Office of the Auditor General

THE REPUBLIC OF UGANDA

OFFICE OF THE AUDITOR GENERAL

ANNUAL REPORT OF THE AUDITOR GENERAL

FOR THE YEAR ENDED 30TH JUNE 2014

VOLUME 4

STATUTORY CORPORATIONS

TABLE OF CONTENTS

1.0 Introduction ...... 1 2.0 Responsibilities Of Public Organizations On The Financial Statements ...... 1 3.0 Status Of Accounts Audited During The Year ...... 1 3.1 Audits In Progress ...... 4 3.2 Types Of Opinions Issued ...... 4 3.3 Types Of Opinions Explained ...... 6 4.0 Key Audit Findings ...... 7 5.0 Summary Of General Audit Findings ...... 10 Energy Sector ...... 22 6.0 Amber House Limited ...... 22 7.0 Electricity Regulatory Authority ...... 24 8.0 Kilembe Mines Limited - Year Ended 30th June, 2013 ...... 26 9.0 Uganda Electricity Generation Company Limited- Year Ended – 31st December 2013 ...... 27 10.0 Uganda Electricity Distribution Company Limited - Year Ended 31st December, 2013 ...... 31 11.0 Uganda Electricity Transmission Company Limited - Year Ended 31st December, 2013 ...... 35 Uganda Electricity Transmission Company Limited Projects ...... 38 12.0 Energy For Rural Transformation Project (Bank Of Uganda Component) –Year Ended 30th June, 2014 ...... 38 13.0 Ert - Uganda Energy Credit Capitalisation Company ...... 39 14.0 Ert - Private Sector Foundation Uganda ...... 40 15.0 Ert Ii – Project Coordination Unit – Year Ended 30th June, 2014 ...... 41 16.0 Ert Ii – Rural Electrification Agency ...... 52 17.0 Esdp- Kawanda- Masaka Power Line – Year Ended 30th June 2014 ...... 53 18.0 Ert Ii – Uganda Communications Commission – Year Ended 30th June 2014...... 55 19.0 Interconnection Of Electrical Grids Of Nile Equatorial Lakes Countries (Nelsap) Uganda – Year Ended 31st December 2012 ...... 57 20.0 Interconnection Of Electrical Grids Of Nile Equatorial Lakes Countries (Nelsap) Uganda – Year Ended 31st December, 2013 ...... 61

21.0 Mbarara Nkenda & Tororo Power Transmission Lines Project – Year Ended 31st December 2012...... 68 22.0 Mbarara Nkenda & Tororo Power Transmission Project- Year Ended 31st December 2013...... 69 23.0 Rural Electrification Agency ...... 70 Health Sector ...... 71 24.0 Allied Health Professionals Council-Year Ended 30th June 2014 ...... 71 25.0 National Drug Authority- Year Ended 30th June 2014 ...... 72 27.0 National Medical And Dental Practioners Council- Year Ended 30th June 2014 ...... 78 28.0 National Medical Stores – 30th June 2014 ...... 79 29.0 The Uganda Nurses And Midwives Council – Year Ended 30th June 2014 ...... 85 Education & Sports Sector ...... 86 30.0 Mandela National Stadium – Year Ended 31st December 2013 ...... 86 31.0 Nakivubo War Memorial Stadium- Year Ended 31st December 2013 ...... 93 32.0 National Council For Sports- 30th June 2014 ...... 98 33.0 National Curriculum Development Centre-Year Ended 31st December 2014 ...... 104 34.0 National Council For Higher Education-Year Ended 30th June 2014 ...... 106 35.0 Management Training And Advisory Centre- Year Ended 31st December 2013 ...... 108 36.0 Uganda National Examinations Board- Year Ended 30th June 2014 ...... 118 Information And Communication Technology ...... 121 37.0 National Information Technology Authority Uganda (Nita-U) – Year Ended 30th June 2014 ...... 121 38.0 New Vision- Year Ended 30th June 2014 ...... 126 39.0 Uganda Broadcasting Corporation ...... 130 40.0 Uganda Communications Commission – Year Ended 30th June 2014 ...... 144 41.0 Uganda Printing And Publishing Corporation – 30th June 2014 ...... 148 42.0 Uganda Printing And Publishing Corporation – 30th June 2013 ...... 152 43.0 Uganda Printing And Publishing Corporation – 30th June 2012 ...... 156 44.0 Uganda Institute Of Information & Communication Technology ...... 163 45.0 Uganda National Council Of Science & Technology – 30th June 2014 ...... 171 46.0 Uganda Post Limited - Year Ended 30th June 2014 ...... 175 Tourism And Trade Sector ...... 188 47.0 Hotel And Tourism Training Institute – Year Ended – 30th June 2014 ...... 188 ii

48.0 Nile Hotel Limited – Year Ended 31st December 2013 ...... 192 49.0 Uganda Development Corporation – Year Ended 30th June 2014 ...... 193 50.0 Uganda Export Promotion Board – Year Ended ...... 197 51.0 Uganda National Bureau Of Standards –Year Ended ...... 203 52.0 Uganda Tourism Board – Year Ended – 30th June 2014 ...... 207 53.0 Uganda Wildlife Authority – Year Ended 30th June 2014 ...... 210 54.0 Uganda Wildlife Training Institute – Year Ended ...... 213 Lands And Housing Sector ...... 216 55.0 National Housing & Construction Company- Year Ended 31st December 2013 ...... 216 Social Development Sector ...... 245 56.0 National Council For Children – Year Ended 30th June 2014 ...... 245 57.0 National Council For Disability - Year Ended 30th June 2014 ...... 246 58.0 National Library Of Uganda – Year Ended 30th June 2014 ...... 247 59.0 National Social Security Fund – Year Ended 30th June 2013 ...... 252 60.0 National Women Council – Year Ended 30th June 2014...... 255 61.0 National Youth Council – Year Ended 30th June 2014 ...... 257 62.0 Uganda National Cultural Centre – Year Ended 30th June 2014 ...... 259 Agriculture Sector ...... 267 63.0 Coordinating Office For Control Of Trypanosomiasis In Uganda- Year Ended 30th June 2014 ...... 267 64.0 Cotton Development Organization – Year Ended 31st October 2014 ...... 271 65.0 Dairy Development Authority – Year Ended 31st December 2014 ...... 273 66.0 National Animal Genetic Centre & Data Bank- Year Ended 30th June 2014 ...... 279 67.0 Uganda Coffee Development Authority – Year Ended ...... 294 68.0 Uganda Livestock Industries Limited- Year Ended 31st December 2002 ...... 296 69.0 Uganda Livestock Industries Limited –Year Ended 31st December 2003 ...... 299 70.0 Uganda Live Stock Industries Limited-Year Ended 31st December 2004 ...... 303 71.0 Uganda Live Stock Industries Limited-Year Ended 31st December 2005 ...... 306 72.0 Uganda Live Stock Industries Limited-Year Ended 31st December 2006 ...... 308 73.0 Uganda Live Stock Industries Limited-Year Ended 31st December 2007 ...... 310 74.0 Uganda Live Stock Industries Limited-Year Ended 31st December 2008 ...... 311 75.0 Uganda Live Stock Industries Limited-Year Ended 31st December 2009 ...... 312

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76.0 Uganda Live Stock Industries Limited-Year Ended 31st December 2010 ...... 314 77.0 Uganda Live Stock Industries Limited-Year Ended 31st December 2011 ...... 316 78.0 Uganda Live Stock Industries Limited-Year Ended 31st December 2012 ...... 317 79.0 Uganda Live Stock Industries Limited-Year Ended 31st December 2013 ...... 319 80.0 Uganda Seeds Limitd – Year Ended 30th June 2014 ...... 321 81.0 Uganda Seeds Limitd – Year Ended 30th June 2013 ...... 325 82.0 Uganda Seeds Limited – Year Ended 30th June 2012 ...... 326 Water And Environment ...... 327 83.0 National Environment Management Authority – Year Ended 30th June 2014 ...... 327 84.0 National Forestry Authority – Year Ended 30th June 2014 ...... 330 85.0 National Water And Sewerage Corporation –Year Ended 30th June 2014 ...... 336 Accountability Sector ...... 338 86.0 Bank Of Uganda – Year Ended 30th June 2014 ...... 338 87.0 Capital Markets Authority – Year Ended 30th June 2014 ...... 346 88.0 Insurance Regulatory Authority – Year Ended 30th June 2014 ...... 348 89.0 Microfinance Support Centre Limited – Year Ended 30th June 2014 ...... 350 90.0 National Planning Authority – Year Ended 30th June 2014...... 355 91.0 Pride Micro Finance Limited – Year Ended 31st December 2014 ...... 358 92.0 Privatization And Utility Sector Reform Project-Divestiture And Redundancy Account (Pusrp) – Year Ended 30th June 2014 ...... 362 93.0 Privatization And Utility Sector Reporm Project- Operations Account – Year Ended 30th June 2014 ...... 370 94.0 Public Procurement And Disposal Of Pulic Assets – Year Ended 30th June 2014 ...... 372 95.0 Uganda Bureau Of Statistics- Year Ended 30th June 2014 ...... 374 96.0 Uganda Bureau Of Statistics – Sebdem Ii – Year Ended 30th June 2014 ...... 381 97.0 Uganda Development Bank Limited (Udbl) – Year Ended 31st December,2013 ...... 382 98.0 Uganda Investment Authority – Year Ended ...... 386 99.0 Uganda Revenue Authority – Year Ended ...... 392 100.0 The East African Trade And Transport Facilitation Project- Uganda Revenue Authority (Component)- 30th June 2014 ...... 415 101.0 Uganda Retirements Benefits Regulatory Authority ...... 416 Security Sector ...... 419 102.0 Uganda Air Cargo Corporation ...... 419 iv

Nec & Subsidiaries ...... 424 103.0 Nec Headquarters – Year Ended 30th June 2014 ...... 424 104.0 Nec Construction, Works & Engineering Year Ended 30th June 2014 ...... 427 105.0 Nec Farm Katonga-Year Ended 30th June 2014 ...... 429 106.0 Nec-Luwero Industries – Year Ended 30th June 2014 ...... 431 107.0 Nec Tractor Hire – Year Ended 30th June 2014 ...... 432 108.0 Nec Tractor Project – Year Ended 30th June 2014 ...... 434 Public Works And Transport Sector ...... 436 109.0 Civil Aviation Authority – Year Ended 30th June 2013 ...... 436 Justice, Law And Order Sector (Jlos) ...... 446 110.0 Amnesty Commission – Year Ended 30th June 2014 ...... 446 111.0 Law Development Centre ...... 449

LIST OF ACRONYMS AC Assistant Commissioner ACCA Association of Chartered Certified Accountants AEC Atomic Energy Council AG Accountant General AGM Annual General Meeting AHPC Allied Health Professionals Council AIDS Acquired Immune Deficiency Syndrome APLO Assistant Procurement and Logistics Officer ASYCUDA Automated System for Customs Data Analysis ATM Automated Teller Machine B.Com Bachelor of Commerce BBA Bachelor of Business Administration BEL Bujagali Energy ltd BOQ Bills of Quantities BOU Bank Of Uganda BTVET Business, Technical and Vocational Education Training CA Continuous Assessment CAA Civil Aviation Authority Cap Chapter CBC Customs Business Centre CCTV Close-Circuit Television CDC Centre for Disease Control CDO Cotton Development Organization CDS Central Depository System CEO Chief Executive Officer CESS Export Levy CGV Chief Government Valuer CIF Cost Insurance and Freight CIID Criminal Investigation and Intelligence Directorate CMA Markets Authority Capital CME Chief Mechanical Engineer COCTU Coordinating Office for Control Of Trypanosomiasis In Uganda COHRE Clinical Operational and Health Services Research COSASE Committee on Commissions, Statutory Authorities and State Enterprises COSO Committee of Sponsoring Organisations CSD Central Securities Depository DADIs District Assistant Drug Inspectors DBICs District Business Information Centres DCL Dairy corporation limited DDA Dairy Development Authority DFCU Development Finance Company Uganda

DNs Delivery Notes DPP Directorate of Public Prosecution DRIC Divestiture and Reform Implementation Committee DT Domestic Taxes DTA Double Taxation Agreement EAC East African Community EACC East African Community Customs EACCMA East African Community Customs Management Act EALA East African Legislative Assembly EARC East Africa Railways Corporation EATTFP East African Trade and Transport Facilitation Project ED Executive Director EFT Electronic Funds Transfer EGI E-Government Infrastructure EIA Environmental Impact Assessment EMS Express Mail Services ERA Electricity Regulatory Authority ERT Energy for Rural Transformation ETP Entrepreneurship Training Program FAR Financial and Accounting Regulations FERM-PC Foreign Exchange Reserve Management –Policy Committee FINMAP Financial Management and Accountability Programme FK Fredkorpset FUFA Federation of Uganda Football Association FY Financial Year FYR Financial Year GoU Government of Uganda GRN Goods Received Note HIO Health Insurance Organization HIV Human Immunedeficiency Virus HMO Health Membership Organization Hon. Honourable HR Human Resource HTTI Hotel & Tourism Training Institute IAC Internal Audit and Compliance IAS International Accounting Standard ICT Information Communications Technology IDA International Development Agency IFMS Integrated Financial Management System IFRS International Financial Reporting Standards IICSP Integrated Intelligent Computer System Project ILO International Labour Organization. IPO Initial Public Offer

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IPSAS International Public Sector Accounting Standards IRA Insurance Regulatory Authority ISP Internet Service Provider IT Information Technology ITMCo Iran Tractor Manufacturing Company ITSC Interim Technical Supervisory Committee IXP Internet Exchange Point JBIC Japan Bank for International Cooperation JCRC Joint Clinical Research Centre Limited JLOS Justice, Law and Order Sector KCC Kampala City Council KCCA Kampala Capital City Authority KCCL Kasese Cobalt Company Limited KIBP Kampala Industrial Business Park KIU Kampala International University KM Kilometers KML Kilembe Mines Limited KYC Know your client LAA Administering the Lease and Assignment Agreement LC Letter of Credit LCs Local Councils LDC Law Development Centre LIST Lira Service Territory LPO Local Purchase Order LST Local Service Tax LSTM Liverpool School of Tropical Medicine LTO Large Tax Payer MAA Memorandum & Articles of Associations MAAIF Ministry of Agriculture Animal Industry and Fisheries. MALG Ministries, Agencies and Local Governments MCCs Milk Collection Centres MCP Managing Compliance Program MDA Ministries, Departments and Agencies MEMD Ministry of Energy and Mineral Development MI Micro Insurance MICT Ministry of Information and Communications Technology MNSL Mandela National Stadium Limited MOD Ministry of Defence MoES Ministry of Education and Sports MoFPED Ministry of Finance Planning and Economic Development MoGLSD Ministry of Gender Labour and Social Development MOH Ministry of Health

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MoJAC Ministry of Justice and Constitutional Affairs MoLG Ministry of Local Government MoPS Ministry of Public Service MoU Memorandum of Understanding MoWT Ministry of Works and Transport MSC Micro Finance support Centre MSI Millennium Science Initiative MTAC Management Training Advisory Committee MTEF Medium Term Expenditure Framework MTIC Ministry of Trade, Industry and Cooperatives MTWA Ministry of Tourism ,Wildlife and Antiquities MW Mega Watts NACOTHA National Council of Traditional Healers and Herbalists Association NAGRC & DB National Animal Genetic Resources Centre and Databank. NARC National Aids Research Committee NBC National Bio-safety Committee NBI National Backbone Infrastructure NCAA Ngorongoro Conservation Area Authority NCC National Council for Children NCD National Council for Disability NCDC National Curriculum Development Centre NCHE National Council for Higher Education NCS National Council of Sports NCSFVF New Connections Survey & Field Verification Form NDA National Drug Authority NEC National Enterprise Corporation NELSAP Interconnection of Electrical Grids of Nile Equatorial Lakes Countries NFA National Forestry Authority NGO Non – Government Organization NHCCL National Housing and Construction Company Limited NHIL Nile Hotel Institute Limited NIC National Insurance Corporation NIP Nakawa In-Land Port NISF National Information Security Framework NITA-U National Information Technology Authority Uganda NLU National Library of Uganda NMC Nurses and Midwives Council NMS National Medical Stores NPL Non- Performing Loans NRWL Nalukolongo Railway Workshop Limited NSSF National Social Security Fund NTR Non-Tax Revenue NWC National Women‟s Council

NWSC National Water and Sewerage Corporation NYC National Youth Council OBT Output Budget Technic OPSpecs Operations Specifications OVC Aids Orphans and Vulnerable Children PAC Public Accounts Committee PAP Project Affected Person PAYE Pay as You Earn PBU Post Bank Uganda Limited PD Post-dated PDE Procuring and Disposing Entity PDU Procurement and Disposal Unit PERD Public Enterprise Reform and Divestiture PFAA Public Finance and Accountability Act PFAR Public Finance and Accountability Regulations PGD Post Graduate Diploma PHD Doctor of Philosophy PI Principal Investigator PLC Parish Land Committee PMU Parastatals Monitoring Unit PP Public Procurement PPDA Public Procurement & Disposal Act PPDAR Public Procurement and Disposal of Public Assets Regulations PPE Property, Plant and Equipment PPMS Procurement Performance Measurement System PPP Public Private Partnership PR Public Relations PS Permanent Secretary PS/ST Permanent Secretary/Secretary to Treasury PU Privatization & Utility PUSRP Privatization & Utility Sector Reform Project PWDs Persons with Disabilities QA Quality Assurance RAP Resettlement Action Plan RCDF Rural Communications Development Fund RCEO Regional Coffee Extension Officer REA Rural Electrification Agency RIDS Regional Inspectors of Drugs ROP Register of Providers ROSS Republic of Southern Sudan RT Right RTGS Real Time Gross Settlement RVR Rift Valley Railway

S & T Science and Technology S.S Senior Secondary SACCO Savings and Credit Co-operatives Organization SAD Single Administrative Document SBI Soleh Boneh International SCIPHA Strengthening Civil Society Fund to Improve HIV/AIDS and OVC Service Delivery in Uganda SD Station Diary SEBDEM Strengthening Evidence Based Decision-Making SJ Secretary to the Judiciary SLA Service Level Agreement SME Small and Medium Enterprises SMS Short Messaging Service SSP Sector Strategic Project STA Single Treasury Account TAI Treasury Accounting Instructions TB Tuberculosis TC Technical Committee TID Tax Investigations Department TIN Tax Identification Number TPCF Tax Payments Commitment Form TPS Tourism Promotion Services TREAT The Regional Expansion Of ARV Therapy TV Television UACC Uganda Air Cargo Corporation UACE Uganda Advanced Certificate of Education UBC Uganda Broadcasting Council UBOS Uganda Bureau of Statistics UBTEB Uganda Business and Technical Examinations Board UCC Uganda Communications Commission UCDA Uganda Coffee Development Authority UCE Uganda Certificate of Education UCL Uganda Clays Limited UDB Uganda Development Bank Ltd UDC Uganda Development Corporation UEB Uganda Electricity Board UEDCL Uganda Electricity Distribution Company Limited UEGCL Uganda Electricity Generation Company Limited UETCL Uganda Electricity Transmission Company Limited UGCEA Uganda Ginners and Cotton Exporters‟ Association UGX Uganda Shillings UIA Uganda Investment Authority UIC Uganda Insurance Commission

UIICT Uganda Institute of Information and Communications Technology UIRI Uganda Industrial Research Institute UK United Kingdom ULC Uganda Land Commission ULI Uganda Livestock Industry UMDPC Uganda Medical and Dental Practitioners Council UNBS Uganda National Bureau of Standards UNCC Uganda National Cultural Centre UNCST Uganda National Council for Science and Technology UNDP United Nations Development Programme UNEB Uganda National Examinations Board UNEPI United Nations Expanded Program on Immunization UNMC Uganda Nurses and Midwives Council UPDF Uganda People‟s Defence Forces UPE Universal Primary Education UPHL Uganda Property Holdings Limited UPL Uganda Post Limited UPPC Uganda Printing and Publishing Corporation UPTC Uganda Posts and Telecommunications Corporation URA Uganda Revenue Authority URBRA Uganda Retirement Benefits Regulatory Authority URC Uganda Railways Corporation USAID United States Agency for International Development USD United States Dollar USE Uganda Security Exchange UTB Uganda Tourism Board UTCC Uganda Trypanosomiasis Control Council UTL Uganda Telecommunications Limited UTV Uganda Television UWA Uganda Wildlife Authority UWEC Uganda Wildlife Education Centre VAT Value Added Tax VIPPU Very Important Persons Protection Unit WCO World Customs Organization WHT Withholding Tax

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PART ONE

1.0 INTRODUCTION

I am required by Article 163 (3) of the Constitution of the Republic of Uganda, 1995 (as amended) and Sections 13 and 19 of the National Audit Act, 2008 to audit and report on the public accounts of Uganda and all public offices including the courts, the central and local government administrations, universities, and public institutions of the like nature and any public corporation or other bodies or organizations established by an Act of Parliament.

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 Volume (Volume 4) presents a summary of audit reports issued for Statutory Corporations, Boards, Councils and Institutes audited during the period 1st April 2014 to 31st March 2015.

2.0 RESPONSIBILITIES OF PUBLIC ORGANIZATIONS ON THE FINANCIAL STATEMENTS

It is the responsibility of the Directors of the audited entities to prepare financial statements which give a true and fair view of the state of affairs and operating results of their entities in accordance with International Financial Reporting Standards and the various Acts and Statutes establishing them. This responsibility also includes designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances. The audit of financial statements does not relieve management, or those charged with governance of their responsibility.

3.0 STATUS OF ACCOUNTS AUDITED DURING THE YEAR

A total of 108 audits were undertaken in 91 Statutory Corporations, Boards, Councils, Institutes and Projects during the period 1st April 2014 to 31st March 2015. Of the 108 audits, 17 were backlogs in 3 Statutory Corporations and two 2 projects. 1

Accordingly, separate audit reports were issued for each of them. Out of the 108 accounts audited, 67 accounts had unqualified opinions, 39 had qualified opinions and 2 had disclaimer opinions. The bases used to arrive at the audit opinions are described in the separate reports issued on individual accounts. The tables below summarise the types of audit opinions issued.

Table 1: Audit Opinions for Current year

UNQUALIFIED OPINIONS

1 Allied Health Professionals Council 32 NEC Luweero Industries 2 Amnesty Commission 33 NEC Tractor Hire 3 Bank of Uganda 34 NEC Tractor Project 4 Capital Markets Authority 35 NELSAP 2013 Coordinating Office for The Control of 5 36 New Vision Printing and Publishing Company Limited Trypanosomiasis 6 Cotton Development Organization 37 Pride Micro Finance Privatisation and Utility Sector Reform Project- 7 Electricity Regulatory Authority 38 Divestiture and Redundancy Account 2014

8 ERT BOU 39 Privatization and Utility Sector Reform Project

Public Procurement and Disposal of Public Assets 9 ERT PSFU 40 Authority 10 ERT REA 41 Rural Electrification Agency Strengthening Evidence Based Decision-Making II 11 ERT UCC 42 (SEBDEM 2) The East African Trade and Transport Facilitation 12 ERT UECCL 43 Project-URA 13 ESDP Kawanda Masaka 44 Uganda Bureau of Statistics European Investment Bank/Rep of 14 45 Uganda Coffee Development Authority Uganda APEX Loan Scheme 15 Hotel and tourism Training Institute 46 Uganda Communications Commission Mbarara-Nkenda, Tororo-Lira Power 16 47 Uganda Development Bank Lines 2013 17 Microfinance support Centre Ltd 48 Uganda Development Company Ltd Uganda Electricity Distribution Company Limited – 18 National Council For Children 49 December 2013 19 National Council For Disability 50 Uganda Export Promotion Board

20 National Council for Higher Education 51 Uganda Institute of Communications Technology

National Curriculum Development 21 52 Uganda Investment Authority Centre

22 National Drug Authority 53 Uganda Medical and Dental Practitioners Council

National Information Technology 23 54 Uganda National Cultural Centre Authority 24 National Medical Stores 55 Uganda National Examinations Board

UNQUALIFIED OPINIONS

25 National Planning Authority 56 Uganda Panel Survey Project – UBOS 26 National Social Security Fund 57 Uganda Posts Limited National Water and Sewerage 27 58 Uganda Printing And Publishing Corporation Corporation 28 National Women‟s Council 59 Uganda Revenue Authority NEC Construction, Works and 29 60 Uganda Wildlife Training Institute Engineering 30 NEC Farm 61 Uganda Nurses and Midwives Council 31 NEC Headquarters 62 Amnesty Commission QUALIFIED OPINIONS 1 Amber House Ltd – December 2013 15 National Library of Uganda 2 Civil Aviation Authority – 2013 16 National Youth Council

3 Dairy Development Authority 17 Nile Hotel International Limited – December 2013

4 ERT PCU 18 Uganda Air Cargo Corporation Uganda Electricity Generation Company Limited – 5 Insurance Regulatory Authority 19 December 2013 Uganda Electricity Transmission Company Limited - 6 Kilembe Mines Limited 20 December 2013

7 Law Development Centre 21 Uganda Livestock Industries – December 2013

Management Training and Advisory 8 22 Uganda National Bureau of Standards Centre

9 Mandela National Stadium Ltd 23 Uganda National Council for Science and Technology

Nakivubo War Memorial Stadium Trust 10 24 Uganda Retirement Benefits Regulatory Authority Ltd National Animal Genetic Resource 11 25 Uganda Seeds Limited - June 2014 Centre and Data Bank 12 National Council of Sports 26 Uganda Tourism Board National Environment Management 13 27 Uganda Wildlife Authority Authority 14 National Forestry Authority

DISCLAIMER

1 Uganda Broadcasting Corporation National Housing & Construction 2 Company

Table 2: Audit Opinions for Backlog Audits

UNQUALIFIED QUALIFIED Mbarara-Nkenda, Tororo-Lira 1 1 Uganda Seeds Limited June 2013 Power Lines 2012 2 NELSAP 2012 2 Uganda Seeds Limited June 2014 3

UNQUALIFIED QUALIFIED Uganda Livestock Industries 3 3 Uganda Livestock Industries Limited December 2002 Limited 2006 Uganda Livestock Industries 4 4 Uganda Livestock Industries Limited December 2003 Limited 2004 Uganda Printing and Publishing 5 5 Uganda Livestock Industries Limited December 2005 Corporation – June 2013 6 Uganda Livestock Industries Limited December 2007 7 Uganda Livestock Industries Limited December 2008 8 Uganda Livestock Industries Limited December 2009 9 Uganda Livestock Industries Limited December 2010 10 Uganda Livestock Industries Limited December 2011 11 Uganda Livestock Industries Limited December 2012 12 Uganda Printing and Publishing Corporation – June 2012

3.1 Audits in Progress

The following audits were still in progress.

S/N Entity Year of Audit 1. Uganda Railways Corporation December 2012 and 2013

2. Civil aviation Authority June 2014

3.2 Types of Opinions Issued

A total of 105 opinions and 2 disclaimers of opinion were issued as illustrated below;

S/N Type of Audit Opinion Number of Accounts 1 Unqualified 66 2 Qualified 39 3 Disclaimer 2 4 Adverse 0

Figure 1: Proportion of audit Opinions in the period under review:

An analysis of the financial statements audited and type of opinions issued between 2011 and 2014 revealed the following;

Opinion Types Year ending 30th June 2011 2012 2013 2014 Unqualified 42 41 45 66 Qualified 25 25 26 39 Disclaimer 2 4 1 2 Adverse 0 0 0 0 Total 69 70 72 107

Figure 2: Comparison of types of opinions issued in the previous four years:

3.3 Types of Opinions explained

3.3.1 Unqualified Opinion An unqualified audit opinion is issued when the Auditor is able to express an opinion and concludes that the financial statements of an audited entity give a true and fair view or are presented fairly, in all material respects, in accordance with the stated financial reporting framework and the various Acts and Statutes establishing the State Enterprises, Statutory Authorities and Commissions.

3.3.2 Qualified Opinion An Auditor expresses a qualified opinion when: (a) The Auditor, having obtained sufficient appropriate audit evidence, concludes that misstatements, individually or in aggregate, are material, but not pervasive, to the financial statements; or (b) The Auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion, but the Auditor concludes that the possible effects on the financial statements of undetected misstatements, if any, could be material but not pervasive.

3.3.3 Disclaimer of Opinion The Auditor disclaims an opinion when the auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion, and the Auditor concludes that the possible effects on the financial statements of undetected misstatements, if any, could be both material and pervasive. The Auditor shall disclaim an opinion when, in extremely rare circumstances involving multiple uncertainties, the Auditor concludes that, notwithstanding having obtained sufficient appropriate audit evidence regarding each of the individual uncertainties, it is not possible to form an opinion on the financial statements due to the potential interaction of the uncertainties and their possible cumulative effect on the financial statements.

3.3.4 Adverse Opinion The Auditor shall express an adverse opinion when the Auditor, having obtained sufficient appropriate audit evidence, concludes that misstatements, individually or in the aggregate, are both material and pervasive to the financial statements.

4.0 KEY AUDIT FINDINGS A summary of key audit findings arising from the audit of Statutory Corporations, Boards, Councils and Institutes are highlighted below:-

4.1 Comparison of the budget for conducting national examinations submitted by Uganda National Examinations Board with the budget approved by the Ministry of Education and Sports (MoES) for the activity revealed a deficit of UGX.6,454,891,600 arising from approval of lower unit rates than those envisaged by the board.

During the financial year, the Board borrowed UGX.11,068,529,487 as a stopgap measure to address the funding gap experienced in the management and administration of National Examinations. Interest charges on this borrowing amounted to UGX.707,559,660 during the financial year.

Borrowing of funds by the major Examinations Board has got reputational risks, besides exposing it to the risk of litigation in the event of defaulting on payments. The interest expenditure is an extra cost that translates into higher operations costs for the Board and may subsequently result into higher examination fees for the students.

I advised management to liaise with the Ministry of Education and Sports, and Ministry of Finance, planning and economic development to ensure that adequate funds are set aside for national examinations.

4.2 A review of the annual report for 2014 revealed that out of 1,195 Specialists on the Uganda Medical and Dental Practitioners’ Council register, only 757 (37%) renewed their practicing licenses during the year. This not only posed the risk of loss of revenue to the Council but also endangers the lives of unsuspecting patients seeking for medical services from the non-registered medical practitioners. The anomaly was attributed to inadequate enforcement of the law due to staffing gaps at the Council.

I advised management to establish regional centres in the Regional referral Hospitals to enable the specialists register with convenience.

4.3 The Uganda Nurses and Midwives Council is mandated to supervise and regulate the training of Nurses and Midwives in Uganda. During the financial year under review, students of Uganda Christian Institute for Professional Development Limited sued UNMC together with the Ministry of Education and Sports and their own Institute after they were stopped from sitting National Exams on account of the Institute being illegal. The students were demanding UGX.367,086,000 on the grounds that the Council was negligent in executing its duties of regulating the operations of the Institute. There is a risk of loss of public funds, if the case is decided in favour of the students.

It was also noted that the Council had engaged a private lawyer instead of using the Services of the Attorney General’s Office. Management attributed the lack of regulation of institutions to inadequate staffing of the Council. Such developments are indicators of weaknesses within UNMC to monitor activities of training Institutions.

4.4 The National Drug Policy and Authority Act makes it mandatory to have a valid licence for one to operate a Pharmacy or Drug Shop in Uganda. I noted that the Authority is not able to issue annual licences to all drug outlets by the due date of 31st January. During the year under review, the Authority did not publish the licenced pharmacies and drug shops by the statutory date of 31st March 2014.

Un-licenced pharmacies and drug shops do not only pose challenges to the health authorities but their products may also be a health hazard to the unsuspecting public.

The NDA management attributed their inability to issue licences to all Pharmacies and Drug shops by the due date to low staffing levels and general complacency of the operators of drug outlets. I recommend that the Authority be provided with capacity to enable it carry out its mandate effectively.

4.5 National Forestry Authority reported a loss of a forest plantation valued at UGX.1,327,825,000 which Management attributed to fire destruction of 624.96 hectares in North Rwenzori. The loss was written off from the financial statements without the approval of the Board. 8

It was also noted that the Authority lacks basic firefighting equipment to control the forest fires. I advised management of the Authority to obtain board approval for the write off and also plan to acquire firefighting equipment to control forest fires.

4.6 Section 13 (1) of the National Forestry and Tree Planting Act, 2003 states that a forest reserve shall be managed in a manner consistent with the purpose for which it is declared; while section 13 (2) requires that a forest reserve shall not be put under any use other than in accordance with the management plan.

However, audit noted that in the 517 Central Forest Reserves measuring 1,214,045 Hectares, there was an encroachment on 211,898 Hectares (17.5%). 26 CFRs measuring 69,396 Hectares had been completely taken over by the encroachers. This was attributed to unclear forest boundaries and lack of up to date data regarding forest cover which undermines planning and management of forest resources.

I advised management to endeavour to demarcate the forest boundaries so as to safeguard the forestry resources.

4.7 Governance issues in respect of Boards of Directors continue to feature in my report for the year under review. Some of the issues that persisted and affect good governance were; Lack of board charters, fraud control policies, internal audit function and succession planning, apparent conflict of interest, improper constitution of audit committees and absence of senior management in some cases.

Some of the issues severally or individually affected the following entities; Insurance regulatory authority, Mandela National stadium, National libraries of Uganda, Nakivubo war memorial stadium, Management Training and advisory centre, Uganda National examinations board, Uganda electricity distribution company, Uganda Broadcasting council and National Housing and construction company limited.

In addition analysis of staffing levels in 16 entities revealed that whereas 559 positions were approved, only 295 (52%) positions were filled leaving 264 (48%) vacancies. Staffing gaps have a direct effect on service delivery.

The various Accounting Officers attributed the weaknesses to inadequate funding to cater for consultancies and wages in the budget to facilitate recruitment.

There is a need for Government to look into the matters with a view to have these institutions function as envisaged.

4.8 Government established fund accounts in a number of instances to facilitate the sustainability of initiatives within certain Government Entities. Some of the Funds include the Road Fund and the Energy fund. However these have not been operationalized as envisaged in their respective Acts.

The Accounting Officers attributed this to lack of commitment by the Ministry of Finance, Planning and Economic Development to have these Funds operationalized. There is need to operationalize the funds as envisaged.

5.0 SUMMARY OF GENERAL AUDIT FINDINGS 5.1 Unaccounted for Funds A sum of UGX.1,282,527,672 remained unaccounted for at the end of the financial year. These are funds advanced to staff to carry out various activities in the various entities. This may lead to falsification of accountability documents. Table below refers.

Amount S/N Name of Entity Category (UGX) 1 National Environment Management Advances not accounted for 774,253,329 Authority 2 National Youth Council Unaccounted Advances 46,900,000 3 National Forestry Authority Unaccounted for funds 135,532,000 4 Nakivubo War Memorial Stadium Doubtful Expenditure 20,000,000 Trust 5 National Council of Sports Funds not accounted for, 95,462900 Outstanding advances, Unsupported travel abroad 6 Uganda Bureau of Statistics Unaccounted for funds 90,000,000 7 Uganda Investment Authority ” 120,379,443 10

Amount S/N Name of Entity Category (UGX) Total 1,282,527,672

Accounting Officers were advised to adhere to regulations by ensuring that before another amount is advanced, a previous one is fully accounted for.

5.2 Mischarge of Expenditure Expenditure of UGX.3,616,936,616 in respect of various activities was charged wrongly to item codes meant for other activities resulting in misstatement of amounts expended on the affected item codes. These were done without authority from Permanent Secretary/Secretary to Treasury (PS/ST). Mischarges impact on the credibility of the financial statements, since the figures reported therein do not reflect true amounts expended on the affected expenditure items.

Total Amount %age Expenditure Mischarged Mischarge S/N Entity during the year (UGX) (UGX) 1 NEMA 12,776,364,000 942,053,402 7.4 Diary Development Authority 2 4,736,428,000 105,761,544 2.2 – Dec 2013 National Animal Genetic 3 Resource Centre And Data 5,990,499,159 855,096,108 14.3 Bank 4 National Planning Authority 9,408,478,556 17,542,925 0.2 5 Uganda Bureau of Statistics 69,599,914,479 198,798,532 0.3 Uganda National Bureau of 6 15,824,997,352 1,261,771,329 8.0 Standards 7 Uganda Tourism Board 2,483,249,823 235,912,776 9.5 Total 120,819,931,369 3,616,936,616 3.0

There is need for Accounting Officers to streamline budgeting processes and to enforce strict adherence to the provisions regarding reallocation of funds.

5.3 Outstanding Commitments Contrary to the Government of Uganda Commitment Control System, 10 entities continued to commit Government even when there were no funds available. Outstanding commitments at the end of the year were UGX.58,271,697,541 (Table A). 11

Also noted was that during the period under review, 21 entities failed to remit statutory deductions amounting to UGX.22,801,268,468 (Table B) to the relevant statutory authorities. Of these amounts, unremitted taxes to Uganda Revenue Authority in respect of Pay As You Earn, Value Added Tax and Withholding Tax amounted to UGX.12,955,125,186.

Table A

Amount Entity S/N (UGX) 1 Privatization and Utility Sector Reform Project 17,764,002,014 2 Rural Electrification Agency 8,408,079,838 3 Uganda Management Institute 7,642,135,737 4 National Forestry Authority 6,257,652,952 5 NEC Luwero 5,050,288,530 6 Mandela National Stadium Ltd 2,909,850,158 7 National Environment Management Authority 2,608,054,723 8 Management Training and Advisory Centre 1,959,586,602 9 Civil Aviation Authority 1,871,426,091 10 National Animal Genetic Resource Centre And Data Bank 854,492,484 11 Hotel and Tourism Training Institute 626,515,783 12 Kilembe Mines Limited 562,149,600 13 Uganda National Cultural Centre 488,992,803 14 NEC Construction Works and Engineering 441,698,907 15 NEC Headquarters 305,102,724 16 NEC Tractor Hire 268,366,199 17 Fuel Marking and quality control program 178,820,944 18 National Library Of Uganda 70,600,000 19 Joint Clinical Research Centre 3,881,452 Total 58,271,697,541

Table B

TAXES NSSF KCCA TOTAL S/N ENTITY (UGX) (UGX) (UGX) (UGX) Uganda Broadcasting 1 3,506,895,157 7,845,819,527 0 11,352,714,684 Corporation 2 Posta Uganda 3,121,361,684 877,455,255 0 3,998,816,939 Joint Clinical Research 3 2,383,190,000 0 0 2,383,190,000 Centre National Forestry 4 1,698,881,183 11,579,865 0 1,710,461,048 Authority

TAXES NSSF KCCA TOTAL S/N ENTITY (UGX) (UGX) (UGX) (UGX) Uganda National 5 138,763,417 654,725,406 0 793,488,823 Bureau of Standards 6 NELSAP (2013) 505,147,877 0 0 505,147,877 Uganda National 7 395,914,548 0 37,372,834 433,287,382 Cultural Centre Rural Electrification 8 398,977,915 0 0 398,977,915 Agency Hotel and Tourism 9 323,765,620 0 323,765,620 Training Institute Export Promotions 10 170,106,622 69,614,281 0 239,720,903 Board National Library Of 11 0 102,714,904 0 102,714,904 Uganda Nakivubo War Memorial 12 0 0 98,492,717 98,492,717 Stadium Trust Ltd NEC Construction 13 Works and 58,447,959 33,538,340 0 91,986,299 Engineering Mandela National 14 84,729,898 0 0 84,729,898 Stadium Ltd National Council for 15 42,107,000 24,480,000 0 66,587,000 Children 16 NEC Headquarters 20,253,793 41,000,900 61,254,693 17 NEC Tractor Hire 10,891,860 39,429,078 0 50,320,938 Management Training 18 and Advisory Centre 41,604,595 0 0 41,604,595 (MTAC) National Council of 19 27,148,589 0 0 27,148,589 Sports 20 NEC Tractor Project 9,199,525 9,920,175 0 19,119,700 Uganda Tourism 21 17,737,944 0 0 17,737,944 Board 12,955,125,186 9,710,277,731 135,865,551 22,801,268,468

Accumulation of payables could be an indication of poor budgetary controls. Furthermore, noncompliance with statutory requirements may attract penalties, litigations and attendant costs.

I advised management to ensure compliance with the Commitment Control System. Meanwhile, debts should be settled and statutory deductions remitted to the relevant authorities in a timely manner.

5.4 Receivables UGX.138,177,442,724 was reported as receivables in the financial statements of various entities. Of the total figure, UGX.40,000,000,000 was a receivable figure for Rural

Electrification Agency. The delays in the collection of funds held by debtors could lead to cash flow problems and ultimately affect the implementation of the planned activities. Table below refers:-

Amount S/N Entity (UGX) 1 Rural Electrification Agency 40,000,000,000

2 Uganda Communications Commission 25,204,001,631

3 National Housing and Construction Corporation 20,228,298,052

4 Amber House Limited 10,440,636,393 5 Uganda Air Cargo 7,942,811,910 6 Uganda Management Institute 7,642,135,737 7 National Forestry Authority 7,542,912,000 8 Uganda investment Authority 7,431,253,446 9 Nile Hotel International Limited 1,927,531,798 10 NEC – Luwero Industries 1,797,344,023

11 Management Training and Advisory Centre 1,454,166,877

12 Dairy Development Authority 1,309,129,800 13 National Social Security Fund 1,100,000,000

14 Mandela National Stadium Limited 1,001,519,619

15 Uganda Livestock Industries 886,569,723 16 NEC – Tractor Project 599,626,244 17 Uganda Seeds Limited 438,649,582 18 NEC - Headquarters 356,644,270

19 Fuel Marking and Quality Control Programme 320,712,123

20 Uganda Development Corporation 276,621,000

21 NEC – Tractor Hire 175,778,292

22 NEC Construction Works and Engineering 46,761,594

23 Uganda National Cultural Centre. 26,875,500 24 National Environment Management Authority 15,785,206 25 Uganda National Cultural Centre 11,677,904 Total 138,177,442,724

I have advised the respective Accounting Officers to put in place robust credit policies or enforce the existing ones so as to ensure that any uncollected debtors are followed up for better liquidity.

5.5 Staffing Gaps

A review of staffing levels entities revealed vacant posts. The most affected entities are listed in table below. Staffing gaps affect service delivery and staff morale.

There is need for Government to look into the matter with a view of having these institutions strengthened so as to function as envisaged.

Approved Filled Vacant S/N Entity Positions Positions Posts Uganda National Bureau of 1 416 185 231 Standards National Information Technology 2 208 52 156 Authority - Uganda 3 Nyabyeya Forestry College 107 20 87 4 National Planning Authority 118 69 49 National Animal Genetic Resource 5 244 197 47 Centre and Data Bank Uganda Retirements Benefits 6 54 15 39 Regulatory Authority Management Training and Advisory 7 68 32 36 Centre Management Training and Advisory 8 68 32 36 Centre Uganda Institute of Information and 9 107 75 32 Communications Technology 10 Uganda Wildlife Education Centre 75 47 28 11 Uganda Investment Authority 78 52 26 12 Atomic Energy Council 51 30 21 13 Electricity Regulatory Authority 65 47 18 National Council for Higher 14 54 37 17 Education 15 Uganda Tourism Board 40 26 14 Uganda Medical and Dental 16 22 14 8 Practitioners Council Uganda Medical and Dental 17 22 14 8 Practitioners 18 National Youth Council 12 7 5 19 National Council of Sports 26 21 5 20 National Youth Council 12 7 5 21 National Council For Disability 12 8 4 22 National Council For Disability 12 8 4 23 National Council for Disability 12 8 4 24 National Women Council 8 5 3 15

25 National Women Council 8 5 3 Total 1,899 1,013 886

The Pie chart below illustrates the staffing shortages

5.6 Corporate Governance Organisations established by Acts of Parliament, the Public Enterprises Reform and Divestiture Act (Cap 98) and The Companies Act, Cap 110 are required to have governing bodies and other structures to enable good stewardship of public resources under their care. Review of governance practices in a number of organisations revealed weaknesses as summarised in the table below;

S/N Entity Remarks 1. Uganda National Examination  Absence of the succession plan Board 2. Nakivubo War Memorial Stadium  Lack of procurement plan

 Absence of internal Audit

 Lack of strategic development plan, Key polices and separation of powers.

3. Management Training and Advisory  Absence of fraud control policy Centre  Lack of an approved recovery plan

S/N Entity Remarks  Lack of procurement plan

4. National Forestry Authority  Absence of forest management plans

5. National Drug Authority  Potential conflict of interest at Board level.

6. Amber House  Apparent conflict of interest between management and Board member composition

7. National Library of Uganda  Lack of internal audit function 8. Uganda Electricity Distribution  Improper constitution of audit committee Company Limited 9. Uganda Broadcasting Corporation  Lack of substantive senior management  Lack of strategic plan 10. National Housing and Construction  Lack of substantive senior management Corporation 11. Nile Hotel International Limited  Lack of segregation of duties 12. Uganda Development Corporation  Lack of a board 13. Hotel and Tourism Training  Lack of approved strategic plan Institute 14. Uganda Development Corporation  Lack of a board 15. Uganda Export Promotions Board  Non Segregation of duties  Un-approved financial procedures manual  Un-revised staff terms and conditions of service 16. National Planning Authority  Board not fully constituted 17. Uganda Air Cargo  Expiry of Board  Lack of strategic plan 18. Uganda Wildlife Training Institute  Lack of a Board 19. National Housing and Construction  Lack of Chief Executive Officer Corporation  High Staff turnover 20. NEC Headquarters  Un filled position of Managing Director 21. Insurance Regulatory Authority  Lack of a Board 22. Uganda Industrial Research  Lack of a Board Institute  Lack of strategic plan 23. Rural Communications  Lack of a Board Development Fund 24. Uganda Wildlife Education Centre  Lack of strategic plan 25. Uganda Retirements Benefits  Lack of strategic plan Regulatory Authority

The weaknesses imply that the organisations are not properly guided in their strategies and operations and this negatively impacts on attainment of their overall objectives.

I recommended that;  Authorities responsible for these entities consider preparation of strategic development plans, relevant policies and management in a timely manner.  Management of these organisations should prepare and have the necessary policies approved by the boards.  The internal audit functions should be streamlined and strengthened.  Management should liaise with the appointing Authorities of the Governing Board for possible replacement of members with conflict of interest.

5.7 Revenue Shortfalls Examination of revenue performance revealed instances of shortfalls. These constrain the implementation of planned activities. Table below refers;

S/N Entity Budget Actual Shortfall Uganda Communications 1 108,829,652,402 71,925,415,940 36,904,236,462 Commission 2 National Forestry Authority 14,246,168,894 8,044,456,000 6,201,712,894 Uganda National Council for 3 12,413,507,000 9,230,172,096 3,183,334,904 Science and Technology 4 Uganda Bureau of Statistics 71,935,460,693 69,599,914,479 2,335,546,214 Uganda Institute of 5 Information and 3,760,072,814 1,927,527,755 1,832,545,059 Communications Technology Uganda Wildlife Training 6 2,417,205,337 1,237,285,000 1,179,920,337 Institute - Kasese Mandela National Stadium 7 1,967,997,000 1,030,107,963 937,889,037 Limited 8 Capital Markets Authority 7,599,822,462 6,752,443,330 847,379,132 9 National Children‟s Council 1,061,140,900 243,741,748 817,399,152 National Council for Higher 10 4,500,000,000 3,728,062,601 771,937,399 Education 11 National Council of Sports 2,553,882,000 1,885,491,499 668,390,501 Public Procurement and 12 Disposal of Public Assets 8,785,047,751 8,138,518,006 646,529,745 Authority Uganda National Examination Board – Revenue from SMS 13 850,000,000 355,755,001 494,244,999 Media and Sale of Publications 14 National Council for Disability 836,000,000 430,000,000 406,000,000 Allied Health Professionals 15 1,850,020,000 1,646,105,100 203,914,900 Council Uganda Nurses and Midwives 16 95,000,000 0 95,000,000 council 18

S/N Entity Budget Actual Shortfall Total 243,700,977,253 186,174,996,518 57,525,980,735

I advised the respective management teams to liaise closely with MoFPED to ensure that all appropriated funds are released and to always make realistic budgets for NTR.

5.8 Dormant Accounts It was noted that during the audit, that two (2) entities maintained four dormant accounts comprising two (2) local currency accounts and two (2) foreign currency account. At the time of writing this report, management had not taken steps to either close the accounts or reactivate them if needed for future use.

Details of the bank accounts are in table below:

S/N Entity Bank Account Name Account No. Account Bal 1 Rural Electrification Bank of Rural Electrification 3270078000000 0 Agency Uganda Agency Cash Account 2 ” Bank of Rural Electrification 3270168000000 0 Uganda Agency – Non Tax Revenue Account 3 ” Bank of REA – Forex transfer 3270308000000 0 Uganda account 4 Electricity Citi Bank - 010026703 USD36,508 Regulatory Authority

Dormant accounts could be used as conduits for unauthorized transactions and besides the funds locked up cannot be put to use.

I advised management to either close or reactivate the accounts.

5.9 Asset Management It was noted that a number of Government Assets such as vehicles, buildings, land, among others were not managed properly. Vehicles remained in garages or were parked idle, buildings were run down or dilapidated and land was encroached on. This leads to further loss in value of the idle properties and loss in case of land. There is need to regularly carry out Board of Survey to establish the status of these assets so that a remedy is sought in time. More so, recommendations such as boarding off of some of these assets should be implemented to avoid further waste.

No No assets No titles/Expired Delayed Assets not manual/ updated leases/land No Entity asset valued Improper asset encroachment disposal /revalued repair of register /dilapidated vehicles structures National Council for 1 √ Disability 2 Kilembe Mines √ National Library of 3 √ Uganda Uganda National Cultural 4 √ √ √ √ Centre Mandela National 5 √ Stadium Limited 6 Amber House Ltd √

5.10 Fleet Management Government organisations are required to efficiently and effectively manage vehicles and assets under their control in order to maximize future economic benefits. This requires management to put in place organized systems of monitoring vehicle movements and preventive maintenance.

Audit revealed instances of high repair costs were incurred, vehicle movement logbooks not maintained and motor vehicles and motor cycles that were grounded. Table below refers.

S/N Entity Remarks 1 National Council for Disability  Repair costs incurred without pre and post inspection assessment and estimates.

2 Uganda Broadcasting Corporation  Fuel purportedly issued to grounded vehicles

3 Posta Uganda  Lack of a fleet management policy

4 Uganda Bureau of Statistics  Old fleet

I advised the concerned Accounting Officers to ensure fleet management policies are put in place and consistently implemented to enable sustainable use of vehicles in their possession.

5.11 Procurement Anomalies Several procurement anomalies were pointed out in my previous report, some of which have continued to occur. The most common non-compliance issues are summarised below and included in the respective entity reports:-

 Micro procurements not reported to the contracts committee  Unsupported procurements  Lack of procurement plans  Deviation from evaluation criteria  Irregular contract variations  Unauthorised procurements  Failure to use framework contracts  Poor filling of procurement records  Direct procurements  Irregular procurements  Awards to non-pre-qualified firms  Delays in completion of projects  Failure to appoint contract managers  Expiry of performance security  Lack of Solicitor General‟s clearance  Huge variance between contract estimate and final contract sum  Emergency procurements The entities involved included the following:-

S/N Entity

1 National Council of Sports 2 Uganda Electricity Generation Company Limited (UEGCL) 3 Management Training and Advisory Centre (MTAC) 4 National Curriculum Development Centre (NCDC) 5 National Housing and Construction Corporation 6 Uganda Tourism Board 7 Uganda National Bureau of Standards 8 Privatization and Utility Sector Reform Project 9 Uganda Export Promotions Board 10 Uganda Broadcasting Corporation

S/N Entity

11 Uganda Institute for Information and Communication Technology

Failure to comply with the PPDA Act and Regulations may result into inefficient and uneconomical procurements.

I advised the Accounting Officers of the entities to ensure strict adherence to the Procurement laws.

5.12 Excess/Over Expenditure A total of UGX.2,747,270,788 was spent in excess of the budget of UGX.12,797,255,635 without the necessary approvals. Details are shown in the table below:

Budget Actual Excess S/N Entity (UGX) (UGX) (UGX) Nakivubo War Memorial 1. 291,270,822 648,483,941 357,213,119 Stadium 2. National Drug Authority 86,282,950 182,564,435 96,281,485 National Council for 3. 392,714,000 516,763,360 124,049,360 Children Uganda National 4. 1,348,427,874 1,891,210,057 542,782,183 Cultural Centre 5. National Youth Council 304,974,000 531,484,920 226,510,920 6. National Medical Stores 9,934,672,373 11,122,590,424 1,187,918,051 Uganda Wildlife 7. 438,913,616 654,429,286 212,515,670 Training Institute Total 12,797,255,635 15,547,526,423 2,747,270,788

Without the required approval, there was no basis of allowing the excess expenditure to stand in the financial statements.

I advised managements of the entities to always operate within the approved budgets and where inevitable, necessary approvals should be sought.

ENERGY SECTOR

6.0 AMBER HOUSE LIMITED

6.1 Revaluation of Assets In my previous report to Parliament I noted that, management last revalued the Company assets more than 6 years ago contrary to the requirements of IAS 16 22

(property, plant and equipment). These assets as at 31st December, 2013 had a carrying amount of UGX.8,317,606,984 as indicated in the statement of financial position. In the circumstances, I could not confirm that the reported value of fixed assets is fairly stated.

Whereas management explained that they had engaged the services of the Government Valuer to undertake the revaluation, the exercise had not been concluded by the time of audit. I have advised management to comply with the requirements of the accounting standard so as to ensure fair presentation of the entity‟s non-current assets.

6.2 Going Concern uncertainty In the statement of Directors‟ responsibilities for the financial statements, it is indicated that the accounts were prepared on the going concern basis. However, on the contrary, information available to management at the time of preparation of the financial statements pointed to factors indicating the existence of a material uncertainty that cast doubt on the Company‟s ability to continue as a going concern.

6.3 Receivables It was noted that whereas Amber House Limited was no longer a going concern, the receivables balance stood at UGX.10,440,636,393 as at 31st December, 2013. Also noted was that the company had no credit policy to manage debtor collection. In the circumstances, the Company is exposed to a risk of huge bad debts.

Management in response indicated that a transaction closing audit would be carried out to reconcile the outstanding debts.

I have advised Management to ensure that these outstanding amounts are fully reconciled, recovered and accounted for before the closure of the Company so as to avert a financial loss. 6.4 Apparent Conflict of Interest A good corporate governance structure requires that persons charged with governance (members of the Board) only exercise oversight functions such as giving strategic direction to the Organization and setting policy for implementation by management. The Board‟s roles should be divorced from management‟s roles.

However, as noted in my previous reports to Parliament, the Chairperson of the Board of Directors continued to be involved in the daily operations and administrative roles as a signatory to all company bank accounts. All cheques for the annual expenditures amounting to UGX.1,506,674,910 had to be authorized and signed by him.

I explained to management that this practice violates good governance practices and gives rise to conflict of interest in the governance and management of the company.

Management explained that the Company was undergoing general changes including change of bank account signatories. I have advised management to ensure that there is clear separation of roles between the Board and Management.

6.5 Registration of Share Capital According to minutes of the Annual General Meeting dated 22nd December, 2010 under Minute 5, the shareholders approved a revision of share capital of the company from UGX 96,650 maintained in the books since 1954 to UGX.2bn with effect from 2010. Included in note 6 (Equity share capital) to the financial statements is a prior year adjustment effecting the above minute as agreed by the shareholders. However, it was noted that management had not made the necessary notification to the Registrar of Companies as required under Section 65 of the Companies Act CAP 110 of the Laws of Uganda, 2000.

In the circumstances, the Company risks a default fine in accordance with the provisions of the Companies Act.

I have advised Management to regularize the revision of the Company share capital before liquidation starts.

7.0 ELECTRICITY REGULATORY AUTHORITY

7.1 Lack of a Tenancy Agreement for Property in Lugogo The Authority owns property on plot 5C1, third Street Lugogo, Kampala which has been rented out to UMEME since 2006. However, the latest tenancy agreement signed by both parties expired on 31st August, 2012. It was observed that UMEME has continued to occupy the property and pay monthly rent of UGX.3,000,000 which was agreed upon in 2012. This may not reflect the current rental value of the property. 24

Without a valid tenancy agreement, the terms and conditions under which UMEME is occupying the property are unclear, therefore the Authority may face challenges enforcing its rights in the event that a dispute arises.

In response, the Accounting Officer explained that the Authority had drafted a contract basing on current market prices and that it had since been sent to the tenant for execution.

I advised Management to expedite the formalization of the tenancy with UMEME.

7.2 Inadequate Staffing Out of the Authority‟s staff establishment of 65, only 47 positions are filled, leaving 18 vacancies. Under the circumstances, Management is constrained in achieving its objectives. Some of the vacant positions were; Manager Planning and Research, Manager Project Development, Compliance Engineer – Transmission, among others.

Management explained that the Authority has over time operated with a lean structure because of a limited resource envelope, and only fills positions as and when the financial situation allows.

I advised the Accounting Officer to liaise with the responsible authorities to ensure that the staffing gaps are addressed.

7.3 System Performance and Functionality ERA uses Navision accounting software for preparation of its accounts. However, it was noted that the accounting software lacks the functionality of carrying out the payables and receivables ageing analysis. In the circumstances, the Authority may not be able to keep track of its debts and effectively collect revenue.

Management stated that a comprehensive review of the system shall be carried out to facilitate ageing of receivables for ease of collection.

I await the outcome of the Authority‟s commitment in this regard.

7.4 Stores Management Best practice requires that upon receipt of goods/services, an officer responsible for stores together with an officer independent of the procurement and finance function should examine the goods to ensure that they are in accordance with the contract specifications and in good condition before the goods received note is signed.

However, it was noted that the Records Assistant singlehandedly receives the items in the stores, records them and issues them out without independent verification by another officer. A sample of payment files revealed that goods received notes and delivery notes amounting to UGX.11,664,844 were not counter signed by a responsible officer or internal auditor, as proof of verification. Details are provided in the table below:

Date Supplier Items UGX 10th June 2014 Malaysia Furnishing Centre Office furniture 3,480,000 10th June 2014 Nina Interiors ltd Desks 1,420,000 9th June 2014 Gulf spring ltd Stationary 4,740,844 9th June 2014 Access IT Ltd Toner cartridge 2,024,000 TOTAL 11,664,844

I explained to Management that absence of independent verification of deliveries exposes the Authority to procurement malpractices such as non-existent supplies, and receipt of goods of undesirable quality.

In response, management indicated that specific independent officers will be appointed to ensure that deliveries to stores are independently verified to avoid any procurement malpractices.

I await the outcome of the Authority‟s commitment in this regard.

7.5 Dormant Account The Authority has a United States Dollar (USD) account in Citi Bank (Account Number: 010026703) with a balance of USD.36,508. However, there has been no transaction on this account for the last two financial years, rendering the account dormant. There is a risk that the dormant account may be used as a conduit for irregular transactions. Besides, the funds locked up on the account cannot be put to use.

Management indicated that this account was intended to ring fence project funds from other operational funds of the Authority.

I advised Management to follow up the matter with the Board and ensure that the dormant account is closed in accordance with the financial regulations.

8.0 KILEMBE MINES LIMITED - YEAR ENDED 30TH JUNE, 2013

8.1 Biological Assets 26

IAS 41 Agriculture; defines agricultural activity as the management by an entity of the biological transformation and harvest of biological assets for sale or for conversion into agricultural produce or into additional biological assets. It further defines a biological asset as a living animal or plant and prescribes the recognition criteria.

It was observed that the company owns biological assets in the form of eucalyptus trees in various plantation forests approximated at 126 acres. However, the assets had not yet been valued by an independent valuer to determine their fair values and inclusion in the Financial Statements. In the circumstances, the financial statements are misrepresented.

Whereas management explained that the Concessionaire claims the assets were part of the improvements on the leased land, leased biological assets are not a subject of IAS 17 Leases; the basis of which management accounts for the conceded assets. I have advised management to conduct a valuation exercise for the biological assets and adjust the financial statements accordingly.

8.2 Trade Payables Payables stood at UGX.562,149,600 during the year under review compared to UGX.237,561,931 in the previous year (representing a 137% increment). This increment was mainly from Sundry creditors and trade creditors which increased by 122% and 170% respectively. I informed management that there is a risk of litigation by creditors with their attendant costs which may lead to negative publicity and further escalation of costs.

Management attributed the increment to effects of the devastations suffered during flooding, which necessitated among other things, contracting UMEME Ltd to rebuild the transmission line to resume power supplies to Kilembe Hospital and the underground mine to forestall flooding. I have advised Management to settle the obligations to avoid litigation.

9.0 UGANDA ELECTRICITY GENERATION COMPANY LIMITED- YEAR ENDED – 31ST DECEMBER 2013

9.1 Impairment of Assets In my previous report to Parliament, I indicated that the Company‟s plant was operating below 50% of the installed capacity which was an indication that the plant could be 27

impaired. However, the Company did not perform an impairment assessment of the plant at the reporting date as required under IAS 36. A review of this matter revealed that although Management attempted to do an impairment assessment as at 31st December, 2013 they were limited by a number of factors beyond their control and could therefore not complete the process. In the circumstances, the reported PPE may not be fairly stated.

In response, management explained that the plant was operating below capacity mainly due to hydrological constraints. It further indicated that procurement of a Consultancy Firm to carry out an impairment review had commenced. I advised management to ensure that an impairment review of the plant is conducted as required by the standards.

9.2 Debt Service and Depreciation Fee Components In my previous report to Parliament, I noted that whereas the Concession and Assignment Agreement between the Company and the Operator of the plant, Eskom Uganda Limited, granted the former a right to charge debt service and depreciation components as part of the concession fees, they were not included in the tariff methodology for the year approved by the Electricity Regulatory Authority (ERA). A review of this matter revealed that that the status had not changed by the time of audit. Therefore, the revenue for the year is understated and the interest and depreciation expenses are not matched with revenue.

In response, management explained that ERA in a bid to keep tariffs low had denied UEGCL the right to bill depreciation and Return on Equity to Eskom contrary to the Concession and Assignment Agreement. Management further indicated that as regards the debt service, Government allowed the Company to convert the debt to equity.

I advised management to take up the matter with the Authority with a view to reviewing the Concession and Assignment Agreement.

9.3 Conversion of Government of Uganda Loans to Equity The Government of Uganda loans were converted to equity effective 31st December 2013. It was noted that,

Whereas the Company‟s shareholders under minute extract MIN/EGM/05/03/2014 resolved that the Company‟s debt be converted into equity subject to approval by Parliament, this resolution was not yet effective as at 31st December 2013 and approval by Parliament had not yet been obtained by the time of audit. In the circumstances, the reported amounts could be misrepresented.

Management explained that at the Annual General Meeting (AGM) held on 20th June, 2014, it was agreed to convert Government lending to Equity.

I advised management to obtain the required Parliamentary approval prior to passing the necessary adjustments in the financial statements.

9.4 Unsupported Balances It was noted that the amount due to the Government of Uganda of UGX.33.828 billion included under Note 20 to the financial statements was not adequately supported with documents and confirmation from Government. In view of the foregoing, I could not confirm that the reported amounts were derived from underlying records.

In response, Management indicated that the balance related to the depreciation charge on property, plant and equipment for the year 2001 and accumulated accrued interest taken over from Uganda Electricity Board. It further indicated that UEGCL was scheduled to request for a write-off at the next AGM.

I advised management to provide the necessary supporting documentation to support the balances in the financial statements.

9.5 Additional Obligations Due to Delayed Finalisation of Transaction Advisory Services The transaction and advisory agreement between the International Finance Cooperation (IFC) and UEGCL states that if any part of the services remained unfinished after the lapse of 12 months after the effective date of the agreement and the delay was not occasioned by IFC, then UEGCL will pay a lump sum retainer fee of USD.20,000 per month. It was noted that whereas the effective date of the agreement was 9th March 29

2013, the services had not been finalised as at 31st December 2013. Consequently, the company incurred an additional obligation of USD.180,000 arising out of the delays. The obligation amounts to nugatory expenditure as it would have been avoided if the terms of the agreement were followed. These obligations are also not planned for and affects the overall funding from KFW to the Nyagak project because the additional obligation is expected to be covered from the funding from KFW.

Management attributed the delays to external factors beyond UEGCL‟s control, which affected implementation of the project. For instance, a decision on the implementation methodology (Public-Private Partnership or a Public Project) was made in January 2013 but the procurement process took long to be concluded, while consultations with ERA on the proposed tarrif plan took a longer time than expected. In addition, UEGCL needed a commitment from UETCL on the date the West Nile region would be connected to the national grid, and from then onwards, all the energy from Nyagak III would be off- taken.

I advised management to ensure that in future, engagements of this nature are planned early enough, to avoid delays and their attendant costs.

9.6 Failure to Review Useful Lives of Company Assets There was no evidence that the useful lives of assets were reviewed. This is evidenced by the fact there were a number of assets, especially within the class of plant and machinery that are fully depreciated but still in use and also in good working condition. This is an indication that assets were not assigned appropriate useful lives. Although it is not the Company‟s policy to reassess the useful lives of assets, it is best practice that useful lives of assets are reviewed regularly, including an assessment of whether depreciation rates are still reasonable.

In response, management explained that revaluation would be done after the impairment review of the plant. I await the outcome of Management‟s undertaking in this regard.

10.0 UGANDA ELECTRICITY DISTRIBUTION COMPANY LIMITED - YEAR ENDED 31ST DECEMBER, 2013

10.1 Going Concern Issues Note 22 to the Financial Statements indicates that during the year under review, the Company had negative shareholders‟ funds of UGX.15.4 billion (2012: UGX.6.8 billion) and its current liabilities exceeded its current assets by UGX.34.5 billion (2012: UGX.61.8 billion).These conditions indicate the existence of a material uncertainty which may cast significant doubt on the Company‟s ability to continue as a going concern.

Although Management indicated under Note 22 to the financial statements that the Company has substantial liquid investments to continue to generate income in the foreseeable future, this is likely to be wiped away by the losses, if measures are not taken to reverse the conditions that are eroding the shareholders‟ funds.

Management explained that the directors were of the opinion that the Company was well placed to continue in business for the foreseeable future and the financial statements were prepared on a going concern basis (Note 1 to the accounts refers).

I advised Management to devise measures of reversing the trend of losses the Company is currently experiencing.

10.2 Compliance with The Companies Act, 2012 Section 7 (7) of Table F (Code of Corporate Governance) of the Companies Act 2012 requires an audit committee to be composed of the chairperson and at least three other persons of reputable integrity not being members of the board. However, at the time of audit, the Audit and Risk Committee was composed of three members who also serve on the UEDCL Board. In the circumstances, the members are exposed to the risk of conflict of interest in discharging their duties.

Management undertook to ensure that the Board of Directors takes up the matter with the shareholder for implementation.

I have advised the Chairperson of the Board to ensure that the Audit and Risk Committee of the Board is properly constituted in accordance with the Companies Act.

10.3 Inadequate Controls in the Billing System

During the field verification at Dokolo field office, it was noted that the Station Manager had no access rights to review online, the work input of junior staff to pro-actively asses any irregular transactions or errors that could have been made. In addition, due to poor network connections and limited concentrators, the Manager could not review online, the customers using electricity at any one time to detect any questionable connections.

It was also noted that when a token is detected in the database as a result of collusion, the existing customer tokens continue supplying power to the customer instead of disconnecting both tokens.

In the absence of access rights to validate work of junior staff entered into the system by the Station Manager, any irregular transactions and errors might go undetected which in turn may negatively impact on the overall performance of the station.

Management explained that as part of the prepaid system rollout, some of the access rights at inception were minimized for control purposes until the system stabilizes. Management further indicated that since the pre-paid system had been running for less than a year, some of these facilities were to be enhanced to improve the performance and the business benefits.

I have advised Management to ensure that area managers are given specific access rights to review the work of their subordinates to enable them detect any errors or irregular transactions. Management should also consider enhancing network connections and concentrators to enable monitoring of electricity consumption in the area.

10.4 Un established Power Loss at Dokolo Area Office During the review of reports at Dokolo area office, it was noted that there were substantial energy losses in Lira Service Territory (LIST) in the year under review. Station Management attributed the losses to wrong meter installations by Uganda Electricity Transmission Company Limited (UETCL). However, there were no details of how Management intended to reduce these losses. The table below gives a summary of the losses during the year:

Month Bulk supply Billed total Distribution units (KWH) (KWH) Loss (%)

July 2013 223,658 19,832 91.13%

August 2013 178,573 27,598 84.55%

September 2013 154,555 27,208 82.40%

October 2013 111,452 26,756 75.99%

November 2013 171,163 28,012 83.80%

December 2013 216,377 35,046 83.80%

With the inefficiency in the pre-paid system, such energy Losses may be an indication of illegal connections and high power theft without notice. Management indicated that the high energy losses had been investigated and it was found that the UETCL meter at Lwalla – Kaberamido feeder metering point had an improper metering unit and there was need to install a check metering unit and a new meter. Management further explained that this requirement had been communicated to UETCL and REA. I await the outcome of Management‟s intervention in this regard.

10.5 Asset Valuation An asset verification exercise revealed variances between the amounts presented in the asset register and the approved costing for the particular items that were available to district offices. Efforts to reconcile the asset ledger balance and exact cost considered by UMEME Ltd were not successful because of insufficient information regarding final material and labour costs among others.

Further review of the costing details revealed that UMEME Ltd constructs over 80%-90% of the assets through contractors who are paid mainly labour cost while materials are supplied by UMEME Ltd as well as paying project staff salaries. The absence of a proper linkage between the costing model developed by UMEME Ltd and the assets passed on to UEDCL, made it difficult to ascertain the actual costs of these assets and what would be claimed by UMEME Ltd as a return on investments.

Management explained that the mandate of UEDCL was limited to verifying the fitness for purpose, existence & quality of the investment and not auditing the price at which inputs are bought and operationalized. Management also undertook to take up the matter with the Regulator with a view of formulating a standard cap on cost of labor and other overheads.

I have advised Management to conduct a special assets verification audit to ascertain the values of the assets added to the grid by UMEME Ltd to date. The assets passed on to UEDCL should be separated from those claimed by UMEME Ltd as a return on investment.

10.6 Unjustified Asset Upgrade It was noted that most transformer installations were upgrades of transformers from lower KVa to higher ones for example from 25kva to 50 KVa or from 50Kva to 100 KVa. This upgrade requires a justification of increased number of existing users or anticipated new connections. However, it was noted that there were no justifications in a number of upgrades which makes the new transformers idle.

A case in point is where, a 50kva (2009 manufactured transformer – assuming installed in 2010) was replaced with a 100kva transformer at Mityana police/Airtel mast, without proper justification. There have been no new customer connections in the area. In the circumstances, there is a risk that UMEME Limited up-grades transformers without clear justification to attract higher returns on investments.

Management explained that ERA had instituted new regulations and guidelines for categorization of investments that earn ROI and those that are DOMC. Management further indicated that it had been agreed with UMEME that all major investments would be vetted by UEDCL prior to their approval by ERA to avoid haphazard investments in upgrades.

I have advised Management to follow up on this undertaking and ensure that all upgrades on the system are justified by UMEME before they are implemented. In addition, management should liaise with relevant stakeholders and ensure increased transformer capacity is matched with additional connections.

10.7 Improper Credit Notes The Financial Policies and Procedures Manual requires that, “Credit notes are to be initiated by the Sales and Marketing department which advises the Accounts and Administration officer to prepare a credit note. It is then checked by the Manager Pole Plant and Stores Management before it is sent to the Finance Manager for approval. It is after the Finance Manager‟s approval that the details on the credit note can be entered in the system by the Senior Accountant.”

However, a review of the appropriateness of credit notes raised revealed that these controls were not being adhered to. There is a risk that invoices and possibly debt may be inappropriately cancelled when still outstanding.

Management attributed the anomaly to an oversight and undertook to comply with the Financial Policy in this regard.

I have advised Management to ensure that credit notes which are not approved by an authorized signatory are not processed.

11.0 UGANDA ELECTRICITY TRANSMISSION COMPANY LIMITED - YEAR ENDED 31ST DECEMBER, 2013 11.1 Amounts due to related parties (UGX.31,112,436,088) Included in the Company‟s financial statements is a long outstanding balance of UGX.31.112 billion payable to UEGCL for price rebates in 2001/2 (at the commencement of the split of the UEB). This is also countered by a long outstanding receivable from UEDCL of UGX.37.1 billion dating back at the same time. These balances have been awaiting Parliamentary approval for write-off since 2006. The validity of these long outstanding balances could not be readily verified. This matter has remained unresolved as pointed out in my previous reports.

In response, Management has explained that the common Shareholders (Government) have been requested to authorize the write-off of the due and payable amounts across the sector.

I await for action in this regard.

11.2 Payments for Non remitted power Section 5.1.2.3 of the Power Purchase Agreement between UETCL and M/S Hydromax Limited states that, “Energy sold by the company to UETCL under this agreement shall be delivered to and accepted by UETCL at the delivery point”. Section 5.1.2.4 further states that, “UETCL shall make necessary arrangements for all energy to be accepted at the delivery point and if it is not accepted for any reason other than an emergency or due to Prudent operating practices, UETCL shall still pay the company for the energy that could have been generated by the company during the period when the energy was not accepted by UETCL as determined in the manner specified in clause 5.1.2.5 hereof, subject to clause 5.1.2.6. hereof”. This in effect means that UETCL must pay for all power whether evacuated or not.

During the audit of the financial statements for the year ended 31st December 2013, it was noted that UETCL incurred UGX.13 Billion as “Deemed energy Purchases” from Hydromax Limited. This was as a result of UETCL‟s inability to evacuate power that had been generated by Hydromax Limited for transmission to UMEME Limited due to poor distribution network in the area. The company is incurring high costs in form of deemed energy purchases and thus losses to the company.

