Uganda Friendship Hospital, Naguru for the Year Ended 30Th June 2014

OFFICE OF THE AUDITOR GENERAL

THE REPUBLIC OF UGANDA

REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF THE CHINA - UGANDA FRIENDSHIP HOSPITAL, NAGURU FOR THE YEAR ENDED 30TH JUNE 2014

OFFICE OF THE AUDITOR GENERAL

UGANDA

TABLE OF CONTENTS

PAGE

List of Acronyms ...... ii

Report of the Auditor General on the Financial Statements of the China-Uganda Friendship Hospital, Naguru for the Financial Year ended 30th June 2014 ...... 3

Detailed Report of the Auditor General on the Financial Statements of the China -Uganda Freindship Hospital, Naguru for the Financial Year ended 30th June 2014 ...... 6

1.0 Introduction ...... 6

2.0 Background Information ...... 6

3.0 Functions of the Hospital ...... 7

4.0 Major Acheivements of the Hospital ...... 7

5.0 Financing of the Hospital ...... 8

6.0 Audit Scope ...... 8

7.0 Procedures Performed ...... 8

8.0 Audit Findings...... 9

LIST OF ACRONYMS

CUFHN China-Uganda Friendship Hospital, Naguru

EFT Electronic Funds Transfer

KCCA Kampala Capital City Authority

NACME National Medical Equipment Advisory Committee

PDE Procuring and Disposing Entity

PFAA Public Finance and Accountability Act

PPDA Public Procurement and Disposal of Public Assets

TIN Tax Identification Number

UGX Uganda Shillings

URA Uganda Revenue Authority

HSDs Health Systems Developments

REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF THE CHINA-UGANDA FRIENDSHIP HOSPITAL, NAGURU FOR THE FINANCIAL YEAR ENDED 30TH JUNE 2014

THE RT. HON. SPEAKER OF PARLIAMENT I have audited the accompanying financial statements of the China-Uganda Friendship Hospital, Naguru (CUFHN) for the year ended 30th June 2014. These financial statements comprise of the Statement of Financial Position as at 30th June 2014, Statement of Financial Performance, Statement of Changes in Equity, Cash flow Statement together with other accompanying statements, notes and accounting policies.

Management’s Responsibility for the Financial Statements Under Article 164 of the Constitution of the Republic of Uganda, 1995 (as amended) and Section 8 of the Public Finance and Accountability Act (PFAA), 2003, the Accounting Officer is accountable to Parliament for the funds and resources of China-Uganda Friendship Hospital, Naguru for the year ended 30th June 2014. The Accounting Officer is also responsible for the preparation of financial statements in accordance with the requirements of the Financial Reporting Guide, 2008, and for such internal controls as management determines necessary to enable the preparation of financial statements that are free from material misstatement whether due to fraud or error.

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

An audit involves performing audit procedures to obtain audit 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 the financial statements whether due to fraud 3

or error. In making those risk assessments, the Auditor considers internal controls relevant to the entity’s preparation of financial statements in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my qualified audit 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.

PART “A” Basis for qualified opinion  Transfers from Treasury General Account During the year under review, UGX.1,500,129,768 was transferred from the above account to a Sub Treasury Account, but lacked supporting documentation to enable me ascertain the purpose for which these funds were used.

Qualified Opinion In my opinion, except for the possible effects of the matter described in the Basis for Qualified Opinion paragraph, the financial statements of the China Uganda Friendship Hospital, Naguru as at 30th June 2014 are prepared, in all material respects, in accordance with the Financial Reporting Guide, 2008 and section 31(6) of the Public Finance and Accountability Act, 2003.

Other Matter Without qualifying my opinion further, I consider it necessary to communicate the following matter other than those that are presented in the financial statements.

Revenue performance The Hospital had an appropriation of UGX.9,548,296,000 for the year under review out of which it received a total of UGX.7,187,9 21,785 resulting into a shortfall of UGX.2,498,998,215 (26%). This affected implementation of planned activities which may eventually impact negatively on the achievement of the Hospital’s objectives.

John F.S. Muwanga AUDITOR GENERAL 23rd March, 2015

PART “B” DETAILED REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF THE CHINA -UGANDA FREINDSHIP HOSPITAL, NAGURU FOR THE FINANCIAL YEAR ENDED 30TH JUNE 2014

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

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

2.0 BACKGROUND INFORMATION China-Uganda Friendship Hospital, Naguru is a Referral Hospital for Greater Kampala Region, established to carry out support supervision, mainly through specialist outreach programmes, targeting mainly health units on clinical services and Public Health aspects, covering a population of over 5 million people in the Districts shown in the table below;

No. DISTRICT HSDs HEALTH FACILITIES 1 Buikwe 3 55 2 Butambala 1 21 3 Buvuma 1 13 4 Gomba 1 18 5 Kampala 5 866 6 Kayunga 3 36 7 Mpigi 3 31 8 Mukono 3 104 9 Wakiso 6 362

China-Uganda Friendship Hospital, Naguru was handed over on the 6th of January 2012 by the People’s Republic of China to the Government of the Republic of Uganda. It is a 100 bed facility, with disciplines of Accident and Emergency services, Paediatrics, Community Health, and Medical Technology. It provides both Outpatient and Inpatient services strategically in view of the limited capacity. The hospital offers a 24-hour service to the population. Staff work in 3 shifts to ensure adequate and efficient coverage of all duties. Majority of the patients are managed as outpatients. Patients requiring specialized procedures that cannot be done on outpatient basis like obstetric, surgical, medical and paediatric emergencies are admitted.

