OFFICE OF THE AUDITOR GENERAL

THE REPUBLIC OF

REPORT OF THE AUDITOR GENERAL

ON THE FINANCIAL STATEMENTS OF LOCAL GOVERNMENT FOR THE YEAR ENDED 30TH JUNE 2016

TABLE OF CONTENTS

LIST OF ACROYNMS ...... 2 1.0 INTRODUCTION ...... 5 2.0 AUDIT SCOPE ...... 5 4.0 AUDIT PROCEDURES PERFORMED ...... 6 4.0 ENTITY FINANCING ...... 7 5.0 FINDINGS ...... 7 5.1 Categorization of findings ...... 7 5.2 Summary of findings ...... 7 6.0 DETAILED AUDIT FINDINGS ...... 8 6.1 Under Collection of Local Revenue ...... 8 6.2 HEALTH SERVICES ...... 8 6.2.1 Non- operational Health Centres ...... 8 6.2.2 Failure to meet the Minimum Standards of Health Service Delivery ...... 9 6.3 Failure to meet the Minimum Standards of Education Service Delivery ...... 10 6.3.1 Chelekura Primary School ...... 10 6.3.2 Kanyum Primary School ...... 10 6.4 Contract Awards Without Attorney General’s Approval ...... 11 6.5 Unaccounted for funds ...... 11 6.6 Failure to disposal of obsolete assets ...... 11 6.7 Lack of Land Titles ...... 12 6.8 Lack of Documented Risk Management Policy ...... 13 6.9 Under staffing ...... 13 APPENDICES ...... 14 APPENDIX I: PROCUREMENTS WITHOUT ATTORNEY GENERAL’S APPROVAL ...... 14 Appendix II: Incompletely Vouched Expenditure ...... 14 Appendix III: UNACCOUNTED FOR FUNDS ...... 15

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LIST OF ACROYNMS

DLG District Local Government

UGX Uganda Shillings

PFMA Public Finance Management Act

ISA International Standards on Auditing

ISSAI International Standards for Supreme Audit Institutions

LGPPDA Public Procurement and Disposal of Assets

NMS National Medical Stores

LGMSD Local Governments Management and Service Delivery

LGFAM Local Government Financial Accounting Manual

LGFAR Local Government Financial Accounting Regulations

DHSSP Department of Health, Social Services Project

OPD Out Patients Department

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REPORT OF THE AUDITOR GENERAL

ON THE FINANCIAL STATEMENTS OF PALLISA DISTRICT LOCAL GOVERNMENT

FOR THE YEAR ENDED 30th JUNE 2016

THE RT. HON. SPEAKER OF PARLIAMENT Introduction I have audited the accompanying financial statements of Pallisa District Local Government for the year ended 30th June 2016. These financial statements comprise the Statement of Financial Position as at 30th June 2016, 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 45 of the Public Finance Managements Act, 2015, the Accounting Officer is accountable to Parliament for the funds and resources of Pallisa District Local Government. The Accounting Officer is also responsible for the preparation of financial statements in accordance with the requirements of the Local Governments Financial and Accounting Manual, 2007, and for such internal control 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), section 87 of the Local Government Act, and Sections 13, 16 and 19 of the National Audit Act, 2008 is to express an opinion on these statements based on my audit. I conducted 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 the financial statements

3 whether due to fraud 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 purposes of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management as well as evaluating the overall presentation of the financial statements.

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

Part ‘‘A’’ of this report sets out my 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”

Opinion In my opinion, the financial statements of Pallisa District Council as at 30th June 2016 are prepared, in all material respects, in accordance with the Local Governments Financial and Accounting Manual, 2007, Section 51(3) of the Public Finance Management Act 2015, the Local Governments Financial and Accounting Regulations, 2007 and the Local Governments Act 1997, cap 243 (as amended), of the Laws of Uganda.