In response management explained that several interventions are under way, including the construction of Kawanda to Busunju 33kv line by UMEME Ltd and the construction of the Kabulasoke-Kiboga-Hoima 132kV line and the Nkenda to Hoima 220kv line. They further added that the matter was brought to the attention of the Regulator who is spearheading its reconciliation and resolution. I await the outcome of these interventions.

11.3 Inadequate security at substations During my field visits to the various substations, the following issues were noted:-  Inadequate Fire suppression system at the substations

I noted that there were inadequate fire extinguishers on site. All the substations I visited had only two fire extinguishers available and the rest had been taken away for service in December 2013 and had never been returned. More so, the two fire extinguishers at Opuyo SS were empty by the time of my visit. This poses safety risks because two fire extinguishers may not be enough to cover the substation in case of a fire outbreak. On

inquiry, I was informed that each substation should ordinarily have six (6) fire extinguishers.

11.4 Inadequate surveillance CCTV cameras at Lugogo Control Centre were procured in 2012 and 2013 as per the asset register. On inquiry, I was informed that the ones procured in 2012 had been taken to the supplier for repairs. I noted that the cameras procured in 2013 could only store data for a week before it is erased automatically. As a result of the above weaknesses stock worth UGX.52 Million had been stolen from the stores during the year without trace.

In response, management explained that they are sequentially rolling out automatic fire fighting systems in all the Substations and framework contracts have been entered for timely servicing of the fire extinguishers. The CCTV system storage capacity has been increased to enable storage of data of up to 30 days. I advised management to follow up the loss of stock and to strengthen the surveillance and fire suppression system at all substations.

11.5 Verification of costs for the Bujagali Hydropower Plant The Government of Uganda entered into an implementation Agreement with Bujagali Energy Limited (BEL) to develop, construct, own and operate a Hydro-Electric Power production facility located at Dumbbell Islands on the River Nile in Uganda. As a result, Uganda Electricity Transmission Company Limited (UETCL) and Bujagali Energy Limited (BEL) entered into a Power Purchase Agreement (PPA) in which UETCL agreed to pay BEL a monthly capacity payment charge to reimburse the latter for only those expenditures of equity and debt that are attributable to legitimate costs incurred in connection with the project, which are referred to as “Tariff Project Costs”.

Accordingly, I appointed KPMG, Certified Public Accountants, to undertake an audit of the tariff project costs of Bujgali Hydropower Plant to establish whether the costs reported: reflected the actual cost of the project; were prudently incurred in accordance with the original designs; and reflected value for money.

Here below are the key findings arising from the audit;

1) Included in the EPC contracts, Section 15.11 is a provision for indexation of the contract price. A recalculation test performed by the auditors on the foreign exchange

adjustment using the currency pairs as stipulated in the EPC contracts resulted into a difference of USD.83,093,268. At the time of completing the audit, the difference had not been resolved. I asked the Permanent Secretary, Ministry of Energy and Mineral Development to obtain an express position of the Government of Uganda on the matter. At the time of signing this report, I had not received a response from Government.

2) BEL incurred an insurance loss of USD.163,063.30 resulting from lost equipment of ALSTOM (a subcontractor of Salini). 70% (USD.114,144) of this amount was wrongfully charged to the tariff project costs.

3) Whereas the “Notice to Proceed Agreement” was signed on the 25th May, 2011, the Operation and Maintenance (O&M) contractor billed BEL USD.393,013 for the months of April and May 2011, which are prior to the Notice to Proceed date.

4) USD.352,943 relating to Government of Uganda fees paid to consultants/advisers was not adequately supported.

In conclusion, the tariff project costs of USD.756.86 million as reported in the Final Cost Report reflects the actual costs for the project except for the effects of the matters in the preceding paragraph.

UGANDA ELECTRICITY TRANSMISSION COMPANY LIMITED PROJECTS

12.0 ENERGY FOR RURAL TRANSFORMATION PROJECT (BANK OF UGANDA COMPONENT) –YEAR ENDED 30TH JUNE, 2014

12.1 Compliance with Financing Agreement and Government of Uganda Financial Regulations It was noted that Project management complied in all material respects, with all the covenants contained in the project management as well as government of Uganda financial regulations.

12.2 General Standard of Accounting and Internal Control A review of the financial management system and internal control was carried out. It was noted that management had put in place a satisfactory internal control system and measures to ensure proper accountability for all project funds. However, the following matter was noteworthy:

12.2.1 Closure of Global Trust Bank (U) Ltd The „Loans at amortized cost‟ balance reported in the Statement of Financial Position stood at UGX.3,449,744,000 (USD1,326,988). Included in this figure is a balance of UGX.116,162,472 (USD44,683) due from Global Trust Bank (U) Ltd (formerly Commercial Microfinance Ltd), one of the PFIs refinanced under the project. The bank was closed by the Central Bank and ceased operations in July 2014. Global Trust Bank Ltd had been remitting both the principal loan repayments and interest to BoU when they would fall due. It was noted that at the time of closure, the ERTP loan balance was still outstanding. This is likely to materialize into a financial loss for the project.

Management explained that the procedures for the liquidation and transfer of assets and liabilities of Global Trust Bank (U) Ltd had been finalized. Discussions with the liquidators were ongoing to transfer the outstanding loan to one of the other banks under the ERT Scheme. I have advised them to ensure that the funds are duly recovered from the liquidators.

13.0 ERT - UGANDA ENERGY CREDIT CAPITALISATION COMPANY

13.1 Financial and Accounting Manual It was noted that the company does not have a financial management manual to document the internal accounting procedures. The purpose of the manual is to ensure that assets are safeguarded, financial statements are in conformity with generally accepted accounting principles, and that finances are managed with responsible stewardship. In the absence of the manual, the company is exposed to a risk of improper, inaccurate financial management and reporting.

Management in response explained that has progressively been putting in place the requisite systems. The Finance and Administration function was initially sourced from the Ministry of Energy and Mineral Development until financial autonomy was granted in 2012/2013. Since then UECCC has been progressively staffing the Finance and Administration department culminating in the appointment of a Director, Finance and Administration in June 2014. Nevertheless, the Finance Manual has been drafted and is pending approval by the Board.

I have advised management to ensure that a comprehensive Finance manual is drawn and approved by the Board to mitigate the risk of breakdown in operations.

13.2 Insurance of Company/Project Assets It was noted that project assets were not insured. I informed management that risk management is very crucial towards the attainment of Company objectives and therefore, all Company assets should be insured without exception to mitigate losses arising from unforeseeable disasters or theft.

Management in response explained that being a startup institution, UECCC has been mobilizing funds over the period of its existence. Relatedly, asset acquisition has been gradual with significant assets acquired in the financial year under review. Furthermore, the startup operations budget was funded by World Bank and was limited in scope. However, it was stated that additional funding had been sourced from Government of Uganda and the process to insure the assets had commenced.

I have advised management to take a comprehensive insurance policy on all its assets without exception to avoid losing out completely in case of disaster or theft.

14.0 ERT - PRIVATE SECTOR FOUNDATION UGANDA 14.1 Incomplete Petty Cash Payment Vouchers Examination of payment records revealed that petty cash vouchers worth UGX 455,000 were not properly filled out as they lacked particulars and signatures of the payees and authorizing officers. There is a risk of payment for ineligible expenditure.

Management in response indicated that prior to any petty cash payments a petty cash requisition form is filled by the requester indicating the date, purpose and amount. The form is approved by the Project Manager, initialed by an Accounts Officer and then attached to a serialized petty cash voucher where the requester acknowledges receipt. The team undertook to have the approval and completion done on the original petty cash vouchers to avoid this anomaly.

I have advised Project management to ensure that all petty cash payment vouchers are adequately completed, checked, signed and properly authorized before any payment is made.

14.2 Improper use of a Constant Exchange Rate It was noted that contrary to the accounting policy 7.5.1(d) outlined in the Notes to the Accounts, the exchange rate applied to convert the donor funds transferred was fixed (1USD=UGX 2,578.95) throughout the 12-months period under review. However, there was no justification for this management‟s decision as exchange rates fluctuate from time to time. In the circumstances, there‟s a risk that the exchange gain of USD 1,334 reflected in the Statement of Comprehensive Income is not fairly stated.

Management in response acknowledged the anomaly and undertook to ensure that all donor funds transferred to the special account are recorded based on the ruling Bank of Uganda exchange rate.

I have advised management to always use the Bank of Uganda exchange rates at the time the funds are received and disbursed in order for the project to recognize the gain or loss in the statement of comprehensive income.

15.0 ERT II – PROJECT COORDINATION UNIT – YEAR ENDED 30TH JUNE, 2014

15.1 GoU Counterpart funding In my report to parliament for the year ended 30th June 2013, I pointed out that UGX. 9,824,732,622 released to the Ministry of Energy as ERT II counterpart funding was not deposited on the Project (local currency) account nor reported in the project financial statements. There were no records at the project office evidencing expenditure. The fund balance as at 30th June 2013 was understated to this extent.

The project management undertook to consult with the responsible officers at the Ministry on how to comply with the project requirements. I had advised them to provide me with a statement on how the counterpart funds were utilized. However, no action had been taken by the time of audit for the year ended 30th June 2014 and the fund balance remained understated.

15.2 Lack of Internal Audit Reviews Section 6 VI (C) of the ERT Accountability Instructions requires the Ministry‟s Internal Audit Department to appraise the internal controls of the project. It was however noted that no such reviews have ever been undertaken in the implementing Entities of MoFPED, MoLG and MEMD. I explained to management that failure to undertake the

reviews exposes the project to a risk of delayed detection and correction of control weaknesses in the project implementation.

Management in response explained that internal audit carries out regular reviews of project operations and advises management on measures to improve the internal controls. The omission might have been in providing formal reports and recommendations to Management. However, management undertook to ensure that the department always documents all findings and recommendations for appropriate action.

I have advised Management to always ensure that internal audit reviews are regularly undertaken to mitigate the impacts of the potential risks on the effective project implementation

15.3 Ministry of Local Government (MOLG) Sub-Component 15.3.1 Ineligible Expenditure Section 3.2.2 of the ERT II Accountability Instructions states that each of the implementing units of the ERT II projects shall ensure that all expenditures incurred from the project proceeds are only for goods and services intended for the project. That is, only eligible expenditures shall be incurred from the proceeds.

On the contrary, it was noted that UGX.30,952,000 was borrowed to cater for various operating expenses for the Ministry of Local Government without approval from the World Bank. These expenses included fuel expenses, perdiem and purchase of air tickets. This practice is irregular and could result into under performance on the part of the Project as funds are diverted to other activities not related to the project.

Management acknowleded the anomaly and undertook to restore the monies to the project account in the third quarter of the financial year 2014/15. I have advised management to ensure that expenditures are incurred for only approved project activities. Meanwhile, I await management‟s commitment with regard to the refund.

15.4 Project Coordination Unit 15.4.1 Absence of a Computerized Accounting System Section 4.3 (i) of the ERT II Financial Management manual requires project books of accounts to be maintained on a computerized system. However, a review of the project financial statements revealed that the project did not have an accounting system for the

three years in existence. Accounts were maintained using excel spreadsheets which are prone to manipulation.

Management explained that the project had procured an accounting software which uses the Ministry server and does not have a stand-alone server. Once the Ministry server is off, the software cannot be accessed. This prompted the maintenance of the same accounting records both manually and electronically so that at any point when the Ministry server is off, the manual records can be used to capture or retrieve information. I have advised management to computerize the project accounting system to enhance the production of accurate financial statements.

15.5 Ministry of Education and Sports Sub-Component 15.5.1 Absence of Annual Work Plans The ERT II operational manual requires all implementing institutions to requisition for funds from the World Bank through the Project Coordination Unit (PCU). Participating Ministries are subsequently expected to requisition for ERT funds from the PCU with proper justification by backing up requisitions with proper work plans for activities to be carried out.

However, in the Ministry of Education and Sports, the annual work plan for the year under review was not provided for audit. In the absence of a work plan, I was unable to ascertain whether the activities implemented during the year had been approved.

Whereas management indicated that the project work plan had been prepared and approved by the World Bank, this was not provided to me for review. I have advised management to ensure that project funds are only spent on planned and approved activities.

15.5.2 Management of the Dollar Account Section 2.2.2 of the ERT Finance Management Manual requires that Cashbooks are kept to record all banking and withdrawals of cash and cheques as they occur. In addition, Cash and Bank Reconciliation should be done on a monthly basis for Bank transactions and on a daily basis for cash transactions. However, the cash book, bank statements and reconciliations of the Dollar account were not availed for audit. In the circumstances, the reported fund balance may be misrepresented.

Whereas management explained that the project management maintained a cash book for all project bank accounts and bank reconciliations were performed on a monthly basis, the said records were still not availed for audit verification. I have advised management to ensure that proper books of accounts are kept and maintained as required by the Manual.

15.5.3 Special Inspection Report (ERT II - MoES Sub-Component) Permanent Secretary Ministry of Education requested for an independent audit of the Energy for Rural Transformation project phase II- the Education Component to ascertain the functionality of solar PV systems installed at the post primary schools.

15.5.3.1 Findings The inspections revealed that in most of the schools visited, solar panels were mounted on the roof tops. The solar packages were being utilized to provide lighting and also operate some ICT equipment in the schools. The Contractors trained at least one person in each of the schools to operate the equipment and left behind operational manuals for user reference. However the following exceptions were noted:

a) Routine maintenance of Solar Equipment by the contractor According to the ERT II Project Operational Manual, Private companies were to supply the energy systems, maintain them and provide after sales services. In a Ministry‟s communication to the head teachers of the beneficiary schools dated 1st July 2013 and referenced PED/137/284/63, the contractor was required to undertake routine maintenance, and also attend to call outs caused by system faults as and when notified by user and or the project manager within a period of five years after equipment handover.

It was noted that out of the 45 schools visited, routine maintenance had not been undertaken by the contractor in 29 schools. Also noted was that out of the remaining 16 schools, 13 had received maintenance visits only once since the systems were installed. Interviews with head teachers revealed that some contractors did not respond when called upon by the schools, while others were unaware that the contractor was supposed to undertake routine maintenance, as they had not received any communication from the Ministry of Education and sports in this regard.

Consequently, Solar systems at 10 schools had completely broken down and were not functioning at the time of inspection. See table below for details: 44

S/N School District Observation 01 St Thomas Moore Gulu 2 Solar panels were not working 02 Kangai S.S Dokolo Inverter was not functioning. 03 Musese SS Mbale One panel and one inverter not working

04 Buhehe SS Busia One set of panels had not been operational for a month Four sensor bulbs were not operating. 05 Masaba college Busia One set of panels was not working

06 Ibale S.S Kabarole The sockets are faulty, they cannot be used. 07 Buheesi.S.S Kabarole Batteries are faulty 08 Ruboona S.S Kabarole Only 2 systems out of 4 are working 09 Kithoma Peas H.S Kasese The system is on and off and one block is totally off. 10 Kuruhe High school Kasese One system is not working

Management explained that routine maintenance was on-going and that it had been envisaged that with the pace of maintenance, coverage of the sampled schools in this report shall be done soon. Management further stated that the issues raised had been brought to the attention of the contractors and fault rectification would commence in January 2015. Beneficiary institutions had also been advised to use emergency call-outs which would enable access to the maintenance contractor in emergency cases and minimize delays of maintenance services before routine maintenance is due. The Accounting Officer also stated that more staff would be assigned to the project to enhance monitoring and supervision of the beneficiary schools and that a workshop would be held to sensitise beneficiaries about the care and maintenance of Solar Packages installed.

I have advised management to sensitise all the beneficiary schools about the role of the contractors in the maintenance of solar installations, and engage the contractors to compel them to undertake timely routine maintenance. b) Delivery of defective Solar System and failure to deliver some of the Equipment According to the Contract documents, the Contractors were supposed to supply and install complete and functioning Solar Photovoltaic Energy Packages that included solar panels, lighting fixtures and accessories.

On the contrary, it was observed that defective parts were delivered by the contractors to some schools and no effort was made to replace them, and in some instances some parts were not delivered at all as shown in the table below:

S/N School District Observation 01 Bishop Tarantino College Lira Contractor delivered a cracked solar panel which could not be installed 02 Dr Oryang S.S, Oyam The supplier did not deliver an inverter, so the school is unable to store charge. Sockets were not provided 03 Pingire S.S Serere One fuse given to the school was of a smaller capacity than that required by the system, as a result the system provided light for only two hours 04 Ibale S.S Kabarole The sockets are faulty; can only be turned on and cannot be turned off 05 Kithoma Peas H.S Kasese Sockets are faulty; can only be turned on and cannot be turned off. The design of the sockets does not permit common appliance plugs to be used.

On the left, a visibly cracked Solar panel dumped at Bishop Tarantino College in Lira. On the right, Defective socket at Kithoma Peas S.S.S in Kasese, that cannot accommodate common appliance plugs

The affected solar systems were therefore non-functional, and the schools involved have not fully benefited from the intervention.

Management in response indicated that routine maintenance was ongoing to replace all defective solar systems and deliver all equipment not installed. Management undertook to continuously monitor the installations to ensure that the equipment delivered conforms to the required standards. The Accounting Officer further indicated that the

responsible contractors would be engaged to show cause why their company should not be blacklisted.

I advised management to ensure that contractors supply the right equipment to the affected schools while MoES should supervise the contractors closely to ensure that they adhere to the contract terms and conditions. c) Security of the Solar Equipment According to the communication to the head teachers of the beneficiary schools dated 1st July 2013, and referenced PED/137/284/63 by the MOES, the head teachers of the recipient schools are responsible for ensuring the security of the equipment and apparatus including respective spare parts.

However, it was noted that the installed solar systems were not secure in a number of schools, and as a result the equipment was vandalized and stolen. No efforts were made to replace the vandalized equipment, or to secure the remaining equipment. Most of the head teachers could not offer a clear explanation, or explain the measures they had put in place to ensure that the vandalism/theft does not re-occur. The installed systems were therefore not working at their optimum capacity. Details of the vandalized equipment are provided below:

S/N School District Observation 01 Kangai S.S, Dokolo Lamp holders were vandalized 02 St Thomas Moore Lira a battery was stolen 03 Agwata S.S Dokolo Lamp holders were vandalized 04 Kiyeyi Tororo Cables/wires and bulbs stolen 05 Busiime S.S Busia One of the batteries had been stolen 06 Nakalama S.S Iganga One of the inverters had been stolen as it had been installed in an incomplete building 07 Katooke Secondary Kyenjojo One of the inverters was stolen; Any key School can open the battery boxes, so the contents can easily be stolen. 08 Kakiika Technical School Mbarara Students vandalise the bulbs and tamper with the switches 09 Ruboona S.S. Kabarole Students stole most of the sockets in the classrooms 10 Kilembe S.S Kasese Students stealing some of the equipment such as bulbs 11 Kithoma Peas H.S Kasese Switches and sockets were vandalised

Vandalized Lamp Holders at Kangai S.S.S in Battery was stolen from the battery box at Dokolo Nakalama S.S. In Iganga

Vandalized socket at Rubona S.S in Inverter was stolen from the battery box Kabarole at Katooke S.S. in Kyenjojo

The vandalism/ theft were partially attributed to neglect by the beneficiaries, and also due to the weak locks on the battery boxes. At Katooke Secondary School in Kyenjojo, Rwentanga Farm School and Kakiika Technical School in Mbarara, the school administration informed the audit team that any key could open the battery boxes that were supplied by the contractors.

In other cases, the contractors did not provide battery boxes/cages for the system, as shown in the photograph below;

Battery not in protective cover at Dr Oryang SS in Oyam district

Management in response indicated that the Ministry of Education and Sports had issued a new circular dated 8th December 2014 to guide in curbing the cases of vandalism in the Education Institutions. This is in addition to the earlier circular issued by the Ministry dated 1st July 2013 on the operation and maintenance of the solar packages. The new circular spells out clearly the roles of the school authorities in safe guarding the installations. Management further explained that the ownership, operation and maintenance of the solar systems after they have been installed and certified is the responsibility of the beneficiary institutions. The Accounting Officer also indicated that responsible Head teachers would be reprimanded and that the cost of vandalized/stolen equipment would be borne by the affected schools.

I have advised the project management to sensitize the beneficiaries on how to take better care of the solar equipment. Meanwhile, management should also ensure that the contractors provide battery cages with strong locks as was stipulated in the contracts. d) Utilization of the Solar Systems It was observed that some of the systems were not utilized to their optimum capacity due to non-functioning lamps, uninstalled solar panels, and systems that provide light for a few hours.

Non-functioning lamps It was observed that 17 out of the 45 schools had faulty lamps. The school authorities informed the team that the lamps had stopped functioning as early as three months after the systems were installed. They also mentioned that the contractors did not leave

behind any spare lamps, and the cost of replacing them was too high for the schools, thus the affected rooms were left with no lights.

Lamp holders without bulbs at Amwa Comprehensive S.S in Oyam district and St. Thomas More S.S in Gulu district

Management in response stated that the contract provides for the contractors to supply some spare bulbs in the schools upon installation of the solar energy. These are limited and as such when fully utilized, the schools are advised to purchase the replacements.

Systems that provide light for a few hours Through interviews with school authorities, it was revealed that contrary to the expected discharge rate of 20 hours, some packages provided light for as little as two to three hours, and in one extreme case at Kithoma Peas H.S in Kasese, the system only worked after the lights had been switched off for about three days. Table below refers for details:

S/NO School District No of Packages No of hours of Affected available light 01 Gweri S.S Soroti 1 2 02 Kakiika Technical School Mbarara 4 3 03 Rwentanga Farm School Mbarara 9 3

Management in response promised to inspect the said anomalies and inform the contractors accordingly. Further the School management will be directed where to acquire genuine consumable equipment. In addition, the Ministry provided User guides to all schools and training of teachers and students representatives on solar system 50

operation. A re-assessment of the status will be conducted by the Ministry (date) to ensure corrective measures are undertaken by contractors so that the lighting system in the three schools is improved.

I advised the Ministry to engage the contractors so as to ensure that:  High quality lamps together with spares are provided to the schools.  All the uninstalled packages are mounted and connected.  Defects are corrected.  Advise the schools on the alternative sources of equipment where they can purchase directly. e) Negligence of solar installations by end users In some schools the users on site were not carrying out basic cleaning, and maintenance of the solar systems. In some instances the battery boxes/cages were loaded with heavy items, and some of the wires were left exposed, as shown in the photographs below;

A metallic case on top of a battery box at Amach Modern S.S in Lira district, Bicycle and other equipment on battery boxes at Nakalama SS in Iganga district

Battery box with rubbish at Katine SS in Battery and surrounding area coated with dust at Soroti District and Agwate SS in Dokolo District

Failure by the end users to take care of the solar equipment could compromise the efficiency of the systems.

Management in response indicated that School Heads are continuously trained by the contractors about basic maintenance of the installations. This includes the cleaning of the installations and that the responsible Head teachers would be reprimanded.

I have advised management to put in place a maintenance policy of the solar systems and sensitize the end users about their responsibility towards the installed systems.

16.0 ERT II – RURAL ELECTRIFICATION AGENCY

16.1 Under Funding It was observed that out of USD.23,041,184 budgeted for various planned project activities during the year, only USD. 6,310,843.19 was available for spending. Included in this figure is USD 1,019,352.06 that was disbursed by the Bank to the Project IDA Special Account. Also noted was that the most affected budget line was „Projects and Schemes‟ for which USD.18,892,447 had been planned/budgeted but only USD.5,273,196 was spent. As a result, project activities worth USD.13,619,251 were not implemented. I explained to the Accounting Officer that budgeting for activities that management fails to implement was an indicator of low fund-absorption capacity, and that the delays negatively impact on the achievement of the project objectives.

Management in response explained that approval and disbursement of additional funding had been anticipated during the year under review mainly for connection materials worth USD 12,000,000. Unfortunately, the World Bank was only able to approve the loan in May 2014 hence no funds were disbursed for the respective project activities. Management further stated that the implementation of Output Based Aid (OBA) program that relates to connection subsidies delayed because UMEME, the main actor, only accepted to join the program in April 2014 hence delayed disbursements on this item. I have advised management to strengthen its capacity to implement the planned activities so as to improve on the fund disbursement ratios and achieve the project objectives.

17.0 ESDP- KAWANDA- MASAKA POWER LINE – YEAR ENDED 30TH JUNE 2014

17.1.1 Budget overruns The board of directors approved budget as a block figure worth USD22,252,912.82 (UGX.55,632,282,065) which management had to break down according to expenditure categories. However, it was noted that the project had an overrun of USD6,515 over and above the approved budget of USD39,413 on subsistence allowance. In the circumstances, management is constrained in achieving the project operational objectives.

Management acknowledged the anomaly which was attributed to the increased project field activities like land verifications and the line route diversions. I have advised management to always seek approval for such overruns.

17.1.2 Inconsistent names of PAPs Discrepancies were noted in the names of Project Affected Persons (PAP) on different supporting documents much as payments were made as per approved batches. There is a risk that Project funds could have been paid to ineligible persons.

Management explained that the payee names which were captured during the feasibility stage of the project are the names that appear in the RAP report approved by the CGV. The discrepancy in names was attributed to the many source documents in the field for data capture such as socioeconomic questionnaires, valuation forms, and survey forms used at pre-feasibility & feasibility stages by different Consultants. The PAPs may bear different names on different documents such as driving permits, voter‟s cards, IDs, or bank details, all these may lead to such inconsistencies. In such cases the project teams correct the names in accordance with the bank details. However, most PAPs open Bank Accounts either jointly or with additional names that were not part of the initial data capture. In such cases, further verifications are done by field teams and certified by the LCs on a Project Identification Document (PID). A Name Change request is raised specifically highlighting the changes in the names which form the basis of the payments.

Although according to management, no payments can be effected to third parties that are not entitled to them and are not verified, the inconsistences that lead to many changes in names and details can be exploited to benefit individuals in the project.

I have advised management to ensure that the names of PAPs are consistent and adequately supported.

17.1.3 Delays in compensation to PAPS Interviews with some PAPs during site visits revealed that most of them had not yet been compensated and there was uncertainty in this regard. Delays in compensating PAPS will definitely affect the time for implementation of the project activities.

Management acknowledged the anomaly and undertook to improve on the communication process to the PAPs on when to expect payments. I have advised them to ensure that the PAPs are communicated and updated regularly to avoid unnecessary misunderstandings.

17.1.4 PAPS with land titles not yet fully compensated Interviews carried out with some PAPs during site visits revealed that some PAPs with land titles which were not yet fully registered were not yet compensated and were financially constrained to follow them up in land offices. There are risks that  People with land titles but not yet fully registered may not allow the power transmission line to pass through their land before compensation.

 These PAPs may reject the packages due to the delays.

Management explained that UETCL compensates all those PAPs whose ownership status is fully verified. In the case of Land owners with titles under processing, UETCL will continue to negotiate with PAPs in this category to receive partial payments pending the processing of titles or letters of administration for the titles they hold.

I have advised management to expedite the negotiations and, also facilitate the PAPs to get their titles and have them compensated as soon as possible.

17.1.5 Delay in compensation to Physically Displaced Persons (PDPs) Interviews with some Physically Displaced Persons (PDPs) during field visits revealed that they had not yet been compensated for their crops and land by end of 31st December 2013. Also noted was that completion and hand-over of the houses meant for the PDPs was long over-due. In the circumstances, project planned activities/targets may not be achieved.

Management acknowledged the delays in house construction for the PDPs which was attributed to the long procurement process for the Contractor. However, the procurement was completed and 34 houses were almost ready. UETCL had identified the Land for the remaining houses. I have advised management to ensure timely compensation of PDPs and proper procurement planning to enable timely implementation of the project activities.

18.0 ERT II – UGANDA COMMUNICATIONS COMMISSION – YEAR ENDED 30TH JUNE 2014

Project Progress The project registered different levels of progress as outlined in the executive summary to the financial statements. However, the following matter was noted:

18.1 Funds Absorption During the year under review, a sum of UGX 2,326,428,468 was available for implementation of project activities. However, it was observed that only UGX 759,926,855 had been expended by close of the year (representing 33%). The slow and low utilisation and disbursement of funds has negatively impacted on the Project implementation hence leading to failure in achieving project objectives in time. I explained to management that there is a risk of return of funds to the Financiers without completing the project.

Management in response explained that the funds were meant for Broadband Internet Services and Community Information Centres and two rounds bidding process were held with no responsive bidder hence the non-absorption of these funds. I have advised management to:  Devise measures to improve fund absorption so as to achieve the intended objectives of the project in a timely manner.  Ensure the project funds are spent according to the work plan and budget.

18.2 Project Implementation Status According to the Project implementation Plan for the ICT component, 2009, the project sought to achieve three major objectives namely;

 To deploy 550 Community Information Centers (CICs) complete with solar energy or any other appropriate energy solution for providing community charging facilities and communications services in underserved locations.  To establish a “last mile” broad band connectivity with focus on 16 sub-counties in the northern region of the country  To support the development of appropriate local content in order to enhance the usage of the established ICT infrastructure and services (Health centers and schools) However a review of the World Bank Project Implementation Status & Results revealed that out of the above three objects, achievement was only registered in respect of the last objective achieved during the project life-cycle. Failure to achieve these project objectives in time has resulted into non-provision of internet and telephone services to rural communities, trading centres, and vanguard institutions in the targeted areas.

Management in response stated that the development of appropriate local content was not undertaken during the year as it was dropped during the World Bank Mission reviews on account it was overtaken by events. It was further explained that the funds were meant for Broadband Internet Services and Community Information Centres and two rounds bidding process were held with no responsive bidder hence the non- absorption of funds.

I have advised management to consider reviewing the project implementation plan and procurement requirements with a view to achieving agreed objectives.

18.3 Unlawful closure of ICT Component of the project Article 3.05 of the project financing agreement states that, “UCC shall promptly inform the government of any conditions which interferes with or threatens to interfere with the progress of the project, accomplishment of the purpose of the financing or the subsidiary agreements, maintenance of the services there under or performance of UCC obligations under this agreement”.

Whereas the agreement was between Ministry of Finance, Planning and Economic Development representing Government and UCC, a review of paragraph 3.4 of the Executive Summary to the Financial Statements revealed that the Ministry of Energy wrote to the World Bank indicating that the process of closing down the ICT component

and re-allocating the funds had been authorized by the Ministry of Energy and Mineral Development.

Closure of the component by MEMD may lead to adoption of article 4.02 of the Financing Agreement which states that; if a default shall have occurred in the performance by UCC of any obligation under this agreement and such default shall continue for a period of thirty (30) days after notice thereof has been given by the Government to UCC, the Government may demand the immediate refund of all amounts disbursed together with any charges notwithstanding anything to the contrary.

Management in response stated that the Commission had not received any formal communication on the closure of ICT component projects by the Lead Agency, the Ministry of Energy and Mineral Development. I have advised Management to communicate to Ministry of Finance Planning and Economic Development (MoFPED) in accordance with article 3.06 of the financing agreement.

19.0 INTERCONNECTION OF ELECTRICAL GRIDS OF NILE EQUATORIAL LAKES COUNTRIES (NELSAP) UGANDA – YEAR ENDED 31ST DECEMBER 2012

19.1 Review of formal Enterprise wide risk management policy, procedure and plan During the review of risk management policy and procedures, the following were observed:  It is not extended to various projects implemented by UETCL  There is no formal reporting structure (Risk committee, Risk department) whereby the risk related activities are executed by internal audit. Management was advised to consider making the various projects implemented by UETCL part of risk management policies and procedures.

Further management was advised to amend the policy and procedures such that they include appropriate and regular reporting structures.

Management explained that the risk is done internally by the project managers through the Head of Department who Reports to Management and Board on a Quarterly basis. 57

19.2 Review of Audit Committee Charter It was observed that: a) The Audit committee charter was not reviewed and formally approved by audit committee since 2008, though charter requires review, revision and approval every 3 years. b) Management charter has not been reviewed and approved since 2008, though charter requires review after every 5 years.

Management explained that the management charter was not yet due for review by the end of the financial year under audit. However, it was scheduled to be reviewed after 2013.

Management was advised to thoroughly review, revise and approve the audit committee charter in order to strengthen the monitoring controls required to address various risks associated with current operations.

19.3 Delay in implementation of the Resettlement Action Plan (RAP) In addition to the observation identified, it was also observed that the RAP which was supposed to have been approved by January 2011, was not yet approved by the end of 2011. The delayed approval of the (RAP) within the timelines has subsequently led to the late implementation of the RAP.

Management explained that the RAP report approval is an external process because the approval is vested in the office of the Chief Government Valuer (CGV) in the Ministry of Lands. The CGV handles all infrastructure projects in the country and the delays have been noted by various parties. However, the approval was later achieved and the process of compensation is ongoing and currently more than 79% and 78% are compensated for Bujagali-Tororo and Mbarara-Mirama respectively.

Management was advised to ensure that RAP is implemented in time as required by the developments partner‟s guidelines.

19.4 Delay in handover of sites to the contractor During the field visits and interviewing the contractors, it was observed that there were significant delays in handing over the sites to contractors as a result of either delay in approval of plans or settling the claims of PAP and RAP.

The compensation progress report as on December 31, 2012 is as under;

Compensation Progress Percentage LOT A –Mbarara - Mirrama 49% Lot b- Bujagali -Tororo 48% Management explained that the delay to hand over sites is due to a number of factors such as delays to approve the RAP report by CGV, disputes with landowners, family disputes, processing delays, absente land lords, speculation which leads to landowners selling to new persons leading to new claimants.

Management was advised to expedite the RAP implementation. 19.5 Inappropriate handling of source documents During the review of expenses, it was observed that; a) PAP Compensations It was noted from the sample of PAP files for verification, many PAP files were misplaced / disorganized and were not availed in time.  Management explained that it is important to note that the Audit exercise coincided with an ongoing exercise to digitise the RAP processes and records into the Way Leaves Information Management System. The Exercise required files to be assembled to the scanning teams at different locations, (Jinja, Lugogo and Hannington) therefore their timely retrieval when instantly required posed a challenge  Management further explained that the process of Land Acquisition and transfers is not instantaneous. The process requires Authentication, proof of ownership and the involvement of several stakeholders right from the PLCs to the Land Offices. Most of the paid land is customary owned and therefore the process of transfer is handled at a later stage as long as clearance for construction of the transmission line is achieved. Registration of transfer forms is done after the mutation process has been completed. Management was therefore advised to develop a strong control over maintenance and

safeguarding the physical files that is periodical physical verification of number files and accurate records for movements in files.

b) Lack of transfer of ownership of NELSAP acquired land From the reviewed samples, it was noted that; a) PAP land transfer forms were not signed by appropriate authority of UETCL, yet payments were made in full. b) PAP land transfer forms has not been registered with land office.

Both the above are contrary to the provision of the Project Implementation manual, where the land titles are supposed to be obtained before full payment to the PAP.

Management explained that approval is given to the professional staff whose CVs are documented in the Bid of the Lead consultant. These are evaluated and approved accordingly. However, the mentioned staff belonged to a sub consultant engaged by the main consultant as clerk of works, although they are engineers.

Management was advised to ensure that the process of transfer of title of land into UETCL names is expedited.

Further management was also advised to keep in mind the disbursement process; which should be in line with project implementation manual.

Further still it was noted that non-compliance with the conditions stated in the manual, may create a future financial loss to the NELSAP.

19.6 Lack of approval of key field engineers We have not received the evidence of below missing approval for change of professional field engineers:

Missing Documented Approvals Consultant Edward Byaruhanga AECOM/RSW Paul Kasozi AECOM/RSW

Management was advised to make sure that any change in approved staff must be approved by a consultant.

19.7 Project fixed assets monitoring It was noted that the projects fixed assets were not engraved/tagged, labeled with NELSAP project identification codes and there was no evidence of regular verifications.

Management explained that the UETCL assets are engraved and managed through the main Corporate Assets Management arm. However, improvements to add inscriptions to identify project assets will be implemented.

Management was advised that project assets be tagged/labeled with NELSAP identification codes and periodic counts should be performed and reviewed for all assets, with count results reconciled to the fixed asset register by individuals.

19.8 Non compliances to withholding tax provisions As per Section 119 of the Income Tax Act Cap 340, UETCL is liable to deduct withholding tax @ 15% on each payment made to any resident. However, UETCL did not remit the deducted WHT @ 15% on payments made to RSW International (AECOM) to URA by the time of this audit.

Management explained that deduction of WHT for RSW International (Acecom) is provided for but awaits cash release from the same treasury (MoFPED) so that it can be paid to URA, the collecting arm of the same Treasury.

Management further explained that for all donor based payments, the taxes are part of counterpart funding and therefore a GoU obligation.

Management was advised that non-deducted WHT from previous payments should be deducted from subsequent payments and paid to URA at the earliest. Moreover in future, it should be fully complaint to the provisions of the income tax act

20.0 INTERCONNECTION OF ELECTRICAL GRIDS OF NILE EQUATORIAL LAKES COUNTRIES (NELSAP) UGANDA – YEAR ENDED 31ST DECEMBER, 2013

20.1 Review of formal Enterprise wide risk management policy, procedure and plan During the review of risk management policy and procedures, the following were observed:

- It is not extended to various projects implemented by UETCL. - There is no formal reporting structure (Risk committee, Risk department) whereby the risk related activities are executed by internal audit.

Management explained that risk management in projects is assessed during feasibility study as well as Environment Assessment/Resettlement Action Plan (RAP) preparation. In addition, the risks are identified and assessed during the preparation of the Project Implementation Manual (PIM).

Management explained that the risk is done internally by the project managers through the Head of Department who Reports to Management and Board on a Quarterly basis.

Management was advised to consider making the various projects implemented by UETCL part of risk management policies and procedures.

Further management was advised to amend the policy and procedures such that they include appropriate and regular reporting structures.

20.2 Review of Audit Committee Charter: It was observed that: c) The Audit committee charter was not reviewed and formally approved by audit committee since 2008, though charter requires review, revision and approval every 3 years.

d) Management charter has not been reviewed and approved since 2008, though charter requires review after every 5 years.

Management noted the audit comment and said that the Audit Committee Charter is in the process of being reviewed accordingly.

Management further explained that the management charter was not yet due for review by the end of the financial year under audit. However, it promised that the Charter was scheduled to be reviewed after 2013.

20.3 Delay in implementation of the Resettlement Action Plan (RAP) In addition to the observation identified, it was also observed that the RAP which was supposed to have been approved by January 2011, was not yet approved by the end of 2011.

The delayed approval of the (RAP) within the timelines has subsequently led to the late implementation of the RAP.

Management was advised to ensure that RAP is implemented in time as required by the developments partner‟s guidelines.

20.4 Field Visits 20.4.1 Delay in handover of sites to the contractor During the field visits and interviewing the contractors, it was observed that there is significant delays in handing over the sites to contractors as a result of either delay in approval of plans or settling the claims of PAPs and RAP.

The compensation progress report as on December 31, 2012 and 2013 is as under; Compensation Progress Percentage (%) LOT A – Mbarara - Mirrama 49% LOT B – Bujagali - Tororo 48%

Management noted the audit comment and explained that the delay to hand over sites is due to a number of factors such as delays to approve the RAP report by CGV, disputes with landowners, family disputes, processing delays, absente land lords, speculation which leads to landowners selling to new persons leading to new claimants.

Management was advised to expedite the RAP implementation.

20.5 Inappropriate handling of source documents During the review of expenses, the following was observed; a) PAP Compensations It was noted from the sample of PAP files for verification, many PAP files were misplaced / disorganized and were not availed in time.  Management explained that it is important to note that the Audit exercise coincided with an on-going exercise to digitise the RAP processes and records into the Way Leaves Information Management System. The Exercise required files to be assembled to the scanning teams at different locations, (Jinja, Lugogo and Hannington) therefore their timely retrieval when instantly required posed a challenge.  Management further explained that the process of Land Acquisition and transfers is not instantaneous. The process requires Authentication, proof of ownership and the involvement of several stakeholders right from the PLCs to the Land Offices. Most of the paid land is customary owned and therefore the process of transfer is handled at a later stage as long as clearance for construction of the transmission line is achieved. Registration of transfer forms is done after the mutation process has been completed. Management was therefore advised to develop a strong control over maintenance and safeguarding the physical files that is periodical physical verification of number files and accurate records for movements in files.

b) Lack of transfer of ownership to NELSAP acquired land From the reviewed samples, it was noted that;  PAP land transfer forms were not signed by appropriate authority of UETCL, yet payments were made in full.  PAP land transfer forms has not been registered with land office.

Both the above are contrary to the provision of the Project Implementation manual, where the land titles are supposed to be obtained before full payment to the PAP.

Management explained to the audit team that the process of Land Acquisition and transfers is not instantaneous. The process requires Authentication, proof of ownership and the involvement of several stakeholders‟ right from the PLCs to the Land Offices. Most of the paid land is customary owned and therefore the process of transfer is handled at a later stage as long as clearance for construction of the transmission line is achieved.

Registration of transfer forms is done after the mutation process has been completed.

Management explained further that for titled Land, UETCL is in possession of the said Titles for mutation. In cases titles are not available, 70% of the funds is paid so that the PAPs allow construction activity to take place and when titles are presented, the 30% is cleared. All this is done through memorandums of understanding between land owners and the company. The process of transfers is also affected by the delays in the land office such as the recent computerisation when all land offices in the country closed, and even after opening, the process has not resumed smoothly.

Management was advised to do the following;  To ensure that the process of transfer of title of land into UETCL names is expedited.  Payment authorities should keep in mind the disbursement process; which should be in line with project implementation manual.  Non compliances with the procedural manual, may create a future financial loss to the NELSAP. 20.6 Lack of approval of key field engineers We have not received the evidence of below missing approval for change of professional field engineers: Missing Documented Approvals Consultant Edward Byaruhanga AECOM/RSW Paul Kasozi AECOM/RSW

Management explained that the approval is given to the Key professional staff whose CVs are documented in the Bid of the Lead consultant. These are evaluated and

approved accordingly. However, the mentioned staff belonged to a sub consultant engaged by the main consultant as clerk of works, although they are engineers.

Management was advised to make sure that any change in approved staff must be approved by a consultant.

20.7 NELSAP Physical implementation During the time of audit, the following was noted; a) There was a lot of pending work with an estimated delay of about 1 year on Lot B and 6 months on both Lots A and C. There is a risk that the funding period will expire before full project implementation and all unclaimed funds will attract a surcharge in form of interest expense to the Government.

The UETCL management promised that it will strive to expedite the process of handing over the corridor to the contractor as soon as it acquires the remaining portions.

b) It was also noted that the earthing resistance of the foundation installation was not measured after back filling as provided for in the contract. Management explained that the tower foundation installations were still in work in Progress and all criteria for finalising them will be met.

Management further explained that the earthing of the foundation installations is a quality conformity requirement by all known electrical installations. It will be done after tower erection. After foundation back filling and tower erection, extra earthing is applied on two tower legs on a diagonal (Lattice tower), It is at this point that earthing resistance is measured and a comparison made against the recommended standard. The Project Manager will ensure that the measurements are done once all erection and leg earthings are complete.

Management was advised to do the following;  Ensure that the earthing resistance of the towers is measured and improved upon through extra earthing pits before stringing of the conductors can be done and;  Ensure that in rocky places, soil for backfilling be brought from other areas for good earthing of the system.

c) It was also noted that the number of supervisors on the consultant‟s team were not adequate. For example a stretch of LOT A with five Gangs operating at the same time was being supervised by one consultant engineer and LOT B which had over three Gangs was also being supervised by one consultant engineer. It was noted that there may be a risk of not attaining the agreed tower foundation.

Management explained that earlier in the contract, the Consultant was requested to submit a proposal for enhanced supervision. This was received, reviewed and forwarded to the Financier for a no-objection which was declined. However, UETC Management was advised to consider increasing the number of supervisors for adequate supervision. d) Contractor does not maintain accurate and reliable quantitative records for the movements, use and balance of stocks.

In the absence of the accurate records, there is a risk of not ensuring that all inventory items purchased are appropriately used for the project and no frauds have taken place.

Management was advised to maintain the appropriate stock records and to periodically review and verify the physical stock and directly report to the UETCL management.

e) No test results to ascertain grade of steel being used. Management was advised to ensure that a sample for each batch is tested to ascertain the correctness of the steel used.

f) No toilet facilities at field active sites.

Management was advised to ensure that waste disposal is well managed by the contractor at all active sites.

20.8 Unrecorded liquidated obligations It was observed that NELSAP follows a modified cash basis of accounting where expenses are recorded when paid modified by accruing for un-liquidated obligations at the reporting period.

However, we observed that un-presented cheques which was paid to PAPs was not recorded in the books of NELSAP and still showing under reconciliation of Stanbic Bank account.

Management was advised to disclose these obligations in their quarterly/yearly financial reporting to the development partners and other reporting authorities.

20.9 Project fixed assets monitoring: It was noted that the projects fixed assets were not engraved/tagged, labeled with NELSAP project identification codes and there was no evidence of regular verifications.

Management was advised to label all the project assets with the project NELSAP identification codes and periodic counts should be performed and reviewed for all assets.

20.10 Unremitted withholding tax It was observed that following amount withheld from suppliers yet not remitted to the Uganda Revenue Authority:

Supplier Date deducted Amount (US$) AECOM Jan 2013 97,340 AECOM Feb 2013 97,340

Management was advised that withholding tax deducted on payment should be promptly remitted to URA to reduce the future penalty.

21.0 MBARARA NKENDA & TORORO POWER TRANSMISSION LINES PROJECT – YEAR ENDED 31ST DECEMBER 2012

21.1 Delays in acquisition of Rights of Way It is a requirement under best practices that a Right of Way (ROW) is acquired under the Resettlement Action plan (RAP) to allow implementation of works without interferences.

It was however noted that works on a number of locations on the transmission lines had not started at the time of audit due to delays in obtaining Rights of Way from the Project Affected Persons. Delays in obtaining Rights of Way impact negatively on the timely completion of the project.

Management acknowledged the delays which they attributed to delayed approval of RAP reports by Chief Government Valuer (CGV), disputes with Landowners, family disputes, absentee landlords, and speculation among landowners. They further explained that all efforts were being made to address the causes of the delays for instance through frequent follow-ups with the CGV to expedite the process of approval.

I have advised the Project Management to devise means of coming to terms with the project affected persons in order for them to give Rights of Way for the transmission lines to be erected.

22.0 MBARARA NKENDA & TORORO POWER TRANSMISSION PROJECT- YEAR ENDED 31ST DECEMBER 2013

22.1 Delays in construction of PAP Houses M/S Lamba Enterprises, the contractor who undertook the construction of houses for the Project Affected Persons (PAP), failed to complete the construction works due to financial problems. The last construction works were done in January 2013 and as of 31st December 2013, only 3 of the 50 planned houses had been constructed.

Although management was in the process of procuring another firm to complete the construction works, this had not been done by the time of the audit. Delays to construct houses for the affected persons is likely to delay the completion of the project. The project is also exposed to a risk of loss of the unrecovered money advanced to the Contractor, (USD.15,193).

Management explained that a new contractor had been procured and a kick-off meeting held. In addition, UETCL wrote to the PPDA to ban the previous contractor for abandoning site. It was further stated that out of UGX.474,445,180 advanced to the previous contractor, the outstanding balance of UGX.41 million was being pursued through legal mechanisms.

I have advised the Project management to ensure that the new contractor mobilizes and starts the construction works to enable completion of the project in time. Meanwhile, I await the outcome of the legal proceedings aimed at recovering the balance.

22.2 Delays in processing PAPs’ Land Titles

As part of the requirements of the project resettlement and compensation program, Project Affected Persons (PAP‟s) were required to deposit their land titles with UETCL in order for the project to curve out land acquired for Transmission Lines. Whereas the payments had been made to the PAPs, it was noted that most of the land titles had not yet been returned to them at the time of the audit. In the circumstances, disputes may arise with the PAP‟s leading to legal actions being taken against the project.

Management explained that the process of land acquisition and transfers required authentication, proof of ownership and the involvement of several stakeholders‟ right from the Parish Land Committees (PLCs) to the Land Offices. The team further stated that UETCL was in possession of the said titles for mutation purposes. The process of mutation & transfers was affected by the delays in the land office.

I have advised management to take up the matter with the relevant authorities and Ministry of Lands with a view to expediting the transfers by the Lands Office.

23.0 RURAL ELECTRIFICATION AGENCY

23.1 Long Outstanding Debt from UETCL As previously reported, the UETCL owed the REA a total of UGX.40 billion including a total of UGX.32.5 billion that has been outstanding since the FY 2010/2011, in respect of the 5% levy on the bulk purchases of electricity from the generation companies. This matter remains unresolved.

In a response to the Parliamentary Committee on Commissions, Statutory Authorities, and State Enterprises (COSASE) dated 12th August, 2014 Ref: 210/2/2014, Management indicated that UECTL claims it cannot pay this debt because the Regulator cannot approve it to be factored in the tariff for a second time. The only remedy is for UETCL to get funds directly from Ministry of Finance, Planning and Economic Development (MoFPED) to settle this debt. To date MoFPED has not been able to sort out this issue, despite several reminders by UETCL.

I have advised management to expedite the liaison with MOFPED and UETCL and agree on the recoverability modalities of the debt in question.

23.2 Outstanding Payables

Included in the payables are compensation liabilities of UGX.8,009,101,923 and withholding tax of UGX.398,977,915. The Agency is exposed to risks of litigation and penalties from the claimants and Uganda Revenue Authority respectively.

In response, management indicated requests had been made to MoFPED to settle the liabilities without much success. In addition it proposed that relevant laws be amended to make way leaves for rural electrification projects free as the case is in Kenya and Ghana.

I have advised management to expedite the settlement of liabilities to avoid litigation and penalties.

23.3 Dormant accounts The Agency maintained three dormant accounts comprising two (2) local currency accounts and one (1) foreign currency account. The schedule below refers;

Table Showing dormant accounts

Account Name Account Number Currency Amount as per Bank UGX USD Statement Rural Electrification Agency 3270078000000 UGX - 0 Cash Account Rural Electrification Agency – 3270168000000 UGX - 0 Non Tax Revenue Account REA – Forex transfer account 3270308000000 - USD 0

Dormant accounts are prone to abuse and ought to be closed.

Management indicated that these accounts had been opened by the Bank of Uganda on instructions of the Accountant General and consultations would be made before a decision on closure is undertaken. I await the result of the consultation.

HEALTH SECTOR

24.0 ALLIED HEALTH PROFESSIONALS COUNCIL-YEAR ENDED 30TH JUNE 2014

24.1 Revenue Shortfall Out of the approved budget of UGX.1,850,020,000 only UGX.1,646,105,100 was realized resulting into a shortfall of UGX.203,914,900 and this hampered the Council from implementing planned activities such as sensitization, supervision and regulation of Allied Health Professionals across the country. 71

The Accounting Officer attributed the shortfall to reluctance by some officers to pay fees for renewal of their practicing certificates. I advised management to sensitize the officers and establish regional centres in conjunction with referral hospitals for ease of renewal of the certificates.

24.2 Hire of office Premises Examination of payment vouchers revealed that the Council paid UGX.55,798,989 to M/s Mukwasi General Contractors on Lumumba Avenue being rental charges for office premises for the period 1st July 2013 to 30th June 2014. However, the payment was not supported with a valuation certificate from the Chief Government valuer.

In the circumstances, the fairness of the rental charges could not be ascertained. In response, management stated that the service was advertised in the press and also approved by the Contracts Committee of the Ministry of Health.

I advised management to ensure that the Chief Government Valuer undertakes valuation of the office space to provide guidance on fair rental charges

24.3 Travel abroad UGX.83,724,710 incurred on travel abroad by various officers lacked authorization from the office of the Prime Minister. The practice contravenes the circular standing instruction number ADM125/128/01 dated 19th December 2012 which requires all government of Uganda officials who travel abroad for official duties to be cleared by the office of the Prime Minister. In response, the Accounting Officer stated that with effect from July 2014, all officers would be required to obtain clearance before travelling abroad. I await evidence of action taken.

25.0 NATIONAL DRUG AUTHORITY- YEAR ENDED 30TH JUNE 2014

26.0 Litigation Cases at the Legal Department During audit, it was noted that NDA was involved in a number of litigation cases which were at diverse stages. Although these cases are of interest to stakeholders, the outcomes and/or the amounts of the obligations cannot be measured with sufficient reliability. Due to this limitation, their impact on the financial statements could not be determined. The outstanding cases include the following.

Case summary Amount involved 1. NDA vs. Samuel Kasozi and 2 others, Civil suit No 148 of 398,130,876 2009 2. Mavid Pharmacies and Another Vs. NDA, Civil suit No 383 of 6,000,000,000 2010 3. NDA Vs Dr. Frank Mwesigye, Civil suit No 74 of 2012. Rulked in favour of the appellant. On appeal in the Court of Appeal 4. George Peter Ngogolo Vs. NDA 51,103,000 5. Dr. Livingstone Kityo Semakula Vs. NDA and Jeffrey Kamya - Semakula. CMI suit No 359 of 2013 6. National Council of Traditional Healers and Herbalists Association(NACOTHA) Vs. NDA, Attorney General and Mrs Florence Nakiwa Kiyingi, CMI suit No 392 of 2011 7. Emanuel Juma Vs. NDA, HCCS No 495 of 2006 118,000,000

Management in its response acknowledged the cases in court and stated that as a body corporate and a regulator, it was prone to litigation.

I advised management to ensure due diligence is always undertaken in carrying out its work in order to have higher chances of obtaining favourable court outcomes.

26.1 Failure to License Drug Outlets

Section 14(3) of the National Drug Policy and Authority (NDPA) Act makes it an offense for one to operate a Pharmacy or Drug Shop without a valid license. It was noted that the Authority was not able to issue licenses to all drug outlets by 31st January 2014, as required by law. The Authority did not also publish the licensed pharmacies and drug shops by 31st March 2014, as required by law. There was no evidence that the un- licenced pharmacies and drug shops were closed.

Operations of unlicensed drug outlets expose the public to consumption of unsuitable drugs. Besides, NDA was denied revenue from the drug outlets which were not licenced.

NDA management explained that their inability to issue licenses to all drug outlets by 31st January 2014 was due to low staffing and general complacency of the operators of drug outlets.

However, NDA is now more diligent in enforcement which has yielded more compliance. They also explained that the list of drug outlets was not published by 31st March 2014 as required but was published later in the month of April 2014.

I have advised management to always adhere to the law with a view to ensuring quality, safe and effective drugs are available to public.

26.2 Ineffective Inspection of Drug Consignments

NDA is mandated to inspect all consignments of drugs and pharmaceutical products imported into the Country and to ensure that all rejected consignments are destroyed or re-exported to the Countries of Origin at the expense of the Importer. It was observed that it was not possible for NDA to effectively inspect all drug consignments due to inadequate staff at the entry points, for example there was only one NDA officer stationed at Busia and Malaba.

It was further noted that there was no mechanism of independently informing NDA in time of the arrival of consignments other than solely relying on the information provided by Uganda Revenue Authority.

There is therefore a risk that consignments that are not inspected and tested pass through the various border points unnoticed.

Management explained that NDA has a signed MoU with URA to hook on the ASYCUDA for real time information of drug imports and exports. In addition, NDA was in the process of recruiting more inspectors to be deployed at ports of entry to address these challenges.

I have advised management to put in place proactive arrangements by adequately deploying staff at all entry points to ensure that all drug consignments are inspected.

26.3 Failure to update drug register

Section 35 of the NDPA Act mandates the Registrar to register or delete any drug on the drug register after scientifically examining any drug for purposes of ascertaining efficacy, safety and quality. It was noted that the drug register was not updated on time. This is likely to increase entry of unregistered drugs into the Country.

Management acknowledged the anomaly and explained that it was occasioned by the absence of the Committee on National Formulary (CNF) and the NDA Board at large. With a Board and CNF in place, NDA will endeavour to update the register on a monthly basis.

I have advised management to ensure timely update of the drug register to limit incidents of unregistered drugs in the country.

26.4 Over expenditure at the Drug Information Department

The department had an expense budget of UGX.480,760,400, which was to be spent on a number of activities. Review of the expenditure, together with the performance report indicated that the expenses in some budget items exceeded the planned expenditure by UGX.96,281,485. There was no evidence to show that the excess expenditure was properly reallocated and there is also a risk that implementation of other activities could have been stifled. Table below refers.

Budget Budget Amount Activity Variance Code Amount spent Management of ADR reports 6210 Nil 2,240,000 2,240,000 Collaboration with international PHV 6180 41,332,950 42,403,035 1,070,085 centres Conduct meetings with regional - Nil 34,000,000 34,000,000 coordinators Support supervision of established 6130 8,000,000 32,473,450 24,473,450 centres Conduct operational research 6170 20,000,000 34,593,200 14,593,200 Strengthen the veterinary pharmacy 6110 7,000,000 18,818,000 11,818,000 vigilance system Collaboration with international PHV 6180 9,950,000 12,654,750 2,704,750 centres. Conduct active monitoring of 6160 Nil 5,382,000 5,382,000 veterinary rugs Total 96,281,485

Management acknowledged the anomaly and hastened to add that NDA was to develop budget preparation and management guidelines to avoid recurrence of the anomaly.

I have advised management to always adhere to the approved budget amounts and in case of reallocations/virements, management should always seek for approvals of the Board.

26.5 Advances to Staff for field activities The policy in NDA is that administrative advances should be accounted for within 48 hours. Audit however noted instances where staff were advanced funds to carry out NDA‟s activities but never accounted within the stipulated period. For examples, UGX.67,060,000 was advanced for operations to close illegal outlets in Wakiso but accountability was furnished after three weeks.

This practice is specifically rampant when officers are carrying out field inspections and enforcement in the regions. There is an inherent risk that, these funds may not be properly accounted for.

Meanwhile, another UGX.3,925,000 that was paid for “collaboration of stake holders” activity was not properly accounted for as it lacked attendance list of participants.

Management explained that they had realized this problem and had already adopted a policy that all substantial amounts of cash for operations will always be routed through the regional accounts to be drawn in manageable amounts as the activities progress. They stated that they were also in the process of developing unit costs and allowable item list for operations together with specific accounting guidelines for accountability.

I have advised that funds for field activities should be routed through the regional bank accounts and the officers in charge should be made co-accountable with the activity facilitators in order to ensure greater compliance and reduce the risk of carrying large sums of money by individuals.

26.6 Potential Conflict of interest at Board Level Audit noted that the NDA Board Structure as provided for in the NDPA Act is composed of some Members who are practicing pharmacists. The scenario breeds potential

conflicts of interest where a board member is or was a Local Trade Representative, or operates Retail or Wholesale Pharmacy, or any facility regulated by NDA. There is a risk that decisions taken by such members may not be in interest of the Authority.

Management explained that NDA has a constituent board whose composition is enshrined in the NDPA Act with representatives of different stakeholder groups with potential conflict of interest. It is a practice of the NDA board to start all meetings with declaration of conflict of interest on matters to be discussed. The composition of the board was under review with the proposed transformation to National Food and Medicines Authority.

I have advised that the Board puts in place additional measures to address the areas of potential conflict of interest by board members.

26.7 Encroachment of Land at Block 423, Plot 13 Busiro-Mbubuli

During inspection of the Authority‟s Land at Block 423, Plot 13 Busiro - Mbubuli, it was noted that it had been encroached on. There is risk of loss of this land or incurring exorbitant compensation amounts in the near future. Pictures refer.

Evidence of Construction on the Land A Potato Garden on the Land

Management explained that a complaint of trespass had been filed with the Police Land Protection Unit in Entebbe. A security company had also been hired to guard the property in the interim. However, the 44th Authority meeting sitting on the 24th September 2014 resolved to dispose off the land and the process had already been initiated.

I have advised the management to follow up and resolve the matter lest the organization losses the land in question.

27.0 NATIONAL MEDICAL AND DENTAL PRACTIONERS COUNCIL- YEAR ENDED 30TH JUNE 2014

27.1 Staffing Gaps A review of the Council‟s organizational structure and the approved staff establishment revealed that out of 22 positions only 14 were filled, leaving 8 positions vacant. Among the vacancies were; Quality Assurance Manager, Field Inspector, Internal Auditor and Procurement Officer which are critical in fulfilling the Council‟s mandate and effective service delivery.

The Accounting Officer explained that the Council had been recruiting 2-3 staff annually and that new recruitment was impeded by lack of office accommodation. Meanwhile the posts of Field Inspector, Quality Assurance and Procurement Officer would be filled in the financial year 2015/2016.

I advised the Accounting Officer to ensure that the approved positions are filled for better service delivery.

27.2 Review and Approval of Curricula UMDPC is supposed to promote and monitor professional education and training in various training institutions in Uganda, through reviewing and approving curricula and conducting inspection/support supervision of medical training institutions.

A review of the Council‟s annual report revealed that out of the thirteen (13) curricula reviewed for the various disciplines offered at different Universities during the year under review, only three (3) were approved, with ten (10) still pending. Failure to have the curricula approved impedes implementation of the disciplines by the medical training institutions.

The Accounting Officer explained that UMDPC reviews the curricula together with National Council of Higher Education (NCHE). The curricula are submitted to UMDPC to make comments/reviews and then returned to NCHE. NCHE forwards them to the

applying Universities to address the UMDPC concerns. The Universities respond to the comments/reviews through the NCHE again.

Joint visits to the universities are then made by UMDPC and NCHE before the curricula are passed. The delays therefore arose because of the detailed processes. I have advised the Accounting Officer to ensure that together with NCHE the processes are streamlined to hasten the reviews and approvals of the curricula.

27.3 Specialist Registration A review of the annual report for 2014 revealed that out of 1,195 Specialists on the UMDPC register for Specialists, only 757 (37%) renewed their practicing licenses during the year. It was not explained why the Specialists had not renewed their licenses. This not only posed the risk of loss of revenue to the Council of UGX.43,800,000 (UGX.100,000 X 438) but also endangered the lives of unsuspecting patients seeking for medical services from the non-registered medical practitioners. The Accounting Officer attributed the anomaly to staffing gaps and lack of enforcement. He further explained that they were in the process of identifying all doctors (specialists/generalists) who were on the register but not in active practice. This is expected to give an accurate estimate of the doctors expected to pay the annual licenses. Currently there are so many doctors on the register who are not practicing.

I advised the Accounting Officer to ensure that adequate capacity is put in place to appropriately monitor and enforce registration of all practitioners in active business.

28.0 NATIONAL MEDICAL STORES – 30TH JUNE 2014

28.1 Trade Debtors According to the corporation policy, the average debt collection period is 90 days. Review of the financial performance report 2013/2014 however revealed that the average debt collection period during the year was 263 days. Examination of Note 6 to the financial statements revealed that the debtors balance as at 30th June 2014 was UGX.20,667,943,000.

Included in the debtors were MoH (UGX.7.9bn) and CDC (UGX.8.7 bn). It was noted that debts relating to MoH have been outstanding since 2009. Meanwhile, the debt relating to

CDC has been outstanding since 2013 and it arose from handling fees for medical supplies.

Outstanding debts represent idle assets which constrain the cash position of the entity.

In response, the Accounting Officer stated that negotiations with CDC were underway to resume project funding which will enable settlement of the debt. He also stated that MoH and all other debtors had been reminded to settle the debts and the funds are awaited.

I advised management to follow up the matter and have the sums settled without further delay.

28.2 Failure to withhold Tax on Consultancy service payments Contrary to Section 85 of the Income Tax Act 1997 (As amended), NMS did not withhold tax amounting to UGX.55,038,476 from the payments made to the providers of Board Training Services worth UGX.366,923,164.The service providers were non-residents, therefore the entity ought to have withheld 15% tax on their payments in accordance with the aforementioned Act.

Failure to withhold and remit tax to Uganda Revenue Authority by a tax withholding agent limits government revenue realization and exposes the entity to fines and penalties accordingly.

I drew management‟s attention to Sec.124(1) of the Income Tax Act which holds a withholding agent who fails to withhold tax as required by law, personally liable for the tax together with any penal tax and interest.

In the meantime, management is advised to recover the money and remit to the tax body.

28.3 Unauthorized Excess Expenditure on Employee Costs NMS Financial Management Manual, paragraph 1.3.2 requires that expenditure will be restricted to the extent to which provision exists in the approved estimates except for variations specifically justified by management for approval of the board of directors. Also, Par 3.2.3 stipulates that where a Head of Department anticipates that a monthly expenditure requirement in respect of an item will be in excess of the amount in the

budget, he/she should liaise with management to seek approval from the committee responsible for finance.

Contrary to the above provision, employee costs during the year under review overshot the budget by 11.96% as indicated in the following below:

Expenditure Budget Actual Variance %age Item Increase

Employee costs 9,934,672,373 11,122,590,424.41 1,187,918,051.41 11.96%

Authorization to spend over and above the budgets was not availed for audit scrutiny. Un-authorized Expenditure may translate into over-commitment of the Organisation funds which undermines the budget process. In response, the Accounting Officer explained that the excess arose because of:-  An accident involving a fleet vehicle in which an employee was hospitalised at a cost of UGX.149,397,348 which was not budgeted for.

 During the same period, there was power failure which led to down time and hence NMS fell behind the Published Delivery Schedule necessitating staff to work overtime that had not been budgeted for.

 Decision to pay 10% NSSF contribution on staff gratuity which had not been budgeted for.

 Recruitment of temporary staff necessitating remuneration that had not been planned for.

I advised the Accounting Officer to monitor departmental budgetary allocations and always seek necessary authority for reallocation whenever inevitable.

28.4 Failure to Observe Petty Cash Replenishment limits Section 7.4.4.2(b) of the NMS Financial Procedures manual stipulates that a petty cash float of UGX.15,000,000 shall be maintained of which replenishment shall be done twice a month after full accountability. However, a review of the petty cash replenishments for the period under review revealed that out of UGX.719,710,859 drawings, a total of

UGX.404,710,859 replenishments were drawn over and above the UGX.15,000,000 cash limit.

Failure to observe the replenishment limits may result in cash mismanagement. I advised the Accounting Officer to observe the limits to avert any cash mismanagement.

28.5 Procurement Issues 28.5.1 Purchase of Promotional Materials (NMS/Supls/13-14/0001/701) PPDA circular PPDA/4002 of July 2011 and Paragraph 6.1 of the PPDA guidelines 10/ 2014 in line with PPDA regulation 18, guides on the Procuring and Disposing Entities to use PPDA's Standard Bidding Document for framework contracts and use the open bidding method for the procurement of supplies, works or services and then enter into framework contracts with the successful providers”.

However, a review of documents for the procurement of Promotional Materials worth UGX.663,200,000 revealed that NMS used restricted domestic bidding for a frame work contract.

Use of wrong procurement method violates procurement laws and regulations and might deny the entity of the value for its money spent.

I advised the Accounting Officer to always ensure that open bidding method is used for all framework contracts.

28.5.2 Irregular Procurement of Electrical Repair Services Part VI section 79 of the PPDA Act 2003 states that each procurement activity shall use any of the methods listed in section 80 to 86 of the act i.e. Open Domestic Bidding, Open International, Restricted International, Restricted Domestic or Request for Proposals and Quotations. Section 1.3 of the PPDA Guideline 1, 2014 states that the Quotation method shall be used if the estimated value of the works is greater than UGX.10,000,000 but does not exceed UGX.200,000,000. It was noted however that a private firm was contracted to carryout out repairs and installation of the generator power supply at a contract price of UGX.25,598,920 without due regard to the PPDA requirements. Quotations were solicited from a single source/ service provider contrary to section 84(1) which requires price quotations to be obtained from at least three providers. Besides, evaluation reports and contracts committee minutes were not availed for review.

Failure to follow the procurement regulations is tantamount to non-compliance with the law and in the event that competition does not exist in a procurement process then value for money will not be achieved. In response, the Accounting Officer explained that;  There was a power break down which brought the entire Corporation to a standstill, hence the need for the urgent procurement of electrical repairs.

 The procurement followed PPDA regulations on emergency procurement, specifically the then Reg.110. However, a further review of regulation 110 (12) of PPDA 2003 which requires the involvement of the contracts committee revealed that NMS neither involved the Contracts Committee in this procurement, nor had a detailed and realistic plan to avoid the action in future.

I advised the Accounting Officer to always follow the PPDA regulations and guidelines to enhance value for Money.

28.6 Un-resolved internal audit Issues at the End of the Financial Year Section 8(6) the Public Finance and Accountability Act, 2003 provides for the establishment of Audit Committees to resolve outstanding audit issues with management. It was however, noted that this was not the case with the audit committee of NMS for the period it has existed.

It was noted that a number of recommendations made by the internal audit department remained outstanding such as policies and procedures for information backup and disaster recovery; development of public relations and communications procedures manual; outstanding creditors for more than 30 days and vehicles being parked outside NMS premises and not the nearest police stations. This could be due to the laxity of management in implementing some of the recommendations.

NMS management in its response stated that it continuously addresses internal audit issues to the extent possible and that the outstanding internal audit issues would be addressed systematically.

I advised the Accounting Officer to promptly attend to audit issues as they would assist in improving the control environment of the organization.

28.7 Variances in Stock Valuations A review of the stock take report prepared by the Internal Audit department for June 2014 and physical inspection of the stores revealed that the value of physical stock was UGX.201,232,140,183 compared with recorded stock of UGX.186,534,978,794, leading to a variance of UGX.14,697,161,389. Variances in stocks are an indication of weak internal controls in stores management and could lead to misstatement of financial statements. The anomaly was attributed to the following:-  Some items under receipt were not clearly labelled as “Under receipt” and this resulted in un-located stock;

 Un-located stock; substantial stock was found in the stores without being recorded in the MACS warehouse system, which system is used by NMS for management of the stocks;

 Items received as donations, at Zero cost did not have a price; ideally all items ought to have a cost attached to them; and

 Drugs packed in corridor and in bulk due to limited storage space, rendering accessibility to all stock during stock count difficult.

In response, the Accounting officer attributed the anomaly to receiving third party items close to stock taking date when the system had been closed; Poor arrangement of stock in the warehouse due to space constraint; and management‟s decision to assign values to all donations so as to generate more detailed and accurate reports.

I advised the Accounting Officer to ensure stocks are labelled correctly, recorded in the warehouse system promptly and stored appropriately.

29.0 THE UGANDA NURSES AND MIDWIVES COUNCIL – YEAR ENDED 30TH JUNE 2014

29.1 Receivables Included in the receivables is a sum of UGX.152,145,200 attributable to subscription fees from the Nurses and Midwives. Receivables represent Idle Assets which constrain the cashflow position of an entity and may result into bad debts.

The Low level of payment of subscription fees was attributed to inadequate payment mechanisms whereby the officers were required to travel to the headquarters to settle their debts.

In response, management stated that regional centres had been established in the 13 regional hospitals to enable the staff register and renew licenses in a convenient manner. This will assist in reducing the debtors.

I await the outcome of management action in this regard.

29.2 Legal Suit

The UNMC is mandated to supervise and regulate the training of nurses and midwives in Uganda. During the financial year under review, students of Uganda Christian Institute for Professional Development Limited sued UNMC together with the Ministry of Education and Sports (MoES) and their own Institute when they were stopped from sitting National Exams on account of their illegal Institution. The students were demanding UGX.367,086,000 on the grounds that the Council was negligent in executing its duties of regulating the Institution. There is a risk of loss of public funds.

It was also noted that the Council had engaged a private lawyer instead of the Attorney General‟s Office.

In response management attributed lack of regulation of institutions to inadequate staffing and indicated that the Attorney General‟s office would be engaged in the suit.

I advised the Council to ensure that it receives adequate legal representation so as to mitigate loss of public funds. In addition the Council should seek adequate staffing to enable it exercise its statutory mandate.

29.3 Lack of GoU Funding Review of the budget estimates revealed that the Council had anticipated receiving UGX.95 million from GoU in line with Section 14(1a) of the Uganda Nurses and Midwives Council Act, 1996, which states that the funds of the council shall consist of money appropriated to the Council by Parliament from time to time. However, examination of the consolidated budget estimates for the year ended 30th June 2014 revealed that UNMC had not received any GoU funding. As a result of lack of government funding, the Council was unable to gazette nurses and perform regular supervision.

In response, the Accounting officer explained that the issue of lack of GoU funding had been discussed in the Registrar‟s forum and engagement with the Ministry of Health to address the matter was planned.

I await the results of the engagement.

EDUCATION & SPORTS SECTOR

30.0 MANDELA NATIONAL STADIUM – YEAR ENDED 31ST DECEMBER 2013

30.1 Non-Disclosure of Share Capital In my prior year audit report, I reported that the Articles and Memorandum of Association for Mandela National Stadium Limited shows that the company had authorized share capital of UGX.100,000,000 divided into 10,000 ordinary shares of UGX.10,000 each. Only 2 Ordinary shares worth UGX.20,000 were subscribed to by the Government of Uganda represented by the Minister for Finance, Planning and Economic Development and the Minister for Education and Sports with 1 Ordinary share each. However, this position was still not being reflected in the Statement of Financial Position. Also noted was that there was no evidence of shareholders' payments for the shares they subscribed for. The financial statements were misrepresented in this regard.

Management explained that the matter was presented at the Shareholders‟ meeting which was held on 4th December, 2014 and hoped that the Shareholders would subscribe for the shares as the law requires.

I advised Management to disclose the shareholders‟ funds in the financial statements.

30.2 Treatment and Disclosure of Chinese Grant In my prior year audit report, I reported that Management asserted in the Accounting Policies under 1 (a) that the financial statements were prepared in accordance with the International Financial Reporting Standards (IFRSs). However, review of the financial statements with regard to the treatment of the Chinese Grant revealed that there was noncompliance with the standards in respect of this Grant as illustrated below;  IAS 20 (24), Accounting for Government Grants and Disclosure of Government Assistance, requires that a grant relating to assets may be presented in one of two ways: as deferred income, or by deducting the grant from the asset's carrying amount. However, management did not state which of the two ways had been adopted with regard to the Chinese Grant through GoU for the construction of the Stadium.  The Standard requires that the grant should be recognized as income over the periods necessary to match them with the related costs, for which they are intended to compensate, on a systematic basis. However, audit noted that no portion of the grant has been recognized through the statement thus misrepresenting the grant in the Income statement.  The standard further requires that such grants should not be credited directly to shareholders' interests. The current treatment of the grant in the Balance Sheet under “capital & Reserves” implies that the treatment appears to be contrary to the requirements of the standard and misleading.  A balance of UGX.26,379,809,188 was reported in the Statement of Financial Position as a Chinese Grant under Capital & Reserves after deducting the accumulated deficit of UGX.4,082,009,812. However, the reduction was not explained and appeared to be a misrepresentation.

