion of Mayenze and LukaleBridges works without official in Manafwa District. EoT and without charging liquidated damages. 38 Construction of Alla 2 716,111,000 Delayed completion of Bridge in Arua District works by over 18 months.

UNRA 39 Various road construction 150,761,999,999 Delays in the and maintenance and implementation of projects Euros.38,406,000 the projects and revision of the works

TOTAL 260,508,300,217

1.16 Unspent Balances Due to the Consolidated Fund

All unspent conditional grants as at the 30th of June, must be returned to theconsolidated fund account by the end of the following financial year. It was however noted that a total of Shs.5,690,653,735 was not returned by various

Ministries, Departments and Agencies as required by the Financial Regulations. The funds are exposed to misappropriation.The table below refers:- No Entity Amount (Shs) 1 NAGRIC 35,706,969 2 Uganda Road Fund 2,962,354,491 3 Mbarara Regional Referral Hospital 155,561,699 4 Mubende Regional Referral Hospital 5,112,613 5 Uganda High Commission Abuja 74,775,356 6 Beijing 702,485,544 7 Cairo 22,300,901 8 Uganda High Commission, Canberra 20,320,599 9 Uganda High Commission Abuja 74,775,356 10 Uganda High Commission in Nairobi 177,471,497 11 Uganda Embassy Tokyo 50,535,954 12 Uganda High Commission, Pretoria 249,115,161 13 Uganda Permanent Mission to the United Nations 1,001,165,807 New York 18 Ministry of Water and Environment 105,746,876

19 Ministry of Local Government 53,224,912

TOTAL 5,690,653,735

1.17 Consolidated Allowances

It was noted that a number of Accounting officers are currently paying various allowances such as; consolidated allowances, weekend allowances, monthly allowances and seminar allowances to cater for extra income for staff. Examples of entities where such allowances were paid out are below:- No Entity Amount (Shs)

1 Ministry of Local Government 501,185,460 2 Ministry of Public Service 2,955,975,000 3 Mualgo Hospital Complex 3,027,809,205 4 Ministry of Health 1,128,157,288 TOTAL 7,613,126,953

The justification for this according to the Accounting officers is that staff are unable to sustain themselves using the monthly salaries. I informed the accounting officers that the practice is irregular as these allowances are not provided for in the Public Service Standing orders. It is important to note however that these are indicators of need for pay reforms to address the issue of a living wage. 40

I advised that the matter be given its due attention by Government.

1.18 Internal Audit

I reviewed internal controls of entities during the year including the functioning internal audit. I noted the following weakness on the functioning of internal audit units: Some Internal Audit units for autonomous bodies had no approved formal Internal Audit charter that spell out the goals, objectives and core responsibilities of internal audit functions. Some Internal Audit units lacked the risk based methodology to management of risk, contrary to the charter for internal Audit Function, (November 2008) developed by Treasury and contemporary internal audit practice. There was no evidence that internal audit carried out its activities in a number of entities. There were no audit reports from internal audit availed for my review. In instances where internal audit carried out its roles, Management did not take interest in discussion of internal audit reports and implementation of internal audit recommendations.

Some of the entities where the above matters were noted included the following:-

MDA Remarks Ministry of Health - East African Public Lack of Internal Audit Reviews Health Laboratories NetWorking Project - (IDA Credit Agreement NO. 4733-UG) - Kampala Integrated Environmental Internal Audit Function no evidence of Planning and Management Project performance. (KIEMP)

UGA0500811

Local Government Sector Investment plan (LGSIP) Accountabilities not reviewed by the Internal

Audit Department

LiraRegionalReferralHospital No Internal Audit Reports MbararaRegionalReferralHospital Limited Internal Audit Coverage MubendeRegionalReferralHospital Limited Scope of Work of Internal Audit

Local Government Finance Commission Absence of Approved Internal Audit Charter

AruaRegionalReferralHospital Lack of an Internal Auditor FortPortalRegionalReferralHospital Under-staffed Internal Audit Function

The functioning of the internal audit units need to be strengthened to support Management in evaluation of internal controls and to add value to the organizations.

ACCOUNTABILITY SECTOR

3.0 TREASURY OPERATIONS

3.1 The Debt Stock Review of the debt stock schedules revealed the following;

a. Management of commitment fees

According to the debt strategy under institutional framework development, it was provided that the front office which negotiates foreign loans work towards modifying the clause for commitment fees to ensure that such charges are levied only on delayed disbursements at a particular time.

A review of a commitment fees schedules and their related files showed that commitment fees continue to be charged on full undisbursed loan amounts. As a result, commitment fees charges have increased by 64.84% from shs.5.474 billion in 2010 to shs.9.023 billion in 2012.

It was noted that delays between loan agreement signing and disbursement have resulted in costly commitment charges. These delays could be arising partly from inadequate advance procurement where loan agreements are signed before procurement plans are in place. Further delays were also attributed to insufficient provisions in the budget for required counter-part funding.

Management explained that this issue was brought to the attention of the Development partners who responded that this was a standard clause in all credit agreements which can only be amended by the Development Governors. It was further explained that the increase in commitment fees during the period under

review was due to increase in the external debt stock due to contracting of new loans such as the Kampala Sanitation Project and the Kampala – Entebbe Express High Way, slow disbursement by projects and depreciation of the shilling against the dollar and other major currencies.

Management further reiterated that the government has continued to negotiate a waiver of commitment fees particularly with AFDB and IDA.

I have advised management to pursue this issue with the development partners with a view of ensuring that the commitment fees are levied only on delayed disbursements. Management should also minimize delays between loan agreement signing and disbursements. b. Signing of Loan Agreements prior to Parliamentary Approval of the Loans

Section 20(3) of the Public Finance and Accountability Act, 2003, provides that the terms and conditions of the loan shall be laid before Parliament and shall not come into operation unless they have been approved by a resolution of Parliament.

Contrary to this provision, it was noted that thirteen (13) new loans equivalent to Shs.1,344,839,797,800 had their loan agreements signed prior to Parliamentary approval of their terms and conditions.Some of these loans were signed eleven (11) months prior to Parliamentary approval. There is a risk of committing Government to obligations/ventures which may eventually be rejected by Parliament.

I have advised management to ensure that all loans are signed after their approval by Parliament in accordance with the Constitution. c. Loan performance

Analysis and review of the loans status schedule revealed that a number of loans had low disbursement rates despite nearing their respective closing dates. Three of the loans had not disbursed at all despite having obtained Parliamentary approvals, while another (4) had disbursed below 5%. Details in the table below;

Credi Project Name Curr Date Closing Loan Disbursed Disbu

tor ency Signed Date Amount (shs) rsed

IDA Public Service Perfom. SDR 15-Sep-08 30-Jun-13 14,000,000 6,357,349.67 45% Enhan IFAD Suppl. Community SDR 20-Feb-11 31-Mar-13 10,900,000 4,382,455.45 40% Agric Infras IDA 2nd L. Victoria Environ SDR 29-Oct-09 30-Jun-13 17,600,000 5,048,684.49 29% Mgt Proj IDB National Education IDI 24-Jun-10 31-Dec-13 8,660,000 359,688.31 4% Support BADEA N.NE Bridges USD 20-Oct-05 31-Dec-12 7,000,000 190,319.46 3% ADF Mbarara Nkenda AFU 13-May-09 31-Dec-13 52,510,000 574,529.90 1% Power Lines IDB IDB-Small Bridges in IDI 24-Nov-08 31-Jan-13 7,000,000 45,791.80 1% N.&NE UGA SAUDI Tech Institute and SAR 5-Jan-10 31-Dec-12 45,000,000 0.00 0% ARABI Vocation A FUND BADEA Urban Markets & USD 16-Jul-09 30-Mar-13 10,000,000 0.00 0% Agric Products IDA 9th Poverty Reduction SDR 14-May-12 30-Jun-13 65,200,000 0.00 0% Support

The delays in disbursements could be due to insufficient budgeting for the required counter-part funding.

Poor disbursement performance may affect the reputation of the government with the financiers. In addition, it retards the performance of projects for which the funds are borrowed.

Management explained that slow disbursement levels were attributed to poor absorption capacity of the implementing agencies right from poor project selection, procurement problems, weak financial management and poor contract management among others.

I have advised management that;

Loan proposals should be forwarded to Cabinet with written confirmation that the required counterpart funding has been included in the budget.

The implementing agencies should be closely monitored to ensure that full disbursement of loans is achieved in accordance with the agreed plans.

3.2 Expired Public Debt Strategy It was noted that the Treasury five year Public Debt Strategy (2007-2012) had expired in December, 2012. This implies that currently, the Treasury debt management operations lack a guiding National Debt Strategy. The continued lack of a strategy on public debt management‘ exposes the department to a risk of failure to achieve the primary objective of ensuring fiscal prudence, since decisions regarding the management of public debt are not guided by a uniform policy.

Management explained that they were in the process of developing a new debt policy document that will replace Debt Strategy. The delay to publish the strategy was due to the wide consultative process with different stakeholders to ensure ownership and an implementable strategy.

I have advised management to expedite the process of having the strategy in place.

3.3 MOU Between Treasury and BOU The Ministry of Finance Planning and Economic Development (MoFPED) has a Memorandum of Understanding (MoU) with Bank of Uganda (BoU) which among other things, defines the terms and conditions applicable with regard to Fiscal, Monetary, Exchange Rate Policy and Accounts management. It also establishes procedures for fulfilling the statutory responsibilities that each party is required to discharge under the BoU Act (CAP 51). Review of the MoU and the Act revealed the following:- a. Delays in Establishment of Debt Policy Management Committee

Sections 6.6 & 6.7 of the MoU with BoU provides for establishment of a Debt Policy Management Committee (DPMC) for better debt management. The functions of the committee are specified as follows;

Review and recommend debt policy;

Review and recommend borrowing ceiling and debt strategy;

Review and approve recommendations by the debt technical committee (DTC) regarding borrowing and guarantees.

Monitor and coordinate debt strategy implementation and management debt activities.

Despite the importance of this committee in the management of debt, the committee has not been put in place. This gap could negatively affect the proper management of Government debt.

Management explained that the Debt Policy Management Committee (DPMC) is currently being reconsidered and I await this action. b. Review and up-date of the MoU

Section 4 (2) (e) of the Bank of Uganda Act states that, one of BoU‘s functions shall be to ―act as financial adviser to the Government Debt Strategy Committee and manager of public debt.‖ Sections 32 (2) and (4) also provide definitions of the services that the BoU shall provide to Government. In 2008, Treasury entered into an MoU with BoU with an aim of ensuring that BoU handles certain transactions on behalf of Treasury. A review of the debt strategy showed the MoU has not been revised despite the changing trends in the nature and scope of the transactions undertaken by BoU on behalf of Treasury.

Lack of revision of the MoU poses a risk of use of outdated guidance which in turn could lead to poor management of transactions handled by BoU on behalf of Treasury.

Management explained that the financial management part of the MoU was concluded in January 2013 and the debt management section is currently being handled. Its delay was due to the transition process in the use of Government securities from monetary to fiscal financing coupled with the finalization of a new debt strategy 2013.

I await an expedited conclusion of the revision of the MoU, given the many recent developments in the operating environment.

3.4 Investments Government Investments comprise of both domestic and foreign investments. Domestic investments are further classified into (3) categories i.e. those with (100%) holdings, more than (50%) holding and less than (50%) holdings. The foreign investments are categorized as those confirmed, yet to be confirmed and foreign deposits. A review of the investment revealed the following; a. Failure to undertake Investment Appraisals It was noted that additional foreign investments worth Shs.33,957,268,954 were made during the year without any investment plan and project appraisals. There was also no evidence that these investments were properly linked to the overall Government investment objectives.

Under the circumstances, there is a risk that poor investment decisions could be made which may not result into optimum returns from the investments made.

I have advised management to ensure that all government investment decisions are based on proper investment appraisals to avoid investing in poor performing ventures which do not realize any benefits. b. Investment in Good Africa Coffee An agreement signed On 20th June, 2008, between GoU and Good African Coffee Ltd showed that Government was allocated 1,000 preference shares, each valued at shs.2,210,000, giving a total value of Shs.2,210,000,000. Review of the agreement together with the other records for the investment revealed the following;

Lack of Monitoring Procedures for the Investment It was noted that there were no procedures put in place to track the progress and performance of the project from which to draw learning lessons to guide implementation of the prosperity for all future programmes. There were no reports to show how Good Africa Coffee Ltd was performing over the period and how the invested funds were utilized. Absence of such a mechanism implies that the objective of using this as a case study may never materialize.

Conversion of GoU Preference Shares into Ordinary Shares

According to the communication by the chairman of the company dated 11th January, 2012, the company opted to convert the shares to ordinary share stock after four years but to be effected at the end of year five. By 25th, August 2013 the company will reclassify the GoU preference shares into ordinary stock which would be transferred to the 14,000 farmer groups from Kasese. It should be noted that one and a half years after the chairman‘s communication, the ministry has not taken action. There is a risk that a national investment will be lost for no consideration.

Un-Paid Dividends According the agreement, GoU as holder of Preference share was entitled to dividends. To follow up on this, In March, 2012 the Accountant General wrote to Good African Coffee demanding for dividends. The audited accounts of December, 2010 put the annual dividends at shs.536,902,150.

Management explained that dividends were still due to the Government and committed to recovering the said dividends through subsequent reminders. If the reminders were not adhered to, the issue would be forwarded to the solicitor General for enforcement. I await the results of this action.

Disclosure of Beneficiary Farmer Groups Although the Chairman of the company put the beneficiaries to 14,000 farmer groups, their local association names, membership and locations have never been disclosed in the agreement. It is important that government properly identifies the farmer groups to benefit from this initiative in time, enough to enable smooth transfer of shares. This will minimise the risk of loss by transferring shares to non intended/nonexistent groups. c. Lack of Domestic Stock Certificates A review of the government stock of share certificates revealed that a number of investments in shares worth Shs.27,143,378,000 were not supported by share/stock certificates as detailed below:-

ENTERPRISE GOVERNMENT SHAREHOLDING NET WORTH Historical Cost No of % 30.06.2012 (shs) Shares (Shs) Uganda Telecom Ltd 22,540,000,000 1,960,000 31.0 22,638,000,000 LAP textiles Limited 2,405,378,000 35 35.0 2,405,378,000 J & M Airport Road Hotel 2,100,000,000 ? 2,100,000,000 Total 27,143,378,000

In the absence of share certificates, I was unable to confirm the ownership of the investments. This may affect GoU‘s rights to its investments and subsequent dividends.

Management explained that the proprietor of one of the investments passed on, before he could hand over the share certificate to Government. Efforts undertaken to obtain the same from the estate were not fruitful.

I have advised management to endeavour to obtain the respective investment share certificates as confirmation of ownership. d. Investment in Phenix Logistics (U) Ltd (PLUL) Phenix Logistics (U) Ltd, was incorporated in 2000. It then acquired the assets of the former United Garments Industry Ltd (UGIL) from the Government of Uganda (GoU) through the privatisation unit. PLUL started the manufacturing of cotton yarn, fabrics and apparels in August 2001.

At an extra ordinary meeting held on 25th Sept 2009, a decision was taken to increase the shareholding of GoU from 49% to 79%. This made Government of Uganda the majority shareholder. Details show that ever since the decision to increase GoU shareholding, shs.1.5 billion has been injected as part of the restructuring exercise to save the company from liquidation. Review of this file revealed that the GoU share-holding in the company now stands at 94%. The following matters were noted:- i. Authorization, Legal Clearance and Ownership of Equity The resolution of Parliament authorising government to acquire 47%, equity in PLUL in consideration of swapping it with the debt that the company owed 49

to the government, then standing at Shs.5,097,599,190. However, it was noted that 49% equity was acquired. The discrepancy of 2% was not explained.

There was no evidence that Parliamentary authorization was sought to increase government shareholding from 49% to 79% and finally to the current 94% shareholding and ownership of the company.

It was further noted that management has continued to disclose only 49% shareholding in the financial statements; leading to under disclosure.

There was no share certificate for the additional 7,652 shares to support claims of ownership of 94% of equity.

Legal opinion of the solicitor general in gaining equity holding from 0% to 49% to 79% and to 94% was not sought.

Due to the above omissions, I was unable to confirm as to whether GoU now owns 94% of PLUL.

The PS/ST explained that the powers to manage the shareholding of a limited company are vested in the shareholders /board of directors of Phenix Logistics. However, GoU provided extra funds to PLUL in the process of its capitalization. The said funds had already been appropriated by Parliament under Vote 008, budget line; Capitalization of Government Enterprises.

I have advised management to provide evidence of Parliamentary approval for the increase in shares and also ensure that the share certificates are obtained and in the event that Government has a controlling interest, then it should take over management. ii. Viability of Government Investments in PLUL Government has continued to inject funds in a loss making company with the latest being a guarantee of a loan from JBIC amounting to Shs.4.2bn (Us$.2.5 million). To-date Government has never received any dividends or repayments from PLUL. The loss making trend has continued as shown below;

PLUL loss making trend for the past 4 financial years

2010/11 2009/10 2008/9 2007/8

Loss for the period 671,261,552 3,490,484,264 3,992,570,810 806,579,754

Source: PLUL Financial Statements

During the financial year 2012/13 (Sept 12), there were other emerging demands on government by the company as follows:-

Staff salaries for July, August and September 2012 worth Shs.161 million could not be paid and yet the workers were becoming jittery.

Tropical bank was demanding full payment of shs.945 million with immediate effect or else legal action would be instituted. PLUL had no way of getting money to repay the loan.

The company had no money to pay liabilities from suppliers of Shs.570 million and the company had started receiving intentions to sue from such creditors.

The company did not have any money for purchase of raw materials for future production and sales.

The above circumstances are indicators of a company whose going concern is not guaranteed without government support. It was also noted that other shareholders were unwilling to inject in more funds but instead opted to allow their shareholding ration to go down by government increasing theirs in a loss making company.

Management explained that Government‘s main objective of investing in Phenix Logistics (U) Ltd was to revamp the production capacities of the company to enable the Country take advantage of the AGOA market. Therefore, the company‘s viability ought to be measured along this major objective and not the profit making potential.

I have recommended to management to re-evaluate the government investment in PLUL with a view of realigning the company towards attaining the original set objectives in an efficient and economic manner.

3.5 Un-Confirmed net worth It was noted that a number of investments have had their net worth values reported at constant amounts over the years.This implies that there are neither profits earned nor losses incurred by the respective investments. It could also be an indication that there is lack of up-to-date information to enable the necessary adjustments in updating the net worth position on an annual basis.

Also noted was that the reported net worth was not updated for at least the past two years. Since most of these enterprises have accounting periods ending December, the sample taken was based on the results of 31st December, 2011. The comparison indicated that while the net worth for (3) enterprises was overstated, most had been understated.It therefore follows that the net worth reported in the TOP schedules submitted for review was misstated due to lack of timely up-dates.

I have recommended to management to ensure that the net worth position reported in the schedule to the financial statements are up-dated regularly.

3.6 Foreign Investments Without Share Certificates The GoU foreign investment worth shs.714,859,023,388 were reported in the Treasury Operations financial statements. However, only share certificates for EADB (USD) of shs.67,043,149,740 and African Trade Insurance Agency of shs.35,296,261,000 were availed for verification. Proof of ownership for the balance of investments worth shs.612,519,612,648 was not availed for verification. In absence of the share certificates, it was not possible to confirm ownership of the shares in the respective organizations.

Also noted was the classification of these foreign investments as per varying disclosures between the TOP schedules and consolidated FS. While the TOP schedules classified foreign investments as ―Shares and other equity- foreign‖, the same investments were reported as ―Securities other than shares-foreign‖ in the consolidated financial statements. Securities earn interest while shares earn dividends.

I have advised management to provide proof of ownership of the foreign investments and for consistency, explain the nature of investments.

3.7 Government Guarantees In promoting policy goals, Government through Treasury has been giving loan guarantees to private businesses operating in targeted sectors. Review of these loan guarantees revealed the following:- a. Guarantee and Loan Agreements During the year under review, there were no new loan guarantees issued by Government. The prior year loan guarantees that were still active within the year were only seven. Four of the files were submitted for review but three were not. Details are in the table below:-

Credi Project Beneficiary Curr Amount Ugx equiv. tor

2 BOU Apparel Tri-Star Apparel Tri-Star USD 6,037,986 14,963,397,285 3 UDBL Apparel Tri-Star Apparel Tri-Star USD 3,060,636.77 7,584,900,649.78 4 IDA E.A. Trade & Rift Valley USD 10,000,000 24,782,100,000 Transport Railways Facilitation

In the absence of the guarantee and loan agreements for the above projects, I was unable to confirm their legality, terms and conditions, as well as the status of these loan guarantees.

I have advised management to provide the respective files for the loan guarantees for audit examination.

3.8 On Lent Loans a. Irregular Write offs of non-performing on-lent loans

Contrary to Section 41(1) & (4) of the Public Finance and Accountability Act, 2003, a sum of Shs.194,115,276,240 relating to four on-lent loans were written-off without Parliamentary approval as detailed in the table below:-

Debtor Name Balance Balance Remarks (From 30.06.2011 Adjustments 30.06.20 minutes of meeting 12 held on 1st Nov, 2012 for on lent loans to Parastatals) Uganda 5,999,000,000 (5,914,000,000) 85,000,000 This was supposed to Development stay in on lent records Bank but only have debtor Limited/NPART changed to NPART. Uganda Printing 944,092,240 (944,092,240) - Was supposed to get & Publishing parliamentary approval Corporation before write-off Uganda Tea 295,092,000 (295,092,000) - Members resolved that Authority an interim report regarding the liquidation should be obtained and the entity to stay in the records until then Uganda Tea 186,962,092,000 (186,962,092,000) - -do- Growers Corporation Total 194,115,276,240

The adjustments were based on the management minutes of the meeting held on the 1/11/2012. It was also noted that some of the debts which had been recommended for other actions to be taken were instead also written off.

I advised management against writing off the debts without appropriate authority as provided in the law. b. Swapping of UTL On-Lent Loan with GoU Outstanding Liability i. Documentation of the Swap According to an administrative agreement dated 4th March 1999, the Belgium Government gave a grant to GoU of Belgium Francs (BEF) 150 million through the World Bank that was subsequently lent to UTL under a subsidiary loan agreement dated 8th February, 2001. Under another subsidiary loan agreement dated 8th January 2003, the Norwegian Government also gave a grant to GoU of SDR.5 million for on lending to UTL.

It was noted that under the Belgian loan, GoU swapped Shs.6,248m of its outstanding bills worth Shs.1,655 million of the principal outstanding and Shs.1,507 million of the interest payable; as well as under the Norwegian loan, Shs.567 million of the principal outstanding and Shs.2,519 million of the interest payable. The two parties later on through a variation agreement withdrew Shs.1,655 million from the swapped principal amounts.

It was however noted that there was no documentation in support of the mentioned swaps. There is a risk that the swapped liability may remain outstanding in the financial statements of the respective MDAs with a possibility of being paid again at entity level.

I have advised management to confirm with verifiable evidence that the swap was fully effected by UTL debiting the respective MDAs accounts. ii. Disclosure of the loan Given the transactions in (i) above and the subsequent variation agreement, Shs.1,655 million of the swap was reversed from the swap and reinstated as an on lent loan in May 2011. However, it was observed that prior to the swap in May, 2011, the on lent loan had not been disclosed in the TOP Financial Statements. In addition, the balance of the on lent loan after the swap including the sum of Shs.1,655 million which was reversed from the swap remained un-disclosed. The on lent loan disclosed in the financial statements is therefore understated.

I have advised management to adjust the financial statements to reflect the outstanding on lent loan to UTL and the effects of the swapping arrangement. iii. Un-Adjusted Liabilities (Payables) Following the on lent loan swap between GoU and UTL in May, 2011, the account balance of the liabilities ought to have been adjusted accordingly. Since the swap was handled at the Treasury level, they should have provided the affected MDAs with the relevant schedules to enable them adjust their account balance for liabilities.

However, it was noted that this position was not taken into consideration by management. This supported by the fact that no adjustment was made to the consolidated account balance for payables both in the current and prior years. In addition, the amount of Shs.1,655 million arising out of the reversal from the total swap was not adjusted accordingly.

It was also noted that Euro 0.563 million outstanding as at 31st December 2011 which includes Shs.295 million of the reinstated amounts of the receivables due from GOU was not adjusted nor disclosed in the TOP Financial Statements. I have advised management to explain and justify the above treatment. In addition, the financial statements should subsequently be adjusted. c. Recoverability of the On Lent Loans

Audit noted that out of a total on lent loans of Shs.1,008,180,562,372 at the beginning of the year, only Shs.28,690,638,422 (2.86%) was recovered during the year. Only four beneficiaries made repayments namely: Oscar Industries, shs.44 million; UEDCL Shs.10,118,609,261; UEGCL Shs.1,822,666,130 and Apex Private Enterprises Shs.16,705,363,029.

It was noted that management did not have a loan recovery policy for the on lent loans and this could have led to the poor loan performance in terms of repayments. There is a risk that these loans may either never be recovered wholly or may take long to be recovered.

It was explained that the fact that Government does not directly engage in lending business may partly account for the absence of a structured loan recovery policy. However, for all these loans, GoU signed agreements with all the beneficiaries. The agreements clearly provided for repayment arrangements mainly by periodic instalment deposits onto designated accounts.

In the event of default, a clause for remedies against defaults in the agreements provided that the lender would by way of notice to the borrower declare the full unpaid principal and accrued interest and any other such obligations due and payable. This has since taken place. A request has been forwarded to SG for

clearance to engage a private law firm to recover the Loans made to entities under the JPNG.

I have advised management to put in place a loan recovery policy to enhance the recovery process of the loans to individuals and institutions.

3.9 Un-Reconciled Variance in Borrowings from BoU Government runs an overdraft from BoU by way of overdrawing the UCF and other Government accounts, as well as special loans. The reported balances from the Treasury consolidated financial statements were compared with those disclosed in BoU financial statements to confirm existence and accuracy.

It was noted that there were un-reconciled differences/variances of Shs.92,887,882,740 and Shs.125,601,138,277 as at 30th June, 2012 and 2011 respectively, as detailed in the table below:-

As at 30th June 2012 As at 30th June 2011 (shs) (shs)

GOVERNMENT DEPOSITS FOR LCS - 33,688,753 UGANDA CONSOLIDATED FUND 6,221,574,029,132 3,259,053,778,138 SPECIAL LOAN TO GOVERNMENT 166,145,533,779 1,567,612,293,775 Total 6,387,719,562,911 4,826,699,760,666

Reported balance 6,294,831,680,171 4,701,098,622,389 Variance 92,887,882,740 125,601,138,277

In absence of reconciliations, it was not possible to confirm the accuracy of the reported borrowing by Government form BoU in both financial statements.

I have advised that the differences be reconciled with the reported position in the consolidated financial statements.

3.10 Other accounts receivable (OPM and Agric Credit Scheme) According to note (21) in the TOP financial statements, other accounts receivables (OPM & Agriculture Credit Scheme) have been reported at an amount of Shs.68,235,441,536. This comprised of Shs.48,063,865,289 as Government contribution for the Agricultural Credit Scheme and the balance of 57

Shs.20,171,576,247 was due from the OPM. However, further verifications revealed that the OPM receivable was money meant for support to PRDP and received on the basket budget support account which was fraudulently transferred to an account named ―Crisis Management and Recovery Programme‖ under OPM in BoU by way of electronic transfer as detailed below; Date Paid To Amount (shs)

28.12.2011 Crisis Management & Recovery Program 14,876,207,759 30.01.2012 Crisis Management & Recovery Program 1,795,368,488 30.01.2012 Crisis Management & Recovery Program 3,500,000,000 Total 20,171,576,247

The above transfers were made contrary to the laid down procedures requiring all transfers from Budget support Accounts to be effected by way of signed security papers and not by electronic transfer as was the case. This required authorisation by the Accountant General, which was not done. The procedures require that all budget support funds should go through the UCF account and not directly to the operation account as it was the case for the Shs.20 billion. The funds were eventually embezzled in the OPM.

I have advised management to follow the laid down procedure for transfer of funds. In addition, these funds are fully recovered from the specific officers who embezzled these funds under OPM.

4.0 MINISTRY OF FINANCE, PLANNING AND ECONOMIC DEVELOPMENT

4.1 Mischarged Expenditure - Shs.35,563,428,337 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. Review of the Ministry expenditures revealed that the entity charged wrong expenditure codes to the tune of Shs.35,563,428,337 (22% of the actual appropriation). Notable was the resultant over expenditure of Shs.412,697,899 on the travel abroad item. This practice undermines the importance of the budgeting

process as well as the intentions of the appropriating authority and leads to misleading reporting. It is also an indication of breakdown of controls over budget implementation procedures. I was not availed with the authority under which the mischarges were allowed while executing the budget.

In their response Management explained that whereas funds are appropriated according to the Chart of Accounts and MTEF codes, sometimes budgeted for funds are not released on the relevant items, necessitating the Accounting Officer to use the available resources to deliver outputs. I have advised Management to stop such a practice and always request for reallocations or virements, as provided for under the TAI.

4.2 Payment Vouchers Without Supporting Documentation – Shs.1,840,433,099 Section 63(1) of the PFAR requires that if any voucher on which a payment has been made is lost, misplaced or inadvertently destroyed, the Accounting Officer shall notify the Accountant General immediately and the Accountant General shall in turn report the full circumstances to the Secretary to the Treasury, with a copy to the Auditor General. Sub-section (4) further states that, ―a payment voucher which is incomplete because its supporting documents are missing shall be regarded as a missing voucher.‖Payments which are made on the IFMS are expected to be fully supported by documents pertaining to the payment.

During the audit, it was noted that payments totalling to Shs.1,840,433,099 effected on the system were not supported by any documents. Absence of the supporting documents limited the examination of these payments and it was therefore not possible to confirm their authenticity.

I have advised Management to ensure that all payment vouchers are always accompanied by supporting documentation.

4.3 Gross Tax Review Gross Tax account arrangement is the method by which Government settles import related taxes. Analysis of the Gross Tax transactions indicated that during the year under review, the ministry budgeted for a total of shs.26,000,000,000 out of which actual expenditure amounted to shs.21.6 billion. The following were noted:- 59

(a) Ineligible Payments from the Gross Tax Account - shs.7,763,190,540

Review of documents relating to settlement of tax obligations, established that the Ministry submitted to Treasury domestic tax bills of shs.7,763,190,540 for payment from the Gross Tax Account. The amount was eventually paid to URA on behalf of private companies as shown in the table below;

S/N Company Tax Head Amount (shs) 1. Oil Palm U Ltd Domestic VAT for April to 3,643,066,199 June, 2012 2. Steel and Tube Industries Corporation Tax 3,980,013,781 3. African Skies Ltd Output VAT 140,110,560 Total 7,763,190,540

The payment for domestic taxes including VAT and Corporation taxes as opposed to taxes on imports was irregular and therefore ineligible for payment from the Gross Tax account. Settlement of ineligible expenditures from the gross tax account distorts the budgets and cash flows for Gross Taxes Accounts as well as the purpose for which this arrangement was originally meant.

The Accounting Officer explained that URA had frozen bank accounts of the beneficiary companies and had closed their warehouses due to non-payment of taxes, yet Government had outstanding obligations from agreements to pay the taxes on behalf of these companies as investment incentives. I have advised management to stop charging the domestic taxes (resources) from the Gross Tax Account (Non resource) in compliance with the conditions governing the operation of this account.

(b) Gross Tax Payments for Non-Qualifying Items – 141,460,375

As part of Government support to the Agriculture Sector value chain and in particular the Textile sub-sector, Government has been paying VAT and import duty on raw materials imported for the manufacturers of textiles. A review of a sample of payments for import taxes on behalf of the textile beneficiary companies revealed that two companies imported finished textiles (T-shirts, Singlets, woven fabrics of polyester fibre and cotton, printed woven fabrics of synthetic and polyester bed sheet material etc.) ready for sale on the local market, but had their

import duties amounting to Shs.141,460,375 irregularly settled through Gross tax settlement arrangement.

Management explained that the tax incentive in the textile industry was intended to boost manufacturing and value addition in the cotton subsector. The Ministry therefore paid on the recommendation and advice by URA which verified them as raw materials and assessed the tax liability. I have advised management to restrict tax payments to only raw materials as per Government policy for the textile subsector and also initiate recovery measures for all payments made in respect of finished products.

4.4 Unaccounted for Cash Advances – shs.240,022,500

Sections 214-217 of the Treasury Accounting Instructions (TAIs) 2003 provide guidelines for requesting and accounting for temporary imprest advances. It is required that these imprest advances be promptly accounted for. However, it was noted that cash advances amounting to Shs.240,022,500 were made to Ministry staff to undertake various activities but the funds remained unaccounted for. In absence of the accountability documents, it was not possible to confirm that the funds were used for the intended purposes.

I have advised management to ensure that funds are either accounted for or recovered from the beneficiaries.

4.5 Financial Statements Review

(a) Un-Disclosed Commitment

According to URA financial statements for the year ended 30th June, 2012, rent arrears worth Shs.1,611,469,104 which has been outstanding for several years was due to the Consolidated Fund Account. It was explained that the liability arose when Uganda Grain Traders Limited rented storage space at Nakawa Inland Port (NIP) building from URA and Government through MoFPED agreed to settle this rent obligation. However, it was noted that this liability was not disclosed in the ministry‘s financial statements to enable its eventual settlement. This omission understated the liabilities‘ position and may mislead the users of the financial

statements on the correct status of payables. There is a possibility that this liability may never be settled and will remain outstanding in the URA financial statements.

In her response, the Accounting Officer explained that her ministry was not aware of this liability, hence could not recognize it in the Financial Statement. I have advised the Accounting Officer to liaise with URA over this matter.

(b) Status of Contingent Liabilities - shs.9,462,722,000

Accounting policy (2n) states that ―contingent liabilities are recorded when they become evident‖. A contingent liability of Shs.9,462,722,000 was reported in the statement of contingent liabilities for 2010/2011. However, without any explanation, the contingent liability was removed from the accounts during the current year. Management explained that the provision for the contingency was in regard to liabilities under Custodian Board compensations which were under Court proceedings. It was further explained that the Public Accounts Committee of Parliament discussed and recommended that Shs.9,462,722,000 be reviewed and transferred to the custodian board. Although management stated that the Internal audit accordingly reviewed and reduced the liability to Shs.1,752,419,194 which was transferred to custodian board during the financial year 2011/12 as reflected in the statement of changes in equity in the Financial Statements, I was not provided with the Internal Audit review report justifying the reduction of the liability prior to its transfer to the Custodian Board. I have advised management to ensure that proper disclosures are always made in the accounts for such adjustments to the accounts.

A total of Shs.8,957,580,465 was disclosed in the financial statements (Cash Flow Statements) as settlement for outstanding liabilities of the previous financial years. Whereas the disclosure is appropriate, details show that there was no budget release by Treasury on the Domestic Arrears budget item 321605, to enable the Ministry settle these liabilities using the correct expenditure account. There was also no evidence that reallocations were made from other expenditure accounts to

the domestic arrears account by the accounting officer of the Ministry to be able to settle the domestic arrears.

Under the circumstances, it was not possible to ascertain whether the payments for settlement of domestic arrears were appropriately charged in accordance with the chart of accounts provisions. There is a risk that funds which were released for other activities planned by the Ministry were simply diverted to settle domestic arrears.

Management explained that the payments were based on a circular issued by the PS/ST advising Accounting Officers to settle outstanding liabilities as a first call on their current releases in their respective annual budgets. I have advised management to ensure that domestic arrears are appropriately budgeted for and paid using the appropriate expenditure account items. ii) Unexplained Balances on the Revenue Reserve Account

Review of Account item 511201 on the system revealed that there were unexplained movements on this account. While the account opened with a negative net balance of Shs.191.958 billion, it was adjusted by the payables incurred during the year and payments made closing it with a negative net balance of Shs.173.591 billion. The other movements affecting this account were not explained and the balances are not disclosed in the financial statements. The details of the balance on this account are shown below:- Flex field 1st July additions closing bal additions closing 2010 10/11 Adj 11 11/12 Adj 12 01-002-008000000 (29.320) 0.208 (29.112) 18.381 (10.73) 01-000-008000000 (167.234) - (167.234) (0.014) -167.248 01-002-008000000- 4.388 - 4.388 - 4.388 00-00-0998- (192.166) 0.208 (191.958) 18.367 (173.591)

There is a risk that this account could be misused if not well monitored, controlled and disclosed in the financial statements.

Management explained that the Revenue reserves account was adjusted with the payables for the year and custodian Board write off as well as the automatic

income offset processes for the adjustment period of 2011/12. I have advised management to investigate the adjustments on the revenue reserve account and ensure that further journal entries thereon are properly controlled.

(d) Statement of Arrears of Revenue

Review of statement of arrears of revenue revealed that a balance of Shs.48,120,000 which was brought forward from the previous year 2010/2011 remained outstanding at the end of the financial year under review as shown in the table below;

Revenue Item Arrears Collection Remittance to Arrears NTR 30/6/2011 In FY 2011/12 UCF 30/6/2011 Rent 7,200,000 7,200,000 Asset disposal 110,226,100 110,226,100 Administrative Fees 40,920,000 10,505,000 10,505,000 40,920,000 & license

Misc revenue 7,448,000 7,448,000

Total 48,120,000 128,179,100 128,179,100 48,120,000

It was not explained as to whether the amounts outstanding for more than two years are recoverable or not. There is a risk that the amount may never be collected at all.

Management explained that the Revenue arrears of Shs.48,120,000 relate to rent due for the Canteen and Masts on Top of the Finance Building. Demand Notices had been issued to the respective Companies and it was anticipated that all arrears would be paid by June 2013. I have advised management to ensure that the arrears are collected from the respective debtors.

4.6 Tax Incentives/Refunds

(a) Tax Refunds and Payments for Exempt Organizations

Article 152(2) of the Constitution empowers the Minister of Finance to waive or vary a tax imposed by law and to periodically report to Parliament to that effect. Accordingly, in the Minister‘s budget speech to Parliament for the financial year 2012/13 on 14/6/2012, it was reported that in the fiscal year 2011/12, the powers to waive any taxes were not exercised. It was further reported in the same budget speech that Government paid Shs.11,601,542,443 for some institutions and NGOs 64

with exemption clauses in their agreements. The Annual Budget Performance Report 2011/12 dated September 2012 showed that shs.14.782 billion was paid.

Contrary to the above reported positions, it was noted from the sample of payments for tax incentives that a sum of Shs.20,746,183,493 was paid during the year under review. This created un-explained variance of Shs.9,144,641,050 between the Minister‘s report to Parliament and actual payments made. The details are shown in the table below;

Tax Beneficiary Mode of Payment Amount (shs) USAID Uganda Project MoFPED TGA Arrears 4,000,000,000 Payment BIDCO (Oil Palm U Ltd) -do- 1,270,453,590 African Skies Ltd. EU supplies -do- 1,874,273,228 Islamic University Furniture -do- 92,959,808 All Saints Church Nakasero -do- 326,492,925 St Joseph Kyengera Parish -do- 33,749,100 African Skies Ltd. EU supplies -do- 641,734,066

Oil Palm (U) Ltd - BIDCO -do- 835,659,455 Oil Palm (U) Ltd - BIDCO -do- 750,000,000 All Saints Church Nakasero -do- 98,217,930 Oil Palm (U) Ltd - BIDCO Gross Tax Account 3,643,066,199 Steel & Tube Industries -do- 3,980,013,781 African Skies Ltd. -do- 140,110,560 AYA Investments -do- 1,900,934,948 Lydia Home Textiles -do- 1,158,517,903 Total 20,746,183,493

The position reported to Parliament therefore understates the payments for tax incentives and was misleading.

I have advised management to always reconcile all payments for tax incentives and waivers and ensure that reports to Parliament regarding this matter are comprehensive and accurate.

(b) Quarterly Reports on Tax Waivers to Parliament

Section 15(1) of the Budget Act requires a person or authority (in this case the Minister of Finance) having powers to waive or vary any tax under Article 152(2) of the Constitution, to make quarterly reports to Parliament. In addition, section 15(2) requires that a report made under subsection (1) shall include;

The organization or person exempt from tax,

The reasons for exemption, The amount of tax foregone by the Government and; The benefits from the exemption.

However, there were no quarterly reports on tax waivers submitted to Parliament, despite the fact that payments for tax waivers were made during the year under review. This was contrary to the provisions under the Budget Act. Although management explained that the Ministry submits quarterly reports on tax waivers to Parliament and further publishes them on the Ministry Website, it was ascertained that only one report to Parliament for 2nd quarter (1st October to 31st December 2011) for shs.3,759,806,188 dated 31st January 2012 was submitted. I have advised management to ensure that quarterly reports are prepared and submitted to Parliament as required by the Act.

On 20thJuly, 2011, AYA Investments Ltd communicated to the Minister of Finance requesting for an extension of tax exemption on hotel building materials that had expired on 30th June, 2011. In response, the Minister indicated that since the exemption facility had expired, renewal was not acceptable. However, in another communication to AYA Investments dated 22nd November, 2011, the Minister changed the earlier position and extended the tax waiver facility up to 30th June, 2012. It was noted however, that during the period before the renewal of the exemption by the Minister, taxes worth Shs.993,244,997 were irregularly paid from the Gross Tax Account for the benefit of AYA Investments regarding imports of hotel materials as per details in the table below;

Un-authorised Tax Payments For AYA Investments Customs Commitment Custom Beneficiary Tax Amount Entry Date Form Number Entry (shs) Number 5/7/2011 026853 C49461 AYA Investments Ltd. 13,515,521 5/7/2011 026854 C49459 AYA Investments Ltd. 13,771,941 8/7/2011 026858 C50323 AYA Investments Ltd. 19,560,365 13/7/2011 026855 C27959 AYA Investments Ltd. 8,801,621 27/7/2011 026849 C30096 AYA Investments Ltd. 1,895,782 14/8/2011 026845 C60648 AYA Investments Ltd. 38,295,335 14/8/2011 026842 C60647 AYA Investments Ltd. 46,068,311 4/9/2011 026846 C65835 AYA Investments Ltd. 53,714,240 66

4/9/2011 026847 C65824 AYA Investments Ltd. 40,562,681 11/10/2011 026844 C74921 AYA Investments Ltd. 182,394,513 12/10/2011 026843 C75167 AYA Investments Ltd. 334,115,112 17/10/2011 026850 C42649 AYA Investments Ltd. 447,185 11/11/2011 026856 C82471 AYA Investments Ltd. 157,215,162 11/11/2011 026841 C82402 AYA Investments Ltd. 82,887,228 Total 993,244,997

The above tax payments were therefore un-authorized considering that they were made prior to the grant of extension by the Minister. I have not been provided with a satisfactory explanation by management in this regard. The Accounting Officer has been advised to ensure that all such tax payments are always backed by proper authority before being paid.

(d) Lack of Assessment of the Impact Of Government Interventions in the Textile Sector

Review of the document renewing the tax incentives for the textile sector for the years 2010-2012 established that condition No.2 requires Government to produce annual assessment reports on the impact of the interventions. However, there were no details of any assessments ever being undertaken to justify continued offer of tax incentives to these companies. It should be noted that the impact of Government interventions in this sector can only be evaluated by analyzing assessment reports. Otherwise the continued renewals of these incentives may not be justified. For instance, the tax incentives did not improve the going concern status of M/S Apparel Tri-Star (U) Ltd in this sub-sector between 2002 and 2006. Likewise, M/S Cotton & LAP Textile Industries is struggling while Phenix Logistics depends largely on Government support. I have advised management to ensure that detailed assessments on the impact of Government tax incentives on the economy are undertaken periodically.

(e) Submission of Statistical data by the Beneficiaries of the Tax Incentives

According to condition No.4 in the document renewing the tax incentives, the players in the textile sector were required to submit estimates of the type and quantity of the raw materials they intend to procure during the financial year, in addition to periodic reports on their projections, production and sales. Such data

was meant to assist Government in tax planning since it had offered to pay for VAT and import duty on raw materials imported or procured prior to clearance through Customs for manufacturing textiles as well as pay for VAT on the supply of manufactured textiles.

However, the companies did not submit the required data. This impairs proper planning by the departments involved in the sector and tax payments. It was explained that in some sectors exemptions were offered as an affirmative action towards improving productivity. Therefore, assessments are general and periodic. In certain cases, assessment is based on case by case performance and progress as the requests are made.

I have advised management to ensure that the required data is always submitted by the beneficiary companies prior to the renewals of the tax incentives.

(f) Corporation Tax Payment for M/S Sameer Agriculture

Government granted M/s Sameer Agricultural & Livestock (Formerly Diary Corporation) a ten year tax holiday. During the year under review, an additional corporation tax liability of shs.856,870,350 was incurred which increased the accumulated liability to shs.2,146,002,350 by the year end. The following were noted;

There was no criterion for offering a tax holiday to the company since there are other players in the same industry. This poses the risk of unfair competition. Tax holidays pose the risk of poor budgeting since management does not have estimates of what the tax liability shall be within the year. A blanket offer of tax incentives especially without assessing the impact of Government interventions and reviewing the benefits accruing to the economy could lead to loss of revenue.

Management explained that the dairy subsector was offered tax incentives as an affirmative action towards increased production. Sameer was picked basing on its biggest production capacity and other dairy producers were to be considered in the coming year. I have advised management to put in place proper guidelines to enable review of companies which qualify for tax holidays.

(g) Value Added Tax (VAT) Refunds to Projects - Shs.4,000,000,000

VAT refund to public international organizations established in Uganda is provided for under section 45.1(b) of the VAT Act. Section 45.3 of the same Act also requires any claim to be accompanied by proof of payment of tax. During the period under review, Shs.4,000,000,000 was paid in respect of refund for outstanding VAT on projects. Contrary to the guidelines, the payment was not supported by proof of payment of the taxes by the Projects. It was noted that the Ministry did not undertake to verify the authenticity of the invoices regarding standard rated items, zero rated and exempt for purposes of establishing whether they qualified for refund or not. There is a risk of refunding VAT charged by those not registered for VAT and for items that do not qualify.

Management explained that this was VAT on domestic consumption as opposed to VAT on imports which were assessed by URA and supported by the import documents. Management further explained that the refund was based on Tax Invoices issued by suppliers to the projects. I have advised management to liaise with URA and institute a mechanism of verifying the invoices before refunds are made.

(h) Taxes (VAT) Paid on Behalf of M/S African Skies Ltd - Shs.2,535,221,000

Shs.2,535,221,000 was paid to URA on behalf of M/S Africa Skies Ltd being taxes due on supplies made to European Union Training Mission Uganda. This covered a period of six months (June 2011 to November 2011). However, the contractual agreement committing the Government to pay taxes on behalf of the company was not provided for audit. The schedules of supplies made together with acknowledgement from European Union Training Mission were not presented for examination. In the circumstances, it was not possible to ascertain the correctness of this transaction.

4.7 Outstanding obligations to International Organisations and Development Banks Uganda is a member of a number of International organisations whose continued membership is through annual subscriptions. It is also a shareholder in the East African Development Bank (EADB) while the Government of Uganda (represented by the Ministers for Finance, Planning and Economic Development and of State for Privatisation) is the sole owner of UDBL. The annual obligations and payment for shares are budgeted and paid for under Ministry of Finance, Planning and Economic Development.

It was noted that the unsettled obligations in relation to the above stood at Shs.42,736,205,255 by end of 2011/12 compared to Shs.15,531,525,797 for 2010/11 financial year. The continued delay in settling these obligations could lead to penalties or even expulsion from such organisations while the unpaid amounts for shares to the banks continues to lead to understatement of the share capital base of the two banks. For example, the following were noted:-

Out of the outstanding amount of Shs.42,736,205,255, an amount of Shs.21,295,295,000 (equivalent to USD.9,229,882.14) relates to unsettled payment for shares in EADB. Details show that the bank management was intending to charge interest on the outstanding amount. The delay in payment of subscriptions could adversely affect the rating and operations of the bank thereby hindering attainment of the set objectives and stifling the bank‘s business opportunities. It could also lead to stopping the country from benefiting from the banks‘ products.

Also noted was that the outstanding amount disclosed excludes Shs.26,908,114,000 that remains outstanding for shares allotted to the two shareholders of the UDBL on 9th December, 2011 by the Board of Directors. This implies that the payables position in the financial statements is understated. Other notable obligations to organisations/banks where the country could lose benefits include, Islamic Development Bank, Shs.11,183,594,225; Common Wealth foundation, Shs.1,413,268,200 and UNDP, Shs.3,630,166,020.

Management explained that the membership subscription amounts and allocation of shares were not backed by a corresponding increase of resources in the MTEF of the Ministry, which led to accumulation of arrears. Management further stated that, the PS/ST had committed to increasing the 2013/14 MTEF to include the funding for this and other capital subscriptions. I await this action.

4.8 Payments To Uganda Telecom Ltd (UTL) (a) Lack of acknowledgement receipts During the period under review, a sum of shs.95,563,949 was paid to Uganda Telecom Ltd (UTL) to credit the Ministry‘s telephone lines for financial year 2011/12. Examination of payment vouchers revealed that UTL did not acknowledge receipt of these funds. In the absence of acknowledgement of receipt of the funds in question, i was therefore unable to confirm that the funds were actually received by the intended beneficiary. I have accordingly advised management to obtain acknowledgement receipts from UTL to support the above payments.

(b) Un-Supported Telephone Deposits - Shs.43,711,578

Two payments totalling to shs.43,711,578 were made to UTL for loading of various Ministry telephone lines as follows;

Description EFT Payment Base Audit remarks Date Amount (shs)

Deposit for telephone lines 2051018 8-May-12 12,136,570 Balance out of for the period April/June 155,654,570 2012 Telephone deposits 2020142 7-Feb-12 31,575,008 Full amount Total 43,711,578

However, air time allocation schedules showing how much was credited to the individual accounts (telephone lines) were not presented for verification. In the absence of these allocation schedules, the amount remains un-accounted for. There is also a risk that the money could have been diverted to non-Ministry Accounts. I have advised management to ensure that the money deposited is fully accounted.

4.9 Non Deduction of Withholding Tax - shs.59,628,318 Section 257 of the Treasury Accounting Instructions (TAI) requires accounting officers to make deductions of WHT from payments to suppliers in accordance with section 119 of the Income Tax Act (ITA) Cap 349 as amended. However, a sample of payments examined revealed that shs.993,805,364 was paid to suppliers without deducting WHT amounting to shs.59,628,318. Failure to withhold taxes is not only contrary to the requirements under the Act, but also exposes the ministry to a risk of penalties and fines as per the provisions under the Act. I have advised management to always adhere to the requirements under the Act.

4.10 Payments For Workshops

(a) Direct Procurement for Hotel Services - shs.330,291,943

During the year under review, the ministry procured hotel services worth Shs.330,291,943 using direct method of procurement, contrary to the provisions under the PPDA Act. None of the Hotels appeared on the prequalification list of suppliers and service providers for the period 2009-2012. Such a practice exposes the ministry to a risk of acquiring services at non-competitive rates.

I have advised Management to ensure that all services are acquired competitively following the PPDA law.

(b) Workshop Expenditure not Properly Accounted for – shs.1,136,735,085

It was noted that expenditure amounting to shs.1,136,735,085 in lieu of workshops and seminars was not properly accounted for. The general observations noted from the accountabilities included the following:-

Inconsistent attachments; for example the purpose as per the requisition would differ from the attached payment details. Workshop related activities lacked work-plans. There was no evidence of attendance by way of signed attendance registers. Some lacked receipts and activity reports.

In the absence of satisfactory accountabilities, the genuineness of this expenditure remains doubtful.

I have advised the Accounting Officer to ensure that the above accountabilities are followed up to confirm that all the funds were put to proper use.

The Ministry in conjunction with Uganda Investment Authority (UIA) hosted the 5th annual forum for Developing Country Investment Negotiators from 17th to 19th October 2011 at Hotel Africana. The forum activities which cost Shs.183,200,000 had no supporting accountability documents to show how the money was spent. Besides, the report on the activity was not availed. The amount therefore remains unaccounted for.

I have advised the accounting officer to ensure that the funds are followed up and accounted for.

4.11 Payment of Pending Obligations at the Population Secretariat - Shs.341,120,681 During the year under review, the ministry transferred a total of Shs.341,120,681 to Population Secretariat for settlement of pending obligations which included statutory contributions Shs.191,120,681 (PAYE Shs.117,293,354 and NSSF Shs.73,827,327) and annual contributions of Shs.150,000,000 that had been outstanding. The following was noted;

(a) Late Remittance of Statutory Deductions

It was noted that PAYE deductions for the period November 2011 to June 2012 amounting to Shs.117,293,354 was paid on 21st June 2012, contrary to Section 123(1) of the Income Tax Act. This late remittance of the taxes (excluding Shs.15,051,132 for June 2012) could lead to imposition of penalties by URA.

It was further noted that there was late remittance of NSSF deductions for the period November 2011 to June 2012 of Shs.64,325,510 (excluding Shs.9,501,817 for June 2012) which contravened the requirements under the NSSF Act. Such

delays can also lead to imposition of penalties and fines as per the provisions under the NSSF Act.

Management explained that the delay was a result of underfunding of the Secretariat that led to late release of funds, but promised to comply with the law in future. I have advised management to always ensure compliance with all statutory requirements regarding tax deductions and NSSF contributions.

(b) Delays in Payment of Annual Contributions

The government of Uganda is a member of South to South Partners in Population and Development (PPD). According to the resolutions adopted by the Board at their second annual board meeting of partners held in Mexico City on 08th November 1996, each partner member was to make an annual contribution of Us$.20,000 starting 1997 which contribution was to be paid not later than 1st July every year. Audit established that the annual contribution for 3 years including fiscal year 2011 had accumulated to Us$.60,000 before being paid on 21st June 2012.

Management explained that the delays were as result of underfunding that led to late release of funds to the Secretariat, to enable timely payments. I have advised management to always ensure that adequate budgetary provisions for such contributions are made to enable full settlement of the same whenever they fall due.

4.12 Failure to adhere to Procurement Guidelines – shs.223,965,998 Review of payments for the month of March 2012 revealed that the following procurements amounting to Shs.223,965,998 that were made by the ministry, did not fully go through the stipulated procurement procedures as explained in the table below:-

Inv. Amount Date EFT Supplier Audit Remarks No (shs) RB16d 67,677,838 3/22/12 2867 MPK PP form 20 was approved on /03/1 Graphics 31/1/2012, the LPO was raised 2 Ltd on 6/2/2012, but according to the GRN, the items were received on 5th Dec 2011. Deliveries were not witnessed by Internal Audit. RB113 73,320,000 3/16/12 913 Pace Whereas the items (budget /03/1 Setters performance report books) were 74

2 Limited delivered and received on 18/11/2011, the LPO was raised in Feb 2012. Deliveries were not witnessed by Internal Audit. RB15/ 82,968,160 3/16/12 951 Panama Whereas the items (budget 03/12 Enterprises performance report books) were Limited delivered and received on 25/11/2011, the LPO was raised in Feb 2012. PP form 20 was approved on 31/1/2012. Deliveries were not witnessed by the Internal Audit Function. Total 223,965,998

Failure to fully adhere to the procurement guidelines exposes the ministry to a risk of unfair prices. Besides, there is a risk that the items in question may not have been fully delivered.

The Accounting Officer explained that whereas it is true that some deliveries were made before the LPOs were issued, the procurement processes were fully completed pending release of funds from treasury. It was further explained that due to the legal timelines for Parliamentary budget reporting, the suppliers were requested to deliver after contract award but before issuance of LPOs. I have advised management to ensure that all the laid down procurement procedures are always adhered to.

4.13 Lack of Motor Vehicle Fleet Management Policy

The Ministry has a fleet of vehicles some of which are attached to entitled staff of the Ministry while others are in a pool for use by the staff that are not entitled. It was however noted that the Ministry does not have a documented motor vehicle fleet management policy. This could lead to misuse of the Ministry vehicles and other related resources like fuel.

Management explained that vehicles in the Public Sector are managed in line with a number of Circulars, Regulations and Policies set up from time to time. The Ministry of Finance in conjunction with MPS hired a Consultant who studied vehicle use in the Private Sector and made recommendations. As a result of the study, Cabinet Instituted a census exercise of all Government vehicles before a comprehensive Policy is put in place. I have advised management to fast track the institution of a

motor vehicle fleet management policy in order to control and guide the movement and usage of the Ministry vehicles.

4.14 Dormant Bank Accounts

A number of bank accounts were opened with the Ministry of Finance, Planning and Economic Development Vote number (00008) but with various names. It was noted that a number of these bank accounts remained dormant during 2010/11 and 2011/12 while others changed their status from either active to dormant or vice versa over the two year period. Dormant bank accounts pose a risk of being misused to transact unauthorised and/or fraudulent transactions.

It was also noted that the number of bank accounts related to the Ministry through the vote number was quite huge. There was a possibility that some of these bank accounts were opened without the knowledge of the Ministry‘s Accounting Officer.

Management explained that the Ministry was progressively reviewing the accounts and closing those which are dormant and over 50 dormant accounts had been closed. The Accountant General had also been notified of these accounts for review and closure. I have advised the Accounting Officer to undertake a review of all the bank accounts with the Ministry‘s code and ensure that those which are dormant are closed henceforth.

4.15 Expenditure for Soroti Fruit Factory

The Government of Uganda through Uganda Development Cooperation (UDC) and with assistance from the Korea International Cooperation Agency (KOICA) undertook to establish a fruit factory in Teso Region. This was aimed at consolidating the competence in Agricultural Products Processing Industry, increasing the incomes of the farmers in Teso Region and as a contribution to economic development. The implementation period was three (3) years (2012-2015) with a project budget for KOICA of US$.7,400,000. Uganda was to contribute US$.2,200,000, provide manpower and extend water and electricity to the construction site through UDC. The following were noted;

(a) Provision of Land for the Project Site

UDC was to provide a legally undisputed land as the project site and ensure no change in its location without mutual consultation. The time line for obtaining the land title for the site was set for 14th September 2012. However, at the time of audit (December, 2012), there was no land title for the project site. This could lead to delays in implementation of other agreed activities.

Management explained that the closure of the lands registry in November, 2012 affected the processing of the land title for the fruit factory. However, with the opening of the lands registry in May, 2013, Uganda investment Authority had embarked on the process of securing a land title for the project site. I have advised management to expedite the process of obtaining the land title.

(b) Provision of a Dumping site for the Fruit Project

UDC was to provide a suitable dumping site i.e. fenced, accessible, environment friendly and away from the residential area which was to handle the massive amount of peels, juice extraction and seeds from fruit processing. The procurement of the site was to begin by 10th September 2012. However, by the time of audit (December, 2012), there was no evidence to show that this had been achieved. In case of failure to secure a dumping site, money so far spent will be unnecessarily tied up in an unproductive venture.

Management explained that despite UDC advertising for land provision for solid waste disposal in Soroti in May, 2012, there was no response. However, through the Soroti District Chief Administrative Office (CAO) and the Lands officer, three potential pieces of land had been identified. The delay was further caused by the awaited technical advice for the most suitable site from the Korean PMC team following their visit in May, 2013. I have advised management to expedite the procurement process for the dumping site to enable the project commence as planned.

4.16 Review of the Tractorisation Program Monitoring Report

Review of the Tractorisation Monitoring Report revealed that the scheme was encountering problems that hindered its performance. The issues highlighted in the report are summarized below:- 77

The Tractorisation Program Conceptual Problems especially cost recovery of funds advanced had not been properly taken care of. Scheme Managerial Problems relating to transparency as well as inadequate managerial skills. Technical problems regarding maintenance and repairs which were omitted from the programme plan although they are costly. High operational costs in form of Fuel and spare parts. There is a risk that if the above challenges are not adequately handled, they could lead to failure of the programme and hence a waste of resources so far invested.

Management explained that the MoU between NEC and MoFPED provided for the recovery of the cost of the tractors with a view to creating a revolving fund that would facilitate the rollout of the scheme. However, the expected recoveries from farmer groups have not been forthcoming as the scheme was perceived as political grants. Only 8 out of the 26 farmer groups have signed MoUs with NEC and these own 18 out of the 40 tractors that were given out. I have advised management to consider addressing the recommendations made in the performance monitoring report so as to improve on the efficiency of the scheme.

4.17 Presidential Initiative on Banana and Industrial Development (PIBID)

The Presidential Initiative for Banana Industrial Development (PIBID) is a pilot project of the Government of Uganda under the Board & Management Committee (BMC). PIBID whose underlying theory of change is that rural farmers with access to science led-processing and value addition enterprises, will be able to rapidly access profitable market chains that supply local, regional and international markets resulting in increased household income. It is modelled around a rural Technology Business Incubator (TBI) and an Industrial Technology Park (ITP), models that have helped to transform economies in Developed Countries. These enhance success of early stages of technology transfer and diffusion, and entrepreneurship among entrepreneurs, researchers & academics. During the year under review, PIBID operational activities were reviewed and the following noted:-

(a) Assets Recording & Management

Regulation 101 of the Public Finance and Accountability Regulations 2003 states that a register, in a form prescribed by the Accountant General shall be maintained for all assets and all such assets shall also be appropriately marked or engraved to ensure that they are easily identifiable as government assets. Section 10.7 (4) of PIBID financial management manual states that all fixed assets shall be labelled legibly for example by engraving. An audit inspection carried out in November, 2012 at the Bushenyi office established that most of the assets like land, banana processing plant, driers and machinery had not been valued, were omitted from the asset register and the movable assets were not engraved. This may create difficulties for management to monitor the usage of the assets and could lead to abuse and loss.

The Accounting Officer explained that the valuation process of the assets had been initiated and the land titles were being processed. I have recommended to management to ensure that all assets are valued, engraved and included in the assets register in a form prescribed by the Accountant General.

(b) Opening of a Bank Account for PIBID Create & Cook Stanbic Bank Account

Regulation 82 of the Public Finance and Accountability Act states that ―except with prior authority of the Accountant General no public officer shall open a bank account for the deposit, custody or withdrawal of public moneys or other moneys for which he or she is responsible in his or her official capacity or for the transaction of official banking business; and where given, such authority shall be conveyed in writing to the accounting officer concerned and copied to the Secretary to the Treasury‖.

Contrary to the above, it was established that management operates a PIBID Create & Cook bank account number 0140022025601 with Stanbic Bank, where a sum of Shs.13,427,338 was deposited from the PIBID BoU account. The account was used for banking sale proceeds from the products processed at the Bushenyi factory. The authority by the Accountant General to open this account was not availed for verification.

Management explained that the Create and Cook account was opened as a short term measure to facilitate and support students but before it could be closed, the project started realising revenue from sale of some products. This caused the account to be maintained to enable receipt and safe keeping of the funds. A request had been submitted to the Accountant General to open a collection/holding account. I have advised management to ensure that bank accounts are opened following the required procedures.

It was established that WHT amounting to Shs.127,587,246 was not deducted for onward remittance to URA as detailed in the table below; Date Vr.No. Payee Particulars Gross Paid 6% WHT (shs) (shs) None 00602 Technology Not Disclosed Consult 100,000,000 6,000,000 27/01/2012 04876 Arch Design Supervision of Construction 22,000,000 1,320,000 13/02/2012 00275 Arch Design Supervision of Construction 15,801,140 948,068 None 04192 Technology Not Disclosed Consult 73,164,840 4,389,890 11/11/2011 None JT Catering Food subsidy 3,553,200 213,192 None None Innotech Banana Processing Machine (15% 764,773,978 114,716,096 Income Tax Rate for Non-Resident Persons ) Total 1,057,606,898 127,587,246

Non-deduction of WHT from qualifying payments to suppliers is not only contrary to the Income Tax Act but poses the risk of imposition of penalties and fines from URA.

I have recommended to management to ensure that there is strict adherence to the provisions under the Income Tax Act and to initiate mechanisms for recovery of the taxes from the respective payees and remit the same to URA.

(d) Grounded Motor Vehicle UAJ377X

During Field inspection of PIBID Bushenyi factory, it was established that motor vehicle registration number UAJ 377X was grounded and had been parked for a 80

long time. It was explained that the vehicle was acquired on 8th February, 2010 and developed mechanical problems after approximately six (6) months of operation and has been grounded since then. Management further explained that the poor condition of the motor vehicle was communicated to the supplier and repairs had been done several times but the problem continued to re-occur. The vehicle was rejected on 7th February, 2013 and the Project Manager instructed the supplier for replacement, failure of which recovery of the costs were to be made. I have advised Management to follow up this matter and initiate recovery measures in the event that the supplier fails to replace the vehicle.

(e) Un-Insured Motor Vehicle

According to section 10.6.3 of the Financial Management Manual, all PIBID motor vehicles are supposed to be comprehensively insured at all times. Audit however noted that a Mitsubishi double cabin pick up vehicle was involved in an accident and the wreckage was in the compound of PIBID on Lumumba Avenue, Nakasero. According to the asset register, this vehicle had a book value of Shs.50,633,783. There was no evidence that the vehicle had been comprehensively insured as required by the Financial Management Manual. The loss could have been minimized if the vehicle had been insured as provided for in the Financial Management Manual. Also noted was that the scrap had not been boarded off and continues to lose value.

Management explained that the motor vehicle got an accident in March, 2012 and was valued for purposes of boarding it off.

I have advised Management to ensure that the risk of loss of vehicles through accidents is minimized by comprehensively insuring them. In addition the scrap should be boarded off expeditiously to realise its current value.

(f) Inadequate Contract Management

M/s DOTT Services Limited was awarded a tender for the construction of a housing/factory for the pilot banana processing plant, quality assurance laboratory block plus related works and services in Bushenyi, at a contract price of Shs.23,326,246,255 on August 21st 2009. The contract was to be executed in two phases i.e. phase I for Shs.17,435,209,789 and phase II for Shs.5,891,036,466.

Review of the procurement file for this contract revealed the following;

GCC 17.1 provided for contract duration of 52 calendar weeks for all the works under the two phases beginning from 21/8/2009. Details show that Phase 1 was to be completed within 10 calendar months from the date of signing the contract. However, at the time of audit inspections, in November 2012, the civil works for both phases had not been completed. It was noted that although the contract provided for liquidated damages at a rate of 0.05% of the contract sum per day (10% maximum), the provision was not invoked to penalise the contractor for the delays. It was noted that the performance security that was provided by the contractor expired on August 24, 2012. There was no evidence that it had been renewed by the contractor. This exposes government to a risk of loss in the event of failure by the contractor to complete the contracted works.

The PIBID management explained that liquidated damages were not yet applicable given that the contract had been extended; regarding the expiry of the performance security, it was noted that extensions were becoming expensive especially since the completion date was not defined. I have explained to management that under the circumstances, the entity will be exposed to a risk of escalation in costs given the time it has taken to conclude the contract as well as possible legal challenges, since the contractor is still engaged with no clear indication as to when the works are to be completed.

4.18 Enterprise Uganda Foundation Ltd (EUg) Enterprise Uganda Foundation Limited (EUg) is a Public-Private institution designed to support the government in realizing its objective of promoting the development of Small and Medium Scale Enterprises (SMEs) to become the main vehicle for expanding production, providing sustainable jobs and enhancing economic growth. It was established under a framework of the UNDP Enterprise Africa regional initiative. A consortium of local and international donors including UNDP Uganda, Enterprise Africa, UNCTAD, Norway, Sweden and the Government of Uganda is promoting it. Its concept is based on UNCTAD's Empretec Programme Model currently operating in 32 countries in Africa, Eastern Europe and Latin America. The Empretec model is designed as one-stop programme, which provides an integrated 82

and comprehensive range of business support services for SMEs using a hands-on approach. The Government of Uganda represented by MoFPED has an MoU with the foundation that spells out the roles of each party. A follow up on the funds transferred to the foundation revealed the following;

(a) Insurance and Management of Procured Equipments

Part 2 of the MoU requires that the Equipment and Machinery provided shall at all times be insured by the second party (EUg) and ownership shall be vested in the Government of Uganda and that such equipment shall be maintained in good, serviceable and repairable condition by the second party. Contrary to the MoU, EUg did not procure insurance cover for the equipment and machinery procured under the programme. These assets were therefore left exposed to insurable risks. Management explained that motor vehicles were comprehensively insured, while other assets like furniture, computers and printers were going to be insured. I have advised management to have all the assets insured as required by the MoU.

(b) Preparation of Quarterly Activity Reports

One of the obligations under the MOU for the second party (EUg), was preparing and submitting quarterly activity reports on a timely basis to MoFPED. However, it was noted that these reports were not prepared and submitted contrary to what was required by the MoU. In the absence of these reports, it was not possible to assess the performance of EUg using the transferred funds.

Although management explained that they submitted quarterly performance reports which were entered into the Output Budgeting Tool (OBT), I was, however, not provided with copies of the reports to confirm the management assertion.

I have advised management to prepare quarterly activity reports in a timely manner for submission to MoFPED in line with the provisions of the signed MOU. In addition, the Ministry should base releases on the assessed quarterly performance reports.

4.19 Non Performing Assets Recovery Trust (NPART) - 2011 / 12

(a) Lack of Bank Reconciliations

A review of the cash book revealed that bank reconciliations were not prepared during the period under review contrary to provisions of Paragraph 344 and 345 of the Treasury Accounting Instruction. It was therefore not possible to ascertain the reasons for the difference of Shs.3,534,454 between the balance on the bank statement of Shs.16,685,941 and the one reported in the cash book of Shs.13,151,487. Lack of reconciliations between the cash book and bank Statements poses a risk of misstatement of the reported closing cash balances. It also makes it difficult to detect and correct errors within the bank statements/cash book in a timely manner. I have advised the NPART management to prepare periodic monthly reconciliations.

(b) Un-Spent Balance at the year end

Review of the cash book indicates that there was un-spent balance of Shs.13,151,487 as at 30th June, 2012. However, it was noted that this balance was not returned to consolidated fund as required. Instead, it was retained to cater for expenditures in the next financial year without authority. The Registrar explained that they received verbal authority from the Accountant General who informed BoU to honour payment requests from the Tribunal from the balance. It was not possible to confirm the verbal authority by the Accountant General.

I have advised the NPART management to always comply with the legal requirements and return any unexpended amounts at year end to the UCF.

The Tribunal paid Shs.78,412,332 in three instalments to Mercantile Properties Ltd as rent for office space for the period from July, 2011 to June, 2012 as detailed in the table below:- Vr. No Amount (shs) Payee Remarks

5621 17,261,040 Mercantile Properties Ltd 1/07/2011 – 30/09/2011. 5624 22,302,775 Mercantile Properties Ltd 1/10/2011 – 31/12/2011. 5777 38,848,517 Mercantile Properties Ltd 1/01/2012 – 30/06/2012. Total 78,412,332 However, it was noted that the space paid for measures 184 square meters and includes un-used space which is inactive (court space), which comprises the courtroom, an office for the judge and pantry; these form almost half the total 84

rented space. Since the court operations were stayed, continued payment for the un-utilized space amounts to wasteful expenditure.

Management explained that the court space was idle due to the un-certainty regarding the existence (going concern) of the tribunal which was yet to be approved by cabinet for winding-up the operations of the tribunal and the trust. This had taken one and half years and the Tribunal could not handle any case during the year due to lack of mandate. I have advised NPART management to avoid wasteful rental costs by paying for only the space required for their current operations and to fast track the approval of the winding-up bill.

4.20 Tax Appeals Tribunal

(a) Budget Performance Review

The annual budget performance report prepared by MoFPED was obtained and Vote function output 140153, was reviewed. The objective was to establish performance level achieved against the planned activities for the year. Details show that a number of planned activities of TAT were not achieved as illustrated in the table below;

Activity Targeted Details Achieved Remarks No Staff training 10 staff Train in Taxation, Law, 6 Trained in 4 not trained Accounting and taxation and in law and Management. accounting management. Publicity and 10 talk Sensitization and 2 talk shows 8 un realized. talk shows shows publicizing TAT operations Opening of 1 Registry Non Not achieved. Mbarara registry

Non achievement of targets could have impacted negatively on the achievement of the overall objective of the Tribunal. Management explained that a number of planned activities of the tribunal could not be achieved due to shortage of funds occasioned by budget cuts during financial year.

4.21 Rural Financial Services Program (RFSP)

(a) Funding Gap Due to Budgetary Shortfall

The management of RFSP submitted their funding proposal of Shs.7,222,289,828 to facilitate 448 out of a total of 735 registered SACCOs. The remaining 287 SACCOs are being supported by IFAD as a development partner. From the total budget proposal submitted, a sum of shs.5,000,221,928 was for SACCO development and the balance of Shs.2,222,067,900 as counterpart funding. However, it was noted that the Ministry of Finance allocated Shs.6,274,067,043, thereby creating a funding gap of Shs.948,222,785. The funding gap negatively affected implementation of the planned activities which could eventually impact negatively on the performance of SACCOs.

Management explained that the funding gap was due to insufficient cash limits which affected mainly salary payments which remained un-paid for long. However, through re-allocations, a sum of shs.948,222,785 was released to the project in the subsequent year to cover the shortfall and for the project windup. I have advised management to always liaise with Ministry of Finance to ensure that the RFSP receives adequate funding for its planned activities especially salaries so as to ensure the success of SACCOs.

(b) UCSCU-Maganjo Head Office Refurbishment

According to the MOU dated 20th January 2011 between MoFPED and the Uganda Cooperative Savings and Credit Union (UCSCU) as an implementing partner, the Ministry represented by RFSP considered UCSCU‘s request for Phase II refurbishment of their head office at Maganjo at a total contract price of Shs.543,042,962 after having funded Phase 1 at a total of Shs.398,927,497. Although a contractor was identified through a procurement process and the contract cleared by the Solicitor General on 10th March, 2011, the execution of civil works did not commence. Several communications on file indicate that there was lack of funds to allow the works to commence. This despite the fact that there was confirmation of funding at the time of initiating the procurement under PP form 20 (filled in Feb.2010).

It was noted that lack of funding led to split of the works into three phases two of which (1 and 3) have been implemented at Shs.475,600,000, leaving only

Shs.67,500,000 which appeared to be insufficient for the remaining phase. The commitment without full funding for the works contravened section 59(2) of the PPDA Act which requires confirmation of funding in full before initiating procurement.

Management explained that the procurement process was initiated as per the work plan on the assumption that money would be released as usual. Unfortunately, the project did not receive the expected funds in that quarter. This affected the signing and management of the contract. I have advised management to always ensure that for any initiation of procurement under PP form (20), it should be backed by assurance of the funding in accordance with the provisions of the PPDA Act.

According to the MOU between Uganda Cooperative Savings and Credit Union (UCSCU) and the lead agency (RFSP), it was agreed to provide support including meeting operational costs like salaries to Government of Uganda (GOU) supported staff. Review of salary payment documents revealed that there was an outstanding PAYE of Shs.657,945087, comprising of principal tax of Shs.498,391,651.70 and accumulated interest of Shs.159, 553,435.76 relating to the period July 2009 – August 2012. The outstanding taxes were being demanded by URA. UCSCU, due to their inability requested RFSP to pay. The accrued penalty in form of interest (Shs.159,553,435), could have been avoided had management complied with Income Tax Act provisions. This is considered to be nugatory expenditure.

Management explained that the delay was caused by inadequate funding. All outstanding PAYE had been cleared and the surcharge would be cleared by June 2013. I have advised management to settle the surcharge to avoid further accumulation of interest and to always and promptly remit any tax deductions in future.

(d) Un- remitted NSSF deductions

In a similar manner and contrary to the provisions of the NSSF Act, it was established that UCSCU did not remit NSSF contributions for the months of January-August 2012 totalling to Shs.105,120,000. Non remittance of contributions 87

to National Social Security Fund could also attract penalties. It was explained that the delay to remit NSSF deductions was caused by inadequate funding and that all outstanding NSSF deductions had been remitted and there was no penalty.

I have advised management to ensure prompt remittances of the current NSSF deductions in order to avoid possible penalties.

(e) Budget Performance Review

The annual budget performance report prepared by MoFPED was obtained and Vote function output 1408 for microfinance, was reviewed. The objective was to establish performance levels achieved against the planned activities for the year. The following issues were noted; Output Details Planned Achieved Explana No tion 140851 SACCOs established 50 for Sub counties Nil Stayed in every sub county 70 for Kampala Shs.3.429 billion by IFAD and Kampala Shs.10.372 billion released. budgeted for 140852 Microfinance 600 MFIs to be given 222 got loans -do- Institutions Shs. 35 billion credit worth Shs.14.4 supported with billion matching grants 140853 SACCO capacity 124 SACCOs were to be 31 SACCOs -do- strengthened supported with supported with stationery and other stationery. operational needs

There is a risk that failure to fully implement the planned activities by RFSP could have negatively affected their overall objective and this could translate into failure of the SACCOs on the ground. Management explained that the failure to fully implement planned activities was as a result of funding gaps during the year. For stationery, though 31 SACCOs appear to have received stationery at the time of the audit out of 124, the remaining 93 were rolled over in the following year and more SACCOs earmarked for support had received stationery.

I have advised programme management to always liaise with Ministry of Finance to ensure that the RFSP receives adequate funding for its planned activities and to respect the budget by allocating the available resources equitably.

4.22 IRISH AID SUPPORT TO GENDER & EQUITY BUDGETING (EDUCATION SECTOR AND KARAMOJA SUB-REGION) 88

(a) General Standards of Accounting and Internal Control Systems A review was carried out on the project‘s financial management system. It was noted that management had instituted adequate controls to manage project resources except for the following; i) Properly streamlined accounting system It was observed that the accounting software was unable to interface accounts elements with the budget. In this circumstance decision making becomes a challenge. Management explained that the budget is an integral part of the accounting package and at the time of audit the system was down and therefore required a programmer who unfortunately was in Nairobi. It has since been fixed.

I advised management that careful reconfiguration of the system by streamlining the accounts and training of the accounts personnel in use and administration of this system could mitigate the identified weaknesses, and reduce risk of misstatement. ii) Lack of a comprehensive non-current Assets Register It was noted during the audit that the asset register was not comprehensive and updated to indicate the costs of the assets. Lack of key information on asset register indicates laxity of controls over the project assets. I advised management to always maintain a comprehensive register including the cost of the assets among others. iii) Cash management It was observed that at the year end there were no cash counts and therefore cash certificates were not on file. It becomes difficult to ascertain the validity of the closing balance. I advised management that cash being the most tempting asset, management should institute controls that mitigate losses of cash including regular cash count at the end of the year. iv) Staff files not updated regularly Key information was not filed on some of the personnel files that were availed and in particular photos and recently acquired qualifications. Lack of up-to-date

information may lead to wrong decisions about the staffing of the project. I advised management to ensure that staff files are updated regularly.

v) Vouchers and Supporting documents not stamped ―PAID‖ All the expenditure payment vouchers and supporting documents availed were not stamped ―PAID‖ to indicate paid or posted. Unless this is done, same documents may be used for double payment. I advised management to ensure that all expenditure supported documents should be stamped ―PAID‖ to deter reuse.

vi) Acknowledgement of accountability Project implementers are normally advanced with project funds which are accounted for after the activity is done. The expenditure is posted using journals raised by the Finance Manager that are not reviewed by another staff. Errors could go undetected. I advised management to ensure that all journal vouchers related to project expenditure should be raised by an Accounts Assistant and reviewed by the Finance Manager to ensure that errors are eliminated.

vii) Operation of the Steering Committee As part of proper governance tools, those charged with governance initiate and design tools that give guidance to employees and managers to improve efficiency, enhance internal controls and be able to achieve the pre set organisational objectives.

It was observed that the Terms of Reference for the steering committee were not clearly spelt out or an approved policy and procedures manual regarding the same was not availed to us. This state of affairs may cause friction with the Donors. I advised management to consider developing a policy and procedures specifying the roles and responsibilities of such committees in order to harmonize the operations of the project. 4.23 FINANCIAL MANAGEMENT AND ACCOUNTABILITY PROGRAMME (FINMAP) (a) Compliance with programme financing agreement and government financial regulations

The Programme complied with the covenants with Programme agreement and Government Financial Regulations except for the following matter; i) Holding Account US $ 2,722,464 from KFW was deposited directly to the program account contrary to requirement of the multilateral MOU that donor funds are deposited with the Holding Account prior to transfer to the program operations account. This may cause reconciliation and accountability difficulties as program managers may not be notified in time.

Management explained that KFW joined the Basket Donors towards the end of FINMAP I, and was therefore not a signatory to the multilateral MOU. Consultations held before disbursement concluded that no much value is added disbursing through a Holding Account and it was not considered necessary to open one for KFW. The disbursement was received on the Basket Operations Account in time and dully acknowledged by the Accountant General Consultations are on going to have all donor disbursements done directly to the Operations Account.

Management was advised to ensure that procedure for receipt and disbursement of funds are complied with.

(b) General standard of accounting and internal control

A review was carried out on the programme system of financial management and the following weaknesses were noted; i) Oracle Accounting Package The change over from Microsoft Dynamics (Navision Financials) to Oracle Application software for the roll out of IFMS came with challenges. There was no provision on the IFMS for the recording of staff field advances, the system of processing accounting information on cashbooks had complications and the preparation of bank reconciliation statements and finalization of financial statements for the year to 30th June 2012 was delayed.The system could therefore not be used for control over advances, there were delays in preparation of bank

reconciliation statements and impacted on the timely generation of financial reports/statements.

Management explained that not allowing advance payments on the system set up is a policy issue. No funds are budgeted for under advances and advances are recorded and monitored off the IFMS. IFMS evaluation was undertaken after the pilot implementation and improvements are expected once upgrade to the Release 12 is concluded. The upgrade process has delayed and is why implementation of more donor funded projects on IFMS has not been done.

System set up was done in such a way that different bank accounts were coded on similar general ledger account codes and could not be readily used for reconciliation. This was sorted out in October 2012 and bank reconciliation statements for November 2012 have been done on IFMS. On the other hand, as part of cash management, reconciliation statements were done manually off the system.

Management was advised to ensure that there is an evaluation of the system by the users and other stakeholders to mitigate user challenges and take corrective actions. ii) Short Term Consultants Updating List of Common User Items and average Prices A short term contract for Shs.22.65 million was awarded to Ms Mulken International Ltd for updating the list of common user items and average prices. The survey was commissioned late (at the beginning of the fourth quarter to the year to 30th June 2012), for which its use was intended and the report shows further that the objective of the survey was to update the list of August 2011, which contained categories of items that are not common to many PDEs, and some not used at all. The list may therefore not be effective for control in government procurement procedures and the timing of the report undermines value for money.

Management explained that delays in procurement affected the timing and completion of the assignment. However, the report was timely to guide accounting officers in finalizing budgets for 2012/2013. Updating the list in the fourth quarter 92

does not compromise value for money because it guides the entities during the production of the final budget estimates for the following financial year.

Management was advised to ensure that the TOR and timing of services should always be done in manner that ensures cost benefit and adding value.

Preparing PPDA Staff for Change Management Process A contract of Shs.29.3 million was awarded to Ms Pila Consultants to prepare PPDA staff for change management and restructuring. The process was, according to the contract, to last for three months but was still ongoing by October 2012. It was noted that it was necessary to increase PPDA budget to cope with the proposed changes but Ministry of Finance had no firm position on the matter. The programme loses out on value for money with regard to the 20% contract payment made, and uncertainty over the intended change creates unrest amongst PPDA staff.

Management explained that contract implementation commenced in time and the inception report was issued on 29th February 2012. The assignment required maximum participation of staff who were also involved in field activities. This together with need for Board approval of the reports delayed completion of the assignment.

Management was advised that the status of the intended change should be reviewed to ensure that the intended objective can still be achieved. iii) Procurement Strategy for PPDA Ms Planet Systems (U) Ltd was contracted in May 2012 for US $ 61,261 to draft an e procurement strategy for the PPDA. Delivery time was four months ending in September 2012 but approval of the inception report was late; in August 2012 and the exercise was not done by the time of out audit. The process of developing an e- procurement strategy for PPDA started way back in November 2010. There were indications that the consulting firm lacked competent staff to undertake the consultancy. The risk of consultant‘s failure to deliver on the contract and financial loss are high and lack of timely delivery impacts on program objectives.

Management explained that delay to approve the inception report was due to involvement of key stakeholders in the assignment and the need to ensure high output quality.

They explained that technical challenges arose when one consultant on the assignment withdrew because his spouse was appointed to a PPDA position after contract award. The other consultant found it hard to cope with the assignment because of other assignments outside the country, and also had to withdraw. This was a key member of the team and a decision was taken to terminate the contract because personnel proposed for replacement could not measure up to the requirement.

Management was advised to cause the consultant to deliver, or invoke provisions of the contract with regard to non performance. iv) Procurement Audits PPDA contracted Ms A.H Consulting, Abet & Co. and Union Consultants to conduct procurement audits in various government ministries and departments for the year to 30th June 2011. The consultants made some observations and gave recommendations for corrective action/s and to strengthen the procurement function at some PDEs. The reports showed declining standards and lack of follow ups in some activities. The risks associated with non-compliance with procurement procedures may lead to financial loss.

Management explained that the procurement process for consultants to conduct the seventy procurement audits was concluded in December 2011. All the seventy FINMAP funded audits began in January 2012 and audit reports were issued by PPDA by August 2012, except for the ones of UPPC and ERA whose auditor (AMPROC) delayed to conclude the exercise. These were approved by the PPDA board in November 2012.

They further stated that follow up on the status of implementation of audit recommendations is done after a period of six months from the date of issuance and this will be in January 2013.

Management was advised to ensure follow ups to fill up gaps identified during procurement audits. v) Delivery on staff Contracts Some staff members did not deliver on their contractual obligations as follows: Quarterly reports for April-June 2012 were submitted late to MSUby Catherine Odoi, (Senior Systems Accountant) on 30th October 2012. Sunday Erasmus (Senior IT Specialist) submitted performance reports for the quarter to June 2012 late, in September 2012 and Enoch Guma (IFMS Data Centre Manager) submitted performance reports for the quarter to June 2012 late, in September 2012.

Jenifer Kiiza (Financial Management Specialist) between May and June 2012 was supposed to deliver a site readiness strategy and its adoption in the project plan, training materials and change management plans, quality assessment reports in each stage in the implementation, site exit plans, appropriate PFM training skills and knowledge transfer, capacity development for financial management staff and Program risk management and sustainability plans, but none of these were on her file.The omissions create the risk of losing out on programme objectives.

Management explained that in the case of Catherine Odoi, Sunday Erasmus and Enoch Guma, there were gaps in follow up on reporting due to capacity gaps in the Coordination Unit and this has been addressed with the appointment of a Senior Administrative Officer. On the other hand, components are always in close supervision and deployment of staff and do carry out staff appraisals, which is the basis for renewal of contracts. Some contracts have been terminated and salaries withheld in some cases.

They further explained that in the case of Jennifer Kiiza, Financial Management Specialists have generic terms of reference due to the wide scope of operation of financial management reforms. Her contract was renewed for the final period of two months and she left as of 30th June 2012. She submitted a hand over report, including an end of assignment report.

Management was advised to ensure that monitoring and evaluation of the project should be enhanced to ensure full delivery on contracts. 95

Shs.22.1 million was advanced to PPDA staff for roll out meetings to sensitize PDEs on the use of PPMS database. At Kabarole DLG, Kabale MC, Kitgum DLG and Pader DLG, only two persons were trained from each of the mentioned PDEs by five PPDA staff.

Management explained that PPDA provides hands on training to staff in the procurement and disposal units of the PDEs where the PPMS has been rolled out. The system is new and entities require a lot of technical and change management support to ensure its success. The Shs.22.1 million covered twelve upcountry entities.

Management was advised to ensure that the cost and effectiveness of activities should always be considered at the point of approving requisitions at the programme components.

(d) Management of Non-Current Assets

One Epson printer at the DPP and two Epson printers at the inspectorate of police were not on the assets register. Three Probook 6460B laptops allocated to Parliament‘s Local Government Accounts Committee were registered as DELL E6410 in the assets register. One Kyocera Taskaifa photocopier located at Room 5.11 Finance Building, Dell Server R710 at Finance Building Basement and one unit of HP DL 580 E7430 4GB 2P server at Room 3.17Finance Building were not engraved. Some assets did not physically exist.

Management explained that the assets register takes into account all assets procured under FINMAP since January 2007, as well as those procured under EFMP II, whether handed over or not. The register will be restricted to include; i) Assets used and maintained by the project and are not yet handed over ii) Assets handed over to beneficiaries, but for which the support and warrant contract is still under the project. iii) Asserts for which the project has no responsibility.

On the issue of wrong identification of assets, the error is noted and has been corrected. On the issue of non-engraved assets, the practice is to engrave all assets but in some cases equipment is required urgently and is delivered prior to engraving. Arrangements have been made to engrave all assets that are not engraved and the annual assets verification exercise will have specific provisions to identify any equipment not engraved.

Management was advised to ensure that the FINMAP assets register should always be updated to take into account respective assets movements. Management should undertake to have all assets engraved, missing assets should be investigated and corrective action taken to ensure security of servers.

4.24 MICROFINANCE SUPPORT CENTRE LIMITED (MSC) AND RURAL INCOME AND EMPLOYMENT (a) Compliance with the financing Agreement and Government of Uganda provisions A review was carried out on the project compliance with the credit agreement provision 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;

i) No tax exemption certificate The company has not yet obtained the tax exemption certificate from Uganda Revenue Authority (URA) and no corporation tax charge and liability has been included in the financial statements for the year ended 30 June 2012.

Income taxes attract possible fines and penalties from the tax authorities for non compliance with the Income Tax Act and IAS12.

Management explained that a follow up will be undertaken to address the matter.

I have advised management to expedite the process of obtaining the exemption letter from Uganda Revenue Authority.

(b) General standard of Accounting and Internal Control 97

A review was carried out of the project system of financial management and the following matters were observed; i) Financial Statement issues No loan write offs during the period Shs.10,618,372,102 out of a total portfolio of Shs.51,566,865,000 were in arrears, this represents 21% of the total portfolio. Loans amounting to Shs.5,304,679,860 were in arrears of over 180 days and therefore loan write was supposed to have been made as per section 5.8 of the operations manual. 32 of these loans had their offices closed and 137 were facing liquidity and cash flow problems.

Failure to make loan write offs on loans that may not be recoverable may overstate the company loan portfolio which is a material balance in the company‘s financial statements.

I have advised management to make loan write offs as per section 5.8 of the operations manual.

Inadequate follow up of the loan process in zones There was poor delinquency management in the zonal offices sampled, for example, Mbale zone had a total portfolio of Shs.1.12b of which Shs.345m were in arrears, this represents 31% of the total portfolio. 45 loans out of a total of 75 loans were in arrears representing more than half of the total portfolio, the portfolio at risk of loans above 90 days was 32% which is far above the company‘s required portfolio at risk of 5%.

In Iganga zone, 32 loans out of 85 loans were in arrears, the portfolio at risk of loans above 90 days was 19%. Out of 21 loans that were to be forwarded to the legal department only 10 were forwarded. In addition, out of 83 quarterly reports supposed to be received from clients in the fourth quarter only 43 were received.

Kabarole zone had a total portfolio of Shs.6.966bn of which Shs.734m were in arrears, this represents 11% of the total portfolio, and the portfolio at risk of loans above 90 days was 6.9% which is slightly above the company‘s required portfolio at risk of 5%.

Failure to manage the loan portfolio effectively may lead to increased default which impacts negatively on the company‘s performance as well as achievement of its desired objective.

Management explained that as a delinquency control measure, all clients/ loans in arrears have been issued with demand letters. The company has gone ahead to institute legal proceedings against defaulting clients whose PAR is > 90 days.

I have advised management to work towards improving delinquency management in zonal offices so as to be able to achieve the company‘s objectives.

Delayed accountabilities for official advances It was noted that a staff member had taken long to account for advances with some activities outstanding since the year 2010 contrary to S.4.8 of the Accounting and Finance Policies Manual which requires accountability within 7 days. See table below;

Employee Name Amount (UGX) Comment No

EMPP024 Katana Bern 10,818,400 OS since 02/06/2010

Failure to adhere to company policies put in place is an indication of laxity in the implementation of company policies and internal controls put in place.

Management explained that no more advances shall be given to those with pending accountabilities and recoveries of any outstanding advances shall be instituted through payroll deductions.

I advised management to implement policies put in place so as to mitigate the risks they are intended to address.

(c) Zonal offices understaffed Every zone is supposed to have a Zonal Manager, Credit officer, Finance officer, Administrative assistant and a Logistics officer as the minimum required number of staff. It was however noted that zones sampled were lacking some of these staff 99

for example Iganga and Mbale Zonal offices did not have Finance Officers. One of the reasons given for poor performance of these zones was lack of technical staff.

Management explained that they have advertised for the position of Finance Officers and attracted some candidates. I advised management to ensure adequate and competent manpower to zonal offices is provided to enable implementation of the company‘s activities.

(d) Poor monitoring and feedback process A budget is allocated to cater for loan monitoring and supervision per quarter which is intended to maintain portfolio at risk at 5%. It was however noted that in some zones like Iganga there was no evidence of monitoring from the head office for the whole period. In Mbale, only one report dated 24-28 October 2011 was made in the entire period.

Despite the fact that monitoring and supervision costs continue to be incurred, the portfolio at risk continued to increase during the year. See the table below.

Quarter Portfolio At Risk (PAR) Supervision costs (Shs. millions) 1 6% 49 2 7% 54.9 3 8% 47.3 4 11.6% 67

Poor monitoring of loans and a slow feedback process may be responsible for the dismal performance of the zonal offices.I have advised management to ensure that frequent monitoring of the zonal offices is done and there should be adequate feedback.

(e) No procurement plan for the year Section 5.6.3 of the Accounting and Financial Policies and Procedures Manual requires the MSC to document the plans for the financial year in its annual work plan. The plans of each department shall be reflected in this work plan and these

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work plans are to be divided into quarterly work plans for easy monitoring and management. However, it was noted that there was no procurement plan in place.

I have advised management to consolidate work plans for all departments so as to ease monitoring of the department‘s activities.

(f) Business/Performance issues i) District and Sub county officials using their positions to defraud SACCO’s During the field visits to assess the progress of the Company‘s activities in implementing the Governments vision of transformation from subsistence to a monetary economy, instances were noted of unethical behaviors by some district officials thereby undermining activities of MSC and frustrate government projects. These included huge borrowings from SACCO‘s without making refunds.

I advised management to follow up the actions of such unethical Government officials. ii) Improper governance in SACCOs During the field visits to the supported institutions by the Company, it was noted that loans given to SACCO‘S were being allocated to board members without following the correct loan procedures and for which they have failed to pay back. The amounts loaned out in this respect amounted to shs.18,485,000.

Management explained that continuous sensitization through different forum will be offered to the SACCOs‘ management and general membership on the roles and responsibilities of the Board Members. As a control measure, no loan is extended to SACCOs where the staff and Board Members are in default.

I have advised management to sensitize and educate SACCO members on the purpose of the loans as well as the need for the documentation used in assessing the credit worthiness of the borrower. iii) Fraud in SACCOs

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It was noted during the field visit to SACCO‘s that there were a number of fraudulent activities that were taking place in these SACCO‘s and this has negatively affected their performance. Below is a summary of SACCO‘s with fraud issues.

SACCO Name District Comment Budadiri Cooperative Sironko Manager misused an un disclosed Savings and Credit SACCO money and fled to China Bukonde Cooperative Mbale Chairperson Board misused an Savings and Credit Society un disclosed amount of money He also seconded his sons to borrow and failed to pay Busaba Sisimuha Butaleja Chairman board currently LC 3 Chairman Busaba county misused approximately Shs.7 million and even swindled workers salaries paid by Uganda Cooperative Society and Credit Union (UCSCU) Kamonkozi Credit and Mbale Former Manager failed to Cooperative SACCO account for over Shs.20 million Devine Purpose Poverty Iganga Municipality Manager fled from the country in alleviation Cooperative January 2012 with an Society undisclosed amount of money. Kamuli IDIPA Kamuli Manager fled with undisclosed amount of money. Nawanyago credit society Kamuli Manager disappeared with an undisclosed amount of members savings Kamuli Bamukisa SACCO Kamuli Treasurer mismanaged an undisclosed amount of money for the SACCO Muhokya SACCO Kasese Manager and the current chairperson had mismanaged funds of the SACCO Nyekundire Saving and Kabarole The Sacco board and Credit Cooperative Society management had mismanaged Ltd the Sacco funds.

Buheesi Saving and Credit Kabarole There Was fraud by Manager Cooperative Society Ltd Herbert Kasoro and he had mismanaged the SACCO funds obtained from MSC.

Mabale Tea Farmers Kyenjojo The SACCO manager and Cashier SACCO misappropriated the funds and the board of the SACCO had decided to pursue the Manager and Cashier as a way forward to pay the loan.

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Fraud in SACCO‘s if not controlled is one of the major reasons for high defaults on MSC loans.

Management explained that the policy on securing loans has been revised to have all SACCOs borrowing beyond Shs.100,000,000 providing physical assets as security. Management is also considering a phased approach to disbursement. Additionally, the appraisal process has been made more rigorous. I have advised MSC management to consider issues of fraud before loans are disbursed in order to protect government money. In addition, the loan application and disbursement process should be more rigorous in nature.

(g) Status of implementation of prior year’s recommendations A review was carried out on the status of implementation of the previous year‘s audit findings. The findings are summarized in the table below;

Recommendation Status Leave days carried forward Management should ensure that all the outstanding leave Partly implemented days are taken in the first quarter of the next calendar year. Non adherence to loan disbursement terms and conditions by some clients Visits to clients are done at least once a quarter and during Partly implemented such visits, members of the SACCO are visited and informed about the dealings of MSC with the SACCO. Political/cultural interference in the implementation of activities Some politicians have not yet paid back as the SACCO Partially implemented continues to have serious management problems and is not able to follow up the defaulters. Unclear government policies toward Microfinance Support Centre Limited MSC operates within the government‘s guidelines and Not implemented policies and in this particular case, the money released by government was meant to enhance SACCO business within

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the 99 parishes of Kampala. Poor systems programming and technical support functions Users training and continuous skills transfer to avoid Partially implemented mistakes when inputting data.

Poor physical access controls Partially implemented Server log books exist at head office and in some zonal offices. Visitor‘s books exist in zonal offices. Inadequate business continuity or disaster recovery planning The documentation of DRP was done and its Partially implemented implementation is to follow.

4.25 SPECIAL AUDIT MICRO FINANCE SUPPORT INITIATIVE – PRESIDENTIAL INITIATIVE ON MARKET VENDORS AND SMALL BUSINESS OPERATORS FUND A special audit was carried out during the year on the Presidential Initiative on Market Vendors and Small Business Operators Fund. Below is the summary of key findings from the special audit report:

(a) Programme Management i) Lack of clear terms of reference for the Joint Steering Committee (JSC) The Programme was tasked on a Presidential team/Joint Steering Committee (JSC) under the auspices of Uganda Market and Allied Employees Union (UMAEU), an affiliate of the Central Organization of Free Trade Unions (COFTU). During the audit, it was noted that the JSC did not have clear terms of reference from the Appointing Authority laying down their scope of work, reporting framework, remuneration and facilitation among others. Therefore this impacted on the quality of the assessment and survey as some targeted groups were left out only to be brought on board during programme implementation.

During the audit, I was not availed with any terms of reference from H.E the President to JSC and appointment letters for review. I was therefore not able to 104

ascertain their scope of work, reporting framework, remuneration, facilitation among others. In the report submitted to H.E the President by the JSC, four funding scenarios were proposed for presidential guidance. However, during the audit, it was noted that H.E the President directed the JSC verbally to seek guidance from the Minister of Finance Planning and Economic Development. I was not availed with any formal guidance from the Minister of Finance Planning and Economic Development to JSC on which specific scenario to be considered under the financial year. ii) Requisitioning and approval of supplementary budget During the audit, it was noted that Shs.10 Billion had been approved under Supplementary Expenditure Schedule No. 1 for FY 2010/2011 for the programme. I was however not availed with the Supplementary Budget request and the justification from the MSC and MoFPED for the approved Shs.10 Billion as per the requirements of Sec 12 (1) of the Budget Act 2001 of Uganda. In addition, the review indicated that the Permanent Secretary MoFPED/Secretary to the Treasury appointed the Acting Executive Director of the MSC as the Accounting Officer of the programme funds who had limited information on the requirements of Sec 8 (1) of the Public Finance and Accountability Act 2003 of Uganda. This led to the mismanagement of the Programme.

I advised that timely designation of accounting officers by the Permanent Secretary MoFPED/Secretary to the Treasury is vital for effective and efficient implementation of the programme. In addition, for future programmes, designated accounting officers should be provided with all the necessary information before programme implementation starts.

iii) Disagreements between members of JSC and MoFPED During the audit, it was noted that there were disagreements between JSC members and MoFPED that resulted into JSC abandoning the programme when their efforts were more needed and sending conflicting signals to beneficiaries of the fund. This negatively impacted on the programme.I advised that in future

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programme implementers should adhere to best principles of leadership and ensure team work at all levels which is key for effective and efficient implementation of activities and thus timely realization of intended objectives. iv) Poor planning of workshops by MoFPED and inadequate capacity building to beneficiaries: It was noted that poorly planned regional workshops by MoFPED in terms of their timing and disbursement of funds did not adequately help the beneficiaries in understanding the purpose and management of the fund. Capacity building for all stakeholders of the Programme should be properly planned and carried out in time to enhance proper implementation of the Programme.

I advised that capacity building for all stakeholders of the Programme should be properly planned and carried out in time to enhance proper implementation of the Programme. In addition, GoU should follow up the funds and ensure that it achieves the stated objectives of revolving among the recipient vendors. v) No clear Guidelines on the Programme by MoFPED to The Microfinance Support Centre Ltd During the audit, it was noted that Acting Executive Director of the MSC requested for guidelines and modalities of disbursing funds to the SACCOs after funds had been released by MoFPED to the MSC Bank account with BoU. This is an indication that MSC was not wholly involved in programme planning, budgeting and therefore was not prepared to implement the Programme. I advised that for future programmes such as this, sufficient guidelines should be put in place before disbursement of funds to avoid any failures or creating loopholes for failures.

vi) External interferences in management of the Programme Due to external pressure, a number of re-allocations totaling to Shs 1.2 Billion were made and new beneficiaries brought on board. This affected disbursements to SACCOs that had originally signed MoUs with the MSC and as a result, the MSC has

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outstanding liabilities amounting to Shs.502 Million and has been sued by some SACCOs.

I advised that the Ministry of Finance, Planning and Economic Development should consider providing extra funds for the short fall such that SACCOs that had already signed MoUs with the MSC are provided with funds and for the continuity of the programme. vii) Personalization of the Programme at MSC Personalization of the programme at the MSC by the Ag Executive Director and a handful of staff did not allow proper planning and management of programme funds at the MSC and thus leading to possible massive frauds and mismanagement.I advised that the Ag Executive Director by the time of programme implementation and other few staff, who were involved in implementing the programme, should be personally held liable for the short comings of programme funds.

(b) Programme Implementation i) Programme funds not revolving The objective of the programme was to create a revolving fund through which the identified economic agents could be able to access working capital at no interest. The programme was in line with the GoU policy frame of poverty alleviation and empowering people economically. However, it was noted that on a wide coverage, funds were not revolving at the SACCO but had only been shared amongst the market vendors. In scenarios where small market groups were trying to revolve within themselves, due to inadequacies in their rudimentary accounting procedures, tracking and accounting for these funds was impracticable.

The table below highlights some of the markets where programme funds were shared:

Name of SACCO Amount (SHS) Kampala United Park Yard 685,000,000 St Balikuddembe Market 880,078,500

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Nakasero Market 586,152,000 Wandegeya Market 51,060,000 Bugolobi Vendors Market SACCO 26,113,500 Bivamuntuyo Market-Kalerwe 86,220,000 Nakawa Market Vendors Development SACCO 84,420,000 Kaliro Town Council Market 37,800,000 Gulu Market SACCO 70,000,000

I advised that in future, programmes such as this should be properly planned for and clear guidelines are formulated to ensure efficient and effective implementation in the realization of intended objectives. ii) Insufficient time in the verification of Beneficiaries as per the JSC registers/lists During the audit, it was noted that there was limited time for the verification of beneficiaries as per the registers of the JSC and therefore this led to inaccuracies in the number of beneficiaries. For example, in Nyahuka Market (Bundibugyo District), the number of market vendors registered as per JSC report to H.E the President was 2,000 for the whole District and the number of market vendors as per the JSC register for Nyahuka Market was 808. However,the list of beneficiaries submitted by MoFPED to the MSC indicated that Nyahuka Market had 10,000 beneficiaries.

I advised that in future, sufficient time should be allowed for thorough verification before disbursement of funds to avoid any possible errors in the number of beneficiaries. iii) Lack of monitoring and supervision reports by the MSC and MoFPED It was further noted that there were no appropriated funds for monitoring and supervision of the programme‘s activities and hence no such activities were carried by MoFPED and the MSC. Failure to carry out monitoring and supervision of the programme hindered feedback and corrective actions on the challenges between SACCOs and other stakeholders during programme implementation.

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I advised that for effective monitoring and supervision of the programme, MoFPED should immediately provide for operational costs of monitoring and supervision. This is aimed at improving the efficiency and effectiveness of the programme. iv) Unaccounted for funds by the Joint Steering Committee It was also noted that JSC wanted to implement the entire programme. However, during institutional capacity assessment of UMEAU to handle programme funds of such a country wide programme revealed a lot of weaknesses in financial management. For example UMEA had no bank account at the time of release of funds to the MSC and up to date has failed to provide accountabilities for Shs.100 Million meant for facilitation/reimbursement during sensitization of beneficiaries.

(c) Irregularities/mismanagement of funds Due to the loopholes in programme management and implementation, instances of mismanagement of funds at various SACCO and market levels were noted. A summary of these is below: i) Questionable transactions at Nakawa Market SACCO It was noted that two MoUs were signed with two different SACCOs for Nakawa Market Vendors. The first MoU amounting to Shs.84,420,000 matched with the number of registered beneficiaries as per the approved lists of Market Vendors. These funds were shared amongst the beneficiaries. However, the second MoU amounting to Shs.363,924,000 was signed between the MSC and Nakawa Cooperative SACCO which was not on the approved list of Market Vendors and according to statements by the alleged beneficiaries the funds obtained under the second MoU were collected by an official from the MSC. ii) Questionable Transactions at Ntinda Market SACCO During the audit, it was noted that two MoUs were signed with Ntinda New Market SACCO. The first MoU amounting to Shs.13,041,000 matched with the number of registered beneficiaries as per the approved lists of Market Vendors. These funds were shared amongst the beneficiaries. However, the second MoU amounting to Shs.110,722,500 was signed between the MSC and SACCO for a non-existent

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market and according to statements by the alleged beneficiaries the funds obtained under the second MoU were collected by an official from the MSC. iii) Questionable transactions at Nyahuka Town Council SACCO It was noted that during the market vendors registration exercise by the JSC, the total number of beneficiaries in Bundibugyo District was 2000 vendors. Of these, Nyahuka Town Council Market had only 808 vendors. However, during the disbursement of funds by the MSC to Nyahuka Town Council SACCO, the number of vendors was inflated to 10,000 and as such Shs 180 Million was disbursed in excess and purported to have been withdrawn by SACCO management and handed back to The MSC staff. According to SACCO management they were forced by The MSC staff to submit falsified accountabilities. iv) Questionable transactions at Kampala United Park Yard SACCO During the audit, it was noted that Kampala United Park Yard Cooperative SACCO received a total of Shs.662,814,000 from the MSC for various market beneficiaries. Shs149 Million was paid to Kisenyi Vendors a non-existent market. In addition, the number of beneficiaries for various markets was inflated. For example, the number of market vendors for New Taxi Park as per the list by the JSC was 134 and later inflated to 7,000. This means that funds amounting to SHS 210 Million were disbursed by The MSC to the New Taxi Park for some non-existent beneficiaries and falsified accountabilities submitted. v) Questionable transactions within Boda Boda 2010 Association Limited It was noted that Boda Boda 2010 Association signed an MoU with The MSC and later received Shs.500 Million. Shs.300 Million was paid to Car & General Ltd of which only Shs.260 Million was used to procure 100 Motor Cycles and Shs.40 Million refunded back to Boda Boda 2010 Association in cash under unclear circumstances. In addition, from the funds received from The MSC, management of the Boda Boda 2010 Association spent Shs.56 Million on activities not foreseen in the MoU. The balance of Shs.144 Million is alleged to been used to procure 48 Motor Cycles for which no supporting documents have been provided. Furthermore, I noted from

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URA that some of the purportedly procured Motor Cycles by the Boda Boda 2010 Association are in the names of different owners. vi) Questionable transactions at Jinja Women and Youth Association Jinja District Women League Association signed an MoU with the MSC and later received Shs.170 Million. However, Shs.71 Million was not accounted for. vii) Misappropriation of programme at Bososa Masese SACCO-Jinja Bososa Masese SACCO signed an MoU with the MSC and later Shs.76 Million was disbursed. Shs.35 Million was embezzled by both the SACCO Manager and the SACCO Chairperson. viii) Misappropriation of Programme funds at Busia Market SACCO Busia Market SACCO signed an MoU with the MSC and later received Shs.27 Million. However, the SACCO Manager disappeared with Shs.9 Million and Shs.6.5 Million was paid back to the MSC as interest payments on an outstanding loan. In addition, the SACCO management was charging Shs.15,000 per person as registration fees. ix) Mismanagement of Programme funds at Uganda Mechanics Engineering Association Uganda Mechanics Engineering Association signed an MoU with the MSC and Shs.100 Million was disbursed for the purchase of a Value Seat Cutter and a Cylinder Bore Resurfacer. During the audit, it was noted that three old Taxis were instead procured and later impounded by Natete Police Station due to infighting by the Association members. In addition, no accountabilities were availed to us to ascertain the cost of the vehicles and the balance on the Bank account. x) Questionable transactions at Ggaba SACCO Ggaba SACCO signed an MoU with The MSC and later Shs 180 Million was disbursed. These funds were for various groups in Katwe. No accountabilities have been submitted to us for review.

xi) Irregularity at Mbale Garage SACCO 111

Mbale Garage SACCO signed an irregular MoU with the MSC for Shs.63 Million. These funds were capitalised by SACCO Management and beneficiaries were being charged heavily in accessing the programme Funds. Each beneficiary was paying Shs.20,000 as share capital, Shs.5,000 as membership fees, Shs.2,000 as passbook charge and Shs.1,000 for loan application fees. xii) Summary of mismanaged funds Professional judgement was exercised in the sample selection and the sample was 75% of the total programme value (Shs.10,000,000,000). From this sample of Shs.7,500,000,000, a summary of the funds in the table below are considered to have been mismanaged:

Name of SACCO Amount disbursed (SHS) Nakawa Cooperative SACCO 363,924,000 Ntinda New Market SACCO 110,000,000 Nyahuka Town Council SACCO 180,000,000 Kampala United Park Yard Cooperative SACCO 662,814,000 Boda Boda 2010 Association Limited 500,000,000 Jinja Women and Youth Association 71,000,000 Bososa Masese SACCO 76,776,000 Busia Market SACCO 26,000,000 Uganda Mechanics Engineering Association 100,000,000 Ggaba SACCO 220,000,000 Mbale Garage SACCO 63,000,000 Joint Steering Committee 100,000,000 2,473,514,000

In all the SACCOs that have been highlighted above, there is enough ground that calls for investigations of the institutions and prosecution of culprits. In general, the programme was not adequately planned for, no proper control systems were in place both at the MSC and SACCOs to effectively monitor the activities of the programme and thus resulting into failure to realize the intended objectives as per the Presidential Initiative. The detailed audit findings are in the special audit report.

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4.26 STRENGTHENING EVIDENCE BASED DECISION MAKING – FINANCE COMPONENT 2012 (a) Compliance with the key Covenants of DFID Funding Agreement and GOU Financial Regulation

It was noted that the management had in all material respects complied with the covenants contained in the credit agreement and government of Uganda financial regulations except for the following matters;

i) Inter-fund transactions It was noted that Shs.18,957,500 was spent on non project activities. Expenditure for activities outside the set conditions contravenes the Memorandum of Understanding and affects implementation of project activities.

Management explained that this was an error arising out of using a wrong security paper to draw money from Bank of Uganda. Upon realizing this, the money was refunded. I advised management to comply with the implementation arrangements of the project.

ii) Tax of Shs.31,508,835 paid from SEBDEM II project fund

It was noted that about Shs.31,508,835 was paid from project funds as taxes. Use of project funds to pay taxes contravenes Section 7 of the MoU which prohibits the use of project funds to pay taxes levied on goods or services imposed directly or indirectly by Government.

Management explained that these funds would be budgeted for and refunded to the project account by the Department of Economic Development & Policy Research. I advised management of SEBDM II to liaise with the MoFPED to ensure that funds are refunded into the project account.

i) Value for Money Purchases The project purchased a high speed photocopying machine in August 2011 for Shs.31,288,373. However, it was noted that the photocopier is currently not functional. Lack of a photocopier may adversely affect performance of the project. The project has not also realized value for money in the purchase

Management explained that following the breakdown of the machine in its early life, the Accounting Officer wrote to the supplier rejecting the machine considering that it broke down several months before the warranty expired. Unfortunately, there has not been compliance on the part of the supplier.

I advised management to follow up the matter further with the supplier. ii) Absence of cash count certificate A review of cash book and the ledger balances revealed that there was cash on hand of Shs.500,000. I was, however, not able to verify any document to confirm the existence of the said cash balance. Control over cash may be weak.

Management explained that cash certificates following physical cash counts would be instituted at the end of the financial year.

I advised management that cash at hand should be verified periodically by a senior person other than the cashier and documented on a cash count certificate. The result of the cash count is reconciled with the cashbook/ledger balance and any variances investigated.

(c) Status of Implementation of prior year audit recommendations A review of the status of implementation of previous audit recommendations was undertaken and the status is indicated in the table below;

S/N Findings Status of Action

1.1 Recoverable amount of Shs.11,000,020

It was noted during prior year audit that 114

Shs.11,000,020 was debited SEBDM account in contravention of MoU. Not yet implemented Management indicated that, an official letter has been written to the Director Banking to reverse the debit.

1.2 Tax paid with Project funds

It was noted during prior year audit that Not yet implemented Shs.6,371,529 spent on taxes in contravention of section 7 of the MoU.

DFID recommended that taxes of Shs.479,686 levied on the advertisements should be claimed from URA

4.27 SECOND PRIVATE SECTOR COMPETITIVENESS PROJECT (PSCP II) (a) Compliance with the Credit Agreement and Government financial regulations It was noted that the management had in all material respects complied with the covenants contained in the credit agreement and government of Uganda financial regulations except for the following matters;

i) Lack of Solicitor General Clearance The contract between Pioneer Construction and PSFU for the construction of Jinja District land office was not cleared by the Solicitor General. The practice is irregular and the contract could be challenged in court. I advised management to ensure that the contract is cleared by the Solicitor General.

ii) Steering Committee Schedule II of the project agreement requires the steering committee to provide guidance at all times during project implementation. However, it was noted that the steering committee was not providing guidance during the project extension period. I advised management to inform the committee about their responsibility. iii) Financial monitoring reports Section 4.02 of the project agreement requires PSFU to prepare and furnish to the World Bank Financial Monitoring Reports (FMRs) satisfactory in form and substance. It was noted that whereas these reports were submitted to the bank, they were not 115

accurately prepared. A review of these reports revealed that total project expenditure recorded in these reports of Ug. Shs.21,889,715,643 (US$8,777,653) exceeds expenditure in annual financial statements by Ug. Shs.5,452,619,642(US$2,408,348). Although management explained that some of the expenditures are reflected by the Bank and re-submitted afterwards thus causing the differences, I advised that implementation of the project should be in accordance with the financing agreement for which project management should be well versed with the provisions regarding eligible expenditures.

(b) Counterpart contributions The project agreement provides for contributions by Government of Uganda for expenditures in category (2) Goods of 10%, (3) Consultants‘ services of 10%, (5) Matching grants of 50% and (8) Operating costs 10%. To ensure compliance with this requirement, PSFU should maintain a system that tracks actual expenditure under these categories; determine the required government contribution to ensure that the counterpart funds are provided. It was however noted that although contributions were made by government to the project, there were no reconciliations done to check that these were the required amounts.

Failure to reconcile the contributions implies counterpart funding cannot be ascertained with accuracy. I advised management to institute reconciliations to enable establish whether proper financing has been undertaken.

(c) General standards 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) Authorisation and approval It was observed that the Project Manager who is the project designated accounting officer does not approve payments and is not a signatory to the project bank accounts contrary to provisions of the Project Implementation Plan (PIM). In such

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circumstances, there is a risk of making payments from the project account for activities that do not relate to the project. I advised management to ensure that the project manager is provided with the responsibilities as prescribed in the PIM.

(ii) Chart of Accounts It was noted that the chart of accounts in the Financial Accounting Manual is not up date. The accounting code used for the project in the accounting system is 221 but that in the accounting manual is stated as 220 which is the code that was used for the previous project. There is also no distinction in the chart of accounts between Matching Grants and Institutional Building Grants. All grants are posted to the same account code-BDS Matching Grants Local. I advised management to update the codes to reflect the appropriate grants.

(d) Budgeting and Budget Monitoring It was noted that budgeting was not properly done. Proper budgeting would require that the project budget is based on activities that are to be implemented as stated in the work plan. The approved project budget of US $16,846,222 for 2012 is more than the approved work plan amount of US$ 14,991,200. The budget was not prepared according to detailed project codes and therefore it was not possible to compare actual expenditure to the approved budget.

Although management explained that the cause of this difference was that some new activities were introduced, I informed management that this should not cause an imbalance as the budgets and workplan would be updated accordingly. I advised management to ensure that adequate supervision is undertaken during budgeting to enable proper monitoring of the work plans.

(e) Payments to suppliers It was observed that the payment of US $ 17,440 made to Geo-Information communication on 19th August 2011 was not in accordance with the contractual payment terms. These terms required payment to be made after issuance of an acceptance certificate; however, the payment was made before the acceptance certificate that was issued on 25th April 2012.

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Payment before issuance of acceptance certificate may imply that the supplier was paid before delivery of goods and service creating the risk of not receiving those goods and services or the supply of inferior goods.

Management explained that M/s Geo-Information Communication delivered the software as per contract but the hardware on which to install the software had not been procured. This meant that the vendors would not install and undertake the training as planned. In the circumstances they requested to be paid the 90% of the contractual sum pending the installation and training of staff. This was later done and a certificate of completion and acceptance provided to settle the balance.

Management was advised to ensure that all payments are made in accordance with contractual terms, after receipt of goods or services evidenced by the issuance of acceptance certificates were appropriate.

(f) Fixed Assets It was observed that various assets were bought for Ministry of Lands, regional land offices and the training school in Entebbe. In the course of the audit it was noted that these project assets are not properly managed. In some cases, the assets are not tagged with unique identification tags. The assets are also not recorded in Fixed Assets Registers of the respective offices. In some cases, the assets have not reached the intended offices while others were re-distributed to other offices.

Management was advised to ensure that lands offices maintain fixed assets registers in which all project assets should be recorded. The assets also should be distributed to the respective offices in accordance with the agreed schedule and procurement plan. Project management should ensure that this is done.

(g) Project cash book It was noted that there was a long outstanding un – presented payment to the ISTA secretariat amounting to US$ 17,688. The EFT transfer instructions for this payment were issued on 2nd February 2012 but were not effected up to September 118

2012 and still included as a reconciling item. The cash and bank balance in the project cashbook was understated by the cancelled amount (US $ 17,688) that was not reversed.

Management explained that they received instruction after preparation of this payment that it should not go ahead. This payment instruction was accordingly recalled and cancelled but the transaction was erroneously left on the books. It has now been reversed.

Management was advised to ensure that transactions are timely posted in the cash book and long outstanding items timely investigated and explained.

(h) Advances It was observed that an advance for Government land mapping to Geo–Maps amounting to Shs.1,169,371,999 was made. This amount was advanced in the previous year and is included in advances recoverable as at 30th June 2012. However, this activity was not carried out and there is no refund from the contract. There is a risk of loss of project funds if the work is not completed and the contractor does not return the funds advanced.

Management explained that M/s Geo-Maps were contracted to undertake the inventory of government Land. The contract was affected by the political environment at the time and activities would not be completed then. Parcels in only four districts out of the eighty were surveyed. The outputs were being verified and evaluated by the Ministry of Lands the contract managers to ascertain the amount due to the Consultant. The matter has already been forwarded to the Solicitor General for guidance to enable closure.

(i) Withholding tax The Income tax Act requires withholding tax agents to make monthly withholding tax returns and submit details of their suppliers from whom tax has been withheld and remitted to URA. Contrary to this requirement, project management did not submit withholding tax returns amounting to Shs.21,406,420 to URA.

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It was also observed that there were incidences of withholding tax overpayment against the following suppliers.

No. Supplier Amount over paid (shs) 1. CME consult group 2,209,827 2. Plan system Architects 16,138,327 3. Anna Nambooze 7,514,227 4. Carol Ndaula 180,000 Total 26,042,381

It is a statutory requirement to withhold and remit withholding tax from eligible suppliers and remit it to URA with a tax return by 15th day of the following calendar month in which the supplier was paid. Failure to make tax returns and remit the tax in time exposes the project to tax penalties and interest.

Management was advised to ensure that withholding tax returns are submitted to URA on monthly basis and payment of the resultant tax liability should be made within the stipulated time.

(j) Status of Implementation of prior year audit recommendations A review of the status of implementation of previous audit recommendations was undertaken and the status is indicated in the table below; Issue Status/Progress Budget Utilisation Partially implemented.

Lack of procurement specialist Resolved

Lack of Internal auditor Partially resolved

Grants-Monitoring of awards and disbursements not Partially resolved monitored using PTMS

Grants- Claims disbursement deficiencies Resolved

Lack of independent confirmations of bank guarantees Resolved

Delayed civil works payments Partially resolved

Inconsistencies in procurement-IGN France contract- Resolved under addendum 1. Development of the Lands InformationSystem

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Procurement -Modification of contracts without getting Not Resolved a no objection

Lack of no objection for Procurement -Minimum Resolved. quotation requirements

Overpayment to suppliers payments Partially resolved

Review of bank reconciliation statements Resolved

Project expenditure variances Partially resolved

4.28 SIDA SUPPORT TO COMPETITIVENESS INVESTMENT CLIMATE STRATEGY (CICS) PROJECT (a) Compliance with the SIDA/GOU Financing Agreement Provisions and GOU Financial Regulations It was noted that management had in all material respects complied with the covenants contained in the financing agreement and Government of Uganda financial regulations except for the following matters;

i) Late release of funds Shs.850,000,000 was allocated by SIDA to the project for the year under review. Article 7(a) of the financing agreement stipulates that disbursement were to be effected at the beginning July 2011 subject to fulfillment of Article 4 of the agreement which refers to ―Conditions for and Utilization of the Swedish Contribution‖ and that progress and financial reporting as stipulated in Article 6 are submitted and approved by Sweden. It was however noted that Shs.844,529,750 was only released in August 2011 leading to delayed implementation of quarter 1 activities.

Management explained that there was a delay in the final acceptance of the 2011/2012 financial year work plan and budget hence the delay in the release of funds.

I advised management to ensure timely preparation of work plans and budgets to allow early disbursement of funds and timely implementation of planned activities. 121

ii) Counterpart funding Review of 4thquarter performance report revealed that there was insufficient disbursement of GoU counterpart funding. For instance, a cash limit for 3rd quarter was only for Shs.4,200,000 which was meant to cater for staff costs. As a result a number of activities could not be implemented as planned. This affects implementation of planned activities.

Management explained that GOU Counterpart funds are released quarterly subject to the performance of the revenue and other demands on the budget. CICS budget is subsequently affected but funding for staff salaries and other critical operations are not affected.

I advised management to liaise with MoFPED to ensure that GoU funds are availed timely. iii) Un-authorized Expenditure Shs.14,960,342was spenton motor vehicleoperationalexpenses at the Secretariat. However, a review of the approved budget revealed that these expenses were expected to be funded under GOU component of the budget. In absence of authority, the expenditure remains un-authorized and therefore ineligible.

Management explained that the funds were charged on SIDA because of the inadequacy of GOU funds and the age of the vehicles operated by CICS Secretariat.

Management should ensure that only eligible expenditure is charged on the donor component of the project financing budget. In the meantime the funds should be refunded to the project account. iv) Non-remittance of statutory deductions PAYE and NSSF deductions amounting to Shs.11,383,250 and Shs.6,079,125 respectively were made from project staff salaries but there was no evidence that the deductions were remitted to the relevant authorities.

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Late remittance of statutory deductions may attract fines and penalties from the respective authorities.Management was advised to ensure that remittance of statutory deductions is done in accordance with the law.

v) Delayed submission of financial statements There was a delay in preparation and submission of financial statements as a copy of the financial statements was provided for audit in December, 2012. Financial statements should have been submitted for audit by 30th September 2012.

I advised that financial statements should be submitted in time to enable undertaking of the audit within the stipulated timelines.

(b) General standards of accounting and internal control systems It was noted that management had instituted adequate controls for management of project resources except for the following reportable matters;

(i) Weaknesses in Follow Up on Surveys Conducted By CICS Shs.5,200,000was paid in allowances to research personnel to undertake the 2012 executive opinion survey of Global Competitiveness exercise that took place in February. However, review of the field activity reports revealed the following;

i. Low levels of willingness on the part of respondents It was noted that most respondents declined to participate because there was no feedback on the previous surveys. The other reason given was that Government had failed to address concerns raised by previous Executive Opinion surveys and as a result there was no need to waste more of their time. ii. Follow up on the issues in the field activity report. It was noted that even after the concerns had been raised in the field activity report, there was no evidence to show that the report was discussed and strategies laid down to address the issues.

There is a risk that the results of monitoring and evaluation of the project implementation may not be utilized effectively to address any deviations identified during the exercise.

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Management explained that the trend was attributed to a number of factors which include ignorance of the CEOs/ Managers of the importance of this exercise, and also what respondents term as Government indifference and such inaction about their concerns. Management further explained that the state of affairs has been noted by CICS and a number of measures are being taken to help change this attitude. These include making presentations during the survey Workshops; incorporating some of respondents on Committees such as the National Competitiveness Forum, and Publicity of the issues through Annual Reports and Information Paper. I advised Management that: All field activity reports should be reviewed with a view to identifying and fixing the challenges and deviations in implementation. Response mechanisms should be reviewed with the objective of ensuring that feed back is promptly processed and disseminated to respondents and other stakeholders.

(ii) Delayed development of the Business Plan A contract for consultancy services to develop a business plan was signed between MoFPED and a consultant in October 2011 at a contract price of Shs.25,106,250 (VAT inclusive). According to the special conditions of the contract, the period for the completion of the service was 25 working days. There was no extension of the contract granted to the consultant. It was however noted that the consultant submitted the report in May 2012,seven months after contract date and final payment (60% of the contract) amounting to Shs.15,063,750 effected without any penalties. There is a risk that the delay could have affected other related deliverables in the Project.

Management explained that the days were due to inability to get quorum of taskforce members to discuss draft inception report. Because of this delay, the consultant had to first handle other earlier scheduled work before re-embarking on the assignment.

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I advised management toinstitute mechanisms to manage all project contracts to avoid delays in the implementation of the Project.

(iii) Short Term Consultancy A contract was signed with a consultant in respect of short term consultancy services for a period of 5 working days and a part payment of Shs.1,875000 made to the consultant. There was however no documentary evidence on how the consultant was identified and how the contract price was determined. Withholding tax was also not deducted from the consultant contrary to the Income Tax Act

Management was advised to comply with the PPDA Act and also ensure that the withholding tax is recovered from the consultant.

(iv) Distribution of invitation letters for meetings The project conducted meetings with several stakeholders and hired two firms to distribute invitation letters within Kampala area at a total cost of Shs.8,636,380. However the courier services were not procured using the PPDA procedures requiring inviting a minimum of at least three firms and then choosing the best.

There is a risk that the services may not have been obtained at the most competitive price. In their response, management indicated that there was an urgency to distribute the Forum letters that is why the PPDA procedures were not followed.

I advised management to adhere to the procurement procedures to avoid the risk of wasteful expenditure.

(v) Procurement Committee – Sitting allowance The PDU handled several procurements of the Project and requested for a sitting allowance totaling to Shs.2,750,000.Another internal memo was raised including four extra officers to the procurement committee.It was however noted that there was no formal appointment of the extra four officers specifying their expertise on the procurement committee and these were paid a total of Shs.1,350,000.

In absence of justification, I advised management to seek recovery of these funds.

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(vi) Over payment of salary arrears Shs.6,000,000 was paid in respect of March 2012 salary to the Legal Advisor. It was noted that the legal advisor had clearly indicated that though the contract commenced on 1st March 2012, the period 1st March 2012 to 13th March 2012 had been paid for by Private Sector Foundation Uganda. However a full month‘s salary was paid leading to an overpayment of Shs.2,516,129.

Management has promised to recover overpaid amount from the concerned officer‘s salary at the end of January 2013. I await management action.

(vii) Stakeholder meeting allowances Shs.3,300,000 was paid to various persons in respect of facilitation for Teso Citrus Cluster stakeholder meeting held on 30th May 2012 as sitting allowance. However, Shs.100,000 was paid to each participant as sitting allowance for the half day Seminar. No details were available to show how the rate of Shs.100,000 as sitting allowance was determined. In addition, expense of Shs.450,000 indicated as Video Coverage was not acknowledged by way of a receipt.

In absence of justification for the payment of sitting allowance and acknowledgement receipts, I informed management that funds are recoverable.

(viii) Unaccounted for funds Shs.22,421,516 was advanced to various persons to undertake project activities however at the time of audit these funds had not been accounted for. In addition Shs.2,310,000 in respect of the work shown on rapid appraisal of citrus market in Uganda remained unaccounted for.

There is a risk that the funds may not have been used for the intended purpose.I advised management to ensure that the funds are accounted for or recovered from the concerned officers in accordance with the law.

(c) Implementation of internal audit findings Review of internal audit reports revealed that internal control weaknesses had been identified as follows; Delayed implementation of planned outputs. 126

Non-submission of quarterly reports to the Steering Committee. Non-submission of quarterly report to Commissioner Investment and Private Sector Development. Absence of formal project risk management framework.

However, there was no evidence to show that the recommendations have been implemented. The laxity on the part of management to implement the internal audit recommendations could lead to inefficiencies in project implementation.

I advised management to ensure that internal audit recommendations are implemented in time to improve project operations.

5.0 DEPARTMENT OF ETHICS AND INTEGRITY

5.1 Outstanding Obligations (a) Outstanding rent payment The Directorate had accumulated outstanding rent obligations of Shs.434,105,754 at the end of the financial year. The rent arrears accumulated as a result of delays in renewing the tenancy agreement that was signed by Uganda Land commission on behalf of the Directorate. Failure to pay rent in time is a breach of the Tenancy Agreement, and the Directorate risks being evicted from the premises.

The Accounting Officer explained that the agreement had been signed and the arrears had been recognized and hoped that Ministry of Finance would include the amount in the budget for payment.

I urged the Accounting Officer to ensure that outstanding rent is cleared to avoid embarrassment and disruption of the Directorate‘s business.

(b) Outstanding Electricity bill The Directorate had accumulated electricity bill arrears amounting to Shs.53,000,000 as at 30th June, 2012 reflected in the financial statements. It was established that UMEME changed its metering and billing system to a single meter which is allocated to a whole building and one bill is issued to the landlord where estimates for bills for the tenants is based on unknown formulae, a system considered by the management of DEI as unfair. Management of DEI has as a 127

result decided not to pay the bills until the landlord causes installation of a separate meter for the Directorate.

Meanwhile, money meant for payment of electricity was paid back to the consolidated fund at the end of the financial year. Failure to pay for electricity could eventually lead to disconnection thereby disrupting the operations of the Directorate.

The Accounting Officer explained that the Directorate had written a letter to the landlord to this effect and also reminded them to install prepaid meters as directed by MOFPED.The outcome is awaited

5.2 Mischarge of Expenditure A review of the Directorate records revealed that Shs.176,521,614 was not charged to the appropriate items/accounts. It was noted that postings were made according to availability of funds on respective budget lines in order to avoid over expenditure.

Posting of expenditure on wrong budget lines contravenes the Appropriation Act and defeats the purpose for which budgets are made. It also leads to misreporting in the financial statements.

The Accounting Officer explained that this was caused by the budget cuts and the inadequate funding.

I advised the Accounting Officer to desist from mischarging expenditure and consider seeking reallocations in accordance with the law.

5.3 Grounded vehicles The Directorate has a fleet of 19 motor vehicles and 2 motor cycles. Review of the electronic assets register and physical verification of the vehicles revealed that two motor vehicles UG 1720C and UG 0603C had been grounded for more than seven months.

The Accounting Officer explained that the two vehicles had been recommended for board off. 128

I urged the Accounting Officer to expedite the process of boarding off the vehicles to avoid further deterioration.

5.4 DFID/DANIDA SUPPORT TO STRENGTHENING ANTI-CORRUPTION CAPACITY PROGRAMME ETHICS AND INTEGRITY 5.4.1 Inadequately Supported Expenditure A review of the expenditure documentation revealed that Shs.14,859,470 in respect of various activities remained unaccounted for. The expenditures were questioned on the following basis:- Lack of fuel receipts Unbanked and unaccounted for cash balances Doubtful sitting and transport allowances due to inconsistencies in signatures Unsigned for allowances paid out. Expenditures not broken down to identify specific expenses.

Management did not provide acceptable explanations for the shortcomings and therefore the questioned amounts of Shs.14,859,470 is recommended for refund to the development partners.

5.4.2 Borrowing of Project Funds It was observed that funds from the project account were drawn and used for non project activities.

A total of Shs.301,732,010 was borrowed from the project account while only Shs.269,391,600 was refunded, leaving a balance of Shs.32,340,410 outstanding. The practice causes delays in implementing programme activities and also possible loss of funds.

I recommended that DEI make efforts to refund the outstanding amount.

5.4.3 Expenditures not for Project Purposes A review of actual activities implemented against the workplan was carried out. It was noted that some payments totaling to Shs.29,485,090 were incurred outside the approved budget.

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The activities questioned related to; Motor vehicle repairs Purchase of printer fuser Office imprest Purchase of internet cables Lack of accountability Recruitment expenses

I recommended that the questioned amount of Shs.29,485,090 be refunded to DANIDA.

5.4.4 Cash Balances not Banked Scrutiny of the expenditure during the period under review was carried out and it was noted that expenditure of Shs.8,849,200 could not be traced. The untraced accountability related to:- Workshop for tutors on integration of ethical values at St. George – Ibanda PTC, Bushenyi PTC, Bukinda PTC and Mbarara PTC. Inter Agency Forum public education and awareness program with District Integrity Forum in Apac.

I recommended that the funds relating to the outstanding accountabilities be refunded to the development partners.

5.4.5 Fund Balance Shortfall According to the records reviewed DEI had a balance brought forward of Shs.243,149,897 as at 1st July 2009 and received Shs.861,550,000, giving a total of Shs.1,104,699,897. Shs.1,049,084,945 was spent during the period leaving a balance of Shs.58,614,952. However, only Shs.16,155,002 was traced to the bank.

Although management provided additional information in this respect, these information could not address the missing funds. I therefore recommend for a refund of the outstanding amount (Shs.42,459,950) to the development partners.

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5.4.6 Inaccurate Transfer of Funds A review of the salary schedules for the Project period for the months of August, September, October and November 2009 revealed that Ms. Anne Niyonzima‘s monthly salary was Shs.792,5000. However, we noted that the bank instruction for transfer of funds as well as the bank statements indicated that instead, Shs.795,500 was credited to her account. As a result extra Shs.12,000 was paid to the staff for the 4 months period.Management promised to address the matter.

5.4.7 Late remittance of Statutory Deductions During the audit, it was noted that DEI filed monthly returns and remitted statutory deductions of NSSF and PAYE to the relevant statutory bodies. We noted however that DEI did not obtain receipts from URA to support the statutory deductions made. It was further noted that there was late remittance or NSSF deductions.

I advised management to remit the due deductions to avoid the associated penalties.

5.4.8 Controls on Vehicle and Fuel Usage During the period under review, management did not maintain vehicle movement logbooks and yet the project activities involved a lot of travel.

In absence of vehicle movement logbooks, it becomes difficult to ascertain whether fuel consumed was used for project activities. I advised that use of vehicle movement logbooks should be instituted.

WORKS AND TRANSPORT SECTOR

6.0 MINISTRY OF WORKS AND TRANSPORT

6.1 Mischarge of Expenditure – Shs.16,640,241,647

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undermines the importance of budgeting process as well as the intentions of the appropriating authority and leads to misleading reporting.

In their response, management explained that the Ministry only received Shs.66,135,482,446 out of the approved budget of Shs.97,861,971,695. This created distortions in implementation of the planned activities and resulted into unavoidable mischarges. I have advised Management to always request for reallocations or virements, as provided for under the TAI.

6.2 Advances Deposited on Personal Bank Accounts - Shs.10,282,962,400

a. Non Compliance with Treasury Accounting Instructions

Sections 227, 228 and 229 of the Treasury Accounting Instructions (TAIs), 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. However, it was noted that Shs.10,282,962,400 was advanced to ministry staff through their personal bank accounts to undertake direct procurements and other activities of the Ministry. Such a practice of depositing huge funds on personal accounts is irregular and also exposes government funds to a risk of loss through misuse. In addition, the ministry does not have any control over such funds deposited on personal accounts.

Management explained that the Ministry experienced problems in the PDU caused by the former head of the unit whereby procurements could not be concluded. To allow the activities of the Ministry to proceed, the staff had to be advanced money to undertake direct procurements which they had to account for after undertaking the activities. I have advised management to ensure strict adherence with the requirements under the TAI.

b. Advances not Properly Accounted For - Shs.3,640,273,200

Of the funds mentioned above huge advances totaling to Shs.3,640,273,200 was not properly accounted for. Review of the accountabilities that were submitted at the time of audit revealed a number of flaws in the accountability documents which rendered them doubtful.The following flaws were particularly noted:-

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A number of accountabilities did not specify the exact dates when the activities took place. Some accountabilities lacked activity reports. A number of accountabilities for workshops and trainings were not supported by signed attendance registers of the beneficiaries of the funds. Payments to suppliers were by cash and in all cases, no withholding tax was deducted. Some advances were made at the same time to be used in areas that are geographically too far apart to allow for proper monitoring. The items procured especially for motor vehicle repair advances, were not supported with Goods Received Notes and were also not recorded as having been received in the stores. Accountability documents were not stamped ―PAID‖ and could be easily recycled to account for other advances. In the circumstances, I was unable to ascertain that the money advanced to the Ministry staff to undertake Ministry activities was properly utilised.

Management explained that most of the apparent flaws were a result of misfiling and misplacement of documents. The Accounting Officer also stated that management had designed stringent internal controls at every stage which had been issued to all staff. I advised Management to undertake an extensive investigation into the accountabilities and where misuse is confirmed, recovery measures should be initiated accordingly.

6.3 Advances not Accounted For – Shs.1,802,060,800

During the period under review, the ministry transferred Shs.1,181,330,600 to five districts and one Town Council under the Districts and Urban Road Resealing arrangement. However, the funds remained unaccounted for at the time of audit. In another development, Shs.620,730,200 that was advanced to various Ministry staff to undertake certain activities also remained not accounted for, contrary to the Treasury Accounting Instructions (TAI) which require prompt accountability of advances in any case not later than 60 days from the date of payment. Under the circumstances, I was unable to confirm whether the funds were properly utilized for the intended purposes.

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I have advised Management to streamline the management of advances and ensure that accountability is always done promptly as required by the accounting regulations. In addition, the above advances should be followed up and recovery measures initiated in the event that the beneficiaries do not submit accountability for the funds.

6.4 Cash Withdrawals and Payments

During the year, cash withdrawals amounting to shs.1,566,957,784 were made by the Ministry. A review of payment and accountability documents submitted for these withdrawals revealed the following:-

6.4.1 Noncompliance with the Treasury Accounting Instructions (TAI)

Section 173 of the TAI requires that all Payments wherever possible must be made by means of direct bank transfer or crossed cheques, only to the persons named in the vouchers or their accredited agent. The practice of drawing cash to incur expenditure was therefore irregular. Withdrawing such large sums of money also exposed the money to a risk of loss through abuse, since cash is inherently prone to misuse.

In his response, the Accounting Officer explained that the practice of paying advances had since stopped following the circular by the PS/ST limiting cash withdrawals to Shs.20,000,000 per month. I therefore await for the outcome of this management commitment.

6.4.2 Cash Withdrawals Above the shs.20 Million Limit

The Permanent Secretary/Secretary to Treasury (PS/ST) issued a circular on 14th April 2009 limiting cash withdrawals to shs.20 million per day. To the contrary, the Ministry did not abide with this requirement and on a number of occasions, more than shs.20million was withdrawn in a day from the cash account as exemplified in the table below:-

Date Amount withdrawn from Daily Limit (shs) Excess cash account (shs) withdrawal (shs) 18.11.11 40,952,475 Approved limit for the 17,550,600 day 23,401,875

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07.03.12 20,707,863 20,000,000 707,863 23.05.12 20,026,000 20,000,000 26,000 31.05.12 20,087,500 20,000,000 87,500 Total 18,371,963

6.4.3 Doubtful Cash Procurements – Shs.617,488,500

Section 45 of the PPDA Act, states that ―…all procurements and disposals shall be conducted in a manner that promotes transparency, accountability and fairness.‖ In addition, Section 46 states that ―all procurements and disposals shall be conducted in a manner that maximizes competition and achieves Value for Money.‖

Audit noted that a number of procurements were undertaken using direct procurement method by Ministry staff who were given cash advances. The procurements did not go through the required procurement procedures and processes prescribed by the PPDA law. The suppliers were single handedly picked and paid for by cash. Examples of such procurements amounted to Shs.617,488,500. In all cases, LPOs were not being raised and deliveries could not be confirmed in the stores because of lack of delivery documents. Audit noted that the practice was open to abuse by avoiding the controls embedded in the normal procurement processes.

Management explained that some procurements were made through cash advances to some staff for mainly procurements of emergency nature, urgent office requirements, vehicle repairs and Ministry functions. The Accounting Officer further stated that the practice of advances had since stopped following the circular by the PS/ST limiting cash withdrawals to Shs.20,000,000 per month. I have advised management to avoid the use of cash procurements and follow the normal procurement procedures and processes prescribed by the PPDA law. In addition, the procurements mentioned above should be followed up and where misuse of funds is confirmed, recovery measures should be initiated accordingly.

6.5 Irregular Funding of Community Agricultural Infrastructure Improvement Programme (CAIIP) Activities

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During the design of CAIIP management structures, the Ministry of Works was asked to provide an Infrastructure Engineer to help in the supervision of the CAIIP activities that were in line with the its mandate. Accordingly, MoWT provided an Engineer to provide the support required which was supposed to fit within the CAIIP setting which had its Coordination Unit in the Ministry of Local Government (MoLG). Details show that a separate arrangement was instead made that created a mirror image of the CAIIP project in the Ministry of Works under which activities were duplicated and financed/paid for under project code 0995 CAIIP. During the financial year under review, a total of Shs.1,669,840,538 was transferred to the project account in Mbale (Cumulatively bringing the transfers as of 30th June 2012, to Shs.4,928,675,538since inception). There was no evidence that Ministry of Works was required to make any monetary input in the implementation of CAIIP. Audit also noted that the funds were expended on activities by a parallel structure not recognised and unknown to the CAIIP management in the Ministry of Local Government.

Under the circumstances, I was not satisfied by management explanations that this was a necessary charge on the public funds. The details of this matter are contained in a separate special audit report I have made to Parliament.

6.6 Unsupported Utility Payments – Shs.112,394,028

These refer to payments in settlement of utility bills such as water, electricity, telephone and other property expenses by the MDAs. During the year under review, Ministry of Works and Transport paid a total of Shs.488,852,399 in respect of utilities. A review of the underlying records revealed that a total of Shs.65,594,028 paid in respect of telephone and internet bills lacked adequate supporting documents as there were no invoices showing details of the calls made. In addition, a deposit of Shs.46.8 million made on 21st June 2012 for electricity bills did not have details of the electricity accounts for which the payment was made. This prepayment was not disclosed in the financial statements as a prepayment.

Under the circumstances, I was unable to ascertain the correctness of the above amount charged as Utility expenses in the financial statements. There is a risk that payments were made for non-existent calls/services. Although the Accounting Officer explained that the supporting documentation was available, these had not 136

yet been provided to me by the time of writing this report. I have advised management to always ensure that all utility payments are supported with proper documentation evidencing provision of the services consumed. In addition, I have advised Management to follow up the deposits for electricity and ensure that they were properly credited to the Ministry accounts.

6.7 Forex Account Transactions

The Ministry operates a Forex Account in Bank of Uganda to facilitate transfer of funds for settlement of transactions whose payments are denominated in foreign currencies. Review of the transactions on the account revealed a number of anomalies as detailed below:-

6.7.1 Bank Charges from the Forex Account

It was noted that the BOU Forex Account was debited with Shs.25,924,404 in respect of bank charges from LC Account transactions during the period under review yet there were clear instructions to charge the LC bank charges from the Ministry‘s Deposit A/c (instructions dated 1st December 2010). This created shortfalls whenever transfers were to be made which at times resulted into delays; for instance the Ministry had to transfer additional Shs.54 million from the Deposit Account on top of what had previously been transferred to cater for a transfer to World Bank. With the standing instruction in place, there was a risk that by allowing bank charges on the Forex account, the charges could easily be charged on both bank accounts without detection.

Management explained that the error was on the side of the bank and was also due to lack of regular reconciliation on the Ministry‘s side. I have advised Management to ensure that reconciliation of the Forex Account is undertaken regularly to enable prompt identification and correction of anomalies/errors.

6.7.2 Local Currency denominated Payments made from the Forex Account

Review of the transactions on the Forex account during the year under review revealed that contrary to the purpose for which the account was operated, on three occasions, a total of Shs.185,159,128 was transferred from TGA to Forex Account to settle invoices/payments that were denominated in Uganda Shillings as follows; 137

Date Reference User Reference Debit (Shs) 16-Jan-12 991FINT120160001 166033PT 21,825,900 25-Oct-11 991PCOE11298000N 166032PT3964610: 105,142,160 22-Jun-12 991PCOE121740172 166084PT4920694: 58,191,068 Total 185,159,128

There was no justification for these transactions all denominated in local currency, to be paid from the forex account. There is a risk that this account could easily be abused if the transactions thereon are not properly controlled.

I have advised management to stop the practice of making transactions denominated in Uganda Shillings from the forex account and ensure that the account is used solely for the purpose it was created.

6.7.3 Refund to World Bank

The Ministry refunded to the IDA money whose details in the attached documents showed that an audit by World Bank had established that Shs.27,057,000 had been stolen and Shs.78,085,160 was spent on ineligible activities. However, there were no details regarding the steps taken to have the stolen funds refunded by the culprits.

In his response, the Accounting Officer explained that the loss of Shs.27,057,000 was caused by an employee who was advanced the funds in question but absconded from duty after receiving it. Although the culprit was later prosecuted in Courts of law and sentenced to two years imprisonment, the recoverability of the money remained doubtful as there was no evidence that any action had been taken to recover the funds in question. I have advised Management to take appropriate measures to recover the stolen funds.

6.7.4 End of year Transfer from Forex account to Personal Account

Review of the payment records together with the bank statements for the Forex account revealed that balance on the account of Shs.58,191,068 was transferred to a Stanbic Bank Account belonging to a staff of the Ministry as an advance to purchase service parts, oils and lubricants and maintenance of vehicles, during the 4th quarter 2011/12. The officer had earlier on submitted advance claims totalling to Shs.58,800,000 for a number of invoices from various firms. However, it was not 138

explained as to why the firms which rendered the services were not paid directly instead of advancing the money to the Ministry employee. In addition, the services were acquired without following the procurement laws. Direct procurement method was used to obtain services from the garages, contrary to regulations. There is a risk that the services paid for were not undertaken.

I have advised Management to investigate the payments further to establish their authenticity and to stop the practice of advancing money to employees to procure services and goods directly.

6.8 Expenditure on Fuel During the year under review, the Ministry availed fuel to a number of staff by issuing them with fuel cards through standard Chartered Bank. A review of the transaction statements revealed that there were fuel drawings in huge amounts and in a number of instances, the amounts drawn exceeded 1,000 litres. Audit noted that these drawings were intended to remove the money from the cards and deposit it with various fuel stations which would then be utilised using other control mechanisms such as fuel coupons and ledgers at the various fuel stations. In some cases, the staff could continue getting credit facilities from some of the petrol stations. The arrangement of removing fuel from the fuel cards and depositing cash at various fuel stations and later on obtaining credit facilities lacked authority of the Accounting Officer.

There is a risk that cash could have been withdrawn at fuel stations for personal gains instead of the actual fuel to undertake activities of the Ministry. The purpose of depositing the funds on the advantage cards was not achieved considering that there was no control on usage using these cards.

In another development funds amounting to Shs.88,858,890 for various cards remained un accounted for.

I have advised management to institute proper fuel management controls to prevent possible pilferage and misuse. The amounts outstanding need to also be followed up to ensure accountability.

6.9 Budget performance

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The Ministry had an approved budget of Shs.97,861,971,695 out of which only Shs.66,135,482,446 (67.6%) creating a shortfall of Shs.31,726,489,249 (32.4%). Failure to release funds fully as budgeted impacts on the accomplishment of planned activities of the Ministry and the sector as a whole. It also affects the achievement of the targets set in the National Development Plan (NDP).

Management explained that this was due to the shortfalls in the releases across the Ministries, Departments and Agencies by Ministry of Finance, Planning and Economic Development during the Financial Year. The Ministry had complained to the MoFPED about the poor releases but the problems of underfunding have persisted over the years. I have advised the Accounting Officer to always liaise with the responsible authorities to ensure that all budgeted funds are released and that any budget cuts are properly planned to avoid disruption of key activities of the Ministry.

6.10 Letters of Credit as at 30th June 2012

6.10.1 Letter of Credit opened in respect of M/S Victoria Motors

During the financial year 2010/2011, a letter of credit worth Shs.1,342,142,967 (equivalent to JPY.40,670,999) was opened in favour of M/s Victoria for the supply of one Fuso Cargo Crane Truck, two station wagon vehicles, one Fuso Dump truck and a self-loading truck. The contract between the Ministry and M/s Victoria Motors Ltd was signed on 12th May 2010 and it specified delivery of the items within six months after the date of contract signing.

It was noted that there were delays in the performance of the LC which was still outstanding by the end of the financial year 2011/2012. While there was partial delivery of two Station Wagons on 19th November 2011, final delivery of the three trucks was made a year later on 29th November 2012. The supplier contravened the set conditions in the contract but there was no evidence that liquidated damages were charged as per the contract provisions under section GCC 27.1 of the special conditions which specified maximum amount of liquidated damages at 2% of the contract sum.

Management attributed the delay to the major earthquake in Japan which disrupted supplies and amounted to a force majeure which therefore ruled out the possibility 140

of charging liquidated damages. However, I find this explanation not satisfactory, given that the earthquake occurred on 11th March, 2011 which was ten months after the contract was signed, yet the supplier was required to deliver within six months. I have advised management to always ensure strict adherence to the provisions in the signed contracts with suppliers.

6.11 Operations on the Deposit Account This Account was opened purposely to cater for any activities which other government departments require the Ministry to undertake on their behalf upon transferring the funds to finance those specific activities. The account had an opening bank balance of Shs.6,819,505,229 at the beginning of the financial year and a closing balance on 30th June, 2012 of Shs.4,483,070,936. It was noted that the huge balances on the deposit account were funds transferred from Office of the Prime Minister to facilitate establishment of a ferry service on lake Kyoga/Bisinia connecting Bukungu in Kamuli and Amolator Districts.

Following an agreement entered into by the two entities (OPM and MoWT) on 11th December 2007, the Chief Mechanical Engineer made two proposals, one for a ferry and temporary landings costing Shs.3,595,155,880 and the other for permanent landings costing Shs.7,179,155,880. The construction of temporary landings would be completed by December 2009 if the second alternative was adopted and for the first alternative of permanent landings, the completion date was set as June 2010. Subsequently OPM transferred Shs.8,600,000,000 to the deposit account of the Ministry of Works and Transport to facilitate the procurement of the pontoon ferry, consultancy services and civil works for the landing sites.

Audit noted that while the Pontoon ferry was delivered at CME (Ministry or Works and Transport) at a cost of Euros.1,502,000 and a consultant engaged, the construction works for the landing sites and approach roads have not commenced. This has led to Shs.5,245,466,352 meant for the activity to lie idle for a long time on the deposit account. There is a risk that the funds could be diverted to other activities. The delay to assemble the ferry could also lead to obsolescence of the pontoons. The envisaged objective of providing crossing access to two districts has not been achieved 5½ years after the agreement with OPM was signed.

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The Accounting Officer attributed the delays to challenges the Ministry had with the Procurement and Disposal Unit (PDU). I have advised management to expedite the process and ensure that the ferry is installed.

6.12 Human Resource Management 6.12.1 Vacant Posts A review of the staff records of the Ministry revealed that although 593 posts had been approved following the restructuring of the Ministry, only 441 (74.4%) had been filled at the time of audit, leaving 152 (25.6%) posts vacant. Some of the vacant posts such as those for the Construction Standard and Quality Management department and Material Testing and Research appear very fundamental in the operations and achievement of the strategic objectives of the Ministry. This could eventually impact negatively on the delivery of services by the Ministry.

The Accounting Officer explained that all the vacant posts were declared to the Public Service Commission (PSC) for filling. Between July and December 2012, sixteen (16) posts were filled and another fifty nine (59) vacant posts had been advertised internally and externally, and the selection process was underway. He further stated that some posts at the level of Director, Commissioner, Assistant commissioner and Principal levels had remained vacant and the Ministry through the PSC had failed to attract suitable candidates despite, several rounds of advertisements. I have advised management to liaise with other stakeholders and ensure that the vacant posts are filled.

6.13 Procurements 6.13.1 Non adherence to Procurement Procedures The Public Procurement and Disposal of Public Assets Act and Regulations require that all public procurements should follow the procedures prescribed therein. However a review of sampled procurement files revealed that certain procurement procedures were not followed in two procurements as exemplified in the table below:-

No Procurement Contractor Exception Amount (Shs) 142

1. Procurement of Mayang The request to approve the 60,782,744 vehicles cleaning Enterprises procurement method and services during solicitation document was done by African Union user department Summit 19th-26th The short list was not on entity‘s July 2009 Kampala pre-qualified list and it was not indicated how it was sourced The procurement was not on the procurement plan of the Ministry. 2. Repair of four M/s Motor care The request for the procurement 69,724,600 units of BMW Ltd method, solicitation document, Executive Saloon and the shortlist of bidders were vehicles all done by an officer from the user department. There was no approval of contract by Solicitor General.

Management attributed the anomalies to the incompetence of the personnel manning the Procurement and Disposal Unit (PDU) at the time who failed to guide the parties (User Departments and Contracts Committee) involved in the procurement process. The key principles in procurement of transparency, fairness and confidentiality were not adequately adhered to. I have advised management to ensure that all procurements and disposals are conducted following the procurement principles enshrined in the PPDA Act and Regulations.

6.13.2 Construction of one-Stop Boarder Post Facilities at Katuna

A review of the procurement file for construction of one stop Boarder Post facilities at Katuna revealed that there were delays in awarding the contract. It was also noted that the Architectural Designs were rejected by Contracts Committee hence the procurement process was not completed.

The Accounting Officer explained that the procurement process was abused with a lot of falsification of documents by the bidders as well as other controversies, which led to the transfer of this procurement to UNRA Procurement and Disposal Unit to undertake a reevaluation of the procurement independently and make a recommendation to the Ministry for implementation. However, the outcome of the reevaluation process had not been communicated by the UNRA team by the time of writing this report. I have advised the Accounting Officer to always ensure that the procurement processes are always handled in a transparent manner to minimize incidences of appeals against such processes. In addition, the matter should be followed up further to ensure that in the event there is confirmation of failure to

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adhere to the procurement laws, disciplinary measures are undertaken against any such officer as per the provisions under the Act.

6.13.3 Procurement files not presented for audit (Limitation of Scope)

During a review of the procurements conducted by the Ministry during the year, certain procurement files that had been sampled were not presented for audit because they were under investigation by the police and PPDA. The outcomes of these investigations were not readily available. The details of the files were as follows:-

Ref No. Procurement Description User Estimated Status Department amount – Shs (PP20) MoWT/W Redevelopment of statehouse Public Structures 24,882,897,504 Under Police KS/11- phase II construction of office Investigation 12/00034 block to house the office of Seeking state house comptroller at facilitation of Entebbe ET MoWT/SS Vehicle refuelling services for Mechanical 173,168,000 file with PPDA VC/11- the Ordinary Summit for the Services 12/ International conference on 00120 great lakes. (IGLR)

Due to absence of these files, I was unable to ascertain whether the respective procurements were conducted in accordance with the PPDA law and guidelines.

6.14 Mount Elgon Labour Based Training Centre (MELTEC) An audit inspection of the training centre was carried out on 18th-19th October, 2012 and the following observations were made:-

6.14.1 Expenditure on Trial Contracts (Shs.913,000,000)

During the period under review, the Training Centre disbursed funds to various districts for the payment of trial contractors. However, there were no Memoranda of Understanding signed between MELTEC and the Districts relating to the selection and funding of trial contracts. The contract agreements availed for audit were signed between the districts and the trial contractors. Without signed memoranda of understanding with the Districts, the Centre has limited control over the funds and how the contractors perform the work. 144

Management explained that failure to have Memoranda of Understanding signed with districts in this particular case was an omission because in all previous programmes, memoranda of understanding were made with the various districts pertaining to the trial contracts and their supervision by the district engineering and non engineering staff under training by MELTC. I have advised management to ensure that the memoranda are signed for all programmes as a control measure to ensure that works are executed in accordance with the requirements of the Ministry.

It was also noted that contracts worth Shs.1,767 billion that the Districts entered into during 2011 had all expired before completion of the underlying civil works. There was no evidence that these contracts had been extended. Operating and making payments under expired contracts is irregular as certain conditions of the contracts may not be enforceable. I have advised the Accounting Officer to ensure that the contracts are extended to avoid risks of not being able to enforce clauses therein.

6.15 EACAA Soroti

An audit inspection was carried out on 15th-18th October, 2012 regarding the funds that were released to the Academy and the fees collected from students. The following were noted:-

6.15.1 Procurements made not Following the Procurement Procedures Treasury Accounting Instructions require that all stores receipts should be posted in the ledger as soon as they have been examined in accordance with the receiving procedure. On the contrary items worth Shs.179,304,189procured by the Academy were not supported by PP Form 20, Local Purchase Orders (LPOs), Invoices, Delivery Notes (DNs), and Goods Received Notes (GRNs). There was no stores details to show that the items were recorded in the stores ledgers and eventually issued out for utilisation, as shown in the table below:-

Cheque Amount Payee Purpose Audit Management Response (Shs) Remarks 8758 30,987,648 ShellU Fuel No delivery M/s Shell (U) Ltd was Ltd note, no contacted to confirm delivery invoice, GRN, and payment but they had no original not responded. 145

invoice

8769 12,990,000 Ms Copy Supply of Items not taken Management investigated the Cat Ltd computers on charge procurement and found out & that there were anomalies accessories bordering on corruption.

Procurement and stores departments had no record of receipt of the computers and/or accessories.

The alleged supplier was contacted and denied receiving the quoted amount of Shs.12,990,000. Officers involved in the payment were interdicted and the cases handed over to police and were before the anti corruption court. 8475 20,600,000 Uga Supply of No LPO, GRN, As explained above Furniture Uniforms D/N, PP form 20 & Builders 8565 8,500,000 Air Aero Supply of LPO 000237, The original Delivery note, Services computers D/N 364, invoice and GRN were invoice 1280, misplaced. GRN 434 are in photocopy form. 8504 7,997,261 Zion Firm Supply of Invoice & LPO The original documents had Foundati food are photocopies been misplaced at the time of on audit. 8474 11,204,000 Garden Accommoda No invoice, no Management investigated the Guest tion for receipt, no PP transaction and found out students form 20, no list that there were anomalies of staff, no bordering on corruption. single accountability Ms Garden Guest House the alleged provider of the accommodation service was contacted and denied receiving the mentioned payment of Shs.11,204,000. The officers involved in the payment were interdicted and the case was handed over to police. 008536 80,000,000 Shell (U) Aviation No LPO, M/s Shell (U) Ltd was ltd fuel Invoice, deposit contacted to confirm delivery receipt, delivery and payment but they had note responded. 008439 7,025,280 Kijwala Accommoda Pp form 20 not The PP Form 20 had been Kabanas tion attached misplaced at the time of services for audit. the month of may TOTAL 179,304,189 146

There is a risk that the purported procurements never took place at all. I have advised Management to further investigate the procurements and take necessary action.

6.15.2 Cheque Payments Without Payment Vouchers

Paragraph 195 of the Treasury Accounting Instructions requires that cheque payment vouchers numbered sequentially should be prepared for all payments made from the bank account. Original bills or original requests for payment and other documents are supposed to be attached to the cheque payment voucher. However, examination of payment records of the Academy revealed that there were a number of cheque payments to the tune of Shs.67 million that lacked payment vouchers as shown below:-

Cheque Amount (Shs) Payee 08556 30,200,000 UGA Furniture & Builders 8557 20,000,000 UGA Furniture & Builders 8759 10,988,000 Not specified 8770 6,345,000 Cash TOTAL 67,000,000

Making payments without the requisite payment vouchers was irregular and likely to promote fraud and other related malpractices.

Management explained that they had written to the bank to confirm whether the cited payments to UGA Furniture & Builders were by EFT or cash withdrawals but the bank had not responded inspite of several reminders. The firm was also contacted directly and they denied having received any of the cited payments. The officers involved were interdicted and the case was being investigated by police. I have advised Management to ensure that payment vouchers are always prepared before the cheques are signed by the Accounting Officer and to ensure that thorough investigations are undertaken.

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6.15.3 Funds not accounted for

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 whom the advance was made and that Instructions shall also be given not to give a new advance to anybody with unsettled advance. It was noted that Shs.91,098,479advanced to various staff of the Academy for payment of subsistence allowances, purchase of stationery for course instructors, etc, remained unaccounted for at the time of audit. I was therefore unable to confirm that the funds were utilized for the intended purposes.