John F. S. Muwanga AUDITOR GENERAL 29th November, 2016

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PART "B"

PALLISA DISTRICT DETAILED REPORT OF THE AUDITOR GENERAL FOR THE FINANCIAL YEAR ENDED 30TH JUNE 2016

1.0 INTRODUCTION

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

2.0 AUDIT SCOPE

The audit was carried out in accordance with International Standards on Auditing and accordingly included a review of the accounting records and agreed procedures as was considered necessary. The audit was carried out with regard to the following objectives:- a. To verify whether the financial statements have been prepared in accordance with the requirements of the Local Governments Financial and Accounting Manual 2007; and the Local Governments Financial and Accounting Regulations 2007; and fairly present the income and expenditures for the year and of the financial position as at the end of the year.

b. To verify whether all the funds of the entity were utilized with due attention to economy and efficiency and only for the purposes for which the funds were provided.

c. To verify whether goods and services financed have been procured in accordance with the Public Procurement and Disposal of Public Assets (PPDA) Act 2003 (as amended).

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

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e. To verify whether the management of the funds of the entity was in compliance with the Government of Uganda Financial Regulations.

f. To verify whether all the necessary supporting documents, records and accounts have been kept in respect of all activities, and are in agreement with the financial statements presented.

3.0 AUDIT PROCEDURES PERFORMED The following audit procedures were undertaken:-

a. Revenue

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

b. Expenditure

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

c. Internal Control System

Reviewed the internal control system and its operations to establish whether sound controls were applied throughout the period

d. Procurement

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

e. Fixed Assets Management

Reviewed the use and management of the assets of the entity during the period under review.

f. Financial Statements

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

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4.0 ENTITY FINANCING

Pallisa District is financed by grants (Conditional and Unconditional) from the Central Government, donations and locally generated revenues from taxes, fees, licenses and charges. During the year, the district received grants totaling to UGX.27, 093,538,170 from the Central Government; UGX.308,083,000 from donors; UGX.191,269,540,663 from locally generated revenues and UGX.1,993,242,178 transfers from other government units all totaling UGX.29,664,404,011 which constitutes 98.7% of the approved budget estimates of UGX.30,037,776,883.

5.0 FINDINGS

5.1 Categorization of findings

The following system of profiling of the audit findings has been adopted to better prioritize the implementation of audit recommendations: N Category Description o 1. High significance Has a significant/material impact, has a high likelihood of reoccurrence, and in the opinion of the Auditor General, it requires urgent remedial action. It is a matter of high risk or high stakeholder interest. 2. Moderate significance Has a moderate impact, has a likelihood of reoccurrence, and in the opinion of the Auditor General, it requires remedial action. It is a matter of medium risk or moderate stakeholder interest. 3. Low significance Has a low impact, has a remote likelihood of reoccurrence, and in the opinion of the Auditor General, may not require much attention, though its remediation may add value to the entity. It is a matter of low risk or low stakeholder interest.

5.2 Summary of findings

No Finding Significance 6.1 Under Collection of Local Revenue High

6.2 Non- operational Health Centres High

6.2.1 Failure to meet the Minimum Standards of Health Service High Delivery

6.3 Failure to meet the minimum Standards of Education High Service Delivery

6.4 Contracts Awarded Without Attorney General’s Approval High

6.5 Unaccounted for Funds High

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6.6 Failure to dispose off obsolete assets Moderate

6.7 Lack of Land Titles Moderate

6.8 Lack of Documented Risk Management Policy Moderate

6.9 Understaffing Moderate

6.0 DETAILED AUDIT FINDINGS

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

6.1 Under Collection of Local Revenue Section 32 of the Local Governments Financial and Accounting Regulations 2007 requires the head of finance to be responsible for revenue collection and ensure that all revenue due to the council is promptly collected and banked intact. However, a review of the district revenue performance revealed that out of the budgeted sum of UGX.345,901,535 only UGX.269,540,663 was realized leading to a shortfall of UGX.76,360,872 representing (22.1%) of the budget.