At the time of audit no evidence was available to confirm that adjustments were made to comply with the reporting standards. In the circumstances, the reported balance may not be fairly stated and Management‟s assertion that the financial statements were prepared in accordance with IFRSs may not be correct.

I advised Management to comply with the requirements of IAS 20 which prescribes treatment of Grants.

30.3 Long Outstanding Debtors A review of the Debtors balances revealed an in increase from UGX.920,377,202 to UGX.1,001,519,619 indicating an increment of UGX.81,142,417. Included in the debtors were Uganda Police (UGX.390,166,796) and FUFA (UGX.121,020,025). Besides, the debtors were not aged to determine their recoverability. It was also noted that the Stadium does not have a debt management policy that would guide management in enforcing debt collection measures.

Management indicated that reminders to debtors to settle their obligations had been made.

I advised Management to a institute debt management policy and efficient collection of debts.

30.4 Accumulation of Liabilities A review of the financial statements revealed that creditors increased from UGX.2,567,614,723 to UGX.2,909,850,158 indicating an increment of UGX. UGX.342,235,435 during the financial year. The bulk of the arrears (77%) include statutory deductions that were not remitted by the Stadium to the respective Authorities (URA tax arrears, UGX.401,671,721, NSSF Contribution arrears of UGX.332,579,063 and the related penalty UGX.1,493,189,209). The NSSF and URA obligations could attract fines and penalties and other domestic long outstanding payables may attract litigation.

In response, Management explained that the Board and Management were exploring possible ways such as increasing revenue collections to address the problem.

I advised the Accounting Officer to ensure that the outstanding obligations are settled without further delay.

30.5 Land Management The Stadium land is comprised of block 234 (1.660 hectares) and block 234 (48.54 hectares). However, the following matters were noted in relation to this land;  The land titles for the two pieces were not availed for verification.  There were a number of squatters who have encroached on the land. This may lead to loss of land and/or huge compensations in future. No action has been taken by management to remove these squatters from the Stadium land.

List of encroachers and the size of land under their occupancy

No. Squatter Area occupied 1. Isaac motor garage 48X34 ft

2. Baga building small scale 105 x183x32 ft

3. Mamerito container village/ hardware 22 x15

4. Mamerito washing bay & parking 57 x 86ft

5. Kasumba ware house 52x33x30

6. Bweyogere market 113 x 33ft

7. Bweyogere police station 149x82 ft

8. Veterans washing bay 149 x 82ft

9. Sports view hotel 103x39,102x20ft

10. Prayer palace church 149x33,39

11. Bulemeezi maize milling factory 19x12

Management explained that the stadium owns land comprising of Block 234, Plot 234, plot 1334 and Block 234, LRV 419, Plot 3391, Folio 25. The land titles are in the names of Uganda Land Commission and efforts to transfer the titles into Mandela National Sports Limited had not been successful. It was further explained that the Ministry of Finance, Planning and Economic Development (MoFPED) through the Privatization Unit have decided to assist in the process of transferring the title into Mandela National Sports Limited.

I advised Management to ensure that the Stadium‟s land is secured by removing all the squatters and fencing off the unutilised land.

30.6 Revenue Shortfall Out of the budgeted revenue of UGX.1,967,997,000, the Stadium realized only UGX.1,030,107,963 resulting into a shortfall of UGX.937,889,037. I explained to management that failure to collect budgeted revenue undermines the implementation of planned activities.

In response, Management explained that several strategies such as; attracting new businesses through establishment of partnerships and streamlining the business operations, were being put in place, to improve on the Stadium‟s revenue performance. Management, also stated that the Stadium needs to be re-capitalized and rehabilitated by the Shareholders/Government, so that the facilities may be in good saleable state.

I advised Management to devise a comprehensive system for revenue collection and management to enable full implementation of the planned activities.

30.7 Unremitted PAYE Deductions Section 123(1) of the Income Tax Act cap 340 requires a Withholding agent to pay to Uganda Revenue Authority (URA) any tax that has been withheld or that should have been withheld within fifteen days of the next month. However, UGX. 84,729,899 deductions in respect of PAYE from staff salaries were not remitted to the tax body.

I explained to Management that failure to remit taxes may attract fines and penalties from Uganda Revenue Authority (URA), leading to loss of funds by the Stadium.

In response, Management explained that statutory obligations have accrued over the years due to the Stadium‟s historical leadership challenges such as; Frequent unplanned change of Stadium Boards of Directors, Leadership and Management teams, Vandalizing and misuse of the Stadium assets and facilities and Lack of Government funding to the Stadium.

Management indicated that reminders to debtors to settle their obligations had been made.

I advised Management to ensure that statutory deductions are remitted timely in compliance with the Income Tax Act.

30.8 Failure to Make Provisions for Bad and Doubtful Debts

Note 1 (c) of the Notes to the Financial statements provides that specific provision shall be made for all known bad debts. However, there were no such provisions made by management. This implies that debts which appear to be irrecoverable due to failure to trace the debtors continue to be reported in the financial statements at full amounts.

Management stated that there was need to keep all debts on record for further assessment by new management before write off.

I advised Management to make provisions for bad debts in conformity with International Financial Reporting standards.

30.9 Going Concern Status of the Stadium Sub section 25 of IAS 1 (presentation of financial statements) requires that when preparing financial statements, management should make an assessment of an entity‟s ability to continue as a going concern. When an entity does not prepare financial statements on a going concern basis, it shall disclose the fact, together with the basis on which it prepared the financial statements and the reason why the entity is not regarded as a going concern.

I noted that there are conditions affecting the going concern status of the Stadium, for example;

 Current ratio reduced from 0.38:1 in 2012 to 0.35:1 in 2013,

 The loss increased from UGX.375.5 million in 2012 to UGX.813.3 million in 2013. This trend continues to wipe away the capital base of the Stadium.

 The long outstanding debts are an indication of the Stadium‟s inability to settle its obligations from its own sources of funds.

 The deteriorating state of the Stadium‟s assets without provisions in the budget to finance their maintenance is an indicator that the assets are not able to generate the required income to finance planned activities and pay service providers.

The above factors are an indication of the Stadiums inability to sustain itself in the foreseeable future.

Management attributed the state of affairs to frequent management and board changes. It was further stated that stability of staff and board had now been addressed.

I advised Management and the board to put in place proper governance structures such as strategic plan, Board charter, Debt management policy, Human resource functions, staff recruitment and appraisal systems, Internal Audit and marketing strategies.

30.10 Lack of Internal Audit Function Regulation 27(2) of the PFAA, 2003 requires the accounting officer to establish an effective Internal Audit Function. However, it was noted that the stadium does not have an Internal Audit function. Absence of the Internal Audit function renders the implementation of internal controls difficult. I explained to management that identification of weaknesses in the controls to enable appropriate corrective measures may not be possible in the absence of an Internal Audit function.

In response, Management explained that the advert for the position of Internal Auditor was placed in the newspapers but the Stadium was financially constrained to recruit.

I advised the Accounting Officer to liaise with the board and establish an Internal audit function for the stadium.

30.11 Dilapidated Infrastructure Inspection of the stadium revealed that the stadium structures are in a dilapidated state with roofs in stadium centres leaking and cracks on some of the walls and terraces. There was visible lack of maintenance for the stadium assets. I explained to management that failure to maintain the stadium at an international level presents a negative picture to international visitors, besides the facilities will deteriorate further.

In response, the Accounting Officer explained that in 2012, the Construction Unit- Ministry of Education and Sports assessed works necessary for the refurbishment of the stadium and on 9th November, 2014 H.E the President of the Republic of Uganda had directed the responsible Ministry to undertake the rehabilitation. The Board and Management have further continued to remind the Shareholders (Ministry of Finance, Planning and Economic Development and Ministry of Education and Sports) of the bad state in which the Stadium is.

I advised Management to liaise with MoES, MoFPED and all key stakeholders to ensure funds are set aside to rehabilitate the Stadium

31.0 NAKIVUBO WAR MEMORIAL STADIUM- YEAR ENDED 31ST DECEMBER 2013

31.1 Unsupported Rental Income The Trust rents out space within the facility to various business operators. However, the tenancy agreements and a list of all the tenants were not availed for review. In this regard, it was not possible to ascertain the correctness of the revenue of UGX.468,841,917 reported as rental income in the Income and Expenditure Statement. Whereas in response management indicated that tenancy agreements were available, they were not provided during the verification exercise.

I advised management to streamline renting of space and maintain all the required documentation and records including tenancy agreements.

31.2 Interest Saving The Trust signed a memorandum of understanding with URA to settle a Statutory obligation of UGX.865,936,279 (Interest inclusive) in 24 installments running up to May 2015 with a provision for receivership if there was default. During the year under review, management reported a saving in interest of UGX.96,511,281 on top of a part settlement of UGX.330,626,148. However, it was noted that the purported saving was not supported with a waiver from the Authority. In the circumstances, the reported outstanding obligation of UGX.455,239,048 may not be fairly stated.

Whereas management in response indicated that the supporting documents were available, the waiver was not provided for verification.

I advised management to obtain a waiver from URA or restate the obligation in the subsequent year.

31.3 Doubtful Expenditure A sum of UGX.20,000,000 paid to Uganda Revenue Authority purportedly in settlement of tax obligations lacked necessary acknowledgement receipts rendering the authenticity of the expenditure doubtful. Whereas management in response indicated that the documents were available, they were not provided at the time of verification.

I have advised management to account for the funds. In the alternative, the funds are recoverable.

31.4 Sundry Creditors Management reported a sundry creditors‟ balance of UGX.134,443,590, up from UGX.130,851,711 in the previous year. Included in the creditors is a sum of UGX.98,492,717 payable to KCCA. However, mimimal effort was made to settle the creditors during the year which exposes the Trust to a risk of litigations and their attendant costs.

In response, management explained that a proposal made to KCCA to swap property rates due to the City Authority with the 30% rental rebates due to the Trust had not been responded to.

I advised Management to endeavor and settle the obligations of the Trust as and when they fall due.

31.5 Construction of Perimeter Wall and Lockups The Board of Trustees (Public Party) entered into a Public Private Partnership with a local firm to erect, construct, renovate, refurbish the perimeter wall of Nakivubo Stadium and construct lock-up shops around it. However, the following records were not availed for verification:  Evidence of Involvement of Ministry of Finance, Planning and Economic PPP Unit in assessing the project, choosing the best possible partner, negotiating and monitoring the agreement as required under the PPP Framework Policy, 2010.  Feasibility Study Report approved by Ministry of Finance and Economic Development  Appointment of Project Team (Project Officer, Experts and Steering Committee) to support project development and processes leading to the PPP award  Legal Due Diligence review of the Project  Cabinet approval of the PPP Project  Approval of the Design Plan by KCCA and the Board as required under Article 8 (1) of the PPP Agreement  Basis and justification for the Consideration under Article 3(2) of the PPP Agreement(UGX 200m per annum for 5 years and UGX 240m for last 2 years).

 Procurement File  Contract management File  Project Construction Schedule as required under Article 9 of the PPP Agreement  No evidence to show that the Trust management was monitoring the construction works, as required by the Public Private Partnership Agreement articles 2 (2.1) (c) and 9.  Monitoring and Evaluation of the PPP Programme by the MoFPED PPP Unit.

In the circumstances, I could not ascertain whether the procurement was conducted in a manner that maximizes competition and achieve value for money. In the absence of a contract management file, there is risk that the works were not executed in accordance with the Terms and Conditions of the Agreement.

Whereas management in response indicated that the the documents and records were available, they were not provided during the verification exercise. I have advised management to provide the records and documents outlined above.

31.6 Unauthorized Excess Expenditure Best financial management practice requires prudent execution of the approved budget. However, it was noted that the Trust incurred expenditure of UGX.357,213,119 over and above the appropriated amounts on a number of budget lines as outlined in the table below: Expenditure Budget Actual Expenditure Excess expenditure Item (UGX) (UGX) (UGX) Administration 20,169,122 177,559,563 157,390,441 expenses Settlement of 150,000,000 330,626,148 180,626,148 Creditors Property costs 100,711,700 102,348,369 1,636,669 Utilities 18,390,000 24,449,861 6,059,861 Professional fees 2,000,000 13,500,000 11,500,000 TOTAL 291,270,822 648,483,941 357,213,119

In the circumstances, the intentions of the appropriating authority are undermined.

Management in response acknowledged the anomaly and indicated that measures would be taken to avoid excess expenditure. I advised the accounting officer to always seek the necessary approvals prior to spending in excess of the approved estimates.

31.7 Lack of a Strategic Plan, Key Policies and Separation of Powers As reported in my previous reports to Parliament, the Trust still lacks a strategic plan and key policies (credit policy, fraud control policy, Asset Management Policy), while the Board Chairperson and two other members of the Trust continue to be signatories to the Trust bank accounts. Also noted was that the Chairperson Finance Committee approves payments on a day to day basis. This is an indication of fusion of responsibilities leaving the Trust without a clear strategic direction.

In response, management indicated that the Trust Act confers power to the Board of Trustees. However, the Board had contacted the line minister to come up with a proposal to make amendments in the Trust Act to suit the requirements of corporate governance.

I advised management to ensure that the Board‟s functions are divorced from the routine operations of the Trust and perform their rightful obligation of providing strategic direction.

31.8 Absence of Internal Audit Function Good governance practices require that an entity puts in place structures to oversee the implementation of strategic decisions. However, it was noted that the stadium did not have an internal audit function. There is a risk that control weaknesses may go undetected thereby undermining the strategic objectives of the Stadium.

In response, the Accounting Officer undertook to take all the necessary efforts to ensure that an internal auditor is recruited. I advised the Accounting Officer to establish an internal audit function to evaluate the effectiveness and adequacy of the Internal Control System. 31.9 Lack of a Chart of Accounts A Chart of Accounts (CoA) is a financial organizational tool that provides a complete listing of every account in an accounting system and serves as the foundation for a company‟s financial record keeping system. It contains the accounts‟ names, brief

descriptions and identification codes. A well-designed CoA not only meets the financial information needs of management, it also helps an entity to comply with the applicable financial reporting framework.

In my previous report to parliament, I indicated that the Stadium did not have a CoA and the status quo remained during the year under review. In the absence of a Chart of Accounts, there is a risk that the reported financial information is not properly classified, summarized and recorded which may compromise the quality of the Trust‟s financial statements.

Management in response indicated that the Stadium had an accounting manual that had been used to record transactions but needed to be improved to suit the current situation. I advised management to put it place a chart of accounts to guide the reporting of financial information. 31.10 Manual Accounting System The Trust operates a manual accounting system to process its accounting transactions. The cash book is manually prepared and some entries not properly posted. I exlained to management that the Manual System not only makes the preparation of financial statements tedious and time consuming but also renders financial statements susceptible to inaccuracies.

Management in response undertook to present this issue to the Board for appropriate action. I advised management to consider the acquisiton of an accounting software to ensure efficient financial reporting.

31.11 Lack of a Procurement plan Regulation 96(2) of PPDAR 2003 requires a Procuring and Disposing Entity to prepare a consolidated procurement plan. On the contrary, the Trust did not have a consolidated procurement plan in place. In the circumstances, there is a risk of conducting procurements in a haphazard manner without due regard to the needs of the Entity. Management explained that originally, the stadium did not have a procurement officer but the Board had recruited one.

I await the outcome of management‟s intervention in this regard.

31.12 Procurement records 97

During audit, a number of weaknesses were noted in the Procurement and Disposal Unit. These included among others:  No monthly procurement reports were prepared and submitted to PPDA as required by the law  Members of contract committee were not approved by the Secretary to the Treasury

In the circumstances, the oversight role of the PPDA is compromised. In addition the decisions of the contracts committee could be challenged. I advised the Accounting Officer to ensure that the identified weaknesses are addressed to enable the PDU function properly.

32.0 NATIONAL COUNCIL FOR SPORTS- 30TH JUNE 2014

32.1 Funds Not Accounted For Financial Procedures Manual, 2013 of NCS requires supporting documents in form of receipts or acknowledgement of receipts should be filled. It was however noted that UGX.22, 400,000 advanced to the Uganda Olympic Committee and the Uganda Secondary Schools Sports Association lacked supporting documents.

In the absence of supporting documents I could not confirm whether the funds were put to the intended purpose.

Management explained that the concerned bodies had been advised to submit the accountabilities for verification.

I advised Management to obtain the accountabilities or recover the funds from the third party recipients.

32.2 Unsupported Travel Abroad

UGX.6,224,400 paid out to an officer for purposes of facilitating travel abroad lacked necessary supporting documents such as copies of passport pages, air tickets, boarding passes, visa receipts, invitation letters and back to office reports, rendering the authenticity of the expenditure doubtful.

Whereas Management explained that the supporting documents were available, they were not availed during the verification exercise.

I advised Management to ensure that the expenditure is accounted for and the alternative funds are recoverable.

32.3 Non-Deduction of 6% WHT

Section 120 of the Income Tax Act, 1997, requires a withholding agent to pay withholding tax to URA within fifteen days after the end of the month in which the payment for goods and services in excess of UGX.1 million was made. However, it was noted that payments worth UGX.452,476,481 were made to different service providers without deducting withholding tax of 6% (UGX.27,148,589).

Failure to deduct and remit taxes may attract fines and penalties from URA.

Management undertook to recover the outstanding withholding tax from the suppliers in the subsequent payments for remittances to URA since the Project is still on going.

I advised Management to ensure strict adherence to the provisions of the Income tax Act and deduct the 6%WHT from eligible payments to service providers.

32.4 Outstanding Advances

Section 8.3 of the NCS Financial Procedures Manual requires staff salary advances to be fully recovered at the end of the financial year. In addition sub-section (vi) states that no further advance shall be granted if one has an outstanding advance. On the contrary UGX.66,838,500 advanced to various staff remained outstanding. Failure to recover advances in a timely manner may result into accumulation of bad debts.

Management undertook to recover the outstanding advances from staff gratuity.

I advised the Accounting Officer to ensure that advances are fully recovered and desist from issuing additional advances before recovering the outstanding sums.

32.5 Inadequate Treasury Releases

Out of the appropriated budget for the financial year of UGX.1,953,882,000 only UGX.1,522,713,499 was realized resulting into a shortfall of UGX.431,168,501(22%). Further analysis revealed that out of the 3rd quarter release of UGX.512,877,428 disbursed to the MOES for onward transfer to the Council, only UGX.45,00,000 was

actually released, indicating that UGX.467,877,428 was retained by the Ministry. As a result, planned activities such as building technical capacity in schools, identifying potential ground for sports disciplines in districts, among others, were not implemented.

Management explained that the MOES diverted the Council‟s 3rd quarter release to charter a plane for the Uganda Cranes fans travelling to Morocco for a World Cup qualifiers match without the Council‟s consent.

I advised Management to liaise with MoFPED and MoES to ensure that appropriated Funds are released accordingly.

32.6 Non-Tax Revenue Shortfall

Out of the NTR budget of UGX.600,000,000, only UGX.362,778,000 was realised resulting into a shortfall of UGX.237,220,000. Failure to realize budgeted revenue hinders the Council from achieving its planned actvities.

Management attributed the shortfall to suspension of income generating activities at the Oval by KCCA, renovation activities and security fears. However other revenue generating activities were being researched on.

I await the results of Management‟s commitment in this regard.

32.7 Vacant Posts Out of the staff establishment of 26, only 21 positions were filled, leaving 5 vacancies. Among the vacant positions were Senior Administrative Secretary and Senior Sports Marketing Officer, and this constrains the Council in achieving its objectives. It was also noted that the Accountant was acting as the head of the PDU, this could compromise the internal and system controls. Staffing gaps have a negative effect on service delivery.

Management explained that the Council had now recruited a Human Resource Officer and it was in the process of recruiting a Records Officer and Procurement Officer to address issues concerning division of labor.

I advised Management to liaise with the responsible authorities to ensure that all the vacant posts, especially the key positions, are filled.

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32.8 Delayed Contract Execution

Regulation 260 (1) (b) of the PPDA Regulations, 2003 requires the contract manager to ensure that the service provider performs a contract in accordance with the terms and conditions specified in the contract.

Management engaged M/S MANI Engineering Services Ltd on 17/06/2013 to carry out renovation and construction of the new administration block at a contract price of UGX.594,303,600. The following matters were observed:  Whereas the contract duration was 24 calendar weeks ending in September 2013, by the time of this audit in November 2014 the works were outstanding, and;

 It was also noted that the performance security had expired on 28th December, 2013 and was not renewed. There was therefore no fallback position to compensate the Council in the event of failure to execute the contract.

Management attributed the delay partly to non-receipt of the third quarter subvention sum of UGX.512,877,428 and the shortfall of internally generated revenue. On the issue of performance security, Management explained that the Contractor suspended work due to the Council‟s financial constraints.

I advised Management to put in place measures of ensuring that the contractor completes the works.

32.9 Non -Implementation of Planned Activities

Review of the Council‟s annual work plan, Strategic Plan (2011-2015) and performance for the year together with milestones attained revealed that the following planned activities were not achieved;

Source Planned activity Deadline Comment document Anual Budget Procurement of furniture & End of FY2013/14 Not Implemented 2013-14 fittings Annual For building technical capacity End of FY 2013/14 Budget 2013- in the districts(training 14 referees, coaches and ampires)

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Source Planned activity Deadline Comment document Strategic Plan Stock schools, Centres etc with Dec 2013 Not Implemented equipments ( balls , tables ,posts, nets etc) Strategic Plan Equip NCS with the facilicities July 2012 Not Implemented i.e Video van and Camera Strategic Plan Work closely with the July 2013 Not Implemented international associations in conjuction with National Associations and UOC to source for training assistances ( 250 sports personnel Strategic Plan In conjuction with National July 2013 Not Implemented associations, identify equipment needs for the athelete development. Strategic Plan Identify potential grounds for Dec 2013 Not Implemented sports disciplines in all districts. (1 stadium in each region i.e 5 Stadias in all.)

Failure by the Council to implement its planned activities hinders the achievement of its overall objective of sports development. Management explained that the challenge was inadequate funding.

I advised Management to always make realistic plans and prioritize activities that support the core mandate of the Council. In addition liaison with MoES, MoFPED and other stakeholders should be enhanced so as to obtain necessary funds.

32.10 Unreported Micro Procurements Regulation 118 (8) of the Public Procurement and Disposal of Public Assets Regulations, 2003 requires micro procurements to be reported to the contracts committee on a monthly basis. It was however noted that micro procurements worth UGX.10,731,434 were not reported to the contracts committee as required by the regulation. Details of the procurements are shown in the table below:

Date Purpose Cheq.no Vr.no. Amount Remarks Firms not prequalified, report Shoprite Lugogo to PDU,Not 12/2/2013 Service Centre 744200 504 632,000 approved by 102

Date Purpose Cheq.no Vr.no. Amount Remarks Contracts Committee. 10/16/2013 Bin -it Service Ltd 744114 416 649,434 -do- Freedom Solution 11/7/2013 (U) Ltd 744161 465 1,185,000 -do- Forever Living 12/3/2013 Products (U) Ltd 752202 506 1,200,000 -do- 10/24/2013 Imperial Royal Hotel 744147 450 1,500,000 -do- 8/28/2013 Reliance Stationery 731634 325 1,695,000 -do- Reliance Stationery (Supplied 10/16/2013 Stationery) 744119 421 1,870,000 -do- Hire of Tents and 10/18/2013 others 744127 429 2,000,000 -do- TOTAL 10,731,434

Management explained that all micro procurements are now reported to the contracts committee as required by the regulation. However verification could not confirm Management‟s response.

I advised the the Accounting Officer to ensure that all micro procurements are reported to the contracts committee in compliance with the regulation.

32.11 Irregular Staff Contract Agreements Section 3.3 of the NCS Human Resource Manual requires all Council staff to serve on contract terms. The Letters of appointment of NCS staff state that the appointment shall be subject to signing the main Employment Contract between the staff and the Council. However a review the personnel files of the employees revealed that none of the Council staff had signed Employment Contracts. This contravened the requirements of the Manual and in case of any disputes between the Council and staff, the Manual may not be effectively used as the staff remain inappropriately appointed. Management explained that the Council carried out a restructuring process from permanent employment to contract employment and in the process the Council terminated all employees on permanent basis and re-engaged them on contract terms. 103

The Council had to pay gratuity to all the staff who were on permanent basis before they could sign contracts. Due to financial constraints the Council was unable to pay staff gratuity and the staff therefore did not sign contracts. The Council is however in the process of soliciting for funds to pay the gratuity in order to have the contracts signed by the staff. Meanwhile, the staff have been given appointment letters.

I advised Management to ensure that all staff are appropriately appointed in accordance with the requirements of the Human Resource Manual.

33.0 NATIONAL CURRICULUM DEVELOPMENT CENTRE-YEAR ENDED 31ST DECEMBER 2014

33.1 Receivables Included in the receivables is an amount of UGX.335,826,397 that is recoverable from the former Executive Director who was at the Centre during 1998-2002. The matter arose when the officer reportedly transferred funds from Pearson Education Ltd and Macmillan, UK to his private Bank Account in 2002. Whereas the matter was reported to police, no recovery has been made. Long outstanding receivables represent idle assets that impair the cash flow position of the Centre.

Management stated that the matter was still under police investigation.

I advised management to follow up the issue and have it concluded without further delay.

33.2 Trade payables Included in the trade payables is a sum of UGX.90,302,320 that relates to the previous year. The amount is payable to individuals who were contracted to write books on behalf of the Centre.

Delayed settlement of obligations damages the reputation of the Centre and may result into litigation.

Management stated that subject experts are normally contracted to write books due to staff capacity shortage at the Centre. Meanwhile efforts are underway to settle the obligations

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I await the result of these efforts.

33.3 Use of unofficial receipt books During the year under review, an unofficial receipt book with serial number; 5701 to 5750 was used by a marketing executive to collect Revenue of UGX.17,440,000. However the amount could neither be traced to the Bank nor the Cashbook. The possibility of loss of the funds could not be ruled out.

In response, management explained that the implicated officer had been dismissed and the matter was reported to the police.

I advised management to follow up the matter and ensure the loss is made good.

33.4 Non-adherence to Evaluation Criteria Regulation 172 (1) of Public Procurement and Disposal of Public Assets Regulations 2003, states that the evaluation criteria shall be stated in the solicitation document and evaluation conducted in accordance with these criteria without amendments or additions to the criteria. However, a review of a selected number of evaluation committee reports revealed that the committee waived some of the requirements during the bid evaluation. The table below refers;

Contractor Contract Contract Evaluation Solicitation Comment Sum Committee document minutes requirement (UGX) (Date)

MFI Systems Service and 8,850,000 12/08/13 Original Income Waived the maintenance of tax clearance requirement NCDC addressed to of the income Photocopies NCDC or tax clearance equivalent certificate considering it immaterial.

Amazof Printing and 11,475,000 21/05/2010 Original Income A photocopy Enterprises delivery of tax clearance income tax NCDC addressed to clearance Calendars NCDC or dated equivalent for 21/5/2010

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Contractor Contract Contract Evaluation Solicitation Comment Sum Committee document minutes requirement (UGX) (Date)

last financial year was presented but Waived the requirement of the income tax clearance certificate considering it immaterial

I explained to management that in the above circumstances, there was a risk of engaging non tax-compliant suppliers and this has an overall effect of narrowing the tax base in the country.

I advised management to always ensure compliance with the procurement laws.

34.0 NATIONAL COUNCIL FOR HIGHER EDUCATION-YEAR ENDED 30TH JUNE 2014

34.1 Revenue shortfall According to the approved budget for the year under review, the Council expected to receive a sum of UGX.4,500,000,000 in Government subvention and student contributions. However, only UGX.3,778,062,601 was realised resulting into a funding gap of UGX.721,937,399.

It was further noted that whereas the Higher Institutions of learning are required to submit students‟ lists to the National Council for Higher Education in order to enable reconciliation of fees payments, such reconciliations were not being made consistently and this could partly explain the revenue shortfall in Student Contributions. I explained to management that a wide revenue variance implies an inadequate budgeting process and/or laxity in revenue collection. The shortfall results into failure to implement planned activities. For example, planned activities such as developing standards for courses of study in University programmes and policy on other degree awarding Institutions were not implemented. 106

Management attributed the shortfall to budget reductions in the 4th quarter of the financial year and non-compliance by institutions in collecting the students‟ contributions. However, sensitization workshops and a verification exercise with stakeholders were being conducted to enhance compliance.

I have advised management to devise and implement proper budgeting and revenue collection procedures. In addition, management is advised to enforce submission of students‟ lists to enable reconciliations of student numbers verses the money received from the Institutions.

34.2 Vacant posts A review of the Council‟s staff establishment records as at 30th June 2014 indicated that out of the 54 approved posts, 37 were filled leaving 17 vacant. Most affected departments were; Procurement and Disposal Unit, Internal Audit, Human Resource and Legal Department. I explained to management that understaffing of key departments has the effect of impairing service delivery.

Management explained that the Staff Review Task Force proposed that Top Management should populate the NCHE Secretariat in a gradual and systematic manner, such that Council resources are not constrained. Some of the key positions recommended for filling by the Staff Review Task force had not been filled due to shortage of funds and space.

I have advised management to liaise with the responsible authorities to ensure that the vacant posts are filled.

34.3 Un-coded expenditure items TAI 184 requires every payment voucher to bear on its face the fund, fund source, the vote or statutory expenditure service, section (cost centre) of the vote or service and item of expenditure to which the payment is chargeable. However, audit noted that all payments made during the year under review were not coded contrary to the requirement. This could lead to misclassification and over expenditure on some items.

Management attributed the anomaly to inadequacies in the Tally Accounting package currently being used by the Council. They further explained that NCHE had a plan to

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acquire a Management Information System (MIS), which is expected to address the coding challenge. I await the outcome of management‟s action in this regard.

34.4 Improper Students’ fees payment Section (2) of Statutory Instrument 2010 No. 17 requires all students to pay their subscription fees directly to the National Council for Higher Education Bank account.

However, a review of records revealed that some institutions collected cash from the students and remitted to the Council. Audit also noted that management relied on students‟ lists declared by the respective institutions without verifying the authenticity of these lists. I explained to management that there was a possibility of under remittance of the fees by the school, and besides, handling cash poses its own challenges.

Management explained that the Council was currently carrying out sensitization workshops with all stakeholders on the collection of the fees to emphasize the provisions of the Statutory Instrument.

I have advised management to ensure fees collection procedures are complied with for effective revenue collection and accountability.

35.0 MANAGEMENT TRAINING AND ADVISORY CENTRE- YEAR ENDED 31ST DECEMBER 2013

35.1 Wasteful Expenditure The Centre was charged interest of UGX.299,227,660 for failure to submit taxes to URA by 31st December 2013.This interest expense is considered nugatory expenditure since it could have been avoided if management had adhered to the requirements of the Income Tax Act. I advised management to ensure strict adherence to the Act to avoid such wasteful expenditures.

35.2 Non-Remittance of NSSF Contribution According to section 11(1) of the NSSF Act, every contributing employer shall, for every month during which he or she pays wages to an eligible employee, pay to the Fund, within fifteen days a standard contribution of 15 percent calculated on the total wages paid during that month to that employee. Contrary to the provision, the Center did not

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remit NSSF contributions for the months of May to December, 2013 totaling to UGX.87,730,666 which may attract fines and penalties from the Fund.

The Accounting Officer attributed the anomaly to increase in staff numbers when up- country centers were opened without adequate funding.

I advised management to prioritize settlement of NSSF liabilities in compliance with the Act.

35.3 Non-Deduction of WHT and PAYE Section 119 (1) of the Income Tax Act, CAP 340, requires a withholding agent to withhold tax on the gross amount of payment, at the prescribed rates. However, it was noted that Management made payments of UGX.356,299,599 to different suppliers without deducting withholding tax of 6% (UGX.21,377,975.9). Another UGX.44,700,000 was paid as sitting allowances and retainer fees without deducting PAYE of UGX.13,410,000. Failure to deduct and remit taxes attracts fines and penalties from URA.

The Accounting Officer attributed the anomaly to the opening of up-country Centres which resulted into re-prioritizing of expenditure.

I advised the Accounting Officer to prioritize and remit the outstanding taxes and ensure all other future deductions are made and remitted to URA in a timely manner.

35.4 Non-Remittance of Local Service Tax Local Service Tax amounting to UGX.6,816,619 deducted from employees‟ salaries was not remitted to the relevant authorities contrary to the Local Service Tax Guidelines, 2008. Failure to remit the tax results into unnecessary domestic arrears. The Accounting Officer attributed the anomaly to opening up-country centers without adequate funds which led to diversion of funds.

I advised him to ensure that all deducted Local Service Tax is remitted to the relevant authorities promptly. Upcountry centres should be opened after proper planning has been undertaken to avoid funding challenges.

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35.5 Receivables Receivables increased from UGX.952,284,338 to UGX.1,454,166,877, indicating an increase of UGX.501,882,539(52.7%). Included in the receivables are student debtors of UGX.1,225, 833, 277. This impairs the cash inflows of the Centre and impedes implementation of planned activities. Besides, long standing receivables may result into bad debts. It was further noted that although the Centre had a fees payment policy that required settlement of fees before sitting examinations, it was not effectively enforced.

In response, management indicated that strict enforcement of the policy would be undertaken.

I await the results of management‟s action in this regard.

35.6 Payables Payables increased from UGX.1,206,810,214 to UGX.1,959,586,602,indicating an increase of UGX.752,776,388 (62%). Included in the payables were: PAYE and associated penalty (UGX.1,089,120,786) and staff gratuity (UGX.223,023,872). Some of the payables have been outstanding since 2012 and have already attracted penalties. There is risk of further loss of funds in the event of litigation.

The Accounting Officer explained that negotiations were underway with various creditors to settle the obligations.

I advised him to prioritize settlement of obligations that attract fines and penalties and have a strategy to settle all outstanding obligations. In addition, management should adopt the Government Commitment Control System.

35.7 Under Staffing Out of 68 approved positions, only 32 (47%) were filled leaving 36 (53%) vacancies. Among the vacant positions were those of the Executive Director, Finance and Planning Director, Programme Manager and Enterprise Development Manager, which are key to the attainment of the Centre‟s objectives. The possibility of inadequate service delivery at the Center could not be ruled out.

Management explained that the process of recruiting new staff was on-going and was expected to be completed in the 1st quarter of 2015.

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I advised management to expedite the recruitment process in order to have enough manpower for better service delivery.

35.8 Advances Not Accounted For UGX.13,812,000 that was advanced to various staff to undertake official activities lacked relevant supporting accountability documents. Unsupported expenditure may result into misappropriation of funds.

Although management indicated that all the supporting documents were available, they were not availed for verification. I advised the Accounting Officer to ensure that the funds are accounted for or else recovered from the concerned staff.

35.9 Controls Over Accountable Stationery Best practice requires Accounting Officers to be responsible for ensuring that proper systems are put in place for the safe custody, recording and proper use of all receipts, licenses and other documents issued for the receipt of public moneys. However, there were no controls in the receiving and issuing of receipt books from the store. Receipt books used in collection of revenue were not signed for by the revenue collector but were received and taken into the cashier‟s custody without evidence of authorization. I informed management that there was a risk of unauthorized receipts books being used to collect revenue which may result into loss of revenue to the Centre.

In response, management explained that the stores function was being strengthened in terms of number of staff and internal controls to ensure adequate controls over the stationery.

I advised the Accounting Officer to put in place proper internal controls to mitigate the risk of loss of revenue by the Centre without further delay.

35.10 Unsupported Procurements Regulation 90(g), (h) and (c) of the PPDA Regulations, 2003 require procurements to be supported with relevant documents. However, procurements worth UGX.58,306,783 lacked supporting documents such as Award Minutes, Contracts Committee decisions, Letter of Bid Acceptance and Negotiation Minutes, rendering the authenticity of the expenditure doubtful.

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In response, management explained that the Center lacked a fully functioning Procurement and Disposal Unit (PDU) at the time but this had since been rectified through recruitment of necessary staff.

I await the outcome of the actions taken by management to strengthen the PDU at the Centre.

35.11 Absence of Fraud Control Policy Best practice and good corporate governance require that organizations institute policies and procedures to detect, control and minimize occurrence of fraud. However, it was noted that the Centre does not have fraud control policies and procedures in place. I explained to management that the Centre is susceptible to fraudulent individuals who have access to various assets and information of the organization.

In response, the Accounting Officer explained that the Centre was planning to prepare and submit the Fraud Control Policy to the Council for approval in the next financial year.

I advised management to establish a fraud control policy which should be documented and disseminated to all staff.

35.12 Recovery Plan and Backup Policy A review of the ICT Policy of the Centre revealed that it does not have an approved disaster recovery plan and no backup or retention policy for relevant academic and financial information. I explained to management that for continuity of the Centre‟s operations to be assured, there was need for a disaster recovery policy to be put in place to cover any eventualities.

In response, management indicated that a draft policy on disaster management had been submitted to the Management Council for consideration.

I advised the Accounting officer to expedite the process of instituting a disaster recovery Policy.

35.13 Inconsistencies Between the Staff Regulations, Terms and Conditions of Service and the Financial Manual The MTAC Financial Manual limits staff advances to recovery in the subsequent month's salary not exceeding six monthly installments. However, the staff regulations, terms and 112

conditions of service require an approval of advance not exceeding one month‟s total remuneration recoverable in three months installments. I explained to management that the contradiction in the documents could lead to complications in the management of advances to staff.

In response, the Accounting Officer indicated that harmonization of the two documents would be undertaken. I advised him to address the inconsistencies in the two documents without further delay.

35.14 Award of Contract to non-Shortlisted firm A local firm was awarded a contract to supply materials for lightening arrestors at UGX.5,748,370 VAT inclusive. However, it was noted that the firm was neither among the firms shortlisted to bid, nor did it pick and return bid documents. The circumstances under which the firm was awarded and contracted remained unclear. I explained to the Accounting Officer that there was possibility of conflict of interest and fraudulent motives in the procurement.

The Accounting Officer attributed the anomaly to understaffing of the Procurement and Disposal Unit and the resultant weaknesses. I advised him to investigate the matter and take the necessary corrective action.

35.15 Lack of a Procurement Plan Regulation 96(2) of PPDAR, 2003 requires an entity to prepare a consolidated procurement plan for the financial year according to the budget. However, the Centre did not have a consolidated procurement plan for the financial year under review. Also noted was non-preparation of departmental work plans contrary to the regulation.

Management explained that understaffing of the procurement unit resulted into the mentioned weakness.

I advised management to always engage user departments to come up with annual procurement plans in accordance with the annual budgets.

35.16 Irregular Contract Variations

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PPDA Regulation 262 (5) states that no individual contract amendment shall increase the total contract price by more than 15% of the original contract price. On the contrary, a contract awarded to a local firm for the construction of a manhole was varied from UGX.29,205,590 to UGX.38,476,732 (32%). Also a contract awarded to another firm for supply of electrical materials was varied from UGX.5,748,370 to UGX.9,942,090(73%), without the approval of the Contracts Committee.

I explained to management that the Centre could be losing huge sums of money through such uncontrolled variations. The Accounting Officer attributed the anomalies to understaffing of the Procurement and Disposal Unit. I advised him to investigate the two contracts with a view of taking corrective action.

35.17 Unauthorized Procurement Regulation 94 (1) (a) of the PPDAR, 2003 stipulates that a contracts committee or a holder of delegated authority shall approve the choice of a procurement method prior to commencement of the procurement process. However, it was noted that funds amounting to UGX.255,795,286 were paid to various firms for the supply of goods and services without the approval of the Contracts Committee. I explained to management that there is a risk of procuring substandard items if due diligence by the Contracts Committee is not undertaken.

I advised management that the approval of the procurements by the Contracts Committee should always be sought before procurement processes are commenced.

35.18 Unreported Micro Procurements Regulation (118) (8) of the PPDAR, 2003 requires micro procurements to be reported to the contracts committee on a monthly basis. However, it was noted that micro procurements worth UGX.110,660,230 were not reported to the Contracts Committee. In response, management explained that the anomaly was caused by understaffing of the PDU, but with the establishment of a fully functioning unit, such anomalies were expected to reduce.

I advised management to always prepare and submit reports on micro procurements to the contracts committee as required by the law.

35.19 Framework Contracts

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Regulation 118(11) of the PPDAR, 2003 provides that a Procurement and Disposal Entity (PDE), shall where appropriate use framework contracts for frequent procurement of regularly required items. However, the entity failed to use framework contracts for regularly procured items such as stationary, adverts and computer consumables. I explained to management that the practice may prevent the entity from achieving value for money from such procurements.

The Accounting Officer explained that with the establishment of a fully functioning procurement unit, the sustainability of the procurement method shall be considered for implementation.

I advised the Accounting Officer to consider using the framework contract method for regularly required items. 35.20 Custody of Procurement Records During the year under review, a number of weaknesses were noted in the procurement and disposal unit. They included among others:

 Poor filing of records  Late submission of procurement requisitions  Failure to sign off issues of bids and bid receipts by responsible persons.  Failure to prepare quarterly reports to PPDA  Lack of some records on individual procurement files such as issue, receipt and opening of bid documents, evaluation committee minutes, among others.  Lack of contracts committee minutes for the contracts awarded during the year.  Lack of/non-availability of some procurement files.

I explained to management that the weaknesses hinder tracking of documents and result into inefficiencies in the procurement process.

In response, the Accounting Officer explained that with the strengthening of the Procurement Unit at the Centre, all records pertaining to procurements will be secured. I advised him to ensure that record keeping within the unit is improved.

35.21 Failure to Maintain a Fixed Assets Register Treasury Accounting Instructions, 2003 Paragraph 804-806 require a fixed asset register to be maintained. However, Management did not maintain a fixed assets register, 115

contrary to this requirement. Failure to maintain a fixed asset register results into incomplete and unreliable information with regard to the Centre‟s fixed assets. Besides, the assets may get lost without the knowledge of Management.

In response the Accounting Officer stated that the asset register would be updated as prescribed in the law. I advised him to expedite the process of updating the fixed assets register to avoid possible loss of the Centre‟s assets.

35.22 Grounded Assets It is best practice that when an entity acquires an asset, the asset should be regularly maintained to avoid further deterioration and loss in value. When the entity can no longer use the asset, it is best practice that the asset is disposed of.

It was noted that two motor vehicles and a generator had been grounded for some time and no steps had been taken to either repair or dispose them off. I explained to management that there is a risk that the assets will continue to deteriorate and lose value. The Accounting Officer explained that efforts were being made to have the vehicles valued and boarded off. I advised the Accounting Officer to make arrangements to dispose of these assets or have them repaired to avoid further deterioration and loss in value.

35.23 Incomplete Staff 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‟s open record file, for instance letters of appointment, acceptance of offer of appointment, adjusting salaries, copies of academic and professional certificates, annual performance appraisal, leave forms among others.

However, a sample of the personal files reviewed were missing a number of vital records such as salary adjustments, performance appraisals, salary advance, pay change reports among others. This could be as a result of laxity in the Human Resource Department.

In response, management explained that with the strengthening of the Human Resource and Administration function, the personnel files would be updated with all the required documents. 116

I advised management to ensure that all personel files are kept up to date in accordance with section 5 (d) and 4(b) of the Public Service Standing Orders.

35.24 Non Implementation of Planned Activities Comparison of the Centre‟s budget for the year with the actual outputs attained revealed that a number of activities were not undertaken. It was noted that key planned activities that had direct impact on the quality of education offered were not attained. I explained to management that it was likely to have a negative impact on the persons trained at the Centre. Management attributed the failure to implement planned activities to underfunding of the Centre.

Details of the unimplemented activities are provided below;

ITEM DETAILS 1 Library development A plan to develop the library was made to cater for the increase in students but it was not implemented. 2 Major roads works and A plan was made to rehabilitate the access road and rebuilding access roads parking yard but the activity was not implemented. 3 Perimeter fencing A perimeter fence was planned to be reinforced to protect the students from terrorism and theft but it was not implemented. 4 40-User-N-Computing with More computers were needed to cater for the increased servers and accessories number of students but these were not procured. 5 Printers Printers were planned for but not procurement. 6 LCD Projectors Projectors were planned for but not bought. 7 Renovation of Bugolobi Plan was made to renovate Bugolobi house but was not house implemented. 8 Purchase of motor vehicle A motor vehicle was supposed to be procured to assist in carrying out planned activities but was not procured. 9 Water harvest and storage In order to reduce on the increasing water bills a plan tanks was made to procure water tanks but was not implemented.

I advised management to liaise with the Ministry of Education and Sports, MoFPED and other stakeholders to obtain adequate funding for the achievement of the Centre‟s 117

mission and objectives. I also advised Accounting Officer to design programmes that attract private students to the Centre in order to improve on the internally generated revenue to supplement the Government grants.

36.0 UGANDA NATIONAL EXAMINATIONS BOARD- YEAR ENDED 30TH JUNE 2014

36.1 Borrowing of funds The Board disclosed in Note 10 of the financial statements borrowings of UGX.11,068,529,487 as at 30th June 2014 comprising of a loan of UGX.5,437,956,164 and an overdraft of UGX.5,630,573,323. During the year the interest expenses amounted to UGX.707,559,660.

Borrowing of funds by the major Examinations Board has got reputational risks. Besides, the Board is exposed to the risk of litigation in the event of defaulting on payments. The interest expenditure is an extra cost that translates into higher operations for the Board and may subsequently result into higher examination fees for the students.

In response, management explained that whereas the Board submitted to the MoES the actual unit costs of conducting each level of examination in 2013/14, the costs were not approved and this resulted into the borrowing. The table below refer;

Analysis of examination fees receivable as against the Management's Unit cost

Approved Management's Variance No. of Total variance Rate @ Computed rate in rates Registered

candidate per candidate Candidates

PLE 14,000 17,750 -3,750 582,085 -2,182,818,750

UCE 80,000 89,650 -9,650 295,434 -2,850,938,100

UACE 80,500 92,750 -12,250 116,011 -1,421,134,750 TOTAL 6,454,891,600

I advised the Board to continuously engage MoES and MoFPED to ensure adequate funding is provided for conducting National examinations.

36.2 Doubtful Declaration of SMS Revenue

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On the 18th January 2012, UNEB entered into an agreement with a local firm, SMS Media to provide SMS services on examination results in which sharing of revenue was in the ratio of 50:50.

During the year under review, a total of UGX.106,250,856 was declared by the ICT department of UNEB as total revenue realized from this source.

However the following anomalies were observed:

i) It was noted that while the Board Revenue budget from the service was UGX.500,000,000, only UGX.123,124,576 was realised resulting into a shortfall of UGX.376,875,424. No explanation was provided for the underperformance.

ii) In the previous year‟s report to Parliament, management undertook to have this service managed in-house. However, there was no evidence of action taken in this regard.

iii) The data was only accessed through SMS Media implying that UNEB could not verify completeness of the data. Besides the data related to only PLE leaving out UCE, UACE and BTVET and Data from only three Telecommunication Companies namely; Airtel, Orange and MTN was availed leaving out Uganda Telcom and K2. In the circumstances the usefulness of the system is limited. In their response management indicated that it is in the process of strengthening the controls over the SMS revenue by installing and managing SMS platform in-house.

I advised management to seek explanations for the under performance of the revenue and consider managing the service directly. There should also be provision for data on other academic levels and telecommunation companies.

36.3 Revenue Shortfall Out of the Revenue budget of UGX.350,000,000 from the sale of Publications only UGX.232,630,425 was realized, resulting into a short fall of UGX.117,369,575.

Failure to collect budgeted revenue undermines the implementation of planned activities.

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In response management attributed the decrease in publications revenue collection to piracy of the UNEB publication materials especially past papers.

In the meantime the Board was partnering with the Copyrights enforcing bodies to apprehend and prosecute the culprits in line with the Copyrights and Patents Law.

I await the results of management action.

36.4 Absence of a Succession Plan Good governance principles require the Board of Directors to formulate a Succession plan for key positions in order to enable smooth continuity of service delivery in the event that a post falls vacant. However, review of the UNEB Human Resources Manual 2005 revealed that the succession plan policy was non-existent.

Absence of succession planning may demotivate the existing staff which in turn affects the achievement of the Board‟s strategic objectives.

In response, management indicated that the board had made a resolution on the matter and development of the succession plan was on-going.

Management was advised to expedite the process of formulating the succession plan to ease replacement of key staff when they retire.

36.5 Lack of a Disaster Recovery Plan It was noted that despite the heavy investment and dependence on IT Processes, the board lacked a disaster recovery plan for its IT data and information contrary to best practice. The absence of a disaster recovery plan and its implementation thereof, could lead to loss of vital information in the event that the established IT equipment fails, which could result into organizational challenges.

In response, management explained that the process of developing and implementing a disaster recovery plan is on-going.

I advised management to expedite the process.

36.6 Failure to capture relevant details by the Examination receipting system

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Best practice requires the details of receipted revenue to be recorded in an entity‟s books of accounts with reference to the source documents. A review of the management of examination fees revealed that the Board records the revenue in manual receipt books. However, audit noted that particulars of the payee and the receipt numbers were neither captured into the system nor reflected on the bank statements. Failure to capture relevant details renders reconciliation of the funds received with the registration list difficult.

In response, management indicated that it had written to the bank to ensure recording of relevant details of deposits and payments.

I advised management to ensure that all relevant details in the examination receipt are captured for appropriate tracking of funds received.

INFORMATION AND COMMUNICATION TECHNOLOGY

37.0 NATIONAL INFORMATION TECHNOLOGY AUTHORITY UGANDA (NITA-U) – YEAR ENDED 30TH JUNE 2014

37.1 Unrealistic budgeting - under collection of Appropriations-in-aid The Authority budgeted for appropriations-In-Aid (AIA) collection amounting to UGX.12,171,569,000 during the financial year 2013/2014 from the commercialization of the NBI/EGI, sale of local internet Bandwidth to MDA‟s and sale of bid documents. However only UGX.448,350,576 was collected representing only 3.68% of the AIA budgeted for.

In undertaking a review of revenue performance, I noted a poorly performing contract with a service provider that did not realize revenue as budgeted. The provider for the commercialization of National Data Transmission Backbone Infrastructure (NBI) and the E-Government Infrastructure (EGI) had agreed to generate minimum revenue which was to be shared on a 50% basis with the client as per details in table below;

Period Year 1 Years 2 Year 3 Year 4 Years 5 Total annual 8,184,603 27,282,011 40,923,016 49,107,619 54,564,021 revenue (USD)

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Period Year 1 Years 2 Year 3 Year 4 Years 5 Percentage 50% 50% 50% 50% 50% share for NITA NITA Revenue 4,092,302 13,641,005 20,461,508 24,553,810 27,282,011 (USD)

I noted that through this arrangement, the Authority was to receive USD.13,641,005 in the second year of the contract, i.e. FY 2013/2014. However, only UGX.450,978,948 approximately USD.173,453.44 representing only 1% of the expected revenue was generated. It was also noted that no action with regard to contract provisions for non performance had been considered two years after signing the contract despite receipt of far less revenue than anticipated.

Failure to collect the budgeted revenue affected the implementation of budgeted activities.

Management explained that the shortfall in revenue collection was a result of a number of challenges that included among others unrealistic assumptions on the network by different bodies, late handover of the network to contractor, rectifications on the network, low installed capacity that is sold out (2.5G), late subscription by MDAs and failure to extend to all border points to transit service sales to neighboring countries.

I advised Management to review the budgeting processes and ensure realistic estimates are provided given the knowledge at their disposal on the network operations. Furthermore, a revenue enhancement plan to address collection shortcomings should be put in place.

37.2 Mischarge 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 NITA-U‟s Treasury single sub account cashbook revealed that the entity charged wrong expenditure codes to a tune of UGX.94,045,420. This practice

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

Management explained that this was due to the fact that some account codes were not allocated sufficient funds during the budgeting process and non-utilization of non-tax revenue.

I advised the Accounting Officer to streamline the budget process to ensure that sufficient funds are allocated to each account and ensure authority is sought for any reallocations.

37.3 Misstated Property Plant and Equipment It was noted that within the non-current assets are three (3) Motor Vehicles and two (2) Motor Cycles with historical values of UGX.64,000,000 and UGX.2,000,000 respectively which the Authority inherited from the Ministry of ICT at the beginning of FY 2011/2012. However these values were not certified by the Chief Government Valuer and management has maintained these estimates in the books three years after hand over of the assets. The basis for management estimates was not availed for review. In absence of the valuation report, the value of the Authority assets may not be correctly stated.

Management explained that the Motor Vehicles and Cycles were stated at reasonable estimates pending valuation by the Chief Government Valuer and that The Chief Government Valuer has since been asked to conduct a valuation of these assets.

Managements‟ effort on the matter is awaited.

37.4 Budget Performance Review of the budget performance for the year revealed that some targets were not achieved despite budgeting for the activities. Activities planned for a total of UGX.5,421,632,000 were not implemented at all as detailed below;

Annual Planned Output target Planned activities to deliver Amount Budgeted output (UGX) ERP System fully Operational by Acquisition, Installation, 250,000,000 end of FY 2013/14 implementation & maintenance of ERP Systems

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Annual Planned Output target Planned activities to deliver Amount Budgeted output (UGX) Land acquired, serviced and Land Purchase, Servicing and 1,500,000,000 planned Building Plan National IT Data Collection and Consultancy to develop National 10,000,000 dissemination system established IT Data Collection and dissemination system Feasibility study conducted and - Procure a consultant for 613,000,000 report developed for Integrated feasibility study databases Functional Government web site - Procure a contractor - short 100,000,000 term to redesign the website - Consultancy for content management - Hosting equipment for web site/portal Helpdesk solution procured and Procure contractor to implement 120,000,000 set up Government Helpdesk Feasibility study and architectural - Procure consultancy for 840,632,000 design IT Parks feasibility study and Implementation planning - Site identification and land settlement - Procure Contractor for design and construction - Benchmarking studies" Last mile Delivery Strategy Consultancy Services for Blue 521,000,000 developed Print for Last Mile connectivity and support to Google initiative Last mile Delivery Strategy Consultancy Services for Blue 267,000,000 developed Print for completing the missing links onto the NBI Information Security Governance Recruit IS staff, facilitate the 300,000,000 provided NISAG, and NISTWG operations, obtain help from the ISF.

Business Continuity and Disaster Procure firm(s) to conduct a 900,000,000 Recovery Management business impact analysis, develop established a recovery strategy, disaster recovery process, upgrade IFMS DR site to National DR Site status Total 5,421,632,000

Management explained that NTR revenue was not realized as planned and therefore the activities could not be implemented.

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I advised Management to always endeavour to budget realistically.

37.5 Internal Audit Independence Good corporate governance practice requires institutions to have an independent Internal Audit function that allows them to operate successfully on strategic issues with independence and the mandate to deal with significant strategic business risks. However, it was observed that the Internal Audit function in NITA-U does not operate independently from management as the internal audit function operates under the Executive Director‟s department. Further, the internal audit function does not have an independent budget for its activities.

Inappropriate positioning of the Internal Audit function raises concerns about the overall independence of the auditors. Furthermore, lack of an internal audit budget may limit the operations of the audit function.

I advised management that the Internal Audit function should be independent from Management and its budget should be independent from the executive directorate, to enhance audit objectivity.

37.6 Commercialization of the National Back born Infrastructure (NBI) 37.7 Unsupported payment to Soliton The provisions of the contract require that revenue sharing is effected after submission and review of the revenue collections and a certificate issued. Review of the Dollar account opened for collection and banking revealed an offset of $169,315 on the 27th June 2014. On inquiry I was informed that it was the revenue share for the managing company. There were no reconciliations made and formal clearance from NITA-U to effect such transaction.

Unauthorised transactions without certificates and reconciliations could lead to revenue loss.

I advised Management to ensure that certificates are available and reconciliations are made to support the revenue collection and sharing.

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37.8 System vulnerabilities A security audit conducted on the NBI in 2011/12 identified several vulnerabilities and as a result, a remediation plan for the various vulnerabilities was drawn together with associated costs with the sole aim of making the NBI/EGI more secure thereby guaranteeing the confidentiality, integrity and availability of services and applications running thereon.

It was noted that the vulnerabilities are still outstanding and require attention, for example; inadequacies in physical security for transmission sites, data centre and MDA sites, securing most confidential data during transmission and storage, lack of back up strategy in place and lack of security and performance monitoring.

Non remediation of security threats impact on the security of the NBI and affects its commercialisation because it fails to attract clients. Management explained that the above issues were discussed in the executive committee and an action plan to address the issues has been put in place. I await the results of the management efforts.

37.9 Vacant posts in the establishment A review of the staffing levels of the NITA-U in comparison with the establishment structure approved by the Authority Board revealed that there are 156 posts which are not yet filled out of 208. These vacant posts constitute 76.4% of the entire total approved staff structure of the Authority.

Service delivery is highly hampered due to staffing gaps especially at senior management level.

Management explained that they are in discussions with MoPS and MoFPED to lift the MTEF ceiling of the wage bill for NITA-U to enable the Authority execute her mandate.

I await the outcome of Managements efforts in that regard.

38.0 NEW VISION- YEAR ENDED 30TH JUNE 2014

38.1 Performance of Bukedde 2 Television In the financial year 2013, the Vision Group opened Bukedde 2 business unit to affirm its position as the leading Media Company in the Country. However, for the past 15 months

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of its operation, this business unit has failed to meet its budgetary expectations negatively impacting on the financial performance of Television Sector in the group as analysed below; Bukedde 1 Bukedde 2 Others Total (UGX) (UGX) (UGX) Revenue 8,676,614,338 109,446,610 911,943,430 9,698,004,378 %age 89.5% 1.1% 9.4% 100% contribution to total revenue Costs 8,141,020,647 1,160,141,579 3,752,777,557 13,053,939,783 %age 62.4% 8.9% 28.7% 100% contribution to total costs

Note: Others include Urban TV and TV West that fairly matched

From the above analysis, the group has only one profit making station (Bukedde 1) with three loss making Televisions. Bukedde 2 contributes 1% of the total Television revenue and 8.9% of the total costs therefore underperforming.

The performance of the TV section has worsened in the current year from a loss of 2.3 billion in 2012/13 to 3.35 billion, Bukedde 2 carrying 31% of this loss. This is majorly due to the increasing costs incurred by the section. Furthermore, there is a likelihood that the production equipment in the Television section could be impaired as the equipment is producing below capacity.

According to management the station has been closed (in August 2014).

I recommended that the group carries out a feasibility study, analysing the performance of the Television section to facilitate performed future decisions.

38.2 Inadequate security controls over inventory

A key register is maintained to provide a trail of staff that have access to the store keys at any time of the day. However I observed that the control was inadequate and was not being complied with by stores staff as the staff were noted to be taking the keys without using the register.

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With lack of a proper trail on access to the material stores, the entity could be exposed to material thefts from unknown personnel.

I recommended to management to introduce surveillance cameras to monitor movement of staff and other personnel access to the stores.

38.3 Staff independence declaration

The entity requires its employees to sign an independence declaration on their recruitment, disclosing any forms of relationships with third parties. However, this is a one-off. As employees grow with the group, they develop new relationships with third parties who may be potential suppliers or customers and hence may have legal dealing with the entity.

Lack of proper disclosures of staff relationships with third parties could potentially lead to conflict of interest between staff and the third parties, in as far as procurement of supplies, sales to customers and recruitment of employees. This may expose the group to fraudulent practices.

In their response, Management indicated that they had noted the observation and will consider starting with senior managers on contract renewals every two years.

I advised that Vision group carries out an annual declaration exercise for all its employees, requiring them to declare their relationships and dealings with third parties that may affect the operations of the group.

38.4 Fraud in credit collection and newspaper distribution During the year 2013, Vision group discovered a fraud that involved its employees colluding with its distributing agents that led to financial losses of over UGX.600 million to the group. I further noted that the distribution agreements signed with the agents did not explicitly provide mention of instance of the agent involvement in fraudulent activities that may cause financial loss to the Publisher (New Vision Printing and Publishing Company Ltd).

The fraud was a result of weak controls over credit collections and credit reconciliations, and long associations between the employees and distribution agents.

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In their response, Management indicated that the big agency accounts are now reconciled on a monthly basis and the other accounts on a quarterly basis.

I advised that:

 The Finance Department should be vigilant on ensuring that the debtor reconciliations are regularly prepared and approved by an independent department to credit as well ensuring staff rotation on credit collection is adhered to.  An article be drafted in the distribution agreement prohibiting distribution agents from dealing in illegal activities with employees that may lead the publisher into financial losses as a result. Further penalties should also be drafted in such events.

38.5 Credit notes Section 3.3.4.3 of the Finance and Accounting manual requires that in case a customer‟s original order is not supplied in full for technical reasons, the full amount ordered shall be invoiced and a credit note shall be issued for the under supply after confirmation and approval by the Circulation Manager. However, a review of the credit notes revealed that during the year there were discrepancies in raising, authorizing and posting of credit notes. On several occasions, the credit notes were not properly authorized and not fully supported. Details of unauthorized credit notes are shown below:

Amount Date Customer/Agent Comment (UGX)

Discount agreed due to 'Embuutu' low 01/11/2013 KT promotions Ltd 8,474,576 turn up & rain interruptions Uganda School of No authorizations and no support 15/04/2014 Health & Reading 1,226,638,786 documents seen Programme Cancelling due to underpricing at time of Straight talk 24/02/2014 72,630,000 order. However, not authorized by the foundation finance committee Uganda Martyrs' Client wanted one block invoice instead 31/07/2013 49,152,542 University of separate invoices.

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There is a risk that revenue could be misstated as fraudulent transactions are likely to be posted to misstate the balances.

In their response, Management indicated that the system has been changed and all credit notes are now authorized by the finance committee of management.

I advised management to ensure that credit notes are properly authorized by a responsible senior personnel in the organization and fully supported.

39.0 UGANDA BROADCASTING CORPORATION

39.1 Valuation of Property, Plant and Equipment The Corporation‟s fixed assets (property, Plant and equipment) are reflected as UGX.44,148,448,508 in the statement of financial position. A review of the supporting schedules in accordance with International Accounting Standards (IAS) revealed the following:  No revaluation of Property and Equipment was undertaken contrary to IAS 16 which requires regular revaluation of assets. Furthermore, it was also noted that impairment reviews were not undertaken by management on the assets during the year contrary to IAS 36 which requires that assets should not be carried at more than their recoverable amount.  The Corporation did not maintain a fixed assets register during the year contrary to chapter 16.5 of UBC Finance and Accounting Manual to enable me track the Corporation‟s assets. In place was a listing of assets without date of acquisition, values/costs.  The Corporation had no proof of ownership of some non-current assets like title deeds to enable verification and confirmation of ownership contrary to Paragraph 16.14 (1) of the Corporation‟s Finance and Accounting Regulations manual that requires the entity to have proof of ownership.  Other fixed assets of UGX.17,378,814 were not adequately disclosed in the notes and Schedules to the Financial Statements since no detailed costing was provided for each disclosing acquisition cost, additions, disposals, depreciation etc. Furthermore, contrary to IAS 1 (revised) on presentation of financial statements, other fixed assets were presented on the face of the statement of financial position instead of being amalgamated under property, plant and equipment. 130

I was therefore unable to determine whether Assets of the Corporation are fairly reflected in the statement of financial position, and whether the assets are owned as stated.

Management explained that a revaluation process was in advanced stages and would be undertaken in the FY 2015/16 after Ministry of Lands‟ recommendation of a consultant to undertake the exercise. Management further explained that lack of a fixed asset register was due to the fact that most of the assets are not valued and others are not yet transferred in the names of UBC.

I advised management to expedite the revaluation process and have an adequate asset register in place.

39.2 Trade and other payables It was observed that the Corporation owes UGX.28,621,243,416 to trade creditors (UGX.13,901,624,619) and other creditors (UGX.14,719,618,798). However, the trade creditors were not adequately supported with source documents like invoices, contracts completion certificates and agreements. It was noted that only three suppliers to the tune of UGX.4,595,656,545 had supporting documentation and the others worth UGX.9,305,968,074 were not supported.

I was therefore unable to confirm the existence, completeness and valuation of trade creditors in the financial statements as they could be misstated and misleading. There is a risk of inclusion of non-existent creditors who may be irregularly paid leading to loss of funds by the Corporation.

I advised Management to ensure that all documents relating to payables are properly kept, filed and corroborative evidence should be obtained before payments to creditors without supporting documentation. Furthermore, an invoice register should be put in place.

39.3 Provision for bad and doubtful debts The Corporation‟s provisions for the year revealed that Management provided UGX.1,049,288,232 for bad and doubtful debts based on their opinion at 5% of total receivables. IAS 37 that requires the estimate of provisions to be determined by 131

judgment of the entity‟s management supplemented by the experience of similar transactions. Section 8.17 of the UBC Finance and Accounting Regulations Manual also requires any due debt to be subjected to debt recovery procedures as stipulated in the bad debt management manual. The following were observed;

 This provision should have been well documented in the debt management manual specifying rates for the various categories of debtors instead of the blanket provision for all debtors including cash and salary advances.  The provision rate of 5% set by management was not backed with experience of similar transactions as required by IAS 37 given that some transactions have very minimal chances of recovery i.e. Parliamentary Commission (UGX.10 billion- without a contract).  M & B bought UBC lands but failed to honour the contract and the land was reclaimed. Provision of bad debt (15% of 400m) on this debtor was not called for.

Bad debts should be written off when all reasonable steps to recover them have been taken without success.

The blanket provision is inadequate without a proper review and analysis of the Corporation debtors and as a result the provision may be misleading to the users of the financial statements.

Management explained that all policies are in draft form and being scrutinized by the BOD pending approval. Management further explained that the rate used was based on management experience on debtors that default and do not have powers to provide fully for obviously doubtful debts.

I advised management to expeditiously review and submit for approval to the BOD the debt management manual with comprehensive provisions for the different classes of receivables.

39.4 Liabilities (Lease obligations) Review of the financial statements revealed that the Corporation acquired two motor vehicles and six UHF transmitters on lease terms from Stanbic Bank in the year 2008 and 2010 respectively at a total leased amount of US$.544,946. A verification of the

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outstanding balances from the statement of financial position revealed that the Corporation had made a repayment of UGX.544,247,081 during the current year. However the disclosures made in the notes to the financial statements were inadequate given the requirements prescribed by IAS 17 that is apportionment of rental payments under interest payable and capital cost of the asset, the carrying amount of each class of leased asset (Vehicles and UHF transmitters) at the reporting date and a general description of the lessee‟s material leasing arrangements.

I advised management to provide adequate disclosures in accordance with IAS 17.

39.5 Wasteful payment A sum of UGX.50,800,000 equivalent to US$.20,000 was paid to an International Company for rights to broadcast 10 licensed films from Hong Kong. I was not availed with a copy of the contract for review.

An interview with the Programme manager revealed that the films have not been aired for viewers consumption two years after purchase due to inadequacy of the film content which is in Chinese and thus not understandable by the target audience of UBC TV. I therefore could not ascertain the rationale of paying this amount for films that are not aired.

Under the circumstances, the payment appears wasteful.

I advised Management to ensure that procurement of films is done in accordance with the PPDA Act and in the language understandable by UBC viewers.

39.6 Statutory Deductions

39.6.1 Non remittance of URA taxes Section 124(1) of the Income Tax Act requires a withholding agent to pay the Commissioner any tax that has been withheld or that should have been withheld within fifteen days after the end of the month in which the payment subject to withholding tax was made by the withholding agent.

As at the close of financial year, a sum of UGX.3,506,895,157 had not been remitted to the statutory agency as indicated in the table below. Included in the outstanding amount is a sum of UGX.865,402,297 relating to interest as a result of failure to remit 133

the statutory deductions on time. Failure to remit statutory deductions will expose the Corporation to more penalties and fines.

S/N Tax Head Principal (UGX) Interest (UGX) Total Due (UGX) 1 PAYE 1,010,050,737 523,964,152 1,534,014,889 3 Withholding tax 97,353,594 56,550,999 153,904,593 3 VAT 1,534,088,529 284,887,146 1,818,975,675 2,641,492,860 865,402,297 3,506,895,157

Management explained that these arrears date back to 2009 FY and an MOU with URA to settle the obligations in installments was entered into.

I advised management to adhere to the payment modalities provided in the MOU so as not to incur extra penalties and fines.

39.7 Outstanding obligation for 15% NSSF deductions

During the year, the Corporation did not remit UGX.512,346,357 due to the National Social Security Fund (NSSF) for staff statutory contributions of 15% gross salary. By 30th June 2014, the total indebtedness of the Corporation to NSSF stood at UGX.7,845,819,527 inclusive of penalties of UGX.5,007,304,606. Failure to remit Employees NSSF contributions will result into extra penalties. It also deprives employees of their retirement benefits when they retire. Delayed remittance denies the employees interest earnings on their savings.

Management explained that these amounts date back from 2006 and have accumulated a huge interest

I advised Management to engage NSSF with a view of entering an MOU in which regular payments will be remitted and a substantial waiver be made or discussed on the penalties imposed.

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39.8 Non-deduction of Local Service Tax from employees

During the year, Uganda Broadcasting Corporation did not withhold LST from its employees contrary to the local Government Act as amended. Non-remittance of LST hampers service delivery in the local authorities where Corporation staffs reside and can also attract penalties and related costs.

Management explained that they had challenges in determination of where to remit the LST as staff had not registered their preferred LGs.

I advised Management to promptly register all staff preferred LG‟s and enforce deductions and remittances of funds to the respective Local Governments as required by the relevant legislation.

39.9 Legal expenses UGX.168,299,434 was spent on legal fees and costs to various legal firms during the year for handling the Corporation‟s legal disputes and providing legal advisory services. It was noted that there were no prequalified firms for legal services and neither were there any procurement files provided by the PDU on the procurement of the firms hired to handle Corporation business. The corporation was directly sourcing for the firms without the due procurement process.

I advised management to follow the due process under the PPDA act to ensure value for money on services provided.

39.10 Procurement 39.10.1 Huge variances between contract estimates and final contract sum Review of the procurement files revealed that several procurements had big variances ranging from 20% to 67% between the estimated value and actual contract value which was not in conformity to Regulation 3 of the PPDA regulations that requires a PDE to ensure that the estimate is realistic and based on the market price while estimating the value of works, services or supplies required and confirming the availability of funds.

The anomaly was caused by lack of adequate market survey for the procurements undertaken which adversely affects Corporation planned activities as cash flows are limited. Further, substantial contract price variance is an indicator of poor planning. 135

I advised management to ensure User departments conduct adequate surveys at the planning phase to ensure procurement estimates are based on up to date information in accordance with PPDA Regulations.

39.11 Emergency Procurement Review of four procurement files revealed that the entity procured corporate shirts, blouses and promotional materials as emergencies to the tune of UGX.61,155,580 contrary to section 60 of the PPDA Regulations 2003 that requires user Departments to prepare annual work plans based on the approved budgets which should be submitted to the Procurement and Disposal Unit to facilitate orderly execution of annual procurement activities. Details are as below:

Procurement Reference Subject Contract Value (UGX) UBC/SUPPLS/13-14/00052 Corporate Shirts & blouses 25,000,000 UBC/SUPPLS/13-14/00136 Supply of branded promotional 5,900,000 materials for UBC West Ekitumbure UBC/SUPPLS/13-14/00148 Supply of branded promotional 3,959,580 materials for UBC West Ekitumbure UBC/SUPPLS/13-14/00149 Supply of branded promotional 26,296,000 materials for UBC West Ekitumbure TOTAL 61,155,580

The following issues were noted;  The procurements were not planned for in the UBC procurement plan contrary to section 60 of the PPDA regulations.  These procurements should have been foreseen by the user department because 50 years celebration of TV in Uganda and the launch of UBC West Ekitumbure which took place on 25th October 2013 and 22nd March 2014 respectively did not qualify as emergencies in line with PPDA Regulations 2003 section 100 (1) (2) which specifies an emergency situation to include circumstances which are urgent, unforeseeable or a situation not caused by dilatory conduct.

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 There was also no fair competition as the bidding period for Request for quotations was shortened to 2 days for bidding and 1 day for display for Corporate Shirts & blouses, and 24 hours for bidding period of promotional materials.

Unplanned procurement activities adversely affect implementation of Corporation activities and hamper budget performance. The Corporation risks procurement administrative reviews by bidders incase potential service providers are dissatisfied about the process.

Management explained that emergence procurements in the media industry frequently occur and this was one of them.

I advised management to ensure that the entity plans and includes all procurement requirements in the procurement plan and limits use of emergency situation as the criterion for determining the choice of a procurement method without being backed up by a comprehensive justification.

39.12 Governance and strategic issues 39.12.1 Human Resource (i) Absence of Senior Management and Staff without valid contracts It was observed that 247 members of staff were working at the Corporation without valid contracts, some having expired as far back as 2009 contrary to Paragraph 2.9.4 of Uganda Broadcasting Corporation Human Resource regulations-2006 that requires contract employment to be renewable subject to good health and satisfactory performance.

Further, the current Managing Director, Manager Finance and Administration, Marketing Manager, Radio manager, Risk and Internal audit and TV manager and a number of other staff are in acting capacity. Staffs in acting positions are overworked as they have to juggle more than one responsibility and may also not have the required competencies for the job. Failure to renew employment contracts violates the rights of employees which may attract of litigation.