I have advised Management to follow up the above advances and ensure that they are properly accounted for.

6.15.4 Failure to Update the Fixed Assets Register

Treasury Accounting Instructions (TAIs) require that an entity‘s Fixed Assets Register (FAR) should contain the asset number, date of acquisition, asset description, original cost, accumulated depreciation, depreciation rates, and current year‘s depreciation charge, date of sale and location of the asset. A Fixed Assets Register is maintained to track acquisitions, disposals and general safety of the fixed assets. However, a review of the fixed assets register maintained at the Academy revealed the following:-

The FAR did not show the cost, accumulated depreciation, depreciation charges and current year‘s depreciation charge. It was also noted that the six recently acquired Aero planes, operated and maintained by the Academy were not posted in the Fixed Assets Register:- Absence of complete information in the fixed assets register does not allow for effective management and monitoring of the assets of the Academy.

Management explained that the fixed asset register had not been updated due to lack of adequate staff. I have advised Management to maintain a complete fixed assets register in accordance with the requirements of the Treasury Accounting Instructions.

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6.15.5 Lack of Adequate Controls on Fees Collection

A review of the schools admission system revealed that the fees structure is structured in United States Dollars but paid in Uganda Shillings at the ruling rate at the time of payment. For instance the Commercial Pilot License with Multi–Engine Rating and Instrument Rating (CPL/IR/ME) course costs Us$.18,000 paid in instalments as follows; 1st Instalment before enrolment US$ 4,000, 2nd Instalment after the initial 60 flying hours US$ 3,000, 3rd Instalment at 115 flying hours US$ 2,750, 4th Instalment at 145 flying hours US$ 2,750, 5th Instalment at 175 flying hours US$ 2,750, 6th Instalment at 190 flying hours US$ 2,750.

However, a review of a sample of receipt numbers from 551 to 587 revealed the following:-

The Academy management did not issue official fees bills to students at each stage of instalment. Each student paid any amount of Uganda Shillings in the Bank without considering the amount of United States Dollars at each stage of the instalment. This made it difficult to reconcile with the fees structure and computing what was outstanding for each student. Students were issued with receipts basing on the Bank paying slips and the Bank statements without considering the exchange rates to convert the Uganda shillings paid in the bank by the students to the required amounts in the United States Dollars.

There is a risk that students were not paying the whole amount of the school fees since the exchange rates were not taken into consideration.

Management explained that the following controls had been introduced:- A system of billing students was introduced with the use of students‘ register capturing all payment details for each student and opened a USD bank account for fees collection.

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Serialised official receipts were being issued to students to form the basis of posting the cash book.

I have advised Management to Introduce a system of billing students before they pay in the bank or be able to convert the amount of Uganda Shillings paid in the Bank to the United States Dollars. In addition, management should design and print bank paying-in slips that indicate the amount of instalment being paid and the ruling exchange rate at the time of payment.

6.15.6 Inadequate posting of the cash book

Records availed indicated that the Academy maintains one bank account number 014/00/502487/01 in Stanbic Bank. The bank account is used for the funds received from Ministry of Works and Transport and the fees collected from students. A review of the cash book maintained by the Academy for the period 01/07/2011 to 30/06/2012 revealed the following:-

During the period, the cash book was posted basing on the deposit (credit) entries on the Bank statements and not using official receipts of the Academy. Only one receipt book from serial number 551 to 587 was availed for review and the total amount collected and posted to the Cash Book was only Shs.168,738,468 while the total amount deposited in the bank (as per Bank statements) totalled to Shs.721,202,421, an indication that all revenue was not receipted. The correction of errors and mistakes was done by white-washing, which made it hard to trace the errors that were corrected. Management of the Academy did not carry out monthly bank reconciliations. This could be the reason why revenue banked directly and not posted to the cashbook was never detected.

Due to the above weaknesses in book keeping, I was unable to ascertain the amount of revenue that was collected during the period. This loophole could be used to misappropriate revenues collected.

Management confirmed that at the time of the audit, postings to cashbook were based on deposits from the bank statements rather than the receipts, but that this

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had since ceased and all postings to the cash book were based on receipts issued. I have advised Management to improve the book keeping practices at the Academy by strengthening the supervision of the accounts section. The cash book should posted using receipts other than the bank statement and regular bank reconciliations should also be undertaken and supervised by a senior staff.

6.15.7 Inadequate students’ information

Audit noted that the offices of the Director and that of the Accountant had no information on the following:-

The number of students that had been admitted to the school for at least the past two years. The list of the students that had paid and those that had not paid for at least the past two years. The number of students that were currently in the School on each course offered since each course had different rates of school fees charged. The number of students sponsored by Government and how much money (unpaid fees) was outstanding for these students. For example, a letter written by the Ag. Director on 16/08/2012 demanded for paymentof Us$.330,320 for twenty one students whose details were not availed by the management of Academy. A review of the receipts revealed that receipt Number 575 was issued by the Academy to United Nations Support Office for paying Shs.59,125,000 on 07/06/2012 for students‘ accommodation, meals, classrooms, transport and medical expenses but there was no information about the fees paid by the respective students. The review of the Bank Statements revealed that the Ministry of Defence paid Shs.100,953,040 to the Academy on 13/06/2012 but there was no evidence that an official receipt was issued to Ministry.There was no document indicating the number of students that were being paid for and for which level of training.

Management explained that a proper students‘ register had been put in place showing the students‘ bio data, course and the fees payment details. The students‘

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register was being up dated weekly and managed by the Accountant for regular invoicing of students for their respective fees-payments.

I have advised Management to; Streamlinethe admission and registration of students in the Academy. Ensure that proper records are kept and maintained at each level of management for reconciliation and follow purposes. Undertake a proper investigation of payments made by all students who have been awarded certificates in the recent past.

6.16 Technical (Engineering) Audit of Road/Bridge Contracts implemented by MoWT

During the year, I also undertook an engineering audit of various road and bridge civil works contracts implemented by the ministry. The objectives of the engineering audit were:- i) To evaluate whether the procurement processes for the selected road and bridge contracts were conducted in accordance with the Public Procurement and Disposal of Public Assets (PPDA) Act; ii) To evaluate the existence and effectiveness of internal controls, which are needed for sound contract management and engineering principles and practices; iii) To obtain reasonable assurance, that the works were actually done with reasonable quality in accordance with the agreed specifications, sound engineering principles, practices and technical management policies;

A total of nine road and bridge contracts were selected and audited. One road contract and two bridges contracts were selected for follow up of the implementation of the previous audit recommendations; two road contracts were being implemented under the Urban Roads Resealing Project; two new bridge contracts under the Ministry‘s interconnectivity programme; and two bridge/road contracts under the Social Infrastructure Development for promoting return and resettlement of internally displaced persons in northern Uganda.

A separate report was issued containing the detailed findings. A summary of the key findings is presented here below:-

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6.16.1 Irregular Payments and Non deduction of Liquidated Damages (Shs.879,923,389 & USD4,188)

It was noted that claims were made and payments effected for works that had not been executed (Shs.506,932,825 and Us$.4,188), works lacking supporting documents (Shs.54,234,960), and liquidated damages on delayed projects that were not charged (Shs.318,755,604). These payments are irregular and reflect weaknesses in the contract management and supervision. There is a risk of the Ministry incurring financial loss in the event of the contractors failing to complete and abandoning the works.

Management explained that a total of Shs.325,625,000 had been recovered and the balance of Shs.554,298,389 would be recovered through works and penalties. I have advised the Accounting Officer to ensure that the balance is recovered from the affected projects and appropriate action taken against those responsible. The Ministry should also instruct the supervising consultants not to certify payments for works not executed.

6.16.2 Poor Maintenance of Procurement Records

It was observed that the Ministry procurement records were poorly maintained rendering retrieval of relevant procurement records for some contracts difficult. For instance, no records for the procurement of the contractor for construction of Alla2 Bridge were availed to the auditors for review.

The Accounting Officer explained that the procurement documents for Alla2 Bridge could not be obtained as the PDU was under investigation during the audit limiting access to the required documents. The Procurement and Disposal Unit (PDU) of the Ministry should always ensure that records are properly kept and availed at request by the various government institutions.

6.16.3 Quality of works

Overall, the quality of the works for the projects audited ranged from good to fair compared to the previous year where it ranged from good to very poor. However, in some cases works were found to be substandard. For example, with regard to Bwanda Convent road works, some of the installed culverts had settled differentially while others had cracks; there was use of substandard aggregates for construction 153

of Alla2 Bridge and poor surface finish for concrete works on Mwikaye, Mayenze and Lukale bridges. It was also noted that materials used in the construction were not tested to confirm that they met the desired specifications.

The Ministry should put in place sound quality control mechanism, to ensure that the quality of works achieves value for money. Contractors who persistently perform substandard work should be recommended to PPDA for appropriate action. The accounting Officer explained that the shortfalls in the quality of works for on- going works would be corrected.

6.16.4 Poor Implementation of Social Safeguards on Projects

It was observed that for a number of projects audited, road safety issues were not considered a priority during execution of works;

For example, the rehabilitation of Bwanda Convent road, construction of Alla2 bridge and construction works for projects for social infrastructure development packages 2 had either inadequate or no traffic warning signs erected yet works were on-going. This poses a high risk of accidents to road users especially those who use the roads for the first time. It was further noted that Occupation Health and Safety (OHS) matters for a number of projects, were not adequately addressed. For example, workers on construction works relating to projects for social infrastructure development packages 2 were found in slippers instead of gumboots. Furthermore, environmental requirements for road works such as restoration of gravel borrow areas were not addressed for some of the projects audited. These social safeguards if neglected pose adverse effects to the environment and the population. The Accounting Officer explained that in some cases there was laxity in enforcement of road safety measures during execution of works. He promised to have the OHS issues and environmental mitigation measures enforced. It is recommended that social safeguard measures be enforced on all projects and in future project designs and bills of quantities should incorporate such measures to prevent, minimize and mitigate potential adverse environmental and social effects of projects. The Accounting Officer should also devise sensitisation forums to make the workers aware of their rights and demand for OHS to be implemented. 154

6.16.5 Delayed Completion of Works

Works on eight (8) out of the nine (9) contracts audited were still on-going even when the contractual durations of projects had expired. No official Extension of Time (EoT) had been awarded to the contractors. It was also observed that most of these (contractors) do not deserve extension as the delays are due to nonperformance. Some contractors had abandoned the works and no action had been taken to invoke the contract agreement provisions for termination in accordance with PPDA regulations. For example, construction of Alla2 bridge works had delayed by over 18 months at the time of audit (November, 2012). Construction of Kaguta Bridge had stalled by the time of the previous audit and the status quo remained the same one year later. There are also considerable delays in implementation of the Urban Resealing Projects which stems from the fact that Memoranda of Understanding between the beneficiary entities and the Ministry do not specify works start and completion dates.

Delays in contract implementation lead to increased project costs associated with management, monitoring and supervision yet such costs are sometimes avoidable.

The Accounting Officer should take stock and review the implementation of all delayed projects with a view of taking decisive measures to either terminate the contracts or ensure their completion without further delay.

6.16.6 Non-renewal of Expired Performance Securities on Running Contracts

It was observed that by the time of audit performance securities for three (3) of the seven (7) contracts had expired by more than one year yet the works were still on- going. For instance, the performance security for Rehabilitation of Lokichar- Turtuko-Nyakwae Road expired on 20th November 2010, which was 2 years by the time of Audit, November 2012. This has put the project at a risk of loss of public funds in the event of failure by the contractor to perform in accordance with the contract.

The Accounting Officer should pursue the renewal of theses expired performance securities to mitigate the risk of loss of public funds. The Accounting Officer should also ensure that in future the renewal of the performance bonds is enforced within two or three months of their expiry due dates.

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The Accounting Officer explained that the expired performance securities were being renewed and promised that in future the Ministry will include in the special conditions of contract a clause to the effect that performance bonds will only expire 28 days after issuance of a completion certificate.

6.16.7 Slow Progress in Implementation of Previous Audit Recommendations

Three projects: Construction of Okokor Bridge, Construction of Kaguta Bridge and Rehabilitation of Lokichar-Turtuko-Nyakwae Road were selected for follow up to assess the status of implementation of the previous audit recommendations. It was, however, observed that there was minimal progress made and the contracts had stalled save for Okokor Bridge where there was evidence of fresh works being executed by the contractor. Works that had been executed previously were found to have been washed away e.g. gravel on Lokichar-Turtuko had been washed away. Failure to have the works completed timely will result into further loss of public funds.

The Accounting Officer explained that: for Okokor Bridge, works had picked up and was progressing well; for Kaguta bridge, physical progress was hampered by flooding, but had picked up; while the contract for the rehabilitation of Lokichar- Turtuko-Nyakwae was under termination. The Accounting Officer should ensure that on-going works are completed without further delay.

6.16.8 Supervision and Contracts Management

The supervision of the works was done by MoWT, in-house staff, except for the two contracts under the Social Infrastructure Development for promoting return and resettlement of internally displaced persons in northern Uganda, which were supervised by M/s Joint Venture of Oriental Consultants Co. Ltd and Eight Japan Engineering Consultants Inc. There was a remarkable difference in quality of works supervised by MoWT and those supervised by the Consultants. Generally, the Contracts that were funded by JICS and had Consultants supervising them were better implemented. In case of those supervised by MOWT, in-house staff, progress reports were not being prepared regularly as required and the few that were availed did not capture key project aspects, such as: percentage of works executed, resources available on site, financial progress, statements on quality control tests

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and record of site meetings. This was more pronounced for Okokor Bridge works, Alla2 Bridge works and the Urban Resealing Project. In some cases, the Ministry had engaged District Engineers within the project jurisdictions without adequately facilitating them to undertake day to day supervision.

Generally, the Ministry has limited capacity to supervise and manage such contracts and at the same time undertake its core functions. The Accounting Officer should ensure that projects are regularly supervised and contract management documentation properly maintained.

The Accounting Officer explained that new contract managers had been appointed and quality assurances procedures strengthened.

6.16.9 Summaries of Key Findings per Road/Bridge Contract

S/N Road Contract / Key findings Contractor / Amount 1. Rehabilitation of Lokichar - This road contract is a follow-up audit. Turtuko - Nyakwae Road (50.08Km) & Construction Uncharged liquidated damages of Shs.230,901,830. of Nyakwae Bridge (21m Span) by M/s Omega The Performance Security expired on 20/11/2010 and Construction Ltd at has not been renewed to-date. Shs.4,841,766,500. Out of Shs.449,666,875 that was paid to the contractor

for unexecuted works that included culverts and had not been recovered as recommended in the previous audit report; however, the contractor has laid 9 culvert lines reducing the recoverable amount to Shs.346,157,825.

Funds amounting to Shs.514,297,953 requested by the Ministry from EU was for works already done and paid for but failed. The failed works should have been reinstated by the contractor at own cost and therefore the extra funds should not have been requested.

Sections of the road identified to be good in the previous audit had deteriorated and inaccessible due to excavated and abandoned culvert channels on the road. Most of the gravel has been washed away by running water because of the blocked side drains. The road is also overgrown with grass due to lack of maintenance.

Bridgeworks had stalled remained the same as reported in the previous audit.

2. Construction of 1.0km of Alleged Contracts Committee approvals for sourcing fuel Tarmac in Kapchorwa and lubricants from any station in Kapchorwa after no Town Council by Force bids were received. The approval of Contracts 157

Account estimated at Committee was not availed. Ushs.642,576,000. The Memorandum of Understanding (MoU) between Kapchorwa Town Council (TC) does not stipulate the starting date for the works as well as duration of the project; some specifications for works like the spread rate for stone aggregates are missing.

Quantities of bitumen, aggregates and stone dust procured for the works are excessively higher than the area planned to be covered i.e. by 12%, 35% and 133% respectively.

Works were on-going (equipment and materials well mobilised).

1st and 2nd seal aggregates were poorly graded and likely to result into surface bleeding, ravelling, faster wearing off of tyres, noisy movements and more material requirements for blending and filling gaps.

Quantities of materials procured were verified to be on site.

The progress reports do not capture key projects aspects like the percentage of works executed, resources available on site, financial progress, statements on quality control tests and records of site meetings.

3. Rehabilitation of SikaMidali- Procurement of fuel was through Standard Chartered Bwanda Convent Road in Bank issued fuel card for various projects without being Masaka by Force Account project specific. estimated at Ushs.838,636,826. Shs.444,380,600 spent on various activities as per memo date 26th April 2011 lacked expenditure details.

The completed section of the road was mostly in good condition except for localised stripping and potholes at a few location e.g. at ch.0+733, 1+067, 1+803, 2+104, 2+181, 2+265.

A section at Ch.0+277 which had been prepared and ready to receive the 1st seal coat was left unsealed for a long period subjecting it to traffic use and had deteriorated.

There were no head and wing walls on the culvert lines installed and there was no evidence of unclogging of culverts.

Some culvert lines had settled differentially e.g. at Ch.0+943 while some other culverts had cracks e.g. at ch.0+648; other culvert pipes were poorly aligned and

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not jointed during installation.

Borrow pits for gravel and fill materials were not reinstated as per environmental requirements.

There were no warning sign boards to alert the road users about the on-going works on the road posing a high risk of accidents to the road users.

The base course met the specified strength requirements for the Dynamic Cone Penetrometer (DCP) test conducted.

4,366m3 of gravel was not justified in the design as fill in the low spots.

Notable weak supervision of works due to defective works observed and lack of progress reports.

4. Construction of The contract was previously audited and a follow-up OkokorBridge in Kumi audit was done. District by M/s MML Road Construction Co. Ltd at Measures were taken to correct the shoddy works as Shs. 400,037,000. were reported in the previous audit report. The abutment wall and the two piers that had been constructed with poor concrete were demolished and were being constructed anew.

The Contractor undertook to complete the bridge works in 40-45 days from 5th December 2011 and again on 11th January 2012 in 2.5 months but both targets were not achieved. It is doubtful whether the Contractor shall ever complete works on this bridge.

Test conducted by Jinja Regional Laboratory on concrete cubes showed compressive strength of 36.9MPa which is an indication of good strength on assumption the curing on site was adequately done. It is however not clear why the contractor opted to use Jinja laboratory instead of Mbale which is closer to the site.

Material on site i.e. aggregates, sand stockpiles looked good however there were no test results on file to confirm that they met the specifications.

Shs.12,800,000 is outstanding as payment for unexecuted works.

The District Engineer (DE) Kumi has been assigned to supervise the works but is reported to have left Kumi. It is not clear whether the works will be properly supervised.

5. Construction of Kaguta This is a follow-up audit project. Bridge in Lira District by 159

M/s Coil (U) Ltd at In the previous audit report, the Contractor had delayed Shs.1,421,849,000. commencement of permanent works due to inadequate designs and the status remained the same.

There is a pending Interim Payment Certificate (IPC) No.1 constituting general items for excavation of water diversion and construction of a cofferdam which are part of variations not approved; the status of the variations was not clear.

The site was flooded at the time of field visit; no permanent works had been executed.

No project status or progress reports in place so as to identify the problems facing implementation of the works.

6. Construction of Mwikaye, Inconsistencies in the dates of Contract Agreement Mayenze and Lukale Signature i.e. Client signed on 15th December 2010 Bridges in Manafwa District while witnesses had signed on 3rd and 7th December by M/s Marvel Contractors earlier than the Client. and Road Maintenance Ltd at Shs.1,757,075,472. Certification of payments without supporting documents i.e. IPC No.3 did not have measurements sheets to support the quantities paid which is contrary to PPDA regulations 236(5) and 256(5).

Delayed completion of works without official EoT and without charging liquidated damages amounting to Shs.87,853,774 and without invoking the termination clause as from 23rd January 2012.

No evidence of renewal of the performance guarantee.

Specified use of gravel as fill and sub-grade material but applied sandy and clayey material contrary to contract specifications.

Poor surface finish for the concrete works.

Material applied for wearing course on approach roads failed CBR, Shrinkage and PI requirements and thus is not suitable.

Shs.139,725,000 paid as of IPC No.3 for unexecuted works and inflated quantities (packed riprap, guardrails, porous filter material and concrete works).

Weak supervision especially for lack of control of quality and cost due to irregular payments.

7. Construction of Alla 2 Delayed completion of works by over 18 months. Bridge in Arua District by M/s PEARL SHELTER Maximum liquidated damages worth Shs.35,805,550 PROMOTERS (U) Ltd at were charged from the contractor on IPC No.2 of 13th 160

Shs.716,111,000. June 2011 but the termination process has never been initiated as required by the contract. However, IPC No.3 was not availed for review so as to confirm that the liquidated damages were actually charged.

No evidence of renewal of performance bond after a valid one expired on 15th August 2011.

Procurement records were poorly kept and evaluated bids were not availed.

Used poorly graded and oversize aggregates which can result into concrete blisters.

The concrete cover was less than the minimum of 40- 50mm in a number of cases thus increasing the chances of steel corrosion and spalling defect which may impair the strength or serviceability of the bridge.

Poor workmanship on placing concrete leading to honey combing in some areas.

Poor formwork leading to poor surface finishes.

Lack of traffic warning signs on both sides approaches to the bridge site.

Rebound hammer tests on substructure components indicated the design strength of C30 was achieved.

Shs.300,000 was spent on HIV/AIDs and STD prevention/counseling but without supportive documentation.

Shs.8,250,000 was paid for unexecuted works i.e. gabions.

Lack of control of quality and cost, irregular progress reporting and site meetings reveal weak supervision.

8. Construction works for the Worked on four of the six programme sections (roads Project for social and bridges). Infrastructure Development for promoting Return and Progress reports did not include information on Resettlement of Internally contractor‘s staffing, tests conducted during the period Displaced Persons in the and weather records. Republic of Uganda (Package 1) by M/s Spencon Services Limited IPCs printed in tiny font sizes thus not (easily) readable. at USD.8,698,593.26 One of the weep holes on AyagoBridge was damaged.

The bridge warning sign at Atiabar was placed in a location that is blocked by a billboard indicating change of driving sides at the Sudan-Uganda border.

Tests conducted on bridge components revealed that 161

the design strength of C30 was achieved.

USD.4,188.03 was paid for unexecuted gabion boxes.

The supervision arrangements were good.

9. Construction works for the Worked on two of the six programme sections (roads Project for social and bridges). Infrastructure Development for promoting Return and Delayed completion of works (by 29 days as of 30th Resettlement of Internally August 2012). Displaced Persons in the Republic of Uganda Progress reports did not include information on (Package 2) by M/s Multiplex Ltd – Pearl contractor‘s staffing, tests conducted during the period Engineering Company Ltd and weather records. Joint Venture at USD.2,923,441. IPCs printed in tiny font sizes thus not (easily) readable.

Visually quality of the concrete works was good for both sites.

Occupation Health and Safety aspects were adhered to save for Otaka site where a few of the workers were in slippers instead of boots.

There were inadequate traffic warning signs for the Arainga site which undermined the road safety requirements.

Tests conducted on bridge components revealed that the design strength of C30 was achieved.

The supervision arrangements were good.

6.17 EAST AFRICA TRADE AND TRANSPORT FACILITATION PROJECT (EATTFP) (a) Unreleased funds A review of the budget execution for the period under review revealed that the Project received only Shs.6,912,531,767 out of the expected total of Shs.27.66billion from IDA and the Government of Uganda (GoU).It was noted that the total disbursement is still about 33%. The slow disbursements were attributed to the delayed implementation of the key sub-components whose value constitutes over 76% of the project. This implies that the planned activities such as construction of the border posts atMalaba, Busia, Mutukula, Katuna and the proposed ICD facility at Mukono are not being implemented on schedule.

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Management explained that the low absorption of funds had been caused by delayed procurement. However, a procurement specialist has been recruited to expedite procurement activities. Management further committed itself to continue to liaise with the different stakeholders to ensure that all planned activities of the project are implemented expeditiously.

I have advised management to fast track the implementation of the outstanding activities within the remaining project time to avoid extra costs associated with project extensions.

(b) Acquisition of Land for the project According to the financial statementsland worth Shs.5,165,195,167 had been acquired by the end of the financial year 2010/11. During the year under review, additional land worth Shs.413,999,940 wasalso acquired. However, it was noted that the titles of ownership had not been transferred from original land owners to Government.

In addition, land compensations for the respective former owners have not been completed ascompensations worth Shs.300,780,000 for Mutukula border and Shs.368,759,090 for Katuna border, are still outstanding. These outstanding issues are likely to affect the implementation of the project.

Management explained that the process of acquiring titles will commence as soon as compensation is completed.

I advised management to expedite the process of acquiring the titles in order to avoid disputes that may arise in future.

(c) Contract to Rehabilitate and upgrade the URC Wagon Ferry, MV- Kahwa and the floating dock A contract to rehabilitate and upgrade the URC Wagon Ferry MV Kahwa and the floating dock, was signed on 4th October 2010 between the Ministry of works and Transport and Southern Engineering Company Ltd. The employer agreed to pay US$3,019,999.4 (United States Dollars Three Million Nineteen Thousand Nine Hundred Ninety Nine and four cents) and Shs.329,757,670 (Uganda shillings three 163

hundred twenty nine million seven hundred fifty seven thousand six hundred and seven only). The contract agreement included procurement of equipment from any European and Asian country at US$1,798,000.40 for which the Ministry issued an irrevocable letter of credit.

The contractor was to design, manufacture, test, deliver, install, complete and commission certain facilities vis MV Kaawa and the floating dock.

The terms of payments were specified as follows: 5% advance payment of the total CIP amount upon receipt of an invoice and an irrevocable advance payment security for the equivalent amount to be made in favour of the employer. 80% of the total prorate of the total CIP amount upon incoterm ―CIP‖, upon delivery to the carrier within 45 days after receipt of invoice and documents: namely copies of suppliers invoice, bill of lading, on negotiable bill of lading packing list insurance certificate, manufactures or suppliers warranty certificate, inspection certificate and suppliers factory inspection report and certificate of origin. 5% on issue of completion certificate 5% upon issue of operational certificate.

A review of the letter of credit revealed the following:

(i) Outstanding balance of USD 250,561.22 It was noted that out of the LC of US$1,798,000.4, BOU cleared items worth US$1,547,439.18 leaving a balance of US$ 250,561.22 unpaid (being an outstanding amount on the LC which expired before completing the whole amount.) This amount was not disclosed in the project final accounts.

Management explained that the amount was returned directly to the bank but the evidence to support the remittance was not availed to me for audit.

(ii) Undelivered mandatory spares-USD 35,596.00 According to the contract document, schedule 1 part E, an Engineering Company was required to deliver the original caterpillar and mandatory spares. However, 164

reconciliation of delivered spares and the schedule of mandatory spares revealed that spares worth USD 35,596 had not been delivered.

Management explained that the items are to be delivered during the defects liability period which is still running up to 31st August, 2013.

Management was advised to ensure that the spare parts are delivered by the contract in accordance with the terms of the contract.

(d) Delayed construction of border posts The AIDE MEMOIRE, Progress reports, and various correspondences indicate that there was generally delay in the implementation of the project especially the component of construction of border posts which comprises the biggest share on the budget. This has resulted into a delay in disbursement of IDA funds and slow implementation of planned activities. This is also likely to result into time overruns for the project implementation.

Management attributed the delays to challenges that previously existed within the procurement unit of the Ministry and explained that works were expected to commence in January 2013. However, given the nature of the works involved (technical in nature), completion within the remaining project period may not be feasible.

7.0 UGANDA NATIONAL ROADS AUTHORITY

7.1 Land Capitalised – shs.42,367,522,022 According to the Statement of Financial Position under IFMS, Shs.42,367,522,022 is reported as the value of Land. This is comprises of land that was paid for by the Authority through compensations for road constructions for the financial years 2010/11 and 2011/12. This figure therefore excludes the value of land the Authority has paid for, on the various road projects across the Country over the prior years and is thus grossly understated.Besides, it was not possible to confirm ownership and existence of this land considering that the land titles were not availed for audit.

Management explained that when UNRA started operations in July 2008, it inherited 11,000km of National Roads from the Ministry of Works and Transport, which was 165

later increased to 21,000km. When assets formerly under the MoWT were passed on to UNRA, Roads and land for the road reserve were not handed over to UNRA, remaining vested in the Ministry. The Ministry indicated the need to first secure cadastral maps and deed plans for the roads and stations so that they pass over land and roads properly valued. Therefore, the road reserves, roads and UNRA stations remain vested in the Ministry of Works and Transport until deed plans are secured for them. The process of acquiring title is ongoing on different roads and professional valuation shall be done once the funds are secured. Management further explained that the Land Payments during the Financial Years 2008/09 and 2009/10 were not capitalized. I have advised the Accounting Officer to expedite the above processes accordingly.

7.2 Outstanding Payables - Shs.247,538,141,827 A total of Shs.247,538,141,827 was reported by the Authority, as outstanding payables as at 30th June 2012. It was noted that the payables figure increased from Shs.148,042,066,128 as at 30th June 2011 representing 67% increment as a result of new outstanding commitments incurred during the year. The bulk of this amount comprises of unpaid contractors certificates by the year end. The accumulation of outstanding commitments could result into higher costs in terms of interest and litigations by suppliers and contractors.

Management explained that the Contractors‘ performance follow work programmes indicated in their bids and agreed upon at the time of contract negotiation. Their performance may therefore not be directly linked to budgetary provisions in a financial year. Once a project is launched, it is the interest of UNRA to push the contractor to deliver the project within the contractual period. Unfortunately, the rate at which the works were completed and certified surpassed the amount of money released to settle these certificates. I have advised Management to liaise with Ministry of Finance Planning and Economic Development over this matter and also ensure that there is proper cash flow planning that matches the rate at which works are completed and certified.

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7.3 Theft of UNRA funds – Shs.173,701,010 Review of documentation at UNRA showed that on 20th February, 2012, Shs.173,701,010 was processed for payment in respect of invoices of a contractor. However the money was diverted to a bank account that had been fraudulently opened in ABC Capital Bank purportedly in the names of the contractor. Audit noted that UNRA does not have a strong internal control procedure of tying bank accounts to the suppliers.

Management explained that the staff who had been assigned to manage invoice processing misused his position and used genuine invoices but re-directed the payment to the fraudulent bank account. The money had been partially withdrawn by the staff with the aid of bank staff before the fraud was discovered. The staff was arrested and at the time of audit, the matter was still under investigation by the Police. I advised Management to pursue the case to ensure the funds are recovered. I have also advised them to institute internal controls aimed at proper management of paid and unpaid invoices.

7.4 Outstanding Deliveries Under Letters of Credit (LC) - Us$.53,313.90 During the year under review, UNRA entered into an agreement with a contractor, for supply and delivery of ground engaging tools in three lots and opened LCs as follows:- Lot Particulars Amount LC Account Lot 1 Motor grader cutting edges - UNRA Us$.177,713 110921SM 110921AC /SUPPLIES/2009-10/00013/01/01 (shs.509,071,689) 2324UG 6731UG Lot 2 Caterpillar motor grader mould Us$.17,897 110921SM 110921AC board end bits and scarifier parts – (shs.51,334,693) 2322 6729 UNRA/ SUPPLIES/2009- 10/00013/01/02 Lot 3 Komatsu motor grader mould board Us$.30,783 110921SM 110921AC end bits and scarifiers – (shs.88,499,903) 2323UG 6730 UNRA/SUPPLIES/2009- 10/00013/01/02

Audit noted that LC no.110921SM2324UG for the supply of ground engaging tools- lot 1 for US$.177,713.00 was due by 30/08/2012. However, the supplier made partial deliveries valued at 58% of the contract price amounting to US$.102,643.10 leaving the balance (42%) worth US$.53,313.90 undelivered. It was also noted that

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by the time of audit in April 2013 (one and half years later) the LC was still outstanding and no action had been taken by UNRA; besides there was no roadmap to show when the remaining deliveries would be made. There is a risk that the remaining items may not be delivered by the supplier.

Management explained that the provider lost one of the three containers carrying UNRA consignments at the Port of Mombasa, Kenya. This delayed the supplies of the remaining quantities of cutting edges, bolts and nuts because the supplier filed a case for the loss against Kenya Revenue Authority, Kenya Ports Authority and the Shippers which was decided in his favour on 31st May 2013. Management further stated they would fully impose the liquidated damages provision on Lot 1 when full delivery was made. I have advised management to follow up with the firm and ensure that the remaining part of the contract is delivered.

7.5 Limitations of Pastel and IFMS in Accounting Requirements of UNRA As reported in the previous report, UNRA uses the Pastel Partner 2007 version for recording its financial transactions and reporting. This system is used in parallel with the Government‘s Integrated Financial Management System (IFMS). The continued use of the pastel accounting systems is attributed to the fact that UNRA receives funding from multiple sources that are not currently possible to be accommodated on the IFMS. Among the several shortcomings identified included the following:- Limitation on the number of digits that that can be posted i.e. maximum 10 digits. The System had not undergone any further customization to accommodate the GoU reporting requirements. The payments have to be posted manually following completion of manual processes outside the system. All IFMS payments are manually uploaded to the Pastel System with different coding and retranslated to the standard reports. Postings and entries on the Pastel System do not require different approval levels based on the hierarchy of the organization. The password strength was also noted to be weak.

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Although the Oracle software that is used in the IFMS has full accrual principles, the entities on full accrual have not been catered for as the system was fully customized to cater for only ―Modified‖ cash contrary to the IPSAS requirements.

Although the Accounting Officer had promised that UNRA was to upgrade to the newer version of Pastel called Pastel Evolution to address the short comings, to- date, the Authority is still using the old system. The continued use of the two systems in parallel does not only lead to duplication of resources but could also compromise data integrity.

Management explained that the Accountant General needed to allow UNRA to run the accruals accounting system on the IFMS in line with IPSAS and also to cater for funds received from Development Partners and Uganda Road Fund (URF) for road maintenance. I have advised Management to liaise with the Accountant General in order to have this matter addressed.

7.6 Civil Works/Constructions 7.6.1 Basis of Variation of Price (VOP) on Kampala-Mbarara road (GOU/HW/C003) During pre-contract negotiations, the contractor proposed base values and sources of indices to be used in the calculation of VOP for price adjustments that were accepted by UNRA. It was noted that prices were used as bases for cement which were subsequently used in the VOP calculations.

However, a review of a sample of 7 IPCs totalling to Euros.19,329,617.44 revealed that the bases for determining the current value to come up with the ratio, was pro-forma invoices instead of either invoices or actual receipts. This was not an appropriate determinant for the current values considering that the prices could have been inflated.

Management explained that the Authority had written to the Suppliers of the materials to provide their average monthly bulk supply prices, which when received would be compared with the pro-forma invoices and adjustments made where necessary. I have advised management to ensure that variations are made based

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on actual receipts or proper indices as established by the Uganda Bureau of Statistics.

7.6.2 Discrepancies in the EDF/EU Payments Ledger It was noted that UNRA maintains an EDF ledger which is posted when certificates are received and corresponding entries passed upon submission to the National Authorizing Officer (NAO) before communication confirming payment is obtained from both EU and/or the NAO. The following discrepancies were noted:- There were no payment advices from EDF for Certificates paid which should have acted as the basis of recognizing payments in the UNRA books of account (pastel). The EDF ledger balances could not be confirmed without advices/statements from EDF for the payments effected.

There were inconsistencies in posting of transactions to the ledger. For instance Interim Payment Certificate (IPC) 19 worth Shs.17,566,083,206.21 was posted as paid on 3rd September 2011 whereas its invoice was posted on 26th September 2011 indicating that the payment was made before receipt of the invoice.

There were instances where the amounts posted did not tally with the invoice amounts. For instance IPC 20 for Shs.12,911,579,462.37 was posted as Shs.14,720,596,884.44 on 13th November 2011 causing a difference of Shs.1,809,017,422.

In their response, management explained that UNRA has had challenges of obtaining payment advices from the EDF which at times leads to discrepancies between the amounts posted and what is actually paid by NAO. I advised Management to ensure that entries to the ledgers are backed by advices from EDF/NAO confirming payments to the contractors. In addition, management should put in place proper supervisory controls to ensure that errors on the ledgers are detected and corrected promptly.

7.6.3 Delays in Completion of Works and Cost Overruns A review of the project files from 2008 to 2012 revealed that UNRA spent Shs.150,761,999,999 and Euros.38,406,000 to pay for costs of financing the

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various road construction and maintenance projects as a result of revision of the contracts. These cost overruns were caused by delays in the implementation of the projects and revision of the works. Such revisions may point to weaknesses in the feasibility studies undertaken or even weaknesses in contract administration by the Authority which in turn leads to such huge cost overruns.

In their response, Management attributed the delays to the following:-

necessary changes in quantities to optimise designs; Passage of time between design and implementation which has an impact on Costs of utility services infrastructure given that utility firms continuously upgrade this infrastructure with time; increased demand for frontage access as a result of new developments and enhanced treatment of trading centres to provide road safety; the nature of our land tenure system coupled with lack of proper physical planning where an individual owning land along a highway can build a house with a frontage on the highway and will demand for access directly onto the highway; change in policy i.e. constructing double surfaced shoulders instead of single surfaced shoulders, constructing 900mm diameter cross culverts instead of 600mm ones and installing service ducts at trading centres to minimise digging up new pavements in the future for installation of new utility services.

I advised Management to ensure that proper feasibility studies are undertaken and project implementation timelines are adhered to, in order to minimise such overruns.

7.7 Road Maintenance Funds Maintenance of National roads is financed by Uganda Road Fund (URF) which releases Funds to UNRA on a quarterly basis. Review of releases of funds and the respective maintenance work-plans revealed the following:-

7.7.1 Excess Payment on IPC 3 for Asphalt Overlay on Kawempe-Kafu Road, UNRA/WORKS/2009-10/00001/03/01 It was noted that Shs.1,763,846,754 was paid to Energo Projekt IPC No.3 in respect of a local component for the construction of Asphalt Overlay on Kawempe – 171

Kafu Road (166kms). It was noted that there was an excess amount in the provisional sum of Shs.61,877,583. The excess amount was due to a misstatement of provisional sums for item B14.01 and item 14.10 costing Shs.24,836,750 and Shs.5,574,400 respectively which were overstated to show a total of Shs.92,288,733 instead of Shs.30,411,150. Although management explained that these had been recovered in subsequent IPCs, I was not availed evidence of this recovery.

I advised Management to ensure that all certificates are always cross-checked for any such errors before payment and recover the overpayment from the contractor from the subsequent payments.

7.7.2 Delayed Completion of Projects Review of the signed contracts revealed that a number of them had taken almost three years without being completed yet the time for completion was between eight and twelve months. The following are examples of delayed road works; (a) Kamwenge – Dura - Rwimi (60km) Road

The contract was signed on 20th January, 2010 and the contract was still ongoing at 47% stage of completion as at 30th June 2012. Management explained that the completion date had been set on 1st January, 2012. The cumulative payment to- date was Shs.1,513,646,501 (about 47% of the contract price of shs.3,229,947,100 and physical progress at 66%).

The contractor had secured an Insurance Bond of Shs.968,984,130 which was 30% of the Contract price as provided for under GCC 52.1 of the contract. It was however noted that the bond expired on 16th December 2010 and was not renewed until June 2013 when this matter was brought to the attention of management. Given that the firm delayed to complete the works and had not renewed the performance security, this exposes the Authority to a risk of loss without a fall-back position, in the event that the firm totally failed to complete the works. I have advised management to ensure that the Performance Securities are reviewed and renewed by the contractors in cases where contract durations extend beyond the original dates.

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(b) Kabwohe – Nsiika - Bwizibwera (50Km) The Contract was signed on 11th June, 2010 at a contract price of Shs,1,570,780,000. By 30th June 2012, the works were still on-going and the stage of completion was estimated at 65%. The total cumulative payments were Shs.1,014,147,070.

Management explained that the Contractor abandoned site in September 2011 without notice to the Project Manager and his performance security has since expired. The contractor failed to heed to the warnings of the project manager and the contract had been recommended for termination in accordance with Conditions of Contract.

Failure to complete maintenance road projects on time puts public roads into un- motorable conditions and could lead to waste of resources. I advised UNRA management improve their monitoring and supervisory mechanisms to ensure that contracts for maintenance of National Roads are completed on time.

7.7.3 Kabale-Kisoro Road Project Funds (a) Diversion US$.169,877 for Kabale-Kisoro-Bunagana Funds amounting to Shs.3,054,888,111 were transferred from the TGA to UNRA Transfers account on 29th July, 2011 vide voucher FS110728 for payment of Invoice 49F in respect of Foreign component for works done by SBI International on Kabale-Kisoro-Bunagana. It was however, noted that this was an invoice for FY 2010/11 supposed to be paid by ADB which was thereafter posted as a payment in the SBI Holdings ledger as SBI application 152 for US$.1,169,877 on 5th September 2011. It was further noted that on 20th April, 2012 ADB approved the request of US$.1,169,877 for payment however this transaction had earlier been posted as paid in the ledger on 5th September, 2011.

Review of the UNRA Forex Transfer Account revealed that the funds were not used to settle the invoice. Ideally management should not have transferred money with the knowledge that it was supposed to be paid by ADB. This could lead to possible misuse of funds.

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Management explained that ADB committed to settle the certificate after the funds had been transferred. UNRA then decided to use the funds to use the money as part payment to settle the dollar component of the advance certificate for Mbarara- Kikagati road. However, there is a risk that such mix-ups in payments and comingling of funds could lead to double payments. I have advised Management to ensure that payments for the various road projects are streamlined to avoid the mix-ups that could lead to double payments.

(b) Borrowing from Kabale-Kisoro Project A total of Shs.1,500,000,000 was transferred from Kabale-Kisoro Account to the Maintenance account on 3rd April 2012, as a borrowing to cater for maintenance activities. There was no evidence to show that the funds were refunded to the Kabale-Kisoro Account. Borrowing of funds could impact on the implementation of the project from where funds have been moved. Management explained that there were times when funds from other non URF funded projects were utilised, occasioned by delayed release of funds for maintenance activities by URF. This is done to avoid unplanned expenditure in interest payments. I have advised Management to limit the extent of inter account and project borrowings and ensure that the borrowed funds are repaid to the project account.

7.8 Lack of a Dedicated Land Compensations Account In its operations, UNRA makes compensations for many pieces of land acquired for road constructions. In many instances the payments to owners of the land are regarded as one off payments and are therefore (owners) are not created as suppliers in the payment system. However, UNRA continued to make these payments using the Kampala station bank account which also accommodates other transactions of the station. The comingling of funds meant for different activities on one account meant for the operation of the stations may result in the mix-up of these funds.

Management explained that they were going to hold discussions with the Accountant General to find a way forward. I have advised the Accounting Officer to

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consider opening a separate land compensation account to ease accounting and monitoring of land compensation funds.

7.9 Management of the EFT Transfers Account (BOU Forex Account) The Authority operates a Forex Account in Bank of Uganda to facilitate settlement of transactions denominated in foreign currencies. A review of the transactions on the account during the year revealed the following:-

7.9.1 Diversion of Funds from UNRA Transfers (Forex payments) Account All transactions on the Forex Account should be supported by prior transfers from other bank accounts where it is not possible to pay in foreign currencies. It was noted that payments amounting to Shs.24,821,784,569 were paid directly through this account without prior transfers from other bank accounts for the specific payments. This could imply that there were earlier transfers to this account which were not supported by payments but aimed at creating balances on the account and used to settle a number of other payments. This practice is irregular and is prone to abuse. It could also be intended to avoid the controls on the Integrated Financial Management System (IFMS). I have advised Management to ensure that any payments from the Forex account are supported by a relevant and specific transfer of funds from other operation bank accounts to avoid holding of funds on the Forex account.

7.9.2 Payment in Local Currency from EFT Transfers Forex Account Review of the transactions on the Forex Account during the year revealed that contrary to the purpose for which the account is operated, on a number of occasions, funds amounting to Shs.14,096,938,427 were transferred from the Treasury General Account to the UNRA Forex account where payments for invoices denominated in local currency were eventually made. The practice of making payments of local currency transactions from Forex account was irregular and could be aimed at circumventing the IFMS controls.

Management explained that the IFMS system allowed for only one UGX Account for each contractor. However UNRA has contractors who get multiple contracts under different Financing arrangements and different bank Accounts. This created difficulties when payments in local currency were being effected because the 175

particular contractors‘ bank accounts were not set up on the IFMS. These types of payments in Local currency were the ones processed through the UNRA EFT Transfers account.

I have advised Management to avoid the practice and ensure that all local currency denominated transactions are settled from the operational bank accounts. The contractors with multiple contracts requiring different bank accounts should be advised to open primary bank accounts which should be set up on the IFMS and then manage their other bank accounts on their own.

7.9.3 Excess Payments to M/S AIC Progetti - shs.127,235,202 On 11th November 2011, UNRA instructed BOU to transfer a total of EURO.9,048.67 (Shs.32,332,889) from UNRA transfers forex account to M/S AIC Progetti in respect of invoice No.7 for Katonga Bridge Design. However, details on the bank statement show that two (2) payments totalling to shs.158,978,270were made to the firm on 16th November, 2011, leading to an overpayment of shs.127,235,202. Management explained that Bank of Uganda debited the UNRA Forex account twice without UNRA instructions. UNRA wrote to Bank of Uganda for clarification on the transaction, after noting a double payment to AIC Progetti. The Consultant acknowledged the double payment and agreed to a recovery of this amount from their pending certificates with UNRA. However, there is a risk that such errors could go unnoticed. I have advised Management to ensure that the excess payment is fully recovered from the contractor.

Management explained that the matter was to be brought to the attention of the Board when constituted. I have advised Management to seek clarification from the Ministry of Public Service regarding payment of retainer fees to the Executive Director.

7.10 Statutory Deductions: Incorrect Recording of NSSF Acknowledgement Receipts During the review of remittances for social security contributions amounting to Shs.2,889,750,002 by UNRA to NSSF for the period ending 30th June 2012, it was noted that all the receipts issued were in the names of Roads Agency Formation Unit (RAFU) which was a predecessor of UNRA and a small unit under the Ministry

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of Works and Transport. It should be noted that the majority of the staff were recruited when UNRA came into existence and should not have been registered with NSSF under a non-existing organisation. This may create a legal problem in future affecting the staff/beneficiaries of the remittances.

I have advised Management to change the details under which the NSSF deductions are remitted from the defunct Road Agency Formation Unit to Uganda National roads Authority. In addition, the employees who served under RAFU should be transited to UNRA.

7.11 Review of Expenditure 7.11.1 Inter-Project Borrowings Audit noted that there were several inter–project/account borrowings during the period under review. A number of these borrowings involve donor funded projects while others are for the GoU funded projects. This practice creates a complex mix- up of funds which could result into failure to properly account for the funds and thus affecting implementation of the projects whose funds were borrowed and not refunded. It was also noted that there appears to be no formal procedure for approving such interproject borrowings. The practice could lead to misuse of funds.

In their response, Management explained that the process of reallocation of funds through the Ministry of Finance is usually slow. This situation had led management to resort to the InterProject borrowing to be able to absorb funds on the fast moving projects and avoid returning funds to the Consolidated Fund and carrying forward huge domestic arrears. I have advised management to minimise the practice of inter-project borrowings to avoid the possible mix-up in funds and also develop proper procedures to be followed in the event that such borrowings have to be made.

7.11.2 Refund to Maintenance Account from the Treasury General Account (TGA) Shs.1,207,611,863 was transferred from TGA as a refund destined for maintenance account on 18th June, 2012 in respect of funds that had been used to pay M/S Kolin-Insaat and Spencon for a works certificate on Kaiso-Tonya-Hoima Road. However, the money did not reach the maintenance account and was instead transferred to UNRA Stanbic Bank Account on 21st June, 2012. The funds were used

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to make payments other than those meant for maintenance activities such as gratuity, Board allowances, training, etc. There were no details to show that funds had earlier been borrowed from the Kaiso-Tonya road project, which was a relatively new project at the time. The transfer appears to have been intended to avoid the controls on the IFMS.

In their response, Management explained that this was a partial refund to the account, of the funds that had been used to pay IPC 1 under Hoima-Kaiso road works. The funds were transferred to the Stanbic Account because the UNRA maintenance account was not set up on the IFMS as a supplier. However, I find this explanation not satisfactory, since setting up such an account on the IFMS is a relatively simple procedure. I have advised Management to adhere to good financial management practices.

7.11.3 Irregular and Duplicated Refunds to Transport Sector Development Project (TSDP) Shs.975,957,404 (equivalent to US$.379,159 broken down into US$.354,414 and US$.24,745 for per diem) was paid out from Maintenance Account to Transport Sector Development Project (TSDP) as a refund of borrowed funds. It was noted that an earlier payment of Shs.921,476,671 (US$.354,414.22) as a refund to TSDP account had been made on 28th November 2011. There was no basis to support this refund and evidence that funds had been borrowed from the maintenance Account. Such a practice can lead to misuse of funds.

In their response, although management explained that the above double refund was done in error which was subsequently corrected, I was not availed with evidence of the correction in question, by the time of compiling this report. I have again advised Management to stop the practice of making such inter account transfers because of the resultant effect of creating a complex mix up of funds. In addition, management needs to further provide an adequate explanation regarding this transfer.

7.11.4 Non Recovery of Costs Awarded by Court In Miscellaneous Application No.601 of 2010 (arising from H.C.C.S No.377 of 2010) of Victor Construction Works Ltd (Applicant/Plaintiff) Versus Uganda National Roads Authority (Respondent/defendant), the contractor wanted to get a temporary 178

injunction to restrain UNRA from demanding an advance payment made to the applicant through its account in Eco Bank and further prohibiting UNRA from cancellation or withdrawal of advance payment guarantee security. However, UNRA successfully opposed the said application which was later dismissed with costs on 19th July 2011.

It was noted that UNRA recalled the security of Shs.121,780,000 and paid a legal firm as their advocates on the case a sum of Shs.31,388,000. However, management did not recover any costs from the applicant though the case had been dismissed with costs.

In their response, management explained that they had now instructed the UNRA legal team to follow up the matter and recover the costs awarded to UNRA. I await the outcome of this management commitment.

7.12 Unrecorded Assets in the Assets Register Transferred from MOWT Verification of the assets register revealed that on 16th March, 2012, Ministry of Works and Transport transferred a number of assets under a statutory instrument 2012 No.10 to UNRA which by virtue of the UNRA Act, 2006 were necessary for the performance of the functions of the Authority. It was noted that a number of vehicles, road construction equipment, furniture, motor spare parts, buildings and ferries, that were with of MOWT were also passed on to UNRA and its 22 stations by the same Statutory Instrument.

Although UNRA started using the assets right from July 2008 before the statutory instrument was put in place and continued to do so after getting the statutory instrument, all the assets transferred have not been included in the Authority‘s Fixed Assets Register. Under the circumstances, there is a risk of misuse of some of the assets as a result of the time lag.

Management explained that UNRA was considering procuring a consultant to revalidate physical existence and location of the assets and come up with updated values of assets before recording them in the assets register. However, I noted that this process appears to be taking long and yet the assets continue to face the risk of misuse or even loss. I have advised Management to ensure that all assets received from the Ministry are recognized in the assets register as a matter of

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urgency and the other details of values could be added on completion of the valuation exercise.

7.13 Inspection of UNRA Stations 7.13.1 General Observations Understaffing A review of staffing positions at the various stations revealed that a number of posts in the approved structure were not filled as shown in table below:- Station Staffing gap (staff lacking)

Mbarara Assistant engineer, 2 road inspectors, 4 road overseers, and 4 drivers. Kabale Road inspectors, road overseers, plant operators and drivers. Kasese One assistant engineer, one road inspector and plants attendants. Fort Portal Road inspectors, road overseers, mechanics and drivers. Mubende Road inspectors, road overseers, drivers/operators, turn-men, mechanics and weigh bridge controllers. Hoima Road inspectors, road overseers, mechanics and Drivers/operators and bitumen attendants Masaka Road inspectors, road overseers and drivers and plant operators. Masindi Mechanics, drivers and plant attendants

The staffing gaps have a negative effect on the expected service delivery of the stations especially with additional road network of 10,000kms from District Local Governments. Management explained that due to the wage limitation, UNRA was unable to fill all the vacant positions. The Authority had continued to engage the Ministry of Finance and Ministry of Public Service to ensure that enough resources were availed to recruit the required additional staff. I have advised Management to pursue this matter with the relevant authorities and ensure that the staffing gaps are filled.

Aged Equipment During the audit inspection, it was noted that the equipments at most stations were very old and some of them had become obsolete and therefore unable to effectively

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undertake road repairs and maintenance. However, there were no provisions in the UNRA budgets for buying new equipment and the stations therefore spent a lot of money on hire of equipment. Most of the equipment that UNRA stations inherited from MOWT were in a sorry state and due for boarding off. Lack of sound equipment leads to delays in completion of works, which in turn affects the implementation of planned activities.

I have advised UNRA management to consider replacing the old equipment in order to control the high costs on repairs and hire of equipment.

7.13.2 Inadequate Budgets It was noted that UNRA stations were faced with a challenge of inadequate funding to implement approved work plans. While the stations submitted work plans which were reviewed and approved, the funds released were far much less than planned. As a result, some planned activities were completely left out.

Management explained that the maintenance budget continued to be inadequate and did not match the needs of the road network. For example, in the previous three Financial Years (2010/11 to 2012/13) UNRA received Shs.180bn per year which was not adequate for Periodic maintenance of both gravel and paved roads; the available budget was thinly spread on the network and had caused a maintenance backlog. The late release of funds coupled with budget cuts distorted the work plans. I have advised Management to always release funds to the stations as per the approved work plans to enable the stations to carry out their mandates.

7.13.3 Specific Issues on Stations The specific issues noted during inspection of UNRA stations included the following:-

Silted drains on roads repaired by the stations. In some stations, there was idle equipment due to lack of qualified staff to utilize them. Old buildings that required urgent repairs and renovation. Lack of attendance registers for casual labourers. Expired contracts for casual labourers. Lack of progress reports. 181

Excess expenditure. Road Material Purchased without supporting documents Uncompleted contracts under routine mechanized maintenance

In their response, management has promised to have the above matters addressed accordingly. I await the outcome of this management commitment.

7.14 Engineering (Technical) Audit of Road and Bridge Contracts implemented By UNRA During the year, I also undertook an engineering audit of various road and bridge civil works contracts implemented by Uganda National Roads Authority (UNRA) in the FY 2011/12. The objectives of the Engineering Audit were:-

i) To evaluate whether the procurement process of the projects selected was conducted in accordance with Public Procurement and Disposal of Public Assets Authority (PPDA);

ii) To evaluate the existence and effectiveness of internal controls, which are needed for sound contract management and engineering principles and practices; iii) To obtain reasonable assurance, that the works were actually done with reasonable quality in accordance with specifications, sound engineering principles, practice and technical management policies;

A total of seventeen (17) road and bridge contracts were selected for the audit, four of which had been audited in the previous audit year. These included: Busega – Nsangi, Kamengo – Lukaya; Muduuma – Mityana; Rehabilitation of Lira road under the Backlog Road maintenance Programme; and Urgent repairs of Matte – Sekanyonyi – Sikonge road; for follow-up purposes.

A separate report was issued to parliament. Highlighted below are the key audit findings resulting from the engineering audit, my corresponding recommendations and the summary of key findings per project/contract.

i. Varying Special Conditions of Contract

It was noted that the Special Conditions of Contract (SCC) like in previous audits still varied from one project to another on issues that should be of common 182

standard. For example under the upgrading of Atiak-Moyo-Afoji Road (Construction of Bridge Structures, Box Culverts and Ferry Landing Sites), the SCC are silent about the minimum value of an Interim Payment Certificate (IPC). This prevents contractors from setting targets and may lead to delayed completion of works.

The Accounting Officer explained that the Special Conditions of Contract change on a case by case basis depending on what is envisaged to be encountered during implementation and quite often, UNRA is forced to relax on this requirement to accommodate contractors to ensure projects progress and contractors do not get stuck.

I have advised the Accounting Officer to ensure that future SCC are drafted in such a way that they depict fairness in all contracts and there should be no need of revising the minimum value of the IPC since the contractors have already taken account of it in preparation of their work programmes. ii. Non-adherence to Contract Conditions a. It was noted that there was a persistent practice of not adhering to the requirements of the contracts. This was mostly exhibited on the contracts that had delayed to be completed due to faults by the contractor and liquidated damages clause in the contracts was not invoked e.g. Construction of Bulyamusenyu Bridge in Nakaseke District (Lot 6). In a number of cases, the liquidated damages had not been charged even when there was no claim from the contractors for extension of time. Where there was a claim for extension of time, there had been delays by UNRA to have such claims assessed. b. There were cases where quantities of work items had increased to a tune that required a negotiation for rate change but the relevant clause had not been invoked leading to huge sums of money being spent. The contracts under this category include among others; Upgrading of Fort Portal – Bundibugyo – Lamia road and Reconstruction of Priority Sections on the Kampala – Mbarara Road: (Northern Corridor – Uganda). Package A: Busega- Nsangi and Kamengo – Lukaya.

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Negotiation of the unit rate is based on Clause 52.2 which reads: ―Provided further that no change in the rate or price for any item contained in the Contract shall be considered unless such item accounts for an amount more than 2 per cent of the Contract Price, and the actual quantity of work executed under the item exceeds or falls short of the quantity set out in the Bill of Quantities by more than 25 per cent.‖

However, this clause had not been interpreted correctly and applied to the benefit of government. In the case of Fort Portal – Bundibugyo road, although the quantity certified in respect of common excavation to spoil qualified for application of this clause, the clause was not applied thus denying government cost savings.

c. There were cases where insurance bonds and guarantees expired for more than a year yet the works were not completed; for example, the rehabilitation of Silver Springs – Bweyogere / Kireka –Namugongo contract where the performance security expired on 16th September 2012 after it had been extended; other policies and Certificates for Insurance expired on 24th March 2011 yet works were still on-going.

The Accounting Officer should consider taking appropriate action against those responsible in accordance with the PPDA Act and Regulations. In addition, UNRA should always monitor the expiry of such securities. iii. Premature failure of pavement layers on some roads Some works were poorly executed by contractors and have resulted into premature failure of the pavement. For example, Rehabilitation of Silver Springs – Bweyogerere Rd (8Km) and Kireka – Namugongo Rd (7Km) where asphalt concrete 30mm was provided as the wearing course resulting into a number of failures including alligator cracks, longitudinal and transverse cracks that had developed even before final acceptance by UNRA. A number of failures had also been registered on previously audited roads including Fort-Portal – Hima and Jinja-Bugiri before the roads lasted their intended design life. Whereas UNRA continually blames the premature failure of roads on heavy rains; weak supervision and management of the contracts is a major contributing factor.

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The Accounting Officer explained that for Jinja – Bugiri, the open graded asphalt had been rectified by the contractor and attributed premature failures to overloading of trucks and in some cases poor drainage arising from land owners rejecting construction of outflow channels into their land.

UNRA should strength the Axle Load Control Unit (ALCU), designs and supervision functions to address the existing weaknesses in project delivery. iv. Irregular Payments and Non deduction of liquidated damages (Shs.5,044,019,703 )

It was noted that claims were made and payments effected in respect of works that had not been executed (Shs.400,297,866), nugatory payments (Shs.2,473,378,463) and liquidated damages on delayed projects (Shs.2,170,343,374) were not charged to the contractors as required under the contracts. This amount excludes shs.1.4 billion in respect of liquidated damages chargeable on Muduuma-Mityana Rd of which an assessment of a claim for extension of time had not been concluded by UNRA.

These irregular payments and unrecovered liquidated damages constitute a loss of public funds for which appropriate action should be taken for recovery.

The Accounting Officer should ensure that the amounts are recovered and appropriate action taken against the parties responsible. v. Payments for Variation of Price (VoP) As reported in the previous two audit reports, payments for price adjustment have continued to be of great concern with some budgets for the entire project/contract being consumed before works are even 50% complete. For example, the upgrading of Fort Portal – Bundibugyo – Lamia road, Variation of Price, as per Interim Payment Certificate (IPC) No.27 had reached Shs.63.7 billion against total work executed value of Shs.132.4 billion representing about 48% yet the works are far from completion (about 45% yet to be executed). The total budget that was initially provided for the works was Shs.168.2 billion.

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There have been gross errors in the application of the formulae for computation of VoP on all contracts implemented by UNRA. Some of the errors originate from the procurement stage and others in the application of the formulae.

Based on our review, it was established that a total of shs.47,230,296,571 was overpaid to various contractors in respect of VOP on three road construction contracts as indicated below:-

Contract VOP Assessed & Estimated over paid (shs) payment (Shs)

Fortportal Bundibugyo Road project 64,111,703,064 36,968,717,350 Nyakahita – Kazo Road 17,183,717,882 7,774,168,367 Malaba-Busia-Bugiri Road 13,211,505,511 2,487,410,854 Total 94,506,926,457 47,230,296,571

The following observations were noted regarding the above projects:- a. VoP on Fort-Portal Bundibugyo The amount paid to the contractor in respect of VoP on Fort-Portal Bundibugyo road was found unreasonable mainly due to the following reasons; i. The formulae were wrongly applied by duplicating elements and indices for local elements were used in the formula for foreign currency.

It should be noted that when local indices from UBOS are used in the foreign currency formula, adjustments are made to the currency of the foreign component which is applied to both local and foreign currency in accordance with clause 70.3 of the Condition of Contract. The application of Zo/Z to the local items in the foreign component reduces the adjustment factor as the element factor is less than 1. (Adjustment factor for such items is computed as = W*(CV/BV)*Zo/Z for each item. Where W=Weighting, CV=Current value, BV=Base value, Zo is number of units of the currency of the country of the index = Shs.1,952.53 per USD and Z being the current exchange rate). This should lead to reduction in cost.

It is not international practice to have local and foreign elements interchangeable in the formulae unless a combined formula is used where 186

currency correction factors are applicable. Whereas it may be too late to correct this anomaly in this particular contract, future contracts should have clear formulae separating the local and foreign components and preferably should be by bill item. ii. The base indices applied were all wrong; the contractor in the appendix to the bid document quoted provisional indices for the month of September 2008, which should have been corrected at the negotiation stage to indices 28 days prior to submission of bids which was November 2008 indices in accordance with sub-clause 70.5 The Accounting Officer explained that usage of provisional indices is possible during the construction stages, and adjustments made in subsequent payments when confirmed indices are provided.

The Accounting Officer should ensure that current indices are used more especially by the time of execution of the works. Provisional indices can be used in interim payments but should be corrected in the subsequent IPCs. iii. Except for local labour for the local currency formula, the current indices applied were wrong. The Accounting Officer should ensure that corrections are made in subsequent IPCs. iv. Foreign labour indices could not be verified due to lack of username and password for login. The Accounting Officer explained that this was an official Chinese Government site where access was limited. The Accounting Officer should ensure that the foreign indices applied are verified to avoid making overpayments in cases where the current indices are less than the base indices. v. Bitumen and fuel indices for foreign markets were not accessible; the contractor should have used indices where the elements were purchased; the base index for bitumen was given as the same for fuel which should not be the case. The Accounting Officer explained the indices for foreign labor had not been adjusted because the Contractor had not provided an accessible source. He indicated that the Contractor had requested his supplier to provide him all the necessary documents to enable the Engineer adjust the indices. The Accounting Officer should ensure that in future contractors‘

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information in the appendix to the Bid document is not changed and materials should be sourced from the suppliers as indicated in the bid. The contractors‘ rates quoted are based on this information and therefore any changes in sources of materials causes unfairness to other bidders. vi. The base index for foreign labour was for the 3rd quarter of 2008 which was provisional and yet what should have applied was for the 4th quarter. The Accounting Officer explained that the error had been noted and adjustments would be made. The Accounting Officer should ensure that such glaring errors are minimized in future contracts.

We have recalculated the VoP on this contract taking two assumptions i.e. use of local indices for bitumen and fuel in the foreign currency formula since the items were purchased locally; and freezing the foreign labour indices since they could not be verified. Records show that the VoP paid to the Contractor as of IPC 27 amounted to Shs.64,111,703,064. Based on our review, we have established that a total of Shs.27,142,985,715 was payable to the contractor. This results into an overpayment of shs.36,968,717,350 to the contractor . b. VOP on Nyakahita –Kazo Road Project

In case of upgrading of Nyakahita –Kazo road project, VoP amounting to Shs.17,183,717,882 had been paid by the time of audit (August 2012). Based on our review, we have estimated that a total of shs.7,724,468,367 was overpaid to the contractor in respect of VOP as a result of the anomalies explained below; i. The formulae applied for Local and foreign currencies used conflicting elements of work. Whereas it is expected that the local currency formula shall constitute elements purchased locally and the foreign currency formula shall constitute elements purchased from a foreign country, items like Plant and Fuel were inappropriately applied to both formulae. It is not practical to purchase fuel both locally and foreign. This anomaly caused huge sums of VoP to be paid to the contractor by considering the element more than once.

The Accounting Officer should ensure that the formulae takes into account the source where the materials are actually purchased from; if fuel is purchased locally, then the index for fuel should be the local index. Having proportions 188

of payment in two different currencies has nothing to do with indices in the formulae for VoP. It should also be noted that local and foreign elements can be combined in one formula if there is no separate formulae for local and foreign as it is under this contract. ii. The indices applied for IPCs 17, 16, 15, 14, and 13 relating to works completed during the months September, August, July, June and May respectively, were for the month of April 2012 instead of indices for the current months when works were executed (28 days prior to the last day of the period the IPC relates). The base indices applied for CEMAC source were not verifiable and hence rendered doubtful.

The Accounting Officer explained that the contract allowed for usage of provisional indices while preparing interim payments to the contractor and having adjustments made once confirmed indices were made available. The Accounting Officer should ensure that actual indices are applied when subsequent IPCs are issued. iii. The base index for foreign labour applied was for the month of June 2010 instead of July 2010. The source of indices specified as CEMAC (China Economic Monitoring and Analysis Centre) could not be easily verified. The supervisory team, including UNRA project staff could not authenticate the information on these indices.

The Accounting Officer should ensure that unlimited access to all sources of indices is a requirement in all biding documents. The Accounting Officer should also consider suspending Payments for VoP until the Contractor provides verifiable indices. iv. The currency correction factor Zo/Zn was not applied to bitumen yet the element was foreign. In addition, the factor for base and current indices was not correctly applied. v. There were arithmetic errors in the computation of the VOP when applying the formula. An arithmetic error of shs.742,227,536 was discovered in the UNRA computation.

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I have recalculated the VoP on this contract by applying the correction factor where applicable and freezing the CEMAC indices since they were not verifiable. The amount paid to the contractor as of IPC 17 was Shs.8,717,321,979. Based on our review, we have estimated that a total of Shs.7,724,168,367 was overpaid to the contractor in respect of VOP. The Accounting Officer should undertake recoveries from the contractor of the amounts overpaid. Appropriate action should also be taken against the parties responsible. c. VOP on Malaba/Busia – Bugiri road contract In case of Rehabilitation of Malaba/Busia – Bugiri road contract, it was observed that there was unrealistic increase in the project cost due to variation of price which as per IPC 2 was Shs.13,211,505,511 against the total work done of Shs.20,676,659,010 representing 65%. The Global inflation rate within this construction period was not comparable to the 65% adjustment on this contract. The major reason for the unrealistic VoP was the use of unrealistic weighting factors which were outside acceptable ranges and the mix up of indices with prices for goods.

Although the Accounting Officer explained that the application of the VOP was in accordance with the contract provisions and that the weightings applied by the Contractor compared favourable with those given in the bidding document our review however established that for this project the foreign and local weightings for fuel and bitumen applied were 58% and 52.6% which was far outside the permissible ranges in the bid document (5-15%).

To estimate the error in VOP on this contract we recalculated the VoP based on the following assumptions:-

For Local formula; each element was awarded the maximum weighting acceptable i.e. fixed (15%), Labour (17%), materials (40%) and Fuel (15%); the materials included Cement, Reinforcement and explosives; the remaining % was re-distributed proportionately.

For the foreign formula; bitumen was given the permissible maximum weighting of 40% (as opposed to the 58% used in the (IPCs); the foreign labour was given the maximum weighting of 17% (as opposed to the 7%

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used in the IPCs); Plant and spares were given the remaining 28% (as opposed to the 26% used in the IPCs). Records show that as of April 2012, the VoP assessed and due to the contractor was Shs.9,621,460,857. However based on our review, we have estimated that a total of shs.7,134,050,003 was payable hence resulting into an overpayment of Shs.2,487,410,854.

d. VOP on Tororo-Mbale, Mbale-Soroti roads Due to weaknesses in UNRA in regard to the determination of VOP, some contractors are taking advantage by introducing VoP in their contracts even when they were not allowable as per conditions of the contracts. For example, Dott Services through its own delays in completion of Tororo-Mbale, Mbale-Soroti roads may succeed in introducing the VoP on the contracts or change of rates which options are under assessment by UNRA. The same contractor introduced VoP on Backlog Maintenance contracts the previous years and has shown intentions of introducing VoP on periodic maintenance of Jinja – Kamuli road.

The VoP payments are characterized by application of wrong indices and formulae and application of unverifiable and doubtful indices. Although this matter has been discussed at various fora, no agreed position has been reached by all stakeholders concerned.

The Accounting Officer should review proposed introduction of VoP on Tororo- Mbale-Soroti and Jinja – Kamuli roads. This will necessitate undertaking an independent assessment of the cause of delays in execution of works. PPDA should also be consulted on introduction of VoPs. The Accounting Officer should also ensure that payment of VOP on all UNRA contracts is undertaken in accordance with the industrial norms. Further payments should not be made to contractors in form of VoP before the matters have been reviewed and agreed upon. vi. Quality of works Generally, the overall quality of the works on the projects audited was good, with minor instances of poorly executed works. Where quality was wanting, there was inadequate quality control over the materials used especially aggregates for sealing of roads or use in base course. For example, on Tororo-Mbale and Mbale-Soroti

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contracts, the aggregates used were substandard. The aggregates being used on Awoja Bridge were also found to be substandard.

The Accounting Officer explained that to address the problem, emphasis was being put to establishing two independent laboratories on site: one for the consultant and one for the contractor. vii. PoorImplementation of Social Safeguards on Projects a. It was observed that for a number of projects audited, road safety issues were not considered a priority during execution of works. There were cases of inadequate or no traffic warning signs erected yet works were on-going. For example, periodic maintenance of Jinja-Kamuli road and Silver Springs to Bweyogere/Kireka to Namugongo road had cases of drainage stone pitching hardcore being spread partly along the road carriage way without warning traffic. This poses a high risk of accidents to road users.

The Accounting Officer explained that in all projects, both development and maintenance, road safety is prioritised with allocation of funds but the projects suffer from rampant theft of signs. For the case of Jinja – Kamuli project, he indicated that the Contractor had been instructed to keep on replacing the stolen signs to ensure safety of road users. b. It was further noted that Occupation Health and Safety (OHS) matters for a number of projects, were not adequately addressed. For example, the upgrading of Fort-Portal to Bundibugyo road, Workers protective gear was lacking especially for bridge steel works and pre-coating activity for the chippings. These social safeguards if neglected pose adverse effects to the environment and the population.

The Accounting Officer should ensure that social safeguard measures are enforced on all projects and in future project designs and bills of quantities should incorporate such measures to prevent, minimize and mitigate potential adverse environmental and social effects of projects. For contracts where the social safeguards are inclusive in the BoQs, payments should not be made unless there is compliance.

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viii. Delayed Completion of Works Thirteen of the seventeen audited projects have registered considerable delays to be completed. Of the thirteen projects or contracts, five contracts are executed by M/s Dott Services Ltd while three are by M/s Spencon Services Ltd; the five remaining contracts are each executed by one contractor. The reasons for delayed completion were:- Overstretched Contractors e.g. M/s Dott Services Ltd and M/s Spencon Services Ltd; the same contractors have new on-going contracts with huge amounts in Variation of Prices resulting from extended project completion dates. Inadequate designs provided at the commencement of the works contracts, which have had to be reviewed as works are on-going a thus increasing the quantities of work items e.g. Muduuma – Mityana road project. Delayed relocation of utilities such as water and electricity lines, which denied contractors Right of Way to some sites; Prolonged processes for compensating land owners to acquire the Right of Way.

Delays in completion of works has a huge impact on the VoP for those contracts where it applies, increases project costs of supervision and is an inconvenience to the public using the roads.

The Accounting Officer explained that UNRA was coming up with the following measures to address the problem:-

Overstretched Contractors; UNRA had engaged a consultant to review the procurement procedures and establish an accredited system which includes monitoring performance of contractors in real time and having this considered in subsequent tender evaluation and contract award. Inadequate designs; UNRA was developing its internal design capacity through recruitment of staff and use of technical assistance to undertake technical reviews on completed designs before the roads are constructed. . Delayed relocation of Utilities; These utilities belong to the utility service providers. Relocation is done by licensed contractors of these service providers

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and UNRA has little or no control over the deployment of these service providers and commissioning of the relocated utilities. Prolonged Land Compensation; UNRA was considering acquiring land for the right of way in advance where resources allow. UNRA was also considering transferring the acquisition of land to the works contractors so that this becomes part of the contract. This would transfer the risks of land acquisition to the contractors.

ix. Delayed Payments of Contractor’s Certificates It was observed that for a number of contracts, payments for interim certificates had delayed for more than the stipulated days in the contracts. Reasons for this varied from delayed processing of IPCs from the time they are released by the contractors to final approvals to delays in receiving funds from Government. This creates risks of incurring interest for the delayed payments and in some cases creates a blame game between contractors and UNRA for delayed completion of works.

The Accounting Officer explained that UNRA was constrained by the budgetary limits set by the MoFPED which were much lower than the required cash flow to sustain the on-going contractual commitments. He indicated that at the close of quarter two, the unpaid executed works were estimated at shs.250 billion an amount they were not likely to immediately obtain from government.

x. Supervision and Contracts Management Inspite of the weaknesses identified in the supervision and contract management by UNRA, there had been a great improvement as compared to the previous 3 audits. However the project-UNRA staff attachment ratio appears to be still high (a project engineer handling more than four projects). The staffing gaps may impact on the effective supervision of the projects. Due to the staffing gaps most of the projects audited were supervised by hired Consultants

xi. Summary of Key Findings per Project

S/n Road Contract / Key findings Contractor / Amount 194

S/n Road Contract / Key findings Contractor / Amount 1. Upgrading of Form of Works Contract does not specify the amount FortPortal – of contract while for the Consultancy Contract it Bundibugyo – Lamia does, yet the funding arrangement is the same. road (103Km) by M/s The Contract has indices for local elements in price Chongqing International adjustment for foreign formula. Fuel is also applied Construction both in local and foreign formulae.It is apparent that Corporation at sub-clause 70.4 of conditions of particular Shs.168,214,943,915. application was not applied to check the 54 reasonability of the formulae. The works physical progress reported takes account of non-progressive items and thus does not depict the situation on ground. Notable delays in payment of the Contractors certificates (more than 5 months) which attract interests and affect contractor’s cash flow and escalate the VoP. Some bill items have increased by a huge margin compared to originally planned quantities e.g. item 36 (a1) Common excavations to spoil increased by 1,229% for Fort-Portal to Itojo section. The increase is more than 2% of the contract amount and thus required a change of the rate in accordance with sub-clause 52.2 of COPA. Variation of Price which as per IPC No.27 has reached Shs.63,746,080,750 against total work done value of Shs.132,372,053,203 representing about 48% yet the works are far from completion. The formula has been wrongly applied causing an overpayment of Shs.36,968,717,350. Bleeding and stripping effects were observed along sharp bends especially in FortPortalTown dual carriageway, from Ch.30+378 for about 250m and a few other areas. Un-sealed accesses causing road edge failure. Box culvert at 0+391 had transverse cracks internally for one of the accessible cells inspected. Jointing of culvert line at Ch. 65+451 (1,200mmØ) was poorly done. At Ch. 34+281 RHS, the stone pitching mortar was failing Support material from culvert end structures was being eroded. Workers protective gear was lacking especially for bridge steel works and pre-coating activity for the chippings. Warning signs at hazard points were inadequate. There was suspected seepage of water underneath the foundation slab around the 4th span, LamiaBridge.

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S/n Road Contract / Key findings Contractor / Amount The upper layer of the sub-base at Ch.46+681 up to 162mm was weaker than the lower 174mm and did not meet the requirements. KirumyaBridge base slab did not meet the specifications for concrete strength. The Concrete surround for culvert at Ch.65+451does not meet the specifications. The quantity for grouted stone pitching at Ch.34+281 Rhs was exaggerated resulting in an overpayment of Shs.5,367,255. 2.62m3of concrete lining for open drains at Ch.1+700 was overpaid amounting to Shs.1,135,670 Supervision weaknesses in cost control, checking of IPCs especially VoP management and items requiring rate change. 2. Upgrading of The forms of the works and consultancy contract of Nyakahita – Kazo agreement do not specify the amount of contract. road to Bitumen The appendix to bid contain wrong base indices i.e. for the Standard (68Km) by month of June 2010 instead of for the month of July 2010. M/s China Communications The Contractor‘s work progress was ahead of schedule i.e. Construction 81.6% physical and 52.8% time progress. Company Ltd at Delayed compensation of affected persons, a risk to delay Ushs.134,151,763,66 completion and escalate VoP. 2.73 IPC summary sheet exclude provision for contract amount. Substantial delays in executing payments for the Contractor and Consultant e.g. a fee note of 7th March 2011 had not been honoured by November 2012. Some bill items have escalated in quantity to a tune of 683% e.g. Culverts. The culvert line at Ch.2+700 had one piece out of alignment. Generally, the formwork quality on concrete structures was poor although it did not affect the strength of concrete. The end structures for pipe culverts at Ch.2+610 were poorly done. Instruction from the Resident Engineer to the Contactor to re-do was issued. Road safety issues were not adequately addressed as stones were found in the middle of the road as a way of directing traffic; the signage used are not adequate to guarantee safety of the road users during construction. A sample of aggregates used for CRR at KM 21+930 failed the gradation test. Backup documents to IPCs do not show details of cumulative quantities paid hence a risk of multiple payments for same quantities.

Errors in Computation of VOP Some elements of work like fuel was considered in both the VoP local component formula and in the foreign component

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S/n Road Contract / Key findings Contractor / Amount formula. The current value of indices applied for reviewed IPCs 17, 16, 15, 14, and 13 respectively for works completed during the months September, August, July, June and May, is stated as for April 2012 instead of indices for the current months when works were executed 28 days prior to the last day of the period the IPC relates. The base indices applied for CEMAC source are not verifiable and thus doubtful. The base index for foreign labour is stated as for June 2010 instead of for the required July 2010. The source of indices specified as CEMAC (China Economic Monitoring and Analysis Centre) cannot be easily verified and are thus doubtable. The currency correction factor Zo/Zn is not applied to bitumen yet the element is foreign. In addition, the factor for base and current indices are not correctly applied. The Contractor was overpaid by Shs.7,724,168,367 as of IPC 17 as a result of the above errors. 3. Design and Build Unreasonable increase in the project cost due to Contract for variation of price which as per IPC 2 was Strengthening/Rehabi Shs13,211,505,511 against the total work done of litation of Shs.20,676,659,010 representing 65%. The indices Malaba/Busia – Bugiri Road by M/s SBI are mixed with prices in computation of VoP; The International weighting factors applied by the contractor are Holdings AG outside the range of weightings for related major (Uganda) at construction in puts e.g. the acceptable range for Shs116,846,475,250 materials is 20 to 40%, but the weighting factor for bitumen alone used in the adjustment formula is 52.7%; similarly the acceptable range for fuel is 5 to 15% but the weighting factor for fuel in the adjustment formula is 58%. On assumption of weightings within the ranges, an estimated overpayment of Shs.2,487,410,854 was made to the contractor as of April 2012. Asphalt Concrete at Naluwerere Trading Centre was damaged due to spilling petroleum products from parked trailers. Non-operation weighing bridge at Busia likely to cause faster deterioration of the road between Busia and Namutere. Also fining overloaded trucks is not feasible for the road section under contract as the contractor would escape liability for early defects on the road. Mix design was not availed for review and as such conclusion on the binder content tests could not be made. Tests for air voids filled with binder, air voids and Indirect Tensile Strength failed. This implies that

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S/n Road Contract / Key findings Contractor / Amount the works are susceptible to failure in form of rutting and cracking. Aggregates used for DBM and Binder course for tested locations do not satisfy grading requirements. Progress report reviewed i.e. for October 2012 did not capture the overall physical progress of works. 4. Reconstruction of Delay in completion of works due to increased Priority Sections on quantities of work and delay in handover of section the Kampala – 1 to the contractor. Mbarara Road: PPDA waiver for addendum No.8 (15.6% of original (Northern Corridor – Uganda). Package A: contract amount) was not availed. Busega- Nsangi and Delay in executing payments to the Contractor some Kamengo - Lukaya for more than 7 months. (63km) by M/s Increase in quantities of work items e.g. drainage Reynolds works to a tune of 63.8% necessitating a rate Construction change but was not done. Company (Nigeria) On coring the pavement layers at Ch.6+860, the Ltd at Euro 58,858,567.51 joint between AC and DBM had voids; a sign of cold placing of the materials. There are a number of scratches that have damaged the AC as a result of accidents on this project road; Broken road marking lines have been provided at certain locations where it should not be permissible to overtake especially along bends in the road. Bleeding was observed at Km 84 on a hilly section. The crushed stone material around the culvert wing walls at Ch.13+997 had scoured. The delineator at Ch.9+690 was broken and closer inspection showed that it had reinforcement bars of Y12 and T10 bars whereas the specification were only for Y12. The side drain at Ch.14+049 LHS was silted. Eleven out of twelve samples of DBM and AC failed the Indirect Tensile Strength test. Tests indicated low air voids in DBM which will result in rutting Tests indicated high binder content in DBM which will result in bleeding since excess bitumen is bound to migrate through the Asphalt surfacing layer. Tests indicated high air voids in AC which will result in oxidation and water ingression which lead to quick ageing of AC through development of alligator cracks. Overpayments of Euro 1,976.11 for guardrails and MC-70 cutback. 5. Reconstruction and Delayed completion of works by the contractor Rehabilitation of causing an increase in supervision costs by more Busega – Muduuma than 76%. and Muduuma – Liquidated damages worth Shs.1.4bn for 67 days of Mityana Roads Km 198

S/n Road Contract / Key findings Contractor / Amount 27+000 – Km delay up to 15th June 2012 were not charged as of 57+180, (57.18Km) IPC NO.14. by M/s Dott Services Delayed compensation of land owners hence Ltd at contributing to delayed completion of works and Shs.41,823,116,085 increase in project costs. The project being for follow-up audit, most issues raised in the previous audit have been addressed except, lack of maintenance of drains and culverts. Cutes were not yet installed where should be and as such embankments were being eroded e.g. at Ch.54+625. The works were substantially completed and the DBST is holding well apart from a few areas. At Km 31+700 the access culverts to the Petrol station have broken Headwalls. At Km 33+100 to Km 33+650, water ponding was observed in the area. The culvert at Km 43+306 was silted and needed attention. The access road to the contractor’s former quarry being steep was eroded causing materials to silt into the road an drains at Km 47+500. There was stripping and bleeding on the RHS lane at Km 53+625 and Zigoti trading centre and more other areas after Km 40+000. There was water ponding along kerb line for 30m at Km 56+600LHS. The public is worried about the deep drains in the urban centres, as they are becoming a source of accidents since they are not covered. The side drain at Km 53+625LHS was not properly shaped to trapezoidal shape although directing water to a cross culvert drop inlet. The concrete lined side drain had scoured at the base forming pot holes in the base of the drain at various points at Km 43+336 LHS. 6. Construction of The latest status progress report as of audit time i.e. AswaBridge (Post for September 2012 did not specify the physical Floods Rehabilitation progress of works and does not clearly evaluate the of Rural Roads and cumulative financial progress as a basis for Social Infrastructure in Northern Uganda) comparison with the physical and time progress. by M/s Spencon The Contractor delayed completion of works by Services Ltd at about 10 months. Ushs.4,468,496,873 It was observed that the mortar used for stone pitching around and internal to the abutments and wing walls was weak and the joints were oversized. Shrinkage cracks (vertical in 1st Abutment) and in the Deck Slab were observed which is an indication that the concrete used was not properly supervised.

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S/n Road Contract / Key findings Contractor / Amount Item 64.01(b) concrete for deck slab and walkway, was overpaid by Shs.1,154,667. The defect liability period commenced 6 months before the auditors visited the works. The works had not been subjected to traffic so as to assess their durability after DLP. 7. Upgrading of Atiak- The Works Contract misses out a clause for Moyo-Afoji Road minimum value of certificate. (Construction of Delayed completion of works i.e. physical progress Bridge Structures, at 21.75% while time progress was 134% as of May Box Culverts and Ferry Landing Sites) 2012. by M/s Spencon Liquidated damages worth Ushs.797,538,232 were Services Ltd at not charged from the Contractor after he provided a Ushs.15,950,764,627 bank guarantee for the same. The action is not catered for in the contract provisions. The performance guarantee expired on 4th July 2012. Cracks were noted at apron blinding slab for the Lower-Cala 15-cell box culvert at Km 67+000. Inadequate road safety warning signages as works were being executed on a busy road. Tests conducted on concrete used for bridges and culverts components indicated that the specifications were not met for AyugiBridge, Amua box culvert, Lower Cala 15-cell box culvert, and Surumu culvert. Weak supervision in controlling quality of concrete. Progress reports do not show cumulative representation of the physical progress in relation with the financial and time progress in chart or graph form. Further, the progress report does not contain the scope of works whether in summary or detail. 8. Construction of Delayed completion of works by 7 months as of the AwojaBridge by M/S time of audit. Spencon Services Liquidated damages of Shs.729,566,175 have not Limited at yet been charged as per clause 36.1 of the special Shs.7,295,661,754 conditions of the contract. Sampled aggregates from the stockpile failed the gradation test having bigger particles than those specified for size10/14 and 14/20. Tests also further indicated low Ten Percent Fines Value (Tfv) which is a measure of strength of the aggregates on loading. Weak quality control by the supervision team. 9. Periodic Maintenance The special conditions miss out the commencement of Jinja – Kamuli date which in turn could lead to future Road (58Km) by M/s disagreements causing financial implications to both Dott Services Ltd at parties. Ushs.47,486,000,340 200

S/n Road Contract / Key findings Contractor / Amount The minimum value of interim payment certificates is not spelled out which affects the contractor’s targets and could lead to delayed completion of works. Delayed completion of works i.e. physical progress was 28.4% against a time progress of 72.22% as of August 2012. The delay in completion of works has cause an increase in costs of maintaining the supervisor on site by 12% as of August 2012. Some work items such as casting in-situ concrete haunching and encasing for pipe culverts has escalated by a tune of 2,572% in quantity. This resulted from inadequate design. There is a 260% increase on the materials testing bill items when the works are just 28.4% raises doubt as to what kind of tests were conducted when most testing is a responsibility of the contractor and their cost is embedded in the contractor’s rates. It was observed from IPC No.7 (letter from the contractor) that the IPC is submitted without including the Variation of Price which is applicable. The special conditions of contract clause 47 specify that prices SHALL NOT be adjusted for fluctuations in the cost of inputs. It was also observed that there was poor jointing of the AC in some sections e.g. Ch.0+000 to Ch.0+900. Some of the installed culvert lines’ inlet and outlet channels were not properly trained to allow free flow of water hence causing stagnation. Materials for lining of drains were placed partly on the un-demarcated carriageway without proper signage as required to warn traffic. The auditors tested the strength of culverts laid at Km 31+659 (900mmØ) and test indicated they did not meet the minimum strength requirements,which this compromises the durability of the works. Indirect Tensile Strength (ITS) tests conducted on three samples of Asphalt Concrete indicated very low values. This indicates that the pavement is susceptible to stripping, rutting and cracking. There was an overpayment of Shs.43,473,584for the CRR base course in the first 4.4km as of IPC No.7. Weak supervision in controlling the quality and cost of works. 10. Rehabilitation of The defect liability period is set out to be 4 months Silver Springs – in the SCC. For this type of work and magnitude of Bweyogerere Rd the contract, this period is insufficient to monitor (8Km) and Kireka – the behaviour of asphalt. Namugongo Rd 201

S/n Road Contract / Key findings Contractor / Amount (7Km) by M/s Delayed completion of works by the contractor i.e. Multiplex Ltd at physical progress was reported as 79% while time Ushs.8,502,363,900 progress as 284% as of 31st July 2012. Maximum liquidated damages were charged. The performance security expired on 16th September 2012 after it had been extended; other policies and Certificates for Insurance expired on 24th March 2011. There was a variance of Shs.600,264,000 (7.6% of bid amount and contract amount). The cause of the variance was not properly documented. Alligator cracks were observed from Ch.2+030 – Ch.2+350 Lhs i.e. for about 320m on Silver Springs – Bweyogerere section; at Ch.3+310 Lhs of Kireka – Namugongo section was a pothole emanating from alligator cracks; on the same section at Ch.4+340 Rhs more cracks were seen. Longitudinal / transverse cracks were observed at Ch.3+050 centreline for 5m running, Ch.3+080 – 3+130 along Kireka – Namugongo section; on the same section cracks were observed at Ch.4+640 – 4+750 entire width. Potholes were developing as a result of piped water pipe bursts for example at Ch.6+025 Lhs on Silver Springs – Bweyogerere section, there is a pothole, analysis of which depicts a base course failure; at Ch.1+470 Lhs, Ch.3+230 Lhs on Kireka-Namugongo section. Potholes were developing as a result of riots tyre burning most pronounced on Kireka-Namugongo section e.g. at Ch. 4+320 centreline. There were a number of stone-mortar bond failures especially for the inner side slopes tops. The mortar joints for lined drains were mostly oversize hence rendering the drains weak. There were cases where the base of the channel had scoured for the contract works and old works. For example at Ch.0+400 Silver Springs -Bweyogerere section. Most culverts installed have no built end structures for example at Ch.4+340 on Namugongo section, a 900mmØ culvert had no headwalls built and this caused scouring at the outlet. At Ch.4+500 Namugongo section, scouring was observed at the outlet channel termination; the embankment was also failing necessitating stone pitching as an erosion protection measure. The 900mmØ culvert at Ch.3+290 on Kireka – Namugongo section was ¾ silted, a sign of lack of

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S/n Road Contract / Key findings Contractor / Amount maintenance of the works and could result into premature failure of the pavement due to flooding effects. Road safety signage was inadequate especially at locations where drainage works were on-going and hardcore dumped on part of the carriageway e.g. at Ch.3+000 Kireka – Namugongo road. Tests for binder content for all samples taken from Silver Springs – Bweyogerere section were found to be relatively low compared to specifications as well as for two of the three samples taken from Kireka – Namugongo section. The air voids were found to be high ranging from 6.08 -10.3% for most of the samples which is outside the specifications of 3.0-5.0%. Test confirm why the AC is ageing quickly forming alligator cracks as observed during field inspection Weak supervision in controlling the quality of works. 11. Staged Unclear qualification requirements for Key Reconstruction of Contractor’s staff in the bid document and thus Tororo – Mbale Road could have resulted in selection of an incompetent – Lot D (49Km) by contractor. M/s Dott Services at Shs30,285,100,000 Works were tendered out before designs were completed and this caused further deterioration of the existing road, affected the contractor’s progress of work, caused frustration among road users and more costs of maintain the supervisor on site. The Design review and supervision consultant was appointed after the Works contract had been signed. The Consultant submitted initial design drawings after 3 months as was required and the Contractor delayed by 169 days. Official EoT was granted to the Contractor but time related charges (nugatory expenditure) of Shs.354,230,776 were incurred. On 8th February 2012, UNRA submitted a request for proposals for Consultancy Services for feasibility Study and Detailed Engineering Design for Upgrading of Tororo-Mbale-Soroti Road when the current strengthening works are still on-going intended to last up to 2016.If the detailed design is done now i.e. three years before construction takes place, there shall be a need for a design review before tendering of construction works is done. Therefore the planned expenditure on the consultancy is not necessary. UNRA approved an uneconomic design for the works from two design options that were available. The difference in cost for the two proposals was about Shs.4bill only for a difference of life span of 3 years

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S/n Road Contract / Key findings Contractor / Amount for the option not selected. Variation order No.1 amounting to Shs.10,419,015,261 (34.13% of the original contract) has not been approved since its submission on 15th December 2011. Contention on commencement date was observed between the contractor and the Consultant due to inconsistencies in the Contract documents; according to UNRA commencement date was 21st November 2010 and the contractor says it is 1st August 2011. UNRA has not given its position since the contract began. The contractor received the strip map on 1st August 2011, and submitted a works programme on 15th March 2012 (7months later). This is contradicting clause 27 of the conditions of contract. The contractor has still not been able to submit the program of works as required by contract and this has frustrated the Project Managers efforts to monitor the performance of the contractor while UNRA has not taken action in resolving the matter. Charges as per SCC clause 27.3 have not been imposed on the contractor. Delayed completion of works by 14 months by end of September 2012. The delay has led to an additional time related charges of Shs.869,233,500 of maintaining the engineer on site and others. The Contracts Committee on 10th May 2012 approved an application for price adjustment to allow for price inflation without considering the contractor’s slow progress. At the time of approval, the works should have been at 77% completion but were at 23.7%. This implies the VoP will be subjected on 77% of the works thus grossly increasing the project cost. The supervision consultancy contract expired on 1st November 2012 and works are under supervision by UNRA in-house meagre staff. It is very risky as the contractor is working without adequate supervision. The Works contract was extended and later expired on 6th November 2012. The Supervisors have not issued a notice to the contractor for charging liquidated damages. Shs.126,790,180 has been paid to the contractor in IPC No.3 for unexecuted works for G3 fill material and excavation of soft material and rock. The contractor had sealed a short section of the road with aggregates not approved by the consultant. 12. Staged Unclear qualification requirements for Key Reconstruction of 204

S/n Road Contract / Key findings Contractor / Amount Mbale – Soroti Road Contractor’s staff in the bid document and thus – Lot E (103Km) by could have resulted in selection of an incompetent M/s Dott Services at contractor. Shs46,083,277,750 Works were tendered out before designs were completed and this caused further deterioration of the existing road, affected the contractor’s progress of work, caused frustration among road users and more costs of maintain the supervisor on site. The Design review and supervision consultant was appointed after the Works contract had been signed. The Consultant submitted initial design drawings after 3 months as was required and the Contractor delayed by 139 days. Official EoT was granted to the Contractor but time related charges (nugatory expenditure) of Shs.287,174,000 were incurred. On 8th February 2012, UNRA submitted a request for proposals for Consultancy Services for feasibility Study and Detailed Engineering Design for Upgrading of Tororo-Mbale-Soroti Road when the current strengthening works are still on-going intended to last up to 2016.If the detailed design is done now i.e. three years before construction takes place, there shall be a need for a design review before tendering of construction works is done. Therefore the planned expenditure on the consultancy is not necessary. UNRA approved an uneconomic design for the works from two design options that were available. The difference in cost for the two proposals was about Shs.7bill only for a difference of life span of 3 years for the option not selected. Variation order No.1 amounting to Shs.18,116,107,939 (39.31% of the original contract) has not been approved since its submission on 15th December 2011. Contention on commencement date was observed between the contractor and the Consultant due to inconsistencies in the Contract documents; according to UNRA commencement date was 21st November 2010 and the contractor says it is 1st August 2011. UNRA has not given its position since the contract began. The contractor received the strip map on 1st August 2011, and submitted a works programme on 15th March 2012 (7months later). This is contradicting clause 27 of the conditions of contract. The contractor has still not been able to submit the program of works as required by contract and this has frustrated the Project Managers efforts to

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S/n Road Contract / Key findings Contractor / Amount monitor the performance of the contractor while UNRA has not taken action in resolving the matter. Charges as per SCC clause 27.3 have not been imposed on the contractor. Delayed completion of works by 15 months by end of September 2012. The delay has led to an additional time related charges of Shs.919,037,327 of maintaining the engineer on site and others. The Contracts Committee on 10th May 2012 approved an application for price adjustment to allow for price inflation without considering the contractor’s slow progress. At the time of approval, the works should have been at 77% completion but were at less than 10%. This implies the VoP will be subjected on 77% of the works thus grossly increasing the project cost. The supervision consultancy contract expired on 1st November 2012 and works are under supervision by UNRA in-house meagre staff. It is very risky as the contractor is working without adequate supervision. The Works contract was extended and later expired on 7th October 2012. The Supervisors have not issued a notice to the contractor for charging liquidated damages. Tests were conducted on the CRR base course material and results indicated that the material gradation was outside the curve and has more fines than required. 13. Backlog Road This project was audited for follow-up purposes. Maintenance IPC No.11 was certified for payment in August 2012, Programme (BRMP), but the works certified were done in June 2011. The Package No. 1; Lira supportive measurement sheets cumulative Roads by M/s Dott Services at quantities certified and thus may result into multiple Shs.18,440,958,925 payments. A number of anomalies observed in the previous audit have been corrected. The drainage channels were found to have stagnant water and grass overgrowth an indication of poor maintenance yet the works have not been handed over to UNRA. Shs.151,903,710 overpaid on Lira Aduku – lira roundabout road for stone pitching, concrete pipe culverts and excavations for drains. Shs.53,157,000 overpaid on Lira roundabout – Ngeta road for concrete culverts installed. Weak contract management resulting in poor handling of VoP matters on the project and measurements for completed works. 14. Urgent Repairs of This was a follow-up project following last year’s

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S/n Road Contract / Key findings Contractor / Amount Matte- Sekanyonyi- audit. Kikonge Road (32km) The Contractor delayed completion of works and by M/S Babcon (U) maximum liquidated damages were charged. Ltd at Billboards were not planted on either ends of the Shs.224,000,000 road hence undermined transparency and accountability to the public. A number of the road sections had not been well maintained as the carriageway was narrowing due to vegetation growth in side drains and shoulders. Rutting was observed at Ch7+800 gravelled section. Potholes were observed on the carriageway at Ch17+270 RHS. The gravel at Ch 19+480 was stony with less binder material. Non-standard headwalls and wing walls were constructed on culverts installed e.g. for the culvert at Ch10+860. The culvert at Ch18+The swampy section at Ch21+780 had no drains on the LHS and as a result, water was ponding. Water ponding was also observed at Ch28+000 RHS.800 had cracked at the invert. The culvert at Ch23+150 had no headwalls. At Ch26+420 there is silt deposition on the RHS resulting from inadequate drainage arrangements. There was an overpayment of Shs.17,315,800 for gravelling, grading and concrete pipe culverts. 15. Construction of Delayed completion of works i.e. revised completion BulyamusenyuBridge was for 13th March 2012 but by September 2012 in Nakaseke District works were at 74% physical progress. (Lot 6) by M/s Liquidated damages of Shs.161,754,263 has not Armpass Technical Services Limited at been charged from the contractor. Shs.3,235,085,250 Section 1516 of the special provisions to general specifications does not clearly break down the different forms of public traffic to be accommodated by the contractor during the construction of the bridge works. Delays in payment of the contractors certificates beyond contractual timelines hence attracting interest. The Contractor failed to fulfil his obligations of providing the Consultant with fuel for the period July, August, September, October and December 2011; February, May and June 2012. This could have undermined the quality of works implemented by the contractor during this period. The OHS matters were poorly handles as some of the workers on site did not have the necessary protective wear.

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S/n Road Contract / Key findings Contractor / Amount Rebound hammer tests on concrete strength of the bridge components passed. 16. Construction and Delayed completion of works i.e. physical progress Rehabilitation of was reported at 52% while time progress at 113% Strategic Bridge as of June 2012. The delayed caused increased Structures on the costs of supervision. National Road Network – Lot 7: Liquidated damages amounting to Shs.317,899,342 Rehabilitation of was not charged. Bridges along There was a contractor’s claim associated with Ishasha- Katunguru extended period of performance but its status was Road in Kasese and not availed. Kanungu Districts by Reinforcement details could not be assessed M/s Dott Services Ltd because there was no bar bending schedule at Shs.5,298,322,370 provided; what was provided was by the contractor which lacked the shapes. Nugatory expenditure of Shs.36,504,460 as payment made to the contractor for re-building a collapsed road diversion which had been provided for under the contract. There were no customised drawings for the bridge sites thus making it difficult to assess the quantities paid. The technical evaluation and a re-evaluation were conducted on the bids and both reports understated the bid amount for Spencon Services Ltd by Shs.364,000,000. It is not clear whether the evaluations were thorough. Transverse shrinkage-type cracks were observed on pier 3 which is an indication that the concrete used was not properly supervised. Rebound hammer tests on concrete used on RwempunuBridge indicated low strength values for the LHS Wing wall and piers 1&2. Environmental and Social safeguards were not adequately carried out. 17. Construction and Delayed payments of Contractor’s interim Rehabilitation of certificates thereby attracting interests e.g. for IPC Strategic Bridge No.3 of 5th April 2012. structures on the Delayed completion of works i.e. contractual National Road Network - Lot 5: completion date was 1st June 2012 but by end of Rehabilitation of August 2012, major works were still on-going. Bridges in Western Liquidated damages worth Shs.163,585,362 were and North-western not charged. Uganda by M/s The contract lacked provision for social safeguards Terrain Services like OHS. Ltd at Shs.3,271,707,231. 65 for 9 bridges.

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7.15 TRANSPORT SECTOR DEVELOPMENT PROJECT (a) Compliance with the Financing Agreement & 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) Payables Included in Payables, is an amount of Shs.28,550,000 that is due to another project (RSSP). This is an indication that funds are being co-mingled for different projects within the organization. The organization risks withdrawal of funding as comingling of funds contravenes the financing agreements.

Management explained that the said amount of Shs.28,550,000 relates to payment of Land and Property compensation for Project affected Persons under TSDP. There was urgent need to acquire the right of way along the Gulu-Atiak corridor to allow the Contractor carry out mobilization, but there weren‘t enough funds under the TSDP GoU Account at the time of payment. Since there were surplus funds on another GoU project RSSP, a decision was taken to borrow the said Shs.28,550,000.This borrowing has however been settled in the financial year 2012/13.

I advised management to ensure that only funds relating to the project are applied to project activities, and in case more funding is needed, an application should be made directly for the funds. In case of the need to use another project‘s funds, management should obtain authorization from the financiers.

ii) Use of draft policies It was noted that the Land Acquisition Management System (LAMS) which is used to govern the procedure of purchasing land and compensating related parties is still in draft form. Draft policies may not be binding unless approved by the relevant authority.

Management explained that the Land Acquisition Management System (LAMS) has been in draft form as it undergoes further testing. However efforts have been made to finalize this system and have it ratified as follows: 209

(i) Under the guidance of the Social Development Specialist, at the World Bank country Office, the LAMS has been forwarded to Washington for ratification. We are now awaiting feedback from the World Bank Country Office. (ii) UNRA under technical support from European Union has engaged a short term consultant to complete the LAMS manual and have it approved by the UNRA Board by the end of FY 2012/13.

I advised management to expedite the process of signing off all policies and procedures in order to ensure they are binding.

(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 for the following matters; i) Receivables Included in the Statement of Fund Balance was ―Receivables‖ of Shs.1,821,997,500 (USD 725,000). Although this amount was paid back on 23rd August 2012, I was not able to ascertain the nature of the receivable. This exposes the project to the risk of possible misappropriation of project funds.

Management explained that the debit entry of USD 725,000 on the Designated Account was indeed discovered by our Project team while reconciling the June 2012 Cash book. After consultations with Bank of Uganda it was confirmed that this was an erroneous entry which Bank of Uganda subsequently corrected in August 2012. They further explained that they do regular bank reconciliations on all Bank Accounts but they have generally noted that many times there are undue delays in receipt of Bank Statements from their Bankers.

I advised management to always ensure timely reconciliation of project accounts to avoid unforeseeable financial risks.

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ii) No evidence of audit reviews during the period It was noted that although the contractors do give quarterly progress reports, there is no evidence that they are independently reviewed by the internal audit department to verify that the work is done and there is value for money obtained.

Management explained that it is indeed the usual practice by the Directorate of Internal Audit to review contractors‘ quarterly progress reports. However during the financial year 2011/12 there was very little physical progress, so there were hardly any reports to review. During FY 2012/13 most of the road projects under TSDP have picked up and quarterly progress reports are reviewed.

I advised management that when reports are sent by the contractor to management, they should also be independently reviewed by the internal audit department in addition to being reviewed by the project engineers. This will ensure that value for money is obtained.

As at the end of the year 30 June 2012, construction of the Gulu-Atiak road had not yet commenced; only mobilization, surveying and clearing of the land had been initiated.

(d) Status of Implementation of prior year audit recommendations A review of the status of implementation of previous audit recommendations was undertaken and the status is indicated in the table below; Recommendations Status of Action No pre-numbered (serialized) payment vouchers It was noted that all the payment vouchers used during period under review were not serially pre-numbered. The Partially implemented audit trail for ascertaining the completeness of expenses is thus distorted. No evidence of receipt of statutory remissions It was noted that although PAYE and Withholding tax (WHT) were deducted, there was no evidence availed to show that it Partially implemented was actually remitted to URA.

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7.16 ROAD DEVELOPMENT PROGRAMME PHASE III – IDA CR. 3976 (a) General standard of accounting and internal control A review was carried out of the project system of financial management and the following matter was observed;

i) Inadequately supported payments A review of the payments in respect of consultancy services revealed that some of the claims submitted by the consultants were not adequately supported. Examples of such instances are presented below;

Dokolo-Lira road

Date Ref Invoice Details Amount Remarks No USD 22/11/2012 RD311102 26 Reimbursable 9,300 There is no support (air tickets, documentation in respect office rentals to the amounts paid of USD etc) 9.300.

Invoices and receipts for the air tickets from the travel agencies are not attached. 22/11/2012 RD311102 26 Miscellaneous 1,499.91 There are no accountability documents for the miscellaneous expenses incurred by the consultant. Total 10,799.91

Soroti-Dokolo road

Date Ref Invoice Details Amount Remarks No USD Reimbursable 3,250 Receipts for the air Per diem - $500 tickets from the travel International agencies are not flights - $600 attached. Miscellaneous travel expenses - $400 18/07/2011 RD310701 35 Comm. Costs Office rent – no invoices between and receipts. Kampala & Johannesburg - $300 Local transportation - Accommodation – No $200 invoice & receipts. 212

Office rent - $750 Accommodation - $500 Total 3,250

Funds claimed may not have been used for the intended purpose.

I advised management to follow up on the matter to ensure that no funds have been paid for no work done. Thorough scrutiny of claims should also be undertaken before effecting payments.

7.17 ROAD SECTOR SUPPORT PROJECT I - KABALE-KISORO/BUNAGANA- KYANIKA ROAD (a) Compliance with the financing agreement and Government Regulations It was noted that management complied in all material respects to the financing agreement provisions and Government of Uganda financial regulations except for the following matters:

i) Reallocation of project funds to other projects RSSP 1 as a project is funded by both GoU and the African Development Bank/Fund. During the year, a total of Shs.31.3 billion was received from Gou through the IFMS system for this project. However, it was noted that Shs.24.8 billion out of the Shs.31.3 billion intended for this project was reallocated to other projects.

Although there is evidence of internal approvals within UNRA as per the support documents reviewed, there were a number of Interim Payment Certificates from the contractor (SBI) and the consultant (Mott Macdonald) which were not settled on time and as noted in section 7.2 of this report, delayed payments of contractor invoices results into interest charges. There is a risk that the reallocation of projects funds to other projects may hamper timely completion of the project activities and exposes the organization to interest charges in cases of delayed payment of contractors invoices.

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Management explained that the borrowings were for short-term interventions required for other projects that lacked cash due to delays in releases.

I advised that all project money reallocated to other projects be recovered from such projects in time to ensure that the project completion is not affected. ii) Withholding Tax not yet remitted to URA All payments made by UNRA are subject to withholding tax (WHT) before funds are remitted to suppliers as required by the Income Tax Act unless the supplier is exempt from withholding tax by URA. Withholding tax is required to be remitted to URA by the 15th day of the following month from the date when funds are remitted to suppliers. It was noted that as at 30th June 2012 UNRA owed Shs.78 millions to URA for withholding taxes was not remitted by 15 June 2012 contrary to the Income Tax Act.

This is non-compliance to the Income Tax Act and may attract penalties from URA.

Management explained that WHT of Shs.78 million was not remitted to URA in time due to insufficient funding during the financial year 2011/12. However, the outstanding withholding tax was fully paid during the financial year 2012/13.

Management was advised to remit taxes to URA on time as required by the Income Tax Act in order to avoid unnecessary penalties.

(b) General standards of accounting and internal control A review carried out on the General Standards of Accounting and internal control system and the following shortcomings noted; i) Outstanding land compensation claims and advances According to the land compensation report, there were a number of land claimants that had not yet been compensated at the time of the audit. The project has come to an end and the last section of the road was handed over to UNRA by the contractor. Discussions with the land acquisition specialist revealed that some of the outstanding claims relate to family conflicts over land that is yet to be resolved in order for the compensation to be finalized.

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In addition, it was noted that some long outstanding land compensation advances not yet accounted for by the consultant Mott McDonald as at 30th June 2012. The advances amount to Shs.12,028,432 have been outstanding for over 360 days.

Management explained that Shs.2.0 million from the consultant was received during August 2012 leaving a balance of Shs.9.18 million. This is money for beneficiaries who lack the requisite documents to confirm their ownership. Payment for land and property is effected on presentation of documents that show ownership such as land titles.

Management was advised to resolve all land compensation issues before the project is handed over. All unaccounted for compensation advances by the consultant should be recovered. ii) Nugatory Expenditure Section 60.10 of the contract between Government of Uganda and SBI International (The conditions of contract for works of civil engineer) states that all invoices submitted to UNRA should be paid within 28days after receipt of the same. Failure to do that will attract interest on the outstanding invoices by the contractor.

However, it was noted that a number of interim payment certificates (IPCs) were not paid in time as per the dates recommended by the consultant. This led to payment of interest to the contractor amounting to Shs.251,305,390 by UNRA.

Management explained that delays in effecting payment were experienced in the financial year and the interest mentioned above was incurred. The delay in effecting payments arose mainly due to 2 (two) factors: i) Amending the RSSP 1 loan agreement took quite long (November 2010-April 2012). During this period there were no funds disbursements from the donor. ADB funds over 85% of civil works expenses for this project. This led to accumulation of unpaid works certificates that later attracted interest. ii) Insufficient and late release of counterpart GoU fundings. GoU funds are leased quarterly and are insufficient to clear all GoU project expenses like the 15% of works and land and property compensation. During the financial year

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2011/2012, out of a budgeted figure of 35 billion, the total releases amounted to only 31.3 billion.

I advised management to liaise with the Ministry of Finance, Planning and Economic Development for purposes of timely releases of funds to avoid such wasteful expenditure.

(c) Status of prior year audit recommendations The following was the status of the implementation of prior audit recommendations; Prior year audit findings Status Technical failures at the 50 Kilometer stretch (Kabale Partly Resolved: stretching up to Bunagana (DRC border) and Kanika Sections initially pointed out as (Rwanda border), and theft of road furniture and having failed have been signs. addressed. However, there is theft of road signs. Delayed completion of the project per the contract Resolved: terms The road has been concluded and handed over to UNRA. Delayed land compensation Partially resolved: As at 30th June 2012, the compensations process was still ongoing. Transfer of ownership of land to UNRA/Government of Not resolved: Uganda No land designated for the project has been transferred to ownership of Government.

7.18 ROAD SECTOR SUPPORT PROJECT II - FORT PORTAL – BUNDIBUGYO- LAMIA ROAD PROJECT (a) Compliance with the financing agreement and Government of Uganda provisions It was noted that management had in all material respects complied with the covenants contained in the financing agreement and the Government of Uganda financial regulations except for the matters below;

i) Receivables Advance to other projects It was observed that there was a cumulative transfer to the tune of Shs.1,211,732,146 from RSSP 2 project account to other projects. These advances 216

were running from July 2011 to June 2012. Although it had been purportedly stated that the amount would be recovered from other projects, these advances had not been recovered by the closure of the audit. I was not able to establish that this transfer was authorized, approved or whether proper public finance guidelines were followed.

Management was advised to ensure that re-allocations are authorized, approved and proper public finance guidelines are followed. ii) Liabilities to other parties Included under current liabilities is a long outstanding balance of Shs.28,353,232 and a current transfer from other projects amounting to Shs.3,930,633,763 totalling to Shs.3,958,986,995. The accumulated balances run from November 2011 to June 2012 and the amounts remained unsettled/unpaid by the close of the audit. I was not availed with adequate documents to support the said balance as at 30th June 2012.

In the circumstances, the current liabilities are overstated by Shs.3,958,986,995.

Management explained that Shs.28,353,232 was outstanding withholding tax as at 30th June 2012. It was not paid during the year due to general shortage of funds. They further explained that the outstanding liability of Shs.3,958,926,995 were borrowed from other UNRA managed projects like Transport Corridor to pay RSSP 2 expenditure during the year ended 30th June 2012.

Management was advised to investigate and provide documentary evidence to support the current liabilities standing at Shs.3,958,986,995.

(b) General standard of accounting and internal control systems It was noted that management had instituted adequate controls for management of assets except for the following reportable matters; i) Expenditure withdrawal applications

It was noted that all withdrawal applications were not authorized by the Commissioner or Accountant General. Examples are:- 217

Voucher date Application No. Invoice No. Amount (Shs) 6/06/2011 81 17 79,901,179 6/06/2011 80 17 199,620,597.02 14/09/2011 54 13 57,568,581 14/09/2011 55 13 230,718,043.06 9/01/2011 68 15 201,116,577.71 28/10/2011 60 14 233,311,771.28

It was difficult to verify the validity and authenticity of the said expenses.

Management explained that the copies of the endorsed withdrawal application by the Ministry of Finance, Planning and Economic Development are yet to be received.Management was advised to follow up and get copies of authorization from the Commissioner or Accountant General. ii) Withdrawal applications not stamped ―PAID‖ It was noted that all withdrawal applications under the Road Sector Support Project II (RSSP2) were not stamped PAID after effecting payments. Examples are:- Voucher date Application No. Invoice No. Amount (Shs)

6/06/2011 80 17 1,996,205,970.2 9/01/2011 67 15 54,199,419 9/01/2011 68 15 201,116,577.74 14/09/2011 55 13 230,718,043.06 28/10/2011 60 14 233,311,771.28

There is a risk that the vouchers and supporting documents may be used to make duplicate payments.

Management was advised to ensure that payment vouchers and the accompanying support documents should be stamped ―PAID‖ after effecting payment to avoid duplicate use.

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iii) Withdrawal applications without receipts It was observed that all withdrawal applications and IFMS payments did not have receipts. Examples are:- Voucher date Application No. Invoice No. Amount (Shs) 9/01/2011 67 15 51,199,419 9/01/2011 68 15 201,116,577.71 14/09/2011 55 13 230,718,043.06 6/06/2011 80 17 199,620,597.02 28/10/2011 60 14 233,311,771.28 6/06/2011 81 17 79,901,179

Lack of adequate supporting documents makes it difficult to verify the validity, accuracy, existence and completeness of expenses.

Management was advised to ensure that all payments are supported with adequate supporting documents.

(c) Status of project implementation A review of the status of project implementation revealed the following matters; i) Compensation of tenants/occupants It was observed that some of the tenants/occupants up to now have not yet been paid. This could affect implementation of the project in case of litigation matters arising.

Management explained that they have endevoured to compensate all approved claimants as per the valuation reports from the Chief Government Valuer‘s office. However, there were cases of some claimants who did not turn up for verification on Resettlement Action Plan (RAPs) that made their valuation of properties took long to be agreed with the Chief Government Valuer and in some cases there are disputed with claimants.

I advised management to expedite the processes of settling outstanding claimants to avoid delays that could be caused by the unsettled claims.

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ii) Project completion date

The completion date of the RSSP 2 was estimated to be 3rd January 2013 but up to now the physical progress of the work is 80% (36 months including 3 months for mobilization).

This implies that the project will not be completed within the stipulated time frame.

Management explained that this was due to the increased scope of works on the part of the contractor. The time constraint would be addressed when the addendum is approved by the bank for an extension of 15 months.

(d) Status of implementation of prior year recommendations A review of the status of implementation of previous audit recommendations was undertaken and the status is indicated below; Issue Status Acknowledgement of receipt by contractor/ consultant It was noted that all payments to contractors and consultants lacked 3rd party documentation acknowledging receipt of funds. Action not taken Adjustments A variance in income applied for and what was approved by the Action taken donors amounting to Shs.816,396,313. Withholding Tax Withholding tax worth Shs.138,298,342 was deducted from the No action taken consultants‘ and contractors‘ payments, withholding tax receipts were not availed. Payment vouchers Payment vouchers were not serially numbered. Numbers were Action taken written by hand. Management was advised to ensure that payment vouchers are serially numbered to ease the verification process. Unapproved journal vouchers Some journal vouchers prepared had no evidence of approval by a Action taken senior official. Management was advised to ensure that all journal vouchers are independently approved by a senior official. PAP’s compensation

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Some payment vouchers did not have: No action taken expropriation of land for the road reserve form (verification of identity), Transfer (assignment) form (unregistered plots). Management was advised to ensure that the UNRA compensation procedures/systems are adhered to while compensating the PAP‘s.

8.0 THE UGANDA ROAD FUND

8.1 Transactions not captured on the IFMS system A review of the records of Uganda Road Fund revealed that it operates two other bank accounts; the collection account and operations account whose total expenditures were Shs.5,087,891,791and Shs.21,180,635,706 respectively. The expenditure records for these accounts were not captured through the IFMS system.

The failure to process the transactions through the IFMS system implies non compliance with financial regulations and limits the achievement of government‘s intentions for which the payment and accounting processes were automated.

The Accounting Officer explained that this was due to the funds that were rolled over on activities and these funds were outside the Treasury General Account.

I advised the Accounting Officer to ensure that all transactions of Uganda Road Fund are processed through the IFMS system.

8.2 Implementation of the Road Fund Act-Collection of Road User Charges According to Section 21 of the Uganda Road Fund Act, Uganda Road Fund is required to collect Road User Charges. However, it is Uganda Revenue Authority (URA) that collects Road User charges and remits to the Consolidated Fund as per section 14 of Uganda Revenue Authority Act. Due to this conflict in the two laws, management of Uganda Road Fund has failed to operationalize the provision in the Road Fund Act which may hamper the activities of the entity.

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The Accounting Officer explained that efforts had been undertaken to have the URA Act amended and recognize the need to transfer funds directly to URF account in Bank of Uganda. It was also explained that the Board through interface meetings with the Ministry of Finance Planning and Economic Development (MoFPED) had presented their requirement to have the Fund operate as a second generation road fund.

I advised the Accounting officer to continue liaising with other stake holders and pursue the amendment and implementation of the Act and have the laws reconciled to avoid the conflict.

8.3 Unspent bank balance -Shs 2,962,354,491 Section 433 of Treasury accounting instruction provides that at the close of the financial year, un-expended bank balances shall be repaid to the Consolidated Fund. Contrary to this provision, it was noted that balances amounting to Shs.2,062,354,491 outstanding at the end of the previous financial year were transferred from the General Treasury Bank account to Collection account and Operations account as committed Funds.

The Accounting Officer explained that URF through the Permanent Secretary/Secretary to the Treasury has applied to the Solicitor General seeking a legal opinion as to the URF retaining unutilized balances at the end of the financial year in conformity to its status as a Fund.

The outcome from the above action is awaited.

8.4 Budget Performance During the year under review, Uganda Road Fund planned to undertake a number of activities as detailed in the policy statement. A review of the reported performance by the entity revealed that some key planned activities were not undertaken. Details are in the table below: Budget Output Review

Planned Expected Outputs Approved Actual outputs Actual Deviation Activities Budget Expenditure Estimated Shs.000,000’ Shs.000,000’ 222

National & Disburse funds for 181,870 Disbursed Shs.167.866bn 167,866 14,004 District Road the routine manual for Routine manual 1.Routine Maintenance maintenance of maintenance of manual 20,200km, routine 19.591km, Routine maintenance mechanized mechanized maintenance 601 km not maintenance of of 13,503km, Periodic done. 12,500km and maintenance of 584km, periodic maintenance Routine maintenance of of 1,739km 175bridges and periodic 2.Periodic maintenance of 25 Maintenance selected bridges, 1155 km not installation of road signs, done. road marking; road reserves demarcation District, Urban Fund the routine 91,190 Disbursed 84.34bn to 84,390 6,800 and maintenance of fund routine maintenance District Roads Community 22,500km of district 18,932km of District 3568km not Access Road roads, 5,000km of Roads, 1,005km of urban done. Maintenance urban roads and roads and 61.5km of bottleneck removal KCCA roads. Periodic on 30,000km of maintenance of 6,591km community access of districts roads, 230km roads. of urban roads and 38km of KCCA roads. Total 20,844

The Accounting Officer explained that apart from the shortfall in releases, Uganda Road Fund had challenges related to: The high costs of input materials into road maintenance making it difficult for the agencies to attain the planned outputs as agreed in the performance agreement due to inflationary pressures which at one time peaked at 28% in the year.

The lack of inadequate capacities of the agencies in terms of manpower and road equipment.

Poor procurement planning.

I urged the Accounting Officer to always ensure all that anticipated factors are incorporated into the plans to ensure achievement of planned activities.

8.5 Inadequate performance statement Uganda Road Fund Management in complying with the above prepared and submitted to the Minister, the Performance Statement and One year Road Maintenance Plan and Expenditure Programme for the Years 2010/11 and 2011/2012.

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A review of the performance statements for 2010/11 and 2011/2012 revealed inadequacies in terms of information provided in the report and specifically the details of the roads and bridges (inventory) showing their maintenance regimes through UNRA, districts and municipalities are not maintained by URF. In absence of this information the Uganda Road Fund risks financing similar activities year after year under each designated agency.

The Accounting Officer explained that it is planned that a road management system will be developed to manage the inventory of roads.The action is awaited.

8.6 Lack of a strategic plan In the previous audit reports, it was indicated that Uganda Road Fund did not have medium and long term plans to facilitate the management and operations of the entity. These are supposed to be contained in a strategic plan which is still lacking. There appears to be no clear road map under which the strategic plan is to be developed. Lack of a strategic plan implies that the implementation of activities aimed at achieving the entity‘s mission and long term objectives may not be properly guided.

The Accounting Officer explained that the strategic plan is expected to be in place by 30th June, 2013. I urged the Accounting Officer to adhere to the stipulated time line.

8.7 Un accounted for payment–Shs.623,280,000 Shs.623,280,000 was transferred to Uganda National Roads Authority from Collection Account no.0031800880000000 as additional funding to cater for emergency funding of some roads and bridges in Kigezi and Bunyoro regions.It was observed that UNRA intended to undertake the work using force account; however the funds remained unaccounted for at the time of audit making it difficult to confirm that the funds were properly utilized for the intended purposes.

The Accounting Officer explained that the funds were disbursed in June 2012 and works had not been completed by the time of the audit. I urged the Accounting Officer to ensure that the funds are accounted for.

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8.8 Non deduction of 6% Withholding tax Treasury Accounting Instructions Section 257 requires Accounting Officers and in accordance with Section 120 of the Income Tax Act, 1997 to make deductions of withholding tax from payments to suppliers.

Contrary to this requirement, it was noted that the Fund made qualifying payments to suppliers for goods and services but the mandatory 6% WHT amounting to Shs.42,038,471 was not deducted at the time of payment to the firms. Details are shown in the table below:

Payments without deducting WHT

Invoice/Vr. Amount Payee 6% WTH Remarks URF2550 68 362 400 COWI Uganda Limited 4,101,744

URF2551 67 614 400 COWI Uganda Limited 4,056,864

4508 25 595 655 Graphic Systems (U) 1,535,739 Ltd 991PCOE113000NBM 37,052,000 Kom Consult 2,223,120 991PCOE113000NBL 74,104,000 Com Consult 4,446,240 991PCOE113000NBJ 44,565,000 Iam Engineering U Ltd 2,673,900 991PCOE11325008L 55,012,000 Dativa and Associates 3,300,720 991PCOE113000NBK 201,779,857 MFI solutions 12,106,791 991PCOE1135703QV 103,523,843 New Plan Ltd 6,211,430 3143 23,032,420 Multilines International 1,381,945 42,038,471

The Accounting Officer explained that steps had been taken to deduct the funds from the suppliers and remit them to URA.The results of this action are awaited.

8.9 Special releases to designated agencies-Shs.3,243,530,000 The Ministry of Finance, Planning and Economic Development releases funds to Uganda Road Fund on a quarterly basis basing on the National approved budget and MTEF ceilings. Similarly Uganda Road Fund releases funds to designated agencies on a quarterly basis depending on how much is received from MoFPED. The quarterly release of funds to designated agencies is based on the formula which gives each designated agency a chance to benefit from every release.

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Contrary to the above defined procedure, Uganda Road Fund transferred Shs.3,243,530,000 to selected Designated Agencies as special release for emergency interventions over and above the normal second quarter releases to the same designated agencies. The criterion/basis used to select the designated beneficiary agencies was not defined since many had applied and few were selected. In addition, the beneficiary designated agencies had not accounted for the special funds released to them by the time of audit.

Special releases reduced the quarterly amounts that should have been released to the other agencies while the beneficiaries of the special releases received more than their due share. This practice distorts implementation of the planned road maintenance activities.

8.10 Failure to open Road Fund bank accounts by agencies It was observed that funds remitted to agencies (Districts) to implement road maintenance activities were banked together with other funds received by the Districts. There were reported instances where funds remitted were attached by URA due to tax obligations. The failure to separate the road fund bank accounts from the other accounts operated by the agencies may result in misuse of the funds or failure to have a follow up of the funds by management of Uganda Road Fund.

The Accounting Officer explained that URF had written to the Accountant General to allow for the opening of Road Fund accounts at the Agencies. The outcome is awaited.

JUSTICE LAW AND ORDER SECTOR

9.0 MINISTRY OF JUSTICE AND CONSTITUTIONAL AFFAIRS

9.1 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. A review of the Ministry‘s expenditures revealed that the entity charged 226

wrong expenditure codes to a tune of Shs.4,554,501,722. The above practice renders the budgeting process inadequate and undermines the intentions of the appropriating authority.

In their response management acknowledged existence of mischarge of expenditure during the financial yearand attributed it to budget cuts that have been persistent for quite a while. I advised management to always seek for approval of reallocations to avoid charging wrong items.

9.2 Compensations to Third Parties In the year under review the Ministry paid out a total of Shs.20,746,165,234 as compensation to third parties. Most of the compensations arose from consent judgments. Audit reviewed a sample of the compensations and found a number of irregularities, which are highlighted here below;

(a) Case: CS No. 16/2009-Moses Ocip, Odong Emmy & others Vs AG

The above case was lodged by former internally displaced people in the six camps adjoining areas of Lira municipality. The claimants argued that government‘s decision to place them in camps led to loss of their property i.e. cows, goats, households items etc. The Solicitor General instructed a physical verification of the lost items and subsequent settlement of the claims submitted by their plaintiff lawyers. The lawyers‘ submissions were accompanied with details of claimants and the property lost signed off by the claimants and countersigned by the IDP camp commandants.

The decree arising out of the consent judgment agreed on 13th May 2011 between the parties provided for payment as below:- Item lost/damages etc Cost per Amounts to be item settled (Shs.) 60,314 heads of cattle 600,000 @ 36,188,400,000 59,272 goats/sheep 150,000 @ 8,890,000,000 Damages to 4,304 claimants 2,000,000 @ 8,608,000,000 53,686,400,000 Costs of the suit at 2% of the total sum payable 1,073,728,000 Total loss/damages and cost to the lawyers 54,760,128,000

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Out of this claim, Shs.9,935,575,360 has so far been paid leaving a balance of Shs.44,824,552,640. The following observations were noted from a review of the case file noted above:-

(b) Extra Compensation on Goats

It was noted that the parties used an average price of Shs.150,000 for each goat. However, a precedent had been set by a court ruling of 16th February 2010 in case HCCS 38 of 2006 in which the judge specified local goats prices at Shs.75,000 after a full hearing on the issue and with an expert opinion from Ministry of Agriculture. Using a higher price implies a loss of Shs.4,149,040,000 for the 59,272 goats being claimed and an extra 2% (Shs.82,980,800) for legal fees.

Management explained that the decision to pay the differing rates was made in 2009 yet verification was done in 2010/11 and was based on the case in detinuethat requires one to pay the current market price of chattel so as to put the plaintiff in the position he would have been had the tort not been committed. Management further explained that the court ruling had placed the value of exotic goats at 350,000 and 75,000 for the local goats and since it was very difficult to separate the exotic and the local from the many claimants, the committee agreed to have a uniform price and thus chose the medium price of Shs.150,000 per goats.

I was not satisfied with the management explanation on grounds that the exotic breeds had not been introduced in the country at the time of the insurgency. Further, the rationale of setting up a verification team could not be justified if the team could not verify/ascertain the claimants‘ livestock category. Further, decisions of the committee were not availed for my review.

Sample review of the Lawyers attached annexes to the suit (at Erute IDP camp) revealed glaring inconsistencies between the original submission by the claimants and the Ministry‘s verification report. It was noted that whereas the claimants had declared their lost property and confirmed it by signing in April 2006, the 228

government verification team adjusted the claims upwards by either adding property which was not in the earlier submission or by changing the goats originally claimed to cows. The verification exercise inflated the original cost by a total of Shs.113,850,000. The details of the inconsistencies in the sample review are shown below:- Claimants Property Net worth Original Net worth Inflated Compensat exclusive claim by for payment ion due of claimant original (shs) after damages submitted claim verification (shs) by lawyers exclusive (shs) of damages (shs) Ogwang Richard 10 cows 6,000,000 10 goats 1,500,000 4,500,000 Okelo Debina Opio John 15 cows 10,050,000 7 goats 1,050,000 9,000,000 Akoko Bosco 7 goats Opi Luciano 17 cows 10,200,000 1 bicycle 0 10,200,000 Enyang Carmella Okade Geoffrey 8 cows 4,800,000 8 goats 1,200,000 3,600,000 Eyer Betty Tia Lameck 9 cows 5,400,000 9 goats 1,350,000 4,050,000 Agoa Silvia Nam jennipher 16 cows 9,600,000 16 goats 2,400,000 7,200,000 Apenyo Francis Opio Allan 16 cows 9,600,000 16 goats 2,400,000 7,200,000 Akello esther Emma Yubentino 19 cows 11,400,000 19 goats 2,850,000 8,550,000 Alok Hellen Among Katolina 18 cows 10,800,000 18 goats 2,700,000 8,100,000 Okoa Sizza Acuma Francis 28 cows 16,800,000 28iron 0 16,800,000 Akullu Hanna sheets 1 bicycle Olet Rose 15 cows 9,000,000 1 bicycle 0 9,000,000 Atia Jaspher Oyom Simon 5 cows 3,000,000 1 bicycle 0 3,000,000 Awor Christine Okello Sam 15 cows 9,000,000 15 goats 2,250,000 6,750,000 Atim Jackline Akelo Milonina 3 cows 2,400,000 1 mattress 0 2,400,000 Ogwal Geofrey 4 goats Acan Polina 15 cows 9,000,000 1 mattress 0 9,000,000 Otim Denis Oyera Jimmy 3 cows 3,000,000 2 0 3,000,000 Achora Josephine 8 goats mattresses Tiwo costa 10 goats 1,500,000 10 chickens 0 1,500,000 Adongo Erumulina 131,550,000 17,700,000 113,850,000

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Management explained that the Committee interviewed each claimant and the Camp Commandants, Local Leaders and village mates of each claimant to establish the livestock of an individual. The final figure of compensation was based on the information from these interviews and not what is in the claim forms submitted by the camp commandant.

I explained that the committee should not have disregarded the fully endorsed original claims submitted by the claimants and advised management to have the claims paid using the endorsed submissions. The extra amounts paid were therefore unjustified.

(d) Ireda IDP camp

Inflated Compensation at Ireda IDP Camp A review of the Ireda IDP claimants schedule submitted by the plaintiff lawyers revealed the following anomalies:- The signatures on the last three pages (15 to 17) (representing claimants from 228 to 266)) appeared doubtful. They all had the same font, an indicator of a single person signing throughout. It is important to note that in all other pages (1 to 14) on average 50% of the claimants used thumb prints implying that most of the claimants did not know how to sign. By having the 3 pages all signed by one person pointed to forgery. Unlike the other pages (1 to 14) of the plaint which are photocopies these three pages were found in their original form. It was clear that their aim was to replace the original submissions with those newly signed lists to inflate the original claim. Scrutiny of the camp commandant‘s signature (Alfred Ochen) revealed that the signature on the original submissions (page 1 to 14) differed from the one on the three pages (15 to 17). This further proved the forgery on the last three pages alluded to above. It was further noted that all the claimants on the last 3 pages, claimed for lost cows and had no house hold property, goats or sheep lost. A total of3,229 cows were claimed on the last three pages translating into a total claim of Shs.1,979,400,000 due for compensation for 39 claimants. This means that on average, each claimant claimed for 83 cows as per the last three doubtful 230

pages. When compared with the earlier genuine claimants who claimed on average 15 cows per claimant, the exorbitant figure raised further suspicion. Shs.1,979,400,000 could have been paid irregularly.

In their response, management explained that the role of the committee was to receive the certified lists from the camp commandant of each camp and use those lists to identify the claimant and the nature of claim. On examination of each claimant, the committee would arrive at a final position of a claimants claim. Management further explained that the Committee had no role in the initial compilation of the lists used for filing the suit.

I explained to management that the whole claim raised doubt in the authenticity of the submission from that camp and referred this case to investigating bodies of Government for further scrutiny the outcome of which is awaited.

(e) Case: HCCS no. 38 OF 2006-Adyera Robert & Others VS AG

During the year under review, a sum of Shs.5,000,000,000 was paid to a law firm to cater for compensation under Adyera Robert & others VS AG case. I reviewed the documentation and the case file relating to this expenditure and observed that:- On 13th December 2006 a plaint was filed by Robert Adyera and 1700 others suing Government for damages occasioned by loss of cattle and other animals during the insurgency in the Acholi Sub region. These were categorised as follows:-

(a) Claimants whose cattle were lost. While government acknowledged liability, only 20% was paid in 1994. (b) Claims verified and approved by Ministry of Defence. While these claims were forwarded to Ministry of Justice, no payments had been effected. (c) Claims which have not been verified by government but have supporting documents from relevant local council authorities, independent witnesses and from veterinary officers.

On 18th June 2008, top government authorities intervened in the case to avoid implication of pursuing the matter in the courts of law and directed the Attorney General to negotiate an out of court settlement for the 1700 claimants. The communication was clear as to the following:-

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No other claims of a similar nature should be entertained in future from this region. The verification exercise not to take more than 4 months from the date of communication. The payments to be paid within two financial years i.e. 2008/2009 and 2009/2010. I reviewed the case file and the following observations were noted;

(f) Unsupported Inclusions

It was noted that the Ministry entered into a consent judgement on 11th September 2008 based on a second amended plaint filed on 24th June 2008, six (6) days after a directive from the authorities. This was contrary to the directive that referred to the original plaint filed in 2006. As a result, the claimants increased from 1700 to 4698 as a result of the second amendment. Further, the amended plaint included properties inter alia, houses, motor vehicles, grinding mills, caterpillars, water pumps etc contrary to the directive that was only restricted to livestock. According to the records reviewed the claimants had risen to 8989 as at 28th January 2011.

This implies that the Ministry committed government to settlement of additional costs which were not in the original plaint. Government is likely to incur a huge expenditure that should have been avoided. I recommend that the authorities intervene in the matter and further investigation be undertaken.

(g) Payments Before Court Conclusion It was noted that payments were effected before court could concluded on some crucial issues like prices for livestock to be used for compensation. Determination of damages due to claimants, legal fees and costs were still unresolved. This can lead to some claimants being overpaid using plaintiffs‘ determined prices and recoveries might be impossible.

In their response, management acknowledged that payment was made before court conclusion. This was in category (a) and (b) above where verification had been concluded in 1994. I requested for the details of all the claimants to allow me verify but these were not availed. 232

(h) Legal Fees to Lawyers It was noted that Shs.500,000,000 was paid to the lawyers as 10% legal fees, however there was only the consent judgment of 11/8/2008 on file which provides for negotiation of lawyers fees by the parties, failure of which the same shall be referred to court. No basis for this payment in line with the consent judgment is on file i.e. negotiated fees approved by court or taxed costs by court. Further, 10% legal fees are too high compared to a similar case for Lira claimants where costs were negotiated at 2% of the total payable amount. The agreement between the lawyers and the claimants was not provided for my review.

In their response management explained that the 10% paid to the lawyers was based on an agreement between the Claimants and the lawyers. Their intention to pay the lawyers was to recover Government Revenue. I informed management that in the absence of documentation to the effect, I am unable to verify their assertion.

(i) Verification of Claimants and Lack of a Credible Database It was noted that government has continued to release funds to the lawyers for compensation and yet the verification committee has not come up with the final approved list. This may lead to some claimants being paid against fictitious claims. Further, the Ministry has been paying many claimants from the then war in the north for the past ten (10) years and many of them may turn up on these lists due to lack of a database for all these previous payments.

In their response management explained that the payments were indeed made before a data base was in place, but they were in line with claims that were verified by the Bigombe Committee, for claims between 1990 and 1994 and those verified by the Ministry of Defence Committee for claims between 1994 and 2009 and were not determined by officers of the Ministry. I advised that proper databases should be developed and regularly updated to ensure authentic payments.

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9.3 Transfer and Use of Heritage Arbitration Funds On 14th July 2011, a sum of Shs.11,942,283,906 was transferred from case backlog accountto Heritage Arbitration account in BoU. At the time of audit, only Shs.189,677,090 was spent from the Heritage Arbitration account leaving a balance of Shs.11,752,606,816 to date. It was noted that the account has not been active for the last 8 months (November 2011 to June 2012) and therefore funds had not been put to use. The rationale of opening the account and depositing huge funds could not be established since the arbitration case was being fully funded from the BoU forex account.

In their response management explained that the operations of the account was suspended by the Legal and Parliamentary Affairs Committee pending fulfilment of adherence to PPDA procedures. Management further explained that to avoid the high risk of losing the case on grounds of non-effective representation, the Ministry of Justice approached the Ministry of Finance for emergency intervention and an alternative funding by way of a supplementary of Shs.6,785,417,000 was released in support of the arbitration process.

I recommend that the unspent funds be transferred to the Consolidated Fund and re-appropriated accordingly.

9.4 Employee Files Section 5 of the Uganda Public Service Standing Orders, 2010 requires a public officer‘s records to be complete at any given time and section 4 (b) of the same details the minimum records expected on an employee open record file e.g. extracts of Service Commission‘s minutes, letters of appointment, acceptance of offer of appointment, confirmation in appointment, adjusting salaries, copies of Academic and Professional certificates etc. However, a sample of the personal files reviewed had a number of vital records above missing on file, an omission that can be attributed to laxity on part of the personnel department. Having incomplete records makes current and future references to the files futile and creates doubts regarding the authenticity of the appointments.

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I advised management to update all files in accordance with section P-d and 4(b) of the Public Service Standing Orders.

9.5 Budget Performance A review of the performance of the Ministry in regard to the expected outputs revealed that in a number of areas, actual outputs fell short of planned outputs as shown below:-

Planned Activity Approved Amount Actual out put Budget (shs) released (shs) First parliamentary Council 748,601,656 662,989,284

a. 35 bills drafted a. 11 bills published b. 35 acts published b. 13 acts published

c. 90 statutory c. 70 statutory instruments‘ instruments d. 9 ordinance d. 5 ordinances e. 9 by laws e. 01 by law published f. 8 legal notices f. 10 legal notices

Law Council 339,984,552 229,006,959 Conclusion of Disciplinary cases

a. 75 sittings to be a. 47 sittings convened convened b. 94 disciplinary cases b. 200 cases to be concluded concluded c. 11 disciplinary cases c. 50 disciplinary cases disposed off disposed

In their response, Management promised to continue striving to attain the planned activities but added that attainment of most of the planned activities depended on other key players and factors which are sometimes beyond our control.

I explained that failure to fully implement the planned activities impacts on delivery of services to the public. Management should devise means to overcome implementation bottle necks.

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9.6 Poor Contracts Record Keeping In all procurement files reviewed, audit noted a general weakness in maintenance of procurement records. The following observations were particularly noted:-

All Procurement files are not properly referenced; the PP form 20s sequence numbers were not indicated; in addition, all files had 4 digits of procurement reference numbers instead of 5 digits which is wrong according to PPDA procurement guidelines. Documents were not properly filed in their respective files. Some files had unsigned contracts committee minutes.

Management regretted the omission and promised to improve, now that they have a fully fledged procurement unit. I await management‘s commitment in this regard.

9.7 Litigations Against Government The department of Civil Litigation in the Ministry of Justice and constitutional Affairs is the one that deals with court awards and compensations. The process begins when the intending complainant lodges an intention to sue at court and the Attorney General is given notice to which, a reply must be received within a specific period of time. The Attorney General then must seek instructions and details of the subject from the very institution for which the suit is against.

I reviewed a sample of files and found that they all have taken time without responding to the request from the AG for instructions. The table below refers.This is one of the causes of loss of cases against Government.

Case Date instructions Date instructions Amount requested and given Institution to give Claimed (shs) instructions 1 100/02/M/12 Makubuya On the 13th April Not Given by the 100,000,000 Fred VS AG Instructions time of writing this requested from report Car belonging to the Ministry of Internal Police Knocked and affairs killed a toddler 1 yr old 2 100/01/M Madada A request was sent to Not Given by the 80,000,000 Vincent Ministry of Agriculture time of writing this for instructions to report Knocked by a staff of defend GoU on the 236

NAADS on a NAADS 24th Feb. 2012 motor Cycle Ministry of Agriculture wrote to NAADS copied MOJCA 3 100/04/M/01. This was Request was sent to No reply has been 320,000,000 a case of Police office IGP and received on received by the ACP Kato got involved in the 1st November time of the Audit property wrangles 2011 (Birungi & Co: Advocates) 4 100/04/K/012 Request was sent to No reply has been 250,000,000 IGP and received on received by the Same as in 3 was a case the 1st November time of the Audit of ACP Kato and 2011 Mwesigwa Kaddu, (Mugoma, Maboga, Wakhakha and Co :)

5 Mawokota Chemical Ind. Intend to sue GoU for PS MOD received 15,000,000,000 Ltd( no case file number looting by the GoU request on the 16th was opened on the 29th between 1981 and April 2012 and has Feb 2012 1983 not yet replied 6 100/15/L/011 Called for instructions Instructions not 13,123,398 plus on the 1st Nov. 2011 received to date Lab Marks Investments interest Ltd. Work on Mbale referral Hospital and the retention money has not been paid since 2011 7 100/15/2/11 LUBMARKS Work by Local GoU Request was Investments Ltd. on fencing of Nakawa received on the 12 /Nagulu estates Jan 2012 and not action has been taken 8 100/06/R/012 Wrote on the 23rd No reply yet march 2012 and Augustine Ruzindana request for claim for gratuity instructions was received by public service on the 16th April 2012 9 100/03/K/012 Kalema Arrested and take to Request for Silasie JATU and letter to instructions to CPS where He was Police sent on the give a bond claims 1B 22nd March 2012 and no reply yet 10 100/20R/011 Rodex Claim to have done Request sent and Enterprises Ltd extra work outside the ministry replied the contract with the giving the details ministry and the why it will not pay ministry got to know after works were complete 11 100/03/K/011 Claims He property Sent to MOD on the that was rented by 10th Jan 2012 and Ruth Owino to sue GoU NRM/ISO/NRM 237

for her property that secretariat, was set no reply to date was set ablaze in Busia on fire due to negligence of officers of the NRM 12 100/07/A/2012 Anna Liza, Ministry of Wrote to F. Affairs Foreign Affairs on the 19th April

received 60 leather 2012 although bags in 2007 worth there is no sign of 112,147,200 UG Shs.: acknowledgement and refused to pay on file. Intention to sue with interest of 23% until payment is made in full 13 100/03/L/012 Lions club of Kasese Ministry of defence Ltd received request to

issue instructions on the 16th April 2012 and has not given them to date 14 On the 28th Oct 2011 Ministry of Health MOJCA received received a request intention to sue from for instructions on Birungyi, Barata & the 1st Nov. 2011 Associates on behalf and has not replied of LUBMARKS to date Investments Ltd. For amounts not paid by MOH for work done in 2008 in Mbale ward 8&9

I advised the Accounting Officer to put in place guidelines that ensure requests from the Attorney General are worked on urgently.

10.0 MINISTRY OF INTERNAL AFFAIRS

10.1 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. Review of the Ministry‘s expenditures revealed that the Ministry charged wrong expenditure codes to a tune of Shs.1,415,774,567.This practice renders the budgeting process redundant, and it is contrary to the intentions of the appropriating authority. The practice also leads to misleading reporting.

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In response, management explained that the mischarges arose as a result of having insufficient funds on the relevant item codes whereas the payments were critical and un-avoidable.

I advised management to streamline the budget process to ensure that sufficient funds are allocated to each account. Authority should be sought for any reallocations undertaken.

10.2 Irregular purchases The basic Public Procurement and Disposal principles stipulated in part IV of the PPDA Act requires all public procurements to be undertaken in a manner which promotes transparency, accountability and fairness and should maximize competition to achieve value for money. Contrary to this, the Ministry withdrew cash totaling to Shs.42,359,451 purportedly for purchasing stationery and other office items. These procurements were not subjected to any form of competition. There is a risk that cash procurements did not achieve value for money.

Management explained that the advance of funds to officers was done based on the urgency to purchase the required items.

I advised Management to follow the procurement laws and regulations.

10.3 Advance to Individual’s Bank account Shs.10,152,162 was paid to an officer‘s bank account for the purchase of stationery. No clear reasons were given for not committing through the normal procurement process given that the Ministry had prequalified suppliers for the items that were bought. This practice is prone to abuse. I advised management to ensure that all procurements are undertaken in accordance with the procurements procedures in the procurement Laws and Regulations.

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11.0 UGANDA POLICE FORCE

11.1 Unsupported utility payments Transactions made with utility organizations were not supported with adequate documentation to evidence the accuracy and completeness of the amounts paid to the companies. In particular the following were noted: Payments totaling to Shs.14,157,888,631 were not supported by invoices or demand notes from the suppliers and there were no receipts acknowledging the payments from the providers. There were no statements showing actual consumption billed (electricity and water) were provided. In instances where the payments were pre-paid there were no reconciliations to show the consumptions against the prepayments. Further, examination revealed that payments made for water to Urban Councils totaling to Shs.58,095,799 did not have acknowledgment receipts to confirm that the Urban Councils received the money. These being self-accounting institutions, non issue of receipts may cast doubt as to whether the payments were made to the proper provider.

11.2 Outstanding Commitments Contrary to the established commitment control system, management continued to commit the Force even when there were no funds available.

It was noted that Uganda Police Force still held an amount of Shs.38,457,244,017 in outstanding payables at the close of the financial year.

The continued accumulation of such domestic arrears is in contravention of the commitment control system. The entity risks its reputation, and is also likely to incur more expenses in form of litigation costs in case the service providers opt to take legal action.

Management was advised to adhere to the Commitment Control System.

Although management later submitted bills for verification, the bills were not referenced to any particular schedule and therefore could not be verified.

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I advised management to ensure that payments are based on invoices/ demand notes from the utility companies. Regular reconciliations should also be undertaken to match payments made with receipts and statements from the utility companies. In addition, the commitment control system should be adhered to.

11.3 Mischarge of expenditure items – Shs.563,783,138 A review of the Force‘s expenditures revealed that the entity charged wrong expenditure codes to a tune of Shs.563,783,138. There was no authority for the reallocation of expenditure sought from the authorities. This practice does not only distort the intentions of appropriating authority but also results into misreporting in the financial statements.

Management in response stated that the Police budget is underfunded to support the level of services it‘s required to fulfil its mandate. It was therefore inevitable that certain items were used to fund critical activitiesand this resulted in a mischarge.

I have advised the management to ensure that accounting regulations are strictly adhered to.

11.4 Unsupported travel abroad – Shs.55,087,870 Shs.55,087,870 was paid to various Force staff and other agencies for purposes of facilitating officers to travel to various destinations outside Uganda. However the travels were not adequately supported by accountability documents. Specifically the following was not provided: Copies of the passport pages where the officers purportedly travelled, air tickets, boarding passes, visa receipts, and electronic receipts were missing. Some individuals who were advanced money as per-diem and other travel allowances have not accounted for the funds due to lack of back to office reports.

I advised management to recover the amounts from the officers concerned in absence of proper accountability.

11.5 Board of Survey - Boarding of uneconomical fleet 241

The Board of Survey report of the previous year recommended boarding off of a total of 176 un-economical vehicles during the year under audit. It was however noted that by the end of the year the vehicles had not been boarded off. The Board of Survey report for the current year recommended the same vehicles for boarding off in addition to some more vehicles. Management has continued to use these vehicles despite their being costly to maintain.

Management in response stated that the current level of operation of the force requires a total of 1,200 vehicles and 1,812 motor cycles which makes the fleet of 821 vehicles insufficient. This prompts them to continue using some of the vehicles earmarked for boarding off.

I advised management to dispose the items as recommended by the Board of Survey.

11.6 LPOs issued retrospectively Financial regulations require that the LPOs are issued before the deliveries are made for the supplier to have information about the item, quantity, price, place of delivery and when to deliver. However, it was observed that LPOs totaling to Shs.1,909,826,207 were issued after the deliveries had been made. This practice is likely to lead to accumulation of domestic arrears.

Management explained that the practice is attributed to the nature of police operations which is such that they cannot postpone acquisition of some goods and services necessary to deal with emerging situations that disrupt law and order in the country.

I advised management to ensure that LPOs are issued before any supplies are made, and supplies are received only based on issued orders to avoid accumulation of unpaid bills.

11.7 Contractors’ files without valid securities A review of a sample of the contractors‘ files revealed that some files did not have performance securities. It was also noted that some contractors‘ performance securities had expired and were not renewed although the contracts were still 242

running. There is a risk that contractors may not perform and management will not have the option of recourse to performance securities as provided for in the contract agreements.

Management in response stated that a team of officers had been set up to monitor the contracts and ensure that valid securities are in place. Management further stated that communication had been made to respective companies to provide valid performance securities.

I await for the outcome of efforts being made to get valid performance securities.

11.8 Payment of VAT to un registered supplier– Shs.25,860,600 The VAT statute provides that for a tax to be treated as a Value Added Tax, it should be charged on every taxable supply made by a registered taxable person. Contrary to that provision, the Institute of Fisheries Training was paid Shs.25,860,600 as VAT on the supply of glass boats when it was not a VAT taxable person. Payment of VAT to a non-VAT taxable person leads to loss of Government funds.

I was informed by management that URA had been notified to recover the tax. I await for the outcome of the recovery measures instituted.

12.0 UGANDA PRISONS SERVICES

12.1 Deficit on Utilities The entity provided a budget of Shs.3,886,023,154 and Shs.1,306,639,928 for electricity and water respectively during the year. However, a total of Shs.6,158,029,863 and Shs.2,952,346,862 was incurred leading to the deficit of Shs.2,272,006,709 on electricity and Shs.1,645,706,934 on water.The budget deficit reflects inappropriate budgeting and shows weakness in controls over the management of arrears. There is risk of disconnection of power and water due to unsettled bills.

Management in response stated that the accumulation of deficit on utilities was due to fixed MTEF ceilings which cannot allow adequate budgeting for utilities.

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Management further stated that the deficit is still outstanding but had now put in place measures to control utility usage by having prompt action on water leakages and the stopping of other inappropriate use of utilities.

I await efforts being made to control usage of utilities in Uganda Prison Services.

12.2 Segregation of duties Review of the budget for the financial year 2011/2012 revealed that Shs.3,192,000,000 was budgeted for the construction of Prisons. Civil works were carried out during the year in line with the budget.Details are below Planned activity Budget (Shs) PRDP Completion of Namalu rehabilitation center 340,000,000 GOU Strengthening of Jinja Main Prisons 80,000,000 Kasangati Prisons 80,000,000 Rehabilitation of sanitation system at Nakasongola 60,000,000 Expansion and renovation of Ndorwa prisons 110,000,000 Construction of kakuto prison-Rakai 200,000,000 Completion of a Twin ward at Mbarara 100,000,000 Re-fencing of Murchison Bay prison 170,000,000 JLOS Renovation and modification of Patongo prisons 300,000,000 Re-modification of rehabilitation infrastructure at Upper Prison 150,000,000 1,390,00,000

It was however noted that there was no independent supervision of the works since the same Prisons Engineer carried out all the activities relating to construction, including:- Preparation of Bill of quantities, Involvement in the evaluation process Supervision of the construction Issuing of completion certificates for payments Acting as Contract Manager

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It was further noted that although some contracts still required the supervision services of a consultant, no consultants were procured, hence there is a risk of compromising the quality of works undertaken.

Management in response stated that consultants were hired but not all works were handled by them as this would be too costly and unsustainable. Management further indicated that more engineers had been recruited to enhance the capacity of the department and were also now engaging engineers from the Ministry of Works to enhance supervision of civil works.

I await the outcome of efforts being made to stream line the supervision of civil works in Uganda Prisons Service.

12.3 Failure to Withhold Tax – Shs.360,465,418 It was observed that UPS did not withhold tax to the tune of Shs.360,465,418 from eligible suppliers contrary to the requirements of Income Tax Act. Non- compliance with the tax law can result in fines and penalties. Management in response stated that they did not withhold Tax due to a system error and that they had written to the affected companies requesting them to refund the money.

I advised Management to ensure that statutory deductions are made and remitted as required by the laws in place.

12.4 Mis-charge of expenditure items; Shs.195,324,362 A review of the Department‘s expenditures revealed that the entity charged wrong expenditure codes to a tune of Shs.195,324,362. The expenditure did not meet the definition of what these codes are required to be charged with. The summary of the mischarges is shown below:

Expenditure Category mischarged Amount (Shs) Medical expenses 4,133,650 Recruitment Expenses 11,094,000 General supply of goods /services 163,815,305 Maintenance - Civil 5,294,000 Residential buildings 84,600,357 Engineering and Design 13,520,700 Total 195,324,362 245

The practice renders the budgeting process redundant, undermines the intentions of the appropriating authority and leads to misleading reporting.

Management in response explained that some of the outputs like construction and renovation had no related budgets for allowances for implementation of such projects and as such funds had to be reallocated to other expenditure codes. The anomaly is regrettable and this will be addressed in the next budgeting process.

I advised management toutilize the budget as appropriated and also ensure that a proper budgeting process is undertaken and adequate funds allocated for each account code and MTEF.

12.5 Un-accounted for advances- Shs.32,428,000 Shs.32,428,000 advanced to staff to carry out various activities for the UPS remained un-accounted for by the time of audit. Failure to account for official advances on time is not only against Finance and Accounting Regulations but could also lead to financial loss and misappropriation.

Management in response stated that they had instructed the affected officers to submit their accountabilities of the stated advances.

Management should ensure compliance with accounting regulations. Any funds outstanding should be recovered from the concerned officers.

12.6 Procurement of Non-medical stores Joint Medical Stores was contracted to supply non-medical sundries to the UPS during the financial year under review. However review of the procurement file revealed that direct procurement method was used without following the PPDA guidelines on procurement on use of such kind of method. The procurement was in contravention of the procurement regulations.

Management explained that the direct procurement method was preferred because of timely delivery of supplies as delay in delivery of items would cause a disaster to the prisoners‘ health. I advised management to strictly adhere to the procurement regulations.

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12.7 Un-prequalified firms It was noted that a number of firms were given work to supply various goods and services to UPS for a sum of Shs.250,007,375, yet they were not prequalified. The practice is contrary to Regulation 98 (e) of the PPDA 2013 regulations.

Management in response stated that the firms although not prequalified were offering specialized services like repair of specialized machineries, Soap production Training while procurement from Steel and Tube Industries was done to save funds as they were buying materials from the manufacturer.

Management has been advised to always comply with the procurement regulations.

12.8 Budget Performance A number of Projects were planned for implementation during the year. Review of the Ministerial Policy statement revealed that the following planned for projects were not implemented by the end of the financial year:

Un-implemented projects Donors Project Amount (Shs) GOU Strengthening of Jinja Main prison 80,000,000 GOU Expansion and renovation of Ndorwa prisons 110,000,000 GOU Construction of Kakuto Prisons –Rakai 200,000,000 PRDP Expansion of Kotido prison 300,000,000 Total 490,000,000

Management attributed the failure to implement the projects to insufficient release of the approved budget. Only Shs.6.634 billion out of a development budget of Shs.10.502 billion was released representing 63.17% of the development budget.

Management was advised to put in place realistic budgets that can be implemented within the agreed time frames.

12.9 Inspections (a) Energy Saving stoves The department budgeted for Shs.350,000,000 in the financial year 2010/2011 for the construction of energy saving stoves, the reason being to reduce the utilization

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of firewood. During inspection, a sample of energy saving stoves was taken from Kasangati Prison and Kitalya Prison. It was noted that the stoves were non functional.

According to management stoves in Mpigi, Kasangati, Sentema, Nakasongola, Lugazi and Jinja were commissioned and are in use but that some stoves are not operational because fitting saucepans had not been procured. I advised management to ensure the items are put to use to avoid deterioration.

(b) Actual agricultural output versus budgeted output at farms Inspection of the farms‘ records revealed that the farms did not meet their budgeted targets; the statistics indicated that the output is approximately 50% of the expected output. Details are shown below:

Acr Season 2011B Season 2012A Consumed at To Headquarters es source Farm Budget Actual Budget Actual Season Season Season Season kgs 2011B 2012A 2011B 2012A Ibuga 400 720,000 407,220 720,000 363,130 87,000 58,130 320,000 305,000 Ruimi 500 900,000 358,885 900,000 300,000 197,485 33,294 160,000 Nil Isimba 400 720,000 314,080 720,000 550,000 Nil Kitalya 150 270,000 66,000 270,000 18,000 28,000 13,000 Nil Nil Bufulubi 300 540,000 44,000 540,000 13,000 41,500 13,000 2,500 107,000

Management in response stated that the overall production is determined by the level of investment in farm inputs, investment in terms of Machinery, prisoner population (Labour), 100% budget release in a timely manner to enable purchase of the farm inputs, favourable weather conditions and readily available funds to cater for maintenance and repair of farm machinery. Management further stated the production was affected by inadequate release of funds and the errant weather.

(c) Construction of Kapchorwa Prison The contract for construction works at Kapchorwa Prisons was awarded to Amugol General Enterprises at a cost of Shs.978,998,826. Comparison of budgeted and actual works done revealed that some budgeted works had not been executed as indicated in the following table:

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Item Budget Executed Variance Administration block 1 0 1 Wards 3 2 1 Kitchen 1 0 1 Recreation facilities 1 0 1 Housing units 10 0 10

A number of works especially housing units have not been done.

The staff houses

Management explained that the scope of work was reduced to 2 wards, VIP latrine, Kitchen shed and fencing due to shortfall in funding and thatthe works are currently at finishing stages.

Management was advised to liaise with the responsible authorities to ensure release of budgeted for funds.

(d) Jinja Prisons

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According to the budget, there was a provision of Shs.80,000,000 for the re-roofing of the administration block and electrical rewiring of Jinja prisons. However, during the audit inspection it was noted that there was nothing done. The condition of prisons administration block is likely to deteriorate further.

Management in response stated that works were not executed due to insufficient release of funds.

Management was advised to liaise with the responsible authorities to ensure release of budgeted for funds.

13.0 JUDICIARY DEPARTMENT

13.1 Mischarge of Expenditure

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. I noted that during the year under review, a sum Shs.15,527,280,027 was charged on items which do not reflect the nature of the expenditure. For example expenditure item 211103 which according to the chart of accounts should only be charged with staff allowances was actually charged with stationery, computer accessories and fuel among others. 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 on the appropriateness of the future budgets since the reported actual figures are misleading.

Management explained that the mischarge of expenditure was brought about mainly by gross underfunding of institutional activities amidst spending pressures.

I advised Management to always seek reallocations in case need arises.

13.2 Dormant Accounts

Five (5) local currency accounts were found with a NIL bank balance for the financial years 2010/11 and 2011/12 implying that they are dormant. Maintaining such accounts is against the guidance by the Accountant General. In addition, if these accounts are not closed, they are prone to abuse.

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In their response, management explained that they had written to the Accountant General to have all the dormant accounts closed.

13.3 Cash Withdrawals

During the year under review the Department withdrew a total of Shs.3.4 billion from the Treasury General Account to undertake several activities. Audit review revealed a number of irregularities which are highlighted here below:- 13.3.1 Non Compliance with the Treasury Accounting Instructions (TAI)

It is a requirement under section 173 of the TAI that all Payments wherever possible must be made by means of direct bank transfer or crossed cheques, only to the persons named in the vouchers or their accredited agent. The practice of drawing cash to incur expenditure is not encouraged given the risks associated with handling cash.

I advised management to minimize the withdrawals given the inherent risks associated.

14.3.2 Unaccounted for Cash Withdrawals

Section 226 of the TAI‘s 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 vouchersimmediately 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.

It was noted that out of the Shs.3.4 billion withdrawn in cash, Shs.956,033,493 was unaccounted for by the time of audit. The highlights of my findings are as follows:-

Travels and inspections: in many instances, itinerary for inspections, acknowledgement of receipt of allowances, fuel receipts and activity reports were not attached.

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Refunds of moneys spent on officers‘ facilitation: Requisitions duly authorised, acknowledgement of allowances and fuel accountability were not availed for verification. Security personnel payments: Basis for the payment, daily parade roll calls, force numbers and acknowledgement of receipt for the allowances were equally not availed. Contingencies for workshops: Attendance lists, invoices, receipts and activity reports were not presented for verification. Management of registries: Acknowledgement of allowances if any by beneficiaries, basis and rates for the payments and invoices and receipts for procurements if any, were not attached. Various office activities: Full accountability for the stated activity not presented for verification.

Under the circumstances, I could not establish as to whether the amount in question was put to proper use.I recommend recovery of the said funds.

13.4 Advances to Individual Personal Accounts

a. Non Compliance with Treasury Accounting Instructions

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, the Department undertook several field activities for which facilitation was made through making advances to personal bank accounts for officers implementing the activities. A total of Shs.3,630,121,204 was advanced under these circumstances. This was contrary to the accounting regulations specified above.Such a practice exposes government funds to a risk of loss.Besides, the entity does not have any control over such funds deposited on personal bank accounts.