Selected cold cases by specialists are also admitted for specialist procedures. Average hospital stay is 4 days with bed occupancy of 100%. Success of the plan depends on a well-planned and effective management system to support the medical teams, efficient supply chain of drugs and supplies, a well-motivated, dedicated and committed work force of health workers and fully functional medical equipment.

3.0 FUNCTIONS OF THE HOSPITAL The Hospital’s functions include:  To provide a range of general and specialised curative, preventive and rehabilitative services.  To contribute to regional human resource development through training of various cadres of health workers.  To conduct operational research.  To contribute as requested to the Ministry’s national policy and support supervision.

4.0 MAJOR ACHEIVEMENTS OF THE HOSPITAL The Hospital’s major achievements in the year included the following;  Completion of staff validation exercise and clearance of vacant posts by Ministry of Public Service. Recruitment is on-going by Health service Commission.  During the year, there was notable increase in workload especially in areas of reproductive health and paediatric patient care.  The Hospital received a donation of assorted medical equipment and consumables from the People’s Republic of China. 7

 Execution of planned activities as per approved work plan e.g. Installation of water harvesting equipment, procurement of land, service providers for developing a master and strategic plan, constructing staff hostel, medical waste treatment machine, 2-double cabins, PBAX, Internet services, computers and assorted medical equipment among others.

5.0 FINANCING OF THE HOSPITAL The Hospital was financed by Transfers received from treasury of UGX.7,155,965,785 constituting 75% of the approved budget estimate of UGX.9,548,296,000.

6.0 AUDIT SCOPE The audit was carried out in accordance with the International Standards on Auditing and accordingly included a review of the accounting records, agreed procedures as was considered necessary. In conducting my reviews, special attention was paid to establish whether: a. The Financial Statements for CUFHN have been prepared in accordance with the requirements of the PFAA, 2003, and the Financial Reporting Guide, 2008. b. Sufficient internal controls have been applied consistently throughout the year to safeguard the assets of the Hospital and mitigate the risk of misstatement of the financial statements; c. All necessary supporting documents and records have been maintained and are in agreement with the financial statements presented; d. Goods and services have been procured in accordance with the Government of Uganda procurement regulations; e. The Hospital assets were well managed in the period under review.

7.0 PROCEDURES PERFORMED a. Revenue/Receipts Obtained schedules of receipts and reconciled the amounts to the Hospital’s cashbooks and bank statements. b. Expenditure Vouched transactions to establish whether documentation in support of the expenditures agreed with the amounts and descriptions on the vouchers; reviewed 8

and reconciled the bank statement transactions to test for occurrence and whether they were properly controlled and accounted for.

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

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

e. Fixed Asset Management Reviewed the use and the management of the Hospital’s assets during the period under review.

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

8.0 AUDIT FINDINGS 8.1 Transfers from Treasury General Account

A review of the bank statements for the referral hospital revealed that funds totaling to UGX.1,500,129,768 were transferred from the Treasury General Account to a Sub Treasury Single Account as indicated below; NO Date. Document No. From Amount (UGX). 1. 18/10/13 9911FN132910118 Q336TSA Naguru Referal Hospital 1,057,785,926 2. 30/01/14 991SIS03132940077 00376 Naguru Referal Hospital 86,833,440 3. 10/06/14 991SIS0132940077 00376 Naguru Referal Hospital 290,724,060 4. 16/06/14 991SIS0132940077 00376 Naguru Referal Naguru 64,786,342 Total 1,500,129,768

I was not availed with documentation on how the funds were eventually spent. In the circumstances, it was not possible to ascertain the purpose for which the money was used.

Although the Accounting Officer indicated that management was taking measures to provide the documents, these were not availed by the time of writing this report.

I advised the Accounting Officer to avail the necessary accountability or enforce recovery of the above funds.

8.2 Revenue performance

The Hospital had an appropriated budget of UGX.9,548,296,000 for the year under review but received only UGX.7,187,921,785 resulting into a shortfall of UGX.2,498,998,215 (26%). As a result, the following activities were not implemented:  Medical waste management to handle organic medical waste,  Construction of incinerator,  Hospital expansion by an additional floor,  Oxygen supply to essential units of the Hospital,  Provision of food to patients and staff motivation through allowances.