Management explained that the contracts of staff are a function of the BOD and since no board was in place at the time, it was not possible to have the contracts renewed. Management further explained that the new BOD had taken a step to recruit senior 137

managers of the Corporation as well as the accounting officer who would in turn help them handle the entire staff through a complete restructuring of UBC.

I advised management to ensure that the process is expeditiously handled by drawing it to the BOD‟s attention.

39.13 Lack of Credit and Debt Management Policies Its best practice in corporate entities that Debt and Credit management policies are formulated and documented to help the organizations to manage and control debt and credit. During the audit, it was noted that the Corporation did not have both the credit and debt management policies documented for proper management of credit offered to its clients and debts owed to the suppliers. This has resulted into major weaknesses as noted below;

(i) Debtors The Corporation disclosed a receivables balance of UGX.20,113,712,511. However analysis of this balance revealed that of this, debtors to the tune of UGX.16,245,336,513 had not been collected beyond four months representing 80.6%. There was no approved credit period for debtors and consequently many debts are never collected. The debts had also increased by 498% from the previous year‟s balance of UGX.3,333,052,000 implying that Paragraph 8.23 of the Corporation financial manual that requires preparation of weekly and monthly revenue reports to the Finance and Administration Manager with Monthly debtors ageing schedule and amounts outstanding for management decision making was not being implemented. I did not obtain evidence that management put in the required effort to collect the debts. Ageing analysis is as below;

120+Days 90 Days 60 Days 30 Days Current Balance (UGX.) (UGX.) (UGX.) (UGX.) (UGX.) 16,245,336,513 (621,375,504) 4,137,168,304 528,095,643 (175,512,445) 20,113,712,511

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(ii) Creditors: It was observed that the Corporation owes UGX.28,621,243,416 to trade creditors (UGX.13,901,624,619) and other creditors (UGX.14,719,618,798) an increase of 152% from the previous financial years position of UGX.11,331,111,000. It was further noted that the payables have been increasing for the last consecutive years and this could be attributed to lack of a credit management policy in place. The ageing analysis of the Trade payables revealed that 92% were beyond four (4) months (UGX.12,842,771,346) while other payables were composed of mainly statutory deductions (UGX.11,352,714,684). Ageing analysis is as below;

120+ Days 90 Days 60 Days 30 Days Current Balance (UGX.) (UGX.) (UGX.) (UGX.) (UGX.) 12,842,771,346 119,717,226 130,748,847 394,702,906 354,138,698 13,766,361,104

Failure on the part of management to formulate Credit and Debt management policies may lead to accumulation of receivables which may eventually be written off as losses to the company. Likewise, accumulation of creditors may lead to cash flow problems for the Corporation which negatively affect the operations and lead to financial distress and legal claims for recovery.

Management explained that most policies are in draft form and cannot be implemented before BOD approval. Furthermore, management attributed the increase in debts to Parliament of Uganda invoice worth UGX.10.04 billion and stated serious steps to collect this amount had been taken though efforts had not yet yielded anything.

I advised management to raise the issue with the BOD to expeditiously approve the policies in order to have adequate controls for proper management of the corporations Debtors and creditors.

39.14 Absence of Corporate Strategic Plan and Policies

A strategic plan provides an organization with purpose and direction and it is a key requirement for organization survival, however audit observed that the Corporation does not have a Corporate Strategy with the old one (2008-2013) having expired in 2013.

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It was noted further that the Corporation has several draft policies developed for the efficient functioning of the Corporation business however, it was noted that many of them are in draft form and cannot be put to application without board approval. The critical ones are the IT /Security policy and the risk and fraud control policies.

Implementing projects without a strategic plan and vital policies may lead to uncoordinated implementation of activities as the budget/work plans and the vital work done are not linked to developments.

Management explained that it was not possible to come up with a strategic plan without a functioning Board at the time; however an external consultant had been engaged to have a strategic plan in place by the end of FY 2014/2015.

I advised management to expedite the process and come up with a strategic plan that appropriately spells out new strategies and Priorities for greater efficiency and effectiveness in achieving the corporations Mission, Vision and Objectives.

39.15 Sale of Television and Radio airtime

Uganda Broadcasting Corporation gets a big portion of its revenue from sale of TV and Radio airtime. This revenue is subject to fluctuation which varies according to duration, timing and type as governed by UBC rate cards in force. When an advertiser accepts the terms of sale for a transaction, and accountable document known as a Time Order is filled in quadruplet by the sales person and signed by the advertiser. The completed Time Order is thereafter taken to the Sales Manager and Marketing Manager for approval and authorization.

After approval and authorization, the Time Order is submitted to the Internal Auditor to ascertain among other things:- a) Compliance with the rate card; b) Arithmetical accuracy of amounts; c) Terms of payment; d) Safeguards against bad debts; e) Type of transaction i.e. announcement, sponsorship, promotional etc.

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After verification of the Time Order by the Internal Auditor, the sales person takes it to the sales administrator to log the transaction in the daily commercial transmission schedule. The daily commercial transmission schedule gives details of the client‟s name, timing, duration, start date and end date of the advertisement. Ultimately, a copy of the time order is taken to accounts office for invoicing the client.

A review of the above system revealed the following shortcomings:

i) Incomplete Time Orders Majority of the sales executives do not provide all the required information on time orders that is; payment mode, type of transaction, etc. thus making verification of the worthiness of the business impossible.

(ii) Arbitrary discounts by sales executives Sales executives offer airtime to clients at lower rates. These discounts given off the rate card are arbitrary so it is not possible to ascertain whether they are within reasonable bounds or how much revenue the Corporation is losing from the unwarranted discounts.

(iii) Lack of a Discount and Credit Policy It was noted that there is no definitive discount and credit sales policy which renders the revenue collection subject to manipulation by sales executives.

(iv) Absence of Internal Controls for approved, authorized and verified Time Orders There is a high risk of Sales Personnel denying the Corporation revenue by not submitting Time Orders to accounts office for invoicing.

(v) Indication of Value Added Tax on Time Orders Most of the Sales Persons did not indicate the VAT payable by advertisers on the Time Orders hence the amount was converted into airtime which resulted into a loss to UBC.

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Some Radio Stations prepare commercial transmission schedules intermittently and some do not at all hence the risk of airing unapproved, unauthorized and unverified promotional materials that make UBC lose revenue.

The above weaknesses lead to loss of revenue to the Corporation which negatively affects the Corporations‟ sustainability.

I advised management to develop and implement a manual that prescribes procedures/practical instructions for handling sales for sales personnel, develop a credit and discount policy, consider procurement of an internal software that will aid the monitoring of UBC airwaves, ensure all sales persons indicate the VAT charged to all advertisers on time orders and the tax obligations be met as they fall due to avoid penalties.

Furthermore, as an immediate control measure of invoicing advertisers, the Sales Administrator should be given partial rights to the pastel accounting system so that he updates time orders electronically and all Radio Stations and Star television make daily Commercial Transmission.

39.16 Road Transport Fleet – Fuel issues and motor vehicle maintenance It was noted that fuel was issued to 5 (five) grounded vehicles and one (one) motor cycle to the tune UGX.7.5 million kept at Bugolobi Transmission station, various garages and at Broadcast House. Details are as below: REG. NO MAKE LOCATION

UAA 585 F Toyota G - Touring Bugolobi UAA 991 E Toyota G - Touring Bugolobi UAA 586 F Suzuki Decollis Garage UAH 563 V Toyota Hiace Decollis Garage UG 0152 C Toyota Hilux Planet Garage UBA 190 Z TVS Broadcast House

 Further, it was noted that the logbooks are partially maintained by the drivers and not checked by the Transport Officer. In absence of fully maintained logbooks, it was difficult to analyze and examine distance covered by each vehicle.

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 It was noted that most of the vehicles did not have formal written requisitions from either the official users or drivers before the vehicles were repaired. In the absence of requisitions by users, it was difficult to ascertain whether the repairs were justified.

 UBC has 3 grounded vehicles in various garages vandalized beyond repair. The said vehicles have been grounded for a long time without being repaired or disposed of. Details are as below:

REG.NO MAKE CONDITION LOCATION UG 0152 C Toyota Hilux Grounded, Planet Auto Garage Ltd. Double Cabin Vandalized UG OO73C Nissan Urvan Grounded, Central Auto Centre Garage Ltd. Vandalized UG 0079 C Nissan Urvan Grounded, Central Auto Centre Garage Ltd. Vandalized

Under the circumstances, the Corporation‟s vehicle fleet is prone to misuse and vandalism leading to further loss in value.

I advised management to address the issues raised and have grounded vehicles removed from the garages and taken to Bugolobi Transmission Station for safe custody and subsequent disposal. Furthermore, an investigation should be instituted for fuel issued to grounded vehicles.

39.17 Field inspections

Inspections of UBC out posts were carried out during the period and several observations were noted with regard to facilities as below;  Lack of a pertinent record of equipment at the site - Some resident technicians do not keep a pertinent record of non-current assets at the site.  Poor infrastructure - The Power House, Staff Quarters, Transmission House are in poor condition for some stations.  Un-surveyed, un-titled Land - UBC land at several transmission sites was not titled. 143

 Faulty Radio Transmitter - The power supply systems of some Radio Transmitters are faulty.  Faulty Generator - The Injector Pump and Self Starter of some Generators were faulty.

The assets of the Corporation are prone to misuse, wastage and encroachment of the corporation land.

I advised Management to ensure that resident technicians develop and maintain an up- to-date pertinent record of non-current /fixed assets which indicate the date of receipt, description and serial numbers where applicable, have station buildings reconstructed and repainted. Furthermore, management should have the Corporation land fenced off, surveyed and obtain titles to avoid encroachment. The exciters should be repaired and put into use without further delay.

40.0 UGANDA COMMUNICATIONS COMMISSION – YEAR ENDED 30TH JUNE 2014 40.1 Outstanding Receivables The trade and other receivables decreased slightly from UGX.25,287,271,496 to UGX.25,204,001,631 (representing 0.3% decrease from the previous year‟s balance). Out of this amount, M/S Uganda Telecom owes the Commission UGX.10,321,971,507 which is 41% of the outstanding receivables while no recoveries were made from M/s TMP (U) Ltd UGX.823,602,240 and M/s Posta Uganda Ltd UGX.309,221,576. Furthermore, the provision for doubtful debt increased by 163%, from UGX.1,382,127,945 in the previous year to UGX.3,629,627,127 during the year under review. Failure on the part of management to recover outstanding receivables may lead to accumulations beyond the recoverable levels which may necessitate writing off and this could result into financial loss to the Commission.

Management explained that they have intensified debt collection efforts by taking legal action against the major debtor M/S Uganda Telecom Limited through its external lawyers after exhausting internal collection measures. Management further explained that they also contracted the services of two debt collection firms to boost the Commission‟s debt collection efforts.

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I advised management to ensure that all receivables are collected within the credit period.

40.2 Revenue Shortfall During the year under review, the entity budgeted to collect revenue worth UGX.108,829,652,402. Actual revenue collected amounted to only UGX.71,925,415,940 creating a shortfall of UGX.36,904,236,462 (34% of the total budget). The shortfall in revenue collection affected implementation of planned activities of the Commission as indicated in paragraph 7.5 hereunder.

Management explained that the revenue shortfall was mainly due to budgeted international traffic fees whose collection was halted by East African Community member states through the introduction of the One Area Network. The excise tax on incoming traffic is now being collected by URA under the Income Tax amendment of 2013.

I advised management to ensure that their budget forecasts are revised in line with the prevailing circumstances.

40.3 Delayed Implementation of Digital Migration Policy According to the Digital Migration policy, the migration process to Digital Broadcasting was planned to last two and half years effective July 2009.

A review of the activity progress revealed that the programme has not been completed despite a significant investment of UGX.4,443,818,784 during the year under review and UGX.9,406,880,719 during the previous financial year. Due to the delays in concluding the digital migration project, the Commission may not be able to meet the global cutoff date of June 2015 when the analogue system will be switched off. It will also deny the Television viewers the benefits of a crystal clear signal arising out of a superior transmission system.

Management explained that the first phase of the digital migration process covering greater Kampala had been completed and the second phase covering 17 more sites at all UBC sites in the country is currently underway and will be completed before the global cut off deadline of June 2015.

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I advised management to expedite the migration process and have the digital implementation started to the benefit of the users.

40.4 Lack of the Communications Tribunal Section 60 of the UCC Act 2013 mandates the setting of the tribunal known as the Uganda Communication Tribunal. The tribunal shall have jurisdiction to hear and determine all matters relating to communications services arising from decisions made by the Commission or the Minister under this Act.

It was noted that, there was no Tribunal in place to resolve disputes among operators. Absence of a tribunal to boost amicable resolution of disputes among operators and the Commission stifles the communication sector‟s operational environment in Uganda and affects the Commission‟s ability to promote competition, including the protection of operators from acts and practices of other operators. It may also result into increased legal costs to the Commission in case of litigation.

Management explained that under Section 60 (2) of the Uganda Communications Act, 2013, the Uganda Communication Tribunal composed of a Judge and two other persons, is supposed to be appointed by the President on the recommendation of the Judicial Service Commission. This issue was brought to the attention of the relevant offices for action.

I advised management to liaise further with the relevant authorities with a view of having the Communications Tribunal instituted.

40.5 Budget performance A review of budget against actual performance revealed that some budgeted activities especially on capital expenditure had not been implemented. This was mainly due to delays in the procurement process and implementation of activities rolled over from the prior year. Refer to the table below:

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S/N Key Budget Key Budget Amount Remarks Management Item Activities (UGX.) Response 1 Motor vehicle Procurement of 220,000,000 No procurement No disbursement was two 35 - Seater had been done due made in the year under buses to new procurement review as the laws requesting procurement process approval by Prime was underway at the Minister before time the year ended. procuring Motor Vehicles 2 Research and Comprehensive 330,000,000 The activity had not No disbursement was development and analytical been fully made in the year under study on ICT implemented and review as the exercise market there were no study was underway at the (demand and reports availed for time the year ended. supply) audit. Study into the 165,000,000 Activity had not No disbursement was necessary been fully made in the year under reform in implemented and review as the exercise spectrum there were no study was underway at the management reports availed for time the year ended. approach to audit. The exercise was bring it in underway at the time tandem with the year ended. The social, first round of bidding technological attracted only one and economic bidder and the bidding development process was redone. Incubation 165,000,000 The activity was No disbursement was support completed in August made in the year under 2014 after the review as the exercise financial year. was underway at the time the year ended. The exercise was fully completed in August 2014. The incubation programme was conducted by Makerere university in conjunction with Angels Finance Corporation.

Failure to fully implement budgeted activities on time hampers the Commission‟s ability to achieve its objectives.

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Management explained that activities were still on going by the end of the year under review.

I advised management to ensure that adequate planning and coordination is done so that all deliverables are achieved as planned.

41.0 UGANDA PRINTING AND PUBLISHING CORPORATION – 30TH JUNE 2014 41.1 Non remittance of Statutory deductions It was noted that the Corporation had persistently failed to remit statutory deductions to relevant authorities such as URA, NSSF and Entebbe Municipal Council among others to a tune of UGX 3.2bn. These obligations include PAYE, NSSF, WHT, VAT and LST. This could lead to unnecessary fines and penalties.

Management explained that arrangements for remitting statutory deductions and clearing arrears were in final stages.

I advised Management to ensure that statutory obligations are remitted in a timely manner to avoid unnecessary penalties and fines.

41.2 Uncertainty in recoverability of Trade Debtors As at the close of the financial year, a sum of Shs.2,679,180,443 was due. The major categories of these debts are owed by the Government of Uganda and their recoverability is uncertain. Further, most of these debts have been outstanding for over 5 years.

I advised management to liaise with the MoFPED and MoJAC to obtain appropriate advice with a view of recovering the outstanding amounts.

41.3 Approvals, authorization and verification UPPC‟s request for payment is designed in such a way that for a payment to be made, it should be raised by the responsible officials, endorsed by head of department, signed by Human Resource Manager (HRM), authorized by Head of Finance (HoF), approved by Managing Director (MD) and verified by Internal Auditor. Contrary to the above, it was observed that a number of payments were made without approval, authorization and verification of requests by required officers. Payment

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vouchers which are not approved and authorized may result into unauthorized payments which may result into fraud and misappropriation

In their response, Management promised to rectify the anomaly by changing the request for payment to be signed by only three officers instead of five as had been the practice.

I await Management action on the matter.

41.4 Procurement anomalies I noted that the Corporation‟s procurement processes were not in line with Public Procurement and Disposal Authority (PPDA) regulations and guidelines. A review of procurements worth Shs.53,841,000 revealed that most of the important information such as requisition forms, submission forms, evaluation reports, contracts were not available contrary to PPDA regulations and guidelines on procurements. There is a risk that the organization may obtain poor quality goods and services just because the competition and value for money were not paramount in awarding contracts.

Management responded that the procurements were urgent, hence there was insufficient time to go through the vigorous procurement processes.

I advised management to always prepare procurement plans in time to avoid cases of emergencies. I also urged management to follow the PPDA guidelines whenever any procurements were to be made.

41.5 Incomplete information in personnel files Personnel files of 26 staff members were sampled and reviewed for accuracy and completeness. Generally, all these personnel files lacked valid information such as appointment letters, employment contracts, academic documents, employee‟s passport size photographs and Curriculum Vitaes. As such it was difficult to assess the competencies of the staff.

Management explained that the Corporation has recruited a Human Resource and Administration Officer who has embarked on the task.

I await Management action on the matter.

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41.6 Stores Accounting system The organization did not have proper store records such as stock cards, records of stock issue and stores requisitions. It was also noted that some of the purchases were not received in the store but were instead taken to the user departments directly.

Absence of proper stores accounting system makes it hard to track the movements of supplies in and out of the stores.

I advised Management to put in place a proper stores accounting system to track deliveries and issues out of the store.

41.7 Assets of the Corporation The core activity of the Corporation is printing and publishing in a world with continuously changing technology. To cope up with competition in the market, the Corporation has to ensure quality and timely delivery. However, it was noted that 70% of machinery in the production department is outdated and non-functional and this has resulted into approximately 40% of jobs being outsourced. This may result into loss of valuable customers that the entity has built over time.

Management explained that the Corporation started on the disposal process but this has not yielded any positive results. They explained that they are aware of the need to procure modern machines but this has been constrained by financial resources.

I advised management to pursue the matter further and have the old assets disposed with a view of acquiring new ones.

41.8 Resource allocation and utilization It was noted that Gower‟s house initially occupied by the former Managing Director was left vacant since her departure on 3rd August 2012. In addition the house is apparently in need of renovation to make it habitable.

There is a risk that the asset may deteriorate further if no renovation is undertaken.

Management explained that the renovation for the house on plot 5, Gowers Road has been budgeted for in the 2014/15 budget although actual renovation would be subject to availability of funds.

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I advised management to consider allocating resource for the renovation of the house.

41.9 Time management of staff Section 8.1 of the UPPC human resource manual states that, except in special cases, the normal working hours for the employees of the corporation shall be 8 hours reporting to work at exactly 8:00 am and leaving at 5:00 pm. However, it was noted that employees have routinely violated the Corporation regulations by arriving late between 8:30 am and 12:00 noon.

Management explained that they had repaired the staff bus which brings all staff to work by 8.00 am, and they were also in the process of installing a computerized clocking system to monitor the hours of work put in by each employee.

I advised management to put in place measures to ensure that all employees comply with time management.

41.10 Rental Agreement UPPC rents out part of its premises to M/s Muhlbauer since May 2010. However, it was noted that there was no tenancy agreement with the Corporation to that effect. In addition, M/s Muhlbauer owed Shs 1.2bn to the Corporation through Ministry of Internal Affairs which had been outstanding since 2010.

There was no clear documentation for further follow up in terms of tenancy specifying monthly rental income to be received, and terms of payment. This has largely affected further follow up on this matter by management though annual provisions have been made.

Management explained that efforts were underway to ensure that these rental arrears were collected by the Corporation.

I advised management to make follow ups and reminders to ensure that Ministry of Internal Affairs pays all the rental dues.

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41.11 Tax Recoverable It was noted that the Corporation had a tax recoverable amounting to Shs.423,861,533 in its financial statements that had been outstanding since 2010. However no documentation was availed in form of withholding tax (WHT) certificates by management for further follow-up to enable the Corporation reduce on its tax liability with URA. There is a risk that such tax recoverable without supporting documents such as WHT certificates could result into overstatement of the Corporation‟s financial position/ assets.

Management explained that they were in the process of following up the Withholding Tax Certificates with the respective clients. They further explained that this had taken longer than expected due to staffing gaps in the Finance Department which were currently being filled. I advised management to follow up on WHT certificates from its clients to have this matter settled and help the Corporation to reduce on its tax liability with URA.

42.0 UGANDA PRINTING AND PUBLISHING CORPORATION – 30TH JUNE 2013 42.1 Non remittance of Statutory deductions

It was noted that the Corporation had persistently failed to remit statutory deductions to relevant authorities such as URA, NSSF and Entebbe Municipal Council among others to a tune of UGX 2.8bn. These obligations include PAYE, NSSF, WHT, VAT and LST. This could lead to unnecessary fines and penalties.

Management explained that this arose due to financial constraints faced by the Corporation. They further explained that this issue will be addressed once the funds are made available.

I advised Management to ensure that statutory obligations are remitted in a timely manner to avoid unnecessary penalties and fines.

42.2 Uncertainty in recoverability of Trade Debtors

As at the close of the financial year, a sum of Shs.2,588,251,809 was due. The major categories of these debts are owed by the Government of Uganda and their recoverability is uncertain. 152

Management explained that these debts have been outstanding for over 5 years and efforts to recover them have been futile.

I advised management to liaise with the relevant Government Authorities to have the outstanding amounts recovered.

42.3 Approvals, authorization and verification

UPPC‟s request for payment is designed in such a way that for a payment to be made, it should be raised by the responsible officials, endorsed by head of department, signed by Human Resource Manager (HRM), authorized by Head of Finance (HoF), approved by Managing Director (MD) and verified by Internal Auditor. Contrary to the above, it was observed that a number of payments were made without approval, authorization and verification of requests by required officers such as HoF, MD and Internal Audit. Payment vouchers which are not approved and authorized may result into unauthorized payments which may result into fraud and misappropriation. The absence of such approvals, authorization and verification makes it difficult to ascertain whether such funds were put to proper use.

In their response, Management promised to rectify the anomaly and have all subsequent transactions properly approved.

Management action on the matter is awaited.

42.4 Lack of supporting documents

Generally Accepted Accounting Principles (GAAP) require that all payment vouchers should be supported with necessary documents such as requisitions, receipts and invoices. I noted that payments amounting to Shs.44,675,900 were made without proper supporting documents. There was no evidence in form of receipts, quotations, LPOs, DNs, GRNs and acknowledgement on many of the procurements made. I also noted that the Corporation did not have an advance ledger to support funds advanced to staff to carry out official activities.

In the absence of the supporting documentation I could not ascertain whether these funds were put to the right use.

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I advised management to put in place control measures and ensure that the Corporation funds are accounted for and in time.

42.5 Procurement anomalies

I noted that the Corporation‟s procurement processes were not in line with Public Procurement and Disposal Authority (PPDA) regulations and guidelines for all procurements conducted in the period under review.

A review of procurements worth Shs.54,064,000 revealed that there was no competition, instead these companies were directly from the prequalified list which had also expired. I noted instances were supplies made were not tallying with payments. I also noted that most of the micro procurements (below Shs.2,000,000) were not supported with the required necessary accountability such as acknowledgement receipts.

There is a risk that the organization may fail to obtain value for money for the procurements made.

Management responded that the procurements were urgent, hence there was insufficient time to go through the vigorous procurement processes.

I advised management to always prepare procurement plans in time to avoid cases of emergencies. I also urged management to follow the PPDA guidelines whenever any procurements are to be made.

42.6 Incomplete information in personnel files

Personal files of 30 staff members were sampled and reviewed for accuracy and completeness. Generally, all these personnel files lacked valid information such as appointment letters, employment contracts, academic documents, employee‟s passport size photographs, Curriculum Vitaes and employee annual performance appraisal relating to the year 2013.

Without necessary documentation, the files were incomplete and therefore the Corporation personnel could not be assessed effectively.

Management responded that the process of updating employee files had started. 154

I await Management action on the matter.

42.7 Poor Stores Record system

The organization did not have proper store records such as stock cards, records of stock issue and stores requisitions were maintained. It was also noted that purchases were not recorded in the stores but were instead delivered to the user departments directly.

Absence of proper stores records makes it hard to track the movements of supplies in and out of the stores.

I advised Management to put in place a proper stores accounting system to track deliveries and issues out of the store.

42.8 Outstanding Bid securities

I noted that the Corporation has funds tied up in different organizations as bid securities to a tune of UGX 33,937,292. This amount was noted to have been outstanding yet the bid validity period had expired. The entity risks not utilizing the funds held in bid securities.

I advised Management to recover funds held in bid security in time.

42.9 Insufficient debt management

I observed that there is insufficient debt management as evidenced by huge outstanding debts and obligations. The Corporation also lacks a credit management policy and guidelines to provide guidance on credit limit levels and the credit period beyond which these credits should not be extended.

The entity is exposed to the risk of extending credit to entities that have consistently failed to pay and are therefore not credit worthy.

Management explained that they will address the matter with immediate effect.

I advised that a credit management policy be put in place to guide management on the credit limit levels. I also advised that the Corporation endeavors to collect debts on a timely basis to enable it plan and implement its programs effectively and efficiently.

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42.10 Lack of Entity Budget

I noted that the Corporation did not prepare a budget for the period under review. Without a budget, there is a risk of spending funds in uncoordinated manner and in non priority areas. Further, evaluating performance against targets cannot be done appropriately.

Management explained that they had started on the process of developing a budget and this will be fully implemented in the financial years 2013/14 and 2014/15.

Management action on the matter is awaited.

42.11 Assets of the Corporation

The core activity of the Corporation is printing and publishing in a world with continuously changing technology. To cope up with competition in the market, the Corporation has to ensure quality and timely delivery. However, it was noted that 70% of machinery in the production department is outdated and none functional and this has resulted into approximately 40% of jobs being outsourced. This may result into loss of valuable customers that the entity has built over time.

I advised management to pursue the matter further and have the old assets disposed with a view of acquiring new ones.

43.0 UGANDA PRINTING AND PUBLISHING CORPORATION – 30TH JUNE 2012 43.1 Forensic investigation into the operations of Uganda Printing and Publishing Corporation carried out in May 2013

a) Irregular payment of marketing commissions to sales agents and third parties – UGX 361,067,688

I noted that UPPC irregularly paid Shs.361,067,688 to various agents and entities in respect of marketing fees/commissions as detailed below:

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• Sales agents at UPPC were paid a marketing commission for direct jobs amounting to Shs.10,900,000 for which no evidence was availed to indicate that the particular sales agent had solicited for the work. I also noted an instance where two UPPC‟s sales agents were paid commissions amounting to Shs.6,726,993 for the same jobs.  UPPC paid shs.197,494,282 to Kenroy as marketing fees for printing the jobs in the gazette for the Electoral Commission (ECU). These jobs are mandatorily printed at UPPC and therefore should not attract marketing commissions. • UPPC paid Shs.90,157,152 to Kenroy for debt collection of Shs.797,000,000 from Electoral commission. There is no valid contract between Kenroy and UPPC for the debt collection service. One of the Directors of Kenroy is a former Chairman of the UPPC Board. • Further, UPPC paid Devine Business Solutions Limited (Divine) marketing fees totalling to Shs.29,246,202 for gazette jobs that UPPC is mandated to undertake, and therefore should not attract marketing commissions. • UPPC also paid Shs.26,543,051 to Nafuna & Co in respect of ECU jobs which were printed in the Uganda gazette. UPPC is the only printer mandated to print the Uganda gazette and therefore such a job should not have attracted commission.

I advised management to improve its internal control processes to enable it to maintain a record of all direct jobs received by it, and all jobs solicited by its sales agents. Disciplinary action should be taken against the concerned staff for authorizing and approving the irregular payments.

b) Losses incurred due to flawed procurement of goods/services by UPPC – UGX 103,960,272

The following anomalies were noted in the procurement of goods and services;  A payment of Shs.15,000,000 was purportedly made to B.K Trading Company for the supply of various items. However investigations revealed that the payment was actually made in the names of Levi Malinzi vide cheque number 7406 from Entebbe Stanbic Corporate account. I further noted that these supplies were actually not delivered to the stores.

 Shs.44,639,400 was paid to Esso Graphix Limited for printing outsourced work for Care International. The job under work ticket number 17530 had been cancelled due

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to tight delivery schedules. However, one of the staff (Bongonyinge) purportedly acknowledged receipt of the work from Esso Graphix. It was noted that two cheques worth Shs.22,319,700 each paid to Esso Graphix. The cheques were signed by Bakaawa and Malinzi. These payments were therefore not supported with any services provided.

 Management of UPPC disposed of a generator to one Andrew Kizito at Shs.4,000,000. A staff informed the investigating team that the generator had a reserve price of UGX.8,000,000 thus UPPC incurred a loss of Shs.4,000,000. The Contracts Committee was not involved in this decision and the independent valuers report was not availed to the investigating team. The disposal process was in contravention of regulations 293. (1), 297. (2) 315 and 334 of the Public Procurement and Disposal of Public Assets

 UPPC also suffered an exchange loss of Shs.40,320,872 following a cancellation of a letter of credit (LC). The LC was for a supply of printing paper by Mavane. However, Mavane did not honour the contract because of failure to agree terms of the LC with UPPC and as a result the LC expired on 13 Jan 2012.

UPPC should also streamline its procurement of outsources services, and ensure that this is not done in an ad-hoc manner. Potential suppliers should be shortlisted, and called upon as and when required by UPPC. Further disciplinary measures should be instituted the staff responsible for the losses.

c) Misappropriation of corporation funds- UGX 74,082,117 and USD 97,000

A re-computation of gratuity payments to employees that had retired during the period under investigation revealed that an excess amount of Shs.72,682,117 was paid over the total entitlement.

Further, discrepancies were noted in the similar records maintained at UPPC, and those maintained by the customer (East African Legislative Assembly (EALA)). In one instance, UPPC issued a receipt acknowledging receipt of USD 57,000 from EALA whereas the duplicate receipt at UPPC indicates Shs.60,000 received from an employee as recovery of staff advance. In another instance UPPC issued a receipt for recovery of staff advance

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amounting to Shs.867,800. However, the same receipt number issued to EALA indicates that UPPC acknowledged receipt of USD 40,000.

It was also noted that there were instances where an employee of UPPC acknowledged receipts of cash from Capital Markets Authority, but did not remit this amount to UPPC. The total amount not remitted to UPPC was Shs.1,400,000.

I advised that recovery should be made from additional gratuity paid to employees as a result of the calculation errors. Further, a detailed verification should be undertaken of the gratuity paid to employees from 2007 to date, in order to identify any further anomalies in the payment of gratuity and the impact of this on UPPC.

With regard to payments by EALA, further investigations by personnel from the Criminal Investigations Department should be undertaken.

d) General management and lack of team cohesion at UPPC

It was observed that the tenure of the current Board expired in March 2012 and was indefinitely extended. The substantive managing director also retired on 5th September 2012 and since then the corporation is being run by an Acting Managing Director who was the former Finance Manager. I further noted that three key managerial positions were vacant - Sales and Marketing, Production and Finance. I also observed that there is a general breakdown in the management team as evidenced by the existence of various opposing groups among the top management and persistent negative media reports.

The poor management and lack of team cohesion is unhealthy for the functioning of the organization. The concerned stakeholders should take steps to overhaul the management structure at the organization.

e) UPPC marketing policy

UPPC has a marketing policy in place, however, it was noted that although the policy is dated 2010, it was signed by Bakaawa, former managing director, and Bandutsya, UPPC‟s Board Chairman on 1 June 2011. I could not ascertain the period in which the policy became operational. It was also noted that UPPC had an earlier marketing policy

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dated 2007, but I could not ascertain if it was in use at UPPC. The commission policy does distinguish between percentage rates for commissions payable and sales amounts. Furthermore, it does not categorically state if commission is payable for print jobs mandated to be undertaken by UPPC.

The policy should clearly state the jobs for which commission is payable, and the jobs for which no commission should be paid (jobs mandated to be done by UPPC).

43.2 Annual Audit of Uganda printing and Publishing Corporation for the financial year ended 30th June 2012 a) Statutory obligations It was noted that UPPC has a tax liability to settle with the tax body-URA of Shs.1,761,532,794. In addition Shs.247,395,434 is also owed to NSSF in respect of social security funds contributions. This exposes the Corporation to penalties from the relevant statutory bodies. The issue was pointed out in my previous audit report but has still remained outstanding.

According to management, the liability has remained outstanding due to lack of funds. In addition, reminders have been sent to MoFPED but with no positive response. I advised management to keep liaising with the Ministry to address the corporation‟s obligations to avoid further defaulting and penalties.

It was further noted that the Corporation employs sales personnel who are paid on a commission basis monthly. However, no taxes are deducted from the payments made to the Sales personnel. Failure to deduct, file and pay Withholding Tax (WHT) from the sales representatives to Uganda Revenue Authority (URA) exposes the Corporation to penalties with the Tax body (URA). I advised management to comply with the provisions of the Income Tax Act to avoid unnecessary penalties. b) Personnel files- Staff Appraisals It was noted that staff appraisals are not undertaken regularly by the Corporation to assess performance of staff. For the last two financial years there was no evidence to show that this was undertaken. Without the appraisal of staff, management is unable to

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monitor the progress of staff and also to provide timely guidance in addressing any weaknesses and challenges.

Management was advised to ensure that the appraisals are undertaken regularly. c) Management of Fixed Assets The Corporation acquired new assets like computers, office equipment and some plant and machinery worth Shs.14,715,150. However, it was noted that some of these assets were not engraved by the time of the audit. Failure to engrave assets hinders easy identification and may lead to their loss and misuse.

Management has promised to address the matter. d) Non-approval & verification of expenditure by the Internal Auditor According to the UPPC‟s financial manual, the internal auditor is required to verify payments made by the Corporation. However, the majority of the payments we reviewed during the audit were not verified/initialed by the internal auditor.

Sample of payments not verified by internal auditor

Cheque No./ Payment Reason Date Voucher No. Amount Details Not verified by the Internal Auditor Payment for 20/06/2012 007769 7,928,533 separate vouchers Not verified by the 6,742,000 Payment for Internal Auditor 30/02/2012 007743 vouchers attached Not verified by the 3,600,000 Payment of Internal auditor 22/01/2012 007443 printing materials Not verified by the 21/12/2011 007462 1,600,000 Hardware repair Internal Auditor and Maintenance

Total 19,870,533

This weakens the internal control system and may result in unexplained expenditures being incurred and consequently misuse of Corporation‟s funds.

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Although management explained that UPPC is a commercial entity whereby urgent payments can be made to avoid delays in the service delivery, internal audit mechanisms should not be viewed as deterrents to efficient operations. I advised management to comply with the manual. e) Payment Vouchers not stamped “PAID” It was noted that some of the cleared invoices and payment vouchers in the period under review were not stamped “PAID” as tabulated below; Amount Unaccounted Date Cheque No. Details for Reason

13/06/2012 007765 Legal fees 2,252,000 Not Stamped paid Fuel and 13/06/2012 007750 Lubricants 3,239,850 Not Stamped paid

Total 5,491,850

Failure to cancel all paid vouchers and their supporting documents with the „‟PAID‟‟ stamp presents a risk of resubmission of the same document for duplicate payment.

Management was advised to ensure that all cleared Invoices and together with the payment vouchers are stamped “PAID. f) Incomplete Bank Statements At the time of the audit, the Corporation did not have complete bank statements for the account number 014/00/545163/01 of Stanbic Bank Corporate branch for the year ended 30th June, 2012. Only statements for the month of August 2011 up to June 2012 were available for our review. In absence of the statements it becomes difficult to undertake reconciliation statements and as such errors that may have occurred go undetected.

Management was advised to ensure that all the bank statements are obtained in order to facilitate the preparation of bank reconciliation statement.

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44.0 UGANDA INSTITUTE OF INFORMATION & COMMUNICATION TECHNOLOGY

44.1 Non-current assets

44.2 Non-application of accounting standards International Accounting standards (IAS 16) requires that the items of depreciable Property, Plant and Equipment‟s useful life should be reviewed at least every financial year end and depreciation rates adjusted accordingly for the current and future periods. Similarly, IAS 16 requires Management to state in its notes to the accounts whether subsequent measurement/carrying value of its non-current assets presented in the financial statements are measured at Cost model or fair value model.

It was noted that management did not disclose in its notes to the financial statements the measurement model and neither did it review the useful life of its non-current assets regularly. Furthermore, impairment reviews were not done as required. As a result, the assets reflected as UGX.693,383,660 of the Institute may not be disclosed at their fair value.

Management promised to engage the Chief Government Valuer to undertake the revaluation of the Institute‟s assets.

I await the outcome of management‟s efforts.

44.3 Revenue shortfall Part I, sections 4.3.5 and 5.4.1 of the Uganda Institute of Information and Communications Technology Financial regulations and accounting manual spells out the basis for revenue budgeting and revenue collection responsibilities.

A review of revenue performance revealed that out of the budgeted revenue of UGX.3,760,072,814 from two core funding sources only UGX.1,927,527,755 was realized resulting into a shortfall of UGX.1,832,545,059 (49%). The revenue shortfall may have been due to unrealistic budgeting and /or laxity in enforcing revenue collection and recording. The table below refers.

REVENUE SOURCE BUDGET(UGX) B ACTUAL (UGX) A VARIANCE (UGX) (B-A)

Course tuition fees 3,583,680,000 1,785,679,066 1,798,000,934

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REVENUE SOURCE BUDGET(UGX) B ACTUAL (UGX) A VARIANCE (UGX) (B-A)

Estates Rental Income 176,392,814 141,848,689 34,544,125

3,760,072,814 1,927,527,755 1,832,545,059

Failure to collect budgeted revenue compromises the operational objectives of the Institute.

Management explained that the Institute revenue depends on student numbers and the non-realization of targeted numbers has a direct and adverse impact on revenue performance.

I advised Management to develop strategies to improve student numbers and enhance revenue collection. I also advised them to establish a comprehensive student database which will among other things guide the process.

44.4 Strategic issues and corporate governance 44.4.1 Review of legal status The UICT formerly known as the Uganda Communications Institute was established in 2000 by Uganda Communications Commission (UCC) in fulfillment of one of the Commission‟s functions, namely, “to establish and operate a communications Training Centre” as provided in the Uganda Communications Act, 1997. In October 2005, under statutory instrument No. 79, the Ministry of Education and sports issued “The Universities and other Tertiary Institutions (Establishment of Uganda Institute of Information and Communications Technology) and the Institute started receiving grants from the same Ministry. However, Cabinet in 2009 under Minute 440 (CT2007) approved transfer of the Institute from Ministry of Education to Ministry of Information and Communications Technology where it was also entitled to a grant but this time from UICT. In 2013, UICT on the recommendation of Parliament was realigned to UCC and started receiving the grant from UCC and reports to the line Ministry through UCC.

However since its enactment, I noted an ambiguity in the interpretation of several provisions which directly affects service delivery. There is therefore urgent need for clarity in the legal framework in some areas as indicated below:-

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 Mandate of the Ministry of Education (MOES) and Ministry of Information and Communications Technology (MICT) – Although UICT was transferred to the Ministry of Information and Communication Technology (MICT), the Ministry plays no role as regards to recruitment of technical staff as evidenced by the recent recruitment of the Institute Principal which was undertaken by the Education Service Commission. Similarly, the responsibility for appointment of the Governing Council members could not be ascertained.

For effective service delivery, there is need for the parent Ministry to have control on operations of the Institute to avoid multiple reporting centres.

 The Uganda Communications Commission – It was noted that under Section (w) UCC Act 2013, the Commission is mandated to “operate and manage” UICT. This provision is unclear as it does not clarify the responsibilities of the line Ministry and UCC with regard to the following;

i) Human resource – UICT employees are neither under the mandate of UCC, MICT nor Ministry of Public service and as such there is no approved Human resource manual in place.

ii) Funding – Although the Institute is funded by UCC, there is no confirmed legal obligation on either the Commission or Ministry as regards to funding of the Institute and at the time of writing this report the Institute‟s budget had not been approved by MICT.

Management explained that the matter will be drawn to the attention of the MICT and UCC. Management further explained that a statutory instrument was being drafted by UCC spelling out some of the modalities.

I await the outcome of management‟s effort on following up the approval of the statutory instrument.

44.5 Absence of Approved strategic plan The budgeting process of UICT should be based on the integrated link of the strategic plan and annual work plans to ensure effective service delivery. However, it was noted that the Institute does not have an approved strategic plan.

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In absence of a strategic plan there is lack of strategic guidance in achieving the Institute‟s objectives.

Management explained that the delay in the development of the strategic plan was due to the transition process from MOES to MICT and eventually to UCC. Management further explained that UCC had however hired a consultant to develop the Institute‟s Master Plan which will include a Strategic Plan. The Master Plan is expected to be in place by March 2015.

I advised Management to expedite approval of the strategic plan so as to align the plan and be able to measure performance.

44.6 Staffing gaps A review of the Institute‟s Organization structure revealed that out of the approved 107 posts, only 74 are filled leaving 35 posts unfilled representing 35% understaffing. Of concern are the key positions of Internal auditor and systems administrator. Summary of status is as below; Department Approved Filled 1 Principal 10 9 2 Institute secretary 33 23 3 Accounts 4 3 4 Academic registrar 11 10 5 ICT department 32 19 6 Management department 14 9 7 BDC 3 2

Lack of staff in key positions of the organization affects the performance and overall achievement of organization‟s goals and objectives. Furthermore, the existing members of staff may also be overworked leading to staff demotivation and probable staff turnover.

Management explained the position could not be filled because of inadequate funding, however, once the master plan is addressed the staffing issues will be resolved.

I await management‟s action on the matter.

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44.7 Specific procurement observations The PPDA Act and regulations 2003 guide and regulate Government entities with regard to functions and operations relating to procurements. Audit of a sample procurement files revealed procurement anomalies as per details below;

Procurement Procurement Contractor Contract price Audit observation Ref: details (UGX)

UICT/SRVCS/ Provision of Kadic health 54,820,700  Procurement was not 10-11/00116 group medical foundation included in the annual services work plan contrary to PPDA regulation 97 that requires an annual work plan with a detailed breakdown of activities of works, services or supplies to be procured by the entity.

 No approval of contract document by contracts committee using PP form 209 contrary to PPDA regulation 48(d) (v).

 No approval of Solicitor General of the contract despite being above 50 million contrary to the PPDA guidelines and PPDA regulation 225(2) f.

 No approval of contract amendment by Solicitor General contrary to PPDA regulation 262(3) (c).

UICT/SUPLS/ Food for M/s Starken 10,934,000  The evaluation report 13-14/00045 semester 2 frauen Ltd states that there was no exams adjustment contrary to facts on financial summary sheet.

 The award winner placed a bid of UGX.12,902,120 inclusive 18% VAT of UGX.1,968,120 and the second lowest bidder (M/s UICT SACCO canteen) placed a lower bid of UGX.11,154,625.

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Procurement Procurement Contractor Contract price Audit observation Ref: details (UGX)

However, during evaluation the VAT component of the winner was adjusted and removed by the evaluation committee without any valid explanation. This lowered his bid and advantaged him over the second lowest bidder who initially had the lowest financial bid.

 Contract management was bad as there was no list of attendance for the 12 days of exams to confirm meals for all 87 staff. The timetable was indicating a maximum of 20 lecturers per day and other times 10 including weekends.

UICT/SUPLS/ examination Kamage 15,009,600  There was no 13-14/00016 booklets Enterprises confirmation of funding Ltd by the accounting officer on PP Form 20 contrary to PPDA regulation 105(3).

 The evaluation report states that there was no adjustment contrary to facts on financial summary sheet.

 The New vision placed a bid of UGX.13,327,200 and specified 0% VAT which placed them as the lowest bidder. However, the evaluation committee marked up VAT of 18% and adjusted the amount upwards to UGX.15,726,200 without any valid explanation thus advantaging the 168

Procurement Procurement Contractor Contract price Audit observation Ref: details (UGX)

winner.

The above anomalies may have not yielded value for money for the procurements undertaken.

Management explained that the anomalies related to medical scheme was a result of an emergency as the current scheme had expired and employees could not access medical services. Management further explained that the rest were due to the need for evaluating all bidders with limited workforce.

I advised management to ensure that the PPDA Act and regulations are adhered to and effort be undertaken to strengthen staffing in the Procurement and Disposal Unit.

44.8 Budget Performance Budget estimates are based on outputs to be achieved for the financial year and during implementation, effort should be made to achieve the agreed objectives or targets of the entity within the availed resources.

A review of the budget performance for the year revealed that most targets were not achieved mainly due to lack of funds. This was caused by inadequate funding of the Institute by their partners (UCC) and over budgeting for tuition fees which as a result greatly hampered service delivery and therefore the objectives were not adequately met. Details of key areas of underperformance are as below;

Item head Approved Budgeted outputs Amount Remarks Budget spent 2013/2014 2013/2014

(UGX) (UGX)

Office and Lab 345,185,000 Assorted professional 14,274,544 Only 4.1% Equipment , software (Library performance Training Tools, KOHA, Office 07, Computers and Anti-Virus, operating Accessories system, visual studio (UGX 67,600,000)

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Item head Approved Budgeted outputs Amount Remarks Budget spent 2013/2014 2013/2014

(UGX) (UGX)

Furniture & 188,480,000 Assorted furniture 2,208,464 Only 1.2% Fittings and fittings ( Chairs performance for classrooms, secretarial, office and library, sofa set, curtains and rods /rails, bookends, reception table, bookshelves, trolleys, Wardrobes and others

Text Books & 59,280,000 Text books and 0 No funding Library library resources ( E- hence 0% Resources book, Library text performance books references and inspirational books, journals

Physical 2,050,430,000 Extension of 27,345,500 Only 1.3% Infrastructure administration block performance Improvement (UGX 1,600,000,000),

Repair of perimeter wall around the institute (UGX 24,500,000), Renovation and painting of hostel(UGX 54,000,000), Painting materials for SATCOM, Classroom & DH and Painting of power control boards and roofs UGX (50,800,000)

Management explained that they had a challenge with the current Institute funding framework of which 80% revenue is from internally generated sources. Management further explained that most of the targeted revenue from UCC was based on the assumption that the Master Plan would be in place to enable capital projects take off.

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I advised management to ensure realistic budgeting is undertaken during the budget process. In the meantime, management should liaise with the responsible authority with a view of having the resources available.

45.0 UGANDA NATIONAL COUNCIL OF SCIENCE & TECHNOLOGY – 30TH JUNE 2014 45.1 Non Valuation of Land Uganda National Council for Science and Technology (UNCST) has two plots of land, one in Mengo and the other in Ntinda. The land in Ntinda where the Head Office is located was procured in 2006 but is still valued at the original cost price. The second plot bought in 2004 and located in Mengo next to Bulange is also valued at a purchase price then. Both assets were disclosed at historical cost of UGX.672,971,000 in the financial statements. IAS 16 requires that land generally should be valued at an interval of 3-5 years depending on the market turbulences to be fairly stated in the balance sheet. Given the general increase in land prices the assets disclosed in the financial statements are therefore understated to that effect.

The Accounting Officer explained that the process of sourcing a property valuer has been initiated and the financial statements for 2014/15 will reflect the fair values of the land.

I urge the Accounting Officer to expedite the valuation process to provide a more realistic value in line with IAS 16.

45.2 Underfunding of the Council During the financial year 2013/14 Parliament approved funding to UNCST amounting to UGX.12,413,507,000 but only UGX.9,230,172,096 was released. This created a shortfall of UGX.3,183,334,904. As a result, a number of activities were not accomplished as indicated in the table below.

Expected Outputs Planned Activities Total (UGX) Operationalize the office of Establish an inventory of 40,000,000 the National Designated institutions working on climate Entity (NDE) of the Climate changes Technology Network (CTCN) National 4 Staff trained in Undertake African Union/Global e- 120,000,000 Knowledge Society Schools and Communities/United 171

Expected Outputs Planned Activities Total (UGX) Management Nations ICT Taskforce facilitated training on Knowledge Society management Library Books and other Equipping the Library and 23,000,000 reference materials Resource Centre Development of the policy Commission an expert to 20,000,000 and bill for bio-security in scrutinize the final draft policy Uganda document Hold a breakfast meeting to 30,000,000 present the final draft of the policy and bill Printing of the policy after 55,000,000 Cabinet approval Procurement of vehicle for M/vehicle procured 160,000,000 DES Office Infrastructure established Development of regional Science 2,770,000,000 Parks 3,218,000,000

The Accounting Officer explained that UNCST has always made tremendous requests to Ministry of Finance, Planning and Economic Development but the requests have not been responded to.

I urge the Accounting Officer to clearly indicate to Treasury the importance of these activities in relation to achievement of its strategic objectives in the continued efforts to lobby for funds.

45.3 Allocation of land to UNCST by Uganda Investment Authority The Government of Uganda through the Uganda Investment Authority (UIA) allocated UNCST a piece of Land measuring appromately 5 (Five) Acres located in the South „B‟ Estate of the Kampala Industrial and Business Park, at Namanve to establish the state- of-the-art National Science and Technology Park to undertake top-class scientific and technological research and development. The following were observed;

45.4 Irregular Payment In December 2010 Uganda Investment Authority (UIA) made an offer to lease 5 acres of land to UNCST with specific conditions and time lines upon which it would then sign a lease agreement. The Land offer was a 30 years lease, at a total cost of US Dollars 172

80,000 per acre of land (equivalent to US Dollars 400,000 for the 5 acres allocated). On this premise UNCST paid a sum of US$.40,000 in December 2010 and has not made any other payments to date. In December 2014, a lease agreement was signed four years after the inititial payment. I found this irregular and there appears to be laxity on the part of management to secure the land.

I advised UNCST to engage the stake holders to ensure that the funds for the procurement of this land is made available to avoid losing the land on which the commitments have already been made.

45.5 Delayed Works Contract and Inadequate Supervision On the 5th August 2013, UNCST contracted a local company to carry out works of grading & back filling, fencing and making Storm water drainages on the 5 Acres-land at a contract sum of UGX.892,540,950 (tax inclusive).

At the time of writing this report, UNCST had paid the contractor a sum of UGX.580,000,000 for the works in respect of grading. The agreed works execution period was six (6) months starting on 13th August 2013 implying that the works were projected to end on 13th February 2014. The contract period was revised and extended to 24th April 2014 to allow the contractor and Project Manager complete the remaining contract works. Even after this extention the works largely remained incomplete.

Management explained that the delay in the exectution of the works was due to underfunding.

I advise management to follow up the matter with the stakerholders and have the works completed.

45.6 Grading works It was noted that the grading works were not properly done as it was observed that storm waters were washing away the applied murram.

Management explained that the defects were identified and the contractor was requested to make good of all the defects.

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I advise management to compel the contractor to correct above noted defects as per original contract terms.

45.7 Incomplete Integrated Intelligent Computer System (IICS) Project The Uganda National Council for Science and Technology entered into an agreement with the In-charge of the Project to design and implement an easy to use computerized system that has the capacity to perform accurate diagnosis of malaria, recommend appropriate treatment for malaria, capture and update patient data real time and provide platform for facilitating data sharing among National Health establishment, and also generate relevant patient and drug management reports.

The project agreement was drawn and signed in January 2010 and was to last for a period of three years ending in December 2012.

According to management, a sum of UGX 2.3 billion has been spent on the project activities however it was noted that at the time of writing this report, the project had since stalled. I could not establish how many of the National Health centres had been covered to-date. It was further noted that if government does not continue funding the rollout to Health Centres and Hospitals, the investment so far made will be wasteful and the initial objectives will not be achieved.

Management explained that the project exhausted its initial grant but discussions are underway to secure further funding to enable the project cover the next stage.

I advised the Accounting Officer to consider the matter as a priority in seeking funds from the Treasury.

45.8 Support to other Scientists Projects (STS) - Assets It was noted that projects which closed and have no current running activity, still possess UNCST assets; Oluwoko project still has 2 UNCST motor vehicles among other assets, Frevasema project is also still in possession of 2 motor vehicles and other assets. Despite projects‟ submission of terminal reports, no efforts have been taken by UNCST to recover the said assets. There is a risk of loss of such assets.

The Accounting Officer explained that UNCST has written to the affected project recalling the assets. 174

I advise management to diligently follow up the recover of the assets.

46.0 UGANDA POST LIMITED - YEAR ENDED 30TH JUNE 2014

46.1 Sustainability of services –Liquidity analysis Financial analysis of the company‟s financial information was undertaken and the following were observed for the attention of management in order to improve its competitiveness and ensure survival: YEAR 2014 2013 2012 IMPLICATIONS AND REMARKS

Current 1.1 1:1 1:0.9 Measures ability to meet short term Ratio liabilities when they fall due. Current assets were adequate to cover current liabilities in 2014 and 2013. In 2012 Current assets were insufficient to cover current liabilities. The higher the better and ideal is 2:1 This is not healthy for POSTA.

Quick Ratio 0.6 0.5 0.6 Measures ability of current assets minus stock/ Inventory to meet short term obligations when they fall due. Current assets were insufficient to cover current liabilities for the past three years. The higher the better.This again is not healthy for POSTA. The ideal is 1:1

Average 0.21 0.19 0.19 This Ratio measures average number collection of days required to convert receivables Period into Cash. It can be noted that it takes 77 days (0.21 x 365) to collect cash and this is below the Posta 60 days debt recovery period policy.

Times 1.38 times 2.3 times 3.1 times In order for the company to benefit Interest from debt financing, the fixed interest Earned payments that accompany debt must be more than satisfied from operating profits. The higher the better. This was not healthy for the company as out of the UGX. 949,001,820 operating profit earned, UGX. 684,974,460 was incurred on intrest expenditure.

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Management explained that Uganda Post Limited has a strong country-wide asset base ensuring its continued ability to provide services. Management promised to strengthen its credit management, management accounting as well as its treasury management.

I advised Management to ensure that the debts are collected timely and also ensure that there are adequate controls over their debt portfolio and credit policies if they are to sustain service delivery.

46.2 Prior year adjustments Prior year adjustments of UGX.1,187,779,330 were made to the retained earnings brought forward from 2012/13 financial year with authorization of Head of Finance and approval of the Managing Director. At the time of writing this report, reconciliations were still on-going. A review of the journal vouchers relating to the adjustments revealed the following;

46.2.1 Misstatement of prior year receivables: It was noted that the bulk of the adjustments were a result of non-recognition of revenue earned in prior years with some dating back to the period 2005 to 2008. As a result several debtors on the company‟s books in the previous year were actually not indebted thus overstating the receivables position.

46.2.2 Confirmation and effect of receivables balance: I noted that several such cases will continue to surface in subsequent years especially with long overdue receivables and as such I could not confirm with certainty the receivables position of the company as at close of the financial year as receivables accounts were never reconciled with customers in prior years. The errors impact on current years balances as comparatives for the prior year are misstated. Management explained that the errors were a result of past capacity gaps in accounts section and the need to recognize revenue banked to POSTA accounts by clients which had earlier not been captured in Posta books.

I advised management to continue undertaking a review of their receivables and also circularize with a view of writing off the long overdue receivables.

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46.3 Revenue

46.4 Post box rental revenue – lack of updated database POSTA Uganda has 82,000 post boxes for annual rent which were the basis for estimation to generate UGX.2,956,337,563 in revenues during the year 2013/2014.

It was noted during the audit that POSTA Uganda rental payable charges for the boxes varies depending on the location of the urban center. The Statement of Profit and Loss, and other comprehensive income for the year ended 30th June 2014 presented a balance of UGX.2,324,659,800 as revenue earned from the rented postal boxes. However, I could not ascertain the revenue performance from 82,000 boxes because POSTA did not keep and maintain a database for all the rentable boxes in the various centers detailing numbers, boxes in use, boxes paid for and unused boxes per station.

Without properly maintained database for post boxes it was difficult to confirm that rental income accruing from post boxes was well managed. I advised management to ensure that a database is kept and maintained showing the status of boxes at each postal office which should be the source of data for budgeting.

46.5 Incomplete rental files A review of tenants‟ files during the audit was done and it was observed that the company rented out a number of its office space worth UGX. 410,907,219 to various individuals/firms but there were no valid Tenancy contract agreements to bind the two parties (POSTA Uganda as Landlord and the firms/ individuals as Tenants). Indeed many of the firms/ individuals had not paid the rent. Further, there was no evidence to prove that all rent was based on regular valuations to determine the rent payable. Posta Uganda charges between USD 9.0 to USD 12.0 per square meter as rent for Kampala properties which is far below market rates in Kampala, while the basis for up-country properties appears arbitrary.

Without valid tenancy agreements specifying obligations of each party, revenue may be lost as POSTA cannot enforce collection of the rental income on a firm legal basis. There is also a risk of loss of revenue if the tenants are undercharged for office space due to use of outdated valuations given the market conditions in the central business district.

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Management explained that a review of tenants‟ contracts had been carried out and all expired contracts were undergoing renewal.

I advised Management to ensure that all tenants have valid tenancy agreements and that the terms are complied with to avoid loss that could be caused by defaulting tenants. I also advised Management to carry out regular valuations of rentable space as required by the estates policy.

46.6 Centenary Bank overdraft The company had an outstanding bank overdraft from Centenary bank to the tune of UGX.1,710,356,744 as at 30th June 2014 secured against the clock tower building and land valued at UGX. 3,227,780,000. The facility was renewed at the beginning of the financial year and was to expire on 30th June 2014. I noted a number of issues in regard to the facility as indicated below;

46.6.1 Failure to settle facility: The facility was originally for one year running up to 31st July 2013, and as such it should have been fully settled by August 2013. However, it was noted that there was no compliance to settle the facility and as such the amount was still outstanding one year after expected retirement of the facility.

46.6.2 Interest expense incurred: As a result of the above, the company incurred interest to the tune of UGX.338,159,790 during the year. This would have been avoided if efforts had been undertaken to repay the amount in installments as had earlier been planned. The company is bound to continue accruing interest on the facility which will adversely affect its cash flows and a threat to its continued operations.

Management explained that the overdraft facility had been an invaluable source of business finance to Posta Uganda and engagement with the Bank is underway to have the facility restructured into a short term loan of 2 years. I advised management to ensure settlement of the facility as a priority to avoid the unnecessary charges.

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46.7 Inadequate Credit Control Sections 8.3.2(e) of UPL‟s Finance Policies and Procedures Manual requires management to fix credit limits for all customers who have been granted credit facility and that in any case should not go beyond three months. On the contrary, it was noted that UPL had no credit limits set for its customers and further still, the credit facility for most customers were found to exceed the three months and as a result debts had accumulated to UGX.8,149,437,849 as per aged analysis extract below:

180 Days 150 Days 120 Days 90 Days Balance (UGX.) (UGX.) (UGX.) (UGX.) (UGX.) Total 6,498,079,209 927,95,034 723,405,606 8,149,437,849

Failure on the part of management to set credit limits leads to accumulation of debt to unrecoverable levels which may require writing off resulting into financial loss to the company.

Management explained that a draft Debtors‟ Management Policy was in place pending Board approval. Once approved and implemented, the credit control issues will be resolved.

I advised management to expedite the policy approval and have it implemented.

46.8 Statutory deduction remittances

46.9 Non- remittance of Pay As You Earn (PAYE) to URA Section 124(1) of the Income Tax Act requires a withholding agent to pay to the Commissioner any tax that has been withheld or that should have been withheld under this section within fifteen days after the end of the month in which the payment subject to withholding tax was made by the withholding agent.

Contrary to the above requirement, it was observed that while computing the net pay of POSTA Uganda staff, a total of UGX. 1,423,014,635 was deducted and withheld from salaries and Wages as PAYE. However, out of the amounts withheld only UGX.328,028,940 was remitted to URA leaving UGX.1,094,985,695 outstanding for the year and UGX 1,314,224,990 total outstanding.

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Non remittance of taxes is a violation of the Income Tax laws which attracts fines and penalties from the tax body.

Management explained that the cash flow of the company does not allow instant settlement of obligations to cover both the recurrent and long-term liabilities. Management however indicated that URA has been engaged to accept small installment payments.

I advised Management to undertake all necessary efforts and have the outstanding obligations settled.

46.10 Non remittances of VAT Posta Uganda Limited collected 18% VAT on receipts from its clients. However, despite filling monthly returns, VAT amounting to UGX.1,807,845,280 due to Uganda Revenue Authority was still outstanding. Non-remittance of VAT funds is a violation of the Tax laws (VAT Act) which attracts fines and penalties and may lead to garnishing of POSTA Uganda bank accounts.

Management explained that the cash flow of the company does not allow instant settlement of obligations to cover both the recurrent and long-term liabilities. Management has gone ahead and engaged the statutory body to accept small installment payments.

I advised Management to undertake necessary efforts to have the outstanding obligations settled.

46.11 Non remittances of 15% NSSF deductions Section 10 (1) of the National Social Security Fund Act, 1985 requires that every contributing employer shall for every month for which he pays wages to every eligible employee, pay to the fund, within 15 days next following the last day of the month for which the relevant wages are paid a standard contribution of 15% calculated on the total wages paid for that month to that employee.

During the year, the company did not remit UGX.877,455,255 to the National Social Security Fund, after deducting 15% staff and Employer‟s contributions from staff salaries and wages as indicated below: 180

Annual 5% NSSF deducted UGX.292,485,085 Add 10% Annual Employer contribution: UGX.584,970,170 TOTAL 15% due to NSSF for the year UGX.877,455,255

Non-remittance of statutory deductions attracts imposition of fines and penalties by NSSF on the company. Furthermore, employees are denied interest due on their savings.

Management explained that the cash flow of the company does not allow instant settlement of obligations to cover both the recurrent and long-term liabilities. Management has however engaged the NSSF to accept small installment payments.

I advised Management to undertake necessary efforts to have the outstanding obligations settled.

46.12 Non-remittance of WHT Section 124 (1) of the Income Tax Act requires that the withholding agent pay to URA any tax that has been withheld within fifteen days after the end of the month in which the payment subject to withholding tax was made by the withholding agent.

It was noted that UGX.113, 224,079 withheld from local suppliers was not remitted to U.R.A. and was outstanding by 30th June 2014 contrary to the Income Tax Act. This is a violation of the Income Tax laws, which attracts fines and penalties.

Management explained that the cash flow of the company does not allow instant settlement of obligations to cover both the recurrent and long-term liabilities. Management has engaged URA to accept small installment payments.

I advised Management to undertake necessary efforts to have the outstanding obligations settled.

46.13 Outstanding Local Service Tax Deductions A sum of UGX.26,910,000 was withheld from staff emoluments in respect of Local Service Tax deductions for the current year. I noted that the funds had not been remitted to the various Urban and District Authorities by close of the year. Further, UGX.78,396,630 withheld during the prior years was also outstanding by the time of 181

writing this report. Non-remittance of Local Service Tax (LST) attracts penalties to employees and may lead to unnecessary litigation costs.

Management explained that members of staff had been slow in confirming their places of abode for onward remittance of local service tax.

I advised Management to urge staff to submit their places of abode in order to have the local service tax remitted

46.14 Absence of a transport management policy information system The transport management policy for Uganda Post Limited requires the company to develop a transport management policy information system, which should be kept and regularly checked for consistency, completeness and accuracy.

It was noted that no such system was developed by the entity and as a result there is no coordination to relate vehicle movements, repairs and servicing, fuel utilization and boarding off of vehicles. This may lead to increased cost of repairs for vehicles as some may be very old, storage or parking costs for vehicles fit for boarding off, wasteful expenses on redundant drivers and conductors, uneconomical travel routes, and other related issues.

I advised management to initiate the system development by benchmarking with other statutory bodies. This system should be comprehensive enough to cover all transport related information for their fleet.

46.15 Inspection During the year inspections were carried out at various postal offices up-country in the western, eastern and North-eastern regions. The following issues were noted;

(i) Unutilised equipment and property It was observed that in some stations there were equipment and properties that were not being utilized due to reasons such as non-maintenance, lack of passwords, resignation of staff previously managing the equipment, high rental values, power bills and incomplete structures. Details of these equipment and assets are shown in the pictures below;

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Station Pictorial evidence Remarks Mbarara Internet computers for POSTA Uganda Mbarara have been lying idle for over one year because the Café attendant resigned. The in-charge attributed the attendant’s resignation to because of old and slow computers.

This Motor Vehicle was found at POSTA Mbarara. The DPO explained that it requires repair but there are no funds. I verified the Assets register and observed that it was not recorded in the register at Head Office.

Tororo Motor Cycle which is not running due to lack of operational funds.

Ntugamo Internet café was installed in POSTA Uganda premises but the In-charge said the 20 computers are not yet operational. The manager said NITA (U) retained the computer passwords.

Jinja Unoccupied space which has been vacant for 1 year due to high rental charge. This is loss of revenue to the company. Posta should review their rental price so that the space is taken.

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Tororo Uncompleted building worth millions of shilling in a good location which would raise funds for the entity when completed.

Posta Uganda is losing revenue and its assets are not being optimally utilized.

I advised management to ensure that the equipment is fully utilized for maximization of revenues and efficient service delivery.

(ii) Rental revenue and Liabilities  Rental revenue: It was noted that some stations had tenants occupying postal premises but the tenants had left the buildings after accumulation of rental arrears yet the tenancy agreements at Head Office require that rent is paid upfront whenever it falls due. Management at the branches did not have knowledge of the rental fees payable, besides, they did not have access to the tenancy agreements. For example, the branches in Mbarara and Jinja had their premises unoccupied. The photo below shows the Mbarara Post building: Mbarara This is the backyard of POSTA Mbarara. The first and second floor is for rentals but some are unoccupied. Most of the rooms had been occupied but the tenants left after accumulating rental arrears, These include; Western region multi- purpose (UGX.1,750,000), Karuma Properties (UGX.1,000,000), Twinamasiko Co. Advocates UGX.1,400,000).

Management explained that the estates unit has been strengthened and has been charged with the responsibility of collection of upcountry rental revenue.

I await the results of management efforts.

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(iii) Rental liabilities: Several Postal offices in rented premises were under duress from landlords due to delayed payment of rental obligations. The affected District Post Offices include; Butaleja, Rukungiri, Bushenyi, Kumi and Katakwi. There is a risk of landlords suing Posta for non-payment of rent and denial of service delivery to the public as a result of closure of premises.

Management explained that they are now engaging the landlords who have agreed to handle the situation on humanitarian grounds.

I advised Management to minimize the accumulation of rent arrears.

(iv) Parcel and mail handling I observed that in several stations parcel and mail handling was not well managed and could lead to loss and destruction of mails and parcels. This was basically due to small office space, poor box maintenance, lack of safe storage facilities and incompetent staff. Sample photographs are below;

Station Pictorial evidence Remarks Ibanda This is the sorting room. The mails and packages were haphazardly kept and stored. This can lead to loss of clients‟ mail and parcels.

Ntungamo Sorting room at Ntungamo POST Office. The building is rented and office space appear to be small as mail and parcels are stored behind the counter

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Station Pictorial evidence Remarks Katakwi Poor storage of parcels and mail.

Loss or destruction of mail may lead to litigation from clients and loss of business for Posta Uganda to competing firms in mail distribution.

Management explained that internal training on postal operations is being conducted to equip staff with necessary skills in handling mail and parcels.

I await management effort on the matter.

(v) Dilapidated buildings Physical inspection of the various postal office branches revealed deteriorating infrastructure of both the owned and rented buildings. This was exhibited by leaking roofs and ceilings, broken verandahs, blocked sewage lines among others. Sample photographs are below;

Station Pictorial evidence Remarks Tororo (Posta Collapsing ceiling. The building is owned) slowly wasting away. No running water for the last two years. No power for the last two years. The outstanding power bill stands at UGX.8,500,000. No running water and blocked sewage.

Soroti (Posta Poor maintenance of the building owned) hence falling ceiling and damaged walls.

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Station Pictorial evidence Remarks Katakwi The building is rented but in a (rented) sorry state. The ceiling is falling. No power due to non-payment.

Bushenyi The building is so dilapidated and needs renovation.

Kamwenge- Front and rear view of the house (Rented) being rented by Posta Kamwenge.

Service delivery may be hampered as falling ceilings and leaking roofs pose a danger to both staff and client.

Management explained that plans were underway to develop postal properties across the country under Private Public Partnership and that in the interim, face-lifting of DPOs is being undertaken.

I advised Management to ensure they continue with the maintenance of the buildings. Management should also consider renting habitable premises.

(vi) Rental boxes A sample of the inspected offices revealed that the status of the rental boxes were in a poor state. These range from non-operations boxes, lack of locks and damaged boxes. The rental boxes were therefore not adequately maintained.

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Station Status Jinja Postal office  There are 2,599 rental boxes of which 1005 are in use.

 100 boxes had no locks and not operational.

 7boxes are damaged.

Soroti postal office There are 900 boxes of which 10 were damaged without locks.

Kumi Postal office  There are 400 boxes.

 Of the 400 boxes, only 200 are functional.

 Of the 200, 6 are damaged, 20 without locks

Ntungamo Postal  There are 400 boxes office  391 rented and 8 damaged.

Management explained that rental boxes renovations are part of the wider plan to develop postal properties countrywide.

I advised that Management to maintain the box rentals in good shape in order to attract more revenue, and enhance the marketing campaign to attract more clients.

TOURISM AND TRADE SECTOR

47.0 HOTEL AND TOURISM TRAINING INSTITUTE – YEAR ENDED – 30TH JUNE 2014

47.1 Unauthorized over expenditures It was observed that management over spent on several budget lines to a tune of UGX.412,937,245. There was no evidence of approval for the re-allocations before incurring the expenditure contrary to the financial regulations. I informed management that over expenditures may stifle other budgeted items and should always be avoided.

Management explained that they are usually constrained by arrears, low income and insufficient funds forcing them to overspend on particular items. Management however promised to seek the Interim Supervisory Technical Committee (ITSC) approval for any future re-allocations.

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I urged management to endeavour to be realistic while budgeting and always seek authority before any reallocations are done.

47.2 Revenue performance It was noted that revenue collections have continued to drop. While UGX.398,839,246 was collected during the financial year 2012/2013, only UGX.373,341,840 was collected in the year under review, registering a decline of 6.8%. I explained to management that failure to improve revenue performance may hamper achievement of the major objectives for which the Institute was established.

Management explained that the low revenue performance was due to decline in the state of the hotel facility, competition from other hotels in the neighbourhood, stringent procurement regulations and lack of laundry equipment.

I advised management to seek all alternatives and have the revenue performance improved.

47.3 Outstanding creditors It was noted that the overall creditors position had decreased from UGX.1,416,579,493 as at close of the financial year 2013 to UGX.950,281,403 as at close of financial year 2014. However, the following were observed.

47.3.1 Un-remitted statutory deductions It was observed that included in the overall creditors position as at end of financial year 2014 is a total UGX.323,765,620 relating to statutory deductions that has overtime not been remitted to the relevant statutory bodies. Non-remittance of the deductions contravenes the Acts and regulations and may attract fines and penalties.

Management explained that these arrears relate to a period as far back as 1996 however, they had entered into a Memorandum of Understanding with the concerned statutory bodies to slowly offset the outstanding obligations.

I urged management to continue liaising with the statutory bodies and have the debts cleared as agreed.

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47.4 Other Outstanding creditors Other creditors worth UGX.626,515,783 remained outstanding at the time of writing of this report. It was noted that despite the debt, the Institute has an out-dated credit management policy which does not clearly stipulate the exact payment terms, the limits set for outstanding balances and how to deal with delinquent accounts. The non- payment of the creditors may result into unnecessary court battles and attachment of the entity‟s assets.

Management explained that it will endeavour to pay as they have always done. The credit policy that forms part of the financial manual needs review as well. This is likely to take some time but once the process has been concluded, the draft policy will be submitted to ITSC for approval.

I advised management to continue clearing the arrears to avoid litigation cases. The credit policy should be reviewed to cater for payment terms.

47.5 Absence of computerized Financial Management Systems I observed that the Institute did not have an accounting software for preparation of the requisite accounting and financial records. Accounting and financial records were being prepared manually which may result into errors in the processing and capturing of account balances. It was also noted that despite management including the procurement of the accounting package in the budget estimates for the financial year 2013/14, this activity was not undertaken.

Management explained that financial constraints have made it difficult to acquire the financial management system. As a way forward, management is planning to acquire the software by the end of financial year 2014/15.

I urged management to ensure that the accounting system is acquired as planned.

47.6 Lack of an approved strategic plan It was observed that the Hotel and Tourism Training Institute has no strategic plan to guide the Institute in meeting its mission, vision and objectives. There is a risk that the entity objectives will not be fulfilled in the long run.

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Management explained that a draft strategic plan was under review before the ITSC can have it approved.

I urged management to expedite the process of finalising the strategic plan for implementation.

47.7 Inspection of HTTI I inspected the institution and during the exercise, the following were observed;

The administrative block was found in a bad state. The paint had faded and the reception ceiling was cracked. Also the kitchen floor had cracks. Out of the 35 hotel rooms, only 17 were habitable and the remaining 18 were out of service which is more than 50% of the usable rooms. It was noted that most of the un-habitable rooms were leaking in the wash room and the wiring system had been eaten away. The ceiling of the rooms on the ground floor had cracked. The ground floor was not habitable at the time of inspection leaving only the upper floor.

Most of the furniture, beds and beddings were out fashioned. Generally the building and the usable assets appeared in a very bad state. The low level of room occupancy has negatively affected the generation of revenue and also the student‟s practical‟s assignments.

Management explained that Government had started providing funds for renovation in a phased manner. Plans are under way to buy kitchen tools and equipment. The parent Ministry has been asked to provide a helping hand in procuring new laundry equipment. Management through its initiative has also acquired funding through the Work Bank to build the state of the art training facilities. The funding will also facilitate upgrade of the Institute curriculum to International Standards.