I advised the Accounting Officer to minimize the practice funds channeled through personal accounts and comply with the regulations. 252

b. Unaccounted for Advances

A total of Shs.667,067,500 advanced to individuals personal bank accounts was not accounted for as there were no accountabilities presented for audit.

In the circumstances, I could not confirm whether the funds in question were utilized for the intended purposes.I recommend recovery of the outstanding amounts.

c. Emergency Repairs

I examined 10 payments worth Shs.165,970,000 in respect of emergency repairs deposited on the estate managers‘ personal account. Out of this amount, a total of Shs.143,838,600 was paid to several companies for undertaking emergency repairs. The funds would be accounted for after carrying the identified repairs. The following were noted;

All payments were to five firms with amounts ranging betweenShs.1.8 million to Shs.1.98 millions an indication of deliberate circumvention of the Shs.2 million threshold required for competitive bidding as per PPDA Regulations. There were no engineers estimates of repair requirements attached as guidance to quantity and costings; instead the payee relied on only proforma invoices from suppliers. There was no certification of work done by the estates manager or users of the facilities. Shs.8,630,316, 6% WHT for the supplies and services to the department by various service providers was not deducted.

Under the circumstances, audit could not establish whether all the amounts expended were for genuinely undertaken repairs. I advised management to institute strong controls in its systems for motor vehicle repairs. In addition, the above payments should be investigated further and where misuse is confirmed, recovery measures should be initiated.

13.5 Payment of Allowances 253

Irregular Payments of Allowances

The Allowances, emoluments and benefits payable to Judicial Officers and Support Staff are stipulated in the Resolution of Parliament Section 3 of Salaries and Allowances (Specified Officers) Act, CAP 291, Circular Standing Instructions and Government of Uganda Standing orders 2010.

A total of Shs.462,439,900was paid out as monthly allowances by the entity. These allowances were classified as process server allowances, session allowances, state briefs allowances, top up allowances and transcribers‘ allowances.I observed that these allowances were paid irregularly because they were not supported with anyadministrative circulars/standing order instructions approving them from Ministry of Public service.

In their response, management explained that the different allowances are due to the unique nature of Judiciary operations. I advised them to have the allowances mentioned above regularised by the Ministry of Public service.

13.6 Expenditure on Rent

Management spent Shs.3,772,905,953 on rental services during the FY2011/12. The following observations were made:-

a. Tenancy Agreement Without Approval of UgandaLand Commission

Article 239 of the Constitution of the Republic of Uganda mandates the Uganda Land Commission (ULC) to hold and manage any land in Uganda Vested in and acquired by Government of Uganda. One of the functions of the ULC is to execute deeds like leases, tenancy agreements for Government lands and development therein or property rented by Government.

I noted that Management entered into a tenancy agreement with a Landlord on 6th August 2011 at a monthly rent of USD.96,045 including service charges and excluding VAT. It was however noted that tenancy agreement was signed without the involvement of ULC as required by law. No plausible explanation was provided for this anomaly. 254

Management regretted the omission and promised to have it regularized at the earliest opportunity, I await the outcome. b. Non Issuance of Tax Invoices

According to Section 29 of the VAT Act Cap 349, a taxable person making a taxable supply to any person shall provide that other person, at the time of supply, with an original tax invoice for the supply. A sum of Shs.315,737,044was paid to three (3) landlords in respect of VAT on rental payments as shown below:-

VAT paid to Landlords EFT ENTITY VAT AMOUNT (Shs) 2307054 Firm 267,499,981 1790448 Firm 4,567,320 2009895 Firm 5,400,000 2009895 Firm 2,574,828 1790539 Firm 23,796,610 1790539 Firm 11,898,305 Total 315,737,044

It was however noted that no tax invoices were issued by the landlords before the payments were effected. Management based these payments on tenancy agreements. In the absence of a tax invoice, there is a risk that the landlords will not account for the output VAT collected and hence denying government the needed resources.

I advised management to make VAT payments against tax invoices. c. Non deduction of Withholding Tax on Rental Payments

Section 119 of the Income Tax Act requires that where a government institution pays an amount in aggregate exceeding one million for the supply of any services, the payer shall withhold tax on the gross amount of the payment at the rate of 6%.

An examination of the rental payments revealed that a total of Shs.79,550,472was not withheld by management while making payments to landlords contrary to the Income Tax Act as shown in the table below:-

Landlord EFT Total amount WHT (Shs) paid (Shs) Dharamsy Morarji & sons Ltd 1790394 153,702,630 9,222,158 Dharamsy Morarji & sons Ltd 1899514 79,839,977 4,790,399 255

Dharamsy Morarji & sons Ltd 2009893 71,158,625 4,269,518 Dharamsy Morarji & sons Ltd 2009893 71,158,625 4,269,518 WKG property 1790539 156,000,000 9,360,000 WKG property 1790539 78,000,000 4,680,000 International Islamic Charitable 1899524 28,200,000 1,692,000 organization 79,550,472

Failure to deduct the taxes in question can lead to imposition of penalties and fines from URA. d. Expired Tenancy Agreements

A total of Shs.396,257,857 was paid to various landlords whose tenancy agreements had expired as shown below:-

Table showing payments to Landlords under Expired Contracts Description Purpose EFT Invoice Supplier Expiry Date Amount (Shs) Being payment of rent in 1790407 3,384,000 Individual 30.06.2011 respect of Paidha Sub-court for July 2011 to June 2012

Being payment of Rent for 1790474 8,507,000 Individual 30.06.2009 Sironko Sub Court for the Period 1st July 2007 to 31st May 2011 as per attachment. Being payment of rent for 1794084 8,507,000 Individual 30.06.2009 Sironko court (Jan 2011 to May 2011) Being payment of Rent for 1899514 79,839,977 Firm 30.04.2008 Court of Appeal for the Month of September 2011 as per attachment. Being payment in respect of 1790394 153,702,630 Firm 30.04.2008 rent for court of appeal for July and August 2011 Being payment in respect of 2009893 71,158,625 Firm 30.04.2008 rent for court of appeal for November 2011 Being payment in respect of 2009893 71,158,625 Firm 30.04.2008 rent for court of appeal for October 2011 Total 396,257,857

From the above analysis, it was noted that a number of these agreements had expired as far back as 2008. There is a risk that the Department paid rent where there was no genuine legal obligation or where there was no occupancy at all. One 256

of the Landlords had refused to renew the Tenancy as they wanted vacant possession of their premises.

I advised management to regularize the tenancy agreements in the event that these premises are still being occupied.

13.7 Expenditure on IT Services and Equipments

A total of Shs.1,980,936,946 was spent on IT related expenditure. The bulk of this was used to purchase hardware, monitoring and evaluation of various Judiciary IT stations, payment of honoraria and data management fees among others. The following are some of the critical findings that require management attention:-

a. Insufficient Physical Protection of IT Infrastructure An inspection of the IT hardware at TWED towers revealed that the server room was not backed with extra security features like sensitive locking systems. Inside the server room, the suspended ceilings appear to be weak and not capable of stopping any water leakages.

In their response management attributed the omission to lack of funds.

I advised management to provide more physical protection to the courts‘ IT Infrastructure as well as information system, given the huge investment therein as well as the vital information that is maintained.

b. Instances of Flouting of Procurement Regulations

We noted instances where a number of procurement regulations were flouted as explained below:-

Many of the procurements above Shs.50 million, lacked authorization from the Solicitor General. A number of supporting procurement documentation was not availed such as contracts, evaluation committee minutes, quotation pp Form 4 and letters of bid acceptance etc. As such, I could not establish whether the PPPDA laws and regulations were followed. The increment in price due to foreign exchange was not approved by the contracts committee. This resulted into extra allocation of funds by government.

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A number of procurements were not recorded in the Departments‘ asset register. There were instances where contract award amounts differed from amounts paid to the contractors causing unexplained losses. We noted cases involving irregular use of direct procurement method. We noted instances where unit prices charged on the invoice differed from prices approved in the frame work contract. There were also instances where the supplier was not the lowest bidder and no documentation was provided to prove that indeed the lowest bidder was ever contacted. There were cases where completion certificates were not provided.

As a result of the above, a total of Shs.78,035,261 worth of expenditure on IT supplies was rendered doubtful.

I advised managementto strengthen its procurement systems and ensure full adherence with the procurement regulations. In addition, the above procurements should be reviewed furtherwith an aim of ruling out fraud.

13.8 Expenditure on Stationery and Printing

A total of Shs.1,566,651,427 was spent on procurement of stationery and printing.The following irregularities were noted:-

a. Unsupported Procurements of Stationery

Audit review revealed that expenditure worth Shs.61,342,932incurred in relation to purchase of stationery items lacked proper supporting documentation despite repeated requests. Under the circumstances, I could not establish whether the amounts were expended for the intended purposes.

I recommend recovery of the said funds.

b. Doubtful Procurement of Stationery

The review further revealed the following;

In some instances the items recorded in the GRN were not recorded in the stores ledger. 258

In a number of instances, there was no record of distribution of the stationery procured. Some of the items were not recorded in the consignment book. This rendered the procurements doubtful. The quantities of some of the purchases differed from those recorded in both the supplier‘s delivery note and the entity GRN with those reflected in the stores ledger. There was direct procurement for some of the purchases. There was no competition from other companies and the entity could have obtained uncompetitive prices. The frequently procured supplies of stationery did not have framework contracts. We noted that some procurements were done without clearance from the solicitor general yet the amounts were above the regulatory threshold of Shs.50million. One of the companies used in the procurement of stationery was not prequalified for FY 2011/12. This is against PPDA regulations.

Under the circumstances, Audit disallowed expenditure to the tune Shs.117,831,293.I advised managementto strengthen its procurement systems and ensure full adherence with the procurement regulations. c. Procurement of Stationery Using Single Sourcing Method

Regulation 108 of the PPDA regulations states that Micro procurement may be used where the estimated value of the procurement does not exceed 100 currency points i.e. Shs.2 million. In addition regulations 143(1) and (2) state that a single source is where one bidder is selected from among a number who are able to meet the requirements of the procurement, such as in an emergency situation or for micro procurement.

A review of the documentation revealed that the entity used single sourcing method in situations that were not of an emergency nature or ought not to have been procured under micro procurment as the estimated value was found above Shs.2 million. It was accordingly noted that management procured stationery worth 259

Shs.80,167,472 using the wrong procurement methods. Use of wrong procurement methods limits competition and attainment of competitive prices.

I advised management to always ensure full adherence with the requirements under the procurement law.

13.9 Motor Vehicle Expenses

During the year under review, a sum ofShs.1,820,024,644was spent on purchase and repair of motor vehicles. A perusal of the documentation reveals the following irregularities:-

Doubtful Expenditure on Motor Vehicle Repairs

A total of Shs.229,222,883 was considered doubtful as it lacked accountability documentation such as requisitions, tax invoices, contract committee approvals and certification of completion of repairs.Included in the funds above is a monthly advance of Shs.5,000,000 to an officer to cater for emergency and minor repairs of the entity motor vehicles. However, these funds are not accounted for.

I recommend recovery of the outstanding amounts.

14.0 JUDICIAL SERVICE COMMISSION

14.1 Mischarge of expenditure The Parliament of Uganda appropriates funds in accordance with the needs of the country. 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 Commission charged wrong expenditure codes to a tune of Shs.584,094,336. The bulk of the funds were diverted from other activities to pay allowances without the requisite authority.The practice undermines the budgeting process and the intentions of the appropriating authority. The practice also leads to incorrect financial reporting.

Management in their response stated that the funds were used for activities that were planned but had been under funded yet very important.

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I advised management to streamline the budgeting process and ensure that funds are allocated to budget lines in accordance with priorities of the Commission. Any reallocations should be undertaken in accordance with the regulations.

14.2 Staff training Public service guidelines in regard to training stipulate that; All trainings undertaken should be planned Equal opportunities should be availed to all staff The training should be undertaken with a view of achieving value for money

However, a review of the Commission‘s training function revealed that the commission lacked a functional training committee and there was no training plan drawn for the year under review. As a consequence the Commission sponsored its staff for a number of courses without any form of needs assessment to ensure the capacity gaps are addressed.

Although management stated that a training committee was in place and is composed of heads of departments, chaired by USF&A, there were no minutes to this effect.

I advised management to institute measures to ensure the training undertaken in a planned and transparent manner.

15.0 LAW REFORM COMMISSION

15.1 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. A review of the Commission‘s expenditures revealed that the Commission mischarged certain expenditure codes to a tune of Shs.767,779,828. The bulk of the funds were diverted to pay allowances without the requisite authority.The practice is irregular and undermines the budgeting process and the intention of the appropriating authority. This also leads to misleading financial reporting.

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I advised management to streamline the budgeting process and ensure that funds are allocated to budget lines in accordance to priorities of the Commission. Any reallocations should be undertaken in accordance with the regulations.

15.2 Decline in Non-tax revenue performance There was a notable decline in the non-tax revenue (NTR) collected from the sale of publications in the year under review as demonstrated below:

F/Y10 2008/09 2009/10 2010/11 2011/12 NTR 255,028,281 249,284,213 254,815,640 156,696,306

Management attributed the decline in NTR for 2011/12 to the low demand for publications especially when there are no new publications. It was also noted that donations of publications to selected Government institutions also affected the revenue collected.

Management was advised to develop strategies to enhance revenue collections.

16.0 UGANDA HUMAN RIGHTS COMMISSION

16.1 NSSF Remittances - NSSF contributions on Annual gratuity The commission paid a total of Shs.645,078,076 to its staff as gratuity for the year under review without subjecting it to statutory deduction as per Section11 (1) of the NSSF Act. This implies that the commission owes a total of Shs.96,761,711 to the Social Security Body for the year under review. This can be extrapolated to over Shs.400 million for the five year period.

Management explained that gratuity is paid annually but original intention was to pay at the end of the five year contract of each staff. However, this was not possible because all unutilized funds at the end of the financial year are transferred back to the consolidated fund and they are not allowed to accumulate domestic arrears. Since this gratuity is considered a terminal benefit (a saving), the Commission considered it inappropriate to save on a saving.

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I advised management to follow the law and endeavor to recover these funds for onward remittance to NSSF.

16.2 Branch operations The Commission has a policy of centralizing the processing and approval of all transactions of the Regional offices at headquarters. For any payment effected from any of the Commissions‘ Regional Office to be concluded, the requisitions, invoices, payment vouchers, cheque books and any other necessary supporting documentation have to be brought to the Head Office in Kampala for Authorization. The monthly budgeted amounts are transferred to branch bank accounts and expensed by headquarters on various account lines on the IFMS before the actual expenditure has been incurred by the Regional offices.

However, it was noted that the repeated travels by Officers from the nine regional branches to Kampala for processing payments is not economical in terms of time spent by the offices on the road and money spent in facilitating the officers‘ travel to Kampala. A case in point is Masaka Regional Office where, the Accounts assistant travels for transaction processing cost the commission Shs.3,193,000 for a period of 6 months. The practice also leads to distortion of financial statements, as the items against which the moneys are expensed by Headquarters are different from the actual expenditure items by the regional offices.

Despite the centralized control, weaknesses in accountability were still noted from the branch expenditures.

I have advised the commission to develop better and more efficient and economic monitoring methods.

17.0 DEPARTMENT OF PUBLIC PROSECUTIONS

17.1 Mischarge of expenditure – Shs.2,364,237,588 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 263

are tagged to particular activities and outputs using account and MTEF codes. A total of Shs.2,364,237,588was wrongly charged on budget lines to fund activities that were not meant to be paid from the affected budget lines.

The practice is irregular and renders the budgeting process ineffective, undermines the intentions of the appropriating authority and leads to inaccurate financial reporting. Management recognized and regretted this anomaly.

I advised management to undertake proper budgeting and in case of any reallocations, these should be undertaken in accordance with the regulations.

17.2 Outstanding obligations The Directorate had accumulated outstanding obligations of rent and electricity bills amounting to Shs.434,105,754 and Shs.53,000,000 respectively as at 30th June, 2012. The rent arrears accumulated due to delays in renewing the Tenancy Agreement while the electricity bills arrears accumulated because of disagreements between the landlord and the tenant on the billing system. The Directorate risks being evicted from the premises due to failure to pay rent in time.

I advised management to engage the landlord to have the matter resolved.

17.3 Withholding Tax Management did not deduct withholding tax amounting to Shs.5,690,196 from various payments to suppliers.

Failure to deduct the tax contravenes the Law and could attract fines and penalties from the Uganda Revenue Authority. Management attributed this problem to anomaly in the IFMS system which has since been corrected. I advised management to recover and remit the taxes to URA.

17.4 Lack of Policies The Directorate of Public Prosecutions is responsible for conducting prosecutions for all criminal offences in the country. In doing so, it is important for the DPP that the prosecutions are conducted in a fair, transparent, consistent and ethical

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manner. To uphold this principle, staff must have a standard for reference in form of a policy or guidelines.

It was however, noted that the Directorate lacks policies such as prosecution policy, victims of crime policy, disclosure policy, witness protection policy etc. Lack of these policies may be an indication of non standardized methods of prosecution for various sets of crimes.

Management should endeavour to have these policies in place to ensure a standardized approach to handling prosecutions.

17.5 Risk Management System It was noted that the Directorate has developed long term Strategic Plans to guide it towards fulfilling its mandate. Best practice requires management to periodically identify and assess risks associated with the organization that could hamper implementation of the plan and find appropriate measures to mitigate them. However, during the review, it was noted that although the department has an elaborate Strategic Plan, no management framework has been put in place to manage risks. In the absence of such a framework, it becomes difficult to monitor the risks that can prevent them from achieving their strategic goals and therefore devise strategies to mitigate them.

Management was encouraged to develop an entity wide risk management framework to help mitigate risks.

18.0 UGANDA REGISTRATION SERVICES BUREAU

18.1 Inadequate funding It was observed that the Bureau was not allocated any development budget, despite being in the process of restructuring. As a consequence the Bureau did not make any development interventions. Furthermore, the enforcement and compliance unit which was established with the mandate to ensure that all stakeholders comply with the provisions of the law in regard to registration requirements, operated without a budget for the year and hence could not extend this function externally.

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In response management explained that they had held a number of consultative meetings with both the Parliamentary Committee on Legal and Constitutional Affairs and the Ministry of Finance on their funding constraints.

I have advised URSB to continue liaising with the Ministry of Justice and Ministry of Finance to ensure that arrangements are put in place to obtain adequate funding.

18.2 Delays in the Business process The Bureau is mandated to undertake Registration services such as, civil (birth, death and marriage) registrations and business registrations such as companies, intellectual property rights all of which are critical for planning by the private sector and Government as a whole.

Despite marked improvements, it was noted that there were still delays in undertaking the above registrations with an average turn around time of three days. The residual delay can mainly be attributed to having a manual verification of records.

In addition the registry has no stand-by generator, implying that there is always down time in case of power outages.

Management explained that the Bureau has plans to automate all the business processes in addition to providing online services to the public. A Generator is also planned to be acquired under the automation program for its registrations.

I await the results of the Management initiatives.

18.3 Poor storage of files in the Business registry The Business Registry handles sensitive documents, whose alteration, misfiling or intentional pull out may have disastrous effects on the Bureau‘s clients. It is therefore imperative that such documents are stored in a safe place with ease of tracking and should not be accessible to unauthorized individuals. However inspection revealed that the registry is not set up to required standards, for instance; there is inadequate storage space, a number of files placed lying on the

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floor making it difficult to trace some files, and in many instances access to the registry and files is not restricted.

I advised management to improve the filing system of documents in the registry.

18.4 UGANDA REGISTRATION SERVICES BUREAU – LIQUIDATION ACCOUNT 18.4.1 Operationalization of the Insolvency Law The Official receiver handles liquidation of both Government entities and private companies upon request. Following a need for reforming the law, a new Insolvency Act was passed in 2011. However, it was noted that to-date this law has not been operationalized due to lack of regulations. In absence of such regulations, interpretation of provisions in the Act is open to varying opinions.

In their response, Management explained that a final draft was produced by a consultant and is pending the involvement and comments from stakeholders.

I advised management to liaise with the responsible stakeholders to have the regulations expeditiously finalized.

18.4.2 Irregular Lending out of Funds from the Liquidation Account The Liquidation Account holds all proceeds from the sale of assets of the liquidated companies and payments from the account are made to settle the liquidated companies‘ liabilities such as terminal benefits, creditors and legal fees and any surplus should be passed on to the original shareholders.However, it was noted that the Ministry of Justice irregularly borrowed money from this account and at the time of audit, Shs.3,353,802,640 was still outstanding. The practice is irregular and could lead to loss of funds.

Management explained that they had been reminding the Ministry to make good the debt to which they responded by settling part of the debt in 2007 and 2009.

I advised Management to follow up the matter with the Ministry including involving the Ministry of Finance, Planning and Economic Development. Further, the practice of lending funds from the Liquidation Account is irregular and should be stopped.

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18.4.3 Payments made over and above the Realisation from Assets sold When a particular company/individual goes under liquidation, the funds realised from sale of assets, realisation of debtors or any receipts should be used to settle its outstanding creditors. It was however noted that in a number of cases, payments totaling to Shs.1,784,125,344 were made by the Liquidator in excess of collections from the sale of assets, collections from debtors and other receipts for certain companies. This implies that funds of other companies or from other sources were used to settle liabilities of other companies/individuals. The practice creates shortfalls for the unpaid liabilities of the affected companies and also contravenes the Insolvency Act which requires that the debts shall be paid in full, unless the property of the bankrupt is insufficient to meet such debts, in which case they shall abate in equal proportions among themselves. The companies for which payments exceeded collections are detailed below:

NO COMPANY SALES EXPENSES (Shs) EXCESS PAYMENTS PROCEEDS (Shs) AS AT 30/6/2012 (Shs)

1 UAHL 8,429,920,788 9,819,575,044 1,389,654,256

2 UEB 13,658,168,506 13,874,318,944 216,150,438

3 UCPL 16,014,697,786 16,154,989,371 140,291,585

4 INTRA-AFRICA 0 16,680,715 16,680,715

5 BEGOMOHAMMED 0 10,449,759 10,449,759

6 BUSYBEE 500,000 575,000 75,000

7 E.A 500,000 874,000 374,000 CONSTRUCTION 8 CONKRETE 500,000 575,000 75,000

9 MUDDU-AWULIRA 544,935,102 555,159,693 10,224,591

10 TWIIGA 350,000 425,000 75,000

11 BOGOL AIR 75,000 75,000 SERVICES Total 38,649,572,182 40,433,697,526 1,784,125,344

Though Management explained that all liquidation of Government companies was voluntary and therefore the owners (Government) are legally bound to cover all liabilities, I informed management that the mandate of covering the deficits is not with the liquidator. 268

In my recommendation I advised that the principle in the law should be followed in compensating creditors of particular companies. Arrangements to compensate those who are not satisfied with the available settlements should be made outside the liquidation process/account.

18.4.4 Companies handed over to the Liquidator after assets were sold off A number of prime company assets of Uganda Consolidated Properties Ltd (UCPL) and Uganda Electricity Board (UEB) were sold off shortly before going into receivership. At the time of liquidation only minimal balances due from sale of such assets were transferred to the receiver. Earlier proceeds from the sale were not transferred to the receiver for onward settlement of the liabilities and liquidation costs, creating huge liquidation deficits.

The liquidation deficits of these companies could have been minimized if earlier proceeds were utilized to settle the outstanding liabilities.

Management was advised to ensure that all liabilities and assets of companies under liquidation are duly handed over and the liquidation process handled in accordance with the provisions of the Insolvency Act.

18.4.5 Outstanding Balances from the purchasers of UEB Assets in Jinja It was noted that assets formerly belonging to UEB which were sold to UPDF have not been fully paid for. The company came into liquidation in April 2006 after the assets had been sold and the liquidator was only charged with a duty of collecting unpaid balances. At the time of sale, UPDF paid a commitment fee of 10% of the offer price and was required to pay the balance by 27th June 2006. Six years later the balance of Shs.1,866,600,000 had not been paid despite several reminders.

I advised Management to pursue all available means to recover the unpaid balances.

18.4.6 Purchase of shares in M/s Victoria International Airlines Ltd The Ministry of Finance, Planning and Economic Development (MoFPED) requested URSB in July 2006 to purchase shares in M/s Victoria International Airways Ltd (VIA

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Uganda). Subsequently, US Dollars 250,000 was paid out of the liquidation account for purchase of shares in M/s Victoria International Airways.

However, the decision to acquire shares in a private company when Government was divesting itself from such businesses was not justifiable. No due diligence was undertaken before a decision to invest was taken. Furthermore, information available indicates that the operations of the Airline in which the investment was made were short-lived, implying government funds were lost.

I advised Management to follow up on possibilities of recovery of the amount.

19.0 NATIONAL CITIZENSHIP AND IMMIGRATION CONTROL

19.1 Payment to Mulbauer - Shs.117,014,526,928 In March 2010, the Ministry of Internal Affairs entered into an agreement with Ms Mulbauer, to develop the National Security Information System at a cost of €64,231,371.49. The contract provided for supply and installation of equipment, supply of blank cards, staff training and system maintenance, among others. Following the establishment of the Directorate, management of this contract was then transferred from the Ministry (mainstream) to the Directorate.

At the time of audit a total of €59,524,708.77 (93%) (Shs.177,014,526,905 including taxes) had been paid to the firm leaving a balance of only €4,706,662.72 (7%). However this was after delivery of equipment and only 8 million cards. The cost of the remaining items in the contract is much more than the outstanding balance of Euros 4.7million as analyzed in the table below.

Description of Deliverable Components Cost in Euros

4. Blank ID Cards (7 million cards) 10,477,773.60 7. Training and implementation 5,735,280 16,213,053.60

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The payment of 93% of the contract sumyet deliverables worth €16,213,053.60 (25.2%) are still outstanding is contrary to the requirements of sections 248, and 250 of the PPDA Regulations; and section 61 of the Public Finance and Accountability Act which states that ―more money shall not be paid to any person other than the amount due for the value of work certified to have been done or services certified to have been performed by such person‖. This issue was raised in the 2010/2011 audit report to Parliament but the audit recommendations have not been implemented.

There is a risk that most of the deliverables will not be achieved without extra funds being provided for. There is also a likelihood of the contractor abandoning the project without completion since he has been paid most of the money without corresponding delivery of service.

In their response management attributed the delay on Government‘s failure to fulfill their part of the agreement such as providing the people to be trained. I advised management to review the contract against the deliverables and ensure that the outstanding ones are delivered before effecting the final payment.

19.2 Nugatory expenditure - Shs.8,942,844,878 Section 121(1) of the Income Tax Act, CAP 340 states that, ― every person who enters into an agreement with a non resident for the provision of services by the non-residentwhich services give rise to income sourced in Uganda shall, within 30 days of the date of entering into such agreement, notify the Commissioner in writing of:- a) The nature of such agreement,

b) The likely duration of the agreement

c) The name and postal address of the non- resident person to whom payments under the agreement are to be made;

d) And the total amount estimated to be payable under the agreement to the non- resident person‖.

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Contrary to this provision, the Ministry of Internal Affairs signed an agreement with Mühlbauer for the supply of machinery and equipment of the National ID and did not notify URA within the stipulated time. After making several payments to Mühlbauer without withholding tax, URA made a tax audit and came up with a tax position of Shs.51,969,250,423. Included in the amount was accrued interest of Shs.8,942,844,878 for delayed submission and payment of both VAT and Withholding tax. This interest is considered to be a nugatory expenditure.This interest payment could have been avoided had the entity complied with the provisions of the tax law.

In their response management explained that the issue of taxes was not clear from the start and that the supplier was still contesting deductions of taxes from their payments.

Management was advisedto ensure that all laws regarding management of contracts are always adhered to.

19.3 Mischarge of expenditure items The Parliament of Uganda appropriates funds in accordance with the needs of thecountry and this appropriation is implemented through the budget in which funds are tagged to particular activities and outputs using account codes and MTEF codes. Review of the Directorate‘s expenditures revealed that managementcharged wrong expenditureaccount codes to a tune of Shs.650,785,420. The expenditure did not meet the definition of what these account codes are required to be charged with. The bulk of the funds were diverted to pay allowances.

The practice renders the budgeting process redundant, undermines the intentions of the appropriating authority and leads to misleading reporting.

I advised management to always ensure that proper budgeting process is done and adequate funds are allocated for each account code and MTEF.

19.4 Lack of a strategic plan and National Immigration Policy I noted that the department did not have a Strategic plan and a National Immigration Policy to give a clear guidance and coordination of activities. 272

Lack of a strategic plan and a National Immigration Policy may adversely impact on the Authority in the achievement of its objectives. The Authority should expeditiously put in place an approved Strategic Plan and National Immigration Policy.

19.5 PAYE on Board Chairman’s allowances – Shs.21,270,000 Section 116 of the Income Tax Act (Cap 340) states that ―every employer shall withhold tax from a payment of employment income to an employee‖. Contrary to this provision, I noted that the Board chairman was paid sitting allowances, retainer fees and operational allowances amounting to Shs.70,900,000 without deducting PAYE. Details are in the table below: Particulars EFT Amount (Shs) Being retainer and operation funds for the R05/11/11 C/man,NCIB for the Months of Oct- Dec.2011 1965981 10,500,000 Being payment of operational funds for the months of April - Sept.2011 and retainer fee R130/08/11 for Aug.- Sept. 2011 1790197 15,000,000 R29/1/12 C/NCIB retainer and allowance Jan-Feb 2012 2008687 7,000,000

Board allowance 5 December, 3 Jan, 8 Feb, 5 R295/03/12 March sittings for C/Man 1948780 7,350,000 R43/10/11 sitting allowance for C/NCIB 1965981 5,600,000

R449/02/12 operational allowances march 2012 1944183 3,500,000

R461/02/12 sitting allowance for Sep-Dec 2011 1947140 6,300,000

R57/09/11 sitting allowance Jul-Aug 2011 1950249 5,600,000

R66/5/12 operations and retainer C/NCIB Apr-Jun12 2064202 10,050,000

70,900,000

This omission puts the Directorate at risk of incurring wasteful expenditure by paying penalties stipulated in Section 125 (1) of the Income Tax Act.

In their response management stated that they would recover the tax from subsequent payments to the Chairman.

Management was advised to recover the PAYE that was not deducted and remit it to Uganda Revenue Authority.

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19.6 Lack of a proper administrative structure By the time of the audit, the Directorate had been in operation for more than a year. However I noted that there was no proper administrative structure to manage the operations. Notably missing were the key posts of; Under Secretary, Principal Assistant Secretary, Senior Assistant Secretary, Personnel Officer and Transport Officer. Such gaps affect the efficiency of service delivery and hinder the Directorate from fulfilling its mandate to enable proper execution of the mandate.

According to management the existing structure was approved by the Ministry of Public Service and the vote was created on the basis of that structure.

I advised management to liaise with the relevant stakeholders to ensure that a proper administrative structure is put in place to enable proper execution of the mandate.

19.7 Un-planned procurements Contrary to the provisions of the PPDA Act, procurements worth Shs.114,771,000 for mainly furniture as detailed below were not included in the procuring entity‘s Annual Work Plan. Procurement file Item Supplier Amount number (Shs) DCIC/Suppls/11-12/ Furniture Visible Investments 11,375,200 00068/02 DCIC/Supply/2011-12/007 Assorted Pinnacle Concepts Ltd 12,224,800 furniture DCIC/Supply/11-12/00059 Furniture Ms. Century Furnishing 25,150,000 DCIC/Suppl/11-12/00063 Fire proof filing Ms. Century Furnishing 11,328,000 cabinets DCIC/Suppl/2010/2011 Furniture Footprints Deco Ltd 12,744,000 DCIC/Supls/11-12/00054 Furniture Ms. Century Furnishing 11,269,000 DCIC/Supls/11-12/0090 Queue Manager Ms. Nina Interiors Ltd 30,680,000 Stands Total 114,771,000 In their response management explained that the procurement plan was not followed due to the un-expected activities that arose during the financial year, which were; i. The setting up of the coordination office of the NSIS project which was transferred from vote 009 to vote 120 during the month of October.

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ii. Inter Parliamentary Union Conference that took place in April 2012 which necessitated the procurement of furniture for the VIP and Queue Manager stands at Entebbe International Airport.

Management should ensure compliance with PPDA regulations.

19.8 Stores management The Treasury Accounting Instructions (TAIs) paragraph 50 requires that a stores ledger must be kept in respect of every store to record for each item in stock; the quantity of all receipts, issues and balances. Best practices also require that for proper stores management, a qualified person should be engaged to handle stores related functions.

However, it was noted that the Directorate did not have a qualified Storekeeper and as such the stores function was not properly managed in the period under review. Items received in the stores were recorded in counter books separate from where the issues out were recorded and there were no ledger cards or bin cards maintained.

I advised management to ensure that a qualified person is recruited and the function properly managed.

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PUBLIC SECTOR MANAGEMENT

20.0 MINISTRY OF LOCAL GOVERNMENT

20.1 Mischarge of Expenditure - Shs.9,590,069,895 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 Ministry‘s expenditures revealed that the entity charged wrong expenditure codes to a tune of Shs.9,590,069,895. It was noted that the bulk of the funds were diverted to pay for allowances and workshops, notable among this expenditure was Shs.814,030,537 meant for land acquisitions which was diverted for other expenses other than land. Such a practice is contrary to the intentions of the appropriating authority and leads to falsified accounting.

The Accounting Officer attributed this to spending pressures.I have advised Management to desist from such a practice and always request for reallocations or virements, as provided for under the TAI.

20.2 Advances to Employee Personal Accounts - Shs.2,801,211,388 (a) Non compliance with Regulations It was noted that a total of Shs.2,801,211,388was paid on the personal bank accounts of Ministry staff for executing official activities rather than effecting payments to the final beneficiaries as required by the TAIs under Sections 227, 228 and 229. This practice is irregular and also exposes Government funds to a risk of loss since the Ministry does not have any control over such funds deposited on personal accounts.

I advised the Accounting Officer to ensure that funds are paid directly to the intended beneficiaries and service providers to eliminate the risk of diversion of funds.

(b) Unaccounted for Personal Advances - Shs.434,315,973 Out of a total of Shs.2,801,211,388 paid on employee personal accounts referred to in (a) above, a total of Shs.434,315,973 advanced to personal accounts of Ministry 276

staff remained unaccounted for. These payments lacked the necessary supporting documents attached to the payment vouchers.In the circumstances, I could not confirm whether the funds in question were put to their intended purpose

By the time of compiling this report, the documentation had not yet been provided. I advised the Accounting Officer to ensure that recovery measures are initiated from the Officers concerned, in the event of failure to obtain the accountability in question.

20.3 Irregular Payment of Allowances – Shs.501,185,460 It was noted that Shs.501,185,460 paid out as staff welfare to staff was not budgeted for in the approved estimates of income and expenditure of the Ministry. The staff welfare amounts comprised transport refund for those without motor vehicles at a flat rate of Shs.45,000 and 2 days subsistence allowance yet these Officers are residents within the City. It should be noted that payment of subsistence allowance according to the standing orders is for activities above 40km coverage for one to qualify for such allowance. The allowances were therefore not in accordance with the Public Service Standing Orders.

In his response, the Accounting Officer explained that there was a management decision to pay staff welfare allowances in-order to enhance their productivity and moral due to the inadequate emoluments. I explained to the Accounting Officer that in absence of proper justification, the above payments are irregular and the Accounting Officer should therefore obtain the relevant authority from Ministry of Public Service.

20.4 Diversion of Funds Without Authority – Shs.890,129,701 Paragraph 156 of the Treasury Accounting Instructions (TAIs) 2003 Part 1 requires 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. Funds available under one vote may not be transferred to another vote without parliamentary approval.

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Contrary to this requirement a total of Shs.890,129,701 was diverted by the Ministry from project funds to finance other activities as noted below:- S/No Particulars of diversion Amount (Shs) 1 JLOS 74,019,500 2 Diversion of LOGSIP funds 816,110,201 TOTAL 890,129,701

Shs.74,019,500 was diverted to execute other ministerial activities from the JLOS project account there by crippling the planned activities under the project; there was no authority and approval from the Justice Law and Order sector granting them permission to borrow restricted funds meant for building capacity of Local Council Courts. Shs.816,110,201 meant for LOGSIP activities was spent out on activities other than those provided for in the budget and ministerial policy statement. Out of this, Shs.441,120,661 was lent out to other units of the ministry, to be recovered later, thereby delaying the implementation of planned activities

It was noted that out of the total amount of Shs.890,129,701 diverted from the project accounts, Shs.160,229,500 has remained unaccounted for.

The Accounting Officer explained that these borrowings were made to address emergencies that could not wait for the inadequate funding availed to the Ministry at that time; I advised the Accounting Officer that diversion of funds without authority from the appropriating authority contravenes the Appropriation Act and is irregular.

20.5 Financial Statements A review of the financial statements established the following errors and omissions:-

(a) Lack of Explanatory Note and Details to Figures in the Financial Statements An adjustment of Shs.3,999,589,778 made in the Statement of Changes in Equity/Net worth under the entry line ―Other Adjustments‘‘ lacked an explanatory note and a detailed schedule explaining the figure relating to this adjustment. 278

Shs.245,196,000 disclosed in the Statement of Financial Performance as ―Other Expenses‖ on page 6 of the Financial Statements also lacked a corresponding explanatory detailed schedule explaining these of the expenses.

In the circumstances, I could not confirm the accuracy and completeness of these amounts reflected in the financial statements.

(b) Unsupported Receivables in the Statement of Financial Position - Shs.5,999,384,667 Shs.5,999,384,667 was disclosed as ―Receivables‖ in the Statement of Financial Position. A corresponding explanatory note 21 on page 37 described the amount as ―Advances‖ and the Trial Balance on page 43 carried the amount as ―Prepayments to Suppliers‖. However there was no corresponding receivables ledger and debtors ageing lists, to support the balance. In the circumstances, I could not confirm the accuracy and completeness of the receivables figure reflected in the statement of financial position.

20.6 Undisclosed Domestic Arrears Shs.120,247,793 A total of Shs.120,247,793 was incurred as domestic arrears by the Ministry. Of this amount Shs.89,999,999 related to outstanding audit fees for the LOGSIP project in (2010) and Shs.30,247,794 related to outstanding commitments for hosting Heads of Government for the Global forum on local governments. These amounts remained outstanding at the close of the financial year and the outstanding commitment was not disclosed in the financial statements. As a consequence the payables disclosed in the financial statements are understated by this amount.

20.7 Bank Accounts Dormant Bank Accounts A review of the bank accounts operated by the Ministry revealed that a total of 84 bank accounts with the following balance were dormant:-

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S/No Bank Account Amount 1 US Dollar $ 836,726.79 2 Uganda shilling Shs.127,170,144

Dormant accounts are risky as they provide an avenue for perpetuating fraud through concealment. The Accounting Officer should liaise with the Accountant General and have all redundant Accounts closed henceforth.

20.8 Compliance with Statutory Obligations (VAT, WHT, PAYE, NSSF) Undisclosed Long Outstanding Tax Obligations - Shs.3,533,097,602 A review of Markets and Agricultural Trade Improvement Programme (MATIP) project documents revealed that there were undisclosed long outstanding tax obligations due to Uganda Revenue Authority arising from a number of contracts that were concluded with various contractors for construction of markets in different parts of the country.

The tax obligations arose from the nonpayment and remittance of tax to URA arising from certification of completed works, leaving the contractors with a tax liability. By 30th June 2012, Value Added Tax (VAT) totaling to Shs.3,533,097,602 remained unpaid. This amount was never disclosed in the Ministry‘s financial statements for the financial year 2011/2012. Failure to deduct and remit taxes to Uganda Revenue Authority by the Ministry is contrary to the Income tax Act and an offence which can attract fine and penalties.

The Accounting Officer explained that the Ministry had submitted a supplementary budget of Shs.15.4 billion to the Ministry of Finance and that Uganda Revenue Authority had verified Shs.10.5 billion and a request for Shs.9.5 billion had been submitted to Parliament for the 2012/2013 financial year leaving the outstanding amount at Shs.1.5 billion.

I advised the Accounting Officer to continue liaising with the authorities to have the outstanding obligations settled.

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20.9 COMMUNITY AGRICULTURAL INFRASTRUCTURE IMPROVEMENT PROGRAMME – PROJECT 1 (CAIIP 1) It was noted that management had complied in all material aspects of the financing and GoU financial regulations except for the matters below;

20.9.1 Inadequate Budget Performance (IFAD Loan) According to the workplan for the financial year, the main activities were: rehabilitation of Batch C Community Access Roads and completion of the on-going works, installation of agro-processing facilities and extension of 15Km of the grid to 34 markets and agro-processing sites.However, a review of the budget performance revealed low activity as only 13% performance on Civil Works and only 48% on Goods (agro-processing facilities) were achieved.

The causes of underperformance among other things included; delays in the procurement process and not having done in time major planned consultancies including impact studies. At such rate of performance, the implementation of project activities may not meet the stipulated project end deadline of December 2013.

In their response, Management agreed with the audit observation and explained that the bulk of this budget was earmarked for the rehabilitation of Batch C community access roads. The procurement of contractors experienced delays due to an elaborate evaluation process involving the districts, the Ministry and the IFAD. However, implementation of the civil works was rolled over to the financial year 2012/13 and the civil works are now nearing completion.

I advised management to expedite the implementation of project activities to avoid project extensions which are likely to come with considerable administrative costs.

20.9.2 Non Compliance with Provisions of Loan Agreement –counterpart funding According to the provisions of the loan agreement, GOU is required to contribute funds towards the implementation of project activities. Shs.250,000,000 was budgeted as GOU counterpart funding, out of which only Shs.168,886,676 was released causing a shortfall of Shs.81,113,324.Shortfall in Government counterpart

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funding impacts on the smooth implementation of the project activities. The matter was also pointed out in my previous audit report.

Management explained that like any other Projects, Programmes and Government Departments, the Programme had to operate within the funds available and due care was taken not to bridge the gap using Project Funds.

Management was advised to liaise with the relevant Ministry of Finance, Planning and Economic Development to ensure that all funds budgeted for as GOU co- funding are released.

20.9.3 General Standards of Accounting and Internal Controls (a) Inadequate staffing in the Programme Facilitation Team Section 7.11 of the General Conditions for Agricultural Development Financing adopted by IFAD requires the lead project agency to appoint the project director and all other key project personnel in the manner specified in the agreement and to exercise best efforts to ensure continuity in key Project personnel throughout the project implementation period.

Further in order to assist the districts and the sub counties to facilitate implementation, the project provides supplementary support to the implementing districts through the Project Facilitation Team (PFT) in the Ministry of Local Government to strengthen timely output delivery. It was however, noted that key posts in the project facilitation team like; the Agro-processing Advisor, Monitoring & Evaluation Specialist and Monitoring & Evaluation Officer-Central Region were vacant.

Absence of the key personnel does not only impair the monitoring of implementation of the programme but also contributes to the delays in completion of the affected projects. This situation is worse in the districts under central region where there is no monitoring and evaluation officer to oversee implementation of programme activities in 12 districts of the region.

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Management explained that the PFT has recently undergone a comprehensive restructuring and has come up with a new structure which is taking effect from January, 2013.

In order to ensure timely implementation of project activities, effort must be made by management to fill the vacant posts. I await the outcome of management actions.

(b) Spending project funds at source It was noted that GOU contribution of Shs.168,886,676 was not transferred to the project accounts as would have been the case but spent by the MoLG on behalf of the project. Spending Project funds by the Ministry does not only deny project management control over the funds but also poses a risk of diverting the funds to non project activities.

Management responded that the funds are managed on the Government IFMS since there are no dedicated project accounts for counter-part funds following the migration to the IFMS. The funds are spent with the authority of the project manager and the Accounting Officer which acts as a control to ensure that project counter-part funds are utilized for project activities as much as possible.

Management is advised to ensure that project funds are transferred from the Ministry to the project accounts for proper accounting, monitoring and control.

20.9.4 Assets Management and Expenditures (a) Assessment of Vehicles Repairs It was noted that a total of Shs.15,725,446was paid to various service providers in respect of repair works without internal assessment of vehicles and endorsement by a competent engineer. Furthermore, there were no vehicle post repair inspections done by a competent Engineerto confirm that repairs were done as specified in the Repair orders. Entrusting drivers with the responsibility of determining the extent of the repairs is not appropriate.

Management explained that the Ministry does not have a competent Engineer in its establishment to carry out pre- and post-inspections on vehicles. The matter will be 283

followed up with the Ministry. I advised management that in order to ensure proper delivery of motor vehicle repair services, proper pre- and post-inspections should be made on all vehicles taken to garages by a competent engineer.

(b) Absence of Vehicles Maintenance Register Treasury Accounting Instructions (TAI) 2003, Section 816 requires a Government entity to maintain an operating records register for each vehicle to record its history, performance, servicing, overheads and repairs among other things, in sufficient details for periodic assessments to be made of its performance compared to its cost of upkeep. It was however noted that the project neither maintains the above record nor a general repair register to record all repairs done on vehicles and spares used. Furthermore, no financial analysis was done to reflect the repair costs incurred on each vehicle over the period under review.In absence of the above records, periodic assessment of vehicles performance compared with their cost of maintenance cannot be done.

Management agreed with the observation and promised to take corrective action. I await the efforts of management on the matter.

20.9.5 Field Inspections Field inspections were undertaken with a view of establishing among others, Physical progress of civil works on district feeder roads and community access roads; construction of rural markets and agro processing shelters. The extent of supervision and monitoring by the respective District Local Governments and quality of workmanship were also considered. The following matters were observed during inspections:-

20.9.6 Rehabilitation of Community and Access Roads (CARs) (a) Rehabilitation of Nawaikoke-Nakyere p/s-Kivule Road, Mpulira Nawambete Nabwenyo road – Namutumba District A contract was awarded to Exxon Contractors Ltd for rehabilitation of Nawaikoke- Nakyere P/S – Kivule Road and, Mpulira-Nawambete-Nabwenyo Road in Namutumba District. The contract sum was Shs.341,290,950 and by the time of audit, Shs.166,523,600 (48%) had been paid. Scrutiny of contract documents

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revealed that the roads ought to have been completed and handed over by December 2010. However, it was noted that some of these roads were not yet complete.

It was further noted that no bill boards were installed on the road contrary to the requirement in the Bills of Quantities (BOQs). The contractor delivered only murram on the roadsite and abandoned the work. I am informed that the community organised themselves and spread the murram on the road. The roads were poor, not shaped and vehicles could not go through. A photo of Nawaikoke-Nakyere P/S- Kivule Roadis shown below:

The delays in contract performance increase administration costsand also delay achievement of the objectives of the project.

Management explained that M/s Exxon Construction Ltd signed a 6 months contract with Government of Uganda. GoU was represented Namutumba District Local Government for rehabilitation of 21.0 Km of CARs in Kibbale Sub-county under CAIIP-1 Batch B CARs. Unfortunately this is one of the few problematic contracts under the batch where the contractor has grossly over delayed the works. However the contractor has since gone back to the site to make good the defects.

Management should consider invoking the penalty close on the delayed contract. Monitoring and supervision should be strengthened to enable completion of the works. The bill boards should also be installed as provided for in the BOQs so that identification of the roads becomes easier. (b) Rehabilitation of Makenya-Kiwolomero –Buwaga- Nawandagala- Mpumiro – Bunaibani road - Namutumba District 285

A contract was awarded to JCNK Scandinarian and Services Ltd for rehabilitation of Makenya- Kiwolomero – Buwaga- Nawandagala- Mpumiro Road in Bulange Sub County, Namutumba District. The contract sum was Shs.301,822,500. By the time of audit, Shs.136,176,563 (45%) had been paid. Scrutiny of contract documents revealed that the roads ought to have been completed and handed over by December 2010. However, physical inspection carried out in September 2012 revealed that the road was incomplete; there was no sign post and no gravelling had been done. A section of the road is shown below:

The delays in contract performance increase administration costsand the achievement of the project objectives is also delayed.

Management responded that the contractor signed a 6 months contract with Government of Uganda GoU represented by Namutumba District Local Government for rehabilitation of 18.0 Km of CARs in Bulange Sub-county under CAIIP-1 Batch B CARs. This is also one of the few problematic contracts under the batch where the contractor has grossly over delayed the works. However the contractor is on site to making good the defects.

Management should consider invoking the penalty close on the delayed contract, and ensure constant monitoring and supervision to enable work progress to completion. The sign post should also be installed as provided for in the BOQ so that identification of the road becomes easier. (c) Lack of Routine Maintenance of Roads by the Districts Most of the roads in the districts under CAIIP 1 Project were completed. However, the districts and respective sub-counties are not maintaining these roads and as a 286

result some of the roads have narrowed, the carriage width has reduced to the extent of 2.5m from the 4.5m standard meters set for the murram roads in some instances. The district engineers explained that the districts do not get enough funds to maintain the roads. Some of the roads inspected are as shown below:

(i) Mpulira-Nawambete -Nabwenyo road – Namutumba District The road was not completed, and the bill board not labelled. The 600m culverts in the BOQs were not installed, and headwalls were lacking. The road width was 2.4m instead of 4.5m. The road is shown below:

(ii) Busibira- Buwami-Mulanda Rd 9.8km, Mabale –Butenga Rd 2.5km, Butesa-Mugulu Rd 3.2km, Mugulu-Kawogoli Rd 5.0km, Namulo- Doho Rd 4.0km, Kachonga-Mudodo-Mazimasa - Butaleja District The roads were completed in line with the contract agreement. However, the roads were not being maintained by the time of audit inspection. One of the roads Kachonga-Mudodo-Mazimasa (6.5 km) is shown in pictures below:

(iii) Kyabazala-Mpamenvu-Musamya-Nkoko Road (6.7kms) - Mukono District

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The contracted works were completed and handed over. However, the road has become narrow as a result of the grass growing on the carriage way. Neither the district nor the sub-county has taken it up for routine maintenance. A section of the road is shown below:

(iv) Lusamya- Mwererwe ( swamp) road – Mityana District The length of the road did not meet the specification of 4.5m of the carriage width. The measurements taken were varying from 4.0m to 4.2m and at a certain point it was at 3.5m. A section of the road is shown below:

Non-maintenance of the roads may cause failure to achieve the intended objectives of the road construction.

Management explained that most of the roads in the districts under CAIIP-1 were completed and handed over to the districts for maintenance. However most districts and sub-counties are not carrying out maintenance and therefore deteriorating at a high rate. This is mainly due to insufficient resources the government through Uganda Road Fund (URF) is appropriating to the activity. The districts shouldbe informed of their role so that funds are allocated for maintenance.

(d) Complaints from local community regarding compensations

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Project guidelines require that negotiations on land and necessary compensation to land owners be made before implementation of the Project infrastructure. It was however, noted that though some people accepted to surrender their land for road construction, there was no documentary evidence in form of Memoranda of Understanding or minutes of meetings as a proof of resident‘s acceptance to relinquish ownership of their land at cost or at no cost. In Ntunda Sub-County in Mukono District one of the residents-Ssentongo Vincent complained that part of his land was used for construction of Nkoko-Kiteredde Road section but did not receive compensation as promised by the district authorities. In response the district engineer promised to handle the matter. The section of the road in respect of the complaint and the land owner are shown in the pictures below:

The risk is that land various owners may raise similar complaints with a view of receiving compensation and the matters may be taken to court resulting in extra costs contrary to the guidelines.

Management explained that at project appraisal, wide consultations were made and government gave an assurance that it will address all the issues of right of way during project implementation. Relevant project documents i.e Loan Agreement, Project Appraisal, and Project Operational Manual were formulated, signed and adopted accordingly. Over 4000 Km of CARs have been implemented and compensation issues have been very isolated. Where they have been, the district has resolved them as part of their obligations as spelt out in project appraisal and Project Operational Manual. Mukono District authorities should ensure that effective consultations with members of the community especially those whose land is used for the infrastructure are done before implementation of the projects as required by the guidelines. This will in effect minimize future possible litigation or complaints. 289

20.9.7 AGRO Processing Facilities (a) Delayed commissioning A number of completed structures with machines installed were not functioning because they had not been commissioned. These include: Kayonza and Nazigo maize mills, and Nazigo Coffee Huller in Kayunga District, Milk cooler and Rice huller in Nabiketo in Budaka District, and Maize mill in Bulera, Mityana District. Some of the Agro Processing plants are in pictures below:

Unutilized market in Bulera Sub county- Mityana District

Milk cooler in Nabiketo, Budaka district but not operational

Maize mill fully installed but not operational in Nabiketo, Budaka District

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Kayonza maize mill in Kayunga District

Keeping the plants non-operational does not benefit the communities, and the intended objectives are not met.

Management explained that they have experienced a delay in the commissioning of some of the agro-processing facilities that have been installed. This has mainly been the case for those facilities that were to be connected to the national grid through the extension of the power lines to the respective sites and installation of the energy meters before full commissioning of the facility is done.

They further explained that the extension of the national grid to selected agro- processing facilities delayed mainly due to un-availability of resources on the ADB loan. It had been earlier envisaged during project appraisal that the resources for extension of the grid to power selected agro-processing facilities were to come from the ADB loan. At the time of starting the procurement process for the contractors to carry out the works for grid extension, the available resources on the ADB Loan were not enough. This therefore meant that we had to seek for approvals from IFAD to be able to use part of their Loan to finance the grid extension works.

Project Management should ensure that the above agro processing facilities are promptly commissioned and handed over to the intended beneficiaries.

(b) Delayed completion Agro processing facilities were to be built in the three sub counties of Nagongera, Nabuyonga and Merikit, and two rice hullers in Merikit subcounty in Tororo district. However, on physical inspection, it was found out that no work had been done so far. In Namutumba district, Bulange and Kibaale rice hullers were incomplete floors; in Mityana district a maize mill had not been installed in Bulera sub-county; while in

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Ntunda sub-county in Mukono district construction of a structure had been completed but maize milling machine had not been installed.

The delays in contract performance increase administration costs and also amount to breach of contract.

Management explained that they have experienced some delays in both the delivery and installation of the agro-processing facilities as well as the construction of the shelters to house them.On the side of delivery and installation of the machines, most of the machines were delivered in batches by the supplier at one go. Given the spread out nature of the sites where the machines were to be installed and the preparations needed on the shelter (civil works) before actual installation begins, there were some delays to that effect. However these delays have been addressed by ensuring that the suppliers recruit enough technical staff to carry out the installations to completion especially now that all the machines have been delivered. All installations are expected to be completed by January 2013.

Management should consider invoking the penalty close on the delayed contract and also ensure constant monitoring and supervision are carried out to enable completion.

(c) Apparent project overload to the contractor MS BEDOZ SERVICES LTD was awarded contracts for the construction of Agro Processing facilities in all the three subcounties of; Nagongera (2 rice hullers), Merikit (2 rice hullers) and Nabuyoya (1 maize mill and 2 rice hullers) in Tororo District. The completion period for all these facilities was the same implying that commencement and completion dates were the same. Apparently, the contractor lacked capacity to execute the contracted works in accordance with the contract period. This led to the delayed completion of the project and breach of contract. Photographs of some of the Agro-Processing plants are shown below:

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The incomplete two structures of rice mill in Nagongera

The incomplete two rice hullers and 1 maize mill in Nabuyoya Sub County

The delayed works deprive the beneficiary community of intended services.

Management responded that the seven shelters were packaged into a single lot meaning that the construction of the shelters was to be awarded to a single bidder. The contract was therefore awarded to M/S BEDOZ Services Ltd after going through the bidding process in which their capacity was assessed and found adequate to execute the contract in the required time. They further explained that some of the contractors were negatively affected by the abrupt increase in the cost of major construction materials and the high interest rates in the commercial banks that were prevailing at the time of contract execution. Apparently, it was noted that the effects were even much severe for contractors with contract amounts in the excess of Shs.200million. However, Project Management has taken steps to ensure that the contract period is extended and that the contractor is on site to complete the civil works by January 2013.

I await for the outcome of management efforts.

(d) Markets Status in the Districts (i) Non-Operational markets

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It was observed that some markets that had been completed were not operational. For instance in Ntunda Sub-county, in Mukono District, the market was completed but had become bushy, no business was taking place and some lockers had already been removed. The same was noted in Budaka, Tororo and Mityana Dsitricts where markets have been constructed, but are a resting place for idlers and some individuals use them for storing timber which is a personal property. The district engineers said that these markets were handed over to the sub county and therefore it was the responsibility of the sub-counties to allocate the stalls to the vendors.

Management should sensitize the community on the benefits of trading in well- organized markets. Sub counties with newly improved markets should allocate the available stalls to the vendors and also pass bye-laws that require all active market vendors to make use of the facilities, as this will help the sub counties raise local revenue.

(ii) Poor Management of the market facilities The garbage bank in Nazigo market (Nazigo-sub county) in Kayunga district was overflowing with smelling garbage. This poses a health hazard to the community.

Fully utilized Market in Nazigo Sub-County with an over filled garbage bank.

Management explained that the garbage banker for temporary collection of solid waste and not a waste treatment facility was provided on all market sites. The communities were sensitized accordingly. However the issues of separation of waste and its general management is a practice that is gradual and the project will continue sensitize the vendors about it during its routine supervision and monitoring.

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Concerted efforts should be made by the respective sub-counties together with the Community Infrastructure Management Committees to address the problem of poor waste management. Community Health Inspectors should also be facilitated to sensitize the local communities on improved sanitation.

20.10 COMMUNITY AGRICULTURAL INFRASTRUCTURE IMPROVEMENT PROGRAMME – PROJECT I1 (CAIIP I1) (a) Compliance with financing agreement and Government of Uganda financial regulations i) Non-payment of PAYE Project management deducted Shs.375,726,172 in respect of P.A.Y.E from project staff payroll during the financial year. However, this was not remitted to Uganda Revenue Authority contrary to the income tax law. Management explained that the GOU counterpart funding to this effect was not released and as such the obligation could be settled. The loan agreement does not provide for use of loan proceed for payment of taxes.

Management should pursue the matter further with MoFPED so that funds are released to cover the statutory obligations. I also informed management that delays in remitting these funds could attract penalties.

ii) Non-deduction of 6% Withholding Tax (WHT) Section 123(1)ofthe Income Tax Act requires that for any payment of goods and services in excess of one million made by Government entities, 6% of WHT should be computed on the invoice value of supplies, Goods and Services and retained. This should be remitted to Uganda Revenue Authority (URA) by the 15th day of the subsequent month. Contrary to the provision, payments were made for transaction activities amounting to Shs.20,163,762,720, without deducting 6% WHT which should have amounted to Shs.1,209,825,763 and hence no remittance was made to Uganda Revenue Authority. Non-compliance with the tax laws resulted in URA losing revenue.

Management responded that payment of taxes is the Government of Uganda obligation for which funds had not been released.

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Management should pursue the matter further with MoFPED so that funds are released to cater for the statutory obligations.

(b) General standards of accounting and internal control i) Budget Performance-Low Absorption Capacity The approved budget for the year under review amounted to Shs.74,392,403,093. However, it was noted that only Shs.24,615,980,873 had been spent (representing only 33% absorption), leaving Shs.49,786,522,220 (67%) unutilised.

The delays in budget implementation were attributed to delays in the completion of procurement for contractors for District feeder roads, and batch B Community Access Roads (CARs), the Medium Term Reforms (MTR) and phyto-sanitary study planned to be carried out earlier which was postponed to the next FY 2012/2013 and, lack of release of operational funds to the districts as a result of delayed accountability for previous advances.

This is an indication of inadequate project planning, slow contract procurement process, slow project implementation and inadequate monitoring.

Management was advised to expedite the implementation to avoid project extension which leads to extra administrative costs.

(c) Audit field inspections A field inspection to assess progress on implementation of CAIP infrastructure projects such as; community access roads (CARS); rehabilitation of district offices; was undertaken and an analysis of the key elements in the bills of quantities verified. The field inspection revealed the following; Design gaps Clause 36 of the conditions of contract for the rehabilitation of Community Access Roads (CARs) provides that the Bills of Quantities (BOQs) shall contain items for the construction, installation, testing and commissioning of the work to be done by the contractor. The BOQs are also used to calculate the contract price and the contractor is paid for the quantity of work done at the rate in the BOQs for each item. Furthermore for a quotation to be made the bidder is required to inspect the 296

project sites with a view to establish the bills of quantities to make in order to come up with proper bid quotations. Similarly the consultant ought to have undertaken similar initiative to come up with standard costing on which the projection valuation should be based and, Project Support Officers (district engineers) and infrastructure engineers should have carried out comprehensive assessment of requirements of works in order to come up with accurate bids.

It was however noted that some projects had design gaps which could not be undertaken using the amount quoted. This was because the contractors made quotation based only on the paper project design provision which in some cases had significant mismatches with actual road bottlenecks. Some of the BOQ provisions could not match the levels of road bottlenecks observed as this was also corroborated by some of the district engineers. These scenarios were encountered in the districts of Lira, Amuru, Amuria, Pader and Kitgum as analyzed below: i) Lira District Onyakedi-Ayac-Banya-Dokolo Boarder Road 21.8 KM (Lot 74) – Amach Sub County Adip Swamp between Lira and Dokolo District measuring about 500m had a BOQ provision of 180pcs of 1200mm and 90pcs of culvert linings. At the time of inspection about 100m was completely submerged and impeded complete inspection of the entire road length. This section should have been given a comprehensive separate costing. Access to a nearby market is therefore only possible seasonally, yet a total of Shs.321,934,641 had already been sunk in this project from the original contract sum of Shs.707,397,683. Management however, explained that this bottle neck has been planned for in batch B intervention. The affected section of the road is shown in the photograph below:

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Management further explained that the global climate change has altered the weather pattern in the region and this has led to prolonged heavy torrential rains including flash flooding in some areas that has rendered the design provisions inadequate.

Management should ensure that the defects are rectified to enable achievement of programme objectives. ii) Pader District Lira-Palwo-Obolokome—Alwe-Aculu Road – Lira Palwo Sub County Drainage at Agago River on this specified road was not adequately planned for. In the circumstances, the contractor abandoned the work after bush clearing and shaping as the contract was apparently not viable in terms of costs involved in the scope of work. The Project Support Officer (PSO) reported that the contractor abandoned the project one year before completion. The road section had narrowed to a foot path after chainage of 6.5 KM up to the river. Further inspection could not be done beyond this point. Shs138,324,928 had already been sunk in this project from contract price of Shs.273,372,750. A section of the road is shown below:

A section of Alwe-Aculu Road at Agago River

Management explained that a bridge across Agago River has been designed and contractor engaged under batch B.

Management should ensure that the design defects are corrected and construction of the road undertaken. iii) Kitgum District Paracella- Warigo (16.4 kms) – Palabek Ogili Road

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Drainage work on Lima stream on Paracella-Warigo Road was underestimated. A stream measuring about 40m in width had under-scoped provision for drainage which led to sub-standard work and was later washed away. The team could not inspect beyond this spot (10.7KM). A review of BOQ documents revealed that only culvert provisions were made and yet the stream would certainly qualify for a full bridge. This issue was corroborated by the district engineer (PSO) of Kitgum. Shs.427,378,163 had already been sunk in this project by the time of inspection, from original contract price of Shs.456,053,588. The objective of connecting communities to the markets has not been achieved. The section is shown in the picture below:

Road section at Lima stream

Management responded that a bridge across Lima Stream has been redesigned and contractor engaged under batch B.

Management should ensure that the interventions fully address the design gaps.

iv) Amuru District Alelele-Kiguka-Busia-Pakawera-Adibuk-Ayago Road (lot 96) – KochGoma Sub County It was observed during the inspection that in addition to the road passing through a game reserve with hostile environment, the level of road bottlenecks (trees, drainage design provisions) as per the BOQ appeared inadequate. The stream with most notable evidence of under-scoped provision is the Lii stream which needed a full bridge constructed but such provision was not in the BOQ. A section of the road is below:

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LII Stream Amuru District Kochi Goma Sub County

Management explained that bridges have been designed and contractor engaged under batch B.

Management should ensure that the interventions fully address the design gaps. v) Amuria District Achowa –Angolebwal Acinga Road – Achowa Sub County A significant design deficiency was observed on river Kachinga/Okede Bridge for the entire stretch of stream is about 150m according to our joint estimate with the Engineer –PSO. Although the contractor did a lot of stone concrete works which raised the level of the road along a significant section, which was not incidentally provided for in the BOQs, further efforts made to complete the entire stretch did not yield as the culverts were washed away. It was observed that the deficiency was largely due to under-scope of work, inadequate culverts were provided for. Shs.328,839,722 had been sunk in this project from original contract price of Shs.593,784,398. The sections of the road are shown below:

Achowa Subcounty- River Kachinga/Okede Bridge

It appears contractors, consultants, project support officers and infrastructure engineers did not carry out comprehensive assessment of the requirements.

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Management responded that the current contract has adequate provisions to address the challenges on the road and work is on-going.

Management should ensure that the interventions address the design gaps.

(d) Delayed completion of contracts Terms and conditions of contracts stipulated that the contractors had to execute and 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 however noted that some of the road works were not completed, while others had been abandoned.Management did not invoke Article 48 of the contract regarding liquidated damages.

The delayed completion of the contracts has denied the local community access to markets. The objective of the roads under CAIIP2 Project in the locality was therefore not achieved.

Management responded that the Project Managers have been advised to enforce terms under the contract agreements. The various requests for extension have been submitted to the various contracts committees for consideration.I advised management that supervision and monitoring to ensure that quality works should be strengthen to enable quality and timely completion of these projects.

(e) Abandoned works A total of Shs.587,861,669 was paid to the contractors in respect of various road contracts as shown in the table below: Contractor Contract Price Amount Paid Tegumi Farm Ltd (LIRA) 335,692,169 127,602,100 LM Engineering Ltd (Pader) 273,372,750 138,324,928

Shajapah Tech Works Ltd(LIRA) 707,397,683 321,934,641

Total Paid 587,861,669

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During the audit inspection done, 18 months after award of the contracts, it was noted that the road works in respect of the contracts had been abandoned and remained incomplete. In addition there was no evidence of having the contract terminated or any relevant compensatory clause revoked. The projects abandoned were:- Agena –Lela –Tecuwa Road, Aloi Sub County Lira – Palawo- Abolokome-Alwe P/S –Aculu Road, Lira Pilawo Sub County Onyakedi-Ayak-Banya-Dokolo Boarder Road, Amach Sub County The pictures below depict some of the abandoned works:

Agena –Lela –Tecuwa Road, Aloi Sub County

Lira – Palawo- Abolokome-Alwe p/s –Aculu Road, Lira Pilawo Sub County

Onyakedi-Ayak-Banya-Dokolo Boarder Road, Amach Sub County

The abandoned road works denied the beneficiary community the accessibility to the markets as planned.

Management explained that they have written to all affected districts asking them to take necessary action to ensure that these contracts are completed without any 302

further delay. Actions being taken include invoking clauses for liquidated damages or even termination depending on the recommendations of the respective project managers.

Management was advised to improve contract supervision to enable timely identification of contracts lagging behind.

(f) Lack of Project Sustainability Plans Project sustainability is the capacity of the project to continue delivering its intended benefits over an extended period of time, after the project funding has ended. The community access roads were supposed to be continually maintained by the districts/sub-counties. During audit field inspections, it was noted that there were no institutional or managerial sustainability plans for the maintenance of these roads.

In absence of the sustainability plans the initial goals and objectives will not be sustained and the loan would not have been beneficial to the Government.

Management responded that at identification of project investments, beneficiary local governments and communities are empowered to demand through bottom-up planning process, desired investment priorities, which are then subjected to needs assessments and feasibility studies before design and implementation. This ensures ownership as they take the investments to be their own.

They also explained that the Government has recently provided an assortment of road equipment to each of the districts to enable them undertake road maintenance works on force account modalities. This is in addition to the already existing Road Fund which was also established three years ago to support the same cause. The project will continue to encourage the beneficiary local governments to prioritize the maintenance of the completed road infrastructure.

The districts should plan and budget for the maintenance of the community access roads and ensure that the roads are maintained for purposes of sustainability.

(g) Unidentified Projects (Bill Boards)

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Bill of Quantities (Grand Summary Page 7 item 6.4) provided for bill boards for identification of the Community Access Road. During inspections, it was however noted that whereas it was a requirement that each project was to be identified with a billboard, which was a component of the contract sum, some of the road works contracts undertaken lacked bill boards. Details are in the table below:

District Subcounty Lot No BOQ Value for Bill Board Lira Aromo 76 700,000 PADER Latanya 81 800,000 Amuria Acowa 61 800,000 Total 2,300,000

In absence of the bill boards it was difficult to ascertained whether the actual community access roads inspected were for CAIIP-2 Batch A, as there are several on-going interventions on the road works in the districts.

In their response, management explained that these are on-going works and the Ministry has written to the respective District Chief Administrative Officers to cause contractors to install these billboards.

Bill boards should be made and placed on each of the roads under construction for easier identification. (h) Lack of proper sensitization of the community One of the components of this project was that the beneficiary communities are mobilised and trained to enable them effectively participate in selection, approval, management and maintenance of the infrastructures. However it was noted that the CAIIP 2 projects undertaken lacked proper sensitisation of the beneficiary communities in effectively participating in embracing, selection, approval, management and maintenance of the infrastructure. Tree planting was perceived by natives as a way Government was planning to grab the community land. The communities deliberately uprooted the trees and in some cases blocked the off shoots.

Lack of proper sensitisation of the community led to wrong perception about the project, and instilled negative attitude by community towards the project.

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In their response, management explained that the infrastructure under this project is selected by the communities through community meetings. The community development officers at the district and the sub county level mobilized communities at the initial stages of the project to select and prioritize their infrastructure needs. Therefore, the projects being implemented address the community needs.

Project Management should ensure that community sensitization is adequately planned for and carried out.

(i) Status of previous year audit findings and recommendations A review was carried out on the status of implementation of previous year‘s audit findings. The findings are summarized in the table below.

No Finding Status

1 Budget performance – low absorption of funds Repeated 2 Over-expenditure on some codes Not repeated 3 Non-deduction of withholding tax Repeated 4 Delayed Project implementation Repeated 5 Abandoned sites Repeated

20.11 MARKETS AND AGRICULTURAL TRADE IMPROVEMENT PROJECT 1 (MATIP 1) (a) Compliance with financing agreement, Government of Uganda financial regulations and statutory obligations i) Government of Uganda (GOU) counterpart funding Shs.800,000,000 was budgeted as GOU counterpart funding to the project to cater for recurrent expenses (Shs.349,000,000) and Capital works (Shs.451,000,000). However, only Shs.422,238,999 was released to the implementing agency (MoLG) as GOU contribution to Project activities.

It was further noted that the funds were not transferred to the project accounts as would have been the case but were spent by the MoLG on behalf of the project, from the Ministry‘s Treasury General Account. The project officers and the Ministry 305

of Local Government staff could not isolate and retreave the vouchers, ledgers and accountabilities for the money spent on MATIP project activities worth Shs.422,237,230 which is reflected in the financial statements. The funds were therefore comingled with other sources of funds which could result to diversion of funds.

Management explained that the funds are managed on the Government IFMS since there are no dedicated project accounts for counter-part funds following the migration to the IFMS. Accordingly, all expenditures are made from the IFMS and the expenditure documents are filled together with the overall Ministry expenditures.

I informed management that in absence of a proper system to isolate project expenditures, it becomes difficult to attribute the entire expenditure to project activities. Project funds should be managed separately. ii) Non-Performing Loan from Arab Bank for Economic Development in Africa (BADEA) - US$ 10,000,000 The BADEA loan agreement was signed on 16th July 2009 for acquisition of land and construction of five markets at (Kasubi, Busega, Kansanga (Kampala City), Kimaka (Jinja District) and Nyendo (Masaka District), the loan was declared effective on 21st January 2010 and last disbursement is expected on 30th March 2013. The agreement stated 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. However, it was observed that no disbursements have been made since then, yet consultants have been procured and they have already been paid to draw up the architectural designs and supervise the construction of the five markets.

The commitment fees and interest that accrued on this loan account since its effective date has been estimated at US$200,000, which is likely to be a loss to Government.

Management explained that the Government is required to secure Land as a pre- condition to the commencement of the construction of the markets. The project 306

has been delayed due to non-availability of Government-owned land in the above locations.

I advised that more efforts should be put to enable acquisition of the required land. iii) Non-payment of VAT on Certified Works The contract agreements signed between the Ministry of Local Government and the contractors for works for the seven markets quoted the prices as VAT inclusive. It was however observed that payments to the contractors for works certified were exclusive of VAT, which VAT amounted to Shs.3,652,368,508. The VAT component should have been remitted to URA.

Management explained that the component of taxes is an obligation of GoU for which no funds were received during the year.

I advised management that follow-up should be made with the MoFPED so that funds can be obtained for the purpose. iv) Un-remitted statutory deductions Shs.81,888,846 was deducted and withheld from salaries in respect of statutory deductions as required by the regulations. However, these amounts were not remitted to URA (Shs.55,506,268), NSSF (Shs.25,802,578) and KCCA (Shs.580,000).

Non remittance of statutory deductions is a violation of the law which may lead to penalties. There is also a risk that the retained deductions could be diverted.

Management explained that payment of taxes is an obligation of GoU where funding had not been received from MoFPED. I advised management to follow up with the Ministry of Finance, Planning and Economic Development (MoFPED) to secure adequate funding for the statutory obligations.

(b) General standards of accounting and internal control Budget Performance-Low Absorption Capacity Shs.63,306,257,780(Shs.62.5bn – ADB, Shs.610m – BADEA and Shs.800m – GoU)was budgeted to finance project activities. Receipts during the year from ADB 307

amounted to Shs.31.4 billion while total receipts from the Government amounted to Shs.422 million and none from BADEA; overall budget performance on the ADB loan was 50%.

There is risk that the project will not be completed within the stipulated period leading to extra administrative costs.

In their response, management explained that the low performance was due to the delays in the commencement of the construction works due to prolonged mobilization activities that were necessary to re-locate vendors to enable the handing-over of vacant sites to contractors. The re-location of vendors was accomplished successfully and now the construction is ongoing.

Management was advised to expedite the implementation of project activities.

(c) Field inspections Field inspections were undertaken with a view of establishing among others, Physical progress of civil works on markets and the quality of works. The following matters were observed during inspections:- i) Lira Central Market The contract for the construction of this market was awarded to Arab Contractors Ltd at contract price of Shs.26,515,762,350. By the time of inspection, the workers were on site. The site engineer indicated that works were behind schedule by 12 weeks. Changes have been made by consultant to clinic, day-care and banks areas that were smaller than originally designed. Photos of the inspection are show below: LIRA CENTRAL MARKET REMARKS Workers are on site except consultant is not regularly available except during site meetings.

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Changes were made by consultant to clinic, day-care and banks areas that were smaller than originally designed.

Works at this area are still at ground floor. Site Engineer says works are behind schedule by 12 weeks.

In their response, management explained that the works are now progressing well and currently ahead of schedule. Close supervision and monitoring by management will be step up to minimize any slippages.

The contractor and consultant should ensure effective mobilization and supervision of works to enable timely completion of the project. ii) Gulu Main Market The construction of this market was awarded to DOTT services at a contract sum of Shs.15,057,709,217. By the time of audit inspection, a few workers were found on the site and the works were still at ground floor.

It was also established that the construction site was reduced in size on the advice of the project consultant. As a result, not all the original 4,400 vendors shall be accommodated, but only 1,800. Photo of the site during the inspection is shown below:

GULU MAIN MARKET REMARKS

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The construction site was reduced in size on the advice of the project consultant. As a result, not all the original 4,400 vendors shall be accommodated, but only 1,800.

Management explained that the capacity of the market under construction is 2,000 vendors, a number which is based on the vendor registration exercise that did not take into consideration vendors who were and are still vending on the streets as well as auxiliary markets within Gulu Municipality, namely Cuk Wilobo, Cuk pa Atuku, and Cere Lendu. However, the ADB has now approved the use of un- committed balance on the MATIP-1 Loan to finance the required modifications in Gulu Main Market so as to accommodate additional vendors.

The contractor and consultant should ensure effective mobilization and supervision to enable timely completion. Any variations should be made after proper assessment of the likely number of vendors to occupy the market. iii) Jinja Central Market The construction works for this market were awarded to Vambeco Ltd at a contract price of Shs.28,679,485,336. It was established that the work was behind schedule by three months. All the equipment on site has been duly imported by the contractor and this has delayed the works. The photos on the audit inspection are shown below:

JINJA CENTRAL MARKET REMARKS Construction works have concentrated on the Retention Wall so far here seen to the left of this picture.

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All these equipment were newly imported by the Contractor and this delayed the start of the works.

In their response, Management indicated that the works are now progressing well and currently are on schedule. Close supervision and monitoring by management will be step up to minimize any slippages.I await the outcome of management efforts. iv) Hoima Central Market The construction of this market was awarded to Amugoli Gen. Enterprises Ltd at a contract sum of Shs.13,717,782,223. By the time of audit inspection, the works were one and a half months behind schedule. The concrete blocks at the site appeared to be of poor quality and already breaking. There was a road that occupied an area which is part of the project site and the dispute had not been resolved. Photos taken during field inspection are shown below:

HOIMA CENTRAL MARKET REMARKS Construction works ongoing. The Project is behind schedule by one and half months.

These concrete blocks appear to be of poor quality, they were made on 23/6/2012 but are already breaking.

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This road occupies an area which is part of the project site and the dispute has not been resolved.

Management responded that the project has a quality control system enshrined in the contractual documents of both the consultants and contractors. The blocks that were found on site were already rejected by the consultant and were due to be removed from the site. The works experienced some delays but are now progressing well and currently are on schedule. Close supervision and monitoring by management will be step up to minimize any slippages.

The contractor and consultant should ensure effective mobilization and supervision for quality works and timely completion. Negotiations to resolve the issue of the road in the market project land should be resolved amicably to avoid high compensation costs.

(d) Status of the prior year audit recommendations The status of the prior year audit recommendations was as summarized below:

Issue raised Remarks Inadequate GOU counterpart funding Repeated

Procurements outside the procurement plan Not repeated

Refunds of borrowed funds Not repeated

Transfers to Local Governments not accounted for Not repeated

Unsupported expenditure Repeated

20.12 DISTRICT LIVELIHOOD SUPPORT PROJECT (a) Compliance with financing agreement and Government of Uganda financial regulations

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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 followings: i) Unutilized ''TOMPRO' Accounting Software The ''TOMPRO'' Accounting software (according to the supervision and Implementation Support Mission: 16-27 July, 2012) was installed at the districts and at the project coordination unit in Kampala. The software has Modules for system parameters; financial accounting, reports analysis, budget control, fixed assets management, credit management, procurement management and disbursement reports.

The Accounting software was intended to harmonize the financial, monitoring and reporting for the project team .The system has not been used at the project coordination unit and the districts and therefore the objective of introducing the software to capture transactions at project coordination unit and programme districts has not been achieved.

Management explained that the software was initially installed at the districts and the Programme Coordination Unit (PCU) with a view that data capture would be done at the districts and the PCU would receive and consolidate the soft copies of the district data. Data capture failed to be up-to-date in some districts. The Ministry and IFAD subsequently agreed to centralize the use of the software at PCU but the consolidation of centrally captured data at the PCU has since proved difficult and requires some re-configuration of the software to accommodate the shift from decentralized data capture. The procurement of the consultant to re-configure the software to enable it fully function is now at contracts committee level.

I advised management to expedite the process to ensure that the software is utilized for the intended purpose. ii) Unacknowledged remittances of withholding taxes (WHT) to URA Shs.148,055,004in respect of WHT was deducted in the various entities as detailed below;

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No. Entity Amount (Shs) 1 Project Coordination Unit 103,109,106 2 Oyam District 13,396,716 3 Mayuge District 11,839,529 4 Bugiri District 9,016,813 5 Busia District 10,692,840 TOTAL 148,055,004

However, there are no receipts from URA to support the payment. In the absence of the acknowledgement receipts, I could not confirm the remittance.

Management explained that the WHT was remitted and a follow up is being undertaken with a view of obtaining the necessary receipts. I informed management that in the absence of the receipts the funds remain unaccounted for and are recoverable. iii) Unauthorized excess expenditure The Project guidelines (Guideline 4.13) of May, 2011 for management of IFAD funds state that expenditure must be consistent with the approved work plan and the budget. However, it was noted that the expenditure for Agriculture, land management and community development exceeded the budget by Shs.90,592,606.The table below refers: Component Budget(Shs.) Actual Over Expenditure expenditure Community Development 1,385,702,500 1,432,389,489 (46,686,989) District and Sub-county 1,041,580,195 1,085,485,812 (43,905,617) (agriculture and land management) Total 2,427,282,695 2,517,875,301 90,592,606

The Authority for the over expenditure was not availed for audit verification.

Further, Project guideline 2.22 on IFAD funds provides that the budgetary allocations for each component should not exceed the prescribed percentages. 314

However, the percentage for Access Roads and water infrastructure exceeded the requirement by 40%. The table below refers:

Component Budget(Shs.) Required Allocated Over the % as per % required % guideline Access roads and 25,098,749,349 34 74 40 water infrastructure Agriculture and land 4,225,784,772 32 12 nil management

Non-adherence to budget provisions causes excessive allocations in some sectors and under allocations in others.

Management explained that the excess expenditure is a result of activities and funds rolled forward from financial year 2010/2011 to financial year 2011/2012. Information related to rolled forward activities and funds were not fully incorporated in the revised budget for financial year 2011/2012 and this partly contributed to excess expenditure compared to budget.

They further explained that the budgetary allocation for access roads and water exceeds the proportion provided in the guideline because there have been over laps in the implementation of activities under this component with most unutilized budget lines being rolled forward to the subsequent financial years as a result of late commencement of construction and in adequate capacity of some contractors. Although there seem to be budgets exceeding limits, they are still within the overall budget allocations for the categories and components for the entire programme period. No category or component will be over spent without authority.

I advised to closely monitor and evaluate performance so that the Project is on track with the budget and work plan.

(b) General standards of accounting and internal control i) Budget performance - Low absorption on Civil Works

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Shs.24,967,705,769 was budgeted for civil works for the period under review. However, actual expenditure was only Shs.1,538,353,994 representing an absorption capacity of only 6%. This is one of the components that have performed poorly yet the project is in its fifth year with only two (2) years to the closure. There is a risk that activities will not be completed on schedule leading to project extension and extra administrative costs.

Management attributed the delays to slow procurement process and explained that measures have been taken to address the bureaucracies in the procurement process and the design of the third batch is at completion stage while procurement of consultants for the last batch is also near completion.

I advised that the process be expedited so that activities are completed within project time span to avoid extra costs associated with project extensions. ii) Loss of Project Assets It was noted that 10 project motor cycles have so far been stolen. Such losses negatively affect project service delivery.

Management explained compensation for two motorcycles that got lost and for which full documentation was availed by the districts is about to be effected. Investigations are still ongoing for the five lost motor cycles while one motorcycle in Bugiri and one in Yumbe are to be recovered from the responsible officers who were found to have been negligent.

More efforts and measures should be instituted to avoid disruptions as a result of loss of the assets. In the mean time I await the outcome of management effort in recovering the lost assets. iii) Inactive US$ Account A review of the bank statements revealed that US$ A/c No.000110098400004 in Bank of Uganda (District Livelihood Support Programme Loan-IFAD, Agriculture Infrastructure Improvement Programme Grant IFAD) has remained dormant for the last three years with a reported balance of US$2,077.5. There is a risk of loss of the balance on the account or misuse of the account for fraudulent purposes. 316

Management responded that the project is funded with a grant and a loan and remittances are made in US dollars. More grant funds were approved for the project under the supplementary funding agreement of 2009 and the funds will be channelled through the same US $ account number 000110098400004. The account is therefore still very useful.

I informed management that BoU has a policy which requires dormant accounts to be closed after 24 months of inactivity and thus the account should be closed. At an appropriate time a request can be made to the Accountant General for a new account to be opened.

(c) Audit field inspections A field inspection to assess progress on implementation of DLSP activities was undertaken. The field inspection revealed the following; i) Incomplete documentation for procurement expenditure It was observed that there was inadequate documentation relating to procurements amounting to Shs.213,661,937. Details are in the table below; No. Entity Amount (Shs.) 1 Mayuge District 77,575,000 2 Kyenjojo District 65,678,000 3 Bugiri District 36,874,737 4 Busia District 33,534,200 TOTAL 213,661,937

The irregularities noted included the following: Standard procurement forms were not used to originate the procurements contrary to the PPDA act and regulations of 2003. Some suppliers were not registered with the registrar of companies and not VAT registered. The capacity and quality of services are therefore at risk. In a number of instances no procurement files were opened and maintained to document the procurements contrary to PPDA regulations.

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There were no procurement references numbers attached to the payment vouchers to enable easy identification of payments. In certain instances thresholds were not adhered to. There were cases where instead of 3 firms being invited to bid only one or two were invited. There was no evidence of evaluation as no evaluation reports were availed for verification.

It was also noted that in Nakaseke District, procurement files were missing. The omissions render the procurement process irregular and contrary to PPDA 2003 Act and regulations.

Management responded that the district was asked to submit the missing documents and to account for the anomalies observed.

Management was advised that the procurement process for the project activities be streamlined to realize value for money. ii) Lack of stock cards/Ledgers Luwero District purchased stationery worth Shs.26,554,800 from project funds. However it was noted that the stock cards/ledgers for the project. In the absence of the stock cards, I could not verify the purchases, issues and utilization of the stationery purchased.

Management responded that they had taken note of the audit observation and the district had been advised accordingly. I advised that separate stock cards/ledgers should be utilized to account for project funds. iii) Funds utilized for un approved programme at county Oyam District Arjek Kwan Ber Arami Parish in Oyam district was to receive bulls (Animal traction) for farming but a visit to the site revealed they were rearing instead goats. This was a diversion from the planned activities.

Management responded that they had taken note of the audit observation and follow up action was being taken.

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I advised that management pursues the matter with the authorities to establish the cause of the diversion.

(d) Action taken on the IFAD 2012 mission recommendations Supervision and Implementation Support Mission 16-27 July 2012: ISSUES Recommendation Action Taken The source and uses of funds This error should be adjusted in Pending statements as well as receipts the financial statement of and payment statements 2011/2012 contained an overstatement error of Shs.2.4 million in the opening cash balances. The Financial statements on Should allocate the GOU Action Taken the sources and uses of funds. contribution in the components and categories in which the investments have been made rather than presenting it in lump-sum as the case now. Separate audit opinions for Separate audit opinions should Action Taken Grant expenditures and be included for the grant Withdrawal Applications expenditures and withdrawal Applications and the underlying statements of expenditures as required in the IFAD audit guidelines. The proposed improvement. should be shared with the Action Taken Auditor General well before the Audit is concluded, so as to ensure inclusion of the Audit opinions

(e) Status of prior year audit observations and recommendations The status of prior year audit recommendations is as shown below;

Audit observation Recommendation Status of implementation

Lack of accountability Management should follow up Some advances are still of advances made to accountability for the funds unaccounted for. staff advanced Shs.11,000,000 remained outstanding. Un-utilized Tompro The date capture in the districts and Tecpro The software should be has failed because of transfer of Accounting software implemented both at the Project district accountants and Coordination Unit and the monitoring and evaluation Districts officers who were trained in the software.

The software implementation is 319

still facing challenges as indicated in 6.1 above.

Low Absorption Management should monitor The low absorption capacity was Capacity of Project utilization of the disbursements still evident even in the year funds and delayed to the districts to enhance the under review as reported in 7.1. implementation of funds absorption capacity and activities. improve service delivery. Unacknowledged Management should obtain Follow up of acknowledgement withholding tax acknowledgement receipts from reciepts is still a problem with payments URA. the Project as shown in 6.3. Loss of Project assets Management should follow up Project assets have continued to recovery and ensure safe get lost as indicated in 7.2. custody of Project assets

20.13 SPECIAL AUDIT ON DISTRICT LIVELIHOODS SUPPORT PROGRAMME (DLSP) – MINISTRY OF LOCAL GOVERNMENT (MOLG) A special audit was carried out during the year on implementation of the District Livelihoods Support Programme (DLSP). Below is the summary of key findings from the special audit report:

(a) Irregular procurement of consultants The procurement of the Consultants was not handled in accordance with the recommended procurement procedures. The bids for 4 firms which did not meet the deadline for submission were evaluated contrary to the PPDA Act and Regulations. The evaluation of the bids was also not undertaken in accordance with the evaluation criteria.

The responsible officers acted contrary to the PPDA Act Regulations and should be held accountable. I further advised the Accounting Officer to exercise more control and quality assurance on the procurement process for all tenders solicited.

(b) Inflated contract costs Document review and field inspections for Lot 1 Consultancy works contracts revealed that overall; the contracts were inflated by Shs.1,516,032,410. This represents 19% of the total contracts‘ sum of Shs.7,847,001,986. The escalation in costs is as a result of overestimated quantities in relation to the design and road

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length, changing of bidders rates and changing of quantities after issuing bid documents;

Furthermore, field inspections of the proposed road sites under Lot 2 Consultancy and a review of the BoQ‘s revealed that a total of Shs.802,336,850 was inflated on 17 contracts. This represents 8% of the total contracts sum of Shs.10,453,147,415. The escalations in costs arise from a combination of the following factors: over estimation of; trees, length of the road, embankment volumes; unjustified culvert locations; inclusion of the provision for water diversion works and clearing of swamps for structures where there were no swamps and gravel volume computations.

The responsible officers should be held accountable for the inflated costs. The Accounting should also ensure that as works are on-going, certification for works should be strictly supervised by the Ministry and only actual works executed should be paid in accordance with admeasurements requirements. Where works have not yet commenced, the contract prices should be reviewed or negotiated and any inflated costs resulting from unjustified quantities removed from the BoQs. Technical/Engineering audits should also be instituted on completed and on-going works but not later than substantial completion stage.

(c) Design of works Shortcomings were also observed in the design of the works. It was observed that the design report and its BoQ‘s were based on labour based principles where use of major equipment is not encouraged. However contractors bidded for the works with the intention of using equipment based methods.

(d) Estimation of materials There were also no materials investigations or prospects in the design. There were no approximate locations shown for the gravel and fill borrow pits and no material suitability checks were carried out. It is therefore not clear how items like construction of access roads to quarry sites were estimated and how availability of suitable gravel or fill material for the selected roads was ascertained.

(e) Use of standard material specifications 321

The design drawings lacked longitudinal profiles which would guide earthwork quantities and generally would have aided bidders with a better understanding of the terrain. The design drawings for structures such as box culverts were standard and not site-specific yet conditions are not necessarily the same based on the hydrological aspects of the areas.

(f) Lack of Unit Rate Analysis in Engineer’s Cost Estimates The review of the Confidential Engineer‘s Cost Estimates (CECE) revealed that there was no Unit Rate Analysis (URA) conducted for all bill items. It was not clear how the rates used for estimation of the costs were determined. This could have resulted into improper comparison of contractor‘s prices during tender evaluation. In addition the CECE were not referred to, to guide tender evaluations and this resulted into some lots being quoted up to the tune of 39% over and above the CECE (Annexes 2A and 2B) which would have necessitated calling for fresh bids.

(g) Differences in quantities In some cases, the quantities stated in the Bid documents were different from the quantities in the signed contracts. The procurement process of the change of bid documents was also not followed, for example, lot 11 Masindi District had such differences amounting to Shs.232,410,500 in excess. This is contravenes section 72 of the PPDA, Act 2003.

(h) Procurement plans All the districts did not include the procurement of DLSP works in their procurement plan since it was initiated by the Ministry.

(i) Works carried out on UNRA roads Lot 24, Lomunga – Kuru Road in Yumbe District includes a 5.6Km section which is under the management of UNRA. It was also noted that UNRA had done some work on the road in the Financial Year 2010/2011 and the road is motorable not as depicted by the implementation plan and BoQs. Although the contract was signed in May 2012, this anomaly was not corrected.

(j) Computation errors in bids

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All contracts under Lots 1&2 consultancies had computation errors leading to bid corrections except for Lot 37 (Annexes 2A and 2B) where the contractor‘s bid price was the same as the award price. Of the 17 lots, 12 lots (71%) had their bid corrections over and above their opening bid prices ranging from 0.34% to 98% correction. Outstanding cases related to Lot 27 in Bugiri district with an increment of 98% of the original bid price, Lot 28 in Bundibugyo (59%), Lot 40 in Mayuge district (38%), Lot 26 in Bugiri district (28%), Lot 39 in Mayuge district and Lot 36 in Kyenjojo district (16%). The corrections were attributed to computation errors in the bids.

(k) Absence of supervising consultants Lot 1 Consultancy supervision staff were not found on site during field visits although most contracts were signed in May, 2012, and works were on-going. In all cases the auditors were informed that the consultant was yet to report and the same was confirmed by verification of visitors‘ books at the site. It is unlikely that the consultant will do a job better than his design output. I have advised the Accounting Officer to closely monitor the performance of Lot 1 Consultant for a period of two months and invoke appropriate contractual clauses to penalise the Consultant in case of continued poor performance.

(l) Implementation of Programme in non-Programme Districts Whereas the programme was designed to cater for 13 districts for Lot 2 Consultancy for example, some of the roads selected are no longer under the jurisdiction of those districts as a result of splitting districts. I advised the Accounting Officer, where appropriate, to have the said contracts amended to accommodate the new districts. Where this is not possible, arrangements should be made to ensure the involvement of supervision teams from the affected districts. This will ensure smooth transfer of finished works and guarantee maintenance arrangements by the district where the projects lie.

The detailed audit findings are in the special audit report.

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21.0 OFFICE OF THE PRIME MINISTER

21.1 Absence of OPM Accounting Records Contrary to financial regulations, the accounting records necessary to undertake the audit were not provided. As a consequence, I was unable to confirm the balances in the financial statements.

Nonetheless, the following paragraphs summarise the matters that were noted on examination of the draft financial statements presented for audit as well as the accounting information downloaded from IFMS relating to the Office of the Prime Minister.

In his response, the Accounting Officer explained that he had delegated this responsibility to the Head of Accountsand provided written testimonies from a driver and guards at PostelBuilding confirming that the former Principal Accountant carried away the files. He further explained that the issue is a subject of a police investigation. I await the outcomes of the investigation.

21.2 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 Ministry‘s expenditures revealed that the entity charged wrong expenditure codes to a tune of Shs.51,215,618,447. This constituted 62% of total releases/expenditurefor the Ministry.

This practice undermines the importance of the budgeting process as well as the intentions of the appropriating authority and leads to misleadingreporting.

In their response management explained that such rampant diversions were due to insufficient budget allocations and severe cuts in consumptive areas.In addition, they attributed the diversions to the size of the Ministry and emergencies handled by their Ministry.

I advised the Accounting Officer to streamline the budget process to ensure that sufficient funds are allocated to each account. Authority should be sought for any reallocations.

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21.3 Adjustment of Shs.274,293,192 in the Statement of Changes in Equity It was noted that an adjustment for Shs.274,293,192 in respect of an overstatement of prior year receivables in the Statement of Changes in Equity was made to the financial statements. However, the adjustment was not supported with justification.

Although management explained that the receivables had been written down due to remoteness of the likelihood of recovery of the funds, I informed management that such write downs require express permission of the Permanent Secretary/Secretary to the Treasury and Parliament which they hadnot sought.

21.4 Cash and Cash Equivalents a. Dormant Accounts Thirty six (36) local and three (3) foreign currency accounts were found with total bank balances amounting to Shs.2,205,260,432andUs$.2,430,227 respectively. The accounts were considered dormant because they were inactive both in the previous financial year and the year under review.Dormant accounts are risky and may be abused.

In their response management explained that they had written to the Accountant General to have these Accounts closed. Management further explained that some of the accounts shown in the list were not known to them and they had written to BoU to obtain clarification.

I advised mangement to follow up the matter further with the authorities.

b. Irregular Transfer of funds Further review of the account portfolio revealed that the Ministrywas running four (4) accounts which have no financing but instead received funds irregularly from other sources and subsequently funds were misappropriated as highlighted in my special investigations report on alleged fraud in OPM. In a period of the two years of 2010/11 and 2011/12 a total of Shs.56,253,651,995was received on these

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accounts. I advised management not to maintain accounts which are not funded. The details are set out below: Source Account Amount Remarks

38,291,174,135 PRDP Holding Accounts Donor funds diverted to the Accounts Ministry Treasury General Tran sferred from TGA after Account 14,099,066,569 charging line items UK/UG Post conflict Account Refund of funds borrowed on 2,649,295,863 behalf of DFID, however DFID denied granting approval for borrowing Unknown Funds deposited on National Policy 1,214,115,428 Account but source is unknown 56,253,651,995

It is important to note that the details of expenditure for shs. 38,291,174,135 off these Accounts were not consolidated into the Ministry‘s Financial statements.The accounts is listed hereunder:-

List of unfunded Accounts

NO ACCOUNT NO ACCOUNT NAME 1 000030088000038 Peace Recovery & Development Plan (PRDP) for Northern Uganda 2 000030088000030 Crisis Management & Recovery Programme 3 000030088000022 Building Sustainable Peace & Development in Karamoja 4 000030088000013 National Policy on disaster management

21.5 Cash Withdrawals During the year under review the entity withdrew a total of Shs.16,626,028,556 from eight (8) accounts as indicated in the table below:-

ACCOUNT NAME NO OF TOTAL CASH WITHDRAW (Shs) S Crisis Management & Recovery Programme 40 3,129,578,282 Building Sustainable Peace & development in 8 681,738,832 NationalKaramoja policy on disaster management 36 2,264,433,917 Peace Recovery & Development plan (PRDP) 25 1,765,001,164 OPMNorthern forex Uganda 50 1,652,591,756 OPM cash 83 3,549,546,688 DFID evidence based 32 2,450,156,421 326

UK/UG post conflict 12 1,132,981,496 Total 16,626,028,556

Withdrawals from donor project accounts (i.e. DFID Evidence Based and UK/UG Post Conflict) were refunded using funds from the Treasury General Account), hence should be accounted for under GoU.

The Crisis Management, Peace and Development and National Policy on Disaster Management accounts could not be attributed to any active project and are therefore included in the cash withdrawn for general running of the Ministry. The review revealed a number of irregularities which are highlighted here below;

a. Lack of a Cash Register The Cashier was not maintaining a cash register and preparing payment vouchers to track the movement of cash in the cash office and as such the cashier was unable to give details in regard to the above amount. Huge cash withdrawals are irregular and therefore should be avoided.

b. Lack of Accountability I did not obtain any form of accountability documentation to support the usage of the proper use. The funds are recoverable.

c. Office Imprest In many instances, the withdrawals were dubbed ―office imprest‖, however at times the monthly imprest would be drawn up to eight times in one month.Under the above circumstances, the funds withdrawn in cash remain unaccounted for and are recoverable

d. Duplicate Imprest Advances In addition to funds which were drawn in cash to cater for imprest, all imprest holders were advanced imprest funds on their personal accounts, creating a parallel system.A total of Shs.566,634,770 was advanced to imprest holders personal accounts as monthly imprest.

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A review of the list of beneficiaries revealed that some of the officers were not authorized imprest holders. This creates doubt in regard to the rightful imprest system. The whole amount remains unaccounted for.

I advised management to streamline the imprest system and advance funds to authorized imprest holders.

Cash withdrawals from the Crisis management, Peace and Development and PRDP North accounts were included in my report on the special Investigation in OPM and the issues are part of the ongoing PAC and police investigation; however, the rest of the Accounts were not included.

21.6 Advances to Cashier’s Personal Account In the year under review a total of Shs.2,087,703,998 was deposited onto the cashier‘s personal account in Stanbic Bank. Most of the transactions had a narration ―refund of funds to the cashier‖ appearing as if the cashier had lent personal moneys to Government. It was further noted that no documentation was available to support the expenditure. Given that the cashier had no mandate to carry out field activities and there is no evidence that the cashier lent money to Government in his personal capacity the whole amount remains unaccounted for.

The issue was raised in my earlier report to PAC and is a subject of PAC and Police investigation, I await the outcome.

21.7 Inter Account Transfers The Ministry made a number of inter-account transfers. I reviewed the transactions relating to these transfers and detailed them here below:-

a. Transactions on the National Policy on Disaster Management Account

Inflows into the account Date Source Account Amount 27-Jun-11 PRDP Holding Account 6,953,527,579 24-Jun-11 Ministry TGA 5,000,000,000 328

29-Jun-12 Ministry TGA 3,306,100,000 4-Nov-11 Ministry TGA 744,407,420 21-Sep-11 Ministry TGA 600,000,000 18-May-12 Ministry TGA 600,000,000 10-Nov-11 Ministry TGA 200,000,000 7-Nov-11 Ministry TGA 392,200,000 17,796,234,999 Outflows from the account Ref. Payee/usage 6.11.3 Various Food vendors 9,143,722,363 6.5 Withdrawn cash 2,264,433,917 No doc for audit Refund to UK/UG post conflict account earlier 350,000,000 borrowed 6.11.2 New Caltex Ntinda 995,304,785 6.11.4 Farm Engineering 585,140,436 No documents Supply of iron sheets 392,200,000 6.11.1 Advanced to personal Accounts 2,699,663,456 No documents Cattle branding 936,380,119 Confirmed receipt 429,389,923 by URA Total 17,796,234,999

b. Transactions on the Crisis Management Account Inflows into the account Date Source Account Amount 1-Dec-11 Basket PRPD Holding Account (Irish) 14,876,108,017 30-Jan-12 Basket PRPD Holding Account (Swedish) 3,500,000,000 30-Jan-12 Basket PRPD Holding Account (Swedish) 1,795,368,488 11-Oct-11 Treasury General Account 100,000 23-April-12 Treasury General Account 1,692,000,000 Total 21,863,576,505

Outflows from the account Ref Description of use Amount 6.5 Cash withdrawn 3,129,578,292 6.11.4 Farm Engineering Industries Ltd 1,970,000,000 6.11.3 Food supplies 2,664,985,000 6.11.2 Fuel 1,373,500,000

No documents Paid to Ministry of Water for Valley tanks 1,731,092,000 Vehicles seen Procurement of Motor Vehicles 1,818,413,285 6.11.1 Personal Accounts 3,554,194,272 329

No documents Hydra form for block making machines 431,554,073 Shown below Transfer to other OPM account(UK/UG Post) 3,980,000,000 No documents Other suppliers 1,210,259,583 Total 21,863,576,505 a. Transactions on the UK/UG Post Conflict A total of Shs.6,815,643,609 (Shs.4,853,817,861 for 2011/12) was transferred to this account from various OPM accounts and utilized as shown in the table below. The funds relate to a number of transactions undertaken using the DFID account funds which were later paid back from other OPM accounts.

Inflows Date Source Account Amount 30-Nov-10- Treasury General Account 449,710,000 28101112111010-Jul-11 Treasury General Account 1,078,584,559 27-Jan-12 Treasury General Account 315,233,302 14-Feb-12 Crisis Management 3,000,000,000 25-Jun-12 Treasury General Account 110,000,000 6-Aug-12 Treasury General Account 1,512,115,748 2-jul-12 National policy on Disaster 350,000,000 6,815,643,609 Outflows from the account

Remarks/ref Details Amount No documents Cattle branding 3,071,861,380 6.11.4 Farm engineering less 6% WHT 500,000,000 6.7 International Development Consultants 333,061,864 6.5 Withdrawn cash 1,823,949,055 6.11.1 Advanced to personal Accounts 1,101,617,000 Total 6,830,489,299 a. Transactions in the PRDP North account. A total of Shs.3,863,411,291was transferred to this account as shown in the table below:-

Inflows Date Source A/C Amount (Shs) 01-Dec-2010 Ministry TGA 1,564,259,149

18-May-12 Unknown 1,214,115,428 16-Aug-11 UK/UG PCDP 1,478,245,400 7-Dec-10 UK/UG PCDP 1,171,050,463

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9th-Feb-2011 Norwegian PRDP Holding Account 11,166,170,051 Total 16,593,840,491 Outflows from the account

Ref paragraph Description Amount (Shs) Transferred to Ministry of Works for 6,200,000,000 procurement of a Ferry. Unutilised balance of Shs.1.2b was returned to OPM 6.11.4 Farm engineering ltd 1,324,297,716 6.11.1 Advance to personal accounts 1,684,671,497 No documents Supply of hydra form machines 1,722,278,002 6.5 Cash withdrawals. Of this Shs. 5,153,483,276 3,388,482,112 was drawn in 2010/11 No documents Akamba Ug ltd 207,975,000 No documents Transfers to other Govt agencies 301,135,000

Total 16,593,840,491 c. OPM Transfer Account A total of Shs.2,112,664,314 was transferred from the Ministry Treasury General Account to the forex account for foreign travel and settling of foreign currency bills. Review of the account revealed a number of irregularities highlighted here below; i. Unaccounted for Cash A total of Shs.1,652,591,756 was drawn in cash from the forex account by the Ministry‘s cashier. Further inquiry revealed that all withdrawals were in US dollars. However, the documents to support these withdrawals were not availed and thus the whole amount remains unaccounted for and is part of paragraph 6.5.

ii. Payment to a firm of Consultants Shs.414,687,496 was paid to the above company for preparation of Public Sector Management Strategic Investment plan off this account. The company entered into a contract with the OPM at a contract sum of US$.617,637.5 VAT exclusive, for the preparation of the Strategic Investment Plan.An addendum to the contract, with a price variation of US$.108,043 VAT inclusive was issued on the 12th July 2011. The contract price including the variation and VAT stood at US$.836,855.41. By the year end, the following payments had been made:-

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Date Amount paid Exchange Amount in Source Account in Shs. rate USD

20-Mar- 414,687,496 2488.12 166,667.00 OPM Forex Account 2912- Oct- 333,061,864 2287.24 145,617.37 UK/UG PCDP Account 107-Oct -10 493,000,608 2253.37 218,783.69 Public Sector Reforms 15-Feb- 381,356,323 2359.86 161,601.25 Public Sector Reforms 117-Nov -11 700,000,000 2628.59 266,302.47 Treasury General Account 2,322,106,291 958,971.77

This shows an overpayment of US$.122,116.36 translating into Shs.320,993,850.

Management undertook to follow up the issue with consultant and in case of overpayment recover the excess. 21.8 Kasiimo Project The Ministry through the department of Luweero Affairs was charged with the mandate of paying gratuity to non combatant War (civil) veterans. To expedite the process, the Ministry transferred trenches of funds to a local bank equivalent to moneys verified by a committee. The Bank would then pay individual veterans by crediting bank accounts opened with them.In the year under review, a total of Shs.5,956,000,000was transferred to the bank. I reviewed and reconciled the verified lists with the amounts transferred to the bank. The following observations were noted:-

Although the MoU required the bank to retain unclaimed funds and these would be used to reduce the amount remittable by Government for subsequent tranches, this was not done. Instead all unclaimed funds were retained by the bank and would not reduce the amounts remitted in subsequent tranches. At the time of writing the report the bank had cumulatively retained a total of Shs.152,793,192 (according to a statement of balances sent by the bank)with no interest earned over the years.

I was not furnished with a full list of expected beneficiaries, amounts so far paid and the balance due, five (5) years after the onset of the scheme, under the circumstances, cases of duplication and inclusion of non entitled beneficiaries

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cannot be ruled out and the figure stated by the bank as the cumulative balance (i.e. Shs.152,793,192) may not be correct.

I advised the Accounting Officer to ensure prompt reconciliation of amounts remitted to the bank as well as what is paid out to the beneficiaries. All unpaid funds must be accounted for. In addition, a full database should be provided detailing verified amounts to be paid, paid amounts and balances due.

I recommend a detailed review of the programme to rule out duplicate payments and confirm that all funds reached the intended recipients.

21.9 LuweeroRwenzori Project The Ministry under the Luweero/Rwenzori project, embarked on a prosperity for all project in war ravaged areas of Luweero and Rwenzori regions. The main objective of the project was to improve household income for people in these areas and this was to be achieved in two ways;

a) Transfer of funds to organized groups through community SACCOs on a basis of 50% loan and 50% grant. b) Transfer of funds to Districts for infrastructure development in selected sectors.

Audit reviewed the project payments and noted the following shortcomings;

In some districts like Kabarole, there was no involvement at sub county level; instead procured inputs were being distributed to selected individuals. The criteria for selection of beneficiaries is subject to abuse in districts where benefitting individuals are hand picked Infrastructure development in selected sectors is already funded through other interventions like School Facilitation Grants, Road Fund and others, therefore including the same under this programme creates a huge risk of recycling accountabilities. None of the beneficiaries from the sampled districts had attempted to pay back the 50% loan advanced and thus the initial thought of creating a revolving fund is being thwarted. 333

Monitoring and follow up appeared lacking in some areas visited and indeed some of the funds advanced could not be seen on the ground. Whereas Shs.5,170,000,000 was budgeted and released for distribution to 39 districts, only Shs.2,096,850,000 was distributed to 22 districts. The rest of the funds were diverted to non project activities, the bulk was diverted to pay fictitious food supplies. There is lack of proper appraisal of projects. For example two maize mills procured in February 2012 are not operational 1 year later due to absence of 3 phase electricity supply. A group procured a tractor using the grant as down payment but failed to pay even the first installment of the outstanding balance and so the tractor was withdrawn by the supplier.

I advised management to consider implementing the following;

The criteria for selection of beneficiaries should be made more transparent. The funds should be sent straight to the districts by Treasury on the advice of OPM, to avoid massive diversions. OPM should receive and consolidate approved district work plans and should restrict themselves to carrying out monitoring, evaluation and setting of guidelines. Funds should only be given to groups which have proper project proposals and basic appraisals should be undertaken prior to the disbursements. Unaccounted for funds should be followed up with the aim of recovery.

21.10 Utilities The office entered into a tenancy agreement with M/S Posta Uganda for rental of 8 floors on PostelBuilding. The agreement stipulated that payment of utilities was the responsibility of the tenant. During the period under review, the entity paid amounts that appeared excessive for utilities as shown below:-

SUPPLIER INVOICE AMOUNT (Shs) National Water & Sewerage Corporation 111,816,524 UMEME LIMITED 75,544,033

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The building had only one meter for electricity and one meter for water in the names of OPM, despite having several tenants some of which were private companies. This implies that OPM paid on behalf of all tenants whose consumption can never be determined accurately; this explains the high figures paid under utilities. In addition, the entity paid a total of Shs.218,255,000 for telephone services and this was done by way of advances to Uganda Telecom which would then load prepaid amounts on particular telephone lines. However, no reconciliation was ever done before the next advance is made. This created a risk of losing huge balances to the service provider, misuse of phones due to excessive balances and diversion of funds for private use.

I recommend that the consumption should be prorated according to floor space and the share of the other tenants recovered from the land lord. In addition, controls should be put in place over the usage of telephones.

In their response management promised to handle the issue with the Land lord with a view of recovering the excess funds paid by them.

21.11 Special Audit Report on OPM An audit report was issued by the Auditor General, following a special audit that was undertaken on the operations of the Office of the Prime Minister. The contents of the said report are currently being discussed by PAC while others are undergoing police investigations. The following paragraphs contain the matters raised in the said report which impacted on the audit opinion for the current financial year:-

a) Personal Advances i. Advances to Staff Personal Accounts Sections 227, 228 and 229 of the Treasury Accounting Instructions 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. During the period under review, a sum of Shs.17,639,620,732 was advanced to Ministry officials personal accounts. 335

An attempt to access the original accountability documents for the amount advanced proved futile. The current head of accounts confirmed that no single accountability document was passed to him at the time of hand over. Police statements given by several staff indicate that the former Principal Accountant had an office in the basement and that on a number of occasions carried a few files with him to work from either the basement or home.

In the absence of accountability documents the whole amount remains unaccounted for.

ii. Refund of Cash from Personal Accounts A total of Shs.562,355,000 was purportedly remitted to personal accounts in error and therefore was recalled by the accounts staff. The recipients withdrew the funds and refunded it cash to staff in the accounts department. Evidence of acknowledgement by accounts staff was availed as indicated in the table below;

Name of Officer Amount (Shs) Receiving Officer in Accounts department Lubega Raphael 200,000,000 KazindaGeofrey Dhikusooka Cyprian 95,000,000 Nalwanga Lydia Muwanika Abdul 88,000,000 Obbo Boniface Owaro Johnson 71,355,000 KazindaGeofrey Etyang Martin 108,000,000 KazindaGeofrey Total 562,355,000

However, subsequent utilisation or banking by the accounts staff was not provided. It appears that referring to them as errors was a disguise. In this regard the whole amount is recoverable. b) Fuel and Motor Vehicle Servicing The Ministry has a fleet of 392 vehicles which is controlled by the Transport Officer. In the period under review a total of Shs.10,827,832,397was paid out to cater for fuel and motor vehicle servicing details are shown below:-

Break down of fuel from TGA account for the period

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SUPPLIER AMOUNT (Shs) Engineers Investments Ltd/Shell Mulago 6,800,000 Jinja Road Service Station 2011 Limited 153,580,827 New CALTEX Ntinda Service Station 6,850,987,854 Standard Chartered bank 2,458,532,116 Shell Bukoto Service Station 6,000,000 Shell Capital 2001 Limited 6,740,000 Total Key Fuel Filling Station 180,000,000 9,662,640,797

According to the Transport Officer, the fuel that was under his control was that paid through Standard Chartered Bank and loaded onto cards. Narrations from IFMS indicated that the Fuel paid to the New Caltex account was for transportation of food. The following matters were noted regarding the amounts deposited:- Shs.6,850,987,854was paid to New Caltex Ntinda Service Station in the period under review. It is unclear how the company was procured. There was no evidence of background check or evaluation.

No fuel consumption statements were availed by OPM and the fuel station and as such it was not possible to ascertain the use of the fuel. Under the circumstances the whole amount remained unaccounted for. c) Procurement of Food The OPM procured a lot of food items for purposes of aiding disaster stricken communities. The practice was to have a list of prequalified suppliers from which a few would be chosen on a rotational basis, issued with LPO‘s and they would deliver food to OPM stores. In the stores all receipts would be verified then entered in the food ledger; subsequently the food would be issued out to different communities on the approval of the Accounting Officer.

A review of the food ledger revealed that the amount of food supplied by different companies greatly differs from amounts of money paid to the suppliers from OPM accounts. The analysis showed that a total of twenty three (23) companies were overpaid to a tune of Shs.9,073,170,163. d) Fraudulent approval of invoices on the IFMS 337

Approval of invoices is the most critical stage in the IFMS payment process, and as such the responsibility is limited to the accounting officer, or his/her designate in case of absence. Review of invoices on the IFMS over a period of two years revealed that invoices amounting to shs.16,269,660,955 were approved by the then principal account without the express Authority of the Accounting officer.

21.12 Overview of OPM Projects The OPM has a total of 18 projects with funding from both GoU and several Development Partners. The following was noted: a. Overlapping Activities A review of the different activities undertaken by the different projects revealed that in a number of instances the projects undertook the same activities, creating a risk of duplication as indicated below:-

PROJECTS/PROGRAMMES OVERLAPPING ACTIVITIES ALREP, KIDDP, KALIP Construction of valley dams Construction of market sheds Construction of cattle crushes

NUSAF2 Procurement of seeds for northern Uganda Post war recovery and presidential Construction of low cost houses pledges KIDDP, NUSAF, PRDP at LG‘s Construction of teachers houses

KIDDP Procurement of ox ploughs Post war recovery and presidential pledges

Evidence based decision making, Monitoring By the GCW National integrated M&E strategy Mobilization of a wide community for effective participation in barazas Dissemination and lunch of M&E policy PRDP,NUSAF2 Supply of seeds Construction of teachers houses Construction of health centres

PRDP, KALIP Construction of boreholes in Moroto NUREP, PRDP Preparing 4 status reports for PRDP projects Monitoring and developing programmes in northern Uganda (NUSAF2,ALREP)

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In their response, management explained that the PRDP framework takes cognizance of the fact that there are a number of stakeholders some of which may be contributing towards the same activity, but in different Districts, Sub-counties, Parishes and locations.However, through the preparation of harmonized work plans with clear indicators and outputs, the issue of duplication does not arise because we are able to track where NUSAF, ALREP, KALIP and PRDP projects are located.

I advised management to harmonise the Ministry projects with a view of eliminating duplication.

21.13 SPECIAL AUDIT REPORT OFFICE OF THE PRIME MINISTER A special audit was carried out during the year on the management of Donor funds in the Office of the Prime Minister. Below is the summary of key findings from the special audit report:

(a) Fraudulent transfer of PRDP funds Shs.20,171,576,247 meant for the Peace Recovery and Development Programme activities was fraudulently transferred from the respective budget support accounts to off budget project accounts and subsequently utilized without approved work plans and authority.

(b) Diversion of funds Additional Shs.18,119,697,630 meant for Peace Recovery and Development Programme activities was diverted to National Policy on Disaster Management and PRDP North accounts. There was no authority availed for the diversion.

(c) Irregular allocation of responsibility Shs.16,222,877,129 was paid out by the Principal Accountant using responsibility that was fraudulently obtained from an officer of the Treasury. The funds were subsequently fraudulently paid out to OPM staff, other accounts in OPM, private companies, Centenary Bank and district accounts. There was no adequate supervision by the Accounting Officer contrary to the requirements for EFT payments issued by the Accountant General. 339

(d) Non-confirmation of payments Whereas the guidelines require that payments done in BOU be confirmed before effecting payments, it was observed that transfers amounting to Shs.10,928,904,304 were undertaken without the requisite confirmations.

(e) Signature verification Payments for a total of Shs.13,454,035,346 from OPM accounts appeared to have signatures of the Permanent Secretary and Under Secretary differing from the specimen signatures held by Bank of Uganda. It was further noted that all the instruments which had differing signatures of the Permanent Secretary and Under Secretary were confirmed by the Principal Accountant whose signature was genuine. 80% of these instruments were approved by the substantive Deputy Director Banking.

(f) Failure to close dormant accounts The bank procedures require that if any accounts are dormant for more than 24 months, BOU is required to initiate closure of these accounts. It was observed that six accounts were noted to be dormant under OPM. It is also noted that the dormant accounts were used to perpetuate fraud.

(g) Running EFT files on The BBS without confirmation from the Treasury There is a major weakness in running EFT files on the BBS before receiving confirmatory e-mails from Treasury. Indeed the fraudulent transfers were undertaken through EFT files.

(h) Mismanagement of funds under the Crisis Management and Recovery Account Shs.20,171,576,247 was fraudulently deposited on the Crisis Management Account and subsequently utilized without any approved work plans. The Accounting Officer did not seek information from MoFPED regarding the transfers but went ahead and utilised funds that had been fraudulently transferred. The practice was contrary to the functions of the Accounting Officer provided under S.14 of the PFAAR. 340

(i) Advances to personal accounts The Treasury Accounting Instructions prescribe procedures and circumstances for granting advances to staff under Sections 227, 228 and 229. However, the Accounting Officer authorised payment of funds to personal accounts without following prescribed procedures. During the period, Shs.34,604,861,101was advanced to staff contrary to the regulations.

(j) Absence of OPM Accounting Records S.420 of the Treasury Accounting Instructions requires the Accounting Officer to be responsible for the maintenance of records. However, it was observed that a number of accounting records were missing.

(k) Fuel and motor vehicle servicing Shs.8,590,127,612 deposited in various fuel stations remained unaccounted for. The fuel deposits were purportedly for transporting food and yet most of the related requisitions had a fuel component. Included in the payments is Shs.576,000,000 that was refunded to a fuel station by OPM without proper justification.

(l) Procurement of food OPM procured food supplies for aiding disaster stricken communities. A review of 23 companies that supplied food revealed that the companies were overpaid by Shs.8,647,602,417. In addition, a number of irregularities were noted in regard to the companies‘ registration.

(m) Farm Engineering There were no appropriate records to support Shs.13,716,991,976 paid out to Farm Engineering for ploughing in Karamoja.

(n) Overview of Projects

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OPM runs 18 projects funded by both Government of Uganda and Development Partners. A review of the project implementation revealed that the projects had overlapping activities which could lead to duplication of effort and payments.

The detailed audit findings are in the special audit report.

21.14 NORTHERN UGANDA SOCIAL ACTION FUND (NUSAF 2) (a) Budget performance – Excess expenditure Analysis of the Project budget and actual expenditure incurred during the year revealed that excess expenditure amounting to Shs.5,717,841,399 was incurred on some of the expenditure items as compared to approved budget. Notably on payment of allowances for the training of Community Project management Committees (CPMC) and other stakeholders, which are encompassed on the Institutional development component, Livelihood Investment Support, Public Works and Household Income Support program.

The risk is that more emphasis may be put on the less important and unplanned activities, thereby curtailing the implementation of priority activities in the project aimed at alleviating poverty.

Management explained that the implementation of the Project is not bound by the Fiscal Year as the case of Government Agencies. The generation and disbursement of funds for subprojects is continuous process. This depends on the Community demand in accordance with the Project guidelines.

I informed management that expenditure should be in line with planned for activities to be achieved during the year. Any deviations should be explained and authorized.

(b) Advances to Individual Personal Accounts It was noted that officers were advanced funds on their personal accounts amounting to Shs.297,938,500 for field operations. In their response management indicated that advances to individual personal accounts are done for official activities.

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Advances to personal individual accounts have been rated as highly risky as a possibility of misappropriation is high. There is a need to strengthen the internal controls over advances to personal individual accounts.

(c) General implementation of workplan and activity component Physical inspections carried out in various implementing districts revealed the following matters:-

i) Delayed release of operational funds It was noted that in all regions inspected there was late release of funds to the districts. This delayed the training of the communities and curtailed the implementation of the projects as per the agreed work plans.

Management explained that the cause of delays was the late submission of accountabilities by the districts for the earlier disbursed funds. They also indicated that going forward the funds to train community groups now are remitted alongside the initial subprojects‘ funds and no further delays have been registered.

I advised that management should improve accountability mechanisms to enable timely release of operational funds for prompt training, project implementation and supervision. ii) Irregularity in the Procurement of Heifers in Nebbi District Nebbi district entered into an agreement with a company to procure pure or cross breed heifers and bulls for milk production. However, it was noted that the supplier delivered Local Heifers instead of the exotic type. In addition, the following procurement irregularities were noted;

The change of subject was done far after the delivery was done, that is; delivery was done on 14th December 2011 and demand note 14th December 2011, while the letter of change in subject availed was dated 5th March 2012. Minutes approving change of subject were made on 14th February 2012. 343

It was noted that the letters of advertisement, application, agreement, award and acceptance for the above contract were all signed on the same day (31/11/2011) contrary to the operational guidelines that require at least 15 days for bid opening. The evaluation report was not also in place.

According to the availed documents the market value of the local heifer at the time was Shs.480,000 but the cost quoted on the order form was Shs.720,000 for local heifer and Shs.770,000 for a bull respectively thereby over stating the cost.

I advised management to adhere to the procurement procedures to ensure that value for money is achieved. In the meantime those flouting procurement regulations should be held accountable. iii) Delayed drainage works in Bar-Dege Division – Gulu Municipality The Public Works Sub-project selection, drainage works were identified and approved for funding in Bar-Dege Division of Gulu Municipality during the financial year. It was however noted that the sub-project implementation did not take off despite the funds being approved for the purpose.

Management indicated that the case is under investigation by the Inspector General of Government (IGG). The case should be concluded and sub-project implementation should take off without further delays.

I await for the outcome of management efforts. iv) Delayed implementation of sub projects in Amuru District It was observed that for almost two consecutive financial years Amuru District has made a nil disbursement to Sub Projects despite the Memorandum of Understanding (MoU) between the Government of Uganda (OPM) and Amuru Local Government that was signed on the 10th February 2010, for the execution of the approved 258 projects in the District. No sub-project had been undertaken, save for the training conducted in three sub-counties. The District Community has not benefited from the intended services.

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Management explained that there was an attempted fraud by the former NDO upon submission of subprojects without following the Project guidelines. This resulted in suspension of funding to Amuru district and an investigation was commissioned for the alleged flouting of the project rules and regulations. The suspension was lifted upon conclusion of the investigation by the IGG.

I have advised management to expedite the implementation of the sub projects to enable the communities obtain the intended services. v) Non Utilization of completed project - Lala Community Borehole, Yivu sub county (ID H0410705002), Maracha District The project was contracted out to a company at a cost of Shs.19,962,210. The works were completed and the borehole was commissioned on 16/5/2011. However, it was noted at the time of inspection that the community was not using the water claiming it was not fit for human consumption. The matter was referred to IGG and National Water and Sewerage Corporation to analyze the water and the quality of the water cleared as fit for human consumption.

Persistent shunning of the facility by the community will render the expenditure wasteful and no value for money attained. I advised management to continually sensitize the community development officers on good intentions and safety of Government programs. vi) Project behind Schedule- Maracha Primary School Classroom Construction, Nyadri Sub County (ID H0410203001) - Maracha District A contract was awarded to a construction company at a contract price of Shs.90,000,000 for construction of; 3 classrooms, 5 stance pit latrine, and supply of; 54 classroom desks, 3 teachers desks, 3 teachers chairs and Rain water harvesting tank.

Shs.40m has so far been paid to the contractor. According to the agreement, the completion date should have been four months from the date of signing the agreement which was 5th September 2011, implying by January 2012 the project 345

should have been completed. However, at time of inspection the project was still incomplete with furniture, and rain water harvesting tanks not yet delivered.

Management explained that the district had formally been notified to follow-up the matter to ensure that the contractor meets his contractual obligations. I await the outcome of the follow up.

vii) Lack of technical support to the projects – Maracha District Sub Projects Affected by Disease Out breaks It was noted from project reports that one of the risk factors that affected the piggery and goat rearing projects in Maracha District was weak technical support to the communities. There was also lack of adequate sensitization and poor targeting and choice of fundable Sub projects. It appears that management did not provide adequate capacity to support the communities.

Management explained that OPM had initiated discussions with the Ministry of Agriculture Animal Industry and Fisheries (MAAIF) on measures for strengthening the weak veterinary services in the region but a strategy was yet to be agreed upon. I await the outcome of management action. viii) Inadequate management of sub projects According to the Project Operational Manual, Household Income Support subprojects are implemented by Community Interest Groups (CIGs) through their democratically elected Community Project Management Committees (CPMCs). The CPMCs are supposed to receive technical support from sector experts from Local Government Technical staff at sub-county and District levels.

A visit to one of the beneficiaries of Ogoloi Integrated Youth and Cattle Rearing Sub project in Atutur Sub County revealed that a beneficiary had not received any support from the CPMC as regards accessing technical assistance from the veterinary officer. The affected animal is shown in the picture below:

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A sick cow in Ogoloi Integrated Youth and Cattle Rearing Sub project in Atutur S/C

Lack of adequate management of subproject assets by the Community Interest Groups may result into non achievement of project objectives.

Management explained that the communities undergo training prior to accessing the funds as a requirement. There is however a gap of extension workers across the region.

The Community Development Officer (CDO) as a liaison officer should ensure appropriate linkages for the provision of technical support to the beneficiary households by subject matter specialists for proper sustainability of the projects. ix) Stalled project - Wodu Youth Piggery Sub Project, Piggery,Oleba Sub county (ID H0410301009) The group was funded with Shs.7,196,000 out of which Shs.3,480,000 was disbursed. However, it was observed that the project had stalled. There is a risk that the intended objectives may not be achieved.

Management explained that the District was formally notified to furnish OPM with actions taken. I advised management to follow up the matter with a view to reactivating the project to enable achievement of its objectives.

(d) Omissions in project implementation - Cattle Rearing Sub Projects without Serving Bulls – Atutur Sub County, Kumi District The project development objective of NUSAF2 is to improve access of the beneficiary households to income-earning opportunities and better basic social- economic services. Specifically the project supports initiatives that increase income earning opportunities of the target poor households. 347

Contrary to the objectives, inspection of cattle rearing sub projects in Ogoloi and Akibui on Youth and Elderly cattle rearing revealed that the two groups received 15 heifers but without serving bulls which is a requirement for such projects.

Without serving bulls, there shall be no increase in stock of community productive assets (milk and calves). This in turn will affect the increase in income of the target beneficiary households which is a key performance indicator for the success of the project.

Management in their response explained that the district was formally notified of the audit findings and requested to provide comprehensive answers and action taken to the affected subprojects.

I advised management that in order for the project to achieve its intended objectives, efforts should be made to procure quality serving bulls for the cattle rearing sub projects.

(e) Status of sub project implementation Based on the sampled sub project for review, it is observed that most of the projects took off well. However, the implementation is slow and therefore are behind schedule. The late disbursement of funds could be attributed to districts submitting progress reports and financial reports late, as the guidelines demands that at least 80% level of accountability for sub projects must be made before funds could be released.

The delays in accountability and disbursement of funds are likely to affect project implementation and the achievement of its intended objectives may not be undertaken within the project timelines.

Management explained that the OPM initiated Rapid Response Initiative for accountability to enable the districts fast track accountabilities from the communities.

I await for the outcome of management action.

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(f) Follow up on prior year audit recommendations The status of implementation of the previous audit recommendations is presented below;

Audit Findings Recommendation Status on implementation of recommendations General Standards of Accounting and Internal Controls (a) Demarcation, Partitioning and The funds spent without No evidence of action Minor Repairs of Offices done authority should be taken. without authority. refunded by the Office of the Prime Minister. (b) No supporting documentation Management was advised Supporting documents for refund of Start Activities to provide the requisite not obtained. Monies to OPM-PRDP documents for amounting to Shs.210,193,000. verification.

General implementation of work plan and activity component

(a) Lack of sufficient veterinary and Management should liaise The problem still agronomy extension services. with responsible persists. authorities to improve the services. (b) Delays in project Management to follow up Delays in project implementation at district level. Project implementation at implementation are still the district level with a prevalent. view of minimizing delays.

21.15 STRENGTHENING EVIDENCE BASED DECISION MAKING – OPM COMPONENT 2011

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(a) Compliance with the key DFID funding covenants and guidelines governing the funding and management of DFID support to SEBDEM II Project/OPM It was observed that project management complied materially with above applicable provisions in the memorandum of understanding except for the matters below; i) Value Added Tax

According to the MoU Clause 7, ―the Grant was not meant to be used to meet the cost of any other duties or taxes, fees or similar charges imposed directly or indirectly by the Government of Uganda or by any local public authority in Uganda on the goods and/or services provide‖. It was however noted that the Grant was used to pay for VAT to some of the procured goods and services which have been considered as ineligible as illustrated below;

Date Payee Details Amount VAT paid

4/05/2011 International Performance Development Monitoring study

Consult 250,229,973 47,372,103 19/05/2011 Yield Agency Printing GSAPR 74,229,920 14,214,240

19/05/2011 Ground Consults Printing GSAPR Group 37,130,000 7,110,000 PILA Recruitment 49,041,000 8,827,380

Total 77,523,723

There was non-compliance with the Memorandum of Understanding provisions in this respect.

Management agreed with the recommendation and promised to liaise with the authorities in order to recover the taxes paid.

I advised that the OPM refunds Shs.77,523,723 to the project account. In future management should endevour to adhere to the MoU or seek clearance from DFID on matters of tax.

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ii) Borrowing for Baraza Activities

It was noted that Shs.500,617,316 meant to be incurred from the Government of Uganda funding was financed using DFID funds. Management explained that this arose as a result of delay in the release of government funds for the same activity.

I advised management that the Shs.500,617,316 should be refunded onto the DFID project account and in future management should seek a ―No Objection‖ from the donor prior to spending from the donor account.

iii) Unbudgeted items

It was noted that the total expenditure for the period under the monitoring budget line includes expenditures that related to SEBDEM 1. These related to commitments or payables from SEBDEM 1. These are noted in the table below;

Date Description Amount 4/05/2011 IDC 263,178,347 19/05/2011 Printing of the GSAPR 174,300,000 (2009/10) 437,478,347

Management explained that as at the closure of SEBDEM 1, the project had insufficient funds on account as such, it could not pay the contractors. These were subsequently catered for using funds in SEBDEM II.

I did not obtain an official communication between DFID and OPM in regards to rolling over transactions that related to SEBDEM 1 into SEBDEM II.

I advised management to always seek a ―No Objection‖ from the funding partner prior to spending funds outside the designated account.

21.16 STRENGTHENING EVIDENCE BASED DECISION MAKING – OPM COMPONENT 2012

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(a) Compliance with the key covenants of DFID funding agreement and GOU Financial Regulation It was noted that the management had in all material respects complied with the covenants contained in the credit agreement and government of Uganda financial regulations except for the following matter;

i) Ineligible expenditure - salaries for PRDP Shs.48,945,278 It was noted that SEBDM II paid salaries worth Shs.48,985,278 for Peace Recovery Development Program (PRDP) for the month of April 2012 without following proper procedures. A ―No Objection Notice‖ was never obtained from DFID. The expenditure has been classified as ineligible that should not have been paid out of SEBDM II funds.

I advised management that PRDP or the Government of Uganda should refund the money to DFID account.

(b) General standard of Accounting and Internal Control A review was carried out of the project system of financial management and the following matters were observed; i) Unaccounted for funds It was noted that Shs.2,521,732,972 was withdrawn by OPM - Cashier Mr. Oonyu Isaiah in cash. The money was not accounted for as at 30 June 2012.

It was further noted that the majority of transactions, supporting documents like loose minutes, payment vouchers, invoices, copies of security papers and activity plans were not on file. Most transactions were not budgeted for and no notice of a ―No Objection‖ was obtained from DFID as the MOUs require. Therefore, the drawings contravened paragraph 3 of the MOU between GOU and DIFID

Post balance sheet review has however revealed that the Government of Uganda refunded Shs.2,397,716,250 to DFID account No. 000030088000009 with Bank of Uganda on 6th August 2012. The reconciliation of the refunds to the total

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unaccounted for funds, show that for the period to 30th June 2012 the total cash not accounted for is Shs.146,970,887 as shown below:

Total unaccounted for funds - 30 June 2012, UShs.2,521,732,972 Less: Government of Uganda refund on 6th August 2012 UShs.2,397,716,250 Un Refunded Funds to DFID Ushs 124,016,722

Management stated that they will refund the said amount to SEBDM II Account.

Management was advised to make an additional refund of Shs.124,016,722 to DFID to clear unaccounted for funds as at 30th June 2012. Management was further advised that interim audit should be conducted to determine whether there are additional misappropriated funds between 1st July 2012 to 14th November 2012, the day when DFID suspended financial aid to Uganda. ii) Unreliable filing system It was noted that the filing system in SEBDM II –OPM was poor. The following weaknesses in filing system were noted; There is no chronological filing system in place. Accountabilities were scattered in different files others were not filed at all. Accountabilities relating to one transaction could not be traced in one file but several files. Payment vouchers, invoices, delivery notes, acknowledgement for payments and other relevant supporting documents were not stamped ―PAID‖. Double payments could easily be made. Some accountability for activities implemented as far as March 2012 were still not yet submitted to accounts by implementing officers up to the date of the external audit. There was no record to show the movement and usage of security payment papers. The chronological and sequential serial numbers - SEBDM II security payment papers could not be established.

The risk of the poor filing system is that it perpetuates fraud.

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Management acknowledged the observation and will implement the recommendation accordingly. I advised management to design a reliable filing system for SEBDM II of a consultant could be engaged to do the job for the entire OPM if need be.

21.17 AVIAN AND HUMAN INFLUENZA PREPARADENESS PROJECT (a) Office of the Prime Minister i) Limitation of scope Payment vouchers and accountability documents for the expenditures under the Office of the Prime Minister were not availed for my verification. As a consequence, I was not able to ascertain whether funds were used in accordance with the intended purposes.

Management explained that the payment documents were taken by other government agencies for scrutiny and had not been returned.

I advised management to pursue the matter further with the authorities to ensure that the documents are returned to enable verification.

(b) Ministry of Health i) Delayed accountabilities Instances were noted in the Ministry of Health where officers were given advances to implement activities but took too long to provide accountabilities. Specific examples of these are summarized in the table below;

Date Details Ref Amount Date advanced accounted for 08/11/2011 Training district facilitators 155927 63,690,000 12/12/2012 06/02/2012 Investigations in Mubende, 155960 19,776,000 11/12/2012 Kabarole and Bundibugyo 06/02/2012 Investigations in Jinja, 155961 19,198,400 11/12/2012 Iganga and Kayunga 12/03/2012 Media Simulation 155982 29,304,000 December 2012 354

01/03/2012 Vehicle fuel and service for 155973 16,000,000 December 2012 communication component 04/04/2012 Community mobilization 241405 30,391,000 December 2012

Delays in presenting accountabilities may lead to falsification of documents.

Management explained that the accountabilities were delayed because the implementers were involved in responding to a number of life threatening disease outbreaks. I advised management to institute measures to ensure officers account for funds in a timely manner. (c) Follow up on prior year audit recommendations The status of implementation of the previous audit recommendations is as indicated below; Audit Findings Recommendation Status on implementation of recommendations Ministry of Health

Activities implemented long after the advance are given

There were instances where Management was advised Not resolved money was advanced to that activities should be officers and activities were implemented within the implemented after a long planned period. time.

Multiple advances to officers Management was advised Not resolved There were instances where that in future officers officers were given advances should not be provided for more than one activity at with multiple advances the same time. before accounting for the previous advance. Ministry of Agriculture, Animal Industry and

Fisheries

Project activity codes

The Ministry did not follow Management was advised Not resolved the budget codes in the to ensure that expenditures preparation of the financial were made within the reports submitted to the budget allocations. 355

World Bank. Office of the Prime Minister

Fixed assets listing

Assets were grouped Management was advised Resolved together on the listing to separate individual making it impossible to assets for easy identify by engraved number. identification and follow up

22.0 MINISTRY OF PUBLIC SERVICE

22.1 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. A review of the Ministry‘s expenditures revealed that the entity charged wrong expenditure codes to a tune of Shs.4,912,020,604. It was noted that the bulk of the funds were diverted to pay for allowances and workshops. Such a practice renders the budgeting process useless, undermines the intentions of the appropriating authority and leads to falsified accounting.

The Accounting Officer attributed this to spending pressures.I have advised Management to desist from such a practice and always request for reallocations or virements, as provided for under the TAI.

22.2 Cash Withdrawals

During the year under review the ministry made cash withdrawals amounting toShs.4,165,288,500 from the Treasury General Account (TGA) to undertake several activities. I reviewed expenditures related to the activities and noted a number of irregularities which are highlighted here below:-

(a) Non compliance with Treasury Accounting Instructions (TAI) It is a requirement under section 173 of the TAI that all Payments wherever possible must be made by means of direct bank transfer or crossed cheques, only to the persons named in the vouchers or their accredited agent. The practice of 356

drawing cash to incur expenditure is not encouraged given the risks associated with handling cash.

In their response management explained that cash was needed to pay allowances and transport refund for various workshops whose participants were at times difficult to know before the due date. I have advised management to ensure adherence to the requirements under the TAI in an effort to minimise any misappropriations that may result from use of cash. (b) Year-End Cash Withdrawals It was noted that the ministry made year-end cash withdrawals that appear to have been made with the intention of not returning the unspent cash balances to the consolidated fund account as is required by the Public Finance and Accountability Act 2003. A total of Shs.786,215,229 was withdrawn in the last two weeks of the financial year as indicated in the table below;

DATE PAYMENT DETAILS AMOUNT (Shs.) 15-Jun-12 Ministry Staff 227,081,400 27-Jun-12 Ministry Staff 223,471,029 27-Jun-12 Ministry Staff 181,315,600 20-Jun-12 Ministry Staff 154,347,200 786,215,229

Such a practice is not only irregular but also exposes government funds to a risk of misuse. These payments will need to be investigated further to establish whether they were put to proper use.

(c) Cash not Accounted for – Shs.1,236,394,900 A total of Shs.1,236,394,900withdrawn in cash remained unaccounted for at the time of the Audit (i.e. 9 months after the close of the year). As such, I could not confirm whether the funds were properly utilized. It is important to note that such delays in accounting for funds may encourage or indicate incidents of misappropriation of funds.

In her response the Accounting officer stated that she had written to the concerned officers to provide the necessary documentation. By the time of compiling this report, the documentation had not yet been provided. I advised the Accounting 357

Officer to ensure that recovery measures are initiated from the officers concerned, in the event of failure to obtain the accountability in question.

(d) Doubtful Cash Payments – Shs.2,955,975,000 Audit review further revealed that cash withdrawalsamounting to Shs.2,955,975,000 appeared doubtful. The supporting documents presented for audit could not fully support the management assertions of completeness, accuracy and authenticity of the underlying transactions. The following general observations were noted regarding the attached accountabilities:- There was no set programme specifying districts to be visited, numbers of days to be spent in the respective districts, dates the activities were to be carried out and the officer‘s to undertake the activities. Additionally, there were no budgets specifying the activities to be carried out and their related costing. Several officials were said to have been paid night subsistence allowances; however I could not confirm whether they are government officers, their designations, duty stations, where they conducted the activity, how they arrived at the number of days for the night allowances, as well as a standard transport refund despite varying distances to their home districts. No daily attendance lists duly signed by participants and facilitators showing their contacts, duty stations and designations were availed for audit verification. The date of payments was not indicated on the payment sheets. In all instances, no activity report was availed for audit review. On several occasions, activities were duplicated raising doubtsas tothe genuineness of those activities.

Under the circumstances, the expenditures were considered doubtful. Icould therefore not confirm that expenditures amounting to Shs.2,955,975,000 were incurred for the intended purpose.

Although the Accounting Officer stated that she had written to the concerned officers to provide the necessary explanations relating to these observations, I had not received any additional information relating to this matter. I have advised the 358

Accounting Officer to ensure that the above matters are followed up and that recovery measures are initiated, in the event of confirmation of misuse of funds.

22.3 Cash Withdrawals in June 2011

It was noted that a total of Shs.1,363,905,000 was withdrawn in cash in the last two weeks of the previous financial year (2010/2011). These withdrawals included a total ofShs.627,710,000 that was drawn in one day alone. I verified four (4) of these payments totalling Shs.1,000,000,000 and noted similar issues as indicated in paragraph (d) above.There is a risk that the entire amount withdrawn (i.e. Shs.1,363,905,000) may not have been utilised for legitimate purposes. In her response the Accounting Officer stated that Shs.1,000,000,000 was advanced to two ministry officers to carry out activities related to implementation of the hard to reach policy framework and she had written to them to explain the anomalies in their accountabilities. The balance of Shs.363,905,000 was advanced to a staff who later absconded from duty and efforts to find him have proved futile. I therefore recommend further investigations into this matter.

22.4 Personal Advances During the year under review, a sum of Shs.741,701,631 was advanced to Ministry staff to undertake field activities. Facilitation was by way of advances to individual personal accounts. A review of the accountabilities revealed several irregularities which made some of the expenditures doubtful and others ineligible. The following general observations were noted regarding the attached accountabilities:-

Refund of moneys for office expenses were either made to the Cashier‘s personal account or to the Senior Accountant‘s personal Account. I found this irregular as it would imply that the Cashier and the Accountant were lending funds to Government from their personal savings. A number of transactions had no accountability documents attached for audit review. Even in instances where payments were to be made to companies or Ministry staff, the money was advanced to the cashier‘s personal account e.g. Shs.66,900,000 for staff allowances.

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In her response the Accounting Officer stated that she had written to the concerned officers to provide the necessary documentation.I recommend further investigation into this matter.

22.5 Unsupported Pension Liabilities – Shs.71,400,221,136 According to the statement of financial position, the entity disclosed a pension liability of Shs.71,400,221,136 as at 30th June 2012; however, I could not confirm the accuracy of this figure, as documentation pertaining to all pension arrears was not available. I recommended that the figure be supported and all relevant documentation be verified by the Internal Audit department.

22.6 Unaccounted for Transfers to the Ministry Forex Account - Shs.141,575,800 A total of Shs.141,575,800that was transferred to the Ministry forex Account in Bank of Baroda to meet the Ministry‘s contribution to international organisations as shown below, had no supporting documentation:-

Inv-No Date Supplier Description Amount (Shs.) DB596/11/11 12/6/201 Bank of Balance payment for 2,500,000 1 Baroda AAPAM IRB001/06/201 6/26/201 Bank of Annual contribution to 38,500,800 2 2 Baroda ESAMI RB501/01/12 1/30/201 Bank of Payment for ESAMI 100,575,000 2 Baroda 141,575,800

In the absence of supporting documentation including the bank statements, I was unable to establish as to whether the amounts in question were indeed paid for the purposes intended.

It is important to note that the Ministry has a dormant forex account in Bank of Uganda (i.e. a/c No.50308000001) which would have offered more favorable exchange rates. There was no justification therefore, for transferring funds to a commercial Bank.

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I advisedthe Accounting Officer to use Bank of Uganda for its foreign exchange transactions as guided by the Accountant General. I also advised her to ensure that the funds in question are accounted for.

22.7 Dormant Bank Accounts It was noted that eighteen (18) bank accounts in local currency and one (1) bank account denominated in foreign currency were found with nil balances both in the previous financial year and the year under review implying that they are dormant accounts and therefore non-operational. I explained to the accounting officer that such dormant accounts are risky as they are prone to abuse.

In their response management confirmed that indeed all the accounts were dormant and had instructed Bank of Uganda to close them with the exception of only six (6) which were still being used. I therefore await evidence of closure of the accounts in question.

22.8 Report on Inspection for Salary Arrears and Hardship Allowance

During the audit, a field verification exercise was undertaken regarding the hardship allowances and salary arrears that were paid by the ministry during the year. The main objective was to establish whether the beneficiaries actually existed as per the payment records at the ministry. A total of eight (8) districts and one (1) Municipal Council were covered. These include; Apac district, Lira District, Gulu District, Gulu Municipal council, Agago District, Pader District, Kitgum District, Lamwo District and Abim District.The following general findings were noted:- It was established that all the beneficiaries sampled received their salary arrears and Hardship allowance. There were some staff who were not being paid hardship allowances as they were not on the payrolls. Some claimants were underpaid compared to the claims they submitted.

In her response, the Accounting Officer promised to have the above matters addressed. I await the outcome of this management commitment.

22.9 Gross Tax

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The Ministry budgeted and received a total ofShs.650,000,000 as gross tax during the year under review. However, it was noted that actual expenditure was only Shs.21,513,987 reflecting a mere 3% utilization. Allocating funds for activities/expenses whose likelihood of occurrence is remote is an indication of poor budgeting. Besides it also creates large budgetary slacks which provide for future unfair budgetary variations.

Management explained that the funds had been budgeted to cater for Import duties on the materials for the construction of the National Records and Archives Centre and the refurbishment of National Service College in Jinja, which activities stalled due to various unavoidable circumstances such as delays in procurement processes. I advised management to ensure proper budgeting in future.

22.10 PUBLIC SERVICE REFORM PROGRAMME

(a) Compliance with Financing Agreements and GoU Financial Regulations A review of the project financing agreement and GoU financial regulations revealed that the management complied in all material respects with the agreement provisions and Government of Uganda financial regulations except for the following matters:-

i) Ineligible Cost In my previous audit report for the financial year ended 30th June 2011, I pointed out that costs amounting to Shs.17,900,000 were ineligible. The costs were considered ineligible because the expenditure was incurred and paid from credit funds which according to the agreement were not eligible. However, during the period under review it was noted that the funds had not been refunded. Management should comply with the provisions of the agreement.

ii) Withholding Tax It was also observed that the project withholds both PAYE and withholding tax from both employees and service providers. These taxes are remitted to Uganda Revenue Authority in time. However, there are no tax returns made in respect of these taxes as required by the Income Tax Act.

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Income tax Act requires all withholding tax agents to make tax returns for the taxes withheld on monthly basis. Failure to do so implies non – compliance and may delay the processing of Tax Credit Certificates for the suppliers.Management should make tax returns for all taxes withheld for both the PAYE and withholding tax as required by the Income Tax Act.

(b) General Standard of Accounting and Internal Control A review carried out on the on the project accounting system revealed the following internal control weaknesses; i) Unaccounted for funds for training Shs.66,872,000 was withdrawn from the Project bank account 2nd August 2010 to train members of parliament. As at the end of June 2012, this activity had not been implemented and cash was still in the safe, pending implementation of the activity. There has been a delay in implementing this activity.

Management explained that the activity had not taken place and the funds are to be re–banked on Project Account. I advised management to ensure that funds should only be drawn where activities are to be undertaken to avoid a risk of loss or misappropriation. ii) Cash and Bank It was observed that the opening cash book balance for UPSPEP II account was not correctly brought forward in the current period. There was a discrepancy of USD 6,711 between the amount included in previous year‘s financial statements (USD 1,069,424) and amount brought forward in cash book in the current period (USD 1,076,135).

Further, included in bank reconciliation statements for UPSPEP II bank account from July 2011 to June 2012 are un–credited receipts described as difference arising from conversion rates amounting to USD 18,660.41. These are included in

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reconciliations for every month throughout the year. It was also noted that bank reconciliations are not approved and reviewed by an independent person.

Management explained that this money was erroneously deducted from Project Account by bank of Uganda. However, there has been no formal request by Project Management to Bank of Uganda to correct this error. With regard to reconciliation statements management has promised to address the matter.

iii) Fixed Assets Register It was observed that management did not maintain a Fixed Assets Register for the project assets.A fixed asset register is a control tool that is used to record, track and monitor the assets of an organization. Failure to maintain it implies that project management cannot track all project assets, which may lead to misuse and loss through theft and negligence.

Management was advised to ensure that a Fixed Assets Register is put in place and regularly updated with the changing condition of assets. iv) Civil Service College The college is located in Jinja Municipality at Plot 2 Oboja Road, 28 Kisinja and Plot 15 – 17 Circular Road, renting the buildings of National Fisheries Resources Research Institute (NaFIRRI). It was observed that whereas fixed assets were transferred to the Civil Service College in Jinja, there is no up to date Fixed Assets Register maintained to record and monitor these assets. I advised management to ensure that an up-to-date fixed assets register is maintained at the college to track and monitor all fixed assets owned and controlled by the college.

(c) Status of Previous years’ audit observations A review of the status of implementation of the previous audit recommendation was undertaken and the following noted; Observations Recommendations Status

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1. Cash and bank Unspecified payment of Adjustment to be made on the Undertaken Shs.192,838,923 not reversed in ledger. the general legder. Bank reconciliations not Independent review be Not done reviewed by an independent undertaken. person other than preparer.

2. Compliance with covenants of financing agreement It was noted that an advance payment of Shs.17,900,000 on The funds incurred on these Not done 14/01/2011 to Ms Basandara expenses should be refunded to Sarah in respect of Post the project. Graduate and Masters degree training includes ineligible costs.

3. Financial Management Project financial records are It is recommended that the Not done maintained manually using both project uses a computerised manual cash books and accounting system such as Microsoft Excel Spreadsheets. It Navision to facilitate its book was noted that the manual keeping and minimise the risks cashbook was not up to date. associated with Excel based accounting systems.

Interim Financial Reports are Interim Financial Reports should Not done prepared and submitted for the be prepared in accordance with two components under UPSPEP. requirements of the World Bank. We however noted that these Appropriate adjustments should reports are not properly be made to the reports of the prepared and not timely financial year to ensure that they submitted. show the correct financial position of the project.

22.11 SPECIAL INVESTIGATION REPORT ON THE ALLEGATIONS OF IMPROPRIETY OF PENSION FUNDS IN THE MINISTRY OF PUBLIC SERVICE

A special audit was carried out during the year on the management of pensions. Below is the summary of key findings from the special audit report:

(a) Funds misappropriated A total of Shs.165,416,588,331 was misappropriated as the expenditure was not supported with the required documentation. In all instances these payments were not backed with personal files to provide employment details of the beneficiaries.

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Further verification also revealed that the beneficiaries did not exist in their purported former places of work. The breakdown of the misappropriated funds is as follows;

No. Category Amount (Shs) 1 Payments to non-existent pensioners 155,738,066,427 2 Payments made twice to non-existent 9,504,528,244 pensioners 3 Doubtful payments to foreign pensioners 173,993,660 Total 165,416,588,331 (b) Payments to a Law Firm Payments to a law firm amounting to Shs.15,487,040,200 purportedly in respect of damages to pensioners due to delays in payment was not supported with adequate documentation. It was also noted that at the time of effecting payments to this law firm, the firm did not exist according to the Uganda Law Society.

(c) Irregular Budget Provision for Social Security Contributions Funds amounting to Shs.88,242,384,930 were irregularly budgeted for as social security contributions for the financial years 2010/11 and 2011/12. The National Social Security Act under Sec 1(8) exempts pensioners from social security contributions. My review of the records did not reveal any such payments made to National Social Security Fund.

(d) Control Weaknesses in the Pension Processing System Weaknesses in the processing of pensions funds were noted including lack of involvement of internal auditors in verifying payment schedules, incomplete information on pension files and delays in processing pension emoluments.

The detailed audit findings are in the special audit report.

22.12 SPECIAL AUDIT OF UGANDA GOVERNMENT SALARIES AND WAGES

A special audit of the Government payroll was carried out during the year. Below is the summary of key findings from the special audit report:

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(a) Employee verification I noted 7,588 cases of employees who had died, absconded or left service due to various reasons (retirement, long sickness, and others) but were still on the payroll. This number also includes 6,554 employees who could not be traced physically or to records from votes under which they are recorded on the Government payroll. The exceptions were mainly found on the teachers‘ payroll. The Government could have improperly paid these individuals by as much as Shs.33 billion.

(b) Duplicate names I noted duplicate names on both the teachers and traditional payroll. Duplicates were identified as employees with the same names and same date of birth. Employees in this category were paid twice a month for extended periods during the year under different votes. This could have caused over payment of Shs.753 million. The MoFPED and MoPS need to prioritise checking the payroll for duplicate employees and cease payment where there‘s duplication.

(c) Errors in dates of birth I have noted a total of 2879 records [Traditional payroll] and 1,746 records [Teachers payroll] with dates of birth indicating that they were recruited at an age of below 18 years. Date of birth is used as a reference point when determining retirement dates for employees. An inaccurate date of birth will therefore result into incorrect retirement dates.

(d) Bank Account numbers used by more than one person I noted a total of 486 records [Teachers payroll] and 150 records [Traditional payroll] where a bank account number was used by more than one computer number in the year and another specific different key unique identifier like names, date of birth or date of employment. Monetary loss cannot be determined without delay as further investigation is required on these exceptions.

(e) Employees on payroll with no bank account numbers I noted a total of 16 records in Traditional payroll where individuals had salary processed with missing bank account numbers. This would result in unapplied EFTs. Under the current payroll processing guidelines, all employees are required to have

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bank accounts before they can access the payroll. Missing bank accounts would create an opportunity for the names on the payroll to be fraudulently used by opening bank accounts in those names.

(f) Inaccurate date of appointment I noted that 1,271 records on the Teachers payroll and 3,411 entries on the Traditional payroll have exceptions on the date of present appointment. These exceptions include; date of present appointment being earlier than the date of first appointment (date of entry on the payroll), odd years (e.g., 9976), and others. There is a risk of negative financial impact that may arise where salary reviews are based on incorrect dates of appointment. (g) Accessing the payroll There were instances of significant delays in enrolling employees onto the payroll resulting in large amounts of arrears paid to employees.

(h) Input and output controls There were inadequate input and output controls in place to ensure the integrity of the data in the payroll system. For instance one individual (super user) has rights to enter and delete employees from the payroll with no audit trail left and no validation checks embedded within the system. The poor controls have resulted into a number of exceptions being identified from the audit testing (for example; wrong dates of birth, wrong appointment dates, and others) which have caused significant doubts over the accuracy, authenticity and credibility of the payroll system.

(i) The payroll file Regular checks on the integrity of the payroll master file used for processing monthly payments are not being performed such as the reviewing of the payroll file for duplicate entries or incorrect information. For instance, I noted numerous instances of duplicate employee entries, duplicate bank accounts and errors on appointment and dates of birth. The payroll file contains important pay information for each employee in public service. This file should be updated on monthly basis for new additions, changes in pay, deletions and others arising through the pay change report. However, I noted that the payroll has not been regularly reviewed. 368

(j) Lack of segregation of duties A review of processing of the payroll at UCS revealed a fundamental lack of segregation of duties with the same officers being essentially responsible for inputting new employees onto the payroll, deleting employees off the payroll, and making changes to the payroll without an independent review and check on the data they have entered into the system.

The lack of segregation of duties has resulted in payroll officers reviewing their own input of information into the payroll system. Therefore no independent check on processing of the payroll exists. This contravenes the essential characteristics of good internal control especially with respect to information processing. This has resulted into inaccuracies in the payroll and fundamental doubts on the integrity of the current payroll.

(k) Delays in removal of employees from the payroll Testing revealed a problem with delays in the removal of employees from the payroll. For instance, during teacher verification in one of the districts, I noted up to ten cases of teachers that were not removed from the payroll for at least two months after they had left teaching service (death or abscondment).These instances alone would have cost the Government up to Shs.6 million for the two additional months they were paid. I understand that under the current payroll processing system, Accounting Officers are allowed to delete employees that have been terminated or who should not be on the payroll during the preliminary payroll process. A preliminary payroll is provided to the Accounting Officers by 16th of the Salary month and Accounting Officers are given up to four days within which to submit exceptions to UCS. The exceptions include salary deductions within the same salary scale or deletion due to death, retirements, and others.

From the results of our testing, I noted that only a few MALGs utilise this process to remove employee from the payroll. For instance, from review of the hard copy returns of exceptions reports arising from this process, I noted that only approximately 40% of MALGs submit exception reports arising from the preliminary payroll process. Failure to utilise the preliminary payroll process to remove

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employees who should not be on the payroll has resulted in losses to the government. For example, I noted one instance in Kabale District where the Head teacher had deliberately left someone on the payroll long after the teacher had left Government employment. The Head teacher gave inconsistent messages which confirmed my suspicion. In addition, this teacher could not be traced to the attendance registers for two school terms.

There are also concerns around the timelines of reporting abscondment and long illnesses by the Head teachers which results in employees staying on the payroll for long periods after they have left Government employment.

(l) Lack of proper maintenance of records and security over records Pay change reports supporting some of the changes made to the payroll could not be located as they had been destroyed or lost. There was also a lack of security over records with a number of confidential documents relating to employees pay being located in storage containers in the compound of the MoPS and other documents maintained in room that have no restricted access.

Personnel files for primary school teachers and local government employees are maintained by the respective local governments. Personnel files for post- primary school teachers are maintained at the MoES and at the respective institutions for all other MALGs. I noted instances where personnel files could not be located for some employees especially at the Local Governments. Despite my repeated requests for the personnel files to be provided, these were not readily availed, which creates doubt about their existence. The absence of personnel files may also put to question the legitimacy of one‘s appointment.

A sample of personnel files reviewed were not up to date with documentation supporting recent changes in employee pay, promotion or transfers. In addition, personnel files did not have the monthly payslips on them as required by the payroll guidelines circulated by the MoPS.

(m) End user documentation 370

There was no user documentation available to all personnel responsible for the day- to-day use of UCS system to process payroll.

(n) Comparison of Teachers on the Central payroll and the MoES and MoPS From my audit procedures at the MoES, I noted that the Ministry does not maintain a listing of teachers in service at any one particular time. This means that there‘s no comparison between the central payroll and the teaching service records of teachers in service. If such a comparison is done, it would help the Government to identify ghost employees on the payroll and terminated employees that have not been removed from the payroll.

I also noted differences in the number of staff on the teachers‘ payroll processed at UCS and the records maintained on the teachers‘ database at the MoPS. There were 8,390 records on the UCS payroll that were not on the MoPS database. I recommended that these differences are investigated and a reconciliation process undertaken.

The details of the findings are in the special audit report.

23.0 PUBLIC SERVICE COMMISSION

23.1 Staffing Gaps Section 15(9) of the standing Orders, 2010 mandates the Ministry of Public Service to determine the structure, terms and conditions of service in Government entities. A review of the Commission‘s Organizational structure revealed that out of the available 91 posts, only 72 are filled leaving 19 positions Vacant.Table below refers:

No Post Vacant 1 BOD Members 1 2 Assistant Commissioner 1 3 Principal Personnel officer 1 4 Senior Assistant Secretary 1

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5 Senior personnel officer 5 6 Senior Assistant Comp. Operator 1 7 Senior office Supervisor 1 8 Principal Copy Typist 1 9 Stenographer Secretary 1 10 Drivers 2 11 Office Attendants 4 Total 19

Lack of staff in vital positions of the organization affects the performance and overall achievement of organization‘s goals and objectives. The existing members of staff may be overworked leading to staff demotivation and probable increased staff turnover.

Management stated that PSC has embarked on filling the vacant posts, while the matter of the vacant board member is before the appointing authority.

I await the outcome of management efforts.

23.2 Budget Performance – budget shortfall – Shs.335,000,000 Review of the Commission‘s budget performance for the year revealed that the approved budget for the financial year 2011/2012 taxes inclusive stood at Shs.4,348,000,000. This was expected from two sources: GoU and donor support for development component. However, only Shs.4,013,000,000 was received from GoU and nil from donors resulting into a shortfall of Shs.335,000,000. Details are shown in the table below: Revenue Source Approved Releases Budget Shortfall Budget (Bn Shs) (Bn Shs) (Bn Shs) GoU: Wage 1.129 0.866 0.263under None Wage 2.507 2.561 0.054over Development 0.632 0.560 0.072under Total GoU 4.268 3.986 0.282 Devpt.Donor 0.000 0.000 0.000 Total GoU &Donor 4.268 3.986 0.282 Taxes 0.080 0.027 0.053 372

Total Budget 4.348 4.013 0.335

Inadequate funding negatively impacts on planned activities. Management stated that the shortfall was due to non release of all the funds by GOU.

I encouraged management to prepare realistic and achievable budgets and give priorities to activities not achieved in the previous year.

23.3 Planned for activities It was noted that the Commission during the year under review had increased workload mainly due to the enactment of the Kampala Capital City Authority Act 2010 and the resultant approval of the structure of the Authority, the comprehensive review of the structures of the MDAs and the creation of the new Districts among others. Achievements were registered in the appointments, confirmation in appointments, promotions, exercise of disciplinary control, removals and other submissions on HRM issues. These processes form core functions of the Commission. A total of 4,186 cases were handled against the original target of 3,500. However, performance in some areas was not achieved as planned activities like performance audit of the District Service Commissions (DSCs) planned for were not done at all. Monitoring and technical advice to DSCs was conducted only in 18 Districts.

Management stated that performance in some areas was not achieved due to either funds constraints or delays in getting the required information like quarterly reports from District Service Commissions to detect critical performance gaps and attend to them.

I advised management to device a better strategy by focusing on all crucial activities objectively on timely basis.

24.0 LOCAL GOVERNMENT FINANCE COMMISSION

24.1 Board Composition

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Article 194 (1,2) of the Constitution and LGFC Act part ii 3(3) provides that there shall be a Local Government Finance Commission which shall consist of seven members approved by the president. However the commission has only six (6) members, after one member, a nominee of Districts was elected as member of Parliament.