Failure to collect all the budgeted local revenue negatively affects the implementation of the planned activities. The Accounting Officer attributed the shortfall to; Low turn up of tender bidders, Fish size and gear enforcement to date, Poor harvest due to prolonged draught, and Lack of a District Land Officer to support Revenue generation from Land Office. The Accounting Officer further indicated that council had come up with a revenue enhancement strategy to improve revenue collections.

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

6.2 HEALTH SERVICES 6.2.1 Non- operational Health Centres

Pallisa district spent a total amount of UGX.860,722,127 on construction and improvement of health centre IIIs and IIs between the period 2011/2012 and 2012/2013 as shown below.

S/N NAME PERIOD OF TOTAL COST OF CONSTRUCTION CONSTRUCTION 1 Opwateta HC III 2011/2013 173,100,402 2 Akisim HCIII 2011-2013 120,849,381 3 Chelekura HCIII 2011-2013 152,292,200

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4 Olok HC III 2011-2013 137,538,625 5 Nasuleta HCII 2011-2013 95,792,830 6 Aolai HC II 2011-2013 86,258,657 7 Kadokolene HC II 2011-2013 94,890,032 TOTAL 860,722,127

However, the health centres remain non-operational to-date allegedly due to lack of

operational funds.

The Accounting Officer explained that Council had written to Permanent Secretary Ministry of Health to plan and operationalize the facilities.

The matter requires urgent attention.

6.2.2 Failure to meet the Minimum Standards of Health Service Delivery

Paragraph 2.1.1 (D) of the Local Governments Management and Service Delivery (LGMSD) program Operational Manual, 2009 and Guidelines for Designation, Establishment and Upgrading of Health Units by Ministry of Health, 2011 set out Health Service Delivery packages or minimum standards for functioning of health centres. However, audit inspection carried out at Pallisa Hospital and Health Centre IV indicated lack of basic requirements as shown in the table below;

Pallisa Hospital

Basic Requirements Current status -lacks operating light; - Operation Theatre [2 rooms] - The two existing autoclaves had broken down. -A machine for controlling breeding, which was supplied over two years ago by DHSSP project of Ministry of Health has not been utilised because it lacked a component - The existing mortuary was in a dilapidated state, lacks a working Mortuary table on which to carry post-mortem, does not have refrigeration facilities and is very small as it can only handle one body at a time. - Only 30 units which are in a dilapidated state. - Ancillary structures No activity - In service training, consultation and research to community based health care programmes - The hospital lacks a fence. Security

Staffing requirement- 195 -139 staff. personnel.

Five(5) consultants No Consultant - No pharmacist, Aesthetician, physiotherapist and an occupational - Pharmacist, Aesthetician, therapist. physiotherapist and an occupational therapist.

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Running water - The available reservoir (tank) was installed in 1969 when the hospital was constructed. It’s very old and leaking.

Butebo Health Centre IV

Transport No ambulance

Lack of proper facilities hinder effective service delivery.

I advised the accounting officer to engage the relevant authorities and ensure that the challenges are addressed.

6.3 Failure to meet the Minimum Standards of Education Service Delivery Paragraph 2.2.1 of the revised Local Governments Management Service Delivery (LGMSD) operational manual provides minimum service delivery package for a primary school. The package includes; Classrooms; Pupil desks, Pit latrines (for pupils and teachers), Teachers desks, Teachers chairs, Teachers houses and water availability. However, documentation review and the inspection carried on a sample of schools revealed the following:-

6.3.1 Chelekura Primary School

It was observed that the district constructed a four (4) stances pit latrine for the boys at Chelekura Primary School. However, the inspection revealed that the pit latrine was yet to be handed over by the contractor. Consequently, children continue to use the old one which is in a dangerous state.

6.3.2 Kanyum Primary School The inspection revealed the following;

 The roof of the classroom one block which was accommodating P.1, P.2, P.3 and P.4 was blown off by a stormy rain in March, 2016. The classes affected are now being conducted under trees around the school.  One pit latrine of 5 stances had collapsed.  The head teacher lacked an office.  The structures were dilapidated and require rehabilitation.