I urged management to urgently renovate the Institute and its hotel facilities to acceptable standards.

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48.0 NILE HOTEL LIMITED – YEAR ENDED 31ST DECEMBER 2013 48.1 Improperly stated values for Buildings The financial statements reflect the value of Buildings as UGX.45,820,185,480. However it was noted that the Buildings were not subjected to depreciation. The practice is contrary to IAS 16 which require all buildings to be depreciated.

Management explained that the issue of depreciation of buildings is being reviewed, with a possibility of accounting for them in accordance with IAS 16 (Finance leases).

I await managements‟ action on the matter.

48.2 Long outstanding accounts receivables The trade and accounts receivables were reported at UGX.1,927,531,798 in the financial statements. However the receivables have been outstanding for over ten years and the possibility of their recovery appears remote.

Management explained that the reported receivables portfolio relate to the period prior to the concession (2004). The possibility of realizing these debts have become highly doubted over the years.

I advised management to take up the matter with the Solicitor General for advice.

48.3 Improperly paid night allowances Management paid UGX.4,680,000 to Board of Directors (UGX.680,000 each) as night allowances for four nights when they travelled to Mweya on a retreat. However the retreat was full board with meals and accommodation fully catered for. The payment of the night alowance was therefore irregular.

Management explained that meeting was very important activity through which a thorough review of the business strategic plan is carried out. It is accordingly budgeted and authorized.

I advised management to consider recovering the overpayment.

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It was observed that due to the size of management, it has not been possible to operationalise certain practices that are important for internal controls. It was noted that the entity has no internal audit and that of the board‟s four members, three hold the positions of the finance and audit committee. The committee sits every two months and reports to themsleves except for one extra Board member. It is the same members who are signatories to financial stationery.

In the circumstances there is no proper corporate governance segregation of duties in place.

Management explained that plans are underway to establish levels of segregation/authority to allow management exercise some autonomy as well as observing the requirement for the Board to exercise their oversight function. The above action is awaited.

48.5 Non-compliance with the strategic plan According to company information one of the principal activities was to develop a tourist hotel/facility in accordance with its strategic plan. This was to be financed by the concession fees. It was however noted that the concession fees were invested in fixed deposit to the tune of UGX.4,205,685,959. This investment is therefore not in line with the strategic plan.

Management explained that the shareholders observed that this project was not in line with Government Policy and therefore should be abandoned.

I urged management to review the strategic plan with a view to aligning it to the Government policy.

49.0 UGANDA DEVELOPMENT CORPORATION – YEAR ENDED 30TH JUNE 2014

49.1 Un-cleared Receivables Included in the accounts receivable of UGX.276,621,000 are receivables expected from MoFPED and MTIC of UGX.230,910,000. At the time of reporting, these receivables had not been settled. It was also observed that UGX.6,757,000 carried forward from the previous year had equally not been settled.

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Management explained that un-cleared receivables of UGX.6,756,700 paid by UDC during the time MoFPED was in charge of Soroti has a remote chance of being cleared and was recommended for write-off once a fully constituted Board is in place. Management is also in liaison with MoFPED and MTIC to have the outstanding receivables cleared.

I urged management to put in more effort and ensure that these receivables are collected.

49.2 Governance 49.3 Lack of law operationalizing UDC Following the enactment of the Public Enterprise Reform and Divestiture Act in 1993, UDC was classified as a Class III enterprise in which GOU was to completely divest itself. Accordingly, all subsidiaries and affiliates of UDC were sold off as separate entities to different private sector actors, leaving UDC as a shell company. UDC was incorporated into Uganda Development Company Limited (UDCL), under the Company Act Cap 110, in 2003. In January 2008, Cabinet resolved to revive UDC as the “development arm of Government”. This was followed by the appointment of a Chief Executive Officer in February 2009, and the establishment of an operational office with start-up staff in June 2010. However, it was noted that the law to operationalize the Corporation has not been passed.

Management explained that the matter was before Cabinet for discussion prior to submission to Parliament.

I urged management to follow up the matter with the authorities to allow operationalization of the Corporation.

49.4 Lack of a Board of Directors (BoD) Best practice requires that an institution like Uganda Development Corporation should have a board in place. Such a board would perform functions such as putting in place policy guidelines and monitoring their implementation, recruitment of staff, approval of the annual budget and putting in place rules and procedures to guide day to day

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operations. However, there is no BoD in place instead there is an acting Executive Director (ED) who reports directly to the Minister.

The absence of the Board implies that the Corporation is not being guided properly with regard to strategic decisions. Further, the staffing gap of 15 out of the establishment of 41 cannot be filled.

Management explained that it was awaiting for the passing of UDC Bill into law before the Board can be constituted.

I advised management to liaise with the Minister to ensure that law is enacted and the Board instituted.

49.5 Government Investments

49.6 Lack of a land title for Investment in Luwero Fruit Factory Project (LFFP) LFFP project is a proposed Government directed intervention aimed at supporting value addition in fruit processing for the promotion of industrial growth, income diversification and increasing household incomes in the greater Luwero Regions of Nakasongola, Nakaseke, Kyankwanzi, Kiboga, Mityana, Wakiso and Mubende districts.

At the reporting time, 10 acres of land had been secured from Luwero District Local Government for construction of the Fruit Factory. UGX.313.3 million had so far been injected towards the set up and development of the project. However, it was noted that despite the investment, there was no land title.

Management explained that it had embarked on the process of securing a 99 year lease title of the said 10 acres through Buganda Land Board (BLB).

The outcome of management effort is awaited.

49.7 Kick-start of Soroti Fruit Factory Project (SFFP) The Soroti Fruit Factory project is a proposed Government directed intervention aimed at supporting value addition in fruit processing for the promotion of industrial growth, income diversification and increasing household incomes in the Teso Region.

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Accordingly, a company – Soroti Fruits Limited (SOFTE) that will own and operate the facility had been incorporated and 4.8 acres of land for the processing facility obtained in the Soroti Industrial and Business Park for the construction of the factory and the land title had been secured. UGX.5,105 billion had so far been injected by Uganda Government specifically to provide infrastructure services at the project site such as water, electricity, roads and provision of a water tank. A grant of US$7.4 million from a Turnkey Factory had also been secured from Korea International Cooperation Agency (KOICA) . However, at the time of writing this report, this investment had not taken off.

Management explained that the grant from KOICA worth USD 7.4 million had been secured but had not been channeled to the project because KOICA is still procuring a contractor who is to construct the factory and also supply and install equipment. The construction of the factory is anticipated to commence in February 2015.

I urged management to ensure that the process of obtaining the grant and construction of the factory is expedited.

49.8 Dilapidated Lake Katwe Salt Project UDC owns property in Kasese under the Lake Katwe Salt Project. These comprise of dilapidated senior quarters (12 Bangalows) and junior quarters (10 blocks).

Part of these properties were rented to some individuals and companies during the year under review. A total of UGX.62,731,232 was collected and banked on URA accounts as Non Tax Revenue. However, it was noted that although the properties are generating some revenue, the structures are dilapidated and are a concern to management.

I advised management to seek for funding from the responsible authority to have the buildings renovated.

49.9 Kalangala Infrastructure Services Project Kalangala Infrastructure Services is a Public Private Partnership arrangement mandated to improve infrastructure on Bugala Island in Kalangala District. It is a US$50 million Project. To facilitate the PPP arrangement, a special purpose vehicle was formed in the names of “Kalangala Infrastructure Services Ltd”. GOU, through UDC acquired 45.7% Ordinary shares and 45.7% convertible preference shares in Kalangala Infrastructure

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Services Ltd by investing UGX 16.876 bn. The activities to be undertaken and the output to-date are indicated in the table below; Output expected Performance • The reconstruction and expansion of the 37% of road construction works have been 66km road of the main island. completed;  The construction of power generation and 60% of transmission lines were completed distribution lines throughout the island. and 30% of power generation plant completed. 90% of solar generation

equipment supplied at site.  Rehabilitation and construction of water Two pilot water supply systems installed at supply systems on Bugala Island. Kasekulo and Mulabana supplied water to approximately 5000 people at both landing

sites;  Provision of ferry services between Luuku first ferry commenced operation in August and Bukakata landing sites. 2012 and second ferry will be delivered by September 2014;

It was noted that some of the activities appear to be a duplication under Ministry of Agriculture, Animal Industry and Fisheries under VODP, Ministry of Energy, Ministry of Water, Ministry of Works and UNRA. Undertaking duplicated activities may result in uncoordinated outputs and results.

Management promised to liaise with all the relevant entities and ensure that the activities are harmonized.

I await management action on the matter.

50.0 UGANDA EXPORT PROMOTION BOARD – YEAR ENDED

50.1 Un-supported bank balances Bank balances of two accounts in commercial banks could not be confirmed because certificates of bank balance were not availed. Similarly, I was not availed with bank reconciliations and bank statements to confirm the cash book balances and the balances disclosed in the financial statements. A/C title A/C No. Bank Uganda Export Promotion 0140007167301 Stanbic Bank Uganda LTD 197

A/C title A/C No. Bank Board Uganda Export Promotion 0341185300 Barclays Bank Uganda Ltd Board

Management explained that they communicated to the banks but no response was received because none of the current management team is a signatory to these accounts.

I advised management to liaise with the Accountant General to have the signatories changed to enable reconciliation.

50.2 Entity policies

50.2.1 Un revised Staff Terms and Conditions of service (TACOS) UEPB designed its TACOS which were approved by the Board of Directors in August 2007 and expired in 2010. Sec 12 of the TACOS provides that these conditions of service shall be reviewed every three years. On contrary, the Board of Directors has not revised the TACOS since its inception.

Management explained that the TACOS are currently being reviewed and will be tabled before the Board for final review and approval.

I urged management to expedite the process of revising the TACOS.

50.3 Unapproved financial procedures manual Section 9(e) of the Uganda Export Promotion Board Statute 1996 provides that the Board of Directors (BOD) will be responsible for establishing and approving rules and procedures for proper financial management and accountability. On a contrary, the entity does not have a financial procedures manual in place. Lack of approved financial procedures may result into financial mismanagement and losses because of limited guidance.

Management explained that the draft manual is being updated and will be presented to the Board for approval.

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I urged management to expedite the process of updating the financial procedures manual.

50.4 Non segregation of duties It was observed that the cashier handles office imprest, maintains the stores ledgers, receives and issues receipt books, receives cash and issues cash receipt and also banks cash collected. This practice overrides the principal of segregation of duties. Overriding internal controls may lead to incidences of undetected errors and possible fraud.

Management explained that the entity faced a shortage of staff in the Finance and Administration division when some officers left and were not replaced due to financial constraints but recruitment was on-going. Once the recruitment exercise is complete, there will be clear segregation of duties.

I urged management to expedite the recruitment process to ensure that duties and assignments are segregated.

50.5 Statutory deductions 50.6 Local Service Tax (LST) not deducted According to the Local Governments Act (Amendment) (No. 2) 2008, a person in gainful employment earning a monthly take home salary exceeding UGX.100,000 should be subjected to local service tax which is paid in the first four months of every financial year for employees earning a salary or wage. On the contrary, Local Service Taxes worth UGX.2,010,000 were not deducted. Failure to deduct taxes could result in penalties and fines.

Management explained that this was an omission on the part of management and promised to deduct the arrears starting with the month of May 2015.

The above promised action is awaited.

50.7 Non remittance of PAYE Section 124 (1) of the Income Tax Act requires a withholding agent to pay to the Commissioner any tax that has been withheld or that should have been withheld under this section within fifteen days after the end of the month in which the payment subject to withholding tax was made by the withholding agent. The entity charged PAYE from 199

staff salaries worth UGX.152,752,005 but the funds were not remitted to URA. Non remittance of taxes may result in fines and penalties.

Management explained that the non-remittance was caused by meager sub-ventions but indicated that the said amount has been included in the domestic arrears of the Ministry. Once the funds are available, the taxes will be paid to URA.

I urged management to engage the parent Ministry and ensure that the PAYE under question is remitted accordingly.

50.8 Non-deduction of WHT Section 123 (1) of the Income Tax Act requires that the withholding agent pay to URA any tax that has been withheld within fifteen days after the end of the month in which the payment subject to withholding tax was made by the withholding agent.

The entity did not charge 6% WHT of UGX.17,354,617 on supplies worth UGX.289,243,618. Non-remittance of statutory deductions is an offence which may attract penalties against the entity.

I advised management to ensure that the WHT is recovered and remitted to the tax body.

50.9 Non remitted NSSF The NSSF Act, section (1) provides for deduction of NSSF from employee emoluments every month calculated at 15% on the total wages paid during that month to that employee. Contrary to this, the entity did not remit UGX.69,614,281 in respect of NSSF deductions. This is noncompliance that attracts fines and penalties by the statutory body.

Management explained that the non-remittance was caused by meager sub-ventions but indicated that the said amount has been included in the domestic arrears of the Ministry. As soon as the funds are available, the statutory contribution will be paid to NSSF.

I urged management to engage the parent Ministry and ensure that the NSSF deductions under question are remitted accordingly. 200

50.10 Procurement

50.11 Lack of a procurement plan The entity did not have a consolidate procurement plan for the FY 2013/14. The procurements undertaken were not explicitly mentioned in the entity‟s work plan for that financial year. This anomaly may result in the entity procuring goods and services outside of the approved budget.

Management explained that the Board has moved to address the underlying cause on non-compliance with PPDA regulations. i.e. the lack of personnel due to high staff turnover led to inconsistencies in procurement planning. Management promised to take immediate corrective action and have the plan in place.

I advised the Accounting Officer to ensure that all departmental work plans are aggregated into a consolidated procurement plan in accordance with section 58(2) of the PPDA Act 2003.

50.12 Other procurement irregularities I noted that procurements worth UGX.31,079,039 were not initiated on PP form 20 contrary to the procurement guidelines. Further, I noted that two procurements worth UGX.21,386,000 were done without considering the use of prequalified firms contrary to section 142 of the PPDA regulation. With regard to approvals of procurements by the contracts committee, I noted that in five procurements worth UGX.42,646,029, there was no evidence that contracts committee approved the solicitation documents and procurement methods used.

The procurement anomalies indicate weaknesses in the procurement of goods and services.

Management explained that the anomaly was due to lack of a procurement officer and a contract committee that was comprised of only two members.

I advised the Accounting Officer to ensure that the procurement officer and the contracts committee are put in place. So that procurements are properly approved.

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50.13 Lack of National Export Strategy (NES) It was noted that UEPB lacks a National Export Strategy (NES) to guide its direction and performance. Because of lack of NES, the entity did not prepare an annual work plan for the financial year 2013.

Management explained that the NES is being developed and will be completed by the end of financial year 2014/2015. Annual work plans will then be prepared based on the strategy.

I urged management to expedite the process of developing and finalizing the strategic plan.

50.14 Land lease UEPB obtained a 49 year lease from Uganda Broadcasting Corporation (UBC) with an objective of constructing the Export Development Centre. The Board signed a Memorandum of Understanding with Development Company but the MoU was revoked due to breach of contract.

Management explained that Export Promotion Board revoked the MoU based on the events surrounding their financial stability. The future development plans are to initiate fresh procurement process to select a contractor to construct the Headquarters.

I urged the Accounting Officer to ensure that procurement processes are expedited and the land is put to development.

50.15 Budget performance UEPB budgeted to receive UGX.5,916,691,307 but UGX.1,459,163,507 was received resulting into a variance of UGX.4,457,527,800. As a result of the underfunding, a number of activities could not be undertaken and these include:  Payment of gratuity,  Payment of NSSF arrears,  Recruitments  Payment of arrears of PAYE,  Procurement of office furniture and equipment  Running costs motor vehicles, 202

 Consultancies for training and  Payment of utilities

Management explained that the board will not be able to deliver on her mandate if the issue of underfunding persists. I advised management to liaise with the relevant authorities to ensure that the planned activities are funded and undertaken timely.

50.16 Manual Accounting System UEPB operates a manual system to manage its financial records and information. Considering the status and activities of the entity, a manual accounting system is not only tedious but also susceptible to errors and manipulation by the users.

Management explained that the need to acquire a versatile accounting software was hampered by budgetary constraints but this has been provided in the budget for the financial year 2014/2015.

I urged management to ensure that the Accounting System is computerized.

51.0 UGANDA NATIONAL BUREAU OF STANDARDS –YEAR ENDED

51.1 Mischarge of expenditure During the year, management of Uganda National Bureau of Standards charged wrong expenditure codes to a tune of UGX.1,261,771,329. This constituted 8% of total expenditure for the entity. This practice undermines the importance of the budgeting process as well as the intentions of the appropriating authority and leads to misleading reporting.

Management explained that the Bureau had challenges of arrears brought forward from previous years due to the budget shortfalls which MFPED advised management to prioritize within available resources. This resulted in utilization of balances from other line items to deliver on the entities mandate.

I advised management to streamline the budget process to ensure that sufficient funds are allocated to each account. Authority should always sought for any reallocations.

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51.2 Outstanding Statutory Deductions Contrary to the requirements of the Income Tax Act, and NSSF Act statutory deductions worth UGX.1,544,504,544 remained outstanding as at the end of the financial year. Details in the table below:

Beneficiary Amount not remitted (UGX) National Social Security Fund 654,725,406 Uganda Revenue Authority 889,779,138 1,544,504,544

It was further noted that outstanding remittances to NSSF almost remained constant at UGX.654,725,406 for the year ended 30th June 2014 and UGX. 654,725,376 for the year ended 30th June 2013. In addition, it was noted that payables worth UGX.932,844,448 and employees retirement benefits of UGX.518,590,214 remained outstanding at the end of the year. Failure to settle statutory deductions and other payables may result into costs inform of penalties and litigation expenses to the entity that should have been avoided.

Management explained that the outstanding balances in respect to statutory deductions were brought forward figures that arose out of budget cuts in the prior years. Further, management explained that the principal amount due to due to NSSF will be paid during 2014/15.

I advised Management to ensure that the outstanding obligations are settled without any further delays to avoid other penalties.

51.3 Non-deduction of withholding tax It was noted that withholding tax to the tune of UGX.48,984,279 from several payments to suppliers was not deducted for onward remittance to URA. The Ministry may incur losses due to fines and penalties imposed by URA for non-deduction and non-remittance of tax.

Management explained that they will ensure recovery of the un-deducted withholding tax from the suppliers.

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The above management action is awaited.

51.4 Unbudgeted taxes UGX.376,234,805 was paid to Uganda Revenue Authority being arrears for unpaid tax plus interest of UGX.26,336,437. These taxes had not been budgeted for leading to a diversion of funds. Furthermore, the penalty in form of interest is regarded as wasteful expenditure as it could have been avoided.

Management explained that PAYE liability arose from a budget shortfall on the wage bill when UNBS was still a subvention under Ministry of Trade before acquiring a vote status. UNBS at the time used to receive only net pay from the Ministry. Management further explained that they requested Ministry of Finance, Planning and Economic Development to support them pay the arrears but were instead advised by PS/ST to have the liability absorbed within the 2013/2014 budget.

I advised management to streamline the budget process and ensure that sufficient funds are allocated to each account. Authority should always be sought for any reallocations.

51.5 Procurement Issues

51.5.1 Delayed completion of UNBS Headquarters. UNBS contracted a local company to construct an office block at a total cost of UGX.4,340,100,190.The works were to be handled in 3 phases:  Phase 1 – Construction of the administration block-completion date was 2nd March 2013.  Phase 2 – Construction of the Laboratory blocks-revised completion date 10th July 2014.  Phase 3 – Construction of conference Hall, staff canteen, caretakers‟ residence and recreation facilities and final completion of the mechanical works of the waste water treatment.

A review of the procurement file revealed the following:

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(i) Delayed works By the close of the financial year, the works on phase one which were to be completed by 2nd March 2013 were still on-going thus the contract was behind schedule despite the entity engaging a Consultant to supervise and give technical guidance on the project at a contract sum of UGX.987,280,955. The project is not on course as planned.

(ii) Expiry of performance security: The guarantee which had been issued by Stanbic Bank had stated that it would remain in force up to 30th March 2013. This implied that from 1st April 2013, the entity would not be indemnified against loss in the event of abandonment of works by the contractor. The contractor could easily abandon the site leaving UNBS with unsecured works which would unnecessarily increase project costs.

Management explained that the initial plan of completing the entire 3 phases within 57 months at a cost of 45bn was not possible due to lack of funding. A phased approach was adopted based on the availability of funding (i.e. phase 1A, 1B and 1C. Phase 1A and 1B have been completed. Phase 1C is expected to be undertaken beginning of quarter 3 of the FY 2014/15.

I advised Management to ensure that construction works are fully secured with a valid performance security and effort be undertaken to secure the required funding provided by the authorities in order to finalise the remaining phases within the timelines.

51.6 Vacant positions in the establishment Uganda National Bureau of Standards has an approved establishment structure of 416 staff, however a review of this structure revealed that there were 231 posts which were not yet filled representing 56% vacancy level.

Service delivery is hampered by the delays in filling the vacancies especially at senior management level and staff may be overworked which adversely affects their morale. Management explained that some of the vacant positions had since been filled but that new recruitments could not be undertaken due to the fixed wage bill in the MTEF which had not been adjusted by the time of writing this report.

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I advised management to liaise with MFPED and PSC to have the vacancies expeditiously filled.

52.0 UGANDA TOURISM BOARD – YEAR ENDED – 30TH JUNE 2014

52.1 Mischarges UGX.235,912,776

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 on the UTB expenditure revealed that the entity charged wrong expenditure codes to a tune of UGX.235,912,776. This constituted 10% of total expenditure for the Ministry. This practice undermines the importance of the budgeting process as well as the intentions of the appropriating authority and leads to misleading reporting.

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.

52.2 Un-explained collection accounts balance I noted a balance of UGX.5,920,104 on a collection account which amount was also disclosed in the previous years ending 30th June 2012 and 30th June 2013. The reason for keeping the amount on the account for a long time could not be established.

Management explained that they consulted with officials in Ministry of Finance, Planning and Economic Development and they were advised to request for authority to pass a journal voucher for this amount. I explained to management that this is cash available in the bank and needed to be declared to the Accountant General for onward remittance to the Consolidated Fund.

52.3 Lack of a board of survey report It was noted that UTB lacked a Board of Survey report for the financial year 2013/2014, implying that this activity was not carried out. This is against the Treasury Accounting Instructions. In absence of a board of survey report, it becomes difficult to confirm cash and bank balances in the accounts and the assets owned by the entity together with their status.

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Management explained that a letter was written by the Accountant General requesting for the exercise to be carried out but no response was received. Management promised to follow up the matter again.

I urged management to continue liaising with the Accountant General to ensure that a Board of Survey is carried out annually as required by TAIs.

52.4 Staffing gap A review of the staff establishment indicated out of 40 recommended staff, UTB only has 26 staff leaving a gap of 14. This could create work overload and limits the ability of the entity to effectively deliver on its mission and objectives. Details in table below: Unfilled Position Unfilled position PRO Partnership Executive stores assistant Manager QA Product Development Executive Inspections & Compliance Executive HR executive Planning Executive Receptionist Research Executive Manager Private Sector Devt Legal Affairs Executive Capacity Building Executive Internal Auditor

Management explained that they were in the process of filling some of these positions to beef up employment and improve ability for the entity to deliver its mandate.

I advised management to liaise with the relevant stakeholders and have the gaps filled.

52.5 Statutory deductions

52.5.1 Local Service Tax (LST) not charged A person in gainful employment earning a monthly take home salary exceeding UGX.100,000 should be subjected to local service tax which is paid in the first four months of every financial year for employees earning a salary or wage. On the contrary, a review of the payments file indicated that taxes amounting to UGX.1,660,000 was not charged. Failure to deduct taxes could result in penalties and fines. Also local authorities may fail to implement their planned work plans.

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Management promised to comply with this statutory requirement on the subsequent payments.

I advised management to recover the funds from staff that were affected and have the funds remitted to the Local Authorities. In the meantime, management is urged to comply with the regulations.

52.6 PAYE not charged on allowances Management of UTB paid a total of UGX.48,200,000 as allowances to its employees on a quarterly basis. However, PAYE of UGX.14,460,000 was not deducted. This was contrary to Section 124(1) of the Income Tax Act.

Management promised that they will endeavour to always deduct PAYE on allowances.

I urged management to ensure that PAYE is recovered and remitted to the tax body. Meanwhile, management is also urged to always follow the Income Tax regulation.

52.7 WHT not charged Section 120 and section 124 (1) of the Income Tax Act require a government entity to withhold 6% from any supplier of goods or services worth UGX.1,000,000. During the audit, it was noted that the entity did not charge 6% WHT on supplies worth UGX.295,632,405 and as a result, UGX.17,737,944 was not remitted to Uganda Revenue Authority. Non-remittance of statutory deductions is an offence which may attract penalties and fines.

Management explained that all suppliers were inputted into the IFMS system at the Ministry of Finance and they did not have any option on choosing whether to deduct WHT or not as this is already indicated in the system. They promised to follow up the un-deducted WHT with the Accountant General Office.

I advised management to continue following up the matter to conclusion.

52.8 Grounded old vehicles UTB owns three old vehicles that are no longer in use and appear to have been grounded for a long time. The vehicles are impaired and they are at a risk being

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vandalized. The vehicles were found lying at UTB offices at Kololo. Details in table below:

Vehicle no Type UG 0026T Land rover UAA 211F Pajero UG 0292T Nissan Terrano

Management explained that the process of disposing off these old vehicles is under way and they were liaising with Ministry of Works to have the exercise completed.

I urged the Accounting Officer to expedite the process with a view of obtaining value for money.

52.9 Review the Procurements 52.9.1 Failure to appoint contract managers In 10 procurements worth UGX.300,345,643, there was no evidence on file that the User Departments appointed contract managers to undertake contract management. There is a risk that contracts may not be implemented in accordance with the agreed terms and conditions of the contract.

Management acknowledged that there were no official records on file communicating the appointments of the contract managers for the various procurements and promised to streamline the appointment of contract managers.

I urged the Accounting Officer to ensure that Heads of User Departments nominate contract managers who should manage contracts in accordance with 52(1) and 51(3) of the PPDA (Contracts) Regulations, 2014.

53.0 UGANDA WILDLIFE AUTHORITY – YEAR ENDED 30TH JUNE 2014

53.1 Non-compliance to IAS 16 The property, plant and equipment (PPE) values reported in the Authority‟s financial statements of UGX.38,468,041 are based on the revaluation that was undertaken in 2006. The practice is contrary to IAS 16 that requires a revaluation to be undertaken

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within a period of 3-5 years. There is a risk that the amounts reflected in the financial statements are not fairly stated.

Management explained that a company had been procured to undertake a revaluation and was now in the process of addressing issues of concern from management before finalization. The new values would then be incorporated in the books by end of January 2015.

I advised management to expedite the review to enable update of the values of the assets.

53.2 Inadequacies in accounts receivable management 53.3 Charge of interest in respect of overdue accounts receivable UWA executes agreements with Concessionaires and requires that all accounts must be settled within 15 days from the invoice date. Accounts that are not paid within the stipulated time are considered overdue, and attract an interest, which is computed based on the rate stipulated in the concession agreement. However, it was noted from the aged debtors listing, that Concessionaires had overdue accounts amounting to UGX.1,869,822,784 as at 30th June 2014 and no interest was charged on delayed payments.

Further, it was noted that UGX.768,020,000 representing 31% of the debtors had been outstanding for more than one year.

Management explained that they would follow up on the list of debtors for payment and bill for the interest accrued on outstanding balances where it was stipulated in the contracts. The list of debtors would be handed over to the legal department to undertake debt collection/recovery.

I advised management to invoice and collect all interest for overdue payments as stated in the agreements. Further, a credit policy should be put in place to ensure proper vetting of the clients.

53.4 Expired Concession Agreements It was noted that two operators were operating without valid agreements (for a period of 4 and 2 years). Their concession agreements with UWA expired, but had continued to 211

occupy UWA‟s facilities in Murchison Falls National Park and Lake Mburo National Park at the time of the audit.

In absence of valid agreements, legal issues that may arise could lead to losses as the Authority may not have a legal basis to demand revenues.

Management explained the Board of Trustees at its 28th meeting of 7th October 2014 approved the renewal of one of the contracts. Negotiations with the other service provider for contract renewal under revised terms were on-going.

I await for management action on the matter.

53.5 Performance of UWA’s canteens and hostels The financial statements showed that UWA‟s canteens and hostels operated at a deficit for year ended 30th June 2014. Total income reported for the year from these facilities was UGX.341,401,298, while expenditure was UGX.407,808,947. There was a gross deficit of UGX.66,407,649; other operating overheads notwithstanding. The loss for the current year increased by UGX.29,281,890 (78.8%); compared to FY 2012/13.

There is a risk that UWA‟s performing areas are subsidizing the canteens and hostels; whose continued funding affects the financial performance of the Authority.

Management explained that they tried to provide basic recreation services to its staff in remote protected areas at minimal costs to reduce unnecessary absenteeism. The operations and controls would however be reviewed and strengthened to reduce any possible leakages.

I advised management to review and strengthen the canteens/hostels‟ operational set up and financial management systems with a view to mitigating operational losses, which negatively impact on the authority‟s overall performance.

53.6 Inadequacies in the Fixed Assets Register The Authority‟s Fixed Assets Register lacked the key details such as; date of acquisition, expected useful lifetime, physical location, and depreciation rate. There is a risk that such assets values in the financial statements may not be fairly stated due to lack of adequate information.

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Management explained that an electronic asset management system would be procured from a grant of World Bank for an integrated financial management system (IFMS). Records cost acquisition, location and class of all assets would be populated in the data base and depreciation electronically handled. The process of procurement of the IFMS started in October 2014.

I advised management to ensure that the Assets Register was populated with all the assets details that were necessary for effective management and security/safety of UWA‟s assets.

53.7 Custody of Ivory In 1989 the UN Convention of International Trade in Endangered Species of Fauna and Flora (CITES) instituted a ban on sale, export, import and re-export of all forms of ivory. Uganda subscribes to this Convention. As a result of the ban, Uganda has accumulated piles of stock of ivory from elephants that die of natural causes, animal control measures and confiscation from illicit trade. During discussion with management, it was observed that the entity had continued to accumulate stock hoping that the UN would with justification authorize the sale of the ivory for purposes of earning revenue.

However, it was noted that there was no regular stock taking of the stock of the ivory. The last stock taking was conducted in June 2012 which revealed a stock of approximately 3,505.74 tones as at 31st May 2012. By the time of writing this report it had been reported in the media that an unspecified amount of ivory had been stolen. Management explained that it instituted a stock taking exercise with a view of establishing the weight of all the ivory in store and the purported loss. The exercise was expected to be completed at the end of November 2014.

I await conclusion of the exercise and will report on the status in my next report.

54.0 UGANDA WILDLIFE TRAINING INSTITUTE – YEAR ENDED

54.1 Unauthorised over expenditure Management over spent UGX.212,515,670 on several budget lines without requisite approval as indicated in the table below: This action is contrary to the financial

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regulations and may have affected management‟s ability to fully undertake other planned activities.

Code Item Budget (UGX.) Actual (UGX.) Over (UGX.) 211103 Allowances 59,640,000 64,203,300 4,563,300 224002 Students feeding 58,014,616 98,344,686 40,330,070 221003 Training 256,850,000 359,075,600 102,225,600 227004 Fuel, lubricants and oils. 4,800,000 6,625,100 1,825,100 221003 Examinations. 19,329,000 31,166,200 11,837,200 Office equipment 0 6,066,500 6,066,500 224002 Uniforms and protectives. 2,000,000 9,139,500 7,139,500 Maintenance General 10,000,000 11,013,600 1,103,600 Vehicles 0 3,175,000 3,175,000 22,280,000 31,275,000 8,955,000 Furniture 6,000,000 9,350,000 3,350,000 221001 Advertising and Public 12,694,800 12,694,800 relations. Students Guild expenses 12,300,000 12,300,000 Total 438,913,616 654,429,286 212,515,670

Management explained that the over expenditure was caused by the increase in the number of students admitted from 104 to 203 which resulted into increase in expenditure.

I advised management to always seek the necessary approvals as and when such situations arise.

54.2 Revenue shortfall It was noted that the Institute budgeted to receive UGX.2,417,205 337 from school fees and government grants but only UGX.1,237,285,000 (51.2% of the budget) was actually realized resulting into a shortfall of UGX.1,179,920,337. The shortfall in revenue meant that the following activities were not undertaken implying that the intended objectives could not be fully achieved.

Particulars Budget 13/14 Actual Under % under 13/14 performance performed Staff welfare and 56,380,000 3,079,700 53,300,300 95 entertainment Co-curricular activities 12,000,000 997,000 11,003,000 92 Workshops and 100,000,000 0 100,000,000 100 seminars 214

Particulars Budget 13/14 Actual Under % under 13/14 performance performed Administrative 60,835,000 19,205,900 41,629,100 68 expenses Building Contract 350,000,000 48,570,000 301,430,000 86 services

Management explained that the Ministry of Tourism did not release all the budgeted funds to the Institute hence affecting the intended activities.

Management is advised to liaise with the relevant authorities and have the funds released to enable the entity undertake the planned activities.

Lack of Procurement plan, an independent Contracts Committee and PDU As mentioned in the previous report, the Institute does not have a procurement plan, an independent contracts committee and PDU contrary to the provisions of the PPDA Act and its Regulations, 2003. The absence of the above important establishments is contrary to the procurement laws and hinders the professional and smooth running of the procurement activities within in the Institute.

Management explained that communication has been made to the responsible officers in Ministry of Tourism to appoint the members of the contracts and PDU committees.

I urged management to expedite the process and have the members appointed and committee established.

54.3 Lack of a Governing Council/Board The Uganda Wildlife Training Institute Act 1996 provides that the governing body of the institute shall be a board of governors which shall be appointed by the Minister.‟ The board shall be responsible for the implementation of the objects and functions of the institute and for the management of its property, business, income, funds, other concerns and affairs and also for the appointment, control, discipline and removal of its employees.

However it was observed that the institute is being run by an Interim Technical Supervisory Committee (ITSC). Prior to the appointment of the Technical Supervisory 215

Committee, the Institute operated without a governing council for a period of two years. Lack of a Board has created a management gap in the administration of the Institute and the Institute may not achieve its intended objectives.

Management explained that the Ministry responsible appointed a supervisory committee pending the approval of the law establishing the Institute under the Ministry.

I advised management to follow up with the parent Ministry and ensure that the Governing Council is legally appointed.

54.4 Staffing gaps It was noted that 9 vacancies as pointed out in my previous reports remain not filled. These include the 1 Principal, 1 Deputy Principal, 1 bursar, 1 cashier, 4 senior instructors and 1 instructor. In addition, the Institute lacks an internal audit function of its own, but relies on the services of the Internal Auditor in the Ministry of Tourism. During the year under review, the internal audit team was constrained by a lot of work at the Ministry and ended up not carrying out audit work at the Institution.

Management explained that the appointments are awaiting approval from Public Service.

I urged management to follow up the matter through the parent Ministry and ensure that the necessary appointments are made.

LANDS AND HOUSING SECTOR

55.0 NATIONAL HOUSING & CONSTRUCTION COMPANY- YEAR ENDED 31ST DECEMBER 2013

55.1 MBUYA LAND The company does not recognize the Mbuya Land (Volume 66 Folio 12 Free hold of 16.67 acres) as an asset in its Asset Register. The land is currently occupied by the Ministry of Defence and the company cannot freely access this land. The following matters were noted;  Though the company has legal ownership of this land, it is not reported as an asset in the company‟s books of accounts for the year ended 31st December 2013.

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Management explained that they are unable to access and value this land and as such cannot include it in the financial statements.  The company does not enjoy the benefits of ownership of this land, as it has not been able to collect any rental revenues from the Ministry of Defence.  In addition, there are no disclosures in the financial statements to explain the current status of the land, thereby misleading the users of these financial statements. I have advised management to ensure that they continue undertaking lawful measures aimed at securing and/or exercising their legal rights over the land in question.

55.2 LAND IN KIREKA

In my special Audit report issued in November 2014, I highlighted a number of issues regarding the transactions in respect of land in Kireka, which was sold to NHCC by M/S Kireka Estates Limited (KEL). The most salient issues included the following;

55.3 Payment to KEL for the Reversionary interest

NHCC paid KEL a sum of USD.5,159,000 (United States Dollars five million, one hundred and fifty nine thousand) for the reversionary interest in the freehold land in Kireka.

However, both Article 237 of the 1995 Constitution of Uganda (as amended), and Section 40 (4) of the Land Act, 1998, Cap 227(as amended) provide that a non-citizen shall not acquire or hold Mailo or Freehold Land. The Land Act further identifies a non- citizen for the purposes of the constitutional provision in the case of a corporate body as a corporate body in which the controlling interests lies with noncitizens. It was noted that KEL is owned by six shareholders who are of foreign citizenship, and it can be inferred that this is a non-citizen company, which could not own any freehold interest in land in Uganda.

The resolution by the Management and Board of NHCCL to pay USD.5,159,000 to Kireka Estates Limited by NHCCL for the reversionary interest in the freehold land comprised in Freehold Register Volume 31 Folio 8 (Kireka land), was done without due regard to the laws on land ownership and as such could have led to a financial loss.

55.4 Valuation of land Kireka land is included within the Investment properties of the company and in accordance with IAS 40, it has to be stated at fair value based on existing circumstances 217

as at the balance sheet date. Accordingly, the company revalued this property to UGX 68.75bn, creating a revaluation surplus of UGX 52.35bn which was recognized in the income statement, thus greatly improving its profit margin.

Review of the valuation report revealed that, the valuation was done on the basis that NHCCL owns the freehold interest in the land after purchasing the reversionary interest from Kireka Estates Limited. However, given the facts in the preceding paragraphs and the fact that one (1) year later, NHCCL has not secured a land title to confirm ownership of the freehold interest, there is uncertainty as to whether the valuation can be fully relied upon.

I advised management to ensure that they secure a title deed so as to confirm ownership of the land, as well as its valuation.

55.5 Sale of part of the land to Uganda Police NHCCL sold part of this land to Uganda Police at a cost of UGX.1,663,350,000, of which Uganda police made a down payment of UGX.690,000,000, leaving a balance of UGX.973,350,000. However, sale of part of this land appears to have been in contravention of the lease agreement at the time, as the agreement expressly stated that NHCCL was to use the land solely for putting up housing estates. As a result, there is likelihood that this sale may not be valid and may in future be the subject of litigation.

I have advised the accounting officer to seek the legal opinion from the Attorney General regarding this transaction, so as to make appropriate adjustments in the company‟s books of accounts.

55.6 Untitled Land The company owns several plots of land for which it has no title deeds. This matter has been raised in my previous audit reports with management promising to take action to have the land title deeds processed. However, to-date several plots still do not have title deeds as summarised in the table below;

Table showing untitled plots

No Number Location 1 Block 221 Plot 431 Naalya 2 Block 221 Plot 432 Naalya

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No Number Location 3 Block 221 Plot 857 Naalya 4 Block 221 Plot 930 Naalya 5 Block 221 Plot 931 Naalya 6 Block 221 Plot 1655 Naalya 7 Block 221 Plot 1662 Naalya 8 Block 221 Plot 1703 Naalya 10 Block 221 Plot 2345 Naalya 11 Block 221 Plot 2346 Naalya 12 Block 221 Plot 2347 Naalya 13 Block 221 Plot 2348 Naalya 14 Block 221 Plot 2349 Naalya 15 Block 221 Plot 2350 Naalya 16 Block 221 Plot 2351 17 Plot 1A Luthuli Rise (in Bugolobi)

Under the circumstances, the company continues to be exposed to a risk of losing these plots to unscrupulous individuals. In response, management explained that the delay was mainly due to the temporary closure of the land office under the Ministry of Lands, which happened during the period under review. I have advised management to expedite the process of acquiring the titles deeds in question.

55.7 Sale of Residual Plots It was noted that some residual plots were sold off following the completion of various projects, as indicated in the table below. A review of the transactions revealed the following matters;

 There is no policy or guideline on what constitutes residual plots of land and how they are to be dealt with. A review of the plots sold indicated that some standalone plots were also approved for sale by the Board.  The residual plots are not separately registered in the assets register (for land) and as a result there is a risk that they can be sold off without the knowledge of the company.  The Board directed that staff of the company be used to find buyers for the plots in direct contravention of the procurement manual and PPDA guidelines on disposals (Minute 5/34/13 of 1st March 2013). I could therefore not ascertain if the prices paid for these plots were competitive and the possibility of insider dealing cannot be ruled out. 219

 The procurement manual requires the Board‟s approval for sale of land, however, for some of the plots, there was no evidence of Board approval.  There were residual plots in Jinja, which the District Local Government had begun selling off even without ownership. This highlights absence of rigorous monitoring, proper control and security over the company land/properties.  In most cases the plots were sold below the Board‟s approved amounts and reserve prices, thus occasioning a financial loss to the Company. If this trend continues, the company runs a risk of selling off all its core business assets and may in future have no available land for development. The table below refers;

Table showing Plots that were sold during the year

Residual Plot Amount initially Reserve Price Amount sold Loss Comment approved by Board (UGX) (UGX) (UGX) (UGX) Block 221 Plot 480,000,000 425,000,000 412,000,000 13,000,000 Sold below 517 Shrine reserve Lane Naalya price. Block221 Plot 380,000,000 225,000,000 225,000,000 0 Sold at the 1492 Shelter same price Road Naalya like the reserve price Block221 Plot 160,000,000 120,000,000 - Sold at a 1013 Naalya price way below the one approved by the board Block221 Plot 165,000,000 157,000,000 142,000,000 15,000,000 Sold below 1413 7th Rise reserve price Naalya Block221 Plot 470,000,000 402,000,000 391,749,104 10,250,000 Sold below 1165 Katonga reserve price Drive Naalya Block 9 Plot 1,900,000,000 750,000,000 & Sold at a 418 & 431 200,000,000 price way Kibuga below the Wandegeya one approved by the board Block 9 Plot 1,405,250,000 No valuation

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Residual Plot Amount initially Reserve Price Amount sold Loss Comment approved by Board (UGX) (UGX) (UGX) (UGX) 726 Kagugube report Wandegeya Plot 14A Ismail 128,700,000 No reserve Road Mbuya price indicated. In its response, management provided valuation reports which also indicated that a number of these plots were sold below the reserve price and in other instances, no reserve price was provided. I advised management to develop a policy regarding the use and management of residual plots.

55.8 Land occupied by third parties It was noted that there is land under third party occupation, without the consent of NHCCL. However, NHCCL has only taken some steps to recover some of these plots, while others have been excluded from such action. The company risks losing the land if timely corrective measures are not taken. The Table below gives a summary of the land occupied by third parties:

Table showing land occupied by 3rd parties

Name Comment Jinja – Mpumudde This land had been irregularly sold by Jinja district. NHCCL has lodged a caveat on the land, but it is still being encroached on. Gulu – labour lines road Residual plots were subdivided without the knowledge or consent of NHCCL. Gulu-Labour lines road Land was leased to Orange without the knowledge of NHCCL. The company does not collect any revenue. Plots 17 and 21 Oyam road These plots are occupied by a school. The Board had approved their sale.

In response management stated that efforts are being made to resolve these issues through legal and advocacy systems. I await the outcome of this management commitment.

55.9 Dividends It was noted that the Company last declared dividends to its shareholders (Government of Uganda - 51% shareholding and Government of Libya - 49% Shareholding) in 2009. Of the dividends declared, the Government of Uganda has not been paid dividends amounting to UGX.2,381,708,529 while the Libyan government has not been paid a total 221

of UGX.206,010,201. However, the outstanding dividends reported in the financial statements for the year ended 31st December 2013 are UGX.476,173,730 as shown in the table below;

FY Dividends Paid (UGX) Dividends Outstanding (UGX) Uganda Libya Uganda Libya 2007 0 614,034,594 2008 0 975,603,388 1,015,423,935 0 2009 0 722,750,000 752,250,000 0 2010 0 - - 0 2011 0 0 0 2012 0 0 0 0 2013 0 0 0 0 Total 0 1,698,353,388 2,381,708,529 0 2010 LAICO WHT refund - - 206,010,201 2011 GOU dividend-debt swap (2,111,545,000) 0 Net payable - 270,163,529 206,010,201

The following matters were noted;

55.10 Debt-Dividend Swap In 2011, the company offset dividends due to the Government of Uganda (GoU) amounting to UGX.2,111,545,000 against rent receivables from different government entities (State House and Ministry of Defence). This was in contravention of sections 9 and 13 of the Public Finance and Accountability Act (PFAA) requiring all government revenues (dividends) to be paid to the Uganda Consolidated Fund and appropriated by Parliament. In addition, IAS 32 on Financial Instruments presentation specifies that a financial asset and a financial liability should be offset when and only when, an entity has a legally enforceable right to offset the recognized amounts; and the entity intends to either settle on a net basis, or to realize the asset and settle the liability simultaneously.

As at 31st December 2011, the company did not have a legally enforceable right to offset such amounts, accordingly, the dividends payable and rent receivable from GoU included in note 27, are understated by the amount in question. This position had not changed as at 31st December, 2013.

Management explained that the company had written to the Solicitor General seeking a legal opinion on the legality of swapping Government debt with dividends. However, I was not provided with supporting documentation to confirm this position.

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Further analysis revealed that receivables for which the Dividends were swapped have never been recognized in the books of State House, Ministry of Defence and in the consolidated financial statements of Government as payables to NHCCL. Under the circumstances, the figure was recognized unilaterally and therefore the basis of a swap may be challenged.

I advised management to consider regularizing the debt-dividend swap arrangements and make the necessary adjustments to reflect the true position in the financial statements presented.

55.11 Retention of Funds In the event that the company does not pay out dividends, the funds are supposed to be reinvested to boost future return on investment, both in absolute and relative terms. It was noted that although the company has been retaining funds over the years since it last declared dividends and that there has been an increase in the Return on Investment as shown below, this has largely been a result of revaluation gains on company properties (UGX.99.3 billion During 2013) and not necessarily generated from its operations;

Year 2009 2010 2011 2012 2013

Net Income 2,398,018 20,726,919 -3,156,777 19,647,596 95,535,060 UGX’000 Average assets 181,823,533 191,443,574 199,960,573 223,011,398 288,667,636 UGX’000 Return on Investment (Net Income/Average 1% 11% -2% 9% 33% Asset)

The continued failure to declare dividends is likely to negatively affect shareholder/investor morale.

I have advised management to make concerted efforts to improve on their operational efficiencies including general and financial performance of the company, so as to ensure that the company gets back to generation of adequate profits that can be distributed to shareholders.

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55.12 High staff turnover Between 2012 and 2014, the company lost fifteen (15) key staff, eleven (11) of whom were senior management. In the month of November, 2014, the Chief Executive Officer, who had been with the company for only nine (9) months handed in his resignation notice. A high staff turnover affects the company‟s continuity and staff morale, and may be an indicator of an underlying problem.

In response, management stated that the Board identified this challenge and tackled it through restructuring. I advised management to critically examine the exit interview notes in order to address the trend of high staff turnover accordingly.

55.13 Cash loss through failed joint ventures NHCCL entered into a joint venture with MKP Builders Limited (NH-MKP Builders Limited joint venture) in which the company invested up to UGX.10.8 Billion. The joint venture was funded through a Housing Finance Loan. The Joint Venture was not successful and the other party breached all the terms of the agreement. This eventually led to a total loss of the USD.5,079,174, which the company had invested in the joint venture. It was further noted that the company is trying to recover the loss by enforcing its rights under the advance and performance guarantees. However, both recoveries are before courts of law.

In response, management stated that NHCC has sued for reliefs including damages for the breach and a hearing date is awaited. NHCC has in its custody MKP equipment worth over USD.5milion and a court application has been filed for attachment of this equipment before judgment.

I await the outcome of the court proceedings.

55.14 Failure to attract new long term capital The Company continues to face challenges of raising additional long term capital as noted in the deliberations of the Board. A review of the loan records showed that the company has not been able to raise additional capital since May 2013 when it last obtained a UGX.4 Billion loan from Post Bank, for the completion of the Kiwana Project. Several projects have since stalled, including the Naalya Pride and refurbishment of crested towers building due to inadequate funding.

In response, management stated that they have obtained term sheets and loan agreements from regional institutions to mention but a few, Shelter Afrique of USD.9 million. The Company was rethinking its project implementation strategies (Turnaround 224

strategy) and financing, in order to serve the general public with affordable housing, given the component of financing costs in unit pricing. I await the outcome of this management commitment.

55.15 Inability to collect amounts due from debtors A review of the Company‟s receivable ledgers revealed that the company has failed to recover debts including rent and proceeds of sale from Government ministries, such as Ministry of Defence and State House, as well as from sitting tenants in Buganda Road flats, respectively. In the financial statements, UGX.2,863,967,000 due from debtors has accrued for more than a year.

In response, the Accounting Officer stated that collection of money from Government departments was ongoing, with some awaiting renegotiation of terms and others in final stages of negotiations to sale such properties. The outcome of this action is also awaited.

55.16 Loss of assets/land to squatters The land at Namungoona and Kireka is affected by massive encroachment by squatters. The land valuation report of 2010 by the East African Consulting surveyors, showed that 150 out of 214 acres (86.994 hectares) of Namungoona land, and approximately 200 acres of the Kireka land are heavily encroached by squatters. According to the company‟s existing strategic plan, the above areas were earmarked for future development. There is a risk that the company may fail to achieve its long term objectives if the encroachment on its lands is not addressed in time.

In response management stated that, efforts are being made to recover land by engaging all stakeholders including KCCA. I have advised management to rigorously follow up this matter to ensure that all company land is secured and freed of any squatters to enable the company carry out its business plans without hindrance.

55.17 Delays in completion of projects The company received pre-sales revenue for Naalya Pride Project totaling to UGX.2,483,813,790 while Namungoona phase IV received presales of UGX.64,800,000. Both projects have since stalled. Due to pressure from customers, a total of

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UGX.1,659,040,500 was refunded to some of the customers. This situation exposes the company to potential risks such as;

 Litigation for breach of contract by customers who have already made payments.  Negative reputation to the Company for failing to honor its contractual obligations.  Worsening liquidity position as customers continue to withdraw their money. In response, management noted that they realized this risk and interventions are in progress to resume the projects in 2015, as only 32 units were roofed in Naalya in 2014. I advised management to ensure the turnaround strategy is expeditiously approved and implemented to enhance business activities of the company.

55.18 Losses on major construction projects

The Company completed construction of four major projects. However, an analysis of the proceeds from the sale of houses revealed that three projects did not realize the expected profit (return on investment). This profit would even be much less had the cost of land been included at replacement cost rather than the book value. Details are shown in the table below;

Table showing analysis of returns on selected construction projects Project No. of Actual Cost** Expected Profit/loss Actual Rate Expected units (UGX) revenue (UGX) of Return on return on Investment investment( profit)% Bugolobi- Spring 104 36,207,838,054 36,400,000,000 192,161,946 loss 63% valley apartments- Prefeb(104 units) Kiwana Housing 32 11,701,407,988 14,176,000,000 2,474,592,012 21% 35% Estate (32 units) Kyambogo- 6 5,527,930,654 4,908,000,000 -619,930,654 loss 1% Housing Estate (6 housing Units) **source: NAVISION system at NHCCL

As shown above, none of the projects were able to meet their expected return on investment, with a majority actually posting losses.

Further scrutiny of the project costs revealed that the actual cost of the projects exceeded the budgeted costs by a total of UGX.25,322,137,454 (61.2%) and management did not

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provide reasons behind the increase in costs. Mostly affected was Kyambogo Project whose cost increased by 98.8%. Details are shown in the table below;

Table showing unexplained cost increases Project Budget cost Actual Cost** Cost Override % (UGX) (UGX) (UGX) Increase Kyambogo 2,781,147,185 5,527,930,654 2,746,783,469 98.8% Regina II 9,368,399,675 13,260,262,550 3,891,862,875 41.5% Kiwana Housing 7,441,279,235 11,701,407,988 4,260,128,753 57.2% Estate Pre-fab Bugolobi 21,784,475,697 36,207,838,054 14,423,362,357 66.2% – Spring valley apartments Total 41,375,301,792 66,697,439,246 25,322,137,454 61.2% **source: NAVISION system at NHCCL

Such excessive variances may point to weaknesses in the company‟s investment appraisal process, or weaknesses in the project implementation that lead to cost escalation.

I advised management to exercise adequate budgetary oversight and control for its projects and to also enforce strict budgetary controls. Management should also review its investment appraisal process with the view of identifying weaknesses so that returns from its investments are within the acceptable standards that need to be set by the Board.

55.19 Corporate Governance

55.20 Lack of a Substantive CEO The company operated without a substantive Chief Executive Officer (CEO) for four (4) years starting from 31st August 2010 to 17th March 2014. The care taker for part of this period was also the Chairperson of the Board. Though the company had other senior officers, the Board decided to appoint the Chair to the Board as the caretaker of the CEO position. There was a conflict of interest as the Board chairperson also doubled as the head of the executive management.

During the course of the audit, the newly appointed CEO gave notice of resignation after being in the position for a period of only 9 months. There is a likelihood that the organization will continue suffering from prolonged periods of operation without a stable leadership. This may negatively affect the performance of the company further.

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In response, management stated that there is an acting Chief Executive Officer who was appointed by the Board in December 2014. I advised management and the shareholders of the organization to thoroughly review the circumstances that are leading to the unstable leadership at the organization and have these considered during the process of recruitment of a new substantive CEO to run the Company.

55.21 Payment of Taxes on Director’s Retainer - Us$.64,280 Minute 7/4/09 of the shareholders Annual General meeting of 2009 fixed the annual retainer fees for board members at Us$.7,500 payable in 4 installments. Examination of the related payment vouchers revealed that this was interpreted to be net of tax despite the minute being silent about it. It should be noted that the same minute expressly stated that sitting allowances was net of tax. Management grossed up the retainer fee and paid each board member Us$.10,714 annually inclusive of tax without the shareholders‟ approval. This translated into an overpayment of Us$.64,280 to four board members over a period of 5 years, which is recoverable.

In response, management appreciated the issue raised regarding taxes on the directors‟ retainer fees and promised to present it to the shareholders in their next Annual General Meeting for guidance. I await the outcome of this management action.

55.22 Government Debts–UGX.12,966,009,377 NHCCL has been unable to collect a sum of UGX.12,966,009,377 due from government from as far back as 2008. The recoverability of the amount appears to be remote. In some cases (listed in the table below), there are no tenancy agreements to back up the quoted figures, thus casting doubt to their authenticity.

Table showing outstanding debts from government departments Source Amounts Comment Outstanding – Ugx Kyagwe Road Nakasero – 55,200,000 No rental agreement seen. In addition State-House State house (rent) indicates that the building on the land is condemned by KCCA as unsuitable for habitation. Kyagwe Road Nakasero – 8,700,000,000 No sale agreement seen. State house (sale) Bulime – Entebbe – 258,750,000 No contract. Ministry of Defense Kireka barracks – Uganda 975,350,000 Refer to write up on Kireka land occupied by Uganda Police police audit issue 8.4(b) 228

Uganda Land Commission 1,650,709,377 Judgment debt has been paid but interest is still –Judgment debt Interest outstanding.

Plot 45-57 Mpumudde Av. 326,000,000 No contract. Jinja – UPDF Shelter Afrique (USD 1,000,000,000 500,000) TOTAL 12,966,009,377

Under the circumstances, there is a risk of revenue loss since the company is failing to collect the debts from government institutions.

In response, management explained that negotiations are underway with many of these debtors and there is a likelihood of receiving payment in the near future. I advised the Accounting Officer to follow up this matter with the concerned stakeholders and also consider making appropriate provisions and disclosures in the financial statements.

55.23 Delayed Payment of Suppliers – UGX.137,002,527

A review of the suppliers list revealed that a total of UGX.137,102,528 remained outstanding for a period of more than one year as shown in the table below;

Table showing outstanding suppliers not settled during the year

No. Vendor Balance at start of Balance at Year – Ugx 31.12.2013 – Ugx Ven114 Silver Wandera 5,491,839 5,491,839 Ven118 Onyango John 1,372,400 1,372,400 Ven120 Businge David 17,632,965 17,632,965 Ven129 David Nyendwoha 22,345,616 22,345,616 Ven159 Uganda Clays Ltd 4,698,405 4,698,405 Ven180 Irumba Patrick 14,146,668 14,146,668 Ven186 Mfite Sam 923,406 923,406 Ven197 Kal Engineering Services Limited 5,257,662 5,257,662

Ven264 Steel Works Ltd 16,119,901 16,119,901 Ven268 Jobu Associates Ltd 1,115,056 1,115,056 Ven283 Thunderbolt Technical Services Ltd. 2,292,920 2,292,920

Ven521 Energy Utilization (Uganda) Ltd. 2,135,293 2,135,293

Ven523 Tarvan Engineering Services Ltd. 3,056,797 3,056,797

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No. Vendor Balance at start of Balance at Year – Ugx 31.12.2013 – Ugx Ven589 Aculbanya Construction Company Ltd 16,074,788 16,074,788

Ven595 Civicon Limited 18,054,000 18,054,000 Ven635 Waiswa Yakuti 1,534,028 1,534,028 Ven670 Khazana Services Ltd. 3,312,582 3,312,582 Ven699 Ediko Enterprises Ltd 1,438,200 1,438,200 TOTAL 137,002,527 137,002,527

Delays in payment of suppliers over the stipulated period may have negative implications on the company for example reputation damage and may also attract litigations and penalties.

In response, management promised to clear the accounts after making reconciliations. I await the outcome of this management commitment.

55.24 Other Long Outstanding Receivables – UGX.4,398,321,675 A review of the internal audit report dated 30th September 2013 revealed that there are receivables that were outstanding from as far back as 2007. A recommendation for their write off following board approval was proposed but there is no indication that this has been actioned upon by management despite there being no evidence of recoverability.

Table showing long outstanding receivables

Debtors Amount - Ugx Sundry debtors 452,985,668 VAT 58,252,305 Old Property receivables 98,786,825 GOU rent balance 3,239,846,877 Crested Towers Debtors (US$.219,380) 548,450,000 TOTAL 4,398,321,675

In response, management explained that efforts to recover the above are still ongoing and where failure occurs, provisions will be reviewed and resubmitted to the board for approval of a write off. I have advised management to expedite this action.

55.25 Staffing Issues

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55.26 High staff turnover During the year under review I noted that a number of staff had either resigned or absconded due to a number of reasons, which included;

 Redundancy, as the organization was not heavily involved in construction;  The lack of stable leadership at the top. The prolonged period without a substantive CEO was also given as the reason for staff turnover;  Salary and emoluments were not competitive with the last salary review having taken place in 2004. This was also compounded by the freezing of the annual salary adjustment for inflation;  The lack of training;  In the run up to the restructuring process of the organization, some staff opted to leave in order to avoid being affected by the restructuring;  Limited career growth opportunities in the company;  Inability by some heads of departments to make final decisions on issues that were pertinent in their sections;  Management‟s failure to clearly distinguish the duties of the managerial positions in the finance department;  Other employees cited non recognition of performing staff and lack of a transparent system of rewarding employees. The caliber of staff that has since left the company leaves a management gap and affects continuity of the operations. It was further noted that although 15 positions fell vacant as a result of staff resignations, only 5 have been replaced during the period.

In response, management indicated that they had recognized the problems and had addressed each of the issues raised above and therefore hoped for a stable workforce in 2015. I advised management and the Board to review their internal operations with a view of resolving the staff issues that are leading to such a high staff turnover.

55.27 Procurement Irregularities

55.28 Amendment to the Procurement Manual In 2007, PPDA approved the company‟s request for its procurement manual to be accredited as an alternative procurement system under PPDA regulation 342. The provisions of the PPDA Act and Regulations that were not affected by the accreditation were to remain applicable to the procurement and disposal activities of the company.

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It was however, noted that various changes have since been made to the manual and yet the company did not seek further accreditation from the Authority. During the year under review, the 36th Board sitting on the 7th of June 2013 (Minute 8/36/13) approved new thresholds for each of the procurement module. However, there is no evidence that these changes were accredited by PPDA. I explained to management that all the new provisions introduced after the initial accreditation for which approval has not been sought from PPDA are against the law and, thus cannot be considered authoritative.

In response, management promised to seek PPDA accreditation for the board approval of changes in the current Procurement manual. I advised management to obtain accreditation for all major changes to the procurement manual in compliance with Government of Uganda procurement laws.

55.29 Lack of an Approved Procurement Plan According to Paragraph 10.2 of the Procurement manual, NHCCL is required to prepare a procurement plan that should guide all procurements during a financial year. For the year under review, NHCCL did not prepare a procurement plan. This not only contravened the law, but also undermines the planning processes of the company, thus exposing it to the risks that are associated with un-planned procurements.

The accounting officer acknowledged this anomaly and explained that the company now compiles procurement plans that are presented to the Board together with the budgets for the year for approval. I advised management to always prepare the procurement plan early enough and have it approved to fully comply with the provisions of the procurement manual and guidelines.

55.30 Clearance by the Attorney General Article 119(5) of the Constitution of the Republic of Uganda, 1995 (as amended) and The Constitution (Exemption of Particular Contracts from Attorney General‟s Legal Advice) Instrument, SI- Constitution 12 provides that all government MDAs shall seek the Attorney General‟s legal advice before entering into contracts whose value is above UGX.50 million.

During the year under review, NHCCL entered into contracts with various firms each exceeding the UGX.50 million threshold without complying with the above requirement. It was noted that the company had in the past entered into unfavorable contracts that could have been avoided had advice from the Attorney General been sought. Examples of 232

these include; the NH-MKP joint venture and the purchase of the reversionary interest in Kireka land.

In response management explained that NHCCL is in between a public entity and a private one because of the 51% government shareholding and the 49% shareholding by LAICO. This puts NHCCL in a peculiar position from that of a full government parastatal. Management further stated that NHCC does not draw funding from the consolidated fund which if it did, would qualify NHCC to be subjected to contract clearance from the Attorney General/Solicitor general.

I advised management to seek legal interpretation from the Attorney General regarding this matter.

55.31 Procurement and Payments for Piece Workers During construction works, NHCCL uses piece workers under labour contracts method of project execution to provide labour for construction. Piece workers provide labour for such tasks as civil works, electrical works, plumbing and any other related construction tasks. During the year, a total of UGX.605,100,494 was paid out to Piece workers for the „Kiwana and Prefab‟ projects. During the audit review, the following were noted;

a) Procurement of Pieceworkers It was established that all piece workers were identified and hired by the project engineers without additional checks or verification by an independent third party. There is a risk of abuse through non-competitive hiring practices, hiring of incompetent workers and insider dealing. There is no segregation of duties as the Project engineer who does the recruitment of the pieceworkers is also responsible for supervision, certification of work and payment of the works done by the piece workers on site. In addition, there were cases of contracts being signed after the piece workers had begun the work(sometimes up to two months.). During the review, it was evident that several reminders were written by the caretaker CEO to the Chief Operations Officer instructing him to regularize the piece workers at the sites.

b) Cash Payments to Pieceworkers

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The piece workers were being paid cash of up to UGX.150million per transaction well in excess of the insured cash limit of UGX.25million. This practice contradicts Paragraph 3.4.8 of the Company‟s Finance Manual which states that payments by cash shall be minimized except for minor transactions in exceptional circumstances. There is a risk that cash payment system might be abused by Company staff and also increases the risk of cash loss during transit.

c) Doubtful expenditure It was further noted that some receipts issued by different piece workers appeared to have similar handwritings as proof of evidence of payment by NHCC for work undertaken. The authenticity of these receipts and corresponding payments remain doubtful. The table below refers.

Table showing Doubtful Payments to piece workers

VR NO. DATE PAYEE DESCRIPTION AMOUNT - Ugx 1955 19/09/13 Wamala Ibrahim Civil works- Blocks 2 & 3 Kiwana 16,231,000 1954 19/09/13 MugenyiWello Plumbing works- Blocks 1,2,3,4 1,970,200 William Kiwana 3353 16/12/13 MugenyiWello Mechanical installation works- Cert. 3,621,050 William 1 Kiwana 3354 16/12/13 Wamala Ibrahim Finishes- Blocks 2& 3 Kiwana 23,691,150 3355 16/12/13 Echiku Walter Finishes- Blocks 1 & 4 Kiwana 25,354,450 TOTAL 70,867,850

I advised management to consider limiting involvement of piece workers to works of a low cost value and to also strengthen their internal controls in the procurement and payment processes. The doubtful transactions should be further investigated.

55.32 Wasteful Expenditure

55.33 Payment to Java Consulting Ltd NHCCL hired M/S Java Consulting Ltd on the 08thApril 2013 as a consultant to help restructure the operations of NHCCL at a contract price of UGX.74,340,118. The company was paid a total of UGX.14,868,024 but its services were terminated before the 234

completion of the assignment. M/S Java made a complaint to PPDA and a report was later issued in August 2013 in which the following issues were noted;

 The Chairperson of the Board (and acting CEO) was appointed as the contract manager for this contract contrary to Regulation 37(1) of the PPDA Regulations, 2003 which requires the Accounting Officer, the procurement and disposal unit and the user department of the procuring entity to act independently in their functions.  During the period, M/S Java was paid a total of UGX.14,868,024 for preparing the inception report. However, management found that this report was unsatisfactory and went ahead to terminate this contract on that basis. The payment for a deliverable that is considered unsatisfactory is not justified.  The company only informed M/S Java of its dissatisfaction with the inception report through a termination letter dated 15th May, 2013 without giving the consultant the opportunity to make amendments to the report.  Before the above contract had been terminated, the caretaker instructed the chief commercial officer on the 8th of May, 2013 to immediately draft letters for new bidding and specifically stated that M/S BDO advisory services (the company that was eventually awarded the contract) was to be included on the list of consultants to be communicated to. This is contrary to the procurement regulations.  The contract was terminated by the Company Secretary and not the accounting officer and without approval of the tender committee. Notice of termination was also not given contrary to the terms of the contract. It was noted that the tender committee did not approve the termination contrary to Regulation 263(3) of the PPDA Regulations, 2003. Therefore, NHCCL is faced with the risk of possible litigation as a result of irregular contract termination.

In response, management stated that the issue was transitional, was handled carefully by the board, and was in the best interest of the company at that time and corrective action has since been taken.

I advised management to endeavor to follow all clearly stipulated procedures in accordance with its internal policies and the PPDA Regulations to avoid the risk of costly litigation.

55.34 Unused construction materials and tools inventory –UGX.5,260,849,000

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It was noted that the total unused construction inventory as at 31st December, 2013 was worth UGX.5,260,849,000. According to the internal audit report of 30th September, 2013, stock amounting to Ugx.2.8 billion was unutilized from a number of completed projects and still remained in stores by the time of this audit. Details are shown below;

Table showing the value of unutilized stock from projects Project Amount (UGX) Kiwatule 1,007,568,967 Regina II 407,120,086 Namungoona I 353,790,575 Bugolobi Prefab 1,109,912,997 TOTAL 2,878,392,625

The above inventory continues to deteriorate and is exposed to a risk of pilferage. Through interviews of some technical staff, it was established that the issue of unutilized inventory is as a result of over-budgeting and purchase of items in excess of what is required for construction and an unchecked push system from some suppliers.

Although management explained that these materials are used in subsequent projects, review of the feasibility studies for new projects showed that use of old/existing stock is not considered. I advised management to ensure that projects are properly designed and materials properly estimated to avoid substantial amounts of materials remaining unused at the completion of projects. In the meantime, unused materials could be used on future and/or ongoing projects or else have it promptly disposed to avoid the risk of theft and deterioration.

55.35 Idle equipment

The company has construction equipment such as wheel loaders, excavators, graders and cranes, whose total book value is estimated at UGX.15 billion. The following pictures show the status of some of the machines lying idle:

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Failure to make use of such equipment implies that the company is not only losing out on the possible revenue such assets would be generating but also expose such equipment to a risk of vandalism.

In response, management promised to utilize the equipment in the upcoming phases of construction projects. I advised management to ensure that all equipment is always properly utilized for the intended purposes.

55.36 Impaired stock Inspection of the stores revealed that NHCCL had in its stores, inventory worth UGX.1,754,459,062 that was purchased between 2007 and 2012 but was never utilized at the various project sites implemented by the company. Over time, this has resulted in the inventory deteriorating in quality, others getting expired and some getting damaged. For example, according to the store keeper, galvanized pipes worth UGX.68,000,000 have since become obsolete and cannot be used in construction. It was therefore noted that although grounds for impairment existed, the company did not adjust the amount reflected in the financial statements to reflect the fair value of the inventory.

In response, management acknowledged that only inventory worth Ugx.326m was impaired and has been written off in 2014. I accordingly advised them to investigate the causes of this wastage and take corrective action to prevent re-occurrence. The photographs showing the state of some inventory are shown below;

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Refererence photograph Remarks Picture 1 - Expired Sadolin Paint Sadolin paint bought as far back as 2012 for use in the „Prefab project‟ has remained in stores and has since expired implying that excess paint was purchased for the project.

Picture 2 - Galvanized Iron Pipes These galvanized iron pipes purchased for use in the “Prefab project” have since been overtaken by new construction technologies where PVC pipes are used

Picture 3 - Bath Tubs The bathtubs were purchased for the “Kiwatule project” are in excess of the required amounts hence they lie idle. This can only be attributed to poor planning and estimation of projects.. Management should consider utilizing the items in subsequent projects.

Picture 4 – Stainless steel double bowl sinks The stainless double bowl sinks were purchased for the “Kiwatule” project is in excess of the required amounts hence they lie idle. This can only be attributed to poor planning of the projects. Management should consider using the sinks in subsequent projects.

Picture 5 - PVC pipes PVC pipes pictured were continuously supplied for both the “Prefab and Kiwatule” projects without being used by the company. They lie idle and should be disposed of as they are taking up valuable stores space and will lose value due to breakage. Picture 6-Toilets 672 Toilets bowls were purchased for the “Kiwatule” project but didn‟t meet the building design specifications & user needs as they kept blocking during use. All the toilet bowls were recalled to NHCCL stores and they lie idle.

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Refererence photograph Remarks Picture 7- Galvanized Gauge 32 Iron sheets Galvanized Gauge 32 Iron sheets were purchased for the “Kiwatule” project and are in excess of the required amounts hence they lie idle. This can only be attributed to poor planning of the projects. Management should consider using these Iron

sheets in subsequent projects before they become obsolete.

Picture 8-Chicken wire mesh Chicken wire mesh was delivered in December 2007 to be used for roofing the “Regina 1” houses, but over time it has become obsolete and is no longer used for roofing as better technology has been developed for roofing.

Picture 9-Lower/over cabinet & bottom Board 258 Lower/over cabinet& bottom Boards purchased for the “Namungoona 1” project remain idle and obsolete in stores, this is because they didn‟t meet specifications & missed parts to be assembled.

55.37 Investigation report on National Housing and Construction Company Limited I instituted an investigation into the affairs of National Housing and Construction Company Limited (NHCCL) following a request from the Parliamentary Committee of Statutory and State Enterprises (COSASE) to investigate management in regard to some aspects of NHCCL.

The investigation focused on the period from May 2010 to December 2013 and was conducted with specific terms of reference. However, earlier and later periods were included in instances where this provided clarity.

A summary of the key findings is summarized as follows;

a) General observations as regards the divestiture and legal status of NHCCL  It was noted that the Divestiture of NHCCL was done through a debt equity swap in which 49% of the shareholding was transferred to GSPLAJ. However, there was no evidence of a proper valuation and financial analysis of the company to support the divestiture as required by the PERD Act. In addition, contrary to the PERD Act, the

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company was divested for a consideration other than cash and no waiver was seen to authorize this deviation.  The Ministry of Finance advised cabinet that the company‟s value was US$.41.5 million, based on audited financial statements of 2002. However, it should be noted that the assets in these accounts had last been re-valued in 1990 and had been depreciated for 12 years thereafter, implying that the carrying amounts then, were far below the prevailing market values at the time. Valuation of companies using historical costs is misleading. Besides I was also not provided with justification as to why the 2002 financial statements were used as a basis to sign agreements in 2005, i.e. three (3) years later, considering that the company kept on earning profits and assets kept on appreciating in value.  I observed that Cabinet directed the Divesture and Reform Implementation Committee (DRIC) to divest NHCC on the 8th September 2005 but the debt settlement agreement had been signed earlier on 5th June 2005. I also observed that the agreement to trade off shares in NHCCL was made on the 5th June 2005 before DRIC met to approve the divesture as required in the PERD Act. This implies that the debt settlement agreement dated 5th June 2005 bound the government and DRIC to transfer the NHCCL shares to GSPLAJ even before the divesture process had been approved by cabinet or addressed by DRIC.  The 1995 Constitution of the Republic of Uganda as amended provides that no agreement, contract, or document by whatever name called, to which the Government is a party or in respect of which the Government has an interest, shall be concluded without legal advice from the Attorney General. However, I was not provided with evidence to confirm that the legal advice of the Attorney General was secured before the debt-equity swap settlement and shareholders agreements were signed by GOU. b) General Observations on Governance and Management of NHCCL  I observed that the Board of Directors appointed the board chairperson, as the caretaker of the company for a period of two months. I noted that the caretaker chaired both the Board of Directors meetings and that of the Executive committee at the time of her stay in the company. This scenario created a potential conflict of interest position, since management implements the decisions of the board and the board oversees management actions.