Management in response stated that the term for the entire board had expired in October 2012 and that the issue was with the appointing authority.

Management should follow up the matter with the appointing authority to enable the authority to fully execute the mandate.

24.2 Staffing Gaps The Commission establishment provides for fifty three (53) staff including technical and support staff. A review of this structure revealed that the Commission still had staffing gap of 17 vacancies contrary to the approved establishment structure. Of greater concern are the unfilled senior positions regarding Revenue officers and Administration.Lack of personnel negatively affects service delivery.

Management in response stated that the current wage bill allocated to the Commissionwas not enough to cater for recruitment of additional staff.

I advised Management to liaise with the Ministry of Finance Planning and Economic Development to have the Commission wage bill increased in order to recruit staff especially at the senior level so as to effectively perform and meet the objectives of the Commission.

24.3 Administrative Advances- Shs.88, 608,374 It was noted that administrative advances amounting to Shs.88,608,374 remained outstanding at the close of the financial year. This was contrary to TAI which require that all advances should be retired/accounted for immediately.

Management in response explained the figure of outstanding advances includes; Shs.28,143,555 that was advanced to an officer who is terminally ill and in case of

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none accountability, funds advanced to him shall be recovered from his terminal benefits.

I advised management to ensure that advances are fully accounted for as required by the Treasury Accounting Instructions or funds recovered from the concerned staff.

24.4 Internal Audit and Risk Assessment (a) Absence of Approved Internal Audit Charter The Internal Auditor has no approved formal Internal Audit charter that spells out the goals, objectives and core responsibilities of internal audit functions. The internal Audit also lacks the risk based methodology for management of risk, contrary to the charter for internal Audit Function, (November 2008) developed by Treasury and contemporary internal audit practice.

In the absence of the said guidelines, there is a risk that the work of internal audit is not being properly planned, supervised and reviewed. In addition, the work assignments may not be aligned properly to strengthen the commission‘s internal controls.

Management in response stated that the audit charter was not in place but efforts are being undertaken to develop one.

The Commission should develop an Internal Audit charter for proper guidance on review and assessments of controls in the Commission.

24.5 Management of Commission vehicles (a) Lack of Fuel Register It was observed that the Commission‘s transport Officer did not maintain a fuel register and therefore reconciliations for fuel worth Shs.138,170,850 supplied by various petrol stations and advances to individuals was not done. This is contrary to paragraph f-1 (7c) of the standing orders. 375

In the absence of a fuel register and monthly reconciliations it becomes difficult to properly ascertain the usage of fuel by the Commission motor vehicles.

Management explained that efforts are underway to institute a fuel register in the current financial year 2012/2013.

The transport officer should maintain the fuel register and prepare monthly reconciliations so as to provide proper accountability for fuel consumption and usage on the Government vehicles. (b) Absence of Vehicle Maintenance Service Chart The Commission spent Shs.55,964,779 to repair and service its vehicles but the service charts were not maintained contrary to Section f-1 (12-13) of the Public Service Standing Orders.

The risk is that the maintenance may not be genuine due to lack of maintenance of the charts that would help in tracking the repairs.

Management in response stated that the motor vehicle service chart will be in use during the financial year 2012/2013. I advised the Commission should enhance internal controls by maintaining vehicle service charts to keep track of all repairs and services done on their vehicles.

24.6 Unacknowledged National Social Security Fund (NSSF) deductions – Shs.13,792,192 The Commission did not remit Shs.13,792,192 in respect of NSSF contribution. Delayed remittances of statutory deductions may lead to penalties to the Commission.

Management in response stated that reconciliations had been made with NSSF management and that acknowledgement receipts were going to be remitted to the commission in due course.

Management is advised to remit statutory deductions in a timely manner and obtain acknowledgement receipts to confirm remittance of statutory deductions made.

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24.7 Procurement and Expenditure - Non-Procurement of Travel Agency A total of Shs.46,532,410 was expensed on travel abroad during the period. However, it was observed that there was no travel Agent procured contrary to the requirement of the PPDA regulations.

Management in response acknowledged the omission and stated that in future travel agents will be procured as required by the laws in place.

I await the outcome of efforts being made to procure travel agents in accordance with PPDA regulations. 24.8 Mischarges – Shs.46,541,879 The Treasury Accounting Instructions (TAI) 2003 Chapter 156 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 expenditure be charged to an item/sub-time merely because funds are available under that item/sub-item.

A sample of the Commission payments reviewed revealed that there were mischarges under various codes amounting to Shs.46,541,879 during the year under review without authority. This led to diversion of funds without authority and the practice undermines implementation of budgets and appropriating authority. Management in response acknowledged the mischarges and promised to abide by the accounting regulations in future.

I have advised the management to ensure that accounting regulations are strictly adhered to.

25.0 KAMPALA CAPITAL CITY AUTHORITY

25.1 Financial Statements (a) Receivables and provisions for bad debts It was noted that whereas management reported Shs.54,439,247,269 as the balance of receivables at the end of the year under review, there was no evidence to support how this amount was derived. It was also noted that the 30% bad

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debts provision indicates laxity on the part of management to follow up Authority funds under debtors.

The opening balance of bad debtors‘ provision was provided as Shs.25,585,129,512 under note 14. However, a recalculation (30% of Shs.97,479,823,511), indicated Shs.29,243,947,053 leading to an undercast of Shs.3,658,817,541.

Management in response stated that the provision for bad debts was made only on the values for property rates and Ground rent and this was consistent with the treatment for the previous years as new policies were being developed. However a re-calculation of 30% on previous year‘s amount of Property Rates and Ground Rent still resulted into Shs.23,813,026,715 (30% of Shs.79,376,755,717) and not Shs.25,585,129,512 leading to an over cast of Shs.1,772,102,797.

I advised management to review its receivables and provide a correct position.

(b) Non-current Assets The Financial Regulations and Treasury Accounting Instructions require that entities keep and maintain an up to date fixed assets register in order to keep track of its tangible assets that are normally susceptible to misuse, vandalism or misappropriation and theft.

Shs.45,094,139,044 was reflected as a value of fixed assets by end of the year. This is a net book value of assets inherited from the five divisions of Kampala City Council when Kampala Capital City Authority was established by the KCCA Act 2010. However, the Authority did not have an updated Fixed Assets Register as they were still in the process of compiling one. The figure could also not be verified against physical assets during the audit.

I was unable to confirm the correctness of the assets figure in the financial statements. The Authority should maintain an up to date Assets Register to record all its tangible Assets in accordance with the regulations.

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Note 10 indicates a loan from World Bank (IDA) under the First Urban Project to provide infrastructure for the urban markets of Nateete, Bugolobi and St. Balikuddembe. The loan was for a period of twenty five years running from 2005 to 2030. According to the note, the Project ended on 30th June, 2000 and had accumulated interest payable of Shs.42,570,448,999. The loan register was not maintained to authenticate the loan period and accumulated interest. In the absence of a loan register, I was unable to confirm the figure of the accumulated interest payable and the loan period.

Management in response stated that KCCA has no capacity to service this Loan and have written to Ministry of Finance, Planning and Economic Development seeking authorization to have the debt written off.

I await the outcome of management efforts. In the meantime management is advised to reconstruct the loan register/ledger to establish the correct amounts payable on the loan.

(d) Shortfall in Government Grant Shs.101.3bn was budgeted for the Authority‘s activities for the financial year under review. However, only Shs.83.05 billion was released leading to a shortfall of Shs.18.25bn. The cause could be the general budget cut imposed on all Government Ministries and Agencies during the financial year. The short fall greatly affected various Authority projects/programs.

I advised management to continue liaising with the Ministry of Finance, Planning and Economic Development to enable release of adequate funding for its activities.

(e) Delayed follow up of debtors The debtors‘ position at the start of the financial year under review was Shs.71,894,693,999. At the end of the financial year, the debtors‘ position had increased to Shs.83,683,118,451. There were no collections at all from some of the debtors, for example; Kara, Owino and Kalitunsi markets, the balances stood at Shs.3,700,553,804 for two financial years. There is a risk of loss of revenue under debtors.

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Management in response stated that a review of the debtors schedule is being done with intent to collect the outstanding debt.

I advised management to improve revenue collection mechanisms and put in place debt management policy.

25.2 Governance and Human Resource Management (a) Absence of Risk Management Policies and Procedures The Charter for Internal Audit functions, November 2008 in Para 3.4 provides that the Internal Audit should conduct risk management audits to ascertain whether or not management has set procedures for risk identification and management including frauds and money laundering. However, it was noted that the Authority did not have a well documented policy for managing risk.

In the absence of a well documented policy for managing risk, unidentified key risks are likely to occur which may have adverse effects on the Authority resources and programme implementation.

Management in response explained that the process of developing Risk Management Policy and procedures is underway. I await on the finalization of the policy.

(b) Absence of fraud control policies Best practice require that entities periodically assess the risks of fraud arising from misappropriation of assets by widely publicising fraud control policy, code of ethics and code of conduct. It was however noted that the Authority has not formulated and publicised fraud control policies to guide the operations of the entity to prevent, detect or control fraud. In absence of publicized fraud policies, the entity is at high risk of occurrence of fraud and loss of its assets.

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Management in response stated thatfraud control policies will be developed in due course. I advised management to expedite the process and have the policies in place.

(c) Organizational structure - Staffing gaps The Authority has an approved organization Structure of 1,332 posts of which only 25% of the required workforce has been recruited. Lack of adequate staff coupled with the workload on the existing few staff may impact on service delivery and achievement of the targeted output/results.

Management in response explained that a number of interviews so far have been done. The delayed recruitments were as a result of the decision that was taken by the Ministry of Finance, Planning and Economic Development that KCCA should fill the approved structure over a three year period because of inadequate financial resources.

I wait for the outcome of the recruitment process in addressing the existing staffing gaps

(d) Absence of Public Accounts Committee Section 58 of the Kampala Capital City Authority (KCCA) Act, 2010 stipulates that there shall be established for the Capital City, a Public Accounts Committee (PAC) consisting of a Chairperson and four other members appointed by the Lord Mayor and with the approval of the Minister. This committee is responsible for examining the reports of the Auditor General, Chief Internal Auditor and any reports of Commission of Inquiry and submits its report to the Authority and to the Minister and the Minister lays the report before Parliament.

Contrary to the requirement, it was noted that the Capital City Public Accounts Committee was not instituted.

Management in response explained that the nominees have been forwarded to the Minister responsible for Kampala and the matter is pending before him. I advised management to follow up the matter with the Minister to have the Public Accounts Committee in place. 381

(e) Unsigned Authority Minutes The Fourth Schedule 3 (2) of the Kampala Capital City Act, 2011 provides that the minutes recorded shall be submitted to the Authority for confirmation at its next meeting following that to which the minutes relate and when so confirmed, shall be signed by the Lord Mayor and at least one councilor in the presence of the members present at the latter meeting. However, it was noted that all the minutes submitted for review for the financial year 2011/2012 were not signed. In the absence of signed minutes it is difficult to place reliance on them to support policy decisions for implementation by both the Authority and other stakeholders.

Management explained that this concern had been raised with the Lord Mayor on several occasions. I advised management to have the minutes confirmed and signed to avoid challenges that may arise on the Authorities decisions.

25.3 Missing land titles and vehicle/motor cycle log books Treasury Accounting Instructions require that Government property be supported by legal documents as evidence of ownership (Land titles), location with correct valuation. However, verification of the Authority assets such as land and buildings revealed that in some cases the land titles were missing from the inventory while for others, the land titles had not been processed at all.

Furthermore, verification of the motor vehicles and motor cycles revealed that, some motorcycles had acquisition documents but their locations could not be traced. Some vehicles had log books whereas others did not. In the absence of the land titles and logbooks together with values, I was unable to confirm the ownership of these properties. The assets are vulnerable to misappropriation.

Management in response stated that the Authority has engaged the Chief Mechanical Engineer (Ministry of Works and Transport) to carry out validation and valuation of all KCCA vehicles and machinery and upon completion of the valuation exercise, a determination will be made on how to proceed with either acquisition of the log books from URA, asset recovery or outright write off. Furthermore a unit in charge of Real Estate management has been introduced with a task of recovering, regularizing and documenting KCCA property. 382

I await for the outcome of measures taken to validate and value the assets of the authority.

25.4 Irregular Sale of KCCA Weigh bridge A review of Authority documentation revealed that two weigh bridges were stolen: Weigh bridge at the container village: According to records obtained from the Directorate of Legal Services, when the land at container village (where the bridge was located) was sold, the weighbridge was then taken to KCC yard purportedly to be relocated to the garbage collection site at Kitezi. However, the Engineers and one businessman connived and sold it on the pretext that it had mechanical problems.The bridge was used for weighing goods of large quantities for example; container goods, cars and heavy machinery to determine the amount of taxes to be paid to the Authority. This was therefore one of the key sources of revenue generating activity for the Authority.

weighbridge at Kiteezi: The weighbridge was stolen by the same officials from the garbage collection site at Kitezi. The weighbridge was used to measure the quantity of garbage each truck had taken at the dumping site. This particular weigh bridge was new but the engineers always insisted that it had mechanical problems from time to time. They eventually replaced it with another weigh bridge and the original one was also taken to a neighboring country and has never been recovered.

Management in response explained that the Monitoring and Inspection Unit of the KCCA has conducted investigations and confirmed that there were two weighbridges which were illegally sold in Rwanda and Police statements were recorded by three witnesses while four witnesses were yet to make their statements which upon conclusion of the criminal investigations, the suspects shall be prosecuted in court. I advised management to pursue this case to completion.

25.5 Encroachment on plot 137 block 215 Kulambiro Cemetry Documentation from the Legal Department (Memorandum dated 7/6/2012) revealed that the Land in question was procured by the Directorate of Health services to address an identified need for a cemetery. According to the 383

documentation, the valuation report dated February 25th, 1994, the land was registered in the names of George Mulinde Kibuka, covered 8 acres and was free from settlements and any registered claims (Encumbrances).The land was valued at Shs.26,000,000 which was paid to the registered owner on July 11,1994.

Further review revealed the following:

Upon receipt of the sale price, Mr. Kibuka delivered to KCC officials a duplicate certificate of title instead of signed transfer forms which was a big anomaly. No documented effort was made to follow up the transfers at the time until the matter was mentioned in a management meeting sometime in 2009. The matter was further complicated by the fact that the seller died. A surveyor's report dated 27thSeptember 2009 on opening boundaries of the property revealed that the Land was heavily encroached on with 16 completed permanent houses, and gardens cultivated. In the absence of the original legally binding agreement and title, the Authority risked losing this Land.

Management in response stated that the matter was being handled by the external lawyers of former KCC – M/s Sendege, Senyondo & Co. Advocates, who informed KCCA that they had already applied to the Commissioner Land Registration, Ministry of Lands, Housing & Urban Development for a ‗Vesting Order‘ under section 167 Registration of Titles Act, Cap 230 as there was no signed transfer instrument in favour of KCC and the registered proprietor is deceased.

I await the outcome of management efforts to secure the land title.

25.6 Enormous costs incurred on court cases It is an obligation in all organizations that financial matters be handled diligently by persons with delegated duties. The Authority is responsible to ensure the business of the Authority is conducted with due care. However, the Authority incurred huge costs on court cases to the tune of Shs.5,207,375,067. Expenditure in form of damages and accrued bank interest and additional/supplementary works of Shs.3,448,910,709 was noted. Pending cases that have not yet been concluded

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amounted to Shs.1,758,464,358. In addition, a direct transfer under court order of amount of Shs.1,566,252,698 was executed on the entity.

Management in response stated that these cases were inherited from the defunct KCC and two of them are subjects of appeals (Zimwe and Johnson Mugisha) and that relevant Court Order/Decree that formed the basis upon which payments were made are avilable. I advised management to take duediligence when taking decisions relating to the Authority‘s operations. 25.7 Unaccounted for taxes It was noted that Shs.69,596,686 deducted as PAYE from staff‘s salaries/allowances and Shs.555,208,663 as 6% withholding tax from suppliers of goods and services and purportedly remitted to Uganda Revenue Authority was not supported by acknowledgement receipts from Uganda Revenue Authority.

In absence of the acknowledgement receipts from the tax Authority, I was unable to confirm whether the remittances were actually done.

Management explained that whereas the money was indeed remitted the acknowledgement receipts had not been provided by URA.

The acknowledgement receipts are awaited for verification.

25.8 Inspections (a) Kawempe Health Centre IV Lack of records (for essential drugs) Two drugs Artemeter (Adult) and Amoxylene were sampled to track movement of drugs from the stores to the final dispensing phase to patients. It was realized that the order book for Artemeter/Lumefantrine (malaria drug) from 7/11/2011 to 12/3/2012 was missing. Also missing in the store was the stock card for Amoxylene tablets. Lack of proper stores record keeping could lead to loss of drugs. It also hinders balancing of stock and reconciliations.

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Management in response stated that the Authority is working with the Ministry of Health and a project titled Securing Uganda‘s Right to essential Medicines(SURE) to train Health workers in logistics management.

I advised management to ensure that stores records are kept up-to-date.

(b) Komamboga Health Centre III Un-reconciled Cash book The improvised cash book (counter book) had only the receipts side with no expenditure posted on the credit side, hence cash book was not reconciled. In the absence of reconciliations, I could not confirm the accuracy of the balances being carried forward and opening balances.

Management in response stated that they have carried out sensitization and equipped the various imprest holders with skills to manage imprest and the relevant records for recording and accounting for imprest.

I advised management to seek the assistance and guidance from the Division Accountants to prepare the books.

(c) Kiteezi Land Fill Lack of qualified contractor to manage activities at the Land fill and non- functional weighbridge It was noted that the contract for M/s Otada Construction Limited who has been handling garbage at the land fill was terminated on 25th January, 2013. At the time of inspection, KCCA was handling garbage treatment and disposal using their machines. Considering the amount of garbage at the site, KCCA needed the service of an expert to handle this area of operations. Furthermore the weigh bridge was also found non- functional.

Inadequate management of the landfill may lead to water and air pollution that will affect the community living around.

Management in response stated that procurement of a firm to manage Kiteezi landfill is in process and weigh bridge is now functional.

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I advised management to expedite the procurement to enable proper waste management.

(d) Kitebi H/C Inadequate Stores Management Review of stores records revealed the following shortcomings: Requisitions from stores were not authorized. There was uncontrolled movement of drugs from stores which could lead to drugs loss. There were no spot checks by the in charge to the departments in respect of drug usage. There were no reconciliation done between stores, OPD and other department stock balances.

A spot count and verification of physical drugs in store revealed shortages of 7 boxes of coartem drugs. Lack of proper stores record keeping could lead to loss of drugs. It also hinders balancing of stock and reconciliations.

Management in response explained that the Authority was working with the Ministry of Health and a project titled Securing Uganda‘s Right to Essential Medicines (SURE) to train Health workers in logistics. I advised management to ensure that stores records are kept up-to-date.

(e) Kishenyi Health Centre IV Lack of a Management Committee This Health Centre did not have a Management Committee in place since March 2012. This negatively impacts on governance and decision making at the health facility.

Management in response stated that appointment of HUMC is a preserve of the division local authority and will remind the Local authority of their duty.

I advised management to liaise with the division local authority to put in place the Health management committee.

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25.9 Engineering Audits A sample of six roads constructed under KCCA was selected for engineering audits. Five of the road contracts were executed by the contractors while one contract was executed under KCCA force on account operations. Below is the summary of key findings arising from the Engineering Audit;

(a) Inadequacies in the Procurement Process It was noted during the review of the procurement records that the packaging of some contracts was not properly undertaken.

For example, the contracts for Periodic Maintenance of Paved Road; Buvuma, Lakeside/Radio Maria, Kago and Sadler Roads in Nakawa Division where the procured contractor had no experience to manage works of similar magnitude.

Some redundant bill items had been provided for in the contracts. For example in the contract for rehabilitation of Kisenyi roads, the inclusion of a bill item for pothole patching with Asphalt Concrete (AC) at Shs.8,631,000 where a road section is to be reconstructed was irregular.

In some contracts the evaluation process was not articulate enough and issues of experience of bidders for comparable magnitude of work were overlooked and as a result one of the ‗best evaluated bidders‘ failed to perform and abandoned the works.

One of the projects selected was executed under the force on account method of procurement but there was no justification given for the choice of the procurement method. In addition some of the contracts audited, especially those transferred from MoWT, had missing procurement records, which were not availed for review.

Management explained that KCCA was still undergoing many changes, procurement function inclusive, some of the projects mentioned like periodic maintenance of Buvuma road were procured towards end of KCC and the actual signing done during the KCC to KCCA transition.

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I advised that given the importance of the PDU, it is important that the staffing and empowering of the unit be fast tracked as KCCA takes shape. A Quality Assurance mechanism should also be put in place to ensure that the bids packages are reviewed for any redundant items that should not be part of the bid.

(b) Defective works It was observed that a number of the contracts had defective works that included asphalt concrete failures in form of alligator cracks and potholes, stripped surface dressing, failed stone pitching in lined drains, differential settlement of culvert lines and cracked culverts installed and less pipe cover on installed culverts than specified. Defective works resulted from the poor materials used and weak supervision.

Supervision should be enhanced to ensure quality work. It is also recommended that the defective works should not be certified for payment and the contractors should be instructed to re-do the works at own cost. KCCA should also be stricter on the quality of works irrespective of whether the works have been supervised by consultants or in-house staff.

(c) Irregular Payments and non-deduction of advances and liquidated damages (Shs.466,951,582) It was noted that claims were made and payments effected for works that had not been executed (Shs.363,653,934), nugatory expenditure incurred on some projects (Shs.4,600,000), liquidated damages on delayed projects were not charged (Shs.20,059,551) and advance payments (Shs.78,638,097) not recovered on some contracts.

The Accounting Officer should ensure that all monies irregularly paid to contractors is recovered. In addition all advances should be recovered and liquidated damages charged on all delayed projects. Contracts should be clear on the method of measurement of works done and applicable unit rates for each work activity to avoid any irregular payments.

(d) Quality of works

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Generally, the overall quality of the works on the projects audited varied with each road contract. In most cases, the quality of works was found to be substandard. For example, Asphalt Concrete binder content was found to be low and air voids high as compared to specifications for the Kololo and Industrial area maintenance contract.

There was general lack of quality control for materials used in pavement layers and their compaction. For example, compaction of the gravel wearing course at one section of Kiyimba road was found to be weak, the road surface for Ntinda – Kiwatule section was characterized by undulations which depicted weak compaction. The concrete pipe culverts used on Kiyimba road were of poor quality and had cracked at a number of locations.

Management explained that supervision will be enhanced through gradual staffing and use of consultants.

I recommended that the capacity of the KCCA Directorate of Engineering to supervise and manage road works contracts should be strengthened. In addition contracts/projects should be regularly supervised to ensure that quality control measures are adhered to and defective works are rectified on time. KCCA should also be stricter on quality of works whether the supervisors are consultants or in- house staff.

(e) Delayed Completion of Works Most of the road contracts audited had not been completed by the time of audit despite their contract durations having expired. Some contractors had abandoned the works and no action had been taken to invoke the contract agreement provisions, such as termination of contracts and charging of liquidated damages. In some cases, the delays were occasioned by the failure by KCCA to handover the project sites to the contractors in time. For example, periodic maintenance of paved roads (Buvuma, Lakeside/Radio Maria) in Nakawa Division had delayed and the Contractor had notified the Authority of his inability to complete the works; reconstruction of Kafumbe Mukasa road where works had stalled due to an

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abandoned Sewerage Project that had caused upheavals by the market vendors and had turned the road into a dumping ground.

The delayed completion of works leading to the Client‘s inability to handover the site to the contractor is likely to result in huge contractual claims.

The Accounting Officer explained that the non-performing contracts were to be presented to contracts committee for termination.

I advised that KCCA should undertake a review of the contracts and consider terminating those contracts which have delayed to be completed as a result of contractor‘s nonperformance in accordance with the contract and the relevant PPDA Regulations. The Accounting Officer should also ensure that the Sewerage Project hampering the progress of the road works contract is completed to allow the roads contractor complete his works.

(f) Supervision and Contracts Management Weaknesses in supervision were noted in all the contracts audited especially those that were being supervised in-house. In all cases, the measurements for works had not been correctly done leading to over/unjustified payments to a tune of Shs.466,951,582. Progress reporting was not regularly undertaken and the content of the reports was too shallow to allow effective contract management decisions. This was evident especially with the in-house managed contracts. Generally the Authority has inadequate staff capacity to supervise and manage such contracts.

KCCA should build capacity to undertake effective contract management and supervision by recruiting additional staff to cope up with the increasing number of projects and train and equip them with the requisite resources. More complex projects could be supervised and managed by hired Consultants.

(g) Key findings per project audited The summary of findings per project are below:

S/N Key findings Management responses Audit Remarks / Recommendations 1. Repair and Maintenance of Roads in Kololo and Industrial Area (Package 3 Lot 3) by M/s Stirling Civil Engineering Ltd at Shs.5,623,493,741

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S/N Key findings Management responses Audit Remarks / Recommendations . Procurement documents The contract management Documents were not made and contract files for use of consultancy available by the time of the management files were amounts are available for report. not availed for review. review.

. Prince Charles Drive, The contractor did the KCCA should carry out a Upper Kololo road, works patching but the road had value for money had developed alligator failed hence the new cracks in assessment on the cost of cracks at various places where repairs had not continuous patching of locations some of which been done or budgeted for. potholes visa a vis were already potholes. The road is old and is due for reconstruction. an overhaul. . Failed reconstructed The Contractor was instructed Misuse of road walkways on Fourth to rectify the defects for which infrastructure results in Street due to heavy he is responsible. In the case premature failures and trucks parking along. of 4th street, the failure is due costly maintenance. KCCA to trucks parking on the should follow up the repair walkways not designed to of defects and also withstand such loads. KCCA implement the undertaking will put in place mechanisms of putting in place a to prevent trucks from parking mechanism to stop the on the side. misuse of road infrastructure. . Asphalt Concrete quality Binder content used by the The performance of the tests revealed low binder auditor are specifications pavements on the roads content and high air provided by Ministry of Works covered under this contract voids than specified and Transportation and are raise doubt to the hence a risk of premature normally guideline and are appropriateness of asphalt ageing of the pavement nominal. Every job is expected concrete mix design. There layer. to have a mix design and the is no proper documentation binder for this project was in to confirm that the mix line with the design mix that design was arrived at was approved by the correctly. KCCA should consultant. In cases where monitor the consultants and failure was certainly due to ensure that they perform contractor‘s workmanship, the their duties diligently. contractor was instructed to rectify. . Payment for unexecuted To the best of our knowledge, The auditors took works worth the quantities were accurately measurements jointly with Shs.75,347,178 that measured by our consultant the consultant and include kerbstones, items who recommended the contractor‘s staff who with less coverage area payment and he has participated in the actual (granular material, primer reconfirmed the position. implementation of the and AC). works. The payments made for unexecuted works are irregular and should be recovered. 2. Periodic Maintenance of Paved Road; Buvuma, Lakeside/Radio Maria, Kago and Sadler Roads in Nakawa Division by M/s Axis Lines Ltd at Shs.1,337,703,400

. Procured contractor had The Evaluation committee was KCCA should ensure that no experience to manage composed of KCC staff who only capable contractors are works of similar are no longer working with awarded contracts to avoid magnitude. KCCA. The procurement was similar happenings. done during the KCC-KCCA transition and it was difficult 392

S/N Key findings Management responses Audit Remarks / Recommendations at the time to make appropriate due diligence. . Contract lacked The specifications of these Statements of requirements specifications for works, works were included in Part 3: are not works and description of bills of Section 6 Statement of specifications. Specifications quantities was Requirements of the Contract include detailed description inconsistent for the Document. of all work items in the different road sections. contract. KCCA should ensure that contract documents include special specifications. . Shs.1,000,000 was paid A provision for maintenance of KCCA should follow up for survey of works prior works was included to cater the undertakings and to commencement of the for normal wear and tear of recovery of the nugatory works yet the activity is the works during the defects payment. not a pay item under the liability period. KCCA has

MoWT General however taken note of the Specifications. nugatory payment. . Shs.3,600,000 was The process of terminating irregularly paid for the contract is underway and maintenance of works the final reconciliation has during defects liability been done to recover any period when it is a outstanding balances. responsibility of the contractor to rectify defects. . No progress reports The contractor was notified of KCCA should pursue and produced since the end the intention to terminate the ensure that the termination of December 2011 when contract. Termination is process is concluded. the contractor last expected to be approved by executed some works KCCA contracts committee achieving a cumulative soon. progress of 23%. The achieved works have deteriorated due to lack of maintenance and the section of the unexecuted works is in poor state.

. Liquidated damages The process of terminating KCCA should pursue and worth Shs.20,059,551 the contract is underway and ensure that termination were not charged when the final reconciliation has process is concluded. works have delayed by been done to recover any over 30 days i.e. by more outstanding balances. than 185 days.

. Unclear existences of a This was an omission and KCCA should endeavor to performance guarantee KCCA is now strict on follow procurement and if it exists whether its availability of performance guidelines and contract validity period was bond prior to signing of conditions to minimize extended. contract. losses to Government.

. The Contractor on 14th A response to the Contractor KCCA should improve September 2012 five was made in a letter dated management of projects months beyond intended 02nd October 2012; indicating and take timely actions contract completion date the intention to terminate the whenever contractors are wrote that he is unable to contract. failing to perform. complete works due to 393

S/N Key findings Management responses Audit Remarks / Recommendations price escalation. No action by KCCA was seen.

. Localized broken stone The contractor has made KCCA should ensure that pitching and stripped good all the identified defects works are done to required surface dressing was on Buvuma road including the quality. observed on Buvuma carriageway and drainage road. works.

. Shs.53,446,000 was paid We jointly re-measured the KCCA should pursue the for unexecuted works with the contractor and matter and ensure that the placement of signboard, noted that the overpayment termination process is offshoots and lined drain to the contractor is actually concluded. with grouted stone Shs.41,439,000 accruing pitching. mainly from drainage works on Buvuma road. The process of terminating the contract is underway and the final reconciliation has been done to recover any outstanding balances. 3. Reconstruction of Kafumbe Mukasa (0.65Km) & Kisenyi (0.73Km) Roads by M/s Stirling Civil Engineering Ltd at Shs.5,771,171,097

. Unclear provision of This item was in the original Since the works under this Shs.240,000,000 in the BoQs and maintained in the project have stalled, it is contract for maintenance rescoped BoQs for purposes not expected that this pay works. of maintaining the roads for item will be necessary and 12 months. Maintenance it should be considered referred to is that which the redundant. contractor is not liable, like drainage maintenance which if not attended to leads to fast road deterioration. . Delayed completion of All delays attributed to KCCA should convene a works by more than 9 issuance of preliminary meeting with all relevant months resulting from: designs are some of the stakeholders to discuss the o Delays in issuance liabilities passed on to KCCA best way to conclude this of preliminary from Ministry of Works and project. designs to the Transport. We have taken note of the NWSC being the body contractor. need to have design mandated to manage o Protests by local consultants ahead of works sewerage services in the residents for contracts but due to the short city should play a leading inappropriate budgeting cycle of 12 months, role in the implementation drainage works and and the public fast turnaround of the sewerage project. reduction of expectation, this is difficult to carriageway to 7m implement. KCCA is now more inclined to take the design on Kisenyi road. and build modes of o Abandoned infrastructure delivery. sewerage project on KafumbeMukasa road causing suspension of works by the contractor. . A variation of This bill item was in the The original contract was to 394

S/N Key findings Management responses Audit Remarks / Recommendations Shs.1,757,024,314 original BoQ inherited from reconstruct the road. This is (≈30% of the contract MoWT, which was revised a case for lack of quality amount) for redesigned before issuance to the control in the formulation of drainage system had contractor and the amount the BoQs. been submitted but provided for was approval status was Shs.6,400,000 on this item for unclear, and Nugatory only Kisenyi road. However provision of this item was never included Shs.8,631,000 for item in the rescoped BOQ nor paid 5.7 asphalt concrete of for since the Contract 50mm thickness for management team opted to potholes was noted reconstruct the entire road. when the project was reconstruction of pavement layers.

. Lack of addendum for This contract was passed on The addendum should not amended clause for to KCCA from MoW&T with wait for the resumption of minimum value of most of these issues not works since payments to its interim payment resolved. Amendments to the effect were already made. certificate (changed from contract were made and 800million to 400 approved by the Contracts million). Committee. The Contracts Committee Minute was passed when works were already suspended and the addendum is to be signed as soon as the Contracts are re-activated which is as soon as the sewer is completed. . Shs.78,638,097 of the The advance payment is KCCA should ensure that all advance was not supposed to be recovered advance payment is recovered due to over a range of value of works recovered when 80% of wrongful application of executed equivalent to 80% works have been executed the recovery formula. It of the contract sum. and should enforce the is not clear whether the validation of the advance advance payment payment guarantee. guarantee is still valid.

. Shs.135,100,231 for day No management response The amount should be works was included in recovered. the final breakdown of the contract price when it was not part of the original contract.

. Delayed response by Submissions for time KCCA should closely follow KCCA on Contractor‘s extension were made to the up completion of this request for time Contracts Committee for project. extension logged on 25th consideration. However, the April 2012 and dilemma faced by the Consultant assessment Employer was extending the submitted on 12th June contract time before resolving 2012. problems on the sewer line project. . Delayed action on Prior to submission of the KCCA should not contractor‘s new claim claim, KCCA wrote to MoW&T unnecessarily delay the for EoT of 27th June on two occasions advising on settlement of the claim as it 395

S/N Key findings Management responses Audit Remarks / Recommendations 2012 and claim for the pending claims. The can result into further loss Shs.4,522,034,831 or project consultant assessed of funds. 86% of contract sum for the claim at idle equipment, labour Shs.1,657,339,281. The and indirect costs. Employer has reviewed the consultant‘s recommendation and sought legal opinion. . Open manholes on No management responses on Management should Kisenyi road these issues. address the concerns to compromises safety of improve on road safety. road users. . Poor condition of Kafumbe Mukasa road as it is refuse dumping ground and open sewage next to where traders are vending food commodities is a danger to public.

. The AC was found to On 15th May, 2012 the There is no proper have low binder content consultant approved the documentation to confirm and high air voids, VMA Asphalt Mix design for the that the mix design was and VFA compared to asphalt surfacing works. We arrived at correctly. KCCA specifications thus a risk note that the comparison of should monitor the of premature ageing of your test results was based on consultants and ensure that AC with possible defect the general specifications of they perform their duties like alligator cracks to MoWT which is used to diligently. develop. provide a guide to the bidders. The comparison should be based on the approved Job Mix design for the project putting into consideration the allowable tolerances. . Shs.26,298,299 paid for The quantity computed by the The method of unexecuted works i.e. auditor for the CRR material measurement/calculation of Gravel for Sub-base and used in modifying the gravel quantities for such works CRR base course. sub-base material is in should be clear to avoid any agreement with the quantity misunderstandings. Super- computed and certified by the elevated layers are usually Consultant. It is therefore uniform across the road unlikely that wecould have width right from sub-grade over paid the gravel sub-base and thus are easily material and slightly measurable. underpaid the CRR material in light of the fact that we were using a 60% to 40% ratio by weight of gravel sub-base to CRR.

4. Periodic Maintenance of Kiyimba Road in Lubaga Division by M/s EGISS Engineering Contractors Limited at Shs.538,696,950

. The quantity for bill item It was not possible to get It was within the mandate 3.04 construction of good material at a rate lower of the project manager to 396

S/N Key findings Management responses Audit Remarks / Recommendations embankment with than Shs.41,500/m3 even adjust the rate without approved material was with higher quantities since negotiation. The varied by 847% or by the same material was used management should ensure Shs.70,321,750 which is for the final road base layer. that the rate for this work 13% of the contract We shall take note of the item is adjusted downwards amount. The GCC clause clause in future projects. and the overpayment 38.1 provides for change recovered. of rate in the circumstances but this was not invoked by the supervisor.

Observed anomalies on inspection of Identified cracked Culvert line KCCA is advised to ensure works: was removed and broken that works are executed . Differential/longitudinal pieces replaced and according to specifications. cracks were noted at the reinstalled with more gravel soffit of the culvert line at cover and a ramp over the The Management should ch.0+110. culvert line to prevent future also ensure that the 50mm . The access culvert line at cracking. copping on top of the stone ch.0+175RHS was not masonry work on the jointed. The defects observed in the drainage channel s . Cross culvert line at channel stone lining were a continuously replaced and ch.0+736 had crack at result of rains soon after the not on the joints only. the bottom on all the masonry works but we have pipes. instructed the contractor to . Most of the culverts correct the issues. installed had a cover of less than the minimum Some sections of stone cover required to masonry lacked coping on minimize the risk of joints and we have instructed cracking. the contractor through the . Some sections of stone snag list to put coping on all pitched drain were joints that lack it. constructed with weak mortar and the stones Issues on OHS are noted and were scoured. all contractors were instructed . Lined drains had no to provide protective gear. copping of 50mm as was required by specifications. . Workers found at site had no protective gear. . DCP test indicated weak compaction of the wearing course around Ch.1+100.

. Shs.18,123,850 paid for We have taken note of the KCCA should implement the unexecuted works, that observation. Recovery of undertakings. More over is; gravel wearing course overpayment will be made. gravel should always be and stone pitching. measured in place and not by deliveries. The unit of measurement for this contract was not deliveries and thus the overpayment should be recovered from the contractor. 397

S/N Key findings Management responses Audit Remarks / Recommendations 5. Rehabilitation of Ntinda- Kiwatule-Naalya Road in Nakawa Division by Force Account operation at Shs.2,796,140,624

. No justifications for the This particular project was Management should always use of force account to executed under the ensure compliance with the execute the works. emergency arrangement that guidelines on force on had been earlier approved by account. URF. . Most of the supplied KCCA will in future endeavour Management should ensure materials including to achieve full material that materials are aggregates and fuel were segregation although it is a segregated to ensure procured as a whole for hard task considering the kind proper follow up of usage. KCCA works without of works executed by force segregating the account strategy. What is quantities of the supplies however certain is the per road activities. segregation of store issue vouchers as each store requisition clearly shows where materials are to be used.

Inspection of works . Undulating surface was observed for the whole The observation has been KCCA is advised to ensure 1.3km stretch of the noted and plans to seal all that works are executed Ntinda – Kiwatule road access junctions are according to specifications. section which resulted underway. from poor compaction of the base course and is The defects noted were likely to cause corrected before the deformation of the application of the final AC planned asphalt concrete wearing course. This can be as a wearing course. verified on inspection. . Stripping was observed on shoulders along the The undulating surface Ntinda-Kiwatule road e.g. observed was not attributed at Ch.0+100 and to deformations of the full Ch.1+300. depth of road base but to . Joint failures between the surface damages caused by shoulder and carriageway errant drivers that used the were noted along fresh surface before it had set Kiwatule –Naalya section. despite closing off parts off . Some road sections had these sections. been prepared ready to receive the 1st seal coat Strength tests were carried which was never applied out on the entire mechanically and have deteriorated. modified road base during . All access junctions were construction and the test not sealed. results complied with the . The mortar used for specified standards. construction of lined drain was wider than The anomalies have been required and weak and as noted for action and a result, it was being rectification of the defects is washed away by storm ongoing. water.

. Shs.188,344,300 was Materials were procured in KCCA is advised to keep 398

S/N Key findings Management responses Audit Remarks / Recommendations spent on oversupplied bulk for use on various roads good records of materials primer and stone under the jurisdiction of KCCA used on each project chippings not accounted of which Ntinda - Kiwatule separately. for on the road or in was among. Accountability for stores. these materials is available in our stores. No excess materials were procured for this project. The supervisor only requisitioned for materials in quantities that were required.

6. Upgrading Gravel Roads to Bitumen Standard – Phase 1 (Bukoto–Kisasi) by M/s Energoprojekt – Niskogradnja AD at Shs.18,623,324,931

. Under the procurement The financiers largely guided KCCA should ensure that process, the findings of the procurement. KCCA shall the matter is concluded PPDA investigations were seek information from PPDA. with PPDA at the earliest. not availed for review.

. No indication of an Noted. This was however KCCA should always addendum issue or approved by the contracts prepare addenda to communication on the committee. contracts to effect changes change to use asphalt of this kind. concrete from the initial design of surface dressing for shoulders.

. Low binder content in AC A proper job mix design was KCCA should ensure that at tested location approved. further tests are made to (Ch.1+607). This makes confirm that the Asphalt the AC susceptible to conforms to specifications. disintegration due to lack of cohesion and thus can cause premature failure of the pavement in form of alligator cracks under traffic loading.

. Shs.1,584,307 paid for The noted overpayment will Management should follow unexecuted length of be reconciled at substantial up and recover the culverts installed. completion of payment. overpayment.

25.10 KAMPALA INSTITUTIONAL AND INFRASTRUCTURE DEVELOPMENT PROJECT (KIIDP) (a) Compliance with Financing Agreement and GOUFinancial Regulations It was noted that project management had complied with the credit agreement provisions and GoU financial regulations except for the matter noted below;

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i) Counterpart Funding It was observed that KCCA‘s counterpart funding is not released to the project as per the funding agreement. According to the funding plan, funds were expected on quarterly basis but were only disbursed in one lampsum on 3rd May, 2012. This affects timely implementation of project activities. Project management was advised to ensure timely release of these funds.

(b) General Standards of Accounting and Internal Control Systems A review was carried out of the project system of financial management and the following matters were observed; i) Control Environment and Financial Reporting The project implementation plan PIP required reports to be made for IDA and KCCA. The plan also provided for independent oversight by Ministry of Local Government, however, there is no evidence that this was being done. Consequently the financial performance and progress reports are made and dispatched to IDA by the Project Accountant without independent oversight. I advised management to liaise with the Ministry for purposes of ensuring that the oversight role is performed. ii) Accounting System The SUN system is an integrated system designed to capture, store and retrieve data with minimal manual intervention. However, there are numerous manual interventions in relation to; Generation of opening and running general ledger balances; Production of trial balance; Computation and posting of exchange gains/losses.

This implies that in order to prepare financial statements the trial balance and open balances are adjusted manually which could result into errors. I advised management to ensure that the system is upgraded so that the generation of reports are automatically produced by the system to avoid possible errors due to manual adjustments.

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iii) Project reports A review of the project reports indicate that two reports, namely; progress and physical reports are produced. The reports are inconsistent on month to month basis and do not coincide with the financial report which is quarterly. In the circumstances it becomes difficult to match the financial resources with the outputs for purposes of project monitoring. Management was advised to ensure that these reports are aligned for easier monitoring. iv) Bank Accounts Bank reconciliations are prepared by either the project accountant or the accounts assistant. However, these are not reviewed by a senior official for accuracy, instead the reconciliations are filed away. I advised management to ensure that the reconciliations are reviewed by a person other than the preparer.

(c) Status of Project Implementation A review and inspection of project activities was undertaken and the following was noted; i) Fund Utilization It was observed that the credit utilization is lagging behind as also noted in the previous year. As at 30th June 2012 only $14.9m out of the approved credit of US $33.6m had been utilized and yet the project is expected to close on 31st December 2012. There is likely to be an extension of the project leading to extra administrative costs. I advised management to expedite the implementation of project activities. ii) Construction Works Lubiggi drainage It was observed that between Gayaza road and Bwaise Northern By-pass junction, Gabion mattress laying was going on and at some sections construction of culvert boxes was also ongoing. It was further observed that out of the five (5) multi barrel culverts, two (2) were under construction while work on the others had not yet started.

Road Works 401

There were two sets of road works; namely Phase I (9km) under Energo Project and Phase II (3.3km) under Inyatsi Multiplex Joint Venture. While the road works under M/s Energo Project were active, there was minimal activity on the Inyatsi Multiplex Joint Venture road works.

Generally it is observed that the implementation of these works is slow. Management explained that liquidated damages will be imposed on the contractor at expiry of the contract. I advised management to ensure close supervision of these works.

25.11 KAMPALA INTEGRATED ENVIRONMENTAL PLANNING PROJECT (KIEMP) 2011 (a) Compliance with Financing Agreement and GOU Financial Regulations i) Non remittance of National Social Security Fund deductions on due dates It was observed that deductions amounting to Euros 542 in respect of National Social Security Fund were not remitted on time (by 15th of subsequent month) as noted in the table below. Date Paid to Details of deductions Amount (Euro) NSSF 02/06/2011 NSSF for Project Manager – April 2011 271 02/06/2011 NSSF for Project Manager – March 2011 271 Total 542

The non compliance with NSSF Act may lead to penalties imposed on the Project. I have advised management to ensure that funds are remitted by the due dates.

ii) Pay As You Earn (PAYE) It was noted that whereas the organization deducts PAYE from the employees, deductions in respect of PAYE amounting to Euros 1,132 was not remitted to Uganda Revenue Authority on time (by 15th of subsequent month).

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The non-compliance with PAYE regulations may lead to penalties under the Income Tax law. I have advised management to comply with all the tax laws to avoid being penalized. iii) Internal Audit Function The Government Accounting regulations require that an internal auditor carries out examination of financial and related systems of the projects and their operation to ensure compliance and effective use and protection of project assets.

Furthermore, the Internal Auditor should provide a service to management by independently appraising the activities of the projects within the established control system and reporting with recommendations on a quarterly basis. However, there was no evidence that this was done during the year under review. Management has promised to address the matter.

(b) General Standards of Accounting and Internal Control Systems A review was carried out on the project system of financial management and the following matters were observed; i) FIT Accounting System The Project used a Computerized Accounting Software called FIT to capture receipts and payments and to generate some of the reports. It was however, noted that the system cannot generate normal general ledger with balances, a summarized trial balance, and receipts and payments reports. This implies that in order to prepare financial statements the trial balance and accountability statements are adjusted manually which could result into errors.

Management explained that FIT is a Financial Information Tool developed by BTC and not an accounting software. Though the program cannot produce general ledgers and balance sheets, it is sufficient for providing required information for management decision making.

I advised management to ensure that the system is upgraded to ensure that reports such as trial balance and general ledger are generated to ease the audit process and avoid possible errors due to manual adjustments.

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ii) Vouchers not Stamped ―PAID‖ It was noted that all the payment vouchers and supporting documents were not stamped ―PAID‖ or marked with any other sort of identification mark to deter reuse. Unless this is done, the support documents can be used for double payments.

Management should always ensure that all payment vouchers and their supporting documents are stamped ―PAID‖ or marked with other identification mark to deter them from being used again.

(c) Status of Implementation of Previous Years Audit Recommendations A review was carried out on the status of implementation of previous year‘s audit findings. The findings are summarized in the table below.

Recommendation Status FIT Accounting System Management should seek services of IT consultants to Not implemented assist on improving their system so that it can generate

timely reports for decision making. Acknowledgement of Receipts Management should always ensure that the receipts or Implemented other form of acknowledgement is obtained.

Book Keeping The contributions and expenses from KCCA as well as Not implemented amounts due from the Ministry of Local Government in relation to taxes are not included in FIT system.

Field Visits Some projects were not labeled and the channels were not Partially implemented drained.

Late submission of PAYE & NSSF There was late submission of statutory deductions. Partially implemented Posting of Expenditure Some expenditures were posted to wrong budget codes. Implemented

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26.0 ELECTORAL COMMISSION

26.1 Advances Unaccounted for - shs.931,474,289

A total of shs.931,474,289 advanced to Commission staff to undertake various activities remained unaccounted for as shown below:-

Details Amount (shs) Individuals and Institution payments 132,478,000 District Registrars 767,199,496 Fuel 31,796,496 Total 931,474,289

In absence of accountabilities, I was unable to confirm that the funds were put to proper use. Although management explained that the accountabilities in question were available, these had not been submitted to me by the time of compilation of this report. I advised Management to always ensure that funds are promptly accounted for by receipients immediately after implementation of the respective activities and to take necessary measures to ensure that the above funds are recovered or accounted for.

26.2 Unsupported Expenditure on Travel Abroad – shs.525,014,170

It was noted that the Commission paid a total of Shs.525,014,170 to individuals for perdiem and to travel agencies for purchase of air tickets. However, this expenditure was not properly supported. The Commission did not maintain a ticket register indicating details of individuals travelling and tickets issued; besides there were no boarding passes filed to confirm travel as well as back to office reports. The amount was therefore unaccounted for. Under the circumstances, I was unable to confirm that the amount involved was expended for the purposes intended.

Although the Accounting Officer explained that the accountability was available, these had not been availed by the time of writing this report. I have advised the Accounting Officer to always ensure that accountability for all travel abroad expenditure is always promptly submitted and to also follow up the accountability for the above amount accordingly. 405

26.3 Over Expenditure on Travel Abroad - shs.855,485,235

Contrary to section 39(3) of the Public Finance & Accountability Regulation, 2003, a total of shs.855,485,235 was paid over and above the approved budget for travel abroad without seeking for a reallocation or virement as required by the Regulations.

The Accounting Officer stated that this was a budget issue where originally all travel expenses related to training including purchase of air tickets and perdiem were budgeted under training and workshops. However, I find this explanation unsatsifactory, given that the Regulations would still require the Accounting Officer to apply for a reallocation or virement before incuring such expenditure. I advised management to liaise with Ministry of Finance Planning and Economic Development to ensure proper budgeting.

26.4 Irregular Payment of Allowances – shs.756,729,756

The Electoral Commission Human Resource Mannual requires staff to claim a maximum of 21 days in a month for payment of allowances in form of safari day, subsistence and sitting allowances. However, it was noted that shs.756,729,756 was paid to various members of staff as allowances in excess of the maximum monthly number of days stipulated in the mannual. In the circumstance, the expenditure was rendered irregular.

I have advised management to investigate the expenditure in question with a view of enforcing recovery.

26.5 Non Acknowledgement of Tax Remittances - shs.308,391,848

A total of shs.308,391,848 was reportedly paid to Uganda Revenue Authority in respect of withholding tax and PAYE by the Commission. However, it was noted that the expenditure was not acknowledged as received by Uganda Revenue Authority. Accordingly, I was unable to confirm that the funds reached the rightful receipient.

I advised management to follow up the acknowledgement receipts from the Authority. Meanwhile the funds stand as not properly accounted for.

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26.6 Understaffing

The established staff structure of the Commission was 671. However, a review of the structure revealed that only 553 had been filled, leaving a staffing gap of 118 staff. The most affected was the stores department where out of the 10 staff members required to work in the stores, 2 members had left the Commission, 4 members lacked the required qualifications while 2 senior staff members were due for retirement. The inadequate staffing undermines service delivery.

The Accounting Officer explained that during the General Elections of 2010/2011, Government availed supplementary funding to enable the Commission to recruit officers for the new districts. However, there was no budgetary provision for the newly created districts. I advised Management to liaise with the responsible authorities to have all staffing positions filled.

26.7 Inadequate Treasury Releases

The initial approved budget of the Commission for recurrent vote was shs.46,740,954,000, which was revised to shs.47,182,026,000 as a result of approval of the supplementary budget of shs.441,072,000. However, it was noted that only shs.45,937,511,485 was released by Treasury, leaving a balance of shs.1,244,514,515 outstanding. This affected implementation of planned activities.

I advised the Accounting Officer to always liaise with the Ministry of Finance, Planning, and Economic Development to ensure that all appropriated funds are disbursed timely to enable implementation of planned activities.

26.8 Theft of Stores

In a letter to the Electoral Commission dated 23/03/2012, the in-charge stores reported an update on the theft of Electoral Commission property from Luzira warehouse. The items allegedly stollen on 17th and 18th January 2012, are included in the table below; No. Item Description Cost (shs) 1 Safes Model B5-670, size H670W500D470 4,165,248 made in Korea (un engraved) 2 Motor vehicle tyres 15 pieces size 235/85 R16 4,155,000

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16 pieces, size 225/75 R 16 4,320,000 7 pieces, size 265/75 R 16 2,712,500 3 Motor cycle tyres 97 pieces, Front 275x21 10,522,034 97 pieces, behind: 410x18 10,522,034 4 Solar pannels (used 14 pieces: obsolete - Solar battery (used) 9 pieces: obsolete - Total 36,396,816

According to the letter, the suspect was arrested, taken to police, pleaded guilty of stealing the items at the Police station and the case is now in court. However, at the time of audit, a loss report was not availed for verification. Besides, the possibility of recovering the two safes was minimal, since they had not been engraved, furthermore, these items had not been recorded in the fixed assets register.

The Accounting Officer explained that the matter was reported to Police and the case was still in court. He stated further that measures of engraving and recording all assets in the fixed asset register had been enforced.

I advised the Accounting Officer to follow up the case for possible recovery of the lost items and also ensure that all assets of the commission are engraved timely.

26.9 Dilapidated Condition of the EC Offices

Physical inspection of the Electoral Commission buildings/offices and the compound revealed the following matters; The buildings/offices were erected on a flat land, with shallow drainages, which from time to time get flooded during heavy rains. Most of the ceilings especially along the verrandors are rotten and leaking. Some of the containers storing inventory are getting eaten up by rusting caused by water logging. The rest of the compound always contains stagnant water after rain. This demotives staff as the working environment is not condusive. In response the Accounitng Officer explained that the process of painting the structure, mitigation of floods was ongoing. He however, stated that this will not

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address the situation and he had made arequest for a purpose built facility and well constructed Headquarters. I advised the Accounting Officer to continue lobbying Government for its intervention on this matter.

26.10 Inspection of Electoral Commission Offices

Inspections were carried out at five districts of Namutumba, Pallisa, Mbale, Kumi and Soroti and the following matters were noted; i. Staffing It was noted that the Assistant District Returning Officer of Namutumba District was recalled to Headquarters in March, 2011 and he had not been replaced while the driver was also recalled for disciplinary action. At Soroti District Office, it was noted that the Assistant District Returning Officer had absconded from duty in August and no replacement had been made. At Mbale District Office the driver got a stroke and was bedridden. The vehicle was found parked. The staffing inadequacies at the respective district offices directly affect the delivery of services especially during planning and conducting of elections. ii. Poor Book keeping Book keeping was inadequate at all offices inspected. For instance, although at all the offices cash books and inventory books were in place, they were not up to date. The same was noted for the. Bank reconciliation statements were not prepared at all by any of these offices. In response, the Accounting officer promised to organize more training sessions on book keeping through monthly visits of the Headquarter staff to the districts. iii. Asset Management Failure to engrave assets At all the District Commission Offices inspected, assets had not been engraved to enable easy identification. At Namutumba and Mbale districts 39 lanterns and 253 lanterns respectively were missing in the stores. The Returning Officer of Mbale explained that the lanterns were destroyed during elections violence and a case was filed at CPS Mbale. Unused Ballot papers

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24 sacks full of unused ballot papers were found in stores at Pallisa District offices. The Returning Officer explained that these had been collected by Headquarters from other districts. Office Building The office building in Kumi is dilapidated, with cracks on the walls, ceiling and leakages all over. It had no running water, no toilets and it was bushy. In Soroti district there was no sign post leading to the office premises, however, the building is in a good condition having been renovated recently and also appears well maintained. It currently accommodates regional offices as well.

LEGISLATIVE SECTOR

27.0 PARLIAMENTARY COMMISSION

27.1 Absence of Corporate Strategic Plan It was noted that the Commission‘s strategic plan expired at the end of the year (2010/11). The Commission operated without one during the year under review. In absence of such a plan there is lack of strategic guide in achieving the Commission‘s objectives.

In response management explained that a draft strategic plan was approved by the Board of management and is due to be considered and approved by Parliamentary Commission. I advised management to expedite the approval of a new strategic plan.

27.2 Absence of IT Strategy The Parliamentary Commission has a well established Information and Communication Technology (ICT) function whose objectives are: ensuring that IT equipment and infrastructure are well maintained, building capacity of members and staff of parliament in the use of IT facilities, ensuring participation of the public in legislative process through use of IT and, ensuring the efficient operations of IT systems in Parliament.

However it was noted that the Commission has not developed an IT strategic plan despite having huge investments being made in IT. Further, best practice (CobiT) 410

requires establishment of an IT steering Committee comprised of representatives of members of Senior Management to oversee the IT department/functions. The Commission has not established this steering committee.

There is a risk that the investments in IT may not be properly guided leading to waste of resources.

Management explained arrangement are under way to have the ICT plan in place including the steering committee which are before the board for consideration.

I await for the outcome of management efforts.

27.3 Cash Payments to Immigration Staff Regulation 60 of the Parliamentary Service (Staff) regulations, 2001 states that only ―Technical personnel co-opted by the Commission to assist Committees in the discharge of their functions shall be paid honorarium at the rate approved by the Commission‖.

Shs.53,925,000 was paid out by the Commission as allowances to 59 staff of the Immigration Department co-opted on to the Invitations, Protocol and Immigrations Committee to assist Parliamentary staff.

However, the rates for lunch allowances (Shs.19,500) and honoraria (Shs 130,000) were irregular and contrary to the Public Service Standing orders 2010 as the allowances were not computed in accordance with the Standing Orders. Management in response stated that the allowances were paid to immigration staff who were on duty 24 hours daily to handle the large numbers of arrivals and departures of IPU guests. The rates of allowances were determined by the organizing committee.

I advised management to adhere to the Standing Orders while paying allowances to staff.

27.4 Payments of Cash for Official Attire The Parliamentary Commission paid Shs.417,755,000 in cash to staff to enable them to acquire two pairs of the official attire for the year.However, it was 411

observed that cash payment to staff was irregular as the Commission was supposed to purchase the attires from a qualified supplier and issue to staff in order to maintain uniformity and quality. Management stated that this was to ensure that the staff working in the department of Clerks, Official report and all staff members needed to be decently dressed in the course of performing their duties and approval was sought from the Parliamentary Commission.

I advised management to adhere to the regulations and ensure that prescribed attire is procured for the staff.

27.5 Irregular Transcribing Allowance It was observed that Shs.15,931,634 was paid as transcribing allowance. However this allowance was neither specified in the Parliamentary Service Staff Regulations nor the Uganda Public Service Standing Orders. Furthermore, the work done was the normal duty for which the staff were employed. In the circumstances, the payment was irregular.

Management stated that the Commission paid the allowance to motivate staff and enable them do work (production of the hansard) which is so tedious and demanding.

I have advised management to formalize this allowance with the Commission.

27.6 Advances to Personal Bank Accounts Shs.922,771,650 was deposited to various staff individual personal accounts to effect payment of allowances to other staff.Advances to individual staff Accounts have been rendered highly risky and irregular as they are prone to misappropriation.

Management in response stated that these funds are for payment of Members of Parliament and staff allowances, refreshments, fuel and contingencies while the committees are on official trips out of Kampala. Management further stated that with effect from the preceding financial year, the Commission decided that allowances for the Committee members and staff for up country trips will be paid 412

directly to beneficiaries to reduce the amounts advanced to the Clerks to Committees.

I await the outcome of management efforts.

27.7 PARLIAMENTARY PENSIONS SCHEME 27.7.1 General Standards of Accounting and Internal Control Systems A review was carried out on the pension schemes‘ system of internal controls and financial management for the period 2008 to June 2011 and the following matters were observed;

(a) Contributions A review of the contribution schedules for both Government and Staff contributions revealed weaknesses in respect to the following observations:-

(i) Although there was improvement noted in the timely remittance of contributions. It was observed that there were few instances where remittance of contributions was delayed in respect to following periods:

- Remittances of funds for 30% MP contributions for February 2012 were remitted on 30/3/12. - Remittance of funds for 15% Staff contributions for June 2012 were remitted on 2/7/12.

(ii) Differences were noted between amounts stated in the contribution schedules and figures in the financial statements amounting to Shs.16,463,416 as stated below: (iii)

As per contribution As per financial Difference schedule statements GoU 30% MPs contribution 3,571,919,100 3,562,260,000 9,659,100 GoU 30% Staff contribution 1,158,654,639 1,162,647,427 (3,992,788) MPs 15% contribution 1,784,250,000 1,781,130,000 3,120,000 Staff 15% contribution 556,073,986 581,323,714 (25,249,728) Sub Total 7,070,898,392 7,087,361,141 (16,463,416)

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This therefore implied that a total of Shs.12,779,100 and Shs.29,242,516 was over and under payment on members contributions respectively. Management has explained that it has since refunded the amounts erroneously deducted and also recovered the unremitted amount.

(iv) I further noted instances of differences in respect to number of members contributed by GOU (30%) and the number of members on deducted 15% contribution as noted below. This resulted from the lack of coordination between the GOU and the Parliamentary Commission and the untimely reconciliation of schedules to financial statements.

Members Members Per GOU (30%) Per Staff (15%) Difference in Contributions Deduction Members

Month Staff MPs Staff MPs Staff MPs

July 294 384 239 382 55 2

August 295 382 286 382 9 -

September 293 382 292 382 1 -

October 294 381 291 381 3 -

November 291 380 292 380 (1) -

December 291 380 292 380 (1) - June 289 380 288 380 1 -

No deductions had been refunded by the Public service for the errors. Management has indicated that recoveries of contribution of arrears from members have been initiated.

(v) It was noted that although all 30% GOU contribution schedules submitted by the Parliamentary Commission were signed as approved and stamped, but independent verification of those schedules was being done as required by procedures.

I advised that; 414

In order to provide for maximization of the Scheme‘s investment returns, the Pension Scheme management should follow up on the timely remittance of contributions. Deadlines should be instituted and agreed with the remitting authorities which should be monitored on a regular basis.

In order to ensure accuracy and reliability of financial information, the Scheme Accountant should carry out monthly reconciliations of the amounts stated in the contributions schedules and the amounts stated in the financial statements. Any differences arising should investigated and reconciled in the accounts in a timely manner.

In order to ensure accuracy and completeness of contribution income, the Sponsor should ensure accuracy of contribution schedule numbers prior to disbursement of funds. We further recommend that 30% GOU contributions should be made on the basis of monthly deductions effected on members.

In order to ensure proper internal control, 30% GOU contribution schedules should be reviewed by an independent person prior to approval and submission for payment.

(b) Payment of benefits The review of the system for payment of benefits and members files revealed weaknesses that require urgent management attention. A few examples of the weaknesses noted included the following:

(i) The practice is that benefits are accrued in the financial accounts when they fall due and carried on with interest until paid.

It was noted that there were delays in the verification process of members‘ records resulting into further delays of payment of certain benefits to members. For example, as at 30th June 2012, a total of benefits payable that had not been paid amounted Shs.375,755,955 of which most related to benefits arising in previous financial years.

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(ii) No evidence of death certificates was available on members‘ files for death benefits despite that amounts had been accrued in the accounts totaling to Shs.105,673,987. I was therefore unable to verify the accuracy of such amounts. Management was advised to ensureproper verification mechanisms of the verification processes and payment of members‘ benefits in a timely manner. Payment or accrual of unpaid death benefits should only be done with evidence of a death certificate.

(iii) The date of birth is a key determinant in the verification and calculation of certain benefits. It was however noted the lack of evidence of birth certificates on members‘ files to evidence their actual dates of birth. This therefore could result into misstatements in the calculation of members‘ benefits and cause loss of Pension Scheme funds. The Pension Manager should seek members‘ birth certificates to be filed on each member‘s records to allow effective verification at the time of payment of benefits and also follow up recovery of the erroneous payment to NALECO amounting to Shs.39,447,000 and legal action should be considered.

(iv) Also reviewed was the previous audit observation in respect to funds amounting to Shs.39,447,000 that were erroneously paid to NELSCO in FY 2008 but had not been refunded to date. No refund of this amount has been made to date despite our previous audit recommendation to seek immediate refund. Management has indicated that the said amount through the Commissioner Co-operatives but without much success. The Board of Trustees resolved that legal action be taken to recover the outstanding amount and court proceedings have been initiated by the Director, Legal and Legislative Services .

(1) It was noted that payments totaling to Shs.31,825,000 that were being paid to all members of Staff of the Parliamentary Pension Scheme for carrying out

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surveys of availability of financial institutions in various districts in the country. Below I highlight the concerns pertaining to such payments:

- Advance of such payments were not being adequately accounted for by some recipients in form of field reports. I was therefore unable to verify whether actual visits were made for those advances that were not adequately accounted for. - No considerations were made to use the beneficiaries themselves or hire the services of specialized firms to obtain such data on behalf of the Parliamentary Pension Scheme. This could have provided value for money and could have substantially made huge saving of Pension Scheme funds. - Further investigation of this anomaly revealed that such information data could have been got from Kampala using Bank of Uganda data base or at headquarters of financial institutions that are located in Kampala without necessary travelling to the districts.

This is negligence on the part of management and hence no value for money may have been obtained as a result of using Staff to carry out the survey

Management explained that the staff of Parliamentary Pension Scheme travelled to the field and filed reports of their findings. However, the management regrets that some reports were misplaced and they are now available. I advised management that this anomaly that could have resulted into lack of value for money in Pension Scheme funds should be investigated by the Board.

(2) Staff employment contracts state that gratuity payments will be paid at the end of each staff contract. We however noted transfer of Shs.99,835,294 to Eco Bank in respect to Parliamentary Pension Scheme staff gratuity benefits that had not been earned. I was made to understand that the purpose of this action was to allow investment of staff gratuity payments despite that these had not been earned. This is not only contrary to employment terms but could result into abuse of Pension Scheme funds.

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Management explained that staff of the Scheme earn gratuity as per their terms and conditions of service. The amount earned is however payable at the end of the employment contract and given that the staff costs are met by grants from Parliamentary Commission, the Board of Trustees deemed it proper to set aside the funds which will be used to meet the liability on gratuity when it is due.

Management was advised to ensure that gratuity payments should only be paid at the end of the Contract as clearly stipulated in the contract agreements, and also recommend refund of the said funds

(3) It was noted that adjustments to accounts were not being made through approved journal vouchers. For example, there were no support documentation in form of journals to support entries in the Pensions Ledger amounting to Shs.3,307,831 which made it difficult to ascertain the authenticity of the figures. Lack of preparation of journals does not foster proper financial management and could result into unauthorized adjustments to financial statements.

Management explained that this is an oversight that shall not be repeated and the management undertakes to ensure that all adjustments are based on approved Journal vouchers. I advised the Pension Accountant to ensure preparation of journals that should be duly approved prior to posting into the accounts.

(4) It was noted that withholding tax was not deducted from purchase of goods and services amounting to Shs.4,697,390 contrary to the provisions of the tax law.

Lack of adherence to prescribed Uganda tax laws could result into penalties being imposed to the Parliamentary Pension Scheme.

Management explained that KKM Agencies was inadvertently paid Shs.4,697,390 without deducting the withholding tax. Management has

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demanded the payment of the withholding tax from KKM Agencies or evidence for having paid the tax and received response. I advised the Fund Accountant to ensure strict adherence to tax regulations in respect to deduction of withholding tax.

(5) It was noted that advance payment of Shs.17,176,875 for per diems, out of pocket and tickets for 2 personnel‘s travel to Zambia for a pensions seminar that was not accounted for. No evidence was availed to evidence that actual trip was undertaken.

Lack of timely accountability of advances could result into loss of funds going undetected. I advised management to provide accountability of the above funds.

(6) It was noted that there was delay in the banking of returned cash balances on the following transactions: PV# Amount Date Returned Date banked 533 300,000 16/4/2012 22/5/2012 549 450,000 24/4/2012 22/5/2012 550 180,000 23/4/2012 22/5/2012 562 200,000 16/5/2012 29/6/2012 576 200,000 31/5/2012 29/6/2012 651 250,000 15/6/2012 29/6/2012

Delay in banking of returned cash balances is not only breach of procedures but could result into abuse of Pension Scheme funds going undetected.

Management acknowledged that the cash balances were not banked immediately and intact as required by the financial regulations. Appropriate disciplinary action has been taken. Further, cash counts at regular intervals will be carried out to ascertain that the cash balances have been banked intact and immediately.

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Management was advised to ensure control of cash management and that cash balances should be banked intact and in a timely manner as required by procedures.

(7) It was noted that all payment vouchers and related supporting documents were not being stamped ―PAID‖ after effecting payment. This could result into duplication of payments going undetected.

Management was advised to ensure that all payment vouchers and related support documents should be stamped ―PAID‖ after payment to avoid possible duplication of payment.

(8) There are no documented financial, accounting and administrative procedures in place. The lack of documented financial, accounting and administrative procedures does not foster good internal control of the Pension Scheme.

Management explained that they have developed a draft Finance and Administration Manual which is currently with Audit Committee of the Board of Trustees for review.The Management will ensure total compliance once it is approved for implementation.

The Pension Manager should consider establishment of documented procedures to allow proper governance of the Scheme‘s operations.

27.7.2 Status of implementation of previous audit recommendations A review of the status of implementation of previous audit recommendations was undertaken and the status is indicated in the table below;

Recommendation Status

In order to avoid future difficulties and to improve on Implemented the performance of the Scheme, the Board of Trustees must enhance their efforts to improve on their investment returns.

Alternatively, the Scheme sponsors, the Parliamentary Commission, should be prepared to inject in the Scheme amounts indicated in the table above. 420

The Board of Trustees should endeavor to ensure Implemented timely annual audits of the Pension Scheme‘s accounts. The Pension Manager should ensure strict adherence to reporting deadlines of key management information reports as stipulated in the Parliamentary Pensions Act.

Investments In order to improve and strengthen the investment policy of the Scheme, the Board of Trustees must ensure the following:

(i) Design of well-tailored strategic investment Implemented plans and the timely monitoring and review of the investment decisions of the Board of Trustees against agreed benchmarks.

(ii) Establishment and documentation of the Implemented investment policy and procedures.

(iii) Investment targets should be set against which Implemented Investment performance should be measured in a timely manner.

(iv) Provide for adequate diversification of the Partly implemented investment portfolio. This should be attained through recruitment of an Investment Manager.

(v) Timely recruitment of an Investment Manager Implemented to the Scheme should be ensured.

(vi) Make timely Investment decisions of members Implemented funds to allow maximization of active returns within an acceptable risk limit. In order to improve on transparency and value for Implemented money in all the Schemes investment opportunities, the Board of Trustees should ensure documentation of all procurement decisions by the investment committee.

Contributions

(i) In order to provide for maximization of the Partly implemented Scheme‘s investment returns, the Pension Scheme management should follow on the timely remittance of contributions. Deadlines should be instituted and agreed with the remitting authorities which should be monitored on a regular basis.

(ii) The Pension Manager should ensure that all Not implemented contribution schedules are approved and endorsed with the remitting authority stamp. Contribution schedules not endorsed should 421

not be used as basis for entries in the accounting system of the Scheme.

(iii) The Pension Manager should follow up with the Implemented concerned authorities to ensure submission of contribution schedules missing.

(iv) In order to ensure accuracy of financial Not implemented information, it‘s recommended that monthly reconciliations should be done on a monthly basis of the amounts remitted and the contributions schedules submitted to support the remitted amounts. Differences arising should be investigated and provisions for accrued income be made in the accounts.

(v) In order to ensure accuracy and reliability of Partly implemented financial information, the Scheme Accountant should carry out monthly reconciliations of the amounts stated in the contributions schedules and the amounts stated in the financial statements. Any differences arising should investigated and reconciled in the accounts.

(vi) In order to ensure accuracy and completeness Partly implemented of contribution income, the Pension Manager should ensure monthly reconciliations and investigation of un-reconciled differences in numbers of members. We further recommend that 30% GOU contributions should be made on the basis of monthly deductions effected on members.

The Pension Manager should ensure Implemented investigation of all un-reconciled differences.

Payment of Benefits

(i) The Fund Manager should ensure proper Not implemented verification mechanisms of the verification processes and payment of members‘ benefits in a timely manner. This will enable the Scheme to make saving on interest that would be charged on delayed payment of benefits.

(ii) Payment or accrual of unpaid death benefits Not implemented should only be done with evidence of a death certificate.

(iii) The Pension Manager should ensure that Implemented Pension Calculation Sheets are reviewed and approved by an independent person prior to payment of benefits. 422

(iv) The Pension Manager should ensure Implemented completeness of members files in respect to key information and documents.

(v) The Pension Manager should follow up Not implemented recovery of the overpayments with the concerned MPs with immediate effect.

(vi) The Pension Manager should follow up Not implemented recovery of the erroneous payment to NALECO amounting to Shs.39,447,000 and legal action should be considered.

(vii) The Pension Manager should ensure prompt settlement of Pension Scheme liabilities.

Internal Control

(i) The Pension Manager should consider Not implemented establishment of documented procedures to allow proper governance of the Scheme‘s operations.

(ii) Board of Trustees meetings should ensure Implemented availability of quorum prior to business.

(iii) The pension Manager should prepare annual Not implemented reports in a timely manner to allow effective and efficient decision making.

(iv) The pension Accountant should ensure that all Partly implemented evidence of tax deducted at source should be collected as evidence of payment of tax by the Scheme.

(v) Bank reconciliations should be dated. Implemented

SECURITY SECTOR

28.0 MINISTRY OF DEFENCE

28.1 Outstanding Commitments incurred during the year The ministry incurred outstanding commitments amounting to Shs.19,011,373,978. This practice is contrary to the commitment control system which requires the Accounting Officer to commit the ministry to the extent of funds available and could lead to litigation costs due to non settlement of outstanding obligations.

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Management explained that increased activities and the emergency nature of some of the operations including essentials like food have caused budgetary pressures leading to commitments beyond the approved budget.

I advised management to prepare more realistic budgets and exercise more control over its expenditures.

28.2 Payments to UMEME Shs.6,890,834,828 was paid to UMEME for power consumed during the year under review. There was no creditor ledger in place to track the payments and balances thereof. It was also noted that the Ministry did not have a reconciled position on how much was billed and paid, and what remained outstanding at the year end in respect of each meter. As a consequence it was difficult to confirm the amounts reflected in the accounts as power consumed during the period.

Management explained that the Ministry has finished a reconciliation exercise with the utility company for the period 1st March 2005 to 30th June 2011 which has established that total indebtedness was Shs.17,462,136,400 to UMEME for the electricity billed on its official accounts numbering 328 in that period.

I advised the Accounting Officer to have an up-to-date position regarding utility bills. 28.3 Treatment Abroad The Ministry‘s budget for treatment abroad during the year under review was Shs.567,456,204. However, a total of Shs.2,371,268,824 was spent on treating various people abroad thereby leading to over expenditure of Shs.1,803,812,620. It was also established that the ministry did not have an approved medical policy in place to guide in determining the eligibility and threshold for the beneficiaries.

In the absence of a clear medical policy in place, I was unable to ascertain the authenticity of the basis for selection of beneficiaries for treatment abroad.

The Accounting Officer explained that there is a draft medical policy which is pending final consultation. However the current practice is that the institutional

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(Military) Medical Board reviews all cases that have been recommended by the attending consultants for referral abroad.

I advised the Accounting Officer to expedite the approval of the policy and also consider the option of construction of the Ministry Referral Hospital in order to handle some of the referred cases.

28.4 Undisclosed Revenue It was established that private telecommunication and radio companies have erected masts at Ministry of Defence land in Upper Mbuya, Bombo, Katabi, Masaka, Kakiri, Kigungu. However lease agreements between Ministry of Defence and the telecom companies were not availed. Further still, Management did not disclose any revenue accruing from these lease rentals in the financial statements.

The Accounting Officer explained that the telecommunication and radio companies do not pay ground rent for the land used by the masts as the Chief Government Valuer has not determined rent values payable to Ministry. The Government valuer has been engaged and the results are awaited to enable determination of the rates to be charged.

I await for the outcome of management efforts.

28.5 Construction and renovation works at 4th Division Gulu A construction company was contracted to carry out renovation and construction of flat-lets in 4th division headquarters Gulu during the financial year 2007/2008. The original contract sum was Shs.4,787,137,056 which was later revised to Shs.5,497,104,234. The project was supposed to be completed within twenty two months. Due to design changes an extension period of 4 months was given. The original scope of work included; Rehabilitation of 11 one bed-roomed flats Construction of 16 two roomed flat lets blocks Renovation of a Gun shed

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Construction of 8 new aqua privy toilets with showers and, site works and services. It was however observed that the works which were meant to be completed by September 2009 have not been completed to date. By 30thJune 2012 Shs.3,096,407,417 had been paid out to the contractor who had managed to only complete and hand over 11 flat lets to the Ministry. Despite having revised the contract price upwards from Shs.4.787bn to Shs.5.497billion and effecting payments of Shs.3.096billion, the gun shed has not been renovated while the following works have since stalled:

Construction of 6 (two bedroom) self contained flat lets Construction of 8 new Aqua privy toilets with shower, and Site works and services

The Accounting Officer explained that the delays in completing the project were occasioned by the following reasons: Change of scope due to design changes to the blocks of flats by adding two housing units to each block. Changes in design from one room unit to two bed roomed self contained houses. Price variations/fluctuations.

I have advised the Accounting Officer to closely monitor the works to ensure the works are finalized within the extended date of July 2013. 28.6 Renovation of Hangers at Entebbe Airbase The Ministry entered into an ad-measurement contract with a construction company for renovation of Entebbe Airbase Hangers at a contract price of Shs.1,333,404,248 on 27th April 2010. The funds were to be paid to the contractor in two lots; Shs.328,448,265 in the financial year 2009/10 and Shs.1,004,955,983 in financial year 2010/11. Site possession would be 14 days upon signing of the contract. However, to date (two years and eight months) works have not commenced because the hangers are still occupied with stores.

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The contract should not have been awarded since the site was not ready for vacation as this could lead to escalation of costs.

The Accounting Officer explained that the main cause of delay in giving vacant possession of hangers was the delivery of classified stores that had to be parked in the hangers in question.

I recommended that in future procurements and contract signing should be executed only when the Ministry is ready to hand over the site.

28.7 Supply of Uniforms by M/s Southern Range Nyanza Ltd - EFT 2059402 of 18/5/2012 The Ministry awarded a contract to a company to urgently supply 18,950 pairs of long sleeved plain BDU uniforms at a contract price of Shs.980,662,500 (Shs.51,750 per uniform) in July 2011. The Ministry used direct procurement method as the uniforms were urgently needed. The letter of contract award was issued on 29 July 2011. However, the company did not supply as per terms agreed upon until January 2012. In addition, the Ministry re-negotiated with the supplier to have the price raised upwards, from Shs.51,750 to Shs.60,000 leading to an extra expenditure of Shs.156,337,500.

In the circumstances, the use of direct procurement was not justified as the uniforms were delivered six months after. I advised Management to undertake competitive procurement in future, in accordance with PPDA regulations.

28.8 Unlawful allocation of Ministry of Defence Land (Lower Mbuya) Part of the Ministry of Defence Land, plot no. 7-9 Chwa11 Link Road commonly known as Lower Mbuya was allocated to City Care Holdings Ltd in 2010 and thereafter, a Certificate of title issued on 12th January 2011. I have reported on this issue of land ownership of Lower Mbuya since the financial year 2007/2008 and no action has been taken to stop the allocation of Ministry Land to private developers without appropriate authority and documentation. Ministry Of Defence is likely to continue losing land under unclear circumstances. Management explained that; 427

Ministry of Defence land comprised in Plots 7-9 Chwa II Link Road Mbuya was irregularly allocated to City Care Holdings Ltd in 2010 by Uganda Land Commission. This land at Lower Mbuya, currently occupied by Ministry of Defence has also been allocated to two other private individuals who are making efforts to secure titles over the same land. The Accounting Officer has contested this practice in writing to the Secretary Uganda Land Commission and requested the Commission to cancel the title already issued and revoke all the allocations made on this land. In regard to ownership and management of the entire Ministry of Defence land at Lower Mbuya, the Ministry‘s efforts to survey and secure a Land Title in 2008 were frustrated by 28 individuals who claimed that Kampala District Land Board had allocated the land to them. The matter is now before Court.

The outcome of Court proceedings is awaited.

28.9 Ambercourt Market Land at Kimaka Road –Jinja Ambercourt Market at Kimaka Road in Jinja Municipal Council was constructed on Ministry Of Defence land without the approval of the relevant authorities in the Ministry. This land was given out by the acting camp commandant who did not have the powers to do so.

In response the Accounting Officer explained that when this matter came to the notice of the Accounting Officer, a letter was written to the Town Clerk, Jinja Municipality informing them of the anomaly and advised the Municipal authorities to vacate the land and relocate the market but they have not heeded to the advice. In addition this matter has been brought to the attention of the Permanent Secretary Ministry of Local Government and a response is awaited. Meanwhile administrative action has been taken on the Camp Commandant.

I advised the Accounting Officer to pursue the matter further to conclusion.

28.10 Lack of land title for compensated land In 1989, government took a decision that all land including houses overlooking Entebbe Airbase be taken over by Ministry of Defence and that owners be compensated. Subsequently by March 1998, all properties taken over by Air Force 428

Base in Entebbe had been paid for by Government. However, no land title was presented to confirm that ownership of all properties paid for by Government was transferred to Ministry of Defence‘s names. There is a risk that some of the properties especially along Bazarabusa Lane, Bulime close and Combe close may end up in the names of private individuals.

Although management explained that the land titles were secured and taken into custody of Uganda Land Commission as a procedural requirement, I was not provided with the copies of the land titles to evidence ownership.

The Ministry was advised to follow up the matter and ensure that all plots paid for are registered in the names of the Ministry.

28.11 Singo Military Training School – School land The School was since 2007 reserved for training in peace support operations. During audit inspections, it was noted that the School had limited land which puts the school into conflict with neighbours. In a related development the school land was found not fenced and no land title was availed for audit verification.

Management explained that the process to have the land compensated is ongoing and the President has given a directive that private homes neighbouring the training school be relocated to avoid accidents arising out of the training exercises. Management further explained that the Government Valuer has been engaged to undertake the valuation of private property for compensation. Plans to have the School fenced have been drawn under the DSIIP. I await the outcome of management efforts.

29.0 OFFICE OF THE PRESIDENT

29.1 Delayed Completion of Works The Office of the President entered into a number of construction projects with various companies to construct RDCs‘ offices in different districts. Audit inspections carried out revealed that works had been delayed as detailed below:

(a) Construction of RDC’s Building Otuke District

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A contract was signed on 21st March 2012 between a construction company and the Office of the President. The Completion date was supposed to be 120 days after signing of the contract which implies that by August 2012 the structure should have been completed which was not the case. The Contracts Committee approved an extension completion period up to 31st December 2012. However, by 17th January 2013 the structure had not been completed despite the extension period granted.

The Accounting Officer explained that the contractor requested for an extension of the contract citing various reasons and a new completion date of 30thMarch 2013 was agreed upon.

I await action on contract completion.

(b) Construction of RDCs’ offices in Amuru and Abim Districts A construction company was awarded two contracts, one was to construct the RDC‘s office in Amuru at Shs.600,932,075 and the second one was for RDC‘s Office in Abim at a cost of Shs.661,828,731. Both sites had not been completed by 17th of January when audit inspection was carried out.

The Accounting Officer explained that the delay was attributed to bad weather and variations. A new completion date of 30th March 2013 was agreed upon. I await action of the contractor and Management on contract completion.

(c) Renovation ofKapchorwa District RDC`S Office Shs.14,345,886 was paid to a construction company for the renovation of the RDC‘s office in Kapchorwa. However no title of ownership of the property was availed. There is a risk of losing funds on capital projects with no evidence of ownership.

The Accounting Officer explained that the building in Kapchorwa is one of the 18 original Central Government buildings in the country.

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The Ministry should process documents pertaining to the ownership of the property to avoid risk of loss.

29.2 Unfilled Positions The Office of the President structure provides for a number of key positions in several departments to ensure efficient and effective performance. A review of the current structure revealed that a total of 385 posts in various fields remained unfilled by the close of the year under review.

I explained the shortcomings of having all these posts vacant to the Accounting Officer, and I advised Management to follow up with the Ministry of Public Service and Public Service Commission to have the posts filled.

29.3 Inadequate Structure at National Patriotism Secretariat It was noted that the approved structure at National Patriotism Secretariat was not adequate to carry out its mandate. Due to the structure of the secretariat being lean on the ground, the UPDF at the request of the Secretariat seconded three (3) Army Officers (Political Commissars) from NALI to help in patriotismmobilization programmes inschools.

I advised the Accounting Officer to liaise with Ministry of Public Service to have this structure revised to enable proper execution of the mandate.

30.0 STATE HOUSE

30.1 Unrealistic Budget for State House State House approved budget for the year was Shs.63,671,106,840 which was later adjusted through supplementary funding of Shs.93,382,730,700 bringing the revised approved budget to Shs.157,027,335,868. These supplementary funds were 146% of the original budget implying that the original budget was not realistic in view of State House operations.

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It has been noted that over the years that State House has continued to receive supplementary budgets annually exceeding its original budgets. This impairs the credibility of the budget.

The Accounting Officer explained that they endeavour to present a more realistic budget but have to work within the ceiling set by the Ministry of Finance, Planning & Economic Development.

I advised management to continue negotiating with the Ministry of Finance to ensure that the ceiling set reflects the operations of the entity.

30.2 Lost funds During the year, Shs.590,200,000 was reported stolen from the cash office. No police report was availed to confirm the said amount, and information about this theft was scanty. This figure has been reflected in the financial accounts as a Receivable.

The Accounting Officer stated that the Accountant General was informed of this loss and the issue was handled according to military procedures since the people involved were serving officers. I advised the Accounting Officer to minimize the holding of large sums of cash by seeking permission to operate a credit card system.

30.3 Staffing Levels State House structure provides for a number of key positions in several departments to ensure efficient and effective performance. A review of the current structure revealed various gaps in the entity staffing. Understaffing hinders effective and efficient service delivery of the entity's planned outputs.

The Accounting Officer explained that the current structure is outdated and does not match the staffing needs. Management has applied to Ministry of Public Service to review the structure of State House in order to match the current responsibilities. I await the outcome of the application.

30.4 Audit Inspection of State lodges

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State House owns and maintains several state lodges in different towns across the country. As part of their maintenance programme, renovations were carried out on a number of these facilities during the year. An audit inspection of the activities undertaken revealed that out of the 18 state lodges, only 8 have had their land titles secured.

The Accounting Officer explained that an officer from the legal department was detailed by the State House comptroller to pursue the issue of land titles for the remaining state lodges. The closure of the land offices for computerization affected the process of title processing.

I advised the Accounting Officer to vigorously follow up the matter to ensure that titles are secured for the properties.

AGRICULTURE SECTOR

31.0 MINISTRY OF AGRICULTURE, ANIMAL INDUSTRY AND FISHERIES

31.1 Mischarge of Expenditure – Shs.7,832,206,720 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. Review of the Hospital‘s expenditure revealed that the ministry charged wrong expenditure codes to a tune of Shs.7,832,206,720. The practice undermines the importance of the budgeting process as well as the intentions of the appropriating authority and leads to misleading financial reports.

I advised management to streamline the budgeting process to ensure that sufficient funds are allocated to each account to enable proper implementation of government programmes.

31.2 Advances to Employee Personal Accounts

a. Non Compliance with Regulations

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It was noted that a total of Shs.11,390,010,982was paid on the personal bank accounts of Ministry staff for executing official activities rather than effecting payments to the final beneficiaries as required by the TAIs under Sections 227, 228 and 229. This practice is irregular and also exposes Government funds to a risk of loss. In addition, the Ministry does not have any control over such funds deposited on personal accounts.

I advised the Accounting Officer to ensure that funds are paid directly to the intended beneficiaries and service providers to eliminate the risk of misuse of such funds.

b. Unaccounted for Personal Advances - Shs.330,630,100 It was noted that of the total amount deposited on personal accounts, a total of Shs.330,630,100 remained unaccounted for by the time of audit. In the circumstances, I could not confirm whether the funds in question were put to their intended purpose. Although the Accounting Officer indicated that the accountability in question was available, by the time of compiling this report, the documentation had not yet been provided. I advised the Accounting Officer to ensure that recovery measures are initiated from the officers concerned, in the event of failure to obtain the accountability in question.

c. Advances not properly accounted for – Shs.663,654,662 During a review of the accountabilities submitted by staff who were availed advances through their personal bank accounts, it was noted that accountabilities for a total of Shs.663,654,662 were found to be doubtful. These accountabilities contained inconsistencies and some of the expenditure was found ineligible. There is a risk that these funds may not have been properly used. Under the circumstances, I was therefore unable to establish the genuineness of the transactions in question. I have advised the Accounting Officer to institute further investigation into these transactions with an aim of ruling out possible misuse.

31.3 Unaccounted for Expenditure on Workshops and Seminars - Shs.142,536,992

It is a requirement under paragraph 222 of the Treasury Accounting Instructions that advances not accounted for within 60 days from the date of payment be 434

recovered from beneficiary. It was however noted that Shs.142,536,992 spent by the Ministry on workshops and seminars was not accounted for.

Although Management explained that accountabilities for the workshops were available, a further review of the availed documents revealed that accountability for the above amount was not included in the documents that were subsequently availed.Under the circumstances, I was unable to confirm whether the amount was expended for the purposes intended. I advised the Accounting Officer to have these funds accounted for or else initiate recovery measures from the beneficiaries concerned.

31.4 Unaccounted for Advances Under Nodding Disease Syndrome - Shs.100,000,000 A Memorandum of Understanding (MOU) between the Government of Uganda represented by the Ministry of Health on one hand and Ministry of Agriculture, Animal industry and Fisheries on the other hand was signed on 4th April 2012 for field implementation of Nodding Syndrome activities in Acholi Sub-region. Shs.100,000,000 was accordingly disbursed for this purpose. It was a requirement under this MOU that the recipient Ministry makes a report to the Accounting Officer of the Lead Ministry (Ministry of Health) on the progress of the Nodding Disease Syndrome activities and in turn the Lead Ministry would avail copies of the said report to the Ministry of Finance, Planning and economic Development and to the Auditor General. However, it was noted that at the time of the audit in April 2013, no form of accountability had been submitted by Ministry of Agriculture to Ministry of Health. Delays in accounting for funds can lead to misuse of funds. In the circumstances, I could not establish whether the funds were expended for the intended purposes.

Management explained that the funds had been received at the end of the financial year and released to the officers for implementation of the activities and hence could not have been accounted for by 30th June 2012.I advised the Accounting Officer to duly account for these funds and make submission of the required accountabilities to Ministry of Health.

31.5 Expenditure on World Food Day Celebrations - Shs.20,000,000

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Shs.20,000,000 advanced to Abi Zonal Agricultural Research Development Institute for conducting World Food Day celebrations in Arua District was not included in the approved budget estimates of the Ministry for the year under review. There was no evidence that a supplementary budget or re-allocation was made authorising this expenditure. Furthermore, this amount remained unaccounted for at the end of the financial year.

Although the Accounting Officer explained that Abi Zonal Agricultural Research Development Institute (ABISARDI) had been chosen as the National venue for the WFD celebrations and the activities for this expenditure were available, these had not been availed to me by the time of compiling this report. I advised the Accounting Officer to always abide by the requirements under the Budget Act and ensure that the above funds are accounted for or else initiate recovery measures for the same.

31.6 Medical and Veterinary Supplies shs.3,644,817,500

A total of Shs.3,644,817,500 was spent on procurement of vaccines( shs.2,696,851,500) and pesticides (shs.947,966,000) by the Ministry. Although these items were confirmed as received in the stores, it was noted that there were no records available indicating their issuance to the benefiting districts and users. Accordingly Iwas not able to ascertain the actual usage of the procured vaccines and pesticides as the necessary records for issuance of the vaccines to the intended beneficiaries was not availed. Under the circumstances, I could not confirm whether these stores items were utilised for their intended purpose. I have advised the Accounting Officer to follow up this matter establish their actual usage was duly authorized.

31.7 Dormant Bank Accounts A review of the bank accounts operated by the Ministry revealed that a total of 81 projects that ended continue to be reflected in the accounts with a total balance of Shs.3,817,742,075. This implies that at the expiry of the project periods, the accounts were not closed so as to transfer the balances outstanding on the projects to the relevant Donors or the UCF. For instance, a total of Shs.3,778,363,571 is reported as a balance on the Japanese Aid 71001 whose operations stopped in 436

2004. There is likelihood that accounts left open for long and not in use can be misused.

Although Management explained that they had since closed all dormant accounts, a confirmation to this effect was not available for audit review. I advised the Accounting officer to liaise with the Accountant General and have all the dormant Bank Accounts closed and all funds on these accounts transferred to the consolidated fund.

31.8 Domestic Arrears

The Ministry incurred a total of Shs.10,098,427,242 inunpaid commitments for goods and services consumed during the year under review.I explained to the Accounting Officer that the practice of incurring domestic arrears is contrary to the commitment control system where expenditures must be incurred from only the availed funds.I have advised the Accounting Officer to always ensure adherence to the commitment control system as advised by the Accountant General.

31.9 Assets in need of Urgent repairs at Mubuku and Doho Irrigation Schemes The Board of Survey established that a number of assets in form of buildings farm structures and equipment, motor cycles and fishing items were in a poor state and required repairs to enable them continue in operation. The buildings especially at Mubuku and Doho Irrigation Schemes are in poor condition with very old asbestos roofs and with no running water. In his response, the Accounting Officer explained that the two water schemes were under rehabilitation under funding from the African Development Bank through which the necessary renovations are to be undertaken. I await the outcome of this management commitment.

31.10 Compliance with Statutory Obligations (Income Tax and NSSF )

a. Long Outstanding Tax Obligations - Shs.14,700,883,570 It was noted that tax obligations due to Uganda Revenue Authority in form of Value Added Tax (VAT) and Withholding Tax (WHT) totalling to Shs.14,700,883,570 remained unpaid most of the taxes related to five projects details are shown below:- 437

Breakdown of the Tax due as per URA audit Client Tax Period Amount (Shs) Head Ministry of Agric a/c Kantley & VAT 2004-2007 217,144,457 Templer Ministry of Agric a/c Kantley & WHT 2004-2007 218,758,280 Templer Ministry of Agric/ ADB Projects VAT 2006-2008 13,426,605,450 Ministry of Agric a/c Armpass VAT 01/2006- 838,375,383 Technical Services 12/2010 Total 14,700,883,570

In his response, the Accounting Officer attributed the continued failure to settle the above tax obligations to lack of adequate funding. I have advised him to liaise with the Ministry of Finance Planning and Economic Development over this matter.

31.11 Compliance with PPDA Act and Regulations on Procurements

A review of the procurements undertaken by the Ministry revealed the following:-

a. Contract Management

Scrutiny of a sample of procurements undertaken by the Ministry revealed that contract managers were not appointed to oversee a number of contracts that were being executed at the Ministry, nor were contract implementation plans prepared in respect of these procurements. This was contrary to procurement guidelines. Failure to have contract managers and plans in place can lead to failure to monitor the progress of the contractors so as to identify potential snags early enough during contract implementation. I advised the Accounting Officer to ensure that procurement regulations are adhered to and Contract Managers appointed to ease the monitoring and tracking of progress of these contracts.

b. Procurement of Valley Dams for Five Districts - Us$.8,094,704.56 The Ministry contracted M/s Spencon Services Ltd to construct valley dams in the districts of Isingiro, Lyantonde, Rakai, Mubende and Kiboga at a cost of US$.8,094,704.56. By the end of December 2009, US$.7,830,273.33 had been paid to the contractor and the dams were completed in December 2009.

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It was noted that Shs.2,159,517,353 was paid during the financial year 2011/2012 as accrued interest on delayed payments. There was no detailed report or computations showing how the figure was arrived at or details regarding what caused the delays in settlement of the invoices. Such interest payments are considered nugatory since they could have been avoided if the contractors‘ invoices were settled in a timely manner.

In his response, the Accounting Officer explained that in the course of implementation of the contract, there were shortfalls in counterpart funds resulting into arrears and claims of interest.I advised the Accounting Officer to always endeavour to liaise with the necessary authorities to ensure that all contractors invoices are promptly paid.

31.12 Staffing Positions a. Vacant Posts

A review of the staff establishment as at March 2012 revealed that out of 683 approved positions, only 289 had been filled and the rest of the positions (394) were still vacant as shown below:- No. Directorates Positions Positions Positions %age Available Filled Vacant gaps 1 Finance & Admn. 124 85 39 2 Animal Resources 173 46 127 3 Crop Resources 154 78 76 4 Fisheries 124 39 85 5 Agric. Support Services 108 41 67 TOTAL 683 289 394 58 Such a high level of staffing gaps lead to work overload on the existing staff and also negatively impacts on the Ministry‘s‘ capacity to effectively deliver its mandate.

In his response, the Accounting officer explained that arising from the clearance granted to the Ministry in 2011, sixteen staff had been recruited between August 2012 to date. I advised the Accounting Officer to liaise with the Ministry of Public Service and that of Finance Planning and Economic Development in order to have the staffing gaps addressed.

31.13 Motor Vehicle Fleet Management 439

A review of the Ministry fixed assets register established that the ministry has a fleet of 78 motor vehicles. Of these vehicles, 39 are new, 17 are in need of repairs and 22 are grounded. The operational cost of maintaining this fleet of motor vehicles during the year amounted to Shs.2,293,634,632 of which Shs.1,845,646,826 was for fuel and Shs.447,987,806 for general service and maintenance.

Given that only half (39 vehicles out 78) are fully operational, this affects the effective implementation of Ministry activities. Management explained that the annual Board of Survey recommended a number of vehicles for disposal and arrangements were underway to initiate the disposal process. I advised the Accounting Officer to address the inefficiencies in the motor vehicle fleet by expediting the disposal process of the un-operational/grounded motor vehicles which appear to be more expensive to maintain.

31.14 Inspection of MAAIF Constituent Colleges and Training Institutes

Inspection of MAAIF training institutes and colleges was carried out and the following observations were noted:- a) Bukalasa Agricultural College Outdated Organizational Structure The organisation structure used by Bukalasa Agricultural College was last reviewed and approved nine years ago in 2003. Since that time, the college has undergone many structural changes with the phasing out of existing departments and creation of new ones namely: Foods and Nutrition, Agribusiness and Horticulture that have been added to the existing ones. This necessitated changes in the organisation structure. However it was observed that changes to the structure have been on an adhoc arrangement other than having the whole structure properly reviewed and approved. An outdated organization structure cannot allow the college to operate smoothly in the delivery of services.

In their response, Management concurred with the observation and promised to have it addressed. I have advised the Accounting Officer to liaise with the Ministry of Public Service to ensure that a new structure that takes into account of the current needs is put in place. 440

Placement of the College Bukalasa Agricultural College has undergone legislative placement disturbances causing placement movements between Ministry of Agriculture, Animal Industries and Fisheries (MAAIF) and Ministry of Education and Sports (MoES). Originally the College was placed under MAAIF; however, in the recent past it was transferred to MoES and now with the coming into force of the Business, Technical, Vocational Education And Training Act, 2008 the College reverted back to MAAIF - (Section 9 (1) (c) refers), but only with effect from 1st July, 2010. This Act was assented to on 9th July, 2008 and commenced on 18th July, 2008. The following events were observed and have serious implications to the running of the College:- Lack of handover reports from MAAIF to Ministry of Education and Vice-versa. Lack of technical direction and supervision by parent Ministry. Change of examining body from UNEB to Business, Technical, Vocational Education and Training – BTVET during the year under review, Uncertainty of ownership of assets by the college (Land / Buildings, Motor Vehicles, Plant & Machinery, Computers, Animals, Plants, and Poultry), Delayed payment of staff salaries with the resultant inconveniences.

These observations imply that management is not informed of the status of assets, liabilities and planned activities prior to the reverting back of the college back to MAAIF.

I advised the Accounting Officer to obtain an up to date status of the college operations in order to make informed decisions in supervision and monitoring of its activities; specifically, a hand over report from Ministry of Education and Sports should be compiled including a detailed listing of all College assets.

Lack of a Substantive College Principal and Deputy Principal The college is supposed to be administered through appointments of various personnel headed by a Principal and a Deputy Principal. At the time of the inspection, the post of the College Principal was not filled. The college may not be properly directed in terms of achievement of the long term objectives and even the day to day operations.

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Management explained that the Ministry was in the process of appointing a substantive college principal. I advised management to expedite the arrangements to have the positions in question filled without further delay. b) Fisheries Training Institute - Entebbe Poor Debt Management Policy The Institute‘s financial records show uncollected fees of Shs.28,947,600 out of which Shs.25,927,300 was for private students and Shs.3,020,300 for government sponsored students. Uncollected fees could be attributed to lack of a mechanism to enforce school fees payment. There was no evidence that the Institute management had a strategy for recovery of the fees in question. Failure to collect the fees due could negatively impact on the Institute cashflows and therefore its capacity to undertake planned activities.

The Institute should introduce strong control measures so that students do not default and that recoveries of the amounts unpaid are followed up accordingly.

Standing Imprests – Shs.64,032,500 Paragraph 227 of Treasury Accounting Instructions, stipulates that imprest holders will be appointed by Accounting Officers with the approval of the Accountant General by the issuance annually of Treasury Form 1010. The imprest will only be issued to provide cash for disbursements on public service which cannot conveniently be paid direct by an accounting officer.

A review of the expenditure records for the Institute revealed that Shs.64,032,500 was paid out of a project account and spent in a manner that qualified the expenditures as imprest and yet there was no imprest holder appointed as per the above requirements under the TAI. In addition, the accountabilities of the funds spent were not availed for audit verification. I advised the Institute Principal to account for these funds and stop the practice of paying such imprests without authority.

31.15 Markets and Agriculture Trade Improvement Project (MATIP)

a. Parallel Running of MATIP Project

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It was noted that the Ministry of Agriculture, Animal Industry and Fisheries provided in its annual approved estimates for the financial years 2009/2010, 2010/2011, 2011/2012 and 2012/2013 a total of Shs.870,000,000 under Budget Code Number 1088 to cater for Markets and Agriculture Trade Improvement Project (MATIP) activities. On the other hand, the Ministry of Local Government also provided for a total of Shs.70,392,996,000 over the same period for the same project under the same budget code number 1088, as detailed below:- Financial MAAIF MoLG Year Budget Budget Budget Amount Budget Amount Amount (shs) Amount (GOU) (Donor) (Total) 2009/2010 300,000,000 0 0 0 2010/2011 300,000,000 1,499,996,000 9,770,000,000 11,269,996,000 2011/2012 135,000,000 800,000,000 23,660,000,000 24,460,000,000 2012/2013 135,000,000 1,000,000,000 33,663,000,000 34,663,000,000 Total 870,000,000 3,299,996,000 67,093,000,000 70,392,996,000

Further review of project documentation revealed that the loan agreement between the Government of Uganda and African Development Fund (ADF) with the supporting Aide Memoire mandated the Ministry of Local Government to implement the entire project and prohibited creation of parallel structures for project coordination. There was no relevant authority mandating the Ministry of Agriculture, Animal Industry and Fisheries to create a project implementation team in the Ministry other than a focal point person that would liaise with the Programme Facilitation Team (PFT) in the Ministry of Local Government. The following anomalies were further noted:-

The circumstances under which the Ministry of Finance, Planning and Economic Development (MoFPED) provided funding for a duplicate project under MAAIF were not provided. The budget procedures appear to have been flouted by including funding estimates for MATIP under MAAIF project with no documented concept paper and no work plan; this was irregular. There were neither systematically filed expenditure documents nor financial statements for the project availed for audit. There were neither activity reports nor accountability documents for the project availed for review. 443

Relevant authority from Accountant General to open a project bank account was not availed for review.

In his response, the Accounting Officer explained that these funds were released and received for this project component and were accordingly applied to the purpose and activities for which it was intended. I however find this explanation not satisfactory, given the observations indicated above, more specifically, the prohibition of creation of a parallel structure.

I have advised the Accounting Officer to harmonise the current project arrangements with his counterpart in the Ministry of Local Government and ensure that there is no duplication of activities and funding for the same project.

b. Expenditure under MATIP – Shs.521,733,000 It was noted that expenditures totalling to Shs.521,733,000 for the three financial years 2010, 2011 and 2012 had been made by the Ministry in form of advances to staff. These amounts had not been accounted for by the time of audit. Given that the whole project arrangement was irregularly created, this expenditure may therefore be irregular.

I have advised the Accounting Officer to liaise with his counterpart in Ministry of Local Government, to establish whether there was no misuse.

31.16 CREATION OF SUSTAINABLE TSETSE AND TRYPANOSOMIASIS FREE AREAS (COCTU –STATFA) PROJECT

(a) Compliance with financing agreement provisions and GoU financial regulations It was noted that management had in all material respects complied with the covenants contained in the financing agreement and the Government of Uganda financial regulations except for the matter below;

i) GoU Counterpart funds According to Project work-plan and budget, the Government of Uganda was supposed to contribute a total of Shs.3,829,541,291 (40% of the budget) for the 444

year under review. However, only Shs.2,192,987,576 was released leading to a shortfall of Shs.1,636,553,715. This affected the implementation of the project activities.

Management explained that the project was to continue receiving Government funding in the financial year 2012/2013.

I urged management to liaise with the responsible authorities to ensure that expected GoU funding is released to the project timely.

(b) General standard of accounting and internal control It was noted that management had instituted adequate controls for management of project resources except for the following reportable matter; i) Unimplemented contract Management signed a contract with M/s Appropriate Application Limited for the procurement of 5 units of fogging equipment and 1000 litres of insecticide worth USD16,475 as per contract agreement dated 8th October, 2011. However, this has not been implemented.

Management explained that the time for the supplier to deliver and processing of payment was limited due to late signing of the contract vis-à-vis ADB‘s deadline of December 2011.

I advised management to ensure that contracts are undertaken with consideration of funding deadlines to avoid consequences of breaches of contracts.

(c) Status of project implementation i) Repair of NaLIRRI Insectary The Ministry (Project) signed an agreement with Pioneer Construction Ltd on 29th March, 2011 for the repair of the insectary owned by National Livestock Research Institute Tororo at a contract sum of Shs.551,087,164. The contract was originally supposed to last four months but an extension of two months was granted by the project on the request of the contractor.

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At the time of audit in November 2012, the works had been completed and the site handed over to the Ministry but management of the project had not signed a Memorandum of Understanding (MoU) with NaLIRRI spelling out how the insectary was to be managed (Terms and Conditions).

Management explained that the final draft of the MOU awaits discussion and endorsement by the concerned parties. I advised project management to expedite the process. ii) Delayed and slow project implementation The project agreement was signed on 19th May 2005 and the activities of the project were expected to begin immediately. However, the initial funding of the project was received in August 2006, more than a year later. Further to this, 64% of the project was implemented in the last year of the project life span. As a result of this, a loan of 3,450,000 UA equivalent of USD5,000,000 meant for eradication of tsetse flies was cancelled because the activity could not be implemented due to the slow implementation of the other project activities. This denied the delivery of the planned services from the project to the country.

Management explained that a follow-up on project ―Uganda Tsetse and Trypanosomiasis Eradication Project‖ has been designed to cater for the gaps/activities like aerial spraying and the sterile insect technique which were not implemented.

I advised that project activities are implemented in accordance with the plans to avoid further future cancellations of funding.

(d) General Implementation of Work Plan and Activity Components An analysis of performance of the project against the overall planned project activities over its entire duration indicated that some planned activities were not implemented and the corresponding outputs not achieved as shown in the table below: Source Activity Quantity Cost Management response USD ADB Procurement of 1 175,000 Following the review mission services for of March 2010, funds were 446

conducting EIA cancelled meant for tsetse suppression using Aerial spraying; the bank did not approve the procurement of the service to conduct the environmental impact assessment. ADB Procurement of Tally 1 3,000 The project used the software Software and user from the sister project NLPIP training ADB Procurement of 1 1 150,000 The time period could not motor boat allow this procurement to proceed. The project management team in consultation with the ADB task Manager re allocated the funds to community tsetse suppression activities.

Management is advised to ensure that all planned activities are always undertaken and completed as per approved project document and work plans.

31.17 VEGETABLE OIL DEVELOPMENT PROJECT 1 (VODP 1)

(a) Compliance with financing agreement provisions and GOU financial regulations i) Unutilized Loan Recoveries Article 2 (b) of the tripartite agreement 2006 provides for Government to establish the scheme and modalities for advance financing for development of the small holders/out growers‘ plots and recovery of such finance, and assign trustees to administer it. In addition, Article 3 (h), of the same agreement requires the trustee to refund to the Government the resources of the scheme repaid by the smallholders and out growers within one year of receipt, or utilize such resources as may otherwise be agreed by Government of Uganda and IFAD.

It was however noted that at the time of audit Shs.894,590,142 from loans had been recovered and kept on a fixed deposit account and not refunded to Government or utilized contrary to the tripartite agreement 2006.

Management responded that PMU and Ministry of Agriculture Animal Industry Fisheries (MAAIF) are yet to discuss and agree with Ministry of Finance Planning

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and Economic Development (MoFPED) on the procedures of utilizing these funds to finance phase 2 of the project.

I advised management to expedite development of procedures to enable utilization of the funds. ii) Oil Palm Seedlings According to the project proposal, 3,500 hectares of land were to be planted with oil palm seedlings under VODP 1. However, by the time of project closure, 3,366 ha had been planted with seedlings. This implies that the planned benefits from the project were not fully realized despite the funding availed.

Management explained that the failure to cover all the 3500 hectares during the project life was due to the delay in having on board of smallholder farmers which had now been ironed out and the rest of the acreage will be covered under VODP2.

The results of the above action are awaited.

(b) General standards of accounting and internal controls i) Lack of Board of Survey Records Finance and Accounting Regulations require that a board of survey be carried out at the end or closure of every financial year to provide the status of the account balances and the status of the assets owned by the entity, their locations and whether they should be disposed off or not. However, it was noted that the activity was not carried out. Management explained that the board of survey exercise was being undertaken.

I advised management that in future the activity should be undertaken timely. ii) Un-surveyed/Untitled Land Kalangala Oil Palm Growers Trust-Secretariat owns 2 acres of land where the office building was constructed. However, it was noted that the land lacks a title. This poses a risk of the land being encroached on by private developers.

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Management explained that the process of acquiring a land title was ongoing and expected to be completed within the year 2013. I advised the Accounting Officer to expedite the process of securing a land title and also fence off the land.

(c) Status of project implementation i) Project cash and bank balances By the time of its closure, the Project had balances of funds totaling to Shs.3,955,512,722 on its accounts (IFAD Special Account – Shs.22,451,285 and Project operations account – Shs.3,933,061,437). Management explained that the funds are earmarked for land purchase/acquisition and the process was ongoing under VODP Phase II. The outcome of the above process is awaited.

31.18 VEGETABLE OIL DEVELOPMENT PROJECT II (VODP II)

(a) Compliance with financing agreement provisions and GOU financial regulations i) Project budget performance During the financial year, Ministry of Agriculture, Animal Industry and Fisheries planned to contribute a total of Shs.2,446,122,999 as GoU counterpart funding to the project. However, total releases amounted to Shs.1,262,712,889 (51.6%) leading to a deficit of Shs.1,183,410,110. It was also noted that out of the released amount, the project managed to absorb only Shs.0.45 bn (38%), implying that the absorption capacity of the project was low.

Management explained that the low absorption capacity was due to delays in recruiting staff of the Project Management Unit (PMU). In addition, GoU funds were meant for land purchase whose process was not completed during the year under audit.

I urged the Accounting Officer to ensure that the activities of the project are implemented in line with the timelines.

ii) Delays in Project commencement The project was approved by IFAD in April 2010 and by Parliament on 29th September 2010 and is expected to close on the 30th June, 2018. Although the

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loan became effective in October 2010, project staff were recruited in May 2012 resulting in an 18 months delay. The level of performance exposes the GOU to excessive commitment fees and failure to undertake project activities within the stipulated time.

I advised management to expedite the implementation of project activities in order to avoid extra administrative costs arising from possible project extension. iii) Agronomic Practices According to the financing agreement, farmers are supposed to access seedlings from Kalangala Oil Palm Growers Trust (KOPGT) and the number of seedlings acquired provides the basis on which the loans are advanced to farmers. It was however noted that some farmers had started growing palms from self germinated seedlings. Use of such seedlings may result in poor production and poor oil extraction rate.

It was also noted that most farmers had resorted to use of agrochemicals particularly herbicides to control weeds in their plantations as a way of reducing labour costs. Incorrect use of these herbicides can be dangerous to human health and can cause damage to the palms.

Management promised to sensitize the farmers regarding the non-use of self germinated seedlings and safe use of chemicals.

I await the outcome of management efforts.

iv) Fertilizers for Farmers in Commercial Stage According to the operations manual, farmers who have passed the 5 year development stage are not entitled to loan funds for land maintenance and fertilizers. It was however noted that the Trust has continued to provide loans to farmers who are even in the sixth and subsequent years. This contravenes the guidelines upon which this practice was initiated and may result into misuse of loanable funds.

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Management explained that it was agreed with the IFAD mission that the farmers be advanced fertilizer loans up to year six and thereafter, a mechanism be put in place through which the farmers would meet the cost of fertilizers from part of the returns from oil palm fruit sales. I advised the Accounting Officer to ensure that the mechanism through which farmers would meet the cost of the fertilizers is developed and instituted.

(b) General standard of accounting and internal control A review of the following areas was carried out:- Accounting system and policies. Book keeping. Management and control of both bank and cash accounts. Purchases and payments. Fixed assets management. It was noted that management‘s control structure environment, accounting system and policies and control procedures were generally adequate to ensure prudent use of, and accountability of the project funds.

(c) Status of project implementation i) Implementation of Planned Activities A review of the implementation of planned activities was undertaken and it was noted that the activities noted below were not fully implemented. Planned activity Management response To construct 250 km of road net work A total of 240 km of road network has been constructed. Another 10 kms is being constructed and will be completed by mid January 2013. The delay was due to very heavy rains that affected progress. The procurement of four additional The contract for the dump trucks has trucks for ffbs collection. been finalized. Delivery of the trucks is expected by 31st December 2012.

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I urged the Accounting Officer to ensure that the activities are properly accomplished in accordance with work plans and funding.

32.0 NATIONAL AGRICULTURAL RESEARCH ORGANISATION

32.1 Lack of land titles and land encroachment It was observed that some of the land where the research institutions are located lacked titles. Further, during inspection it was noted that several huge chunks of land in various NARO institutes had been encroached on for settlement, crop growing, commercial activities like brick making, and in some cases the encroachers were illegally selling the land to other individuals. Details in table below:

Institute Status of Land Mbarara About 18.7 hectares of land have been heavily encroached upon by private developers who purportedly bought this land from Mbarara District Land board without consultation with Mbarara stock farm.

The Land Board in a letter dated 12th November 2010 directed the occupants to vacate the said land but to date the encroachers have not vacated. Abi The institute‘s land had been encroached on by private developers; activities like brick laying, tree planting and cultivation are being carried on. Kachwekano The institutes‘ land is not in its names but in the names of Uganda Land Commission. No evidence was availed to confirm ownership of Bugongi and Karengyere stations. Kitgum satellite station (Ngetta) 9 plots of Kitgum station had been allocated to private developers by the District Land Board and a number of structures had been erected on the same land, negating the intended purpose of the center for the benefit of the farming communities in the area. Rwebitaba At the time of audit, 3 (three) entities; FINCA SEEDS, Uganda CATSBY TRUST and Makerere University, were operating from the institute and had signed agreements with Kyembo Datic- Kabarore District as the landlord and were paying rent to Kabalore district. The district had denied the NARO staff officer accommodation and NARO staff including the Director and the Finance Officer were operating from their rooms of residence. Ssenge hill The organization had a land wrangle with the family of the (Wakiso District) late prominent individual over the piece of land located measuring 135.5 acres. The organization leased the land from the Uganda Land Commission for 99 years effective 1951. However after 57 years on 7th May, 2008, the family of the late wrote to NARO informing them that they had obtained a ―re-entry‖ into the land after the ULC had failed to pay rent for 30 years totaling to Shs.6.6 billion. In January 2012, the family hired bailiffs to evict NARO from the property and in the process, structures and high quality disease resistant crops under research worth Shs.43,770,000 were destroyed. The research was being done in collaboration with 452

International Centre for Tropical Agriculture (CIAT).

Kigumba The Organization owns experimental land on Plot 1 &2 Kibanda County block 9 measuring 1735 acres. The boundaries of this land were opened in 2008 and the Land title is in the names of Uganda Land Commission, user to be restricted to NARO. NARO signed an agreement with Coffee Development Organization (CDO) in February 2003 for a period of five years under which CDO was supposed to use 1000 acres of the land at a cost of Shs 2000 per acre per year, focusing on Cotton production. On 5th May 2006 CDO requested to change the user of the leased land to FICA for the remaining period and NARO consented. Although the occupancy period was supposed to end on 28th February 2008 FICA was still occupying the land by the time of audit, and the focus had changed to maize production. This was diversion of research land for other activities which may affect the achievement of the organization objectives. Kigumba (Prison Department) 50 Acres of the land at Kigumba are occupied by Prisons department. According to the OC Prisons, the Prisons department occupied this land in the early 1990‘s. The department constructed permanent buildings like cells for inmates on the land. This is in addition to utilizing NARO buildings. There is no MOU between NARO and the Prisons Department specifying the conditions of occupancy. In absence of an MOU, I was unable to establish the terms under which the Prisons Department occupied this land. Management admitted to the shortcoming and promised to address it.

The Accounting Officer explained that legal steps had been undertaken in some instances while in others the process of formalizing the land titles was being undertaken.

I await the outcome of management efforts.

32.2 Domestic arrears The entity incurred new outstanding commitments of Shs.388,182,080 in addition to outstanding commitments from previous years of Shs.520,902,730. The Accounting Officer explained that a provision to pay the arrears which arose from contributions to international organizations had been put in the budget but the releases on the development budget were reduced.

I advised the Accounting Officer to ensure that the arrears are paid to avoid litigation costs and also adhere to the commitment control system.

32.3 Staff turnover

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There was increased staff turnover as a number of staff had resigned and gone for other job opportunities. Some of the staff leaving the organisation appear to be of high caliber who may not be easily replaceable. Details are in table below:

Post Station 1 Information communication officer Namulonge 2 Research Officer Bulindi 3 Director Quality Assurance NAROSEC 4 Research Officer Mukono Zardi 5 M&E Officer EAAP/NAROSEC 7 Animal Production Technician Bulindi Zardi 8 Animal Health Scientist Mbarara Zardi 10 Research Officer Kawanda 11 Internal Auditor Buginyanya

The Accounting Officer explained that the main reason for staff departure appears to be greener pastures.

I urged the Accounting Officer to devise means of retaining staff in the organisation.

32.4 Irregularities in procurements (a) Failure to appoint contract managers Scrutiny of selected procurement files for funds amounting to Shs.618,906,961 and procurement payments amounting to Shs.287,911,664 revealed that no contract managers were appointed and there were no contract implementation plans prepared contrary to Section 259(1) and S.258(3) of the PPDA regulations. In addition, payments were made without certificates of works.

Weaknesses in contract management may lead to poor contract performance.

The Accounting Officer responded that the recommendation had been noted and will be implemented accordingly. I advised the Accounting Officer to always comply with the procurement laws to ensure value for money.

32.5 Funds not accounted for

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Scrutiny of records at NAROSEC and her institutes revealed that a sum of Shs.58,506,426 was advanced to various officers to carry out specific activities but the funds remained unaccounted for by the end of the financial year.

The Accounting Officer explained that the delay in providing accountability was caused by activities that were still ongoing at the end of the financial year.

I advised the Accounting Officer that the funds that remained unaccounted for should be recovered from the concerned officers and to always ensure that accountability is provided within the time required by regulations.

32.6 Audit Inspections (a) Outstanding rent arrears Shs.49,124,000 An audit inspection of NaRL- Kawanda and NAFIRRI Jinja NARO institutes revealed that rent payable was not agreed upon with the help of the Government valuer, no tenancy agreements were signed and tenants had arrears of Shs.8,085,000 and Shs.41,039,000 respectively totaling to Shs.49,124,000. Management did not adhere to requirements of the Standing Orders in the billing and collection of rent from civil servants.

The Accounting Officer explained that a housing committee was put in place to determine the rent payable but the organisation was going to engage the services of a government valuer to validate the rates.

I urged the Accounting Officer to put in place proper mechanisms aimed at ensuring that the rental collection is streamlined.

(b) Vacant posts An audit inspection of the Public Agricultural Research Institutes revealed that a number of vacancies were still not filled at the time of audit. Failure to fill staffing gaps for a long time may impact negatively on the institutes‘ capacity to deliver on its mandate.

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The Accounting Officer explained that the organisation has planned to fill the vacant postsin a phased manner and the process is expected to be completed by 2014.The outcome is awaited.

(c) Lack of adequate transport at Abi It was noted that the institute vehicles lacked routine maintenance as a result, a number of the institute‘s vehicles were not in good mechanical condition. This affected transport at the institute. Lack of transport means no meaningful research can be carried out since research involves moving to and from various stations. Collection of data, inspection and monitoring of projects becomes difficult.

The Accounting Officer explained that under ATAAS and EAAP projects, the ZARDI is expected to get four new vehicles which will address the transport problem.

I urged the Accounting Officer to ensure that the institute is provided with adequate transport for the smooth running of its activities, especially research.

(d) Lack of clear policy/guideline regarding culling of animals at Mbarara Zardi An audit inspection of Mbarara Zardi revealed that a number of animals especially cows were dying of old age when they should have been sold off. As indicated in my previous report, there is still no policy in place regarding when the old animals should be sold off to enhance proper breeding and to avoid costs relating to treatment, grazing, and natural death and to avoid further loss of value.

In absence of a clear policy regarding the sale, the above costs cannot be avoided.

The Accounting Officer explained that the organisation will put in place an appropriate policy within the financial year 2013/2014. The action is awaited.

(e) Status of the calf barn/milking palour (Bulindi)

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The building which used to house the calves and which was also used as a milking parlor collapsed. Milking is done in the crush and calves housed in the deep tank.This is risky for the calves as well as those milking.

The Accounting Officer explained that the structure had been partially rehabilitated into a semi-permanent structure pending availability of funds.

I urged the Accounting Officer to make efforts to ensure that the structure is reconstructed for security of the calves and also to provide a good example to the farmers who are supposed to learn from the demonstrations.

(f) Management committee meetings NAROSEC Act requires top management in every institute to hold at least 4 management committee meetings where strategic and operational decisions are discussed, evaluated and agreed. The top management meetings also act as performance monitoring and evaluation tools for the entities. However a review of various institutions during inspection revealed that Bulindi, Kachwekano, Rwebitaba and Ngetta did not hold the statutory management committee meetings.

Failure to hold the statutory management committee meetings impacts negatively on the proper running of the institutes. Management explained that budgetary shortfalls were the cause of the failure to hold the meetings. The Accounting Officer further explained that the term of office of the management committees had expired.

I urged the Accounting Officer to ensure that new committees are appointed for the smooth running of the Institutes.

(g) Kawanda Procurement of Associated Engineering Surveyors

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Shs.27,000,000 was paid to a surveying company for surveying and production of land title in the names of NARL-Kawanda. The procurement procedure of the Surveyors was not clearly spelt out.

The Accounting Officer explained that this was an on-going activity and the procurement lapses would be streamlined.The action is awaited.

32.7 EAST AFRICAN AGRICULTURAL PRODUCTIVITY PROJECT 32.7.1 Compliance with financing Agreement Provisions and GOU financial regulations A review was carried out on the project compliance with the credit agreement provision 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;

(a) Irregular payments The credit agreement does not provide for payment of salaries, remuneration and allowances to civil servants in respect of project activities. However, it was noted that US$20,000 was paid to the National Coordinator Cassava Regional Centre of Excellence and Head cassava Program at National Crops Resources Research Institute (NaCRRI), Namulonge at a monthly rate of US$1,500 and US$1,000 respectively for the period January, 2011 to April, 2011.

Although the Director General NARO communicated to the Directors regarding the refund of the said amount to the project, at the time of audit only US$ 5,726.61 had been recovered leaving a balance of US$14,273.39 still outstanding.

Management explained that efforts to recover the funds have been made and during the next financial year, deductions will be stepped up to recover all the funds in the year 2013.

I advised the Accounting Officer to ensure that the funds are recovered.

32.7.2 General standard of accounting and internal control

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A review was carried out of the project system of financial management and the following matter was observed;

(a) Delays in procurements

It was noted that whereas the implementing entity maintains complete and well organized procurement files, the procurement lead times are longer than recommended, with major delays experienced at evaluation of bids. Details in table below:

Category Procurement Expected Actual time Variance Method time used by NARO Procurement Competitive bidding 180 252 72 lead time Shopping/quotations 60 221 161 Evaluation Time Competitive bidding 30 122 92 Shopping/quotations 10 100 90

Delays in the procurement process hinder the timely implementation of project activities.

Management explained that delays in procurements have mainly risen from the detailed procurement process requiring for specifications of equipment, mandatory tendering periods and seeking of No Objections from the World Bank.

Management of the project was urged to ensure that delays are minimized so that the required procurements are done within the project period.

32.7.3 Status of project implementation A review of the status of project implementation revealed the following matters; (a) Project Performance The project was approved by the Bank on 3rd February, 2010 and passed by Parliament of Uganda on 29th November 2010. Subsequently the project was launched on 23rd March 2011. By the time of the audit about 2 years and 6 months after project approval, only US Dollars 8,331,488 which is 28% of the total project amount of US Dollars 30,000,000 had been disbursed to the project. Of the amount disbursed, only US Dollars 2,747,343.2 which is 9% of the total project amount had been spent.

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In addition, for the period under review the budget only 25% of the budget had been utilized as shown in the table below;

Compon Details Budgeted Actual Variance ent Strengthe Support to Research 828,000 223,128.36 604,871.64 ning the Infrastructure Regional Capacity building 189,600 5,940.3 183,659.7 Centre Strengthening Information 15,000 15,000 communication Sustainability 15,000 - 15,000 Sub Total 1,047,600 229,068.66 818,531.34 Support Development of improved 693,814 308,847.15 384,966.15 to Technologies Research Development of 375,000 37,629.27 337,870.73 dissemination technologies Participation in Regional research Sub Total 1,069,314 346,477.12 722,836.88 Improved Improving availability of 1,273,500 110,961.51 1,162,538.49 seeds and seeds and Livestock stocking breeding materials Support to business 106,442 106,442 development Support for Regionalization 352,450 114,294.23 238,155.77 of seed industry Sub Total 1,732,392 225,255.74 1,507,136.26 Project Support to project 151,200 183,698.96 (32,498.96) coordina management activities tion Support to monitoring and 30,000 13,518.81 16,481.19 evaluation Support to regional 40,000 25,113.02 14,886.98 Coordination ( ASARECA) Sub total 221,200 222,330.79 Grand 4,070,506 1,023,132.31 Total

This level of performance exposes the GOU to excessive commitment fees, and extra administrative costs in case of project extension.

Management attributed the delays to substantial amount of time spent on the preparations for project implementation.In addition, management indicated that strategies to ensure timely implementation of project activities, submission of reports and a schedule for fund disbursement to the various implementing units have been put in place.

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Management was urged to ensure that project planned activities are implemented timely.

(b) Funds not utilized by Institutes In order to implement the activities of the project, Research Institutes were advanced funds. A review of the expenditure records revealed that a total of Shs.1,152,376,500 equivalent to US Dollars 506,373.02remained unutilized as summarized below:

Agency Amount (Ug.shs) Exchange rate BugiZARDI 36,292,947 2321.87 15,630.9 NARL 109,848,661 2399 45,789.35 NALIRRI 77,013,470 2608.26 29,526.76 NaCRRI-RICE 100,911,610 2374.88 42,491.25 NaCCRI- 194,567,750 2374.88 105,826.3 CASSAVA NAGRC &DB 23,817,541 2315.72 10,285.16 NAADS 524,284,431 2374.88 220,762.49 MAAIF – 64,462,860 2374.88 27,143.63 SEEDS MAAIF DAPM 21,177,230 2374.88 8,917.18 TOTAL 1,152,376,500 506,373.02

Management explained that they have identified constraints and developed solutions to the smooth implementation of the Project.

I advised management to strengthen monitoring of the activities of the Institutes with more emphasis on ensuring that project activities are undertaken on a timely basis.

32.8 AGRICULTURAL TECHNOLOGY AND AGRIBUSINESS ADVISORY SERVICES PROJECT (ATAAS) 32.8.1 Compliance with financing agreement provisions and GOU financial regulations A review was carried out on the project compliance with the credit agreement provision 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;

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(a) Diversion of Funds Project funds should be spent for only the intended or budgeted activities. However, it was noted that Shs.28,032,000in respect of the project funds in various NARO institutes were used to finance activities that could not be traced in the work plan/budget and were not related to the project activities

Financing of ineligible expenditures under the project is a diversion of funds and can lead to cancellation of the funding.

Management of the project explained that the expenditure had been erroneously paid from IDA-ATAAS funds and a refund will be made from GOU counter-part funding. The action is awaited.

32.8.2 General standard of accounting and internal control A review was carried out of the project system of financial management and the following matter was observed;

(a) Unaccounted for Balances at the Institutes Shs.7,788,115,625 was released by the project and transferred to various Institutes for the implementation of activities of the project in the period. However it was noted that Shs.3,983,750,170 had not been accounted for by the respective Institutes at the end of the period.

Management explained that the funds were disbursed in May 2012 and activities were still on-going at the time of the audit.

I advised the Accounting Officer to ensure that the funds are accounted for as required in the regulations.

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32.8.3 Status of project implementation A review of the status of project implementation revealed the following matter; (a) Budget Performance During the audit of the period under review, it was noted that the project budgeted for a total of US Dollars 12,024,413.67. However, only US Dollars 6,996,860.5 was received representing 58 % performance as indicated in the table below:- Details Budgeted Actual Variance Component 1: Developing 9,491,815.41 5,760,327.03 3,731,488.38 Agricultural Technologies and Strengthening NARS Component 2: Enhancing 727,616.23 380,431.97 347,184.27 Partnership between Agricultural Research Advisory

Services and other stake holders Component 5: Program 1,804,982.03 856,101.06 948,880.97 management 12,024,413.67 6,996,860.05 5,027,553.61

In addition, a review of the budget records for the project revealed that that some planned activities for the project were not implemented during the period under review. There is a risk that project objectives may not be achieved within the stipulated time.

Management explained that funds for Project activities were released late in the review period.I advised management to liaise with the funding entity to ensure that funding is provided timely.

33.0 NATIONAL AGRICULTURAL ADVISORY SERVICES (NAADS)

33.1 NAADS Secretariat A review was conducted on the general standards of accounting and internal controls at the NAADS secretariat. A summary of the key issues is presented below

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and the details are contained in the management letter attached as an appendix to the report.

33.2 Personnel matters (a) Staff terms and conditions of service It was noted that there was no official approved human resource policy manual that details terms and conditions of service for the NAADS staff. In absence of this policy manual, there is no guidebook for managerial and supervisory staff, and all employees of NAADS that outlines its policy toward the various phases of the employer-employee relationship.

It is recommended that written human resource policies be developed and approved by the board of directors in order to ensure that employees feel a deeper understanding of their role in the organization.

(b) Inappropriate clauses in the Employment Contract A review of employment contracts revealed inappropriate clauses in the contracts. For instance, in the interpretation, section (b) states that ―where the provisions of the employment contract on one hand and the provisions of the staff regulations on corresponding clauses on the hand conflict, the provisions of the employment contract shall apply‖.

The interpretation makes the employment contract superior to staff regulations. Staff regulations should be superior to the employment contracts if consistency and uniformity is to be ensured in the organization. It is recommended that the clauses in the employment contracts be revisited to ensure consistency in application of staff rules and guidelines.

33.3 Procurement (a) Purchase of a new telephone billing system It was noted that management purchased a new telephone billing system at a cost of Shs.66,187,970 under the national shopping procurement method. However, the expenditure was not provided for in the procurement plan.

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Further, the successful bidder quoted Shs.14,187,970 over and above the approved amounts of Shs.52,000,000 and the user department did not indicate from which vote funds would be obtained to finance the difference. This could have led to diversion of funds.

It was recommended that expenditure should be incurred in line with approved budgets. Management should avoid diversion of funds without seeking for proper authorization.

(b) Supply of langstroth beehives The following irregularities were noted in the procurement of langstroth beehives: The budget year indicated on the PP Form is 2010/2011, an indication that it was not implemented within the right accounting period. The supplier‘s company profile was submitted to NAADS and attached on file prior to advertising the bid and indeed the profile had a note dated 08-04-2011 on top instructing APS/O to make a follow-up and indicated that the above was a possible supplier. There was an indication of a predetermined supplier.

I advised management to adhere to the procurement guidelines to ensure competition and value for money.

(c) Contracts not accomplished It was noted that a company that was contracted to transport cassava cuttings did not accomplish its contract with NAADS for transportation of 1,200 bags of cassava cuttings to Amuru district. It had earlier been agreed that the company transports the cuttings at a fee of Shs.12,000,000. However, out of the 1,200bags, only 435 bags of cassava cuttings were transported at a cost of Shs.4,274,000.

There was no evidence on file indicating that the contractor was tasked by management to execute the contract with options of invoking other provisions of the contact in case of failure.

Management should ensure that contracts are implemented in accordance with the agreed clauses.

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(d) Insufficient documentation attached on procurement transactions It was noted that for delegated procurements there was insufficient documentation to support the procurements. This documentation included minutes of procurement committee meetings, bid evaluation reports, acceptance letters and in some cases distribution lists. In absence of such documentation the procurements were undertaken irregularly.

All payment transactions should always be sufficiently supported prior to making payments to ensure compliance with the procurement procedures.

33.4 Expenditure (a) Expenditures inadequately accounted for Expenditure to the tune of Shs.17,493,750 was inadequately accounted for. There was no evidence that the funds were used for the purposes for which they were requisitioned for. It is recommended that the funds be accounted for or refunds be effected from the concerned officers.

(b) EFT payments lacking 3rd party support documents It was noted that all EFT payment vouchers lacked 3rd party supporting documents such as receipts or acknowledgement of receipts on completion of a payment transaction.

Although payments are made to individual accounts there should be means through which recipients of funds must acknowledge receipt of those funds to ease the process of accountability and any further verification that may be conducted from time to time. Management is advised to follow up with the payees for acknowledgements of receipt.

33.5 Missing Activity reports It was noted that in some instances activity reports or back to office reports were not prepared. Such reports would contain information on the implementation of the program that would be useful to address any challenges identified.

I advised management to ensure the reports are prepared to support activities undertaken. 466

33.6 Expenditure not budgeted for It was noted that some expenditure incurred by NAADS in connection with delegated procurements was not provided for in the financial year budget for the period ended 30 June 2012. For a sample undertaken I noted expenditure amounting to Shs.41,608,444 that had not been provided for in the procurement plan.

The practice affects implementation of planned activities.

Management should ensure activities are implemented according to workplan and incase of deviations authority should be obtained and documented.

33.7 Late Filing of Returns (URA & NSSF ) It was noted that the secretariat had delays in filing returns in respect of PAYE and NSSF. During the period under review delayed returns in this respect amounted to Shs.416,013,585. There was non-compliance with the provisions of the NSSF Act and the Income Tax Act, 1997.

Management should comply with the provisions of the law in order to avoid unnecessary penalties and fines for non compliance.

33.8 Wrong Account Classification It was noted that in certain instances there was misclassification of expenditure. Misclassification of expenditure leads to misstatement of account balances and financial statements hence misleading the users of financial statements. It is recommended that appropriate checks be instituted by management to ensure proper classification of expenditure.

33.9 Discrepancies in Income Figures It was noted that the bank statement figure of Shs.13,450,719,314 in relation to income received was not in agreement with the release form from MoFPED of Shs.13,759,116,000 thereby creating a variance of Shs.308,396,686. No explanation was provided for this variance.

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It is recommended that income figures be reviewed and crosschecked to ensure that all income due to the entity is received and recorded in the financial statements.

33.10 Payment of Rent to Rutungu Investments It was noted that rent payment to a company of $ 167,116 was effected late and as a consequence the exchange rate rose from Shs.2,661.25 to Shs.2,810.30 resulting into additional funds to a tune of Shs.27,615,919.

Late payment of rent resulted into a financial loss to the organization to the tune of Shs.27,615,919.

It was recommended that management critically studies movement in foreign currencies and takes favorable opportunities while making payments in foreign currency denominations to minimize financial loss.

33.11 District Unreconciled Balances Shs.3,957,237,000 reported under expenditure was classified as districts‘ unreconciled balances. This amount remained unaccounted for at the close of the accounting period as returns had not been received from all the districts.

I was therefore unable to verify the unreconciled amount. I advise management to follow up on the accountability and ensure the amounts are fully reconciled.

33.12 Delay in preparation of consolidated financial statements It is the responsibility of the NAADS directors to prepare financial statements for the organization. In my previous year report, I indicated that NAADS did not prepare consolidated financial statements for the period ended 30 June 2011 in time. I also noted that NAADS Management was unable to prepare timely consolidated financial statements even in the current year.

I recommend that the Board of Directors of NAADS prepares consolidated financial statements in time as mandated in the NAADS Act.

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33.13 Observations from Local Governments A review was carried out on the programmes system of accounting and record keeping at the districts and sub counties. The following matters from the districts have been observed. Details are contained in the management letter attached as an appendix to this report.

Non-compliance with co-funding obligations Districts, other local authorities and farmers groups in some cases did not comply with the co-funding obligation. The total co-funding shortfall was Shs 1,991,385,655. For the districts, there was a shortfall in co-funding to a tune of Shs.384,529,426while for sub counties and Farmers‘ groups, the shortfall was Shs.1,606,856,229. Due to this short fall, implementation of NAADS activities was negatively affected. Programme Management should ensure that the co-funding obligation is complied with.

Non-remittance of taxes Various districts and sub counties did not deduct, under-deducted or did not remit statutory taxes such as withholding tax and Pay As You Earn (PAYE). Non – compliance with the tax law may result into penalties thereby increasing the implementation costs of the Programme. Programme management should ensure that the taxes are correctly computed and remitted within the required statutory timeframe to avoid attracting penalties.

Delay of release of programme funds to sub counties I noted that in several instances, districts delayed to release Programme funds to sub counties for programme implementation, and in some instances partial releases were observed. There was a one to four months‘ delay in release of funds. Implementation of the programme activities within the required timeframe becomes difficult under the circumstances. The districts should ensure timely and full release of funds to the respective sub counties to enable timely implementation of programme activities.

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Failure to implement approved work plan Alebtong, Amuru, Nebbi and Pader districts did not comply with the annual work plan during the implementation of some of the activities. Failure to implement work plans within the budget year may have budget implications. Delay in implementing some of the activities may have impact on the achievement of the overall wok plan for the budget year. Programme management should ensure that all expenditure procedures are strictly adhered to throughout the financial period.

Non-compliance with procurement procedures I noted that various districts and sub counties did not comply with the required procurement procedures during the implementation of the activities. Procurement files, reports and plans were unavailable. NAADS procurement guidelines and funding agreements were not complied with. Failure to observe procurement procedures may put into question whether the programme received value for money. NAADS management should ensure that all procurement procedures are strictly adhered to throughout the financial period.

Unauthorized Payments Unauthorized payments were observed in various districts and sub counties. This was in non-compliance with the memorandum of understanding. Payment of unauthorized vouchers could lead to misappropriation of funds. Programme management should ensure that for every payment made, there is proper authorization by the approved person.

Unbudgeted for expenditure I noted unbudgeted for expenditure in a number of districts and sub counties. This is non-compliance with the approved budget and the memorandum of understanding. The practice may lead to stagnation of the execution of some programme components when funds are diverted to other programmes. NAADS management should ensure that districts and sub counties spend within the approved budget limits.

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Diversion of funds Shs.28,930,998 was diverted from planned activities in the districts of Kibaale and Kyegegwa and Shs.25,804,965 from various sub counties across the country. This may lead to stagnation of the execution of some programme components when funds are diverted to other programmes. NAADS management should always ensure that districts always spend within the approved budget limits.

Unsupported expenditure A total of Shs.1,264,477,652 was not adequately supported. This was observed at both the districts (Shs.497,423,923) and the sub counties (Shs.767,053,729). I was unable to verify the validity, accuracy, existence and completeness of this expenditure. This may also be considered to be ineligible expenditure which did not achieve value for money. NAADS management should ensure that appropriate documentation to support expenditure is availed or the money should be recovered from those concerned.

Unreconciled financial reports The financial reports did not reconcile with the activity analyzed expenditure reports in the districts of Amudat, Bukwo, Kanungu, Kayunga and Mityana, and several sub counties. Errors or conflicting figures in the reports may cause doubt as to the credibility of the financial reports. NAADS management should ensure that the financial report is regularly reconciled with the activity analyzed expenditure report.

Vouchers not stamped ―PAID‖ At the time of the audit, various payment documents at the districts and the sub counties were not stamped ―PAID‖. Payment vouchers and supporting documents can easily be used for duplicate payments inadvertently or otherwise. Management should ensure that all payment vouchers and supporting documents are stamped ―PAID‖ on completion of the payment process.

Inadequate Record keeping I noted anomalies in accounting record keeping in various local governments. Cash books were not appropriately posted, payment vouchers not properly kept. I also noted instances were payees did not sign for funds received. Lack of reconciliation

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of cashbooks with the banks was also observed. Errors or conflicting figures in accounting records/reports and books of account may raise doubts on their credibility. Incomplete records create gaps in the audit trail thus making it difficult to verify the validity, accuracy, existence and completeness of the expenditure incurred and/or income received. NAADS management should ensure that all required accounting records and reports are prepared regularly in accordance with the financial management guidelines issued by the NAADS Secretariat. Accurate bank reconciliations are prepared regularly.

Fixed Assets Management I noted that some districts and sub counties did not have in place adequate internal controls to manage Programme fixed assets. A number of the entities did not have and /or did not update their assets registers for NAADS Programme assets contrary to NAADS Implementation Guidelines. Lack of asset engraving was also observed, while a number of assets were noted to be in poor working condition. It was also noted that a number of vehicles at the districts did not have log books to monitor their movements. NAADS management should ensure that a separate assets register in relation to NAADS assets is initiated and regularly maintained. Assets should be kept in good working condition and vehicle log books should be maintained.

Lack of Internal Audit reports Quarterly internal audit reports were not availed for review for a number of districts and sub counties. Lack of quarterly reports may imply that the control and monitoring functions as well as checks and balances provided by internal audit as per Section 7.3 of the NAADS Implementation Guidelines, were not undertaken. Insufficient visits by the internal audit may result into misallocation of funds since the provision of checks and balances is eroded. NAADS management should ensure that internal audits are carried out and reports produced as stipulated by the NAADS Implementation Guidelines, Section 7.3.

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ENERGY SECTOR

34.0 MINISTRY OF ENERGY AND MINERAL DEVELOPMENT

34.1 Mischarge of Expenditure - Shs.32,100,319,984 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 Ministry‘s expenditures revealed that the entity charged wrong expenditure codes to a tune of Shs.32,100,319,984. This practice undermines the importance of the budgeting process as well as the intentions of the appropriating authority and leads to misleading accounting. The Accounting officer attributed this to spending pressures. I have advised Management to stop such a practice and always request for reallocations or virements, as provided for under the Treasury Accounting Instructions (TAI).

34.2 Payments for Civil Works A review of expenditure on civil works revealed the following matters:-

a. Payments to M/s. Tetra Technical Services - Shs.1,226,694,206 A total of Shs.1,226,694,206 was paid to M/s Tetra Technical Services in respect of civil works undertaken in Bundibugyo and Rwenkobwa as shown below:-

Inv. Description-Purpose Date Amount (Shs) Number DB108/10/ Construction of Bisheshe-Rwenkobwa 10/19/11 374,852,617 121 Power line as per Ref: REA/WRK/2010/10702 D869/12/1 Scheme alterations and extra works 12/20/11 476,005,575 2 as per contract in respect of the above Rural Electrification Schemes in Bundibugyo District REA/wrks/09- 10/00408/7 D522/03/1 Funds required for variations in 3/29/12 375,836,014 2 relation to power supply rural electrifications Total 1,226,694,206

The following matters were noted:-

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There is no evidence that there was a binding contract signed between the Ministry and the contractor; instead the available contracts were between Rural Electrification Agency and Tetra Technical Services. The only available documents were invoices from the company backed by letters from the Executive Director of the Company. This was irregular since the Ministry did not have any contract with the company in question.

It was noted that no tax was withheld from all the payments despite the fact that the company is not WHT exempt by URA. This not only exposes the Ministry to a risk of penalties and fines but also leads to loss of government revenue.

Management explained that Rural Electrification Agency (REA) largely depends on 5% levy from the sale of electricity by UETCL. During the period under review, limited funds were available to REA from UETCL. In the circumstances, the Ministry would settle those commitments since the Accounting Officer of the Ministry was the same for REA. I have advised management to stop such a practice and ensure that all payments are always backed by binding contracts with service providers. In addition, the Accounting Officer should always ensure strict adherence with the provisions under the Income Tax Act. b. Unsupported Payments to M/s Jutiti Enterprises Ltd – Shs.166,825,374

The Ministry made payments amounting to Shs.166,825,374 to M/s Jutiti Enterprises Limited as shown in the table below:-

Inv. No Description EFT No. Date Amount (Shs) MEMD856/0 Assorted bills for office 1952743 10/12/11 46,500,000 9/12 repairs and replacements of broken plumbing accessories. D813/12/12 Plumbing and Mtce works 1999054 12/20/11 8,140,000 for public toilets MEMD Supply of tiles 1961406 9/29/11 46,500,000 677/09/12 D804/12/12 Minor renovations for office 1999054 12/20/11 5,614,000 premises D812/12/12 Plumbing and Mtc works for 1999054 12/20/11 5,160,000 public toilets 474

D805/12/12 Minor renovations for office 1999054 12/20/11 5,120,000 premises D673A/05/1 Renovation and repairs of 2078742 6/8/12 6,617,000 2 MEMD offices D681A/05/1 Renovation and repair of 2078742 6/8/2012 6,154,260 2 various offices D680A/05/1 Renovation and repairs of 2078742 6/8/2012 6,120,000 2 various offices D678A/05/1 Repairs of various offices at 2078742 6/8/2012 5,500,000 2 the Ministry Hqs. D504/06/12 Supply of 2080312 6/12/2012 25,400,114 GeologicalMuseum and Rockshore Fittings and interior Designs 166,825,374

However, the above payments were not supported by any documentation to support the procurement. Under the circumstances, I could not substantiate the genuineness of the expenditure in question.

c. Payments to M/s Megger Technical Services Ltd - Shs.576,770,796

A total of Shs.576,770,796 was paid to the above company in respect of civil works on 17th February 2012. However, no documentation was availed to support this expenditure. The company appears not to have had any contract with the Ministry in relation to civil works. Under the above circumstances the transaction remains doubtful.

I have advised management to stop such a practice and ensure that all payments are always backed by binding contracts with service providers. Although the Accounting Officer explained that the documentation would be availed, these had not yet been provided to me by the time of compiling this report. The payment in question therefore, remains unaccounted for.

34.3 Support to Energy Fund Project 0941: Support to Energy Fund, was established in July 2005 with a sole objective of setting aside funds for financing large power projects in the country. The project financing seized in 2008/9 and in all subsequent budgets, parliament did not appropriate funds on this account. In 2009, by way of statutory instrument no.16, the Energy Investment Fund was created with exactly the same objectives 475

as the preceding one.I reviewed the operations on the two funds and noted the following:- a. Running Parallel Funds

I found it irregular that the Ministry is operating two Energy Funds. The creation of the Energy Investment Fund by way of a statutory instrument would have meant stopping all operations of the support to Energy Fund and transferring all the balances to the new fund. However, this was not done. This exposes the Ministry to a risk of duplication of payments.

In their response, Management explained that they are in the process of closing the account. I await the outcome of this management commitment. b. Diversion of Funds

In the year under review, a sum of Shs.6,720,655,778 was transferred from Treasury General Account to the Support to Energy Fund Account no.170088000026 held in BOU. It is important to remember that no budget provision had been made for this Fund. The funds transferred to this account were diverted from Ministry recurrent activities ranging from allowances, travel inland, vehicle maintenance, welfare, printing and stationery and from other projects like Mputa and Bujagali interconnection. This implied that the Ministry appears to have built slack in their budgets and the excess funds were subsequently transferred to this account. I found this practice irregular.

A review of the expenditure out of this account revealed thatout of the Shs.6,720,655,778 transferred to this account, Shs.5,657,504,968 was not properly accounted for as detailed in the paragraphs below:- i. Unaccounted for Cash Withdrawals – Shs.1,977,629,195

A total of Shs.1,977,629,195 was withdrawn in cash by the Ministry‘s cashier. However, I was not availed with documents to support this expenditure and therefore the amount remains unaccounted for. Under such circumstances, I was unable to establish the purpose to which the funds were applied.

Although the Accounting Officer explained that the accountability for the funds in question was available, this had not yet been provided to me by the time of

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compiling this report. I have advised management to always ensure prompt accountability for all cash withdrawals as is required by regulations. In the mean time, accountability for the above funds should be either provided or recovery measures initiated accordingly. ii. Payment to Private Companies – Shs.1,540,083,233

A total of Shs.1,540,083,233 was paid to a number of private companies; however, I was not availed with documentation to support the payments despite several requests for the same. Under the circumstances, I was also not able to establish the purpose for which the funds in question were expended. I explained to the Accounting Officer that this amount therefore, remains unaccounted for. iii. Transfers to Other Ministry Accounts

A total of Shs.2,139,792,540 was transferred to other Ministry of Energy Accountsas shown in the table below:-

Date Account Amount (Shs) 12-Jan-12 202476PT: INTER ACC 750,000,000 24-Apr-12 MINISTRY OF ENERGY 95010200001602 492,580,000 25-May-12 AAT REF 202596 MINISTRY OF ENERGY 211,331,800 28-Jun-12 -246631PT4986864 197,331,800 27-Apr-12 Ministry of Energy and Mineral Development 202571PT4692331: 192,102,900 27-Oct-11 Ministry of Energy and Mineral Development 202433PT3966099 126,251,840 6-Dec-11 Ministry of Energy and Mineral Development 202465PT4247506 86,125,000 13-Jun-12 Ministry of Energy and Mineral Development 246610PT4906540 83,311,000 Total 2,139,792,540 I found no justification for moving funds in a cyclical manner, from the Treasury General Account to the Support to Energy Fund Account, then to other Ministry Accounts. This action complicates the audit trail and exposes such funds to a risk of misuse.As explained earlier, these funds were not accounted for.

A case in point is a payment of Shs.211,331,800 from support to Energy Fund Account on the 25thMay 2012 to the National seismological Network Account. According to the supporting documentation, the money was intended to clear Uganda‘s outstanding obligations to SEAMIC. However, shortly after, the money was transferred yet to another unknown Ministry account on 28th May 2012.

I have advised the Accounting Officer to further institute investigations regarding these transactions and confirm that there was no misuse of funds.

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34.4 Budget Item 291001 (Tax Refund) The Ministry had an approved expenditure budget of Shs.3 billion for the above item. The item, according to the chart of accounts, is meant to cater for any tax refund. However, audit noted that the Ministry does not make any tax refunds, given the nature of its operations. Taxes due on imports are catered for under the gross tax payment system. I found no justification for this budget line.

I advised management together with the budget directorate of the Ministry of Finance and Economic Planning to address this error in the budget.

34.5 Dormant Accounts During the period under review, the Ministry had a total of 133 accounts in Bank of Uganda of which 52 were active and 81 were dormant. I explained to the Accounting Officer that dormant accounts are risky as they provide an avenue for perpetuating and concealing fraud.

In his response, the Accounting Officer confirmed the existence of the accounts and also indicated that the Ministry had since requested Accountant General to have all dormant accounts closed. I await the outcome of this management commitment.

34.6 Operation of the Forex Account in Bank of Baroda The Ministry operated a forex account in Bank of Baroda to meet its foreign currency requirements. Review of the transactions on the account revealed the following matters:-

a. Non Usage of a BOU Forex Account The Ministry has not opened a forex account with Bank of Uganda, which usually offers better exchange rates and is more transparent in regard to public funds. I did not get any justification for the continued usageof a commercial bank which offers less attractive rates.

In their response, management explained that the Ministry executes a lot of activities that require funds promptly and in most cases in large volumes due to the large number of officials who execute the Ministry business abroad especially for the oil and gas activities. I have advised the Accounting Officer to consider opening up a forex account in Bank of Uganda.

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b. Unsupported Cash Withdrawals – Shs.1,445,699,220 The Ministry withdrew foreign currency to cater for perdiem for travelling officers and living expenses for students. However, I was not availed with requisitions from the officers, withdraw vouchers and evidence of travel for withdrawals amounting to Shs.1,445,699,220 As such I could not reconcile the individual amounts against the names of the payees. Under the circumstances, I could not confirm whether the funds were used for the purpose intended. Although the Accounting Officer explained that these details were available, I had not yet been availed with the same by the time of compiling this report.

I have advised the Accounting Officer, to always ensure prompt accountability for all cash withdrawals and also follow up the amount indicated above to ensure that there was no misuse of government funds.

c. Payment to Local Suppliers I found it irregular that local suppliers whose invoices are denominated in local currency were also being paid from this account. This creates a risk of duplication of payments and circumventing all controls enshrined in the IFMS set up.

In his response, the Accounting Officer explained that the local suppliers were only paid from this account during a temporary breakdown of the IFMS system. I have advised Management to stop this practice henceforth.

34.7 Diversion of Refinery Development Funds – Shs.574,097,443 During the period under review, a total of Shs.12 billion was transferred from the Treasury General Account (TGA) to the Refinery Development Account held in BOU. The money was intended to fund activities related to refinery development, including land acquisition. A total of Shs.11,329,191,578 remained on account by the end of the financial year under review.

Although the account was meant for activities related to refinery development, the Ministry paid Shs.574,097,443 for activities outside the refinery development mandate. I explained to the Accounting Officer that such an action amounts to diversion of funds and this may affect the attainment of the set objectives for the account in question.

I advised management to stop such a practice henceforth.

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34.8 Expenditure Relating to Motor Vehicle Repairs Areview of expenditure on motor vehicle repairs revealed the following weaknesses:-

a. Unsupported Payments - Shs.353.812.838 Expenditure in respect of repairs amounting to Shs.353,812,838 was not supported by accountability documents. Under the circumstances, I was unable to establish whether the repairs were undertaken. I explained to the Accounting Officer that this amount therefore, remains unaccounted for.

b. Non-Rotation of Pre-qualified Suppliers for Repairs of Vehicles

Section 126(4) of the PPDA regulations states that where prequalification is used for a group of contracts, a procuring and disposing entity shall rotate pre-qualified providers on successive bids; this is further amplified by section 142 of the same regulations. During the year under review, the entity had a total of 28 service providers prequalified for motor vehicle repairs, however only nine (9) companies were given an opportunity to supply; of these nine firms, 66% of the jobs were done by two (2) companies.

Given that the Ministry evaluated and prequalified all the 28 firms, this confirms their competence; therefore, dealing with only a few companies, is not only against the principle of fairness, but also exposes the Ministry to a risk of over pricing, air supply and poor quality works. I have advised the Accounting Officer that the rationale for non rotation should be investigated further with a view of ruling out misuse of funds.

c. Local Purchase Orders Issued After Repair/Servicing of Vehicles

According to sections 130 and 131 of the PPDA Regulations, the purchase order is among the solicitation documents which show the agreed prices and services to be provided and therefore should be issued prior to provision of services. In the absence of a contract, the LPO acts as the document which commits Government to pay for a service.

A review of accounting documents presented revealed that repairs worth Shs.47,683,360 had local purchase orders issued after the service had been provided by the suppliers. This was common with one garage, which further re- 480

echoes the risks of non rotation. This particular garage provided job cards and job repair delivery forms indicating completion dates and certification of works earlier than the dates of LPO. This aspect rendered the expenditure doubtful.

In their response management explained that this omission was due to emergencies where vehicles broke down during field work and there was urgent need for their repair if field work was to continue. I advised management to strengthen internal controls regarding the procurement process for repair of vehicles. d. Use of Wrong Procurement Methods – Shs.477,757,277

Regulation 108 of the PPDA regulations states that micro procurement may be used where the estimated value of the procurement does not exceed 100 currency points i.e.Shs.2 million. In addition regulations 143 (1) and (2) state that a single source is where one bidder is selected from among a number who are able to meet the requirements of the procurement, such as in an emergency situation or for micro procurement.

A review of the Ministry procurements revealed that the single sourcing method was used in situations that were not of an emergency nature or ought not to have been procured under micro procurement. The services procured were above Shs.2 million, therefore the use of the micro-procurement method was irregular. The total expenditure incurred by using the wrong procurement method was Shs.477,757,277.

It is important to note that in many cases, the repairs were carried out months after the procurement requisitions, implying that these were not emergencies. This not only contravenes the procurement law but also exposes the Ministry to a risk of exaggerated prices. I have advised the Accounting Officer to institute further reviews of these transactions with an aim of ruling out misuse byMinistry staff and garage owners. e. Doubtful Payment for Supply of Tyres – Shs.34,302,563

Shs.34,302,563 was paid to a private companyfor supply of tyres; however, I was not availed with the Goods Received Note, a copy of the stores ledger or

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distribution lists showing the beneficiaries. In the absence of these documents, it was not possible to establish the authenticity of this transaction.

I have advised the Accounting Officer to institute further investigation into this transaction with an aim of ruling out possible misuse.

34.9 Expenditure on Stationery and Printing Areview of expenditure on purchase of stationeryby the Ministry revealed the following weaknesses:-

a. Limited Rotation of Prequalified Suppliers

Whereas the Ministry prequalified 72 suppliers for provision of stationery, only thirteen (13) were accorded a chance to supply and of the 13, three (3) companies had a share of 45% of the total orders made. This practice contravenes the PPDA regulations on rotation. I explained to the Accounting Officer that dealing with only a few suppliers, is not only against the principle of fairness, but also exposes the Ministry to a risk of over pricing, air supply and poor quality items.

b. Provision of Stationery and Printing Services by Non Prequalified Suppliers

Contrary to procurement regulations, the Ministry procured stationery worth Shs.871,386,440 from firms which had not been pre-qualified. This practice exposes the Ministry to a risk of poor quality services since the capacity for the un prequalified firms will not have been assessed.

I have advised management to always use pre-qualified suppliers when awarding contracts.

c. Use of Wrong Procurement Methods – Shs.987,938,463

Contrary to section 108 of the PPDA Regulations, the Ministry procured stationery worth Shs.987,938,463 using wrong procurement methods. It was noted that whereas the procurements were above the Shs.2m threshold which would require competitive procurement methods, the single sourcing method was used. Also noted was that these procurements had no supporting documentation to enable verification of the same. Under the circumstances, I was unable to confirm whether the amount involved was expended for proper purposes.

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In his response, the Accounting Officer regretted the omission but explained that the documentation in question was available. However, by the time of compiling this report, the documentation in question had not been availed to me. I advised management to always follow the PPDA regulations and also follow up the procurements in question to establish whether there was no misuse of funds.

d. Doubtful Expenditure – Shs.522,710,471

Detailed review of the available supporting documents revealed that expenditure worth Shs.522,710,471 had several inconsistencies that rendered them doubtful. The following general observations were noted:-

In a number of cases the the deliveries were reportedly done in the previous financial year and no expenditure was accrued in last year‘s financial statements; however, payments were made in the subsequent year, implying that documents are being recycled for payment. In other instances payment dates came before delivery dates. There was no evidence that the goods had been received by stores as no record existed in the stores ledgers, delivery of the goods was not witnessed by internal audit, evidence of subsequent issue and use was also not provided to Audit.

I also found it irregular that stationery could be procured from a Fund Account which was set aside for capital investments in the Energy Sector.

Under the above circumstances the expenditure is doubtful.

e. Pattern of Consumption

I noted that the pattern of stationery consumption was very high with an average consumption of Shs.300,000,000 per month. There were instances where the Ministry procured stationery beyond Shs.100,000,000 every week.

The Ministry attributed this to its size, technical needs and the no of workshops held in a year.

34.10 Jinja Storage Tanks

A contract for the refurbishment, restocking and management of the Government petroleum strategic reserve facility at Jinja, under the Public, Private Partnership 483

(PPP) arrangement was signed between the Government of Uganda and M/s Hared Petroleum Limited (operator) in March 2012. The operator was granted a 10-year concession to run the establishment and was required to refurbish and restock the facility within six months effective March 2012.

In one of the internal communications, the operator noted that at the time of hand over of the facility, they observed that items and equipment which had been in place at the time of the pre-bid site visit had since been heavily vandalized and/or gone missing. As a result, the operator noted that the level/amount of capital investment and date of commencement for operations would greatly be affected and therefore requested for an amendment in the contract. Subsequently, an amendment to the contract dated 14th November, 2012 was signed extending the period for refurbishment by 4 months to 13th February 2013.

During my inspection of the storage tanks, the following matters were noted:-

The facility is being enclosed with a chain link fence alone; this was found to be inadequate given the current security environment.

The Ministry does not have a land title for the facility. It was also noted that not all the facility land is fenced off and it is therefore exposed to a risk of encroachment.

I was not presented with a copy of any police report detailing the vandalized and stolen items that warranted the extension.

I advised management to follow up the matter and apprehend those responsible for the vandalism.

In their response management explained that they had referred the issue to Internal Security Organization which requested for a valuation report. In addition plans are under way to secure the land title and have all the land fenced with a concrete wall. I await the outcome of these management commitments.

34.11 Operations in the Department of Geological Survey and Mines

During the audit, I reviewed the operation of the Department of Geological Survey and Mines and noted the following matters:-

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a. Lack of a Substantive Commissioner Section 13(1) of the Mining Act states that subject to the Constitution and any other laws regulating or providing for appointment of public officers, the President shall appoint a Commissioner for Geological Survey and Mines Department and such other public officers as may be necessary for carrying into effect the provisions of this Act. I noted that for the last 3 years, the department has been running without a substantive Commissioner.

In addition, I noted specific cases where exploration licences were signed by junior officers without written authorization contrary to section 13(2) of the Mining Act. Given the recent Constitutional Court rulings regarding legality of actions taken by Public officers in acting positions, the legality of business transactions done during this period could be rendered questionable.

In their response management explained that on several occasions they have attempted to have this post filled but suitable candidates could not be identified. The only successful attempt was through head hunting; however, the candidate seems to have lost interest after the interview stage.

I advised management to expedite the appointment of a substantive Commissioner and to take disciplinary action against errant junior officers who irregularly signed exploration licences.