Failure to implement planned activities impedes the Hospital from achieving its objective. There is also a risk that the initial government intentions of improving the referral system in Kampala and decongesting Mulago Hospital Complex may not be achieved in the short run.

I advised the Accounting Officer to liaise with the Ministry of Finance Planning and Economic Development and other stakeholders, to ensure that the Hospital’s budget is always fully funded to enable it achieve its objectives and the government intentions of improving the referral system in Kampala.

8.3 Purchase of Land for Staff Houses

During the year under review, UGX.993,000,000 was paid to an individual for measuring 0.776 hectares, and Block 230 plot 1471 measuring 0.034 hectares under procurement reference number CUFH/SUPLS/13-14/00016. The following anomalies were observed:

 While the purchase was meant for block 230, plot 1472 and part of plot 1471, the contract signed with the vendor and the certificate of title showed the land details as to be for block 230, plot 1473 and part of plot 1472. Plot 1473 had not been valued by the Chief Government Valuer and therefore the price for it had no basis. This could cause unnecessary land wrangles.

 The certificates of title had not been transferred into the names of the Hospital by the time of audit. The transfer of ownership had been halted by the Principal Registrar, Wakiso district, pending clarification on the Hospital names since the Hospital interchangeably uses the names of China Uganda Friendship Hospital and Naguru Referral Hospital.

The Accounting Officer explained that the differences in plot numbers were not attributed to Naguru as an entity but to Wakiso lands office as they indicated that the initial plots were “re-numbered due to double plotting”. This was not in any way likely to cause any confusion in future. He also indicated that management was making all efforts to transfer the titles in the Hospital names following clarification in the Hospital’s name by the Permanent Secretary, Ministry of Health.

I advised the Accounting Officer to obtain clarification regarding the details on the land title and also expedite the transfer process.

8.4 Construction of a Drug Store The Hospital procured a local construction firm to construct a three level office structure and a drug store at a contract sum of UGX.769,240,009. During the year under review, a total of UGX.223,077,200 was paid to the firm on Voucher number NR310/06/2014, vide EFT 1239859, however the following anomalies were noted:

 Non Public bid opening

There was no public bid opening contrary to Regulation 62 (1) of the PPDA Regulations 2014 (Rules and Methods for Procurement of Supplies, Works and Services) which requires bids submitted under the open bidding method or the restricted bidding method to be opened at a public bid opening session.

 Raising a bid advertisement before contracts committee approval A bid Advertisement was raised on 3rd January 2014 before the Contracts Committee approved the procurement method, Bid document and Advert which was done on 17th March 2014. This contravenes regulation 12 of the PPDA (PDE) regulations 2014.

 Lack of approval of plan by KCCA The plan for the offices and stores was not approved by the Area Planning Authority (KCCA). It was noted that the Directorate of physical planning in KCCA gave a notice of deferment of development permission sighting among other reasons the encroachment by the drug store on the planned road reserve and the confusion relating to the developer’s name. This has stalled construction which may lead to escalation of construction costs and delayed completion. In response, the Accounting Officer explained that, Plans for the drug store were submitted to KCCA as required by law. However, KCCA deferred the development permission for the Project. Efforts were made to address all the concerns raised.

I advised the Accounting Officer to follow up with KCCA and ensure that the development plans are approved. In future, bid documents should always be approved by the Contracts Committee before an advertisement is placed.

8.5 Medical waste Treatment Machine

A review of the hospital medical waste disposal process revealed that the hospital has a medical waste treatment machine bought locally at UGX.250m for incinerating solid medical waste materials. The hospital however does not have the capability to handle medical waste like placentas and is locally disposing off such waste.

Whereas the hospital is commended for acquiring the medical waste treatment plant, the absence of a placenta pit, makes it difficult to handle and dispose the non solid waste matter. The Accounting Officer explained that the recommendable manner could not be achieved because the Hospital was financially constrained as this activity was among the unfunded priorities.

I advised the Accounting Officer to put in place maintenance procedures for the equipment to ensure its sustainable use and to also institute other necessary measures for disposal of other waste matter.

8.6 Demurrage Charges

A review of the documents revealed that during the year funds totaling UGX.20,700,916 were paid to a clearing firm for clearing medical equipment donated by the Republic of China. However, it was noted that 40% (UGX.8,054,900) of the payment was wasteful as it was paid as demurrage for delay in clearing the equipment.

The Accounting Officer attributed the delay to absence of the TIN for the Hospital at the time and explained that the Hospital had before delivery of the said equipment initiated the process of acquiring a TIN online, which process was delayed due to uncertainty of ownership of the Hospital by URA.

I advised the Accounting Officer to put in place mechanisms of expediting specific processes whose delays could lead to such wasteful expenditure.

FINANCIAL STATEMENTS