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 It was noted that the Chief Finance Officer at the time of the investigation lacked the requisite academic and professional qualifications for the position as stipulated in the company‟s job description.  It was also observed that there existed wide disparity between the amount of salary and benefits that the foreign directors and their Ugandan counterparts earn. Whereas foreign directors are paid a monthly salary of US$.6,800 together with other benefits, the Ugandan directors at the same rank are paid US$.2,200. I was not provided with adequate justification for this scenario. c) Observations on the Naalya project (Joint venture between NHCCL and MKP Builders SDN)  The procurement of MKP Builders SDN as a partner was not clear. I was not availed with any evidence indicating how MKP Builders SDN was procured. The first letter written by MKP Builders SDN to NHCCL dated 05th October 2010 was informing the Chief Executive Officer that the MKP group of companies were in Uganda and would be presenting to the management of NHCCL as planned on the 08th October 2010. However, the said letter was purportedly signed by Dr. Edward Han, the Chief Executive Officer MKP Group of Companies whose signature appeared significantly inconsistent with his signature on other documents.  There was no evidence that a proper due diligence necessary to ascertain the legal, technical and financial capacity of the partner company was undertaken before the contract was entered into. It was noted that the Chief Finance Officer and the Chief Commercial Officer appear not to have been involved or consulted in the due diligence exercise undertaken by the Top Management and the Board before the contract was entered into. This was contrary to the joint venture policy of NHCCL. Indeed there were many anomalies noted in regard to the legal status and registration of the company in Uganda.  As a result of the above, NHCCL paid an advance of US$.3,627,762 equivalent to 25% of the contract sum but the company abandoned the work after completing only 6.4% of the work. In addition, although the joint venture agreement provided for the company availing low cost building technology and sourcing for cheap finance, these were never realized. A review of MKP‟s bank statements showed that after NHCCL made the advance payment, a sum of UGX.4.2 bn was transferred to an unknown account two days later, which may point to a possible diversion of funds. 241

 On payment of the advance, MKP provided NHCCL an advance payment guarantee which expired before NHCCL could invoke its rights. Another advance guarantee from another insurance firm was provided; however, when NHCCL tried to recover the lost funds, the firm maintained that they could only pay for funds advanced after their guarantee came into force i.e. a date after the payment was made. This is a matter before court.  It was observed that there was another failed Joint Venture between Zarubezhstroy Ltd and NHCCL which was being promoted by the same person who introduced MKP. However, the only loss in this regard was UGX.10,300,000 spent on registering a Joint venture company. d) Observations on the Land in Kireka  There was negligence by NHCCL in failing to develop and utilize the land as required by the conditions of the lease which in turn paved way for massive encroachment on the land and a law suit by Kireka Estates Limited against NHCCL for recovery of the reversionary interest in the land.  US$.5,159,000.0 (United States Dollars Five Million, One hundred and fifty nine thousand) was paid to Kireka Estates Limited by NHCCL for the reversionary interest yet it is a non-citizen company and therefore barred from holding a freehold interest in land in Uganda according to the 1995 Constitution, as amended. It was clear from the review of the company file of Kireka Estates Limited that all the shareholders of the company are non-citizens of Uganda.  The legal department of NHCCL did not carry out due diligence and acted negligently by not providing proper legal advice on the legal status of KEL in so far as ownership of the land was concerned and thereby leading to financial loss.  I could not establish how the figure of US$.5,159,000 (five million one hundred and fifty nine thousand dollars) equivalent to UGX.13bn, was arrived at by the Board of NHCCL considering that a valuation report presented at the time, by certified valuers gave a lower figure of UGX.7.5bn (Seven billion and five hundred million shillings).  I observed that several attempts are being made by the company to recover the land from the squatters and trespassers.

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e) Observations on Namungoona Land  There have been several breaches of the lease agreement entered into by NHCCL and the kingdom of Buganda in form of allowing squatters take possession of the land and also subdividing the plot without the consent of the Buganda kingdom. As a result, NHCCL could potentially lose the land along with the investments on the land if the lessor (the kingdom) decided to terminate the lease on such grounds.  There were irregularities in the process of compensation of the squatters on the land. There were instances of double payment of the squatters by the ministry of housing in 1976 and also by NHCCL in 2004. Payments were also made without proper documentation and verification of the squatters and some of the squatters that were paid never vacated the land.  There was also negligence on the part of management of NHCCL in failing to develop and utilize the land as directed by the board which in turn paved way for massive encroachment on the land. The management however attributed the failures to political interference during attempts to enter and utilize the land. f) Observations on the Mbuya land  There are inadequacies in the management of records pertaining to property owned by NHCCL. I discovered that NHCCL only got to know of the existence of the Mbuya land in 2007. It is not clear why NHCCL was unaware of the existence of this land yet it is the registered proprietor of this land.  This land measuring approximately 16 acres, is currently occupied by the Ministry of Defence. There is no evidence that the ministry is occupying the land with the consent of NHCCL. I also did not find evidence showing that the Ministry of Defence had paid NHCCL for the continued occupation of the land.  I observed that the company has made several strives in an attempt to recover the land from the Ministry of Defence. I was availed evidence of the different communications to the Permanent secretary ministry of defense. g) Management of Estates  NHCCL‟s operations manual stipulates that the estates department shall maintain all company properties in a reasonable state, maintain a record of all the properties showing their status of title, location, lease terms, expiry dates, maintenance records

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and details of developments. I however observed several discrepancies in so far as management of the estate is concerned.  Physical inspection of NHCCL assets revealed several estate management irregularities, including: irregular sale of NHCCL land; third party occupation of NHCCL land; NHCCL land that is not indicated on their asset register and non- transfer of title of properties that had already been sold. All these create room for loss arising out of litigation as well fraudulent transfers of the titles.

The following general recommendations have been proposed:-

i. The board and management are advised to aim at establishing stronger controls, checks and balances to guard against potential conflict of interest situations while executing all projects and in the day-to-day management of the company.

ii. The company is advised to establish proper policies and guidelines regulating the conduct of due diligence of all parties and businesses intending to enter into business with the company.

iii. The Board of Directors is further advised to ensure that management and staff of the company adhere to the laws, regulations, policies and decisions of the BOD in exercise of their day-to-day activities.

iv. The government of Uganda is advised to ensure that all government transactions regarding parastatals are handled in compliance with the established laws and regulations. Any divestures of government companies ought to be done in full compliance with the laws put in place for that purpose.

v. The management of NHCCL is advised to ensure that record keeping especially relating to all assets of the company, is streamlined so as to ensure sustainability of information particularly with regard to assets that were inherited from NHCC.

vi. The company is advised to conduct a detailed review of the asset register and ensure that the register is complete and reflects a holistic picture of all assets owned by the Company. I recommend that the company conducts a reconciliation of its assets register with the certificates of title in its possession. 244

vii. I further recommend that the company secures and protects all its properties particularly land against encroachment, say by fencing off such land.

SOCIAL DEVELOPMENT SECTOR

56.0 NATIONAL COUNCIL FOR CHILDREN – YEAR ENDED 30TH JUNE 2014

56.1 Unauthorized Over Expenditure Sec 37(b) of Public Finance and Accountability Regulations, 2003 requires the Accounting Officer to ensure that expenditure on services as authorised by an accounting warrant is not exceeded and he or she shall be held personally responsible for any excess expenditure which is incurred without proper authority.

However, review of the Revenue and Expenditure Account for the Council revealed over expenditure of UGX.124,449,360 without necessary authority. The table below refers:

No Item Budget Actual Variance

1 Travel Inland Nil 8,710,000 8,710,000

2 Advertising and Public Relations 1,000,000 1,663,000 663,000

3 Vehicle O & M 6,500,000 11,353,400 4,853,400

4 Workshops 385,214,000 495,036,960 110,222,960

Total 124,449,360

Unauthorised excess expenditure undermines budgetary controls.

Management explained that the budget was reviewed in the second quarter and only lacked revision because of lack of a governing council.

I advised the Accounting Officer to always operate within the budget or seek for authority from the Minister responsible for child welfare matters in order to reallocate funds in accordance with the National Council for Children Act.

56.2 Un-remitted Statutory deductions Section 123 of the Income Tax Act and Section 14 of the NSSF Act; require Council to deduct Pay As You Earn (PAYE) and NSSF contributions respectively from employee 245

salaries for remission to the respective statutory bodies. It was however noted that P.A.Y.E and N.S.S.F contributions amounting to UGX.42,107,000 and UGX.24,480,000 respectively deductible from Council staff salaries were neither deducted nor remitted to the statutory bodies. This practice denies employees their retirement benefits and may attract penalties.

In response, management stated that the Council was unable to remit the Statutory deductions due to failure by the Ministry of Finance, Planning and Economic Development to provide the necessary funds. The Council has disclosed these arrears in the 2014/15 budget for settlement.

I advised management to liaise with the Ministry of Finance, Planning and Economic Development and ensure that the approved budget includes provisions for statutory deductions.

57.0 NATIONAL COUNCIL FOR DISABILITY - YEAR ENDED 30TH JUNE 2014

57.1 Improper repair of Motor vehicle Appendix – H of Treasuy Accounting Instructions, 2003 Part II para 10 (b), provides as one of the procedures with respect to repair of damaged government vehicles that “Apart from any stripping necessary to enable an estimate of the cost of repairs to be made, no repair work shall be undertaken before an estimate has been obtained in writing”.

On the contrary, UGX.10,440,000 was incurred on repair of motor vehicle Reg No. UG 0373Y without pre and post inspection assessment and estimates. In the circumstances, the transaction is improperly supported and may result into loss of public funds.

The Accounting Officer explained that a driver took the vehicle to the garage without authority and that he had been caution accordingly.

Management is advised to investigate the matter and take appropriate action against the Officer.

57.2 Inadequate Treasury Releases to NCD Out of the approved revenue budget of UGX.836,000,000 only UGX.430,000,000 was realised resulting into a shortfall of UGX.406,000,000 (48%) and this hampered planned activities such as; voter education for People With Disability (PWD), development of 246

disability laws, monitoring of pro-disability service delivery in the districts, training district councils on their roles and other relevant skills, procurement of a new vehicle for the Council and filling the vacant posts. It was further revealed that the Council‟s financial requirements for the year amounted to UGX.4,000,000,000 implying that unfunded priorities constituted UGX.3,570,000,000. The meagre funding for the Council implies that activities regarding disabled persons have not been given the attention they derserve.

In response, management stated that they will continue to liaise with the Ministry of Finance through the Ministry of Gender to ensure that all appropriated funds are disbursed to enable implementation of planned activities. I await the results of the liaison.

57.3 Under Staffing Out of the staff establishment of 12 Officers, only 8 positions were filled leaving 4 vacant. Among the vacant positions is Programme Officer, Monitoring and Evaluation and Programme Officer, Legal and Human Rights. As a result, the Council‟s ability to monitor activities and enforce legal rights of the disabled persons may be contrained.

Though I raised the understaffing of the Council in my previous report, no tangible remedy has been undertaken. Management attributed staff shortage to inadequate funding.

I advised management to continue laising with the Ministries responsible for Finance and that for Disability affairs so as to obtain the appropriate funds and ultimately address the unfunded priorities.

58.0 NATIONAL LIBRARY OF UGANDA – YEAR ENDED 30TH JUNE 2014

58.1 Book Discard Provision It was noted that the accumulated fund balance of UGX.7,447,529,795 reported in the Financial Statements under the Statement of changes in equity, was arrived at after taking into account a provision for book discards amounting to UGX.1,316,753,292. However, I could not establish the reasonableness of this provision because the policy regarding book discard was not stated in the accounting policies of the library.

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Management stated that a policy on book discard would be placed before the Board to enable consistency. I await the outcomes of the management‟s action.

58.2 Unamortized Capital Grant

The Library has been receiving books in kind as donations. Accordingly, an accumulated fund account was created to record the value of donated books. However, it was noted that whereas best practice would require that the capital reserves are amortized (reduced) by an equivalent amount of the 20% annual depreciation charge on the books, this was not done by management. Failure to amortize the capital fund has led to distortion of the operating results and financial position of the Library in the form of an exaggerated deficit of UGX.4,108,055,035 and accumulated fund balance of UGX.7,447,529,795.

In response, Management indicated that they were going to seek advice on how to handle amortization of capital reserves and also determine the depreciation rate to enable proper disclosure of balances in the statement of financial position. I advised them to make the necessary adjustments to enable fair presentation of operating results and financial position of the Library.

58.3 Failure to revalue assets

IAS 16, Property, Plant and Equipment require regular revaluation of assets to enable presentation of the assets in the financial statements at their fair values. It was however noted that NLU equipment and furniture were recorded with negative book value of UGX.6,478,415 despite being in use for normal business of the Library. In addition, it was observed that some of the Library books had been depreciated to nil value and yet the books were still in use.

In response, management indicated that revaluation of the assets was to be given priority. I advised management to undertake the necessary revaluations of the assets to enable their presentation in the financial statements at fair values.

58.4 NSSF arrears Section 11 (1) of NSSF Act states that Subject to this section, on and after the appointed day, every contributing employer shall, for every month during which he or she pays 248

wages to an eligible employee, pay to the fund, within fifteen days next following the last day of the month for which the relevant wages are paid, a standard contribution of 15 percent calculated on the total wages paid during that month to that employee.

However, review of NLU‟s salary records revealed that the Library had not paid 5% employee contribution to NSSF amounting to UGX.102,714,904 relating to the period November 2011 to June 2014. Failure to remit the employee‟s deductions to NSSF exposes the Library to risk of penalties and implies that the staffs are not able to earn interest on the delayed remittances.

Management explained that the wage subvention from MoFPED only catered for net pay, leaving out NSSF and PAYE contributions.

I advised the Accounting Officer to continue liaising with the MoFPED with the aim of ensuring that resources for the statutory deductions are provided since they are part of the employee costs.

58.5 Arrears of Office Rent According to Clause 1 of the tenancy agreement made between the Registered Trustees of Patidar Samaj (Land Lord) and National Library of Uganda (tenant) in January 2012, the National Library of Uganda (tenant) agreed to pay rent of UGX.5,900,000 (VAT Inclusive) to the Land Lord every month in advance. On the contrary, it was noted that, NLU was not honouring their obligation and had outstanding rental arrears of UGX.70,600,000 by the time of audit. There is a risk of eviction and subsequent litigation against the Library. Management explained that the issue was brought to the attention of the Permanent Secretary MoGLSD who had taken it up and agreed to clear the outstanding arrears.

I advised the Accounting Officer to follow up with the Permanent Secretary of MoGLSD and ensure that the rental obligations are settled to avoid possible eviction and litigations.

58.6 Unauthorized Over expenditure The NLU Finance and Accounts Manual, 2013 states under the General Matters paragraph that: “The Finance Committee shall be responsible for the financial management in line with the laid down policy guidelines that will enhance and promote

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accountability and good stewardship of NLU‟s property. In addition, the Committee shall provide technical advice on a regular basis to ensure efficiency in running the financial affairs of the organization”

Contrary to the above requirement, management spent UGX.3,109,149 over and above the provisions in the budget on the items indicated below without involving the Committee.

Expenditure Item Actual Budgeted Excess Expenditure Expenditure Expenditure

Telephone, Postage and Couriers 2,191,449 720,000 1,471,449

Welfare and entertainment 9,681,700 8,044,000 1,637,700

Total Expenditure 3,109,149

The practice is improper and overrides the authority of the Committee.

Management attributed the over expenditure to increases in prices of various items and indicated that vote books would be introduced in the next financial year. I advised them to always seek approval before spending in excess of the individual items provided for in the budget.

58.7 Budgeting Issues 58.7.1 Un approved budget Section 12 of the National Library Act requires the Director to prepare the estimates of revenue and expenditure for the next financial year and submit to the Board for approval, not later than three months after the financial year end. Contrary to this requirement, the NLU budget lacked approval of the Board. There is a risk of inadequate prioritization of items in the budget and implementing activities that are not in tandem with the aspirations of the Board.

Management explained that all the time NLU operated without a Board, approval of the budget was being done by the Minister of MoGLSD and this became the practice. He however indicated that this was to be stopped and the Board approval be sought in accordance with the law. 250

I advised the Accounting Officer to ensure compliance with the law with regard to budget approvals and let the Board play its role in the process.

58.7.2 Improper budget presentation

National Library Act and Section 1.2 of the NLU Finance and Accounts Manual require annual budgets to include both projected revenue and expenses”. However NLU estimated only expenditure and omitted the revenue part. The practice may create funding gaps as the funding sources are not identified in order to match the expected revenue with the expenditure priorities.

In response, management attributed the error to receiving funding from only one source - GoU but promised in future to reflect other revenue sources, since NLU now had an internally generated fund component.

I advised the Accounting Officer to always obtain indicative figures of the expected provisions by MoFPED during the budget preparation process.

58.8 Activities not implemented

Review of the approved work plan for the year revealed, that a number of activities listed below remained unimplemented.  Assisting 30 UPE schools to start libraries and donating 150 books to each.  Establishing Community Reading Tents in three disadvantaged communities.  Settlement of NSSF arrears  Monitoring and inspection of all public libraries.

The Accounting Officer attributed the underperformance to inadequate funding for the Library to implement all the planned activities. Management pledged to make fresh efforts with the MoFPED to ensure necessary funding is provided to implement the activities in the subsequent financial years.

Failure to implement planned activities implies that the NLU is not able to attain its objective of developing a reading culture in Uganda.

I advised management to identify and implement priority activities that are aimed at attaining the objectives of the Library.

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58.9 Internal Audit and Risk Management Policy

Good governance practice requires an entity to maintain an Internal Audit function and a Risk Management policy for purposes of implementing internal controls and managing risks respectively. However, it was noted that NLU lacked both the Internal Audit function and Risk Management Policy, which exposes the Library to weak internal controls and exposure to risk factors not being detected by its internal mechanisms.

Management explained that the staffing structure for NLU does not provide for Internal Audit. I advised management to utilize the services of the MoGLSD Internal Audit Unit and develop risk management policy to address emerging challenges.

59.0 NATIONAL SOCIAL SECURITY FUND – YEAR ENDED 30TH JUNE 2013

59.1 Notice of Assessment for Corporation Tax The Fund received a notice of assessment for Corporation tax from Uganda Revenue Authority amounting to UGX.84.4 billion. The Fund objected to the assessment on grounds that the Tax Authority computations wrongly disallowed expenses that are considered deductible for tax purposes. The Fund has initiated legal proceedings against URA from which a favourable outcome is expected and as such no provision has been made in the Financial Statements. I await the outcome of the court proceedings.

59.2 Inappropriate placement of IT and Risk functions in the Organization Structure The criticality of Information Technology (IT) and Risk management to the Fund‟s operations notwithstanding, a review of the newly approved Organizational Structure revealed that the two functions were placed under the Chief Finance Officer and Head of Internal Audit respectively. In the circumstances, adequate attention may not be given to the proper planning and governance of these functions.

Placing the Risk function under the Internal Audit Function compromises the independence of the Internal Audit Function in monitoring compliance with the Risk management policies and controls.

In their response, Management explained that in view of the changing regulatory environment, the board is reviewing the long term strategy of the fund. The board will then determine the structure that will most appropriately support that strategy.

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I have advised management to consider elevating these roles to full functions in the structure.

59.3 Simultaneous Expiry of Senior Management Contracts A review of personnel records revealed that contracts for all senior management positions were awarded with the same terms and expiring at the same time.

For example, the Fund did not have substantive management for half of the year ended 30th June 2014. Additionally, there was no substantive Managing Director, Deputy Managing Director, Corporation Secretary and Head of Investment. Also noted was a misfit between the tenure of the strategy and that of key management staff. In the circumstances, there is no chance for smooth and proper role change management, thereby exposing the Fund to a leadership gaps that could have a negative impact on the achievement of the fund‟s objectives.

Management explained that the status quo remained but in view of the changing regulatory environment, the board was reviewing the Fund‟s long term strategy and then determine the most appropriate contract terms to support the strategy.

I have advised management to consider scheduling the terms of the contracts for senior management positions to end at different times to allow for proper role change management and minimize leadership vacuums. Additionally, management should consider aligning contract tenures to the strategy.

59.4 Property Management 59.4.1 Encroachment on Fund Property The Expert engaged to value the Fund‟s property indicated that 0.484 hectares (out of 228.88 hectares) of land at Lubowa with an estimated market value of UGX 487,399,079 was encroached upon.

Also noted was that the valuer was denied access to a residential house that forms part of Plot 5 Mvule close Naguru because the occupant claimed ownership. The estimated market value of the property is UGX.894,674,556. There is a risk of loss of these properties.

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Management explained that the Fund was in litigation with parties who had encroached on these properties. I have advised management to ensure that these matters are resolved expeditiously.

59.4.2 Delayed disposal of property Properties at Plot 47 Masaka, Kampala Road, Plot 87 Churchill Road, Gulu and Plot 8 Masaka Close, Mbarara were approved for disposal by the Board of Directors in 2011 but had not been sold as at 30 June 2014. Also noted was that, there was no documentary proof to the effect that management was actively searching for a buyer of the properties despite the Board resolution to sale the properties. The delay in disposal means that funds that could be used more profitably are tied up in these properties.

In their response, Management explained that the Fund began the process of disposal with the Namirembe land which aroused controversy and the subsequent investigations surrounding the disposal of this land made management halt the process until the issues relating to disposals have been sorted out. The exercise would continue once the disposal process is streamlined.

I have advised management to always ensure timely implementation of Board resolutions.

59.5 Financial Reporting 59.5.1 Equity Securities All investments that are managed by NSSF Fund managers and are denominated in foreign currencies, including bank balances were not recorded at the closing foreign exchange rates as required under IAS 21. However, the investments were recorded at the fund managers‟ exchange rates which were significantly different from the NSSF rates. A case in point is where foreign exchange gains on equity investments of UGX.1 billion and UGX.16.6 million on bank balances had not been recorded as at 30th June 2014.

Management explained that they were going to instruct the Fund Managers to provide information in the original currency.

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I have advised management to ensure that the investments reported by the fund managers are translated at the same rates applied by NSSF to all balances denominated in foreign currencies.

59.5.2 Loan Interest receivable The fund has loans with DFCU Bank Limited and Housing Finance Bank Limited. As at 30 June 2014, the loan balances were UGX.36.9 billion and UGX.0.5 billion respectively. It was observed that the accrued interest of UGX.39 million on both loans was recorded on the same account code (203108) and not as part of the principal balances as required by the amortized cost method stipulated under IAS 39. In the circumstances, the loan balances are not fairly stated.

Management in response indicated that the interest had already been separated from the principal components. I have advised management to reconfigure the system to ensure that interest is accrued into the related loan balance so that the amount presented is the amortized cost of the loan.

59.5.3 Rental Income The Fund invoices tenants occupying its properties in US Dollars. During the year ended 30th June 2014, some tenants paid rent in Uganda Shillings and at the time of receipting, an exchange rate (other than that in the system) was computed to ensure that the amount received in Uganda Shillings would fully net off the US Dollar invoice in the system. There is a risk of loss of income to the Fund.

Management in response acknowledged the anomaly and undertook to amend the policy informing Tenants that all foreign currency transactions will be converted at Fund determined rents. I await management‟s commitment in this regard.

60.0 NATIONAL WOMEN COUNCIL – YEAR ENDED 30TH JUNE 2014

60.1 Lack of a Governing Council Section 8 of the National Women‟s Council Act stipulates the election of a National Women‟s Governing Council comprising eight (8) members responsible for managing the affairs of the Council. During audit, it was noted that the National Women‟s Governing Council was not duly constituted after the expiry of the previous Council in 2005. Lack of a duly constituted Council hindered recruitment of staff and establishment of important committees such as the Audit committee.

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Management explained that they had worked hand in hand with the expired Council and the Ministries of Gender, Labour and Social Development and that of Local Governments to have the elections held without any success. They further explained that the matter was still before the Electoral Commission which has the mandate to conduct the elections of the Council.

I have advised management to continue liaising with the Minister for Gender, Culture and Social Development to ensure that the Governing Council is put in place.

60.2 Lack of an audit Committee and Risk Management Policy Regulation 3.1 of the Financial and Accounting Manual of the National Women‟s Council requires the Council to have an Audit Committee composed of 5 members of Council, all of whom shall be external to the Council. Similarly, Section 8 (6) of the PFAA, 2003 states that; an accounting officer may, and shall if so required by the Minister, establish and maintain an audit Committee which shall have such Constitution, powers and duties as may be determined by the Minister.

Contrary to the above provisions, it was noted that the Council did not have an Audit Committee.

In addition it was noted that the Council lacked a risk management policy to provide management with a mechanism of how to identify and manage risk internally.

I have advised the Accounting Officer to set up an audit committee and establish a risk management policy in accordance with financial regulations.

60.3 Inadequate staffing Out of the approved staff structure of 8 employees, only 5 posts were filled leaving a gap of 3 as indicated. Among the vacancies are the key positions of the Executive Secretary and programme officer.

Management explained that the recruitment of the Executive Secretary and the other staff of the NWC were put on hold by the Solicitor General until fresh elections are conducted. The term of office for the National Women‟s Council expired in 2005. Staffing gaps negatively impact on the Council‟s ability to deliver on its mandate and strains on the available staff.

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Management should liaise with relevant organs of Government to have the Council properly constituted to enable recruitment of staff.

Management explained that the positions could not be filled because the Council which is mandated to recruit staff had its term of office expired and therefore no recruitment could take place.

61.0 NATIONAL YOUTH COUNCIL – YEAR ENDED 30TH JUNE 2014 61.1 Funds not accounted for UGX.46,900,000 advanced to the National Executive Committee (NEC) members and various officers to run Council activities lacked relevant accountability contrary to section 217 of the Treasury Accounting Instructions (TAI), Part I, 2003, which requires furnishing of accountabilities within 60 days from the date of payment. The possibility that the funds were not utilized for the intended purpose cannot be ruled out. The delay to account may also lead to falsification of accountabilities.

In response, management indicated that the concerned staff have been asked to account for the funds.

I advised management to ensure that funds are accounted for in a timely manner. In the alternative the funds are recoverable.

61.2 Re-allocations not supported by Approved Warrants Sec 5.5.1 of the National Youth Council Financial Guidelines, 2002, requires all supplementary expenditure that is not included in the budget to be submitted to the Minister for approval. Review of budget performance revealed three expenditure items of; Salaries & Wages, Workshops & Seminars and Vehicle Operations & Maintenance variations of UGX.226,510,920 over and above the provisions of the budget without approved re-allocation warrants. Unauthorized reallocation distorts budgetary controls.

In response, the Accounting Officer attributed the anomaly to recruitment of more staff, supplementary funding for the National Youth Delegates Conference and extra maintenance incurred on the motor vehicle for the National Youth Council board members.

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I advised the Accounting Officer to always follow the laid down procedures for managing the need for re-allocations.

61.3 Un-approved Supplementary Provisions Sec 5.5.1 of the National Youth Council Financial Guidelines 2002 states that, “All supplementary expenditure that is not included in the budget submitted to the Minister shall require approval from the Minister”. Sec 21(2) of the National Youth Act emphasizes the same requirement. Review of the budget and the releases of Government grants revealed that NYC received UGX.51,750,000 (5%) in excess of budgeted funds without an approved supplementary estimate.

Extra budgetary funding may result into misappropriation of funds.

Management stated that it was an oversight not to seek supplementary warrant for the extra revenue.

I advised management to ensure that proper procedures are undertaken to have the supplementary funding approved.

61.4 Under Staffing The Council‟s approved staff establishment structure provides for 12 staffing positions, of which only 7 had been filled, leaving 5 positions vacant. The unfilled positions were; Programme Officer (Monitoring and Evaluation), Accounts Assistant, Information Scientist, Secretary and Driver. It was noted that the posts remained vacant despite the Council declaring the vacancies to the Ministries of Gender Labour and Social Development and Public Service.

Staffing gaps have the effect of creating inefficiency in execution of key functions of the Council and undermine service delivery.

Management stated that liaison with the Ministry of Public Service was underway to fill the vacant positions.

I await the outcome of the liaison between the Council and the Ministry.

61.5 Internal Audit Function 258

Section 17.1 of the National Youth Council‟s Financial Guidelines, 2003 and Sections 28 and 29 of the Public Finance and Accountability Regulations, 2003 require the Council to have an Internal Audit function. It was however noted that the council lacks the Internal Audit function.

In response management stated that the Council was using the internal audit unit of the Ministry of Gender, Labour and Social Development to carry out the Internal Audit function. However, there was no evidence of Internal Audit work plans and quarterly reviews implying that the control environment at the Council remains inadequate.

I advised the Accounting Officer to liaise with his/her counterpart in the Ministry of Gender, Labour and Social Development and agree on a workplan for the Internal Audit Unit. In addition, quarterly Internal Audit reports should be prepared and submitted for review.

62.0 UGANDA NATIONAL CULTURAL CENTRE – YEAR ENDED 30TH JUNE 2014

62.1 Lack of Cashbooks and Bank Reconciliations Section 1.7.3 of the Finance and Accounting manual of UNCC, requires that at the end of each month, the cashbook is prepared and a statement reconciling the cashbook balance to the bank statement balance prepared. The reconciliation statement should be reviewed and signed by the Finance Manager and forwarded to the Executive Director for approval.

However, it was noted that UNCC did not prepare cashbooks and bank reconciliation statements for the months of June to December 2013, for the bank accounts operated in Stanbic Bank and Bank of Africa, rendering the bank balances of UGX.778,889 and UGX.15,854,955 doubtful, respectively.

Management explained that the current Management came into office in December 2013 and had no information to use in preparation of the cashbook and bank reconciliations. Management stated that effective January 2014, the statements were prepared monthly.

I advised the Accounting Officer in future to ensure that cashbooks and bank reconciliation statements are prepared to ensure integrity of the financial statements.

62.2 Payables 259

The statement of financial position indicated a payables figure of of UGX.488,992,803. Included in the payables were statutory deductions such as; URA-VAT Control (UGX.123,333,628), PAYE (UGX.85,792,086), Gratuity (UGX.186,788,834) and KCCA- Property Rates (UGX.37,372,834) which may attract penalties and fines.

Management stated that the payables relate to previous years and that agreements have been entered into with URA and KCCA to settle the liability in instalments.

I advised management to prioritise settlement of liabilities so as not to attract penalties and fines.

62.3 Inconsistent Accounting Policies

The UNCC Accounting Policies state that it uses International Public Sector Accounting Standards (IPSAS) as a basis for preparing its final accounts and yet section 4.1 of the UNCC Financial and Accounting Procedures Manual prescribes International Financial Reporting Standards (IFRS), as the basis of preparation. The two positions which are conflicting may cause challenges to the preparers of the financial statements.

Management stated that the manual shall be revised to reflect the Accounting basis that was used.

I advised Management to expedite the revision of the Manual.

62.4 Unauthorized Excess Expenditure

Section 11.4 of the UNCC Financial and Accounting Procedures Manual - Budget Revision, requires that no commitment involving supplementary estimate shall be entered into until such supplementary estimate has been approved by the Board. A review of the Statement of Financial Performance revealed that the Centre incurred UGX.1,891,210,057 against the budgeted expenditure of UGX.1,348,427,874, resulting into unauthorized excess expenditure of UGX.542,782,183 contrary to the Finance and Accounting manual that requires Board approval for such expenditure. The practice may result into accumulation of payables.

Though the Accounting Officer indicated that the over expenditure was approved by the Board, there was no evidence to this effect.

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I advised the Accounting Officer to always seek Board approval before incurring excess expenditure.

62.5 Failure to Engrave Assets

Section 101 of the PFAR, 2003 requires all the Centre‟s fixed assets to be appropriately engraved to ensure that they are easily identifiable as Government assets. An inspection of the assets of UNCC indicated that some assets had not been engraved as required. These included Desktop Computers, Laptops and Furniture.

The failure to have these assets marked/engraved exposes them to the risk of loss through theft or misappropriation.

Management acknowledged the irregularity and stated that the process of having the assets engraved had been initiated.

I await the results of Management‟s effort.

62.6 Incomplete Fixed Asset Register

Section 400(h) of the TAI, 2003, requires government entities to record all particulars of the fixed assets acquired in a fixed assets register. Contrary to the TAI, UNCC did not maintain a comprehensive fixed assets register. The fixed assets register that was maintained lacked details like columns for the initial costs of the assets, depreciation charge for the year and the manufacturer‟s serial number.

In the absence of a comprehensive asset register, the accuracy, completeness and valuation of the assets is difficult to ascertain.

Management acknowledged the anomaly and said that updating the fixed asset register with the necessary details had started.

I await the results of Management‟s action in this regard.

62.7 Grounded Motor Vehicle

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It is best practice that if an asset is no longer useful to the organization and the cost of maintaining and repairing it is high, the asset should be disposed of before it loses further value. In disposing of the asset, PPDA guidelines should be followed.

During the physical inspection of the assets of UNCC, it was noted that there was a Saloon Toyota Corolla, Registration Number UAA 003F, which had been grounded for five years.

Management stated that the process of disposal had been commenced after being approved by the Board.

I await the outcome of the process.

62.8 Annual Verification of Non-Current Assets

Paragraph 106(1) of the Public Finance and Accountability Regulations, 2003 requires that at the end of each financial year, Boards of Survey of Assets are appointed to check the assets held by Ministries, Departments and Agencies of the Government. During the audit, it was noted that the Board of Survey of Assets was not appointed and consequently the assets of the entity were not indicated, as required. There is uncertainty regarding the status of assets, valuation and existence and their overall management.

Management stated that a Board of Survey would be appointed as required.

I advised the Accounting Officer to expedite the process.

62.9 Signatories to a Bank Account in Barclays Bank

Paragraph 328 of the Treasury Accounting Instructions, 2003, requires the Accounting Officer to be responsible for the operation and supervision of his or her department‟s bank accounts. It was noted that the signatories to the UNCC Bank account - No. 0341567416, held at Barclays Bank for Nommo Gallery, were no longer employees of the UNCC, having been terminated in August and October 2012. Audit noted that UGX.16,065,950 was withdrawn from this account, from August 2012 to date by the former employees. The purpose to which these funds were put could not be established. This also casts doubts on the effectiveness of UNCC‟s internal control systems to timely detect omissions for Management to address them (omissions). 262

Though Management finally closed the account in March 2015, out of the withdrawn amount of UGX.16,065,950 only UGX.4,572,400 was accounted for leaving an unaccounted for balance of UGX.11,493,550.

I advised the Accounting Officer to recover the funds from the terminal benefits of the concerned staff.

62.10 Purchases Not Taken on Charge

During the financial year, UNCC procured food items and drinks for the Centre‟s bar and restaurant. However, items worth UGX.112,208,367 were not entered into stores records. Some purchases were only received by a Goods Received Note (GRN) while the majority lacked these GRNs. Given the circumstances, there is a risk that the said items may not have been purchased, or the quantities and quality may not have been as intended.

Management stated that a system had been put in place for all restaurant procurements to ensure proper recording with effect from the current year.

I advised the Accounting Officer to investigate the purchases and ensure regular updating of the records in future.

62.11 Delayed Banking of Revenue

Paragraph 339 of the Treasury Accounting Instruction, 2003, requires all Government revenue collectors to bank revenue collection intact on the same day of collection or the day following that of collection or the next banking day. Contrary to this, the revenue collections, especially for fees were not banked on the day of collection but at intervals ranging from three to four days after receipt.

Further noted was that the revenue collectors never filled treasury form 70A showing details of receipts and bankings, as required in paragraph 83 of the Treasury Accounting Instruction, 2004. Failure to timely bank revenue and fill treasury form 70A may lead to teeming and lading, and thus misuse of the Centre‟s revenue.

In response, Management stated that measures have been put in place to ensure that all revenue collected is recorded and banked intact as required by the TAI.

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62.12 Outstanding Rent from Tenants- National Theatre

According to the tenancy agreement made on 01/10/2013 between tenants and UNCC (Landlord) clause 3 required the tenants to pay rent to the landlord on or before the first day of each quarter, in any event not later than seven days from the first day of each quarter.

It was however noted that enforcement of the provision regarding tenants at National Theatre was not done, leading to accumulation of rent arrears of UGX.11,677,904. The non-collection of rent constrains the cash flow position of the entity and may lead to defaulting on payment.

Management stated that 3 of the defaulting tenants have been evicted and that reminders have been sent to those with outstanding balances.

I advised Management to send out reminders and communicate penalties in time so that tenants are aware of the consequences of defaulting.

62.13 Failure to Collect Rent - Nommo Gallery

UNCC‟s owns land and properties described as, the Nommo Gallery, located on Plot 4 Victoria Avenue – Nakasero. It was noted that a number of private businesses are housed at the premises, from whom it was expected that UNCC would collect UGX.26,875,500 per month as rent in accordance with the Chief Government Valuer‟s estimates. The table below refers:

No Entity Net Area Occupied Rate per Rent per (Sq. M) SqM1 month

1 Creations Ltd 162.01 50,000 8,100,500 2 Mbindi Café 53.38 50,000 2,669,000 3 Pearl Restaurant 312.9 50,000 15,645,000 4 Changing Room 9.22 50,000 461,000 Total per month 26,875,500

1 Rates given by Chief Government Valuer

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It was however observed that no rent was being collected and correspondences between UNCC and some of the tenants indicated that the rent arrears dated as far back as January 1997. There is risk of loss of rental revenue.

It was further noted that UNCC has not made any efforts to formalise the tenants‟ occupancy of the said premises and has instead instructed Lawyers to demand for the unpaid rent from one of the tenants – Creations Ltd.

I advised Management to regularise the tenancies and ensure recovery of the rental fees.

62.14 Irregular Payment for Night Transport

UGX.11,425,000 paid to several temporal staff of UNCC as night transport refund lacked Board resolution, instrument or guideline, rendering the expenditure irregular.

In response, Management stated that it was a long standing practice to pay staff who leave work at night an allowance.

I advised Management that these payments should be regularised if deemed critical in the operations of UNCC.

62.15 Lack of Quarterly Performance Reports

Section 1.4 of the Finance and Accounting Manual requires actual quarterly performance reports to be prepared, and then compared with the budgets for review by the Board. However, the quarterly performance reports were not availed for review. Failure to prepare performance reports makes it difficult to monitor activities. Also corrective action may not be taken in case of variances from planned activities especially when the actual outputs are not documented.

Management indicated that inadequate staffing hindered preparation of the reports and pledged to comply with the Manual in the next financial year.

I advised Management to ensure that quarterly reports are prepared to help in monitoring and enabling corrective action.

62.16 Failure to Implement Planned Activities 265

Review of the UNCC work plan for the financial year 2013-2014 indicated that a number of planned activities were not implemented. Some of the key outstanding activities were;  Painting both interior and exterior of huts and restaurant structures.

 Maintaining National Theatre restaurant.

 Procurement of a deep fryer.

 Carrying out needs assessment in one region of Uganda.

 Collecting literature and objects pertaining to culture in Uganda.

 Developing a plan and implement activities to build the capacity of cultural institutions and individuals.  Developing artistic talent among children and the youth.

 Completing the acquisition of the land titles for plots 2 and 4 Dewinton Road.

 Acquiring a new institutional van and one car for the Executive Director.

Management explained that only UGX.27,000,000 out of the budget of UGX.1,704,565,292 was received as subvention from Government, thereby hindering implementation of the activities.

I advised management to improve revenue collection and debt management as well as liaison with MoGLSD and MoFPED with the aim of improving funding for the Centre.

62.17 Lack of a Procurement Plan

Regulation 6(2) of the PPDA Regulations, 2003 requires the entity to prepare a consolidated procurement plan, however it was noted that UNCC carried out procurements without a procurement plan. Audit also noted the lack of departmental procurement plans.

This may result into procuring items that are not priorities to the departments in particular, and the organisation in general.

Though Management stated that a consolidated procurement plan was available, it was not submitted for verification.

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I advised Management to prepare departmental procurement plans which would be consolidated into the annual procurement plan for the Centre.

AGRICULTURE SECTOR

63.0 COORDINATING OFFICE FOR CONTROL OF TRYPANOSOMIASIS IN UGANDA- YEAR ENDED 30TH JUNE 2014 63.1 Lack of financial independence Sec 2 (2) of the Act creating Uganda Trypanosomiasis Control Council states that the council shall be a body corporate, have perpetual succession and a common seal, may sue and be sued in its corporate name. Accordingly, the Act empowers COCTU as a self- accounting or autonomous entity. However, I noted that the council still receives its funding as a subvention from MAAIF, and this has affected the entity‟s financial independence. Executing without independence limits this entity‟s capacity to fully execute its mandate.

The Accounting Officer explained that its inability to attain a vote was a result of the entity‟s failure to recruit the key staff in Internal Audit, Data/IT officer, Human Resource Office, Store Keeper, Economist and Monitoring and Evaluation Office. Once all the staff are recruited, management will request for the vote status.

I advised the Accounting Officer to urgently fill the required posts and liaise with Ministry of Finance, Planning and Economic Development regarding the vote status.

63.2 Vacant Posts A review of the establishment structure revealed that a number of posts had not been filled for a long time. These include key positions of heads of departments such as Senior Accountant, Human Resource Manager, Procurement Officer and Economist. Other staff gaps included that of a Store Keeper. The staffing gaps limited the entity to provide the required services and achievement of the objectives so as to fulfil its mandate.

Management explained that during this financial year the entity budget could only cater for two extra positions and on instruction from Council, management filled the posts of the Internal Auditor and Data/IT Officer.

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I advised the Accounting Officer to continue liaising with the responsible authorities and have the positions urgently filled.

63.3 Lack of Procurement and Disposal Unit (PDU) Sect.30 of the public procurement and disposal of Public assets Act, 2003 provides that a procuring and disposing entity shall cause to be established as a Procurement and Disposal Unit staffed at an appropriate level. However during the review, I noted that the organisation does not have a procurement and disposal unit and as a result, COCTU signed a memorandum of understanding with MAAIF to undertake procurements on its behalf. I noted that this does not only delay the procurement processes but also may not take into consideration the needs assessment for the urgently required items.

The Accounting Officer explained that MOFPED advised management to use the PDU of MAAIF which is currently being done.

I advised management to plan to have a PDU in place to avoid procurement delays and other likely anomalies.

63.4 Budget Performance

63.4.1 Un-implemented planned activities During the year, COCTU received UGX.800m as planned. However, a review of the performance for the year indicated that a number of activities were partially undertaken or not undertaken at all as detailed in the table below. I explained to management that failure to implement planned activities translates into underperformance and could lead to failure to achieve the intended objectives of the entity.

Planned activities Planned Status of Remarks Management FY2013/14 Cost BN implementation Response UGX. Final Draft of National 0.085 One workshop No evidence TPM of MAAIF Tsetse & Trypanosomosis held in Jinja, that the responsible for (T & T) policy have it Policy policy was the remaining cleared by TPM-MAAIF consultation trips submitted to procedures and also submitted to made and Policy Cabinet. Cabinet. To be done by finalized and holding stakeholder submitted to TPM workshops and National of MAAIF level consultative meetings.

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Planned activities Planned Status of Remarks Management FY2013/14 Cost BN implementation Response UGX. Conduct 4 data collection 0.025 3 T&T data 4th visit not The 4th visit was and situation analysis collection and conducted. not conducted visits in the sleeping situation analysis due to limited sickness affected districts visits conducted funds. in SE and NW Uganda. Monitoring and 0.040 Activity Northern and Northern and Evaluation of Tsetse and undertaken with central not central Uganda Trypanosomiasis focus on Nagana covered districts were not interventions by Local and sleeping covered due to Governments. Reduce sickness in SE insufficient tsetse infestation, and NW Uganda resources. Nagana and sleeping only sickness in SE, NW and Northern districts of Uganda. Institutional 0.039 Training activity Activity not The trainning development: Training of for district staff done. activity was not professionals and not done done due to technical District insufficient Operatives on T & T funds. through workshops and seminars. 3 workshops/seminars convened targeting 90 Veterinary officers, DHOs and Entomologists in the cattle corridor and sleeping sickness districts. Procurement of station 0.150 Procurement not Procurement This component wagon for Executive yet done. delayed. although Director. budgeted for,funds were not provided for in F/Y 2013/14

I advised management to take up the matter with the MOFPED to ensure that adequate funding is provided to facilitate the fulfilment of the entity‟s mandate.

63.4.2 Revenue performance and Research activities One of the key objectives of COCTU is to coordinate government departments, donors and non-governmental organizations involved in tsetse and trypanosomiasis research and control in Uganda. During the year under review, UGX.253,765,000 was received from donors (Liverpool School of Tropical Medicine (LSTM) in the United Kingdom in support for use of insecticide treated Tiny Targets in the Control of Tsetse flies in the TB Gambience; Tiny Targets project. I noted that the entity has not adequately sourced or 269

participated in ventures/partnerships to attract more funding in research in accordance with their jurisdiction. I explained to management that limited partnerships affect research programs that require adequate funding which also leads to limited exposure to further studies towards reacting to the changing circumstances in the region in as far as eradication/elimination of sleeping sickness and Nagana are concerned.

The Accounting Officer explained that COCTU is working towards attracting other partners like Social Finance in addition to renewing the FIND and LSTM partnerships in place and hoped the support from the development partners would triple from the previous financial performance.

I advised management to improve on mobilization and research so as to attract more research activities and funding.

63.4.3 Insecure office environment During the review, I noted that the entity operates in a non-secure environment and does not have adequate office space for its operations. There are many illegal activities taking place as well as illegal occupants at the premises. I noted that a number of unauthorized occupants were housed in the entity's offices without tenancy agreements yet the entity has limited office space. These include: Walimi Fish Farmers Cooperative Society (WAFICOS) and Kampala Capital City Authority Veterinary Officer. I noted that none of the tenants pays rent or is authorized to operate from COCTU premises as there was no evidence to this effect.

I explained to management that this poses security threats not only to the entity‟s officers but also property and stores. It further limits effective planning for the entity operations.

The Accounting Officer explained that it is MAAIF that is empowered to take necessary action.

I advised management to take up the matter with MAAIF to ensure immediate action is taken on illegal activities/occupancy.

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64.0 COTTON DEVELOPMENT ORGANIZATION – YEAR ENDED 31ST OCTOBER 2014

64.1 Delayed Contract - construction of Pader Seed dressing plant Construction of the cotton seed processing plant at Pader was awarded to the 1st evaluated bidder at a contract sum of UGX.12,441,831,000 which was reduced in to UGX.8,835,206,880 as a result of scope reduction. However, I noted that the contractor failed to secure a performance security (10%) and an advance payment bond (20%) within the stipulated 28 days from the award date prompting the contracts committee to cancel the award letter on the 28th April, 2014.

The 2nd best evaluated bidder was then awarded the contract on the 6th May 2014 at a contract sum of UGX.13,179,422,997 but the contractor agreed to a reduction in scope of works to fit in the available budget of UGX.11,130,218,624. The contractor possessed the site on the 7th July 2014 for a contract period of 12 months, and the completion date was set for 7th July 2015. However, by the end of December 2014, the contractor had failed to come up with a qualified engineer as a contract manager resulting in breach of contract. On the 8th January 2015, the contract was terminated and the employer (CDO) immediately repossessed the site which was at the foundation level as reflected in the picture below;

From the review of the contract performance, the following issues arise;

 The contractor was given an advance payment of UGX.2,226,043,725 as per the receipt dated 18th June 2014. I noted that there was no valuation of works carried out to quantify the works so far done in lieu of the advance already paid to establish if there was need for a refund.

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 I noted that management did not carry out due diligence on the contractor to establish the level of competence and experience.

 I noted that there will be increased costs for security of the site and the machinery, equipment and materials because of the delays;

In view of the above, there is a risk that the budgeted funds for the project will not cover the remaining works. Besides, the failed contracts have resulted into the entity losing out on the services of the dressing station and could accelerate more challenges in getting a new contractor.

The Accounting Officer explained that the valuation of works was on-going and that the entity had written to PPDA for suspension of the contractor and the organisation was in the process of securing services of another contractor. Furthermore, management indicated that the performance bond of UGX.1,113,021,862 was retained by CDO while the advance payment was covered by an advance payment guarantee issued by Standard Chartered Bank.

I advised the Accounting Officer to expedite the necessary actions in consultation with the Solicitor General to avoid loss and also ensure that the project is completed.

64.2 Key vacant positions in Procurement and Internal Audit During the review, I noted that some key positions of the Assistant procurement officer and an Audit Assistant in the Procurement and Internal audit Units respectively remained vacant during the year. I explained to management that lack of such essential staff may negatively impact on the Organisation‟s performance and service delivery.

Management explained that due to the fall in cotton production that affected its Non Tax Revenue (NTR); CDO has been operating under deficits for three (3) consecutive years thus it was not possible to recruit new staff since sustainability of their salaries would be uncertain. It was however indicated that recruitment would be done as soon as the financial position of the organisation improves.

I advised management to liaise with the stakeholders and ensure that the vacant positions are filled.

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64.3 Un completed activities During the review of budget performance, I noted that some planned activities were not undertaken during the year as indicated in the table below:

Output Approved Actual Performanc Management Response budget & performance e Gap. planned output 015201 Provision of cotton In 52 districts I district not Seed is supplied basing on Cotton planting seeds; 2,106mt of fuzzy covered. demand. Develop budgeted cotton seed were 2,194 mt not One district was not served ment 0.300bns, no of produced out of produced. seed because farmers did not districts 53 4,300 Mt and register for cotton production. 4,300 mt cotton in UGX0.238bn was The demand for planting seed areas of the east. released and seed distribution were Indicating 79.4% affected by drought in July and early August 2013 which prevented farmers from planting. Activities were mainly funded by ginners. 015202 Organised seed 9,000 out of the 4,000 acres Drought during July and early Seed growers to planned 13,000 acres not planted August 2013 prevented seed Multiplica establish about were planted by seed by seed growers from planting. tion 13,000 acres of growers and 2,000 Mt growers. Competition for land and seed crops in 5 out of the planned labour with food crops also seed multiplication 4,400 Mt of certified contributed to less acreage areas and seed produced. So far being planted to cotton. expected to UGX0.837bn was produce 4,400 Mt spent representing of certified seed 88.9% UGX0.941bn

I explained to management that failure to undertake planned activities implies that the objectives of the organisation both in the short term and long run may not be achieved and I advised management to strengthen monitoring and supervision for improved cotton production.

65.0 DAIRY DEVELOPMENT AUTHORITY – YEAR ENDED 31ST DECEMBER 2014

65.1 Mischarge of expenditure-UGX.105,761,544 Expenditure totaling to UGX.105,761,544 was wrongly charged on budget lines by the Authority management to fund activities that were not meant to be paid from the affected budget lines during the financial year. I explained to management that the practice is not in line with the intentions of the appropriating authority and leads to misreporting.

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I advised the Accounting Officer to streamline the budget process to ensure that sufficient funds are allocated to each account area according to priorities. Authority should always be sought before any reallocations are made.

65.2 Attached Authority assets It was noted that some of the Authority‟s assets mainly vehicles valued at UGX.207,028,795 were attached by court arising out of failure to respond to court instructions following a case against the Authority. The assets included;

Type of Asset Book value (UGX) 1 Motor vehicle No. UAA 218F Mitsubishi Pajero 60,685,685 2 Motor vehicle No UAR 744P Nissan Navara 100,905,790 3 Motor vehicle No. UAD 737 Z Mitsubishi 42,437,320 4 Motor cycle No. UAD 950U TVS. 3,000,000 5 100 cartons of UHT Milk. Total 207,028,795

Management explained that that an appeal against the ruling was lodged and it is awaiting a hearing date to be fixed.

I advised management to closely follow up the matter to ensure that the above vehicles are secured. Solicitor General‟s guidance should also be sought on the matter.

65.3 Inconsistencies in Accounting and Budgeting periods DDA Act sect.21 (5) states that the accounting date of the Authority is 31st December which is consistent with the Financial and Accounting Policies and Procedures Manual of 2011. However, I noted that management prepares budget estimates based on the GOU financial year of 30th June hence creating an overlap of 6 months. This creates inconsistencies in spending and assessment of the Authority's performance. As a consequence UGX.52,006,540 was returned to the Treasury at the time when the entity had not closed the financial year.

Management explained that proposals for amendments to the Act were recommended and are awaiting the Boards‟ approval.

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I advised management to follow up on the matter to ensure that the budgeting and reporting (Accounting) dates are harmonized.

65.4 Un collected CESS -UGX.1.2 Billion Sect.18 of the Dairy (Marketing and processing of milk and milk Products) Regulations, 2003 provides for the Authority to levy, charge and collect CESS on processed milk products. Further, the rate charged shall be 1% of ex-factory price per litre or kilogram of the milk or milk products. Accordingly, the Authority had budgeted for CESS totaling to UGX.1.2 Billion which was not collected during the year. As a consequence, the following major activities could not be implemented:

 Conducting training of trainers per zone in a milk shed,

 Conduct a needs based training to farmer groups in basic dairy husbandry practices and business skills,

 Construct zero grazing units, provide pasture/established Fodder banks , Refurbish and rehabilitate DDA milk collection centers and conduct dairy cattle exhibition;

 Conduct multi-media milk consumption promotional campaigns and sensitize pupils and students about the importance of milk and milk products

 Design and produce milk consumption promotional materials and conduct a comprehensive market study;

 Carry out dairy training curriculum development and many others.

Management explained that the budgeted CESS could not be collected due to a directive from the Authorities suspending the CESS collections in 2007. The gap was to be covered by extra releases from Government as compensation. This shortfall has however not been received from Ministry of Finance, Planning and Economic Development to bridge the gap.

I advised management to take up the matter with the Ministry of Finance, Planning and Economic Development to ensure the funding gap is addressed.

65.5 Long Outstanding debt

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The statement of financial position reflects an outstanding amount totaling UGX.109,129,800. Included in this balance is UGX.93,600,000 owned by one of the debtors which has not been collected since 2010.

Failure to recover the funds locked up in debts affects implementation of the Authority‟s activities.

Management explained that a notice to terminate the tenancy agreement was issued because the debtor had failed to comply with some of the conditions in the tenancy agreement. The client took DDA to court and management is yet to put a counter claim.

I await the outcome of the court decision.

65.6 Vacant posts - (16) During the review, it was noted that DDA has 17 vacant posts with a number of key positions vacant as indicated below:

Title Vacant posts Director Technical Services 1 Manager Planning 1 Principal Laboratory Technician 1 Principal Public Relations Officer 1 Senior Dairy Development Officers 2 Senior Procurement Officer 1 Senior Accountant 1 Senior Auditor 1 Human Resource Officer 1 Principal Dairy Development Officer 1 Senior Dairy Development Officer 1 Senior Dairy Inspector 1 Dairy Development Officer 1

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Dairy Inspector 1 Store keeper 1 Driver 1 Total 17

Vacant positions in the Authority affect the implementation of activities.

Management explained that most of the vacant positions were not yet filled because of the limited wage bill which has remained constant for the last two financial years.

I advised management to liaise with the relevant authorities to secure funding in order to fill the vacant posts.

65.7 Inspection Inspection of some of the DDA milk collection centres (MCC) that included the Eastern region covering the districts of Buikwe, Iganga, Bugiri, Busia, Tororo, Mbale, Soroti, Kaberamaido, Serere, Ngora, Kumi, Pallisa and Mbarara regional office revealed the following key weaknesses:

 Non-operating Milk cooling centres Some of the cooling centres visited were non-operational. These included Ngora, Njeru and Kumi MCCs.

 Environmental Problems It was observed that most of the buildings were roofed with asbestos sheets which is considered a health hazard to human life and have long since been abolished internationally. I advised management to make it a priority to replace asbestos sheets with iron sheets to avoid the related dangers.

 Investment properties The Mbale Processing plant meant for processing dairy products has been turned into a coca-cola depot which is not in line with the mandate of the Authority. It was further noted that all the machines are not functioning and nothing has been done by the Authority‟s management to utilize the facilities of the plant in line with the objectives of the Authority.

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I advised management to adopt more economic and profitable ventures for maximization of the benefits from its investment resources.

 Residential properties The authority has properties in various places. In Mbale; it was noted that ever since these properties were handed over to the Authority, there has been no maintenance carried out. The buildings are in a sorry state and in need of urgent repair including the Residential Flats as per the pictures described below:

Mbale Residential Flat – Neglected and Mbale Residential Flats – The garage door

in a sorry state sorrounded by bushes. needs repalacement and the glasses are

broken. I t w a Mbale Residential Flats – The rotting Mbale Residential Flats – The ceiling boards s garage door, broken windows and are rotting & falling off, the wall has been

missing door glasses. neglected f u r t h Mbale Residential Flats- The rear view of Mbale Residential Flats - Boys quarters e the flat reveals non maintanance. occupied by some tenants but in a poor r state. observed that the flat unit at plot 27 had no occupants. I noted that management has not put in place ways of raising revenues to sustain the operations of the authority yet 278

some resources are idle or underutilized leading to poor performance in revenue collection.

Management explained that these MCCs, most of which are in the Eastern, Northern and Midwest were divested to DDA by Dairy Corporation limited when the MCCs were in a dilapidated state. DDA was supposed to rehabilitate the MCCs and use them to develop the dairy sector. However, since its inception, the Authority has never been given a development budget until last financial year where limited resources were availed to allow rehabilitation on a case by case basis. Further rehabilitation will be done depending on the availability of funds.

I urged the Accounting Officer to liaise with relevant authorities and have these assets put to use.

66.0 NATIONAL ANIMAL GENETIC CENTRE & DATA BANK- YEAR ENDED 30TH JUNE 2014

66.1 Mischarge of expenditure Expenditure worth UGX.855,096,108 was inappropriately charged on budget lines to fund activities that were not planned without authority. I explained to management that mischarge of expenditure translates into misrepresentation of expenditure balances in the financial statements. It is also not in line with the purpose for which the funds were appropriated by Parliament.

The Accounting Officer explained that the anomaly happened as the organization had just attained a vote status and staffs were not yet familiar with IFMS and indicated that measures have been put in place to avoid similar occurrences. These include recruitment of a new Finance and Administration manager and establishment of a finance committee to monitor execution of the budget.

I advised the Accounting Officer to always seek for authority for any reallocations when need arises.

66.2 Asset valuation NAGRC owns biological and other tangible Assets as follows: Biological assets are classified into Cattle, Goats, Pigs, Sheep, Chicken, Chicks, Eggs, Milk, Semen, Nitrogen, 279

Hay, Silage, et cetera and other tangible assets are classified into: Land, Motor Vehicles, Tractors, Motorcycles, Buildings, Computers, Cattle dip tanks, Water Installations, office Equipment, Inventory and others. However; I noted that these assets have not been valued most especially land, hence the value of these key assets is unknown. I further noted that these assets do not form part of the assets disclosed in the fixed assets register implying that the asset register is not updated and therefore incomplete. Failure to record all the assets in the fixed assets register could lead to loss of Government property.

Management explained that it is currently seeking funds with a view of having all NAGRC & DB assets valued and property recorded in the fixed assets register.

The outcome of the above action is awaited.

66.3 Status of ownership of centre land and farms During the audit review; I noted that management had not yet secured titles for all the NAGRC & DB land. Out of the 15 land properties/ranches; 10 land titles had not been secured and therefore registered in the names of NAGRC & DB. Further, some of the land had been encroached. Below is a summary of the land status:

No Farm/Ranc Location Title Status Management h (District) and response/Status size 1 Nshara Kiruhura Titled Secured and 27 sq. miles registered.

2 Sanga Mbarara Surveyed but Partly surveyed. 2.5 Sq. miles not titled yet Title not secured because of encroachment of 1 ½ square miles by Captain Bashaija 3 Ruhengyere Mbarara Titled 70 acres of land 21 sq. miles encroached upon by the Church of Uganda Kayonza. Communication to 280

No Farm/Ranc Location Title Status Management h (District) and response/Status size relevant authorities on the encroachment has been made and management awaits responses. 4 Rubona Fort-Portal Titled Titled. 1.16 5 Maruzi Apac Title in names of 64 sq. miles Uganda No response given. Livestock Industries (ULI) 6 Lusenke Kayunga No title Money secured from 5 sq. miles Ministry of Finance. And Surveying is in progress. 7 Kasolwe Kamuli Titled 3 sq. miles 8 Aswa Pader Uganda The title is in the 132 Livestock names of (ULI). The Industries (ULI) Minister is taking up title the matter to cabinet through a cabinet memo so that the title reverts to NAGRC and the land user rights are in the names of NAGRC & DB. 9 Njeru Buikwe Titled Njeru Town Council 1.54 (Mayor and the Physical Planner and others have encroached on more than 188 acres of land. The matter has been reported to the Police (Case No SD 53/12/11/2014 and SD 52/12/11/2014) and IGG. 10 Bulago Bulambuli (0.25) No title No response given. 11 LES Entebbe No title Will be subdivided 0.51 with CAA. Separate

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No Farm/Ranc Location Title Status Management h (District) and response/Status size titles will be issued for CAA, and NAGRC 12 ABC – Entebbe No title No Response given (Hqtrs) 0.048 13 Singo Singo No title- Was No Response given - reported given to Makerere University. 14 Kibale Kibale No title & empty Work yet to be 5 Sq. miles land (Was done. reported Not Surveyed promised but not handed over to NAGRC & DB) 15 Gwota Foyo Reported Fast tracking the surveyed process of titling.

In the absence of land titles, I could not confirm ownership of the ranches. There is a risk that land could further be encroached on and squatters acquire title deeds resulting into loss of Government land.

I urged management to secure title deeds for its land and ranches without further delay.

66.4 Accumulated un-paid gratuity According to the Animal Breeding Act, 2001, all staff members of NAGRC & DB are employed on contract terms implying that they should be paid gratuity after every end of year of service. However, a review of records and expenditure, showed that there was an accumulated unpaid gratuity due to staff to the tune of UGX.854,492,484. I explained to management that non-payment of gratuity could affect the morale and motivation of staff members thereby affecting performance of the centre.

Management explained that procedures have been instituted to cater for the payment of gratuity to all staff both current and arrears. The outcome is awaited.

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66.5 Decline in Non-Tax-Revenue Collection During the review, I noted that Non Tax Revenue (NTR) collection declined by UGX.79,729,834 (12%) from UGX.679,075,265 in the previous year to UGX.599,345,431 in the current year translating into underperformance.

Management explained that the cause of the NTR decline was due to the frequent breakdown of the sole liquid nitrogen plants at the head quarters and Mbarara resulting into lower production. Further, the devastating drought on all the farms and high levels of siltation directly affected production. I advised management to put in place contingency measures aimed at mitigating factors affecting revenue collection.

66.6 Budget Performance 66.6.1 Lack of Development Budget During the review, I noted that NAGRC & DB, had no provision for Capital Development during the year and as a result, there were unfunded priorities to the tune of UGX.42,529,848,000. These included renovations of staff quarters at the farms, cattle dip tanks, water tanks, storage tanks, perimeter fences and paddocks, procurement of transport, office equipment among others. Lack of capital development budget has led to non maintenance and breakdown of infrastructure throughout the farms and ranches.

The Accounting Officer explained that since its inception, Government has not released capital budget funds to the Centre and this has made the running of the organization difficult. Management has engaged MAAIF with a view of coming up with a development project and this has been presented to Agriculture sector working group and Ministry of Finance for discussion.

I advised the Accounting Officer to continue liaising with the relevant stakeholders and ensure that a capital development budget is adequately financed. In the meantime the centre should work out strategies of soliciting for funds through development/Research partners to boost funding to the centre.

66.7 Approved activities not undertaken During the financial year under review; the Centre planned to undertake a number of activities. However, a review of the performance of the Centre revealed that Industrial

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production of Milk and Allied products activity budgeted at UGX.15,400,000 was not implemented despite the approved funding. I explained to management that failure to implement planned activities could result into failure to achieve the set targets.

Management explained that a finance committee has been set up to streamline the budget execution.

The outcome of the selected committee is awaited.

66.8 Property not handed over to NAGRC & DB NAGRC & DB‟s broader mandate is to spearhead livestock development and genetic improvement in the country. In order for NAGRC & DB to fulfil its mandate and obligations, all the assets formally under the Animal Breeding Centre (ABC) including all the Farms and Ranches, Land, machinery, etc were to be handed over to NAGRC & DB. However, a review of the hand over report of assets of the former Animal Breeding Centre (ABC) and Government stock farms to NAGRC & DB showed that only the assets of the following locations were handed over; i.e. NAGRC & DB Headquarters Entebbe, Njeru Stock Farm, Kasolwe Stock Farm, Rubona Stock Farm, Nshaara Ranch, Rehenjere Ranch, Livestock Experimental Station (LES), and Bulago Stock Farm.

I noted that the hand over report referred to above did not cover Lusenke Farm (7 sq. Miles), Sanga Ranch (2.5 sq. Miles), Maruzi Ranch (64 sq. Miles) and (Aswa Ranch (132 Sq. Miles) even when management included these farms this in the list of livestock farms it owns. I explained to management that the uncertainty revolving around ownership of these farms could lead to loss of government assets.

The Accounting Officer explained that currently, the Uganda Land Commission (ULC) is by law the custodian of all government land and NAGRC & DB is the agency registered as the one with land user rights over these farms. Efforts by management to put these farms under the custodianship of the organisation have not been accepted.

I advised management to follow up the matter with the Board, MAAIF and ULC to ensure all the properties are handed over.

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66.9 Staffing issues 66.9.1 Vacant posts - 47 Posts I noted that out of the total 244 available positions of NAGRC & DB, 197 positions were filled while 47 posts remained unfilled representing 19.26% gap. I explained to management that this impacts negatively on the achievement of the entity‟s mandate. Furthermore; failure to fill such posts makes segregation of duties difficult and can lead to inefficiencies and non-execution of planned activities translating into poor performance. The Accounting Officer explained that in November 2005, the Ministry of Public Service approved the organizational structure for NAGRC & DB however the organization structure has never been fully funded by MoFPED despite management‟s effort to follow up the matter.

I urged the Accounting Officer to continue pursuing the matter with the Board and Ministry of Public Service to ensure staffing gaps are filled for effective service delivery.

66.10 Lack of Quality Assurance Unit and Accreditation Status The Animal Breeding Act, 2001 established the NAGRC & DB to provide for the promotion, regulation and control, marketing, import and export, and quality assurance of animal and fish genetic materials. Furthermore; it is best practice that entities have a functional unit for Quality Assurance that provides a function of due diligence and ensure adherence to procedures. During the audit, I noted that the Centre has not yet established and operationalized the function of Quality Assurance Unit which poses operational risks in ensuring due process, diligence and adherence to procedures in the dispensation of quality especially in the animal and fish genetic materials.

Furthermore, I noted that the centre is not yet accredited to ensure quality and trust the world over in the genetic materials produced and the resultant animal and fish stocks yet it works in collaboration with other reputable entities both Internal and external hence the need to be accredited. I explained to management that there is a risk that the Centre's Animal and Fish Genetic Materials analysis results and the resultant animal and fish stocks could be challenged in case of unfavourable occurrences arising from consuming such products either locally or internationally.

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Management explained that it was in the process of putting in place a well-equipped unit and a team to undertake this function.

Management action on the matter is awaited.

66.11 Management's attitude towards fraud control During the review, I noted that management has not put in place policies and procedures geared towards fraud control. The following control risks were noted;  There was no written fraud control policy, Code of Ethics and Code of Conduct to guide staff on fraud related issues.

 Management did not periodically assess fraud arising from misappropriation of assets;

 There was no Audit Committee in place;

 The Internal Audit function was handled by only one officer.

I explained to management that there is a possibility that fraud could easily occur and management may not easily detect it.

Management explained that some guidelines have been drafted yet to be forwarded to the Board for consideration.

The outcomes of management action are awaited.

66.12 Inadequate segregation of duties It was noted that there was inadequate segregation of duties in key sections like Accounts where there were only two members of staff instead of ten (10) as per the current staff structure. Internal Audit and Human Resource Sections all with one staff in each and the Planning Unit has only one staff who also doubles as a planner and estates manager. I explained to management that staffing gaps cannot allow for segregation of duties as one member of staff may initiate a transaction and process it up to its logical conclusion. There is a risk that all the controls embedded could be overridden.

Management explained that it takes cognizance of the observation and has approached the Ministry of Public Service to fully operationalize the Organizational structure so as to adequately address the issue of staffing. 286

I advised management to ensure that appropriate staffing is pursued for enhanced segregation of duties and improved performance.

66.13 In-appropriate/inadequate records keeping NAGRC & DB's mandate is to take a leading role in establishing a comprehensive national Animal Breeding Program in Uganda. Despite the mandate, I noted that the records management system is wanting especially on maintenance of the asset register and inventory/stocks, National Livestock Registry and Data Bank, Human Resources Management records, Operations of the Farms/Ranches like; number of animals, amount of milk produced per day and allied products, measurement of performance and progeny testing, research output success stories and commercial activity results (sales revenue/NTR) of the centre among others.

I explained to management that there is a risk of theft of the assets, potential loss of assets and wrong decisions could be taken based on inadequate records. In response, management explained that policies and procedures are being put in place by management to improve on records management and automation.

The outcome of management‟s commitment is awaited.

66.14 Field inspection As part of the audit, an inspection of the ranch operations countrywide was carried out and below were the findings:

66.15 Under stocking of farms/ranches During the review, I noted that NAGRC & DB established the optimum holding capacity (stocking levels) for each farm/ranch. In comparison with the current actual stocking levels; I noted that there was under stocking in many of the ranches visited. Critical under stocking was noted at Aswa and Ruhengere Ranches as clearly summarized in the table below:

No Farm/ Location Size Optimum Current Variance ranch (district) (sq. Miles) holding Actual capacity stock (cattle) (cattle) 287

No Farm/ Location Size Optimum Current Variance ranch (district) (sq. Miles) holding Actual capacity stock (cattle) (cattle) 1 Ruhengyere Mbarara 21 67,000 3,589 63,411 2 Rubona FortPortal 1.16 1,160 200 960 3 Lusenke Kayunga 5 7,000 452 6,548 4 Kasolwe Kamuli 3 2,000 757 1,243 5 Aswa Pader 132 132,000 624 131,376 6 Njeru Buikwe 1.54 1,540 207 1,333 7 Bulago Bulambuli 0.25 310 37 273

I explained to management that when farms/ranches are underutilized it leads to loss of benefits and also creates unnecessary costs related to maintenance such as slashing the overgrown grass and shrubs. There is a possibility that the objective of multiplication of livestock may not be achieved.

Management explained that since its inception, the agency has been severely underfunded however the Centre has developed and submitted a development project that will include restocking, infrastructure development and attendant personnel requirements.

I await the outcome of management‟s action.

66.16 Land encroachment It was noted that some land occupied by the farms/ranches has been encroached on by members of the general public including individuals and institutions and this has accelerated the problem of squatters. Details in the schedule below:

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No Farm/ Size Encroached Audit Remarks Management Ranch (Sq. Land - Size Encroached On Or Response Miles) Ownership Not Clearly Defined. 1. Ruhengyere 67 1 sq. Mile Encroached on by There is written Church of Uganda communication to – KAYONZA. relevant authorities to rid the farm of encroachers. 2. Aswa 132 - Squatters The area was under observed at the war for many years farm. that displaced many residents of the area. Thus many area residents sought refuge in the Ranch because of the relative security. Many of these encroachers have been notified by local authorities and NAGRC & DB to move off the Ranch. 3. Njeru 1.54 438 acres Njeru Town Encroachment noted Council was as early as 2010 and reported to have efforts have been put divided it into in place to rid the farm plots that are of encroachment. being sold to the public. 4. LES 0.51 Shared by Ownership not Land was encroached four entities clearly defined; upon by Civil Aviation Occupied by; LES, Agency (CAA) Police. MAAIF – NADEC, CAA was issued 10 CAA – Police, DDA acres of land in – Dairy milking Kigungu to relocate

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No Farm/ Size Encroached Audit Remarks Management Ranch (Sq. Land - Size Encroached On Or Response Miles) Ownership Not Clearly Defined. parlor and former the police officers and Veterinary training their families but have institution. refused to move despite our concerted efforts.

I noted that security controls are not adequate at the farms and there is a risk that animals could get lost resulting into loss of Government assets and revenue.

I advised the Accounting Officer to protect the Government assets and also strengthen controls at the farms for effective security.

66.17 Other anomalies identified at the ranches/farms

a) Poor multiplication rate of the livestock The farms use two strategies for multiplication: use of bulls and use of artificial insemination (AI). However, the birth rate is still very low as reflected at 970 for cows during the financial year as compared to the death rate of 1,041 and sales/disposal rate of 447 of livestock during the financial year. Higher death rate and disposal of livestock as compared with the birth rate shows that there are deficiencies in the rates of growth in terms of numbers. I noted that the numbers of livestock continues to dwindle instead of increasing each year.

Management explained that favourable multiplication rates of livestock are due to the following:-good pastures, enough water, infrastructure to support the effective multiplication and security of the area. On the various farms and ranches access to water has been inadequate due to silted infrastructure, poor water reticulation and long distances walked to the sources of water which has led to poor maintenance, low production and reproduction and thus low multiplication rates. In addition, lack of infrastructure (kraals), inadequate veterinary inputs, and personnel (to supervision reproduction) all contribute to low multiplication rates at the farms and ranches. 290

I advised management to revisit the issue through application of professional and technically sound farm management practices for improved productivity.

b) High death rate I noted that the high death rate was accelerated by lack of water and pasture during the dry season as there was no preparation of silage to take care of livestock nutrition during the dry season. Coupled with this were diseases that set in with inadequate provision of medicines for treatment of animals. Further, it was noted that in all the deaths of livestock; there was no post-mortem reports availed for audit verification. There is a risk that the declared number of dead animals may not be confirmed.

Management explained that many of the acaricides that have been on the market were observed to be ineffective and caused death of animals as a result of tick and tick borne diseases. However, NAGRC is working with other stakeholders to see to it that acaricides used are effective through prior testing. Management further explained that low/inadequate mechanization, rampant encroachment, malicious bush burning, uncontrolled entry into the farms and ranches by wild life and animals from surrounding farms led to exhaustion of inadequate pastures and water leading to starvation and death of animals.

I advised management to plan to secure the forms to enable proper control of activities with the farms. c) High rate of sale/disposal During the audit; I noted that the rate of sale/disposal of animals was high yet there is no guiding disposal policy of livestock in place. I explained to management that the continued disposal of animals without a guiding policy coupled with the high death rate may pose under-stocking challenges leading to underutilization of the available ranches.