34.12 Transfers of 20% Royalties to District and Lower Councils The Second Schedule of the Mining Act as amended gives the following guidance on the distribution of royalties:-

Government 80% Local Governments 10% Municipal Governments 7% Owners of the land or lawful occupiers of the land 3%

I noted that the Ministry maintains an account in BOU to cater for management of Royalties. During the year, a sum of Shs.1,883,242,657 was transferred to this account representing 20% payable to the Local governments and land owners. The following matters were noted:-

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a. Audit verification revealed that Shs.451,207,919 sent to districts as detailed below, had not been disclosed in the respective District financial statements:- Transfer of Royalties to District Entity Amount Amount Difference (Shs) transferred disclosed in the (Shs) financial statement (Shs) Moroto District 248,579,331 130,204,261 118,375,070 Moroto District 46,578,599 Nil 46,578,599 Kapchorwa 24,999,570 Nil 24,999,570 Kamwenge 19,475,660 13,586,770 5,888,890 Tororo District 11,438,627 Nil 11,438,627 Kabarole District 10,537,542 Nil 10,537,542 Kabale Municipal 8,371,186 Nil 8,371,186 Bushenyi District 2,302,663 Nil 2,302,101 Mubende District 6,006,508 Nil 6,006,508 Kilembe mines Ltd 216,709,826 Nil 216,709,826 Total 451,207,919 Failure by the districts to disclosethe above royalties, could be an indicator of concealment of revenue.

b. I was not provided with acknowledgement receipts issued by the district/municipal authorities. There is a risk that the funds in question may not have been received by the intended beneficiaries.

I advised management to ensure that acknowledgment receipts are obtained and that all releases to districts are publicized to enable follow up of such royalties by all stakeholders.

34.13 Licenses Awarded Without Names of Directors

Article 26 d (I and ii) of the Mining Act requires the applicant of an exploration license to provide a name and nationality and for a corporate body, the name, place of incorporation and the name and nationalities of its directors, managers and other officers. Audit noted that there were a number of licences awarded to companies whose names of the directors and physical addresses were not provided. Issuance of such licences amounts to non-compliance with the Mining Act and as such may render them illegal.I advised management to fully comply with the provisions of the Mining act. 486

34.14 ENERGY FOR RURAL TRANSFORMATION PROJECT NORAD II GRANT - 30TH JUNE, 2011 (a) Doubtful Tax Remittances It was noted that payments made to Uganda Revenue Authority (URA) amounting to Shs.39,239,269 in respect of withholding tax deductions from suppliers were not supported by acknowledgement receipts from the Tax Authority. I could not confirm that the funds were received by the intended beneficiary and therefore the funds remain unaccounted for.

Management in response stated that the payments in question were effected by EFT and Bank of Uganda fully acknowledged the transfer instructions but several attempts to obtain the acknowledgements from URA are not yet successful. I advised management to secure the acknowledgement receipts from the Tax Authority for verification.

(b) Annual Meeting Under Article VI of the funding agreement, representatives of the parties to the project and financing agreement were meant to have an annual meeting (AM) in order to:- Discuss the progress of the project including results of agreed obligations. Discuss and approve annual work plans for the following year. Discuss the implementation issues such as the major risk factors. However, a copy of the minutes of the annual meeting was not available to enable me confirm whether the meeting was actually held. Failure to hold such a meeting implies that management may not have been provided with the requisite guidance regarding the above matters. I have advised management to ensure that the annual meetings are always held as per the requirements of the funding Agreement.

34.15 ENERGY FOR RURAL TRANSFORMATION PROJECT II (ERT II) - RURAL ELECTRIFICATION AGENCY - IDA CREDIT AGREEMENT NO.4554 UG AND GEF TRUST FUND GRANT AGREEMENT NO. TF:094484 - 30TH JUNE, 2012 (a) Consultancy for Verification of Photovoltaic (PV) Installations (REA/SRVES/10-11/00302) 487

In November 2011, the Rural Electrification Board entered into a contract with M/S Konserve Consult Ltd worth Shs.615,825,000 for provision of consultancy services for independent audit of PV installations. A review was undertaken of this procurement and the following observation was made:- Failure to provide a Bank Guarantee Whereas under the general terms of the contract, a bank guarantee was required as performance security, it was never provided by M/s Konserve Consult Ltd. Also noted was that under the Special conditions of contract (on a form of bid security) the form of acceptable performance security was meant to be by Bank Guarantee. However, M/s Konserve Consult Ltd, did not provide a bid security in form of a Bank Guarantee as required by the special conditions. The Company requested to be allowed to present a bank draft instead and indicated that it would provide the guarantee 10 days after closure of the bidding process.

I indicated to management that the Company was irregularly awarded the contract and failure to present appropriate Bank Guarantee exposes project funds to undue risk. Although in response Management stated that in their opinion the bank draft was near cash and was therefore considered an acceptable alternative, the subsequent failure to tender a bank guarantee as performance security still exposed project funds. I have advised management to ensure that they always abide by all the provisions of the contract agreement and that they obtain performance security for the contract.

(b) Under Absorption of Funds In the period under review the project received Shs.36.9 billion from both IDA and GEF (Global Environment Facility), but only utilized Shs.19.32 billion (about 50%) leaving a balance of Shs.17.63 billion unutilized as at 30th June 2012. This implies that the project was not in position to absorb all the funding provided during the year.

Management in response stated that the last payment of Shs.15.3 billion was received one month to the end of the financial year and about Shs.2.33 billion from earlier disbursements remained unutilized. Management further explained that there were procurement delays that also contributed to failure to utilize all the 488

available funds. However, I indicated to management that failure to absorb project funds in the period in which they are budgeted and provided creates a risk of project time overruns with cost implications. I have accordingly advised them to ensure that all project activities are always undertaken in accordance with the workplan.

(c) Irregular Borrowing - Shs.125,223,697.5 (US$.49,989.5) A sum of US$.49,989.5 (equivalent to Shs.125,223,697.5) was paid from the project account to an international firm for the provision of consultancy services under the ―Strengthening the Electric Cooperatives Program Uganda‖. However, it was established that the funds were meant to have been paid through Government of Uganda (GoU) funding. Project funds were therefore irregularly diverted to make this payment. Although management explained that this was made in error and that this amount was later refunded in January 2013, I have advised them to desist from such a practice in future as it can lead to suspension of further funding to the Programme.

34.16 UGANDA ELECTRICITY TRANSMISSION COMPANY LIMITED (UETCL) - POWER SECTOR DEVELOPMENT OPERATION PROJECT – THERMAL POWER GENERATION COMPONENT - IDA CREDIT NO.4297-UG - FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER, 2011 (a) Non-Compliance with the Financing Agreement Terms and Conditions According to the Financing Agreement, the project was wholly financed by the World Bank, net of taxes and duties and the Government of Uganda was responsible for paying the VAT component on energy supplies on all invoices from the supplier. However, during my audit, I noted that the Government of Uganda, had not settled the VAT component for the invoices billed by Aggreko International on energy to UETCL for the year ended 31st December 2011 amounting to shs.356 billion (approximately Us$.14.3 billion). This exposes Aggreko International to legal actions and penalties levied by the Uganda Revenue Authority for non compliance with the VAT Act. Furthermore, this non compliance affects the goodwill between the funder and Government of Uganda as well as the energy supplier Aggreko International. 489

In their response, management explained that all outstanding funds were brought to the attention of the Ministry of Finance, Planning and Economic Development and they were awaiting for a resolution on the matter. I have advised management to follow up this matter to ensure that the issue of VAT is amicably resolved.

(b) Aggreko International – Audit Assessment By URA During my review of correspondences between URA and the Permanent Secretary, Secretary to the Treasury, Ministry of Finance, Planning and Economic Development copied to the UETCL Managing Director, I noted that URA carried out an audit assessment and as such VAT amounting to shs.145 billion (approximately Us$.58 million) arising from Means of Platt (Measure of fuel oil Pricing for the period October, 2007 to February 2011) was not charged by Aggreko to UETCL. Aggreko referred the matter to Court, and later requested for discussions aimed at an out of Court settlement which URA agreed to. Aggreko held several meetings with URA and according to a letter dated 22nd September, 2011 from URA to the Permanent Secretary, Secretary to the Treasury MoFED, both parties agreed on the following:- i. That there was no objection to the fact that there is VAT on Means of Platt and that the principal tax was due and payable. ii. That Aggreko is financially constrained to pay this amount, given that it has not even been able to pay the monthly VAT as it fell due over the last one year, since UETCL has been paying them exclusive of Tax. iii. Aggreko would have to invoice UETCL for that amount. iv. That in order for UETCL to pay that amount, they have to get it from Government, yet Government is in arrears as far as paying up their dues are concerned. v. That URA should review their decision to impose interest; given the fact their failure to pay was not their own making.

In that meeting ideas were sought as to how the Government of Uganda would help Aggreko to settle the VAT arrears without breaking he Law, Prejudicing court proceedings, and the options highlighted were:- i. Avail cash through UETCL for Aggreko to settle the VAT assessment

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ii. Consider invoking the powers vested to the Hon. Minister by the VAT Act to waive the taxes assessed.

The parties further highlighted that option (ii) would be considered only if option (i) is not possible given the current Government financial position and to effect the implementation of option (ii), Aggreko would have to cooperate by making an application for the waiver to the Hon. Minister through URA. However, by the time of audit in August 2012, no further action had been taken, and Aggreko had already relocated. Incase the Hon. Minister of Finance, Planning and Economic Development does not use option (ii) to waive tax on Aggreko, the GoU through UETCL will have a liability of Shs.145 billion.

In their response, management explained that as per Section 21 (5) of the VAT Act, any subsidized amount is exempt from VAT. Most of the thermal power generation bills were paid through Subsidy funds and by implication, the charged VAT can only be paid or waived by Government. However, this matter was brought to the attention of the Ministry of Finance, Planning and Economic Development and Uganda Revenue Authority for resolution. I have advised the parties involved to endeavor to have the above issue resolved without further delay.

(c) Outstanding Litigation During the implementation of the project, numerous complaints about emission of obnoxious gases and high noise levels to people that resided within the vicinity of the power plant in Mutundwe were lodged in court. Aggreko International agreed an out of court settlement with 10 residents to compensate them. I noted from the review of the UETCL Lawyers letter, that there are some outstanding claims that the plaintiff was seeking compensation from UETCL. Below are the details of the claim:-

Case No. Details Estimate Estimate Compensation Compensation (shs) (Us$) M.C. No.88 of 2010 Muhima Idefonse & Ors 815,000,000 326,000 vs. UETCL & Aggreko H.CC.S No.41 of Kasule Musoke Edith Vs 650,000,000 260,000 2012 UETCL & Aggreko 1,465,000,000 586,000 491

This exposes UETCL to possible litigations to pay in case the Court rules in favour of the plaintiffs given the fact that Aggreko relocated. Management in their response explained that Power Purchase Agreement (PPA) enjoins Aggreko to indemnify UETCL against all claims. I advised management to take up the matter with Aggreko Ltd to avoid the potential liability to UETCL.

(d) Decommissioning According to the PPA between Aggreko and UETCL, Aggreko was to ensure that at the end of the term of the agreement, the site is in a similar or better condition than it was at the commencement of the term of the Agreement. The Management of UETCL drafted a site decommissioning plan that was discussed and agreed with Aggreko International. The two parties agreed that Aggreko would implement the plan in accordance with the PPA. After the implementation, Aggreko would notify UETCL to check the outstanding issues on site and approve the implementation of the decommissioning process. In the second stage, Aggreko would notify NEMA, in accordance with the EIA approval permit, about the completion of the decommissioning plan. NEMA would check the implementation of the permit conditions as well as the decommissioning plan. As soon as NEMA was satisfied with the decommissioning process, a site clearance/departure certificate would be issued to Aggreko International accordingly.

If the decommissioning process was not completed; There could be accidents on site causing liability to UETCL. There could be soil and water contamination from the contaminants left on site As a result, the Site Exit Certificate would not be issued by NEMA.

However, it was noted that the decommissioning process was not completed by Aggreko Ltd contrary to section 4.11.2 and 5.2.2 (V) of the PPA and the EIA approval permit.

Management in their response promised to ensure Aggreko complies with all the actions agreed with them in the decommissioning plan as required in the PPA, to

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pre-empt the liabilities of non-compliance. I have advised management to expedite this action as promised.

34.17 ENERGY FOR RURAL TRANSFORMATION PROJECT II (ERT II) - PRIVATE SECTOR FOUNDATION UGANDA (PSFU) COMPONENT - (IDA CREDIT AGREEMENT NO.4554-UG) - FINANCIAL STATEMENTS FOR THE YEAR ENDED 30TH JUNE, 2012 (a) Statutory Deductions It was noted that there were delays in remittance of statutory deductions made by the project during the year under review. For example a total of shs.27,694,299 deducted from staff salaries in respect of PAYE for the months of July 2011 to January 2012 was remitted to Uganda Revenue Authority (URA) on 14th March 2012. Similarly, a total of Shs.21,432,188 in respect of National Social Security Fund (NSSF) deductions for the months of July 2011 to March 2012 was remitted to NSSF on 20th March 2012. Failure to have all deductions remitted to the relevant institutions by the 15th day following the month of payment of the salary, exposes the project to a risk of penalties and fines in accordance with the relevant Acts.

It was further noted that no acknowledgment receipts from URA and NSSF were attached as proof that the amounts remitted had indeed been received by the statutory bodies in question. There is a risk that the funds in question may not have reached the intended beneficiary institutions. In their response, management attributed this to lack of adequate staffing for most of the year that affected timeliness in completion of some tasks. I have advised management to always ensure adherence with the statutory obligations and to also obtain the relevant acknowledgment receipts from URA and NSSF.

(b) Official Advances A sum of Shs.2,375,000 was disclosed in the accounts as working advance (for fuel), which implied that the amount was yet to be accounted for by the end of the financial year. However, this contravenes section 3.12.13 of the Financial Management Manual which requires accountability within 5 (five) working days from the date of completion of the activity for which it was advanced. Delays in submission of accountability can lead to falsification of documents and a possible 493

loss of funds. I have advised management to ensure that all advances are always followed up to ensure timely accountability.

34.18 ENERGY FOR RURAL TRANSFORMATION PROJECT II (ERT II) - UGANDA COMMUNICATIONS COMMISSION - FINANCIAL STATEMENTS FOR THE YEAR ENDED 30TH JUNE, 2012 (a) Under-Absorption Of Funds It was noted that several activities from the work plans and budget remained incomplete or unimplemented at year end despite the fact that funds amounting to US$.1,722,111 remained on the project bank account as detailed below:-

BUDGET RELEASED UTILIZED UNUTILIZED (Us$) (Us$) (Us$) (Us$) 3,322,500 1,943,338 221,227 1,722,111

A case in point was that the planned installation of Community Information Centers with appropriate energy and connection of the northern region to broad band, was not undertaken. I informed management that Failure to utilize funds in line with the project timelines undermines the intended project objectives and exposes management to a risk of time overruns with attendant cost escalations.

Management attributed the under absorption to delays by the World Bank to giving a no objection in time leading to late disbursement of funds. The funds were however received in June 2012 and part of funds has been disbursed. UCC has engaged the Bank and going forward, delays in giving no objection shall be addressed.

(b) Failure To Undertake Training Although the project budgeted for Us$.83,137 to be used for training its staff, it was noted that no training was undertaken during the year in spite of the project entering its final year of implementation. I pointed out to management that there is a risk of failure to achieve the project objectives as envisaged within the planned timelines.

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In response, management acknowledged that there was less training undertaken but added that a training plan was developed out of which the Bank approved only 4 staff to be trained. Later, the project coordination unit froze training and funds were reallocated to other activities under different project components. I advised management to endeavour to keep with the project implementation plans in order to realize the envisaged project objectives.

34.19 STRENGTHENING THE MANAGEMENT OF OIL AND GAS SECTOR IN UGANDA PROGRAMME (SMOGP) - 30TH JUNE, 2012 (a) Programme Progress The Programme registered different levels of progress under the respective pillars as outlined in the executive summary to the financial statements in appendix 1. However, the following matters were noted:- i) Expenditure Performance The Programme budgeted to spend a total of US$.6,241,235 during the year 2011/2012 but spent only US$.4,569,511 (representing about 73% of the budget) this resulting in an under expenditure of US$.1,671,724 as shown below:-

Pillar Budget Actual Variance Percentage USD Expenditure USD Utilization USD

Resource Pillar 2,333,758 2,439,952 (106,194) 105%

Revenue Pillar 1,717,700 657,198 1,060,502 38%

Environment Management Pillar 1,533,332 1,135,571 397,761 74%

Programme Management Pillar 656,445 336,790 319,655 51%

Totals 6,241,235 4,569,511 1,671,724

From the audit review it was noted that:-

(i) There was an unauthorized expenditure on the Resource pillar by US$.106,194 to which management attributed expanded activities arising from rapid growth of the oil and gas sector. Management stated that these activities were discussed and approved at the annual meetings with the donors. 495

(ii) There was substantial underperformance on the Revenue, Programme management and Environment pillars. Management attributed the underperformance to delays in the enactment of the relevant legislation for the oil and gas industry and lack of local expertise in the oil and gas sector.

I reminded management of the need to implement planned activities in a timely manner to avoid Programme duration overruns and consequently cost escalations. ii) Unimplemented Activities Review of the Programme work plan revealed that the Programme management was unable to implement various activities which were supposed to be completed during the year. Details are shown in the table below:-

WORK PLAN STATUS Resource Management Pillar: Develop an HSE supervisory strategy and plan. Not started Develop tools for undertaking HS audits. Not Started Procurement of limited facilities for institutions. Not started Implement a resource inventory system. Not started Sector investment plan. Not started Revenue Management Pillar: Review framework for participating in EITI Not started, awaiting approval of the Revenue Management Bill

Analyzing & Updating HR Plan Not Started

I informed management that there is a risk that the Programme objectives and benefits may not be achieved within the stipulated Programme lifetime. Management again attributed this to the delayed approval of the relevant legislation for the oil and gas sector. Management added that the review of a framework for participating in the EITI awaits approval of the Revenue Management bill while Analysing & Updating HR plan is awaiting the completion of the capacity needs assessment for the Revenue Pillar.

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34.20 ENERGY FOR RURAL TRANSFORMATION PROJECT II (ERT II) - MINISTRY OF ENERGY AND MINERAL DEVELOPMENT – PROJECT COORDINATION UNIT (PCU) COMPONENT - (IDA CREDIT NO.4554-UG AND GEF GRANT NO TF 094484) - 30TH JUNE, 2012 (a) General Findings i) Incomplete activities It was noted that several project activities planned to be implemented during the year had not been completed as detailed below:- Components Activities Planned Remarks

Ministry of Contract for suppply , installation & The installations were planned Education & commissioning of solar energy to be completed by April 2012. Sports packages in 250 post primary However, at the time of the education institutions. Audit only 50 schools were complete (Supply and installations). Contract for supply, installation and The acivity had not yet been commissioning of solar Energy completed by the end of the packeges in 310 post primary year. Education institutions. Ministry of Short term consultancy to assess The acivity had not yet been Health performance of the standard MOH completed by the end of the solar PV energy packages, designs year. and review of maintenance contract and spacifications. Procurement and installation of At the time of Audit the energy packages in: Mityana, istallations were not completed Mubende, Kabale, Moroto, Nakapiririt, in all the mentioned districts. Amuru, Apac, Dokolo, Kaberamaido, Adjuman, Bukwo, Sironko, Mbale, Mayuge, Katakwi, Amuria, Masindi, Bundibugyo, Bullisa, Amolatar, Pader, Moyo, Gulu and Soroti Districts. Ministry of Supply & Installaation of Energy The supply and installation of Water & Packages for water pumping systems energy packages for water Environment Lots 1, 2, 3, & 14. supplyin small towns was under way; however, he contracts for Anaka, Parabongo, Alero, Aleptong, Okwanga, Adwari had stalled. Ministry of Identification & Prioritization of Not Implemented Agriclulture, areas/enterprises where lack of Animal energy/ICT is a major constraint to Industry & agriculture, Fisheries Harmonization of agriculturral Not Implemented 497

enterprises into community projects Development of information packages Not Implemented Identification and promotion of Not Implemented agricultural projects Subsidy criteria translated into local Not Implemented languages and disseminated Develop a monitoring and evaluation Not Implemented frame work Purchase of office and ICT Not Implemented Equipment, including software Training and Capaity Building Not Implemented Ministry of Energy Needs assessment of 100 The activity is not implemented Local primary school Teachers Houses in Government 6 Districts Installation, commissioning of Energy Not implemented packages for Teachers‘ Houses in Primary schools Energy Needs assessment for District Not implemented Health Offices (DHOs) in 6 Districts Installation, commissioning of Energy Not implemented packages for DHOs and preparation of maintenance manual Technical implementation support Not implemented including independent final certification for payment Ministry of Support to UNBS To Implement CFL The activity was not completed. Energy Quality Standard Mineral Development GIS Database Improvement and The activity was partially renewable Energy (RE). complete RE Baseline Survey –UBOS. Not undertaken.

I pointed out to management that failure to implement activities according to plan, creates a risk of failiure to achieve its overall project objectives within the prescribed time-frame. In response, management acknowledged the above shortcoming but explained that subsequently, substantial progress has been made and this will be reflected in the next financial report for the year 2012/2013. I advised management to ensure that all project activities are always implemented according to workplan. ii) Undisbursed Funds It was noted that ERT II Project Coordination Unit had budgeted to receive US$.14,587,739 from World Bank during the year under review. However, the statement of sources and uses of funds shows that only US$.4,143,285.96 was disbursed by the Bank (representing about 28% of the budget), resulting into a 498

variance of US$.10,444,453.04. Management attributed the low disbursement rate to the procurement contracts that were not concluded on time and the projected disbursements could not be met. Consequently there is a risk that project timelimes may be breached.

I advised management to always make appropriate considerations and consulatations during the budgeting process as well as conducting procurement processes in a manner that does not lead to unnecessary delays.

(b) Ministry of Energy and Mineral Development/PCU Doubtful Expenditure/Accountability Examination of records availed to account for Shs.20,610,000 released towards verification of solar installations in schools revealed the following anomalies:- An amount of Shs.1,500,000 was diverted to cater for office supplies at the Ministry of Local Government contrary to the function for which the funds were meant. This amount ought to be recovered and reinstated to the project account. An amount of Shs.5,910,000 earmarked for officials from Ministry of Energy and Minerals Development for verification of activities in Kamwenge and Kiruhura districts was not supported by details of the beneficiaries and no accountability for the funds has been furnished. I informed management that in the circumstances the expenditure is deemed doubtful.

By the time of writing this report, management had not provided to me any satisfactory explanation regarding the above anomalies. I have advised the Accounting officer to ensure that the funds in question are recovered and the responsible officials disciplined in accordance with the government standing orders.

(c) Ministry Of Finance, Planning And Economic Development (MOFPED) i) Under Performance The Component had a three year performance target of US$.850,000. However, verification of performance reports showed that to date, the project has only absorbed 36% of the targeted amount leaving an outstanding balance of 64% and

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yet the project is scheduled to end in June, 2013. I informed management that this may create a risk of having to request for unnecessary project extensions which will ultimately lead to more project administrative costs.

In their response, management acknowledged the shortcoming and promised to expedite the implementation process. I await for the outcome of this management commitment. ii) Revenue Budget Performance The Component budgeted to receive Shs.781 million from the World Bank to undertake project activities during the financial year under review. However, verification of financial statements revealed that only Shs.189 million (representing about 27% of the budget) was realized resulting into a substantial shortfall in disbursements of Shs.572 million (i.e. 73% of the budget). In their response management explained that most of the planned procurements were not concluded during the financial year and it is in the subsequent financial year when the projected disbursements are to be made.

I advised management to always endeavour to undertake project activities in accordance with the approved budgets and work plans so as to be able to utilise all the committed funds by the Bank. iii) Under Absorption of Funds The component had total available funding of shs.263,810,252 with the bulk of this amount (i.e. Shs.225 million) having been made available since 2010/11 financial year. It was noted that only Shs.153,864,835 was utilised in the period leaving a balance of Shs.109,945,417 (42%) unutilized at the end of the financial year as summarised in the table below:- Details IDA (shs) GEF (shs) Total (shs) Opening Balance as per Cash Book 225,051,392 0 225,051,392 Funds received During the Year as per 38,758,860 0 38,758,860 cash book Total Fundsavailable 263,810,252 0 263,810,252 Expenditure For the year 153,864,835 0 153,864,835

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Closing balances as per the Bank 109,945,417 0 109,945,417 statement & Cash Book

I drew management‘s attention to the fact that funds have been held idle for a long time and yet the project has a definite lifespan and timelines within which to implement the agreed activities. I advised the accounting officer to speed up the process of activity implementation to enable prompt utilisation of all funds availed.

(d) Ministry of Water and Environment Under Absorption of Funds The Water component was availed total funding of Shs.365,976,076 for various activities during the year under review. However, Shs.105,746,876 remained unutilized at the end of the financial year as shown by the table below:-

Details IDA (Shs) GEF (Shs) Total (Shs) Opening Balance as per Cash 145,444,932 65,785,000 211,229,932 Book Funds received During the Year as 88,767,360 65,978,784 154,746,144 per cash book Total Funds available 234,212,292 131,763,784 365,976,076 Expenditure For the year 194,444,200 65,785,000 260,229,200 Closing balances as per the Bank 39,768,092 65,978,784 105,746,876 statement & Cash Book

The low funds absorption rate was also attributed to the lengthy procurement processes. However, I reminded the component that the project has a definite lifespan and such delays may have project cost implications. I advised the Accounting Officer to speed up the process of activity implementation to enable prompt utilisation of all funds availed.

(e) Ministry of Education and Sports Unfilled Position on Structure (project Coordinator) According to the organizational structure, the Project component should be headed by the project coordinator as the focal person. However, it was noted that the project operated without a substantive project coordinator since January 2012 when the-then coordinator was transferred by the Ministry. Although management subsequently appointed a coordinator in June 2012, I pointed out that such 501

omissions and/or failure to take prompt action negatively impacts on the operational efficiency of the project component.

(f) Ministry of Health i) Doubtful Expenditure During the audit examination, it was noted that although Shs.17,343,000 was paid to carry out training technicians in blue print solar systems installations in June 2012, there was no appropriate supporting documentation presented to account for these funds. I could therefore not confirm that these funds were put to proper use and that actual trainings did take place.

In spite of bringing this matter to the attention of management, no appropriate accountability was presented to me for audit. I have advised the Accounting officer to ensure that the funds in question are either accounted for or recovered from the officers to whom it was advanced. ii) Unmarked/Un Engraved Portable Project Assets Best practice requires that all portable assets be engraved with project initials and unique asset identification numbers to enhance their security. However during the audit, it was noted that some assets including 2 laptops, 2 digital cameras and a digital projector were not engraved with both the project name and unique identification numbers. This complicates tracing of such assets incase of loss. In response, management acknowledged the need to enhance security of project assets by marking and engraving all assets acquired and accordingly promised to have the assets in question engraved. I await for the outcome of this management commitment.

(g) Ministry of Local Government i) Absence of a Work Plan for the FY2011/2012 Whereas best practice requires that a work plans showing the activities to be undertaken be drawn and approved prior to the commencement of the operating calendar, audit observed that the work plan presented for the Ministry of local Government component by the project coordination unit was for the prior year 2010/2011. This therefore implied that the ministry operated in an adhoc manner

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without an approved Work plan for 2011/12. I informed management that lack of approved activity work plans may lead to expenditures not aligned with the project objectives.

Although management explained that approval of the work-plan for Ministry of Local Government delayed because there was a change of planned activities from solar installation in health-centres to solar installation in primary schools, there was no copy of approved work plan availed for verification. ii) Diversion of Project Funds Examination of records revealed that the Project paid Shs.51,870,000 meant for ERT II towards facilitation of ministry employees‘ welfare during Easter holidays. Another Shs.4,440,000 was paid to the Minister of Local Government as facilitation and fuel to attend Heroes Day celebrations and other duties outside ERT II programs. A further Shs.1,500,000 was drawn from the bank account on 15th June 2012 for the same purpose. Although the Shs.51,870,000 was subsequently refunded, this kind of irregular borrowing may hamper the timely progression of project activities. The rest of the funds diverted amounting to shs.5,940,000 are yet to be refunded.

I informed management that incurring expenditure on activities other than those for which they are intended may lead to failure to attain the intended objectives. In their response, management acknowledged the shortcoming and promised to have the outstanding funds refunded accordingly. iii) Under-Utilization of Funds Best practice requires that all funds be utilized according to the planned activities and within the planned time frames. Whereas Shs.81,088,000 was released to the component for implementation of planned project activities during the year under review, only Shs.23,000,000 was actually utilized, leaving a balance of Shs.53,224,912 unspent as at end of the year. It was noted that the bulk of this amount (i.e. Shs.51,870,000) had been spent by the component on none project activities as noted in my previous paragraph only to be refunded towards the end of the financial year to be reported as unspent balance. Such diversions frustrate

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timely implementation of project activities. I have advised management to accordingly desist from such a practice.

(h) Ministry of Agriculture, Animal Industries and Fisheries No releases for MAAIF Component It was noted that even though that the Ministry prepared a work plan detailing project activities for the financial year 2011/2012, no releases were made during the year under review. I pointed out to management that project activities if not implemented as scheduled create a risk of project time overruns.

In response management explained that Funds were not released to the component because the activities under the Ministry are dependent on implementation of other activities under another component which had not completed implementation of the said activities. I advised management to ensure that all components are made to implement activities according to the approved work plan to enable attainment of the overall project objectives within the stipulated project timelines.

HEALTH SECTOR

35.0 MINISTRY OF HEALTH

35.1 Mischarge of Expenditure Shs. 27,464,268,277 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 Ministry‘s expenditures revealed that the entity charged wrong expenditure codes to a tune of Shs.27,464,268,277. Included in the mischarges is an amount of Shs.3,961,393,985 in respect of the Ministry‘s core activity of National Disease Control. The practice undermines the importance of budgeting process as well as the intentions of the appropriating authority and leads to misleading reporting.

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I advised the Accounting Officer to streamline the budgeting process to ensure that sufficient funds are allocated to each account and where necessary allocations should be undertaken in accordance with the regulations.

35.2 Advances to Employee Personal Accounts - Shs.2,272,226,554 d. Non Compliance with Regulations It was noted that a total of Shs.2,272,226,554was paid on the personal bank accounts of Ministry staff for executing official activities rather than effecting payments to the final beneficiaries contrary to the TAIs under Sections 227, 228 and 229. This practice is irregular and also exposes Government funds to a risk of loss since staff may be tempted to divert such funds to personal gain. In addition, the Ministry does not have any control over such funds deposited on personal accounts.

I advised the Accounting Officer to ensure that funds are paid directly to the intended beneficiaries and service providers to eliminate the risk of diversion of funds.

e. Unaccounted for Personal Advances - Shs.731,550,095 Out of a total of Shs.2,272,226,554paid on employee personal accounts as pointed out in paragraph (a) above, a total of Shs.731,550,095 advanced to personal accounts of Ministry staff remained unaccounted for. In the circumstances, I could not confirm whether the funds in question were put to their intended purpose. I advised the Accounting Officer to consider recovery from the Officers concerned.

35.3 Advances not Properly Accounted For – Shs.435,496,788 Accountabilities to support advances to staff amounting to Shs.435,496,788 were found to be doubtful. These accountabilities lacked activity reports and the requisitions did not have places inspected. It was also noted that some of the places were not visited at all. There is a risk that these funds could have been misapplied.

I have accordingly advised the Accounting Officer to institute further investigations into this transactions with an aim of ruling out possible misuse.

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35.4 Unaccounted For Expenditure on Support Supervision and Monitoring of Health Activities at Districts -Shs.701,028,139

A total of Shs.701,028,139 was advanced to staff of the Ministry for carrying out technical supervision of Health activities and Ministry programs being implemented in the Districts and Regional Referral Hospitals (RRH). However, the funds remained unaccounted for at the time of audit in April 2013. There were no activity reports provided to evidence that the monitoring exercises took place.

As such, I was unable to confirm that the funds were put to proper use. I advised the Accounting Officer to closely monitor field activities of staff and ensure further investigation is undertaken for unaccounted for funds.

35.5 Absence of Expenditure Records- Shs.5,979,529,165

Expenditure records amounting to Shs.5,979,529,165 under programme 1 (Shs.931,985,075) and 2 (Shs.5,047,544,090) in the Ministry were not availed for verification. It was explained that the documents were taken for scrutiny by other Investigative Agencies of Government. In the circumstances, I could not confirm as to whether the funds in question were put to their intended purpose.

I advised management to ensure the documentation is retrieved after use by the Agencies to facilitate accountability.

35.6 Irregular Payment of Consolidated Allowances It was noted that Shs.1,128,157,288 was spent on consolidated allowances to junior members of staff. The basis for payment of these allowances could not be explained as the allowances were not contained in the Public Service Standing Orders. In the circumstances, the allowances are irregular.

In his response, the Accounting Officer explained that the allowances were paid on the basis of circular standing instruction No. 4 of 2008; and as a way of motivating junior staff who earn inadequate packages. I advised the Accounting Officer to regularise the payment of such allowances through authority from the Ministry of Public Service.

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35.7 Fuel Expenditure Shs.1,757,540,595

It was noted that a total of Shs.1,757,540,595 spent on fuel on the various Ministry programmes remained unaccounted for as at the time of audit. The payment vouchers availed for review lacked evidence of official fuel usage in form of vehicle movement log books and associated work plans to which their usage could be linked.

Notable among this was motor Reg. No UG2060M Double Cabin Pick- up truck which was on the schedule of vehicles which were still drawing fuel yet the vehicle had been grounded over a year. Grounded Ministry of Health Double Cabin Pick up No UG 2060M Double amongst those on the schedule of vehicles which were still drawing fuel.

In his response, the Accounting Officer promised to prevail on the Officers who had not accounted for fuel. I advised the Accounting Officer is to consider seeking refunds in absence of accountability.

35.8 Compliance with Statutory Obligations (WHT,PAYE) a. Unacknowledged PAYE and WHT Remittances to Uganda Revenue Authority During the year, management made tax deductions in form of PAYE and WHT amounting to Shs.1,413,677,771 from consolidated staff salaries and general suppliers of Goods and services. However, there was no receipts, or any form of acknowledgements that the funds were received by Uganda Revenue Authority. In the circumstance, I could not confirm that these taxes had actually been remitted to the intended beneficiary.

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I advised the Accounting Officer to ensure the receipts are obtained to avoid tax queries that may arise.

b. Non deduction and remittance of PAYE and 6% WHT Contrary to Section 116(1) and 119(1) of the Income Tax Act on the requirements for making payments for withholding tax and PAYE, taxes amounting to Shs.63,059,782 were not deducted from payments for goods and services and employee income by the Ministry. Failure to withhold and remit taxes could attract fines and penalties.

The Accounting Officer promised to make recoveries from the concerned. I have advised the Accounting Officer to expedite the recovery process and remit the taxes to URA.

35.9 Utility Expenses Shs.1,612,494,008

It was noted that Shs.861,127,386 and 751,366,622 was paid in respect of water and electricity bills as utility arrears for Twelve (12) Regional Referral Hospitals. However, the bills and reconciliations for which these payments were made were however not availed for audit verification. It was further noted that the utility bills were not budgeted for. In the absence of reconciliation, I was unable to match the payments to consumption.

I advised the Accounting Officer to undertake reconciliations to enable establish of actual consumption of these utilities.

35.10 GOU Contribution to Joint Clinical Research Centre (JCRC)

During the financial year under review, an amount of Shs.242,433,000 was budgeted for under the Ministry as government contribution to JCRC. However, only Shs.104,949,839 was remitted by the Ministry resulting into an under funding of Shs.137,483,161.

I advised the Accounting Officer to ensure that all budgetary support to JCRC is fully remitted to enable the Centre fully implement its activities.

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35.11 Domestic Arrears for the Year Shs.106,805,740

During the year under review, the Ministry incurred domestic arrears that amounted to Shs.106,805,740 contrary to the government regulations that require Accounting Officers not to commit government when funds are not available.

I advised the Accounting Officer to always adhere to the regulations and spend within the budget.

35.12 Ministry of Health Project Observations a. Imaging and Health Theatre Equipment Project No.0224 Unaccounted For Fuel Expenditure Shs.68,467,913 spent on fuel expenditure did not accountabilities indicating amounts allocated to staff and how they utilised the fuel. In the absence of these accountabilities, I could not confirm as to whether the funds were used for their intended purposes.

I advised the Accounting Officer to task the Officers concerned to account for the fuel funds advanced failure of which recoveries should be effected from their salaries. In addition stronger internal control measures on utilisation of fuel should be implemented.

35.13 Procurements

A review of the procurements undertaken by the Ministry revealed the following:- a. Procurement of Nine (9) 4WD Ambulances Shs.1,533,332,079 A total of Shs.1,533,332,079 was paid out by the Ministry for procurement of Nine (9) 4WD. A review of the procurement file revealed the following; The quotation from a supplier was signed by someone without powers of Attorney. There were no copies of bidders proposals on file and no evidence that all short listed bidders received RFQ invitations. The Best Evaluated Bidder (BEB) notice was not displayed and the Notification of Contract award letters were issued before the solicitor general‘s approval contrary to PPDA Reg. 225, (2) (f).

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In the circumstances, PPDA regulations were not adequately complied with. Accordingly, I advised the Accounting Officer to improve the operations of the PDU. b. Doubtful procurement of Stationery Shs.166,915,586 It was noted that a total of Shs.166,915,586 was paid for stationery from private service providers. However, the procurement of items could not be traced within the Procurement and Disposal Unit. The transaction documents including requisitions, local purchase orders, delivery notes, goods received notes; supplier invoices and payment vouchers were not availed for review. The providers paid could not be traced on the list of prequalified providers of stationary to the Ministry. In the absence of the above documentation, I could not verify the genuineness of the expenditure.

The Accounting Officer in his response stated that he had since streamlined the procurement of stationery through instituting framework contracts with suppliers. This has consequently helped to streamline the procurement process in the Ministry. I have accordingly advised the Accounting Officer to institute further investigations into these transactions with an aim of ruling out possible misuse. c. Irregular Procurements for China-Uganda Friendship Hospital Naguru Contrary to the above, procurements worth Shs.318,572,194 were made under emergency to commission the China-Uganda Friendship Hospital Naguru. There was no evidence of approval in form of a waiver obtained from PPDA. The procurement was undertaken irregularly.

Management regretted the irregular manner in which the procurements were made and indicated that efforts have since been made to improve the manner in which procurements were made.

I accordingly advised the Accounting Officer and Head PDU should to always comply with the procurement regulations.

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d. Procurement Irregularities Shs.328,018,993 Shs.328,018,993 was paid out to various providers of goods and services but a number of procurement irregularities were noted including:- In some cases, PP Form 20 did not reveal the available funds for the item yet availability of funding was confirmed by the Accounting Officer. In other cases, an Officer other than the Accounting Officer confirmed availability of funding and approved procurements but no copies of delegated authority were availed for review. In several cases, Direct procurement method was done as opposed to open domestic bidding; however, there was no justification for this. This limit competition and attainment of fair prices. It was also noted that in other cases, restricted bidding was used without approval of the contracts committee. Procurement documents including contract agreements and LPOs were not availed for review for some cases. PP form 20 was raised after the LPOs had been issued. For the some of the LPOs that were issued, it was noted that their issue and authorisation was after delivery of goods.

Management explained that they have since made efforts to improve the management of procurements and enforce strict adherence to the PPDA Act and regulations.

I accordingly advised the Accounting Officer and Head PDU should to always comply with the procurement regulations. e. Emergency procurement of 4 Omni-buses and Motorcycles for Transport of Nodding Disease Patients (Us$.213,292) A review of the above procurement revealed that due to the emergency involved, the Restricted Domestic Bidding method was utilised; however the following matters were noted:- Contrary to PPDA regulation 160, there was no evidence that a Public bid opening was held. Further, there was no evidence that all bidders approved by contracts committee were invited or issued with bid documents. 511

The Notification of Contract award were issued on 17th May 2012 before Solicitor General‘s approval whose clearance was on 1st June 2012. contrary to PPDA regulation 225(2)(f). The Ministry accepted buses of lower versions in specifications at the same price as those quoted for. The contracts Committee approved an evaluation team of Five (5) people but the evaluation was done by four people without the input of a technical person on specifications.

In his response, the Accounting Officer stated this procurement was of an emergency nature to address the Nodding disease syndrome prevailing at the time. I accordingly advised the Accounting Officer and Head PDU should to always comply with the procurement regulations. f. Procurement of Construction Services for External Works at Mbale and Mbarara Blood Banks-Shs.376,279,200 A total of Shs.376,279,200 was paid out to a construction firm for procurment of construction services for External works at Mbale and Mbarara Blood Banks. The following matters were noted:-

Implementation of the Procurement Contract The bid document specification for Mbale Blood Bank works stated that the paved compound size was 1,200 square metres. However, when the paved area was re-measured during the audit inspection, it was found to be of an estimated size of 700 square metres leaving an excess of 500 paid for amounting to Shs.35,000,000 was paid for no work done. Furthermore, the BOQs stated installation of seven security lamp posts at a cost of Shs.1,540,000 but only four lamp posts were seen on site. The manholes and water trenches were already broken implying the work carried out was substandard as shown in photographs below:-

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Broken manhole Broken water trench

Payment for works not done amounts to loss of public funds. This would have been saved if verification of works done was carried out before payments were effected.

Management explained that the procurements were carried in conformity of the PPDAAct and regulations and further indicated that they had noted the recommendations and final payments would not be effected until the defects are corrected.

I accordingly advised the Accounting Officer to strengthen the supervision of works and ensure the overpaid amounts are recovered.

35.14 Payment of taxes for Contract staff

a. None compliance with Income Tax Act in Respect of PAYE- Shs.26,144,310 It was noted that Shs.26,144,310 in respect of PAYE for contract staff was not deducted contrary to the Income Tax Act. Further Shs.38,419,996 as NSSF contributions by the Ministry was not remitted to the Fund. Non compliance with the statutory obligations may lead to penalties.I advised the Accounting Officer to comply with the regulations.

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35.15 Cash Withdrawals out of Imprest - PS Ministry of Health

During the period under review, the Ministry operated a monthly Imprest warrant of Shs.96,360,000 meant to cater for a number of items. The following was noted during the review:- a. Imprest Management It was noted that no imprest ledgers were maintained by the cashier to support the monthly replenishment of the amounts as per the imprest warrant. Imprest was therefore not paid on a replenishment basis as per the warrant. Failure to maintain proper books encourages abuse of the monthly imprest funds.

I have advised the Accounting Officer to review the allocation of the imprest to ensure that justifications reflect the Ministry‘s needs. Imprest ledgers should be put in place and updated regularly in order to ensure proper tracking of the expenditures.

b. Irregular payments out of petty cash Shs 97,000,000 A total sum of Shs. 97,000,000 was irregularly paid from imprest to Ministry staff under claims for settling in allowances, weekly support supervision and facilitation for various activities implemented by the nurses association. It was further noted that such claims did not merit allocation from the Imperest funds.

Management noted the observation and explained that the payments to Officers were made on a case by case basis.I have advised Management should desist from such a practice and provide a proper justification and accountability for the above payments.

c. Unaccounted for Funds-Shs. 159,762,119

Shs.159,762,119 advanced to various Ministry officials for travel abroad on official duties remained unaccounted for. In the absence of accountability, I was unable to confirm that the funds were used for their intended purposes. The funds remain unaccounted for.

The Accounting Officer should effect recoveries from beneficiaries of these funds in absence of accountability.

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35.16 Audit Inspections

Field inspections were carried out in the Districts of Mbale, Kumi, Jinja, Soroti, Tororo, Mbarara and Arua. The Inspections involved verification of the Health supervision and monitoring activities undertaken by the Ministry in these Districts and selected Regional referral hospitals. The following observations were noted:-

a. Non Reconciliation of Credit line accounts by Districts, Health Facilities and National Medical Stores It was noted that the Districts, Health Centres and the Regional Referral Hospitals (RRHs) do not reconcile their credit accounts under the credit line but depend on account balances provided by National Medical Stores (NMS). As such it becomes difficult for the Districts, RRHs and the Ministry to establish actual funds available under their credit lines. This matter was brought to the attention of Ministry of Health and NMS in the previous audit report but has not been addressed.

The Accounting Officer was advised to follow up the matter with National Medical Stores for accurate drug credit account balances are captured.

b. Variances in Orders and Deliveries of Drugs and Medical Sundries It was noted that National Medical Stores has not been making full deliveries on all the orders the Districts and RRHS make for drugs, medical supplies and sundries. Over all, during the financial year, although a total of Shs.191 billion was paid to NMS for procurement and delivery of drugs and medicines for Districts and RRHs, it was noted that drugs and medical sundries worth Shs.166 billion were supplied to the Districts and RRHs leaving a balance of Shs.25 billion. Hospital Management explained that out of the drugs ordered every financial year, less than 80% of the drugs are delivered by the National medical Stores although it receives the bulk of the appropriated budget for drugs and sundries.

I advised the Accounting Officer is advised to liaise with National Medical Stores and follow up this matter to ensure that the drugs ordered and paid for are fully delivered.

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c. Status of Health Facilities and Infrastructure at District Hospitals and Regional Referral Hospitals Grounded Ambulances at District Hospitals and Regional Referral Hospitals It was noted during inspection of District Hospitals and RRHs, that transport equipment including ambulances, motorcycles and motor vehicles for carrying out service delivery were in a poor state. In most cases, the motor vehicles, ambulances and motorcycles were either grounded or could not be used because of mechanical failures and insufficient funds. This situation has not improved from last year. This negatively affects service delivery to the public.

For instance an inspection of Mbale Regional Referral Hospital established that the ambulances were grounded as shown below;

Grounded Ambulances at Mbale Regional Referral Hospital

In addition, it was noted during inspections in Jinja that there were two grounded ambulances Reg.No.LG0024-12 withdrawn from Budondo health Centre IV and Reg.No.UG 2175M withdrawn from Buwenge Health Centre II which was grounded because of a faulty break system.

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Grounded Ambulances for Bundondo Health Centre IV and Buwenge Health centre II

Health Infrastructure Many of the structures at the district hospitals across the country are still in a bad state and require urgent renovation and re-equipment. On the other hand, many of the established facilities like theatres have remained un-operational due to either lack of staff or lack of the necessary equipment.The Government has made concerted efforts to re-equip the health units at the sub counties with staff houses, medical waste pits, latrines, maternity wards, paediatric wards for districts such as Gulu, Oyam, Arua, Bukedea, Alebtong,Bududa, Amuria, Amuru under the PRDP project. However understaffing at both technical and support staff levels is still a problem as there are still insufficient numbers of doctors, nurses and clinical staff at the health centre IVs, III and II.

The Ministry should ensure that additional funding is allocated to provide for maintenance and staff support at the Regional Referral Hospitals, in order to enhance Health Service delivery to the Public. d. General observations to District Hospitals, Regional Referral Hospitals and Health Centre IVs Field inspections were carried out in Central region, Eastern region, Northern region and West Nile, the inspections covered the District Hospitals, Regional Referral Hospitals and Health Centre IVs. The overall objective was to assess health service delivery in regard to availability of health infrastructures, availability of drugs and human resource capacity to implement health service delivery, these inspections have revealed the following observations;

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Inadequate delivery of medicines by National Medical Stores (NMS) to the District Hospitals and RRHs especially (anti- malarials,TB medicines)

Drugs Stock outs and non-availability of TB drugs

Poor asset management at the district hospitals and referral hospitals especially non engravement of assets.

Poor record keeping of drug usage

Power shortages affecting mainly the west Nile region

Grounded Ambulances

Lack of storage space for drugs with several expired drugs

There was staff shortage in health facilities and district health offices

Outstanding utility bills

Inadequate staffing at the district hospitals Inadequate staff accommodation Irregular and inappropriate supply of ordered drugs to Hospitals and HCIVS by National Medical stores Underutilized Medical facilities at HCIVS Non deliveries of CD4/ECT machines under global fund Inadequate Health Infrastructure, particularly Health Centre IVs specifically there is a lack of vehicles to facilitate transport operations

I have advised the Accounting Officer to ensure that the above matters are addressed so as to improve on service delivery in the health sector.

35.17 MINISTRY OF HEALTH - UGANDA HEALTH SYSTEM STRENGTHENING PROJECT (UHSSP) - (IDA CREDIT AGREEMENT NO.4742-UG) - FINANCIAL STATEMENTS FOR THE 24-MONTH PERIOD ENDED 30TH JUNE, 2012 (a) General Standard Of Accounting And Internal Control Expenditure Not Unaccounted for Contrary to Section 181 of the Treasury Accounting Instructions (TAI) and Section 73(b) of the Public Finance and Accountability Regulations (PFAR), the project spent a total of Shs.177,399,850 in respect of various expenses without attaching the supporting documents on the payment vouchers as detailed below:- 518

Payee Invoice No. Amount (shs) Namuswe Harriet D01/SEP11/1123 7,644,850 Standard Chart Bank Fuel D02/SEP11/1123 30,000,000 Tumwesigye John D01/OCT11/1123 24,140,000 Tumwesigye John D01/OCT11/1123 11,040,000 Standard Chart Bank Fuel D01/MAR12/1123 22,000,000 Health Systems Strengthening Project D03/APR12/1123 15,215,000 Fuel on Standard Chart Bank D01/JUN12/1123 31,000,000 PS MOH D02/JUN12/1123 18,860,000 Standard Chart Bank Fuel D03/JUN12/1123 17,500,000 Total 177,399,850

Although management explained that the related supporting documentation was available, I had not been availed with the same by the time of writing this report. In absence of the supporting documentation, I was unable to confirm that the funds were used for the intended purposes. I have advised Management to always ensure that all payments are accompanied with their supporting documentation to enable independent verification of their authenticity. In the mean time, the supporting documentation for the above expenditure should be obtained by management.

Unacknowledged Statutory Remittances A total of Shs.188,567,428 and US$.45,573 was deducted and remitted to the respective statutory bodies as NSSF contributions (Shs.88,923,206) and PAYE (Shs.99,644,222 and US$.45,573). However, by the time of writing this report, the recipient organizations had not acknowledged receipt of funds. Lack of acknowledgement receipts reflects a flaw in the internal control system over the follow up of remittances by management which could lead to misappropriation of 519

project funds. I could therefore not confirm that the remittances had indeed been received by the intended beneficiaries. I have advised Management to ensure that the receipts are accordingly obtained from the statutory bodies in question and filed accordingly.

Manual accounting system It was noted that the project uses a manual accounting system to record its accounting transactions. The cash book was manually prepared and it was noted to be incomplete with some vital information missing in its postings. This manual system does not only make the preparation of financial statements tedious but it may also lead to inaccuracies and errors that can lead to misstatements in the financial statement balances. It was further noted that bank reconciliation statements were not being prepared regularly which could also lead to errors going undetected.

In their response, Management explained that it had acquired an accounting package (Navision accounting software) which it hopes will be fully operational during the subsequent financial year. However, by the time of writing this report (January 2013), the software had not been operationalised. I have advised management to expedite with the installation of the above system and also ensure that bank reconciliation statements are always promptly prepared and reviewed by an independent senior staff to minimize incidences of errors and omissions going undetected.

Lack of internal audit reviews Section II(B) para.4 of the Second Schedule to the financing agreement stipulates that the recipient shall ensure that the inspectorate and internal audit undertake in- depth internal audit reviews to provide for independent internal verification of the transparency and soundness of key financial management tasks required under the project at least twice in a year. It was however noted that no such reviews were undertaken. Failure to undertake the reviews exposes the project to a risk of delayed identification of errors to enable timely corrective action to be undertaken.

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I have advised management to ensure that internal audit reviews are regularly undertaken to avert the impacts of the potential risks to effective project implementation.

Lack of contract ledgers It was noted that management does not maintain contract ledgers although contract payments for most of the contracts entered into are spread over a period of time and interim payments are made at various stages. I explained to management that failure to maintain contract ledgers makes the tracking of the expenditure difficult and exposes the project to a risk of making double payments to the contractors/consultants. I have advised management to open up the ledgers henceforth in order to ensure proper tracking of all payments on the respective contracts.

Unexecuted Letters of Credit (LCs) Letters of credit amounting to US$.1,134,803.3 were opened on 16th March 2012 in favor of M/s Cooper Motor Corporation (U) Ltd for the supply of ambulances and mobile workshop trucks. It was however noted that by the time of audit in December 2012, the LC had not performed and yet the validity period expired in June 2012. A review of the original contract revealed that the supplier was to deliver the motor vehicles within 14 weeks of opening of the LCs. In their response, Management attributed the delay to inclusion by the Accountant General and Bank of Uganda of a pre-shipment clause which was not in the original contract and therefore rendered the LC non executable. Whereas management further indicated that it was in the process of closing the LCs and have the funds returned to the project account, it was established on verification that nothing was done in this regard. Instead, it was noted that the consignment delivered did not meet the required specifications. I advised management to consider closing the LC and invoke the relevant penalty clauses in the contract agreement.

Payments through the dollar account Examination of accounts revealed that the project paid bills in Uganda shillings through the dollar account despite existence of an operational account denominated in the local currency where such payments could have been made. 521

For instance there was a notable fluctuation in the payments of monthly salaries on the dollar account arising out of conversion and reconversion process. It was noted that where as the staff contracts are denominated in dollars, the salaries are first converted into Uganda shillings and then the equivalent is paid through the dollar account. This practice leads to over expenditure on the salaries item and as a result other project activities may adversely be affected. I have advised Management to ensure that project staff salaries are paid in dollars as per the underlying contracts through the dollar account.

Lack of a fixed assets register Paragraph 5.13 of the Project Financial Management Guidelines provides that where a manual information system is used, a manual fixed assets register is maintained. It was however noted that the project does not maintain a fixed assets register. Failure to maintain such a register makes the monitoring and tracking of the assets difficult. In their response, management regretted this anomaly and indicated that they were in the process of designing a register in the new accounting software that has been acquired by the project. I have advised management to expedite this process accordingly.

(b) Compliance With Project Financing Agreement And Gou Financial Regulations i) Ineligible ExpenditureOn Staff Training An amount of US$.20,000 was paid to ESAMI in respect of tuition and training materials for five (5) ministry staff undertaking a 2-year MBA programme at the Institute. It was however noted that the ministry did not seek a ―no‖ objection from the Bank in regard to this expenditure. This was therefore irregular and hence ineligible. It was further noted that some officers nominated for the course were above fifty (50) years of age and may not necessarily still have a lot of time in service to enable them deliver services to Government. In response, management regretted this anomaly and indicated that modalities to refund the funds onto the Project Account were underway. I advised management to always endeavor to seek a no objection from the Bank before incurring such expenditures. Meanwhile, I await for evidence of refund of the amount in question to the project account. 522

ii) Delays In Submission Of Draft Financial Statements The financing agreement requires management to submit audited financial statements within six months of the close of the period. However, the projects draft financial statements were submitted for audit in January 2013, seven months after the close of the financial year. Delays in submission of the draft accounts ultimately led to a delay in issuance of the audit report. I advised management to desist from such a practice as such delays may affect future flow of funds from the Bank. iii) Procurements Irregular Contracts Committee The project operates a separate Contracts Committee that has not been regularly constituted in line with regulation 66(1) of the PPDA regulations 2003, which states that the Accounting Officer may, on recommendation of the contracts committee, delegate the procurement functions to a division or unit. In addition, the project was to be operationalised with the Long Term Institutional Arrangements (LTIA) which provides for use of the existing entity structures where the main stream contracts committee of the Ministry would have sufficed. I explained to management that in absence of a properly constituted contracts committee, the decisions and actions by the committee may easily be challenged. The current committee therefore needs to be regularized.

Although Management explained that a delegated committee was set up to expeditiously handle the project procurements with the approval of the Permanent Secretary/Secretary to the Treasury, I was not availed with any evidence to prove this assertion. I have therefore advised management to provide evidence of the Permanent Secretary/Secretary to Treasury‘s approval of the delegated committee or else use the main stream contracts committee in accordance with the long term institutional arrangements.

Delays in procurements A review of the procurements revealed delays in the procurement process. It was noted that on average, procurements would take over eight (8) months to complete the process up to contract signing. Most of the delays were noted in the evaluation 523

and contracting stages. In the circumstance most of the contracts are signed after the bid validity period contrary to Para 2.59 of the guidelines for procurements under IBRD loans and IDA credits. Management attributed the delays on extensive review process for the project procurements and administrative review on specific contracts. I have advised management to always undertake proper procurement plan and ensure compliance with specified timeliness as provided for in the PPDA guidelines.

Failure to appoint contract managers PPDA Regulations 258, 259 and 260 require a user department to appoint a Contract Manager who is responsible for the overall management of the contract and ensure that the contract deliverables are met. The contract manager is also responsible for developing a contract implementation plan to enable the PDU and management to monitor and track the implementation of a contract. However a review of the contracts documents revealed that contract managers were not appointed and therefore there were no contract implementation plans on files. Lack of contract managers and contract implementation plans and reports makes it difficult to monitor and track progress of the contracts which may lead to failure to meet contracts deliverables at project end.

Although Management explained that it designated the Component Coordinators as Contract Managers in line with the Long Term Institutional Arrangements (LTIA) for the supply of services, goods and works under their components, I was not provided with any evidence to support this assertion. I have therefore advised Management to ensure compliance with PPDA regulations to ease the monitoring and tracking of progress of the performance of the contracts.

(c) Status Of Implementation Of Project Activities i) Budget performance - Donor component The project received US$.20,737,530 during the period under review. It was however noted that out of the total amount received, management spent only US$.6,260,961 (about 30% of the amount received). This reflects a low absorption capacity by the project. This performance could be related to delays in the procurement and payment processes. With such a low absorption capacity the 524

project may not be in position to achieve intended objectives within the specified period of project implementation. It was accordingly noted that a number of project activities remained outstanding at the end of the period despite availability of funds.

Management explained that the project follows a work plan on which withdrawals application are based, the bulk of the funds amounting to Us$.11,328,744 were received in June 2012 and by September 2012 funds had been fully committed. I have advised Management to review the procurement and payment processes and ensure that the unnecessary delays are eliminated. ii) Diversion of GoU counterpart funding A total of Shs.2,140,119,051 was diverted from the project counterpart funding to other expenditure items in the ministry‘s budget. Diversion of project funds greatly affects the smooth implementation of planned activities.

In their response, Project management regretted the anomaly and stated that feedback from the mainstream ministry management indicated that only Shs.1,331,914,876 of Shs.2,140,119,051 was reallocated to settle taxes in respect of Ministry of Health procurements to avoid accumulation of domestic arrears. I have advised management to desist from diverting project funding and to ensure that the amounts diverted are refunded accordingly. iii) Funding Shortfall A review of Project documentation revealed that there was a financing shortfall of US$.365 million (85%) under the infrastructure component. It was noted that at the project formulation stage, this component was estimated to cost US$.65 million but it was later revised to US$.430 million following the draft consultants designs and cost estimations. However, with the 85% shortfall it was not clear how project management intends to finance the deficit to enable the implementation of the component. Delays in resolving the problem may fundamentally affect the achievement of the overall intended project objectives.

Project management explained that the US$.430 million relates to consultants funding for the architectural surveys and designs for infrastructure renovation as 525

well as reconstruction of Health facilities in general not exclusive on the project objectives. The project objectives are geared towards maternal health, newborn and family planning thus the infrastructure component amount could not be altered as guided by the Permanent Secretary/Secretary to the Treasury. I have advised management to ensure that they liaise with IDA to ensure that this matter is discussed conclusively, so as not to affect the overall achievement of project objectives. iv) Activity implementation A review of the implementation of project activities revealed a slow rate of implementation. For instance, most of the target activities since the Project inception have either not been implemented or they have been delayed. Under the infrastructure component for example, it was noted that whereas the works have not started, some contracts for the delivery of equipment and furniture have already been signed pending delivery. It was not clear as to where the equipment and furniture once delivered will be stored before the intended structures are either rehabilitated or constructed. Similar delays have been noted under the Human Resource component where major activities of the loan scheme for hard to reach and the scholarships for training health workers have been long overdue. I have advised Management to expedite the implementation of the activities to ensure effective achievement of the intended objectives.

(d) Status Of Implementation Of Mission Recommendations During the period under review, 3 supervision missions were undertaken by the Bank and a number of recommendations were agreed upon for implementation by the ministry. Below is the summary of the follow up of the implementation of the key recommendations;

Recommendation Status 1 Submit final copy of the ambulance strategy and operating Achieved procedures 2 Recruitment detailed list of the underserved districts and their Not Achieved wage bill 3 Submit HSC concept note and work plan Achieved 4 Submit concept and plan to establish and rollout implementation Achieved of the virtual job

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5 Develop and submit job descriptions specifying relevant Partially management roles and positions to propose title for Achieved consideration by management service department in the MoPS 6 Submit guidelines for the operation of the new SCM system Partially under UHMG and seek bank clearance for the UHSSP aspects Achieved 7 Submit report on arrangements to provide office space for the Achieved consultants 8 Submit first internal audit report Partially Achieved 9 Inform bank on the MOH position regarding the RH OBA scheme Not Achieved 10 Submit revised final reports with detailed designs and draft Achieved bidding documents 11 Submit report to MOFPED explaining cost estimates and outlining Achieved the different options 12 Submit revised implementation schedule to finalise designs, Achieved procure contractors and execute construction works 13 Explore need for additional financing with MOFPED and inform Achieved the bank 14 Submit bid documents for office equipment Achieved 15 Submit shortlist for candidates selected for scholarships Achieved 16 Submit updated procurement plans Achieved 17 Submit final work plan Achieved 18 Submit MOH charter and concept note for rolling out client Achieved charters to other RRHs

I have advised management to ensure that the above matters are all fully addressed without further delay.

(e) Reconciliation Of The Amounts As Received By The Project From The World Bank With Those Shown As Being Disbursed By The Bank The Terms of Reference for Audit of World Bank Financed Projects require me to make a reconciliation of the amounts as ―received by the Project from the World Bank‖, with those shown as being disbursed by the Bank. This reconciliation was compiled as follows:- Details Amount (US dollars) Receipts as per the project financial statements 20,737,530.00 Amounts disbursed by the bank 21,090,869.59 Variance 353,339.59

It was noted that the variance of Us$.353,339.59 is attributed to the Project Preparatory Funds whose financial statements are to be separately presented by management for audit. 527

35.18 MINISTRY OF HEALTH - EAST AFRICAN PUBLIC HEALTH LABORATORIES NETWORKING PROJECT - (IDA CREDIT AGREEMENT NO. 4733-UG) - FINANCIAL STATEMENTS FOR THE 18-MONTH PERIOD ENDED 30TH JUNE, 2012 (a) General Standards of Accounting and Internal Control i) Manual Accounting System It was noted that the project uses a manual accounting system to record its accounting transactions. The cash book was manually prepared and it was noted to be incomplete with vital information missing in its postings. This manual system does not only make the preparation of financial statements tedious but it may also lead to inaccuracies and errors leading to misstatements in the financial statement balances. It was further noted that the payment vouchers were not properly prepared and filed to allow for proper review of the transactions. This could be a result of lack of supervision of the accounts staff by their superiors. Although management indicated that they had acquired a Navision accounting software which would be fully operational by the end of January 2013, this was however noted not to be operational by the time of compiling this report. I have advised management to accordingly expedite the installation and operationalisation of the software.

ii) Lack of Internal Audit Reviews Section II(B) para.4 of the Second Schedule to the financing agreement stipulates that the recipient shall ensure that the inspectorate and internal audit undertake in- depth internal audit reviews to provide for independent internal verification of the transparency and soundness of key financial management tasks required under the project at least twice in a year. It was however noted that no such reviews were undertaken. Failure to undertake the reviews exposes the project to a risk of delayed identification of errors to enable timely corrective action to be undertaken.I have advised management to ensure that internal audit reviews are regularly undertaken to avert the impacts of the potential risks to effective project implementation.

iii) Lack of a fixed assets register

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Paragraph 5.13 of the Project Financial Management Guidelines provides that where a manual information system is used, a manual fixed assets register is maintained. It was however noted that the project does not maintain a fixed assets register. Failure to maintain such a register makes the monitoring and tracking of the assets difficult. In their response, management regretted this anomaly and indicated that they were in the process of designing a register in the new accounting software that has been acquired by the project. I have advised management to expedite this process accordingly. iv) Unaccounted for funds Part I (217) and Sec.215 of the Treasury Accounting Instructions 2003, require that all funds be accounted for within 60 days. It was noted that funds totaling to Shs.58,099,786 and US$.20,616 advanced to various project staff remained unsupported by the time of this report. Failure to account for advances reflects laxity by management to follow up advances to staff. Delays in submission of accountability may also lead to falsification of accountability documents by recipients in a bid to conceal fraud.

I have advised management to put in place a mechanism to track the advances and ensure that no fresh advances are granted when prior ones are not retired. In addition, accountability documents for the above funds should be obtained and provided for verification.

(b) Compliance with the Financing Agreement and GoU Financial Regulations i) Delays in submission of draft financial statements The financing agreement requires management to submit audited financial statements within six months of the close of the period. However, the projects draft financial statements were submitted for audit in January 2013, seven months after the close of the financial year.

Delays in submission of the draft accounts ultimately led to a delay in issuance of the audit report. I advised management to desist from such a practice as such delays may affect future flow of funds from the Bank.

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35.19 MINISTRY OF HEALTH - UGANDA GLOBAL FUND TO FIGHT AIDS, TUBERCLOSIS AND MALARIA PROGRAMMES (UGFATMP) - GRANT NOS: UGD-405-G05-M AND UGD-708-G08-M – FUND ACCOUNTABILITY STATEMENT - 30TH JUNE 2011 (a) General Standards Of Accounting And Internal Control A review of the financial management systems and internal controls was carried out. The following matters were noted:- i) Foreign exchange losses - Shs.3,588,257,057 The funds for the project were routed through the Ministry of Finance as the principal recipient before being transferred to the Ministry of Health account at the ruling rate. However, the Ministry of Health, (The implementing agent) operational account is denominated in Uganda shillings although a big portion of the expenditure is made to the suppliers in dollars. This implies that the ministry again converts the Uganda shillings into US dollars at the time of payment, leading to huge losses in project funds due to prevailing unfavourable foreign exchange rate variations. It was noted that during the year under review, the project incurred foreign exchange losses amounting to Shs.3,588,257,057 (US$.1,586,336) which funds could not have been lost, had the Ministry maintained a US dollar bank account for dollar transactions. My previous year recommendation to management to open a dollar operational account for dollar transactions was not implemented.

I have again advised the Accounting Officer to open up a dollar account for settlement of dollar claims without any further delay. In their response, management acknowledged this anomaly and indicated that a US Dollar account has since been opened up accordingly.

ii) Cash Payments During the examination of accounts, it was noted that funds amounting to Shs.2,807,339,071 were advanced to various officers in cash to carry out advocacy and support supervision on the Long Lasting Insecticide-treated Nets (LLIN). These were in form of allowances, hotel costs, publicity and advertisements, stationery and other related expenses. This practice is contrary to the Treasury Accounting Instructions 2003 and exposes project funds to the risk of theft and misuse. I have 530

advised management to desist from the practice of making huge cash payments and pay the suppliers directly for the logistics and the hotel expenses. In their response, management noted the observation and pledged to adhere to Treasury Accounting Instructions in future. iii) Non separation of Grants The project maintains a single account under the malaria component where funds are deposited for all the rounds under the grant. During the audit it was noted that the round 7 funds were deposited on the same bank account where round 4 balances were being maintained. As a result, most of the activities that were planned for under round 4 were implemented using round 7 funds. This was further aggravated by the activity overlap due to the delayed implementation by management. Failure to separate Grant funds for the two rounds adversely impacted on the implementation of the activities provided for, under the round 7 work plan.

I have advised management to always endeavour to implement the activities within the stipulated timelines as per the work plan. In addition, where possible, management should consider maintaining separate bank accounts for the various rounds to avoid commingling of funds. Management acknowledges the observation and has since opened ledgers for the different grants to address this anomaly. Activities will be implemented in conformity with approved work plan. iv) Delayed accountability for funds It was noted that advances amounting to shs.96,783,800 made to various officers for carrying out support supervision remained outstanding at the end of the year contrary to the Treasury Accounting Instructions which require advances to be accounted for within the financial year during which the advances were made. Delayed accountability for the funds reflects management laxity in the follow up of advances which may lead to loss of such funds. In absence of the accountabilities I could not confirm that the funds were applied for the intended purposes. Non accountability for the funds may also affect the cash inflows from the donors, hence retarding the implementation of the project planned activities.

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I have advised management to put in place adequate controls over the management of advances. In the meantime accountability documents for the above amounts should be obtained and availed for verification.

In their response, management regretted this anomaly and explained that it has instituted internal controls that include without limitation maintaining and updating advances ledger regularly, retirement of previous accountabilities before more funds under different activities can be requisitioned and taking disciplinary actions that include refunds for unsatisfactory accountability as well as monitoring the aging of the accountabilities. This will enable management at all levels to monitor closely and enforce good Financial Management for all grants and thus addressing the issue of Advances and their age. v) Doubtful payments An amount of Shs.80,654,000 was paid to various suppliers for the supply of stationery. It was however, noted that the supporting documents attached were generated after the purported deliveries. The practice is contrary to the procedures enshrined in the PPDA Act 2003 and the Public Finance and Accountability Act 2003. Besides, the items could not be traced to the stores records. In addition, Shs.16,340,000 were advanced to two officers based on photocopied documentation. There is therefore, a risk of recycling accountability documents to effect double payments resulting into financial loss.

I have advised management to investigate the above expenditures with the view of taking disciplinary action on the officers concerned. In their response, management noted this concern and committed itself to rectifying such procurement flaws. Management has taken a stride in its commitment by placing adverts into papers for the position of Procurement officer who will be charged among other roles, with the responsibility of strict adherence to the PPDA regulations in execution of the duties.

However, regarding the photocopied documents, although management explained that the photocopies were for activities implemented from the district and that the

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originals were retained at the host district, this could not be verified since the originals were not presented for verification.

(b) Compliance with the Memorandum of Understanding and GoU Financial Regulations i) Expenditure performance It was noted that the project management incurred expenditure over and above the approved budget by Shs.8,708,119,291 as detailed below:- Over Details Budget(shs) Actual(shs) expenditure(shs) Infrastructure & equipment(Bicycles) 13,541,312,787 19,034,403,538 54,93,090,751 Health product & 4,780,307,500 6,427,992,825 1,647,685,325 equipment Medicine & Pharmaceuticals 19,452,546,249 20,682,452,398 1,229,906,151

Bank charges - 337,437,066 337,437,066 Total 37,774,166,536 46,482,285,827 8,708,119,291

However, there was no evidence to show that the expenditure was authorised by the relevant authority. The over expenditure negatively impacted on the implementation of other planned activities. Management was advised to always adhere to the approved budget allocations and/or seek authority in case of any deviations.

In their response, Management noted and regretted this anomaly, adding that the ministry has since opened USD Accounts on which these transactions shall be executed to avoid losses arising of foreign exchange fluctuations. Further, Ministry of Health has agreed with Accountant General that all local suppliers shall be paid in local currency and all the invoices shall be quoted in Uganda shillings to avoid foreign exchange distortions.

Auditors’ additional comment: only a total ofShs.3.5 billion could be attributed to the foreign exchange losses which could have been avoided had management implemented the prior year audit recommendation to open up a dollar account. ii) Ineligible expenditure

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Article 12 of the Grant Agreement requires that the Principal Recipient ensures that the procurement of any goods or services using Grant funds by the Principal Recipient and Sub-recipients is free from taxes and duties imposed under the laws of the Host Country. However, a total of US$.982,918 was paid in respect of Value Added Tax contrary to this requirement.

Additionally, a total of US$.206,592.03 was paid to the third party procurement agent although the expenditure was not provided for in the work plan. Such expenditure contravenes the provisions of the grant agreements and could lead to stoppage of disbursements of project funds by the donors.

I have advised management to desist from incurring expenditures not budgeted for. In addition, management should ensure that the project account is refunded with the amount paid in lieu of taxes. In their response, management regretted this anomaly and indicated that it was an oversight. Management also indicated that it is taking necessary steps to recover from the supplier as equipment for medical use is VAT Exempt.

(c) Procurement (i) Procurement of civil society organizations (CSOs) Procurement planning and bidding PPDA Regulations 141 and 145 require the entity to have an advertising period of 4 working days and bidding period of 22 working days under the open domestic bidding method. However, it was noted that during the procurement of CSOs, management placed an advert in the local media once and the bid period was only 12 working days. It was further noted that the debriefing of the potential bidders was done just a week to the set bidding period contrary to the PPDA guideline no.2 of 2005. No extension of the bidding period was done.

Failure to provide the required time for the procurement process might have denied the prospective bidders from making adequate preparation for the tender. In the circumstance the process might not have been competitive enough to guarantee value for money. Management should ensure full adherence to the procurement guidelines to ensure value for money. Management explained that this anomaly had

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been noted and was regrettable. This will not occur again. Management undertakes to adhere to the PPDA regulations in future.

Evaluation A review of the procurement process revealed that all the district local governments were eliminated due to lack of audited accounts, a criterion that was not expressly stated in the solicitation document. This could have denied the project from benefiting from competition from many potential bidders.

Although management explained that the requirement for audited accounts was only for non-public sector entities, on the contrary, all public sector entities were eliminated on this criterion. I have advised management to ensure adherence to the provisions of the grant agreement and PPDA Act 2003.

Contract management It was noted that sourcing for CSOs was done during the financial year 2006/2007. However, due to delays in disbursement of funds, the activity could not be done and was only implemented three years later, during the financial year 2010/2011. There was no explanation to justify the delay that ultimately affected service delivery. Management should always ensure timely implementation of all planned activities so as to accomplish all planned activities within the stipulated project lifetime.

Management explained that the delay was beyond the control of the PR. The negotiation of this and other grants took place in the period immediately following the disbandment of the previous grants. This was a period of uncertainty and transformation from the project modality to the Long-term Institutional Arrangement.

(ii) Procurement of medicine boxes and T-shirts The Ministry of Health, under procurement ref: MOH/SUPP/09-10/325 contracted a firm, to supply 110,000 medicine boxes and 110,000 T-shirts based on the evaluation criteria which eliminated 13 other bidders. However, one of the eliminated bidders, wrote to the Permanent Secretary seeking his intervention while protesting the manner in which the award had been made. However, contrary to 535

the PPDA provisions, no administrative review was constituted by the Accounting Officer to address this concern. I have advised management to always ensure full adherence with the procurement regulations in an effort to uphold the principles of fairness and transparency.

(iii) Procurement of bicycles Evaluation process Out of the 6 companies that were evaluated, 2 were eliminated at the preliminary stage for non-compliance leaving 4 companies for the next stage of evaluation. It was however noted that only 3 bidders (i.e. Aponye, Nile Fishing and Endesha) were evaluated for technical specification and compliance leaving out M/s Honda and no explanation was provided for its exclusion from the technical evaluation stage.

Failure to evaluate the 4th firm might have denied the project an opportunity to have a cheaper price and/or better quality. I have advised management to investigate the matter and take appropriate action on the officers concerned.

Contract management On the 29th Sept 2010 management entered into a contract to supply bicycles with M/s Nile Fishing (77,000 units) and M/s Endesha (33,000 units). The agreed duration for the contract was 6 months (24 weeks) within which the supply and the distribution of the bicycles should have been completed.

However, by the time of writing this report (May 2012), only 18,000 bicycles had been delivered to the respective sub counties and no explanation was given to justify why SCC 16.1 of the contract agreement which requires liquidated damages of 5% per week or 10% maximum of the contract price for breach of the contract, was not invoked. It was noted that failure to invoke the liquidated damages section led to a financial loss of Shs.1,292,057,339 and Shs.611,383,015 chargeable to M/s Nile Fishing and Ms Endesha respectively. I advised management to invoke SCC 16.1 of the agreement and recover liquidated damages accordingly.

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Management explained that the delay was as a result of the new distribution lists and outlets which came as result of gazetting new administrative layers in terms of new districts, sub-counties and parishes different from what was prevailing at the grant and contract signing respectively. However, no documentary evidence was presented to support this explanation. The continued failure by management to follow up this procurement and have all the bicycles delivered may lead to further loss.

(d) Field Inspections of Sub Recipients i) Non- Implementation of Activities It was not noted that during the year under review, activities worth Shs.192,982,441 were not implemented as had been planned. This was majorly attributed to delays in the procurement process. Failure to implement activities according to the approved work plan can lead to failure to accomplish all planned activities within the project duration and therefore necessitate unnecessary project extensions.

Management is advised to ensure that all planned activities are always undertaken according to the work plans. In their response, management acknowledged this observation indicated that that they will endeavour to undertake planned activities according the scheduled work plans in future. ii) Delivery of bicycles, medicine boxes, T-shirts and mosquito nets The Global Fund Health grants are meant to provide a mechanism for sustainable coordination and management of global funds through the use of existing structures for improved financial and programmatic accountability. During the field inspection however, it was established that the distribution of bicycles, medicine boxes and T-shirts across the 112 districts was not channelled through the respective district administrations as required by the grant. Therefore, it was difficult to obtain the record of the items in question and their respective distribution. It was noted that in many districts the medicine boxes were delivered ahead of the medicines, bicycles and the T-shirts thus beating the rationale of the entire procurement of the items. A bulk of these items is not being utilized for their intended purpose. It was further, noted that some bicycles were given out to 537

untrained beneficiaries due to inadequate guidelines on how they should be distributed.

Management should reconsider the delivery of the remaining items to be done through the established local government structures. In their response, management regretted that the suppliers did not adhere to provided guidelines. They were cautioned and officials from NMCP got in touch with the districts and this anomaly has since been rectified. iii) Funds not accounted for A sum of Shs.52,471,549 remitted to Lyantonde district in respect of HIV training was not accounted for contrary to financial regulations which require all funds to be accounted for within the year to which the funds relate. Additionally, an amount of Shs.16,560,000 purportedly transferred to the sub-recipients could not be traced at the respective entities during the audit inspections. This amount therefore remains unaccounted for in the absence of evidence of receipt of the same by the beneficiary entities.

Management is advised to urgently follow up this matter. In their response, management explained that they will track these transfers to the bank statements to verify and substantiate the sub recipient claims. iv) Payment of VAT using Global Fund-Mukono District It was established that Shs.8,721,000 was paid as Value Added Tax (VAT) to two suppliers contrary to the grant agreement provisions. The expenditure is ineligible and is therefore recoverable.

Management is advised to ensure adherence to the grant document and have the amount in question refunded to the project account. In their response management regretted this anomaly and acknowledged that these activities are not liable to VAT. Management has formally written to Ministry of Finance and Planning and Economic Development seeking a waiver for tax exemption on global fund supported activities.

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v) Non deduction of WHT It was noted that taxes amounting to Shs.13,960,064 were not deducted at source while paying several service providers contrary to section 120 of the Income Tax Act 1997 which requires that all payments for goods and services in excess of Shs.1 million be subject to a 6% withholding tax. Non recovery of the taxes may attract fines and penalties from the tax body.

Management is advised to ensure adherence to the requirements under the tax law. In their response, management promised to communicate to all sub recipients implementing the Global Fund grants to ensure that 6% WHT is deducted from Service providers and domestic suppliers of goods. vi) Ineligible expenditure on fuel Verification of Sembabule district accountabilities for HIV training revealed that fuel worth Shs.1,659,940 was drawn by Motor vehicle No. UAG945F whose identity could not be traced at the district and no explanation was provided to confirm that the vehicle was actually used for the Global Fund activities at any one time. Management is advised to follow-up this matter and have the funds in question refunded. vii) Non-engraving of equipment During the audit inspections, it was noted that most districts received US$.2,500 (an equivalent of Shs.5,949,425) for procurement of equipment. However, in the districts visited, the equipments procured had not yet been engraved. Failure to engrave the equipment makes asset identification and tracking difficult. Management should ensure that all the assets are engraves to ease proper monitoring.

It was also observed that in Isingiro and Kabarole districts, the computers were not being used because these districts had excess equipment. This casts doubt as to whether needs assessment was done prior to allocation of funds to the affected districts. In their response, management regretted this anomaly and promised to write to all sub recipients to engrave/mark all assets to enable proper asset tracking.

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35.20 MINISTRY OF HEALTH - UGANDA GLOBAL FUND TO FIGHT AIDS, TUBERCLOSIS AND MALARIA PROGRAMMES (UGFATMP) - SCALING UP INTERVENTIONS OF TB PREVENTION, CONTROL, TREATMENT, CARE AND SUPPORT IN UGANDA GRANT NO: UGD-607-G06-T-00 - FUND ACCOUNTABILITY STATEMENT FOR THE YEAR ENDED 30TH JUNE 2011 (a) Compliance With The Memorandum Of Understanding And Gou Financial Regulations i) Delayed Submission of draft accounts for audit The Grant Agreement stipulates that the audited financial statements for the programme should be submitted to the donor within six (6) months of the end of the financial year. However, the draft accounts for the year under review were presented for audit in March 2012. This implies that the final audit report could not be submitted on time. Failure to comply with this requirement can result into withholding of further funding for the Programme.

I have advised management to always promptly submit draft accounts for audit to enable finalisation of the audits within the prescribed time.

35.21 UGANDA GLOBAL FUND TO FIGHT AIDS, TUBERCLOSIS AND MALARIA PROJECT STD/ACP (AIDS) GRANT NO: UGD-UGD-708-G07-H – FUND ACCOUNTABILITY STATEMENT FOR THE YEAR ENDED 30TH JUNE 2011 (a) Compliance With Financing Agreements and Government Of Uganda Financial Regulations i) Delayed Submission of draft accounts for audit The Grant Agreement stipulates that the audited financial statements for the programme should be submitted to the donor within 6 months of the end of the financial year. However, the draft accounts for the year under review were presented for audit in March 2012. This implies that the final audit report could not be submitted on time. Failure to comply with this requirement could result into withholding of further disbursements by the donor. I have advised management to always promptly submit draft accounts for audit to enable finalization and submission of the reports within the stipulated time frame.

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ii) Ineligible expenditure Article 12 of the Grant Agreement requires that the Principal Recipient ensures that the procurement of goods or services using Grant funds by the Principal Recipient and any Sub-recipients are free from taxes and duties imposed by laws of the host country. On the contrary, a total of Shs.59,740,738 was incurred in respect of Value Added Taxes (VAT) on the procurement of IEC materials. Non-compliance with the grant agreement could lead to suspension of the grant by the donor.

I have advised management to desist from such a practice and also ensure that the project account is refunded with the amount in question. In their response, management explained that it is in consultation with the budget desk in ministry of Finance Planning and Economic development to have this issue resolved. As soon as negotiations are complete, government will immediately refund the said amounts in question. iii) Irregular procurements PPDA guideline no.1 of 2003 provides for the use of open domestic bidding methods for procurements for supplies above shs.70 million. Examination of payments however revealed that management procured IEC materials worth Shs.256,409,382 without meeting the above requirement. It was noted that the procurements for similar items were split in order to avoid the PPDA requirement. The split of the procurements could have denied the project from enjoying the economies of scale by buying in bulk.

Management should avoid flouting the PPDA requirement as this could lead to loss of project funds. In their response, management acknowledged this anomaly and committed itself to rectifying such irregularities in future. iv) Unauthorized travel A total of Shs.3,584,946 was paid in respect of per diem and air ticket for an officer to travel abroad on official duties. It was however noted that the travel was undertaken without clearance from the Prime Minister, as is the required practice in Government. In addition, the officer did not provide proof of having traveled in form of boarding pass and activity report. In the absence of proper accountability,

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there is no evidence to show that the travel was actually undertaken and the objectives attained. In their response, management acknowledged this anomaly. However, going forward, management has committed itself to rectifying such irregularities by getting clearance from the Prime Minister‘s office.

(b) General Standard of Accounting And Internal Control - Budget Performance i) Revenue Performance The total budget for the HIV/AIDS Round 7-Phase 1 (24 months ending July 2011) was Shs.89,591,808,000. By the end of the financial year 2010/11 (one month to the close of this phase), only Shs.63,601,973,000 (representing about 71%) had been released leading to a short fall of Shs.25,989,835,000. The disbursement shortfalls might have been related to delayed submission of accountability by project management. Such disbursement shortfalls might lead to failure to accomplish all the planned activities within the stipulated period for phase 1 of the programme.

I have advised management to always ensure timely accountability to facilitate the timely disbursement of the funds by the donor. Management explained that it has put in place mechanisms including but not limited to strengthening communication between the Global Fund Secretariat, Local Fund Agent, Country Coordinating Mechanism, Focal Co-ordination Office and Ministry of Finance Planning and Economic Development, the Principal recipient as well as planned recruitments of Regional Performance Monitoring Teams (RPMTs). This move is designed to increase accountability and reporting between the concerned parties that will see bureaucratic delays significantly reduce. Besides, a dedicated team to handle Uganda‘s perceived risks has been put in place to solely concentrate on tracking specific issues regarding Grant absorption as well as fast–tracking disbursements. ii) Expenditure Performance Low absorption capacity It was noted that a total of Shs.43,883,588,927 was brought forward from the prior period while another Shs.11,796,904,142 was disbursed to the project during the year, leading to a total of Shs.55,680,493,000 being available under phase I of the 542

round 7. It was however, noted that only Shs.35,859,679,000 was spent during the period, representing 65% of the available funds. This reflects a low absorption capacity by the project given the fact that much of the funds were from the previous period‘s budget. This affected the implementation of the planned activities for the period. Notable among the unimplemented activities is the procurement and distribution of condoms. Failure to spend the funds was attributed to delays in the procurement processes.

I have advised management to ensure that the procurement processes are expeditiously handled to avoid the unnecessary delays. In their response, management indicated that it has contracted the services of Voluntary Pooled Procurement Agent (VPP) to expedite the procurement processes. This is intended to avoid the middlemen who have been causing the unnecessary delays in form of administrative reviews over time. As such management will be able to report timely and thereafter access timely disbursements.

Over expenditure It was noted that the budgeted provision for medicines and pharmaceuticals, was Shs.20,952,578,700. However, the project spent a total of Shs.24,317,166,151 leading to an over expenditure of Shs.3,364,586,000. There was no evidence that authority was sought to allow the expenditure above the budgetary allocation. The over expenditure could have negatively affected the implementation of other planned activities for the period. Management should ensure adherence to budget allocations or else seek authority for deviations from the approved allocations. In their response, management acknowledged this anomaly noting that the said expenditure arises from the foreign exchange losses that were incurred as result of the Principal recipient paying for Medicines and Pharmaceutical products in foreign currency. Management has since opened and currently operates the US Dollar Account which was opened in May 2011 to overcome foreign exchange losses.

Unexpended balance USD.4,391,196 A review of the financial statements revealed that USD.4,391,196 is being held on a holding account in BOU by MOFPED. The Programme management explained that 543

these funds were meant for procurement and distribution of condoms and Procurement and Supply Management costs. It was noted that the procurement process for the condoms had since been halted, pending an administrative review. This has resulted into delays in implementing the planned activities for the period. In their response, management indicated that it has already enlisted the services of the VPP agent who is in the final stage of completing deliveries for condoms. The focal co-ordination Office is in liaison with the Fund Portfolio manager to expeditiously finalise this matter. As soon as approval for transferring the Funds to agent is cleared by the Fund Port-Folio Manager and the Government of Uganda Solicitor General‘s office, the transaction will be effected immediately. I have advised management to expedite this process.

Doubtful payment A total of Shs.13,634,841 was paid to a firm on expenditure voucher No.04/08/2010 in respect of stationery. However, scrutiny of the supporting documents revealed that the LPO was issued on 22nd July 2010 whereas the stationery had purportedly been delivered on 24th June 2010 as per delivery note no 2736/7 and tax invoice no. 2316. It was noted further, that there was no evidence that the said items were delivered to the ministry stores since they were not taken on charge. Further review of the documentation availed revealed that there is no evidence that the supplier was sourced through a competitive process as required by the procurement regulations. Failure to adhere to the procurement guidelines does not guarantee obtaining competitive prices and hence value for money.

I have advised Management to investigate further the circumstances relating to the purported purchase of the stationery and take disciplinary action on the officers responsible for this anomaly.

Expenditure Unaccounted for During the year under review, Shs.43,260,000 was advanced to an officer to carry out official activities. However, the advances had not yet been accounted for by way of attaching the necessary documents including acknowledgement receipts from the service providers and activity reports by the time of the report. This is 544

contrary to the PFAA 2003 that requires all advances to be accounted for by the end of the financial year to which the advances relate. In the absence of supporting documents, I could not confirm that the funds in question were expended for the purposes intended.

Management is advised to always ensure that advances are fully accounted for within the financial year in which they have been made, in accordance with the requirements of the PFAA 2003. In addition, management should obtain and avail the supporting documents relating to the above advances for audit verification.

Tax remittances not accounted for It was noted that funds amounting Shs.13,889,446 was deducted from various suppliers and employees in respect of withholding tax and PAYE. However, these deductions were not fully supported with acknowledgement receipts from URA. There is a risk that the funds in question may not have been remitted to the tax body.

I have advised management to ensure that they always obtain acknowledgement receipts for all remittances to the tax body. In addition, Management is advised to obtain and avail the acknowledgement receipts for verification.

35.22 UGANDA GLOBAL FUND TO FIGHT AIDS, TUBERCLOSIS AND MALARIA PROJECT - GRANT NOS: UGD-102-G01-H-00, UGD-202-G03-T-00, UGD- 202-G02-M-00, UGD-304-G04H AND UGD-405-G05-M - FUND ACCOUNTABILITY STATEMENT FOR THE 15-MONTH PERIOD ENDED 30TH SEPTEMBER 2010 (a) Compliance With Financing Agreements And Government Of Uganda Financial Regulations i) Government obligation - VAT Arrears Shs.2,445,953,543 According to the Grant agreements, all taxes on supplies of goods and services to the Global Fund programmes are the responsibility of the government of Uganda through MOH as the implementing agency. However audit revealed that the outstanding VAT payable to suppliers by closure of the project is

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Shs.2,445,013,161. This long outstanding amount does not only contravene the provisions of the grant agreement but could lead to litigation from suppliers. I have advised the Accounting officer of the Ministry of Health to expedite the payment of VAT to Uganda Global Fund service providers to forestall any legal action and associated costs. ii) General Standard Of Accounting And Internal Control Grantee Balances Included under Note G in the Management Information Schedules accompanying the Fund Accountability Statement, are grantee outstanding advances amounting to Shs.413,380,688 as at 30th September 2010 as summarized below:-

Category of grantee Bal Amount Bal outstanding outstanding as accounted for as at 30th at 1st July 2009 (shs) September 2010 (shs) (shs) Lead Agencies 186,458 0 186,458

Direct Implementers 24,845,168 607 24,844,561

Other Civil Society/private 76,754,624 499,483 76,255,141 organizations

Ministries & GoU 249,933,675 169,748,395 80,185,280 Institutions

Districts 534,471,667 302,562,419 231,909,248 Grand Total 886,191,592 472,810,904 413,380,688

The bulk of these advances relate to the financial year 2004/05. A number of these advances are still the subject of investigation arising out of the findings of the Commission of Inquiry into the management of the Project that was set up in 2005, the outcome of which may continue to have a material effect on the unexpended balances brought forward. There is still uncertainty as to whether the funds were utilized for the intended purpose.

In their response, the CMF explained that the summary of sub-recipient defaulters represent balances that were not accounted for by the sub-recipient organisations. CMF neither received statements of expenditure nor refunds for unutilized funds from the individual organisations. The detailed lists of non-compliant organisations

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were sent to the Directorate of Public Prosecutions (DPP) for necessary action as CMF‘s efforts to get these institutions to account failed. I await for action in this regard.

Un utilized savings (US$.787,258) Since June 2008, the Global Fund Secretariat in Geneva would advance funds directly to the World Health Organisation (WHO) for the procurement of drugs, health and other non-health products for the project. As a result of reduced prices, savings amounting to US$.787,258 were realized which would result into increased quantities of the supplies under this arrangement. It was noted however, that the supplies from these savings had not yet been received by the time of this report. I could not, therefore, confirm that these funds were put to the intended purpose.

I have advised management to follow up the funds in question with both the Secretariat as well as the World Health Organization, so as to ensure that the deliveries are accordingly made. In their response, management explained that the Under Secretary, Finance and Administration MOFPED wrote a reminder letter to the WHO on 10th February 2010 requesting that this unutilized balance be refunded to the Programmes or utilized for procurement of additional health products as would be agreed with the Ministry of Health and the Principal Recipient. A number of emails were also sent to the WHO, but no response has ever been received. Another reminder letter will be dispatched to the WHO, with copies to MOH and LFA. Commission of Inquiry recovery of funds bank account - Shs.1,128,736,800 It was noted that recovery of funds through the special account number 299.227044.1 which was opened by the Commission of Inquiry had accumulated to Shs.1,128,736,800 by 30th September 2010. As mentioned in the previous report, management has not sought guidelines from Global fund on how the funds should be put to use and this may expose the funds to the risk of loss in value and misappropriation.

I have again advised management in consultation with the MOH, to seek guidance and appropriate approvals from the Global Fund Secretariat for utilization of these 547

funds so as to prevent further loss in value. Recovery of funds through the ‗Refund of Global Funds Money Bank Account‘ was created by the Judicial Commission of Inquiry. The MOFPED as the Principal Recipient to all Global Fund money, was the designated signatory to this account, while the Caretaker Management Firm monitors and regularly produces a schedule of bankings into the account up to 30th September 2010.

In their response, the CMF concurred that the value of funds so far realized should be put to use to reduce potential risk of reduction in value. However, it was now their understanding that the funds are no longer the responsibility of the MOFPED as all bank accounts have been handed over to the Ministry of Health. The MOFPED, as the Principal Recipient and in consultation with the Ministry of Health, will seek appropriate approvals from the Global Fund for appropriate utilisation of these funds.

Outstanding Working Advances - shs.65,118,440 Audit revealed that the following advances remained unaccounted for by the time of audit:- The B/F balance includes Amount (Shs) D Staff Advances brought forward from R1 HIV/AIDS 34,313,160 e Advances to MOH 30,805,280 D Total 65,118,440 e Delays in submission of accountability casts doubt as to whether the funds in question were put to the intended purposes. I advised management to follow up the advances in question or else have these funds recovered.

In their response, it was explained that the disbanded PMU advanced imprest funds amounting to Shs.34,313,220 to the staff but attempts to contact them have been unsuccessful. Some staff had even left the services of the Project Management Unit (PMU) even before this unit was disbanded. As regards the Shs.30,805,280, the Ministry of Health borrowed this amount and subsequently issued a cheque to PMU which became stale. This cheque has not been replaced to date.

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Rent deposit due from National Housing & Construction Co - US$.3,237.74 The Caretaker Management Firm took over the offices on the 13th Floor, Crested Towers Building on 1st November 2005 and vacated tenancy on 31st January 2009, when the UGFATMP operations were moved to the offices of the Ministry of Finance, Planning and Economic Development.

In accordance with the terms of the Tenancy Agreement, the landlord undertook the necessary restoration repairs and painting to the offices, the cost of which was to be set-off against the deposit amount of US$.6,350 held by National Housing & Construction Company as detailed in the table below:-

Crested Towers, 13th Floor, Lease 221 Invoice Amount Contractor/Supplier Description of work done (Shs) Conveyer Construction Company Painting & partitioning 1,708,350 Safi Cleaning Services Cleaning 400,000 Impact Electronics Electrical works 3,172,000 Peter Dramani Labour for fixing ceiling panels 121,000

Amount in U.Shs 5,401,350

Exchange rate 2,150.00 Amount in USD $2,512.26

Add Roko Technical services $708.00 Less VAT payable by MOH $108.00 $600.00 Total due to NHCC $3,112.26 Rent Deposit due to UGFATMP $6,350.00 Balance due to UGFATMP $3,237.74

However, the US$.3,237.74 remains due from NH&CC as no further follow up has been made to recover this money. I have advised management to pursue these unutilized funds and ensure that they are accordingly recovered from NH&CC. In their response, the CMF noted that they sent a reminder letter on 16th April 2009 and various emails on this subject but no further refund was made by the time CMF vacated office on 30th September 2010.

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35.23 DANIDA HEALTH SECTOR PROGRAMME SUPPORT PHASE III (HSPS III) - 16 MONTH PERIOD ENDED 31ST OCTOBER, 2011 (a) General Standard Of Accounting And Internal Control A review was carried out on the Programme‘s system of financial management. The shortcomings identified included the following:- i) No cash count certificate as at the end of the period During my review, I was not provided with the cash count certificate for the balance of Shs.1,500,000 as cash balance in the financial statements. I explained to management that without the cash certificate that was reviewed by a senior person, I could not verify the existence and accuracy of the cash and bank balance. I advised management to ensure that for the cash at hand amounts held at each period end, a cash count certificate be prepared and then verified by a senior independent officer. In their response, management has promised to address this matter accordingly.

ii) Closure of the Ministry of Health/DANIDA funds account It was noted that as at the official close of the programme on the 30thJune 2010, an amount of Shs.36,731,340 was held on the Bank of Uganda account specific to the programme. It was explained that the funds were to be continued to be held on the Bank of Uganda account until all anticipated transactions were fulfilled. There is a risk that programme funds can be diverted on MoH activities other than those budgeted for. I have advised management to liaise with the Development Partner and ensure that the funds are transferred to the agreed beneficiary.

In their response, management has indicated that a letter has been written by Royal Danish Embassy (RDE) to have the amount refunded to an account specified by RDE. However, by the time of audit, no evidence had been provided to me regarding this matter.

iii) Distributions not made according to planned allocations by JMS During my field verification from the sample selected, I noted that Kamuli district was allocated to receive 60 adult mattresses and 60 pediatric mattresses, and the district would then allocate the mattresses to the different health units. However I noted that 60 mattresses adult were delivered to Kamuli General Hospital which 550

was contrary to plan. There is a risk that all district health units intended to benefit, have lost out as all allocated mattress were given to one hospital, hence not meeting the intended objective. In their response, management explained that the MoH HID has been notified of this anomaly and will follow up the distribution process to conclusion.

iv) No visibility of DANIDA Funding on the equipments supplied During my field visits, verification of the equipment delivered to Iganga, Wakiso, Pallisa, Bugiri, and Kamuli districts, revealed that there was no visibility of Danida financing in any form on the equipments. For example the equipments did not have engravings/markings/logos to enable their easy identification. There is a risk that equipments funded using DANIDA funds, can be used to account for funds obtained from other funders.

I advised management to ensure that all equipments funded using DANIDA resources should have identification marks/engraved so that they can easily be distinguished from those funded by other Donors. In their response, the Ministry explained that they will communicate to all Districts to engrave the new equipment accordingly.

35.24 REPRODUCTIVE HEALTH VOUCHER PROJECT IN WESTERN UGANDA - FINANCIAL STATEMENTS FOR THE 21-MONTH PERIOD ENDED 30TSEPTEMBER, 2012 (a) General Observations i) Project sustainability and exit planning Exit and sustainability planning involves planning for continuity of service delivery to the population even after the project has ended. For service delivery to continue it requires that project exit and sustainability strategies are well designed to ensure that the beneficiaries get the best value during and after the project implementation. During field visits to verify project outputs, it was noted that due to project funding, a number of health facilities had established strong infrastructure systems for example laboratory and theatre equipment, ward facilities and new buildings. As a result, increased number of beneficiaries resulting from reduced antenatal and delivery costs of the Voucher facility were registered. 551

However, the number of beneficiaries had drastically reduced due to closure of the project with no intervention mechanisms to support the poor mothers. In absence of exit and sustainability strategy the project original objectives of reduction of mothers and children dying or being disabled and reduction of sexually transmitted diseases will not be realized in the long run.

I have advised management to liaise with the Ministry of Health (MoH) to devise interventions to avert possible increased mortality rates due to inabilities of the beneficiaries to sustain the high costs of health services. Management explained that the Project was extended for one year in the districts of Kabarole, Kibaale, Kynjojo and Kamwenge using funding from USAID, and also stated that the RHVP design is presently under review by MOH and International donor agencies with the view of scaling up services at a National level. ii) Role of MoH in Project Implementation Section 5.1 of Annex 4 of the Project Operational Manual ―safe delivery and STD project activities,‖ states that ―regular meetings will be held with relevant departments within Ministry of Health (MoH) headquarters and all field levels with MoH district Health officers as part of Project coordination activities.‖ Furthermore, schedule 2 Section C subsection 1 (a) and (b) of the Global Partnership on Output- based Aid Grant Agreement states that ―the recipient will consult with MOH to ensure that the project is carried out in accordance with the Health Care Waste Management Plan‖ and that the ―consultation with MOH would be done to ensure that all measures for carrying out the recommendations of the Health Care waste Management Plan are taken in a timely manner.‖

However, during the project audit, I was not provided with supervision reports or minutes of regular meetings held between the Ministry and implementing Agency for review. Besides, the Health Care Waste Management Report was not also availed for verification. Lack of full participation by the executing Agency (MoH) might have led to failure to develop a well exit and sustainable strategy after the project end. In future, all responsible parties should play their respective roles and ensure sustainability of project objectives.

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iii) Increase in mortality rate for mothers The two main objectives of the Reproductive Health Voucher Project in Western Uganda were to reduce the number of mothers and children dying or being disabled due to absence or under-utilization of skilled medical attendance during pregnancy and child delivery and to reduce the burden of sexually transmitted diseases (STDs).

However, during the field visits to various Service Providers, it was noted that after the Project closure, the turn up for antenatal and delivery services at health units had drastically reduced. For instance the total number of antenatal and delivery services had reduced to 564 in the period April to May 2012 from a total of 2,135 in the period April to June 2011. In addition, some of the Government Local Health Centers visited were either under staffed or poorly facilitated to handle the mushrooming numbers of poor mothers who were yarning for low cost health facilities.

The low turn up after the project end may imply that expectant mothers have resorted to traditional birth methods which may once again jeopardize their health status. Management in consultation with the MoH, should devise means of continuous sensitization to encourage expectant mothers to visit the health units and receive antenatal and delivery services. In their response, management explained that the project design is presently under review by MOH and international donor agencies with the view of scaling up the services at a national level.

35.25 SUPPORT TO THE HEALTH SECTOR STRATEGIC PLAN PROJECT (II) - ADF LOAN NO.2100150013194 - YEAR ENDED 30TH JUNE, 2011 (a) Status of Project Implementation The status of project implementation is contained in the executive summary to the accounts in Appendix 1. However, the following matter was noted:-

i) Delayed Implementation of Civil works activities of the project During the inspections, it was noted that six health centers were still incomplete although the contract period had expired. These included the following:-

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District Site Status

Ibanda Ishongororo HC IV Incomplete Kiruhura Kiruhura HC IV Incomplete Ntungamo Rwashamaire HC IV Incomplete Kabale Bufundi HC III Incomplete Kabale Butanda HC III Incomplete Isingiro Endiinzi HC III Incomplete Kannungu Mpungu HC III Incomplete

It was noted that the delays were attributed to the contractors‘ weaknesses in scheduling and implementation of the works and management has accordingly provided for the recovery of the liquidated damages in line with article 49.1 of the contract agreement. Such delays in the implementation of key project activities can affect the timely achievements of the intended goals and objectives of the project leading to delays in service delivery. Although management has now indicated that the Health Centers were completed by December 2012 and handed over, I have not been provided with any documentary proof. This matter shall accordingly be followed up in my subsequent audit. I have advised management to always ensure that all planned works are completed within the prescribed timeframes so as to ensure timely achievement of the intended objectives.

35.26 MINISTRY OF HEALTH - SUPPORT FOR NATIONAL PREVENTION, CARE, TREATMENT, LABORATORY SERVICES, STRATEGIC INFORMATION AND POLICIES FOR HIV/AIDS, SEXUALLY TRANSMITTED DISEASES AND TUBERCLOSIS IN THE REPUBLIC OF UGANDA UNDER THE PRESIDENT’S EMERGENCY PLAN FOR AIDS RELIEF (PEPFAR) - (GRANT NO. 1U2GPS000936-04) - YEAR ENDED 30TH SEPTEMBER 2011 (a) General Standard of Accounting and Internal Control It was noted that management had in all material respects, put in place a satisfactory internal control system and measures to ensure proper accountability for all project funds, except for the following matters:-

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i) Vehicle maintenance costs During the financial year under review, a total of Shs.45,704,900 was paid to Caltex (Bwaise station) for servicing of project vehicles. It was however, noted that there is no proper system to ensure accountability for the funds spent on vehicle maintenance. For instance, job cards and vehicle log books were not maintained to track maintenance costs. Failure to provide for the controls over fleet management costs exposes the project funds to risk of abuse. I advised management to introduce a system for proper tracking of all vehicle maintenance costs.

In their response, management committed to having such a system introduced henceforth. ii) Travel abroad During examination of the financial records, it was noted that some staff were advanced a total of US$.11,686 for travelling abroad to participate in various conferences, trainings and workshops. However, by the time of audit, there was no accountability filed to confirm that officers travelled and that they participated in the various activities abroad. Failure to account for the funds was attributed to management‘s laxity in enforcing prompt accountability by staff and making follow ups on outstanding advances. In absence of the accountabilities I could not confirm that the travels took place and that there was value addition to the project operations. I advised management to always ensure that accountabilities in form of used air tickets, boarding pass coupons, copies of certificates of attendance and activity reports are submitted by each officer who is facilitated to travel abroad. iii) Budget Performance During the year under review the project budgeted for a total of Us$.4,900,000 (equivalent to Shs.11,255,300,000) but US$.5,071,199 (equivalent to Shs.12,167,194,700) was received for the implementation of planned activities. However although the Project received more funds than provided for in the budget, it was noted that there were delays in the implementation of some planned activities. These included the following:-

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Activity Details of activity Budget Ref. Amount US$ 17.13 Lab. Supplies, Central Laboratory test 36,726 19.3 Maintenance contract of office equipment 14,748 16.4 Procuring & installing 200 condom dispensers in ten (10) 10,000 Districts 8.8 Hold four(4) Regional Workshops for translating the print 15,022 materials into eight (8) languages 16.4 Conducting Film shows on TB HIV co-infections 18,000 21.9 Publication of CPHL Bulletin 10,300 21. 19 Train 210 district Personnel in Laboratory & Data 43,162 management 7.2 Annual technical meeting with 112 district Health Officers 40,192 Total 188,150

I informed project management that delays in the implementation of planned activities adversely affects the timely achievement of the intended project objectives.

In their response, management explained that funds for the activities in question had already been approved by the donor and obligated by the Ministry. Implementation of the activities was undertaken subsequently. It was further explained that CDC always allows obligated funds to be utilized for previously approved activities even after closure of the period. I advised management to always ensure that all planned activities are implemented as scheduled.

(b) Status Of Prior Year Audit Recommendations The status of prior year audit recommendations is as summarized below:-

Issue raised Remarks 1 Weaknesses in the preparation of work plans and Addressed progress reports 2 Non implementation of planned activities Repeated 3 Unnecessary delays in procurements Partially addressed 4 Failure to prepare monthly bank reconciliation Addressed statements 5 Poorly maintained asset register Partially addressed 6 Poor maintenance of stores records Partially addressed 7 Failure to recover and remit statutory deductions Addressed 556

35.27 PRODUCTIVE HEALTH VOUCHER PROJECT IN WESTERN UGANDA 15 MONTH PERIOD ENDED 30TH SEPTEMBER 2012 (a) Project sustainability and exit planning Exit and sustainability planning is about planning for continuity of service delivery to the population and thinking about how the project outputs should live on after the project has ended. For service delivery to continue it requires that project exit and sustainability strategies are well designed to ensure that the beneficiaries get the best value from the work during and after the project implementation.

During field visits to verify project outputs, it was noted that due to project funding, a number of health facilities such as Kyotera Medical Centre had established strong infrastructure systems for example laboratory and theatre equipment, enough ward facilities and new buildings. As a result increased number of beneficiaries resulting from reduced antenatal and delivery costs of the Voucher facility were registered. However, the number of beneficiaries had drastically reduced due to closure of the project with no intervention mechanisms to support the poor mothers.

In absence of exit and sustainability strategy the project original objectives of reduction of mothers and children dying or being disabled and reduction of sexually transmitted diseases will not be realized in the long run.

The Government should find interventions to avert possible increased mortality rates due to inabilities of the beneficiaries to sustain the high costs of health services.

Management explained that the Project was extended for one year in the districts of Kabarole, Kibaale, Kynjojo and Kamwenge using funding from USAID, and also stated that the RHVP design is presently under review by MOH and International donor agencies with the view of scaling up services at a National level.

(b) Role of MoH in Project Implementation Annex 4 of the Project Operational Manual ―safe delivery and STD project activities,‖ Section 5.1 states that ―regular meetings will be held with relevant departments within Ministry of Health headquarters and all field levels with MoH district Health officers as part of Project coordination activities.‖ 557

Further, schedule 2 Section C subsection 1 (a) and (b) of the Global Partnership on Output-based Aid Grant Agreement states that ―the recipient will consult with MOH to ensure that the project is carried out in accordance with the Health Care Waste Management Plan.‖ In addition, the ―consultation with MOH would be done to ensure that all measures for carrying out the recommendations of the Health Centre waste Management Plan are taken in a timely manner.‖

However, during the project audit, we were not provided with supervision reports or minutes of regular meetings held between the Ministry and implementing Agency for review. Besides, the Health Care Waste Management Report was not also availed for verification.

Lack of full participation by the executing Agency (MoH) might have led to failure to develop a well exit and sustainable strategy after the project end.

In future, all responsible parties should play their respective roles and ensure sustainability of projects objectives.

Management explained that MoH (represented by Headquarter staff and District Health Officers) has been actively involved in all Government-Donor-VMA field visits aimed at steering the project to grant objectives.

(c) Increase in mortality rate for mothers The two main objective of the Reproductive Health Voucher Project in Western Uganda were to reduce the number of mothers and children dying or being disabled due to absence or under-utilization of skilled medical attendance during pregnancy and child delivery and to reduce the burden of sexually transmitted diseases (STDs).

However, during the field visits to various Service Providers, it was noted that after the Project closure the turn up for antenatal and delivery services at health units had drastically reduced. Details are in the table below. For instance the total number of antenatal and delivery services had reduced to 564 n the period April to May 2012 from a total of 2,135 in the period April to June 2011. In addition, some

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of the Government local Health centers visited were either under staffed or poorly facilitated to handle the mushrooming numbers of poor mothers who were yarning for low cost health facilities.

Number of mothers who received services after the Project closure from April to May 2012

Service Provider TOTAL ANC1 ANC2 AN3 ANC4 Normal C/S Delivery Comboni Hospital 2 1 1

Engari Community H/C 81 13 30 25 1 10 2

Kabwohe Clinic Research 10 10 Centre Karyabagwa M.H.C 9 5 4

Kisizi Hospital 88 4 3 42 38

Kitovu Hospital 7 3 4

Mary Maternity Home 4 4

Rugarama Hospital 204 88 18 2 2 75 19

Rwesande HC IV 111 20 47 15 17 10 2

St. Andrews HC III, 42 9 8 6 19 Nyarushanje St. Mary‘s HC - Kyeibuze 7 2 2 1 1 1

TOTAL 564 121 106 61 34 175 67

Number of mothers who received services from April to June 2011

Service Provider TOTAL ANC1 ANC2 AN3 ANC4 Normal C/S Delivery

Comboni Hospital 53 25 28

Engari Community H/C 389 184 105 30 10 57 3

Kabwohe Clinic Research 30 30 Centre

Karyabagwa M.H.C 547 344 9 1 137 56

Kisizi Hospital 227 98 45 3 1 52 28

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Kitovu Hospital 16 10 6

Mary Maternity Home 30 19 3 1 7

Rwesande HC IV 633 293 138 64 29 94 15

St. Andrews HC III, 142 85 26 6 2 23 Nyarushanje

St. Mary‘s HC - Kyeibuze 68 51 2 15

TOTAL 2135 1074 328 105 179 369 80

With low turn up after project end may imply that most mothers are returning to traditional birth methods that may jeopardize their health status.

The Government should take immediate steps to prevent the possible tragedy resulting from increased mortality rates.

Management stated that the project design is presently under review by MOH and international donor agencies with the view to scale up services at a national scale.

(d) Status of prior year audit recommendations A review of the recommendations included in the previous year audit report was carried out. The status of the findings therein, is summarized below;

Ref Observation Risk Status of Implementation as of 31st March, 2012 6.1 No system at service provides‘ locations visited Not implemented to separate drugs from different GO funding sources and those charged to the project. 6.2. Possible use of expired drugs to treat Project beneficiaries. 6.3 Inter-Project-Financing Implemented

6.4 Non payment of statutory obligations Implemented 6.5 Possibilities of poor quality services to clients Implemented 6.6 Systems inadequacy in payment processing Partially Implemented 6.7 Contradictions in Vetter comments during Partially Implemented payment processing

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36.0 UGANDA BLOOD TRANSFUSION SERVICES

36.1 Mischarge of Expenditure It was noted that expenditure amounting to Shs.312,168,386 in respect of various activities was erroneously charged to wrong expenditure codes. This resulted into misstatement of amounts expended on the affected expenditure item codes leading to misstatement of expenditure balances reported in the financial statements. I explained to management that mischarge of expenditure misleads the reader of the financial statements as the amounts posted on the affected expenditure item codes do not reflect the actual codes to which the amounts were expended.

Management explained that for some expenditure, re-allocation authority was granted by the PS/ST. However, because the IFMS system does not allow charging another account once funds are released, the expenditures were captured under the items from which funds were approved for re-allocation while in some cases, the mischarges were due to the urgency and the immateriality of individual expenditure items. Although I advised Management to adjust the Financial Statements to reflect the correct code itemization, this had not been done by the time of compiling this report.

36.2 Prepayments/Receivables It was noted that management made prepayments for both electricity and water amounting to shs.73,716,667 during the year under review and by the close of the financial year, there was a credit balance of shs.296,792,964 lying idle with the utility providers. There was no justifiable explanation for depositing huge amounts of money with utility service providers yet other core activities remain unfunded. Management explained that the relatively large amounts of deposit was made in anticipation of timely takeover of Gulu and Fort Portal regional blood banks. They further explained that when a large credit balance on electricity was realised during the year, a total of Shs.40 million were re-allocated to support other activities and the budget provision for the year 2012/13 was scaled down to only shs.20 million. I have advised the Accounting Officer to always make more realistic budgets for utilities to avoid holding huge sums of money on utility accounts while suffocating other activities.

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36.3 UGANDA BLOOD TRANSFUSION SERVICES - SUPPORTING NATIONAL BLOOD TRANSFUSION SERVICE IN THE IMPLEMENTATION AND STRENGTHENING OF BLOOD SAFETY ACTIVITIES IN UGANDA - COOPERATIVE AGREEMENT NUMBER IU2GPS002724-01 - Year Ended 30th September 2011 36.3.1 General Standard Of Accounting And Internal Control (a) Low frequency of cash counts Good practice requires that cash counts are conducted regularly to confirm existence and accuracy of cash balances at any one time. It was explained that cash counts were performed each time accountabilities were being made. However, only one cash count certificate was issued at year end implying that a proper cash count was only performed once at the end of year. Failure to perform regular cash counts with proper documentation may lead to pilferages and other forms of misappropriation of cash going undetected. In their response, Management explained that they had taken note of this observation and would institute monthly cash counts in future.

(b) Expired Contracts It is best practice to have all project personnel with valid and binding employee contracts that stipulate their terms and conditions of employment. However, it was noted that 9 staff whose contracts had expired in March 2010, were paid salary totaling US$.34,560 for the period of 18 months (to 30th September2011) without their respective contracts being renewed. as detailed in the table below:-

NAME POSITION GROSS MONTHLY SALARY (Us$) Masereka John Kibikyabo Donor clerk 262 Hasakya Annita Secretary 250 Katiisi Mary Laboratory Assistant 206 Nantale Susan Laboratory Assistant 206 Ssentalo David Laboratory Assistant 252 Bamanyisa Julius Driver 180 Kirwa Ali Driver 180 Karuhanga Richard Cleaner 132 Aciro Evalyn Enrolled Nurse 252

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TOTAL 1,920 TOTAL for 18 months 34,560

In the circumstance, the expenditure was considered irregular.In their response, Management regretted the error and stated that retrospect contract renewals were made to regularize the expenditure, since the staff in question had consistently performed their roles during the budget period.

(c) Late Income Tax (PAYE) remittance According to the Income Tax Act, employers are required to remit Pay As You Earn (PAYE) tax deductions by the 15th day of the subsequent month to which the tax relates failure of which would lead to fines and penalties being imposed on to the entity/ employer. However, it was noted that PAYE deductions for the month of October 2010 were remitted to the tax body on 29th November 2010 instead of 15th of November.

Management indicated that the delay was due to an exceptional lapse in remitting the money to the Authority and indicated that income tax remittances have since consistently been made in accordance with the law. I have advised management to ensure that all statutory remittances are always made within the stipulated deadlines.

37.0 UGANDA AIDS COMMISSION

37.1 Domestic Arrears It was noted that the Commission had outstanding commitments/liabilities amounting to Shs.121,764,206 by the end of the year. I explained to management that accumulation of arrears is not only against the government commitment control system but also exposes the Commission to a risk of incurring nugatory expenditure in case the creditors drag the entity to the courts of law for non- payment.

In his response, the Accounting Officer explained that out of the above amount, Shs.99,082,155 was in respect of arrears for the closed Uganda Aids Commission Project (UACP), while the balance of Shs.22,682,051 was incurred under GOU. He

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further attributed the delay in settlement of these arrears to the insufficient releases from government. I have advised management to ensure that resources are set aside to settle these outstanding commitments and to always adhere to the commitment control policy requirements by government.

37.2 Lack of a strategic plan A strategic plan spells out the long term direction of the entity and forms the basis for evaluation of its performance. It was however noted that the Commission did not have a strategic plan in place. In absence of a strategic plan, the objectives and goals of the Commission might not be easily achieved since there is no clear sense of direction.

Management explained that having concluded with the development of the National Strategic Plan to guide the HIV/AIDS National Response, the Commission had now embarked on the process of developing its own Strategic Plan to guide its operations. I have advised the Accounting Officer to expedite the process and have a strategic plan in place without further delay.

37.3 Fixed assets Inspection (a) Computers Inspection of computers and their accessories revealed that most of the old computers were faulty and awaiting disposal as per the details below:- No. Item Description Qty Remarks 1. UPS 31 Faulty 2. Monitors 21 -do- 3. CPU 25 -do- 4. Printers 10 -do- 5. Laptops 3 -do- 6. Scanner 2 -do- 7. Key board 17 -do-

I explained to management that delayed disposal of such assets leads to further deterioration in value and hence a loss to government. In addition, such assets consume storage space and could be harmful to the staff. I have accordingly

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advised the Accounting Officer to expedite the process of boarding off of these items.

(b) Vehicles and motorcycles Inspection of vehicles and motorcycles revealed that six motor vehicles had been identified by management as either uneconomical with respect to maintenance costs or unserviceable as shown below:- No. Item Description Reg. No. Model REMARKS 1. Motor vehicle UG 0915C Pajero Old and uneconomical to maintain 2. -do- UAA 449E Pajero -do- 3. -do- UAA 852E Ford -do- 4. -do- UG 0411C Pick up -do- 5. -do- UAA 853E Ford Not seen as its said to be in a garage. 6. -do- UAA 450E Lancer Not seen as its said to be in a garage. 7. Motorcycles N/A Hero/ turbo Scrap sport

However, two of the vehicles could not be inspected as the transport officer claimed to have kept them in un identified garage subject to disposal. I also explained to the Accounting Officer that the continued failure to have these vehicles disposed exposes them to a risk of vandalisation and also leads to further deterioration in their saleable value.

In his response, the Accounting Officer explained that the Board of Survey Team had made a recommendation to the Accountant General to have these items boarded off. He however further explained that due to budget constraints and Government Policy restricting purchase of new vehicles, the Commission is handicapped and has continued to service and use some of the vehicles. I advised Management to expedite the process of disposal of all the assets in question and submit a request to the Hon. Prime Minister to waive the ban on purchase of vehicles for the entity to procure new vehicles to enhance the entity‘s service delivery.

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37.4 Inadequate staffing in HR Department It was noted that the function of Human Resource Management was being executed by one person, the Human Resource Manager. For instance the Human Resource Manager was maintaining personal files for all the Commission staff and doing the payroll validation among other HR related activities. Lack of segregation of duties is a control weakness which exposes the payroll to a risk of errors of omission and commission going undetected.

In their response, management explained that the department was upgraded to a Directorate and the position of Director (Human Resource and Administration) and that of Human Resource Officer – (Administration and Payroll) were filled while the position of Human Resource Officer (Training & Development) and Administrative Assistant/Stores had been advertised. Management was advised to consider reviewing the Directorate‘s structure further and put in place adequate staffing in the Human resource department to allow for adequate segregation of duties.

38.0 HEALTH SERVICE COMMISSION

38.1 Budget performance It was noted that during the year under review, the Commissions‘ approved budgeted amounted to Shs.2,976,825,451 out of which Shs.2,586,236,679 was actually received by the end of the year, representing a performance of about 86%.

I explained to management that such shortfalls in funding may deny the Commission the vital resources needed to implement all the planned activities which may therefore hamper the full achievement of the Commission objectives for the period.

In response, Management concurred with the observation adding that among the planned activities that were not implemented due to inadequate funding were the recruitment of Health workers and the Technical support and supervision to District Service Commissions which were considered key for the service delivery of the Commission. I advised Management to always liaise with the Ministry of Finance, Planning and Economic Development to ensure that funds in the approved budget are released to enable full implementation of the planned activities. 566

39.0 BUTABIKA MENTAL REFERRAL HOSPITAL

39.1 Performance of the credit line with National Medical Stores (NMS) Out of Shs.885,922,673 made available on the Hospital‘s credit line facility with National Medical Stores, Shs.844,917,038 was utilized leaving Shs.41,005,635 unutilised. Management explained thatthe un-utilized balance of Shs.41,005,635 was due to non-availability of some of the specialized mental health medicines with NMS. I advised management to continue liaising with National Medical Stores to ensure that all drugs ordered for are supplied for better service delivery or else permision is granted to the Hospital to enable them obtain such drugs from other sources.

39.2 Expired drugs During the stocktaking exercise it was noted that some drugs were either expired or had a short time period to expiry. The details are shown in the table below:- Serial Drug Item Unit Expiry Date Quantity No. Measure Expired 1 Adrenaline Inj.1mg/ml Vials September 2012 280 2 Ampicillin Inj. Vials September 2012 1100 3 Atropine Inj.1mg/ml Ampoules December 2011 1000 4 Dexamethasone Vials September 2012 1 5 Donepezil hydrochloride Tabs Tins June 2012 20 5mg 6 Efavir tabs Tins February 2011 140 7 Furosemide Inj. Pkts September 2012 2 8 Halothane Bottles September 2012 3 9 Neurorobine Inj. Vials March 2012 252 10 X-Ray Salt Powder Pkts February 2012 1

Management explained that the quantities of drugs required for a given period are always estimated. However the utilization depends on actual patient in flow which may not match the estimate hence the expiry of some drugs. I advised management to strengthen drug utilization analysis so as to only requisition appropriate quantities that will minimize expiry of such drugs.

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39.3 Inspection During Inspections of Butabika Hospital the following matters were noted:- (a) Operating theatres The Autoclave machine at the minor operating theatre was found faulty. It was also noted that the major operating theatre was not functional. All the equipment had not been installed and were still packed in the stores. This could lead to their deterioration since they are exposed to a non conducive environment. I informed management that failure to operationalize the Theatre casts doubts on the rationale for the investment into the structure and the equipment.

Management stated that the proposed new structure to provide core staff for the Theatre was made and it was still awaiting approval of the proposed structure to adequately utilize the facility. An Anaesthetic Assistant was posted and the Hospital is in its advanced stages of starting on minor surgical operations such as Safe Male Circumcision among others.

(b) Piped water system The existing piped water system serving the hospital was installed as far as 1955 and this appears to have outlived its usefulness because the system is characterized with frequent pipe blockages and therefore requires overhauling. Management explained that overhauling the system would require approximately Shs.250,000,000 which the Hospital cannot afford within the current MTEF ceilings. However the Hospital undertakes continuous repairs of the water system. I advised management to liaise with the Ministries of Finance and that of Health so as to have appropriate budgetary provisions to enable an overhaul of the water system at the Hospital.

(c) Medical wards Inspection of medical wards revealed that among the existing patients beds, a total of 75 beds were in a very bad dilapidated state that is not conducive for patients. Management explained that given the nature of patients admitted in the Hospital, the rate of destruction of beds is high and attempts are being made to regularly repair the damaged beds. I await for the outcome of this management commitment. 568

(d) Staff houses It was noted that the Hospital has a total of 78 houses for staff. However, these houses were found to be in a dilapidated condition. For instance, most houses were characterized with leakages through the upper top chimneys and three of the houses were in dire need of rehabilitation. Management explained that the majority of the houses are newly renovated or constructed. The three very old structures that are currently accommodating support staff will be renovated in the next financial year 2013/14. I advised Management to expedite the House rehabilitation process so as to attain staff commitment to service delivery.

39.4 Inadequate organizational structure It was noted that the existing organizational structure is inappropriate for the operations of the Hospital. For instance, the structure has one Deputy Executive Director with both the clinical services and support services reporting directly to him, a situation which could be straining the officer leading to inadequate service delivery.

Managements stated that it made a proposal for the required Hospital establishment in 1955 which was submitted to the Ministry of Public Service for approval 2 years ago. Unfortunately, Ministry of Public Service (MOPS) has not yet approved the new proposals to enable management address the current Human Resource challenges despite their requests as well as the intervention of the Ministry Health over this matter. I advised management to continue liaising with the appropriate authorities so as to have the proposed organizational structure approved and implemented for better service delivery.

39.5 Mental Health Related Research It was noted that one of the most important strategic objectives of Butabika Hospital is to undertake and support mental health related research. However, management was not facilitated by Government to carry out mental health related research. This was attributed to inadequate Medium Term Expenditure Framework (MTEF) ceilings provided by MOFPED which has led this activity to remain unfunded over a long time.

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Management further explained that some operational research had been undertaken over the last five years using funds from the University of Cape Town and the London School of Hygiene and Tropical Medicine (LSHT) in areas such as: alcohol/drug abuse, mood disorder, mental illness and stigma as well as suicide behaviors. Management further stated that an allocation of Shs.400 million each year could provide a substantial supplement to the external financial support for this activity.I advised the Hospital management to continue liaising with the Ministries of Health and that of Finance, Planning and Economic Development to ensure that funds for mental health related research are provided for in the Hospital‘s approved budget.

39.6 Budget performance It was noted that the Hospital had an appropriation of shs.13,277,265,893 for the year under review out of which it received a total of shs.13,054,964,399 thus leading to a shortfall of shs.222,301,494 representing about 2% of the budget. Although this was a very good revenue performance level, failure to collect all the planned revenues could have curtailed implementation of all the planned activities. Management explained that the shortfall was due to inadequate 4th Quarter cash limit issued by the Ministry of Finance, Planning and Economic Development. This was in respect of the Development budget. Management is advised to always liaise with the Ministry of Finance Planning and Economic Development to ensure that all appropriated funds are released to the Hospital to enable full implementation of the planned activities.

39.7 Vacant posts During a review of the staff structure, it was established that 41 positions were still vacant including the technical posts of Senior Consultants, Pharmacist, Medical Officers and Principal clinical psychologist as shown below:- Post Establishment Filled Vacant Pharmacist 1 0 1 Senior dispenser 2 3 (1) Senior consultant 2 0 2 Consultant (Psych) 4 3 1 Medical officer special grade (psych) 7 3 4 Principal clinical officer 1 0 1 Medical officer 9 7 2 Health visitor 1 0 1 570

Failure to fill all the vacant posts negatively impacts on service delivery as it leads to work overload of the existing staff.

Management explained that unfilled posts were partly due to a long period without a fully constituted Health Service Commission as well as the directive from the Ministry of Public Service to differ the recruitment exercise. However, the process to have all the above posts filled is currently underway as shortlists and interviews were being undertaken for several of the vacant posts listed above. I advised management to expedite this process accordingly.

39.8 Non-existence of risk management system In my previous report to Parliament, I observed that the Hospital had no risk management strategy in place to mitigate the various risks affecting achievement of the objectives. During the review of the hospital plans and activities, it was observed that although the hospital has got a 5-year strategic plan running from 2011/2012 to 2015/16 to guide its operations towards fulfilling its mandate, there is no risk management system in place to mitigate the various risks that face the hospital. In the absence of such a framework, it becomes difficult to monitor the risks that can prevent the hospital from achieving its goals and objectives.

I have advised management to devise means of developing a risk management framework to monitor risks and strategies and find ways of mitigating them.

39.9 Lack of an IT strategy It was noted that the Hospital has made substantial investments in information technology equipment including procurement of 15 desk tops, lap top computers together with other accessories and had just been connected onto the IFMS. However, as mentioned in my previous report to Parliament, the Hospital does not have an IT strategy/policy to ensure that these facilities and data contained therein is safeguarded and protected and also ensure continuity in operation should disaster strike as recommended by best practice. It was further noted that there were no backups done by the Hospital for all the Data it had on its computers. This exposes the Hospital to a risk of completely losing all the information stored on the

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computers, in case of a disaster such as a virus attack or when thefts of its equipment do occur.

Management explained that the Hospital was awaiting guidance from the Ministry of ICT after the finalization of the National ICT policy but had in the interim identified one of its new staffs with extensive IT skills to help with systems maintenance and back up facility. I have advised the Hospital Management to formulate an IT strategy that is aimed at ensuring IT facilities are continuously available for use by hospital officers to promote data security and business continuity.

40.0 UGANDA CANCER INSTITUTE

40.1 Mischarge of Expenditure It was noted that expenditure totaling to Shs.376,658,595 in respect of various activities was charged to wrong expenditure codes. As a result, the balances of the affected expenditure codes reported in the financial statements are misstated by the above amounts. I informed Management that the mischarge of expenditure misleads the reader of the financial statements and that the practice is irregular as the amounts reallocated are not authorized. Management attributed the problem to inadequacy of both human and financial resources and the budget cuts that affect scheduled implementation of activities.

I advised management to ensure that payments are charged to the correct expenditure codes.

40.2 Over-expenditure It was noted that the Institute incurred expenditure of Shs.116,124,821 over and above the appropriated amount for employee costs during the year under review. There was no evidence that appropriate re-allocation or virement warrants were obtained before incurring the expenditure. This could be a reflection of a weakness in the application controls on the IFMS.

I advised management to ensure adherence to the Appropriation Act provisions.

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40.3 Revenue (a) Unauthorised Utilisation of NTR A review of the Institute‘s financial records and related correspondences revealed that the Institute collected and spent at source a total of Shs.525,362,542 as NTR against Shs.275,000,000 Appropriation-In-Aid leading to unauthorized utilization of NTR amounting to Shs.250,362,542 contrary to the Appropriation Act. I advised management to adhere to the provisions of the Appropriation Act.

(b) Under Declaration of NTR The NTR amounts posted to the financial statements was Shs.488,561,645. However, it was noted that actual NTR collections amounted to Shs.525,362,542 leading to an under declaration of Shs.36,800,897. Management was advised to investigate this anomaly.

(c) Revenue Performance The approved budget for the institute was Shs.4,572,886,617. However, Shs3,989,552,642 was (representing 87% of performance) leading to a shortfall of Shs.583,333,975. The shortfall was in respect of the development budget (Shs.550,000,000) meant for the construction of Mayuge Satellite Center and development of the Uganda Cancer Institute Strategic Plan. Failure to obtain all the appropriated revenue resulted into non-implementation of the planned activities. I advised that given the importance and nature of the Institute‘s operations, the Ministry of Finance, Planning and Economic Development should consider categorizing the Institute as a priority Agency to ensure that its approved budget does not suffer the recurring Government budget cuts.

40.4 Absence of an enabling Act The UNHRO Act, 2009 established the Uganda National Health Research Organization among other things to bring the Uganda Virus Research Institute, Uganda Cancer Institute, Natural Chemotherapeutic Research Institute and the Tropical Diseases Research Institute under the control and management of the organization and for other related matters. However, a review of the Uganda Cancer Institute operations and documentation revealed that although it operates

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under this Act, its mandate and operations are far reaching than merely doing research and hence the need to have in place an independent Act prescribing the Institute‘s mandate. I observed that in absence of an enabling Act, the Institute may face limitations in trying to fulfill its broad strategic objectives.

Management explained that this issue had been brought to the attention of the Ministry of Health which had promised to prioritize it this current financial year running. I advised Management to liaise with the Ministry of Health and other stakeholders to expedite the process of having the Act in place.

40.5 Vacant Posts A review of the Institute staffing structure revealed that out of an approved staff structure of 254, only 106 posts were filled (representing only 40.6% of the established structure). The remaining 148 posts (representing 59.4% of the established structure) were yet to be filled. As reported in my previous report, this matter has not been given the attention it deserves and given the toxic environments in which the Institute staff work, it was noted that the existing few staff have had to continue working for longer hours than is recommended. Such exposure to the toxic drugs for longer hours is more likely to cause health problems to staff.

Management explained that so far the Ministry of Public Service had cleared 18 out of the 60 posts declared.

Management was advised to continue pursuing the matter with the relevant authorities and also expedite the recruitment process for the cleared posts.

40.6 Drugs (a) Performance of the credit line with National Medical Stores (NMS) A review of the performance of the credit account of the Institute with NMS revealed that the Institute had a balance brought forward of Shs.2,472,647,175 and during the year, a total of Shs.2,999,999,000 was released to NMS in respect of drugs leading to funds available for the Institute amounting to Shs.5,472,646,175. A review of the records indicated that drugs worth Shs.4,390,029,226 were delivered (representing an 80% performance) leaving a 574

balance of Shs.1,082,616,949 unutilized on the institute‘s credit line. A further analysis revealed that about 42% (about Shs.1,838,770,213) of the total drugs were delivered in the fourth quarter of the financial year. Late deliveries Impact negatively on the Institute‘s service delivery.

I advised management to regularly liaise with National Medical Stores to ensure timely delivery of drugs.

(b) Reconciliation of drug orders with actual deliveries During the year drugs worth Shs.4,390,029,226 were delivered against drugs ordered of Shs.3,333,567,309 leading to a variance of Shs.1,056,461,917 worth drugs not supported by orders. It was not clear how the excess drugs were delivered without corresponding orders. I observed that this could lead to wastages due to delivery of unwanted drugs by the Institute. A test check of the deliveries indicated a stock of 100 boxes of diclofenac IV which were rejected by the Institute was still in its stores by the time of audit. This stock was due to expire in January 2013. It was not explained why this stock was not returned to NMS for re- distribution to where it was required. Management in response explained that the variance arises out of the price variations between the Institute order prices and the NMS drugs prices at delivery.

Management is advised to reconcile this position and always keep track of the orders made against the corresponding deliveries. Any rejected stock should always be returned to NMS promptly.

(c) Record keeping Inspection of the pharmacy revealed that the stock cards and the prescription books were not being kept up-to-date by the staff in the unit. For instance, there were discrepancies between the requisitions from the stores, stock card balances and the physical stocks of some drugs as exemplified below:-

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Drug Stock Physical Audit Variance Remarks card stock reconciled balance balance Filgrastin 0 60 96 36 Books last 300mg (vials) updated 1st July 2012 Asparaginase 397 354 43 Records last 10000 IV updated 1/10/2012.

In the absence of the up-to-date records, I could not confirm that the drugs were properly dispensed to the intended patients. Management explained that efforts to keep proper records are hampered by the current staff shortage both at the Pharmacy and in stores.

I advised management to ensure that the pharmacy records are kept up-to-date and regular stock counts are done to ensure proper accountability for the drugs.

(d) Non reconciliation of drug supplies with NMS The Institute made monthly orders for supplies of drugs and/or medical equipments from NMS and deliveries were made accordingly. However, there were no reconciliations made regarding orders placed and deliveries made between the two parties. It was further noted that the Institute relies on the statements made by the National Medical Stores. A reconciliation of the Institute drug records indicated variations between the two parties. For example, the statement from NMS had drugs amounting to Shs.791,570,174 million which were not recorded by the Institute while records of the Institute show drugs worth Shs.593,486,839 million which were not reflected in the NMS statements. This variance has remained unexplained. In the circumstance there is a risk that the credit line facility may be abused.

Management explained thatthe Institute performs reconciliations but their efforts were slowed down by the way NMS makes deliveries because most of the time NMS did not deliver full orders. Most deliveries came after a very long time and could include several previous orders broken down in small quantities making it very difficult and tedious to trace items that were never delivered or were partially delivered.

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Management was advised to make regular reconciliations to ensure adequate utilization of all funds allocated to the Institute.

40.7 Unconfirmed supply of receipt books Verification of revenue records revealed that 46 receipt books were found to have been supplied to the Institute‘s cash office by the Ministry of Finance Planning and Economic Development. However there were no records to either support deliveries made or enable reconciliation to the deliveries to be undertaken. In the circumstance, it was difficult to confirm that all receipt books supplied were accounted for and that all revenue collected was duly brought to account. Management is advised to avail all the issue vouchers in support of the receipt books delivered.

40.8 Doubtful Expenditure A total of shs.11,200,378 was paid out of Imprest to cater for various activities during the year under review. However, in most cases the expenditure could not be substantiated. As a result, it was rendered doubtful. It was further revealed that no imprest cash book was maintained to record petty Cash transactions as required by the Treasury Accounting Instructions TAI of 2003. In addition, Shs.6,640,000 paid from NTR collections remained unaccounted for. Accordingly, I could not ascertain that the expenditure was genuinely applied for the intended purpose.

I advised management to enforce controls relating to accounting for funds including recovery of outstanding amounts.

40.9 Procurement A review of a sample of procurement files revealed the following matters:- (a) Procurement reports The Procurement laws require Procuring and Disposing Entities to prepare monthly procurement reports and submit them to PPDA. It was however noted that during the year, there were no monthly reports prepared and submitted to the Authority as contrary to the Procurement laws. I informed Management that failure to submit reports did not only violate the Procurement laws but also denied the Authority

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theopportunity to review the Institute‘s implementation of the procurement laws and guidelines and be able to assess its level of compliance. In response, management explained that they prepared and submitted procurement reports though this was done on the Procurement Performance Measurements Systems.Management was advised to strictly adhere to the PPDA requirements.

(b) Construction of the 5 level cancer ward A contract agreement was signed on 13th August 2010 between the institute and a construction company for the construction of a 5 level cancer ward. The construction works was to take nine months (4th October 2010 to 4th July 2011). The documentation available shows that a proposal to amend the contract was made to increase the contract price by Shs.2,197,609,659 to cater for the additional works. It was however noted that by August 2012, the contract agreement had not been amended contrary to sec. 261-262 of the PPDA regulations of 2003. Besides, the earlier contract period had expired more than a year ago. As a result of additional works done, Shs.1,705,273,445 was paid to the contractor. However, this expenditure was neither supported by a valid agreement nor with certificates of work completed.

In the absence of a valid contract agreement, the expenditure to the contractor was considered irregular. Management explained that the change of design was prompted by the change of the site. Management further explained that PPDA had advised that the Institute should ensure value for money within the old contract. Management was advised to expedite the process of having a valid contract agreement in place.

41.0 UGANDA HEART INSTITUTE

41.1 Revenue

(a) Unauthorised Utilisation of Revenue (NTR)

The Institute was authorized to spend at source a total of Shs.1,541,000,000 as Appropriation-in-Aid during the year. It was however noted that shs.1,890,824,200 was realized and utilized at source leading to unauthorized utilization of revenue at source of Shs.349,824,200. This amount should have been remitted to Treasury as 578

required by law. Management explained that due to untimely updating of their books, they were unable to detect the over-performance in the budget on time. I advised management to ensure strict adherence to the Appropriation Act and always endeavour to seek for authority for NTR utilization from the relevant authorities.

(b) Revenue Performance

It was noted that out of the approved budget of Shs.2,513,498,205, the Institute received an amount of Shs.2,232,220,802 from Treasury leading to a shortfall of Shs.281,277,403 (representing about 13% of the budget). Failure to obtain all the approved budget in full ultimately constrains management in the implementation of planned activities.

I advised Management to ensure follow-up with authorities to ensure full release of the budgeted resources.

The Institute offers credit services to Institutions including AAR Health and UPDF. However, it was noted that there were no account ledgers being maintained to ensure proper track of services rendered to such institutions and the amounts due to the Institution. In the absence of proper records, it was difficult to ascertain the extent of revenue arrears due to the Institute from its clients. In addition, there were no Memorandum of Understanding between the Institute and the various Institutions in question, no medical treatment orders, payment terms not spelt out and no credit services policy in place to guide management.

41.2 Over-Expenditure

A scrutiny of the Statement of Appropriation Account (Based on nature of expenditure for services voted) revealed that the Institute incurred a total of Shs.2,631,777,512 on recurrent activities as opposed to Shs.2,554,498,205 appropriated by Parliament leading to an over-expenditure of Shs.77,279,307. However, there was no evidence that appropriate authority in form of re-allocations or virement warrants had been obtained prior to incurring the expenditure. I advised management to always ensure that they adhere to the provisions of the Appropriation Act. 579

41.3 Procurement of Drugs

(a) Purchase of Drugs from the Other Suppliers

The Institute had available funding with NMS amounting to Shs.2,245,169,407.

However, a review of the drug transactions undertaken revealed that out of the 7 orders placed by the Institute (worth Shs.2,234,117,076) only drugs worth Shs.659,920,950 were delivered by NMS. This represents a credit line performance of only 30%. I observed that this situation reflected a challenge of the supply of drugs to entities that require specialized drugs and the flaws in the budgeting process since the unutilized funds on the Institute credit line account could have been used for other purposes or the funds reallocated to other Health facilities that were faced with acute drug shortages.

Management explained that considering the operations of the Institute and the type of patients it handled, it was necessary to procure these drugs and equipment which national Medical Stores was not in position to supply. Management stated that on many occasions National Medical Stores either did not have the drugs ordered in stock or supplies were less than the orders placed. I advised that in view of the above, it follows that there is a need by the responsible authorities to review the policy of centralized purchase of specialized drugs in order to enhance such institutions‘ effectiveness.

(b) Non-reconciliation of drug supplies with NMS

It was noted that Uganda Heart Institute made monthly orders for supplies of drugs and medical equipments from NMS and deliveries were made accordingly. However, there were no reconciliations regarding orders placed and deliveries made between the two parties. It was further noted that the Institute depended on the statements made by the National Medical Stores. I observed that failure to reconcile NMS statements with the Institute‘s records might have led to omissions going undetected.

Management explained that, the stores department of the Institute maintains a consignment book and stores ledgers for all supplies and reconciliations are done in line with the law. However, the said reconciliations had not been made available for verification by the time of writing this report. I advised management to follow 580

best practice and make regular reconciliations of its credit line with the supplier (NMS) to ensure that any errors committed are dealt with promptly.

41.4 Mischarge of expenditure – Shs.49,629,750

It was noted that an expenditure of Shs.49,629,750 in respect of erecting a perimeter fence was wrongly charged to furniture and fittings expenditure code. As a result, this expenditure item over stated by the same amount in the financial statements.

Management explained that this decision was taken when the Institute commissioned the new building which houses the Cardiac Catheterisation- laboratory and that this building has valuable machinery and equipment whose security was at stake. I advised Management to always abide by the Appropriation Act or seek authority for the necessary virements.

41.5 Recruitment of Staff

According to Section A-a paragraph 10(e) of the Public Service Standing Orders, all health workers are recruited by the Health Service Commission. However, the Institute continued to recruit health workers locally without the involvement of the Commission. Besides, a total of 29 workers of various categories were recruited without written procedures to guide the Institute in such recruitments.

It was further noted that there were no job descriptions developed for such categories of staff. I found this practice not only violating the public service standing orders but also lead to the recruitment of unnecessary personnel or unqualified personnel. Management is advised to always adhere to the standing orders or seek an exemption for any deviation.

41.6 Incompletely Vouched Expenditure – Shs. 26,043,525

Paragraph 122 of the TAI 2003, provides that all payment vouchers must be properly supported with appropriate documents or sub vouchers before they are passed for payment. However, it was noted that expenditure amounting to Shs.26,043,525 was paid without sufficient documents/information. In absence of supporting documents/information, it was difficult to confirm that the money was

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put to the intended purpose. I advised management to adhere fully to the requirements of the Treasury Accounting Instructions (TAI).

42.0 MULAGO REFERRAL HOSPITAL COMPLEX

42.1 Mischarge of Expenditure – Shs.3,317,700,836 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. Review of the Hospital‘s expenditure revealed that the Hospital charged wrong expenditure codes to a tune of Shs.3,317,700,836. This practice renders the budgeting process redundant, and it is contrary to the intentions of the appropriating authority. The practice also leads to misleading reporting.

I advised management to streamline the budgeting process to ensure that sufficient funds are allocated to each account to enable proper implementation of government programmes.

42.2 Non Disclosure of Domestic Arrears for the Year – Shs.7,722,151,410 Domestic arrears amounting to Shs.7,722,151,410 were not disclosed in the financial statements. The Treasury Accounting Instructions require that such arrears be disclosed by way of a note to payables. In the circumstances, the payables figure is understated.

I advised the Accounting Officer to make the necessary adjustments and disclosures to the financial statements.

42.3 Management of Non Tax revenue (NTR) – Shs.6,466,411,762 During the year under review the Hospital collected a total of shs.6,466,411,762 from the following Non Tax Revenue sources:- Private patients scheme (PPS). Rental income from Guest houses. Rental income from Hospital space (canteens). Dental services. Incinerator services.

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Laundry services

A review of the recording and accounting for NTR revealed the following maters:- a. Book Keeping The Hospital management deployed Six (6) cashiers in the management of this revenue at each of the revenue collecting Centre‘s, however, it was noted that revenue collection and recording was being carried out manually implying that revenue collected at any point in a day cannot be easily established due to the manual recording. It was further noted that the revenue ledgers and cash books were not regularly up dated. There is a risk that the revenue captured may not be complete and accurate.

Management explained that although the accounting for revenues from the Non Tax Revenue was manual they indicated that NTR collection would be fully automated in the next financial year to address all the anomalies identified. I advised the Accounting Officer to ensure that accurate and complete cashbooks are maintained and revenues posted on a daily basis in accordance with the TAI. b. Cash Withdrawals from Non Tax Revenue – Shs.5,629,522,586 It is a requirement under section 173 of the TAI that all Payments wherever possible be made by means of direct bank transfer or crossed cheques, only to the persons named in the vouchers or their accredited agent.

A review of the Non Tax Revenue account established that a total of Shs.5,629,522,586 in cash withdrawals was made by the Hospital for executing Hospital operations during the year; a practice contrary to the requirements of section 173 of the TAI which requires wherever possible payments be made by means of direct bank transfer or crossed cheques, only to the persons named in the vouchers or their accredited agent. Management explained that the nature of the emergencies faced at the Hospital in form of urgent drug purchases, repair of utility systems as water and electricity, Handling emergency epidemics as Ebola, Marburg, necessitated immediate action

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and could not await the normal processes specified under the TAI and thus led to the practice of using cash on several occasions.

I informed management that use of cash is prone to abuse and that efforts should be made to minimise the use of cash.

c. Unaccounted for Expenditure from Cash withdrawals shs167,734,034 Out of the total of Shs.5,629,522,586 in cash payments made by the Hospital from the Non Tax Revenue (NTR) reported in part a above, a total expenditure of Shs.167,734,034 remained unaccounted at year end. This is contrary to paragraph 181 of the Treasury Accounting Instructions (TAI) 2003 Part 1.

I advised the Accounting Officer to consider recovering these funds from the concerned officers.

42.4 Unaccounted for Expenditure shs.3,701,020,548 A further review of Expenditures made out of the Treasury General Account established that a total of Shs.3,701,020,548 remained unaccounted for; the necessary supporting documents relating to these payments were not availed for review. The details are summarised in the table below:- No. Particulars /Activity Amount (Shs) 1 Unaccounted for expenditure TGA 247,182,202 2 Un accounted for Advances to various staff 58,255,000 3 Mulago Infrastructure development account 3,395,583,346 TOTAL 3,701,020,548

In the absence of these documents, I could not ascertain whether these funds had been put to proper use.

I advised the Accounting Officer to consider recovering the funds from the concerned officers.

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42.5 Payment of Consolidated Allowances – Shs.3,027,809,205 Shs.3,027,809,205 was paid out as staff allowances, cost sharing allowances and consolidated allowances to staff as summarised below:- No. Particulars /Activity Amount (Shs) 1 Staff allowances under Private patients scheme 238,895,400 2 Cost sharing allowance 1,764,093,805 3 Consolidated allowance 1,024,820,000 4 TOTAL 3,027,809,205

However, the basis for payment of these allowances could not be explained. The rates at which these allowances were paid seemed to be arbitrarily determined by management as the allowances were not prescribed in the Public Service Standing Orders.

In their response, management explained that the allowances were paid to Hospital staff to cater for night, weekends, public holidays, hazardous work conditions for staff operating under the private services following the circular standing instruction No. 4 of 2008.They further explained that a more clearer policy is under discussion by management in liaison with other stakeholders over the matter.

I explained to the Accounting Officer that the circular did not address these kind of allowances and further advised that Ministry of Public Service be consulted for approval of the consolidated allowances.

42.6 Doubtful Expenditure for Hospital Emergencies – Shs.34,593,600 A review of the IFMS detailed payments file revealed payments totalling to Shs.34,593,600 that were made for Hospital emergencies. However, there was no supporting documentation explaining the nature of these emergencies. In addition, there was no guidance as to what constituted emergencies.Under the circumstances, it was difficult to ascertain whether these payments were genuine emergency cases.

In their response, management explained that these funds were transferred from the TGA to the Cost Sharing Fund account to cater for Hospital emergencies.I

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advised the Accounting Officer to provide justification for the above payments and also account for the funds.

42.7 Transfer of Funds to Infectious Disease Institute (IDI) – Shs.1,600,750,000 During the period under review the Hospital transferred a total of Shs.1,600,750,000 to the Infectious Disease Institute budgeted for under the Hospital vote. Though the funds were accounted for there was no Memorandum of Understanding between the Hospital and the Institute regarding planning, usage and reporting of the funds by the Institute.

In the absence of a MOU, I could not evaluate how the funds were to be utilized; Besides Mulago Hospital management did not have a hand in monitoring the implementation of the funds. Under the circumstances, there is a risk of misuse of such funds since it is provided without proper guidance to enable accountability.

I advised the Accounting Officer to streamline the Government intervention to the Institute by ensuring that an MOU is put in place to govern the utilisation of the funding to the Institute.

42.8 Doubtful Refund of Excess Interns Allowances to MOH – Shs.16,995,705 Shs.16,995,705 in respect of excess funds remitted to the Hospital by the Ministry of Health was transferred to Mulago cost sharing account. This money was later withdrawn in cash. However, there were no documents to support the withdrawal. There is a risk that funds could have been lost.

Although management explained that the funds were paid and received by the Ministry of Health, I was not provided with evidence to that effect. I advised that the matter be investigated.

42.9 Mulago Hospital Cost Sharing Fund Account a. Non Reimbursement of Borrowed Funds Shs.500,000,000 It was noted that management transferred Shs.700,000,000 to Mulago Cost Sharing Fund Account for its operations. However, only Shs.250,000,000 was

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refunded leaving Shs.450,000,000 outstanding. Such borrowings may lead to lack of sufficient resources to undertake some of the planned activities.

In their response, management explained that the funds were borrowed to mitigate a situation of absence of food for patients, delayed consultants fees; payments for sundries supplied under PPS. They further stated that they were in the process of settling the outstanding balance of Shs.450,000,000.

b. Doubtful Reimbursements/Transfers to Mulago Cost Sharing Account Shs.409,266,240 was transferred from the Treasury General Account to the Mulago cost sharing Account in form of reimbursements and payments for settlement of arrears.

Management explained that the government releases from Treasury were not timely and delayed leaving the Hospital with no alternative but to borrow funds; i asked for the necessary documents in relation to settlement of the arrears noted; However, these records relating to the borrowings were not availed for my review. In the circumstances. I could not ascertain whether these funds had been used for the intended purposes.

I have advised the Accounting Officer to desist from borrowing funds from committed items as this is contrary to the Appropriation Act.

42.10 Unreconciled Utility Expenses – Shs.3,176,810,624 The Hospital deposited funds amounting to Shs.3,176,810,624 over a period of time in respect to UMEME (Shs.1,909,080,626), Water (Shs.1,077,000,000) and Telecommunication (Shs.190,729,998). However, there were no reconciliation statements undertaken to match the deposits and utility services consumed. In addition, it was observed that other projects and agencies within the Hospital Complex also consumed these services. In the circumstances, it was difficult to verify the actual expenditure attributed to the Hospital.

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In his response, the Accounting Officer stated that initially Mulago Hill was settling the utility bills because they had only one metre but this has since changed and these entities have separate metres.

I explained to the Accounting Officer that in spite of having separate metres now the accumulated utility bills have not all been reconciled and further advised him to institute a proper system of recording and reconciling all utilities for these entities such that the outstanding liabilities in respect of the utilities previously consumed are settled.

42.11 Compliance with Statutory Obligations (VAT, WHT, PAYE, NSSF) Non Deduction and Remittance of PAYE, 6% WHT and NSSF Shs.442,797,852 in respect of withholding tax and Pay As You Earn was not deducted from suppliers of goods and services and Hospital staff contrary to the provisions of the Income Tax Act. The details are as below:-

Activity Particulars Particulars of statutory Amount (Shs) deduction Headquarters Non Deduction of PAYE 398,075,890 Mulago Infrastructure Non Deduction of PAYE 36,366,565 Development Account Mulago Infrastructure Non Deduction of WHT 5,619,397 Development Account Rent payments or Qtr 1 and Nov Non Deduction of WHT from 2,736,000 –June 2012 Rent payments PAYE TOTAL 442,797,852

Failure to deduct the above amount exposes the Hospital to imposition of fines and penalties as per the provisions under the Act.

In their response, the Accounting Officer explained that there was a system error in effecting the payments as the landlords were different from the suppliers and could not matched by the IT system; I did not find this explanation satisfactory but advised the Accounting Officer to comply with the Income Tax Act and pay all taxes due.

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42.12 Staff Matters a. Staffing Position A review of the Hospital staff structure listing as at July 2012 revealed that 208 positions for key and vital staff out of 1,534 approved of staff positions, a total of 208 positions remained unfilled. Failure to have all the positions filled leads to work overload to existing staff which may lead to reduced productivity.

The Accounting Officer stated that submissions to fill the vacant positions were sent to the Health Service Commission and the Commission had issued both internal and external adverts, they are subsequently awaiting appointments to take place.

I advised the Accounting Officer to liaise with the Ministry of Public Service and Finance and Economic Development to ensure that the unfilled staff Gaps at the Hospital are filled.

b. Staff Accommodation An assessment of staff accommodation facilities at Mulago Hospital Complex revealed that the Nurses Hostel, complex building, staff quarters at Kibawo and Kitegula village are dilapidated and in need of urgent renovations. The hospital has a total of the 24 uniports which is inadequate for the existing staff population as a number of these uniports are overcrowded sometimes with over 10 persons housed in one uniport and the families therein complained of poor ventilation, extensive heat and limited space.

In his response, the Accounting Officer explained that they were continuously engaging MOFPED to improve the capital development budget as advised in addition they are using the available resources to improve on the Nurses Hostel as well as planning to commission general staff houses at the hospital.

I advised the Accounting Officer to liaise with the Ministry of Finance Planning Economic Development to ensure that capital development funds are provided so as to have the infrastructure challenges addressed to enable improve service delivery at the Hospital.

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42.13 Delayed Procurement of the Cobalt 60 Radiotherapy Equipment It was noted in the previous audit report, that procurement of a ―Cobalt 60 Radiotherapy equipment machine‖ which was planned for in the 2009/10 financial year had been grossly delayed. In the subsequent financial year 2010/2011, the Hospital received Shs.2.2 billion on the Infrastructure Development Account for procurement of the machine. The contract was awarded to M/s Panacea Medical Technologies PVT Ltd India.A review of the documentation availed regarding this procurement revealed the following matters:-

The procurement process started without taking into consideration its complexity and its effects on the society. The Ministry of Energy and the National Liaison Officer for Atomic Energy was not involved. International Atomic Energy Agency was also not involved. Uganda had not met the IAEA milestones such as providing a budget for the secretariat and a framework for monitoring exposure to radiation in all staff who come in contact with radiation and general public especially the patients who are exposed among others. By the time of audit (March 2013), the necessary authority from the various bodies, Solicitor General and International Atomic Energy Agency had not been obtained. Resulting from these delays, Shs.2 billion was retained by the entity at year end but without necessary authority of the Permanent Secretary/Secretary to the Treasury.

With the procurement of this vital and essential Hospital equipment delayed for over three years the intended beneficiaries whom it is to serve will continue not to access affordable treatments for cancer. Besides the current rapid technological advancement measures increase the risk of procuring an outdated machine given the delay.

In his response, the Accounting Officer explained that the procurement process of the cobalt machine was halted on the directive of the International Atomic Energy Agency (IAEA) however since the procurement was in line with the bilateral agreement with Uganda Government, the process was started and currently Euros

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325,297 counterpart funding had been paid. The new machine being procured will be manufactured basing on new specifications by the IAEA.

I advised the Accounting Officer to expedite the process of acquisition of the cobalt machine to enable better service delivery at the Hospital, I also advised him to obtain the necessary authority to regularize the retention of funds for this procurement.

42.14 Status of Hospital Facilities and Infrastructure at Mulago Regional Referral Hospital An inspection of hospital facilities and infrastructure was carried out and the following observations were noted:- Inadequate and inefficient Hospital incinerators. Hospital wards are still overcrowded and dirty. Irregular and inappropriate supply of drugs by National Medical stores to the Hospital. Poor storage facilities for drugs and vaccines. Poor stores management. The Access road to the main Hospital entrance via New Mulago is in a state of disrepair. The Autoclaves in place are obsolete. Shortage of staff at the Hospital Poor Asset management at the Hospital The details of these observations are contained in the following table:-

No Observations and assessment of Remark/reference photo Hospital infrastructure 1 Hospital Incinerators The Hospital has only three incinerators but only one is functional; two new ones which were acquired using the African Development Bank (ADB) loan but have never been put to use for over five (5) years.

The existing incinerator in use is old and obsolete despite a recent major overhaul by M/s Mpanga Engineering Works ltd at Shs.50,772,800; as it continues to pollute the surrounding hospital 591

environment as it leaks putting the lives of officers near by at a risk of contracting air borne and respiratory diseases.

Recommendation Hospital Management should urgently consider putting into operation the un commissioned incinerators funded by ADB to relieve the pressure on the old inefficient incinerator.

Main Hospital incinerator Spewing smoke into Hopistal surrounding

New incinerator not yet in use

2 Access Road Hospital Management is advised to The Access road to the main Hospital entrance via New Mulago is in a state of liaise with KCCA to ensure that the disrepair. access road to the Hospital is

improved upon for better service delivery to the clients.

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3. Overcrowded Hospital wards An inspection of the Hospital wards established that they are over crowded and not given adequate cleaning for instance; Ward 5 for maternity has a bed occupancy of 184% at 5AA, General Surgery ward has a bed occupancy of 201% at 3A Neural surgery ward has a bed occupancy of 300% Spine surgery ward and paediatric wards have bed occupancy‘s of 184% at SCU ward and 311% at Overcrowding at Mulago Jellif ward. Hospital wards with patients on Overcrowding of wards leads to too the Hospital floor. much pressure on the auxiliary facilities as wash rooms, toilets etc and the few medical workers on the wards leading to Hospital Director should work to work overload and stress ensure that the wards are decongested and additional wards created. 4. Stores Management Poor storage facilities The Hospital Pharmacy store is not orderly and well organized There are inadequate shelves and no pallets on which to place drug boxes. The store has a leaking roof; in the same store lies an old an old Cobalt machines which could be radioactive. Poor drug storage facilities and Poorly organized store at conditions have an effect on the condition of drugs stored in the store. As Mulago they risk getting contaminated thereby becoming unfit and dangerous for human consumption.

Inadequate staffing in the stores Mulago Hospital has inadequate manpower in the stores section; out of the 24 store assistants in the staff establishment, there are only three (3) stores assistants and two (3) porters who are not able to efficiently and Old and hazardous equipment effectively organise the stores. kept in stores alongside drugs

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5 Expired drugs’ store In a move to maintain the quality of drugs, The Hospital maintains a separate store for expired drugs in a bid to maintain the quality and safety of drugs for human An inspection of this store established that; The store has toxic environment with a strong stench and employees operating in do not have protective gears like gloves and mouth and nose covers which exposes them to negative effects of the expired Un-tidy floor in Expired drugs’ drugs. store Un expired items like IUD‘s and Jerry cans of formalin are also kept in the expired drug store which conditions may affect the integrity of these The Hospital Director should ensure chemicals. that the Storage conditions in the Too much expired drugs makes it Expired drugs‘ store are well managed. expensive to dispose of expired drugs and some expired drugs are hazardous to human life.

6 Special Medicine store The Special medicine store was previously a canteen however the necessary infrastructure for a medicine store are not in pace; There are no storage shelves and pallets in place. The store has a leaking roof. The floor of the store is eroded.

Poor storage conditions for the Special medicines

store The Hospital Director should ensure that the special medicine store is repaired.

7 Dilapidated Boilers and leaking pipes The Hospital has two boilers which are functional, however the boiler system has broken down especially the pipes 594

that transfer steam from the boiler to the Laundry and the kitchen are leaking right from the boiler room through to the whole hospital causing leaking roofs in various rooms of the hospital which include drug stores.

The Hospital Director should ensure that the piping system at the kitchen and laundry is repaired.

Dilapidated , leaking and broken piping system at Mulago main Kitchen,and laundry room.

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8 Generator The Hospital has a number of generators in place however only one was functional, however this generator is poorly maintained with open exposure

The enclosure in which the functional generators placed is not well maintained, darks walls are due to leakage of smoke from the generator. Generator note enclosed to safeguard accidental exposure and safety of passers by Main generator at MulagoHospital Management should ensure that the available generator is serviced regularly and have more back-up generators in case of failure . 9 Poor storage of obsolete hospital equipment.

The Hospital has various old equipment especially hospital beds these have been dumped around the hospital especially around the engineering offices and the entrance of the bulky drug stores. Old cobalt machines have been dumped in the main pharmacy store which consume space for drugs and risks spoiling the drugs.

Un-disposed equipment in the middle of the hospital Un-disposed beds near bulky drug stores

The Hospital Director should ensure that the un-disposed equipment are disposed off to prevent further loss of value and to create valuable space and ensure safety and reduce health 596

hazards arising out of these equipment.