The Accounting Officer explained that the parents and sub counties had been engaged to make contributions to address the issues of pit-latrine in the school. The district also planned to provide for a two classroom block, an office and a store in the coming financial year to beef up the existing ones.

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The matter requires urgent attention.

6.4 Contract Awards Without Attorney General’s Approval Regulation 86 (2) (f) of LG PPDA requires that a contract document, a purchase order, letter of tender acceptance or other communication in form of any conveying acceptance of a tender that binds a Procuring and Disposing Entity to a contract with the tenderer, shall not be issued prior to approval by all the relevant Agencies, including the Attorney General. It was however observed that fourteen contracts with total contract value of UGX.1,118,421,120 lacked the Attorney General’s approval as shown in Appendix I.

The Accounting Officer admitted the shortcoming and attributed it to a misinterpretation of the PPDA amendment, that changed the threshold from UGX.50,000,000 to UGX.200,000,000 for only central government votes.

I urged the Accounting Officer to comply with Public Procurement and Disposal of Public Assets (PPDA) Act.

6.5 Unaccounted for funds

Section 5.4.6 (1) of the Local Governments Financial and Accounting Manual (LGFAM), 2007, requires the head of finance to ensure that payment vouchers and any supporting documents are correct before being passed for payment. It was however observed that UGX.26,652,255 lacked the necessary supporting documents contrary to the regulations as shown in Appendix II and III.

In the absence of the relevant supporting documents, I could not confirm that the funds were utilized for the intended purposes.

I advised the Accounting Officer to ensure that the funds are accounted for or else effect recovery from the responsible officers.

6.6 Failure to disposal of obsolete assets

Section of 2.3.2.2 of the Local Governments Financial and Accounting Manual (LGFAM), 2007 requires assets that are not in use to be disposed of in accordance with the procedures in the LGPPDA, 2006 regulations, after recommendations from the Board of Survey. However, physical inspection of assets and board of surveys

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report revealed that three (3) Pickups vehicles; UG-1114A, LG-0009-40 and four (4) graders had been grounded for long without being disposed of as shown below;

Failure to dispose of the assets may lead to further deterioration in value

The Accounting Officer explained that the process of valuation had begun with the Ministry of Works but the disposal plans for the road equipment had been stayed with the hope that funds for repair would be found.

I advised the Accounting Officer to expedite the process of disposing of the assets.

6.7 Lack of Land Titles

Regulation 58(4) of the Local Governments Financial and Accounting Regulations 2007 requires that properties and assets of Local Government are properly registered and titles issued. However, it was observed that where council’s properties like; health centers and sub county offices are located lacked land titles.

The Accounting Officer explained that the district had acquired comprehensive survey equipment under PRDP funds and this will ease the process of surveying the land and also eventual acquisition of the titles.

I urged the Accounting Officer to expedite the process of surveying and ensure that the land titles are secured.

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6.8 Lack of Documented Risk Management Policy

Section 103 (1) of the LGFAR, 2007 stipulates that the Head of Finance is responsible for advising on risk management and effectiveness of the internal control system and also establish it for future review. According to LGFAR, “Risk management” means the establishment of policies, procedures and practices to identify, analyse, quantify, monitor, and control financial and other exposures of the Council so as to minimize potential losses. It was however observed that management had not established and documented risk management policies.

This weakens the Internal Control Systems.

The Accounting Officer explained that Council had tasked the Head of Finance and Planning Unit to come up with a draft.

I advised the Accounting Officer to ensure that a risk management policy is developed.

6.9 Under staffing

The district has an approved staff establishment of 3,007 positions. However, out of the approved 3,007 positions; only 2600 positions were filled, leaving 407(14%) posts vacant.

Understaffing overstretches the available staff beyond their capacity, creates job- related stress to the fewer staff and negatively affects the level of public service delivery to the community.

The Accounting Officer attributed the staffing gaps to the ban on recruitment by the Ministry of Public Service and the inadequate wage bill.