Management explained that the role of NAGRC is to avail breeding stock to the farming community in different agro ecological zones in the country. With capital development funding, it is expected that there will be increase in the number of breeding animals availed to the farming community relative to the available 291

breeding stock on the farms. Management indicated that the guiding policy on disposal is derived from the strategic objective No. 5 of the strategic plan of 2005- 2010 which states that there would be a 30% sales growth rate over the years.

I advised the Accounting Officer to ensure that a disposal policy is put in place.

66.18 Un-developed infrastructure at the farms/ranches I noted that some key infrastructure that would facilitate modern farming practices such as fence, offices and staff accommodation, water systems, dip tanks etc. were lacking at almost all the ranches. There is a risk that the mission and the objectives of NAGRC & DB may not be achieved.

Management explained that the challenge has been lack of adequate funding to NAGRC. NAGRC & DB only has a recurrent budget but no development budget and hence no capital development projects since there is no funding for them. To counter this, management has gone ahead to write a Capital Development Project that will address the funding gaps for infrastructure. If this is approved, plans are underway to develop the infrastructure at many of these ranches and farms.

The outcome of the above action is awaited.

66.19 Value chain process NAGRC & DB carries out multiplication of both dairy and beef animals whose main objective lies with milk and beef processing. I noted that milk is sold raw and animals are sold alive without any value addition to reap more benefits for the centre. I explained to management that the revenue earned from such sales is minimal compared to revenue that would be fetched from processing of milk and beef on both the local and international markets.

The Accounting Officer explained that the mandate of NAGRC is to avail breeding stock to farmers and to guide them in better and improved breeding activities. Management has planned to include rehabilitation and repair of the milk handling equipment (coolers, milking machines) from the development funds under the submitted project proposal. Management further explained that NAGRC has entered into Public-Private Partnerships to foster the value chain process.

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I urge management to study the proposal closely with a view of adding value to the raw material.

66.20 Specific observations a) Nshaara Ranch

i) Game park animals in the farm

It was noted that there are many game park animals in the farm that compete with the farm livestock for pasture and water and to the extent that the farm management allows the public to carryout spot hunting. I further noted that some animals like baboons have become predators and on some occasions have killed and eaten the goat kids at the mountain area. The problem would not exist if the centre had a perimeter fence that would stop these animals from crossing to the farm. The wild animals will continue killing the farm livestock and infect them with diseases that could result into death.

Management explained that Wild life in the area is not only a potential source of major noticeable livestock diseases such as foot and mouth disease but also a menace to infrastructure such as fences, water points and roads. It was further explained that at its inception, Nshaara ranch had a lion proof fence that was constructed to separate the wild animals in the game park from the livestock however the Lion proof fencing along this boundary has since broken down causing the wild animals to move freely back and forth in search of prey and pastures.

I advised management to strengthen security at the farm; construct a perimeter fence and paddock the farm for ease of tension and insecurity currently at the farm.

66.21 Bull stud - Semen Production and Performance In line with its Mission of Playing a leading role in establishing a Comprehensive National Animal Breeding Program in Uganda; NAGRC & DB Bull Stud keeps twenty (20) bulls for purposes of extracting semen from them. However a review of the records for the produced semen for year revealed that, 7,738 doses of semen were extracted from only four (4) bulls and no semen was extracted from the other sixteen (16) bulls translating into failure to achieve the intended objectives.

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Further review showed that only 7,325 out of the total doses available of 25,297 was dispatched leaving a huge stock of 18,024 doses. I explained to management that this does not only down play the achievement of the Mission of the Centre also creates the high maintenance costs.

Management explained that the shortage of liquid Nitrogen had a huge effect on the issue. The old plant in Mbarara kept breaking down and the liquid nitrogen availability is a pre-requisite for semen processing and storage. Distribution of semen is largely a demand driven service and therefore distribution relates to demand. Given the fact that demand for nitrogen was low this led to huge stocks left undistributed at the end of the financial year. Management further explained that the availability of huge stocks directly contributes to the centre‟s mandate of gene banking and depository for future use however; distribution of semen to our inseminators in various districts has started improving.

I advised management to improve on the distribution of semen so as to benefit farmers on improved breeds.

67.0 UGANDA COFFEE DEVELOPMENT AUTHORITY – YEAR ENDED

67.1 Budgeted activities not completed

A review of the Authority‟s Annual Performance Report revealed that the budgeted activities for the year as summarised in the table below were not achieved as planned. Planned activities Expected Actual Audit Management Responses output output Remarks/Varia nce To produce 200,000 25,000 Underperforma Underperformance of the Agro plantlets for plantlets plantlet nce of Agro- Technologies (AGT) contract was due to distribution to at s Genetic initial challenges of bio technology least 285 nursery Technologies development and propagation of operators (AGT) Contract. seedlings by tissue culture. 175,000 plantlets not produced. To raise coffee 3 million 2.626 Below target. Below target; seedlings generation was seedlings to seedling million 374,000 due to lack of enough seed resulting

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Planned activities Expected Actual Audit Management Responses output output Remarks/Varia nce support s seedlin seedlings not from bad weather which affected seed community gs raised production. based nurseries

To procure and 400,000 377,38 Below the This was due to un-evenly distributed distribute seedling 0 target by rain during the May – July planting seedlings to s seedlin 22,620 window. support coffee gs seedlings. planting Formation and 16 4 12 farmers New farmers prefer to join existing development of organiza organiz level organizations where there is existing farmers level tions ations Organisations growth of membership amongst the organization not formed as existing farmer organisations. There is planned. more expansion of coffee growing within the same area, rather over wider area. To conduct 11 7 4 Workshops Workshops are below target due to small workshops for worksho worksh not conducted. crop which attracted fewer traders and processing and ps ops below target. in a short span. marketing developments

I explained to management that failure to achieve the set targets has a negative effect on the mandate of the Authority which affects service delivery.

I advised management to enforce monitoring of its operations to ensure set targets are always achieved.

67.2 Inadequate skilled extension workers

UCDA employs Regional Coffee Extension Officers (RCEO) who on average supervises four districts per extension officer. Having inadequate extension workers at the grassroots to assist in imparting skills and technical advice to the farmers could lead to poor harvests and poor quality outputs.

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Management acknowledged that they are thin on the ground but indicated that recruitment of 10 additional staff has been completed. The shortage of manpower has also been supplemented with radio programs that are aired on local radio stations across all coffee growing areas, collaboration with NAADS and Sub county officers, provision of printed materials translated in different local languages and training workshops/seminars.

I urged management to assess the staffing needs in coffee growing areas and advise the relevant authorities accordingly.

67.3 Posting of cash book transactions

The review of the cash books and its corresponding cheque payment vouchers revealed the following matters;  The cash books do not have a column to indicate the payee.  The pre-printed serial numbers of the payment vouchers are not captured in the cash books but only cheque numbers were captured.  In some instances one cheque number could pay several vouchers but was not referenced.

I explained to management that failure to indicate a payee and payment voucher numbers in the cash book creates difficulty in following up cash book transactions.

Management explained that the Authority is in the process of up grading the Accounting package (Sun systems) to include the payables module which will address the above issue.

I await the outcome of management‟s commitment.

68.0 UGANDA LIVESTOCK INDUSTRIES LIMITED- YEAR ENDED 31ST DECEMBER 2002

68.1 Understatement of non-current assets-UGX.2,730,634,545 Non-current assets were disclosed at UGX.1,090,163,352 at the year end. However, this account balance was not adjusted for work in progress (WIP) of UGX.2,730,634,545 which was not capitalized in the financial statements. As a result, the non–current assets are misstated. 296

Management explained that work in progress could not be capitalized because the related documentation could not be traced due to transfer of offices to Bugolobi.

I advised management to trace the documents and have the correct balance disclosed in the financial statements.

68.2 Unsupported amounts due to related parties I noted an increase in the amounts due to related parties by UGX.920,824,330 (equivalent of 17.22%) from the prior year balance of UGX.4,425,098,479 to UGX.5,345,922,809. There was no strategy in place to settle the due amounts despite the balance growing. The supporting documents related to the outstanding balance and the repayment terms and conditions were not provided for audit verification. I could therefore not confirm the accuracy and basis of the reported balances in the financial statements.

Management explained that the due amounts are expected to be settled when the company is fully divested. The supporting documentation will be traced to support the outstanding balance. I advised management to liaise with the related parties and also trace copies of the supporting documents for future use.

68.3 Late submission of annual financial statements Management did not prepare and submit financial statements to the relevant authorities within 3 months as required by The Public Finance and Accountability Act, 2003 Sec 31(1b). Instead the submitted accounts were prepared on 2nd June, 2010, a period of over (9) years after the statutory period.

Management explained that this was caused by lack of staff due to termination of all company employees which affected the smooth running of its operations. Many records got misplaced or lost in the process of transfer to the stores upon staff termination.

I advised management to always ensure timely preparation and submission of annual accounts in compliance with the law and to enable timely decision making.

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68.4 Unverified inventories of-UGX.535,972,803 The inventory of livestock reduced by 66% from UGX.1,576,470,675 in the year 2001 to UGX.535,972,803 during the year 2002. However, there was no supporting independent verification of the inventories in form of a board of surveys report. I was unable to confirm the accuracy and completeness of the amounts stated in the financial statements.

Management explained that Kiryana ranch had been sub-leased by the time of the audit. However, stocks were being checked by section heads and the Ranch Manager in presence of the Clerk/Store Keeper.

I advised management to always ensure that credible third party confirmations such as a board of survey is conducted to enhance reliance on stock figures disclosed in the financial statements.

68.5 Management of trade debtors It was noted that the entity did not have policies in place to guide the proper management of its debtors/receivables. There was no evidence to indicate management actions/ attempts to recover the receivables. Besides, the balances from previous year could not be verified because the company did not have debtors‟ ledgers. There is a risk that these funds may not be recovered.

I advised management to streamline the debtors‟ management and ensure timely recovery of all outstanding debts to avoid loss.

68.6 Corporate governance issues In the period under review, it was observed that the chairperson of the company was also an alternative signatory to the ULI Bank account with Stanbic Bank contrary to the good corporate governance practices. Board members engaging in day to day operational activities as well as making policy decisions may lead to conflict of interest.

Management explained that the Chairperson became a signatory to the entity account following the termination of employees in 1999. This was a decision by the management of Privatization Unit (PU) the fact that almost all employees of the company had left.

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I advised management to liaise with the Accountant General on the matter and have the governance issue resolved once and for all.

68.7 Non deduction of WHT-UGX.497,400 Section 119(1) of the Income Tax Act requires that if a payment is made for an amount or amounts in aggregate exceeding one million shillings, to any person in Uganda for supply of goods and services, the payer shall withhold tax on the gross amount of the payment at a prescribed rate of 4% in the year 2002.

Contrary to the above requirement, payments worth UGX.12,435,000 were made during the year without deducting withholding tax. Failure to deduct and remit WHT can result in nugatory expenditure in form of fines and penalties by the tax authority which could have been avoided.

Management explained that non-deduction of WHT was an oversight. I advised management to always ensure that WHT is deducted from qualifying payments and remitted to URA on a timely basis.

69.0 UGANDA LIVESTOCK INDUSTRIES LIMITED –YEAR ENDED 31ST DECEMBER 2003

69.1 Irregular contribution to Ziwa Ranchers of UGX.22,500,000

During the year under review a sum of UGX.22,500,000 was paid to Ziwa Ranchers being 50% contribution for fencing kiryana/Kayempisi Ranches during the year under review. I was not availed with the authority from the Board of Directors of ULI, the Bills of Quantities and any agreement related to the payment. Moreover, this was done after the Sublease of the Ranch in 2002.

Although management explained that they had reached an agreement with Ziwa Ranchers to erect a fence separating the two ranches, this agreement was not provided during the audit. The validity of the payment could therefore not be ascertained. I advised management to justify and support the above payment.

69.2 Understatement of non-current assets

Non-current assets were disclosed at UGX.1,007,829,775 at the year end. However, this account balance was not adjusted for work in progress (WIP) of UGX.2,730,634,545 299

which was not capitalized in the financial statements. As a result, the Non–current Assets are misstated.

It was also noted that the entity did not maintain an Assets register to track the use of the assets. Accordingly, it was not possible to confirm details of assets owned by the company such as cost, location, and condition etc of a particular asset. The financial statements may not be fairly stated.

Management explained that work in progress could not be capitalized because the related documentation could not be traced due to transfer of the stores to Bugolobi.

I advised management to trace the documents and have the correct balance disclosed in the financial statements.

69.3 Late submission of annual financial statements

The management of Uganda Livestock Industries Ltd did not prepare and submit financial statements to the relevant authorities within 3 months as required by the Public Finance and Accountability Act, 2003 Sec 31 (1b). Instead the submitted accounts were prepared on 2nd June, 2010, a period of over (8) year after the statutory period.

Management explained that this was caused by lack of staff due to termination of all company employees which affected the smooth running of its operations. Records got misplaced or lost in the process of transfer to the stores upon staff termination.

I advised management to always ensure timely preparation and submission of annual accounts in compliance with the law and enable timely decision making.

69.4 Un-verified inventories-UGX.472,236,849

As noted in the prior year report, the livestock inventories have continued to decrease. The current year reduction was at 11.89% from UGX.535,972,803 last year to UGX.472,236,849. However, there was no credible independent verification of the inventories conducted during the year to support the closing balance stated in the financial statements.

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Management explained that the ranches had been sub-leased at the time but stocks were checked by section heads taking stock of other sections and stores stocks being checked by the ranch manager and the Clerks/Storekeeper. I advised management to always ensure that credible third party confirmations such as a board of survey are conducted to enhance reliance on stock figures disclosed in the financial statements.

69.5 Poor management of trade and other receivables-UGX.886,569,723

Trade and other receivables were reported at UGX.886,595,189 without any movement for the past two years. Out of these total trade and other receivables, 96.17% (UGX.852,646,000) were due from only one debtor A. J. Faulkner for un-delivered cattle. As noted in the prior year report, the entity did not have policies in place to guide the proper management of its debtors/receivables.

The debtors have not been recovered for a long time and provision for bad and doubtful debts was not made. There was no credible evidence to show that management had attempted to recover the debtors. There is a risk that the undelivered cattle may never be recovered.

Management explained that locating the debtors proved futile. PU had taken over the follow-up of the debtor for undelivered cattle. The provision for bad debts awaits a board decision on the matter.

I advised management to put in place policies that will ensure proper management and timely recovery of debtors.

69.6 Trade and other payable

During the year, trade and other payables increased by UGX.2,222,432 from UGX1,858,976,532 to UGX.1,861,198,964. It was noted that the payables had been long outstanding with no documented settlement plan in place. The entity risks legal battles with the various creditors.

Management explained that payments of these creditors will be undertaken by PU since the company does not have any sources of income. The biggest creditor is the Government debt swap balance of UGX.1,726,486,311. 301

I advised management to liaise with PU and MoFPED to expedite the divestiture process to enable payments of the outstanding creditors.

69.7 Un-supported amount due to related parties-UGX.5,345,632,809

Amounts due to related parties remained at UGX.5,345,632,809 as compared to last year. As noted in the prior year report, there is no strategy in place for the settlement of the due amounts. The supporting documents related to the outstanding balance and the repayment terms and conditions were not provided for verification. I could not confirm the accuracy and basis of the reported balances in the financial statements.

Management explained that the relevant documents were misplaced in the process of transferring the office records for storage at Bugolobi.

I advised management to liaise with the related parties and also trace copies of the supporting documents for future use.

69.8 Corporate governance issues

As noted in the prior year report, the Chairperson of the Company has continued to be an alternative signatory to the ULI Bank Account with Stanbic Bank contrary to good governance practices. Board members participating in the day to day operational activities as well as making policy decisions can result in conflict of interest and is against best practice.

Management explained that the decision was taken by PU following the termination of employees in 1999.

I advised management to liaise with the Accountant General on the matter and have the governance issues resolved once for all.

69.9 Irregular procurement of goods and services-UGX.114,479,500

As noted in the prior year report, the company has continued to make procurements without regard to the procedures laid down in the PPDA Act and regulations. A sum of UGX.114,479,500 worth of goods and services were procured during the year from firms which were not pre-qualified. The procurement plan, L.P.O‟s, Delivery Notes, GRN and stores issue notes were all not provided to support the procurement. I could not 302

ascertain whether the said goods were procured at competitive prices and put to proper use.

I advised management to always adhere to procurement laws and regulations when undertaking such procurements.

69.10 Non deduction of WHT-UGX.1,173,120

I noted that WHT totaling worth UGX.1,173,120 was not deducted from payments for supplies as required by the Income Tax Act. The requirements of section 119(1) of the Income Taxes of Uganda were not adhered to. Failure to deduct and remit WHT can result in fines and penalties by the tax authority that should have been avoided.

Management explained that non-deduction of WHT was an oversight.

I advised management to always ensure that WHT is deducted from qualifying payments and remitted in time to URA. The above due taxes are recoverable.

70.0 UGANDA LIVE STOCK INDUSTRIES LIMITED-YEAR ENDED 31ST DECEMBER 2004

70.1 Going Concern-Divestiture of operations

In June 1999 services of all employees of the Company were terminated and divestiture exercise was expected to begin immediately there after and end by June 2000. However, up to now the process of divestiture has not been concluded.

I advised management of the entity to liaise with the responsible authorities to have the process of divestiture concluded.

70.2 Late submission of annual financial statements

The management of Uganda Livestock Industries Limited did not prepare and submit financial statements to the relevant authorities within 3 months as required by the Public Finance and Accountability Act, 2003 Sec 31 (1b). Instead the accounts were prepared on 2nd June, 2010, a period of over (6) years after the statutory period.

Management explained that the delay to submit was majorly caused by the termination of the Liaison Officer formerly (Chief Accountant) and all other staff which affected the

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smooth running of the company. Records got misplaced or lost in the process of transfer of stores and staff termination.

I advised management to ensure timely preparation and submission of annual accounts in accordance with the law.

70.3 Un-Supported Inventories Verifications-UGX.216,974,393

The livestock balance in the financial statements had decreased by UGX.255,262,456 (54%) from UGX.472,236,849 in prior year to UGX.216,974,393. Besides, the reported livestock balance was not supported by an independent verification report such as a board of surveys for the year. I was therefore unable to confirm the accuracy of the reported balance and actual stock in existence on the ground. There is risk that the livestock balance is misstated in the financial statements as compared to actual stock levels.

Management explained that the stock were checked by section heads taking stock of other sections, while stores were being checked by the Ranch Manager and the Clerk/Storekeeper.

I advised management to ensure a board of survey is conducted to confirm the stock figures disclosed in the financial statements.

70.4 Inadequate Management of trade and other receivables-UGX.886,569,723

Trade and other receivables were reported at UGX.886,595,189 without any movement for the past three years. Out of these total trade and other receivables, 96.17% (UGX.852,646,000) is due from only one debtor A. J. Faulkner for un-delivered cattle. As noted in the prior year report, the entity did not have policies in place to guide the proper management of its debtors/receivables.

The debtors have remained outstanding for long and provision for bad and doubtful debts was not made. There was no evidence to indicate management actions and or attempt to recover the debtors. There is a risk that the undelivered cattle and other debtors could be lost.

Management explained that efforts are being made to locate and recover the debts.

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I advised management that in view of the impending divestiture, the above action should be expedited.

70.5 Trade and other payables

As noted in the prior year, trade and other payables have continued to grow from UGX.1,861,198,964 to UGX.1,862,328,144 during the year. It was noted that the payables have been long outstanding with 92.71% (UGX.1,726,486,311) being the debt swap arrangement with GoU. The company did not have in place a policy for proper management and settlement of these creditors. The entity risks legal battles and the associated costs with the various creditors.

Management explained that payments of these creditors will be undertaken by PU under divestiture, since the company does not have any sources of income.

I advised management to liaise with PU and MoFPED to expedite the divestiture process to enable timely settlement of the outstanding creditors.

70.6 Un-supported amount due to related parties

There was a slight decrease in amount due to related parties by UGX.322,698,594 during the year. It was noted that supporting documents for the transactions such as invoices; demand notes or any other documents to confirm repayments terms and conditions were not availed.

Management explained that all the relevant documents got misplaced in the process of transfer of records for storage at Bugolobi. I advised management to continue liaising with the related parties and trace copies of the supporting documents for future use.

70.7 Transfer of Maruzi Ranch to NAGRIC & Data Bank

Uganda Livestock Iindustries is the registered proprietor of Maruzi ranch with land at LRV 717 Folio 4 measuring 42,140.0 acres. It was noted that on 13th October 2004, Apac District Council irregularly handed over Maruzi ranch to National Animal Genetic Resource Centre and Data bank (NAGRIC). Accordingly, a CAVEAT was placed on the ranch.

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There is a risk that ULI may lose ownership of the land and developments there on without any consideration.

I advised management that as divestiture is awaited; all necessary steps are taken to secure this land to avoid eventual loss.

71.0 UGANDA LIVE STOCK INDUSTRIES LIMITED-YEAR ENDED 31ST DECEMBER 2005

71.1 Valuation of Kyempisi Ranch sub-lease

Techno-consult Group of Engineers was engaged to valued the assets and determined that the assets were worth UGX.1,095,140,000. The valuation was undertaken for purposes of leasing Kyempisi Reach and accordingly, ULI entered into a sub-lease Agreement with Royal Ranchers Limited. However, it was noted that the ranch was sub- leased for only UGX.391,000,000 which is less than half the recommended reserve price. The objective of engaging surveyors to establish a basis for setting the reserve price appears to have been ignored and the basis of arriving at the price eventually paid was not disclosed.

Management explained that the consideration was determined by Privatization Unit (PU).

I advised management to consult PU for the justification otherwise the UGX.704,140,000 is considered a recoverable loss.

71.2 Going Concern-Divestiture of operations

In June 1999, services of all employees of the Company were terminated and divestiture exercise was expected to begin immediately there after and end by June 2000. However, up to now the process of divestiture has not been concluded.

I advised management of the entity to liaise with the responsible authorities to have the process of divestiture concluded.

71.3 Late submission of annual financial statements

The management of Uganda Livestock Industries Limited did not prepare and submit financial statements to the relevant authorities within 3 months as required by the Public

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Finance and Accountability Act, 2003 Sec 31 (1b). Instead the submitted accounts were prepared on 2nd June, 2010, a period of over (5) year after the statutory period. Management explained that this was majorly caused by the termination of the Liaison Officer formerly (Chief Accountant) and all other staffs which affected the smooth running of the company. Many records got misplaced or lost in the process of transfer of stores and staff termination.

I advised management to ensure timely preparation and submission of annual accounts in accordance with the law.

71.4 Disposal of assets of UGX.7,043,000

During the year, the Company sold (3) motor cycles for UGX.7,043,000; however, the financial statements were not adjusted to reflect the disposal. The fixed assets were therefore overstated by that amount.

I advised management to adjust the accounts and properly disclose the account balance in the financial statements.

71.5 Unsupported Amount due to related parties

During the year, the amount due to related parties increased by UGX.296,173,085 from UGX.5,022,934,215 for the prior year. Supporting documents to support the increase were not provided for verification. The basis of the increase could not be established.

As noted in the prior year reports, the company does not have a policy for proper management and settlement of these creditors. The entity risks legal battles with the contracted creditors.

Management explained that clearance of these creditors will be undertaken by PU under divestiture, since the company does not have any other source of income.

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I advised management to justify the increase and also liaise with PU and MoFPED to expedite the divestiture process to enable timely settlement of the outstanding creditors.

71.6 Re-survey of Kyempisi Ranch

During the year, a sum of UGX.16,500,000 was spent on the re-survey of Kyempisi Ranch. However, procurement procedures were not adhered to in sourcing and procurement of the service provider. The supporting documentation together with the survey report were also not provided when requested. I was therefore, unable to confirm that the surveyors were competitively procured and that the price paid was the best in the market. There is a risk that the company did not obtain value for money in this transaction.

I advised management to adhere to PPDA regulations in future.

71.7 Un-Supported cash refund

During the year, a sum of UGX.6,840,000 was refunded to an individual, however, supporting documents to the effect were not availed. The nature of refund could not be established.

Although management explained that the amount was an insufficient deposit for cattle purchase which had to be refunded when the ranch was sub-leased; this amount had not been disclosed in the prior year accounts as a deposit under liabilities.

I informed management that in absence of supporting documentation the amounts are recoverable.

72.0 UGANDA LIVE STOCK INDUSTRIES LIMITED-YEAR ENDED 31ST DECEMBER 2006

72.1 Non recognition of proceeds from disposal of vehicles-UGX.75,761,243

According to the schedule of fixed assets, motor vehicles worth UGX.75,761,243 were disposed off during the year. However, the sale proceeds were not recognized as receipts in the cash flow statement. The proceeds therefore remain un-accounted for.

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I advised management to account for the sale and have the correct position reported in the financial statements.

72.2 Going Concern-Divestiture of operations

I advised management of the entity to liaise with the responsible authorities to have the process of divestiture concluded.

72.3 Depreciation of land and Buildings

During the year, land and buildings had a closing balance of UGX.752,250,808 as compared to the historical cost of UGX.1,870,783,904. The value comprises majorly of 190,733 acres of land and some buildings. However, the value of the land was not separated from buildings for depreciation purposes. Instead the aggregate value was subjected to a depreciation charge at an annual rate of between 2.5 – 10% as per accounting policy 1(a) to the accounts. The financial statements balances were therefore affected to the extent of unwarranted depreciation. Besides, the entity‟s land has never been revalued to enable presentation at the lower of the fair market value and the net releasable value.

I advised management to separate the value of the land from buildings for depreciation purposes and also engage the services of a Government Valuer to enable establishment of the value of the land.

72.4 Non deduction of WHT-UGX.1,132,600

Section 119 (1) of the Income Tax Act requires that if a payment is made for an amount or amounts in aggregate exceeding one million shillings, to any person in Uganda for supply of goods and services, the payer shall withhold tax on the gross amount of the payment. Contrary to the above, management did not withhold and remit taxes from payments for goods and services worth UGX.1,132,600.

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Management explained that non-deduction of WHT was an oversight. I brought to their attention that the omission can result in nugatory expenditure in form of fines and penalties by the tax authority.

I advised management to always ensure that WHT is deducted from qualifying payments and remitted to URA in time. The due taxes should be recovered and remitted to URA.

73.0 UGANDA LIVE STOCK INDUSTRIES LIMITED-YEAR ENDED 31ST DECEMBER 2007

73.1 Unrealistic valuation of land assets

The entity‟s total assets of land and buildings were reported at UGX.700,371,763 at the year-end. The land assets include over 190,000 acres of land but have not been revalued contrary to the requirements of International Accounting Standards 16. As such I was un able to confirm that the values presented in the financial statements are fairly stated.

I advised management to engage the services of a Government Valuer to enable establishment of the fair value of the land prior to divestiture.

73.2 Going Concern-Divestiture of operations

In June 1999, services of all employees of the Company were terminated and divestiture exercise was expected to commence immediately there after and end by June 2000. However, up to now the process of divestiture has not been concluded.

I advised management of the entity to liaise with the responsible authorities to have the process of divestiture concluded.

73.3 Late submission of annual financial statements

The management of Uganda Livestock Industries Limited did not prepare and submit financial statements to the relevant authorities within 3 months as required by the Public Finance and Accountability Act, 2003 Sec 31 (1b). Instead the submitted accounts were prepared on 2nd June, 2010, a period of over (5) years after the statutory period.

Management explained that this was majorly caused by the termination of the Liaison Officer formerly (Chief Accountant) and all other staffs which affected the smooth

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running of the company. Many records got misplaced or lost in the process of transfer of stores and staff termination.

I advised management to ensure timely preparation and submission of annual accounts in compliance with the law.

74.0 UGANDA LIVE STOCK INDUSTRIES LIMITED-YEAR ENDED 31ST DECEMBER 2008

74.1 Unrealistic valuation of land assets

The entity‟s total assets of land and buildings were reported at UGX.648,492,718 at the year-end with over 190,000 acres of land across the Country. However, the land assets held by the entity have never been revalued contrary to requirements of IAS 16. I was therefore unable to confirm that the assets were stated at fair value.

I advised management to engage the services of a Government Valuer to enable establishment of the fair value of the Company land prior to divestiture.

74.2 Going Concern-Divestiture of operations

In June 1999, services of all employees of the Company were terminated and divestiture exercise was expected to commence there after and end by June 2000. However, up to now the process of divestiture has not been concluded.

I advised management of the entity to liaise with the responsible authorities to have the process of divestiture concluded.

74.3 Late submission of annual financial statements

The management of Uganda Livestock Industries Limited did not prepare and submit financial statements to the relevant authorities within 3 months as required by the Public Finance and Accountability Act, 2003 Sec 31 (1b). Instead the submitted accounts were prepared on 2nd June, 2010, a period of over (5) year after the statutory period.

Management explained that this was majorly caused by the termination of the Liaison Officer formerly (Chief Accountant) and all other staff which affected the smooth

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running of the company. Many records got misplaced or lost in the process of transfer of stores and staff termination.

I advised management to ensure timely preparation and submission of annual accounts in compliance with the law.

74.4 Un-utilized land-190,733, acres

A review of Board minutes and physical field inspections revealed that vast land that belongs to Uganda Livestock Industries Limited had not been put to use since cattle in the various ranches were looted, save for Kiryana and Kyempisi ranches which were sub-leased. Aswa Ranch measuring 105,400 acres was found inaccessible; the access road ends at Burlobo Primary school and also serves as a boundary of Acholi Ranch and Aswa Ranch. Existing structures at Aswa Ranch have collapsed.

It was also noted that ULI has not secured land titles for some of its land/at Kilak Ranch, Pader Ranch and Lalle Holding Ground. There is a risk that the un-utilized ranches may be encroached on by the local community.

I advised management to ensure that all the ranches are secured.

75.0 UGANDA LIVE STOCK INDUSTRIES LIMITED-YEAR ENDED 31ST DECEMBER 2009

75.1 Going Concern-Divestiture of operations

The entity‟s total assets of land and buildings were reported at UGX.596,613,673 at the year-end with over 190,000 acres of land across the Country. However, the land assets held by the entity have never been revalued contrary to requirements of IAS 16. I was therefore unable to confirm that the assets were stated at fair value.

I advised management to engage the services of a Government Valuer to enable establishment of the fair value of the Company land prior to divestiture.

75.2 Late submission of annual financial statements

The management of Uganda Livestock Industries Limited did not prepare and submit financial statements to the relevant authorities within 3 months as required by the Public

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Finance and Accountability Act, 2003 Sec 31 (1b). Instead the submitted accounts were prepared on 4th July, 2012, a period of over (3) year after the statutory period.

Management explained that this was majorly caused by the termination of the Liaison Officer formerly (Chief Accountant) and all other staff which affected the smooth running of the company. Many records got misplaced or lost in the process of transfer of stores and staff termination.

I advised management to ensure timely preparation and submission of annual accounts in compliance with the law and enable timely decision making.

75.3 Delays in PAYE remittances to URA of UGX.2,662,500

Section 123(1) of the Income Tax Act requires a withholding agent to remit any tax that has been withheld or that should have been withheld within fifteen days after the end of the month in which the payment subject to withholding tax was made.

However, it was noted that PAYE totaling to UGX.2,662,500 was remitted to URA late contrary to the above law.

Delays in remittances of tax deductions pose the risk of penalties and fines by the tax authority.

I advised management to always ensure timely tax remittances to URA.

75.4 Doubtful expenditure of UGX.9,000,000

A local legal firm, was paid a sum of UGX.9,000,000 during the year being retainer fees at quarterly rate of UGX.1,500,000. I observed that the continued payment to the legal firm is nugatory since ULI was no longer in active trade. There was no indication that the company had been represented in any legal matters in the past years to warrant continued payments to the firm. Besides, there was no MoU in place to support such payments.

I advised management to ensure that the basis for the payments to the firm is reviewed based on the circumstance and stopped henceforth.

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76.0 UGANDA LIVE STOCK INDUSTRIES LIMITED-YEAR ENDED 31ST DECEMBER 2010

76.1 Valuation of assets

The financial statements reflect the assets at an amount of UGX.553,372,932. However, there was no valuation report to support this amount. At the time of takeover of these assets by the company the assets were valued at UGX.1. I was therefore unable to confirm that the amounts reflected as non-current assets were fairly stated.

Management explained that revaluation is expected to be undertaken once funds are available.

The above action is awaited.

76.2 Unsupported and misclassified liabilities

The financial statements reflect UGX.2,614,199,935 and UGX.1,412,153,064 as current liabilities payable to MoFPED and Treasury respectively. However this amount has been outstanding for more than 15 years and there is no documentation to support the amounts. Further, classification of these debts is not in accordance with the standards as the debts should have been classified as long term liabilities.

The supporting documentation for the amount owed to Treasury and MOFPED were not availed. I was therefore unable to confirm the current liability position as presented in the financial statements.

Management explained that the documents relating to these amounts were misplaced but the liabilities were going to be reclassified.

I advised management to seek advice from MOFPED with a view of reclassifying the liability.

76.3 Going Concern status

Uganda Livestock Industries was established for purposes of breeding improved beef and dairy cattle for sale to private/ranchers and improve the national herd. During June

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1999, the services of all employees of the company were terminated and the divestiture exercise was expected to begin immediately thereafter and end by June 2000.

However the exercise was halted by the authorities. The entity relies on borrowing from Privatization Unit to finance core administrative costs. Further the entity has a negative net worth since the current assets of UGX.891,011,688 cannot cover the growing current liabilities of UGX.7,344,494,336.

Management explained that the Company will retain residual ownership of leased land and there are proposals to go into public-private partnerships for the re-development of Aswa and Maruzi ranches.

I urged the Accounting Officer to liaise with the responsible authorities to ensure that the agreed arrangements are finalized to enable proper operations of the company.

76.4 Late submission of annual financial statements

The management of Uganda Livestock Industries Limited did not prepare and submit financial statements to the relevant authorities within 3 months contrary to the Public Finance and Accountability Act, 2003 Sec 31 (1b). The accounts were only submitted on 18th July, 2012, a period of (2) years after the statutory period.

I advised management to ensure timely preparation and submission of annual accounts in compliance with the law and enable timely decision making.

76.5 Recognition of un-collectible receivable

The total debtors schedule as at December 2010 was UGX.886,569,723, out of which UGX.852,646,000 is from a single debtor. This debt has existed in the company books since 2006.

Management explained that the matter was forwarded to the Solicitor General for further guidance. The company could not pursue other debtors due to lack of supporting documentation and intends to write them off.

I urged management to follow-up the matter with the Solicitor General to enable settlement.

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77.0 UGANDA LIVE STOCK INDUSTRIES LIMITED-YEAR ENDED 31ST DECEMBER 2011

77.1 Valuation of assets

The assets are reflected in the financial statements at UGX.499,677,611. However there was no valuation report to support this amount. At the time of takeover of the assets, the net book value was stated as UGX.1. In absence of a valuation report I was unable to confirm that the amounts stated as non-current assets in the financial statements were fairly reflected.

77.2 Unsupported liabilities

The financial statements reflect UGX.2,614,199,935 and UGX.1,412,153,064 as current liabilities payable to MoFPED and Treasury respectively. However this amount has been outstanding for more than 15 years and there is no documentation to support the amounts. As such I was unable to confirm the current liability position as presented in the financial statements.

Management explained that the documents relating to these amounts were misplaced and could not be traced.

I advised management to liaise with the concerned MoFPED and Treasury to enable settlement of the matter.

77.3 Going Concern status-Discontinuity of operations

Uganda Livestock Industries was established for purposes of breeding improved beef and dairy cattle for sale to private/ranchers and improve the national herd. During June 1999, the services of all employees of the company were terminated and the divestiture exercise was expected to begin immediately thereafter and end by June 2000 but the exercise was halted by the authorities. Consequently the entity relies on borrowing from Privatization Unit to finance core administrative costs.

Management explained that the Company will retain residual ownership of leased land and there are proposals to go into public-private partnerships for the re-development of Aswa and Maruzi ranches.

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I urged the Accounting Officer to liaise with the responsible authorities to ensure that the agreed arrangements are finalized to enable proper operations of the company.

77.4 Long outstanding receivable

The total debtors schedule as at December 2011 was UGX.886,569,723, out of which UGX.852,646,000 is from a single debtor. This debt has existed in the company books since 2006.

Management explained that the claim arose from advance payment for supply of breeding cattle and the matter was forwarded to the Solicitor General for advice. The company could not pursue other debtors

Due to lack of supporting documentation and intends to write them off.

I urged management to follow-up the matter with authorities to enable settlement.

77.5 Late submission of annual financial statements

The management of Uganda Livestock Industries Limited did not prepare and submit financial statements to the relevant authorities within 3 months contrary to the Public Finance and Accountability Act, 2003 Sec 31 (1b). The financial statements were only submitted for audit eight (8) months later.

Management attributed the delay to termination of most of employees of the Company in 1999 as part of preparation for divestiture but promised to comply with statutory timelines henceforth.

I advised management to ensure financial statements are prepared within the mandatory statutory period.

78.0 UGANDA LIVE STOCK INDUSTRIES LIMITED-YEAR ENDED 31ST DECEMBER 2012

78.1 Valuation of assets

The assets are reflected in the financial statements at UGX.446,283,078. However there was no valuation report to support this amount. At the time of takeover of the assets, the net book value was stated as UGX.1. In absence of a valuation report I was unable

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to confirm that the amounts stated as non-current assets in the financial statements were fairly reflected.

78.2 Unsupported liabilities

The financial statements reflect UGX.2,614,199,935 and UGX.1,412,153,064 as current liabilities payable to MoFPED and Treasury respectively. However this amount has been outstanding for more than 16 years and there is no documentation to support the amounts. As such I was unable to confirm the current liability position as presented in the financial statements.

Management explained that the documents relating to these amounts were misplaced and could not be traced.

I advised management to liaise with the concerned MoFPED and Treasury to enable settlement of the matter.

78.3 Going Concern status-Discontinuity of operations

However the exercise was halted by the authorities. Consequently the entity relies on borrowing from Privatization Unit to finance core administrative costs.

Management explained that the Company will retain residual ownership of leased land and there are proposals to go into public-private partnerships for the re-development of Aswa and Maruzi ranches.

I urged the Accounting Officer to liaise with the responsible authorities to ensure that the agreed arrangements are finalized to enable proper operations of the company.

78.4 Long outstanding receivable

The total debtors schedule as at December 2012 was UGX.886,569,723 of which UGX.852,646,000 is from a single debtor. This debt has existed in the Company‟s books since 2006.

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Management explained that the claim arose from an advance payment for supply of breeding cattle and the case was forwarded to the Solicitor General for handling since ULI does not have funds to engage private lawyers and feedback is awaited.

I advised management to follow up the matter with the SG to expedite the legal process and ensure full recovery.

78.5 Late submission of annual financial statements

The management of Uganda Livestock Industries Limited did not prepare and submit financial statements to the relevant authorities within 3 months contrary to the Public Finance and Accountability Act, 2003 Sec 31 (1b). The financial statements were only submitted for audit eight (8) months late.

Management attributed the delay to termination of most of employees of the Company in 1999 as part of preparation for divestiture but promised to comply with statutory timelines henceforth. I advised management to ensure financial statements are prepared within the mandatory statutory period.

I advised management to endeavor to always prepare annual financial statements within the mandatory statutory period.

79.0 UGANDA LIVE STOCK INDUSTRIES LIMITED-YEAR ENDED 31ST DECEMBER 2013

79.1 Valuation of assets

The assets are reflected in the financial statements at UGX.399,161,854. However there was no valuation report to support this amount. At the time of takeover of the assets, the net book value was stated as UGX.1. In absence of a valuation report I was unable to confirm that the amounts stated as non-current assets in the financial statements were fairly reflected.

79.2 Unsupported liabilities

amounts. As such I was unable to confirm the current liability position as presented in the financial statements.

Management explained that the documents relating to these amounts were misplaced and could not be traced.

I advised management to liaise with the concerned MoFPED and Treasury to enable settlement of the matter.

79.3 Long outstanding receivable

The total debtors schedule as at December 2012 was UGX.886,569,723 of which UGX.852,646,000 is from a single debtor. This debt has existed in the Company‟s books since 2006.

I advised management to follow up the matter with the Solicitor General; to expedite the legal process and ensure full recovery.

79.4 Late submission of annual financial statements

The management of Uganda Livestock Industries Limited did not prepare and submit financial statements to the relevant authorities within 3 months contrary to the Public Finance and Accountability Act, 2003 Sec 31 (1b). The financial statements were only submitted for audit ten (10) months late.

Management attributed the delay to termination of most of employees of the Company in 1999 as part of preparation for divestiture but promised to comply with statutory timelines henceforth.

I advised management to ensure financial statements are prepared within the mandatory statutory period.

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I advised management to endeavor to always prepare annual financial statements within the mandatory statutory period.

79.5 Going Concern status-Discontinuity of operations

However the exercise was halted by the authorities. Consequently the entity relies on borrowing from Privatization Unit to finance core administrative costs.

Management explained that the Company will retain residual ownership of leased land and there are proposals to go into public-private partnerships for the re-development of Aswa and Maruzi ranches.

I urged the Accounting Officer to liaise with the responsible authorities to ensure that the agreed arrangements are finalized to enable proper operations of the company.

80.0 UGANDA SEEDS LIMITD – YEAR ENDED 30TH JUNE 2014

80.1 Non - Revaluation of Property, Plant and Equipment It was noted that the revaluation of company‟s assets was last undertaken in the year 2005 and yet some of the assets are not in use. This contravenes IAS 16 which requires that items of Property, Plant and Equipment have to be revalued with sufficient regularity within a period of 3-5 years in order to ensure that the carrying amount does not differ materially from that which would be determined using the fair value at the Balance Sheet date.

As a consequence, I was unable to confirm the accuracy of the Property, Plant and Equipment disclosed in the financial statements as UGX.3,211,469,587.

Management noted the shortcoming and explained that plans are underway to engage a valuer to undertake the exercise.

The action to revalue the assets is awaited.

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80.2 Non-Compliance with Agreed Terms & Conditions as per the Lease &

Concession Agreements Between the Lessor and the Lessees The lease and concession agreements between Uganda Seed Limited (USL) and Nyakatonzi Cooperative Union and Farm Inputs Care Limited provided that the leasee shall be responsible for all bills accruing related to the leasee assets. Further it was anticipated that concession fees from Nyakatonzi Cooperative Union Limited (NCUL) was expected to be at least UGX.7,000,000 for the year under review according to the projection production plan. However, the following was noted;

(i) Nyakatonzi Growers Coperative Union

 The Ground rent for the leased land at Plot 15 Block 100 in Kasese to Nyakatonzi Co-operative Union Ltd, has not been paid since the assets were leased in year 2005. This contravenes of clause 8.1 of the lease agreement. It was not possible to establish what was due at the time of audit as no demand notes were provided for verification.

 For the year under review no concession fees were received against an anticipated minimum of UGX.7,000,000 as per the projection production plan. Further, it was observed that UGX.54,800,000 was anticipated to be received since inception in the year 2005/06. However, only UGX.5,146,245 was so far received. The Company is not meeting its expected minimum production of seeds and the corresponding concession fees.

(ii) Farm Inputs Care Centre Limited (FICA)

 The Ground rent for the leased land at Plot 150 Block 4; Plot 151 Block 4 and Plot No. 54 Block 2 in Kisindi to FICA has not been paid since the Assets were leased in year 2005. The cumulative outstanding rent amounts to UGX.3,668,000.

 FICA has also failed to comply with clause 3.4 which stipulates that upon the execution of the agreement and for the entire term of the agreement the Lessee shall pay an annual fee amounting to 2.5% of the company‟s annual gross sales of the Masindi/Kisindi stations. The cumulative unpaid concession fees as at 30th June, 2014 amounted to UGX.373,205,256.

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Management explained that it has written a number of letters/memos to the Lessees regarding the above issues particularly to effect payments of ground rent and rates plus concession fees but no positive response received. Failure to comply may force management to apply section 14.1 of the lease agreement.

I advised management to enter a negotiation arrangement with the lessees and have the matters resolved amicably.

5.2 Depreciation of the USL Land and Buildings

It was noted that the Company had been depreciating Land and Buildings together as a consolidated figure. Land and Buildings are separate assets and should therefore be treated differently as required by the International Financial Reporting Standards (IFRS). This is because, whereas the Buildings are depreciable Assets, Land is not and normally appreciates in value.

This implies that the value of the Land and Buildings is under stated to the extent of the depreciation of land.

Management admitted the anomaly and explained that plans are underway to engage a valuer for this exercise; and it is hoped that the value of land will be separated from that of buildings on completion of the valuation process.

The urged the management of the Company to ensure that the above exercise is expedited.

5.3 Un-recovered debtors

It was noted that the Debtor‟s position is worsening as the Lease term progresses. The amount owed by the farmers in 2005 to the tune of UGX.52,121,900 has not been received. Furthermore, the Lessees have paid minimal amounts in form of Concession Fees and the balance is UGX.386,527,682.

Management explained that they had written to the Lessees a number of times, reminding them to comply with the Lease Agreement and pay the due fees but with no positive response. Management further explained that it is considering imposing penalties as per sections 14 .1 & 14.1a of the Lease Agreement.

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I urged management to continue pursuing the recovery of the above debts.

5.4 Audit Inspections

a) Nyakatonzi Co-Operative Union Limited (NCUL).

The following were noted from the inspections:  There was very little activity at the factory, stores and in the field. Although Management explained that their soil was not good for maize seed production, there was no evidence that the tests were conducted.

 The sales records were not availed for verification; hence value of processed seeds during the year under review could not be ascertained.

 Farmer‟s registers including seed production were also not provided for review therefore, I was unable to confirm whether there were any activities in the field. Further, the List of farmers renting the land was also not readily accessible.

 There were no financial documents presented to enable me determine the accuracy of the accounting reports produced.

a) Kisindi Farm Site in Masindi

The structures at Kisindi Farm were in a poor state and required urgent repairs. These assets comprised of residential houses, administrative block and warehouses. Further, grounded motor vehicles were also observed at the station. There were no maintenance records availed to review the idle assets.

It was also noted that a number of farm implements were non-functional and badly kept in open space hence, exposed to the harsh weather conditions. The items included 3 Metallic Trolleys, 1 Tractor, 3 Tractor trailers and only 1 is useable, 1 Tractor Grader in Scrap state, 1 Heavy duty Disc Harrow and 1 Scrap Maize Sheller.

I advised management to consider renovating the existing infrastructure and have the obsolete assets boarded off.

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81.0 UGANDA SEEDS LIMITD – YEAR ENDED 30TH JUNE 2013

81.1 Non-Revaluation of Property, Plant and Equipment

I observed that the Company last revalued its assets 8 years ago in 2005 and has since not carried out a subsequent revaluation of the assets. This is contrary to IAS 16 that requires that items of property, plant and equipment which are carried at revalued amounts have to be revalued with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the balance sheet date.

In view of the above, the fixed assets balance of UGX.3,377,231,259 may be misstated. I explained to management that due to the above limitation, I was therefore unable to confirm the accuracy and completeness of the property, plant and equipment disclosed in the Statement of Financial Position.

Management explained that Privatisation Unit (PU) had agreed in principle to identify a Valuer to value the assets.

I urged management to pursue the matter further until the outcome is achieved.

81.2 Long outstanding balances on accounts payable

It was also noted that there are long outstanding balances on accounts payable with some dating as far back as 2012. The Company has no policy for writing off such long outstanding balances.

Management explained that the Company lacks a Board to approve policies and take action on the outstanding payables.

I urged management to liaise with the responsible authorities and ensure that a Board is appointed.

81.3 Un-recovered debtors

A review the trade and other receivables revealed that a total of UGX.480,057,361 remained un-collected by the closure of the year under review. Included in this figure is a sum of UGX.52,121,900 owed by farmers who were advanced Seeds in 2005. There was no movement in the debtors position during the year. 325

I urged management to ensure that its debt collection efforts are enhanced.

Management explained that the observation was noted and will be complied with.

82.0 UGANDA SEEDS LIMITED – YEAR ENDED 30TH JUNE 2012

82.1 Depreciation of Land and Buildings I noted that the Company has been depreciating land and buildings together as a consolidated figure, which is against the International Accounting Standards IAS 16 that requires land and buildings to be treated differently since they are separate assets. Had management separated the cost of land from buildings, the depreciation amount of UGX.194,564,207 would have been lower than was reported. Accordingly, other operating expenses, net income and shareholders‟ equity reported in the financial statements were affected to the extent of unwarranted depreciation.

Management explained that plans are under way to engage a Valuer to undertake the exercise. Once this is done, the value of land and buildings will be separated.

I advised management to expedite the procuring process.

82.2 Unpaid ground rates I noted that ground rates for the leased land i.e. Plot No 15 Block 100 in Kasese to Nyakatonzi Growers Cooperative Union, Plot No. 150 Block 4, Plot No 151 Block 4 to FICA had not been paid since the assets were leased. This implies that the lease agreement is not being implemented since no report or evidence of payment was availed for verification.

Management explained that they had written to the lessee to ensure they comply with the agreement.

I advised management to pursue the matter further and ensure the lessee complies with the concession agreement.

82.3 Poor infrastructure at the farms Audit inspection of Kisindi and Kasese farms revealed that these farms were faced with a problem of poor infrastructure, poor roads and no perimeter fences. This may hamper attainment of the objectives of the Company. 326

Management explained that the matter of improving infrastructure on the farms is being followed up.

I urged management to ensure that the matter is expedited.

WATER AND ENVIRONMENT

83.0 NATIONAL ENVIRONMENT MANAGEMENT AUTHORITY – YEAR ENDED 30TH JUNE 2014

83.1 Mischarge of Expenditure Expenditure of UGX.942,053,402 in respect of various activities was charged wrongly to item codes meant for other activities resulting in misstatement of amounts expended on the affected item codes. This was done without authority from Permanent Secretary/Secretary to Treasury (PS/ST). This implies that the financial statements are misrepresented with regard to the mischarged amounts and the practice renders the budgeting process redundant.

Management attributed the mischarge of expenditure to the allocation of extra funding on development budget codes which had been closed previously; however, no documentary evidence was availed to back up this explanation. Management further indicated that efforts had been made to streamline the budgeting process in the subsequent financial years.

I have advised the Accounting Officer to streamline the budgeting process and to subsequently ensure that payments are correctly charged on the item codes to enable proper implementation of the Authority‟s programmes.

83.2 Advances not accounted for Review of Note 2 of the financial statements revealed that the Authority advanced UGX.499,186,994 to other government units and UGX.275,068,335 to Micro Projects, over three years ago, but by the time of this report, the money had not been accounted for, contrary to Paragraph 7.26(c) of the NEMA Financial and Accounting Regulations Manuals (FARM), 2003 which requires an accountable advance to be accounted for within two weeks after completion of the activity.

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Management acknowledged that the Implementing Agencies had failed to submit the accountabilities, but explained that the planned activities had been implemented.

In the absence of accountability documents and activity reports, it was not possible to confirm whether the activities took place and whether the Authority obtained value for money from the expenditure.

I have advised the Accounting Officer to liaise with the Implementing Agencies and ensure that the funds involved are accounted for, otherwise NEMA management remains accountable.

83.3 Authority’s Receivables Paragraph 5.5.9 of the NEMA FARM, 2003 requires management to subject any debt that becomes overdue for more than 30 days to debt recovery procedures and Paragraph 1.4(1) of the FARM states that it is a key function of management to mobilise, expedite and monitor the Authority‟s resources. Audit noted however, that this requirement was not being complied with as indicated below:-

(i) Environmental Impact Assessment Debtors The Authority reported in the financial statements, Environmental Impact Assessment (EIA) debtors of UGX.8,719,280,419 at the close of the financial year. However a number of them were subsequently settled and by the time of writing this report (Feb 2015) only UGX.4,629,378,419 was still outstanding. Out of the outstanding amount, UGX.3,199,559,618 (69.1%) is owed by Government Ministries, Departments and Agencies (MDAs). Review of debtor correspondences revealed that most of the commitments to pay had not been honoured. The delay to collect the debts was also attributed to management‟s reluctance to take legal action against the debtors. Failure to collect debts impacts on the liquidity of the Authority.

Management explained that they had entered into formal commitments with respective debtors to recover the funds and assigned a specific staff member to handle the debt recovery function.

I have advised management to take appropriate measures and ensure that all the outstanding debtors are collected.

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(ii) Uncollected rent arrears Note 3 to the financial statements revealed a rent debt of UGX.15,785,206 owed by one Tenant, M/S Almiron, since 2011/2012 financial year. There was no evidence that management had undertaken any recovery measures against the debtor.

Management explained that the debt proved uncollectable and was preparing to take the matter to the board for possible write off.

I have advised management to institute recovery measures and expedite the process of the proposed write off of the uncollectable rent.

83.4 Failure to prepare a consolidated master budget Management of the Authority did not prepare a consolidated budget for submission to the Board for approval, contrary to paragraph 13.2(i) of the NEMA FARM, 2003. Consequently UGX.2,631,969,000 was received from Development Partners and spent without approval by the Authority‟s board. Spending the Authority‟s funds without the Board‟s approval does not only undermine its authority but also makes it difficult to monitor budget performance.

Management explained that it was an omission and pledged to put in place mechanisms that ensure inclusion of Development Partners‟ funds within the consolidated budget effective from the FY 2015/16.

I have advised the Accounting Officer to always ensure that consolidated budgets that include all sources of revenue and planned expenditures are prepared and approved by the Board in compliance with the requirements of the NEMA FARM, 2003.

83.5 Lack of a Training Plan Chapter 11.1.2 of the NEMA - Human Resources Management Manual, 2004 states that “the Human Resource Development Committee shall, in liaison with all the departments, develop an annual training plan and present the proposed training schedules and budget for review and approval by the Board”. It was however noted that NEMA spent UGX.259,062,471 on training without an approved training plan. This was attributed to management‟s reliance on training needs indicated in the staff appraisal and laxity to prepare a training plan which may result in spending on trainings that are of lesser importance to the Authority.

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Management explained that the training needs were identified from annual staff appraisals. However, this procedure does not adequately match the Authority‟s training needs with the budget allocations.

I advised management to always prepare and forward to the board for approval an annual training plan for effective budget allocation. Much as the training needs are identified from the staff appraisal, they ought to be analyzed, costed and prioritized in a training plan to be approved by the Board.

84.0 NATIONAL FORESTRY AUTHORITY – YEAR ENDED 30TH JUNE 2014

84.1 Funds not accounted for A sum of UGX.135,532,000 advanced to various officers to undertake activities of the Authority was not accounted for contrary to paragraph 217 of the TAI, 2003 that requires public officers to account for funds advanced within a period of 60 days. In the absence of the accountability documents, it was not possible to confirm whether the funds were used for the intended purposes. Delays in accounting for funds may result into falsification of documents.

Management explained that the advances were for boundary opening and marking activities whose funds were released late through supplementary funding leading to delayed implementation of the activities.

I have advised management to ensure that all funds are accounted for. In the alternative the funds are recoverable from the concerned staff.

84.2 Payables Out of payables of UGX.8, 804,007,000 at the end of the previous year, only UGX.835, 893,000 (9.5%) were settled, leaving a balance of UGX.7, 968,114,000.

Included in the outstanding payables is an amount of UGX.2,302,865,493 owed to casual labourers and petty contractors dating back to financial year 2011/2012, and statutory deductions such as PAYE (UGX.850,424,684), WHT (UGX.848,456,499), Gratuity (UGX.1,356,770,197) and NSSF (UGX.11,579,865) which attract penalties. Management attributed the accumulation of payables to inadequate funding.

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I advised management to seek the support of the Ministry of Finance, Planning and Economic Development (MoFPED) in settling the long outstanding payables to avoid penalties.

84.3 Receivables Out of the receivables amounting to UGX.7,621,138,000 for the previous year, only UGX.78,226,000 (1%) was collected resulting into an outstanding sum of UGX.7,542,912,000. Included in the receivables are; debtors such as Nile Plywoods Ltd (UGX.2,299,987,934), Uganda Telecom Ltd (UGX.1,740,814,140), Uganda Electricity Distribution company (UGX.130,500,000), VIRCO Holdings Ltd (UGX.156,000,000), Kasese Cobalt Company (UGX.133,394,701), Farm Income Project (UGX.617,374,000), and recoverable Input VAT (UGX.291,393,000).

Long outstanding debts represent idle assets and may become bad debts, to the detriment of the Authority.

Management indicated that it had contracted debt collectors to enforce collection of outstanding debts. I await the outcome of this engagement.

84.4 Non-tax revenue collections Out of the projected non-tax revenue of UGX.14,246,168,894, only UGX.8,044,456,000 (56%) was collected resulting in a short fall of UGX.6,201,712,894. This was mainly caused by the management‟s failure to institute efficient collection measures of tree planting license fees, insufficient seedlings for commercial purposes and inadequate revenue mobilization strategies. Under collection of revenue constrains operational and development plans of the Authority. In response, management stated that new measures have been instituted to enhance revenue collection such as introducing alternative seedlings species, revision of prices for most of the products and services, and procuring the services of debtor collectors to recover all the Authority‟s receivables.

I advised the Accounting Officer to strengthen the budget preparation, execution, monitoring and evaluation processes so as to enhance revenue performance.

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84.5 Loss of Plantation A review of financial statements revealed a loss of UGX.1,327,825,000 attributed to fire destruction of 624.96 hectares of forest in North Rwenzori. The loss was written off from the financial statements without the approval of the Board.

It was also noted that the Authority lacks basic firefighting equipment to control the forest fires.

In response, management stated that comprehensive and documented guidelines for fire management have been put in place and that fire management training will be done in selected plantations for staff.

I advised management to;  Follow the write off procedures for losses as stipulated in the Treasury Accounting Instructions.

 Develop a policy on fire control so as to mitigate forest losses arising from fires.

84.6 Encroachment on forestry land Section 13 (1) of the National Forestry and Tree Planting Act, 2003 states that a forest reserve shall be managed in a manner consistent with the purpose for which it is declared; while section 13 (2) requires that a forest reserve shall not be put under any use other than in accordance with the management plan.

Review of the Authority‟s encroachment report of 2012 revealed that a total of 211,898 hectares of land out of 1,214,045 hectares had been encroached on and put to different land use other than forestry activities in the 517 Central Forest Reserves, as shown in the Table below. Further analysis revealed that 19 forest reserves in the Lake Shore range, 3 in Budongo Range, 3 in Katugo plantation and 1 in west Nile range with a total area of 69,396 hectares had been completely taken over by encroachers.

Range/plant Number of Total area Area of the reserve Percentage of the ation CFR encroached on(ha) encroached land West Nile 39 101,669 5,966 5.9 Budongo 43 187,249 30,598 16.3 Lake Shore 166 180,825 60,913 33.7 South west 15 65,419 732 1.1 332

Range/plant Number of Total area Area of the reserve Percentage of the ation CFR encroached on(ha) encroached land Lendu 4 3,394 108 3.2 Katugo 11 50,019 17,149 34.3 Mbarara 9 14,939 165 1.1 south Busoga 1 16,384 13,886 84.8 Kyaga Range 75 149,252 26,603 17.8 Muzizi Range 53 110,167 30,922 28.1 Mwenge 5 5,773 70 1.2 Achwa 96 328,955 24,786 7.5 Total 517 1,214,045 211,898 17.5

Management attributed the encroachment on the CFRs mainly to unclear forest boundaries and failure to update forest cover data which continue to undermine planning, decision making and management of forest resources.

I have advised management to open and demarcate all the boundaries for all the plantations and ranges, and seek legal redress for the land occupied illegally by encroachers.

84.7 Management of Ranges and Plantations assets Section 13 of NFA Financial and Accounting Manual requires assets to be managed efficiently and effectively in order to maximize the future economic benefits. The same section requires management to put in place an organized system of planned preventive maintenance that provides for scheduled maintenance before an asset breaks down or badly deteriorates. The regulations further require that maintenance activities be diligently carried out and maintenance registers put in place to facilitate the process.

Audit inspection however, revealed a number of irregularities in assets management as indicated in a number of cases below;

84.7.1 Vehicles and motorcycles Review of the report on the status of vehicles and motor cycles for the period ending 30th June 2014 in ten ranges and plantations revealed that only 56 out of 208 vehicles and motor cycles were in good running condition. Of the 152 grounded vehicles, 40 required minor repairs, 45 major repairs while 67 had been assessed to be irreparable, in various locations. 333

It was further noted that out of the budgeted UGX.378,238,571, only UGX.102,419,581 was released to facilitate repair of vehicles and motor cycles among other activities.

Management explained that the majority of the fleet comprised of motorcycles which had been running since the inception of NFA. The grounded ones had been recommended for disposal while those that needed repairs were being worked on. They further indicated that a majority of the fleet would be replaced in a phased manner due to financial constraints.

I advised the Accounting Officer to assess the cost effectiveness of the vehicles with a view to dispose of the non-economic cases.

84.7.2 Dilapidated buildings at the plantations and ranges During audit inspection of Lendu, Mafuga and Mbarara plantations and West Nile, Lake Shore, South West ranges, it was noted that staff houses, toilet facilities, offices and stores at the stations were in a dilapidated state. Review of NFA budget and financial statements revealed that management provided only UGX.3,600,000 to facilitate repairs of buildings in two stations out of fifteen and eventually UGX.10,422,500 was released for six stations. This amount was noted to be low in comparison with the state of the station buildings.

Management took note of the matter and undertook to ensure that in the next work plan, funds would be provided.

I await management‟s action in this regard.

84.7.3 Inadequate storage facilities Inspection of the Lakeshore range offices revealed absence of a safe for storing valuable assets as the one in place had been reportedly broken into. In Arua and Mafuga plantations, it was noted that the stations lacked adequate storage facilities. Fertilizers had been placed on the office floor in the West Nile range thereby exposing them to deterioration due to moisture.

In the absence of the safe, there is risk of loss of valuable documents. Improperly stored fertilizers may lose valuable nutrients for the forests.

Management indicated that the safe and other storage facilities would be put in place in the next financial year.

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I advised the management to;  Develop an assets maintenance plan and to provide adequate budget allocations for maintenance of buildings, repair of vehicles and motor cycles.

 Improve on the storage facilities in the ranges and plantations for safe custody of valuable items.

84.8 Management of Fuel for vehicles and motorcycles The Authority uses a fuel card system to manage fuel for its vehicles and motorcycles. A review of the fuel system however revealed that 52 vehicles and motorcycles lacked fuel cards contrary to the requirements of the fuel management system.

Audit further noted that the plantations and ranges fuel budget was over spent by UGX.135,056,798 without obtaining necessary approvals in form of re-allocations or virements. Excess unauthorized expenditure defeats the purpose of budgeting.

Management explained that the fuel stations declined to prepare new cards for the authority due to delayed clearance of bills.

I advised management to strengthen controls in fuel management system to ensure that all functional vehicles have fuel to facilitate field staff.

84.9 Forest Management Plans Section 28 (1) of the National Forestry and Tree Planting Act requires NFA to prepare management plans for all forest reserves stating among others the type of activities to be carried out in the forest and measures to be taken for the sustainable management of the forest. Section 28 (7) states that “for the avoidance of doubt, a management plan shall be prepared within one year after the coming into force of this Act for every forest reserve declared under the Forest Act and in existence at the commencement of this Act.”

Contrary to this requirement, audit noted that out of 517 forest reserves, only 21 management plans had been approved, 10 were forwarded to the Board on 16th July 2012, while 25 were still drafts at management level.

Absence of the approved forest management plans makes the Authority fail in its key objective of forest management planning stipulated in the National Forestry and Tree Planting Act, 2003. 335

Management attributed failure to finalize forest management plans to the absence of the Board during the year under review.

I have advised management to ensure that the forest management plans for all natural forests are prepared and approved without delay.

85.0 NATIONAL WATER AND SEWERAGE CORPORATION –YEAR ENDED 30TH JUNE 2014

85.1 Failure to Carry out Revaluation of Property, Plant and Equipment Management of NWSC failed to carry out revaluation of the Corporation‟s property, plant and equipment as required by the Accounting Policy. The policy provides for a revaluation to be carried out every three years but the last revaluation exercise was done in January 2008.

I advised Management to carry out revaluations every three years as required by the Policy. 85.2 Land Ownership Included in the financial statements is UGX.1,283,427,000 disclosed as value of land acquired/taken over by the Corporation during the year under review. At the time of audit, it was noted that all land acquired/ taken over during the financial year did not have certificates of title in the names of the Corporation. The Corporation runs the risk of losing the property in the event that disputes arise over the land.

Management acknowledged that Government had gazetted 66 towns to NWSC and most of the properties taken over from Town Councils had no certificates of title. The Corporation had, however, initiated the process of acquiring land titles at various designated land authorities.

I advised Management to ensure that titles are acquired for all property acquired/taken over in order to safeguard the Corporation‟s interest and investments on the land.

85.3 New Connections During the audit, it was noted that the customer files highlighted below were not fully authorized by the designated officials before water connections were made.

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Entebbe Area Customer Ref. Form not signed Observation Number NC 283465 Application Form Area Manager did not sign

NC 297789 New Connections Survey & field Area Engineer & Trench Verifier did Verification Form(NCSFVF) not sign NC 231980 NCSFVF Contractor & Trench Verifier did not sign NC 299443 NCSFVF Area Engineer & Trench Verifier did not sign

It was not possible to ascertain whether the new connections were approved without evidence of authenticity on key supporting documents.

Although Management explained that all the supporting documents for new connections were subsequently approved by the designated officers, this presents risks of unauthorised connections being added onto the system.

I advised Management to always ensure that all new connections are properly authorised, before they are effected.

85.4 Inadequately Supported Expenditure During audit, I noted that the expenditure below was incurred in Masaka Area but was inadequately supported.

A/C Date Payment Payment Payee Amount Observation Name/Code voucher Details (UGX) Security 20/02/14 Vr. 18 Payment for Saracen 7,980,000 The following security Guard: 4618 security guards did not sign on services the duty sheets (February 1. 1. Kiyimba Twaha 2014) 2. 2. Alawi Muswadiku

I was unable to ascertain, verify and satisfy myself that the expenditure above was correctly incurred.

I advised Management to provide the supporting documentation for verification, and in future to always ensure that all expenditure incurred is properly supported with key and/ or relevant accountability documents. 337

ACCOUNTABILITY SECTOR

86.0 BANK OF UGANDA – YEAR ENDED 30TH JUNE 2014

86.1 Exceptions noted in the recording of the Treasury Bills/Treasury Bond auctions and redemptions During the year, a new system Central Securities Depository (CSD) was commissioned to replace the old system Central Depository System (CDS). All government securities issued are recorded in the CSD system and corresponding amounts recorded in the Bank of Uganda Banking System (BBS) and the two systems are expected to have the same totals. However, the following exceptions relating to accuracy of reports extracted from the system were noted:

Transaction Amount per Amount Difference Comment Date CSD-Auction per BBS (UGX) BNs list (UGX) BNs (UGX) BNs T/bill 17/10/2013 118 124.9 6.6 Amount recorded in BBS agreed to the CSD award list but did not agree with Auction list T/bill 26/11/ 2013 0 50 Type of Amount had been security recorded on the BBS but could not be traced to the CSD. T/bond 10/10/ 2013 70 14.5 75 Amount had been recorded on the BBS but could not be traced to the CSD. A T/Bond for 5 years was re-opened on 10th October 2013 but this is not reflected in Auction Profile Report.

Reports with differences in totals may be an indicator of possible omissions or duplications of the system.

Management explained that the dates referred to above relate to the post implementation period of the new CSD before it had stabilized, during which a number of functionality and procedural issues were identified and escalated to the system vendor. A solution has since been provided by the system vendor and testing is expected to be completed by 19 September 2014 and deployed by 30 September 2014 to correct the issues.

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I advised management to ensure that the system is continuously reviewed to ascertain the accuracy of the information generated from the system.

86.2 Payments from government accounts with insufficient funds

A deficit of UGX.1,711,351,844 was noted on 30th June 2014 in BOU because some of the MoFPED accounts held by Bank of Uganda that were debited for these payments had no funds. This could only be undertaken because the MoFPED payment files were uploaded manually into ECFMS hence BBS was by passed. A refund for this amount was finally made on 14th August 2014.

Payments from government accounts without sufficient funds may be interpreted as offering temporary advance to government.

Management explained that this was occasioned by BBS malfunction at the end of the financial year.

I advised management to carry out a review of systems to minimise the manual intervention in the processing of payments.

86.3 Dormant Government of Uganda accounts opened in the name of BOU

During our audit, it was noted an amount of Euro 3,354,980.64 confirmed by Deutsche Bank Frankfurt in the names of BOU was not recorded on the BOU general ledger. According to management, this account holds the proceeds from the sale of Deutsche Entwicklungs Gesellschft (DEG), a Germany Investment Company shares in DFCU bank.

Management explained that the above account was opened in 2003, but Deutsche Bank first confirmed the balances to Bank of Uganda in 2013, ten years after it was opened. The Accountant General was contacted in 2013 regarding the status of this account but also had no details of it. In the interim, and basing on the available records, BOU has included the balances as part of Government deposits and subject to receipt of further information.

I urged management of BOU to continue to follow up with the respective stake holders to ensure appropriate entries are recorded for the funds.

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86.4 Insufficient re-imbursements for the debt paid on behalf of the

Government of Uganda Section 33 (2) of the Bank of Uganda Act requires that at the beginning of each financial year, the Treasury identifies and submits to the Central bank all its requirements for temporary advances for that year. Whereas re-imbursements were made by the Ministry of Finance, they were not sufficient to cover the amount paid by Bank of Uganda on behalf of government and UGX.4,733,160,339 was outstanding at the end of the financial year which was fully paid on 29th July 2014.

Given that these are interest free, Bank of Uganda may be losing out on the opportunity costs of funds in terms of interest foregone.

Management promised to propose to Government to provide an estimated amount for the coming month in advance so that they can be used for settlement as and when payment falls due within that month to avoid future delays.

The above action is awaited.

86.5 Processing inadequacies for payments from MoFPED

From the review of the process through which the MOF Payments are made the following was noted;  Whereas the payment instructions from the Ministry of Finance were received at the Ministry Server (at BOU) in encrypted version, these payment instructions were decrypted before they are processed in BBS.

 While processing foreign currency like USD, it was noted that figures that had decimal points (for example 502.89) were rejected by BBS. This was resolved by a manual process by which clearing house staff manually capture the payment instructions in ECFMS and clear the payments like ordinary internal bank payments. Reconciliations with BBS were then performed thereafter.

 On loading payment files onto RTGS, it was noted that this process was completed entirely by one staff. No checker controls had been defined to ensure accuracy and correctness of the settlements that are ultimately being made to the commercial banks.

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 From inspection of the payments inconsistencies were noted between the total payments that were received from the MoFPED and the instructions that were processed in ECFMS. The total difference between the two amounted to UGX.52,949,966.

In the decrypted form, the file may be susceptible to unauthorized transaction being processed.

Management promised to review the implementation of the automated file decryption process with the vendors by 31 December 2014. The issue of truncating decimal places is dictated by the systems issues (i.e. Some systems do not accept decimal places while others do). BOU will engage the Oracle (the system vendor) to address the issue.

I urged management to expedite the above planned actions.

86.6 Insufficient administrator activities monitoring on the critical applications

IFS, BBS and CSD have administrator level user accounts both at the application and database level. The following were noted:  For these applications, administrator activities on the respective underlying databases are not reviewed by management to ensure that there are no unauthorized back-end transactions or operations completed by administrators. In addition, audit triggers have not been enabled to track administrator activities on the respective databases.

 Procedures to review all users‟ activities including administrators have been implemented at application level for IFS, BBS and CSD. However backend activities are not reviewed for these applications.

 BBS and IFS application level reviews were limited to login and logout activity and the application process code (currently not understood by the staff in charge of the review) accessed which is not sufficient. Business owners were not involved in the review of IFS.

Further, a review of the daily logs used by the Security Administrator to monitor System Administrator activities, revealed the following exceptions:

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 Reports for BBS administrator monitoring for 10 of the selected 25 days were not obtained.

 CSD administrator monitoring for nine (9) of the selected 25 days were not obtained.

There is a risk that holders of administrator level accounts may execute unauthorized activities in the system without detection if their activities either from the application or database levels are not monitored.

Management explained that review of IFS user activity reports with the business will commence in January 2015. In addition, BOU is implementing the Data Audit and Protection system (DAPS) to monitor activities on databases and provide event and audit logs whose implementation will be completed by 30th June 2015.

The outcomes of the implementations of the above procedures are awaited.

86.7 Segregation of duties conflicts and incomplete documentation of user roles in

the user rights catalogues Access levels on IFS are responsibility based while on BBS and CSD, they are role based. From review of the access levels on IFS, BBS and CSD, the following was noted;

 A generic user account (DEPO) that was assigned all roles on the CSD application and can be used to execute all functions on all workplaces on CSD by the system administrators after being granted access by the Director of the National Payments and Settlements Department.

 There were weak password configurations for this account, where the minimum password length for this account had been set to one character

 Four administrator accounts on the Business Day Administrator Interface had rights to execute all functions on this workplace.

 There were six administrator accounts on the Database Back Office Interface that have rights to execute all functions on this workplace.

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 There were six administrator accounts on the Database Monitoring Interface that have rights to execute all functions on this workplace.

 Due to system limitation, there were no audit trails on the database level that can be used to track the administrative activities that are carried out using these above noted accounts.

Further, a review was undertaken on the user rights catalogues for the systems and the following was also noted:  The BBS and CSD user rights catalogues have not been signed off by management.

 Six roles that were implemented and were active in the CSD but are not documented in the CSD User Rights Catalogue.

 Five roles that were implemented and are active in the BBS but were not defined in the BBS User Rights Catalogue. However from inspection of these accounts assigned to these roles, it was noted that these undocumented roles had not been used to carry out any activity on BBS that had any financial impact.

Without adequately aligning user group rights to employee responsibilities, users may have excessive access rights to the system. This may compromise the integrity and accuracy of the data in the system and also expose the Bank to the fraudulent activities.