10. Asset management The Hospital Director should liaise with Old technology Autoclaves Ministry of Health and Finance to The Hospital has two big autoclaves ensure that new autoclaves are machines acquired in 1962 of which one acquired. is working. maintenance of the autoclave has become expensive given that it is obsolete With genuine spare parts are hard to find leading to sourcing of improvised parts from local markets(Katwe). This has put the hospital at a risk of using un-sterilised equipment.

Cold room The cold room which is used to store vaccines and drugs at controlled temperatures lacked shelves and vaccine boxes were found laying on the floor.

The above challenges impact on the Hospital‘s capacity to effectively deliver its mandate.

I have advised the Accounting Officer to liaise with the concerned authorities to ensure that adequate staffing is availed in order to improve on service delivery at the Hospital. In addition, the Hospital should also prioritize and provide for adequate funding for maintenance and urgent repairs of the various infrastructure facilities.

REGIONAL REFERRAL HOSPITALS

43.0 ARUA REGIONAL REFERRAL HOSPITAL

43.1 Outstanding Payables Payables comprising of electricity bills, water bills, medicines and health supplies of Shs.52,038,550 remained outstanding by the year end. Management explained that these bills were reported to the Ministry of Finance, Planning and Economic Development as domestic arrears, but up to now have not yet been settled.

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Failure to settle the outstanding bills exposes the hospital to a risk which may entail incurring of losses in the event that the creditors sue for non-payment. Besides, the utility companies may disconnect their services for non-payment.

I advised management to operate within the resource envelop available and observe the commitment control to minimize on domestic arrears. Meanwhile follow up with the Ministry of Finance, Planning and Economic Development should be made to ensure that the payables are settled.

43.2 Redundant Medical Ward and Incomplete Lagoon The Regional Referral Hospital contracted a local firm two years ago to construct a medical ward and sewage lagoon at a cost of Shs.3,212,114,188. However, to date after the completion of the construction, the ward has not been put to use.

This was due to a court injunction issued on the construction of the sewage lagoon by Arua High Court arising from petition by the neighbouring communities that the construction in the vicinity would be hazardous to their health. The site of the lagoon and the completed medical ward are shown in the photograph below:- The Medical Ward Complex – Construction was completed but has not yet been put to its intended purpose.

As a result, the patients are admitted in two crowded and poorly facilitated separate buildings complicating provision of medical care.

The general condition of the hospital has deteriorated to a point where some patients are discharged prematurely to create a room for new admissions.

Management admitted that there was an acute shortage of accommodation for the increasing number of patients which was expected to be alleviated by the operationalization of the new medical complex.

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I advised management that this matter should be followed up in the Court of Law, in liaison with the Attorney General to ensure that the case is disposed off and the new medical complex put in use.

43.3 Undelivered Drugs by the National Medical Stores Since 2009/2010, funds for drugs are transferred directly to the National Medical Stores for supply of drugs and medical supplies to health facilities in the country.

Out of the total funds released to NMS of Shs.1,143,244,978 in respect of Arua hospital, medical supplies of Shs.219,947,399 were not delivered. Management explained that the funds for the drugs undelivered were not returned to the Consolidated Fund but carried forward to the budget of the hospital for the financial year 2012/13.

Failure by the NMS to effect total delivery of supplies causes drug shortages and hence inadequate delivery of services.

I advised Hospital Management to ensure that NMS supplies the drugs in question.

43.4 Lack of a Comprehensive IT Management Policy The Public Finance and Accountability Act requires the chief executive to designate an officer to ensure that adequate information and communication technology policies are established and are applied to enable adequate security and protection over computers and of data held on computers or information systems operated by a Government Department.

A lot of investments in terms of computers and their accessories have been undertaken in the Hospital to improve processing of information in the entity. However, there are no proper procedures formulated to guide use of these equipments.

Management explained that controls had been put in place aimed at providing logical and physical access over data. However, these controls were not documented.

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I advised management to liaise with the Ministry of Information Communication Technology (ICT) to formulate IT policies, to guide in management of IT resources. Besides, there is need to liaise with the Ministries of Health and Public Service to review the Hospital structure and provide for ICT staff.

43.5 Lack of an Internal Auditor Section 8(3) (b) of the Public Finance and Accountability Act, 2003 requires the Accounting Officer to ensure that effective System of Internal Control and Internal Audit are in place in respect of all transactions and resources under his or her control. However, it was observed that the post of Internal auditor as provided in the structure is not filled.

Management explained that the responsibility of posting an Internal Auditor rests with the Accountant General who has not taken action.I advised Management to ensure that the Internal Audit is staffed and equipped with the necessary resources to facilitate its operations.

43.6 Shortage of Staff Section 15(a) of the Public Service Standing Orders 2010 mandates the Permanent Secretary, Ministry of Public Service to determine the structure, terms and conditions of service of the Referral Hospital Staff in consultations with the Secretary to the Treasury.

However, the Hospital has for a long time had staff shortages especially the Senior Consultants, of which the hospital has only 6 (six) Specialists out of 27 approved posts leaving a shortage of 21.

Management explained that attracting and retaining specialists is a challenge because of poor working conditions and pay. Shortages of Specialist Doctors greatly impair the hospital‘s ability to render effective health services. I advised Management to liaise with the Ministries of Public Service and that of Finance, Planning and Economic Development so that better terms and conditions of service are devised to enable recruitment and retention of specialized staff.

43.7 Inadequate Fire Fighting Facilities at the Drug Store 600

Paragraph 112 of the Treasury Accounting Instructions, 2003 provides for an entity to ensure that fire fighting facilities are adequate and in good condition. However, an inspection of the Drug Stores revealed that two fire extinguishers at the store were last serviced in December, 2010. This means that in the event of a fire outbreak occurring in this store, these fire extinguishers may not work effectively. I advised management to ensure that regular servicing of firefighting equipment is undertaken.

43.8 Obsolete and Non Functional Medical Equipment A number of medical equipment for all the Units of the hospital inspected were found to be obsolete, non functional and inadequate for effective service delivery some of the equipments were; dental unit, delivery bed and baby unit as shown in the photographs below:-

Rotting Baby

Court Un functional Rotting Delivery Bed

Dental Unit.

Management attributed this sorry state to budget constraints where priority was given to the construction of the medical ward. With the completion of the construction of the medical ward, more emphasis will be focused towards procurement of the medical equipment.

I urged management to ensure that funds are secured to address these issues.

43.9 Inadequate Staff Accommodation Out of a total of 340 staff available, the Hospital accommodates only 50 in its staff quarters, leaving 290 members of staff to reside and commute from outside. Management explained that the matter will be addressed in the development budgets for the financial years 2012/13 – 2014/15.

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Lack of staff accommodation leads to late coming and absenteeism which in the end affects effective dispensation of public health services.

I urged management to plan for the construction of staff accommodation and lobby for extra funding to be included in its Five Year Development Budget in order to have more staff housed.

44.0 MBALE REGIONAL REFERRAL HOSPITAL

44.1 Land It was noted that two pieces of land owned by the Hospital on Pallisa Road lacked land titles. Management explained that the process of acquiring land titles was ongoing. Management stated that it applied for the titles two years ago but to no avail and that it is currently in the process of contacting lawyers to process the same. This exposes the land in question to risk of encroachment.

I advised the Accounting Officer to ensure that the process of acquiring land titles is expedited.

44.2 Status of Hospital Ambulances The Hospital currently has no operating ambulances. The available ambulance, which was donated by JICA has been grounded for a period of more than six months and it required about Shs.16 million (quotation from a garage) for repair. The second ambulance is also due for board off. Pictures 1 and 2 refer. The hospital currently borrows an ambulance from Mbale Police, when need arises. This puts the lives of patients to great risk.

Picture 1 Picture 2

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Old ambulance which is awaiting boarding off Hospital ambulance which has been grounded for about six months

I advised the Hospital management to lobby the Ministry of Health to ensure that an ambulance is availed to the Hospital.

44.3 Revenue Performance A review of the approved budget estimates for the year, revealed that out of the total budget of Shs.5,915,000,000 funds totalling to Shs.6,390,135,956, representing 108%, level of performance.Transfers from treasury contributed 95% of the total revenue while the Non Tax Revenue (NTR) contributed 3%. The remaining 2% was a contribution of Shs.100,000,000 by the Ministry of Health towards the payment of the domestic arrears.

Total Expenditure amounted to Shs.6,391,264,522 resulting in a deficit of Shs.1,128,566. Most of the expenditure was in respect of employee costs, Goods and Services consumed, Property, Plant & Equipment and Domestic arrears.

I advised the Accounting Officer to revise the budget figures in the subsequent period.

44.4 Maintenance of one cash book for both Capital and Recurrent accounts It was noted that the hospital maintains a single cash book for both the Capital and Recurrent accounts and this impedes audit trail and is against the basic principles of accounting. Management explained that due to limited transactions, the entity used only one cash book. The hospital transactions are now processed through IFMS and thus the manual cashbooks will not be needed.

I advised management to ensure the maintenance of separate cashbooks for capital and recurrent expenditure accounts is maintained by the Hospital.

44.5 Incompletely Vouched Expenditure Paragraph 120 of Part I of the Treasury Accounting Institutions (TAI), 2003 requires all payment vouchers to be properly supported with appropriate documents or sub-vouchers before they are passed for payment. It was noted that Shs.11,974,000 paid out for different activities lacked the necessary supporting 603

documents. I could not confirm whether the funds were put to the intended use. Table below refers. Vr. No Date Payee Purpose Amount Remarks 83/8/2011 4 Aug Mwaka Erisa Funds 600,000 Other than 2011 withdrawn to application for cater for per absence from diems for station, the payment official duties. is not supported by the relevant documentation. 27/4/2012 Busambaga Plumbing 4,042,000 Other than invoice, Electrical & Works in the no other supporting General Hospital documents attached Hardware Stores

29/4/2012 Mbale Electrical 3,985,600 -do- General maintenance Electricals in the Hospital

31/4/2012 -do- -do- 3,346,400 -do- Total 11,974,000

I advised management to ensure that all the funds are accounted for or else recoveries be made.

44.6 Payment documents not stamped ―PAID‖ According to paragraph 125 of Part I of the TAI, 2003, all paid vouchers and supporting documents shall be stamped ―PAID‖. It was noted that payment vouchers and the corresponding attached documents were not stamped ―PAID‖. In instances where the vouchers were stamped ―PAID‖, the corresponding attached documents were not. The paid vouchers and attached documents, which are not stamped ―PAID‖, can repeatedly be recycled in the payment process.

I advised management to comply with the TAI and ensure that all the paid vouchers and attached supporting documents are stamped ―PAID‖.

44.7 Contracts Register The Procurement and Disposal Unit (PDU) is required to maintain records of all contracts placed including a contracts register detailing the contracts, contract sum, committed funds, outstanding amounts, retention and penalties. It was however

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noted that the PDU did not maintain a contracts register. The absence of a contracts register affects the effective monitoring and the overall management of contracts by the Hospital.

I advised management to comply with the regulations by maintaining a proper contracts register in the formats prescribed.

44.8 Construction of Hospital Gates An audit of the construction of the Hospital Gate established the following; The construction works was contracted out to M/s Conveyor Construction Co. Limited at a cost of Shs.135,799,776. The agreement was signed on 5th May 2011 and the construction works was to commence two weeks from the date of contract and to take two months. It was noted at the time of inspection (Dec 2012) that the contractor had not yet handed over the site to the Hospital and had locked all the doors to the rooms save for one that was occupied by the police at the main gate, see picture 3. There was a delay of more than one year by the contractor to hand over the site. During inspection, audit also noted that works were incomplete. At one of the gates, the window panes had not been fitted, see picture 4. Stones were being used to support the gates upon opening and closing, see picture 5. Other defects on the gate were also noted, including broken parts of the gate, where barbed wire had been improvised to stop un-authorized entry. Picture 6 refers.

Picture 3 Picture 4

The contractor locked all the doors, save for one Window on one of the gates lacking the panes being occupied by police

Picture 5 Picture 6

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Stones being used to support the gates Improvised barbed wire used at one of the spots which requires corrective works

I advised the Hospital Director to; Task the contractor to complete the remaining works and make good the defects noted. Explain the project delay and consider invoking the liquidated damages clause.

44.9 Construction of Sewerage and Water System A review of the contract document for the construction of the Sewerage and Water System and the subsequent follow up with inspection established the following; The construction works was contracted out to Mukewa Transporters and Building Constructors at a cost of Shs.144,249,675. Part of the sewer line (running from the small gate, through the psychiatric ward to the Municpal Council sewer line), which was worked on by the contractor belongs to Mbale Municipal Council and not the Hospital. It serves to households outside the Hospital. During inspection it was noted that one manhole had a broken cover, see picture 7. This endangers the lives of the patients and other people who visit the hospital. The finishing inside the manholes seemed to have been done partially, as shown in picture 8.

Picture 7 Picture 8

The manhole without a cover, with the broken The partial finishing of the manhole seen in the piece of the cover seen inside picture

I advised the Hospital Director to;

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Explain the circumstances under which the Hospital performed works on a sewer line that is not used by the Hospital. Task the contractor to replace the broken manhole covers.

44.10 Construction of Staff Accommodation A review of the contract document for the construction of Staff accommodation in Mbale Regional Referral Hospital and the subsequent follow up with inspection established the following; The construction works was contracted out to M/s Ambitious Construction Company at a cost of Shs.3,155,880,670. During inspections various defects or anomalies in the newly constructed staff accommodation, some of which the occupants had also raised were noted. These include:-  Failure by the contractor to put in place fire extinguishers. There were supposed to be 6 (six) fire extinguishers but none was put in place. This endangers the building, patients and property in case of fire.  Some of the window locks were already broken while some doors had no locks.  Plumbing works also had defects ranging from non-functional showers, non- functional toilets, water not flowing and water sinks that do not drain water.  Structural defects noted were cracks developing on the walls, ceiling and balcony of the building.  The covers to the roof openings had not been fitted.  Some doors were poorly fitted with big gaps left below the doors. There is a risk of rodents easily entering the houses.  The water reservoirs lack stop valves and taps resulting in water flowing throughout when it rains. This defeats the purpose for which they were installed and impacts on hospital water bills that are always high. The water flowing from the water reservoirs has no proper drainage system. When it rains, the water flows through the neighboring houses.  The plaque is not fitted firmly to the wall and can easily fall off.  Some of the pavers laid on the compound of the building were laid on top of manholes which were still in use. This inhibited its use leading to sometimes the removal of pavers in order to access the manholes. Pictures below refer

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Picture 7 Picture 8

The fire extinguisher rack can be seen in the A broken window lock picture without the fire extinguishers

Picture 9 Picture 10

One of the cracks seen on the roof of the Pavers removed in order to access the manhole building

I advised the Hospital Director to; Compel the contractor to rectify the defects that have been noted on the structure. Ensure that the remaining work and fittings such as the fire extinguishers and fitting covers to the openings to the roof are completed.

44.11 Disposal of Grounded Vehicles and Un-used Items Regulation 295 (5) of the PPDA, 2003 requires a procuring and disposing entity through the board of survey to identify assets to be disposed of on a periodic basis. A review of the Hospital‘s board of survey report revealed a number of grounded vehicles and un-used items due for boarding off. The failure to timely dispose grounded vehicles and old items results in further loss of value which results in the assets generating less revenue to the Hospital.

I advised the Accounting Officer to ensure the obsolete assets are timely disposed off in accordance with the laid down procedures and the PPDA regulations.

44.12 Lack of an IT policy The Hospital lacks an IT policy to guide the use of IT equipment and information and thus endangering the ICT assets (both information and hardware) of the Hospital. The Hospital has been connected to IFMS and this even makes the formulation of the policy more paramount.

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I advised the Hospital administration to review its ICT usage and consider formulating an IT policy in order to safeguard its ICT assets.

44.13 Lack of Fire Extinguishers Section 112 of Part II of the TAI, 2003, requires particular care to be taken to ensure that fire fighting facilities are in place and adequate. It was noted that the drug store lacked fire fighting equipment like the fire extinguishers and this endangered the drugs in case of fire outbreaks.

I advised the Hospital administration to ensure that fire fighting equipment is installed at the drug store.

44.14 Accumulation of Expired Drugs and Sundries Section 117 of Part II of the TAI, 2003, requires inventories to be kept within the limits of the foreseeable requirements and stocks in excess of these limits, or stocks of obsolete items, should not be allowed to accumulate. Audit noted that the expired drugs and sundries had accumulated and needed to be disposed off. The accumulation had led to some expired items being piled on the verandah. Pictures 11 and 12 refer. The failure to dispose off the expired items has worsened the problem of storage space. Picture 11 Picture 12

Overcrowded room housing the expired drugs Some expired drugs and sundries piled on the and sundries verandah

I advised the Hospital management to; Liaise with the NMS to ensure that the expired drugs and sundries are disposed. Reject the supply of drugs and sundries by NMS with short shelf life. Reject drugs and sundries supplied by NMS which have not been requisitioned by the Hospital.

44.15 Failure to adhere to commitment control Section 198, Part I of the TAI, 2003, requires all purchases of goods or services to be subject to the commitment control system procedures. A review of the financial statements revealed that the Hospital flouted the regulations, as evidenced by the

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indebtedness (Sundry creditors) to the tune of Shs.228,780,919. The figure reduced in the year under review by Shs.100 million.

I advised management to ensure; Adherence to commitment control That it clears its obligations with the suppliers to avoid litigation.

45.0 KABALE REFERRAL HOSPITAL

45.1 Land The Hospital owns land, but it was not disclosed in the non current assets schedule in the financial statements. I advised the Accounting Officer to ensure that the land is recorded in a fixed assets schedule.

45.2 Hospital Director in Acting Position Section (A-c) of Public Service Standings Orders 2010; which states acting position procedures. An appointment on acting basis is expected to last not more than six months, and is subject to direction by the Appointing Authority. A review of personal files revealed that Hospital Director has been in acting capacity since 2010. Officers acting in positions for long may lead to de-motivation hence, low performance.

I advised the Health Service Commission through management to regularize the appointments of the Hospital Director.

45.3 Understaffing The Hospital lacked the key personnel staff such as; senior consultants, consultants, medical officers and other personnel to provide health service.Out of the 198 approved posts, only 109were filled and 89 posts vacant. Inadequate staff adversely affects provision of health services with the increasing number of patients.

I advised the Hospital Director to liaise with line Ministry to fill vacant positions.

45.4 Domestic Arrears

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Treasury Accounting Instructions 198 requires all purchases of goods or services will be subject to the Commitment Control System procedures that are issued by the Accountant General from time to time.The Hospital had domestic arrears of Shs.75,879,189 by the year end contrary to the Commitment Control System. This may lead to litigation.

Management was advised to adhere to the Commitment Control Systems.

45.5 Budget Performance A review of transfers received from treasury revealed that capital development funding was reduced drastically from Shs.1,682,913,000 to Shs.755,346,000 a reduction by Shs.927,567,000 and yet the institution had undertaken two major projects. This is likely affect the completion of the Nurse‘s Hostel and the Private wing.

I advised the Accounting Officer to seek additional funding from the Ministry of Finance, Planning and Economic Development to compensate for the budget cuts to enable the completion of ongoing projects

45.6 Service Delivery in the Health Sector It was observed that the Hospital has the following challenges:- Inadequate space especially in the maternity ward which causes overcrowding in the Hospital ward. The Hospital also lacks an accident and emergency unit and Incinerator The old sewage and toilet facilities cannot match the ever increasing number of patients. Most of the equipment used in the hospital is obsolete.

I advised management to liaise with the Ministries of Health and Finance, Planning and Economic Development and lobby for additional funding and fill the vacant posts.

45.7 Outstanding Revenue from Sale of Pool Houses

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A review of annual report revealed that the hospitals pool houses on plots 43 – 49 Johnsone road and plot M4 Bunigo road were sold by the Ministry of Lands, Housing and Urban Development. It was noted that although the Ministry of Lands, Housing and Urban Development agreed to compensate the hospital, to date no compensation has been received. Besides, there is no record as to the amount of the compensation.

I advised the Hospital Director to liaise with the Permanent Secretary of Ministry of Lands, Housing and Urban Development to determine the value of compensation and recover the money.

45.8 Expired Drugs Some drugs/chemicals costing Shs.3,549,656 had expired in the Hospital stores. This could have been due to low utilization rates, receiving drugs with low shelf life. Review of internal Audit reports also indicated that drugs were expiring due to lack of equipment and personal to dispense it.Expired drugs represent a loss to the Public and further losses may be incurred in the process of transporting and destroying them. Un-destroyed drugs may also end up being used hence putting the lives to danger.

I advised Management to check the drugs expiry dates before they are received and ensure that drugs received when to expire are returned to the supplier. Efficient utilization and management of drugs should be emphasized.

45.9 Use of Information Technology (IT) Section 110 of the LGFAR (2007) requires the chief executive to designate an officer to ensure that adequate information and communication technology policies are established and are applied to enable adequate security and protection over computers and of data held on computers or information systems operated by the hospital. It was observed that a lot of investments in terms of computers and their accessories have been undertaken in the hospital. The investments are meant to improve processing of information in the hospital. However, there are no proper procedures formulated to guide use of this equipment. In addition there are no designated officers to handle IT matters contrary to the law. There is a risk of

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wastage in absence of such controls. As a consequence there was no effective general and application controls in existence in the stations that would ensure proper logical and physical access and security over data. Management indicated that the approved structures did not have provision for IT staff. I advised management to liaise with the Ministry of Information Communication Technology (ICT) to formulate IT policies, to guide in management of IT resources, and also liaise with the Ministries of ICT and Public Service with a view of addressing the need of IT staff in the hospital structure.

45.10 Inspection of Projects The hospital entered into contract with M/s Prime I.K Ltd for the construction of a private wing and nurses hostel at a contract sum of Shs.2,657,038,984 and Shs.2,457,035,984 respectively in a phased manner. Audit inspection of the works on both buildings revealed the following challenges:-

Snag list on Private Wing Walls - There are visible cracks on the wall surfaces due to poor plaster which needs to be rectified Beams – There are visible cracked beansurface. The joints between walls and beams needs to be improved for quality work. Ceiling – Peeling ceiling plaster, damaged ceiling boards and uneven ceiling cornices Electrical wiring – Some conduits are exposed requiring proper covering, poor finishing around some sockets requiring good finish. Snag list on Nurses Hostel Fittings – Poor workmanship on some door, water, sanitary and electrical fittings. Floor – The floor had visible cracks. Management explained that the snags are being handled as work progresses for the private wing and the Nurses 50% retention money has been withheld and the building has been completed and occupied.

I advised management to step up supervision and the defects rectified before retention monies are paid. 613

NURSES WING Photo Audit observation Damaged plastic pipe There was a damaged plastic pipe, the engineering assistant explained that it was damaged by the occupants

Floor tiles The floor tiles were not polished as per the Bills of quantities

Power Mains Supply The main supply (Umeme) is exposed as there is no mains isolator

Windows There visible cracks on one of the windows

Private Wing Photos

Photo Audit observation

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Fittings Poor workmanship on door frames

Tile Works None uniform spacing of tiles in some areas. Poor tile alignment in some areas. Poor grouting in some parts.

46.0 LIRA REGIONAL REFERRAL HOSPITAL

46.1 Understaffing Section 15(a) of the standing orders 2010 mandates ministry of public service to determine the structure, terms and conditions of service of local government staff. In line with this requirement, the ministry approved the structure of the hospital at 392 posts. However out of this only 301(77%) of the positions are filled leaving a staffing gap of 91 (23%) as shown in Table A below.

Table A showing the staffing levels

Staff Approve Filled Vacant Percentage d posts posts posts (%) of filled category positions

Doctors 41 08 33 19.5%

Allied health professionals 95 70 25 73.7%

Nurses and midwives 130 129 1 99.2%

Finance and 51 22 29 43.1% Administration

Support staff 75 72 3 96%

Total 392 301 91 76.8% The Hospital lacks key personnel such as senior consultants, consultants, medical

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officers. Understaffing causes congestion in the wards as illustrated in the hospital annual report. In the report it was noted that doctor:patient ratio, pharmesist: patient ratio and patient ratio, Pharmacist:patient ratio and nurses midwives:patient ratio were 1:35,00, 0:280,00 and 1:1271 respectively. The accounting officer stated that the Ministry of Health is aware of the staffing gaps as theycontinuously make submissions for staffing needs.

Management was urged to follow up the matter and ensure that the vacancies are filled to enable effective and efficient service delivery.

46.2 Service Delivery Audit inspection revealed congestion in Wards, dilapidated Out Patients department structure, insufficient facilities in units and inappropriate road access through the hospital. There was lack of space in the maternity ward accident and emergency units and there were poor sewage and toilet facilities.

The Accounting Officer stated that while the Hospital needs a face lift, there were low levels of funding. The OPD block cannot be renovated but can only be demolished due to structural weaknesses and the materials used to construct. It is made of mud and wattle.

Management was advised to liaise with the MOH and other relevant authorities to address the matter.

46.3 Underfunding Management asserted that thebudget for the Hospital of Shs.4,574,521,899 is inadequate to fully run the hospital as there is a need for sundry supplies which was allocated a meagre Shs.112,700,000 and fuel Shs.38,108,040 to run the generator during frequent power blackouts, with the hospital resorting to use of lanterns and in extreme cases candles in wards as an alternative.

Management was advised to continuously submit its comprehensive plans and budgets to the relevant authorities and lobby for increased funding.

46.4 Internal Audit Reports

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A review of the internal audit revealed that the unit has a budget of Shs.1,500,000 per month(Shs.18,000,000 per year).

However no internal audit reports were availed. Management was advised to avail internal audit reports for review.

47.0 GULU REGIONAL REFERRAL HOSPITAL

47.1 Unsupported Payables Payables amounting to Shs.1,880,156,560 reported in the balance sheet werenot verified due to non-availability of commitment registers, individual suppliers files and creditor‘s ledgers. Management claimed that these were payables carried forward from financial years 2008/09 and 2009/10 and that documents were available for verification. However, they were not presented for audit. The hospital is said to be currently facing legal suit for non-payment.

Management was advised to avail the underlying records for verification otherwise they are doubtful.

47.2 Unauthorized Excess Expenditure, Shs.235,842,270 A review of financial statements revealed excess expenditure of Shs.235,842,270 that was not authorized. Management explained that the unauthorized expenditure was a result of utility bills that were unbudgeted for. Management was advised to ensure that utility expenditure is properly forecasted and budgeted for.

47.3 Undelivered Medical Equipment The hospital contracted a firm to supply assorted medical equipment at a contract sum of Shs.276,745,000. By the time of audit Shs.227,665,000 had been paid to the supplier.

An audit inspection carried out to establish the delivery and distribution of the items purchased revealed that equipment valued at Shs.191,428,000 was not delivered.

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The Accounting Officer refuted the fact and claimed that the equipment had been delivered and verified by the internal auditor, but this claim could not be confirmed. As a result fraud is suspected.

Management was advised investigate the matter and ensure that the missing equipment is accounted for.

47.4 Misstatement of Cash and Cash equivalents The amount disclosed as cash and cash equivalents of Shs.48,595,961 in the statement of financial position is understated by Shs.78,966,739 being balances on three project accounts that were not taken into account. Management did not present documents for collection from this revenue source for audit and the bank reconciliation statements for the financial year were not prepared. Management explained that they reflect this fund in memorandum statements. I advised management to present the documents for audit and ensure proper disclosure.

47.5 Non-submission of Non-Tax Revenue Records A sum of Shs.19,898,000 was disclosed in the statement of financial performance as Non-Tax Revenue. However, the returns relating to its collection and subsequent usage were not submitted for audit. Management stated that the respective records were available for verification but did not avail them.

Management was advised to avail all the relevant documentation for audit or effect recovery.

47.6 Lack of Budget Figures The income and expenditure statement omitted the budget figures contrary to the provisions of the Government of Uganda chart of accounts, rendering analysis of financial performance during the year impossible.

I advised that the error be corrected and adjustments made in the statement.

47.7 Unaccounted deposits During the financial year, the hospital deposited Shs.96,678,000 at New Star Service Station for the fuel requirements. A review of the details of fuel 618

consumption statements revealed that the above amounts remained unaccounted for. Management explained that money paid to fuel stations was also used to service vehicles.

Management was advised to ensure proper accountability of the deposits.

47.8 Irregular Procurement Cleaning Services. During the financial year, payments amounting to Shs.52,620,000 were made to a firm for cleaning services. However, proper procurement procedures leading to the award of the contract were not followed as there were no evaluation committee minutes and no evidence of contract committee approval contrary to procurement regulations. Management was informed that total disregard of the procurement and disposal regulations compromise the services provided as well as value for money.

Management was also advised to ensure that regulations are complied with.

47.9 Unsupported Refunds A sum of Shs.40,500,000 was transferred to other hospital accounts as refund of the borrowed funds. However audit could not establish the activities to which these borrowed funds were used and whether they were put to good use.

It was observed that some of the recipient accounts were not disclosed for audit purposes, their financial records and supporting documents were not availed for audit and therefore it was not possible to verify whether the refunds were credited onto the said accounts. Management explained that borrowings were meant to handle emergencies since there were delays in releases by the Treasury.

Management was advised to discontinue such internal borrowing as they lead to financial misappropriation and defeat the purpose for which budgetary controls are instituted.

47.10 Irregular Maintenance and repair of Motor Vehicles During the financial year, the hospital incurred expenditure of Shs.11,702,934 on repair and maintenance of vehicles. The vehicle repairs were done without assessment and inspection reports, prior and after repair.

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There were no accountability documents provided to confirm that repairs were done. Besides, no used spare parts were available for verification casting further doubt as to whether the new spares were fitted. Accordingly the repairs were irregular.

Management was advised to provide the requisite accountability documents.

47.11 Payment of Hotel Bills Hotel bills amounting to Shs.54,710,000 were paid to three Hotels as part payment in respect of accommodation for staff on transfer. The payments were made without supporting bills such as invoices and demand notes rendering the expenditure incurred incompletely vouched.

In response, the accounting officer explained that these were arrears incurred on accommodation of newly transferred staff between financial years 2008/09 and 2009/10 in which they were forced to make an out of court settlement to avert a court ruling.Management was advised that Standing Orders provide for payment of disturbance allowance and not hotel accommodation hence the expenditure was improperly incurred.

I advised the accounting officer to ensure compliance with standing orders. Meanwhile supporting documents be availed for audit.

47.12 Doubtful payments Regulations 60(1) and 73(2) of the Public Finance and Accountability Regulations(PFAR), 2003 require that all disbursements of public moneys be properly vouched on payment vouchers and the purpose of payments properly disclosed.

During the financial year, payments amounting to Shs.10,558,000 made to a firm and the corresponding 6% Withholding tax deduction were not supported with accountability documents rendering them doubtful.

Besides no payment vouchers were made but payments were merely recorded in the cash book. The firm in question could not be confirmed as having been 620

contracted for any works in the hospital. Management explained that the company was the official prequalified firm for repair of vehicles and but failed to provide relevant documents for verification.

Management was advised to ensure that payments are properly vouched in accordance with the Public Finance and Accountability Regulations, of 2003.

47.13 Condition and Management of the Main Store Audit inspection carried out at the Hospital stores revealed the following:

The store is congested and some drugs are placed on the floor due to the limited space. This is likely to lead to deterioration of drugs. The drugs are not coded, making it dificult to trace them. The store is in a dilapidated state with no fire extinguishers in case of fire out break. There is constant power black out that has prompted the store keeper to move drugs requiring regulated temperature out of the store. Windows to the store are broken allowing sun rays and rain. See picturesque below:

Status of the hospital main drug store- boxes of drugs on the floor with shatered windows letting in sun-heat

Poor storage of drugs risks contamination and deterioration leading to loss of funds. Management explained that they do not have a suitable store but try to keep the medicines safe and attributed the situation to insufficient funding.

Management was advised to seek a larger space to ensure proper storage and safety of drugs procured for the hospital.

48.0 MBARARA REGIONAL REFERRAL HOSPITAL

48.1 Unaccounted for Advances 621

Section 43(2) of Local Government Financial and Accounting regulations 2007 requires that administrative advances shall be authorized by the chief executive and shall be accounted for within one month. However, during the year under review Shs.55,308,699was advanced to various hospital employees to carry out official activities but remained unaccounted for at the year end.

The Accounting Officer was advised to ensure that funds are fully accounted for else be recovered from the payees.

48.2 Payables At the close of last financial year, the hospital maintained a payables balance of Shs.389,524,850 which was carried forward from the previous financial year (2010/2011). This implies that for a complete financial year management did not take any steps to clear outstanding obligations. Non – payment of debts could lead to litigation for delayed payment which may also result into further liquidity problems. Besides, I was not provided with the schedule of the purported arrears. Management explained that the payables to the tune of Shs.389,524,850 relate to the periods 2008 to 2010. Management indicated further that a schedule of the verified arrears had been submitted to the MOFPED for clearance.

Management was advised to ensure it clears its obligations with the suppliers and also stop over - committing government.

48.3 Lack of Land Titles The Hospital lacks land title for the Hospital land. There is a risk that land may be encroached on by squatters.

I advised the Hospital Director to process land titles for Hospital land.

48.4 Closing Unspent balances (2011/2012) According to guidance given Ref: AGO 288/293/01 dated 4th July 2012 from the Permanent Secretary/Secretary to the Treasury (PS/ST), Accounting Officers (AO) of Local Governments were instructed to return all the balances of conditional

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grants to the Consolidated Fund before 25th July 2012, and submit request for rollover of the same amount with evidence of commitment of those funds.

It was noted that Shs.155,561,699 was returned to the Consolidated Fund and no acknowledgement receipt was availed for audit. I advised the Hospital Director to adhere to the Circular Instructions from the Treasury.

48.5 Low Absorption of Funds The Referral Hospital received about Shs.944,000,000 for Capital projects. However, it utilised only Shs.34,143,000 on the Construction of a drainage channel in the Hospital leaving a balance of Shs.909,857,000 unutilised. Failure to utilise funds inhibits provision of health services.

I advised management to obtain Authority from the Ministry of Finance, Planning and Economic Development so as to utilize the above funds and implement the intended projects in the following year.

48.6 Failure to Notify Bidders of Changes in the Bids The Hospital awarded a contract for Construction of a Drainage Channel to M/s. Inter-Tech Equipment (U) Ltdat a contract price ofShs.98,412,000 without notifying all the bidders of the changes on the bid documents. The advert run for 8 days and some of the bidders evaluated did not buy the bids. I advised management to always comply with PPDA regulations.

48.7 Payroll Management (a) Un-reconciled Master-Payroll Balances to the General Ledger Balances There was no reconciliation of the monthly Payroll to General Ledger balances and the monthly master files generated by the Payroll section. In addition there are no reconciliations between the paid up payroll and the submitted payroll.

The general ledger should be reconciled with the master file as required.

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(b) Staffing Shortages A review of the Hospital staffing structure revealed that the Hospital was understaffed. Out of 326 approved posts, only 300 positions were filled leaving a gap of 26 posts vacant. Key positions like Doctors, Consultants and Senior Consultant were not filled. This has adversely affected provisions of health services to region.

I advised the Hospital Director to liaise with the Ministry of Public Service to fill the vacant positions to improve on service delivery.

(c) Personnel Records It was noted that personnel files were not properly maintained. The files lacked some basic details including passport photographs, academic details and Curriculum Vitae of staff. In other instances, the documents in the staff personal files were not serially numbered.

Management admitted the shortcoming and explained that the challenge is the continuous movement of staff records that sometimes leads to misplacement of records requiring continued updating. I advised the Accounting Officer to comply with the regulations.

48.8 Management of Information, Communication and Technology Management has not formulated an IT policy and has not created awareness regarding IT security amongst staff despite having desk tops and laptops. There was no effective system of logical and physical access of computers; no backup systems and IT equipment were not protected.

Management explained that lack of a clear IT policy was because the hospital did not have IT personnel on the establishment. However, rudimentary methods of protecting and ensuring safety of the computers like making sure they are only accessed by responsible persons in the offices they belong were in place. He promised to continue engaging an external systems administrator to update and 624

strengthen the IT policies and security in addition to using IT personnel from the University as their partners.

I advised the Accounting Officer to formulate the IT policy and strengthen access controls.

48.9 Limited Internal Audit Coverage Internal audit reports were limited in scope as they did not cover; risk assessment, payroll, procurements, health centres, management of assets, investigations and reports focused mainly on the examination of payment vouchers. I advised management to strengthen the internal Audit section in a bid to strengthen internal controls.

49.0 FORT PORTAL REFERRAL HOSPITAL

49.1 Doubtful Expenditure It was noted that Shs.17,600,000 was paid to M/s Chalm Enterprises Ltd for the supply of 400 T-Shirts for hospital staff. However, the local purchase order (LPO) and goods received note (GRN) were not signed as evidence of receipt of the items. Also, the items were not taken on charge and no distribution schedules were availed for audit. This rendered the expenditure doubtful.

Management accepted the anomaly and promised to account for the items.

I await the outcome of management promise.

49.2 Missing Vouchers Payments to a tune of Shs.84,846,333 on recurrent and mechanical workshops accounts were made, but the vouchers were not availed for audit verification. Missing vouchers are a potential for fraud and misappropriation. I was unable to confirm that the expenditure was put to the proper purpose.

Management was advised to ensure that all payments are properly vouched and availed for audit.

49.3 Outstanding Salary Advance

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Treasury Accounting Instructions 205 (b) requires salary advances to be limited to three months officer‘s gross pay and to be recovered in 9 monthly instalments, commencing in the month following in which the advance was granted. On the contrary, Shs.6,500,000 advanced to various staff remained outstanding at year end. I advised management to comply with regulations regarding granting and recovery of advances.

49.4 Irregular Micro Procurements Regulation 118 (8) of the Local Governments PPDA requires that micro procurements should be reported to the Contracts Committee on a monthly basis by the holder of delegated authority using PP Form 202 in the fifth schedule. On the contrary, micro procurements totaling to Shs.61,797,549 were not reported to the contracts committee in contravention of the regulations. This weakens controls over procurements.

I advised management to ensure that procurement regulations are complied with to enable informed decisions and value for money.

49.5 Assessment of Internal Controls and Systems (a) Internal Audit Function A review of the internal audit department revealed that the unit has only 1 staff out of 2 in the approved structure. Given the level activities like inspections and quarterly audit of regional workshop activities covering districts of Kabarole, Bundibungyo, Kasese, Kyenjojo, Ntoroko and Kamwenge one officer may not be in position to adequately execute the tasks.

The Accounting Officer was advised to liaise with the relevant authorities to recruit the additional staff.

(b) Management of ICT Equipment The entity has a total of 30 computers and 24 other equipment including; printers photocopiers and scanners. However, management did not identify and assign one of its staff to oversee the ICT equipment and its usage. As a result, the following were noted; there was no regular update of anti-virus posing a risk of data loss. There was no adequate data file back-up to ensure data is reconstituted in the 626

event of file loss or damage and there was no report of computer usage produced and scrutinized by management and therefore incidences of computer breakdowns and thefts may go undetected. The Hospital lacked an IT policy and as a result, there were no measures to prevent unauthorized access and interference to IT services and protect IT facilities from environmental damage. Management of ICT equipment is at departmental level and routine servicing of IT equipment was rare and so are repairs. Training in use of IT equipment is limited as most of the staff acquired computer skills at work.

The Accounting Officer was advised to ensure that an IT policy is put in place.

(c) Risk Management The officer in charge of Finance is responsible for advising on risk management and effective systems of control to ensure compliance with all applicable legislation, regulations, and other relevant statements of best practice.

It was noted that the referral hospital had no documented policies and procedures of managing risk; there is no established comprehensive risk management policy, there are no clear guidelines and procedures to be followed in risk handling, there was no evidence of a documented training policy to facilitate employees improve their competencies for the job and cross trainings across different fields of specialization and the accounting function was not well segregated. Failure to have documented policies and procedures for managing risk makes the operations vulnerable to fraud.

The Accounting Officer was advised to establish and implement appropriate controls and procedures for managing risk.

49.6 Financial Statements and Reporting (a) Un-supported Deductions and Remittance of Non- Resource Tax Non-Resource Tax is levied on imported goods by the hospital whereby the funds are directly remitted to the Central Bank. It was noted that Shs.80,000,000 was deducted as Non-Resource Tax in the period 2011/2012 without any capital importation by the hospital. Furthermore, there were no acknowledgement receipts

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from Treasury for the purported remittance of Shs.80,000,000. Management admitted the anomaly and promised to harmonize with the central bank.

I await the outcome of the promised intervention. 49.7 Staff Shortages Paragraph 15 of the standing orders 2010 requires the responsible officer to determine the terms and conditions of service and structures of Public Service in consultation with the Secretary to the Treasury. Section 15 (a) of the standing orders 2010 mandates the Ministry of Public Service to determine the structure, terms and conditions of service. In a bid to enhance staffing levels, management approved a staff structure of 435. Currently only 333 posts are filled, leaving 102 posts vacant.Understaffing undermines effective service delivery by the Hospital.

Management stated that it was difficult to retain staff due to lack of accommodation and poor remuneration.

The Accounting Officer was advised to follow up the matter of understaffing with relevant authorities for redress.

49.8 Budgeting (a) Lack of a Corporate Plan It was noted that the Hospital does not have its own corporate plan. As a result, management is not guided in the achievement of its strategic objectives. The Accounting Officer indicated that the process of producing a corporate plan is underway. I urged the Accounting Officer to ensure that a corporate plan is developed which should be integrated into the Ministry's overall corporate plan for better service delivery.

(b) Short Delivery of Drugs It was noted that the hospital ordered for drugs and other items under the credit line of the Ministry of Health worth Shs.1,578,055,995 from National Medical Stores (NMS) but only received items worth Shs.675,866,454 (42.8%) of total orders placed. The shortfall of supplies was Shs.902,189,541 (57.2%).In addition, delivery of drugs delayed for 5 to 20 days after issuance of orders to NMS prompting 628

management to sometimes locally procure emergency drugs. The Accounting Officer explained that National Medical Stores is an Agency of Ministry of Health. After the policy shift in FY 2009/2010, all funds for Essential Medicines and Medical Supplies are budgeted under Vote 14 for National Medical Stores. The policy does not allow Hospitals to include those funds in their budgets.

The Accounting Officer was advised to follow up the under delivery and engage NMS to ensure that delivery lead time is reduced. 49.9 Health Services (a) High Bed Occupancy Ratio The World Health Organization (WHO) recommends a Bed Occupancy Ratio (BOR) of 85% and the balance of 15% reserved to cater for emergencies. Scrutiny of documents revealed that the hospital has a capacity of 351 beds and in the year 2011/2012 it admitted 23,978 patients who spent 129,260 inpatient days implying that the BOR rose up to 95% during the year. A physical inspection revealed that very few beds were left for emergencies. The High BOR was attributed to non- utilization of the lower health centers at Sub Counties which were inadequately equipped and staffed. Management acknowledged the situation.

I advised the Accounting Officer to liaise with authorities concerned to decongest the hospital by improving on the services of lower health centers especially Health Center IVs by functionalizing their facilities like theaters.

(b) Expired Drugs The Hospital records revealed an assortment of expired drugs were still being kept in the stores. This is attributable to NMS‘ ‗push‘ arrangement and supply of drugs with a short shelf life. In the circumstances, the expired drugs could be prescribed to unsuspecting patients.

Whereas management indicated that the drugs had been collected by National Medical Stores, verification revealed they were still in the stores. Management should bring the matter to the attention of the relevant authorities with a view to disposing the expired drugs; otherwise, there is a risk that the expired drugs may end in drug shops. 629

I advised the Accounting Officer to follow up the matter with the Ministry of Health to expedite the process of collecting the drugs for destruction and general drug management.

50.0 JINJA REGIONAL REFERRAL HOSPITAL

50.1 Unauthorized Excess Expenditure Regulation 152 of the TAIs Part I, 2003 and section 17 of the Public Finance and Accountability Act (PFAA) 2003 require that expenditure not provided for in the approved Estimates of any financial year may not be incurred without the authority of a Supplementary Estimates Warrant, a Virement Warrant or a Contingencies Fund Advance Warrant. It was noted that the hospital incurred excess expenditure of Shs.24,927,256 during the financial year under review.

The Hospital Director was requested to provide evidence of authority to incur the excess expenditure in accordance with Section 43(2) of the PFAA, 2003.

The Director explained that the monies on the employees costs arose from the NTR allowances payable to health workers as collections are steadily improving.However, the principle is against financial regulations as payment of allowances is not tagged to how much has been collected but is activity based.

I advised Accounting Officer to seek authority from the hospital board.

50.2 Compliance with Statutory Deductions (a) Non Deduction of Withholding Tax Section 124 (1) of the Income Tax Act requires that a withholding agent who fails to withhold tax in accordance with this Act is personally liable to pay to the Commissioner the amount of tax which has not been held, but the withholding agent is entitled to recover the same amount from the payee.

It was noted that Shs.200,000,000 was paid to a firm being part payment for the medical equipment supplied to the hospital. However, the payment was not subjected to 6% withholding tax of Shs.12,000,000 as required by the Income Tax Act. 630

This may attract fines and penalties on the defaulting entity thus resulting in wasteful expenditure.

Management explained that a firm paid withholding tax in advance. I await evidence of payment.

(b) Non Deduction of Pay As You Earn (PAYE) Section 19(1)(b) of the Income tax act requires that subject to this section, employment income means any income derived by an employee from any employment and includes the value of any benefit granted.

It was noted that the Hospital failed to deduct pay as you earn of Shs.2,119,500 from payments to intern doctors as feeding allowance during the financial year. Non deduction of statutory deductions contravenes the respective laws such as the income tax act which attracts penalties and fines.

The Accounting Officer stated that the Hospital pays intern Doctors a feeding allowance of Shs.250,000 per month as an upkeep being considered compassionate bearing in mind the magnitude of their services to the Hospital.

The Hospital Director was advised to deduct Pay As You Earn from feeding allowance and remit it to the authority to avoid penalties and fines.

(c) Lack of Acknowledgement Receipts Section 42 of the Local Government Financial and Accounting Regulations, 2007 requires that ―All disbursements of public moneys shall be properly vouched on payment vouchers prescribed in the accounting manual or issued by the Minister.

It was noted that Shs.10,000,000 paid to Uganda Revenue Authority dated 19th April 2012 lacked acknowledgement receipt. In the absence of acknowledgement receipts, I could not ascertain that the funds were indeed received by URA.

I await evidence of remittance from the hospital management.

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50.3 Establishment and Staffing (a) Understaffing The key function of the hospital is to provide region wide improvement in the quality of patient care as per Ministry of Health standards among others. It was observed that out of the approved establishment of 418 posts, only 336 posts had been filled during the period under review, which represents 80% of the establishment, leaving a staffing gap of 82 posts. Inadequate staff affects the service delivery negatively, and the regional referral hospital may not achieve its planned objectives.

Management stated that the entity is not responsible for recruitment but only declares vacant posts on a quarterly basis to the Ministry of Health which in turn makes submissions to the Health Service Commission.I advised management to make a follow up with the Ministry of Health and Public Service to fill the vacant posts.

(b) Over Establishment According to the approved establishment of 418 posts for the hospital, it was noted that some posts were over established by sixty nine (69) staff; over whom the hospital had spent Shs.674,373,456 in salary costs. This implies that the hospital incurred over and above its approved establishment wage bill.

The Hospital Director was advised to ensure that the over established posts are regularized if the staffs are really required for the smooth running of the hospital.

Management explained that overall the establishment is not fully filled and the wage bill for the missing staff therefore pays for those in over filled posts who shoulder some of the responsibilities of missing staff and handle the work overload. Besides the structure was outdated given the new disease pattern and increased population.

I advised management to engage Ministry of Public Service to review the structure in order to establish the right grade off staff.

A review of approved/established structure for the Jinja Regional Referral Hospital, revealed that there were some posts which were not approved in the organization structure but had filled without authority.

As a result a sum of Shs.64,084,656 was irregularly spent on the staffs who occupy the non-established posts. The details are shown below:-

Posts not approved in the Structure Department Post Approved Filled Salary per No of Amount Vacancy Vacancy Month months Laboratory Lab Technician 0 3 657,143 12 23,657,148 Pharmacy Principal 0 1 986,883 12 11,842,596 Dispenser Records Section Medical Record 0 1 406,237 12 4,874,844 Assistant Finance & Senior 0 1 952,468 12 11,429,616 Administration Procurement Officer Finance & Clerical officer 0 1 366,228 12 4,394,736 Administration Enrolled Nurses Senior enrolled 0 1 657,143 12 7,885,716 midwife TOTAL 64,084,656

Accordingly the hospital is maintaining non established staff on the government payroll thereby increasing the wage costs.

Management explained that the work load being handled outstrips the approved establishment which has been in place for over a decade without adjustment to meet the increasing demands. A tradeoff of none established vacancies with vacant positions leaves the wage bill balanced.

I advised him to engage Ministry of Public Service to restructure the hospital accordingly.

(d) Abscondment from Duty Section (C-d) (8) on Study Leave of The Uganda Public Service Standing Orders provides that any public officer who proceeds for full time studies without authority shall be regarded as having abandoned duty in accordance with the provisions of sub section A-n. 633

A review of personnel establishment records of selected staff revealed that one staffwent on study leave with effect from 27th August 2012 without the prior approval of the Management Board of the Hospital and Ministry of Health. Accordingly the officer absconded from duty and yet she had not been deleted from the payroll.

Management explained that she was cleared by both management and the Permanent Secretary Ministry of Health to proceed for further studies and that a submission was prepared and submitted to the Health Service Commission to grant her a study leave, a process that may have delayed. Evidence to this effect was however, not availed.

I await evidence on this matter.

50.4 Lack of Vehicle Registration Log Books Paragraph 816 of Treasury Accounting Instructions 2003 requires that in addition to maintenance of inventories for vehicles, plant log books should be maintained for each vehicle recording its history, performance, repairs for periodic assessment to be made of its performance compared with its actual costs.

It was noted that all vehicles owned by the hospital were not legally in the names of the hospital and the respective vehicle registration log books had been retained by the Ministry of Health. Instances of these cases are staff van (G 3855 M) and Land Cruiser Prado (UG 3856M).

There is a risk that the hospital has no claim to legal ownership as the Ministry of Health can withdraw these vehicles at will.

Management stated that the Chief Mechanical Engineer refused to surrender their log books and instead passed them over to the Ministry of Health arguing that the Permanent Secretary is responsible for all the vehicles registered under the sector number plates.

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The Hospital Director was advised to liaise with Ministry of Health retrieve the log books for the vehicles purchased using Hospital resources and transfer them into the hospital names.

50.5 Management of Information and Communication Technology A review of the IT general and application controls revealed that the hospital has not formulated an IT policy and there was no evidence of any effective measures that had been taken to create awareness regarding IT security amongst staff despite having 16 desk top computers, 4 laptops and some printers.There was no effective system of logical and physical access of computers and no backup systems created to protect computers and their soft-wares.

The implication is that misuse of computer equipment, loss of vital data and information and theft may not be ruled out. This could be due to lack of awareness of computer use.

Management explained that there is a lack of an IT Personnel on hospital establishment but engages an external system administrator to address pertinent IT issues.

The Hospital Director was advised to formulate an IT security and maintenance policy in order to safeguard IT resources at the Hospital.

50.6 Drugs and Other Items (a) Under Delivery of Drugs and Other Items Under National Medical Stores (NMS) credit line of the Ministry of Health the hospital was allocated a budget of Shs.1,438,395,716 out of which drugs worth Shs.1,182,700,735 were delivered thereby leaving a balance of Shs.255,694,981 unutilised.

A review of NMS deliveries revealed that although agreed lead time is two weeks, the actual time taken to supply ordered drugs is between 2.5-5.5 weeks i.e (17 to 39 days) after issuance of orders to NMS which affects service delivery negatively. Management explained that National Medical Stores was advised to give its recipients updated statements of accounts with each delivery but this has not been 635

their practice. I advised the Hospital Director to resolve the impasse with NMS and Ministry of Health.

(b) Drugs/Items Not Ordered But Delivered to the Hospitals Best practice requires that hospital is supplied with Medical Suplies based on their user needs and requisitions. It was noted that there were several cases where drugs/items not ordered have been delivered by the National Medical Stores. There is a risk that this kind of forced deliveries/supplies reduces the credit lines for the hospital even though the items delivered may not be required for use in the hospital.

Management explained that the drugs that are supplied by National Medical Stores are third party procurements that are sent directly based on national needs, while others are donations.

The Hospital Director is advised to ensure that drugs/items not ordered are not received in the hospital and returned at the supplier‘s costs.

50.7 Implementation of Service Delivery Projects (a) Stalled Construction of Private Patients Wing Section 59 of the PPDA Act requires that procurement should only be initiated or confirmed on the confirmation that funding, in the full amount over the required period is available or will be made available at the time the contract commitment is made.

The Hospital signed contract with a firm on 11th January 2011 for the construction of the Private Patient wing at a cost of Shs.2,782,767,447 which construction was to be completed by 31st December 2011. On inspection in November 2012, however, the construction was still incomplete and work had stalled yet Shs.1,521,232,290 (representing 67% of the contract sum excluding VAT had been paid to the contractor.

Delayed performance by the contracts denied services to the targeted beneficiaries.

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There is a risk that the cost of the project may go up due to inflation. Refer to pictorial evidence below:-

Incomplete tiling Incomplete wiring process Abandoned external Contractor‘s site works offices: Contractor had demobilized from the site at time of audit- November 2012

Management stated that due to continued decline in funding under capital development projects, the project has had to be reviewed and the completion period extended and accordingly the delay is not entirely due to reasons attributed to the contractor, but funding issues as well.

Management was advised to liaise with the MoFPED to obtain the required funding to complete the project.

(b) Non-utilization of a Renovated Eye Ward The Hospital signed a contract agreementwith a firm for the renovation of the eye ward at a cost of Shs.193,280,328 on 15th December 2009 and was completed schedule in March 2010.However, since its completion, the ward has not been put to use purportedly due to poor electrical wiring that could not run the equipment. The building has electrical defects that require correction by the contractor. The non utilization of the facility denies eye services to the patients.

Management explained that the existence of the defects could not allow the unit to be operational and that those defects will be addressed by another service provider.

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The Hospital Director was advised to ensure that the defects are sorted out to safe guard the hospital equipment from further risk of loss that may be occasioned by electrical fires.

50.8 Inspection of Jinja Regional Referral Hospital (a) Maternity (Ward 8 & Ward 7)

Ward 8

(a) Inadequate Space

The inspection of labor ward showed the space available the increasing number of expectant mothers. In the financial year 2011/12 , management admitted 9,453 expectant mothers which put the bed occupancy rate at 109% thus 10% higher than the capacity of the hospital beds. The overwhelming increase of pregnant mothers is a big constraint to the available resources and facilities like drugs, toilets, beds, space, stationery (mostly files), sutures & catheter.

(b) Staffing The ward had a total of 12 to 13 staff who handled the 9,453 pregnant mothers in the financial year 2011/12 thus a ratio of 1:788 meaning one staff has to handle an average of 788 pregnant mothers a year. This staffing position does not allow for annual leave, maternity leave and sickness of staff.

(c) Building status The structure is old and has problems of broken glass windows, blocked water sinks, leaking roof and old placenta pit that emits a bad odour. The labour wards

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(apart from the reception and the labour ward) are always darkdue to frequent power black outs.

(d )Old Fence The fence around the ward is old, weak and damaged and hence the maternity ward is easily accessed by intruders (especially thieves) who end up stealing patient‘s properties. The picture of the damaged fence is as seen here below:

Old Damaged Maternity Ward Fence

(e) Cleanliness Although the wards were generally clean during the day, management of the ward stated that it was challenging at night as by then the contracted cleaners will have left yet wards by the nature of their services must also be cleaned during the night.

The above situation forces nurses to do the cleaning of the wards at night hence diverting them from their vital service of attending to the expectant mothers.

(f) Relocated Eye Ward Building Most of the equipment‘s, tools and machinery that are supposed to be used are stored in rooms, corridors of the temporarily allocated ward. Besides, patients (male, female & children are admitted in the same small improvised room without segregation as regard to sex and age.

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Stored Eye Equipment

The theatre is accommodated in a small room that is congested with other equipments, tools & furniture.

(g) Eye Theatre (located in small room)

Management should ensure that the contractor puts right the electrical works so that the newly renovated spacious structure is put to use.

50.9 Orthopedic Unit (i) Non Operational Newly Built Theatre It was also noted that the newly built orthopedic theatre is non operational as it is not equipped. The picture below shows the building to house the orthopedic unit and theatre.

(ii) Absence of Orthopedic Surgeon It was also noted that the unit has no Orthopedic Surgeon thus even if it was fully equipped no surgeries can be done. Currently the junior staff available can only offer some basic service on patients otherwise they usually refer the patients to 640

Mulago but the patients are reluctant due to long distance and lack of funds. This therefore at times forces the staff to carry out complicated surgeries beyond their competences.

(iii) Inadequate supply of materials It was further noted that, although there was an improvement in the delivery of materials for orthopaedic services, these materials at most last three (3) weeks due to the increasing number of patients yet they are replenished after two to three months. This complicates the situation as it forces patients to buy their own.

50.10 Dilapidated Family Planning Building The hospital is extending family planning services to the women but the building housing the unit is very old, dilapidated and dangerous for human occupation. In fact it is a disaster in waiting especially the minor theatre area.

The building has out-lived its usefulness, has cracks all over, trees/shrubs have grown on it, it is infested with bats and leaks badly when it rains. The termites have also invaded it, damaged many windows, doors and ventilators.

Management was advised to urgently relocate the family planning unit and seek the Municipal Engineers authority and demolish the structure before it destroys life and property.

50.11 Children’s’ Ward (a) Over crowding An inspection of the children‘s wards revealed lack of adequate space and few beds to accommodate children. Hospital management has been forced to admit two or three children on one bed in an attempt to admit as many patients as possible. The measles/dysentery unit that caters for isolated cases is small and has also very few beds. This means that at the height of measles, it is also overcrowded and patients sleep on the floor. (b) Blocked drainage system Due to lack of regular maintenance, the drainage system seems to have blocked hence there is flooding of the ward whenever it rains. The gutters pour water directly onto the floor or the veranda of the ward. 641

(c) Inadequate utilities Water It was observed that many units in the ward did not have running water yet hygiene is a key component of the health services. Some provisions had been made to cater for water storage but it would be better if the water system was repaired so that there is constant flow of water. Electricity Although there was power in the ward, supply is intermittent due to faulty wiring. There was also shortage of bulbs in some units hence keeping the ward in darkness which makes treating patients at night without adequate light difficult.

Sanitation The inspection of the 5 stance pit latrine revealed poor use of the compound near the facilities by the patients. The surrounding area littered with human feaces wrapped papers.

This was attributed to the fact that power supply cable to the pit latrine was stolen and had not been replaced using the pit latrine at night. It was also noted that management was using the old poor method of emptying the pit latrine and empties the contents in a shallow ditch in front of the pit latrine.

Oxygen Supply in Emergency Unit The ward has two (2) oxygen concentrators for use in the emergency unit for kids which were being over utilized as they operate 24 hours in view of the demand for the services. There was no alternative source of oxygen supply like the oxygen tanks availed.

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50.12 Inadequate Dispensers Like in the main pharmacy at the hospital, this ward had two (2) pharmacists who were few compared to the number of children being attended to; as a result they leave the work to the Nurses.Although the nurses can step in, there is a high risk of mismanaging drug prescription or dispensing thus affecting the lives of innocent children.

50.13 Dilapidated Staff Quarters Inspection of some of the staff quarters revealed appalling living conditions of the vital health staff. The buildings were dilapidated and had out-lived their usefulness and pausing a risk to medical staff and their families.

The structures were built in the early 1930s, had outgrown tree shrubs, cracked walls, ceilings, peeled off plaster, falling bricks.

50.14 Toilet facilities The toilet facilities had collapsed and staff had through their own initiative tried to improvise mud wattle toilets that were also in pathetic conditions.

The pictures below show the toilets in use:

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There is need for an emergency programme to ensure that these structures are pulled down and efforts made to solicit for capital development funds towards the construction of staff houses.

51.0 SOROTI REGIONAL REFERRAL HOSPITAL

51.1 Incomplete works on Doctor’s Mess Building M/s. Lamba Enterprises Ltd was contracted to construct a Doctor‘s mess in the financial year 2009/2010 at a contract sum of Shs.1,375,829,979. A total of Shs.970,326,167 was paid during the year under audit which is 70%. However, the construction works was incomplete and has stalled. The building was occupied before the official handover.

Management explained that the supervising Consultant was instructed to call back the Contractor to complete pending works. I advised management to ensure that the Contractor completes the works or else the firm be blacklisted.

51.2 Incomplete Therapeutic Feeding Centre(TFC) Building M/s. Jid Construction Co. (U) Ltd was contracted to construct a TFC Building in the financial year 2008/09 at a contract sum of Shs.787,436,443 and the Contractor was paid Shs.541,954,220 representing 68%. The Contractor failed to proceed with the project, and management contracted another Company M/s. Shepherd Services (U) Ltd to complete the project. The 2nd contractor has also failed to complete as well.

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On inspection, the ceiling was surging and cracked. I advised management to ensure that the building is completed using approved methods prescribed the PFAA.

51.3 Understaffing Section 15 (a) of the standing orders 2010 mandates the ministry of Public service to determine the structure, terms and conditions of service of public service staff. The approved structure of the Hospital has 331 posts. However, only 265 positions were filled, leaving 66 posts vacant. Key positions including specialists (52%) were not filled. Furthermore, the approved structure is old and does not meet the requirements of a Referral Hospital.

Management acknowledged that there was a staffing problem and that the matter had been submitted to Ministry of Health for further consideration. I advised management to continue consulting with the Ministry of Health and Finance, Planning and Economic Development to address the staffing requirements of the Hospital.

51.4 Expired Drugs Treasury Accounting Instructions, 2003 requires that inventories shall not be issued from new consignments when there are stocks of a previous consignment. It was noted that medicines and Drugs which were sourced from National Medical Stores (NMS) amounting Shs.2,771,800 were found to be expired in the hospital stores.

Management explained that some drugs had expired, but the hospital in conjunction with National Medical Stores (NMS) arranged and took them back all the drugs to NMS. Some of these expired drugs were identified by Management to have near expiry dates.

I advised the Hospital Director to ensure that only drugs with a long shelf life are stocked at the Hospital.

51.5 Outstanding Electricity Bills It was observed that at the end of the financial year, the outstanding electricity bills amounted to Shs.254,293,617 yet only Shs.62,923,000 was received by the Hospital for this purpose. 645

There is a risk that UMEME may disconnect electricity which is critical to the operations of the Hospital. I advised management to consult the Ministry of Health and Finance, Planning and Economic Development to settle the bills.

51.6 The Hospital Stores An audit inspection of stores revealed that there were no strong controls regarding access to the hospital stores. There were no locks, and the hospital store is overcrowded. There is poor ventilation, and the ceiling board was peeling off leaving drugs and medical equipment exposed to un-conducive environment.

There was insufficient cold chain in the drug store. This leaves fragile drugs like vaccines at risk of quick expiry even before the manufacturer‘s pre-determined expiry date.

Management explained that currently the hospital has only one stores assistant who is running the operations of the stores alone. Management has decided to locally hire staff to help alleviate the current staffing problem in the stores. I advised management to improve the conditions of hospital stores.

51.7 Non-Functional Key Medical Equipment The Referral Hospital is lacking very key medical equipment to enable regular running of the hospital achieve the objectives of the service delivery. Management acknowledged that there were indeed some faulty equipment but that repairs of some of them had already began. I advised management to speed up the process of repairs and ensure continuous regular maintenance.

51.8 Unaccounted for Fuel Deposits Paragraph 199 of the Treasury Accounting Instructions Part I, states that payment vouchers, for the purchase of stores must be supported with all the relevant documents including requisitions, purchase orders, a supplier‘s invoice, delivery notes and an inspection/goods received note. On the contrary, Shs.16,300,000 was spent on fuel, oil and lubricants but lacked accountability documents like contract documents, consumption schedules, fuel receipts and vehicle movement log books rendering the genuineness of the expenditure doubtful. 646

I advised management to ensure that all payments are supported by relevant and sufficient accounting documents.

52.0 MASAKA REGIONAL REFERRAL HOSPITAL

52.1 Unauthorized Variation of Contract Price The Hospital contracted a firm to construct 54 units of staff quarters at a contract price of Shs.2,674,825,035. The Contract period was 71 weeks, starting from 14/6/2010 to 2/12/2011. Examination of the project books and records of account observed the original contract price of Shs.2,674,825,035 was revised to Shs.3,328,055,538, an increase of 24% to the original price. The revision was in respect of extra works on the projects. However, approval of the extra work, which amounted to the variation was not approved by PPDA since it exceeded 15% allowable under PPDA regulations.

52.2 Unauthorized Stores Issue of Food from Stores Food items worth Shs.61,439,300 were procured, delivered into the store, and recorded on the stock cards. However, requisition for the food items was not authorized by the Hospital Administrator. The utilization of the food items could not be ascertained.

The Accounting Officer was advised to ensure that the stores issues are authorized by the Hospital Administrator.

52.3 Understatement of Balance Sheet The review of the balance sheet revealed the following:- Whereas the statement of financial position for the previous financial year ended 30th June 2011, show a NIL balance for the cash account, examination of the Non-Tax Revenue (NTR) collector's cash book observed that an amount of Shs.8,208,262 was held in cash as at 30th June, 2011.

The Non Tax Revenue collectors‘ cash book for the year under review shows cash at hand balance of Shs.10,729,000 as at 30th June 2012. However, the balance is not reflected in the period‘s statement of financial position. Therefore the amount of cash and cash equivalents for the two financial years 647

was understated by Shs.18,937,262. The Accounting Officer acknowledged the anomaly but explained that the money was used to cater for Hospital emergencies. The money was later recovered and banked on the NTR account. I advised the accounting officer to adjust the financial statements accordingly.

52.4 Unsupported cash and cash equivalent account balance The Cash and cash equivalents account balance in the balance sheet, of Shs.2,935,234 was not supported by certificate of bank balance. The Hospital management claimed that the balance represents the amount of money as at 30th June, 2012 on the salary account held by Bank of Uganda. However, no reconciliation statement and certificate of bank balance was presented for audit verification. Management attributed the problem to Ministry of Finance Planning and Economic Development and Bank of Uganda which failed to provide bank statements.

I advised management to liaise with the Ministry of Finance, Planning and Economic Development to obtain the statements and reconcile the balances.

52.5 Staffing Shortages Uganda Public Service Standing Orders Chapter (A-a) paragraph 15(a) requires Permanent Secretary Ministry of Public Service to determine the terms and conditions of Service and the structures of the public service in consultation with the Secretary to the Treasury. In this respect, audit noted that out of the establishment of 318 posts only 295 were filled leaving 43 posts vacant. The vacant posts included critical posts namely Senior Consultants, Consultants, and Medical Officers. However, excess staffing was also observed in the cadres of Nursing Officer (midwifery), Enrolled Nurses and Nursing Officer (psychiatry). Management attributed the problem of understaffing to the Ministry of Health and indicated that they had sent a recruitment plan for action.

The Hospital management was advised to liaise with the line ministry to ensure that the vacant posts are filled.

52.6 Lack of an Incinerator 648

The Hospital lacks an Incinerator for waste disposal management. The existing method of waste disposal by burning the items in a pit possess serious environmental effects. The Accounting Officer stated that the Ministry of Health had promised to provide the hospital an incinerator.

I advised management to liaise with Ministry of Health to ensure the incinerator is delivered.

52.7 Payment of staff who was out of the service of the Hospital During the financial year, Shs.3,285,715 was paid to a staff that had absconded, since July 2010 and later died.

The Accounting Officer indicated that the officer had taken a study leave and the case had been reported to Ministry of Health but no action was taken hence the anomaly.

I advised the Hospital Director to monitor the pay roll closely and delete such cases promptly. Meanwhile recovery of the funds be made from the deceased‘s estate if any.

52.8 Review of Board of Survey report A review of the Board of survey report revealed the following irregularities; The fixed management report does not disclose the current condition and location of the Assets. The closing balances of drugs did not indicate expiry dates of the drugs There was no mention of the ledger balances and how they agree with the physical balances. The Board of survey was composed of two people instead of five The Board did not initial the bank reconciliation statements Some assets, especially plant and machinery, have no date of purchase, initial cost, and description. The lack of this information limits the necessary completeness and disclosure expected of the Board of survey report. Management was advised to ensure that future Board of Survey reports are comprehensive enough as required by regulation to provide the necessary information. 649

52.9 Non Reconciliation of National Medical Store drugs Account During the financial year, the Ministry of Finance, Planning and Economic Development (MoFPED) transferred funds to National Medical Stores for the supply of drugs to the referral hospital. NMS subsequently supplied drugs upon order from the Hospital management. However, I was not availed with evidence of the following: The reconciled total value of drugs supplied by National Medical store The reconciled unspent balance on the drugs account held by National Medical stores. Drug monitoring report.

There is a risk of under supply of the drugs to the referral Hospital. Management stated that the funds are directly sent by the Ministry of Finance Planning and Economic Development to NMS and no details are sent to the Hospital to facilitate reconciliation. I advised the Hospital Director to request for the information from National Medical stores and MOFPED and reconcile the drugs account.

53.0 MUBENDE REGIONAL REFERRAL HOSPITAL

53.1 Non Availability of Payment Vouchers Payment vouchers for expenditure amounting to a sum of Shs.422,431,458 were not provided for examination and verification contrary to the PFAA 2003 and NAA 2008. I could not ascertain and confirm that these funds were paid and utilized for the intended purpose. The funds appear to have been misappropriated.

53.2 Fraudulent Payment A review of cheques counter folios, cash books, bank statements and certified copies of used cheques revealed that Shs.266,900,000 was fraudulently drawn from the Hospital bank accounts by staff, who would alter the cheque amounts after they had been duly signed by the authorized signatories to obtain more money.

53.3 Procurements Two firms were paid an amount of Shs.67,645,628 purportedly to supply goods to the hospital. There was however no evidence in stores of receipt, storage and 650

usage/utilization of the purported goods by the hospital. Furthermore, contract documents and evidence of competitive procurement process undertaken, i.e. bidding and evaluation reports were not availed as required under PPDA regulations 2003. These transactions are not supported and are thus fraudulent. Besides, one of the accounts staff is a Director in one of the firms that was paid.

53.4 Book Keeping and Internal Controls I noted that there was lack of proper book keeping and weak internal controls in the hospital as evidenced by lack of supervision of accounts staff, absence of independent verification of cash books, bank reconciliations and other accounting records other than the preparer who was the accounts staff. In addition, there were no vote control registers. As a result there was inadequate supervision and monitoring by the Accounting Officer over the accounts staff.

53.5 Cheques that were Allegedly Cancelled A total of 38 cheques that were allegedly cancelled were not availed during audit. They are potentially prone to misuse/abuse and eventual financial loss.

53.6 Bank Statements There were glaring differences between copies of bank statements provided by the entity and those obtained from the bank in terms of transaction amounts and balances. This is an indication of forgery.

53.7 Abscondment from Duty It was noted at the time of audit that all the 4 accounts staff had absconded from duty since January 2012 without any proper hand over contrary to Government standing orders. I could, therefore, not obtain clarification on the issues observed above.

53.8 Tax Deductions Tax deductions and remittances in respect of withholding tax amounting to Shs.11,647,474 were not supported by official acknowledgment receipts or certificates for Uganda Revenue Authority.

53.9 Governance Issues 651

I observed that the Hospital did not have a governing Board of Directors as required by the Ministry of Health guidelines and that the Accounting Officer had been in an acting position since March 2011.

The Accounting Officer was advised as follows; The staff who have absconded should be apprehended, investigated and brought to book with a view of recovering the missing funds and/or prosecution To ensure regular supervision and reviews of the accounts staff by certifying reconciled bank statements, cashbooks, vote books and ensure that all outstanding transactions and entries are resolved on a monthly basis All outstanding taxes should be paid to avoid unnecessary penalties and fines

53.10 Limited Scope of Work of Internal Audit Audit review of the quarterly reports prepared by the Internal Audit Department observed that the account areas of Revenue collection, expenditure, book keeping, Fixed Assets, periodical financial statements,budgetary controls, the use of IT and reviews of the overall control environment were not addressed in the financial year‘s quarterly reports. I advised that the scope of internal be extended to cover these areas.

53.11 Unspent balances 2011/2012 Section 19(1) of The Public Finance and Accountability Act, 2003 require that ―Every appropriation by Parliament of public moneys for the services of a financial year, and every warrant or other authority issued under this Act in respect of a financial year, shall lapse and cease to have any effect at the close of that year and the unexpended balance of any moneys withdrawn from the Consolidated Fund shall be repaid to the Consolidated Fund ―. Contrary to the above regulation, Shs.5,112,613 in respect of unexpended balances that remained on the account at the year end.

In his submission, the Accounting Officer indicated that Part of the money was in respect of wages and salaries, which they do not have access to it, to be able to

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return it to the consolidated fund at the end of the financial year. The other balance is to be remitted/returned to the consolidated fund.

I urged that the Accounting Officer to ensure that the balance is returned to the consolidated fund.

53.12 Drug Stock Variances Review of the stores management systems revealed that manual records were being kept. The stock cards balances of drugs and physical stock count revealed significant variations. In some instances there was less stock physically than balances on the stock cards and vice versa. No explanation was given for the variance. The stores management function should be streamlined and any losses recovered. 53.13 Lack of a substantive Chief Executive It was noted that the Hospital does not have a substantive Chief Executive. The Acting Hospital Director was appointed in March, 2011 for a six months term and the term has expired. However, no confirmation or replacement has been done. Management explained Ministry of Health has already held interviews for the post and appointment of the Hospital Director is awaited.

I advised management to take up the matter with the Ministry of Health to extend the terms of the Director acting until the post is substantively filled.

53.14 Coding of Expenditure According to paragraph 693 of the treasury accounting instruction (TAI) every payment voucher must bear proper codes on the votes item of expenditure program and to which the payment is chargeable. Contrary to the regulation, expenditure vouchers were not coded to indicate the item of expenditure/ programme to which the payments were charged. Besides payments worth Shs.25,659,300 were coded to wrong items.

This therefore rendered the audit and posting of expenditure to the ledgers and subsequently to the financial statements difficult. I advised that Items of expenditure should be indicated on the expenditure voucher to avoid mischarging of items in the financial statements. 653

53.15 Unpresented Cheques Par 693 of the Treasury Accounting Instructions (TAI) require the accounting officer to adopt the following procedure if cheques issued by them remain un-presented for longer than six month from the date on which they were drawn: a) Instruct the bank to stop payment of the cheque. b) Issue a general receipt crediting the amount of the cheque to the vote book and debited to the cash book. Contrary to the regulation cheques amounting toShs.12,638,739 were purportedly paid to URA. However by the end of the year the payment remained un presented. The hospital risks fines and penalties by URA for non remittance of taxes. I advised that the TAI should be applied to address these un-presented cheques.

53.16 Lack of Fixed Assets register The Referral Hospital does not have a fixed assets register to record assets owned. Consequently it was difficult to ascertain existence, condition and ownership of the Hospital Assets. The assets could be abused or misused.The Hospital should maintain an assets register as required by financial regulations. 53.17 Payroll i) Staffing Shortages It was noted that of the approved establishment of 322 posts, only 170 posts had been filled leaving 152 posts vacant. The vacant posts represented 47% of the establishment which affectsdelivery of service. Management in response stated that they have informed Ministry of Health which is responsible for recruitment about the matter.

It was further noted that some staff in the anesthesia department work 24 hours a day, 7 days a week while their counterparts in other units get offs and work 8 hours a day yet, they are not compensated for the extra load.

I have advised management to follow up the matter with the Ministry of Health.

ii) Updating of Staff/Personal Files

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Examination of some personal files of staff revealed that,the files were not updated as they lacked evidence of medical tests, acceptanceletters, appraisalforms, academic qualification, duty assignment letter, letter for assumption of duty and leave forms.

Management was advised to update staff personnel files. iii) Delayed confirmation of Staff It was observed from the payroll that 11 staff on probation who had served beyond the mandatory six months had not been confirmed. Besides, there was no evidence of a performance appraisal. The staff morale is adversely affected when they are not confirmed.

The Accounting Officer explained that the staff in question were erroneously indicated on the payroll as being on probation when they had been confirmed. The matter has been brought to the attention of the Ministry of Public Service for correction.

I advised the Accounting Officer to ensure that the issue be followed up with the Ministry of Public Service and the record corrected. The details are:-

S/n Staff name Designation Date of payroll appointment status 1) Badaru Robinah enrolled nurse 22/4/96 probation 2) Nabakoza Robinah enrolled nurse 10/7/07 probation 3) Nakato Allen Joyce nursing officer 25/7/11 probation 4) Mutamba Teddy Maria orthopaedic officer 1/7/11 probation 5) Ahebwa Christine orthopaedic 1/7/10 probation technician 6) Kambugu Ivan psyhiatric clinical 3/11/08 probation officer 7) Robert Matovu Ndawula senior orthopaedic 30/6/11 probation officer 8) Austin Astro Orapa probation 9) Icodu Christine Jane house keeper 28/1/05 probation 10) Sammuel Emmanuel laboratory 7/7/10 probation Isabirye technician 11) Simon Peter Babumba senior radiographer 19/1/2007 probation iv) Job Description

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It was noted that Job descriptions are not clearly understood by the staff. Staff are not sensitized on what their roles entail. There is no human resource department to guide on the matter. With no clear job description, performance and hence approval is not effectively enabled.

Management should ensure that there is human resource staff to ensure that Job description exist and are clearly explained to staff.

53.18 Segregation of Duties It was found out that most of the work was being done by the cashier that is; initiation of payments, writing of payment vouchers, posting of cashbook, writing cheques, drawing money from the bank, writing financial statements and at effecting payments. This could lead to the occurrence of fraud and error since the work of one person is not independently checked by another person.

Management was advised to address issue of segregation of duties as a key internal control.

53.19 Non Tax Revenue It was noted that the entity has been collecting non- tax revenue. However this revenue was banked only once at the end of the year and the posting was only done from February 2012 up to March 2012, the rest of the revenue collections from April to June remains un accounted for. In the absence of the receipts and returns, it was not possible to establish the amounts un banked. It was further noted that un-authorized revenue totaling Shs.1,160,000 referred to as Miscellaneous revenue was realised but had not been budgeted for. The revenue may have been diverted to personal use.

Management should put in place mechanisms that will ensure proper management of revenue in the Hospital. Meanwhile, all the revenue should be accounted for.

53.20 Purchase and use of drugs from National Medical Stores Review of NMS drug supply revealed that Shs.77,155,610 worth of drug deliveries were made by NMS to the Hospital during the period under review. However, there 656

was no evidence of reconciliation between drug and medical supplies orders and receipts. There was no reconciliation between the invoice received and the actual amounts removed from the account of the Referral Hospital.

Management explained that due to lack of man power in the accounts department the borrowed staff could not get time to go to NMS to verify and reconcile deliveries against actual amount debited on the account.There were high quantities delivered for ant malaria drugs without being ordered for.

Management explained that anti malarias were being supplied by the push method and are off budget. There are instances when drugs are rejected for various reasons but no mechanism of following up to ensure the account is not debited and replacements made. Management explained that man power in accounts was not enough as this is the work for accounts department that is why we could not follow up on our accounts with NMS. Drug orders are generated by the pharmacist and the store keeper without evidence of the user department involvement.

Management explained that the pharmacist generates orders according to the procurement plan that has been prepared at the beginning of F/Y. These are forwarded to NMS after approval by the Hospital Director. I informed the Accounting Officer that orders should be initiated by requisition from user departments.

There were 34 types of drugs that were termed as slow moving. Big quantities were at hand in store. 61 types of drugs were found to be un embossed therefore exposing them to the risk of theft and misuse.

The Accounting Officer explained that the Hospital has no mandate to emboss drugs neither does it have authority to reject un-embossed ones.

I advised management to address these issues as appropriate.

53.21 Inadequate office space

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Stores space Inspection of Stores revealed that, the stores where medicine and other related health supplies are being kept did not have adequate space. Some of the drugs were packed up to the roof and not arranged in order due to lack of space. The 8 rooms purportedly used as stores are too small and lack the required equipment to meet the required standards for storage of medicine and other health supplies and lacked burglary proofs to guard against theft.

Poor storage facilities hinder physical check, retrieval and reconciliation of drugs difficult. It may also lead to losses through theft and pilferage.

The management should provide enough space so that all store items are accommodated in a well arranged manner.

53.22 Lack of Records Office The hospital does not have a records office as they are temporarily using one of the private rooms for the purpose.

The Accounting Officer should liaise with other stakeholders to ensure that space for a record office is secured.

53.23 Expired Drugs Inspection of the drug store revealed that some of the drugs expired. They are Drug description (qty) Expiry date Artmether 20 mg +lumefantrine 24,810-dosess 31/nov/2012&30/may/2012 120mg (strio of 12 tab I.v dorrow‘s solution (injectable) 2,262-bottles 31-dec 2012 Quinine inj 600mg/2ml 9 5,120 ampoules 30 april 2012 injectables

53.24 State of Infrastructure An inspection on the state of infrastructure on 13/1/2012 revealed the following:- The directors house is very old, the roof has started falling apart and some of the windows are broken as seen in the photograph. No maintenance plan.

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The hospital got donations of equipment from Ministry of Health in 2003. They have remained un utilised. They include: (i) Mortuary fridge (ii) Generators (iii) Mortuary Floor is extremly dirty. No refrigeration facility to preserve dead bodies. Management does not always provide detergents to this unit. Dead bodies are laid on the floor which is extremely dirty. Two generators have not been utilised since 2010. There is no adequate maintenance/engineering workshops. The one improvised is too small and staffed with tools, spares and broken equipments leaving no space for the engineers to carry out maintenance activities.

Some wards are dilapidated with very old tiles, blocked drainage, cracked floors verandah, old asbestos iron sheet,broken wooden windows and doors as seen in the photograph above.

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There was poor workmanship on a one and half year old constructed building for mental patients as evidenced from peeling of the walls, cracks on the walls as seen in the photograph. The plumbing was poorly done as the system is non operational.

The out patients building is very old as evidenced from the photograph above. Kitchen lacks a parmanent structure.

Some patients in the TB ward sleep down and they donot have drowers to keep their cups, plates , drugs and other items. They keep them on the floor as seen in the photograph. The toilets and birth rooms were dirty.

Children ward is over clouded as evidenced from the photos above. The hospital has no incinerator as current one is totally broken down. Some beds do not have mattresses.

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54.0 MOROTO REGIONAL REFERRAL HOSPITAL

54.1 Unsupported Expenditure Paragraph 199 of the Treasury Accounting Instructions (TAI), requires that all payments vouchers be supported with relevant documents including requisitions, goods received notes and delivery notes. A sum of Shs.13,663,100 was incurred on direct cash procurements relating to various supplies in the referral Hospital . In all these cases, there was no evidence that the purchases were carried out since there were no requisitions and goods received notes to ascertain that the items were supplied. The purchases remain doubtful.

54.2 Expired Drugs Drugs valued at Shs.24,870,500 were found to be expired in the Hospital stores. There is a risk that the expired drugs may be administered to patients.

The Hospital management admitted the short coming and explained that NMS delivers medicines with a short shelf life or they are donated to the Hospital when they are due to expire. The Hospital also receives expired medicines from the lower health facilities in the district of Moroto for ease of transportation for destruction by NMS.

I advised the Hospital Director to ensure that expired drugs are properly kept and passed on for destruction.

54.3 Dilapidated State of Staff Accommodation The Hospital does not have staff accommodation for more than 80% of the existing medical staff with most officers residing outside the Hospital premises, makiing it difficult to respond to emergencies promptly. This has greatly de-motivated staff operating at the Referral Hospital hence a high staff turnover.

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Bathrooms used Pit latrines used

Management explained that there has not been any infrastructural development since Moroto became a Referral Hospital in 2010 and the existing staff houses are dilapidated. However, the Hospital is to be reconstructed under the World Bank project Health Systems Support and Strengthening Project (HSSSP).

I advised management to liaise with Ministry of Health to ensure that the problem of staff accommodation is addressed under the HSSP.

54.4 Lack of Hospital Management Board According to the Referral Hospital Guidelines issued by the Ministry of Health, there should be a Management Board to provide strategic guidance to the Referral Hospital. It was observed that the Hospital Board has never been constituted. Lack of the Hospital Board affects strategic decisions of the Hospital.

Management explained that the Board is not fully constituted according to the referral Hospital Guidelines, which provide that a chairperson is nominated from the district where the Hospital is located (Moroto) and 4 representatives from the other districts in the region, and that the matter is being handled by the District Leadership as well as the Ministry of Health. The matter requires urgent attention.

54.5 Understaffing Section 15 (a) of the standing orders 2010 mandates the Ministry of Public Service to determine the structure, terms and conditions of service of public service staff.

A review of the approved establishment revealed that the Hospital experienced significant staffing gaps during the year under review. Out of an approved establishment of 256 posts, only 96 were filled leaving 160 vacant. Under staffing

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undermines effective delivery of public services to the community. The Hospital has got only 7 out of 36 qualified doctors who include the Director who is mostly doing administrative work.

Management explained that efforts were being made to submit a plan for unilateral recruitment. A total of Shs.3,000,000 as a salary top up on a monthly basis has been secured with support from development partners like Italian Co-operation and Development.

I advised management to expedite the recruitment exercise.

54.6 Non-functioning Medical Equipment The Hospital lacks functioning autoclaves including electrical microscopes, dental chairs, anesthesia machine, incubators, baby warmers, baby cots, autoclaves required in a Referral Hospital.

Management explained that some of the basic medical equipment was dysfunctional, and efforts were being made to install and functionalize some of them, although some equipment requires stable and constant power supply which is not yet available in Moroto. The Hospital does not have a maintenance unit and relies on Soroti Medical Equipment Maintenance workshop and local providers.

I advised management to liaise with the Ministry of Health to requisition for the missing equipment for the Hospital to function as a Referral.

54.7 A Mortuary and Incenerator The Hospital lacks a mortuary which is an important facility for a Referral Hospital. The existing facility belongs to the Municipal Council and appears abondoned, because it does not have a cooling system. In addition, there is no incinerator in place and to properly manage Hospital waste disposal.

Pit For Discarding Waste (Small and Inadequate)

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Management admitted the shortcoming and explained that the Hospital depends on Moroto Municipality mortuary which is located within the Hospital premises, and that construction of a Hospital mortuary by the HSSSP is being awaited.

I advised management of the Hospital to act quickly to ensure that the required facilities are put in place for effective disposal of medical waste.

54.8 Lack Of Casuality Ward and Poor Status of Hospital Facilities The Hospital lacks a casuality ward to handle emergency cases. The available wards and other facilities are in poor and dilapitaed state as shown below.

Workshop roof of ward

Emergency cases cannot be adequetly handled especially with victims of bullet wounds from cattle rustling, which unfortunately are frequent.

The Hospital management explained that the construction of a new casualty ward will be included in the reconstruction of the Hospital as priority number two in the HSSSP project.

I advised management to urgently set up a casualty ward and ensure that dilapidated wards that have been condemned for demolition are replaced. 664

54.9 Unaccounted For Funds Paragraph 120 of the Treasury Accounting Instructions (TAI) Part 1 requires that all payment vouchers be properly supported with appropriate documents or sub vouches before they are passed for payment of any form of expenditure. The Local Government Financial and Accounting Regulations 2007, regulation 43(1) and (2) require advances made to council employees to be authorised by the Chief Executive Officer (Director) and be accounted for within one month. Contrary to this requirement total of Shs.6,870,000 paid to several staff to undertake official activities remained unaccounted for at the year end.

In the absence of relevant accountability documents, I could not ascertain whether the funds were used for the intended purposes. 54.10 IT Controls Regulation 110 (1) of the LGFAR 2007 requires the Chief Executive to designate an officer to ensure that adequate information and communication technology policies are established and are applied to enable adequate security and protection over computers and data held on computer or information systems operated by council. Audit of IT established however that, despite the district having a number of desktop computers, laptops, printers and photocopiers at their disposal to aid in execution of various activities of the district department by department, there was no established information and communication technology (ICT) policies in place for heads of department to implement. It also was noted that there was no regular update of antivirus to safe guard computers against virus attacks. There was no officer designated to by the Chief Administrative Officer to ensure policies are available and proper usage of ICT is adhered to in order to safe these computers and data held on computers. Computers and data held on computer of the entity are vulnerable to risk of cyber-crimes and computer virus attacks which could lead to massive loss of data by the entity.

Management explained that the district is now in the process of developing an ICT policy and processes are under way.

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55.0 HOIMA REGIONALREFERRALHOSPITAL

55.1 Financial Statements The following observation was made from the financial statements; (a) Outstanding Payables Payables of Shs.25,209,996 remained outstanding at the year end. Failure to settle outstanding bills exposes the hospital to financial risks in the event that the creditors decide to sue for delayed payment.

I advised management to operate within the available resources and observe the commitment control system to minimize domestic arrears.

(b) Discrepancy in Credit Line Management Under the credit line management system, the Ministry of Finance, Planning and Economic Development transfer‘s funds allocated to various Regional Referral Hospitals to procure drugs directly to the National Medical Stores (NMS) on a quarterly basis. The hospitals are notified of the transfers and drug orders are placed accordingly. Out of the total funds released to NMS of Shs.1,081,907,810 in respect of Hoima Regional Referral Hospital, only medical supplies worth Shs.615,546,554 were delivered giving a variance of Shs.466,361,256. Failure by the NMS to effectively deliver supplies caused drug shortages and affected the quality of service.

Management promised to follow up the matter with the Ministries of Health and Finance.

I advised the Hospital Management to ensure that National Medical Stores supplies the undelivered drugs in the coming year.

55.2 Drugs Management Analysis of the hospital drug data revealed that there were expired drugs attributed to; the push system where drugs that have not been ordered for by the hospital are delivered. For instance; Crystal violet 2%, Artefan tablets and Lamivudine drugs which were not ordered but were supplied by NMS. Management stated that the

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hospital no longer accepts short shelf drugs and that with the current quarterly monthly meetings with National Medical Stores, the anomaly will be addressed. I wait the outcome of the promised intervention.

55.3 Staffing Shortages Section 15 (a) of the Standing Orders of 2010 mandates the Ministry of Public Service to determine the structure, terms and conditions of service for Government staff. Out of the approved structure of 349, only 258 staff were filled resulting in a shortage of 91staff (26%). Notably, the hospital does not have a full time surgeon despite the high number of referral cases to the hospital requiring operations.

Management attributed the understaffing levels to staff turnover. Management stated that some staff had been posted by the Ministry of Health, although many had not yet assumed the offices. Efforts were under way to contact the concerned staff.I wait to see the outcome of management assertion.

EDUCATION SECTOR

56.0 MINISTRY OF EDUCATION AND SPORTS

56.1 Unverified Domestic Arrears – Shs.1,608,017,001

Included in the financial statements under payables is an amount of 1,608,017,001 relating to unverified domestic arrears arising from water and electricity consumed by the Ministry. As a consequence of the non verification I could not confirm the accuracy and completeness of the payables figure of Shs.27,145,684,782 disclosed in the financial statements as shown in the Table below:- Particulars Opening balance Variance Closing Balance Domestic Arrears (Prior year As at 30th June As at 1st July 2012 adjustment) 2012 Shs. Shs. Shs. Umeme 938,225,906 575,297,202 1,513,523,108 WATER 194,493,893 (100,000,000) 94,493,893 TOTAL 1,608,017,001

In addition, the detailed documentation relating to the arrears were also not provided for examination. In the circumstances there was a risk that the payables

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figure in the statement of financial performance was misleading as the accuracy and completeness of the figure could not be confirmed. The Accounting Officer explained that arrears had not been verified because these arrears were inherited from tertiary institutions and had accumulated over a long period. However, the verification is now underway. I await the Accounting Officer‘s commitment in this regard.

56.2 Mischarge of Expenditure- Shs. 25,186,694,366

Contrary to the requirements of Chapter 6-400(a) of the Treasury Accounting Instruction (TAI), expenditure amounting to Shs.25,186,694,366 was charged to the wrong budget items to fund activities that were not meant to be paid from the affected budget lines. This practice undermines the budgeting process and is contrary to the intentions of the appropriating authority. I advised the Accounting Officer to undertake realistic budgeting and also ensure that reallocations are done in accordance with the regulations.

56.3 Dormant Bank Accounts

A review of the bank accounts operated by the Ministry of Education revealed that the following Forty Six (46) bank accounts were dormant. Dormant accounts are risky. In her response, the Accounting Officer stated that some of the dormant accounts were ―receiving accounts‖ where donors sent funds (either once or twice in a year depending on the agreement. The funds would then be transferred to the operating accounts. She confirmed that action had already been taken to close the rest of the accounts that were dormant. I await confirmation of closure.

56.4 Advances to Employee Personal Accounts (Non Compliance with Regulations) - Shs.713,128,154

It was noted that a total of Shs.713,128,154was paid on personal bank accounts of Ministry staff for executing official activities rather than effecting payments to the final beneficiaries as required under Sections 227, 228 and 229 of the TAIs Section 227, 228 and 229. This practice is irregular and also exposes Government funds to

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a risk of loss since the Ministry does not have any control over such funds deposited on personal accounts.

I advised the Accounting Officer to ensure that funds are paid directly to the intended beneficiaries and service providers to eliminate the risk of diversion of funds.

56.5 Unaccounted for Funds - Shs. 206,451,934

Contrary to the requirements of paragraph 222 of the Treasury Accounting Instructions require advances not accounted for within 60 days from date of payment be deducted from the monthly salary of the debtor, it was noted that a total of Shs.206,451,934advanced to education institutions remained unaccounted for. Under the circumstances, I could not establish as to whether the amounts in question was properly expended. I have advised the Accounting Officer that the accountabilities for the advances in question should be followed up or the funds involved be recovered from the concerned staff.

56.6 Human Resource Management

a. Staffing Gaps at Ministry of Education

A review of the Ministry‘s staff establishment revealed staffing gaps. Out of 420 approved positions, 185 positions had been filled and the rest of the positions (234 in respect of the Ministry and three semi-autonomous boards operating at the Ministry) remained vacant as shown in the table. No. Entity Approved Positions Positions positions Filled Vacant 1 Ministry Headquarters 279 115 164 2 Uganda Business and Technical 52 20 31 Examinations Board (UBTEB) 3 Uganda Allied Health Examinations 24 12 12 Board (UAHEB) 4 Uganda Nurses and Midwives 23 9 14 Examinations Board UNIMEB 5 Directorate of Industrial Training. 42 29 13 (DIT) TOTAL 420 185 234

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Such high levels of staffing gaps lead to work overload on the existing staff and also negatively impacts on the Ministry‘s capacity to effectively deliver its mandate.

The Accounting Officer explained that the Ministry‘s approved establishment was 456 staff out of which 335were filled, representing 74% over and above 68% recommended by Ministry of Public Service. This shows that the Ministry had made tremendous progress to fill most vacant posts. He further explained that recruitment of staff in Examination bodies was a responsibility of their respective Governing Councils.

I advised the Accounting Officer to liaise with the Ministries of Public Service and that of Finance Planning and Economic Development in order to have the staffing gap addressed.

56.7 Ministry of Education Sub programmes

a) Uganda Allied Health Examination Board (UAHEB) Operations A review of the operations for Uganda Allied Health Examinations Board revealed the following matters:-

i) Corporate Governance Contrary to the good Corporate Governance, it was observed that the Chairperson of the Board was involved in the day to day running of the Board as an alternative signatory to the UAHEB bank Accounts while the board was supposed to play a supervisory role. The involvement by a chairperson of the board in day to day operations is likely to result into conflict of interest as well as laxity in the Boards‘ supervisory role.

The Accounting Officer explained that on its inception the Board lacked guidelines and the BTVET Act and guidelines were silent on the roles of the chairperson on being a signatory to the account. However, the anomaly and corrective measures would be taken immediately. I advised management to ensure that the Board Members are not involved in the day to day running of the UAHEB but play their supervisory roles instead.

ii) Staffing Issues

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A Review of the Organizational structure for UAHEB revealed that there were some positions created in the structure starting at senior level leaving out lower cadres in those various departments as per table below:- Department Positions in the Organization Positions Structure Omitted Internal Audit Senior internal Auditor Internal Auditor Procurement Senior Procurement Officer Procurement Officer Public Relations Senior Public Relations Officer Public relations Office Officer

Operationalizing a structure with only senior positions may demotivate staff in the event that they cannot be promoted due to limited hierarchy for a particular position (Job).

The Accounting Officer explained that in the current financial year the Board had recruited a Principal Administrator who will double as a public relations officer and a procurement Officer to handle procurements and as a result the department had greatly improved in its operations. I advised Management of UAHEB to ensure that the organogram is reviewed to include such lower levels. iii) Inadequate Funding In the period under review, it was observed that UAHEB budgeted to receive Shs.5,025,604,701 (GOU and Internally generated revenue) for its operations but only Shs.2,316,895,290 was received leading to a shortfall of Shs.2,708,709,411 which was 60.5% of the total financing requirements as indicated below:-

Schedule of the Revenue Received During the 2011-2012 Financial Year Revenue Budget (Shs.) Actual (Shs.) Variance % Source (Shs.) Change Government 3,775,604,701 855,934,864 2,919,669,837 77.3% Subvention Internally 1,250,000,000 1,460,960,424 (210,960,424) (16.8%) Generated 671

Revenue Over all 5,025,604,701 2,316,895,288 2,708,709,413 60.5

The Accounting Officer explained that the Board submitted a budget proposal of Shs.3,775,604,701 but government only released Shs.855,934,864 and thus the funding gap was beyond their control as they were only left with the option of raising funds from students in form of examination and transcript fees.

I advised management of UAHEB to prepare realistic budgets that are achievable and further liaise with the line Ministry to ensure that the budget is properly implemented. iv) Inadequate Transport Facilities It was observed that the Board has 5 vehicles out of which only 3 were functional while two (2) are grounded for coordination of exams in the sixty two (62) centres country wide as per table below:- Schedule of UAHEB Vehicles S/No Description Registration Condition/status No 1 Hilux double cabin UG1647E UG 1647E Good and in running condition 2 Nissan Hard body UG 1738E Good and in running condition 3 Mitshubishi Pajero UG 1722E Good and in running condition 4 Toyota Condour UG 1711E Grounded /not in running condition 5 Mitshubishi Pajero UG0334 E Grounded /not in running condition

The Accounting Officer explained that the Board was constrained with transport facilities to dully perform its duties and sometimes relied on borrowing vehicles from sister examinations Boards to transport our examinations to the respective examination centres .The Board was further constrained in repairing the two old vehicles because of inadequate funds to procure new ones.

I advised management of UAHEB to ensure that they liaise with the line Ministry to have the grounded vehicles repaired and also plan to procure new vehicles to ease their transport movements. b) Uganda Nurses and Midwives Examination Board (UNIMEB)

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i) Strategic Plan Implementation A review of the UNIMEB Strategic plan revealed that a number of strategic activities which were set up to be undertaken in a period of five years starting in 2010 and targeted to have been accomplished by 2014. However, these the implementation pace appears very slow as noted below:- Institutional Development Under this theme which aimed at building capacity of the board, several challenges were identified at the start that were impeding on the development of the board as follows:- Limited capacity of the board and secretariat.

Lack of permanent home for the board.

Lack of equipment to function effectively for example the printery.

Limited number of staff in relation to the established position.

System Strengthening Under this theme which was meant to address important issues of how the Board was structured, several challenges were identified at the strategic planning period as follows:- The absence of quality assurance system for examinations.

The information management system for board that required improvements.

The monitoring and evaluation system that needed to be strengthened and improved. ii) Delivery of Examinations and Awards The Accounting Officer explained that the Board agreed to fast track the implementation of this strategic objectives hoped that by the end of the Strategic Plan implementation, a lot of progress would have been attained.I advised management to ensure that they expedite the process of revising the strategic plan to address the above shortcomings. iii) Composition of Board Members Out of the ten Board Members 8 positions were filled while two were still vacant including the Health Service Commission member and the outstanding Nurse from the Community. In the circumstances the Board is not fully constituted.

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The Accounting Officer explained that the Board was to be constituted by thirteen (13) Members out of which eleven (11) members already existed. The Board had made several attempts to have the vacant position of Health Service Commission Representative filled and was yet waiting for a response.I advised management to liaise with the respective stakeholders to appoint the members in the vacant posts on the Board. iv) Expenditure on Office Accommodation It was noted that management signed an agreement with the Land Lord for payment of house rent at a fixed rate of Us$.2,000 per month for 5 years, implying an equivalent of Shs.12,408,000 or more was incurred annually as rent for office accommodation. Although management expressed discontent in the inadequate rented space, there were no funds for acquiring more office space. Funds that were supposed to be used for the implementation of the activities of the UNMEB were reduced for payment of such huge amount of money for rent.

The Accounting Officer explained that the Board had liaised with the parent Ministry to facilitate the acquisition of office accommodation. I advised Management to ensure that they liaise with the line Ministry to find alternative office accommodation in order to reduce on such rental expenses. v) Review of the Curriculum in Use by UNIMEB A review of the progress registered in the curricular revealed that only a small progress had been registered in General but little progressing the review of the curricular for Diploma in mid-wifery that was last reviewed 3 years ago, while the Extension Programme was last reviewed in 2009. The most affected was the Certificate in Mid-wifery that was last reviewed in 1997, which was almost 15 years ago. The details are as below:-

No. Programme Date of last update of Curriculum 1. Mid-wifery; Direct 2007 2. Extension Programme 2009 3. Comprehensive Nursing- -Direct (2007) 2007 4. Comprehensive Nursing-Conversion 2007 5. Certificate in Comprehensive 2004

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6 Diploma in nursing 2007 Direct (3 years) 7 Diploma in nursing 2007 Extension(1.5 years) 8 Certificate Nursing - 2.5 years 1997 9 Mental Health 2007 -Diploma Direct (2007) -Extension 2007 (1.5 years) 10 Certificate Mental Health Nursing (1997) 1997

Failure by the Board to review curriculum for the various courses may result in use of out dated guides to teach the students which is likely to lower the quality of Health Services rendered to the Nationals.

The Accounting Officer explained that the Board had made efforts to have the relevant stakeholders revise the various curricular. I advised Management to ensure that they liaise with the respective stakeholders to have the curriculum reviewed for effective and efficient quality Health Service. vi) Corporate Governance of UNIMEB Contrary to the good Corporate Governance, it was observed that the Chairperson of the Board was also involved in the day to day running of the Board as an alternative signatory to the UNMEB bank Accounts whereas the board was supposed play a supervisory role. Continued involvement of a chairperson of a board in the day to day operations is likely to result in laxity in their supervisory role. I advised Management of UNIMEB to ensure that the Board Members are not involved in the day to day running of the UNMEB but play their supervisory roles instead.

c) Uganda Business and Technical Examinations Board (UBTEB) Operations A review of operations for UBTEB revealed the following:-

Corporate Governance

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Contrary to the Good Corporate Governance, it was observed that the Chairperson Board and a representative from the Ministry in the Board were involved in the day to day running of the Board by being Principal (Chairperson) and alternative signatory (MOES representative) to the UBTEB bank accounts, yet the board is supposed play a supervisory role. I advised management to ensure that the Board Members are not involved in the day to day running of the UBITEB operations but play their supervisory roles instead.

Budget Performance In the period under review, it was observed that UBTEB planned to receive/collect Shs.11,306,105,196 from both GOU and internally generated revenue but was only able to receive/collect Shs.7,032,309,670 resulting into a revenue short fall of Shs.4,273,795,526 which represents 37.8% of the total budget as shown below:- Income Budget (Shs.) Actual (Shs.) Variance % (Shs.) change Subvention 10,203,600,069 5,255,309,069 4,948,291,127 48.4% Fees 1,102,505,000 1,777,000,601 674,495,601 (61.1%) Collection Total 11,306,105,196 7,032,309,670 4,273,795,526

The planned activities could not have been implemented due to insufficient funding. Management explained that they took action by ensuring the Board writes to the line Ministry of Education and Sports to justify for additional budget allocations to enable it implement the planned activities in the coming FY 2013/14. In the meantime the budget was supplemented by the local collections. I advised management of UBTEB to follow up the matter with the line Ministry in order to ensure that funds are available for implementation of all planned activities. d) Directorate of Industrial Training (DIT) Operations A review of operations of the Directorate of Industrial Operations revealed the following:-

Lack of Land Titles In the period under review, it was observed that the land on which both the Directorate of Industrial Training and Nakawa Vocational Training are located (on Plot No 97/99 on 3rd Street Jinja Road) did not have land title. Failure to secure

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land title exposes the institute land to a risk of encroachment by unscrupulous individuals.

The Accounting Officer explained that DIT shared the same plot of land with Lugogo Vocational Training Institute. The land had a ―Freehold title registered as volume 207 folio 25 plot 2-10 (Even) Archer road, 58-64 (Even) Jinja Road and 97 and 99 Jinja Road, Kampala. The registered proprietor was the Uganda Land Commission and thus as advised renewed efforts to secure the land title in its own names.I advised management to ensure that they secure the land title for the plots.

Lack of Accounting Software Review of the accounting systems of the Directorate revealed that, all accounting functions are still manual (Receipting, Cashbook, ledgers, etc). Manual systems are not only prone to errors but are also cumbersome in terms of generating financial reports.

Management appreciated explained that for purposes consistence, they had written to the Accountant General for guidance on the appropriate system to use.I advised management of DIT to follow up the matter furtehr with the Accountant General.

Corporate Governance Contrary to the good Corporate Governance, it was observed that the Chairman, Manager Finance and welfare in the Council and Chairman of Federation of Uganda Employers were involved in the day to day running of the council activities by being alternative signatories to the Directorate Bank Accounts, yet the board is supposed to play a supervisory role. The board could not have played their independent supervisory roles under the circumstances. The Accounting Officer explained that following the Auditors advice, the DIT had made changes to the signatories to ensure separation of functions. I advised management to ensure that the Board Members were not involved in the day to day running of the DIT but play their supervisory roles instead. e) Lack of Adequate Infrastructure

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Review of the Strategic Plan of the DIT and inspection of the premises revealed that, it has inadequate office space, strong room for assessment instruments and lacks a centralised printer for printing exams which had become expensive. Of the 2 blocks that house DIT, one is very old which was said to have been constructed in 1950s and is leaking with so many cracks on the walls. Also noted was that all the facilities the institute has do not have provision for the PWDs. Inadequate infrastructure may result to inefficient operations of the Directorate.

The Accounting Officer explained that DIT had always budgeted for development funds targeting the above cited infrastructure but due to budgetary constraints, funds were yet to be provided. I advised management to ensure that, they liaise with the line Ministry to address the above matters which affect the operations of the Directorate. f) Inadequate Population of Accredited Assessors In the review of the DIT Strategic Plan, it was noted that one of the challenges identified was that the number of assessors are limited to train over 5,000 students; the capacity available is sufficient to train only 1,500. This is said to be due to lack of a budget and a retention package for the assessors. There is therefore a risk that all the trained students may not be assessed due to lack of accredited assessors. The Accounting Officer explained that DIT had so far trained and certified 300 Assessors for full occupational Assessment of formal training programmes and 800 Assessors for non-formal training programme. The acceptable Assessor: candidate ratio for competence based assessment is 1:3 but the current ratio applicable to DIT was 1:20. The constraint of raising adequate number of assessors was due tothe inadequate budgets. I advised management to liaise with the line Ministry to ensure that more assessors are accredited to assess the growing numbers of students. g) Unapproved Assessment regulations (operational manuals for the legal Framework) In the review of the DIT Strategic plan, it was observed that DIT‘s Assessment regulations had not been approved (were in draft form) yet assessment is one of the major roles/functions of the Directorate.

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These regulations have been developed and are available in draft form. The draft will be submitted to the Industrial council for approval, and thereafter forwarded to the Minister for final approval as required by the BTVET Act 2008.

The Accounting Officer explained that the regulations had been developed and were available in draft form and would be submitted to the Industrial council for approval, and thereafter forwarded to the Minister for final approval as required by the BTVET Act 2008.I advised management to liaise with the Industrial Training Council to ensure that the Assessment regulation is approved. h) Inadequate Transport Facilities Review of the Fixed Assets Register viz-a-vi the inspections of the vehicles of DIT revealed that out of the 12 vehicles recorded in the FAR, only 5 are in good running condition; 2 need minor repairs and 5 need major repairs/grounded yet given the major role of the Directorate is to coordinate/supervise examinations throughout the country in the accredited examination centres, this number may be inadequate. The details of the vehicles are shown below:- Schedule of DIT Vehicles S/N Description Registration Condition/status No 1 Double cabin(Nissan) UG 1850E In good running conditions 2 Double cabin(Nissan) UG 1851E In good running conditions 3 Double cabin(Nissan) UG1812E In good running conditions 4 Volkswagen UG 0372E Needs major repair 5 MAN(Mobile workshop) UG0373E Needs major repair, no workshop tools 6 Double Cabin (Isuzu) UG1125E Needs major minor repair and servicing 7 Nissan Patrol UG1942E In good running state 8 Nissan Patrol UG2099E In good running state 9 Mercedes Benz (Cross UG 1002E Generally needs repair Country) 10 Mercedes Benz (Cross UG 1773E Generally needs repair Country) 11 Motor cycle (White) UG 1240E In good running state 12 Motor cycle (Red) UG 0488E Needs repair 13 Double cabin (Toyota) UG 1643E Minor repair 14 Land Rover UG 0152E Needs major repair, currently stationed at Masulita VTI

The delivery and supervision during examinations period could not have been adequately carried out.

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The Accounting Officer acknowledged that the fleet at DIT was old and most of them were grounded as DIT had limited resources to maintain the vehicles and further explained that they had actually budgeted to procure new vehicles but these efforts have been delayed by lack of funds and also due to the ban by Government on procurement of vehicles.

I advised management of DIT to liaise with the line Ministry to repair the grounded vehicles and also plan to procure new vehicles to ease their activities that involve extensive movements. i) Irregular and Unauthorised Direct Procurements - Shs.311, 495,158 Procurements totalling to Shs.311,495,158 were made and paid for without following the procurement procedures as a result of non -existence of the Procurement and disposal unit (PDU). This was contrary to the requirements under Part III section (30) of the PPDA Act, which requires the entity to cause to be established a procurement and disposal unit staffed at an appropriate level.

It was also observed that the bulk of the procurements were for hotel services which were used for both setting and marking exams and some training as the nature of their activities requires so. Failure to adhere to the procurement law may lead to failure to maximise value for money from the procurements undertaken. The Accounting Officer explained that in the FY 2011/12, the DIT did not have a PDU because there were no required staff. However, following the appointment (by the Education Service Commission) and posting of new staff to the Directorate , a Contracts Committee was formed and inaugurated in June 2012 and thus management would follow the PPDA rules and regulations on procurement. I advised management to comply with the PPDA rules and regulations on procurement. j) Inspection Report Undisposed off Motor Vehicles and other Equipment Inspections of the premises of DIT revealed that there are a number of items which have not been in use for a long time including vehicles and office equipment. Also noted during the inspection of the stores was that 40 bags of lime have been kept

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in the stores for over 3 years as explained by the store keeper. The following photographs illustrate the stores that were inspected:-

Un-disposed track packed for over five years. Un-disposed off min-bus which packed over a year

un-disposed off pick up track packed for over a .40 bags of lime which have been in year stores for over three years.

Other un-used equipments which have been in store for over three years.

The accumulation of such items could lead to obsolescence, loss of value and loss of items. The Accounting Officer explained that management would expedite disposal of the assets especially now that there was a PDU. I await for management commitment in this regard. I advised management to expedite the disposal of assets to avoid obsolescence, loss of value and items.

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k) Supply and Installation of Solar Photovoltaic Energy Packages under ERT - US$.914,306 An agreement was signed on 18th May 2012 under ERT II project between the Republic of Uganda represented by the Ministry of Education and M/s CAA Communication and Accessories AG, a Company incorporated in Switzerland to design, manufacture, test, deliver, install, and Commission Solar Photovoltaic Energy Packages (Solar Panels, Lighting fixtures and Accessories) for 50 Post- Primary Education institutions in Eastern Region, under the ERT II Project at a Contract price of US$.914,306.80. This amount comprised of US$.859,836.80 financed from IDA credit and US$.54,470.00 during Year 2-5 to be financed by Government of Uganda.

An inspection carried out in the two Districts of Bugiri and Namayingo to ascertain the level of status of implementation of the solar installations in the schools established anomalies which are included in the Appendix attached.

l) Installation of Solar Panels in primary schools in Bugiri and Namayingo Districts In Bukonte SS, It was noted that the Solar panels supplied and connected to run the computers were rather weak and thus management decided to keep away the 11 computers. Failure by the contractor to fulfill the contract in time may result in Government loosing the year 1 maintenance services which, in terms of calendar months had already expired. In addition, the idle computers supplied a year ago may become obsolete.

Management explained that installation of solar packages in Bukonte SS was not completed because some buildings were under construction and also indicated that that the solar panels were not sufficient to run the 21 computers. However, this capacity would be enhanced when additional solar panels are acquired in future. For Nalubale S.S and Mutetere S.S, management explained that the general delays caused by lengthy time to open the Letter of Credit (LC) affected the shipment of goods hence the delayed start of installations. For Buswale S.S , the general delays caused by lengthy time to open the LC affected the shipment of goods while some

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of the new buildings had not been officially handed over by the Contractors, however the systems would be transferred later.I advised the Accounting Officer to ensure that the planned installations in year 1 are expedited.

Pictorial Installation of Solar Panels in primary schools in Bugiri and Namayingo Districts

Installed solar in old buildings in Buswale SS

Solar in Lwangosia school IVUKULA SS – Namuntumba District

Muterere SS in Namayingo Bukonte SS – Namutumba District

56.8 Muni University Project

a. Status of Construction and civil works at Muni University The construction of initial facilities comprising of the U-shaped lecture rooms block, a guest house, the health centre, two ICT laboratories and an administrative block revealed a notable progress as indicated below:-

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Serial Particular Current status Audit Remarks following inspections. no. 1 Lecture block Re-enforcing the 1st Delayed by 4 months- Proposed level storey completion date is Nov 2013 2. Healthcentre Painted and minor May be ready for use as soon as Medical block finishings on going power is connected 3. ICT Lab Painted and minor May be ready for use as soon as finishings on going power and water are connected 4. Computer workshop Painting and minor May be ready for use as soon as finishings power and water are connected 5. Guest House & At roofing stage Plastering not done yet Restaurant 6. External works Contract for Procurement for Work on External (Compound and consultant for works to start after design work for access roads) design works just which a contractor has not yet been advertised identified

The pictures below indicate the status of civil works at Muni University as at 24th May 2013

Main University Lecture block side ways - Main University Lecture at close range and at a distance

Corner view – Ground floor and part of 1stfloor Main lecutre block -Centre view

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ICT laboratory ICT Workshop

Library (1) work in progress at wall plate

Given the above state of civil works at the University coupled with inadequate funding, it may not be possible to hand over the site in November 2013 as originally planned.

I advised Accounting Officer to ensure that all the financial resources required for building the infrastructure at the University are provided for and availed to enable the project be completed within the stipulated period without any significant cost overruns.

56.9 Uganda Petroleum Institute Kigumba Project

The Uganda Petroleum Institute Kigumba is a Government institution which was established to provide technical training for Ugandans required in the Petroleum Oil and Gas Industry following discovery of oil and gas in Uganda. The main observations noted following the audit inspection of UPIK include the following:-

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Recruitment of lecturers without the involvement of Ministry of Education and Sports as stipulated in the terms of reference of the task force. Purchase of vehicles using UPIK resources but registering them in the names of UIRI. Commingling of UPIK funds with that of UIRI. Non operalization of UPIK institute leading to operational challenges. Diversion of UPIK funds to non UPIK activities. Irregular payment of salaries. Government through the Ministry of Education needs to review the curriculum of other technical and tertiary institutions towards the petroleum studies in order to broaden the eligible population of providing services to the industry.

The details of the above matters were as follows:- a. Operalization of Uganda Petroleum Institute Kigumba (UPIK)

It was observed that all the operations of UPIK were managed from Uganda Industrial Research Institute including administration, finances and other logistics. The following additional matters were noted:- Students and wardens stay at Uganda Cooperatives College-Kigumba and travel to UTC-Kyema daily, which is costly. Other than the few lecturers, Research Coordinator and the Warden, to-date UPIK has not filled vital academic and administrative positions such as Principal, Deputy Principal, Registrar and Bursar, contrary to section 83 and 84 of Universities and Other Tertiary Institutions Act, 2003. Other than the Warden, all the UPIK staff members are based in Kampala; this management approach is not efficient and effective for the institute as it is only managed by a warden on the ground. Even the skeleton staff members on the ground were recruited in a manner contrary to section 84 of the Universities and Other Tertiary Institutions Act which provides that senior administrative and academic staff shall be appointed by the Education Service Commission on the recommendation of the governing council.

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Delayed operalization of the Uganda Petroleum Institute Kigumba (UPIK) and management of UPIK affairs from Kampala leads to inefficiencies and high administration costs.

The Accounting Officer explained that the situation had been fully explained to the Education Service Commission and top leader ship of the Ministry of Education that the management team of UPK has not found it prudent and practical to set up administrative structures. Priority had been placed on designing new curricular, setting up basic infrastructures and formulating strategies in the brand new field of petroleum studies.

I advised the Accounting Officer that the Ministry needs to appoint a Principal and management team for UPIK and delink its operations from UIRI following its establishment. As a matter of urgency, all the vital academic and administrative staff of UPIK should be filled through the Education Service Commission and on the recommendation of the governing council of UPIK. b. Commingling of UPIK and UIRI funds

It was noted that when the decision of transferring financial management matters of UPIK project were moved from the MOES to UIRI, the recipient did not have a separate account opened with bank of Uganda in that regard. This has resulted in commingling of funds for UPIK and UIRI. A separate account for UPIK was opened in November 2010. However despite the opening of an independent account for UPIK, funds relating to UIRI were still being deposited onto this account and expenses which had no relationship with UPIK were still being cleared from this account.

Commingling of funds for both institutions makes it difficult to establish how the funds have been utilized but also exposes these organisations to a risk of financial indiscipline with regard to expenditures as well as misrepresentation of the financial position of the respective organisations.

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I advised management that the activities of the respective institutions should be separated immediately and a reconciled financial position for the Institute‘s activities be established. c. Delayed intake of Students at UPIK and Redundancy of Facilities of Uganda Polytechnic Institute Kigumba (UPIK) at UCC-Kigumba (UCCK) It was noted that the College has had a delayed intake of students for the financial year and yet direct utility overheads such as water, electricity and compound maintenance have to be paid; further noted was that only the warden‘s office and dormitory for the visiting lecturers from Kampala was occupied while other facilities have remained non operational.

It was further noted that UPIK still occupied some facilities as Computer labs, Administration, dormitories at Uganda Cooperative College Kigumba (UCC) inspite of the memorandum with the college expiring as students (Pioneer Students) who had occupied the facilities completed their course way back in October, 2012. An inspection of UCC Kigumba on 28th May 2013 for Assets operated by UPIK established the following:-

All the UPIK assets such as computers, drawing tables, dinning tables and chairs, beds, etc, that were meant to be used by the students were not used due to non admission of students due to expiry of the contract period which UCCK had with the UPIK. Schedule of UPIK assets at UCC Kigumba Under the circumstances, there is no value for money being obtained by keeping the college non operational if no admission of students is taking place.

The Accounting Officer explained that the delayed intake of students was a direct consequence of limited budgets and therefore delayed equipment, materials, machinery and completion of usable infrastructure.

I advised management to ensure that the Ministry speeds up the operalization of UPIK such that full intake of students commences. d. Ownership of UPIK Vehicles

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It was noted that, two (2) vehicles that were purchased for the operations of UPIK were registered in the names of Uganda Industrial Research Institute (UIRI) Management had not clearly explained why the motor vehicles had to be transferred to UIRI instead. This action can be construed as a diversion of funds meant for full establishment of UPIK and is contributing to delays in full operationalisation of the college.

The Accounting Officer explained that Vehicles and other equipment were in temporary trust of UIRI but are recorded appropriately as UPIK property. I advised management that the Director of UIRI provides an explanation for the above action and ensure that the motor vehicles meant for UPIK are immediately availed for their operations. e. Lack of Title and Ownership to the 200 Acres of Land Donated to UPIK It was noted that although UCC Kigumba donated 200 acres of land for the construction of UPIK college there has not yet been a formal transfer of title to UPIK. At the time of inspection the warden of UPIK indicated that the process of obtaining a land title had started by the Surveying of the land. Delayed acquisition of title can lead to encroachment of college property and subsequent trespass on the college land.

I advised UPIK Management to expedite the process of Land acquisition for the college. f. Inspection of the UPIK operations at National Technical College at Kyema

UPIK signed an MOU with Uganda Technical College Kyema for temporary hosting of UPIK students at UTC-Kyema dated 15th April, 2011; an inspection of the college revealed that the assets for UTC-Kyema were not engraved. Non engravement of assets makes it difficult to account for these assets as they may be lost.

UPIK management responded that Logic suggested that some of the assets may not be moved from Kyema Technical College when UPIK migrates back to its permanent home.

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Temporary arrangements, the spirit of cooperation between institutions,and comprehensiveness of skills training were the new attributes that the management Team brought to table. I advised management to have all UPIK assets engraved.

Inspection of infrastructure facilities at UPIK The following photographs illustrate the status of UPIK facilities at Uganda Cooperatives College-Kigumba and Kyema:-

A computer lab of UPIK which is not being used due to no students Drawing tables and stools of UPIK at Uganda Cooperatives College - at Uganda Cooperatives College - Kigumba Kigumba

An empty bed in one of the rooms Dinning room with Steel tables, in the dormitory of UPIK at chairs and TV of UPIK at Kigumba Kigumba Cooperatives College- Cooperatives College Kigumba

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One of the water tanks installed by Workers digging the floor of the UPIK behind the Dormitory which was Mechanical workshop which had renovated by UPIK in 2009-2010 at cracks (poor workmanship) with the Uganda Cooperative College -Kigumba instruction of the Resident Engineer from Medidat Company at the UPIK site of the prefabs

Toilets without provision for People A cross section of the Kichen, store With Disabilities in all Dormitories and dinning which is undergoing (with steps not convent for the PWDs) construction at UPIK site of the at UPIK site of prefabs at Kigumba prefabs-Kigumba

Work in progress for construction of a 2 in 1 accomodation for the Resident International lecturers –which contain A 30 seater coaster with Reg.UAJ 573 3 bed rooms,dinning,kitchen and for UPIK which was parked at Uganda garages which stood in part of the 200 Technical Institute-Kyema Acres of land donated by the Uganda Cooperative College Kigumba

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Un labled computers(SUN Micro systems) in the Computer lab for UPIK at Uganda Technical College –Kyema for the students to access data on servers.Highway Africa is the internet provider.

56.10 Kichwamba Technical College

An inspection of the school and subsequent interview with the college principle and the college bursar, established the following:- Delayed release of quarterly funds: it was noted that the MoES normally releases the funds to the college late which affects the implementation of the planned college activities. High outstanding electricity bills: the college has outstanding electricity bills amounting to Shs.48,976,855 and the entity has received a disconnection order dated 13/05/2013. The high outstanding power bills was caused by the arrears which accumulated over time and the failure of the entity to meet its current electricity bills i.e the entity consumes electricity of about Shs.6,000,000 a month yet they are able to only pay Shs.5,000,000 a month which leads to continued accumulation of arrears. Disconnection of the college could cause a standstill in the operation of the college especially for courses that require electricity. The College buys materials using direct procurements i.e. the funds are normally advanced to the heads of department who purchase materials used in practical subjects such as electrical, building and civil works. Through an interview with the college principal, it was noted that the structure of the college does not provide for the post of a procurement Officer (PDU) and stores person which affects the way the entity procures and issues the materials.

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The Accounting Officer acknowledged that the releases of funds to college by the Ministry were made upon receipt of funds from the Treasury. The delays experienced were not unique to this college alone but affected other institutions including the Ministry itself. She also accepted that the college like many other tertiary institutions had electricity bills which were incurred before 2010 when the Ministry introduced new measures regarding payment of utility bills.

A combined verified bill for all institutions had been recently submitted to MoFPED to provide resources for tis settlement. To avoid any further accumulation of electricity bills, institutions were paying utility bills using internally generated funds. Management also accepted that the structure of the college did not provide for the post of procurement Officer. The Ministry has advised the Principal to request the Governing Council to recruit a Procurement Officer and to constitute a contracts committee.

I advised the Accounting Officer to address the above internal control weaknesses prevailing at the college.

56.11 MINISTRY OF EDUCATION AND SPORTS - UNIVERSAL POST PRIMARY EDUCATION AND TRAINING (UPPET) PROJECT - (IDA CREDIT NO.4570- UG) - ENDED 30TH JUNE 2012

(a) Compliance With Financing Agreement Provisions and GoU Financial Regulations It was noted that management had in all material respects complied with the covenants contained in the Financing Agreement and the Government of Uganda Financial Regulations except for the following matters:- i) Poor performance of some contractors Contracts for 52 Schools were identified to be poorly implemented basically due to excessive construction delays. The total contract amount involved is

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Shs.13,427,582,082 out of which Shs.6,220,280,570 had been paid. It was noted that twenty (22) contracts worth Shs.5,505,160,054 were terminated after total payment of Shs.1,957,131,524had already been effected. The poor performance could be attributed to inadequate capacity of the affected companies as some had been awarded more than one site, which could have strained their financial strengths. It was further noted that the Ministry has not implemented the recovery of liquidated damages as provided for under the contracts. Awarding of contracts to companies with no good truck record may result in loss of the funds disbursed.

The Accounting Officer explained that the responsibility of executing contracts was decentralised to respective schools under a direct supervision of Contracted Technical Supervision Firms as per implementation guidelines. He added that although the amount of money paid to the various contractors for the terminated contracts stood at Shs.1,957,131,524, a lot of work was done before the contracts were terminated and that the net value of advances that were allowed to expire before exercising the guarantee stood at Shs.376,003,191. The Ministry also instructed the Technical Supervision Firms (TSFs) to charge liquidated damages on poorly performing contracts as per the provisions of the contracts signed by the schools and in line with the project‘s general implementation guidelines. It was further explained that the Ministry has since resolved to centrally limit the award of contracts to a maximum of three sites for a contractor evaluated as competent in a meeting held on 10th August 2011. I await for the outcome of this management course of action. ii) Breach of contract by M/s Dolomite Engineering Services Ltd In Phase II, it was noted that M/s Dolomite Engineering Services Ltd was awarded three contracts which comprised of Kidoko S.S. Tororo District, Pilkington College Muguluka Jinja District and Kidera S.S. Kamuli District at a contract price of Shs.1,327,127,000 as summarised below:- School and District Amount (Shs) 1 Kidoko SS Tororo District 159,657,000 2 Pilkington College Muguluka Jinja District 548,676,000 3 Kidera SS Kamuli District 68,794,000 1,347,127,000 694

However, the firm failed to fulfil the conditions of advance payments and therefore could not be paid any advance. By the time of inspection in October 2012, the company had not commenced work in any one of the three sites. I explained to management that awarding of three contracts to the same company at the same time could lead to the company failing to implement the requirements of the contracts possibly due to financial constraints.

The Accounting Officer explained that the ministry has since resolved that the respective head teachers have to carry out a due diligence exercise before a contract is awarded. He further explained that schools were advised to terminate the contracts and that the Ministry had now centrally re-advertised for replacement contractors. I advised management to ensure that due diligence is always exercised in the evaluation processes so as to ensure that contractors are not awarded contracts for which they do not have capacity to undertake. iii) Payments made against forged bank guarantee and performance security According to Section 4.7 of the School Based Procurement and Implementation Manual for civil works written by the Ministry, ―the contractor may request 20% Advance payments on submission of authentic bank Guarantee and performance guarantee from a reputable bank. Contrary to this requirement, M/s Kamua Engineering International Jasen Ltd was found to have submitted a forged guarantee on the basis of which the firm was paid advances and other payments totalling to Shs.454,855,469 as shown below:- School Amount Remarks paid (shs) Bamadu S.S. in 109,515,214 At Ring beam Bundibugyo District St. Mary Simbya SS in 121,606,187 8 class rooms at ring beam Bundiugyo District 4 classrooms at slab level Teachers house at foundation trenches One 5 stance pit latrine at slab level Bubukwanga SS in 223,734,068 One multipurpose Science at Bundibugyo District foundation Two classrooms block at foundation Teachers house at foundation level 695

2 Unit science block had not yet started. 1 no.5 VIP latrines not yet started. TOTAL 454,855,469

The contractor subsequently abandoned the sites at the different stages of works as indicated above. It was further noted that Management assessed the contract implementation status of the three schools and established that works worth Shs.101,872,065 had not yet been undertaken by the contractor. I explained to the Accounting Officer that payment of funds against forged guarantees exposes the project funds to a risk of loss since there is no recourse management can resort to, in the event of default as is the case for this contractor.

The Accounting Officer regretted that such forgery cases had cropped up but added that the cases had been reported to the responsible offices namely; PPDA and the Uganda police for action and that disciplinary action had been taken against the defaulting Head Teachers. Furthermore, the Accounting Officer explained that TSFs had been instructed to issue advance payment certificates to contractors after verifying the authenticity of both advance guarantee and performance security. Head Teachers have been required to closely monitor the validity of both documents to ensure that they remain valid for the entire lifespan of the contracts. I advised Management to ensure that they make due diligence in verifying all documents submitted by contractors during the bidding process. In the meantime, I await the recovery of the amounts paid to the contractor.

(b) General Standards of Accounting and Internal Control A review of the following areas was carried out:- Accounting system and policies. Book keeping. Management and control of both bank and cash accounts. Purchases and payments. Fixed assets management It was noted that management‘s control structure environment, accounting system and policies and control procedures were generally adequate to ensure prudent use of and accountability for all project except for the following matters:- 696

i) Unaccounted for Advances to Schools It was noted that although the School-Based Procurement and Implementation Manual for civil works (UPPET/APL1) project, provides for the appointing authority to take disciplinary action against any defaulting school officials, the Ministry had not taken any such action against school officials that received advances amounting to Shs.27,404,755,946 between August 2010 and June 2012 on Phase 1 project but had not accounted for them. Another Shs.9,633,807,117 advanced to 59 Schools in Phase 2 for construction works between February 2012 and April 2012 also remained un accounted for by the year end. This amount has remained outstanding despite several reminders. It was also noted that some of the schools that had not accounted for funds in phase 1 have had their contractors terminated after being paid 20% advance against forged performance securities and in other cases money was advanced to contractors against insurance bonds and not bank guarantees as per the implementation guidelines.

Failure to take disciplinary action against defaulting school officials could lead to loss of project funds.

Management explained that there had been delays in submission of accountability by schools due to the slow pace of construction and certification of works done to enable the schools to attain the threshold of 75% expenditure to trigger release of subsequent tranches which was partly due to low capacities of some contractors. Management also stated that the Ministry had already taken disciplinary action against fifteen (15) Head Teachers for misconduct in implementation of the project and that at a special meeting at Kololo SS in Kampala from 10th to 14th December 2012 with Head Teachers of 214 Schools in phase I and 285 in Phase II that had received funds but had outstanding accountabilities, it was noted that returns reviewed and certified amounted to Shs.23,807,256,579 which raised accountability status from 28% to 45% in December 2012 for schools in Phase 1. Efforts were being made to ensure that all schools submit their accountabilities as required.

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I have advised the Accounting Officer to always ensure prompt accountability of funds released to the schools and to endeavour to engage competent contractors in order to effectively undertake all construction works.

(c) Delayed Implementation Of Some Activities In The Work Plan i) Procurement audit of schools According to the project appraisal document, the Ministry in conjunction with the Public Procurement and Disposal of Assets (PPDA) Authority shall conduct annual procurement audits for schools using consultants with qualifications acceptable to the Bank. It was however noted that by the end of the year under review, the ministry had not yet concluded with the procurement process for the consultants to undertake the procurement audit. The process was only concluded in August 2012. It was noted that the Ministry contracted M/s KPMG East Africa and M/s AH consulting, to carry out procurement audits of schools that participated in phase 1 and phase 2 for which contracts were signed on the 28th August 2012 and the two firms were to complete and present draft reports within two months (i.e. 60 days). Contrary to the terms of the contract of the procurement firms the reports that should have been submitted by 15th November 2012 had not been submitted by the time of audit on 6th December 2012). Failure to produce the said reports on time denies stakeholders of the necessary information on the basis of which appropriate decisions could be made regarding procurement aspects under the project.

In their response, management stated that draft reports from the two firms had been received by the Ministry and were being reviewed. I advised the Accounting Officer to follow up this matter and ensure that the firms in question are made to expedite the completion of the reports accordingly. ii) Recruitment of a project Accountant and strengthening of the CMU It was agreed in the supervision Mission and on-going discussions with the MOES that given the volume of transactions of individual schools in form of advances and accountabilities, there was urgent need for a dedicated project accountant to assist

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in maintaining Individual school ledgers and other related functions on a regular basis. However, the Ministry has not recruited one to date.

It was further noted that the full implementation and strengthening of the Construction Management Unit (CMU) plan should have been done by 15th September 2012, according to the approved work plan. This involved recruitment of two (2) Civil Engineers, one (1) Architect and one (1) quantity Surveyor. However, the Ministry had just signed the contract with a consultant that would help to identify the right individuals to fill the positions mentioned above on the 3rd December 2012. The strengthening of the CMU as per the Missions concerns was yet to be done.

I explained to management that the delay in having the positions filled is likely to negatively impact on the Projects‘ capacity to implement all its activities in a timely manner. In his response, the Accounting Officer indicated that they had since recruited a Project Accountant who was expected to report on 1st March 2013. For the CMU strengthening, a final report was received from the recruitment firm and submitted to the World Bank for clearance before negotiations are held with the recommended candidates. I advised management to expedite the above processes so as to have the posts filled without further delay.

iii) Re-bidding for previously terminated works During the Supervision Mission, it was agreed that the revised bidding documents and all required information for rebidding of works in schools where contractors are terminated would be done by 10th August, 2012. However, only 22 schools had their bidding documents revised and advertised leaving out 21 schools whose contracts were recommended for termination and not revised. I explained to management that delayed re-bidding for works previously terminated would further lead to delayed completion of such projects.

In response, the Accounting Officer stated that termination of a contract was a process which could also come with legal implications. The ministry was also

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studying the recommended cases for termination on a case by case basis. Bidding documents for completion of outstanding works shall be prepared in 21 schools that have terminated contracts but indicated that the matter was being followed up to ensure that the re-bidding process is undertaken without further delay. I await for the outcome of this management commitment.

(d) Field Inspections During the audit for the year under review, a field inspection exercise was undertaken to assess the extent of project implementation and also whether the implementation guidelines were being followed. A review of the documentation in place at the various participating schools was also undertaken and the major findings as well as the response from management are summarised in the table below:- S/No AG Remarks Response from the Ministry 1. Payment of advances TSFs were instructed to fully recover all the with no advance advance from the certified works done by the guarantees obtained. contractor Head teachers were reminded to pay against the TSFs‘ advance payment certificates issued after verification of bank guarantees and performance securities. Disciplinary action is being taken to Head teachers who ignored the guidelines 2. Submission of forged Names of firms with forged guarantees are guarantees to support forwarded to PPDA for appropriate actions. requests for advance The Ministry has forwarded cases of suspected payments. forgeries to Uganda Police. TSFs were instructed to fully recover all the advance from the certified works done by the contractor Head teachers were reminded to pay against a verified bank guarantee Disciplinary action is to be taken to head teachers that ignored the guidelines 3. Abandoned sites with no The Ministry conducted in-service trainings of enforcement of the Construction management committees which guarantees. has enlightened the committee members on enforcement of implementation guidelines. Head teachers have been instructed to closely monitor the expiry date of the performance bond such that, in case of poor performance it 700

can be liquated before expiring 4. Delays in completion of Poorly performing contracts are being works. terminated. Liquidated damages clause in the contract will be invoked. 5. Poor workmanship The Ministry is in the process of recruiting evidenced by major additional staff for the Construction Management defects already Unit to help beef up site supervision. developing on some of Retention funds are withheld until defects are the structures rectified constructed. Contractors have also been warned 6. Failure by some schools Schools are to be directed to submit their (Nabiswa SS and Pallisa documents to the Auditor General SS) to avail documents to In case of failure, disciplinary action is to be the audit team. taken 7. Incomplete structures Head Teachers have been advised to refrain already being utilized by from using the structures before handover. some schools (e.g. However due to limited available classroom Fatima Aloi space, schools have been compelled to use the Comprehensive Girl‘s SS incomplete structures out of necessity. etc). Contractors have been instructed to complete the structures within a strict timeline or be charged liquidated damages. 8. Failure to comply with Where contractors are in breach of contract contractual provisions. conditions, relevant penalties have been invoked 9. Failure to adhere to the Disciplinary action has been taken to head prescribed guidelines in teachers that ignored the guidelines the implementation manual 10. Failure to supply furniture Disciplinary action is to be taken to head despite payment of funds teachers that ignored the guidelines and this for the same (e.g. Lweru should lead to recovery of funds or fulfillment of SS, Namasumbi Moslem the contractual obligations by the contractor SS etc).

11. Failure to deduct Some Head teachers have experienced withholding tax and/or to challenges in obtaining TINs for the schools. remit deducted taxes. WHT therefore could not be paid till TINs are issued to the respective schools. to be able to remit deducted taxes Disciplinary action to be taken on those Head Teachers who flouted guidelines by not deducting and/or remitting the taxes and yet they already have TINs.

12. Use of poor quality Defective works have since been demolished building materials e.g. 701

poorly burnt bricks, poor and reworked to the approval of the TSFs. timber etc.

I await for the outcome of the above commitments by management.

56.12 MINISTRY OF EDUCATION AND SPORTS - SUPPORT TO THE POST- PRIMARY EDUCATION AND TRAINING (ADB III) PROJECT - ADB GRANT NO.2100155006268 - 30TH JUNE, 2012

(a) Status of Project Implementation The status of the project implementation is summarized in the executive summary to the accounts in appendix 1. It was noted that by the end of the financial year, the overall physical implementation rate of the Project as per the periodic project reports, was estimated at 99.96% as summarized in the table below:-

Table 1: Status of Physical Implementation by Project Component COMPONENT Weighting based Estimated %age Weighted on each rate of estimated %age component‘s implementation rate of share of the total as at 30th June implementation as project budget 2012 at 30th June 2012 (a) (b) (c) (d) = (b) X (c) I Improved access 79% 100% 79% to secondary education & improvement of science education II Support to 18% 99.8% 17.96% Business Technical & Vocational Training (BTVET) III Project 3% 100% 3% Coordination and management Total 100% 99.96%

It was noted that in all material respects, the project had managed to accomplish its intended activities by 30th June 2012.

(b) Field Inspection

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During the audit exercise, an inspection of the construction projects in a sample of schools was undertaken in order to assess the extent of implementation as well as the quality of work. The following major findings were noted:- i) Some implements including water pumps and solar power equipment had already failed in some schools such as Mbale School for the Deaf and Namugongo Seed School. This implies that the implements in question were not being of any use to the schools concerned. In their response, the Ministry explained that they were aware of this challenge at most of the schools and were undertaking measures including training on utilization and maintenance of such implements as well as having the concerned contractors to replace the defective items supplied. ii) A sum of Shs.38,116,450 remained unaccounted for by Mbale School for the deaf. Given that the project is coming to an end, there is a risk that this amount may never be recovered at all. In their response, the ministry has indicated that it has communicated to the school in question and requested them to have the accountability submitted. I have advised management to ensure that this matter is followed up or else have the funds recovered accordingly. iii) It was noted that some equipment delivered at Madera Technical Institute and Jinja Vocational Training Institute was found to be defective and therefore not in use. This limits the full attainment of the project objectives. In their response, the Ministry has explained that the suppliers in question have been notified to make the necessary replacements accordingly. I have advised management to ensure that these items are closely followed up to ensure that they are replaced to enable the Institutes to make good use of them. iv) It was noted that some items were not delivered at Madera Technical Institute. There is a risk that these items may never be delivered at all. I have advised management to ensure that the suppliers concerned are followed up to ensure that the missing items/parts are delivered accordingly

56.13 MINISTRY OF EDUCATION AND SPORTS - SUPPORT TO POST-PRIMARY EDUCATION AND TRAINING EXPANSION AND IMPROVEMENT (ADB 703

EDUCATION IV) PROJECT - (ADB LOAN NO.2100150018143) – 30TH JUNE, 2012

(a) Inspection of Project Activities During the audit for the year under review, a field inspection exercise was undertaken to assess the extent of project implementation and also whether the implementation guidelines were being followed. A review of the documentation in place at the various participating schools was also undertaken and the major findings included the following:- i) The chemicals delivered at some schools were found to have a short lifespan. Such schools included: Kyebambe Girls S.S.S, St. Leo‘s College Kyegobe, and Muntuyera High School. Delivery of items with a short shelf life implies that there is a risk that not all such materials shall be utilized by the time they expire. ii) Some items delivered were subjected to scientific tests and could not give positive results by some schools including Bweranyangi Girls High School, Muntuyera High School, Kyebambe Girls S.S.S; Mary Hill High School and Mbarara. No value was therefore attained from the items delivered. iii) Some schools had not recorded the text books that were delivered under the project but had simply put them in their libraries and/or issued them to students. Such schools included: St. Catherine Girls, Lira; There is a risk that such text books will easily get lost without notice by the schools concerned. I have advised the schools in question to ensure that the books are recorded without further delay. iv) Some items were not delivered at some schools including Iganga High School and St. Leo‘s College Kyegobe . There is a risk that the undelivered items may never be recovered if they are not followed up by project management. v) Some schools received deliveries of text books for subjects they do not offer such as at Muntuyera High School Kitunga, Ntungamo District; Mbarara High School, Mbarara District; Bweranyangi Girls High School, Bushenyi and Mary Hill High School, Mbarara. vi) There was a noted slow Pace of Project Implementation at some schools including Muntuyera High School Kitunga, Mbarara High School and Mary Hill

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High school in Mbarara. Such delayed completion of works can lead to failure to accomplish all the project activities within the stipulated project duration.

In their response, the Accounting officer acknowledged that the Ministry was aware of the above matters and arrangements were already in place to have them addressed. I have advised management to ensure that the above matters are urgently addressed to ensure that the project objectives are fully attained. (b) Status of Project Implementation The status of the project implementation is summarized in the executive summary to the accounts in appendix 1. It was further noted that by the end of the financial year, the overall physical implementation rate of the Project as per the periodic project reports, was estimated at 33.8% as summarized in the table below:-

TABLE 1: Status Of Physical Implementation By Project Component

COMPONENT Weighting Estimated Weighted Weighted based on each %age rate of estimated estimated component‘s implementati %age rate of %age rate of share of the on as at 30th implementation implementati total project June 2012 as at 30th June on at the end budget 2012 of the last quarter (a) (b) (c) (d) = (b) X (c) I Improvement and 92% 33% 30.4% 23% Expansion of School Facilities (UA 53.02 Million) II Improvement of 6% 40% 2.4% 1.5% School Management and Teaching Quality (UA 3.44 Million) III Project 2% 50% 1.0% 0.8% Coordination and Management (1.31 Million) Total 100% 33.8% 25.3%

The relatively slow pace of implementation especially under component II is likely to delay the effective use of the output of the project by the beneficiaries. I have advised management to expedite the implementation process so as not to derail the overall progress of the project.

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56.14 THE REHABILITATION AND EXPANSION OF SIR SAMUEL BAKER SCHOOL IN GULU DISTRICT - FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER, 2011

(a) Compliance With the Financing Agreement and GoU Financial Regulations It has been noted that management complied in all material respects with the financing agreement provisions and Government of Uganda financial regulations except for the following matter:- i) Budget overruns Project management is supposed to comply with the financial regulations as well as the terms of the specific agreement and ensure that expenditure is within the approved budget. However, the following budget overruns were noted on Government of Uganda Expenditure:- Description Budget Actual Variance

Euros Euros Euros Total Total Construction & Rehabilitation costs 156,795 636,313 (479,518) Steering Committee Meeting 1,000 2,452 (1,452)

Such budget overruns can lead to failure to fully implement all planned activities as they suffocate other budget lines. In their response, management attributed this to inflationary pressures at the time. I have however advised management to ensure that appropriate approvals are always sought for and obtained before incurring such expenditures.

(b) General Standards Of Accounting And Internal Control It was noted that management had put in place a satisfactory internal control system and measures to ensure proper accountability for all program funds, except for the following matters:- i) Inadequate project/construction risk management practices During the audit, it was noted that there was no project risk register and that there was no evidence to show a presence of a systematic approach to

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project/construction risk management. This implies that risks are not dealt with effectively and as a result, the project may suffer consequences of failing to deal with the risks which include significant cost overruns, schedule delays or even inability to achieve desired project technical objectives/standards.

I have advised that the Construction Unit under the Ministry of Education to develop a detailed project/construction risk management manual clearly defining the risk management process to be followed on all construction projects under the unit. In their response, management explained that the recommendations have been noted and will be implemented in future projects. ii) Extra Works and Omissions in the Bills of Quantities During the audit, it was noted that variations of Shs.296,644,094 had been made as at 31st December 2011. I did not see the approval of such variation before commencement of the work. I also noted that the renovated buildings do not have gutters for rain water and that the external works including the walk ways, pavers, and drainage system were not included in the original BOQs. This implies that key works are left out which makes the project look incomplete.

In their response, management explained that the variations catered for items like septic tanks, tiles, Terrazo, change from timber door frames to steel frames and lightening arresters which were subsequently approved. I have advised that Independent reviews of BOQs should always be done to ensure completeness before approval of the final BOQ and hence minimize variations. iii) Supporting documents not cancelled/stamped PAID Best practice requires that supporting documents should be stamped PAID in order to avoid their reuse. However, during the audit, I noted that some supporting documents were not stamped PAID. This implies that there is a risk that such documents could be reused for fraudulent purposes. I have advised management to ensure that all supporting documents are always cancelled by stamping them ―PAID‖ immediately upon completion of a payment. iv) Delay in payments to the Construction Company

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During the audit, I noted a delay in payment to the construction company/contractor and the supplier for furniture as evidenced by the summary of unliquidated obligations. I explained to management that such delays affect the relationship between the two parties and may ultimately result into charging interest on to the outstanding balances. Management was advised to always ensure prompt settlement of all invoices. In their response, management attributed this matter to the fact that GoU funding was not readily available but promised to ensure that such delays are avoided in future.

(c) Status Of Implementation Of Previous Year’s Audit Issues The status of the issues pointed out in my previous year audit report is summarised below:- Issue Title Recommendation Status/ Remarks 1 Budget Overruns Full adherence with the Repeated financing agreement and government of Uganda financial regulations 2 Inadequate Develop a project/construction Not addressed project/construction risk risk management manual management practices 3 Extra works and omissions Management to ensure that To be followed in the Bills of Quantities independent reviews of BoQs up in future are always done to ensure completeness before approval projects of the final BoQ and hence minimize variations 4 Translation from the Management to comply with Repeated functional currency to the the requirements of IPSAS 4 reporting currency henceforth

5 Poor filing system Management to ensure that the Repeated filing system is streamlined with a separate file(s) maintained for each specific project where records/project expenditure supporting documents are maintained. 6 Incomplete authentication Management to ensure that all Anomaly not of EFT payment vouchers EFT payment vouchers are rectified endorsed by the vote controller and accounting officer as required. 7 Supporting documents not Management to ensure that all Anomaly not cancelled/stamped PAID supporting documents are rectified always cancelled by stamping 708

them ‗PAID‘ immediately a payment is made. 8 Delay in payments to the Management to ensure that Repeated Construction Company payments to the suppliers are promptly made to avoid incurring unnecessary costs in form of interest.

57.0 EDUCATION SERVICE COMMISSION

57.1 Procurement Irregularities The Commission engaged M/S Victoria Motors to supply station wagons during the financial year 2010/11 at a cost of Shs.280,000,000 vide ref: ESC/SUPLS/2010/2011/00173. However, scrutiny of the documents revealed the following anomalies:-

(a) Violation of Government ban on procurement of Motor vehicles It was noted that the commission sought clearance from the Prime Minister to purchase the vehicles in compliance with the existing freeze by government on purchase of Motor vehicles and other non-essential consumptive expenditures with only exceptional cases to be considered by a committee chaired by the Hon. Second Deputy Prime minister or the Permanent Secretary. However, there is no evidence that this authority was granted although the Commission proceeded to award the contract to M/s Victoria Motors Ltd. I explained to management that their action was therefore contrary to the existing government policy at the time. Although the Accounting Officer stated that the directive exempted transactions which were already underway and those for entitled officers, no evidence was presented to me to support this assertion. I have advised the Accounting Officer to always ensure compliance with Government instructions and guidelines so as not to derail the overall success of such policy decisions.

(b) Absence of an Evaluation Report on the Procurement File It was noted that the Evaluation Report that was compiled by the evaluation committee was not filed. It was therefore not possible to establish whether a proper evaluation of the bids was under taken including conversion of the bids into a common currency for comparison purposes, since the two bids were quoted in

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different currencies. I explained to the Accounting Officer that in the absence of the evaluation report, there is a risk that the evaluation process may not have been properly undertaken in accordance with the provisions stipulated under the PPDA Act and Regulations.

In their response, management acknowledged that the evaluation report was not available on the procurement file but explained that M/s Victoria quoted to supply a Pajero while M/s Toyota quoted for a Toyota Fortuner, which two vehicles were not comparable. He further explained that the specifications for the Toyota Fortuner did not meet the minimum requirements stated by the Commission. Although the Accounting Officer promised to avail the evaluation report during my discussions with him, this had not been presented by the time of compiling this report.

58.0 MAKERERE UNIVERSITY

58.1 Budget performance (a) Unauthorized Excess Expenditure The statements of Appropriation show that whereas a total of Shs.144,817,154,100 was appropriated for expenditure during the year under review, Shs.149,501,298,317 had actually been spent by the close of the year thereby leading to excess expenditure of Shs.4,684,144,217. The Public Finance and Accountability Act 2003 requires that such excess expended, shall be included in a statement of expenditure in excess which shall be laid before Parliament for approval to allow it stand in the accounts. This was however not done by management. I informed management that the excess expenditure was therefore irregularly included in the accounts.

In response, management attributed the excesses to 2 categories of unbudgeted expenditure that could not be avoided namely; funds attached by Uganda Revenue Authority (URA) for tax arrears on the biological children scheme (Shs.1.2bn) and expensing of outstanding advances (Shs.3.5bn) that were accounted for. I advised management to regularize the excess expenditure in accordance with the requirements under the law. (b) Unrealistic revenue budget

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It was noted that the University‘s approved Non Tax Revenue (NTR) budget for the year was Shs.72,272,406,250. However, a total of Shs.86,162,275,885 was realized resulting into a surplus collection of Shs.13,889,869,635 (about 19% above the budgeted amount). I explained to management that this could be attributed to unrealistic budgeting as a result of failure to establish the right number of private students leading to significant increases in the NTR actually realized. Improper budgeting may lead to indiscipline in the execution of the budget such as unauthorized expenditure.

Management acknowledged that some revenues were not properly budgeted for and that this caused higher revenues than expected. I advised management to always prepare realistic budgets based on comprehensive information about student enrolments.

58.2 Human Resource Issues (a) Vacant positions It was noted that as of November 2012, out of 3,008 established posts comprising both academic and administrative staff, the university had 1,404 unfilled positions representing 47% as summarized below:- Category Total No. Filled Vacant establishment posts Academic Staff 2,742 1484 1258 Administration Staff 266 120 146

Notable among the departments understaffed included academic staff, internal audit and also other administrative positions especially at the colleges, which are now semi-autonomous entities. I explained to management that such a big staffing gap can lead to the university‘s failure to effectively achieve its objectives. In response, management explained that a special Task Force had been constituted to determine an optimal level of staffing on the basis of which appropriate action shall be taken. I have advised management to take up this matter with the relevant authorities to ensure the vacant posts are filled up.

(b) Temporary staff

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Section 2.6.3 (i) of the Human Resources Manual requires that all temporary/administrative appointments shall be made by the Vice Chancellor on recommendation of the appointments and promotions committee of the unit in need through the director human resources provided that no such appointment shall exceed 12 months. On expiry, the post should be advertised internally or externally. A review of the appointment letters of the staff in the bakery unit indicated that they were appointed on temporary terms several years back and their appointments were not regularised after the lapse of the initial 12 months. I explained to management that in the circumstances, the staffs in question are irregularly employed.

In response, Management explained that there has been a freeze on recruitment in the whole University due to lack of funds but added that the entire staff structure was under review by the Taskforce that was set up by the University Council where a report is expected by the end of February 2013. I therefore await for the outcome of this management commitment.

(c) Lack of service history records According to Section 10.5 of the university Human resources Manual (2009), all requests for updating records shall be communicated to the Director Human Resources as soon as need arises but in any case, all employees shall be required to update their records after every five years. However, an analysis of the service records revealed that a number of staff had no up-to-date service records. The human resources department has not taken prompt steps to notify the individuals of expiry of their contracts and accordingly remove them from the payroll. In addition, instances were noted where individuals have not written to the human resources department for renewal of their contracts. This anomaly is attributable to inadequate supervision, slow flow of information and untimely update of information. I have advised management to always ensure that information relating to staff service is promptly updated in order to eliminate a possibility of payments for no services rendered to the University.

58.3 State of Infrastructure at the University

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An audit inspection of some structures and installations at the University revealed the following matters;- a. There is a shortage of lecture rooms, labaratories and computer rooms, given that the increment in enrolments have not been matched with similar increaments in available space/infrastructure. b. The Academic Registrar‘s Office on the 6th Floor of the Senate Building had a leaking roof as shown in the photographs below:-

Observation Reference photograph Risk Leaking Roof Rain water is likely in the office to cause damage of the to essential Academic information stored Registrar in the office and the damage could be costly while it increases every other day that passes.

c. Shs.20,651,754 was spent on plumbing works at Kabanyolo Hostel but the work done was unsatisfactory, as shown in the photographs below:-

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Photographs showing exposed and blocked manholes at kabanyolo Hostel.

d. There was total neglect of Infrastructure at Makerere University Agricultural Research Institute (MUARIK) as exemplified by the photographs below:-

Neglect of infrastructure at MUARIK – a pictorial description:

Below(L-R): A combine harvester in a dilapidated parking space. The machine is rarely utilized.

Below (1-6): The only tractor on the farm, its trailer, the equipment house and three trailers outof use

1 2 3

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4 5 6

Above(L-R): Out-of-use silos and a drier and grain milling machines that broke down more than ten years ago. e. Several colleges have dilapidated infrustructure that requires urgent need of repair as exemplified in the photographs below:-

Above (L-R) Inside section of the Lecture Room at COBAMS with a leaking roof

Above (L-R) section of broken roof at the administration block of the College of Health Sciences.

Above (L-R), parking area at CCE with big potholes

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I explained to management that the current state of infrastructure and equipment creates a bad impression of the university, that is charged with the responsibility to provide better quality training for its students.

In their response, management explained that the University has had a budget constraint regarding infrastructure repairs for the last five (5) years but hoped that with the ADB V Project, a master plan and construction of various buildings for infrastructure development and repairs, the situation is expected to improve. I advised management to prioritize the rehabilitation of its infrustructure in the capital development budget so as to be able to create a conducive environment for better quality training and research.

58.4 Diversionof Presidential Project Funds (shs.615,413,082) It was noted that shs.615,413,082 was diverted as shown below, from the Presidential Support Initiative Project Account No.04140019324301 and used to settle electricity bills as well as a payment to M/S Sonic Furniture, for which there was no provision in the approved budget estimates for the Presidential Support Initiative Project:- Date Voucher Payee Amount (shs) Remarks Number 29/06/2012 923491 UMEME 440,497,788 Expenditure was not Limited provided for in the Presidential Support Initiative Project Budget 29/06/2012 923773 M/S Sonic 174,915,294 As above. Furniture Total 615,413,082

I explained to management that this action amounts to a diversion of funds to an item for which no appropriation had been made. Furthermore, the planned project activities might not have been implemented due to this diversion.

In their response, management explained that the University had two urgent obligations to settle before the close of the 2011/2012 financial year; electricity bill for June, 2012 and Sonic Furniture in respect of opening the new library extension but the Central Pool Account where these two payments were to be paid from had no funds to cater for them following attachment of University funds by URA. Thus

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management decided to borrow funds from the Projects Account. They further indicated however, that a refund would be effected before the end of the financial year 2012/13. By the time of compiling this report, this amount had not yet been refunded.

58.5 Inappropriate payment of Top-up and Responsibility allowances A total of Shs.699,132,693 was spent on allowances by the department of Academic Registrar, of which Shs.559,879,478 was spent on Top-up allowances while Shs.58,386,400 was in lieu of Responsibility Allowance. Similarly, the College of Health Sciences spent a total of Shs.405,871,183 in such allowances. It was noted that in all cases, the rates of pay for the allowances were arbitrarily determined since there was no Council approval of a uniform rate to be utilised.

In their response, management explained that one of the key causes of the staff strike of september 2011 was inequity in payment of allowances across the units of the University. The Prime Minister‘s office instructed Ministry of Education to ensure that payment of allowances in the University was harmonized. The Ministry of Education and Sports instructed Makerere University Council to set up a taskforce to review allowances among other things and come up with a proposal. The taskforce report was expected at the end of February 2013. I advised management to expedite the process of authorization and harmonization of allowances so as to avoid the risk of demotivating staff in the various units.

58.6 Policy on donor funded Research projects Section 4.4.3 of the Makerere University Research and Innovations Policy, requires all research projects to contribute 15% (5% to the SGS, 3% to the Department, 3% to the Faculty and 4% retained at the center) of the research costs as institutional overheads/indirect costs. It was noted however, that the above policy was formulated and approved when the university was operating on a faculty system and no relevant amendments have been made since the implementation of the collegiate system. I explained to management that use of out dated policies may lead to erroneous revenue allocation.

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Management explained that the policy is currently under reveiw by the Directorate of Research and Graduate training. I advised management that the Research and Innovations Policy should be amended to match the requirements of a collegiate system currently in use by the University, so as to have appropriate allocation of research funds.

58.7 Non preparation of College books of Accounts A review of the college operations revealed that all Colleges did not prepare books of accounts save for the cash book and ledgers that were availed from the centre. It was noted that College bursars did not seem to be responsible for the figures posted as it was done outside their supervision and control. This contravened Section 29(b) of the college statute that requires college bursars to maintain the college books of accounts. I explained to management that failure to prepare books of accounts exposes the University to a risk of inaccurate financial reporting.

In their response, management explained that all books of accounts for the colleges and administrative units are centrally mantained due to the fact that it was difficult to network over a wide area, the in-built soft ware of Ledger Works and that it makes it easier to manage budgets when the data capturing is centralised plus timely reporting. I advised management to ensure that college bursars start producing college books of accounts as required by law.

58.8 Inadequacies in the Accounting Package The university has been using an accounting software known as Ledger Works that processes accounting transactions. However, it was noted that this has a number of limitations as outlined below:- It is incapable of generating financial statement reports beyond a Trial Balance. For the preparation of financial statements, the trial balance data is first exported to excel for data manipulation. This implies that the financial statements are processed manually and are therefore prone to errors. The system is not networked to the colleges for transaction processing and data capture at the college levels. It was noted that processing of transactions is done centrally from the general Accounts (main building) where all vouchers from the nine (9) Colleges and one (1) School plus other units have 718

to be brought for system processing/capture. I explained to management that this is laborious and is against the objective for which the collegiate system was set up as it creates unnecessary delays and is a waste of resources considering the time lost in the movements from the colleges to the main building. Besides, there is a risk that some of these vouchers and attachments could get misplaced. Management acknowledged that the system has gaps as stated above including inability to network over a wide area. They further explained that Government through MoFPED is in advanced stages of acquiring an integrated common IT platform for all public Universities that is hoped to solve the problem. I advised management to liaise with the Accountant General‘s Office and ensure that the system to be introduced will be able to handle the unique requirements of the University‘s collegiate arrangement.

58.9 Lack of a fraud risk control policy It was noted that during the year, the University operated without a fraud control policy in place. I explained to management that this is against best practice that requires that entities should have clear fraud control policies and procedures in place to guide the staff in the operations and to mitigate any challenges that could occur in case of any negative practices and offences committed by staff. Failure to have such a policy also exposes the University to a risk of unethical and dysfunctional employee behaviour.

In their response, management explained that all policies are under review by the change management Committee including formulation of new ones. I advised management to ensure that the policy in question is developed without further delay.

58.10 Failure to Dispose Old (Scrap) Vehicles Inspection of the university premises revealed that there were many old vehicles scattered at different locations which have not been disposed off which in turn results into further deterioration in value. I explained to management that best practice requires that assets that are no longer of economical value to the organization be disposed off. In their response, Management explained that the 719

University had made progress in the process of disposing of obsolete vehicles and old items that are in different locations within the University including valuation of the old vehicles by the Chief mechanical engineer of the Ministry of Works & Transport. I advised management to expedite this process so as to avoid further deterioration in values of such assets.

58.11 Procurement Issues (a) Delays in Rehabilitation of the University road A contractor was engaged to rehabilitate the University road at a Contract price of Shs.893,753,476. The Contract was signed on 14th March 2012 and the site was handed over on the same day; work started on 12th April 2012 and was to be completed in six months‘ time, by 11th October 2012. A total of Shs.357,753,476 was already paid by the University at the time of audit. It was however noted that completion did not take place as planned. Although the Contracts Committee rejected the procurement of a supervising Engineer on grounds that it was long and a costly procurement and that KCC had a responsibility to supervise the roads, it was noted that there was no supervision report on file. The final status of project implementation was therefore not clear.

I explained to management that failure to agree on the implementation of the contract is likely to result in non-attainment of project objectives, mis information to the stakeholders or even loss of funds.

In their response, management attributed the above to the delay in approving the proposed extra works submitted by the Estates & Works Department. It was reported that the contracts Committee decided to seek opinions and responses from the technical personnel before approval of the proposed extra works could be granted. It was further explained that the contracts committee was due to consider submissions on the proposed extra works at the next meeting and that the original contract could not be concluded until the proposed extra works have been approved and executed. In addition, the University Management at their meeting held on 4th July 2011 decided to utilize the human resources in the College of Engineering, Design, Art & Technology (CEDAT) to provide the supervisory role in the road works. I have advised management to review the final status of the 720

project and also expedite the current measures being undertaken to avoid misinformation and unnecessary delays to project completion and above all ensure achievement of value for money.