I advised the Accounting Officer to continuously engineering with the Ministries of Finance, Planning and Economic Development and Public Service to ensure that all the vacant posts are filled.

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APPENDICES APPENDIX I: PROCUREMENTS WITHOUT ATTORNEY GENERAL’S APPROVAL Procurement Ref. Contract Details Contractor Amount No. (UGX) PALI/548/WRKS/15- construction of a General ward at Mpongi m/s Hadais multi- 16/0003 HC III in Puti Puti sub-county purpose enterprises ltd 159,691,241 PALI/548/WRKS/15- construction of staff house at Butebo HC m/s IMAS engineering 16/0004 III in Butebo sub county co ltd 93,518,481 PALI/548/WRKS/15- construction of A 2 classroom block at m/s Bafakulera 16/0005 Kanyum primary school in Butebo sub- construction co. Ltd 54,980,692 county PALI/548/WRKS/15- construction of A 2 classroom block at St m/s General purposes 16/0006 John Kadumire primary school in Apopong construction 53,248,127 sub-county PALI/548/WRKS/15- construction of A2 construction block at M/s Butebo 16/0007 Keuka primary school in puti puti sub- construction co ltd 54,763,800 county PALI/548/WRKS/15- Renovation of Pallisa General Hospital m/s Lutufiya 16/0002 Peadiatric ward enterprises ltd 136,770,598 PALI/548/WRKS/15- sitting, hydro Geological survey, drilling m/s Icon projects ltd 16/0012 water quality testing, and installation of 5 109,150,000 boreholes lot 4 PALI/548/WRKS/15- Renovation of Pallisa General Hospital m/s Hadais multi 16/0013 maternity ward purpose enterprises ltd 132,473,231 PALI/548/WRKS/15- Renovation of Pallisa General hospital Haruson holdings ltd 16/0014 female ward 128,988,555 PALI/548/WRKS/15- Renovation of Pallisa General Hospital male m/s Victoria outlets ltd 16/0015 ward 134,836,395 PALI/548/svrs/15- Revenue collection Kamuge main market in Mr. Magino Johua 16/0002 puti-puti sub-county 60,000,000

Total 1,118,421,120

Appendix II: Incompletely Vouched Expenditure Voucher Eft no Dep't Purpose Payee Amount Comment No. (UGX) PPV-09732 5480114000112 CDD Transfer of CDD Olok s/c 2,500,000 no funds to Olok s/c acknowledgemen t receipt attached PPV-09733 5480114000113 CDD Transfer of CDD Pallisa s/c 2,500,000 no funds to Pallisa acknowledgemen s/c t receipt attached PPV-09452 5480105000584 LGMSD Transfer of Butebo 4,334,392 no receipt LGMSD grt to attached Butebo s/c PPV-09072 5480105000558 LGMSD Transfer of Kakoro 2,289,931 no receipt LGMSD to Kakoro attached 1st qtr PPV-09075 5480105000561 LGMSD Transfer of opwateta 2,172,622 no receipt LGMSD to attached Opwateta 1st qtr PPV-09449 5480105000581 LGMSD Transfer of Olok 2,442,810 no receipt LGMSD grant to attached Olok s/c Total 16,239,755

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Appendix III: UNACCOUNTED FOR FUNDS Voucher Eft no Dep't Purpose Payee Amount Comments No. (UGX) PPV- 5489902 Education Fuel for school Pallisa GAPCO no 11014 021468 inspections service station 2,042,500 consumption sheets PV- 5.48021E Education fuel for DEO's Pallisa GAPCO 2,970,000 no ED00910 +12 inspection & service station consumption monitoring sheets PPV- 5480208 Education Pay’t for balance Pallisa GAPCO 1,800,000 no 09275 000469 of fuel for service station consumption inspection sheets PV- 5.4899E+ Statutory fuel supply to Pallisa GAPCO 3,000,000 no fuel FN00496 12 bodies D/council service station consumption sheet attached Total 9,812,500

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