(b) Remedial works in the Main Library A contractor was engaged to undertake remedial works in the main library at a cost of Shs.155,612,277. The contract was signed on 20th September 2010 and Completion date was set for 60 days from the start date. The following observations were noted on review of the procurement file:- Restricted domestic bidding method was used but the approval of the choice of the method was not on file. This is contrary to the procurement guidelines. The evaluation report did not mention the need for negotiations but there were negotiations for price adjustments prompted by the librarians concern that only Shs.130,147,699 could be raised as per the estimated Bills Of Quantities (BOQ) and not the shs.155,612,277. I explained to management that such adjustments were irregular and could be a subject of a legal challenge by the contractor. The contract was not completed as stipulated in the contract.

In their response, management explained that the University could not initially penalize the contractor for failure to complete the works within the contract period of six months, because it had also contributed to the delay in implementing the contract as there was time lost before reaching an agreement on the form of performance bond that was to be submitted by the contractor. However, although the contract was extended by four (4) months effective May 2012 to allow completion of the works, todate, the contractor had only reached an estimated 85% completion. In the absence of a valid performance bond, management further explained that the University was considering to invoke the clause on liquidated damages against the contractor for delaying completion of the contract. I therefore await for the outcome of management‘s commitment in this regard. In addition, I have advised management to always strictly adhere to the provisions under the procurement law.

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58.12 Motor Vehicle Repairs A review of the University system of motor vehicle repairs revealed the following matters:- Repairs undertaken by the colleges were neither inspected before repair works nor certified on completion of the repairs, before payments were effected. For example Payments for repairs and maintenance amounting to Shs.36,576,253 under College of Humanities and Social Sciences (CHUSS) were made without the Transport Officer‘s inspection and certification. Similarly, another Shs.30,801,573 was spent by the College of Agricultural and Environmental Sciences (CAES) on repair of vehicles which were also not certified. I explained to management that this practice exposes the university to a risk of making payments for un necessary repair works or even substandard repairs. In their response, management explained that Vehicle repairs are confirmed by the drivers before they are paid as it is difficult to use one transport officer for the University. I advised management to review this practice and ensure that prior inspections and certification are always undertaken before any payment is made. No ledgers were maintained to keep track of the payments made and to monitor the performance of the vehicles. This exposes the university to a risk of maintaining uneconomical motor vehicles. Although management explained that ledgers for all colleges in relation to payments are centrally maintained and are accessed by the colleges on request at any time, these were not availed to me for verification. I advised management to put in place maintenance ledgers that are regularly updated to enable an assessment of performance of every vehicle owned by the university.

i. Discriminative College Top Up Allowance When the collegiate system started, Colleges were allowed to pay top up allowances to lecturers based on the collections from private students. During the audit of CONAS, it was established that only lecturers who have private students on the courses they teach get the allowances while some lecturers whose courses have no private students do not get the College top up allowance. The College plays a

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central role in the promotion of science education that is in line with the Government policy of promoting sciences. Lecturers who teach the majority of Government sponsored students do not fairly benefit from this arrangement. I explained to management that this has the impact of de-motivating the affected staff. In addition, there is a risk that the affected schools and students will perform poorly as lecturers continue to lose morale.

In their response, management explained that the issue of Top up is being reviewed by Management and that the salaries of Science Lecturers were increased by 30% in the financial year 2012/2013 compared to the rest of the staff whose salaries only increased by 10% and therefore this showed that the Science Lecturers are not neglected. I advised management to review the criterion of distributing allowances so that a uniform top up allowance is considered that will enhance cohesion and safeguard dilution of some science subjects. However, care must be taken to take into consideration the extra load for lecturers who teach for more hours after 5.00pm. ii. Fixed Assets management The following anomalies were noted regarding the University‘s fixed asset management practices:- (a) Un-recorded assets A review of the fixed assets registers of a sample of 2 Colleges (i.e. College of Natural Sciences - CONAS and College of Engineering, Design, Art & Technology - CEDAT), revealed that the fixed assets registers were not updated as some assets like plant and machinery were not recorded therein. I explained to management that such a weakness in the internal controls could lead to loss or misuse of university assets without notice. In their response, management explained that asset registers are updated at colleges/Units level, during the annual Board of Survey which was completed after the Audit. I advised management to always ensure that they promptly update all asset registers.

(b) Assets Values It was noted that all the assets recorded in the fixed assets registers at the colleges did not have values attached. This included assets that were acquired during the 723

year and the ones that were taken over by the colleges. In addition, the Registers had many assets that are not in use and there was no indication as to when these would be boarded off. In their response, management explained that all colleges have been advised to ensure that all assets that have been acquired in the recent past be recorded with their values and the valuation of old assets was reported planned to be done in 2013/14 which would be used to update the Fixed Assets module in the awaited Common IT platform to be procured by Government for all Public Universities. I advised management to urgently address this area and have the assets registers updated and consider boarding off the assets not in use without further delay.

(c) Set up of Upcountry Campuses of Fortportal and Jinja In accordance with Section 25 of the Universities and Other Tertiary Institutions Act 2001, that allows public universities to establish a branch or a campus of the university in any part of Uganda; Makerere University established campuses in Fortportal and Jinja. However, it was noted that there is no operational policy in place to guide the operations of the campuses on issues of admissions, Human Resources and Finance. I explained to management that there is a risk that the status of such campuses could be legally challenged in future and thereby affect the students.

In their response, management explained that the Fortportal and Jinja campuses are currently being run on the policies of the main Makerere University Campus and that a separate interim operational policy for off-campuses has been approved by Senate and is to be approved by council at its next sitting. I advised management to compile policies and operational guidelines to support the centres in their day-to- day operations.

58.13 Fort Portal Campus (a) Poor records keeping Treasury Accounting Instructions, 2003 require all cheque payment vouchers to be numbered sequentially, posted to the cashbook and filed in numerical order. It was noted that cheques and voucher numbers were not in chronological order. As a result, it was difficult to trace the transactions to their relevant documents. I 724

advised management to improve record keeping at the external campus and always ensure that cheque payment vouchers are sequentially numbered and filed in numerical order.

(b) General Challenges affecting the operations of the campus The following general challenges were noted during an inspection of the campus:- Lack of participation in the budget process: Although the budget book indicates the figures for the campus for the financial year, it was noted that management of the campus did not participate in the process. I explained to management that it is advisable that the management of the campus is always called upon to participate in the budget process so that the priorities of the campus can objectively be considered. The campus has no vehicle for operations. It was observed that the Principal always uses his own vehicle to handle the university business. This needs to be reviewed for urgent attention. Lack of basic facilities in the set up of a university. The campus has no clinic/nurse and yet it operates in a remote area. This implies that both the staff and students may not be able to obtain even the basic first aid services, in case of any health related eventuality at the campus. Staffing Gaps: The campus has staffing gaps ranging from academic staff to administrative staff. Delayed releases of imprest to the campus. It was noted that the imprest to the campus delays so much and this affects the operations of the university.

In their response, management explained that the campus is shifting this semester to Mucwa building in Fortportal Municipality which has better facilities for teaching and learning. I advised management to expedite the process and ensure the above matters do not continue to affect the operations of the university.

58.14 Makerere University Printery (a) Trade creditors and other creditors (Shs.478,936,405) A review of records revealed that the printery is indebted to various service providers to the tune of Shs.478,936,405. I explained to management that failure to settle outstanding obligations could attract litigation costs in the event that the 725

creditors opted to seek legal redress. In their response, management explained that the creditors had significantly reduced post year end to a level of Shs.94 Million. I advised management to make all possible efforts to clear the outstanding obligations without further delay.

(b) Redundant plant and machinery Inspection of the fixed assets revealed that some machinery (specialised equipment) has been redundant for several years. Two (2) of these were acquired in 1990 and others in 2005. It was noted that some became obsolete due to advancement in technology, while for others, spareparts could not be easily obtained. Although these assets are reflected in the financial statements of the Printery, they do not contribute to the growth of the unit as they appear obsolete. In their response, management explained that the disposal would be handled accordingly after the year end Board of Survey for 2012/13. I advised management to act accordingly following the PPDA guidelines.

58.15 Makerere University Maize Mill (a) Debtors It was noted that a sum of shs.160,727,234 in receivables remained uncollected at the end of the financial year. It was further observed that management did not put in any effort to recover the said moneys. I explained to management that money owed to the Maize Mill represents an asset that is idle as it denies the unit the opportunity of using the money to provide the services promptly. Moreover, there is a risk that the above sum held in debts may not be recovered. In their response, management explained that the debtors were due from the central administration for feeding students and by 31st December 2012, shs.126 million (77%) had beed paid to the Maize Mill. I advised management to improve on the credit control system and always monitor and follow up on debtors on a regular basis to ensure quick recovery.

(b) Payables It was noted that Shs.380,981,349 was still outstanding to various suppliers as at 30th June 2012. I explained to management that failure to meet suppliers‘ obligations in time might attract litigation costs and may also affect the good 726

business relationship that would have ensured steady provision of goods and services as and when required. Management in response indicated that out of the Shs.380,981,349, a sum of Shs.193 million related to support advanced to the maize mill by the University Council. It was stated that this had since been adjusted in the debtors of the University accounts and in the payables of the maize mill. An extra Shs.120 million was paid by 31st December 2012, leaving an outstanding balance of Shs.70 million. I advised management to clear the outstanding obligation to avoid unnecessary costs that would occur as a result.

58.16 Makerere University Bakery (a) Lack of a Credit Policy Examination of accounts revealed that Shs.191,400,129 had not been recovered from debtors at the close of the year. It was noted that there was no credit limit and aging policy in place and as a result, there was no proper follow up on the debtors. I explained to management that this could have been accelerated by the fact that the bakery has no enabling policy to aid in recovery of debts. Management in response stated that out of the Shs.191m, a sum of Shs.118m had been fully recovered by 31st December 2012 thereby leaving a balance of Shs.73 million. I advised management to carry out debtor‘s analysis and take appropriate measures against the defaulters. Furthermore management should put in place a credit policy to avoid similar occurrences in future.

58.17 University Main Library (a) Unbudgeted for arrears Treasury Accounting Instructions (TAI) stipulate that expenditure not provided for in the approved estimates of the financial year should not to be incurred without authority in form of supplementary estimates warrant, a virement warrant or a contingencies fund advance warrant. However, a review of expenditure showed that Shs.277,144,148 was spent on payment of prior year allowances yet it was not budgeted for. This implied that the funds meant for other planned activities were diverted for paying outstanding allowances. Management explained that arrears of allowances were paid to avoid a strike that the Library staff had threatened that would otherwise have had far reaching consequences. I advised management to always ensure strict adherence with the financial regulations and make use of the 727

above alternatives provided for in the financial regulations, in the event of a need to incur any unbudgeted for expenditure.

58.18 MAKERERE UNIVERSITY - PROMOTION OF PROFESSIONAL SOCIAL WORK TOWARDS SOCIAL DEVELOPMENT AND POVERTY REDUCTION IN EAST AFRICA (PROSOWO) (PROJECT NO: 26_PREP 13) - FINANCIAL STATEMENTS FOR THE YEAR ENDED 29TH FEBRUARY, 2012 (a) Compliance With Financing Agreement Provisions and Government of Uganda 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 matter:-

i) Failure to deduct and remit taxes on staff costs Section 19 of the Income Tax Act 1971 (As amended) defines employment income that should be subject to tax. In addition, clause 5.2.3(iii) of the grant contract provides for the inclusion of salary related costs such as tax in the computation of staff costs. However, a total of US$.2,501.3 (equivalent to Ushs.6,991,133) in form of Pay As You Earn (PAYE) was not deducted and remitted from the staff costs. Failure to deduct and remit the taxes in question may attract fines and penalties from the statutory body.

I have advised the Accounting Officer to ensure strict adherence with the tax laws in future and also ensure that the amounts in question are recovered from the staff and remitted accordingly. In their response, management regretted the anormaly and explained that the allowances will be subjected to tax and will acordingly be used to recover all the taxes that were not deducted.

58.19 MAKERERE UNIVERSITY - SUPPORT TO RESEARCH ACTIVITIES AT MAKERERE UNIVERSITY - FUNDED BY THE SWEDISH INTERNATIONAL DEVELOPMENT COOPERATION AGENCY (SIDA) PHASE III, PROGRAM NUMBER 75007369 -FINANCIAL STATEMENTS FOR THE YEAR ENDED 30TH JUNE 2012 (a) General Standards of Accounting and Internal Control

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i) Project funds not accounted for:- Unaccounted for advances According to the operational guidelines for the SIDA support to research program, advances should be accounted for within six months in case of research funds or within two weeks from the date of completion of the activity. However, by the time of audit in October 2012, a sum of Shs.507,141,791 advanced to researchers and other officials had not been accounted for. I explained to management that delays in submission of accountability can lead to falsification of documents and loss of project funds. In their response, Management acknowledged that there were some researchers who had not yet accounted for their respective advances and these were to be followed up accordingly. I advised project management to always ensure full adherence with the operational guidelines. In the meantime, the officers in question should be made to account for the funds without further delay.

Travel Abroad It was noted that a total of Shs.27,862,650 and Us$.23,119 spent on travel abroad during the year under review lacked appropriate accountability documents such as boarding passes and air tickets, contrary to the project guidelines. Without such documentation, it was difficult to ascertain that there was indeed travel to the respective countries.

Although management explained that the supporting documentation was available, these had not been availed to me by the time of compiling this audit report. I advised management to ensure that all accountabilities are always promptly obtained and filed appropriately in accordance with the project operational guidelines. In the meantime, I await for evidence of accountability for the above funds.

Expenditure not properly accounted for It was noted that expenditures amounting to Shs.519,900,562 and Us$.5,035 for various activities lacked appropriate supporting documents at the time of audit. Most of these funds were used for Field work Activities, indicating that the above disbursed funds may not have been put to the intended use. 729

I advised the project management to adhere to the project policies and procedure guidelines that prohibit disbursement of more funds until the previous funds are properly retired within three months of receipt. Where funds are unspent, then an activity report must be issued and unspent money returned to accounts section for receipt. ii) Procurement Anomalies Unsupported Procurement It was noted that an amount of US$.2,222 expended by the project to procure Laboratory materials was no supported with delivery notes to confirm that the items paid for had indeed been delivered. In their response, management explained that this was an advance payment for supply of Laboratory Materials to Dan Wamala and that these materials had not yet been delivered awaiting transfer of additional funds. I explained to management that this was irregular as it exposes project funds to a risk of loss since there were no advance payment guarantee that was signed. I have advised management to follow up this matter and ensure that the materials in question are delivered without further delay.

Delayed Delivery of goods It was also noted that three (3) Local Purchase Orders (LPOs) numbered 00545, 00546 and 00547 dated 26th June 2012 worth Shs.70,713,210were issued to M/s Ultra Engineers Ltdfor supply of the following items:- Qty Item/Description Amount (shs) 01 Pc Battery charging and analyzing device for SHS batteries 33,000,000 C8000 advanced battery test system part no-11-308-000 4 Channel Desktop or Rack mount battery test system 01 PA Tarcom & PC PV Module Analyser cx1wp 11,928,800 01 TRI-KA Complete Set Art No 0802201 10,281,250 02 TRMS AC/DC PC Data logger charger controller 1,218,000 01 PC Agulent 34901A20- Channel Armature Multipleyer Model 2,165,625 34901A 01 PC Agilent 34970A Data Acquisition Model 34970 3,609,375 01 PC Weight Scare up to 2000G Accuracy 1G 1,180,000 01 DC Lamps and Charger 708,000 10 PC Extension cables sockets white 295,000

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02 Pc Dc Lamps 12V DC 11W and PC cell phone charger 12v Dc 47,200 02 PC uninterrupted Power Supply and PC Installation inc 1,312,160 material of backup system 03 PC Deep circle batteries and PC charger inverter 8 PC office 3,799,600 lights lower power TOTAL 70,713,210

However, by the time of audit in October, these items had not been delivered to the CREEC laboratory in the College of Engineering, Design, Art and Technology and there was no documentary proof of management‘s efforts to have them delivered. Such delays in delivery of items lead to inability to fully undertake the planned project activities in a timely manner.

In their response Management acknowledged that the items had not yet been delivered and that the matter was accordingly being followed up. I advised management to always ensure that goods ordered for are delivered within the stipulated period so as not to stifle the implementation of planned project activities.

(b) Fixed Assets Management The Project owns several fixed assets. The following matters were observed regarding the management of the fixed assets:- i) Recording of assets in the Fixed assets register It was noted that the project was maintaining an incomplete fixed asset register. For example, the column for asset type was not filled and the column for user/responsible officer was not indicating the actual user but rather the unit project administrator as the user of all assets in the unit. This makes it difficult to hold users accountable in case of damage to the property. In addition the fixed asset register did not provide for the recording of the unique identification numbers engraved on the asset. This makes it difficult to trace the assets in case of loss. Further, review of the asset register maintained at the project head office revealed that assets purchased on one invoice were being recorded as a group instead of recording them individually as exemplified below:-

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Unit Date Type of Purchase Amount CEDAT 29/09/2011 6 Flat Screen Monitors Shs.1,590,000 Technology 8/11/2011 Various Equipment Shs.373,192,000 Library 10/05/2012 25 Desktop Computers Us$.27,662

Lack of a well maintained assets register makes it difficult to establish nature, cost and location of the individual asset. Such weak asset management practices do not guarantee the safety of all project assets and misuse cannot be ruled out at any time.

In their response management committed to have the above matters addressed accordingly. I await for the outcome of this management commitment. ii) Engraving, maintenance and custody of Project Assets It was noted during the audit that some assets were not engraved with unique identification numbers. For example the following assets were not engraved: Department of Microbiologyreceived equipment and consumables worth US$.349,979 during the year under review. However, by the time of inspection in September, 2012, the equipment had not been engraved as shown in the table below:- Item/Description Engraving Status BD Phoenix TM 100 instrument (1) Not Engraved Operational BD Bactec TM 9120 (2) Not Engraved Operational

Collegeof Engineering, Design, Art & Technology Asset verification on some of the equipment purchased during the year was carried out between 27th September 2012 and 15th October 2012 as shown in the table below and none of these assets were engraved:- Assets Not seen Assets Seen Remarks

CAD Printer 12 (HP Design 1. Solar Simulator (SS80) jet 500 series) AAA Photoemission UK (1) No sub register was 2 Harddisk Drive 1 TB 2. High Precision Paver kept in the college (Western Digital) Analyser K 6300 thereby making it 2 Digital Camera (Sony 3. Solar Coach (experiment difficult to locate DCSHX5V) off Grid (2)) some of the assets as 732

Laser Colour Printer 4. Lux Meter (Testo 545 indicated. (CP4025n) Digital Light meter (3) However, the in Sport imagery 4,363 SQKM 1. Pyranometer (LP02) 4 charge of the CREEC 2. Basic Argis 9.3 Module 6. Pyleliometer (cdr01) 4 lab had kept his software own/personal sub 7. ARC Pad Handheld GPS 7. XT Digital Recorder register on his laptop. GIS Receiver

8. ESRI Virtual Campus (Software) 9. Analogue Communications Systems 10. DC Power Supply +15V + 5J 11. Electronic Wattmeter 5V- 1,000V

Failure to have all assets engraved can complicate the process of identifying such assets in case of loss.

In their response, management explained that engraving is a continuous exercise and that the above assets shall be engraved accordingly. I advised management to ensure that all assets are promptly engraved upon delivery before being put to use. iii) Stolen Computer at Makerere University Library It was noted that from a total of twenty four (24) Computers received by the University library, one (1) computer that was sent to the Fine Art Library branch was stolen on 27th May 2012. Theft of this Computer was only reported to the project administration. This is contrary to the project operational procedures which clearly spell out that any theft of project assets must be reported to police. At the time of audit, no investigation had been done. Laxity in use and safety of the project assets is a characteristic of the weak project asset custody and management culture exhibited throughout the project. I have advised management to follow up the matter and ensure that it is investigated appropriately. iv) Maintenance schedule for the assets Whereas items like heavy duty Photocopier and Lab testing Machines have manufacturers‘ recommendation of usage and service, it was observed that there are no maintenance schedules in place. In the circumstances, the efficiency of the equipment is compromised thereby shortening their lifespan. 733

I advised management to put in place a maintenance schedule for the project assets and ensure that the associated costs are budgeted for so as to prolong the usefulness of such assets.

(c) Compliance with Financing Agreement Provisions and GOU Financial Regulations It was noted that the Project complied in all material respects with the Financing Agreement provisions and Government of Uganda Regulations except for the following matters:- i) Doubtful Tax Remittances It was observed that there was no evidence to show that funds deducted in respect of Pay as You Earn (PAYE) of Shs.11,997,400 and withholding tax of Shs.377,189 and US$.165 was remitted to Uganda Revenue Authority (URA) as these were not supported with acknowledgement receipts from URA. There were also no indications that management had followed up this matter with URA. I explained to management that in the absence of the said receipts, there is a risk that the funds in question were not receieved by URA, which also exposes the project to a risk of imposition of penalties as per the provisions of the Income Tax Act.

Although in their response, management insisted that these taxes were all remitted to URA, no proof had been availed to me by the time of finalizing this report. I have accordingly advised management to follow up this matter and obtain the official acknowledgement receipts from the Tax Authority. ii) Direct procurement According to section 85 of the PPDA Act, 2003, a direct procurement shall be used where exceptional circumstances prevent the use of competitive bidding. It was however observed that the project procured catering services worth Shs.13,134,508, from two firms listed below without subjecting the procurement to competition:-

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Vr No Un-Prequalified Firms Amount (shs)

2872 Jesh Functional Services 7,150,373

2829 Jesh Functional Services 2,600,135 2833 Twins General Agency 3,384,000 TOTAL 13,134,508

Use of non-competitive procurement methods is not only contrary to the PPDA Act 2003 but also does not guarantee attainment of competitive prices.

In their response, management explained that this course of action was taken because the prequalification of catering service providers had not yet been done by the administration and therefore opted to use a nearby supplier to cut costs and delays of supply. I advised management to always adhere to the basic procurement procedures as outlined under Sections 44 to 54 of the PPDA Act 2003. iii) Reporting Whereas the project has a standardized reporting format and members were trained in reporting writing, progress reports are still haphazardly written. Funds were spent for this activity to standardize and harmonize the reporting format by the beneficiaries. From a review of the annual progress reports, I could not confirm whether what was being reported was as per activity plans for the year for the different units with the exception of the College of Engineering, Design, Art and Technology. The table below shows the weaknesses identified in the various Unit Progress Reports:- Unit Comments College of engineering, Report well structured. Gives a summary of objectives and design, art & status of progress for students and researchers, the details technology per student according to the activity plan for the year are attached. Faculty of Social Used a table format outlining the major activities per Sciences expected sub program level outcome, output, and outcomes and detailed comments. This reporting did not bring out the outcomes according to the PhD students‘ activity plans. Should have followed above structure. College of agriculture & Used table format as Fac. Of Social Sciences but gave environmental sciences general comments. It was difficult to confirm whether what was planned had been carried out. Faculty of Arts Reproduced the activity plan instead of reporting on the 735

progress of the activities. Gender Mainstreaming Used table format as Faculty of Social Sciences but gave division sub program general comments. It was difficult to confirm whether what was planned had been carried out. Directorate of ICT Report submitted in power point format. The report does not indicate whether the Phd research students had completed as planned ( 2012 was year of completion indicated in year plan). No detailed progress on activities planned for the PhD students, staff training and upgrading of the infrastructure at the network operations centre (NOC) and DRC. College of Health Report submitted in power point. No further details provided Sciences on the individual students. Makerere University Report submitted in power point. No further details provided Library on the individual students and other activities e.g. whether the digitization backup system was procured and whether 4000 digitization publicity materials were produced, how many fliers & brochures were produced and whether 22,000 e-journal titles in databases subscribed to plus 120 DDS articles. School of Veterinary The report submitted was in PowerPoint indicating a follow Medicine up of the Activity Plan like that of Publication, Piggery and Dairy production, but there is need to use the format that gives details of the status, quantity and quality of the Activities carried out. Faculty of Science The faculty did not avail a progress report. (Now College of Natural Sciences) Directorate of Research No report on whether the courses, conferences and seminars and Graduate Training did take place and if all activities planned were carried out.

The project administration has continued to accept progress reports that do not adhere to the agreed project reporting format an indication of weakness in the project supervision and backstopping. In addition, failure to adhere to the standard reporting format of the progress reports is an indication that scholars did not benefit from the trainings conducted.

I advised management to ensure that the coordinators and supervisors enforce use of the recommended project reporting formats by beneficiaries for better monitoring and evaluation.

(d) Review of Internal Audit work and findings A review of the internal audit reports revealed the following outstanding matters which had not been addressed my management:- The Project Operating Guidelines do not take into consideration the current project operating and financial management arrangements (faculty Vs 736

collegiate system). This has had an effect on the project organizational structures and reporting regime. It is a requirement that no funds should be spent on students for research until peer review is done. In the 1st Call for post-doctorial students, this was not followed thereby creating procedural concerns for effective and suitable selection of candidates. This anomaly was also observed during the 2nd Call implying lack of guidance on procedural requirements as spelt out in the project operational procedures. Travel abroad accountability delays and was at times missing. There is need to ensure that when traveling, project guidelines on travel abroad should be adhered to. Where accountability is presented it was hard to trace it to the necessary original documents because documents are not cross referenced making independent verification impossible. Requirements relating to statutory deductions are not adhered to. Where deductions are done, supporting documents for remittance are not readily availed for audit. These documents are also poorly filed. This has resulted into unnecessary and repeated examination of documents, an action that would be done at the beginning if only proper record keeping and referencing is done. Guidelines relating to accountability for advances are never followed. More advances are given to the same people who have not yet accounted for the previous advances. This is a sign of lack of adequate supervision. It was also noted that very few project staff know what is contained in the project operation and financial procedure manual.

I advised management to ensure that internal audit recommendations are discussed and implemented and that copies of the project implementation documents are availed to all project staff.

(e) Status of Prior Year Audit Recommendations The status of the issues pointed out in my previous year audit report is summarized below:-

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Issue title Recommendation Status during current year audit Undischarged Un-deducted tax should be recovered and Repeated Withholding all tax deducted remitted to the authority Tax obligation without further delay. Unsupported There should always prompt Repeated expenditure accountability for all project funds and that sufficient supporting documents for all payments is always filed for all project funds expended. Procurements from un Procurements should always be made Repeated prequalified firms from the list of prequalified service [providers and only deviate when a sound reason is given and approved by the responsible authority. Unreported loss on Management should always communicate addressed transfer discrepancies to the donor as a way of ensuring transparency in the management of the project resources so as to achieve all project goals and objectives. Delayed receipt of funds Management should liaise with donors so Repeated. Funds that the funds are disbursed on time received on December 12th, 2011 Physical inspection of Management was advised to address the Repeated; Assets assets above shortfalls; assets not engraved, still not assets not functioning properly, assets engraved, asset appearing in register not identifiable. register poorly maintained. Status of project There was over utilization and Repeated implementation and underutilization of allocated funds against utilization of funds some categories of the approved work plan and budget.

59.0 MAKERERE UNIVERSITY BUSINESS SCHOOL

59.1 Outstanding debtors It was noted that at the close of the financial year under review, the School had outstanding student debtors to the tune of Shs.1,479,010,641. I explained to the Accounting Officer that failure to promptly recover debts may constrain management in implementing all the planned activities due to insufficient cash flows and could also lead to loss of revenue to the Business school. In his response, the Accounting Officer acknowledged the anomaly but stated that this amount haad since reduced to Shs.1,064,489. He attributed this to the delays in remittance

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of fees to the school for students who are sponsored by the State House. He however indicated that the school was in liaision with the Ministry of Education and Sports and the State House over the matter in a bid to have the outstanding amount settled. I therefore await for the outcome of this management course of action.

59.2 Land Compensated to MUBS Following the loss of school land in Bugolobi, the Uganda Land Commission compensated the school with land in Kireka. It was however noted that the criteria for compensation was not properly explained. The School does not know the value and size of the allocated land which was also noted to be partially swampy and may therefore be subject to restrictions on the type of developements that be made in line with the existing environmental laws of Uganda.

In their response, management explained that when the School lost the last plot of land in Bugolobi marked 6A, Mizindalo close, legal redress was sought. An out of court arrangement was eventually agreed upon and the school was compensated with a piece of land in Kireka. Unfortunately when they visited the compensated land they found out that there were squatters and part of it is a wetland. Management stated that they have been waiting for a blue print-out to seek guidance with the environmental authority.I advised management to follow up this matter and ensure that the School does not totally lose the land in question.

59.3 Fees Refunds not acknowledged Funds totalling to Shs.35,049,000 in respect of excess tuition fees were refunded to colleges for onward reimbursement to the affected Students as indicated in the table below:- Date Payee/Purpose Cheque No Amount (shs) 13/01/12 UCC Soroti Excess Fees Payment 520 20,395,500

17/01/12 UCC Pakwach Excess Fess Payment 531 14,653,500

Total 35,049,000

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Letters to College Principals for submission of accountability were availed for review but acknowledgement of funds by the said students were missing. I explained to management that failure to obtain acknowledgements from the beneficiary students implies that there is a risk that they may not have received funds in question.

In their response, management explained that the school had Soroti and Pakwach colleges of commerce as affiliates with students paying registration and examination fees directly to MUBS account and that some students paid excess of what belonged to MUBS. Management further explained that since these were UCC students, refunds were made directly to the colleges who knew the students better. The Accounting officer reported that written communications were made to these Colleges to provide acknowledgement of funds. I advised management to ensure that this matter is urgently followed up to obtain evidence of acknowledgement of receipt of funds by the respective beneficiaries.

59.4 Under- utilization of funds for Students and Staff Health Scheme at MUBS During the Year 2011/12, MUBS budgeted for shs.236,000,000 to cater for Students and Staff health treatment at the school‘s health Centre. The treatment covered basic care for common illness and injuries excluding Dental, Anti- Natal and Eye Care. However, scrutiny of the expenditure revealed that out of the budgeted funds, the School only utilized a sum of Shs.127,466,861 on the Health Scheme (representing 54% performance) leaving Shs.108,473,691 unutilized. This may imply over budgeting for the scheme or lack of attractiveness of the services rendered.

In response, management attributed the inadequate budgeting process to uncertainty about the number of staff that use the services of the health center in a given period, adding that the purchase of drugs also depended on the common diseases and the usage. I advised Management to carry out a survey on the efficiency and effectiveness of the services of the scheme to ensure achievement of the intended objectives and improvement of the budgetig practices.

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59.5 Audit Inspection of Mbarara MUBS Study Centre (a) Regional Campus Status Inspection of MUBS Study Centre in Mbarara revealed that the centre was referred to as a regional campus or MUBS Mbarara campus instead of an outreach centre. It was noted that this is against Section 25 of the Universities and Other Tertiary Institutions Act 2001(As amended) that allows public universities to establish a branch or a campus of the university in any part of Uganda but with prior approval of the National Council for Higher Education. I explained to management that the status of a regional campus required some formalities and approval that were not in place.

In their response, management stated that the law regarding MUBS was vague on these matters since MUBS is not a university. However it stated that management was in the process of writing to the National Council for Higher Education to clarify on the law. I advised management to regularize the regional campus status in accordance with the Universities and Other Tertiary Institutions Act.

(b) Procurement It was observed that procurement at the centre was being done centrally from Kampala Main Campus. I informed management that this delays all the procurement needs including stationery that is very essential for the centre operations.

Management in response indicated that the school had a plan to gradually decentralize activities to the centers. I advised management to have a procurement officer at the centre who should manage centre procurements to ensure efficient and effective service delivery.

59.6 Review of Prior-Year Audit Issues In my report to Parliament for the year ended 30th June 2011, I made recommendations on a number of observations that were raised. However, by the time of writing this report in December 2012 it was noted that the following matter had not been addressed by management:-

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Lack of Titles to the School Land It was noted that although the School had the blue prints, land titles were not presented as evidence of ownership. In their response, management explained that the School still in the process of securing the land titles. The transfer forms had been duly completed and submitted to the Land Commission and that they were reliably informed that the titles were remaining with one individual to append the signature before they can be issued. I advised management to expedite the process of having the above matters addressed.

60.0 UGANDA MANAGEMENT INSTITUTE (UMI)

60.1 Understatement of Arrears of Non-Tax Revenue (NTR) A total of Shs.3,587,847,505 was reported as outstanding NTR as at the beginning of the year in the statement of arrears of revenue. However, in my report to parliament for the year ended 30th June 2011, i noted that the NTR receivables reported as Shs.4,385,887,684 were understated by Shs.1,519,209,126.

During the year under review, Shs.12,067,287,456 was earned out of which a sum of Shs.6,800,530,719 had been collected by 30th June 2012 thereby leaving a balance of Shs.5,266,756,737. Therefore, arrears of revenue as at 30th June 2012 ought to be Shs.11,171,853,547. That notwithstanding, only Shs.5,266,756,737 was reported as receivables in the Statement of Financial Position thereby occasioning an understatement of Shs.5,905,096,810. Also noted was the lack of information on the aging of debtors.

Understatement of Revenue arrears may result into loss of public funds as recovery efforts are hindered by inadequate record keeping. In response, management indicated that the balance of Shs.3,587,847,505 related to the financial year 2009/2010 but was erroneously reported as outstanding as at 1st July 2011 instead of Shs.4,388,087,634.

I advised management to make the necessary adjustments to the accounts and to put in place adequate measures for recovery of the outstanding arrears.

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60.2 Procurement It was noted that an officer who was appointed by the Accounting Officer on 22nd July 2008 as Secretary to the contracts committee has to date not been approved by the Secretary to the Treasury. This contravened Sec. 27(2) of the PPDA Act 2003 that requires all members of the contracts Committee to be approved by the Secretary to the Treasury. I explained to management that failure to have members of the Contracts Committee properly appointed may lead to legal challenges against the decisions made by the contracts committee.In response, the Accounting officer promised to follow up the matter with the Permanent Secretary Ministry of Finance Planning and Economic Development. I advised management to ensure that the appointment of the Secretary is regularized.

60.3 Staff and Human Resources Matters (a) Staff with inadequate qualifications A review of personal files for the Institute revealed that a number of staff members were carrying out duties for which they are not qualified. It was noted that some staff were over qualified while others were under qualified for the positions they hold. Furthermore, a review of some personal files revealed that some members of staff lack inter personal skills especially the lower cadre where a number of complaints by the public were noted. Management attributed the cause to inadequate finances arguing that harmonization of human resource would require additional funding which was not readily available.

I explained to management that failure to harmonize staff positions may lead to demotivation of staff who occupy positions that are not commensurate with their qualifications which may lead to poor service delivery. In his response, the Accounting officer explained that some of the misplacements were due to the inheritance from the former Institute of Public Administration and that the new staff are posted to their right places.

I advised management to deploy staff in the areas where their skills can add value to the operations of the Institute. Management may encourage staff with minimal qualifications to upgrade and or be assigned duties in areas where their services

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may be needed. Mean while, the group which is deemed un-upgradeable may be phased out in conformity with the Institutes new staffing structure.

(b) Gratuity not taxed It was noted that the Institute paid gratuity amounting to Shs.295,982,905 without deducting tax obligations as required by the Income Tax Act. It was further noted that the top three Directors entitled to fuel were paid Shs.92,965,613 as a benefit. However, this employment benefit was not subjected to tax as required by Section 19 (1)(b) (amended) of the Income Tax Act.

In response, management indicated that UMI obtained a waiver from Uganda Revenue Authority on taxing gratuities payable to staff. However, Communication from the tax manager medium tax payers revealed that gratuity payments are taxable. I advised management to ensure that in future taxes are deducted from gratuity payments and remitted promptly to the tax body and for staffs who are still with the Institute, management should enforce recovery of the tax from the affected staff current emoluments.

60.4 Advance Payments To Leadership Management Of Uganda Universities (LMUU) Project Out of Shs.30,000,000 that was advanced to LMUU project in the Institute, Shs.5,000,000 remained unrecovered as indicated in the table below: Chq Amount Remarks (U.Shs.) 717288 10,000,000 Refunded 717866 10,000,000 -do- 717900 10,000,000 Refunded Shs.5,000,000 only Total 30,000,000

I explained to management that the practice of lending funds to other projects could lead to failure to undertake planned activities since the necessary funds are locked in advances to other projects.

In response, management explained that funds advanced to this project were fully refunded. However, verification of the evidence indicated that only Shs.25,000,000 744

was refunded. I advised management to ensure that all the funds are reimbursed without further delay.

61.0 MBARARA UNIVERSITY OF SCIENCE AND TECHNOLOGY

61.1 Incomplete Fixed Assets Register Treasury Accounting Instructions require all entities to maintain a Fixed Assets Register (FAR) containing all categories of assets, date of acquisition, cost/value, location, unique identification numbers, et cetera. It was however noted that the University has the following land and buildings that have no values attached thereon except for the University Inn:- Plot Location Buildings No 21 KASHARI, Block 37 (Kihumuro) Estates Block and Faculty of Minerals and Petroleum Block (under construction) 6 Lower Circular Rd, Mbarara Faculty of Dev. Studies and Municipality Ophthalmology Blocks

5 Upper Circular Rd, Mbarara MJAP Block (Mulago-Mbarara Municipality 10-24 Lower Circular Rd, Mbarara University Inn (Cost Shs.420,Million) Municipality 8-18 Mbarara Municipality, Kabale Rd Current Main Campus.

I explained to management that the current position implies that the register is not comprehensive enough. Management explained that the current accounting policy on Government assets is responsible for the problem. I advised management to liaise with the Chief Government valuer to have their land valued and have assets disclosed separately with value and to ensure a fixed asset register is maintained and regularly updated.

61.2 Irregular utilization of the University Land Inspection of the fixed assets of the University revealed that the University‘s estimated 25 hectares of land at Buhoma - Bwindi (Block 50 Plot 117 located in Kinkizi - Kanungu District) was irregularly occupied by Uganda Wildlife Authority (UWA). MUST acquired this land in the year 2000 for conservation of Bio-diversity

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under the management of Institute of Tropical Forest Conservation (ITFC) the University Research Centre based in Bwindi.

However, it was noted that UWA without authority constructed its head quarters, staff houses and a tourist visitor centre on a portion of this land estimated to be one (1) acre as shown in the photographs below:-

Management did not establish this until recently in the year 2012. It was further noted that MUST is currently negotiating with UWA Authorities to reach an amicable solution since both entities have been working together for a common goal of conservation.

The intention of acquiring this land from the local communities was to provide a buffer zone for animals. However, up to now the buffer arrangement has never been put in place and it is overdue. It was further noted that out of the estimated 25 hectares, the biggest portion (19.03 hectares) is not yet surveyed.

Management explained that UWA constructed on the Buhoma land so as to be close to the gorilla exit area for protection and conservation of the mountain gorilla. This was not objectionable in line with MUST‘s contribution to conservation, a prime aim for which it acquired that land. However, as partnering institutions in conservation of the biodiversity and the endangered mountain gorilla, the arrangement was that 746

MUST gets an equivalent piece of land at the location of its choice since the partnership does not warrant the giveaway of property.

The land was acquired in instalments whereby the first 5.07 hectares were surveyed and a lease title offered. The title was reportedly under conversion to freehold and the request was lodged in the Kanungu District Land Board in November 2011. Management further explained that the remaining part is to be surveyed soon when funds are available to obtain its title on freehold tenure. I advised management as follows: To always carry out regular physical verification of its fixed assets to ascertain their status; To expedite the negotiations with UWA so that a lasting solution is attained and the relationship regularized; The Un-surveyed land (measuring about 19.603 Hectares) should also be urgently surveyed to determine the correct boundaries; The process of Memorandum of Understanding and the University should be expedited to safeguard MUST land.

61.3 Non remittance of fees for state House sponsored Students It was noted that the State House has been sponsoring some students at Mbarara University of Science and Technology. However, at the end of the financial year, fees for these students amounting to Shs.341,841,500 had not been remitted. I explained to management that non remittance of fees for the sponsored students impacts negatively on the operational effectiveness of the University.

In their response, management explained that State House passed over the responsibility of payment to the Ministry of Education and Sports which has promised to pay during the current financial year. I advised the Accounting Officer to liaise with the concerned authorities to ensure that the funds in question are remitted as soon as possible.

61.4 Non remittances of NSSF Arrears

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A review of the financial records and correspondences for the year showed that the Accounting Officer wrote to the Permanent Secretary Ministry of Finance requesting for Shs.245,306,319 including accrued interest of Shs.34,923,541 to clear outstanding NSSF arrears. However to date; these funds have not been paid to NSSF and continue to attract interest.

I explained to management that the accrued interest expense could have been avoided if payment had been made in time. Moreover, in the circumstances, the University risks incurring unwarranted costs if the Fund opted for legal redress to recover the arrears. In their response, the Accounting Officer explained that the Accountant General requested the University to complete the Domestic Arrears Forms for verification before money could be availed. The forms were reportedly filled and submitted on the 17th of September 2012. I advised the Accounting officer to urgently follow up this issue with the Ministry of Finance.

61.5 Delayed Enforcement of Bonding Arrangement It was noted that some staff who went for further studies abroad, were granted study leave with pay and duly bonded as per government regulations and an amount of Shs.91,331,770 was paid out in this regard. However, contrary to the terms of the bond which required the trained staff to serve their employer for 2 years after completion of the courses, the following officers absconded and others worked for only a few months and resigned from the services of the University:-

Name Duration Basic Amount Spent by Remarks of Course Salary the University (shs) (shs)

Muwanguzi 3 Years 1,432,531 51,571,116 Absconded at the Patience (PHD) end of the course.

Tebusweke 1 1/2 years 1,169,431 21,049,758 Absconded at the Abas S end of the course.

Suuna 2 years 1,169,431 28,066,344 (bal. un Worked for only Robert recovered is eight months and 18,710,896) resigned.

I explained to management that in the circumstances, the University risks incurring a financial loss of Shs.91,331,770 if the bonding agreements are not enforced. 748

In response, the Accounting Officer stated that Shs.13,767,624 would be recovered from the officers‘ savings under Mbarara University of Science and Technology Retirement benefits Scheme while the balance of Shs.77,564,146 would be referred to the University Lawyer for appropriate action. I have advised management to seek legal advice from the Solicitor General on the mode of refund and to take adequate steps to enforce the terms of the bonding agreements.

61.6 Non-Computerized Accounting System During the review, it was noted that the University has been operating a manual accounting system for a very long time. I explained to management that such a system is more prone to errors and makes processing of transactions more tedious.

In their response, management explained that the office of the Accountant General is extending reforms with a view to improving fiscal management and service delivery in Public Universities and Self Accounting Tertiary Institutions (PUSATI‘s). Management further explained that a study has so far been conducted on financial management practices and systems that provided a basis for development and issuance of new guidelines on budgeting and financial reporting standards. Computerization of Education Management and Accounting System (CEMAS) project for the computerization of Public Universities that involves designing, developing and testing of the system, user training, communication with internal and external stakeholders and deploying the system was reported to have just started with recent advertisements that were run by the Ministry of Finance, Planning and Economic Development for the pre-qualification of firms that could supply the system. It was reported the evaluation process is ongoing. I await the outcome of the project.

61.7 Delayed accreditation of Academic Programs It was noted that National Council for Higher Education (NCHE) provisionally accredited some programs for a period of 2 years in their meeting held on the 21stSeptember 2007. A review of these programs for full accreditation was to take place after two years. However, it was noted that the Diploma in Science

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Laboratory Technology, Certificate in science Laboratory Technology and Bachelor of Science with Education programs had not been submitted for review in order to be given full accreditation by NCHE for 3-5 years.

I explained to management that Failure to forward the programs to NCHE for accreditation may affect the maintenance of educational Standards of the University and other Tertiary Institutions in the country. In response, the Accounting officer explained that a submission was made to NCHE for accreditation. I have advised management to follow up the matter with NCHE so that these programs are reviewed and accredited as required by the law.

61.8 Inadequate Funding of the Institute Of Tropical Forest Conservation (ITFC) – BWINDI As part of University audit for the year 2011/2012, an inspection of Institute of Tropical Forest Conservation (ITFC) operating in Bwindi Impenetrable National Park was carried out. It was noted that while the Institute facilitates research, it depends more on donor financing. This is evidenced by the fact that during the financial year, Donors contributed Shs.780,741,267 compared to Shs.30,000,000 that was received from the University. I explained to management that there is a risk that the centre could easily fail to operate in the event that the donors stopped funding.

The Accounting officer explained that the university operates on a ceiling provided by the Ministry of Finance, Planning and Economic Development and that out of the ceiling; the university was able to provide only Shs.30,000,000 to the Institute of Tropical Forest Conservation. I have advised management to review this area and consider adequate provision of funding to the Institute for sustainable operations and enhancement of research.

61.9 Non specification of maximum period on Acting Appointment

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It was noted that the University Human Resource Manual is silent on the maximum period a staff has to work in an acting capacity and yet many officers were holding positions in acting capacity as indicated in the table below:- Name Substantive Post Acting Post Since Mrs. Theodora Senior Lecturer Director of the Institute 14/Sept/2006 Twongyeirwe Mondo of Computer Science Mr. Evarist Nabaasa Senior Lecturer Deputy Director of 27/July/2011 Institute of Computer Science Ms. Dorothy Lecturer Head of Department of 27/July/2011 Annabella Habinka Computer Science Mr. Ronald Mwesigwa Lecturer Head of Department of 5/July/2011 Mathematics Mr. Paul Senior Lecturer Head of Department 29/Dec/2010 Chukwuemeka Pharmacy Adiukwu

I explained to management that working in acting capacity for lengthy periods affects productivity and is against the Employment Act.In response, the Accounting Officer explained that the Human Resources manual is to be amended to include the Acting appointments period which shall not exceed one year. Management further indicated that the positions were to be referred to the next meeting of the Appointments Board and Council for approval. I advised management to review this matter and have these positions substantively filled. In the meantime, I await management‘s action in this regard.

61.10 Position of the Head of Internal Audit Chapter 7 appendix B of the University Human Resource Manual requires the Internal Auditor to have Bachelor of Commerce/BBA (Accounting) Degree and full membership of ACCA/CPA or a relevant Masters Degree qualification with at least 3 years working experience at MBA or its equivalent. Contrary to the job specification, it was noted that the Acting Head of Internal Audit had a Bachelor of Commerce Degree only and had been acting head of internal audit since 10th January, 2002. I explained to management that the qualifications and duration of acting by the officer contradict the provisions of the Manual and might result into inadequate leadership of the Internal Audit Department. Management explained that the process to fill the post of the Head of internal Audit with a person with appropriate

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qualifications has started. I have advised management to expedite the process and have the post appropriately filled.

61.11 Prior-Year Outstanding Audit Issue In my report to Parliament for the year ended 30th June 2011, I stated that the University was faced with severe staff shortage whereby out of 1,212 established posts, only 459 were filled and 753 posts were vacant. I explained to management that failure to have adequate staffing levels adversely impacts on the University‘s level of service delivery. By the time of writing this report in December 2012 the staffing position had not improved.

Management explained that Government had promised to raise the staff structure for all public universities to 50% but this has not been fulfilled yet. I have advised management to continue pursuing this matter with the responsible authorities in order to have the vacant posts filled.

62.0 KYAMBOGO UNIVERSITY

62.1 Unsupported Payables It was noted that payables (creditors) ledgers were not maintained in any of the faculties. In the circumstances, I could not confirm the correctness of the balance of Shs.3,428,648,791 stated in the statement of financial position. I explained to management that absence of the payables ledger may lead to understatement or overstatement of the liabilities of the University thereby compromising the integrity of the Financial Statements. Besides, there is a risk of making double payments in the circumstances.

In their response, management explained that the University prepares ledgers including payables ledgers however, due to understaffing; the policy has been implemented with a lot of challenges in a manual system but with increased staffing and the computerization process being undertaken, ledgers were reported in place. I advised management to have payables ledgers in place which should accordingly be regularly updated.

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62.2 Unauthorized Expenditure It was noted that the University incurred an authorized excess expenditure of Shs.3,306,491,063 on a number of items without authority for virement contrary to Sec. 39 (3) of the Public Finance and Accountability Regulations, 2003. Details of the overspent items are given in the table below: Item Actual Budget variance (U.Shs.) (U.Shs.)

Water (223006) 1,070,000,000 676,160,000 393,840,000 Travel Abroad (227002) 2,200,999,631 327,293,000 1,873,706,631

General supply of Goods 5,578,664,239 5,033,871,000 544,793,239 and services (224002) Printing Stationery 1,153,606,193 659,455,000 494,151,193 ,Photocopy and binding (221011) Total 10,003,270,063 6,696,779,000 3,306,491,063

In the circumstances, the expenditure in question is not a proper charge to public funds. I advised management to always ensure compliance with the established financial regulations.

62.3 Unsupported Receivables It was noted that the University Management did not maintain students‘ ledgers to ascertain those who paid and the defaulters. Other than those sponsored by State House, no student was named under receivables yet according to the Examination Scouting Report dated 31st July 2012 there were cases of fees defaulters. Unless proved to the contrary, the receivables balance of Shs.1,436,890,251reported in the Statement of Financial Position appears to be misrepresented.

62.4 Underperformance A review of the budget performance report of the University for the Year under review revealed that several planned activities were not fully implemented as shown below:

Item Planned Activity Actual Output variance realized 075172 Construction of lecture No progress was No progress was Government blocks for: made on the made on the Building and School of Education construction of construction of even 753

administrative science, School of school Blocks. a single school. infrastructure management and On the item of Non vocational studies, residential buildings. School of Arts and Social U.Shs. 207,310,616 Sciences, School of was spent management and Entrepreneurship. Shs. 6,474,310,000 was budgeted. Purchase of Planned to Complete At the time of The net working Office and ICT development of ICT reporting, project was not equipment Network and e‘campus development of ICT completed as including project. network and planned. software Shs.715,682,000 was e‘campus project was Shs.281,706,336 was budgeted. not yet completed. not spent. Shs.433,975,664 was spent.

I explained to management that failure to undertake activities according to the work plan may undermine the university‘s objectives. In response, management acknowledged that a substantial number of planned activities were not undertaken during the financial year mainly due to long procurement processes, understaffing and inadequate project management skills among others. Management further explained that this was caused by high staff turnover. However, the following interventions were being explored to address the matter:

(a) Handling the high rate of staff turnover (b) Recruitment and training of the new staff to ensure adequate project management skills (c) Start all the procurement processes early in the Financial Year.

I advised management to always implement activities according to the approved work plan and budget.

62.5 Funds not Accounted for (a) Extra Load Allowances Examination of the counter books revealed that the heads of departments did not countersign on lecturers‘ extra load teaching on evening programs as required by the appointment letters. I explained to management that failure by the heads of departments to supervise and countersign the register could result into abuse of the program and spending money for no work done. In view of the foregoing, I 754

could not confirm the genuineness of the expenditure of Shs.922,516,550 paid out in overload allowances.

In their response, management explained that the policy of attendance register exists in the University but acknowledged that there has been inadequate monitoring of the policy. It was indicated that Heads of departments have been instructed to strengthen monitoring of attendance of evening lectures on the evening program and that teaching claims would be verified based upon the lectures‘ attendance records. I advised management to enforce strict monitoring of extra load lectures and liaise with Heads of departments to ensure they supervise and countersign the registers on a daily basis as required by the terms of engagement. This would minimize the risk of abuse of the program and paying for work not done.

(b) Expenditure on Security Services i) Doubtful payment for security services It was noted that payments totaling to Shs.78,080,000 for February and March 2012 vide Cheques 009030 and 009141 for Shs.42,968,000 and 35,112,000 respectively were not supported with the daily attendance registers as required by the terms of engagement. I explained to management that in the absence of the registers, I could not ascertain as to whether the services were actually provided during the said months and the authenticity of the expenditure could not therefore be ascertained. I advised management to avail daily attendance registers for security personnel to confirm the authenticity of the expenditure for the two months. ii) Excess Payment on Security Services M/S A-1 Security Services Ltd was contracted on the 24th October 2011 vide contract No. KU/SRVCS/2010/11/01079 to provide security services for a period of 6 months at a total cost of Shs.221,958,000(VAT inclusive). However, examination of payments for the services revealed that Shs.10,518,596 was paid in excess of the contract price as detailed in the table below:

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Date Payee-Bank Chq No. Shs Description

19/1/2012 Stanbic Bank/A-I 8668 35,112,000 Unarmed guarding security services Nov 2011 STANBIC A-1 008944 35,112,000 Unarmed guarding SECURITY Stanbic A-I security 009030 42,968,000 Unarmed Guarding services 5/4/2012 Stanbic/A1 security 009340 35,112,000 Guarding services March 2012 Stanbic Bank A1 009141 35,112,000 Unarmed guarding Security services Feb. 2012 5/22/2012 Stanbic Bank A1 009442 35,112,000 payment for guards security day A1 April 2012 WHT 13,948,596 Total payments 232,476,596 Amount approved 221,958,000 Excess payment 10,518,596

There was no evidence that the excess amount was paid as a result of an approved variation by the contracts committee as required by Section 262 of the PPDA Regulations. In his response, the Accounting officer acknowledged that the amount paid for security services exceeded the original contract amount and that this was caused by an emergency with regard to insecurity that was envisaged during the Christmas period. He further explained that top management agreed that more guards be provided to beef up security thus creating an increase in the amount over and above that in the contract. He added that this was later submitted to the contracts committee for approval. I advised management to have the excess amount recovered and always comply with procurement laws/regulations.

62.6 Fraudulent Allocation of Part of the University Land It was noted that the University has a Freehold land title, registered on 23rd July 2007 under the ownership of Uganda Land Commission (Kyambogo University) measuring 141.601 Hectares on plot number M.842 Kampala-Kyambogo. On the 21st of April 2010, the Council vide min 5/4/2010, approved to give the Ministry of Education and Sports (MoES) a portion of this land for the construction of the Ministry‘s headquarters. The Plots are:

M 891 of 1.623 Hectares, M 892 of 1.224 Hectares and

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M 893 of 1.197 Hectares. After curving out these plots, the new Deed Plan was given as number M 902. However, Management explained that part of this land has been given out by the Uganda Land Commission without the approval of the University Council to unknown individuals/Investors. The questionable plots are:- 45 of area 0.561 Hectares, 47-55 of 2.699 Hectares, 61 of 0.7173 Hectares, 63 of 0.412 Hectares. These plots are marked x on the new deed plan (M 902). According to the letter from Uganda Land Commission (Ref ULC122 dated 18th January 2012) to the Permanent Secretary Ministry of Education and Sports, the Commission had vested interest in this land as it argued that the immediate surrounding land to the University is an industrial area and as such does not envisage its development by the University. As a result, the Commission sought a no objection from the Ministry so that it could be allocated to investors. However, it was noted that the University authorities through Kalenge, Bwanika, Ssawa and Co. Advocates have issued a notice to sue the Uganda Land Commission for unlawful action. By the time of this report, no response from the Uganda Land Commission had been received.

In their response, management explained that to date Uganda Land Commission has not responded and that the University was following up the matter by asking the University Lawyers to go ahead and open a suit against the Commission. It was further reported that the University had put a caveat on all the University land as the University lawyers handle it in the courts of law. I advised management to ensure that this matter is followed up promptly with the relevant authorities.

62.7 Encroachment on University Land Verification of ownership of the University land revealed that there are a number of customary tenants occupying some of the land as detailed below: (a) Namasiga and Nakagere in Mukono District This land was found to be encroached on as follows:

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Plot No. Number of squatters Area (Hectares) 30 7 11.097 146 2 11.263 123 3 5.124 150 35 11.870 151 3 1.135 TOTAL 50 49.489

It was noted that although the university had initiated the process of eviction, it later relaxed and nothing is on the ground to show progress in this regard. I explained to management that this may inhibit the scheduled development of this land since the squatters are yet to be compensated ahead of eviction. In their response, management explained that the University had not relaxed to evict the squatters as it budgeted for funds to the tune of Shs.500 million in the financial year 2012/13. It was further stated that the management asked the Chief Government Valuer to assist in valuing the squatters‘ property for purposes of compensation.

(b) The North end of KYU Although encroachers on this land own temporary shelters as seen in the photos below, it was noted that they have grown perennial crops like bananas which is likely to increase the cost of eviction to the University. Figure 1:

photographs showing encroachment on the University land.

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It was further noted that the North-end boundary opposite the Kyambogo-Ntinda road has been encroached upon by a nearby developer who has constructed an access road to their property.

Figure 2:

Photograph showing access road constructed through the university land.

In their response, management explained that the first phase of fencing of the University Land was done and that the second phase is under procurement and is planned to cover the most vulnerable areas including the North End of the University. I advised management to recover this land with utmost urgency and quickly fence off the North end of the University land to prevent further encroachment and to restrain encroachers from planting more perennial crops on the University land.

62.8 Undischarged Statutory Obligation It was noted that NSSF arrears of Shs.500,128,603 for the period 2003-2006 representing 10% contribution by the University remained outstanding by 30th June 2012. Whereas the 5% was paid by the MoES in March 2011, the source of funding to clear this balance was still uncertain. I explained to management that the affected members of staff are missing the interest that would be accruing from their 759

contributions. In their response, management explained that the NSSF arrears arose out of the salary arrears for the period 2003-2006 which was paid in 2010. It was further stated that this figure was yet to be verified by MoFPED for subsequent appropriation by Government. I advised management to expeditiously take up the matter with the Ministry.

62.9 Unpaid Salary Notch Arrears Included in the payables figure is a balance of Shs.346,312,696 in respect of unpaid salary notches to various staff which arose in accordance with Section 14 of the University Terms and Conditions of Service of the University whereby staff in incremental salary scales are paid increments every financial year.However, there was no indication of any tangible plans to settle these out-standing arrears in the near future as the source of funding does not seem to be clear to Management.

In their response, management explained that the salary arrears for salary notches were compiled by the University and submitted to the Ministry of Public Service which advised that they are submitted to the Auditor General for verification. The Auditor General advised management to engage Internal Audit department in this regard. Management stated that after verification, it would be included in the list of confirmed payables. I await the outcome of management‘s action in this regard.

62.10 Procurement and Disposal Anomalies (a) Renovation of Nanziri Hall i) Breach of Contract During the year under review, the University undertook to renovate Nanziri Hall. The contract period for renovation and completion was stated to be sixty (60) days from 7th June 2011. However at the time of audit, work had not been completed in the following areas: Four (4) metallic doors were not yet fixed; Holes not covered that were used to ferry materials to the top; Lightening arrestors not fixed; Partially sealed up gaps between the walls and roof. It was observed that whenever it rains, water floods some parts of the top slab.

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At the time of audit, a total of Shs.108,365,123 as shown in the table below had been paid leaving a balance of Shs.16,064,933 unpaid. Date Chq No. U.Shs. 28/9/011 007876 48,626,928 31/5/012 009528 14,834,400 18/11/011 008191 38,401,888 WHT 6,501,907 TOTAL 108,365,123

I explained to management that delays in the completion of the renovations were a breach of the contract by the contractor. In their response, management acknowledged that it was true there was a breach of contract by the contractor and that the University was going to terminate the contract and use the balance on the contract of Shs.16.06m to call on other service providers or request the Estates department to complete the outstanding works. Management further explained that the University has already submitted a request to terminate the contract to the Contracts Committee with CIMEEL LTD and recommend the company to PPDA for blacklisting. I advised management to urgently follow up this matter with the contractor and have the issue resolved. ii) Absence of the Procurement File The Procurement file for the works was not availed for audit. As a result, I could not independently establish whether proper PPDA procedures were followed. Furthermore, the possibility that the Evaluation Committee may not have carried out its work properly by picking this company could not be ruled out.

In their response, management explained that the procurement file had been misplaced at the time of audit but was now available and that the staff structure of the PDU was reviewed and is before the University council for approval. Management further stated that the new structure which includes the position of 2 Records Assistants is expected to improve records management in the Unit. However on verification of the availed file, there was no initiation document, commitment form by the accounting officer and the contracts committee minutes

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awarding the contract. Besides, I could not confirm the authenticity of the availed file. I advised management to always secure Government documents in accordance with the law. iii) Unapproved variations It was noted that variations worth Shs.15,629,100 on the works were effected without the approval of the Contracts Committee contrary to Regulation 261 of the PPDA, 2003. I explained to management that failure to follow the PPDA law may easily lead to misappropriation of government funds. In their response, management acknowledged that the Contract Manager erred and implemented a contract variation without approval by the Contracts Committee but stated that the variation was within the threshold of Contracts Committee‘s approval mandate and was eventually submitted to the Contracts Committee for consideration. I advised management as follows: To ensure the terms of the contract are strictly complied with by both the contractor and the University. The Procurement and Disposal Unit should strengthen the filing section to control loss of procurement files. Due to the current phenomenon of lightening, lightening conductors/arrestors should be fixed as an emergency. Acomplaint about poor performance of the Contractor should be raised with PPDA so that if need be it is black-listed from further contracts with Government entities.

(b) Doubtful Procurement of Brand New Vehicles During the year, the University entered into contracts to Supply and Deliver Brand New Vehicles as shown below:- Vehicle No Procurement Supplier Engine Model Country Cost/val Ref. No. of ue Origin Kenya $ 59,505 UAJ 600X KU/SUPPLS/200 M/S Africa 4HF 1- NPR60P (30 Seater 9-2010/00230 Motors & 872900 Student Machinery (A Guild Bus) trade name of Mantrac Uganda (U)

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Ltd. Kenya $ 127,812 UAR 740 P KU/SUPPLS/ 6sd1- FVR 421221 23M $ 138,000 Unregistered Bus for Dean of Students Thailand $ 41,269 UAR 017 L KU/SUPPLS/201 Africa Motors 4JA1- TF654 (Double 1-2012/00083 and 129201 Cabin Machinery (A Pickup) trade name of Delta Industrial Equipment Thailand $ 41,269 UAR 019 L KU/SUPPLS/201 -Ditto- 4JA1- TFS54 (Double 1-2012/00083 132004 CabinPickup)

However, the following matters were noted:- i. Shipment documents for vehicle registration Nos.UAR740P, UAJ600X, UAR017L and UAR019L, supplied and delivered by Africa Motors and Machinery Limited were not availed for audit. In their response, management explained that Shipment documents were not required by the Procuring and Disposal Entity under the provisions of INCOTERM-DDP (Duty Delivered Paid) as they are documents for the supplier. However, it was stated that a request to the supplier for copies of the Bill of Lading was honored. I could not ascertain the authenticity of the bill of lading that was later availed for verification. ii. There was no evidence that the Chief Mechanical Engineer inspected the vehicles and issued a report certifying compliance with the specifications/order. I explained to management that there is a risk that the vehicles supplied may not have conformed to the specifications given in the order. In response, management explained that the procured vehicles as verified by the Transport Officer conformed to the specifications given in the contract. It was further stated that the requirement for the inspection by the Chief Mechanical Engineer was not part of the procurement process. iii. Physical Inspection of these vehicles revealed that one of them, Bus registration UAJ 600X for students Guild has a ―PSV‖ mark on its body; an

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indication that the vehicle could have been used for commercial transactions before and thus not new, as shown below:-

Figure 3: Photo showing a ―PSV‖ mark embossed on the back of the guild bus.

In their response, management explained that all the vehicles were procured against the standard technical specifications provided by the Transport Officer and that from their interaction with the supplier; the PSV sticker was erroneously put by the manufacturer of the body of one of the vehicles, a 30-seater bus. I advised management to always ensure adherence with the procurement guidelines in order to guarantee attainment of value for money from all procurements.

(c) Failure to Dispose Old (Scrap) Vehicles Inspection of the mechanical workshop revealed a number of scrap vehicles had spent between 2 to 20 years in the yard without being disposed. The yard now looks like "a vehicle dumping ground" as further evidenced by the Police vehicle dumped there. I did not get an explanation why a police vehicle was among the scrap of the University. See the caption of some of the vehicles found in the yard below:

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Photograph Remarks

Figure 4:

photographs showing old vehicles including a police car that are currently dumped at the University workshop.

I explained to management that failure to dispose of the above vehicles may lead to further deterioration in their value thus limiting the proceeds government would have obtained. In their response, management explained that some of the old vehicles were for use by the students of Mechanical and Production Engineering for practical training while for others, the University wrote to ministry of Education and Sports to take their vehicles as the University did not own them but added that the ministry had not responded. As for the vehicle bearing the Uganda Police number plate, management explained that they were going to write to Uganda Police to establish how it got into the University Workshop. I advised management to consider disposing of the vehicles in question without further delay and explain the circumstances under which the Police vehicle is kept at the workshop.

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62.11 Governance and Internal Control Weaknesses (a) Lack of a Risk Management Framework It was noted that the university has not established an effective entity-wide risk assessment and management framework that can help identify risks before they occur and plan to take prompt and appropriate action to mitigate them. I explained to management that it is best practice that management periodically assesses the risks the entity faces from both external and internal sources and take appropriate action to manage the identified risks. In their response, management explained that the University has already developed draft risk management guidelines. It was further stated that management would soon recommend the guidelines to the University Council for approval by June 2013. I advised management to expedite the process.

(b) Lack of Proper Supervision of Income Generating Units (IGU) Inspection of the Mechanical Department on the 21st August2012 under the faculty of engineering which is one of the IGUs of the university revealed the following anomalies: i. The workshop has had no substantive manager for a period of one year and half and the operation of the workshop revolves around personalities in the workshop. This negatively affected the revenue collection. ii. It was noted that no revenue had ever been received and banked for about one and a half years. The last banking of revenue collected by this department was on 23rd December 2010 yet the workshop is fully operational. iii. Several vehicles were found being worked on in the motor vehicle maintenance section and these vehicles had not been recorded on the official invoices of the university. These included: UAG109K, UAJ535E, UAH442N, UAQ689G, UAQ689G, UAQ359A, UAB545J, UAJ325Q, UAE671R, UAQ367S, UAF754 D, UAF182 S, UAB768Y, UAD669H, UAE293 R, UAM612N, UAF755M, UAE616Y, UAA303W, UAS924 and a numberless vehicle which had not been registered by Uganda Revenue Authority (URA). The last record on a piece of paper was dated 16th August 2012. iv. Works on hospital beds were on going in the fluids laboratory and the welding section had doors and gates being fabricated. There was no record to indicate

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that the works had been received in the mechanical workshop by raising the official invoice of the university. (For details, see the pictures below).

Figure 5

Hospital beds being worked on in the mechanical Workshop.

Figure 6

Photograph showing gates and metallic doors being fabricated in the welding section

v. During the Interview with the Head mechanical school, it was explained that there was no official policy on IGU but the department was yet to formulate one. vi. The former acting workshop manager had not handed over the following official invoices and receipts given to him one and half years after he was stopped from acting as workshop manager as listed below: Invoice numbers: 6001-6050, 5851-5900, 5251-5300, 6651-6700, 7201-7250, 7301-7350, 6601-6650, 5951-6000 and 5401-5450. Cash receipts: 28801-29200, 29201-29600 and 28401-28800. Whereas receipted money from books 28801-29200 and 2901-29600 was banked, a total of Shs.2,992,100 as per receipt book Number 28401-28800 was not banked. vii. Also noted was the heavy machinery and equipment that was in use and yet the electricity bills and maintenance/repairs costs are footed by the university.

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The rates that were charged at that time were too low to enable the workshops break-even. I explained to management that non supervision of IGU under mechanical workshop caused great loss to the university in terms of revenue, gross misuse of machinery and equipment and electricity bills that were notably footed by the University. In response, management acknowledged that the management of the revenue in the Faculty of Engineering (Mechanical workshop) was not strong and explained that the major problem had been inadequate staffing. It was stated that following the recent recruitment, the University would be able to strengthen the supervision of the revenues. Management reported that the workshop did not have a manager and that instructions had been given to ensure the following systems are in place: a. Customer jobs are to be recorded, invoiced and receipted before the service is delivered. b. The former workshop manager was instructed to account for the work and money collected as well as for the invoices under his possession. c. The accountant in charge of a faculty will issue a receipt to customers, the basis of which customer jobs will be done. d. Customers to bank the invoiced money on to the University bank account.

I advised management to ensure the concerned officials are held accountable for the loss of revenue and an investigation is carried out on the same to establish the full extent of the loss besides enhanced monitoring and supervision of the IGU. In addition, a substantive manager should be appointed to spearhead the operations of the workshop and all private works should be approved before being undertaken.

(c) Lack of Data on registered students It was noted that it is the duty of the Academic Registrar to ensure safe Custody of all documents and data relating to admissions and examinations at the University. Besides, the Deputy registrar Admissions is charged with the duty of arranging for registration of students and providing such students with necessary information and receiving students‘ registration lists from faculties to be entered in the data Bank. In spite of the above structure, I could not access the registered students‘ lists (data) for Semester I and II, program per program for the financial year 2011/2012 768

as several reminders did not yield much from the responsible officers. Additionally, there appears to be lack of regular supervision of subordinate staff and all officers concerned with registration of students.

I explained to management that failure to avail the lists of registered students raises suspicion that management had intentions of under declaring revenue. In response, management explained that the University had a list of registered students but regretted that the auditors did not access them. However despite the above assurance, the registered students‘ data was not availed for verification. I advised management to take the activity of registering students seriously as it forms the basis of planning for the University, assessment and collection of Non Tax Revenue (NTR). Lists of registered students program by program per semester are very essential and should always be maintained and regularly updated.

(d) Failure to update staff establishment Register A comparison between the staff establishment register and the monthly number of staff paid on the payroll revealed some variances that were not supported. Besides, the staff list that was later availed for audit as at July 2011 was not aligned to the University‘s approved establishment structure and could not be relied upon. I explained to management that failure to update the staff establishment register could have caused some unexplained excesses in the number of staff that were paid on the payroll as compared to the numbers on the staff establishment. Otherwise, the unexplained excesses/variances could be attributed to existence of ghost staff.

In response, management explained that lists are updated on a monthly basis and that the staff list used by the external auditors was one of May 2012 instead of June. It was stated that variations indicated in the month before July were due to deletions by the Ministry of Public Service and that such deletions arose from variations in information of staff particulars such as account names, account numbers etc. Management further stated that when such deletions occur, they are not normally reflected in the University records. I advised management to avail documentary proof to the effect that the excesses represent bonafide employees of the University. 769

(e) Inadequate Segregation of Duties in the Finance Department An Interview with the Desk officers in charge of funds in faculties revealed that their roles were not adequately segregated. For example the desk officers in charge central collection account prepares payment vouchers, posts cash books, prepares bank reconciliations and posts the ledger. In addition, these officers did not seem to be effectively supervised. I explained to management that according to the principles of segregation of duties in the accounting profession, no single individual should complete a transaction cycle in view of the fact that lack of adequate segregation of duties may lead to override in internal controls.

In response, management explained that the finance department had been grossly under staffed in the past and that towards the end of the financial year 11(eleven) new staff members were recruited and the segregation of duties was reported to have started. It was indicated that staff who write vouchers were then different from those who write cheques and those responsible for issuing them. Management added that staff who write books of accounts will be different from those who carry out reconciliations with effect from January 2013. I advised management to implement principles of segregation of duties and improve on supervision so as to strengthen the internal control environment.

(f) Lack of Assets Management Policy Interview with management and the subsequent Inspection of the University housing estates, revealed that the University has no maintenance Policy to help keep track of assets that may be due for renovation in case of houses and general maintenance for other assets in order to keep them in a reasonable state of repair. Consequently most houses were in a state that needs urgent renovations. It was further noted that about 95% of the staff houses were roofed with asbestos sheets which are a danger to human life and yet this practice has long since been abolished internationally.The following photographs were taken during the inspection of some of the houses in question:

Figure 11:

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Photograph Remarks

Figure 7: The Inside of the Guest House, showing a collapsing ceiling.

Figure 8:

House No. 7 Spring Garden that is covered with polythene at the top of the roof but is being occupied.

Figure 9:

The Dining hall and kitchen in dire need of renovation and roofed with Asbestos.

Figure 10:

House no. 8 spring garden that houses some visiting lecturers due for renovation.

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Un-allocated House on Mackay road. This house has remained unallocated for the last 7 Years for unexplained reasons yet some staff lack accommodation.

I explained to management that lack of assets maintenance policy implies that the University does not have streamlined procedures for guidance to all staff on the utilization and proper maintenance of its assets which in turn impacts on the assets useful lives. Management explained that the University will start developing an asset management policy and it is hoped to be in place by December 2012. I advised management to urgently formulate an assets maintenance policy to avoid assets completely wearing out to an extent of disrepair. Furthermore, management should make it a priority to replace asbestos sheets with iron sheets to avoid the associated health risk.

(g) Abandoned Structures During the review, it was noted that some structures were abandoned at different stages of development as shown in the photographs below:

Photograph Remarks

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Figure 12:

Faculty of Education building abandoned at Wall plate.

Figure 13:

A building abandoned at the wall plate. It is behind faculty of Arts.

Figure 14:

Building abandoned at the foundation level.

From the interview with management, it was explained that some structures were abandoned about ten years ago due to funding problems. These included:

The structure that was to accommodate the faculty of education and abandoned at wall plate. (Refer to Figure 12 above). Another building that is opposite the faculty of Arts that had reached roofing level was abandoned for about the same period. (Refer to Figure 13). A structure directly behind senate building, abandoned at the foundation stage. (Refer to Figure 14).

I explained to management that it is best practice that projects should be started and completed within a defined period in order to achieve the intended objectives. The above state of incomplete structures implies that funds were sunk on the stated structures which have been left exposed to adverse weather conditions

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thereby rendering them weak. Consequently the intended objectives of increasing the capacity of lecture rooms and offices have not been met.

In their response, management explained that the structures were abandoned since early 1970s. It was stated however, that the University started a process of assessing those buildings that are viable for completion and that KYU has gone ahead and drawn architectural designs waiting for the final approval of the University Master Development Plan for the developments to start. I advised management to carry out a physical assessment of the above structures and explore ways of completing themto avoid a waste of Government resources.

(h) Lack of a Fixed Assets Register It was noted that the University does not maintain a fixed assets register (FAR) contrary to Regulation 101 of Public Finance and Accountability Act regulations, 2003. It was further noted that although this matter was pointed out in the previous audit reports, management has not addressed it to date. I explained to management that lack of a fixed assets register is a critical internal control weakness that exposes the University‘s assets to a risk of loss without notice.

In their response, management explained that the University is in the final stages of compiling an assets register and that presently a draft copy of a list of assets owned by the university as at September 2012 is in place. He however added that it still needs some more work to make it complete. I advised management to urgently compile fixed assets Register so as to have a record of all the University assets. (i) Absence of Approved Financial Management Manual It was noted that the University has draft financial regulations dated February 2009 that have never been approved. I explained to management that lack of a financial management manual means that most accounting procedures are not backed up by regulations that take into account the unique operations of the university and create loopholes in transaction processing and financial management. In their response, management explained that the financial manual was formulated but is still at top management level for discussion and would soon be tabled to the University council by March 2013. I advised management to treat this matter

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seriously and put in place a financial management manual that will guide and help streamline accounting systems and procedures for improved accountability.

(j) Absence of an ICT Strategic Plan It was noted that at the inception of the ICT services at the University, it was disclosed back in the 2004-2007 strategic plan that "the explosive development of information and communications technologies (ICT) and their applications are changing the way people live, learn, work and interact." It was further stated that the ICT strategic planning is a responsibility of the management team that gives sufficient representation of all stakeholders (senior academic and administrative management, management of support functions such as finance, library, student affairs, and the ICT Manager). During the audit, the following matters were noted: During the financial year, management used the old plan that expired in 2007 where certain activities like Library Information System (LIBIS), Academic Registrar Information System (ARIS), Finance Information System (FINIS), Human Resource Information System (HURIS) have been overtaken by events; Building LANs to Education, Vocational studies, Engineering, Faculty of Arts & social science and Medical centre, Fiber backbone, IRM development and Office automation, have either not been implemented or have been partially implemented. The Finance department being a key department in capturing and showing budget, income and expenditure, is not yet a beneficiary of LAN connections to the desk offices of the various faculties which are prime sources of accounting information.

I explained to management that a strategic plan is a tool that offers guidance to an organization on where it wants to go, how to reach there and is also used for control and regulation of its activities. If the ICT programs lack a sufficient guiding tool, important activities are likely to be missed out. I advised management to come up with an appropriate ICT strategic plan that will guide the University in prioritizing and implementing the ICT activities and which should be regularly reviewed as information technology is changing rapidly. 775

(k) Lack of Effective Support to Internal Audit Function A review of the Internal Audit Function revealed that the following matters as earlier reported were not yet acted upon by management: Management takes long to respond to internal audit observations and implement recommendations thereof. Failure to approve the draft audit committee charter and the draft internal audit charter by the University council. Absence of approved Job descriptions from scale M7 to M15. Challenges in getting information from staff. Advances ledger not maintained.

I advised management to always implement internal audit recommendations for better performance. In their response, management explained that the internal audit is now given special support by advising council to form an audit committee. It was further stated that the finance department has also appointed a person to handle all audit reports and that top management discusses issues from audit during its sittings. I advised management to establish a strong control environment and ensure a supportive attitude towards the internal audit function.

62.12 Follow up of Internal Audit Recommendations From the review of internal audit reports, it was observed that the following issues were still outstanding by the time of this report:

(a) Cases of two receipts issued in the faculty of Arts and Social sciences It was noted that the issue of two receipts having been issued for the same payment as raised in the internal audit report was not yet resolved. I explained to management that there is a risk that students may claim to have paid up all their dues (fees) using the 2 different receipt numbers for the same deposit which is a big loophole in receipting /collection of fees. In response, management explained that the case was being investigated to establish the truth in this regard and that the University was currently making improvements on the receipting system through computerization, in which case the issuing of receipts would be automated.

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(b) Lack of adequate students Registration Records It was noted that the problem of in adequate records on students registered from the academic registrar‘ department still exists despite the internal audit observations and recommendations. This was evidenced by failure to provide the students‘ records for semester I and II program by program during the financial year as earlier stated. I explained to management that absence of adequate records on students registered during the year greatly impacts on the revenue and affects appropriate planning of the University. In response, management explained that students‘ registration records are available in the University and that it was acceptable that manual registration is a challenge. It was stated that efforts are in advanced stages to computerize the registration process through the E-Kampus Computerization Program. I advised management to up-date the students registration records and have it regularly updated.

62.13 Staffing Matters (a) Staff turnover It was noted that the University appears to be having a relatively high staff turnover. For example between 2010 and 2012, a total of 38 staff resigned from their posts at the University. I explained to management that such resignations are likely to affect the University‘s capacity to deliver services effectively. It was further noted that there appears not to be any formal exit procedures aimed at establishing the reasons as to why the staff in question are leaving the University. This would help management in ensuring that such matters are addressed.

In their response, management indicated that the University council is equally concerned about the increasing staff turnover and as a result, it constituted an adhoc committee to investigate the nature of staff turnover in the University. He added that a report is before the Council for discussion and that management has now put in place a mechanism of requiring staff that are leaving to complete exit form detailing reasons as to why they are leaving. I advised management to put mechanisms in place to ensure the rate of staff turnover is checked.

(b) Vacant Posts

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During the review, it was noted that by the end of the financial year, a total of 582 posts which is 37% of the total establishment were vacant. The most affected area was the academic (teaching) staff which had 267 vacant posts out of 573 as shown in the table below:- SUMMARY Post Established Filled Vacant Professors 43 2 41 Assistant Professors 71 7 64 Senior lecturer 145 47 98 Lecturer 240 222 18 Teaching assistant 74 28 46 Subtotal 573 306 267 Assistant lecturer 75 102 -27

It was further noted that out of the 43 established posts of professors only 2 were filled while, out of 71 established posts of associate professors 7 were filled. I explained to management that this impacts negatively on the PhD and Masters programs offered by the University. In their response, management explained that Eighty three (83) teaching positions and 117 non-teaching positions were advertised in July 2012 and shortlists extracted and that the appointments Board would conduct interviews between January and February 2012. However, the accounting officer expressed uncertainty as to whether the University would be able to fill all established positions because of underfunding.

On the other hand, it was noted that the Assistant lecturers were in excess of the established number of posts by 27. This implied that the extra staff were irregularly employed. I advised management to liaise with the concerned authorities with a view of having the gaps filled and to also ensure that all staff appointments are in line with the established structure.

(c) Non Functioning Appraisal system Interview with the Human resource department personnel revealed that management did not adopt the performance based management system and the staff appraisal has never been done at the University. I explained to management

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that failure to appraise staff implies that management is not informed of the capacity gaps staff may have in order to design appropriate interventions to address them. Besides, it is best practice to adopt a performance based management appraisal system whereby promotion, training, compensation and rotation of employees is based on periodic performance.

In response, management indicated that a performance based appraisal system has been implemented starting with the financial year 2011/2012 and that the Directorate of Human Resources has trained all University employees on the meaning, purpose, and process of performance appraisal. It was stated that although initially there was resistance and fear of the appraisal system, the majority of University employees have already submitted their duly completed appraisal forms to the Directorate of Human resources. I advised management to ensure they devise an appraisal system and have its entire staff accordingly appraised.

(d) Irregular Promotion of Staff Sections 6.0 and 6.1 of the criteria for appointment and promotion of senior, administrative and support staff of Kyambogo University (KYU) states that "performance appraisal report of staff shall form part of criteria for promotion‖. During the review, it was noted the University management promoted staff between January 2011 and October 2011 irregularly without performance appraisals as stated on the criteria for promotions. I did not get the explanation for the basis of promotions in question. I explained to management that absence of appraisal creates room for unfair promotion without evidence of performance. It also leads to loss of morale among staff that in the end affects the general performance of the university.

In response, management explained that whereas it was true that in the past staff were promoted without performance appraisal, following the establishment of the Directorate of Human Resource, an appraisal system has been implemented and employees who were promoted in the financial year 2012/13 were appraised. I advised management to always follow the prescribed criteria while promoting staff and ensure staff performance appraisal is regularly conducted.

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62.14 Outstanding Issues from Last Year’s audit report In my report to Parliament for the year ended 30th June 2011, I made recommendations on a number of observations that were raised. However, by the time of writing this report it was noted that these were not yet implemented by management as highlighted below: Audit Issue Current Status Management Response

1. Un-accounted for Outstanding Management explained that the Funds - communication to deduct the un Shs.788,876,877 accounted for funds was made and that deductions are expected to be made with effect from January 2013. 2. Theft of University Partially addressed Management explained that the Property case was reported to police but no recovery had been achieved so far. It was further stated that Security was strengthened by outsourcing security services and that the security situation has since improved and no such incidents have re-occurred. 3. shortfall in revenue Not addressed Management explained that the performance and shortfall in revenue performance failure to accomplish was mainly caused by unpaid fees all planned activities for statehouse sponsored students and that the collection of revenue has been enhanced including collection of revenue from areas that did not generate revenue previously. 4. Lack of Periodic Not Implemented Management explained that the Review of the University is in the process of Strategic Plan formulating a new Strategic Plan and that Part of the Terms of Reference is to review the performance of the old one. 5. Lack of a Human Not Implemented yet Management explained that a draft Resources Manual but Progress noted Human resources Manual is in place for discussion by Management. 6. Un planned for Not addressed Management explained that the procurements and University has in the financial Missing procurement year2012/13 produced a records Procurement Plan that will strictly be followed. 7. Internal audit The bulk of the The Accounting officer explained findings findings were not that a number of audit findings addressed by have been discussed by management. Management and are being addressed and that efforts are 780

being made to ensure that all issues are addressed.

I advised management to implement the recommendations for improved service delivery.

63.0 BUSITEMA UNIVERSITY

63.1 Outstanding gratuity obligation It was noted that the university had an outstanding liability in lieu of gratuity to staff amounting to Shs.3,074,291,042 as per the Council resolution minute 9/UC/20/2012 that approved changes of staff from contractual basis to permanent status. Although the University resolved to put aside Shs.300 million per year from non-tax Revenue to cater for this liability, I explained to management that at this rate, the University is likely to take about 10 years to fully settle this obligation which would expose the entity to legal suits and associated costs. The Accounting officer acknowledged the above observation noting that it had indeed been approved by the Council at its 20th meeting held on 27th September, 2012, for both staff who left the University and the existing ones. I have advised management to explore other faster alternatives of securing funds to settle this obligation.

63.2 Cash and Cash Equivalents Included in the reported balance of Shs.457,817,224 in the statement of Financial Position is a sum of Shs.48,423,663 in respect of three bank accounts. However examination of the respective bank statements revealed, that the said balances were the actual bank statement balances as at 30th June 2012 instead of the reconciled balances as summarized below:- Bank Account Bank Reconciled Variance statement Balance (shs) Balance (shs) (shs) Subvention A/c No.0140014836901 38,284,827 29,127,829 9,156,998 Namasagali A/c No.0140096436701 3,851,295 2,172,900 1,678,395 Arapai Capitation grant A/c 6,287,541 5,399,041 888,500 No.0140050304102 Total 48,423,663 36,699,770 11,723,893

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In the circumstances, the reported cash and cash equivalents were overstated by an amount of Shs.11,723,893 as shown in the above table. I have advised management to ensure that appropriate adjustments are made to correct this anomaly.

63.3 Uncollected Receivables Included in the receivables figure of Shs.240,162,350 in the Statement of Financial Position are balances of Shs.226,088,038 in respect of student debtors (Shs.173,560,536) and staff salary advances (Shs.52,527,502) which remained outstanding by close of the year. I explained to management that delays in collection of such funds held by debtors could not only lead to cash flow problems but also loss of such funds to the University and therefore ultimately affect the implementation of the planned activities.

The Accounting Officer explained that efforts were being made to recover the amounts in question. I advised the accounting officer to put in place a more strict debtor‘s policy and ensure that any uncollected debtors are aggressively followed up.

63.4 Contract for Renovation and Rehabilitation Works During the year 2008/9, M/s Nambale Enterprises Limited was awarded a contract to carry out renovation and rehabilitation works for the Workshop Buildings, walk way slabs/roof, Laboratory block, Administration/Classroom blocks, garage/service bay and Workshop related electrical works, Refurbish and Renovate 6 staff houses (Contract ref: BUT/WKS/2008-2009/000144). The total contract price inclusive of variations amounted to Shs.1,468,844,225 However, a review of the contract file revealed the following anomalies:- Works stalled during the year 2010 and the reason for this could not be ascertained since the contract management file availed lacked adequate documentation. Variation details and the Contracts Committee minutes‘ approval were not provided for audit. General Conditions of Contract (GCC) 51.2 of the agreement provided for performance security of 10% of the contract price. It was noted that although 782

a security of Shs.79,812,363 for the rehabilitation of the Workshop was obtained from Excel insurance Company, there was no documentary proof to the effect that this security was liquidated following the contractor‘s failure to execute the contract. The total sum paid was Shs.957,442,362 leaving a balance of Shs.511,401,863 as per the contract and variations. However, this outstanding balance differed from the balance of Shs.291,167,299 that was recorded in the ledger.

In his response, the Accounting officer explained that the works stalled because the contract was terminated by expiry of the contract period before works were completed and the process of assessment of works performed was on going by Ministry of Works Officials in order to determine a way forward. I advised management to expedite this process and to ensure that it strengthens its contract management practices in future.

63.5 Staffing gaps It was noted that out of an approved staff establishment of 1,241, only 268 were filled, leaving a total of 973 positions vacant (representing a 78% staffing gap). I explained to management that such a level of understaffing grossly undermines effective service delivery by the University. It also leads to overworking of staff as the existing staff struggle to undertake work schedules meant to be done by staff who would be occupying the vacant positions.

In their response, management stated that efforts have been made in liaison with the Ministry of Finance Planning and Economic Development to increase this level and a wage bill provision of Shs.1 billion was made for the financial year, 2012/13. I advised management to continue with its liaison with the Ministries of Finance Planning and Economic Development and that of Public Service to ensure that the vacant positions are filled.

63.6 Lack of a Risk Management Framework It was noted that the university has not established an effective entity-wide risk assessment and management framework that can help identify risks before they

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occur and plan to take prompt and appropriate action to mitigate them. I explained to management that best practice requires periodical assessment of the risks the entity faces from both external and internal sources for appropriate action to manage the identified risks.

In their response, management explained that measures have been put in place to take care of the Risk management Framework having introduced the position of Risk manager in the University establishment to be recruited when resources allow. The team further stated that the risk Analyst would coordinate the Risk Management activities within the University. I await for the outcome of this management commitment.

63.7 Assets Management (a) Lack of a fixed assets management policy It was noted that the University lacks a fixed assets management policy to guide staff on utilization and safe custody of its assets. I explained to management that assets are vulnerable and are exposed to a risk of theft or vandalism that would have been avoided if physical controls were in place. Management explained that the fixed assets management policy is embedded in the draft Accounting Manual that was still under review by management. I advised management to expedite the process of approval of the said manual to enable implementation of the controls there in without further delay.

(b) Lack of a Fraud control Policy It was noted that management had not put in place controls and mechanisms such as a widely publicized fraud control policy and an ethical code of conduct to prevent and detect fraud. I explained to management that lack of a fraud control policy exposes the assets of the University to loss through possible fraudulent means. In their response, management stated that the University is in the process of developing a fraud control policy that would be completed in the financial year 2012/2013. I await for the outcome of this management commitment.

63.8 Lack of an IT Policy

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It was noted that the University did not have an Information Technology policy in place yet it utilizes several networked computers and software systems that store vital university information. I explained to management that the absence of an IT policy exposes the University IT resources to a risk of misuse, hackers and viral attacks. In their response, management acknowledged the concern and stated that while there was an IT strategic plan in place, the policy is yet to be developed. I advised management to put in place an IT policy to ensure that IT resources are safeguarded and efficiently utilized.

63.9 Lack of a Financial Regulations Manual It was noted that the university did not have a financial regulations manual to provide guidance to staff charged with management of university financial resources. I explained to management that lack of a financial regulations manual is likely to result into financial reporting inconsistencies and/or misstatements. In his response, the Accounting Officer explained that the University has developed a draft Accounting Manual which was presented to the Finance Committee of Council awaiting approval. I advised management to expedite the process.

63.10 Inspection Report Inspection of the infrastructure at the University revealed the following matters:- Dilapidated Infrastructures including roads, lecture rooms and residential houses. Lack of adequate lecture rooms and furniture. Poorly maintained library and other records. Incomplete structures that are already in use including toilets. Poor electrical installations which endanger students‘ lives. Poor workmanship and poor quality of materials used by some contractors engaged by the University. Some houses are still roofed with asbestos sheets which exposes the occupants to health risks.

I explained to management that the current poor state of infrastructure if not improved soon will impact negatively on the image of the university and its general performance. 785

In their response, management explained that the University was in the process of mobilizing funding to address most of the issues pointed out above including the forthcoming African Development Bank (ADB) funded project. I advised management to ensure that adequate provision for maintenance and repairs of all University properties is accordingly made and to also strengthen its contract supervision arrangements in order to improve on the quality of construction works by contractors.

64.0 GULU UNIVERSITY

64.1 Delayed implementation of planned activities

It was noted that a number of activities that were included in the University‘s annual work plan were not implemented during the year under review. These included planned activities in the key areas of infrastructure development, ICT, Research and Publications. Also noted was that various activities included in the University‘s 10-year strategic Plan that had been scheduled to begin two (2) years earlier had not yet been implemented. I explained to management that delays in implementation of all planned activities in the annual and strategic plans may result in failure to achieve the intended objectives.

In their response, management attributed this shortcoming to inability to realise all the planned funding to the University. I have advised management to liaise with the Ministry of Finance, Planning and Economic Developement, as well as Developement partners so as to ensure that more financial resources are availed to the University.

64.2 Inadequate Staffing

It was noted that the University has an establishment of 852 posts out of which 417 are filled leaving 435 (representing 51% of the approved establishment) vacant. Out of 545 approved Academic staff, only 235 are filled while for non-academic, only 182 are filled. Although some staffs were recruited after year end, the University remained grossly understaffed due to an increasing staff turnover. The table below shows the Key positions in the University which were vacant:-

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POSTS APPROVED SALARY APPROVED FILLED GAP SCALE POSITIONS Quality Assurance Officer M3 01 00 01 Principal Personal Secretary M7 02 00 02

Deputy University Secretary M4 01 00 01 I Senior Assistant Secretary M5 01 00 01 Estates Manager M4 01 00 01 Senior Medical Officer M5 01 00 01 eMedical Officer M6 01 00 01 xDeputy Academic Registrar M4 01 00 01 Senior Assistant Bursar M5 04 00 04 p Senior M5 01 00 01 l Economist/Statistician/Planner aSenior Systems M5 01 00 01 Analyst/Programmer i Technology Planning Officer M6 01 00 01 nSystems/Development Manager M6 01 00 01 eChief Internal Auditor M4 01 00 01 dPrincipal Internal Auditor M5 01 00 01 Senior Procurement Officer M5 01 00 01 Director human resource M3 01 00 01 t Deputy Director human resource M4 01 00 01 Senior Human Resource Officer M5 02 00 02 o Senior Security Officer M6 01 00 01

management that inadequate staffing adversely impacts on the University‘s capacity to effectively deliver its mandate. In their response, management explained that the recruitment plan was approved by the University Council and submitted to the Ministry of Public Service management. However, attempts to have vacant positions in the University filled have not been possible due to the ban and non-allocation of funds for recruitment. I advised the accounting officer to continue liaising with the relevant authorities so as to have the key management posts filled.

64.3 Land Management

The University owns various pieces of land as shown in the table below:-

Details Location and Status Type of Value Remarks size (acre) development

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Plot 3-7 Dr Gulu Vacant No development Not The university has Lukwiya Rd municipality valued the Land Title (.052) Forest land Gulu Partly Faculty of Not To be swapped municipality developed medicine valued with Latoro land; (69.2) buildings no land title availed Former DFI Gulu Developed Office, lecture Not Offered by Gulu land municipality blocks, valued district; no land (22.2) laboratories & lib title Larro- Bungatira & Vacant No development Not Ear marked but unyama Unyama sub- valued yet to be land counties acquired. (1834) Latoro land Nwoya district Vacant No development Not To be swapped (100) valued with forest land Former Lira district Partly Offices, lecture Not Offered by Lira Bala stock (621) developed blocks & library valued district farm However, a review of the management of this land revealed the following matters:- a. Only one plot is Titled, while the rest have no Land Titles. This exposes the University land to a risk of encroachment. b. There is no value attached to all the various pieces of land and no efforts have been made by management to get the land valued by the Government Valuer. This is despite the fact that the University has plans to swap some of the land in question as explained in the table above. c. Laro- Unyama land measuring 1,834 acres was earmarked for acquisition but the value was not attached and compensation has not been effected. The delay to effect the compensation to affected individuals is likely to result into even higher values for the items to be compensated. d. Forest land was to be swapped with Latoro land; However, there was no signed memorandum of understanding with the district showing how the swapping was to be effected. e. Plot 3-7 Dr. Lukwiya Rd land, measuring 0.52 acres was not fenced, which further exposes it to a risk of encroachment.

In response, management explained that they were in the process of obtaining Land Titles and had accordingly received lease offers from District Land Boards of Gulu and Lira Districts. They however explained that for the Laro-Unyama land, 788

compensation is still awaiting availability of funds. I advised management to follow up land matters seriously to ensure all pending matters are resolved appropriately.

64.4 Inadequate infrastructure

A physical inspection of the facilities at the University revealed that there is inadequate infrastructure at the University. For example, the Library is not sufficient for all the University students; books were placed on the floor since there were no book shelves in place and chairs and desks were not enough. In addition, the driveway, walkways and packing lots have not been designed and tarmacked. The photographs below reflect the status at the time of inspection:-

No. Structure Photography at the time of inspection

The space in library was not enough and some of the books were laid on the floor since there were no shelves to position the books.

Library books –Gulu: Books for Lira Constituent College in Gulu. Library and lecture rooms have no adequate furniture.

Library ground floor with no furniture.

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Roads were not tarmacked; the driveway, walkways and packing lots had not been designed as planned. Main Road to Admin block Main road from main Gate

I explained to management that the current state of infrastructure creates a bad impression of the university, that is charged with the responsibility of providing better quality training for its students.

Management explained that while financial resource constraints have greatly affected implementation of a number of planned activities, the University continues to pursue and lobby government and other stakeholders for support with a view to implementing the planned infrastructural developments. I advised management to continue with their efforts of exploring alternative avenues of additional financial resources for the University and ensure that the above matters are adressed.

64.5 Borrowings by the University

a. Overdraft facility with Centenary Bank

Section 60 of the Universities and Other Tertiary Institutions Act allows the University Council to borrow funds required for meeting its obligations and for carrying out its functions through the Minister of Finance in consultation with the Minister of Education. The University Council may borrow temporarily by way of an overdraft or otherwise, sums of money to be repaid within a short period for any urgent requirements in discharge of its functions.

It was noted that the University secured an overdraft of Shs.633,784,104 from Centenary bank in October 2010 which was used to settle NSSF arrears for the period 2001 to November 2009. The University was to pay an interest of Shs.195,148,906 on the Principal sum borrowed. However, despite the fact that this amount remains outstanding, management has not availed evidence of any plan to have the obligation settled in the shortest time. On the contrary, the University Council approved an increment in the overdraft amount by further shs.400 million 790

to cater for outstanding statutory deductions of Shs.414,506,254 which further strained the University‘s financial position. This decision resulted into payment of interest and the overdraft that had been running for more than a financial year turned to a loan facility. I explained to management that failure to settle its outstanding obligations may lead to attachment of the University assets.

Although management explained that 50% of the overdraft had been paid, I was not availed evidence of this payment by the time of compilation of this report. I have advised management to put in place a concrete plan to have the overdraft adequately serviced.

b. Unreported Borrowings

Included in the Schedule of closing bank balances is a sum of Shs.77,256,788 representing amounts overdrawn on several bank accounts as indicated in the table below:-

Bank A/c No Amount (shs)

Stanbic 0140087660801 10,176,864 Stanbic 0140088311201 1,175,506 Centenary 7510600348 38,967,243 Centenary 7510500422 86,571 Centenary 7510500423 3,575,975 Centenary 7510600850 11,503,329 Centenary 7510400180 4,996,703 Stanbic 0140087660806 1,246,015 Stanbic 0140087660802 5,528,582 Total 77,256,788

However, it was noted that only the overdraft with Centenary Bank of shs.785,979,827 was reported as outstanding in the statement of financial position. In the circumstances, the borrowings balance reported as Shs.785,979,827 is misrepresented. I advised management to make the necessary adjustments to the accounts.

64.6 Supply of stationery

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A contract to supply stationery was awarded to a firm at Shs.154,682,896. A review of the procurement file revealed the following matters:-

a. A ‗request for quotation method‘ of procurement was used instead of open bidding and yet there was no evidence of having obtained a waiver from PPDA. The record of issue of solicitation document had only two (2) bidders and record of receipt had only one bidder who eventually was the selected bidder. This limited competition in the procurement process and was therefore contrary to the procurement guidelines.

b. It was also noted that there was unrealistic estimation of requirements as PP Form 20 had an estimated value of Shs.89,000,000 approved for funding and yet the contract was awarded at shs.154,682,896.

In their response, management explained that stationery was required for end of semester examinations but the procurement was under estimated by the user department and considering the time the procurement was initiated, the restricted bidding was the most competitive method that could get stationary in time for examinations. However, i find this explanation not satsifactory, since management knew in good time that the University had to give exams to its students and with proper planning, the recommended procurement method would have been utilised. I have advised management to always undertake proper procurement planning and also ensure strict adherence with the procurement guidelines in future.

64.7 Unsupported Expenditure to Income Generating Units - Shs.62,437,800

The university operates three income generating units namely; the Printery, Public Cafe and the guest house. The units provide services to the University, for which it pays. However, it was noted that payments to the Public Cafe and Guest house for meals and refreshments served to the university staff during various workshops worth Shs.62,437,800 were not properly supported by bills and participants lists. I could therefore not establish the authenticity of the expenditure in question. Also noted was that the revenue was not reflected in the financial statements for the units and there were no clear guidelines on the relationship between the university and the income generating units; as such, the validity of the amounts received by the units could not be established.

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In their response, management explained that the three units are still at development level and are meant to give services to the University as this was considered cheaper compared to when such workshops were to be held outside the University. It was further explained that payments to the public cafe for meals and refreshments served to the University staff during workshops, are based on invitation memoranda for meetings, attendance lists, invoices and minutes of meetings. I have advised management to develop operational guidelines for the income generating units and to also ensure that accountability for the amount in question is obtained.

WATER AND ENVIRONMENT SECTOR

65.0 MINISTRY OF WATER AND ENVIRONMENT

65.1 Mischarge of Expenditure – Shs.13,765,521,246 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 Ministry‘ s expenditures revealed that the entity charged wrong expenditure codes to a tune of Shs.13,765,521,246. Notable among the diversions, is Shs.193,000,000 for acquisition of land which was advanced to officers for field activities and Shs.1,721,000,000 meant for acquisition of machinery and equipment that was advanced to field officers for monitoring and supervision. The above practice renders the budgeting process useless, undermines the intentions of the appropriating authority and leads to falsified accounting.

In their response, management attributed the omission to budget cuts in consumptive areas of the budget like workshops and allowances. I have advised Management to stop such a practice and always request for reallocations or virements, as provided for under the TAI.

65.2 Advances to Personal Bank Accounts (a) Non Compliance with Treasury Accounting Instructions

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Sections 227, 228 and 229 of the Treasury Accounting Instructions (TAIs), 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. However, it was noted that Shs.14 billion was advanced to ministry staff through their personal bank accounts to undertake direct procurements and other activities of the Ministry. 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 such funds deposited on personal accounts.

Management explained that staff had to be advanced money to undertake field activities, since most of the activities the ministry handles are field based in various parts of the country. I have advised management to stop the to ensure strict adherence with the requirements under the TAI.

(b) Advances to Personal accounts not properly accounted for – Shs.2,052,431,568 A review of the accountabilities presented by the ministry staff revealed that advances amounting to Shs.2,052,431,568 had several irregularities which included the following:- Some signatures of alleged participants appeared forged as signatures of the same people kept on varying significantly. Phone inquiry of some of the alleged participants revealed that they were either not paid or did not attend the workshops. Many denied knowledge of such workshops. Contrary to the Standing Orders which provides for a maximum claim of 150 days in night allowances, some officers claimed up to 470 nights in one year. This contravenes the standing orders. Motor cycles were fuelled with up to 80 liters of diesel which is not possible given their tank capacities. Accountability for food procured was not backed by evidence of people fed. Comparison of accountability documents for particular individuals pointed towards possession of own receipt books as they would procure from the

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same company several times, yet serial numbers were not consistent with the dates. Some of were used for procurement of goods and services using single sourcing method, in situations that were not of an emergency nature or ought not to have been procured under micro procurement. The services procured were above Shs.2 million, therefore the use of the micro-procurement method was irregular. This practice not only contravenes the procurement law but also exposes the ministry to a risk of unfair prices.

The above flaws rendered the accountabilities in question to be doubtful. In this regard, I was unable to confirm whether the amount involved was applied to the intended purposes.

In his response, the Accounting Officer regretted the anomalies and promised to follow them up accordingly. I advised Management to undertake an extensive investigation into the accountabilities and where misuse is confirmed, recovery measures should be initiated accordingly.

65.3 Cash Withdrawals

During the year under review the ministry made cash withdrawals amounting toShs.835,258,661 from the Treasury General Account (TGA) to undertake several activities. I reviewed expenditures related to the activities and noted the following observations:-

(a) Non Compliance with the Treasury Accounting Instructions (TAI)

It is a requirement under section 173 of the TAI that all Payments wherever possible must be made by means of direct bank transfer or crossed cheques, only to the persons named in the vouchers or their accredited agent. The practice of drawing cash to incur expenditure was therefore irregular. I further explained that such a practice exposes funds to a risk of loss, since cash is inherently prone to being misused.

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Although the Accounting Officer explained that all the withdrawals had been approved by the Accountant General, I was not availed with evidence of this approval. I have advised Management to ensure adherence with the requirements under the TAI.

(b) Cash not Accounted for-Shs.91,301,700

A total of Shs.91,301,700in cash withdrawals was not accounted for at the time of audit(i.e. 9 months after the close of the year). In the absence of the necessary accountabilities, I could not confirm whether the funds were properly utilized. Such delays contravene the requirements under the TAIs that require funds to be accounted for within one month of receipt. Delays in accounting can lead to falsification of documents. I have advised the Accounting Officer to follow up the amount in question or even initiate recovery measures in the event of failure to obtain accountability for the full amount.

A total of Shs.15,576,000was drawn to follow up accountability of funds as well as formation and assessment of performance of Water User Committees (WUCs) – Technical Support Unit (TSU). However, it was noted that there was no set programme of Water User Committees visited and sensitized, neither were there attendance registers for these Committees. Besides, there was no activity report availed for verification. In the circumstance, I could not confirm whether the funds were properly utilized.I have advised the Accounting Officer to follow up the amount in question and initiate recovery measures in the event of failure to obtain satisfactory accountability for the amount involved.

65.4 Non Deduction of Withholding Tax – Shs.75,829,328

Two foreign companies were paid in foreign currency off the Ministry forex account for supplying assorted goods to the entity. Accordance to section 121 of the Income Tax Act, WHT should have been deducted at a rate of 15%; however, tax was not withheld from three (3) payments made to these companies as shown below:-

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Date Company Company Amount paid WHT address (Shs) element (Shs) 20-04-2012 M/S Unit Export Ltd London, Great 375,356,800 56,303,520 Britain

08-02-2012 M/s Scan Water Haruesta, 56,270,000 8,440,500 Norway

16-06-2011 M/s Scan Water Haruesta, 123,528,000 11,085,308 Norway Total 555,154,800 75,829,328

The above action exposes the Ministry to a risk of penalties and fines as per the requirements under the Income Tax Act and culminates into loss of Government revenue since these are foreign companies.

The Accounting Officer is advised to always adhere to the requirements under the Income Tax Act.

65.5 Dormant Accounts

The ministry was found to have a total of twenty nine (29) dormant accounts. Of these, twenty one (21) were local currency accounts while eight (8) were foreign currency accounts, with a total bank balance of Shs.149,216,137 and Shs.143,893,643 for the financial years 2010/11 and 2011/12 respectively. I explained to management that maintaining such accounts is against the guidance by the Accountant General. In addition, if these accounts are not closed, they are prone to abuse.

In their response Management explained that ten (10) of the dormant Accounts had been closed while the others were still needed and being used. However, by the time of compiling this report, I had not yet been provided with documentary evidence to confirm closure of the accounts. I have advised Management to follow up the matter with the Accountant General and have all the dormant accounts closed henceforth.

65.6 Expenditure on Civil Works

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The Ministry is traditionally charged with overseeing civil works for water and makes several payments in respect of this item. A review of this expenditure revealed the following matters:-

(a) Doubtful Supply of Portable Meters - Shs.236,356,960

A total of Shs.236,356,960 was paid to a firm for supply of 5,000 pieces of Portable Meters; however, a review of the contract document attached revealed that the contract was for supply of computers and printers. The Goods Received Note prepared and filed was for 235 Meters only. The balance of 4,765 pieces of portable meters could not be accounted for since I was never provided with evidence of receipt and subsequent issue of these meters even after advising management to do so during my discussions with them. I have advised the Accounting Officer to investigate this procurement further and ensure that recoveries are made, in the event of failure to provide satisfactory accountability.

(b) Doubtful Rehabilitation of Boreholes - Shs.114,797,572

A total of Shs.114,797,572 was paid to a firm for rehabilitation of 41 boreholes in Soroti, Amuru and Serere districts. A review of the attached documents revealed the following irregularities which rendered the payment doubtful;

Though the payment refers to a call-off order, no call-off order was seen in regard to the above payment; instead, a manual LPO was attached which made reference to JPF, another project being implemented by the Ministry. It should be noted that Manual LPOs were stopped since the inception of IFMS. A list of all the boreholes which were repaired was not attached for review. The attached certificate refers to rehabilitation of boreholes in Kaberamaido, Masaka and Gulu; this significantly differs from the invoices from the supplier which alludes to the districts of Serere, Soroti and Amuru.

The above inconsistencies point to the possibility that the certificates may have been recycled for duplicate payment. I have advised the Accounting Officer, to follow up this matter with a view of recovery.

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Section 261 of the PPDA regulations defines a contract variation as a change to the price, completion date or statement of requirements of a contract, which is provided for in the contract to facilitate adaptations to unanticipated events or changes in requirements.A review of the Ministry‘s contracts revealed that in all cases the contracts did not provide for adjustments in price but rather had fixed price terms. This meant that all changes in prices would culminate into contract amendments and not variations. Section 262 defines an amendment as a change in the terms and conditions of an awarded contract and requires an amendment to be prepared by the PDU. The amendment is not to be issued to the provider before obtaining commitment for funding, approval of contracts committee and Solicitor General Clearance.

I discovered that in a number of cases fixed price contracts had the contract price adjusted and issued to the service provider by the project managers without obtaining commitment of funding, authority of the contracts committee and clearance by the Solicitor General as shown below:-

Contract Purpose Original Price Audit remarks Amount Amendment (Shs) (Shs) 07-08/00209 Construction of 1,022,370,250 140,095,930 Variation had nothing Mayikol dam to do with the original contract 08-09/00551 Construction of 6,681,682,150 862,333,947 Project Manager Arechet dam varied price before consulting Client 08-09/00551 Construction of 6,999,404,500 409,379,347 Raised by Project Adwari dam manager on the 12/10/2011

Under the circumstances, the ministry runs a risk of being committed by the project manager yet it has no funding.

In their response, management explained that it had sought a legal opinion on the matter from the Solicitor General and that it became apparent that the Project Managers should be notified of an additional requirement of subjecting these approvals to the Contracts Committee and Solicitor General. I explained that this

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position was not provided for under the respective governing contracts and the variations remain irregular and unapproved.

(d) Duplicate Payment - Shs.97,020,000

A contract was signed between the Ministry and a contractor for the construction of a backwash tank at Kibaale at a contract sum of Shs.97,020,000. The payment was effected in September 2010 in full, with no retention; however the same payment was made in 2012 for the same works as shown below:-

Supplier Date of Invoice Invoice Details payment no. amount (Shs) Kheny Technical 25-May-12 D394/05/12 97,020,000 Payment of construction of Services Ltd Backwash Tank for Kibaale Water treatment Works Kheny Technical 13-Sep-10 D164/09/10 92,169,000 Payment for construction Services Ltd of a backwash tank for Kibaale water treatment works

The above payments therefore appear fraudulent.

It is imperative to note that construction of Kibaale water works was undertaken by another contractor in 2006; there was no justification for hiring another firm before the expiry of the defects liability period for the earlier contractor.

In their response, Management accepted the omission and explained that their internal mechanisms had picked up this double payment and that they had raised it with the supplier who has accepted to refund the full amount. I await the recovery of the funds.

(e) Maintenance of the Contract Ledgers

A contract ledger tracks amounts certified, retained, paid and contract balances for long term contracts. As such, errors in the contract ledgers can lead to huge financial losses on the part of the Ministry. In my report to parliament for the year ended 30th June 2010, I highlighted weaknesses in the maintenance of the contract ledgers but to date these have not been addressed. These weaknesses include the following:-

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There is no consistency in arriving at the unpaid balance; in some instances retentions are deducted while in other instances retentions are not deducted, implying that the balancing figure could be the amount not paid or amount not certified. In some instances the contracts are not identified by a contract number. Some contracts are entered up to three times. Payments are not dated and have no reference to the EFT numbers. There are a number of arithmetic errors. In some instances the figures entered differ significantly from the certified amounts.

As a result of the above, the contract balances were found inaccurate; a case in point is contract no.08-09/00603 for construction of Tororo-Manafwa Gravity flow scheme. Whereas, the ledger puts the balance at Shs.88,557,421, recalculation of the same puts the balance at Shs.755,038,184 as of that date.

I advised the ministry to keenly follow up these ledgers and also consider making use of the contract ledgers on the IFMS.

(f) Non Deduction of Withholding Tax – Shs.510,284,438

Section 120 of the income tax income requires all government entities to withhold tax on the gross amount of any payment made above Shs.1,000,000 provided the supplier is not exempted. To ensure compliance to this provision, the IFMS has an in-built control to deduct taxes from all suppliers automatically at the time of data input. However, this control can only be relaxed in case a supplier is exempted at the time of payment, which information is readily available on the URA website.

Despite such a provision, it was noted that the entity failed to withhold taxes to a tune of Shs.510,284,438 during the year under review. These funds were therefore not remitted to URA. The ministry is therefore exposed to penalties and fines from URA as per the requirements under the Income Tax Act.

I have advised the Accounting Officer to always ensure strict adherence with the provisions under the Income Tax Act.

65.7 Gross Tax

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The Ministry budgeted for a total of Shs.6,528,000,000 for gross tax and the entire amount was released by Treasury. The following observations were noted:-

(a) Budgeting Although all the funds were released, actual expenditure was only Shs.3,006,927,631 reflecting 49% utilization. Allocating funds for activities/expenses whose likelihood of occurrence is remote provides avenues for diversions as well as large budgetary slacks which provide for future unfair budgetary variations. I advised management to ensure that reasonable budgetary estimates are always made.

(b) Tax Waivers by the Ministry – Shs.439,830,069 The Ministry of Water entered into several MoUs with Non Governmental Organizations and private companies and provided for tax waivers within these MoUs. As such, the Ministry had to meet several tax obligations on behalf of these companies arising out of the agreements made. I found this irregular as the mandate for provision of tax waivers lies solely with the Ministry of Finance Planning and Economic development.

As a result of these obligations the Ministry paid a total of Shs.439,830,069 on behalf of these organizations and companies. Audit further noted that a total of Shs.1,014,536,981 was paid by the ministry on behalf of NWSC, an independent organization, which should have dealt with its own tax issues/obligations. It should be noted that upon paying, the Ministry has no control in regard to the final destination of the goods and there is a risk that such goods may end up in the open market.The practice undermines the tax planning efforts and ultimately leads to loss of government revenue.

Management regretted the omission and promised to have all waivers approved by the Ministry of Finance in the future.

65.8 UGANDA SMALL TOWNS WATER SUPPLY AND RURAL GROWTH CENTRES PROJECT (a) General implementation of the workplans

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i) Delayed Remittance of Withholding Tax – Shs.7,486,770 Section 123(1) of the Income Tax Act requires withholding tax to be remitted to Uganda Revenue Authority within fifteen days following the end of the month during which the tax was deducted.

A review of project documents revealed that withholding tax amounting to Shs.7,486,770= (USD 3,301.24) deducted at source from payments to a service provider was remitted to Uganda Revenue Authority in April 2012 nearing closure of the project deadline contrary to the provisions of the Act specified above. The details were as summarized in the table below:-

Inv. Amount WHT Actual Payment Vouchers Rate Amount No. (Us$) (Us$) (Us$) Date (shs) 1 &2 539.44 8,451.27 25/11/09 PV1109US0016 1,874.79 8,990.71 1,011,341.59 3 193.74 3,035.31 3/05/10 PV1209US0020 2,081.79 3,229.05 403,332.24 4 704.70 11,040.23 6/09/10 PV0910US0022 2,263.92 11,744.93 1,595,374.92 5 579.33 9,076.19 26/04/11 PV0411US0029 2,331.67 9,655.52 1,350,809.18 6 472.96 7,409.75 17/06/11 PV0611US0032 2,381.95 7,882.71 1,126,573.27 7 239.71 3,755.46 6/09/11 PV0911US0034 2,737.55 3,995.17 656,218.66 8 527.65 8,266.47 23/02/12 PV0212US0043 2,339.41 8,794.12 1,234,383.14 9 43.71 684.72 20/04/12 No Voucher 2,487.94 728.43 108,737.41 3,301.24 51,719.40 7,486,770.39 55,020.64

Failure to adhere to the provisions of the Income Tax Act exposes the project to penalties and fines by the Tax body.

Management was advised toalways ensure compliance with the Income Tax Act to avoid any penalties that may be imposed by the tax body under the provisions of thesaid Act.

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Management explained that payment of withholding tax to Uganda Revenue Authority was raising exchange differences whose treatment was not clear as per the operations manual and contract between themselves and World Bank. As such, they had to seek World Bank guidance on how to treat the differences, which guidance did not come in time and hence the delay in remitting the withholding tax to URA.

65.9 WATER AND SANITATION DEVELOPMENT FACILITY – SOUTH WEST BRANCH (WSDF-SWB) COMPONENT (a) General Standard of Accounting and Internal Control It was noted that management had in all material respects, put in place a satisfactory internal controlsystem and measures to ensure proper accountability for all project funds except for the following matters:-

(b) Delays in Payment Processing Procedures

A review of the effectiveness and efficiency of the existing payment system was carried out on a sample of payments to contractors during the year under review. It was noted that some payments to contractors were delayed. For example M/s. Sumandhura Technologies Ltd invoiced the programme on 8th June, 2009 for payment of works completed. However, a payment request was raised on 20th May, 2011 and the payment was effected on 23rd August, 2011 (over 2 years after the invoice date). Delays in payment affect effective planning and monitoring of programme activities and may impact negatively on the achievement of the overall programme objectives. Payment delays may also lead to loss of confidence by future contractors resulting into poor quality works.

In their response, management attributed this to the contractor‘s submission of the invoice with incomplete supporting documents including a test pumping and drilling report. I have however advised management to streamline the payment system and ensure effective monitoring and reporting by the respective contract managers appointed for better service delivery.

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Cost management is critical during Programme implementation. However, during the review of the motor vehicle maintenance costs, it was noted that the Programame incurred high costs on old Programme vehicles. For example, vehicle no.UG1468S was repaired at a cost of Shs.8,181,000 during the year and there is no proper linkage between the costs and benefits derived from using this particular vehicle. High Programme management costs may affect realization of the overall Programme objectives. I have advised Programme management to ensure that steps are taken to reduce the high motor vehicle costs and use the saved resources to implement programme planned activities.

In their response, management acknowledged that the component was using very old Motor vehicles but had received permission to purchase new vehicles. The facility was therefore undertaking a process of acquiring new vehicles which will greatly reduce the vehicle maintenance costs.

(d) Outstanding Liability that needs Immediate attention

It was noted that the programme had commitments to contractors amounting to Shs.1,458,689,989 by the end of the financial year. In addition, during my field visits to various sites in the Districts of Lyantonde, Kiruhura and Rakai, contractors had abandoned sites for a period of about two months due to delayed payments. Delays in payments to contractors affect planning and effective implementation of the programme leading to failure to attain the overall objectives of the programme. Besides, there is a risk that the quality of work performed by contractors may be compromised as a result of resource constraints.

I have advised management to ensure that the outstanding invoices from contractors are urgently settled to avoid any possible litigations and accumulation of interest on delayed payments.

In their response, management acknowledged that it is true Contractors had abandoned sites due to delayed payments. This delay was caused by the shortfall in funds released to the Facility for the financial year 2011/2012. Whereas the donor contribution towards the budget was Shs.4,500,000,000, only Shs.3,050,000,000 was released in the financial year 2011/2012 leaving a shortfall

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of Shs.1,450,000,000. However, the Facility together with the Funding partners are already in the process of securing the funds to settle these liabilities.

(e) Status of Implementation of Previous Audit Recommendation

A review of the status of implementation of previous audit recommendations was carried out and the details are contained in the table below:-

Ref Finding Status

1 Unauthorized water connection Not implemented

2 Poor water system management along Kabarole - Kasese Implemented line

3 Non compliance by the community to the MoU terms and Implemented conditions

65.10 CLIMATE CHANGE INITIATIVES PROJECT - (FUNDED BY THE ROYAL DANISH EMBASSY) - 30TH JUNE, 2010 (a) Compliance With Project Financing Agreement And Government Financial Regulations It was noted that management had in all material respects complied with the financing agreement provisions and the GoU financial regulations except for the matter pointed out below:- i) Delayed Submission of Financial Statements Clause 14.3 (Accounting requirements) of the Standard Project Agreement states that the Project accounts should be kept in accordance with the GOU approved accounting procedures. The GOU Public Finance and Accountability regulations require management to submit draft financial statements for audit within 3 months after the end of the financial year. However, the Climate Change Unit management submitted the financial statements for the year under review 15 months (i.e. in August 2011) after the end of the year. Delayed submission of the draft accounts implies that the audit could not be undertaken in a timely manner to enable issuance of the final reports to all stakeholders on time. I advised management to

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ensure that draft financial statements are always submitted on time to enable timely issuance of the reports to all stakeholders.

GOU Co-funding Obligation According to the financing arrangement, it was noted that GOU was expected to contribute Shs.145,833,965 as co-funding to the Project activities during the year under review. However, it was noted that only Shs.100,000,000 was received from GOU leaving a balance of Shs.45,833,965. Management explained that the unreleased funds related to taxes on capital goods procurements. I informed management that failure to adhere to the standard project agreement provisions, may lead to suspension of funding from the Development Partners. I further advised management to liaise with the MOFPED to ensure that all outstanding co- funding obligations are adequately fulfilled.

(b) General Standard Of Accounting And Internal Control A review was carried out on the Project‘s system of financial management. The shortcomings identified include the following:- i) Failure to provide third party acknowledgement receipts It was noted that the following payment vouchers were not supported by third party acknowledgement receipts:- Reference Payee/purpose Amount (Shs) Remarks Various payment PAYE to Uganda 14,996,706 No receipt from URA vouchers Revenue Authority Various payment Remittances to NSSF 7,595,457 No receipt from NSSF vouchers 8/10 Hotel Africana for a 3,773,840 No receipt attached workshop 20/02 Facilitation to steering 1,714,500 Not countersigned committee members Total 28,080,503

I explained to management that although the expenditure in question was verified as legitimate, it is good internal control practice to always obtain the third party acknowledgement receipts from the beneficiaries for future reference purposes. In their response, management attributed this anomaly to the use of Electronic Funds Transfer system but promised to have the receipts obtained from the beneficiaries in question.

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ii) Incompletely vouched Payments A review of expenditure vouchers revealed that a number of payments had not been adequately supported with the relevant documentation. As a result, such expenditure is considered incompletely vouched. These payments included the following:- PV.No Details Amount (Shs) Remarks 13/11 Allowances & air tickets for 82,650,000 Invitation letter & copies of foreign travel boarding passes not attached 09/10 Air tickets for travel to 7,232,542 Copies of boarding passes not Germany attached 32/5 Delegation travelling to 45,822,900 Copies of boarding passes not Bonn attached

Failure to have all the relevant supporting documentation attached to the payment vouchers implies that management has not adhered to the government financial regulations. Management regretted this anomaly and explained that the concerned officers have been requested to submit the necessary missing documentation. I have advised management to always ensure that all necessary supporting documentation is attached on the payment vouchers accordingly. iii) Crossing paid vouchers with a ―PAID‖ stamp It was noted that expenditure documents were not stamped ―PAID‖ upon completion of payment. Failure to cross such documents presents a risk of recycling the same documents for duplicate payments. Management was advised to ensure that all payment documents are crossed with a ―PAID‖ stamp henceforth. iv) Project Assets It was noted that the project procured a number of assets during the year under review, including office tables, chairs and a photocopying machine. However, the assets were not engraved with the project name and unique identification numbers, to ease their identification as required by the GoU financial regulations and Treasury Accounting Instructions on stores. Failure to engrave such assets complicates their identification process in case of loss or theft. Management explained that the assets mentioned had just been acquired by the time of audit and stated that the assets have since been engraved.

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v) Bank Reconciliation Statements A review of bank reconciliations revealed that the statements were not checked by an independent and senior officer. This implies that there was lack of adequate supervision by senior officials responsible for management of the project and that any omissions (whether intentional or otherwise) may occur and remain undetected. I advised management to ensure that bank reconciliation statements are regularly prepared and reviewed by the responsible senior officers.

65.11 CLIMATE CHANGE INITIATIVES PROJECT - (FUNDED BY THE ROYAL DANISH EMBASSY) - 30TH JUNE, 2011 (a) Compliance With Project Financing Agreement And Government Financial Regulations It was noted that management had in all material respects complied with the financing agreement provisions and the GoU financial regulations except for the following matter:- i) GOU Co-funding Obligation A review of the financing arrangement revealed that GOU was expected to contribute Shs.216,999,004 as co-funding to the Project activities during the year under review. However, it was noted that only Shs.63,081,509 was received from GOU creating a shortfall of Shs.156,917,495. Failure to adhere to the standard project agreement provisions, may strain further funding from the Development Partners. I advised management to liaise with the Ministry of Finance Planning and Economic Development (MOFPED) to ensure that all outstanding co-funding obligations are adequately fulfilled.

(b) General Standard of Accounting and Internal Control A review was carried out on the Project‘s system of financial management. The shortcomings identified included the following:- i) Failure to Provide Third Party Acknowledgement Receipts It was noted that the following payment vouchers were not supported by third party acknowledgement receipts:- Reference Payee/purpose Amount (Shs) Remarks Various payment PAYE to Uganda Revenue 9,440,651 No receipts from URA vouchers Authority Various payment Remittances to NSSF 2,447,209 No receipts from 809

vouchers NSSF 10/8/10 Aribo L. for parliamentary 11,000,000 No acknowledgement & stakeholders symposium 9/7/10 Pacutho K for toilet 29,225,752 No receipt attached construction Total 52,113,612

I explained to management that although the expenditure in question was verified and found to be legitimate, it is good internal control practice to always obtain the third party acknowledgement receipts from the beneficiaries for future reference purposes. In their response, management attributed this anomaly to the use of Electronic Funds Transfer system but promised to have the receipts obtained from the beneficiaries in question.

ii) Crossing paid vouchers with a ―PAID‖ stamp It was noted that expenditure documents were not stamped ―PAID‖ upon completion of payment. Failure to cross such documents presents a risk of recycling the same documents for duplicate payments. Management was advised to ensure that all payment documents are crossed with a ―PAID‖ stamp henceforth.

iii) Bank Reconciliation Statements A review of bank reconciliations revealed that the statements were not checked by an independent and senior officer. This implies that there was lack of adequate supervision by senior officials responsible for management of the project and that any omissions (whether intentional or otherwise) may occur and remain undetected. I advised management to ensure that bank reconciliation statements are regularly prepared and reviewed by the responsible senior officers.

65.12 FARM INCOME ENHANCEMENT AND FOREST CONSERVATION PROJECT (a) Compliance with the Financing Agreement And Government of Uganda Financial Regulations i) Project Financing

The review of the project annual work plan and budget and the GoU approved estimates for 2011/2012 financial year revealed that the budget for the project for the year under review amounted to Shs.59,635,127,000. However, by the year end, a total of Shs.45,823,448,465(representing about 76% of the budget) had been 810

disbursed to the project leaving a balance of Shs.13,811,678,535undisbursed as shown below:-

Funding source Budget (Shs) Balances c/f Actual receipts Shortfall (Shs) from previous (Shs) year ADF Loan 43,874,328,000 2,868,998,943 28,572,856,471 12,432,472,586 ADF Grant 3,210,731,161 3,210,731,161 44,998,147 -44,998,147 NDF Loan 9,068,239,000 2,118,315,949 5,426,125,307 1,523,797,744 GOU – MWE 2,938,000,000 0 2,805,500,000 132,500,000 GOU - MAAIF 2,450,000,000 0 775,922,487 1,674,077,513 Total 59,635,127,000 8,198,046,053 37,625,402,412 13,811,678,535

Failure to receive all the budgeted funds can constrain management in the implementation of all planned activities.

In his response, the Accounting Officer explained that the shortfall was largely a result of unrealized direct disbursements due to delayed rehabilitation works at Agoro, Doho and Mubuku Irrigation schemes and over budgeting under the tree planting sub-component.I have advised the Accounting Officer to always ensure that such delays in implementation of activities are avoidedas they affect the pace of disbursements of funds. ii) Diversion of GOU Counterpart Funding - Shs.322,743,015

A total of Shs.2,047,500,000 (exclusive of gross tax) was released to the Ministry of Water and Environment as GoU Counterpart funding for the project during the year under review. Scrutiny of expenditure documents revealed that a total of Shs.322,743,015 was diverted to fund non project related activities.There is no evidence that the Accounting Officer sought for approval by way of a reallocation or virement warrant, as required under the Public Finance and Accountability Regulations. Such a practice undermines the intentions of the appropriating Authority, results into under performance on the part of the project and leads to misstatement of financial statements.

In his response,the Accounting Officer regretted the omission and promised to request for reallocations in future.I have advised management to desist from such a practice in future.

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(b) General Standard of Accounting and Internal Control Government Of Uganda Expenditure i) Mischarge of Expenditure - Shs.563,214,472

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 Ministry‘s expenditures in relation to the project revealed that the Ministry charged wrong expenditure codes to a tune of Shs.563,214,472 representing about 35% of the amount released for the project activities. The bulk of the funds were diverted to pay for seedlings and allowances.The practice undermines the budgeting process, the intentions of the appropriating authority and leads to falsified accounting.

In their response management attributed the mischarge to severe budget shortfalls. I advised management to ensure reallocations are approved before incurring such expenditures. ii) Overpayment for Seedlings - Shs.78,074,701

A sum of Shs.162,502,000 was paid to National Forestry Authority (NFA) for seedlings supplied during the financial year 2010/2011. However, a review of documentation in relation to this expenditure revealed that the Authority presented invoices and delivery notes totaling to only Shs.84,427,299 implying that there was an overpayment of Shs.78,074,701.

In response, although management explained that they had carried out a reconciliation of the Authority‘s account that reflected that the project was indebted to the Authority, verification of the reconciliation revealed that the actual position was an overpayment of the above amount. I advised management to initiate recovery measures of the overpaid funds from the Authority. iii) Advances to Individual Personal Bank Accounts at MAAIF

A total of Shs.556,485,528 was advanced to personal Bank Accounts for officers of Ministry of Agriculture Animal Industry and Fisheries (MAAIF) for undertaking project activities. Such a practice of depositing huge funds on individual personal

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accounts is irregular and exposes project funds to a risk of loss since the project does not have any control over such funds deposited on personal accounts.

Audit examination of the accountabilities submitted for the advances in question revealed the following matters:-

No activity reports were presented for review. Signatures and receipts appeared to be forged. Food was procured and served to unknown people. Fuel receipt serial numbers indicated issue of receipts in reverse order which was found to be unusual. There was apparent duplication of activities for irrigation; what Ministry of Water was doing was being duplicated by the Ministry of Agriculture.

Under the circumstances, expenditure to the tune of Shs.320,105,783 remained doubtful.

In their response, management regretted the anomaly and explained that the practice of depositing funds on individual personal accounts has since stopped. I advised management to stop such a practice and also follow up the doubtful accountabilities to ensure that recoveries are made where there is confirmation of misuse of funds advanced. iv) Failure to Transfer Funds to National Project Coordinating Unit (NPCU)

It was noted that the Ministry of Agriculture Animal Industry and Fisheries (MAAIF) had not yet refunded and transferred funds in respect of ineligible expenditure (Shs.196,739,350) and cash balance (Shs.13,413,045) held on a shillings Special Account to the NPCU by 31st October 2012 as directed by the Bank through its letter to MAAIF dated 15th August 2012. Failure to adhere to the recommendations of the donor can lead to suspension of the Project Funding. I have advised the ministry to transfer the funds in question without further delay. v) Non Remittance of PAYE for Sub-countyForestry Technical Officers (SFTOs) - Shs.348,296,000

Salaries for SFTOs were funded by the African Development Bank and the Nordic Development Fund. Government of Uganda pledged to pay the taxes and social 813

security contributions arising out of these payments in line with the Income Tax and NSSF Act.Review of salary payments made to SFTOs over the years revealed that the project was paying their salaries net, after deducting PAYE. However, the Ministry of Water and Environment did not meet its part of the pledge and has never remitted the tax component to URA since inception of the project. At the time of audit, the unremitted taxes stood at Shs.348,296,000. It is important to note that the contracts for these staff were terminated on 30th December 2012.

I explained to management that such an action contravened the Income Tax Act and exposed the project to penalties and fines. In their response management attributed this to insufficient GoU funds to the project. Iadvised that all funds be remitted and in future management should always follow the tax regulations.

(c) DONOR FUNDS (ADB AND NDF) i) Ineligible Expenditure – Shs.41,395,542 The project document and work plans clearly define what is to be paid using the project funds. A review of the expenditure for the year revealed that a number of expenditures totaling to Shs.41,395,542 were made which were ineligible for payment using project funds, as detailed below:- Payee Amount Purpose Audit remarks (Shs) City Royal 2,759,949 Conference and This was a VAT component, Resort Hotel Meals yet taxes are ineligible New vision 300,277 Advertising This was a VAT component, yet taxes are ineligible New vision 1,388,685 Advertising This was a VAT component, yet taxes are ineligible Monitor 396,631 Advertising This was a VAT component, yet taxes are ineligible Pc Farm Income 36,550,000 Travel to attend The expenditure is ineligible Enhancement Conference as it has nothing to do with the project. Total 41,395,542

Payment of ineligible expenditure can lead to failure to fully undertake all the planned activities. It is advised that the amount in question be refunded onto the project special account without delay.

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ii) Irrigation Schemes Doubtful Advances to Engineering staff – Shs.303,863,500 Three engineers were tasked with the responsibility of undertaking site supervision for three irrigation sites and over the period, funds were advanced to them to cater for field activities. A total of Shs.303,863,500 was paid to the engineers in June 2012 as refund for activities undertaken in the previous months i.e. February to May 2012. Review of the accountabilities for the above months indicated that the bulk of the expenditure was for fuel, allowances to staff and food for community participants. All receipts presented showed that the payments were made when they were due i.e. before the advance was made; this implies that the beneficiaries appear to have lent Government the above sums of money over the period and were therefore simply refunded.

Although management attributed this to cash flow problems which compelled the ministry to internally source for the funds to facilitate the implementation of the project activities, I found this explanation unsatisfactory, since I was not availed with evidence of the source of the funds within the ministry, so as to confirm refund of the same.I have advised management to further investigate these payments with a view of recovery in the event of confirmation of misuse.

Inspection Findings During the audit, an inspection of the irrigation schemes that have been under rehabilitation was undertaken. The objective of the inspection was to assess the extent of the rehabilitation works, the quality of the works and also whether there is compliance with the BOQs as well as contract agreements signed between the contractors and the Project. The major findings from this inspection included the following:-

Payments for Unauthorised Variations

It was observed that the contractor changed rates for supply of several items without contracts committee authorisation as stipulated in the procurement laws. The details are summarised in the table below:- Project Key finding Rehabilitation/Reconstruction . Change of the Contractor‘s rates for supply of of Doho Irrigation Scheme excavator and tractor from Shs.280,000,000 and Shs.95,000,000 to Shs.790,500,000 and 815

Shs.190,000,000 without basis and in the first place why these major equipments were not solicited as separate contracts. Rehabilitation / . It was observed that at bidding, the contractor Reconstruction of Mubuku submitted a rate of Shs.450,000 for class 25 plain Irrigation Scheme concrete. However, during construction, the rate was changed to Shs.628,313 without basis or authorisation. This caused an additional payment of Shs.828,767,902.

I explained to management that payments for such unauthorised contract variations were irregular.

Although management stated that the variations for works items in question were in accordance with provisions in the governing contract Clauses 4.2 and 4.3 of the General Conditions which give authority to the project manager to make variations to the rates without recourse to the employer, I found such a provision irregular as it was contrary to the procurement regulations. I have advised the Accounting Officer to always ensure full adherence with the procurement regulations and to also follow up this matter and ensure that any officer who is found to have acted contrary to the requirements under the PPDA Act and Regulations is disciplined accordingly.

Over payments from fill material

During the rehabilitation/reconstruction of Agoro Irrigation Scheme, it was discovered that an overpayment of Shs.526,977,250 was made as a result of mis- presentation of the quantities in the measurement sheet for fill material in two certificates (no. 3 and 4). This arose from the construction of scheme access roads.

In their written response Management promised to carry out a resurvey of all roads constructed to establish the exact quantity of the fill material and have any overpayments recovered from subsequent certificates. I advised management to urgently follow up this matter before the contractors complete the works and ensure that recovery is effected upon confirmation of the overpayment in question.

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Inadequacy in design

During the rehabilitation/reconstruction of Mubuku Irrigation Scheme, I noted instances where there were inadequacies in the design which resulted into massive changes in scope of works (works worth Shs.8,354,203,722 were introduced). Although this did not affect the overall cost of the project, it depicts poor planning. It was also noted that the changes lacked the necessary approved variation order as required by PPDA regulations.

In their response, management explained that inadequacies in the designs were inherited from MAAIF;besides there was time constraint to review the designs prior to procurement of works. Management further explained that following the transfer of the project component to MoWE, the need for design changes for key elements of the works was found inevitable due to information that came to the attention of the Ministry during the construction phase as a result of technical investigations and surveys undertaken.

I explained to management that having such major changes without a significant change in contract price is an indicator of having huge slacks built within the contract price, which should therefore always be avoided.

Lack of land titles for the irrigation schemes

It was noted that Government did not have land titles for the land where three irrigation schemes are being rehabilitated at a total cost of Shs.65,769,346,940 excluding VAT. The land may not be owned by Government and this exposes it to a risk of legal challenges and compensation claims in case some affected people opt to challenge the project developments in their areas.

In their response Management attributed this omission to lack of adequate funds to process the land titles and promised to have this activity included in this year‘s work plan. I advised management to take this matter seriously and have the titles processed.

(d) Payment for Seedlings

One of the major activities of the project is to support the local community to plant trees. During the period under review, the project spent a total of

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Shs.12,520,106,360 for procurement of seedlings from various suppliers. The following observations were noted during review of this expenditure:- i) Non Deduction and Remittance of 6% WHT on Seed Supplies - Shs.704,342,098

Section 120 of the Income Tax Income requires all government entities to withhold tax on the gross amount of any payment made above Shs.1,000,000 provided the supplier is not exempted. The project paid a total of Shs.12,520,106,360 during the period under review in respect of seedlings without deducting 6% WHT.

The project coordinator explained that because of the Bank restrictions in regard to taxes, a control was put in place requiring all suppliers to first provide evidence of remittance of the WHT equivalent to URA before receiving the next payment. I however noted that this control was overridden in 95% of the payments. Similarly, there was no evidence of prior remittance. As result of this override, a sum of Shs.704,342,098 was not withheld and the project risks facing penalties and fines from the tax body. I advised Management to consider paying the suppliers net of tax and transfer the tax obligation to GoU counterpart funding. ii) Criteria for Paying Transport and Handling Costs

The project entered into framework contracts with several private Nursery operators for the supply of seedlings and placed call off orders with them from time to time. The contract alluded to the fact that unit transport costs were to be included in the price schedule; however, in all contracts reviewed this was not the case. Instead another clause was included which stated that all transport costs will be reimbursed but shall not exceed 14% of the total cost. Audit found this irregular in a number of ways as explained below:-

It erodes the benefits of a framework contract i.e. minimizing effects of price fluctuations. Capping the transport cost at 14% of the total cost, disadvantages the project in case of expensive seedlings e.g. some fruit seedlings were costing 10 times the cost of local tree seedlings yet the transport costs would not differ. In other words transport costs cannot be directly attributed to cost of seedlings.

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In twenty three (23) instances, the transport costs were exactly equal to the cap of 14% implying that they may have been intentionally computed not to exceed the set limit as opposed to the actual cost. The transport costs were paid without considering the distance covered and the tonnage supplied but rather the total cost supplied. This was irregular.

As a result of the above, cases were noted where supplies with similar destinations had significant variations in transports costs as illustrated in the table below:-

Vr.No Supplier Destination Quantity Total Cost Transport Transpo Supplied Supplied Cost (Shs) rt cost A (Shs) B per unit (Shs) (B/A) 3/NDF Gold Empire Kihuura, 694,442 280,779,980 33,693,500 48.5 Industrial Ibanda, Forest Mbarara, Plantations Ltd Isingiro, Sembabule 26/NDF Gold Empire Kihuura, 450,605 216,883,050 30,363,627 67.4 Industrial Ibanda, Forest Isingiro, Mbarara, Sembabule Jose Ltd Ibanda, 379,800 28,897,500 76.1 KamwengyeNt ugamo 49/ADF Jose Ltd Ibanda, 504,500 236,670,000 18,933,600 37.5 LOAN Kamwengye, Ntugamo, Kabale, Isingiro, Rukungiri Sustainable Budaka, Jinja, 331,900 173,000,000 13,840,000 41.7 Forestry Kaliro, Services Ltd Namutumba 42/ADF Sustainable Kaliro, Jinja 194,500 105,550,000 14,777,000 76 LOAN Forestry Services Ltd

In the circumstances, the amounts paid for transport costs may not have been appropriately computed and therefore may not be fair to all parties.

In their response, management explained that capping the transport cost at 14 % was done after analysis by management of various transportation options and subsequent verification of the claims including among others distances from the 819

nurseries to the planting sites, sizes of the seedlings that has a bearing on the number of seedlings that can be loaded per trip as indicated in the guidelines on transportation and handling of seedlings. I explained to management that the whole process of handling and managing the transport costs should be reviewed to avoid unnecessary cost. iii) Field Inspection Findings on Seedlings

An inspection was carried out during the audit in three implementing districts of Iganga, Sembabule and Bushenyi. At least ten beneficiaries were visited in each district. The following observations that required management attentionwere made:- While all beneficiaries acknowledged that they received the seedlings from suppliers and signed the delivery forms, they did not physically count the quantities supplied to them before signing the delivery forms.

It was claimed by all the three District Forestry Officers of the districts visited that although the suppliers passed via the district headquarters for verification of the seedlings before proceeding for final deliveries to the beneficiaries, they did not ascertain the quantities supplied as it was not practical to off load and count the seedlings. Despite this limitation, the deliveries were witnessed and confirmed by the District Forestry Officers, District Internal Auditors and Store keepers by signing the delivery forms and preparing the goods received note, in all the districts visited yet they did not witness the physical counting and offloading of these supplied quantities. The GRN‘s that are prepared are based on the estimates provided by the recipient farmers/group leaders at various delivery points.

At the receiving points, the farmers were told how much had been delivered by the suppliers and then recorded on the forms which were later transferred to prepare the GRNs at the district headquarters (district forestry office).

In all the three districts visited, the storekeepers did not enter the deliveries on ledger charge and no issue vouchers were raised or authorized.

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For the groups and Institutions which received the seedlings, no record was kept to indicate the group members who subsequently received the seedlings under these groups. Fruit seedlings were majorly planted around homesteads while the majority of other seedlings were intercropped with Maize, coffee and Cassava. This was majorly done in the districts of Iganga and Sembabule and to a less extent, Bushenyi. This has caused massive low survival rates of most of the tree species like pine and grevillea. It was also observed that in all the three districts, there was laxity in maintenance/weeding the areas where the tree seedlings were planted thus some seedlings failed to grow and with others not surviving at all. In all instances, no project signposts were erected at the areas where the tree seedlings were planted. With the various tree seedlings planted at different seasons and years, and bearing in mind that some individuals had other plantations not related to the FIEFOC project, it was difficult to confirm that the seedlings were delivered under FIEFOC project.

Therefore, as a result of the above shortcomings, it was not possible to reconcile the quantities and types/species of seedlings that were delivered by the project with the situation prevailing at the beneficiary level.I advised management to ensure that the above matters are followed up and addressed accordingly, in order to ensure maximization of value of the project investment.

Management promised to continue following up on the matters raised and instituting corrective measures in order to enhance impacts of the investments and service delivery to the farmers.

(e) Nonpayment of Social Security Contributions for NPCU Staff - Shs.74,337,817 According to the National Social Security Fund Act, every employer is required to contribute 10% of the monthly gross pay of its employee(s), deduct 5% from the employee(s) monthly pay and remit this contribution not later than fifteen days from the month end to the National Social Security Fund. During the period under review, it was noted that social security Contributions amounting to Shs.74,337,817

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was not remitted to NSSF. This not only contravenes the law but also denies the employees their rightful entitlements; besides it also exposes the project to fines and penalties. I have advised management to ensure that the above amount is remitted without further delay.

(f) Unaccounted for Transfers to Districts - Shs.21,022,452 Funds totaling to Shs.543,551,000 were transferred to various districts to extend project implementation activities to those districts. However, it was noted that out of this amount, a total ofShs.21,022,452was not accounted for by three districts at the time of audit from both grant and loan component as shown below:-

No District Grant out standing Loan out Date of receipt (shs) standing (shs) 1 KUMI 10,000,000 - 22/2/2012 11 BUDAKA - 5,786,452 16/2/2012 12 MANAFWA - 5,236,000 16/2/2012 TOTAL 10,000,000 11,022,452

It was also noted that an age-analysis revealed that the funds have been outstanding for close to a year, an indicator of reluctance on the part of the concerned districts and laxity on part of the project management to follow up the advances in question.I advised management to follow up the matter and recover the outstanding amounts.

(g) Advances to Personal Bank Accounts – MoWE During the year under review, it was noted that the project undertook a lot of field activities for which facilitation was by way of advances to personal accounts of officers implementing the activities at the Ministry of Water and Environment. Although the concerned staff would later submit accountability for such funds, the following matters were noted:- i. The practice exposes project funds to a risk of loss since the project does not have any control over such funds deposited on personal accounts. ii. Procurement guidelines were flouted in several instances. It was noted that staff made direct procurements worth Shs.107,350,000from suppliers of their choice and only obtained receipts as accountability evidence. The practice

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undermines the principles of competition, value for money and transparency and exposes the project to the risk of unfairly high prices. Such procurements included the following:-

Particulars Vr_No Amount Accou Description Audit Remarks (Shs) nt Paid to 20 20,000,000 Support and Procurements of Shs.20 million project consolidate violated PPDA procedures officer project because they were purchased in activities in cash using micro procurement SSW region method; no deduction of withholding tax. Paid to 23 12,100,000 Consultative No contracts committee award project planning was availed for hotel facilities at officer workshop with M/S City Royal Hotel, Bugolobi district forestry and the payment was made in staff cash without deducting taxes. Paid to 16/1 10,900,000 Farmer training Procurements of demonstration project in the 3 materials worth Shs.6,650,000, officer irrigation and Printing & stationery schemes Shs.4,250,000 flouted PPDA regulations; not backed up by attendance registers. Paid to 15,550,000 Software Procurements of demonstration project activities materials worth Shs.6,500,000 officer and Printing & stationery Shs.3,200,000 flouted PPDA regulations; Besides, Foods and refreshments for farmers worth Shs.5,850,000 were not backed up by attendance registers. Paid to 48b 2,500,000 ADF Training of Stationery worth Shs.2.5 million project LOAN CWMGs in was bought using micro officer community procurements participatory monitoring Paid to 9/12 24,500,000 NPCU Ground T-shirts, banners and Umbrellas project LOAN breaking worth Shs.24.5 million were officer activities of procured using Micro Mubuku procurement; no signed irrigation distribution register. scheme Paid to 3/2 21,800,000 NPCU Ground T-shirts, banners and umbrellas project LOAN breaking worth Shs.21.8m were procured officer activities of using direct procurement Doho irrigation method; no signed distribution scheme register. 107,350,000

In their response management regretted the anomaly and promised to address the omissions in future. I have advised management to stop the practice henceforth and also follow up the above advances to obtain full accountability of the amount involved.

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(h) Irregular Payment of Allowances - Shs.33,430,000 Civil service Standing Orders provide for payment of night allowances only for the actual nights spent away from the usual place of residence and claim for safari day allowance in case an officer is more than 40km from his duty station.

It was however noted in a number of instances, that workshops were held at venues less than 40 km from the officers‘ duty stations and accordingly the officers were not entitled to any form of allowance. Asum of Shs.33,430,000paid as allowances was considered irregularly and therefore recoverable as shown below:-

Particular Vr Amount Account Description Audit Remarks s _No paid as allowances (Shs) Paid to 10/7 12,320,000 NPCU Annual review Irregular payment of project LOAN workshop for subsistence allowance to officer central region- MWE PIU and NPCU staff. Colline hotel These officers are stationed in Kampala and Mukono is less than 40kms from their duty station. They would have been entitled to safari day allowance. Shs.12,320,000 for staff and drivers was irregular. Paid to 13/7 1,520,000 NPCU Annual review Officers from Mbarara were project LOAN workshop for not entitled to night officer western subsistence allowance of 4 region-Rwizi days i.e. Shs.1,520,000. arch hotel Since workshop was in Mbarara. Paid to 1/8 1,360,000 NPCU Annual review Officers from Mbale were project LOAN workshop for not entitled to night officer eastern region- subsistence allowance of 4 Mbale resort days i.e. Shs.1,360,000. hotel Paid to 1/9 5,625,000 NPCU Stakeholders Irregular payment of project LOAN workshop to subsistence allowance to officer review ESMP MWE PIU and NPCU staff. for irrigation These officers are stationed schemes in Kampala and Ridar hotel is less than 40kms from their duty station. They would have been entitled to safari day allowance. Shs.5,625,000 for staff and drivers was overpayment. Paid to 5/11 4,195,000 NPCU Allowances Irregular payment of

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project LOAN and transport subsistence allowance to officer for CAO‘s and PIU and NPCU staff and project staff drivers. These officers are for a one day stationed in Kampala and consultative Ridar hotel is less than meeting for 40kms from their duty CAO‘s at Ridar station for a one day hotel. workshop. They would have been entitled to safari day allowance. Shs.4,195,000 for staff and drivers was overpayment. Paid to 13/1 8,410,000 NPCU Workshop to Irregular payment of project LOAN conduct review subsistence allowance to officer of draft PIU and NPCU staff and concept paper drivers of two days. These for FIEFOC officers are stationed in phase 2 Kampala and Ridar hotel is less than 40kms from their duty station for a one day workshop. They would have been entitled to safari day allowance. Shs.8,410,000 for staff and drivers was overpayment. TOTAL 33,430,000

In their response management regretted the above anomaly and promised to recover the said funds from the beneficiaries. I therefore await for the outcome of this management commitment.

(i) Status of Prior Year Audit Recommendations The status of the prior year audit findings was as summarized below:- Issue raised Remarks 1 Additional advances prior to accounting for Not addressed, practice previous ones still ongoing 2 Delays in submission of accountabilities Not addressed, practice still ongoing 3 Non Compliance with NSSF act Not addressed, practice still ongoing 4 Weaknesses in Contract management Not addressed, practice still ongoing

I have advised management to ensure that the above matters are urgently addressed.

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66.0 NATIONAL ENVIRONMENT MANAGEMENT AUTHORITY (NEMA)

66.1 Late Submission of Financial Statements NEMA received funding from the Government of Uganda (GoU); the Environment Management Capacity Building Project II (EMCBP II Project) and other smaller projects. The Project transactions under NEMA are consolidated in the NEMA financial statements and audited accordingly. However, it was noted that the Authority‘s consolidated financial statements were submitted on 20th November, 2012 in violation of Section 92(3)(b) of the NEMA Act that requires the accounts to be submitted to me within thirty days after the end of the financial year.

In their response, Management attributed this delay to the indisposition at the time, of its Director for Finance and Administration. I however advised management to put in place measures for compliance with the statutory obligation in case a key staff is unexpectedly out of office as was the case in point.

66.2 Management of Wetlands NEMA is mandated under Section 37(2) of the National Environmental Act to manage the environment. However, although the Authority regulates the use of wetlands, it does not have a record of wetlands in the whole country that have been surveyed and clearly demarcated. The Authority explained that in their view, wetlands demarcation squarely falls under the Line Ministry and that NEMA is awaiting the outcome of the exercise undertaken by the Ministry. However, this opinion appears to be at variance with the provisions in the Act, since the Ministry is considered to be a policy setting body for the Water and Environment Sector. A further review of the Environmental Protection Police Unit reports of February and March, 2012 revealed that due to the absence of a national wetlands register, there has been gross encroachment on the wetlands in the great Kampala metropolitan area, including the following:- Kyengera wetland; There are activities ranging from human settlement, bricklaying, sand mining, an abattoir, bakery and a church. Banda wetland; There is dumping and reclamation of about 18 acres.

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Kinawataka wetland; There is dense human activity characterized by farming of yams, eucalyptus maize and beans, car washing bay, water channeling and human settlement. Bukasa-Muyenga wetland; There is dumping of murram and illegal construction of structures. Bunga wetland; A big area was demarcated into various plots; the buffer zone was encroached on and occupied by illegal settlers which call for demarcation and eviction.

In absence of a wetland register and boundary demarcation on all wetlands, the rate of encroachment and subsequent degradation will uncontrollably increase which may lead to negative effects on the environment.

In their response, Management explained that; i. An administrative decision was taken by the Ministry of Water and Environment in the year 2011 to transfer the responsibility of demarcation of wetlands from NEMA to the Directorate of Environment Affairs under the Department of Wetlands management. This decision was implemented and subsequently a vote function for this activity was provided for under the Ministry of Water and Environment. The wetlands management department has already embarked on the demarcation of wetland in the country, starting with critical wetlands such as Nakivubo, Kyetinda, Lubigi among others. Prior to the demarcation exercise, the wetlands management department, NEMA and KCCA sensitized all the stakeholders ranging from the KCCA Councilors to the settlers in these areas. ii. Awareness raising is a continuous activity which is being carried out regularly by NEMA and the Ministry of Water and Environment. Eviction of encroachers is on- going and there are litigation cases currently in courts of law. iii. The above initiatives are not only limited by inadequate funding, but also by the shortage of manpower available both at NEMA and the Ministry of Water and Environment. I have advised management to ensure full adherence with the provisions of the National Environment Act and demarcate all wetlands without further delay.

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66.3 Budget Performance During the year under review, the approved GOU budget for NEMA amounted to Shs.6,345,974,131. However, the Authority received only Shs.5,164,265,869 leading to a shortfall of Shs.1,181,708,262 (about 22% of the budget). Of the total amount received, the employee costs incurred amounted to Shs.3,195,169,809 leaving only Shs.1,969,096,060 for operations which appear inadequate for the Authority to fully execute its mandate efficiently and effectively. In addition, the EMCBP II Project that has been contributing about 65% of the NEMA consolidated budget (Shs.12,363,875,815 during the year under review), has closed and no alternative source of funding has yet been identified by the Authority.

In their response, Management concurred that there is low funding provided by Government and that they are in dialogue with the Ministry of Finance, Planning and Economic Development to explore possibilities of providing more funding for the Authority, given that its mandate now includes the new dimension of regulating the oil and gas activities. I have advised management to continue liaising with all key stakeholders including the Ministry of Finance, Planning and Economic Development for appropriate funding to be provided to enable the Authority to effectively execute its mandate.

66.4 JOINT PARTNERSHIP FUND (JPF) PROJECT (a) Financial performance The project received a total of Shs.65,025 million against an approved budget of Shs.73,727 million leading to a shortfall of Shs.8,702 million as shown in the table below. The most affected components were Small Towns Water Supply and Sanitation, WSDF-North, WSDF-East and the Regulation Unit, where only 53%, 53%, 53%, 45% and 63% of their respective budgets were realized.

Annual Budget Performance for FY 2011/12 (Millions of shs) Approved Annual Budget Actual Realized Comp. GoU JPF Total GoU % JPF % Total % WfP 21,174 382 21,556 21,170 155 21,325 100 41 99 STWSS 2921 2,621 5,542 1515 1,445 2,960 52 55 53

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WSDF-SW 1,200 4,500 5,700 3,897 1,087 4,984 325 24 87 WSDF-N 1,810 11,000 12,810 1,419 5,400 6,819 78 49 53 WSDF-C 4,200 1,000 5,200 3,950 447 4,397 94 45 85 WSDF-E 1,660 5,660 7,320 1,518 1,807 3,325 91 32 45 Regulation 763 1,618 2,381 763 729 1,492 Unit 100 45 63 Total 41,676 32,051 73,727 49,088 118 15,937 50 65,025 88

Failure to realize all anticipated revenue affects implementation of program planned activities.

In response, management explained that there was a funding gap created by funding Kfw as the agreement could not be finalized in time to cater for anticipated funds. However, the financing agreement was finally signed on 27th June 2012 and all activities that were not implemented last financial year had been prioritized.

I advised management to expedite implementation of activities given the availability of funds.

(b) WSDF-NORTH i) Financial performance The facility received a total of Shs.6,819,000,00 against the approved budget of Shs.12,810,000,000 representing 53% performance as detailed below;

Budget Receipt Variance Expenditur Balance (000’ of (000’ of shs) (000’ of shs) e (shs) (shs) shs) Donor 11,000,000 5,400,000 5,600,000.00 5,646,417 5,353,583

GoU 1,810,000 1,419,860 390,140 1,803,956 6,044 Total 12,810,000 6,819,860 5,990,140 7,450,373 5,359,627

Further, it was noted that no funding was received in the fourth quarter (April – June 2012) resulting into the staying of signing contracts for the new projects. Failure to receive all the planned funding constrained the facility in the implementation of planned activities.

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In response, the Accounting Officer explained that funds were not received from the Development Partner (Kfw) as anticipated thereby affecting the work plan and budget. This was caused by a delay in concluding the financing Agreement which was signed on 27th June, 2012 and the first disbursement of funds was received in October, 2012.

I advised the Accounting Officer to expedite the implementation of activities given the change in status of funding. ii) Physical Performance The physical inspection of the Town Water Supply And Sanitation Projects and the regional office block planned for completion during the year under review revealed the following findings:-

Project Description Cumulative Balance Remarks Mgt Response Payments (shs) Koboko Extention Construction works 418,650,471 54,178,127 Complete but Kiboko extension including one pump un-operational was completed station, 1.5 kms of because it has but for synergy transmission mains, not been the main source 3.6 kms of distribution commissioned was being mains, an office block and handed upgraded to and 24 pre-paid over to the accommodate metres installed with community. the solar energy. support from GIZ. The Package under contract sum was Energy for Rural shs.472,828,598. Transformation II Project. Handover was to take place upon completion. Amolatar The system had reached 85% completion. However, contractor abandoned the site. The Ministry obtained legal guidance from Solicitor General that the contract should be terminated.

Construction works 1,302,402,419 606,233,871 Although the inclusive of two project was pumping stations expected to be powered by one completed by 830

generator, two public 18/07/2011, by flush toilets and an the time of our office block. The visit in contract sum September amounted to 2012, the shs.1,908,636,290 reservoir had not been installed. Regional Office Block Construction is 541,004,834 539,415,804 Expected to be expected to be completed on completed by time going by 01/03/2013. The the good contract sum was progress shs.1,080,420,638 observed.

There was a delay in implementing project activities and this could lead to extra administrative costs in case of extensions.

I advised management to identify the bottlenecks affecting the programme and ensure these are addressed to enable timely implementation. iii) Un-funded complete designs The Facility had fifteen completed designs financed by the project. However, it had no funding to start construction works. It was noted that there is an urgent need for water in these small towns (ST) /rural growth centers (RGC) and the Facility is experiencing numerous requests from the communities to have these systems developed. Details of completed designs are shown below:-

S.No District ST/RGC UGX: (Million) - Estimated cost 1. Apac Ibuje 973,955,994 2. Arua Okollo 2,087,800,000 3. Arua Rhino Camp 874,233,257 4. Arua Okokoro 457,352,056 5. Dokolo Dokolo 8,434,219,663 6. Gulu Opit 1,040,529,864 7. Kitgum Padibe 1,054,460,594 8. Maracha Ovujo 875,777,300 9. Moyo Dufile / Arra 0 10. Moyo Obongi 1,457,182,117 11. Nebbi Singla 2,100,000,000 12. Nwoya Purongo 1,239,263,894 13. Pader Kalongo 2,029,900,884 14. Pader Patongo 1,377,331,494 15. Yumbe Midigo 1,092,858,525 Total 25,094,865,642

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In response, the Accounting Oficer explained that implementation of 6 designs was planned to start in the financial year 2013-14. These include; Ibuje, Dokolo, Opit, Ovujo, Purongo and Patongo. The rest of the designs were to be implemented once funds are received from Development Partners.

I advised management to expedite the works once funding has been obtained. iv) Delayed commencements of works The examination of procurement records revealed that three construction works worth Shs.6.376 billion under the Facility had delayed to take off. Details are shown in the table below; S. No Project Name Award Date Award Price (shs) 1 Construction of Omugo RGC WSS 07/03/2012 1,920,000,000 2 Construction of Agweng RGC WSS 07/03/2012 999,028,571 3 Construction of Paidha Town WSS 10/05/2012 3,457,357,145 Total 6,376,385,716

This may result into the works remaining incomplete by the closure of the project.

In response, the Accounting officer explained that the major challenge was the delayed funding by the Development partner (Kfw). However, the funds had since been disbursed.I advised the Accounting officer to expedite the construction works given the change in status of funds. v) Inspection of Kamdini piped water system The inspection of Kamdini piped water system revealed that although two pumping sources were constructed, only one was in use. This was due to the access road to one of the pumps having been closed because of the non-compensation of the land owner. The system was therefore not operating at its full potential.

I advised the Accounting Officer to contract the authority in the disgtrict to have the matter resolved.

The Facility received a total of Shs.3,325,091,296 against the approved budget of Shs.7,320,000,000 as shown in the table below:- 832

Source of Budget Receipt Variance funding (000’ of shs) (000’ of shs) (000’ of shs)

Donor 5,660,000 1,807,007 3,852,993 GoU 1,660,000 1,518,084 141,916 Total 7,320,000 3,325,091 3,994,909

This resulted into realization of only 45% of the approved budget. It was noted that no funding was received in the fourth quarter resulting into the staying of signing contracts for new projects. Failure to receive all the planned funding constrained the Facility in the implementation of all its planned activities.

The Accounting Officer explained that funds were not received from the Development Partner (Kfw) as indicated earlier, hence a negative impact on the implementation of approved work plan. I advised the Accounting Officer to always ensure that funding is confirmed before it is captured in the annual budget. ii) Physical performance

The review of progress reports against the key expected outputs/targets and performance indicators contained in the facility work plan revealed the following key physical performance status for the year under review.

No Activity Expected Actual Variance Remarks output output 1 Design and approval 18 10 8 Lack of adequate of water supply funding. schemes 2 Completion of water 3 0 3 Lack of funding. Even the supply schemes construction of the Namalu system whose contract was signed in August 2011 was stayed. 8 Construction of 28 13 13 Inadequate performance demonstration completed attributed to lack of household ecosan and 2 were funding. One of the toilets in progress inspected toilets exhibited poor workmanship as shown in the photo below the table.

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A completed Ecosan toilet exhibiting poor workmanship at Bukedea town: The door had warped due to use of poor quality wood and the steps had already cracked

In response, it was explained that the cracks were superficial and had been rectified. iii) Land ownership The land where the Facility offices are located is owned by the Uganda Land Commission that had allocated it to a private developer. There is the risk of the land owner claiming ownership of the Facility‘s property or land.

In response, it was explained that Uganda Land Commission was advised wrongly by an official in the Ministry of Lands, Housing and Urban Development that the land in question was non-core property of the Government and was subsequently allocated to a private developer. Ministry of Water and Environment had referred the matter to IGG for investigation.

Management was advised to pursue the matter with the relevant authorities to ensure that it obtains title to the land. iv) Inspection of Tirinyi-Kibuku water system The inspection of Tirinyi – Kibuku water system constructed at a cost of Shs.2,281,578,058 revealed that there were major leakages on the tank and the bulk meter. However, there was no evidence that these leakages had been reported to the contractor for rectification although the defects liability period had not yet expired. This may point to lack of monitoring by the Facility and system management structures.In addition, there were no public toilets and other solid waste and drainage facilities for onsite sanitation. There is a risk that the water source may be contaminated by poor waste disposal within the area. 834

I advised that the project also provide public toilets and other solid and drainage facilities and also have the defects identified and rectified. v) Wasteful Expenditure – Shs.45,875,300 Shs.45,875,300 was spent on training ten (10) Masons to train households in construction of EcoSan toilets in the areas of Luuka, Bukedea and Karenga as shown in the table below:- Date Particulars Cheque No Amount (shs) 07/09/11 Training Masons in Karenga 180 9,293,200 07/09/11 Training Masons in Luka 180 8,146,400 15/11/11 Construction and Supervision of Ecosan in 7,422,000 Bukedea. 24/08/11 Inspection of ecosan in Kabong and Abim 169 7,800,000 12/12/11 Eco san construction in Luuka 265 4,628,000 19/12/11 Training of Masons in Bigadde 261 8,585,700 Total 45,875,300

However, although the training ended in December 2011, no household training had been undertaken about one year later. In addition, even the EcoSan toilets that were started by the Facility using these trained Masons were not operational after this long. This implied that the expenditure on both training the masons and construction of Ecosan has not been put to use.

In response, the Accounting Officer explained that the household training was a follow up activity planned to be undertaken after training the masons but could not take place due to delayed release of Kfw funds. The Ecosan facilities are now operational after the sensitization of the communities was done.I advised management to conduct trainings where the skills obtained will be beneficial for the successful achievement of overall project objectives.

(d) WSDF- CENTRAL i) Financial Performance 835

The facility received a total of Shs.4,401,068,000 against the approved budget of Shs.5,266,000,000 as shown in the table below:-

Annual Budget (shs) Funds received (shs) %age received Donor 1,000,000,000 447,000,000 44.7% GoU 4,266,000,000 3,954,068,000 92.6% Total 5,266,000,000 4,401,068,000 83.6%

This resulted into realization of 83.6% of the approved budget. There was no funding received in the fourth quarter from the donors. I observed that failure to realize all anticipated revenue might have resulted into the project‘s failure to implement all planned activities.

The Accounting Officer explained that the delayed finalization of the Financing Agreement with Kfw greatly affected the Facility‘s budget performance. I advised management to expedite the works since funding has now been received.

ii) Status of Prior year audit findings

The status of prior year audit findings is summarized below; Issue raised remarks

1 Tax evasion: Not yet recovered. There was tax evasion amounting to shs.522,490,000 in respect of PAYE recoverable. 2 Ecoson Toilets: Not yet fully implemented Identification of Ecosan Toilets all sites where Ecoson Toilets were indication implementers year of construction.

66.5 LAKE VICTORIA FISHERIES ORGANISATION (a) Unpaid Partner States’ Contributions The three Partner States of Kenya, Tanzania and Uganda were required to finance the Organization‘s recurrent budget through equal contributions of US$.194,000 each for the year under review. However, a review of the financial statements shows that Partner States did not contribute a total of US$.355,070 as shown in the table below:-

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No Partner State Amount(Us$) 1. Kenya 139,971 2. Tanzania 48,170 3. Uganda 166,929 Total 355,070

Failure by the partner states to meet their obligations might have impaired the Organization‘s achievement of all its planned objectives.

I advised the Executive Secretary to follow up the payments with the respective partner states.

(b) Operation Save Nile Perch Funding It was revealed that during the Second Session of the LVFO Council of Ministers‘ meeting held on 6th November 2009 at Laico Regency Hotel Nairobi,it was resolved that a Fund be established to address the declining state of Nile Perch Stock Fishery, by each Partner State making a contribution of US$.600,000 into the Fund. However, it was noted that by 30thJune 2011only US$.570,907had been received from Government of Kenya leaving a balance of US$.1,229,093 outstanding as shown below:-

S/NO PARTNER PAID (Us$) OUTSTANDING BALANCE (US$) 1 Kenya 570,907 29,093 2 Tanzania 0 600,000 3 Uganda 0 600,000 TOTAL 570,907 1,229,093

Management reminders to the Partner Statesto have the funds remitted to the organization have so far failed. Consequently the project could not take off.

I have advised management to liaise with its council of ministers and ensure that all partner states are reminded to fulfill their obligations to enable the project to take off as planned. (c) Un-Refunded Gratuity Funds 837

The review of the gratuity funds, operational and fixed deposit accounts revealed that a total of US$.256,091borrowed from the gratuity funds to finance management expenses remained un-refunded by the close of the year under review. The Executive Secretary‘s explanation that the money will be refunded to the account when Partner States fulfill their contributions implied that the Organization may not be in position to settle gratuity obligations promptly as and when they fall due.

I advised the Executive Secretary to refrain from borrowing gratuity funds in order to guarantee the employees‘ social security.

(d) Status of prior year audit recommendations The status of the prior year audit findings was as summarized in the table below:-

Issue raised Remarks 1 Use of fully depreciated non-current assets Addressed 2 Outstanding borrowing from the Gratuity Not yet addressed as indicated expenditure account above

67.0 LAKE VICTORIA ENVIRONMENTAL MANAGEMENT PROJECT PHASE II

67.1 Unaccounted for Expenditure Unaccounted for Funds - Shs.630,690,499

During the period under review, huge sums of money were advanced to implementing agencies which included Ministry of Agriculture, Ministry of Works, NARO, NARL- Kawanda, NAFFIRI, among others. However, by the time of audit accountability documents worth shs.630,690,499 had not been filed for verification. Delayed accountability may result in falsifying documents by the recipient Institutions and individuals leading to loss of project funds.

I advised management to closely follow up the accountability with the recipient Institutions to ensure proper utilization of project funds.

Doubtful Expenditure - shs.388,837,075

A total of shs.388,837,075 was advanced to activity leaders to undertake various Project activities. However, a review of the respective accountability documents

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revealed various irregularities rendering the accountability doubtful. As such, I was unable to confirm the genuineness of the expenditure.

In their response, Management explained that, Internal Audit has been requested to investigate the accountability and thereafter, action will be taken against the culprits accordingly. I advised management to expeditiously investigate the expenditure and also utilize the findings in my Special audit report with a view of enforcing disciplinary measures as well as recovery of the funds where misuse is confirmed.

Payments to Personal Bank Accounts

It was noted that management paid shs.286,978,875 to individuals (activity leaders) directly instead of disbursing the funds to institutional accounts as stated in the Project Document. A review of the accountability documentation provided, revealed that shs.114,982,000 paid to individuals was used to procure goods and services contrary to the procurement regulations as well as World Bank guidelines. The reasons for their preference to advance funds to individuals instead of paying suppliers directly were not disclosed. Besides, the items purportedly procured were not taken on charge in stores, neither were Goods Received Notes and Issue Vouchers from stores provided for verification. This amount therefore was not properly accounted for.

Management explained that payments to activity leaders was an interim measure before the project signed the MOU with the implementing Agencies. I advised management to stop such a practice and always ensure compliance with the PPDA laws as well as the World Bank guidelines. In addition, the above advances should be followed up to confirm whether there was no misuse of funds.

Unacknowledged Tax Remittances To URA

It was noted that a total of shs.79,533,816 paid to Uganda Revenue Authority (URA) in lieu of taxes deducted at source lacked acknowledgement receipts from URA. In absence of such acknowledgement receipts, there is a risk that the funds in question may not have been received by the statutory body. I advised the Accounting Officer to follow up acknowledgement receipts with the tax body.

67.2 Ineligible Expenditure

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It was noted that although the Ministry received shs.619,169,800 as GoU counterpart funding for the project during the year under review to facilitate implementation of LVEMP activities, scrutiny of the related documents revealed that shs.64,467,500 was utilized on non-project related activities rendering the expenditure ineligible.

In response, the Accounting Officer explained that the above amount was for supporting the management and administrative functions as provided for in the project document. However, I found this explanation not satisfactory, since all such administrative activities ought to have been provided for during compilation of the budget. I have advised management to always ensure that they adhere to the budgetary provisions and also initiate procedures for refund of the amount in question to the project.

67.3 Project Performance According to the financing agreement, the project is scheduled to close by 30th June, 2013. Management stated that the project period had been extended by two years to 30th June, 2015. However, by the time of audit, only Us$.7,428,580 had been disbursed representing about 25% of the entire project funding over its life span of four years. Of this amount only about 11% had been utilized. It was noted that management had just signed Memoranda of Understanding (MoUs) with implementing partners and no funding towards Community Demand Driven had been disbursed to the Districts where MOUs had been signed. Such a low absorption capacity could partly be attributed to the delay in processing claims. For instance, it was noted that requests take close to three weeks and at times a month to be paid.

This level of performance exposes the GOU to excessive commitment fees on the un withdrawn Financing balance as per Para: 2.03 Article II of the financing agreement. There is also the risk of losing the undisbursed funds upon expiry of the project and failure to meet the project objectives.

In response the Accounting Officer enumerated a number of challenges facing the project which include the following:-

Delayed Implementation start up where actual disbursement was delayed for close to eight months due to administrative changes within the World Bank involving the change-over of task Team Leaders.

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Preparation of Community Driven Development (CDD) Sub projects were delayed by the belated approval of the work plans by the World Bank and were also held up by the electioneering exercise between November 2010 and March 2011.

The delay in the approval of the work plans and procurement plan resulted in the delay of the commencement of the procurement processes.

LVEMPII is a regional project and a number of activities are jointly conducted by participating countries under the coordination of the Lake Victoria Basin Commission. There have been a few delays at the region which have affected in-country processes resulting in low funds absorption in the relevant areas.

The Mid-Term review exercise and its clearance process by the World Bank lasted over one year i.e. from July 2011 to August 2012. Accordingly a number of activities which could have been implemented during this period were held up. I have advised management to expedite the implementation processes so as to fully achieve the project objectives by the time of project expiry.

67.4 Lack of an Approved Budget and Work Plan It was noted that during the year under review, the National Policy Steering Committee did not fulfill its mandate of approving the budget and the work plan as provided for in the Project Appraisal Document. This implies that the national policy steering committee was not in touch with management and that implementation of the Project budget was not guided by the Committee.

Management explained that the World Bank which stayed the clearance of work plans and budgets pending Mid Term Review compelled management to operate without an approved budget. I advised Management to always strive to ensure that the Budget and the Work plans are approved by the National Policy Steering Committee prior to budget implementation.

67.5 Counterpart Funding Gap A review of the Project budget revealed that GoU was to contribute shs.1,460,003,000 during the year under review. However, only shs.619,169,800 was remitted to the Ministry of Water as Government contribution, representing only 42% 841

of the approved budget. There is a risk that activities earmarked to be implemented using GoU funding were not fully carried out. I advised Management to always liaise with the Ministry of Finance Planning and Economic Development to ensure that all budgeted for funds are availed to the project to enable full implementation of planned activities.

67.6 Quarterly Steering Committee Meeting According to the Project Appraisal Document, the National Policy Steering Committee (NPSC) is responsible for providing policy guidance, approval of project investments, as well as approval and monitoring of project annual work plans and budgets. The committee is also responsible for resolving implementation bottlenecks on a quarterly basis. However, according to the minutes provided, only one meeting was held in September 2011 during which attendance was very poor and the committee was unable to resolve and approve a number of issues. It was noted that the Chairperson and six Permanent Secretaries did not attend this meeting. In absence of regular steering committee meetings where key decisions should be made, the project lacked high level guidance for better project implementation.

In response the accounting officer stated that the activities of the NPSC were put on hold pending the conclusion of the Mid Term Review exercise by the World Bank which unfortunately took the entire year. I have advised management to ensure that the Steering Committee meetings should be held as provided for in order to effectively guide the project towards the full attainment of the intended objectives.

67.7 Payroll A review of the payroll and the personal files of LVEMP staff revealed that some members of staff serving at the same salary scale are entitled to gratuity at differing rates ranging from 0% and 25%. The reasons for entitlement of different rates of gratuity by staff in the same salary scale were not provided during the audit. I advised management to review the terms and conditions of all running employment contracts with a view of rectifying the respective irregularities therein. 67.8 Special Audit Investigations in the Project Activities During the year under review, I also undertook a special audit investigation into the activities of the project, following concerns from the World Bank. The special audit involved a review of all the receipts and payments by the project made from the

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inception of the project on the 12th May 2010 to 31st December 2012, with the following objectives:-

Determine whether expenditure was incurred in line with laid down guidelines and for project activities; In as far as possible confirm if third party recipients were indeed paid the amounts indicated and for legitimate project expenditure; and To identify, in as far as possible the individuals involved and the extent of their involvement.

During the period reviewed (i.e. 12th May 2010 to 5th December 2012), the Project expended a total of shs.8,973,219,200 through its project account and another shs.2,055,525,194 through the counterpart account maintained at the Ministry of Water and Environment.

The following were the key findings from the special audit exercise:-

It was noted that individual‘s personal bank accounts were credited with project money for implementation of project activities. Some of these advances had not been accounted for at the time of the investigation.

Some of the accountabilities provided lacked sufficient information; For instance, some of the accountabilities received for subsistence allowance paid to staff did not indicate the dates, purpose and particular activities undertaken.

It was noted that most of the money paid out to casual labourers was accounted for on payment sheets which did not indicate the purpose for the payment and the period over which the work was performed.

Also noted was that some of the documentation from suppliers did not have contact details or physical addresses and I could not verify and corroborate the information indicated in the documents.

The irregularities as mentioned above totaled of shs.1,218,756,355 as shown in the table below:-

Category Amount (shs) Insufficient documentation & explanation 166,730,250

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Disqualified expenditure 569,531,361 Incomplete accountability 5,888,044 Accountability not seen 476,606,700 Total 1,218,756,355 The details of the above findings are contained in the separate special audit report.

SOCIAL DEVELOPMENT SECTOR

68.0 MINISTRY OF GENDER, LABOUR AND SOCIAL DEVELOPMENT

68.1 Mischarge of Expenditure It was noted that expenditure totaling to Shs.376,658,595 in respect of various activities was charged to wrong expenditure codes. As a result, the balances of the affected expenditure codes reported in the financial statements are misstated by the above amounts. I informed Management that the mischarge of expenditure misleads the reader of the financial statements and that the practice is irregular as the amounts reallocated are not authorized. Management attributed the problem to inadequacy of both human and financial resources and the budget cuts that affect scheduled implementation of activities.

I advised management to ensure that payments are charged to the correct expenditure codes.

68.2 Over-expenditure It was noted that the Institute incurred expenditure of shs.116,124,821 over and above the appropriated amount for employee costs during the year under review. There was no evidence that appropriate re-allocation or virement warrants were obtained before incurring the expenditure. This could be a reflection of a weakness in the application controls on the IFMS.

I advised management to ensure adherence to the Appropriation Act provisions.

68.3 Revenue (a) Unauthorised Utilisation of NTR A review of the Institute‘s financial records and related correspondences revealed that the Institute collected and spent at source a total of Shs.525,362,542 as NTR 844

against Shs.275,000,000 Appropriation-In-Aid leading to unauthorized utilization of NTR amounting to Shs.250,362,542 contrary to the Appropriation Act. I advised management to adhere to the provisions of the Appropriation Act.

I advised that given the importance and nature of the Institute‘s operations, the Ministry of Finance, Planning and Economic Development should consider categorizing the Institute as a priority Agency to ensure that its approved budget does not suffer the recurring Government budget cuts. 68.4 Absence of an enabling Act The UNHRO Act, 2009 established the Uganda National Health Research Organization among other things to bring the Uganda Virus Research Institute, Uganda Cancer Institute, Natural Chemotherapeutic Research Institute and the Tropical Diseases Research Institute under the control and management of the organization and for other related matters. However, a review of the Uganda Cancer Institute operations and documentation revealed that although it operates under this Act, its mandate and operations are far reaching than merely doing research and hence the need to have in place an independent Act prescribing the Institute‘s mandate. I observed that in absence of an enabling Act, the Institute may face limitations in trying to fulfil its broad strategic objectives.

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68.5 Vacant Posts A review of the Institute staffing structure revealed that out of an approved staff structure of 254, only 106 posts were filled (representing only 40.6% of the established structure). The remaining 148 posts (representing 59.4% of the established structure) were yet to be filled. As reported in my previous report, this matter has not been given the attention it deserves and given the toxic environments in which the Institute staff work, it was noted that the existing few staff have had to continue working for longer hours than is recommended. Such exposure to the toxic drugs for longer hours is more likely to cause health problems to staff.

Management explained that so far the Ministry of Public Service had cleared 18 out of the 60 posts declared.

Management was advised to continue pursuing the matter with the relevant authorities and also expedite the recruitment process for the cleared posts.

68.6 Drugs (a) Performance of the credit line with National Medical Stores (NMS) A review of the performance of the credit account of the Institute with NMS revealed that the Institute had a balance brought forward of Shs.2,472,647,175 and during the year, a total of Shs.2,999,999,000 was released to NMS in respect of drugs leading to funds available for the Institute amounting to Shs.5,472,646,175. A review of the records indicated that drugs worth Shs.4,390,029,226 were delivered (representing an 80% performance) leaving a balance of Shs.1,082,616,949 unutilized on the institute‘s credit line. A further analysis revealed that about 42% (about Shs.1,838,770,213) of the total drugs were delivered in the fourth quarter of the financial year. Late deliveries Impact negatively on the Institute‘s service delivery. 846

I advised management to regularly liaise with National Medical Stores to ensure timely delivery of drugs.

Management is advised to reconcile this position and always keep track of the orders made against the corresponding deliveries. Any rejected stock should always be returned to NMS promptly.

I advised management to ensure that the pharmacy records are kept up-to-date and regular stock counts are done to ensure proper accountability for the drugs.

Management was advised to make regular reconciliations to ensure adequate utilization of all funds allocated to the Institute.

68.7 Unconfirmed supply of receipt books Verification of revenue records revealed that 46 receipt books were found to have been supplied to the Institute‘s cash office by the Ministry of Finance Planning and 848

Economic Development. However there were no records to either support deliveries made or enable reconciliation to the deliveries to be undertaken. In the circumstance, it was difficult to confirm that all receipt books supplied were accounted for and that all revenue collected was duly brought to account. Management is advised to avail all the issue vouchers in support of the receipt books delivered.

68.8 Doubtful Expenditure A total of shs.11,200,378 was paid out of Imprest to cater for various activities during the year under review. However, in most cases the expenditure could not be substantiated. As a result, it was rendered doubtful. It was further revealed that no imprest cash book was maintained to record petty Cash transactions as required by the Treasury Accounting Instructions TAI of 2003. In addition, Shs.6,640,000 paid from NTR collections remained unaccounted for. Accordingly, I could not ascertain that the expenditure was genuinely applied for the intended purpose.

I advised management to enforce controls relating to accounting for funds including recovery of outstanding amounts.

68.9 Procurement A review of a sample of procurement files revealed the following matters:- (a) Procurement reports The Procurement laws require Procuring and Disposing Entities to prepare monthly procurement reports and submit them to PPDA. It was however noted that during the year, there were no monthly reports prepared and submitted to the Authority as contrary to the Procurement laws. I informed Management that failure to submit reports did not only violate the Procurement laws but also denied the Authority the opportunity to review the Institute‘s implementation of the procurement laws and guidelines and be able to assess its level of compliance. In response, management explained that they prepared and submitted procurement reports though this was

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done on the Procurement Performance Measurements Systems.Management was advised to strictly adhere to the PPDA requirements.

TOURISM, TRADE AND INDUSTRY SECTOR

69.0 MINISTRY OF TOURISM, WILDLIFE AND HERITAGE

69.1 Revenue Shortfall A review of the Ministry‘s budget performance revealed that the Ministry budgeted to receive a total of Shs.11,362,468,743 from Treasury during the period under review. However, only Shs.9,412,630,943 was realized thereby registering a shortfall of Shs.1,949,837,800 (representing about 17% of the approved budget). In the circumstances, implementation of planned activities is constrained. I advised management to always endeavor to follow up such matters with the Ministry of Finance, Planning and Economic Development.

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In their response management acknowledged the shortfall which was attributed to budget cuts across all Ministries. The Budget cuts were communicated by the Ministry of Finance, Planning and Economic Development citing Macro Economic problems.

69.2 Unfilled Staff Positions It was noted that the Ministry had an approved staff establishment of 301 posts but only 126 posts were filled, leaving 175 posts vacant (representing a 58% staffing gap). Such staffing gaps negatively impact on the level of service delivery and may render it difficult for the Ministry to achieve its objectives.

Management in response stated that the vacant positions emerged following the approval of its new structure which became effective from 1st July 2012. However, the current Government freeze on all recruitment for this financial year has complicated the recruitment matters. I advised management to take up the matter with the relevant authorities to have all the staffing gaps filled.

69.3 Use of motor Vehicles Circular Standing Instruction No.1 of 18th July 2004 brings to the attention of Accounting Officers the need to adhere to Uganda Government Instructions Chapter 1 Section F-K on the use and care of Motor Vehicles which stipulates that government vehicles should be used for official duty and parked and secured after working hours. However a spot check carried out during one of the weekends revealed that none of the eighteen Vehicles owned by the Ministry was parked in the parking yard out, save for the 2 grounded vehicles UG0299T and UG0190T. There seems to be laxity in the control and use of Ministry motor vehicles, which is likely to lead to increased maintenance costs.

In his response, the Accounting Officer acknowledged the need to have controls in the use of motor vehicles adding that he had directed that after working hours and during public holidays, vehicles should be parked in designated parking yards at Ministry Headquarters or at the Uganda Museum. Approval would have to be sought from the responsible officer in cases where it is envisaged that work may spill over beyond official working hours. I have advised management to strengthen 851

controls on the use of motor vehicles to avoid wasteful expenditure on maintenance costs.

69.4 SECOND TRADE CAPACITY ENHANCEMENT PROJECT (TRACE II)

(a) Budget Performance

It was noted that the project budgeted to spend a total of Shs.377,859,610 on national experts, travel and missions, learning costs, operating costs and sundries. However, actual expenditure amounted to Shs.489,814,696 leading to an over expenditure of Shs.111,955,086. Further, the project budgeted to spend a total of Shs.382,875,390 on international experts, support staff, sub contractors, equipment and professional services but actual expenditure amounted to Shs.240,366,700 leading to an under expenditure of Shs.142,508,900. There was nil expenditure on international experts as indicated in the table below:

Account Category Budget ( UGX) Actual (UGX) Variance (UGX) 71200 Intnal Experts 30,857,947 - 30,857,947 71300 Support staff 286,036,360 219,004,860 67,031,500 71400 National Experts 50,292,191 87,570,000 -37,277,809 & travel 71600 Travel & missions 65,390,245 71,562,624 -6,172,379 63400 Learning costs 119,945,087 157,674,731 -37,729,644 72100 Subcontractors 4,227,151 1,700,000 2,527,151 72200 Equipment 36,819,574 12,046,840 24,772,734 74200 Operating costs 111,906,654 117,897.302 -5,990,648 74100 Prof services 24,934,358 7,615,000 17,319,358 74500 Sundries 30,325,433 55,110,039 -24,784,606 760,735,000 730,181,396 142,508,690 -111,955,086

The over expenditure may have affected the implementation of some of the planned activities. No reallocation warrants and /or virements were availed to support the over expenditure. The unspent budgeted amounts could also have affected the output of the particular activities and the overall performance of the project. 852

Management in response attributed the over expenditure to the need to carry out some vital activities that originally were not anticipated but very essential for the success of project activities including work on some laws and policies.

In regard to under expenditure, this item was meant to supplement work on the DTIS. However, since this item was fully transferred to the World Bank, there was little work that could attract International Experts. It is from this that funds were made available in consultation with the TFM, for the over expenditure on the other items.

I have advised management to ensure that activities are always implemented according to the approved work plan and budgets and that any over expenditure should be authorized.

(b) Absence of Internal Audit Function

It was noted that the project has no internal audit function in place. In addition there was no evidence that the ministry internal audit team undertook review of the project activities. I brought to the attention of management that lack of internal audit reviews creates a risk that weaknesses in the internal control structure regarding project management and expenditures may not be timely identified and addressed.

Management attributed this omission to initial lack of clarity from the project funders concerning internal audit but has promised to have the Ministry‘s internal audit team review the activities of the project.

I await compliance on the part of management.

The TRACE II project uses excel spreadsheets to prepare the books of account and financial statements. This program lacks key security features to provide a good medium for maintaining and summarizing financial information. In addition it may not be compatible with the integrated accounting software of government to allow for data sharing and timely data update. Further, it was noted that a sum of Shs.7,147,854 (US$.3,550) was paid in March, 2010 to a local firm in respect of Quick books accounting software and User Training manual. To date, the project has never put the accounting software to use as intended. 853

In response, management indicated that they in consultation with the accounts department in the Ministry provided more training to staff on the quickBooks software and also explore ways of harmonizing with the integrated accounting system of Government. I advised management to expedite this process so as to put to use the software.

70.0 UGANDA INDUSTRIAL RESEARCH INSTITUTE

70.1 Unimplemented Activities A review of the physical budget performance revealed that the following activities planned activities during the year were not undertaken.

Out of planned recruitment of 60% staff only 31 were recruited

The Research and Development for different bamboo products was not undertaken.

Procurement of materials for the design and fabrication of the complete functional textile spooling machine was not undertaken.

Non implementation of planned activities undermines Institute‘s mandate ability to achieve its objectives.

In response, management explained that the activities were being undertaken but due to insufficient funds they could not be completed. However, once funds are secured the implementation will be undertaken.

I advised management to ensure that it sets targets that are achievable and identify other sources of funding.

70.2 Projects with Missing MOUs Eighteen (13) projects lacked Memoranda of Understanding (MOUs)/Contracts. In the circumstances, it was not possible to review and verify the terms and conditions under which these projects were created and operated. In addition, the obligations of the participating parties could not be ascertained.

In their response management attributed the state of affairs to the transitionary nature of the projects. It was indicated that some projects were transitioning from Pilot level to Commercial scale while some partners exhibited a lack of readiness to

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kick start project operations. Accordingly the new MoUs were under review. I await the outcome of the review process.

70.3 Active Projects under Virtual Incubation with Expired Contracts/MOUs It was noted that five projects namely; Busia Meat Packers, Savoury classic quality meat products, Mushroom training resource centre, united foundation of entrepreneurial skills for development and Grace K Supermarket had expired contracts which had not been renewed at the time of this audit. Besides, there was no evidence that management was in the process of renewing these contracts. Operating projects/contracts without MOUs and expired contracts without renewal is irregular as certain conditions of the contract may not be enforceable.

In their response management stated that operations of all enterprises holding MoUs with the institute are periodically appraised. In the event that particular enterprise/incubatees do not perform as expected then the terms and conditions are reviewed. Some well performing entities are graduated and hence less support is extended. Others may need strategic reproach to their business ideas and some may exit.

I advised management to document the periodic review of the terms and conditions of the projects in question.

70.4 Internal Audit The role of internal audit is to provide independent assurance that an organization‘s risk management, governance and internal control processes are operating effectively. However the internal audit unit of UIRI is managed by one lady officer who mainly concentrates on pre audit of payment vouchers and verifying supplies delivered to the institute. The officer does not carry out field inspection to check whether the research Centres located outside Kampala are running as expected.

Management in their response acknowledged the capacity limitations of the internal audit unit and undertook to rectify the situation. I advised the Accounting Officer to ensure that the Unit is adequately staffed.

70.5 Poor Storage of Undisposed Assets

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A review of the Auctioneers report revealed that 26 (twenty six) assets failed to attract any buyers at the time of disposal. Physical verification revealed that the assets were poorly stored. A case in point is where some items were kept on the verandah. Therefore, the assets are exposed to a risk of further deterioration due to adverse weather conditions.

Management in their response stated that, UIRI like any government institution is faced with a challenge of space. However all institute assets are stored with care at all times. I advised management to explore the alternative of selling the assets as scrap.

70.6 Failure to Engrave Assets Physical verification of the assets revealed that assets costing Shs.655,017,280 were not marked with unique identification numbers. This can complicate the process of identification of such assets in case of loss. In addition, tracking and monitoring of the assets is rendered difficult.

Management in their response stated that they were reviewing the most modern and effective method of engraving the assets. This activity is expected to be accomplished in the first quarter of the Financial Year 2013/14. I advised management to ensure that project assets are engraved for proper identification.

70.7 Mango Fruit Juice Project-Arua This project was built at a cost of Shs.435,093,367 of which Shs.241,007,253 was for civil works and Shs.194,086,114 was for machinery, water and power. It is a build-equip-and-hand-over project.

Physical inspection of Nile Natural Fruit Product plant in Arua municipality during the month of January 2013 revealed that construction of the building had been completed and some machinery/ Equipment were offloaded at the site on 16th January, 2013 the same day this inspection took place. However, the following equipment was yet to be delivered to the site:

Pulper, Homogenizer,

Three work tables,

Grill covers

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Two trolleys

Production was expected to start in the month of May. However, it was noted that the site had not yet been fenced and compound paving was not done at the time of inspection.

Management in their response stated that progress is often hindered by significant procurement snafus from both the vendors and our own government systems. In addition, budgetary shortfalls continue to derail project plans. However, it was indicated that electricity had been connected and installation of machinery would be completed by the first week of May. I advised management to take up the matter with the relevant authorities with a view to expediting the works.

70.8 Savoury Classic Quality Meat Products. The project received machinery and equipment costing Shs.33,390,000 for UIRI. Physical inspection of this project located in Arua town during the month of January 2013 revealed that production was had not commenced. It was noted that the project lacks a building to house the plant as some of the equipment was found at the site still packed in the boxes. Further, it was also noted that there was no electricity in place to enable operating of the machines.

Management in their response attributed the slow pace of completing the physical infrastructure to lack of control over Rural Electrification arrangements coupled with budget shortfalls. I advised management to take up the matter with the relevant authorities.

70.9 Peanut Research & Processing Centre-Lira Uganda Industrial Research Institute contributed a total of Shs.853, 763,231 towards the construction, installation of machinery and equipping of the project. This is also a build- equip-and-handover project.

Physical inspection of the project carried on 15th January, 2013 revealed that construction of the plant had been completed and all the required machinery and equipment had been installed and commissioned. However, it was noted that production was low yet the store was full with unprocessed groundnuts.

Management stated in their response that the delay for full commercialization is characterized by lack of entrepreneurial skills and readiness for the partners to kick 857

start the project operations. Hence the Institute is considering bidding the process out. In addition, management of the facility was being reviewed. I await the outcome of management‘s action in this regard.

70.10 Fruit Juice Processing Project – Nabusanke, Mpigi Uganda Industrial Research Institute contributed a total of Shs.853, 763,231 towards the construction, installation of machinery and equipping of the project. This is also a build- equip-and-handover project. The land was donated by the church and the project is implemented by Kasaka Mothers Union based on the Presidential directive. However, due to lack of entrepreneurial skills, the association has failed to manage the project as it has not achieved fuel commercialisation.

Management attribute the failure to lack of entrepreneurial skills and readiness for the partners to kick start operations of the project. Hence the Institute is considering bidding the process out. I advised management to expedite the bidding process.

70.11 Status of Previous Year’s Audit Issues

Audit Issue Status Management Response A Recruitment of staff on non- No action was taken. Recruitment by competitive basis internship has proved to be the most effective way of hiring high caliber scientists and engineers who can be trained on the job B Vacant posts No Action was taken. There has not been any budget increment for the last three (3) financial years. This position has made it impractical to fill the vacant positions.

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LANDS SECTOR

71.0 MINISTRY OF LANDS, HOUSING AND URBAN DEVELOPMENT

71.1 Budget Performance The Ministry received a total of Shs.11,747,923,670 out of the approved amount of Shs.17,617,451,025 resulting into a shortfall of Shs.5,869,627,355 (about 33.3% of the budget) as shown below:-

Budget (shs) Actual (shs) Shortfall (shs) Shortfall (%) Recurrent 10,940,228,863 7,838,521,187 3,101,707,676 28.0 Capital 6,677,222,162 3,909,402,483 2,767,819,679 41.5 TOTAL 17,617,451,025 11,747,923,670 5,869,627,355 33.3

Failure to release all the approved funds negatively impacted on the Ministry‘s ability to implement all the planned activities during the year under review. Activities that were mainly affected included settlement of domestic arrears due to ranchers who were dispossessed of their land during the government ranches restructuring exercise, repairs and spares for motor vehicles and Uganda contributions tothe International Organization Regional Center for Mapping and Development (RCMD) which had accumulated to shs.331 million by the time of writing this report.

Management explained that the Ministry‘s funding is basically dependent on the Medium Term Expenditure Framework (MTEF) controlled by the Ministry of Finance, Planning and Economic Development. The Ministry is also dependent on the actual releases received whereby not all what had been appropriated by Parliament was released. I advised management to continue liaising with the Ministry of Finance, Planning, and Economic Development to ensure that adequate funding is provided.

71.2 Motor vehicles repairs

During the audit, an inspection of a sample of six (6) garages from the pre-qualified list of garages to undertake repairs of the ministry motor vehicles was undertaken. The following observations were noted:-

Motor vehicles overstaying in garages

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It was noted that some ministry vehicles over stay in the garages where they are taken for repairs as shown in the table below:-

Motor Vehicle Reg. No Remarks

UG0055L Parked at Kyeyunga Enterprises garage and is grounded. UG0055L was delivered to the workshop on 29th August, 2011 but the contract for its repair was awarded on 12th January, 2012, four (4) months after it was taken to the garage; the Local Purchase Order (LPO) was originated on 24th April 2012, three (3) months after the contract award.

UG0034L Parked at Kyeyunga Enterprises garage. was delivered to the workshop on 3rd August 2012, but by the time of inspection two months later, the vehicle had not been repaired.

UG0073L Parked at F.S. Motors and was reportedly delivered to the Garage in July 2011. Garage had written and sent pro forma invoices to the Ministry worth shs.2,700,000 but the response by management had always been lack of funds.

I explained to the Accounting Officer that keeping such vehicles in the private garages for long periods of time exposes them to a risk of vandalism.

Failure to undertake prior inspection of the motor vehicles

It was noted that the above vehicles were delivered to the respective garages without a prior assessment of the repair requirements by the ministry. In addition, there was no evidence that several quotations from various prequalified garages were obtained before selecting the final garages where the vehicles were taken for repairs. This exposes the ministry not only to a risk of exaggerated repairs but also unfair prices.

The Accounting Officer explained that the vehicles in question delayed in the garages because of the financial constraints the Ministry continues to face. On the issue of taking the vehicles to the garages before they are assessed, he explained that the Ministry does not have adequate parking space for vehicles with

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mechanical problems and that the vehicles are closely monitored to ensure that they are not cannibalized.

I informed management that there is need to review the ministry‘s motor vehicle repair procedures to ensure that adequate controls are instituted to guard against losses.

71.3 TRANSFORMING SETTLEMENT OF THE URBAN POOR IN UGANDA PROJECT ID:P122475 AND P121015

(b) Low absorption Capacity A total of US$.750, 000 was disbursed to the project during the year under review, however US$.399,960 (representing about 53% of the disbursed amount) remained unutilized by the year end. It was further observed that whereas a total of US$.350,000 was transferred to the participating Municipalities, the level of funds absorption/utilization was equally low at the Municipality level. For example Mbale, Kabale and Mbarara had balances of Shs.140,078,500, Shs.154,828,431 and Shs.135,000,000 respectively by the close of the year.

The project activities are not implemented in a timely manner and given the planned project close in December, 2014 the objectives may not be achieved within the stipulated timeliness and this could lead to extra administrative costs.

In response, management attributed the delay to the lengthy and rigid World Bank Procurement Plan which requires at least nine months before any procurement is finally effected. Low absorption capacity at municipalities level was due to delays by the respective municipality contract committees to award contracts.

Management was advised to sensitize the participating municipalities on the urgency of implementing activities in accordance with the approved work plans.

(c) Shortfall in Counterpart Funding The Government of the Republic of Uganda (GoU) was to co-fund the project to the tune of Shs.395,785,000, by the year end, however it was noted that only Shs.170,507,713 (representing about 43% of the budgeted funds) was provided

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leading to a revenue budget shortfall of Shs.225,277,287. Under funding negatively affects the implantation of project activities.

In response the accounting officer explained that the shortfall was caused by budget cuts effected by the Ministry of Finance, Planning & Economic Development and management had no control over these cuts.

The Accounting Officer was advised to lobby with Ministry of Finance, Planning and Economic Development to enable release of all planned resources.

(d) Memorandum of Understanding with Municipalities It was a requirement that all participating Municipalities should sign MoUs with the Ministry before funds were disbursed to their operational accounts. It was however noted that although a total of Shs.836,640,000 was transferred to the five Municipalities by the Ministry, there was no evidence that any memoranda of understanding had accordingly been signed contrary to the above requirement.

In the absence of Memoranda of Understanding, I was unable to establish the responsibilities of each party and also confirm that they all fulfilled their obligations. I advised management to ensure that MOUs are duly signed before any further disbursements were made to the beneficiary entities.

(e) Doubtful payments - Shs.13,491,000 A total of Shs.9,000,000 was paid out to the Mbale Municipal Engineer for developing Bills of Quantities for the TSUPU infrastructural projects. However, instead a receipt from a private company amounting to Shs.7,380,000 was used to account for the funds. It was not clear as to how this firm was procured and why the service provider was not paid directly by cheque. Besides, Shs.1,620,000 remained un accounted for.

It was further noted that another Shs.4,491,000 was paid to the Project focal person for facilitating TSUPU programmes. However, the only accountability attached was for Shs.1,520,000 meant for meals and refreshments, leaving a balance of Shs.2,971,000 unaccounted for.

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There is a risk that the funds in question may not have been put to proper use. I advised management to investigate the anomaly.

72.0 UGANDA LAND COMMISSION

72.1 Acquisition of Land at Mutungo According to Article 119 of the Constitution of Uganda, prior to acquisition of land, the Government Valuer values the land and the Uganda Land Commission enters into a contract with the land lord after obtaining the Solicitor General‘s consent. However, a review of the file for the acquisition of 4.49 hectares of land at Mutungo comprised in Block 237 Plots 29, 48, 56, 59 and 76 from Muhamed Buwule by Uganda Land Commission revealed the following anomalies:-

(a) The Chief Government Valuer‘s report of 17th September 2004 valued the land at Shs.1,110,000,000. However, according to clauses 1.1 and 1.3 of the Sale Agreement made on 12th September 2008, the Commission acquired the land at a cost of Shs.2.4 billion. No explanation was provided for this deviation from the value advised by the Chief Government Valuer. (b) No land title was made available for audit. Besides, it was noted that ownership of the land was also the subject of a further dispute. The matter was before court (HCC Suit No. 622/03). The outcome of this suit was not provided for audit. (c) Further review of documentation availed revealed that Shs.1,071,130,000 was paid to the vendor by the Ministry of Lands, Housing and Urban Development by February 2007 and the balance of Shs.1,328,870,000 was paid on 23rd November 2009. The Commission requested the Ministry of Finance, Planning and Economic Development for Shs.8,812,984,137 to pay interest accrued on the above balance which had remained unpaid within the agreed time frame. However, computation details in support of the Vendor‘s claim of interest was not provided for audit. Although the Ministry of Finance, Planning and Economic Development did not release the funds, there is a risk that the Vendor may be paid this interest irregularly.

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During my discussions with management, I was requested for more time to enable management investigate and provide the necessary information. I await conclusion of their investigations.

72.2 Land at Shimon Road (Primary School and T.T.C) Land at Shimon Road (Primary School and T.T.C) comprising of Plots 31A-35A and 37A-39A Nile Avenue was allocated to M/s. Kingdom Hotel Investment under an initial lease period of 5 years with effect from 1st April 2006. The lease offer was subject to the following conditions:- (i) Construction of a 5 Star Hotel in time for the Common Wealth Heads of Government Meeting to be held in Kampala (2007). (ii) Relocation and Construction of a New Primary School and Teacher College to a new site. (iii) Development starts on issue of the title.

In a letter from the Chairman, Uganda Land Commission to the Minister of the Ministry of Finance, Planning and Economic Development it was indicated that the investor was unable to proceed with the project at which point the land should have reverted to the Commission. Although there is evidence of work in progress at the site, I have not been provided with information relating to the new developer and the related terms and conditions.

72.3 Purchase of a House for the Late Akibua’s Family – Shs.1,200,000,000 Uganda Land Commission paid the above funds to M/S Uganda Transparency Consultants on behalf of Edith Namusisi, James Kiwanuka and Manjeri Kizza who are the administrators of the estate of the late Sambwa on 12th December, 2011 for the compulsory acquisition of land and buildings on plot Nos.1708 and 1709, Block 29, Kibuga, Mulago for the benefit of the late Akibua‘s family. However, a review of the documentation on the procurement file revealed the following matters:-

a. The statement of search dated 11th October, 2010 and the report by the Government Valuer dated 22nd October, 2010 show that there is a subsisting leasehold interest in favor of Mr. Satnam Singh registered on plot 1709 under

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leasehold register volume 3285 folio 2 of 14 years with effect from 2nd July 2004.

b. The Attorney General placed a caveat on the land on 23rd December 2009 that was registered onto the title on 31st March, 2010 under instrument number 427013 claiming that Mr. Satnam Singh‘s leasehold interest had been bought off at a cost of Shs.220,000,000. However, the physical inspection of the properties found Mr. Satnam Singh still occupying the boys quarters on plot 1709.

c. The land title had not yet been transferred into the names of the administrators of the Akibua‘s family by the time of audit reportedly because they had not yet been identified. It is not clear as to why the procurement process was initiated without first establishing the beneficiaries.

d. The entire value of the properties was paid without reservation of the cost that may be involved in removing Mr. Satnam Singh from some of the properties.

In response management explained that necessary steps were being taken to remove Mr. Satnam Singh from the premises. The Administrator General has been tasked to establish the administrator of the Late‘ Akibua‘ estate to ensure that the title is transferred to the right individual(s).

I have advised management to expeditiously establish the beneficiaries and have the land title transferred into their names. Management was also to ensure that Mr. Satnam Singh is evicted to enable the beneficiaries enjoy vacant possession.

72.4 Staffing It was noted that although the Commission has been in operation for twelve years, it does not have an approved structure to hold and manage all Government land contrary to the Land Act 2000. In addition, all Commissioners are part time with the exception of the Chairperson. Failure to have an approved structure in place negatively impacts on the Commissions ability to deliver its mandate.

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This matter was also raised in my previous audit reports but no action has since been taken by management. In response, management explained that the Ministry of Public service has taken up the issue with cabinet and the outcome is being awaited. I have again advised management to continue liaising with the Ministry of Public Service in order to have an approved structure in place.

Further, a review of personal files revealed that a staff has taken more than seven years on probation without being confirmed or terminated (whichever is appropriate). Management indicated that the officer‘s file had been submitted to Public service Commission for confirmation.

72.5 Court Cases The commission is faced with a number of court cases for irregular allocation of land and non-payment of ground rent. Below are some of the cases awaiting court proceedings and outcomes;

Case number Particulars Facts Civil Suit No 172 M/S Ntinda Industrial Illegal allocation of their land where they of 2011 in the Estates Development have been tenants of MTAC. Refer to in High Court of Association Ltd Vs AG, 2/2011 of 16th-17th Nov 2011 Uganda at ULC, MTT&I, MTAC Nakawa &CHARMS Ltd Church of Uganda Vs Non payment of Ground rent. Refer to Min Commission 4/2012 of 29th Feb-1st March 2012 M/S Nextel Vs ULC The Commission minutes of 17th June 2010 irregularly recommended the allocation of the same 2.5 acres parcel of land at East Kololo primary school to Messrs Nextel Ltd, Haks Investment Ltd and Adventure Real Estates Ltd through minute numbers 13-221, 13-222 and 13-255 respectively. The decisions were reportedly based on the firms‘ recommendation by the Ministry of Education and Sports that actually only recommended M/S Nextel. However, the Commission‘s recommendation of cancellation of the title to the above land in the names of M/S Adventure Real Estates Ltd in favor of M/S Nextel Ltd contained under minute 2/2010 of 25th August 2010 had never been implemented. The Statement of Search as at 31st August 2011 shows that M/S Adventure Real Estates Ltd mortgaged the land to Crane Bank on 18/07/2011 under instrument Number 4511962 HCCS No 107 of Henry Munyanganizi Vs A garnishee order was issued against ULC 2010 ULC accounts in BOU for Shs.800 million 866

HCCS Byekwaso Namwama Vs Decree issued claiming Shs.245,038,000 No1007/1996 AG and ULC

It was also noted that the Commission lacks a comprehensive Government land register to guide allocation land. Improper land allocation exposes the Commission to Court cases and the risk of loss of public funds.

In response, management explained that for the case of M/s Nextel and Adventure Real Estates, the parties went to court and agreed to settle the matter out of court by way of sharing the land. The garnishee order has been set aside by Court for the case of Henry Munyanganizi. I advised management to put in place a comprehensive land register detailing ownership, period of the lease & expiry date, payments status, area and ensure thorough scrutiny of documentation relating to a particular land before a final decision is made.

72.6 Lack of Land Titles and Land Encroachment – NARO Inspections of NARO records and institutions revealed the following matters;

(a) Ssenge Hill (Wakiso District)

The National Agricultural Research Organisation (NARO) had a land wrangle with the family of the late Walusimbi Mpanga over the piece of land measuring 135.5 acres on the said Hill. The organization leased the land from the Uganda Land Commission for 99 years effective 1951. However after 57 years on 7th May, 2008, the family of the late Walusimbi Mpanga wrote to NARO informing them that they had obtained a ―re-entry‖ into the land after the ULC had failed to pay rent for 30 years totalling Shs.6.6 billion. In January 2012, the family hired bailiffs to evict NARO from the property and in the process, structures and high quality disease resistant crops under research worth Shs.343,770,000 were destroyed. The research was being done in collaboration with International Centre for Tropical Agriculture (CIAT). Failure by ULC to meet its obligation implies that valuable scientific work had been hindered.

Management explained that the user MDAs are supposed to regularly update Uganda Land Commission on issues that may require intervention. In this case MAAIF (NARO) had never brought this issue to the attention of ULC like other

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Government departments have in time reported on any encroachments on land in their possession.However, the Commission had brought this particular case to the attention of the Solicitor General on the basis that the procedures of ―re-entry‖ were not followed by the land lords.

Management was advised to expeditiously follow up the matter with the relevant authorities.

(b) Mbarara Institute

About 18.7 hectares of land had been heavily encroached upon by private developers who purportedly bought this land from Mbarara District Land Board without consultation with Mbarara Stock Farm. Notable among the encroachers is one Capt (Rtd) Bashakara who had already established a private farm and a school called Ngabo Academy. It was noted that the Uganda Land Commission in a letter dated 12th November, 2010 directed the occupants to vacate the said land but to date the encroachers have not vacated. Management stated that Ministries, departments and Agencies/Insitutions being direct users of Government land are required to protect the land from illegal use and encroachment. The title obtained from the minute/allocation by the District Land Board (DLB) of Mbarara is null and void because it was given by the wrong authority. Uganda Land Commission has written to the Commissioner, Land Registration, requesting to have the said titles cancelled.

Management was advised to expedite the cancellation process so that the land reverts back to the rightful owner.

The institute‘s land is not in its names but in the names of Uganda Land Commission. No evidence was availed to confirm ownership of Bugongi and Karengyere stations.Whereas management stated that all Government land is held by ULC on behalf of Government, best practice requires that the beneficiary entity is reflected on the title deed. I advised management to take up the matter with Uganda Land Commission.

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(d) Kitgum Satellite Station (Ngetta)

9 plots of Kitgum Satellite Station had been allocated to private developers by the District Land Board and a number of structures had been erected on the same land, negating the intended purpose of the centre for the benefit of the farming communities in the area.

Management explained that the allocation of ULC land by the District Land Board was illegal. The responsible institution with its mother ministry (MAAIF) should have brought this matter to the attention of ULC for appropriate action. However, ULC was liaising with the Commissioner Land Registration to have their Land Titles cancelled.

I advised management to expedite the cancellation process and have the land repossessed by the rightful owners.

72.7 Irregular Allocation of Land in Luzira Industrial Park by Uganda Land Commission Uganda Investment Authority (UIA) leased 3.101 acres of land comprised in plot 2A-4A Third Ring Road in Luzira Industrial and Business Park to Surgipharm (U) Ltd in September 2007 for three years. The piece of land was curved out of plot 2125 block 243 Kyadondo measuring 25.58 hectares (63.208 acres) that was allocated to UIA by Uganda Land Commission in December, 2005.

Records at UIA show that ULC surveyed and curved out of plot 2A-4A another plot (plot 150 Kyadondo Road Block 243 Luzira) and allocated it to Victoria Best Ltd, without the knowledge of UIA. There was no evidence to show that Victoria Best Ltd qualified as an investor to be allocated land by the UIA. Surgipharm (U) Ltd later filed a case (Civil suit No.38 of 2011) against M/s. Victoria Best Ltd and joined UIA as a co-plaintiff.

Uganda Land Commission acknowledged that the allocation to M/s. Victoria Best Ltd was done in error but instead of causing the Commissioner, Land Registry to cancel the title, UIA was instead asked to shift Surgipharm (U) Ltd to another place 869

within the park. The irregularity by ULC points to a fraudulent transaction on the UIA land and it is not clear why ULC was not enjoined in the case. It is also likely to cause financial loss in form of court costs.

Management explained that its preliminary investigations indicated that at the time land was allocated to Uganda Investment Authority (UIA), no entry on the mother title was included to indicate that part of this land had been allocated to UIA. It was further revealed that the land allocated to UIA remained unused for a long time and this was taken advantage of by M/s. Victoria Best Ltd. to apply for it. This case is in court. However, the judge has advised that the two agencies of Government i.e. ULC and UIA settle this matter out of Court. As regard to the suitability of M/s. Victoria Best Ltd. As an investor, management stated that ULC does not discriminate on who qualifies for allocation of ULC land. M/s. Victoria Best Ltd is a registered company and qualifies under ULC guidelines for land allocation.

72.8 Incompletely Vouched Expenditure – Shs.30,741,083 Section 217 of Chapter 1V of the Treasury Accounting Instructions 2003, requires public officers to account for funds advanced to them within a period of 60 days. The financial regulations also require expenditure vouchers to be accompanied by appropriate supporting documents such as receipts and invoices.

However, examination of financial records revealed that expenditure vouchers amounting to Shs.30,741,083was not accounted for by the time of writing this report. In the absence of proper accountability, there a risk that the amounts involved were not been put to proper use. I advised management always to ensure that accountabilities are promptly filed.

INFORMATION AND COMMUNICATION SECTOR

73.0 MINISTRY OF INFORMATION AND COMMUNICATIONS TECHNOLOGY

73.1 Mischarge of expenditure – Shs.1,042,277,879 Review of the Ministry‘s expenditures revealed that a total of Shs.1,042,277,879was wrongly charged on budget lines to fund activities that were not meant to be paid

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from the affected budget lines. The bulk of the funds were diverted to pay allowances without the requisite authority.

The practice is irregular and renders the budgeting process ineffective, undermines the intentions of the appropriating authority and leads to inaccurate financial reporting.

I advised management toundertake proper budgeting and in case of any reallocations it should be undertaken in accordance with the regulations.

73.2 Irregular advances to the cashier’s personal account The Ministry paid a total of Shs.693,936,330 to the Cashier‘s personal Account. The bulk of the funds were allowances to staff for implementing Ministry activities, which, according to section 228 of the Treasury Accounting instructions, should have been paid direct to the officer‘sbank accounts. This poses a risk of diverting funds to an authorized activities.

I have advised the Accounting Officer to ensure that Accounting guidelines are adhered to.

73.3 Non-deduction of withholding tax The Ministry did not withhold tax amounting to Shs.2,935,812 from payments made to a number of suppliers contrary to Section 119 of the Income Tax Act.

I advised Management toadhere to the provisions of the Income Tax Act in order to avoid penalties.

73.4 Use of wrong procurement method Section 108 of the PPDA regulations allows use of the micro procurement method only ifthe procurement does not exceed 2,000,000. However it was noted that procurements above the Shs.2,000,000 thresholdamounting toShs.27, 557,200were undertaken using the micro procurement method without following the recommended guidelines. This limits competition and may lead to overpricing.

I advised Management always to follow PPDA regulations when making any procurement. 871

73.5 Special Audit on Ministry of ICT – National IT Backbone Infrastructure/E- Government Infrastructure A special audit was carried out during the year on the National IT Backbone / E- Government infrastructure. Below is the summary of key findings from the special audit report:

(a) Memorandum of understanding was signed before the requirements of the NBI/EGI were developed The government of Uganda represented by Ministry of ICT did not specify requirements in the form of terms of reference for the NBI/EGI project prior to contracting Huawei. The only key document used for procurement was the Memorandum of Understanding between Ministry of ICT and Huawei which from our review does not provide minimum high level requirements for the project. This document was signed on June 23rd 2006 by representatives from Huawei and Ministry of ICT whose names were not specified in the document .This document is the responsibility of the Ministry of ICT.

(b) PPDA accepted the procurement of HUAWEI on single sourcing based on a section in the act that was not binding The Public Procurement and Disposal of Public Assets Authority (PPDA) accepted the direct procurement of HUAWEI based on a section in the Act that was not binding. PPDA accepted the government to go ahead and procure the services of HUAWEI based on the PPDA guideline section 4. (1) which states that ―Where this Act conflicts with an obligation of the Republic of Uganda arising out of an agreement with one or more states, or with an international organization, the provisions of the agreement shall prevail over this Act‖ It is important to note that the loan agreement was signed on 26th July 2007 after the Turnkey contract had been signed on 11 October 2006. This means that by time PPDA granted the waiver for the direct procurement of HUAWEI, Uganda was not under any obligation to China or any international organization. A memorandum of understanding that had been signed between Huawei and Ministry of ICT does not constitute a contractual obligation. Furthermore we did not see the justification for use of single sourcing for a project of this nature yet the services could be provided 872

by other service providers across the world including China. . This limited competition for the project.

(c) Lack of evaluation criteria for the proposal submitted by HUAWEI Every procurement process should have an evaluation criterion (PPDA regulation 172 parts 1 to 5) that is used to evaluate a service provider especially for a major project such as the NBI/EGI valued at 106,590,305.00 USD. From my review I noted there was a task force team that was selected by the then Minister of ICT to evaluate the proposal that produced a report at the end of the exercise. This report does not provide justification or rationale for the proposed technical design, cable or costing but it is a replication of what is in the proposal submitted by HUAWEI. . There was no documented evidence of an evaluation criteria followed by the Ministry of ICT to evaluate the proposal submitted by HUAWEI.

(d) No unit price review done prior to signing of the contract The Government of Uganda did not review the Bills of quantity (BoQ) in order to ascertain the fairness and justification of the unit prices charged prior to signing of the contract to ensure that BoQ was not over costed. The Task force Team set up by the Ministry of ICT did not conduct a market comparison of prices against those being proposed. The Task Force report also noted the risk of over costing on the project and recommended that a BoQ review should also be conducted however this was not done by the Ministry of ICT. The effect of this was the potential inflation of prices of the cable, equipment, civil works and implementation which from my review has been estimated at US$41,896,884.27.

Given that there were no negotiations or unit price reviews performed by the Ministry of ICT, I noted from my market comparisons reviews that equipment such as OSN 3500 was overpriced in the bill of quantities by HUAWEI. For example Telcom A bought its OSN 3500 at a unit price of USD23071. This is 87,511 USD lower than NBI/EGI project unit price. If Government had managed to negotiate to such a level they would have saved 87,511USD from each OSN leading to a total saving of 2,100,264 USD.

I noted that the cost of the optic fiber cable per kilometer (18656.2 USD) by

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HUAWEI as specified in the bill of quantities for the NBI/EGI project was higher when compared to the comparator organisations and countries. Telcoms A, B, C, D, had cost per kilometer of 745 USD,1410.87 USD, 1416 USD, 6338 USD respectively and Country B had a cost of 141 USD. The Government of Uganda did not perform cost comparisons or provide justification for this high rate per kilometer. In such projects, the longer the fiber project, the cheaper the cable price per kilometer should be but this was not the case. The estimated inflation of this cost based on the average cost of the other comparator organisations is 16178.2 USD per kilometer.

(e) Unaccounted for CHOGM funds My review of the BOQ shows that USD 5,000,000 was allocated to a line item CHOGM. This matter was a subject of investigation by the Parliamentary Public Accounts Committee which recommended that that the issue be investigated further by the responsible Government Agency. According to the Parliamentary Public Accounts Committee report of CHOGM, this amount was spent on the TETRA communications systems (Walkie talkie system) procured by the ministry of ICT for use by the Security Ministry. The ministry had entered into an MOU with HUAWEI for the supply of the TETRA system at USD 4.5 million. However, the Ministry of ICT paid Huawei the entire amount of USD 5 million for the equipment. The US$ 500,000 was not accounted for.

(f) Government agreed to payment terms that were not favourable Ministry of ICT agreed to payment terms that were not favorable for phase one. The terms stated that ―80% of the payment is made upon delivery of the equipment and only 20% payment was tied to the actual deliverables of the project‖. I noted that in the subsequent phases, this was renegotiated. As a result phase one has been paid off but is still not complete as there are a number of issues that have not been resolved to date.

(g) Civil works that were performed below the required standard Civil works performed were generally below the agreed upon standards in the contract. For example the depth of the cable that was supposed to be 1.2metre was not reached in many situations. The length, width and depth of the manholes 874

was also not up to standard. The cabling of phase two was laid directly in the ground the entire distance and the agreed design of laying concrete before laying the cable was not followed. This is also seen in the FTA report findings. As a result more time has been spent on this project phase to correct the identified anomalies. This made the cable vulnerable to cable cuts.

Approval of the subcontractors of Huawei was not done by the Ministry of ICT as provided in the contract. This means that the subcontractors used might not have had the capability to implement the project to the agreed standard. As a result there were a lot of implementation quality issues on the civil works for Phase 1 and Phase 2 of the project. According to the contract section 3.3 on subcontracting, the contractor Huawei was not to subcontract any of the works without approval from the Employer (Ministry of ICT).

(h) Change in UNRA Road specifications There were changes in UNRA Road specifications which caused a lot of damage to the cable during its installation. Given that UNRA is also a government institution, Ministry of ICT and NITA-U should have been pro-active in planning by engaging UNRA upfront to reduce the impact of both parties‘ project activities. UNRA provided specifications to Ministry of ICT but later changed these specifications. For example UNRA would go ahead and increase the distance of the road reserve. This caused a lot of project delays to repair the cuts. UNRA should have notified Ministry of ICT or NITA_U when these specifications were being changed so that they can move the cable to avoid the fiber cuts.

(i) Delay in commercialization of the Project The NBI/EGI project has experienced delays in the commercialization of the project which has in turn affected the Government of Uganda‘s ability to start paying back the loan through revenues from the project. In this period competitors such as telecommunication companies have also been implementation similar projects and increasing coverage. This will potentially create a market challenge for excess capacity that is expected to be sold to the public and businesses since this capacity is being absorbed by competition. The project should have been commercialized by 2010 implying that 2013 would be the third year of revenues generation which 875

were estimated in the feasibility study to come to 19,347,717USD however these revenues have not been realized.

(j) Implementation of phase II without supervision and approval from the Government of Uganda Huawei implemented phase 2 without approval from Parliament and Ministry of ICT. As a result, supervision for this phase was not done. This was in disregard of warning letters sent to Huawei by Ministry of ICT to halt the process. There was no contractual penalty for such an action. This has led to low quality civil works, delay in implementation of the project as reflected in the findings of the Forensic Technical Audit report on Phase II and our review.

(k) Use of equipment with high capacity and high maintenance costs in small towns From review, I noted that there will be a high maintenance cost of the network as a result of using high power consumption equipment in the various transmission sites that could have been avoided in the design. The high power consumption will greatly affect the profitability of the project.

(l) Failure to provide cable specification The technical proposal from Huawei specified the cable type G652. It did not specify the exact type of fiber in the G652 family to be used. This means that Huawei could either use G652B/G652D cable. The impact of this was the implementation of the G652B elements in the National transmission backbone which ideally should have used G652D for the entire ring. Given that some spans on the network were not active that is Kampala- Mukono and Kampala- Bombo span the actual impact will only be known when they are tested firstly point to point and when the entire network is up. (m) Lack of training for end users of EGI Equipment There was no continuous training of end users of EGI equipment. Video conferencing and Voip equipment was deployed at the ministries however this has been left abandoned in most of the ministries and is not used to date. The EGI component of this project without the CHOGM fee cost 39,952,928USD.

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The detailed audit findings are in the special audit report.

PUBLIC ADMINISTRATION SECTOR

74.0 MINISTRY OF FOREIGN AFFAIRS

74.1 Mischarged Expenditure – Shs.110,947,393 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 Ministry‘s expenditures revealed that the entity charged wrong expenditure codes to a tune of Shs.110,947,393. This practice renders the budgeting process useless as it undermines the intentions of the appropriating authority. It further impacts on the credibility of the financial statements since the figures reported therein do not reflect the actual amounts expended on the respective items.

I advised management to always charge expenditures to the rightful expenditure codes or follow the prescribed re-allocation process as contained under Section 14(1) of the Public Finance and Accountability Act, 2003.

74.2 Unaccounted for Advances to other Ministries and Agencies – Shs.1,055,246,200 It was noted that a total of Shs.1,055,246,200 was disbursed to the Accounting Officers of Ministry of Works and Transport; Police; Uganda Media Centre; State House; Ministry of Gender, Labour and Social Development; Ministry of Health and Ministry of Defence, that were delegated to undertake some activities during the hosting of the 4th Ordinary Summit of the International Conference on Great Lakes Region member states (ICGLR) between 11th and 16th December, 2011. However, examination of vouchers revealed that there were no reports from the respective entities to account for funds in question. In the circumstances, I was unable to confirm that the funds were put to proper use.

The Accounting Officer explained that he entered into Memoranda of Understanding (MOUs) with the participating Accounting Officers that provided for their 877

responsibility for audit observations arising out of the Procurement and Financial processes carried out within their jurisdiction as per Article 3(iii). It was however noted that according to Articles 2(ii) and 3(v) of the MOU, the Ministry of Foreign Affairs was responsible for receiving and keeping accountability and audit reports from the recipients and availing copies of the accountabilities to me for audit. I have advised the Accounting Officer, to follow up the advances in question and ensure that full accountability for the same is filled.

74.3 Long Outstanding Payables Included in the payable balance of Shs.29,570,492,057 is an amount of Shs.29,233,607,518 in respect of contributions to International Organisations (Shs.24,099,285,039); OIC conference arrears (Shs.1,699,559,278) and CHOGM arrears (Shs.3,434,763,201). The bulk of these payables have remained outstanding for quite a long time. I explained to management that the continued failure to have these obligations settled exposes the Government to a risk of being barred from participation in activities arranged by the respective international organisations. I have advised the Accounting Officer to liaise with the Ministry of Finance Planning and Economic Development over this matter and also make appropriate budgetary provisions for settlement of these obligations.

74.4 Legal Ownership of Assets (a) Land In my previous report to Parliament, I noted that the Ministry of Foreign Affairs was entrusted with the land formerly owned by the Kagera Basin Organization (KBO) in Mbarara. This land was resurveyed by Mbarara District Land Board and part of it reallocated to Private Developers. During discussions, the Accounting Officer explained that the land was illegally subdivided by Mbarara District Land Board and Uganda Land Commission had resolved to cancel the lease and effect MOFA‘s repossession of the land in question. However, to date the Ministry has not obtained land titles for this land comprised in Plot 2 Kabale Road, Mbarara. In addition, the Ministry does not have a land title for Plot 2A–B, Sir Apollo Kaggwa Road, Kampala. In the absence of the said land titles, the Ministry‘s ownership of this land cannot be guaranteed as it continues to be exposed to a risk of encroachment and land grabbing by unscrupulous individuals. I have again advised 878

the Accounting Officer to expeditiously follow up the matter with the relevant authorities.

(b) Protocol Vehicles It was noted that the ministry does not have registration records for the thirty (30) BMW vehicles procured in 2007 for CHOGM. Accordingly the vehicles are notregistered in the Ministry‘s names. These vehicles are currently serving as protocol vehicles and were assigned a special series ―Protocol xxx‖for protocol work.I explained to the Accounting Officer the need to ensure government assets such as these motor vehicles are appropriately registered as required to prevent any possible abuse.

In his response, the Accounting Officer explained that the vehicles were initially registered under the Ministry of Works and that arrangements to have them transferred were being held up by the faulty embossing machine.I advised the Accounting Officer to expeditiously follow up this matter and have the registration of the vehicles done.

74.5 ICJ - DRC Project In 2005, the International Court of Justice ruled that Uganda compensates DRC an amount of US$.10billion for the war between 1998 and 2001. An ad-hoc committee was set up by Uganda to resolve the matter out of court and an amount of Shs.1billion was availed to the Ministry to cater for the negotiations and arbitration costs. A review of the related records revealed that a total of Shs.728,046,135 was spent leaving a balance of Shs.271,953,865 at year end. The following matters were noted:-

a. There was no accountability from the Accounting Officer of the Ministry of Justice and Constitutional Affairs (MoJCA) in respect of the transfer of Shs.580,467,500 for the engagement and payment of M/s Foley Hoag LLP, an international firm of legal experts based in Washington DC, USA as provided for by paragraph 2 under the responsibilities of the 2nd party in the MOU. The Accounting Officer for Ministry of Foreign Affairs (MOFA) explained that the two ministries entered into a Memorandum of Understanding (MOU) that

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provided that the Accounting Officer for MoJCA would take responsibility for any audit observations arising out of the procurement and financial processes carried out while utilising the funds in question. However, according to Article 3(2) of the MOU, MoJCA was required to provide MOFA with accountability for the funds within 45 days of the conclusion of the assignment by the international firm. Given that the assignment was for assisting Government of Uganda in preparing a rebuttal and a counter claim to a claim for reparations by the DRC pursuant to the decision of the International Criminal Court of Justice (ICJ) in the case of DRC Vs Uganda of 2005, it was presumed that the assignment had been concluded by the time of audit and therefore, accountability of the funds should have been provided.

b. I have advised the Accounting Officer to follow up this matter and ensure that the funds in question are accounted for.

c. Honoraria worth Shs.47,851,926 was paid to 9 ad-hoc committee members without recovering and remitting 30% PAYE amounting to Shs.14,355,680 as required by the Income Tax Act. I explained to management that this anomaly exposes the ministry to a risk of penalties and fines from URA as provided for under the Income Tax Act.

In his response, the Accounting Officer explained that management intends to recover the taxes from the outstanding honoraria due to the Ad hoc Committee Members. I therefore await for the outcome of this management commitment.

74.6 Follow up of Salient Issues in the Previous Year’s Audit Report The following matters pointed out in my previous audit report had not been addressed by management:- (a) CHOGM Furniture As reported in my previous report, the Ministry bought furniture for use during CHOGM in 2007 and delivered it to Munyonyo Common Wealth Resort and Serena Hotel, where some guests were accommodated. Although the Parliamentary Public Accounts Committee had recommended boarding off of the furniture in question,

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this recommendation has not been implemented by the time of the current year audit. Management explained that at the last public auction, most of these properties were sold and other Government entities had expressed interest in acquiring some of them. He further explained that another Board of Survey was being arranged to dispose off the residual furniture by either transferring them to other Government entities or through another public auction. I have advised management to expedite this process accordingly.

(b) Properties Abroad A further review of the previous year‘s report revealed that my recommendation to have a policy in place for acquisition, development and management of Government properties abroad has not yet been implemented. In their response, management has indicated that the draft policy was before Cabinet for approval. I therefore await for the outcome of this management commitment.

(c) Outstanding Advance Included in the statement of Financial Position is a receivable balance of Shs.3,343,140,729. As stated in my previous report, this amount was in respect of funds demanded by the Ministry from a service provider for services that were not rendered during CHOGM. These funds have remained uncollected since 2007/2008 financial year rendering its eventual collection doubtful.

The Accounting Officer explained that no collections had been made to-date despite the arbitration by the Commercial Courts. It was further explained that the Solicitor General had recommended litigation so as to recover the funds from the service provider. I have advised the Accounting Officer to accordingly expedite the litigation process.

75.0 EAST AFRICAN COMMUNITY AFFAIRS

75.1 Financial Statements

(a) Payables balance A review of the statement of financial position and the statement of reconciliation between total expenditure per statement of appropriation account to total expenditure in the statement of financial performance revealed an outstanding 881

liability of Shs.1,710,000,000. It was explained that the liability was a result of the East African Legislative Assembly decision to approve the EAC budget of US$ 33,666,700 for the financial year under review which translated into a 10% increment over the previous year‘s budget. This decision came at a time when Uganda had already concluded her budgeting process hence the liability.

I informed management that since Uganda will be taking over the Chairmanship of the EAC Organs in the coming financial year, non-payment of her contribution on time will not reflect well in her leadership.

Management was advised to liaise with the Ministry of Finance, Planning and Economic Development to ensure that the obligation is settled during the current financial year.

75.2 Staffing Matters

(a) Under-Staffing The Ministry has an approved establishment of 75 posts out of which only 63 posts had been filled by the time of filing this report leaving a staffing gap of 12 posts (16% of the total establishment). The details of vacant positions are as shown in the table below:

Department Vacant Posts Number of vacancies Office of the Minister Office Typist 1 Office of the Minister Senior Assistant Secretary 1 of State Pool Stenographer 1 Office Attendant 1

Office of the Director Director EAC Affairs 1 Finance and Principal Public Relation Officer 1 Administration Planning & Policy Principal Policy Analyst 1 Analysis Senior Policy Analyst 1 Political and Legal FSO IV 1 Affairs Driver 1 Production and Social Driver 1 Services Economic Affairs Driver 1 Total 12

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Management explained that it had been following up the matter with the Ministry of Public Service and Public Service Commission respectively to ensure that vacant posts are filled.

I advised management to continue pursuing the matter with the relevant authorities to ensure that all key positions are filled.

(b) Staff working on expired service contracts A review of the sampled personal files revealed that a Personal Secretary and a Driver were still working although their service contracts had expired. The details are shown below:

Name Post Appointment Period Expiry Amount paid Date & Minute Date after contract expired up to June 2012 Mildred Restituta Personal 28/12/2009 PSC 12 months 01/12/2011 Kasaali Sewadde Secretary Min 2135 w.e.f 3,193,639 2/12/2009 Kirumira John Driver 27/02/2009 PSC 24 months 21/0/2010 Min 114 w.e.f 4,329,546 22/01/2008 (Retrospective) TOTAL 7,523,185

I informed management that payments to staff whose contracts had expired were irregular.

Management stated that the officers applied for renewal of their contracts and the matter was still with the Ministry of Public Service and Public Service Commission. Management was advised to expedite the renewal process or else terminate the concerned persons‘ services.

75.3 Budget Performance During the year under review, the Ministry was allocated a total of Shs.15,396,614,823 by Parliament. However, Shs.15,218,224,208 was released to the ministry resulting into a funding gap of Shs.178,390,615 of which Shs.106,052,780 was meant for finance capital Development as shown below;

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Annual Planned Output Outputs Not Achieved 1 motor cycle 1 motor cycle 5 computers 5 computers 1 heavy duty photocopier 1 heavy duty photocopier 10 tables and 20 chairs (Furniture) 10 tables & 20 chairs (furniture)

Failure to release all appropriated funds to the Ministry negatively impacted on its ability to implement all planned activities. The details of the overall performance of the Ministry are shown in the following table.

Key Output Approved Budget and Cumulative Variation Status and Planned outputs Expenditure and Reasons for Performance variation from Plans Vote Function 1331 Coordination of EAC Affairs 133101: Progress reports on Two Cabinet memos No deviation on Ratification process Harmonized harmonization of were finalized in the Expected and still on going for Policies, Laws and immigration, respect to EAC actual and 97.3% the already signed Strategic Commercial, Labor, Protocol on Foreign of the budget was Protocols Frameworks Investment, Social Policy Coordination utilized. developed. Security and Capital and illicit drug Markets laws to conform trafficking to to the common Market conclude the Protocol (CMP) ratification process. Bal.Shs. prepared. Finalization of The Protocol on Bn:0.006 protocols: Peace, Cooperation on Security, Defense, and defense was signed good Governance. by the summit. (4) Shs Bn:0.197 (4) Shs Bn:0.191 133102: Briefs on EAC Decisions Quarter 4 Status Over performance Target achieved Compliance with and Directives report on the of one extra implementation of Communicated to implementation of reportand 99.3% EAC decisions and relevant MDAs prepared. decisions and budget was directives directives from the utilized. Monitored and 24th Council of Evaluated Ministers prepared. Three (3) final status (15) reports on UShs Bn:0.185 implementation of Sectorial Council Decisions; by relevant MDAs prepared. (16) UShs Bn:0.184 133103: National Policy on EAC Data collection The percentage Inadequate Strategic Regional Integration accomplished. Data resources delayed performance of leadership, produced. analysis is ongoing. the process. The Guidance and actual/expected finalization of the Support for EAC National Policy EAC was at 98.3%. regional Integration Shs Bn:0.225 Shs Bn:0.221 integration is strengthened expected in FY 2012/2013

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133104: Annual EAC MDD One Television talk Public awareness festivals supported and show attended on The percentage Planned within the and Public reports produced. WBS TV. performance of limited resources participation in EAC 8 Outreach programmes 1 University actual/expected available. regional Integration for professional sensitization was at 95.7%. enhanced. associations, Private progamme for 200 Sector Membership participants Associations and CSOs conducted. to be held and 8 back to 500 booklets on EAC office reports prepared Monetary Union and submitted. produced. (10) Shs Bn:0.594 (10) Shs Bn:0.621

1332 East African Community Secretariat Services 133251: Remit US$ 6.33 UShsBn: 10.739 UShs. 1.71Bn The Ministry Uganda‘s million to the EAC (approximately US$ not remitted requested for a Contribution to EAC Secretariat 3.9 million) remitted supplementary Secretariat to EAC Secretariat. funding from Remitted UShs Bn:10.739 MFPED for this output, since the initial allocation in the budget was inadequate. MFPED did not honor the request, but promised to provide the balance in FY2012/13 budget. 1349: UShs Bn:3.268 UShs Bn:3.14 96.1% Policy, Planning budget Spent and support Services

The Accounting Officer was advised to always liaise with the Ministry of Finance, Planning and Economic Development to ensure that all appropriated funds are disbursed accordingly.

UGANDA MISSIONS ABROAD

76.0 UGANDA EMBASSY, ABU DHABI

76.1 Mission Charter It was observed that the mission is operating without an approved charter. Whereas H.E the Ambassador submitted proposals on the charter including its objectives, activities and the cost implications of the proposals, these have not been acted upon by the Ministry of Foreign Affairs. Ideally the Ministry would formulate a foreign policy through which missions would contribute to its 885

achievement by way of implementation of well defined and coordinated charters. In absence of approved mission Charters there is a risk implementing uncoordinated activities at missions that may not achieve the objectives of the foreign policy.

Management in their response stated that the mission operates and files performance reports based on the draft charter submitted to Ministry of Foreign Affairs in March 2011.

Management was advised to urge the Ministry to act upon proposals of the mission to enable achievement of government objectives in the foreign policy.

76.2 Accommodation of FSO V It was observed that the officer is accommodated within the chancery due to inadequate funds. The officer has been living in this circumstance for now two years. There is a need to ensure that staff of the Mission are provided with appropriate accommodation depicting their position, otherwise this may lead to lower morale on the part of the officers.

Management in their response stated that the mission has always budgeted for the optimal officers‘ accommodation but receives short of it, in the approved appropriated budget. The current situation is neither undesirable for the officer and his family, not is it conducive for the work environment.

Management was advised to liaise with the Ministry of Foreign Affairs and that of Finance, Planning and Economic Development to secure additional resources for accommodation.

76.3 Reallocation of Funds The mission undertook reallocation of funds amounting to AED 181,100 during the year under review as indicated in the table below:

Date Amount 9/8/2011 73,900 14/11/11 24,700 20/12/11 10,200 886

25/1/12 72,300 Total 181,100

Although the mission sought authority to reallocate the funds, there was no evidence to show that authority was granted. In absence of the authority it implies that the funds were utilized irregularly.

Management in their response stated that the mission sought authority for reallocation of funds to cater for critical items of FSA and staff salaries. This is because since opening of the mission, there was no increment in the FSA and local staff wages despite posting an additional staff at the mission, and increase in local staff respectively. They further stated that the Permanent Secretary/Secretary to the Treasury permitted the mission to work within the available budget vide his letter PAD113/256/01.

I noted that the advice by the Permanent Secretary/Secretary to the Treasury was general and not specific to particular reallocation. Further clarification should be sought on the matter

76.4 Staffing at the Mission According to the approved structure of the mission, the mission is graded as 1+3+9 implying Head of mission (1), home based staff (3) and local staff (9). However it was observed that the mission has not yet recruited an administrative attaché, one driver and a translator. In absence of all the required staffing the mission may find it difficult to undertake all the activities planned at the mission.

Management in their response stated that the Mission has always submitted an optimal budget to Ministry of Finance, Planning and Economic Development for the recruitment of the required staff, but the approved appropriated budget is always short of the optimal budget. They further stated that the mission has received an increase in the wages for local staff in the approved budget financial year 2012/13, and they will be filling up the vacant posts. However, this will not cover the Administrative Attachѐ who is home based and requires rent and FSA.

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Management was advised to liaise with the ministry of Foreign affairs and that of finance Planning and Economic Development to seek more resources to enable recruitment of the required staff.

76.5 Cash Transactions at the Mission In the previous audit report, it was pointed out that most of the payments at the mission were in cash as opposed to the use of cheques. During the year under review the same practice has continued. In addition it was also noted that most of the NTR collections were in cash. Use of cash exposes the mission to risk of loss and abuse of cash.

Management in their response stated that as earlier observed, this economy is to a greater extent cash based economy. As a result of this, the Mission cannot completely eliminate the use of cash in some transactions. The mission therefore draws money from the bank which is recorded as imprest when a cheque payment is not possible for a particular transaction. This is the case with electricity bills paid over the counter, airline ticket purchases, telephone cards, sundries, fuel card deposits, per diem, cartridges, parking fees, taxi fares, labour charges for fixing office equipments and other services, welfare expenses and vehicle maintenance expenses.

Management further stated that on payments for visas and certification in the bank, their clients travel from far flung cities over 200km in harsh temperatures (over 48 degrees), and it becomes insensitive for the mission to send them to the bank for payments after locating the embassy. The mission explained this challenge to the Permanent Secretary/Secretary to the Treasury and Accountant General for the mission to be treated with exception since it has never failed to bank the collected NTR on a weekly basis.

I await the outcome of the mission‘s discussions with Ministry of Finance, Planning and Economic Development.

76.6 Board of Survey Report It is a requirement under Regulation 84 of the PFAAR that the Accountant General appoints a board of survey to undertake stock of the mission‘s assets and also 888

identify those that may require disposal. However it was noted that the activity was not undertaken.

Management was advised to consult with the Accountant General to institute aboard of survey team to undertake the exercise.

Management in their response stated that upon consultation, the survey was carried out and a report submitted to the Accountant General on 8th October, 2012.

I advised management that in future the survey should be undertaken timely.

76.7 Appraisal of Staff The mission has recruited 5 local staff to support the home based cadre in various capacities. However it was observed that the staff are not subjected to appraisal process despite confirmations undertaken. In absence of an appraisal system it becomes difficult to justify any decisions on salaries and confirmations for the staff.

Management promised to liaise with Ministry of Foreign Affairs to develop a standard appraisal format for the local staff at the mission.

I await for the outcome of management efforts.

77.0 UGANDA HIGH COMMISSION, ABUJA

77.1 Unsupported Foreign Exchange Losses – Shs.90,844,777 The Statement of Financial Performance and the Cash Flow Statement indicated that the High Commission incurred foreign exchange losses amounting to Shs.90,844,777. However, the losses were not supported by a schedule showing how they were derived, rendering verification of the loss authenticity difficult.

In addition, the foreign exchange rates applied at the year-end to translate the cash and cash equivalents were not disclosed under Note 1. I was therefore unable to confirm that the cash and cash equivalent balance of Shs.63,299,532 was fairly stated.

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I advised the Accounting Officer to provide a schedule as an attachment to the financial statements and have the exchange rates applied at the year-end disclosed under Note 1.

77.2 Irregular refund of medical treatment expenses – Naira 405,940 According to Paragraph 14 of Section M-aof the Uganda Public Service Standing Orders of January 2010, ―A Foreign Service Officer, while serving in a mission abroad, should be covered by full medical insurance. This should cover both inpatient and out-patient treatment. Medical insurance should also be provided for the spouse and up to 4 children‖. The High Commission however, did not procure medical insurance cover for its Foreign Service Officers but instead the affected officers visited various health facilities for medical treatment and claimed for refunds from the High Commission contrary to Public Service Standing Orders. During the year, a sum of Nigerian Naira 405,940 was paid to the following High Commission staff in respect of medical expenses incurred by themselves at various health facilities. Details are shown in table below;

DATE VOUCHER NO. PAYEE AMOUNT (NAIRA) 01/07/11 2 Agnes Achen 150,000 08/08/11 12 Emanuel O. Orinzi 35,000 09/08/11 25 John Nuwamanya 1,600 16/08/11 49 Agnes Achen 85,500 16/11/11 26 Agnes Achen 133,840 TOTAL 405,940

I advised the Accounting Officer to ensure that Foreign Service Officers are covered under a medical insurance scheme in accordance with the Foreign Service Standing Orders.

77.3 Procurement of Renovation Works on the Official Residence - (₦.5,173,967.5) According to sections 45 and 46 of the PPDA Act, all procurement and disposal should be conducted in a manner which promotes transparency, accountability and fairness; and should maximize competition and achieve value for money.

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The High Commission contracted M.A.S Multi-project Nig. Ltd to renovate the official residence located at No.2 Ovia Crescent, Maitama, Abuja at a cost of ₦.5,123,967.50. In addition, ₦.50,000.00 was paid to M/s. LABA Construction & Building Services as consultancy/supervision fees resulting into a total expenditure of ₦.5,173,967.50 on the renovation.

However, procurement documents showing that the above procurement followed the Procurement regulations were not contained in the High Commission‘s returns to the Ministry. Accordingly, I could not confirm that the procurement of the two service providers was done in conformity with the Procurement laws.

I advised the Accounting Officer to always conduct procurements in compliance with the law.

77.4 Unacknowledged NTR Remittances to UCF - Shs.98,578,911 A review of the Statement of Financial Performance and the Cash Flow Statement revealed that the High Commission remitted a total of Shs.98,578,911 to the Uganda Consolidated Fund (UCF) during the year under review. However, Treasury General Receipts issued by the Accountant General to acknowledge receipts of the remittances were not availed for audit. I could therefore not confirm that the remittances actually reached the UCF.

I advised the Accounting Officer to follow up acknowledgement receipts from the Accountant General‘s office.

77.5 Non-remittance of the un-spent balance to the Consolidated Fund – Shs.74,775,356 According to Accounting Policy 2(k) and Section 19(1) of the Public Finance and Accountability Act, ―Every appropriation by Parliament of public moneys for the service of a financial year, and every warrant or other authority issued under this Act in respect of a financial year, should lapse and cease to have any effect at the close of that year and the unexpended balance of any moneys withdrawn from the Consolidated Fund should be repaid to the Consolidated Fund‖. However, a review of the reconciliation of movement of cash during the year and the statement of changes in equity revealed that Shs.74,775,356 which remained unspent at the end 891

of the previous year was not remitted back to the UCF during the year under review.

I advised the Accounting Officer to transfer back the money to Treasury without further delay.

78.0 ANKARA EMBASSY

78.1 Cash Withdrawals Unaccounted for Financial Regulations require funds to be accounted for within the financial year to which the expenditure relates. However, it was noted that cash withdrawals amounting to USD.78,708 and TL.21,344 intended to finance various activities remained outstanding by year end, contrary to the regulations. In the absence of accountability, I could not confirm that the funds were put to proper use.

Although the Accounting Officer stated in his response that some of the funds were transfers from the dollar account to the local currency (TL) account for operations and the rest of the money was accounted for in the corresponding payment vouchers. I was not able to trace these accountabilities during examination.

I advised the Accounting Officer to always ensure that accountability documents are properly filed and subsequently submitted for verification.

78.2 Unvouched Expenditure Contrary to Treasury Accounting Instructions, Payment vouchers for the months of September and October together with various payment vouchers from assorted files were found missing. In the absence of the payment vouchers and their supporting documents, I was unable to confirm that the expenditure was incurred regularly.

In response the Accounting Officer promised to send copies of the missing vouchers and supporting documents by courier but at the time of writing this report, the documents had not been received.

I advised management to ensure timely accountability for all expenditure incurred. 892

78.3 Foreign Exchange Loss Included in the Statement of Financial Performance and the Cash flow Statement is a foreign exchange loss of Shs.23,708,051. However, the schedule showing how the loss was arrived at, were not made available for verification. As a result, I could not provide assurance that the loss was fairly stated.

The Accounting Officer explained that the loss was automatically generated by the Navision Accounting System.

Management was advised to always provide an analysis of the losses as a schedule to the financial statements.

79.0 UGANDA EMBASSY, BEIJING

79.1 Excess Expenditure - Shs.129,182,697 The review of the Statements of Appropriation revealed that the Mission incurred expenditure worth Shs.129,182,697 in excess of the amounts appropriated by Parliament without seeking for the necessary authority. In addition, the Public Finance and Accountability Act 2003, requires that such excess expended, shall be included in a statement of expenditure in excess which shall be laid before Parliament for approval to allow it stand in the accounts. This was however not done by management. I explained to the Accounting Officer that in the absence of such authority, the expenditure in question is irregularly included in the accounts.

79.2 Un-expended balance not repaid to the UCF – Shs.702,485,544 According to Accounting Policy 2(k) and Section 19(1) of the Public Finance and Accountability Act, ―Every appropriation by Parliament of public moneys for the service of a financial year, and every warrant or other authority issued under this Act in respect of a financial year, shall lapse and cease to have any effect at the close of that year and the unexpended balance of any moneys withdrawn from the Consolidated Fund shall be repaid to the Consolidated Fund‖. However, the reconciliation of movement of cash during the year and the statement of changes in equity shows that an amount of Shs.702,485,544 that remained unexpended at the end of the previous year was not repaid to the UCF during the year under review. I

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have not been provided with evidence of authority to retain such funds as required by the Act. The Accounting Officer is advised to desist from such a practice in future and ensure full compliance with the requirements of the law.

79.3 Un-disclosed Operations The Mission operates among others, two bank accounts (A/C numbers 00214618093014 in US$ and 00214618093001 in Yuan). The US$ account is used to receive funding from the Ministry of Education and Sports while the local account is used for payment of allowances to students sponsored by Government. It was noted that a total of US$.93,878 was received by the Mission during the year under review. However, the financial transactions together with the balances of US$.24,610.17 and RMB.963.43 respectively in respect of the two accounts were not disclosed in the financial statements. I explained to the accounting officer that exclusion of these accounts implies that stake holders are not informed of the actual financial position of the Mission.

In response, the Accounting Officer explained that the Mission reports to the Ministries of Finance, Planning, and Economic Development and that of Education, regarding the activities pertaining to these accounts on a monthly basis. I advised the Accounting Officer to adjust the financial statements to capture the operations of the respective accounts as deposits in accordance with the Chart of Accounts and template for notes 26(payables). By the time of compiling this report, the Mission accounts had not yet been amended.

79.4 Un-disclosed Receivables – US$.2,500 A review of rental agreements entered into by the Embassy revealed that they provide for rental deposits on the part of the tenant which are recoverable on vacation of the rented premises. However, it was noted that US$.2,500 in respect of an apartment located at 19D, Block III Park view Tower vacated by Mr. S. Rutega had neither been recovered from the former landlady nor disclosed in the financial statements as a receivable. The eventual recovery of this money therefore is doubtful.

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I advised Management to recognize all such deposits in the financial statements accordingly. Management should also ensure that recovery of the deposit in question is made.

79.5 Irregular use of transport equipment declared not road worthy The Embassy procured a Utility Van Reg. No.220003 in 1994. This vehicle was still in use by the time of inspection of the Embassy. However, it was declared ‗not road worthy‘ by the Beijing City Traffic Authorities and it became ineligible for being insured. This implied that management could not secure an insurance for this vehicle. In the circumstances, the Mission risked litigation and embarrassment by the Authorities for continued use of an uninsured vehicle which is at the same time not road worthy.

Management explained that the Mission had secured funds for purchasing a new utility vehicle and that the procurement process was in progress. I advised management to expedite this process and also have the old vehicle disposed of in accordance with the PPDA Act 2003. 79.6 Payables A review of payables revealed that an amount of Shs.270,023,337 was outstanding in lieu of several services and supplies to the Mission as at the end of the year (up from Shs.207,036,593 as at 30th June 2011). I explained to the Accounting Officer that this is contrary to the Commitment control system of government whose objective was to eliminate arrears. I have advised management to liaise with the Ministries of Foreign Affairs and that of Finance, to ensure that these arrears are cleared at the earliest to avoid potential penalties and fines for late payment.

80.0 UGANDA EMBASSY, BERLIN

80.1 Direct Procurement of Motor Vehicle The mission procured a mercedez benz for the mission at a cost of Shs.124,666,088. However, it was noted that the procurement was not undertaken through the contracts committee. Instead the Head of Mission approached one supplier (BENZ) and asked them to provide the quotation to the Accounting team. S.46 of the PPDA Act provides that all procurement should be conducted in a

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manner to maximize competition. There is a risk that value for money may not have been achieved on this procurement.

Management in their response stated that the contracts committee was following the laid down procedures when the Head of Mission (the end user) approached Mercedes Benz and directed that the purchase be made. His argument was that we requested for funds to replace the old Mercedes Benz with another of its type. Management further stated that it was unfortunate that the normal procurement process was not followed.

I have informed management that non compliance with the procurement regulations is punishable under Section 42 (h) of the Public Finance and Accountability Act 2003.

80.2 Mission Charter It was observed during the audit that the mission has no approved charter from the Ministry of Foreign Affairs. Whereas H.E the Ambassador submitted proposals on the charter including its objectives, activities and the cost implications of the proposals, these have not been acted upon by the Ministry. The last approved charter for the mission was for the period 2006 – 2008. Ideally the Ministry would formulate a foreign policy through which missions would contribute to its achievement by way of implementation of well defined and coordinated charters. In absence of approved mission charters there is a risk implementing uncoordinated activities at missions that may not achieve the objectives of the foreign policy.

Management was advised to urge the Ministry to act upon proposals of the mission to enable achievement of government objectives in the foreign policy and also monitor performance of the missions.

80.3 Board of Survey Report It is a requirement under Public Finance Act and Accountability Regulation Number 85 that the Accountant General appoints a board of survey to undertake stock of the mission‘s assets and also identify those that may require disposal. However it was noted that the activity was not undertaken.

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Management in their response stated that they had consulted with the Accountant General on appointment of a Board of Survey. They promised to carry out a survey immediately they receive a response.I advised management to follow up on the matter.

80.4 Over Expenditure on Employee Costs A review of the financial statements revealed that the embassy incurred expenditure on the item Employee Costs in excess of approved expenditure by Shs.18,878,701.There was no evidence to show that authority for the reallocation or virement warrants were obtained prior to incurring the expenditure. The practice is contrary to the requirements of the PFAA 2003.

Management in their response stated that the Mission budget proposals for financial year 2011/2012 to Ministry of Finance, Planning and Economic Development (MoFPED) requested for Shs.1,877,334,144 as employee costs to cover the twelve employees of the Mission. They received Shs.1,328,000,000 which created a shortage of Shs.549,334,144. As salary payment to employees is a right, this amount had to be vired from other items. For every virement permission was sought from Ministry of Finance, Planning and Economic Development, unfortunately, there has never been any response.

Management was advised to adhere to regulations.

80.5 Staffing at the Mission A review of the embassy approved structure shows that it is expected to have two (2) Foreign Service Officers. However the current establishment has 3 Foreign Service Officers. This is likely to put an extra financial burden on the already limited financial resources of the mission.

Management responded that they had pointed out the financial burden on the limited financial resources caused by having an extra officer. Their humble request was that Ministry of Finance, Planning and Economic Development heeds to their plea for more funding commensurate with the current staffing levels.

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I have advised management to pursue the matter further with the Ministry of Foreign Affairs and Ministry of Finance, Planning and Economic Development.

80.6 Training for Mission Staff It was observed that there is no continuous training or refresher courses provided for mission staff. Such courses would enable staff to be kept abreast with the new developments in Diplomacy to enable them improve on their skills.

Management was advised to consult with the Ministry of Foreign Affairs and the Ministry of Finance, Planning and Economic Development for such funds to be set aside to enable improvements.

81.0 UGANDA EMBASSY, BRUSSELS

81.1 Irregular Procurements Review of procurement processes at the mission revealed various anomalies as outlined below;

An advance payment of Euros. 10,035 was made to M/s Chauffage Lefevre for changing the heating system at the residence of the Ambassador from fuel to Gas without an advance payment guarantee as prescribed in government financial regulations. Besides, the payment was not supported with quotations, bids evaluation report, contracts committee approval and a duly signed contract.At the time of audit inspection the firm had not undertaken the works.

A sum of Euros. 9700 was paid to M/s Fussbodentechnik for Carpet removal and floor painting at the Chancery without contracts committee approval contrary to procurement regulations.

The Mission carried out various direct procurements valued at €. 10,948.41 without approval of the contracts committee .Besides there were no alternatives sought to ensure competitive selection.

The Accounting Officer at the time attributed anomalies to urgency of works and limited staffing.

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I advised management to ensure execution of all outstanding works or recover lost public funds. In future effective procurement planning and execution should be made in accordance with procurement regulations.

81.2 Loss of Visa Stickers In the Statement of losses of public monies, stores and other assets written off and claims abandoned during the year, it was reported that visa books in the sum of Shs.23,138,762 were lost. The series of the lost books were indicated as UA611401-611450, UA607451-607500 and UA 606601-606650. Audit inspection revealed various weaknesses in management of visa stickers and these included;

a) Lack of dedicated staff for custody of visa stickers. b) Grossly inadequate safe box for custody of security papers and documents c) Delay in reporting of loss of stickers hence hindering early investigations d) Lack of regular reconciliation of stickers received, issued and the balances.

Apart from the financial loss, missing Visa stickers may pose security risks if used by unauthorized persons.

At the time of audit inspection a new Safe box had been procured to enhance safety of the Security papers. An investigation by Ministry of Foreign affairs and Ministry of Internal affairs had also commenced.I await results of the investigations.

81.3 Non Tax Revenue (NTR) Review of financial statements revealed that out of the collection of NTR and miscellaneous revenue of Shs.308,190,515 only Shs.274,878,687 was remitted to Treasury leaving a balance of Shs.33,311,828. Besides, there was no evidence of receipt of the funds by the Treasury. Failure to remit NTR may imply utilization of funds at source without necessary authority. Further analysis revealed that Cash in Transit was Shs.124,415,916 which was at variance with the unremitted funds of Shs.33,311,828. The variance of Shs.91,104,088 was not explained.

Management is advised to transfer all the NTR to the Uganda Consolidated Fund in a timely manner and subsequently obtain acknowledgment receipts. The variance should be explained. 899

81.4 Foreign Exchange Losses Foreign exchange loss ofShs.98,928,929 was reported in the Statement of Financial Performance for the period under review. However the basis of measurement and supporting schedules were not provided for audit verification rendering the fairness of the loss doubtful. Management is advised to explain the basis for the measurement of the foreign exchange loss.

81.5 Unsupported Virement Review of the Mission financial statements revealed that a sum of Shs.188,424,058 was incurred over the budgeted expenditure on Goods and services without relevant authority contrary to the requirements of the Public Finance and Accountability Act 2003. Over expenditure distorts budgetary provisions. Management stated that a request to the Treasury for virement of funds to meet budgetary shortfalls was not answered.

I advised management to ensure compliance with financial regulations and seek timely virement whenever necessary.

81.6 Rent Security Deposit The Mission opened a rent guarantee account Number 375-43705593-46 in the names of Embassy of Uganda at ING Bank in 2006 with a deposit of Euros. 3,000 and this stood at Euros. 3,255.63 by 02/1/2012.

It was however noted that this sum has never been disclosed in the financial statements as a deposit contrary to financial regulations. Besides the officer who previously occupied the premises was recalled and therefore the funds are recoverable. Management explained that recovery of the funds has been hindered by the change in ownership of the property.

I advised management to ensure the amount is properly reported as a deposit in the financial statements as efforts are made at recovery.

81.7 Condition of Mission properties

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Physical inspection of Mission properties revealed the following state of affairs.; (a) Chancery The chancery is the official place of work of the mission staff and is located at317 Avenue de-Tervuren Woluwe st-Prerre.The Chancery building is characterized by water leakages, obsolete plumbing, heating and electrical systems, wall molding, rickety lift and worn out carpets which pose a danger to staff health. It was further noted that staff furniture is grossly inadequate.

There is urgent need for renovation of the Chancery premises to safeguard the health of staff and to reflect a positive image of the Country.

(b) Vacant plot of land The vacant plot of land is located at Des Lauriers 35 Woluwe st-Prerre and it previously accommodated the official residence.The premises were demolished in 2010 on the advice of the city authorities. Failure to develop the land in a timely manner may result into re-allocation.

Funds should be allocated to this activity to enable retention of the prime plot of land.

(c) Temporary residence of Ambassador The Ambassador is temporarily residing in an embassy property in the city suburb called Stererbeek.Inspection of the building revealed leaking roof, obsolete heating and plumbing systems as well as dilapidated sanitary facilities and verandah.

There is need to renovate the premises urgently.

81.8 Outstanding annual contributions to International organizations. It was noted that the government of Uganda owes international organizations as follows; The African Caribbean and Pacific organization ( Euros.74,083.93) The Organization for the prohibition of Chemical weapons ( Euros.10,861) The international criminal court(Euros.4,436).

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Failure to settle the debts may result into prohibition of the country from participation and/or voting during the organizations‘ proceedings. Besides, the country may not be able to obtain European Development funds (EDF). In addition nationals of the country may not be able to access job opportunities in the organizations.

The Embassy should closely liaise with Ministries responsible for Foreign affairs and Finance to ensure prioritization of the annual contributions.

81.9 Staff appraisals It was observed that all the eight (8) local staff performance had not been appraised for the period 2008/09 to 2011/12. Besides, there was no evidence that the previous head of chancery had been appraised for the periods 2010/11 and 2011/12.

Failure to appraise staff hinders assessment of performance, identification of improvement areas and implementation of training programmes. Management is advised to regularly carry out performance appraisals in accordance with public service regulations.

82.0 UGANDA HIGH COMMISSION, BUJUMBURA

82.1 Cash Payments It was noted that the Mission was making cash transactions, including payments to established contractors, such as for rent, postage, electricity, and telephone. Embassy staff, especially the local staff were also paid their salaries and allowances by cash.Accordingly, a sum of US$.344,715 (equivalent toShs.861,788,750), representing about 76% of the total release to the embassy for the year, was drawn from the dollar account as imprest to effect cash payments. In addition, the Accountant maintained a petty cash book for analyzing expenditures, which was found incomplete and not balanced off on a monthly basis.

I informed management that the practice does not only contravene the TAI, but also increases the risks associated with cash handling. 902

The Accounting officer explained that the Economy of Burundi is ―a cash economy‖. However, management intends to address this matter by reviewing the system of paying in cash with a view to ending the practice. In addition, the Embassy would seek guidance from the Accountant General on cash limits and negotiate with service providers on the option of paying by cheque.

Management was advised to expedite the above actions to mitigate the existing risk.

82.2 Insurance for Embassy Vehicles The Embassy owns one representation Vehicle, registration number 18CMD01 and a pick-up registration number 18CMD02. It was however noted that the two vehicles are not insured as required by the country‘s laws. This exposes the Embassy to a risk of incurring high repair costs or compensation costs in case of accidents.

Management explained that the Mission had been highlighting this issue with the relevant authorities and that Insurance expenditure was provided for in the current financial year (2012/13). However, the funds allotted for this expenditure item were inadequate to cover even one vehicle.

I advised the Accounting Officer to liaise with the Ministry responsible for Finance and ensure that the Mission provides for comprehensive insurance for its vehicles in its annual budget.

82.3 Review of the Accounting System The Mission maintains its books of accounts and prepares its financial statements using the ―Navision‖ Accounting System. Scrutiny of this System revealed the following areas for improvement:-

Comparatives in the Statements of Financial Performance and Financial Position are not automatically generated by the system, but are manually inserted by the Accountant outside the system.

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Budget analysis reports by appropriation and by performance do not yield the same results on the same budget items.

Most of the Statements in the system that would be exported to Microsoft Excel for further analysis cannot be exported. The system exports to Microsoft Excel the statements which can only be manipulated from there.

In response the Accounting officer stated that the Navision accounting system has limitations which should be handled by the relevant decision makers on the transformation and computerization of the financial management system.

I advised the Accounting officer to contact the Navision Support Team at the Ministry of Finance, Planning, and Economic Development to ensure that the system is reviewed and areas of weakness improved to ensure system integrity.

83.0 UGANDA EMBASSY, CAIRO

83.1 Foreign Exchange Losses In the Statement of Financial Performance and note 16, Shs.20,412,604 was reported as foreign exchange losses incurred for the period under review. However the supporting schedules showing how it was derived was not provided for audit verification. Accordingly, I could provide assurance that the loss is fairly stated.

I advised Management to provide the detailed schedule to support this loss.

83.2 Non Remittance of Unspent Balances A review of the statement of financial Position and the Reconciliation of movement of cash during the year revealed that the High Commission had a cash and cash equivalent opening balance of Shs.22,300,901. However, further review of the statement of Changes in Equity revealed that the funds were not transfered back to Treasury as required by Treasury Standing instructions regarding unspent balances.

I advised management that unspent balances should be returned to the UCF in compliance with the Treasury Standing instructions.

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83.3 Unacknowledged NTR Remittances to BOU A total of Shs.68,594,515 was reflected in the financial statements as NTR remitted to Bank of Uganda during the year. However, there were no Treasury General Receipts from Treasury to confirm that the funds reached the Consolidated Fund Account.

I advised the Accounting Officer to follow up acknowledgement receipts with the tax body.

83.4 Outstanding Commitments A review of the statement of outstanding commitments revealed that the Mission accumulated Shs.196,663,994 as payables during the previous financial year of which Shs.35,265,751 (18%) was paid during the year under review leaving a balance of Shs.161,398,243 outstanding. It was observed that with this low percentage rate of debt settlement, the Embassy risks being sued for delayed payment.

I advised the Accounting Officer to liaise with the Ministries of Foreign Affairs and Finance to ensure that funds are secured and paid out in settlements of the outstanding commitments. In addition management was discouraged from committing the Embassy beyond the available resources.

83.5 Maintenance of a Fixed Assets Register It was noted that the Embassy does not maintain a comprehensive fixed assets register. Although the register maintained included some details like date of purchase, description, amount, these were not regularly filled in. Fixed asset register should show item, date of purchase, value, location, condition, status for ease of identification and decision making. Thus absence of a comprehensive fixed assets register exposes the Embassy‘s assets to a risk of getting lost without detection.

The Accounting Officer promised to engrave all the Embassy assets. I await Management to fulfil this commitment.

83.6 Medical Insurance 905

Section (M-a) 14 of the Public Service Standing Orders (revised) provides for full medical insurance for a Foreign Service Officer, his/her spouse and up to 4 children while serving on a mission abroad. The Embassy contracted a health insurance company, but it could not insure people older than 60 years. It was noted that one of the Foreign Service Officers, a Counsellor, who was above the Public Service mandatory retirement age was not covered by the Health Insurance Company. As a result, the Embassy incurred EGP 65,712.95 (equivalent to Shs.27,081,646.50) on medical expenses paid directly for his medical treatment.

This expenditure could have been avoided if all staff were below the 60 year acceptable age by the insurance which also happens to be the mandatory retirement by civil servants.

The Accounting Officer explained that the concerned officer was posted on instructions of the Permanent Secretary, Ministry of Foreign Affairs on Ministry of Public Service Contract. 83.7 Maintenance of Embassy Property Government of Uganda (GOU) owns the chancery, which is a three floor building located on Plot 66, street 10 Maadi. In addition, the GOU also owns the official residence located on Plot 48, Orouba Street, Heliopolis.

During inspection, it was noted that these properties are not routinely maintained. Although the maintenance budget was included in the Embassy budget, this money was not availed to facilitate major renovations during the year. a) Chancery: Picture 1: showing part of the external wall peeling off at the chancery

b) Official residence 906

Picture 2: Showing cracked balcony wall & dilapidated water pipes 2a: cracked balcony wall 2b: dilapidated water pipes

I advised the Accounting Officer to liaise with the Ministries of Foreign Affairs and Finance to ensure that funds for renovations are provided.

83.8 Letters of Accreditation The countries which the Uganda Embassy in Cairo should be given letters of credence are Egypt, Israel, Lebanon and Syria. It was however noted that the embassy has not presented a letter of accreditation to the Lebanon Government. In effect, this implies that Uganda does not have diplomatic representation in Lebanon which impacts on any business or political ties between Uganda and Lebanon. The Head of Mission attributed this to delays by responsible authorities in Kampala to issue the Embassy with letters of credence for presentation in Lebanon. It was also noted that because of limited funds, activities in Israel, Lebanon and Syria are not pronounced.

The Accounting Officer explained that the Embassy has reminded the Ministry of Foreign Affairs to issue appropriate letters of accreditation and Ministry of Finance to avail sufficient funds.

I advised The Head of Mission to pursue the matter further with the responsible authorities/Ministries in Uganda.

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84.0 UGANDA HIGH COMMISSION, CANBERRA

84.1 Unsupported Foreign Exchange Losses – Shs.111,788,622 A review of the Statement of Financial Performance and the Cash Flow Statement revealed that the Embassy suffered foreign exchange losses amounting to Shs.111,788,622. However, the losses were not supported by a schedule showing how they were arrived at. In absence of the schedules, I was unable to confirm that the loss reported was authentic.

I advised Management to provide a schedule in support of the foreign exchange losses reported and the exchange rates applied.

84.2 Non-submission of a Board of Survey report According to Paragraph 463 of the Treasury Accounting Instructions 2003, Part 1 – Finance, ―Boards of Survey will be appointed to examine the cash, stamps securities and bank balances in the hands of Accounting Officers and the Revenue stamps held by officers authorised to hold imprests of such stamps under paragraph 73, after the close of business on the last business day of each financial year, or before the commencement of business of the following financial year‖. Appendix B provides for the constitution and conduction of the Board of Survey and requires the Chairman to forward one copy of the report to me.

However, the Board of Survey report on the cash and cash equivalents of Shs.117,207,971 in the hands of the Accounting Officer as per the Statement of Financial Position was not submitted to me. I could therefore not confirm the authenticity of the above balance.

I advised the Accounting Officer to ensure that Boards of Survey are appointed for each financial year and their reports submitted to me before or together with the financial statements.

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84.3 Non-remittance of unspent balance – Shs.20,320,599 According to Accounting Policy 2(k) and Section 19(1) of the Public Finance and Accountability Act, ―Every appropriation by Parliament of public moneys for the service of a financial year, and every warrant or other authority issued under this Act in respect of a financial year, shall lapse and cease to have any effect at the close of that year and the unexpended balance of any moneys withdrawn from the Consolidated Fund shall be repaid to the Consolidated Fund‖. However, a review of the reconciliation of movement of cash during the year and the statement of changes in equity revealed that shs.20,320,599 that remained unexpended during the previous year, was not remitted to the Uganda Consolidated Fund (UCF) during the year under review.

I advised the Accounting Officer to remit the funds to the UCF without further delay.

85.0 UGANDA EMBASSY, COPENHAGEN

85.1 Foreign Exchange Losses In the Statement of Financial Performance and note 16, Shs.159,728,762 was reported as foreign exchange losses for the period under review. However the schedule detailing how the loss was arrived at was not provided for audit verification. Accordingly, I cannot provide assurance that the loss reported in the financial statements is fairly stated.

The Accounting Officer explained that the computation of gain/loss on exchange is automatically computed by the Navision Accounting System.

I advised management toprovide details of the reported loss in form of a schedule to support the figure in the accounts.

86.0 UGANDA HIGH COMMISSION, DAR ES SALAAM

86.1 Foreign exchange losses Included in the Statement of Financial Performance and Note 16 attached to the financial statements is a foreign exchange loss of shs.40,428,650. However, this 909

balance had no supporting schedule indicating how it was derived. In addition, interaction with the Accounts Assistant revealed that the above figure may have been overstated by the requirement to translate all receipts from the Treasury that are always in US$ into local currency (Tanzania shillings) including the amount spent against the US$ operation account.

I advised the Accounting Officer to submit relevant supporting schedules for verification.

86.2 Other adjustments Included in the statement of changes in equity as at 30th June 2012 are adjustments of Shs.2,028,069. However, these adjustments were not properly explained.

In response the Accounting Officer stated that the Mission was in consultation with the Accountant General‘s Office regarding the omissions in the Navision Accounting system as well as the necessary adjustments in the accounts.

I advised management to either provide appropriate justifications for the adjustments or else have the financial statements amended accordingly.

86.3 Non-payment of the education allowance The Ministry of Public Service in a letter ref: COM 95/100/01 dated 16th June 2011 communicated to the Ministry of Foreign Affairs concerning the standardization of the Education Allowance to Us$.2,000 per child per year for Group B Missions including Dar-Es-salaam Embassy. The allowance is payable for a maximum of four biological or legally adopted children between the ages of 4 and 18.

However, a review of the Minutes of the staff meeting held on 23rd July 2012 revealed that the above allowance was not paid during the year under review. Failure to have the allowance paid affects staff morale and may also lead to costly legal challenges.

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It was explained that the Mission has been budgeting for the Education allowance but the funds were not released by the Ministry of Finance, Planning and Economic Development.

I advised the Accounting Officer to ensure that in future, the allowances are paid to the entitled officers.

86.4 Non-availability of title deeds A further review of the minutes of the staff meeting held on 23rd July 2012 revealed that title deeds for the three pieces of land comprised in Plot 10 Kaunda Drive, Plot 65/11 Hill Road (Official Residence) and Plot 25 Msasani Road (Chancery) in the diplomatic and upscale Oyster Bay that were exchanged for three plots in Kampala had not been obtained.

Management explained that the Mission had tirelessly followed up the matter but non of the titles had been obtained .Management had recommended to the Permanent Secretary and the Hon Minister of Foreign Affairs to directly engage their counterparts in Tanzania in an effort towards securing these titles.

The Accounting Officer was advised to pursue this matter with the concerned authorities to ensure that the title deeds in question are secured.

86.5 Generation of multiple similar receipt numbers Examination of receipts generated by the Navision accounting package used by the mission revealed that receipts with serial numbers 611, 612 and 615 generated in July 2011 were also generated in August 2011. This implies that there is a risk that revenues receipted with similar receipt numbers can be misappropriated without trace.

Management explained that the software generates the General Receipts automatically. The Navision support team in the Ministry of Finance had been requested to rectify this issue.

I advised the Accounting Officer to ensure that adequate controls are put into the system to ensure that no multiple receipts are generated.

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86.6 Follow up of previous year observations The status of action taken against the previous year‘s audit report observations are as shown in the following schedule:-

No Issue Recommendation Status of implementation 3 Mission assets in the Engrave all assets Not implemented Chancery and Official residence are not engraved 4 Incomplete renovation Liaise with the Ministry of Finance No capital budget was of the Chancery and to provide funds to complete the availed and approval for Official residence renovations and follow up the available public private buildings and non- approval for the available public partnership had not been development of Plot 10 private partnership for the secured. No other public Kaunda Drive(see development of Plot 10 Kaunda private partnership photos attached) Drive and save the annual rent proposal had been payment of Us$.78,000 for FSOs obtained and also earn revenue from those not occupied by staff. Alternative public private partnerships can also be sought for comparison and selection of best offer 5 Lack of a procurement Formulation of annual The Mission has been plan procurement plans in line with the writing to PPDA requesting procurement law for staff training in various procurement aspects. 6 Non-assessment of the The Mission should carry out The Mission has sought Mission performance periodical assessment of the guidance on how to fill the achievement of its objectives performance forms

The Accounting Officer was advised to ensure that the above matters are addressed without further delay.

87.0 THE PERMANENT MISSION OF THE REPUBLIC OF UGANDA TO THE

UNITED NATIONS AND OTHER INTERNATIONAL ORGANIZATIONS IN

GENEVA

The following findings that were not responded to by management were noted: 87.1 Non Submission of Returns Section 31 (b) of the Public Finance and Accountability Act, 2003 requires Accounting officers to prepare and submit financial statements three months after the end of each financial year. Although the financial statements were submitted, 912

the returns for the months of January to June 2012 were not submitted for audit. As a consequence, I was unable to confirm the accuracy and completeness of the revenues and expenditures reported in the financial statements.

87.2 Excess Expenditure A review of the statements of Appropriation Accounts revealed that contrary to the Appropriation Act, the Mission incurred expenditure amounting to shs.84,879,161 in excess of the appropriated amount of Shs.3,181,000,000 during the year under review. Expenditure was therefore, rendered unauthorized and hence irregular. Excess expenditure could be attributed to weaknesses in controls over budgeted expenditure or unauthorized utilization of NTR at source by the Mission.

I advised Management to seek for authority prior to spending any excess funds.

87.3 Untranslated statements Missions which operate where transactions are conducted in a language other than English, the official language of Government of Uganda, are required to translate the documents to English. However, it was noted that all the transactions of the Embassy were carried out in Swiss except for salaries, limiting my review of the payments made during the year.

In the circumstance, I was unable to adequately review the returns in relation to the balances reported in the financial statements.

I advised the Accounting Officer that a translation of relevant documents into English should be undertaken to enable audit review of the Mission‘s transactions.

87.4 Unexplained NTR Variances A review of the statement of Financial performance and Note 6 revealed that the Mission collected Shs.121,372,186 as Non Tax Revenue. However, the statement of Appropriation Account reflected only Shs.75,645,618 as actual collections of NTR leading to a variance of Shs.45,726,568 which remained unexplained. Besides, the

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statement of Arrear of Revenue on page 14 which could have been used to reconcile the above balances was not populated.

In view of the above, I could not ascertain actual revenue collected and confirm the accuracy and completeness of the NTR balances reported in the statements. I advised management to undertake reconciliation to establish the accurate amounts.

87.5 Lack of Board of Survey Report Included in the statement of financial position is a cash & Cash equivalent of Shs.323,470,133. However, there was no Board of Survey on cash report attached to the financial statements provided to confirm the accuracy of this amount.

The Board of Survey report is awaited to confirm the accuracy of the amounts reflected in the financial statements.

88.0 UGANDA CONSULATE, GUANGZHOU, CHINA

88.1 Non Remittance of Non Tax Revenue (NTR) NTR totaling (RMB) 13,300 collected by the Consulate during the year had not been transferred to the Uganda Consolidated Fund by the close of the year, contrary to the requirement of the Public Finance and Accountability Regulations. Besides, the Consulate did not maintain an NTR bank Account on which all revenue collected could be banked prior to its remittance to the Consolidated Fund.

The Accounting Officer explained that the non remittance was a result of the delay to get an account in Bank of Uganda to which revenue could be remitted. I advised management to pursue the opening of the Account in order to comply with the Regulations.

88.2 Absence of Mission Charter It was noted that the Consulate lacked a mission charter. The mission charter was expected to spell out the objectives of the mission and also the related initiatives to achieve the objectives. In the circumstance, the Consulate performance could not be assessed with certainty.

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The Accounting Officer stated that management had taken up the issue with the Ministry of Foreign Affairs and the Consulate‘s mission charter is awaited. I await management‘s commitment in this regard.

88.3 Consulate Accommodation The Consulate is accommodated in rented premises (Unit 2812,No.28, Hua Xia Road, Tianhe District, Guangzhou) at a monthly rental of RMB.48,500 including utilities. A 5 year tenancy agreement was signed with effect from 1st October, 2011 with an automatic increment of 8% per annum. Further, the Consulate rented a parking lot No.2163 B2 at a monthly pay of RMB 1,500 for the representation car. During audit it was explained that the Consulate management approached the Chinese Government which offered the Government of Uganda (GoU) an opportunity to acquire a plot of land on a first come-first-served basis. However, the GoU had not yet seized the opportunity to acquire this land by September 2012 despite the matter having been brought to the attention of Ministries of Finance and Foreign Affairs.

In the circumstances, the Government of Uganda continues to incur huge sums of money in rentals which may not be sustainable in the long run.

I advised management to continue liaising with the relevant authorities to resolve the matter.

89.0 UGANDA EMBASSY, JUBA

The following findings that were not responded to by management were noted: 89.1 Excess Expenditure A review of the approved estimate book and related records revealed that Shs.1,378,793,060 was appropriated by Parliament to finance the Embassy‘s operations during the year under review. A review of the statement of Appropriation Account revealed that the Embassy spent a total of Shs.1,596,431,477 during the year under review as opposed to Shs.1,440,793,060 appropriated by Parliament leading to excess expenditure of Shs.155,638,417. Further review, revealed that the bulk of the excess expenditure funding was from

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Non Tax Revenue collections which was utilized at source without seeking for the relevant authority.

I advised Accounting Officer to always abide by the Appropriation Act by spending only to the amount appropriated by Parliament.

89.2 Foreign Exchange Loss Included in the Statement of Financial Performance and the Cash flow Statement was a foreign exchange loss of Shs.197,622,584. However, the schedule showing how the loss was derived was not made available for verification. As a result, I could not provide assurance that the loss was fairly stated.

I advised the Accounting Officer to provide an analysis of the losses as a schedule to the financial statements.

89.3 Unacknowledged NTR Remittances to BOU (Shs.1,028,887,788) A total of Shs.1,028,887,788 was reported in the financial statements as NTR transfer to Bank of Uganda for its remittance to the Uganda Consolidated Account during the year. However, there were no acknowledgement receipts by the Accountant General to confirm that the funds reached the account.

I advised management to follow up the acknowledgement receipts with the Accountant General‘s office.

90.0 UGANDA EMBASSY, KHARTOUM

90.1 Over Expenditure- Shs.30,058,435 A review of the statement of Appropriation Account (based on nature of expenditure for services voted) revealed that a total of Shs.697,168,443 was incurred on employee costs contrary to Shs.650,110,008 approved budget leading to over payment of Shs.47,058,443 of which shs.17,000,000 was supported with reallocation approvals. The balance of Shs.30,058,435 was therefore, over expenditure on employee cost. Details are in table below;

Item Budget (Shs) Actual (Shs) Approved re- Variance (Shs)

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allocations Employee 650,110,008 697,168,443 17,000,000 30,058,435 costs

The Accounting officer explained that this was an unanticipated expenditure, however the Embassy requested for authority to reallocate funds but only Shs.17,000,000 reallocation was approved. I advised management to ensure that all reallocations are approved and approvals properly filed and availed for verification.

90.2 Medical Refund SDG.9,983 Section M- Medical Attention part (M-a) subsection 14 of the Public Service Standing Orders 2010 requires Foreign Service Officers while serving in missions abroad to be covered by full Medical Insurance. This should cover both in-patient and outpatient treatment. Medical Insurance should also be provided for the spouse and up to 4 children.

Examination of returns revealed that SDG.9,983 was spent on refunds to staff who brought receipts for payments made to clinics for medication. This contravenes the Standing Orders. Additionally, there is no assurance that all the medical bills submitted for refunds are genuine.

The Accounting Officer explained that a market survey carried out revealed that some of the firms are reluctant because of the small number of staff while in other cases the premium is prohibitive.

I advised the Accounting Officer to ensure that Embassy staff get medical services from a medical insurance scheme in accordance with Foreign Service Standing Orders.

90.3 Assets Management The mission maintains several assets, however, the following observations were noted:-

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a. The Chancery is located on Block 12, House No. 4 East off Al Jazaar Road, Al Riyadh, Khartoum. It is being rented at US$.6,000 per month with a 10% annual increment and it is in a very good condition.

The Accounting Officer indicated that the building is strategically positioned and the owner is willing to sell it off if Government of Uganda is interested.

I advised the Accounting Officer to liaise with the Ministries of Foreign Affairs and that of Finance, Planning and Economic Development to explore the possibility of acquiring the building. b. The Official Residence is in a very poor condition. The walls are cracked, the shutters nailed permanently because they no longer function properly and the bathrooms are in a very bad state. This does not give a good representation of Uganda‘s image.

I advised the Accounting Officer to consider urgent relocation of the Ambassadors official residence. c. The Mercedes Benz – Cream (CD 35 02) and Toyota Super Custom are in very poor condition. They break down frequently. This makes their maintenance costly.

I advised management to explore the possibility of having the vehicles boarded off. d. The Embassy has several assets including computers, office desks, tables, chairs, printers, type writer, sofa sets, among others. It was noted that these assets are not engraved. This puts the assets of the mission at a risk of being misappropriated without trace.

Management explained that the mission obtained samples of work from potential ser ice providers which were unsatisfactory. However, management intends as a temporary measure to use indelible ink until a time when a competent service provider is identified.

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I advised the Accounting officer to expedite the process.

90.4 Foreign Exchange Losses Shs.59,284,430 In the Statement of Financial Performance and note 16, Shs.59,284,430 was reported as foreign exchange losses for the period under review. However the basis of measurement of the loss was not provided for audit verification. Accordingly, I cannot provide assurance that the amount is fairly stated.

The Accounting Officer explained that the current loss of poundage affect the mission significantly and that there are losses in the processing/transaction this was drawn to the attention of the authorities during the period under review.

I advised the Accounting Officer to attach a schedule in support of the loss reported in the financial statements.

91.0 UGANDA HIGH COMMISSION, KIGALI

91.1 Erroneous cash balance The mission reported a cash balance of RWF.147,604,228.94 in the Financial Statements. However, a review of the reconciliation statements revealed a cash balance of RWF.150,056,554.6 creating a variance of RWF.2,452,325.66.

The Accounting Officer explained that the variance was systems generated and assistance was persistently sought from the Navision Unit at the Ministry of Finance, Planning and Economic Development. However, by the time of writing this report, the error had not been rectified.

I advised the Accounting officer to continue liaising with the Navision Support Team to ensure that the system is reviewed and areas of weakness improved to ensure system integrity.

91.2 Improper Procurement Procedures It was noted that the Mission used the direct procurement method for both Micro and Macro procurement. In most cases, there were no alternatives sought so as to ensure that the final selection made is of the most competitive price. Ad hoc and 919

direct procurements to the tune of USD.10,257and RWF.4,555,912 were done with no alternatives sought and those above the threshold did not go through the Contracts Committee.

Management explained that efforts are being made to have staff trained by PPDA in order to minimize procurement procedural flaws.

I advised management to always adhere to PPDA procurement guidelines in place.

91.3 Mischarge of Expenditure Parliament‘s funds appropriation is implemented through the budget in which funds are tagged to particular activities and outputs using account codes and MTEF codes. Review of the Mission‘s expenditures revealed that the Mission diverted funds meant for salaries amounting to Shs.60,818,498. The bulk of the funds were diverted to pay internet costs. In addition the Mission wrongly charged other expenditure codes a sum of Shs.9,867,076. The above practice undermines the intentions of the appropriating authority and leads to falsified accounting.

Management explained that some expenditures lack MTEFs codes and budgetary allocations on which they could be charged yet they are crucial and sometimes there are adhoc activities arising that necessitate virements.

I advised the Accounting officer to desist from such practice and to always seek guidance from the Ministry of Finance, Planning and Economic Development for expenditures with no budget lines.

91.4 Uncontrolled expenditure A review of the Mission‘s expenditure revealed excessive mobile phone costs. For instance, in the month of September 2011 alone, the mobile phone bill was RWF.3,755,887 equivalent to Shs.15,399,137.The mission had no control over the nature, destination and type of calls, but only picked the bills at the end of each month. In addition, the mission paid for fixed lines separately. This may partly explains why telecommunication funds were not sufficient leading to mischarge of internet costs.

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I advised management to put in place controls to limit the mobile phone costs.

92.0 UGANDA EMBASSY, KINSHASA

92.1 Foreign Exchange losses A review of the Statement of Financial Performance and note 16, revealed thatShs.81,218,702was reported as foreign exchange losses incurred for the period under review. However the supporting schedules showing how this was derived was not provided for audit verification. Accordingly, I could not provide assurance that the loss is fairly stated.

Management was advised to provide a schedule of foreign exchange loss to support the financial statements balances.

93.0 UGANDA HIGH COMMISSION, LONDON

93.1 Excess Expenditure - shs.609,181,150 The Statement of Appropriation based on nature of expenditure for services voted shows that the Mission incurred expenditure amounting to shs.609,181,150 in excess of the appropriated amount during the year under review. The Public Finance and Accountability Act 2003, requires that such excess expended, shall be included in a statement of expenditure in excess which shall be laid before Parliament for approval to allow it stand in the accounts. This was however not done by management. In the absence of such authority, the expenditure in question is irregularly included in the accounts. I advised the Accounting Officer to always adhere to the requirements under the Act. 93.2 Foreign Exchange Losses (shs.158,130,116) Included in the Statement of Financial Performance is shs.158,130,116 reported as foreign exchange losses for the year under review. However the schedule detailing how the loss was arrived at was not provided for verification. I explained to the Accounting Officer that failure to have the basis for computation of the foreign exchange loss was contrary to Generally Accepted Accounting Practice. Accordingly, I could not provide assurance that the loss reported in the financial statements is fairly stated. I advised management to provide details of the reported loss in form of a schedule to support the figure in the accounts. 921

93.3 Non Tax Revenue (NTR) Analysis of the NTR entries in the Navision Accounting System revealed that the mission collected GBP.363,470.06 from Rent, Administration Fees, and Licenses. However, of this amount, GBP.110,750 was transferred to the operations account implying that it was used at source. This was contrary to the requirements under the Public Finance and Accountability Act 2003. Although the Accounting Officer explained that he had sought for authority from the Permanent Secretary and Secretary to Treasury to utilize NTR at source, there is no evidence that this authority was granted. I have advised the Accounting Officer to always ensure that prior authority is always obtained before spending revenue at source. 93.4 Tenancy review The High commission of Uganda and the Consulate of Ecuador entered into a tenancy agreement in April 2007 by which the later pays annual rent amounting to GBP.36,000. Although the contract had a provision for review of the tenancy every three years, the Mission has not reviewed this agreement for over six (6) years. I explained to the Accounting Officer that the Mission stands to loose on the possibility of collecting higher rental amounts given that the rates set in 2007 are likely to be lower than the current market rates. The Accounting Officer explained that review of the tenancy agreement has not been done because of the limitations in the type of tenants the mission can have. The Foreign and Commonwealth Office allows buildings with diplomatic immunity to only be rented out to diplomatic or quasi-diplomatic tenants who are not easy to get. I however advised Management to implement the provisions in the tenancy agreement to ensure regular review of rental charges irrespective of the limitations. 93.5 Local staff appraisals It was observed that local staff lacked documented schedules of duties. Besides they are not regularly appraised as required by the Public Service Standing Orders. Contracts are renewed without reference to staff performance. This matter was raised in the previous year‘s audit report and management had pledged to correct the omission. However there was no evidence of action taken by the time of writing this report. I advised the Accounting Officer to take action on this matter as required without further delay. 922

93.6 Navision Software It was noted that the software allows bundling of payments from different items on one voucher implying that the same item is charged to differing activities. On the system itself, the payee is not indicated but only the bank being debited and the corresponding credit as supplier. Without indicating the payee, it becomes difficult to confirm whether the payment was made to the intended beneficiary. The payment file does not indicate the items being charged. In response management stated that these weaknesses were pointed out to the Navision Support Team and they hoped the software design will be adjusted accordingly. I advised management to make a follow up with the Accountant Generals Office so that such weaknesses are addressed to ensure system integrity.

94.0 UGANDA EMBASSY, MOSCOW

94.1 Funding The Mission budget for the year under review was Shs.2,308,919,741. However, almost the entire budget was utilized on payment of employee costs and rent, leaving the core activities of the mission such as Tourism and Trade promotion unfunded.

I informed the Mission management that underfunding the core activities of the mission undermines its effectiveness and defeats the purpose of its existence.

The Accounting Officer explained that due to restricted budgeting within the MTEF ceiling, the Mission is left with no option but to fit within the approved budget.

I advised management to lobby the parent Ministry, the Ministry responsible for finance and Parliament for reasonable funding.

94.2 Procurement Planning Section 96 of the PPDA regulations requires user departments to prepare work plans for procurement based on the approved budgets to facilitate orderly execution of annual procurement activities. However, the mission did not prepare work plans and subsequently procurement plan in accordance with the guidelines.

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Lack of procurement plans might have compelled the mission to make adhoc procurements which might not have been economical.

94.3 Mission Charter The mission does not have an approved mission charter which makes it difficult to set objectives, implement, and monitor and evaluate performance of the mission. In response management stated that the mission is in a process of developing a new mission charter for financial year 2013/14 to financial year 2015/16 which will be submitted to the Permanent Secretary, Ministry of Foreign Affairs for approval. I advised management in future to have a mission charter prepared and approved in time to provide direction to mission management for improved service delivery.

94.4 Tax Exemption According to diplomatic and sovereign immunity, missions abroad are allowed to claim a tax refund for tax suffered by them on procurements. However, it was noted that the mission does not claim refund of taxes incurred on procurements although the mission enjoys diplomatic and sovereign immunity. As a result, the liquidity of the mission is affected.

Management explained that tax exemption in the Russian Federation is a complicated issue, affecting all missions. The Embassy was pursuing the matter together with other embassies of regional bodies. I advised management to continue pursuing the matter.

94.5 Communication It was noted that the official communication including agreements between the mission and service providers is conducted in Russian language. However all the Home Based staff posted to the mission do not speak nor understand the Russian language.

It was observed that management relies on some of the locally recruited staff, to translate correspondences from Russian to English language. This practice is risky and contravenes the principles of confidentiality as it may result in misuse of 924

information by local staff. Lack of knowledge of Russian language by staff impacts negatively on the conduct of business, leading to poor service delivery.

Management explained that the mission budget has always factored in the language training component but funds have never been released.

I advised management to find all possible means of addressing this anomaly.

95.0 UGANDA HIGH COMMISSION, NAIROBI

95.1 Over expenditure Section 39 and 40 of the Finance and Accountability regulations and the TAI require Accounting Officers to adhere to the budgetary allocations or obtain prior permission before an over expenditure is incurred. However, there were over expenditures on various expenditure items amounting to Shs.693,740,716 without seeking approval from the relevant authorities. Accordingly, the expenditure was rendered irregular.

The accounting officer explained that the High Commission wrote to the Ministry of Finance, Planning and Economic Development requesting for a supplementary budget and authority for re-allocation of funds but no feedback was received. He further stated that until the Ministry addresses the under-funding of protected items like salaries, allowances, rent electricity and water, the High Commission will continue to face serious financial challenges.

I advised Management to continue liaising with the Ministry of Finance, Planning and Economic Development to ensure adequate funding expecially for protected items of the budget.

95.2 Nugatory Charge on Reversal of Transfer to the Treasury It was noted that rental income from Uganda House amounting to KShs.4,930,081.00 (equivalent to UShs.133,112,187) collected for the period September - October 2011, was to be transferred to Treasury on account number 2702032291 (Accountant General). However, the transaction was reversed by the bank because the beneficiary bank account number was invalid. On reversal, only

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KShs.4,596,415.30 was credited back to the account leaving a difference of KShs.333,665.70 (equivalent to UShs.9,342,639.60) as a charge on the reversal. This amount charged was considered nugatory as it could have been avoided.

The Accounting Officer explained that the changes to the account were effected without the knowledge of management and the new account details were not communicated to the Mission in sufficient time by the Ministry of Finance, Planning and Economic Development. Therefore money was remitted to the old account. I advised management to exercise due care to avoid unnecessary charges.

95.3 Unspent Balance A review of the statement of financial position revealed that Shs.177,471,497 was brought forward from previous year as unspent balance. However, this balance was neither transferred to the UCF nor accounted for. In addition, there was no Board of Survey report provided to confirm the cash and bank balances reported in the statements of financial position.

The Accounting officer explained that the balance brougfht forward was committed funds for payment of consultancy services for design and supervision of the proposed refurbishment of Uganda House.

I advised management that the unspent balances should be returned to the UCF promptly in compliance with the law and the board of survey report should be submitted for verification.

95.4 Disposal of Mission Vehicles It was noted that two vehicles were disposed off during the year and KShs.620,000 was realized from the disposal as shown below:- DATE PAYMENT VEHICLE AMOUNT REMARKS REF. (Kshs) 19/07/11 CASH 85 CD IK (BENZ) 200,000.00 Deposit payment 22/07/11 EM09521 85 CD 39K (VAN) 220,000.00 Final deposit 15/08/11 CASH- RCPT 85 CD IK (BENZ) 200,000.00 Final payment 818 TOTAL 620,000.00

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However, the Board of Survey report recommending the disposal of the vehicles and the proposed reserve prices of the respective vehicles was not produced for verification. In the circumstances, it was not possible to establish whether the disposal was conducted in accordance with the requirements under the PPDA Act.

The Accounting officer in response stated that the valuation reports and authority to dispose of the vehicles had been forwarded for verification. However, by time of writing this report, all the documents in question had not been received.

96.0 UGANDA HIGH COMMISSION, NEW DELHI

96.1 Non Submission of Returns According to Standing Administrative Instruction and Practice, all Missions abroad are required to submit returns to the Ministry which are passed over to the Auditor General for audit. However, it was noted that although Financial Statements for the year under review were submitted for audit, except for September 2011; October 2011 and February 2012 returns, Non Tax Revenue and expenditure returns for the remaining 9 months were not submitted to enable me perform the audit. As a result, I could not confirm that the revenue and expenditure balances reported in the financial statements were fairly stated.

In response, the Accounting Officer stated that the mission had submitted all the returns for the whole financial year and that a scanned copy had been forwarded for my reference. However, by the time of writing this report, neither the original document of the returns nor the scanned copies had been received by this office for verification. I advised Management to follow up the matter to ensure that the returns actually reached the Ministry.

96.2 Funds not accounted for A review of statement of Arrears of revenue revealed that Shs.64,556,833 was remitted to the Consolidated Fund during the year. However, it was noted that only Shs,49,442,353 was reported as transferred to Treasury in the statement of 927

Financial Performance while Note 19 recognized only Shs.1,230,538 was cash in transit at year end leaving a balance of Shs.13,883,942 unexplained.

Management should investigate this matter with the view of enforcing recovery of the loss (if any).

97.0 UGANDA PERMANENT MISSION TO THE UNITED NATIONS, NEW YORK

97.1 Excess Expenditure - Shs.935,052,225 The Statement of Appropriation based on nature of expenditure for services voted shows that the Mission incurred expenditure amounting to shs.935,052,225 in excess of the appropriated amount during the year under review. The Public Finance and Accountability Act 2003, requires that such excess expended, shall be included in a statement of expenditure in excess which shall be laid before Parliament for approval to allow it stand in the accounts. This was however not done by management. In the absence of such authority, the expenditure in question is irregularly included in the accounts.

97.2 Non-remittance of unspent balance to the Consolidated Fund – Shs.1,001,165,807 According to Accounting Policy 2(k) and Section 19(1) of the Public Finance and Accountability Act, ―Every appropriation by Parliament of public moneys for the service of a financial year and every warrant or other authority issued under the Act in respect of a financial year, shall lapse and cease to have any effect at the close of that year and the unexpended balance of any moneys withdrawn from the Consolidated Fund shall be repaid to the Consolidated Fund‖. It was however noted that the Embassy had a cash balance of Shs.1,001,165,807 brought forward from the previous financial year which was not repaid to the UCF during the year under review as required by the law. Management attributed this anomaly to underfunding of the Mission.

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I advised the Accounting Officer to ensure that appropriate authority is always sought in accordance with the requirements under the Act before utilization of such balances.

98.0 UGANDA HIGH COMMISSION, OTTAWA

98.1 Over Expenditure (Shs.286,654,108) A review of the statement of Appropriation Account (Based on services voted by Parliament), revealed that the mission incurred significant over expenditure totaling Shs.286,654,108 on staff allowances (Shs.95,534,686), mission staff salaries (Shs.219,348,172) and travel abroad (Shs.30,819,841) against the mission approved budget of the respective expenditure codes. However, the expenditure was not supported by approved virements.Therefore, the over expenditure was rendered irregular.

The Accounting Officer explained that the over expenditure was due to reallocations to cater for budget shortfalls on the affected expenditure items. The Mission wrote to the Permanent Secretary/secretary to treasury seeking for authority to reallocate but received no response.

I advised the Accounting Officer to always adhere to the provisions of the Appropriation Act.

98.2 Fixed Assets Register In my previous report, I stated that the mission did not have a comprehensive assets register to record its fixed assets. During inspection of the mission for the year under review, it was noted that the mission has not yet established a fixed assets register despite the management‘s commitment to put the register in place. Absence of a comprehensive fixed assets register exposes the mission‘s assets to a risk of loss without detection. I advised management to handle the matter with urgency.

98.3 Official Residence

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In my previous year report, I indicated that the official residence requires renovation and strong security measures to avoid against the current terrorist activities and threats towards countries with strong ties with United States of American Government. However, no single renovation work had been undertaken at the official residence by the time of audit inspection.

The Accounting officer explained that the matter was followed up with relevant authorities in Kampala but no funds were allocated to the mission for this purpose. I urged management to continue liaising with the authorities to have the residence renovated.

99.0 UGANDA EMBASSY, PARIS

99.1 Board of Survey

It was observed that there was no Board of Survey appointed at the closure of the Financial Year to verify cash and Bank balances (Shs.318,988,003) reported in the financial statements, and other accounting items, such as: accounting stationery (Visa stickers and travel documents) and inventory as required by Para.463 and 73 of the Treasury Accounting Instructions. I was therefore unable to ascertain whether a cash and bank balance reported in the financial statements was correctly stated.

The Accounting Officer explained that this has been keenly noted and the anomaly will be rectified.I advised the Accounting Officer is to always constitute a Board of Survey in accordance with Accounting Instructions.

99.2 Unremitted Non Tax Revenue Shs.324,110,283 NTR collections totaling to Shs.324, 110,283 (Immigration permits, Shs.310, 001, 836 and other miscellaneous receipts, Shs.14,108,447) was not remitted to government Consolidated Fund as required under the Treasury Accounting Instructions.

Further scrutiny of NTR transactions revealed that a sum of Euros 57,000 (Approximately Shs.171,000,000) was spent at source to cater for: Staff salaries for the month of February, 2012 and Rent (Euros 45,000), Local staff salaries for the 930

month of March, 2012 (Euros 5,000) and for settling the Ambassador in the new residence (Euros 7,000). At the time of audit (August 2012) the amount had not been refunded as agreed by the Finance Committee meeting in April, 2012.

In addition, a balance of Euros 49,619 (Approximately Shs.148, 857,000) was found on the NTR Account with Barclays Bank, Paris. The Accounting Officer explained that NTR amounting to Shs.233,501,458 had been remitted to the Consolidated fund as recommended and BOU receipt was attached. That amount remitted includes partial recovery of funds spent at source through emergency borrowing.

I advised the Accounting Officer to recover all the amount spent at source and have all the NTR collections in the FY remitted to the government Consolidated Fund in accordance with the Treasury Accounting Instructions.

99.3 Uncollected Rent Arrears Euros 81,024 Government of the Republic of Uganda entered into a lease agreement with the Government of the United Republic of Tanzania to lease part of her property on 13 Avenue Raymond Poincare‘ Paris 75116 covering 254 Square Meters on the Second and Third floor to the later. In consideration, the Government of the United Republic of Tanzania agreed to pay a monthly rent of Euros 6,152 and a monthly charge of Euros 600 to cater for water, garbage collection, street frontage and heating. It was noted that the lease agreement, which was signed on 20th April, 1998 and later renewed on 20th October, 2004 expired on 20th October, 2007 and has never been renewed.

The Accounting Officer explained that management has written to the Embassy of the United Republic of Tanzania urging it to respect its financial obligations. Management has also initiated the process of renegotiating and renewing the lease agreement.

I advised the Accounting Officer to ensure that the lease agreement between the two governments is renewed, the rent arrears be reflected in the statement of arrears of revenue and all monies due to the government of Uganda collected.

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99.4 Embassy Vehicles The Embassy owns two Vehicles: a representation vehicle, Benz and a utility vehicle. The cost of maintaining both vehicles is high due to old age and sometimes obtaining spare parts for the old models, especially the Benz, is becoming difficult. In the year under review, the embassy spent Euros 3,955 (Approximately in Shs.13,051,500) on vehicle maintenance excluding the high fuel and lubricants consumption expenses associated with old vehicles. Management further stated that the savings from the annual maintenance costs can be used to top-up the cost of servicing a hire purchase agreement on new vehicles.

In response the Accounting Officer explained that the vehicles are indeed old and should have been boarded off several years ago. Management will bring this to the attention of the Ministry of Finance and that of Foreign Affairs in the context of capital development budget requirement for purchase of new vehicles.

I advised the Accounting Officer to follow up this matter with the concerned ministries so that a better decision for vehicle replacement is agreed upon.

99.5 Review of the Accounting System The Mission maintains its books of accounts and prepares its financial statements using the ―Navision ―Accounting System. Scrutiny of the Accounting System revealed the following areas for improvement: a) Comparatives in the Statements of Financial Performance and Financial Position are not automatically generated by the system, but are manually inserted by the Accountant outside the system. b) Budget analysis reports by appropriation and by performance do not yield the same results on the same budget items. The Accountant explained that they were instructed by the support team only to use budget analysis reports by performance. c) Most of the Statements in the system that would be exported to Microsoft Word for further analysis cannot be exported. The system exports to Microsoft Excel the statements which can only be manipulated from there. d) Apart from revenue transactions, payment transactions were not real time transactions. Payments are effected outside the system and then posted after. 932

e) The Accountant was using the Server to the system as a working station. This exposes the system to security risks. In response, management stated that it will ensure that the recommendation is adhered to especially with regard to real time payments.

I advised the Accounting Officer to contact the Navision Support Team at the Ministry of Finance, Planning and Economic Development to ensure that the system is reviewed and areas of weakness improved to ensure system security and integrity.

The Accountant should be encouraged to make real time payment transactions to avoid processing transactions outside the system.

99.6 New Appointment Instructions to the Accountant The Mission Accountant who was previously employed as a local staff has of recent been employed on permanent and pensionable terms through the recruitment process of the Public Service Commission w.e.f 29th November, 2011. As a result, he is entitled to a monthly salary payment of Shs.626,259 and Foreign Service allowance of US$2367 per month. Although the Accountant immediately accepted the appointment, he has never been deployed and is not on the government payroll. He has continued to draw salary as a local staff. The situation if not corrected will lead to the accumulation of arrears by Government in form of unpaid salaries and allowances and if the arrears is eventually paid would result in a double payment to the officer.

The Accounting Officer explained that management has written to the Ministry of Foreign Affairs to follow up the matter and is waiting for a response.

I advised the Accounting Officer to follow up the matter with both the ministries of Finance and Foreign Affairs and have the appointment of the accountant properly streamlined.

100.0 UGANDA HIGH COMMISSION, PRETORIA

The following findings that were not responded to by management were noted:

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100.1 Excess Expenditure A review of the statement of Appropriation Account (Based on services voted by Parliament) revealed that Shs.1,381,190,000 was appropriated by Parliament to the High Commission during the year under review. However, it was noted that Shs.1,615,581,868 was instead spent leading to an excess expenditure of Shs.234,391,868. There was no evidence that the Mission obtained a supplementary Appropriation to allow it to incur the excess expenditure. In the absence of appropriate authority, the expenditure incurred in excess was rendered irregular.

The Accounting Officer explained that the excess expenditure was a result of monies refunded by Standard Bank which was used for the High Commission activities. He stated that a request was later made to the Secretary to the Treasury to authorize the expenditure but the authority was not obtained.

I advised Management to ensure that the High Commission expenditures do not exceed the amounts appropriated by Parliament without obtaining approvals from the relevant authorities.

100.2 Foreign Exchange Losses Included in the Statement of Financial Performance was Shs.171,819,525 reported as foreign exchange losses for the period under review. However the schedule detailing how the loss was derived, was not provided for verification. Accordingly, I could not provide assurance that the loss reported in the financial statements was fairly stated.I advised Management to always provide a schedule to the accounts of the reported loss.

100.3 Revenue Collections Utilized at Source Without Authority Paragraph 94 of the Treasury Accounting Instructions prohibits Collectors of Revenue from utilizing cash collected for any purpose whatsoever unless otherwise authorized in writing by the Accountant General. The Embassy collected NTR and Miscellaneous Revenue totaling to Shs.821,784,433 during the year under review out of which a total of Shs.413,885,420 was allegedly transferred to the Uganda Consolidated Fund (UCF). This implies that the balance of Shs.407,899,013 was due

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to the UCF at year end. However, the Head of Accounts in his commentary on the financial statements explained that Shs.161,977,179 was in transit to the UCF while Shs.91,443,312 was on the revenue bank account, implying that the balance of Shs.154,478,522 was utilized at source.

In response, the Accounting Officer explained that this balance was money recovered from bank but recorded as miscellaneous receipts. It was further explained that retrospective authority was sought by management but that this had not been given by the Permanent Secretary/Secretary to the Treasury by the time of writing this report.

I advised the Accounting Officer to desist from such a practice in future.

100.4 Un-spent Balance not Returned to the UCF – Shs.249,115,161 According to Accounting Policy 2(k) and Section 19(1) of the Public Finance and Accountability Act states that, ―Every appropriation by Parliament of public moneys for the service of a financial year, and every warrant or other authority issued under this Act in respect of a financial year, shall lapse and cease to have any effect at the close of that year and the unexpended balance of any moneys withdrawn from the Consolidated Fund shall be repaid to the Consolidated Fund‖. However, a review of the reconciliation of movement of cash during the year and the statement of changes in equity revealed that Shs.249,115,161 which remained unexpended at the end of the previous year was not repaid to the UCF during the year under review as required by the Accounting Policy and the Public Finance and Accountability Act.

The Accounting Officer explained that due to the nature of the High Commission, it was difficult to remit unspent balances to the UCF given the time lag between the closure of the financial year and the remittance of the 1st quarter funds. This would create a cash shortage and paralyse operations since all High Commission transactions are paid for in cash.

I advised the Accounting Officer to ensure full compliance with the requirements of the law.

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100.5 Misstatement of the Statement of Arrears of Revenue A review of the statement of Arrears of revenue revealed that Shs.727,751,619 was billed during the year while Shs.63,528,755 was brought forward from the previous year leading to a total of Shs.791,280,374. Out of this amount Shs.413,885,420 was allegedly remitted to the UCF leaving a balance of Shs.377,394,954 due to the consolidated funds as opposed to Shs.253,420,487 reflected in the statement.

101.0 UGANDA EMBASSY, RIYADH

101.1 Excess Expenditure - Shs.306,641,997 The Statement of Appropriation Account (Based on nature of expenditure for services voted) shows that the Embassy incurred expenditure totaling Shs.1,540,641,998 from that of Shs.1,234,000,001 contained in the approved budget. This therefore resulted into the excess expenditure of the difference of Shs.306,641,997 to be incurred without authority in accordance with the Budget Act. I advised Management to always follow the law.

101.2 Un-authorized utilization of NTR cash collections – Shs.286,330,640. Paragraph 94 of the Treasury Accounting Instructions 2003 provides that ―collections of Revenue are prohibited from utilizing cash collected for any purpose whatsoever unless otherwise authorized in writing by the Accountant General‖. It was noted that the Embassy had cash balance of Shs.387,010,863 brought forward from the previous financial year out of which NTR cash collections amounted to Shs.348,340,792. A review of the commentary by the Head of Accounts on page 4 of the financial statements revealed that the Embassy spent Shs.286,330,640 out of NTR cash collections balance on allowances and other costs incurred in respect of two officers recalled to the headquarters. However, during audit, I was not provided with evidence to confirm that authority to spend NTR at source was received from the Accountant General as required by TAI.

I advised the Accounting Officer to obtain authority from the relevant authorities before spending or else NTR is remitted intact to the consolidated Fund.

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102.0 UGANDA EMBASSY, ROME

102.1 Collection and Accounting of Non Tax Revenue (NTR) The Public Finance and Accountability Act provides that all monies collected as NTR should be banked intact and subsequently remitted to the consolidated fund. It was however noted that the NTR collected was not banked immediately but first borrowed to finance various mission activities and refunded later contrary to the Act. In addition, it was noted that during the year, the mission collected €16,950 from issue of visas. Of this, only €15,000 was allegedly remitted to the Consolidated Fund. There was however, no receipts from Bank of Uganda to acknowledge receipt of the monies.

The Accounting Officer stated that all the monies were remitted to Bank of Uganda.

I advised management to ensure that prior authority is obtained before utilising NTR at source. In addition, efforts should be made to ensure that acknowledgement receipts are obtained from the Accountant General.

102.2 Board of Survey Regulation 84(1) of the PFA regulations empowers Accountant General to appoint a board of survey for each vote to survey cash, bank balances and stores held by the Accounting Officer at the end of the financial year. A board of survey is done annually to confirm all asset balances at the end of the financial year. This guides the mission on the status of the mission stores, assets and finances and also guides procurement planning, disposal and boarding off of the used assets. It was noted that no Board of survey was carried out for the year under review.

In response the Accounting officer stated that a board of survey was duly conducted and the report was submitted to Accountant General‘s office.

I advised management to always attach a copy of the reports to the financial statements submitted for audit.

102.3 Recruitment of non Ugandans as Local Staff Section A-C(8) of the Public Service standing orders (revised) require all missions to seek clearance and approval from the Permanent Secretary, Ministry of Foreign 937

Affairs before appointing non Ugandans as employees of the Mission. It was noted that 5 of the Mission staff were non Ugandans; however there was no evidence to show that these staff had been cleared by Ministry of Foreign Affairs (MOFA) and Government of Uganda (GOU) security as is required for all locally recruited staff. In the absence of such clearance, these staff are considered illegally recruited.

In response, the Accounting Officer stated that the observation has been noted and will be addressed in future. However, he stated that 3 out of the 5 foreign local staff work at the residences of the Head of Mission and Deputy Head of Mission. These staffs were identified and hired by the Head of mission and the Deputy personally and they are personal to holder.

I advised the Accounting Officer to regularize the appointment of the affected staff accordingly.

102.4 Review of Personnel files & staff contracts It was noted that the mission has developed staff contracts however these are in draft form and have not been finalised. From a review of the staff personal files, the following were noted:- i. The appointment letters are varied and open ended. ii. Poor filing of documents in some personal files; for example Esther Efua Owusu; Simbe Felimar & Racheal Wambui documents were mixed up in one file under Simbe Felimar. iii. Incomplete files were maintained where some files lacked documents relating to the staff‘s appointment, acceptance, and qualification papers.

The Accounting Officer explained that the Head of Chancery was in the process of finalising all staff contracts and that the issue of filing will be rectified. I await the outcome of this commitment by management.

102.5 Staff Performance Appraisal It was noted that the mission did not carry out performance appraisals for its local staff for the year under review as required by the Public Service standing orders. In the absence of performance appraisals, management may not be able to assess the

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performance of staff, identify staff capacity needs and hold them accountable for implementing the mission‘s plans and objectives.

In his response, the Accounting Officer stated that the Head Chancery will take necessary action in accordance with regulations.

I advised management to ensure that staff performance appraisals exercise should be undertaken timely since renewal of local staff contracts should be based on satisfactory performance by the individual staff.

102.6 Court Cases from Local Staff It was noted that during the year, Mr. S. Samba, an ex-driver of the Mission sued the mission for alleged unlawful dismissal and the court granted him €35,000 (an equivalent of Shs.118,829,550) which the mission paid. In another case, another former employee Ms. Alice Kirunda who was dismissed due to indiscipline and misappropriation of funds also sued the mission for unjustifiable dismissal. Although this case was dismissed and Ms Kirunda was ordered to refund the misappropriated funds worth €7,640.54 (an equivalent of Shs.23,180,385), there was no evidence that these funds have been refunded. Instead, the former employee has taken the Mission to court again.

The payment made of €35,000 was an avoidable cost if the Mission had taken appropriate steps before dismissing the staff. Given the subsequent law suit filed by Ms. Kirunda, the outcome of the court litigation is not certain. In addition, it was noted that the mission does not have defined annual increments of salary for its local staff. This is irregular and contrary to the Public Service standing orders. In addition, through a review of staff meeting minutes, it was noted that the local staff complained about the low wages and a high cost of living in Italy. Given the Italian labour laws which are very stringent and in favour of employees; such a situation can be exploited by the local staff to sue the Mission.

In response the Accounting Officer stated that the mission is constrained by deficient budgetary allocations in an effort to meet all employee requirements as enshrined in Italian regulations, and because of this local staff opt for court. In the case of Alice Kirunda, a civil procedure has been initiated to recover the lost funds. 939

For Alice Kirunda‘s new suit for underpayment the opinion of the Solicitor General will be sought.

I advised management to take up this matter with the Ministry of Foreign Affairs to develop a universal policy for staff remunerations and salary structures for non- diplomatic staff consistent with international labour laws so as to avoid future litigation and the associated costs.

102.7 Recruitment of Accounts Staff It was noted that on suspension of the accounts assistant, a staff was appointed to the Embassy to head the accounts section. On scrutiny of his appointment letter, it was noted that he was appointed as procurement assistant on local recruitment terms although he is doing work of an accountant. It is also not clear whether the position of procurement assistant is provided for in the staff structure for missions.

I advised management to appoint accounts assistant staff to head the accounts sections in accordance with the mission‘s structure. The exercise of posting Accountants in Uganda missions abroad which is on-going where even locally recruited Accountants are willing to serve in missions under Uganda Public service should be expedited.

102.8 Staff entitlements According to Article 25 of the Italian labour laws, 2007 every year by the 20th of December employees are paid one normal current month‘s remuneration (Article 4) excluding family allowances. In addition every year by 20th June employees are paid one normal current month‘s remuneration (Article 4) excluding family allowances. A review of mission documents revealed that all locally recruited staff are entitled to payment of the 13th& 14th months in Italy. This payment was however deferred by the mission due to insufficient funds. It was noted that the 13th and 14th months obligation has accumulated to Shs.54,634,269. The mission risks being sued by local staff for non payment of a mandatory entitlement to its employees. This may lead the mission to suffer heavy financial losses by incurring payment arrears and other related costs.

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I advised management to take up this matter with the Ministry of Foreign affairs and Ministry of Finance, Planning and Economic Development to ensure that staff entitlements are settled in accordance with the laws of Italian country.

102.9 Engraving of Fixed Assets The Treasury Accounting Instructions requires all mission assets to be engraved. It was however noted that the mission assets had not been engraved as required. Failure to have these assets engraved exposes them to risk of loss through theft or misappropriation.

Management was advised to have the mission‘s assets engraved/labeled to avoid loss of the assets without trace.

102.10 Letters of Accreditation The countries which the Uganda Rome Mission should be given letters of credence are Italy, Cyprus, Greece, Malta, Serbia & Montenegro, Slovenia, Croatia, Bosnia Herzegovina and Macedonia. It was however noted that the embassy has presented credentials to only Italy and Cyprus while for the rest of the accredited countries letters of credence had not been presented to the respective Governments.

In effect, this implies that Uganda does not have diplomatic representation in the countries where credentials have not been presented which impacts on both business and political ties between Uganda and those countries.

The Head of Mission attributed this to delays by responsible authorities in Kampala to issue the Embassy with letters of credence for presentation in the respective countries.

Management explained that with the coming of the New Head of Mission, all letters of accreditation shall be sought and presented accordingly. I await the outcome of this commitment by management.

102.11 Non Compliance with the PPDAAct and Regulations The PPDA Act and regulations require every PDU to amongst other requirements;

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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. Contrary to the above requirements the mission neither produced an annual procurement plan; quarterly procurement and disposal reports nor did it have a list of prequalified service providers. The Accounting officer stated that the anomaly has been noted and will be rectified accordingly.

Management was advised to comply with the procurement laws and PPDA guidelines.

102.12 Capital Budget As stated in my previous report, the Embassy did not make budgetary provisions for capital expenditure and as a result basic items like furniture and fittings at the official residence and residences for other foreign service officers have not been budgeted for. The official residence lacked curtains and had inadequate furniture while some of the furniture belonged to the landlord. The furniture and curtains at residences very old and would require urgent replacement.

There is no adequate space for storing office inventories like stationery, files and other consumables. Inventories are packed in boxes and kept in the corridors of the chancery contrary to the Treasury accounting instructions.

I advised management to budget for the Embassy‘s capital expenditure requirements and lobby for its approval so as to enable the embassy acquire the basic items necessary for its smooth operations.

102.13 Subvention funding from MAIIF The Embassy is also recognised as the Permanent Mission to the UN Agricultural Agencies of FAO, IFAD & WFP and an Agricultural Attaché has been seconded by Ministry of Agriculture, Animal Industry & Fisheries. Funds are received from

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Treasury through MAIIF as subventions to facilitate activities related to this responsibility.

It was however noted that Uganda has not fully fulfilled its obligations with regard to the mandatory contributions to the UN Agencies. Although reminders were sent by the Embassy to MOFPED, MOFA & MAAIF, these obligations still remain outstanding.

In addition, during our audit inspection of the Embassy, we were not availed with the accounting documents and other documents relating to these subventions because the Attaché was off station during the audit visit and his office, in which all these documents are kept, could not be accessed. We were informed by the Mission staff that the Attaché is directly answerable to MAAIF and detailed expenditure showing how the subventions were utilised are shown in the MAAIF financial statements.

The Accounting Officer stated that he had no idea of how much is released for the office of the Agricultural Attaché and how these funds are spent despite the fact that the Embassy budget meets all utility expenses for the Attaché.

103.0 UGANDA EMBASSY, TOKYO

103.1 Incompletely Vouched Revenue A review of the statement of Arrears of Revenue revealed that Shs.318,098,253 was collected of which Shs.253,861,123 was remitted to the Consolidated Fund leaving a balance of Shs.64,237,130. However, further review of the same statement revealed that Shs.103,287,156 was instead reflected as revenue due to the Consolidated Fund implying that revenue totalling Shs.39,050,026 was incompletely vouched.

I advised management to review the internal controls over revenue record keeping with the view of making the necessary improvements.

103.2 Unacknowledged NTR Remittances to UCF - Shs.253,861,123

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The Statement of Financial Performance and the Cash Flow Statement show that the Embassy remitted a total of Shs.253,861,123 to the Uganda Consolidated Fund (UCF) during the year under review. However, Treasury General Receipts issued to acknowledge receipts of the funds were not availed for audit. I could therefore not confirm that the remittances actually reached the UCF.

I advised the Accounting Officer to obtain the receipts as a proof that the funds were actually received by the tax body.

103.3 Non-remittance of unspent balance to the Consolidated Fund – Shs.50,535,954 The reconciliation of movement of cash during the year and the statement of changes in equity show that Shs.50,535,954 which remained unspent at the end of the previous year was not returned to the UCF during the year under review. This was contrary to Section 19(i) of the Public Finance and Accountability Act which requires such moneys to be returned to the UCF.

I advised the Accounting Officer to transfer the money to the UCF without further delay.

104.0 UGANDA EMBASSY, TRIPOLI

The following findings that were not responded to by management were noted:

104.1 Excess Expenditure The Public Finance and Accountability Act 2003, requires excess expenditure to be included in a statement of expenditure in excess and laid before Parliament for approval for it to stand in the accounts of a vote. However, a review of the statements of Appropriation Account on pages 10 and 11 revealed that the Embassy incurred expenditure amounting to Shs.55,215,571 in excess of the appropriated amount of Shs.1,321,583,483 during the year under review without supplementary approval of Parliament. Excess expenditure may be attributed to weaknesses in budgetary controls and/or utilization of NTR at source without obtaining relevant authority.

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I advised Management to always seek for Parliamentary approval in accordance with the Public Finance and Accountability Act.

104.2 Lack ofBoard of Survey It is a requirement that the Board of Survey is appointed annually to carry out a survey on cash and stores at the end of each financial year report on the balances accordingly. However, it was noted that the board of survey report on cash and stores, was not attached to the submitted financial statement for verification. As such, the cash and cash equivalent of Shs.99,506,826 reflected in the statement of financial positions could not be confirmed as accurate.

I advised Management to ensure that a board of survey is always constituted and reports compiled at the end of every financial year and submitted as required.

104.3 Unsupported Foreign Exchange Losses Included in the Statement of Financial Performance and Cash flow Statement, is a foreign exchange loss balance of Shs.37,896,983. However, the loss was not supported with a schedule indicating date of occurrence and transaction details. In addition, the foreign exchange rate applied at the year-end was not disclosed under Note 1 to substantiate the balances in-respect of assets and liabilities in the financial statements. I was therefore unable to confirm that the balances are fairly stated.

I advised Management to provide a schedule showing how exchange losses were derived.

105.0 UGANDA EMBASSY, WASHINGTON

The following findings that were not responded to by management were noted: 105.1 Non Submission of Accounting records According to Standing Administrative Instruction and Practice, all Missions abroad are required to submit returns to the Ministry for onward submission to the Office of Auditor General for verification. However, it was noted that although Financial Statements for the period ended June 30th, 2012 were submitted for audit, the

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underlying accounting records/documents (returns) were not submitted to enable me perform the audit.

Absence of underlying accounting documents constituted a fundamental limitation of audit scope. I was therefore unable to verify the accuracy and completeness of the financial statement balances reported therein. I advised that records be availed for scrutiny.

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