Management responded that the issues raised regarding the security around CSD were recognised and that the critical risk (Admin password) is caused by the design of the system. BOU is addressing the issue with the vendor and in the meantime strict administrative controls have been implemented.

I advised that user rights on applications be aligned with employee responsibility in line with business rules and in consideration of segregation of duties. Management should also consider reviewing all the IFS and BBS access groups for all users so as to ensure that users with conflicting roles on the critical applications do not exist and updates of the user rights catalogues to include the roles that are not documented.

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86.8 Lack of IFS data restoration testing and failed CSD data restoration

testing We reviewed the backup and data restoration procedures that Bank of Uganda has implemented and noted the following:  Data restoration testing for IFS was not carried out during the period under review.

 During System Testing for the CSD, non-functional tests e.g. backups, restoration were not carried out. As a result the CSD data restoration testing that was carried out during the period under review was not successful.

 The scheduled retesting for the CSD backups was not carried out.

Without regular data restoration testing, there is a risk that the backups may not be usable and that the backups may not meet the requirements of the business continuity plan. Therefore, BoU may not be able to recover from a disaster within reasonable time so as to minimize organizational cost and recovery time.

Management explained that there was a delay in the testing of the IFS because of hardware constraints but this had been resolved and testing was to be completed by 30th September 2014.

I advised management to ensure that restoration procedures for all critical systems i.e. IFS, BBS and CSD are carried out regularly to ensure that they are effective and that they can be restored within the time allotted in the BoU operational procedures for recovery. During System Testing for any new systems that are to be commissioned, non-functional tests e.g. backups, restoration should be carried out.

86.9 IFS, BBS and CSD system limitations

IFS is the key application for financial reporting used at BoU, while Bank of Uganda Banking System (BBS) is used to handle summary accounts and customer accounts (Government). CSD is the key application that BoU uses to handle securities i.e. treasury bills and bonds. Some of the key limitations of these systems were noted as under:

 Insufficient system audit trails on IFS, BBS and CSD that would keep track and link the program changes and any other activities the super user accounts carry out on the critical applications and underlying databases to the specific super users who 344

implemented them. It is therefore not possible to determine the action of super user accounts with regard to programme changes and administrator actions.

 Inability to obtain a report from BBS to show the accurate date of creation for all active users.

Without sufficient system audit trails to monitor the activities of users and especially super users in the systems, unauthorized or fraudulent transactions may not be detected in a timely manner. Transactions in some cases may also not be easily linked to the specific persons who completed them. Unauthorized access to applications may also occur which may lead to loss of confidentiality, integrity and availability of crucial financial or other operational data.

Management promised to engage the vendors to develop reports to provide the required information.

The outcomes of the above promised action are awaited. 86.10 Inadequate user access administration

The following was noted:  Administrative access to the critical applications

 Two users were granted administrative access to IFS during the period under review but authorization forms were not obtained.

 The formal documentation maintained for the creation of 8 administrative users on CSD created during the period under review was not obtained.

 One new creation on the underlying database for CSD was created without any

formal documented approvals.

 Access Assignment to the critical applications.

 Formal approval used to grant two of the twenty five selected users additional rights on IFS was not obtained.

 User access rights request memos or forms used to grant 4 of the selected twenty five users‟ access to CSD were not obtained. 345

Without an effective procedure for granting access to new users of the Bank‟s Information Systems, staff may gain unauthorized or fraudulent access to the applications which may lead to loss of confidentiality and integrity of crucial financial or other operational data resulting in financial misstatement.

Management explained that the cited cases were isolated incidents which are mitigated by restricted access to the BoU information systems and quarterly user access reviews.

I advised management to ensure that approval documentation is obtained and retained for all users granted access and additional rights to Bank‟s Information Systems.

86.11 Differences in closing stock

At the year-end on 30th June 2014, a physical verification was performed for all stocks held by the bank in the different stores as at that date. The stock take report which summarised the physical count results versus the records in the purchase and inventory system and the general ledger revealed a variance of UGX.43,647,085 in the currency store.

Management explained that some currency stock was sent to the different currency centres for custody and not for use by those currency centres but by the time of the count, the staff at the currency centres could not differentiate between the stock from head office for safe custody and the actual currency stock of the currency centre. However, necessary steps have been taken to ensure that this issue is resolved by November 2014.

I advised management to ensure proper recording of currency stock at the centres.

87.0 CAPITAL MARKETS AUTHORITY – YEAR ENDED 30TH JUNE 2014

87.1 Compliance with GoU financial and other applicable regulations

A review was carried out with regard to the Authority‟s compliance with applicable laws and financial regulations and it was observed that the Authority had complied materially in all aspects except for the following;

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87.2 Investment strategy for the matured fixed deposit

As at year end, the Authority still held cash from a fixed deposit with DFCU Bank that had matured during the year (May 2014). No interest was accumulated from the period of maturity to year end.

Although a cash cushion is often advisable because an entity may not always have access to funds when it needs it, management should consider investing any such excess cash on interest bearing accounts.

There is a risk that the above action cost the Authority one and half months‟ interest (approximately UGX.3.6 million using the interest rate of the matured fixed deposit).

Management explained that the delay in the rollover was mainly caused by negotiating the interest rate and assessment of market factors.

I advised management to ensure close monitoring of all funds placed on fixed deposits so that the delays experienced in the above instance are avoided. In addition, the decision to rollover deposits should be made at least a month before the relevant deposit has matured.

87.3 Bank signatories

It was noted that three employees who had left the organisation were still signatories to the Bank of Uganda accounts. There is a risk that the Authority could be exposed to irregularities on their bank accounts as transactions could still be honoured on the departed employees‟ authority.

Management promised to write to the bank through a board resolution to remove the affected staff from being signatories to the entity accounts.

This action is awaited.

87.4 Fully depreciated assets

IAS 16 provides that an entity must constantly reassess its assets by reviewing their useful life, method of depreciation and residual value. If the asset is still in use, it is best practice to review the value of the asset and depreciate over the number of years it will generate economic benefits.

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It was noted that the Authority had fully depreciated assets with a cost of UGX.607,000,000 which were still in use with no sign of examining the remaining estimated useful lives of the fully depreciated assets. This is contrary to IAS 16.

Management promised to revalue the fully depreciated assets and have these values approved by the Board of Directors. They further promised to review the depreciation rates for certain asset categories. The above actions are awaited.

87.5 Lack of review of journal entries

It was noted that during the second half of the year there was a lack of review of journal entries prior to the journal entries being entered into the system, or verification of journal entries after they had been posted to the system. The journals mostly related to income recognition and adjustment of deferred income, unexpended grants and depreciation. Without reviewing the posted journal entries, there is a risk of errors being passed unnoticed.

Management promised to take action and ensure that all journals are approved before being posted.

88.0 INSURANCE REGULATORY AUTHORITY – YEAR ENDED 30TH JUNE 2014

88.1 Payment of avoidable interest and penalty NSSF carried out an audit on IRA related transactions in May, 2012 and established that there was un-remitted NSSF dues on bonuses, gratuity, leave and acting allowances of UGX.116,223,201 for the period March, 2006 to March, 2012. These arrears attracted interest of UGX.47,140,081 and a fine of UGX.282,303,448 (10% per month of every month not paid).

It was noted that the avoidable interest of UGX.47,140,081 was paid, while the penalty of UGX.282,303,448 remain outstanding and may attract further interest. In addition, arrears of UGX.1,794,379 and interest accruing therefrom for the staff who left the authority were still outstanding.

Management explained that the arrears relate to items which IRA was not aware of until the NSSF audit but a waiver has been sought from NSSF for penalties and fines pending documentation.

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I advised management to follow-up on the waiver and have the issue resolved.

88.2 Overspent budget items-UGX.66,139,198 A review of the budget and expenditure revealed that three (3) expenditure items were overspent by a sum of UGX.66,139,198. These items include membership to professional bodies (UGX.25,184,629), workshop and seminars (UGX.26,380,393) and insurance expense (UGX.14,574,176). The authority to re-allocate the funds was not sought from the Board. Reallocation of funds and spending beyond the budget without the authority reflects budget indiscipline. Management explained that the overspent items composed of inevitable expenditures.

I advised the Accounting Officer to always seek Board authority to re-allocate funds once such inevitable expenditures are noticed.

88.3 Failure to address limitation of Quick Books software The finance department currently uses Quick books software which is basic and has various limitations such as low security features and does not permit auto payroll calculations among others. It had been proposed in the budget that management would procure efficient and reliable software at an estimated cost of USD.35,000.

The Board in its 202nd sitting did not allocate the required funds for this purpose. Handling the authority financials especially the payroll system that is not designed for payroll auto computation may negatively affect the outputs, which in turn may lead to errors. Management explained that they have identified an Enterprise Resource Planning Software (ERP) which is now due for consideration by the Board.

I advised management to follow up the matter and have the software procured so that the current payroll weaknesses are resolved.

88.4 Board 88.4.1 Incomplete Board Composition I noted that IRA Board is not fully constituted as it has seven (7) of the eight (8) required members. One of the members representing the Ministry responsible for Finance is not yet appointed. A board that is not fully constituted may not operate

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efficiently in accordance with its mandate. The expected guidance from the line Ministry cannot be provided due to lack of full representation.

Management promised to follow up the matter with the appointing authority.

The outcome of the promised action is awaited.

88.4.2 Lack of an approved Board Charter

Best practice requires organizations governed by Boards to have in place a Board Charter as a tool to guide in the governance of the Authority. The Board Charter outlines the specific roles and responsibilities of the Board, its Committees, CEO, and the Board Secretary. It defines the performance monitoring mechanisms to be used and responsibilities for risk management. However, it was noted that for the last four years, the draft Board Charter has not been approved by the Board to make it operational. Absence of an approved Board Charter poses the risk of the Board operating in a vacuum, without appropriate guidance.

Management explained that the charter is being reviewed awaiting final Board approval.

I urged management to ensure that the process of having the draft Board Charter reviewed and approved is expedited.

89.0 MICROFINANCE SUPPORT CENTRE LIMITED – YEAR ENDED 30TH JUNE 2014

89.1 Non-compliance with the company’s loan write-off policy Section 5.8 of the Operations Manual 5th Edition requires that a loan should be written off the books of the institution after six months of being identified as a loss and after the loan has past 270 days. Write off would be done at the end of the financial year by the Board of Directors. However I noted that sixteen loans with principal amounts worth UGX.7.477 billion (Principal: UGX.6.5 billion and Accrued interest: UGX.977 million) had not been written off as at 30th June 2014. The failure to write off the loans misstates the financial of position of the entity and therefore misleading to stakeholders.

Management explained that it was in the process of identifying the loans for write off in FY 2014/15 and thereafter the report would be presented to board for approval.

The management action is awaited. 350

89.2 Non-compliance with cash accountability policy Section 4.7 of the Accounting and Financial Policies and Procedures Manual required official staff advances to be accounted for within 7 days after completion of the activity for which the imprest was requested and under no circumstances shall a staff advance be issued to a staff member with another outstanding advance. However I noted that the accountabilities were received beyond the stipulated 7 days after completion of activities and some staff had received advances more than twice before accounting. Non-compliance with the accountability policy weakens the company‟s control over cash.

Management explained that staff was always reminded to submit accountabilities within the stipulated 7 days and that no more advances are given to staff with pending accountabilities.

I advised management to adhere to the accounting and financial policies and procedures manual.

89.3 Weaknesses in the credit origination process The credit policy manual requires loans ranging between zero to UGX.100M to be processed within twenty eight days, twenty nine days (29) for those within 100M-400M and thirty nine days (39) for those above 400M. I noted that prolonged lead time of loans may not allow disbursement of loans to the clients and may affect the operations of the entity.

Management explained that it was in the process of reducing the lead time as stipulated in the manual The above management action is awaited.

89.4 Accounting manual not updated with changes in International Financial Reporting Standards (IFRS) IFRS 13-Fair Value Measurement which became effective in 2013 requires the entity to disclose information related to fair value measurements, which is required to help users of the financial statements understand the valuation techniques and inputs used to develop fair value measurements.

Although the company was in compliance with the standard, I noted that the entity‟s accounting manual had not been updated to give guidance on a consistent approach to 351

determine the inputs for the required disclosures. There is a risk of inconsistencies in application of changes in Accounting Standards.

Management explained that it will make changes to the manual as and when IFRSs are updated and that the company is complying with the standards.

I advised management to always revise it manual as per the International Financial Reporting Standards (IFRSs).

89.5 Need to review and implement applicable changes in the companies act of Uganda, 2012 The Companies Act of Uganda, 2012 introduced some new requirements for companies that are yet to be adopted by the company. For example, Section 229 (1) requires every company to state the names of directors in all trade catalogues, trade circulars, show cards and business letters on or in which the company‟s name appears and which are issued or sent by the company to any person. However I noted that this was not done by the company as required by the new law. There is a risk of the company getting sanctions as a result of non-compliance to the law.

Management explained that a review of the Companies Act, 2012 is part of a bigger project to identify all the compliance obligations arising out of the Legal Regime governing MSC and was expect to be done within 31st March 2015.

I urged management to ensure that the review is undertaken so that the entity complies with the Law.

89.6 Lack of review of income on fixed deposit investments From our re-computation of interest income on fixed deposits, a number of variances resulting from the amount credited onto the company‟s bank accounts and what should have been credited as per the fixed deposit certificates issued at the start of the fixed deposit were noted. A review of the communication from United Bank of Africa Uganda stating that certificate of deposit TD510100000618 issued on 17th January, 2014 for 3 months was erroneously paid less by UGX.7,235,693 and another certificate of deposit TD510100000579 issued on 21st October, 2013 for 3 months was wrongly quoted at 14.25% that the correct rate should have been 13% per annum. Failure to closely

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

Management explained that it is putting in place a department and a system for monitoring short term investments.

I wait for the outcome of the above management action.

89.7 Non-deduction of PAYE on staff loans benefits The company did not account for PAYE on the loan benefits given to staff although these entitlements form part of their employment income according to Section 19 of the Income Tax Act. Failure to withhold tax on employment income makes the company liable to interest on the unpaid tax at a rate equal to 2% per month on the amount unpaid calculated from the date on which the payment was due until the date on which the payment was made (Section 136 (1)(c) of the Income Tax Act).

Management explained that the benefit on interest on loan were to be taxed effective 1/7/2015.

I advised management to always deduct tax on time and remit to URA.

89.8 Information and Communication Technology issues

89.8.1 Lack of updated IT policy and IT strategy I noted that the company lacked an up to date IT policy and strategy in place to reflect the changes in the IT environment such as the changes in network design and application. The IT policy was last updated in 2012. Use of outdated policies will not be able to support the company to achieve its organizational objectives and lack of IT strategy will hamper the acquisition, implementation, monitoring and organisation of the IT infrastructure.

Management explained that the IT policy manual was reviewed and updated in 2014 and that the IT strategy had been reviewed and updated in line with the overall organizational strategy would be presented to the board in April 2015.

I advised management to expedite the process of updating its IT policy and strategy.

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Audit noted that there was improper segregation of duties. The IT manager was in charge of handling user creation, deletion, modification and monitoring. Although Microsoft Dynamics has the capability to monitor user activities, there was no evidence of review of the logs as assurance that the administrator activities are being monitored. Absence of segregation increases risks of unauthorised changes to the IT environment as well as unauthorised user access.

Management explained that they would review the current duties of staff in MIS and segregate the duties including giving some rights to CFO and Accounting Officer. Management further explained that the activities of the administrator will be monitored by the CFO on monthly basis.

The above management actions are awaited.

89.8.3 Lack of formal Business Continuity Plan (BCP) Business Continuity Plan helps the organization‟s ability to continue its operational activities in the event of a disaster or business disruption. However it was noted that the company does not have a formal Business Continuity Plan (BCP). Lack of a formalized BCP adversely affects the organization‟s ability to continue its operational activities in the event of a disaster or business disruption.

Management explained that it is developing a risk strategy and the BCP is part of the risk strategy.

I await the outcome of the above management action.

89.8.4 Outdated Disaster Recovery Plan (DRP) During the year under review, I noted that the Microfinance support Centre has an outdated Disaster recovery plan (2012). In addition, evidence to support that this document has been maintained or tested in form of an updated Business Impact Analysis and Disaster Recovery Plan test reports was not availed. Critical systems and applications could have changed over time and these might not get the right attention during a disaster. Therefore, in the absence of Disaster Recovery Plan, the entity might not be able to support IT based systems to continue.

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Management explained that the Disaster Recovery Plan (DRP) was reviewed and updated in 2014. Management had engaged a consultant to review the policy before presenting it to the board for approval.

I advised management to follow the consultant closely and ensure the policy is properly reviewed.

89.9 Ineffective incident management process I noted that MSC does not have a formal incident management policy. I also noted that there was no evidence of a formal process for incident management. The company had no central log for incidents, root cause analysis for incidents done or a formal helpdesk system. Ineffective incident management process could lead to untimely resolution of incidents; process of tracking all incidents will be much harder and time consuming and repetition of incidents resulting from lack of root cause analysis.

Management explained that the procurement of the client services management system was on-going and incident management was part of the system.

I await the outcome of the above management action.

90.0 NATIONAL PLANNING AUTHORITY – YEAR ENDED 30TH JUNE 2014

90.1 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. However, it was noted that the entity charged wrong expenditure codes to a tune of UGX.17,542,925. This practice undermines the importance of the budgeting process as well as the intentions of the appropriating authority.

Management in response explained that they tried their best to rationalize the use of funds released and will adhere to budget procedures in the future.

I advised the Accounting Officer to always seek authority for any reallocations in accordance with the regulations.

90.2 Non-production of Annual Report 355

The Authority is also required to submit reports on performance of Ministries, Sectors and Local Governments. The consolidated annual report is supposed to be laid on the floor of Parliament for appropriate action. However, it was noted that this report was neither produced nor distributed to the relevant stakeholders and yet this is one of the key outputs of the Authority.

Management explained that the 2013/14 annual report was being prepared and that it would be available at the end of the current financial year.

I advised management to expedite the annual report preparation so that the delay of the report does not override its usefulness.

90.3 Human Resource Management NPA has a functioning Human resource department. The following Human resource issues were observed during the course of the audit.

90.4 Un fully constituted board of the NPA The NPA Act requires appointment of five members to the board. However, it was noted that the board was not fully constituted as only 3 members were dully appointed. It is the duty of the Board Chair to inform the responsible Minister to appoint the missing board member and to ensure that the funds are available to cater for his/her functions.

Management informed me that the two (2) board members had been nominated by the authorities but were yet to be appointed.

I advise the board to liaise with the responsible authorities and ensure that two members are appointed to constitute the full board as required by statute.

90.5 Staffing gaps As noted in the previous year, the entity has an approved staff structure of 118. However, only 69 positions had been filled as at 30th June 2014. These constitute only 58% of the required staff numbers. Although management took some steps and recruited five staff including one board member and the Executive Director during the year, 14 staff positions are yet to be filled. The table below refers.

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Staffing Gap Per Directorate Required Actual Variance Directorate/staff number number

Department of ICT 5 1 4 Dept. Human resource planning 5 1 4 Dept. of policy, research and innovation 9 2 7 Dept. of Macro economics 4 1 3 Dept. of infrastructure and physical planning 7 3 4 Dept. of Production, Trade and Planning 7 3 4 Directorate policy, research and Innovation 2 1 1 Dept. of Governance 6 3 3 Executive director and associated officers 12 8 4 Department of economic & strategic planning 6 4 2 Dept. of Social Development Planning 6 4 2 Dept. Monitoring and Evaluation 6 4 2 Finance and Administration 27 20 7 Administration 13 11 2 Directorate of development Planning 3 3 0 Total 118 69 49

Staff shortages are likely to affect the organisation in achieving its objectives. Management explained that they had written to Ministry of Finance, Planning and Economic Development and Ministry of Public Service to allow recruitment in stages until full capacity is achieved.

I await management actions on the matter.

90.6 Lack of legal officer in the organisation structure It is best practice for any corporate body that can sue or be sued to have legal counsel provided in its organisational structure. In the course of my examination, it was evident that many of the issues raised regarding contracts, review of the Human Resource Manual, Board and Top Management meetings required the guidance of a legal counsel. Without a legal officer the entity is likely to face legal challenges.

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Management explained that the matter will be addressed during the review of the Strategic Plan.

I advised management to revisit its organisational structure and ensure that the legal officer is included in NPA operations.

90.7 Motor Vehicle Repairs The fleet of NPA is characterized as being old. Approximately UGX.470,082,690 was spent on motor vehicle repairs during the period. The following was observed;

90.8 Use of single sourcing method to procure motor vehicle repair services A review of the documentation revealed that the entity used single sourcing method in situations that procurements were not of an emergency nature or ought to have been procured under micro procurement as the estimated value was found above UGX.2 million contrary to Regulation 108 of the PPDA regulations. UGX.36,966,050 was paid in this respect. Use of wrong procurement methods limit competition and attainment of competitive prices.

I urged management to ensure full adherence with the requirements of the procurement law.

90.9 High frequency of repairs of certain vehicles It was also observed that 9 vehicles out of the 25 underwent major repairs more than eight times in the year. In addition, the repair costs of some vehicles exceeded UGX.10 million an indicator that the entity vehicles were old and ought to be boarded off.

Management explained that the high operational costs were a result of the old fleet, some of which are over ten (10) years old and have since run beyond the recommended 280,000 Kms mileage ceiling. Management indicated that they are in the process of replacing the old fleet.

I advised management to involve the CME and MoFPED in this endeavor.

91.0 PRIDE MICRO FINANCE LIMITED – YEAR ENDED 31ST DECEMBER 2014

91.1 Variances between the general ledger and sub-ledgers

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We noted a variance between the loan book and the general ledger of UGX.21 million. This increases the risk of misstatement in the financial statements.

Management explained that differences are continuously investigated on a weekly basis and resolved as and when the causes are identified.

I advised management to continue regular reconciliations of the sub-ledgers and the general ledger and seek a permanent solution to resolve the matter.

91.2 Inadequate supervision of journal entries

The system allows for retrospective journal postings that could affect its core functions like interest computations and accrual of interests. It was however noted that the system does not automatically prompt for authorisation of these transactions. Once the transactions are passed in the system by the Finance Officers or Branch Accountants, they directly affect the general ledger‟s respective accounts. In the absence of system prompts for authorisation of reversals or retrospective journals, there is a risk of errors or irregularities going undetected.

Management explained that the vendor failed to fix this system limitation but promised that it shall be addressed in the new Core Banking System.

The promised action is awaited.

91.3 Fixed assets at the branches that are not coded

It was noted that some of the assets in Katwe, Bukoto and Kawempe branches were not coded. We also noted that the fixed assets register indicated that some asset additions to be at the branches but these were not physically verified at the branch e.g. a generator for Katwe branch which was not seen on the premises. Failure to timely code fixed assets decreases the control over the assets.

Management explained that they shall continue to ensure that all assets are engraved as per policy. The process of engraving assets is going to be reviewed to take into consideration assets delivered directly or bought at the branch. However, the FAR system is limited in that it doesn‟t allow transfer of an asset from one location to another.

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I advised management that all assets should be coded and the coding should tally with what is referenced in the fixed asset register. The fixed assets register should be timely updated for any transfers of assets between branches.

91.4 Weaknesses in the credit process

Loan documents such as original land titles and log books from the branches were being transported to the Head Office using public transport. Use of public transport to transfer customer documents poses a security risk like loss or even duplication of documents like land titles.

Management explained that Pride documents are transported by courier and pride vehicles. Office staff at times physically carry documents with them using public means in case they are needed urgently. Management promised to review this process in order to enhance document security while in transit.

Management action regarding public transportation is awaited.

91.5 Inadequate physical controls at the branches

The monitors of the surveillance/CCTV system at the City Centre, Entebbe Road, Bukoto, Wandegeya, Kawempe and Katwe branches visited were located in the server room at the time of our visit. Failure to have real-time surveillance of the activities in the banking halls, increases the security risk of the company.

Management explained that the surveillance system which could have otherwise been used as a preventive control, would now be used only for investigations in case of any irregularities. In addition to the monitors in the server rooms, the Branch Manager and Branch Accountant can log in into the CCTV system at their computers for monitoring. The CCTV monitor is to be relocated to the Branch Manager‟s office to ease monitoring.

I advised management to position the monitor of the surveillance system at the Branch Manager‟s desk to ensure ready access viewing.

91.6 Incident management policy not approved

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The incident management policy is not approved. There is likely to be voluntary compliance rather than mandatory compliance. This is evidenced by the fact that that the IT Help desk is not in use.

Management explained that the Incident management process which is embedded in the BCP Policy was reviewed by management on the 19th February 2015 and will be presented to the board in April 2015 for approval.

The above action is awaited.

91.7 Incident management application not used

The company does not use the incident management application to track and resolve incidents. Incidents sent in by users may not be tracked and resolved in a timely manner. It may also be difficult to allocate incident tickets to the various process owners.

Management explained that currently incident management is being handled manually through the IT service desk. The current installed incident management application is a trial version. Pride will install Microsoft service desk manager by end of July 2015.

The management action to improve the incident management application is awaited.

91.8 Inadequate password controls for vision application

A review of the passwords for vision application indicated that password complexity for is not enforced. Password controls are weak in that the minimum password length is not enforced hence passwords of any length can be used and system inactivity timeouts are also not set. There is a risk of unauthorised access to the system resources and utilities.

Management explained that the ATM system vendor is working on an upgrade for the ATM Switch that will fix the password complexity gap and system inactivity timeout. The upgrade is expected at the end of Q2 2015.

The above action is awaited.

91.9 No evidence of review of audit trails for banker’s realm

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It was noted that although audit trails for the Banker‟s Realm application are enabled, there is no evidence that they are reviewed and signed off. Unauthorised changes and access to the system resources may go undetected.

Management explained that to mitigate the risk of unauthorised back end activity, Pride procured a Database Audit Tool, the CPA Tool which provides real time monitoring and alerts to HRM, HOO, HIA and HICT for back end activities on high risk tables. Head, Risk Management provides weekly updates to EXCOM summarizing actions and any notable exceptions along with justifications and actions taken for the same. Procurement of a new CBS will provide a long term solution to the unreadable audit trails.

I urged management to engage the system vendor to rectify the issue of the unreadable audit trails.

92.0 PRIVATIZATION AND UTILITY SECTOR REFORM PROJECT-DIVESTITURE AND REDUNDANCY ACCOUNT (PUSRP) – YEAR ENDED 30TH JUNE 2014

92.1 Non recognition of Nsambya land debt in GoU Consolidated accounts Management explained that it has on several occasions written to Treasury and the Accountant General communicating all accounts receivables. The fact that this amount is material, non-disclosure has had an effect in the overall net worth of Government. I advised management to liaise with Treasury and have the debt fully recognized.

92.2 Project sustainability/Going concern issues Since 2010/11 financial year the Government of Uganda has not funded the project. Management has over time engaged Government over the sustainability of the project. The Divestiture and Reform Implementation Committee (DRIC) has also been pursuing various initiatives to ensure continuity of the project. All the initiations have not been realized. During the year under review, management decided to prepare the project financial statements on a going concern basis which assumes that the project will be able to settle its obligations as and when they fall due in the normal course of the business.

The following observations have been made to indicate that the project may not be sustainable together with management initiatives to have the project carry on.

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92.3 Withdrawal of World Bank funding In 2006 World Bank withdrew from funding the project. Since then, there have been no immediate funds committed for the continued operations of the project from the Government of Uganda (GoU). This has adversely affected the operation of the project and it is highly likely that the project may not continue its operations. Management has been seeking an irrevocable commitment from government to continue funding the project through establishment of a vote under the line Ministry of Finance or a subvention in a vote under a line item in the Ministry„s budgetary provision. However, the deliberations have not been fruitful. Management has also indicated that they are seeking and obtaining funding from some multilateral donor agencies to fund the transitory activities of the project like Public-Private Partnership capacity training and consultancy.

92.4 Failure to receive proceeds from the sale of URC Nsambya land Proceeds from the sale of URC Nsambya land to government worth UGX.69.5 bn have not been paid to date. Government has neither committed a budget to settle this huge purchase nor has it committed to support the operations of the project. In effect there are no immediate funds committed for the continued operations of the project.

92.5 Failure by Government to settle its commitments Government has not paid its commitment towards the project to the tune of UGX.32.276 billion as indicated in the table below. The amounts government owes the project, especially the assets of Consolidated Properties Ltd and those incurred in supporting the Uganda Air Cargo that was taken off the divestiture list and reverted to the Ministry of Defence has not been paid. These commitments had been agreed upon however management deliberation with government has not been fruitful.

Entity Amount (bn) Uganda Air Cargo Corporation 8.230 Mandela National Stadium 0.649 Consolidated Properties Ltd 23.397 Total 32.276

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Government committed to pay the debt of URC land in Nsambya set at UGX.69.524 bn four (4) years ago. However Treasury has not recognized this debt in its books to date.

92.6 Irregular Transfers from Divestiture Proceeds Account to Operations account The Public Enterprise Reform and Divesture (PERD) ACT under Sec 26 specifies to the minister responsible for finance how proceeds of divesture in the divesture account is expected to be utilized to meet any present or future costs, expenses or liabilities resulting from divesture of that enterprise.

Contrary to the above guideline UGX.3.2 bn was transferred from Privatization & Utilities Sector Reform Project (PUSRP) –Divestiture Accounts to PUSRP – Operation Accounts to meet operational expenses before the completion of payment of terminal benefits. This is not only contrary to the provisions of the Act but is also likely to affect the funding of divesture expenses resulting into avoidable litigation costs.

I urged management to desist from this practice.

92.7 Liabilities (i) Current Liabilities

The ability of the project to continue as a going concern and the ability to settle its liabilities as they fall due depends on financial support from Government. However, this has not been forth coming for the last 3-4 financial years. It was noted that the entity has had nine (9) overdue creditors that had accumulated to UGX.8,522,002,014 compared to UGX.5,172,002,013 as at the beginning of the financial year. Indeed there was no movement in some of the creditors while new creditors were also realized during the year. Non payment of the liabilities may result in legal action against government.

(ii) Assumed Liabilities

Similarly assumed liabilities from ten (10) companies had accumulated to UGX.9,242,000,000 as at the end of the year. These liabilities could not be supported yet they have stood in the accounts for a long time. Besides, all the affected companies had been divested and some are not operational.

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Management explained that these liabilities are historical and were captured from certified accounts of the divested enterprises.

I advised management to liaise with Treasury and ensure that the liabilities are written off.

92.8 Contingencies Nine (9) pending litigation cases worth UGX.135.625 bn are still in the courts of law. Most of the cases relate to non-payment of retrenchment packages to former employees of disposed entities. At the time of writing this report, these cases had not been resolved; Management had disclosed the contingencies in the financial statements on grounds that they are likely to crystalise. GoU had promised to take over the responsibility of paying off the claims from former workers of UEB and URC in respect of pension‟s liability. Since these cases are still in court, government promises have now stalled. The cases are summarized in the table below.

Name Case Summary Billions Uganda Electricity Board This entity was placed under liquidation in 2006. 19 (UEB) All retrenched staff were granted immediate pension based on basic salary however, this was challenged on grounds that computation should have been based on consolidated pay. John Waligo & 175 others Vs 40 UEB Apollo Hotel computation, Some staff had been excluded from the pay 6 Sheraton Hotel Ltd. register on grounds that they were not employees of the Hotels at the cutoff date in 1982. These employees have sued and are claiming 6 bn. URC Arose as a result of the Corporation remitting 8.982 monthly contributions based on basic salary and not the gross monthly emoluments. The claim amounts to UGX.8,752,301,200 Coffee Marketing Board Ltd 264 claimants who were terminated but not 12 (CMBL) sufficiently paid severance benefits Uganda Post Involved 800 former employees who are claiming 18 Telecommunications Co. pension entitlements from the company. (UPTC) Management sought legal advice which confirms that the employees were entitled to gratuity and not pension. Kilembe Mines Ltd This case relates to breach of mineral exploration 30 agreement. 365

Name Case Summary Billions Diary Corporation Limited Compensation for deprivation of land – 0.3 UGX.300,000,000. Kaija Mugenji Under payment of terminal benefits of 0.343 UGX.343,000,000

Uganda Transport Company 1 Limited 135.625

92.9 Disposal of Uganda Railways Properties 92.9.1 Properties not offered for Disposal UGX. 605,000,000 According to the valuation report made by S-M Cathan Property, 218 properties with a total value of UGX.16,478,000,000 were valued for disposal. However, it was noted that only 201 offer letters were issued in respect to these properties leaving out 10 properties worth UGX.605,000,000. In the absence of offer letters, I could not confirm the status of these assets.

Management explained that some of the plots were under disputes while others did not attract positive bidding.

I urged management to offer all valued properties without disputes to the public for disposal.

Properties without offer letters

Size(Hec Remarks FRV Plot Number Location Amount tares) This was an Freehold empty plot, Register Plot 19 Butiaba Masindi advertised but did 0.283 105,000,000 Volume 1377 Road-Masindi Estate not attract Folio 4 positive bid. Still a property of URC. This was an Freehold empty plot, Plot 3-13 Register Masindi advertised but did Locomotive 0.524 195,000,000 Volume 1377 Estate not attract Road-Masindi Folio 21 positive bid. Still a property of URC. Freehold Plot 1-4 Railway Masindi Has ownership

Size(Hec Remarks FRV Plot Number Location Amount tares) Volume 1377 URC and Masindi Folio 1 Hotel Management. This is an encroached plot by Kabalenga Freehold Secondary Sch. Register Plot 5 Railway Masindi 0.361 105,000,000 URC Legal team Volume 1377 Close-Masindi Estate commenced on Folio 2 the process to rectify this anomaly. This was an PLOT 8 Freehold empty plot, PLOT 2 DANA TOBACCO Register advertised but did MUDDOLA ROAD 0.034 33,000,000 Volume 1428 not attract CLOSE,JINJA JINJA Folio 10 positive bid. Still a DISTRICT property of URC. This was an PLOT 8 empty plot, but Freehold PLOT 8A1 TOBACCO with an Register TOBACCO ROAD 0.328 144,000,000 encroacher – URC Volume 1428 ROAD,JINJA JINJA Legal team is Folio 21 DISTRICT pursuing the matter. This plot was leased to UEDCL and is currently occupied by UMEME Offices. All the necessary information regarding the Freehold status of the Register property was Volume 1377 Plot 2 Butiaba Masindi availed to the Folio 9 Road Estate 140,000,000 Auditors. This was an empty plot, advertised but did not attract PLOT 59 RING positive bid. Still a ROAD GULU GULU 0.112 55,000,000 property of URC. This was an PLOT 57 RING empty plot, ROAD GULU GULU 0.121 60,000,000 advertised but did 367

Size(Hec Remarks FRV Plot Number Location Amount tares) not attract positive bid. Still a property of URC. This was an empty plot, advertised but did not attract PLOT 55 RING positive bid. Still a ROAD GULU GULU 0.139 68,000,000 property of URC. TOTAL 605,000,000

92.9.2 Delayed payment for properties due to pending Court decision Properties worth UGX.2,044,750,000 had not been paid for pending legal suits as individuals to whom these properties were offered opted to go to court due to various reasons as indicated by management in the table below. The status of the court proceedings could not be established at the time of writing this report. There is a risk that the plots may be encroached on by squatters. In addition, the revenue from disposal of the above properties is likely to take long to be realized yet land is obviously appreciating.

Management explained that they are engaging URC Management to ensure further safeguard of the properties.

Management action on the matter is awaited.

Table 4 Property Size Price Offered Remarks Code In To Purchaser Acres RES/002/01/11A Plot 3.676 496,000,000 Plots were partially paid for 53,55,57 (Ugx. 245 M) but the bidder and 61 could not complete payment Malikisi due to the on-going personal court process RES/005/01/11 Plot 332 0.5 407,000,000 Tenant forfeited the 10% of the Kibuga offer price (Ugx. 42 M), Block 24 however attempts to evict the Lungujja tenants resulted into a court

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Property Size Price Offered Remarks Code In To Purchaser case – tenant petitioning Court. Acres URC is following up the case. RES/001/01/11 Plot 1,2A,10 2.9976 253,000,000 Plots are encumbered by the BUTIABA landing site community – URC is PORT yet to resolve the matter with the District Land Authorities /001/01/11 Plot 4 2 318,750,000 Tenant forfeited the 10%; Tongue petitioned the IGG and later Avenue took the matter to court on the Tororo RES basis of high offer price. Plot 165,000,000 Property fully paid for, but with 25,Eden some challenges to enable URC road give vacant possession to the Buyer due endless Court Injunctions Plot 240,000,000 Matter is in Court - court 27,Eden injunction road

Plot 165,000,000 Property fully paid for, but with 25,Eden some challenges to enable URC road give vacant possession to the Buyer due endless Court Injunctions TOTAL 2,044,750,000

92.9.3 Inadequate follow-up on payments for disposed properties A review of the valuation report for non-core assets of URC, indicates 218 non-core assets were valued for disposal worth UGX.16,478,000,000. However, it was revealed that out of these properties, 21 purchasers had made full the payments due to them amounting to UGX.1,330,240,000 while 16 purchasers had made partial payments amounting to UGX.188,490,000.

It was also observed that 9 out of 16 purchasers who made partial payments for their properties have only made payments which are less than 11% of their expected purchase price. In light of the above, PU appears not to be making adequate follow-ups in respect of the disposed properties. There appears to be no adequate mechanisms in place to enforce payments from purchasers.

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I advised management to put in place an effective revenue collection mechanism that is aimed at ensuring that the revenue from the URC disposed properties is fully collected.

92.9.4 Purchasers who have not forfeited their properties after non-payment According to the terms and condition 8 indicated in the offer letters, sitting tenants who failed to pay for their properties within 70 calendar days were required to forfeit 10% deposit. It was observed that management has not taken any action on these sitting tenants who failed to pay their obligation worth UGX.5,957,500,000 despite the expiry of the grace period.

I advised management to ensure that the provisions of this agreement are adhered to. These assets should then be disposed off again through a transparent method.

92.9.5 Unvalued Property A review of the valuation report revealed that property located on plot 1-4 railway close in Masindi district was not valued by the valuer as his valuation report did not contain details of valuation of this particular property.

Management explained that the above plot was not valued because of pending dispute over ownership between the management of Masindi Hotel and URC. The property is currently being occupied by the Manager of Masindi Hotel who alleges that it belongs to the hotel. URC is yet to resolve the matter. Management promised to follow up the matter with URC until it is resolved.

There is a risk that the ownership of this property could have changed without the consent of PU.

Management action is awaited.

93.0 PRIVATIZATION AND UTILITY SECTOR REPORM PROJECT- OPERATIONS ACCOUNT – YEAR ENDED 30TH JUNE 2014

93.1 Un-disclosed performance highlights for the FY 2013/14 It was observed that management did not have a clear workplan that spells out its activities and outputs to be achieved during the year. Further, it should be noted that in 370

the past 3 years, management spent a total of UGX.18.69bn out of which UGX.13.27bn (71%) were employee costs. Details in table below:

Particulars F/Y 2012 F/Y 2013 F/Y 2014 Total Total Annual Expenditure 6.72bn. 6.33bn. 5.64bn 18.69bn. Total Annual Employee Costs 5.05bn. 4.37bn. 3.85bn. 13.27bn. % of Employee Costs to Expenditure 75.15% 69.04% 68.26% 71.0%

In order to justify the expenditure of public funds and their continued existence, management was expected to have come out clearly with timelines within which they intend to achieve the set outputs outlined in the project objectives.

Management explained that divestiture activities are not quantifiable on an annual basis because they are more policy driven than by the market or demand.

I advised the Accounting Officer to ensure that clear workplans are produced to enable measurement of performance on an annual basis.

93.2 Contracts without Solicitor General’s approval According to Article 119(5) of the Constitution, all contracts above the threshold of UGX.50m are supposed to be approved by the Solicitor General. During the year, UGX.60,917,794 million was paid to a hotel to cater for Kilembe Mines Limited (KML) bid evaluation retreat but approval from the Solicitor General was not obtained.

Management explained that due to the nature of the emergency and the time constraint, it was not possible to obtain Solicitor General‟s approval.

I advised the Accounting Officer to always ensure compliance with the set procurement procedures and laws in all future similar procurements.

93.3 Un-disclosed payables-UGX.16,500,000 Management asserts that the financial statements are prepared on a modified accrual basis at the year-end. A review of the payments for the Divestiture & Reform Implementation Committee (DRIC) revealed that a sum of UGX.16,500,000 in form of retainer allowance due to Attorney General‟s Representative on DRIC remained

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outstanding as at the close of financial year 2014. The above outstanding amount was not disclosed under payables in the financial statements.

Management explained that they are technically aware of the arrears but the amount could not have been practically settled or disclosed without an enabling instrument from the Ministry of Justice and Constitutional Affairs.

I advised the Accounting Officer to liaise with the Ministry of Justice and Constitutional Affairs to ensure that all existing arrears at the year end are properly disclosed.

93.4 Irregular payment of annual subscription fees UGX.22,052,504 was paid on behalf of staff of the legal department being professional annual subscriptions. However, it was noted that whereas the practice is well intentioned, there is no policy in the human resource manual that caters for payment of such fees. In addition, it was noted that the payment was restricted to only the legal professionals without due regard to other professionals like qualified accountants.

Management explained that enhancements for training and other benefits as a matter of policy are considered on a case by case basis given the lean structure at PU but promised to put in place an appropriate policy to include all professionals.

Management action is awaited.

94.0 PUBLIC PROCUREMENT AND DISPOSAL OF PULIC ASSETS – YEAR ENDED 30TH JUNE 2014

94.1 Funding gap The Authority budgeted to receive transfers from Treasury worth UGX.8,785,047,751 but only UGX.8,138,518,006 was received, creating a funding gap of UGX.646,529,745. The shortfall directly affected the Authority cash flows and funding of core activities as indicated hereunder.

94.2 Research group conference Under the activity of strengthening PPDA‟s strategic partnerships, the Authority had planned to host The East African Procurement Forum and the International Public

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Procurement Research Group conference in November, 2013 but this activity was not undertaken.

94.2.1 IT hands-on training in PDEs

The authority had planned to carry out hands-on training in 80 PDEs on posting tender notices, best evaluated bidder notices and contracts awarded on to the tender portal. However, this was not done. Management attributed this to insufficient funds caused by budget cuts.

Management explained that the Authority consulted PS/ST‟s office and was advised that whereas PPDA is a protected vote, whenever the Government suffers poor revenue performance, the release of funds to protected votes is only guaranteed up to 90% of the approved budget.

I advised management to continue liaising with the responsible authorities to ensure that the budgeted funds are released.

94.3 PPMS implementation and functionality The Procurement Performance Measurement System (PPMS) was developed to enable the regulator (PPDA) to assess the effectiveness, efficiency and transparency of the public procurement and disposal system in Uganda. A review based on the expected outputs was undertaken.

A comparison of procurement contracts in the manual quarterly procurement reports against the PPMS system generated reports indicated that a significant number of contracts were not captured in the PPMS system. For instance, Mbale Municipal Council and Referral Hospital had contracts with values of UGX.10,443,301,039 and UGX.441,120,950 respectively which had not been captured in the PPMS system. In addition, Jinja Municipal Council did not capture 21 contracts in the PPMS system with an overall value of UGX.1,918,387,123. There is a risk that procurement contracts cannot easily be monitored by the regulator (PPDA) since they are not captured into the PPMS system.

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Management explained that monthly and quarterly reports by entities will now be generated and printed off the PPMS. Communication to this effect had been made to entities.

The above action is awaited.

95.0 UGANDA BUREAU OF STATISTICS- YEAR ENDED 30TH JUNE 2014

95.1 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 Bureau‟s expenditures revealed that management of the entity charged wrong expenditure codes to a tune of UGX.198,798,532. Such a practice is contrary to the intentions of the appropriating authority and leads to incorrect reporting.

I advised management to avoid such a practice and when necessary reallocations or virements should be done in accordance with the regulations.

95.2 Unaccounted for cash advances to districts for census publicity UBOS sought authority from the Accountant General to withdraw cash amounting to UGX.580,000,000 in respect of advances to 116 districts to enable the districts commence on the census publicity activities. Each district received UGX.5,000,000. The activities involved were among others carrying out sensitization meetings at sub-county level, conducting talk-shows and carrying out Jingoes for awareness creation. However, it was noted that out of the funds advanced, only UGX.490,000,000 was accounted for, leaving the balance of UGX.90,000,000 relating to 18 districts.

Management explained that it has since written to the affected districts whose accountabilities are awaited.

I urged the Accounting Officer to follow up the matter with the Chief Administrative Officers (CAOs) or institute recovery measures.

95.3 Funding gap of UGX.2,335,546,214 The Bureau had budgeted to receive transfers from Treasury worth UGX.71,935,460,693 for the year under review. However, UGX.69,599,914,479 was received, leading to a 374

funding gap of UGX.2,335,546,214. As a consequence, some of planned activities were not undertaken. These include:

 Dissemination of the Uganda National Panel Survey report which were reportedly still under data collection level.

 Under Population and Social Statistics, the entity had planned to establish the 2014 urban unemployment rate together with the household crime rates but these activities were carried forward to the financial year 2014/15.

 Under Macro Economic Statistics, the entity had planned to compile data on both informal and formal exports and imports and production of Local Government consumption estimates but this activity was not done.

 The department of Statistical Coordination Services had planned to develop and improve on gender statistics across the National Statistics System which activity was not affected.

 Under District Statistics and Capacity Building, UBOS has planned to update data at community level to facilitate public expenditure monitoring and analysis but this activity was not done.

Management attributed the failure to achieve planned activities the year to financial constraints mainly due to funding shortfall.

I advised the Accounting Officer to liaise with the Ministry of Finance, Planning and Economic Development to ensure that budgeted funds are released.

95.4 Lack of title of ownership to Statistics House on Plot 9 Colville Street The Uganda Bureau of Statistics (UBOS) office premises are housed in a self-owned building on plot 9 Colville Street, registered under property number K2A/4678 within the KCCA Central Division jurisdiction. However, it was noted that management does not possess the title of ownership for this property.

Management explained that the process of acquiring the land tittle is on-going and Uganda Land Commission had accepted management‟s request to sub-divide the plot in

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order to have a distinct title for UBOS property. In the meantime, the Ministry of Lands is in the process of carrying out the mapping and surveying.

I urged the Accounting Officer to ensure that this process is expedited and the title secured.

95.5 Procurements not recorded in the assets register A review of the schedule of assets revealed that the entity procured various assets during the year worth UGX.1,413,477,787 but these assets were not recorded in the assets register contrary to financial regulations. It was further noted that the assets register was not regularly up-dated to reflect the correct record of all UBOS assets at any point in time. Delays in updating the register may result into loss of assets without trace.

Management explained that they are in the process of updating the assets register.

I advised management to expedite the process without delay.

95.6 Accumulation of avoidable interest penalty KCCA billed UBOS a sum of UGX.192,548,580 for the period 2011/2012 and 2012/2013 for outstanding property rates during the period. Included in the bill was a sum of UGX.33,615,140 being interest for delayed settlement of the outstanding obligations. I regarded this interest nugatory expenditure.

Management explained that the delay was caused by lack of documents of ownership of the property, the basis upon which the interest was raised. However since ownership of property is being concluded, this activity has now been budgeted in the subsequence years.

I advised management to ensure that property rates are paid on time to avoid any interest accumulation.

95.7 Maintenance of an old motor vehicle fleet beyond set kilometres Section 6.1 of the fleet management policy guides that the lifespan of UBOS vehicles shall be (5) years from the date it starts running or a mileage of 250,000 kms whichever

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comes first. Section 6.4 further provides that one year before the disposal, the transport unit shall initiate the replacement process.

Contrary to the above, UBOS has continued to maintain a number of old vehicles whose mileage has gone beyond the set limit as listed in the table below:

Registration Number Odometer Reading at yearend Board of Surveys Remarks UAA 345E 361,679 Old/Serviceable UAA 346E 341,074 Old/Serviceable UAA 347E 352,740 Old/Serviceable UAA 351E 315,716 Old/Serviceable UAA 358E 317,195 Very Old UAA 737F 314,911 Very Old UAA 976E 253,800 Old/Serviceable UAJ 646Z 356,773 Old/Serviceable UG 0352F 323,183 Old/Serviceable UG 0452F 294,117 Old/Serviceable UG 0454F 292,253 Old/Serviceable

In addition, the ad-hoc Board of Survey report of October 2012 submitted to management had recommended the disposal of vehicles number UG 0383F and UG0384F however to-date, these vehicles have not been disposed.

Management explained that they have put in place a replacement policy but as an entity, they were constrained by the budget. The disposal process for the two vehicles has since been initiated. Management actions on the matter are awaited.

95.8 Failure to procure a Policy on Accident and Life Insurance for staffs Section 4.4.2 (c) of the UBOS HR Manual provides guidance on staff benefits and allowances on accident and life insurance. It specifically stipulates that the Bureau shall undertake accident and life insurance policies for all employees in accordance with the

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Workers Compensation Act, 2000 Cap 225. However, it was noted that to date no steps have been taken in implementing this requirement. This may demotivate staff thereby affecting their performance at work.

Management explained that they engaged a service provider for medical insurance however, implementation has been delayed due to resource constraints.

I advised management to liaise with the relevant authorities and ensure policy implementation.

95.9 Community Information System (CIS) The Community Information System (CIS) is a Government program that has been established to ensure that household and communities have access to and make use of reliable and meaningful data and information generated at household, village, parish and sub county. Specifically UBOS was responsible for;  Guiding the development and upgrading of a CIS comprehensive list of database and attributes.

 Designing CIS systems and supervising the printing.

 Training CIS field workers and data entrants.

 Supervising date collection.

 Validating CIS data.

95.10 CIS structures and management system Evaluation of the CIS structures and management system was conducted in a number of districts and the following was noted:  Coordination of CIS activities amongst the implementing partners and lower local government was inadequate as compliance with the MOU and CIS funds monitoring guidelines was low.

 MOU between UBOS and Districts was lacking in most cases.

 Lower Government officials and Local Councils were not well sensitized on the CIS programme. Some merely indicated that they heard of the programme two years ago. 378

 Reporting arrangement from village to parish to sub county to district then to UBOS is tedious and with inadequate facilitation, it has basically failed to work effectively.

 There was lack of regular progress reports on CIS activities from CAO as required by MOU section (1).

 There was also lack of clear management arrangement of District CIS office. The positions were well laid out in the CIS strategy document but without clear roles and responsibilities of each office.

Management explained that since its inception, the programme for Implementation of Community Information System (CIS) in the Local Governments (LGs) has been facing a challenge of limited funding to sustain the implementation in the districts. The district organisation structure and reporting will be streamlined and MoUs revised.

Management actions on the matter are awaited.

95.11 CIS Financial and Accountability Management System Each district was required to open a CIS district account for implementation of the program where proper record keeping like cash book, bank reconciliation, financial accountability statements, reports, approval and accountability for funds are required. A review of the CIS financial and accountability management system revealed the following:  By the time of reporting, about 90% of the CIS implementing district did not have active CIS accounts operational. Most of these accounts became inactive more than three years ago.

 Most of the Districts with active CIS accounts, did not maintain cash books and other financial related documents apart from having the accounts balances in their financial statements.

 Some districts had not accounted for the funds disbursed to them more than three years ago and yet the balances could not be found on the their respective CIS Accounts e.g. Kamwenge and Buliisa. A total of UGX.103, 597,998 is still outstanding to date.

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 Nebbi District claimed that the third tranche of UGX.7,600,000 from the Bureau has never reached their account and this is the reason for non-accountability of funds.

 There was no fixed assets register maintained for all the CIS Equipment supplied and installed. Their existence, location and operational status could not be easily determined and some of the equipment was not engraved.

 Regular financial reports on CIS were not being prepared and submitted to the Bureau as required by the MOU.

Management explained that the activity is less active in the districts because of less funding. Management also indicated that they have tried to collect the accountabilities by writing to the districts and will continue to do so.

I urged the Accounting Officer to continue to engage the districts to account for all outstanding advances or institute recovery measures. 95.12 Status of CIS equipment at District and Sub-County levels The responsibility of security, custody, maintenance, replacement, and ownership of the above equipment is with the respective Districts. A review of the management, conditions and status of the items was undertaken and the following noted:

 Some lower Local Governments were not connected to the electricity grids and were not given a solar system which has rendered the computer supplies to these sub- counties redundant.  There were cases where some solar systems were not supplied to date even when records show they were supplied e.g. in Kiboga in a sub-county called Dwaniro, no solar was supplied and its where about is not known.  A number of Districts reported that the Solar systems had since been stolen and no was action taken by management.  By the time of writing this report, some computers were missing, others were being kept safely in the cupboard, some spoilt and majority used for administrative work. We found no single CIS computer being used to run CIS activities.  About 60% of computers we came across were not engraved. This means they are prone to loss.

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 In some districts, sub-county chiefs are using computers in their homes since they did not have any source of power at the sub-county head offices. One chief in Kumi had put it to his personal use for personal gain.

Management promised to prepare a CIS asset policy to provide for safeguard and usage of the assets.

The action is awaited.

96.0 UGANDA BUREAU OF STATISTICS – SEBDEM II – YEAR ENDED 30TH JUNE 2014

96.1 Status of Accountability to the Ministries, Departments and Agencies (MDAs) It was noted that UGX.243,811,743 remained unutilized in the various accounts of implementing entities. It appears activities were not implemented as planned. Further UGX.74,903,000 advanced in the previous years was not accounted for as at 30th June 2014.

Management explained that recall letters for the unutilized funds have been prepared and dispatched to the concerned institutions. A follow up will be undertaken to ensure prompt response. Already, the Ministry of Education and Sports had responded by refunding UGX.47,573,500 on 30th July 2014.

I await on the outcome of management efforts.

96.2 Funds to be recovered from DFID by UBOS (a) Salary for an employee on PNSD Activities funded by DFID It was noted that the emoluments of an employee recruited to work in the project were paid from UBOS payroll as opposed to the payments being effected from project resources. The total costs in this respect amounted to UGX.42,153,125 including UGX.14,452,500 in respect of the financial year under review. The projects costs are therefore understated to the extent of salaries being paid on behalf of the project.

Management explained that DFID would be engaged in line with the MOU to have the matter resolved.

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The outcome of the above planned action is awaited.

96.3 Human Resources gap in implementing PNSD activities The programme recruited eight statisticians at the beginning to implement the PNSD activities in thirteen (13) MDAs, but the suspension of the financial aid caused uncertainties about the going concern of the programme and by April 2014, only three employees were on the programme activities. As a consequence, some MDAs were adversely affected in regard to the production of the Annual Sector Statistical Abstract.

Management explained that they were in the process to of recruiting and filling the man power gap identified.

I advised management to discuss the possibility of filling the Human Resource gap with the DFID team to enable implementation of activities.

97.0 UGANDA DEVELOPMENT BANK LIMITED (UDBL) – YEAR ENDED 31ST DECEMBER,2013

97.1 Significant delays in system implementation close out

The Bank implemented a new system, Rubikon, which went live on 25th March, 2014. Whereas the initial plan was to have the system closed out by 21st April 2014, the system close out happened on the 15th February, 2015. Significant delays in the system closure could be an indication of inadequate oversight and management of the system implementation process.

Management explained that due to the various system issues that were experienced when the Rubikon went live, the project steering committee took the decision to extend the closure of the project until all the identified issues had been addressed by the vendor.

I advised Management to have a robust system change management process in place before system introduction to avoid significant delays in major future projects.

97.2 Inaccurate revaluation of profit and loss foreign denominated balances.

I noted that the Rubicon system had not revalued the profit and loss transactions using the spot rate on the date on which the transaction occurred, however the system vendor 382

provided a fix for purposes of financial reporting for the year ended 31st December, 2014 and appropriate adjustments were effected in the general ledger.

Failure to revalue foreign denominated balances appropriately may lead to misstatement of their balances in the financial statements of the bank. This is also an indication that the monthly management accounts during 2014 were misstated which could result in sub optimal routine business decisions being made.

Management explained that this was a result of issues with the new Rubikon system however, this had been addressed by the vendor, tested and ready for implementation on the production environment.

I await management efforts in ensuring a permanent solution for revaluation of foreign denominated balances.

97.3 Variances in migration of the loan balances to the new system

The following exceptions from comparison of the Excel loans template as at 28th February, 2014 vis a vis Rubikon loans as at 1st March 2014 were noted.

Feb 2014 Loans (Excel Template) Mar 2014 Loans (Rubikon–Live system) Total No. of Loans 206 Total Number of Loans 206 Exceptions noted Number of items Different Principal due 35 loans Different Interest due 14 loans Different Total Arrears due 43 loans Different Amount disbursed 1 loan Different Loan start date 10 loans Different Loan Maturity date 194 loans Different Loan terms 14 loans Different Loan days in arrears 78 loans

Management has since posted adjustments to match the two positions. However, variances still exist between the listing and the general ledger as at 31st December 2014. Noted variances at data migration could imply potential misstatement of loans and related balances in the financial statements of the Bank.

Management explained that the variances arose from the migration of the bank‟s loan book onto the new core-banking system, Rubikon.

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I advised management to perform a thorough post implementation review of the system to ensure that loans and other balances were accurately migrated into the new system.

97.4 System inability to compute penalty charges accurately

It was noted that the Rubikon system does not accurately compute penalty charges. As such, management manually computes the expected penalties which are then posted to correct the interest penalty charge. Manual intervention is susceptible to human error. There is therefore a possibility that income arising from penalty charges could be misstated. In addition this is an indication of a system malfunctioning.

Management explained that the new core-banking system, Rubikon, computes interest arrears based on the loan scheduled balances and as a result of this, the system currently only accrues penalty interest on the current outstanding scheduled balances. Management further explained that for facilities that have carried forward outstanding accrued interest from prior scheduled balances, the system is unable to compute the penalty interest on both the current outstanding balance and the carried forward outstanding balances and the issue had been highlighted to the system vendor for resolution.

I advised Management to engage the vendor and ensure that the system is configured to accurately compute the penalty charges so as to perform as originally intended in support of the bank operations.

97.5 Difference between the loan listing and the general ledger.

I noted variances between the loan listing and the amounts recorded in the general ledger as at 31st December 2014. Details of the difference are highlighted below;

Details Amount (UGX) Loan listing 118,803,844,301 General ledger 118,743,359,287 Variance 60,485,014

Differences in the two financial records may lead to misstatement of the loan balances in the financial statements.

Management explained that this is a system issue as the General Ledger balance is a summation of the individual loan listing balances and should tally. Further, management

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explained that the variance of UGX.60million had been highlighted to the vendor for resolution.

I advised management to investigate and resolve the differences. In addition, periodic reconciliations between the listing and the general ledger should be undertaken and any variances promptly investigated and cleared.

97.6 Transactions created and supervised by the same user.

I noted loans and manual journal transactions that were created and supervised by the same user during the system implementation process. I also noted two loans where the system did not capture the supervisor ID. Details in tables below:

Creator Supervisor No. of journals Value (UGX) Davis,Ssimbwa Davis,Ssimbwa 634 1798792851.96 Racheal,Nagawa Racheal,Nagaw 12 1367365407.91 a Rita,Nakyeyune Rita,Nakyeyune 3 588477294.02

Loans with no Supervisor ID

Originator_ID Supervisor Postingdt Acct_No Txt_Amt _ID Simon NULL 6/17/2014 100114004306 6,915,255 Simon NULL 5/15/2014 100115003804 5,900,000

Lack of segregation of duties could lead to unauthorized transactions being processed and errors going undetected for long periods.

Management explained that this matter came up during the implementation period as the finance team tried to catch up with the back log after data migration and it has since been addressed by segregation of duties in the system. Further, management explained that a post closure system review is scheduled in the second quarter of 2015 and as it will ensure that the noted transactions were created in line with business objectives.

I advised management to review the noted transactions which were created and approved by the same user or where the approving user ID is not shown in the system to ensure that they were created in line with business objectives.

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97.7 Inadequate system User Access Administration

I reviewed the access revocation controls in place for users who exit the bank or go on leave and noted user accounts for staff on leave on Rubikon are not deactivated/ locked to protect them from possible illegal/ unauthorized access.

Delayed revocation of users who have left the bank or are on leave may lead to unauthorized access. Active user accounts belonging to users who have left the organization or are on leave may be used by individuals within the organization e.g. system administrators to perform fraudulent transactions and management would not be in a position to find accountability for these activities.

Management explained that revocation of user access to Rubikon for staff that have left is promptly taking place while for those on leave it was due to start in March 2015.

I await management‟s effort to address the above matter.

98.0 UGANDA INVESTMENT AUTHORITY – YEAR ENDED

98.1 Un-collected Outstanding Revenues Section 44(1) (a-c) of the Public Finance and Accountability Regulations 2003, places the responsibility for revenue collection directly with the Accounting Officer. However, revenue due to the tune of UGX.7,431,253,446 remained un-collected by the year end.

Management explained that investors were reluctant to pay because Government had not provided fully serviced land as stated in the signed agreements. UIA has now embarked on stringent measures to recover outstanding amounts for infrastructure development. Non-compliant debtors have been passed on to lawyers for prosecution.

I await the outcomes of prosecutions and other management efforts to have the outstanding revenues collected.

98.2 Un-Accounted for Expenditure Payment worth UGX.40,520,251 remained un-accounted at the year end due to lack of appropriate and relevant supporting documents. The expenditure related to fuel, hotels & workshops, travel inland, travel abroad, allowances and diaspora related costs. Funds may not have been put to the intended purpose. 386

I urge the Accounting Officer to ensure that appropriate and relevant supporting documents are obtained or consider recovering funds from the respective payees.

98.3 Un-Vouched Payments During the year, payments vouchers worth UGX.79,859,192 were not provided for audit examination. These were in respect of UGX.17,766,590 for staff emoluments and UGX.62,092,602 for payments for supply of goods and services. I was therefore unable to confirm the authenticity of this expenditure.

I advised the Accounting Officer to trace the missing payment vouchers and enhance the documentation and record keeping system.

98.4 Procurements Lacking Contract Committee Approval - UGX.24,246,017 Section 48(d) of the PPDA regulations 2003 requires that; in executing its powers under section 29 of the act, a contracts committee shall approve contract documents in line with the award decision. However, it was noted that contracts worth UGX.24,246,017 were performed without the approval of contracts committee. There is a risk that the entity may not have obtained value for money from the procurements due to lack of competition in the process.

I advised the Accounting Officer to institute measures to ensure compliance with PPDA regulations.

98.5 Human Resource issues 98.6 High staff turnover Best practice requires an organization to endeavor to attract, engage and retain high quality staff and optimally use their services. This can be achieved by putting in place attractive staff benefit schemes like, retirement benefits, bonus payments, innovations (Trainings), medical scheme, employee of the year and long service award to encourage retention of staff.

During the year, five (5) senior level staff left the authority. Details in the table below: Unit Designation Employment Date Lands Development Senior Investment Executive 02/03/2009

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Unit Designation Employment Date Inspector of works Industrial Parks development Contracts Specialist 01/03/2011 Small Medium Enterprise Director SME Division 18/05/2014 Lands Development CDM technical Advisor 01/11/2013 Office of the Executive Director Investment Executive Legal 17/02/2014

High staff turnover of mostly senior and technical staff may portray negatively on the corporate image of the authority. It also affects negatively on service delivery and increases the costs of recruitment and training of new staff.

Management explained that the staff left due to low salaries.

I advised management to explore ways of improving the current staff retention and motivation.

98.7 Staff establishment gaps As reported in my prior year report, the Authority‟s approved staff structure provides for 78 approved posts. However, only 52 (67%) were filled leaving 26 (33%) vacant. Details in the schedule below:

Departments/ Divisions Approved Filled Vacant Posts Posts Posts Executive Director „s office 13 10 3 Investment Promotion Division 14 5 9 Investment Facilitation & Aftercare 10 6 4 Division Land Development Division/KIBP 18 11 7 Finance & Administration Division 18 16 2 SME Division 5 4 1 78 52 26

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It was noted that the Investment Promotions division was the most affected with 14 approved posts, but only 5 were filled leaving 9 posts vacant. The land development division was equally affected with 18 approved post but with only 11 filled leaving (7) vacant.

Management cited inadequate funding as the major reason for not filling the vacant posts and that a new structure was developed and submitted to relevant authorities for consideration.

I advise management to continue liaising with the responsible authorities with a view of filling the most vital vacant posts to improve service delivery.

98.8 Industrial Parks Government through the MoFPED conducts annual performance assessments leading to the production of budget monitoring reports to provide accurate and timely information on the status of programme implementation. During the year under review, Industrial Parks under UIA was one of the activities monitored and reported upon.

According to the annual budget Monitoring Report, it was reported that the approved budget for the development of industrial parks for the year was UGX.2.69 billion and all the funds were released (100%). UGX.2.078 billion of the released funds were spent and the balance at the year-end was committed since running contracts were still being executed and others were under defects liability period. The following were noted:

98.9 Bweyogerere Industrial Park This park has a total of nine (9) plots and all had been allocated. The planned activities for the year included settlement of investors, maintenance of the road, installation of boarder makers, deployment of security and provision of water and electricity. The progress of these activities by the year end is explained below:

a) Failure to fully settle the Investors Although all the nine (9) plots were successfully allocated, only seven (7) were being developed as of 25th July, 2014.

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Management explained that there was a contest over the boundaries of one of the plots which is yet to be resolved but the investor was ready to develop the plot excluding the contested part. The other beneficiary has been formally encouraged to commence development.

I advised the Accounting Officer to continue encouraging development and facilitate dispute resolution to avoid delays.

b) Vandalization of Boarder Markers and Deployment of Security The boarder markers were installed in the financial year 2012; however, it was noted that these makers had been tampered with.

Management explained that the border markers initially installed in 2012 were tampered with by the local encroachers and many were vandalized by 2013. Management has therefore budgeted to install heavy duty makers which weigh over 400kgs each and are more difficult to remove. Security in terms of Police deployments has also been budgeted for in the F/Y 2014/2015.

I urge management to step up physical security in the park to avoid any distortions on the planned areas.

c) Non-Provision of Utilities to the Park During the year, UIA had planned to service the allocated plots with electricity and water to encourage beneficiary investors to make timely developments. However, it was noted that the utility facilities had not yet been extended to the park by the year end. Instead, some investors had utilized their own funds to extend water and electricity to their respective plots. It should be noted that UIA had promised these services as an incentive to investors to stimulate investments. Non-provision of promised services may discourage investor response to expected investments. There is a possibility that these investors may requisition for refunds of the costs invested in utility extension which might be more costly.

Management explained that due to limited budget, utilities were extended to those investors that achieved substantial level of development in a phased manner.

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I advised the Accounting Officer to continue sourcing for funds to provide the utilities to the remaining plots as mandated.

98.10 Development of a Master Plan and Compensation of Squatters in Mbale Industrial Park This 619 acre industrial park is located in Mutoto, Mbale Municipality along Tirinyi road. The planned outputs for the year under review were compensation of squatters, development of a master plan and conducting of an Environmental Impact Assessment (EIA). It was however noted that these activities had not been achieved by the year end reportedly due to inadequate funding. The compensation had been agreed at UGX.4.5 billion however, management had only budgeted for UGX.2.6 billion for the year. Compensations appear to remain an unfunded priority of UIA and this may result into loss of land and high legal costs.

Management explained that they have made several requests for funding but the funds have not been received

I advised the Accounting Officer to continue liaising with MoFPED for funding and have the planned activities undertaken.

98.11 Kabarole Industrial Park This land measures 100 acres which formerly belonged to the District Agricultural Training Institute in Kyembogo but was identified as an industrial park. The major outputs for the year included installation of border markers, preparation of a master plan and conducting an Environmental Impact Assessment (EIA). However, it was noted that these activities were not achieved during the year. The letter of offer of the land from Ministry of Agriculture Animal Industry and Fisheries (MAAIF) to UIA has not been received. I explained to management that without possession of the land, the process of demarcation of land and EIA cannot take place.

It was explained that management is still waiting for a response following written communication to MAAIF for a no objection to facilitate the land title process. Without a land title in place, there is a risk of encroachments which may result into costly compensations. 391

I advised the Accounting Officer to continue liaising with MAAIF and ULC with a view of securing a land title in the names of UIA to enable performance of the planned activities.

98.12 Un-achieved planned activities The Authority work plan and approved budget were reviewed to establish the budget performance levels during the year. It was noted that although most of planned activities were achieved, some activities were not completed as listed below;

 Push for adaption of the MSMEs policy by Cabinet and craft the implementation, monitoring and evaluation strategy for the policy. It was explained that this was at draft level.  Opening of a 4 km road in the Soroti Industrial Business Park. It was explained that it was still under procurement process.  Review internal financial control system to provide fairly risk free working environment. It was explained that the process has been initiated.

I advised management to liaise with the stakeholders and ensure that the planned activities are undertaken.

99.0 UGANDA REVENUE AUTHORITY – YEAR ENDED

99.1 CORPORATE SERVICES 99.2 Tax arrears It was noted that domestic tax arrears increased by 156% from UGX.120bn in 2012 to UGX.188bn in 2013 and by 167% to UGX.315bn in 2014. It should be noted that account balances for some tax payers did not register any movement during the year implying that they are increasingly becoming un-collectible. Details in table below:

Station 2012 2013 2014 Increase % Soroti DT 49,954,472 1,165,204,912 1,969,600,458 804,395,546 69 Mbale 114,828,962 1,950,602,469 2,830,321,540 879,719,071 45 Tororo 150,817,073 1,694,220,947 2,186,120,545 491,899,598 29 Busia 174,596,297 1,294,553,290 1,453,035,358 158,482,068 12 Entebbe 266,348,201 1,667,135,847 1,694,182,208 27,046,361 1 Jinja 1,014,432,901 6,186,728,773 7,474,506,315 1,287,777,542 20 Kampala South 3,169,440,039 13,333,090,257 14,497,303,842 1,164,213,585 8

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Station 2012 2013 2014 Increase % Kampala North 2,401,330,203 8,115,226,137 9,265,466,394 1,150,240,257 14 Kampala Central 21,411,539,394 57,632,481,976 67,370,031,119 9,737,549,143 16 Kampala East 4,704,699,453 6,969,301,466 16,476,780,422 9,507,478,956 136 Mukono 1,691,022,162 2,053,833,868 2,984,353,392 930,519,524 45 Medium Taxpayer 32,153,527,600 30,254,507,747 98,541,541,177 68,287,033,430 225 Office Large Taxpayer 43,911,108,643 40,264,708,800 69,963,071,820 29,698,363,020 73 Office

The current growth trend in the arrears is at 11% p.a. and its continuity creates a risk that the debt collection unit may fail to collect all the revenue arrears.

Management explained that they have constituted a reconciliation team that is currently reconciling the individual tax payer‟s ledgers with the view to establish the correct outstanding tax liability before action can be initiated.

I advised the Accounting Officer to expedite the reconciliation process and also strengthen and equip the debt collection unit.

99.3 Avoidable forex exchange loss URA maintains a foreign exchange bank account with BoU for the purpose of handling transactions denominated in foreign currency. The objective is to protect public funds from avoidable loss through taking advantage of lower BoU forex rates as compared with the open market rates charged by commercial banks which are profit driven.

During the year URA undertook to pay annual international subscription, procurements, trainings abroad, project counterpart funding and legal fees in foreign currency (USD), the equivalent of UGX.8,794,858,998. However, it was noted that these payments were made through commercial banks which led to a forex loss of UGX.230,296,801 which would have been avoided had the transactions been made directly through Bank of Uganda (BoU).

Management explained that the current Forex Bank accounts in BoU are restrictive to only project activities.

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I advised the Accounting Officer to liaise with the Accountant General and have a Forex account opened with BoU purposely for making payments denominated in foreign currencies in order to avoid similar losses in future.

99.4 Unimplemented Board recommendation on Double Taxation Agreements In the 244th meeting held on the 28th June 2013, the Board recommended that there was need to review the policy of signing Double Taxation Agreements (DTA) since there was a possibility of revenue loss due to application of reduced tax rates. It was also agreed that the Board chairman discusses the issue with the Minister of Finance, Planning and Economic Development. However, it was not possible to establish the level of implementation of this Board recommendation.

Management explained that currently Government has put signing of new DTAs on hold while the existing ones are undergoing review by the Ministry of Finance, Planning and Economic Development.

I wait the outcome of the reviews of existing DTAs.

99.5 CUSTOMS DEPARTMENT 99.6 Out of Court Settlements due to poor storage of seized goods A sum of UGX.88,558,149 was paid to two tax payers as an out of court settlement for damages. These legal obligations arose from seized goods under the enforcement division of Customs Department which were poorly stored leading to deterioration and diminution in the original values as explained below:

99.7 Compensation for damaged cement Records indicated that on 26th March 2011, URA enforcement team at Mbale seized a total of 532 bags of Tororo cement each weighing 50 Kgs destined for export to Southern Sudan. The cement was put on offer for auction but the owner appealed and was allowed to pay due taxes, penalties and change of auction status (withdrawal) fees all worth UGX.4,044,762 which was duly paid on 27th July 2011 to URA. However, on 28th July 2011 it was realized that the cement had solidified due to exposure to moisture

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and as a result, an out of court settlement of UGX.25,208,814 which is six times more than the taxes realized was paid to the owner.

Management explained that this was an oversight leading to a breach of procedures by the officer in charge of the station. The officer was sanctioned and de-seconded to UPDF and procedures to prevent occurrence of this scenario have been developed.

I advised management to circulate the development procedures to all staff to prevent future occurrences.

99.8 Missing seized fuel A total of 110,481 litres of petrol was seized by URA on 30th May, 2006. Accordingly, due taxes and penalties worth UGX.93,908,850 were assessed and paid by the tax payer. On the day of collecting the fuel, it was established that it was less by 9,733 litres. A sum of UGX.63,349,335 was agreed and paid to the owner as compensation.

A review of this transactions revealed that although taxes were collected at a rate of UGX.850 per litre, compensation was at a higher rate of UGX.6,508.72 per litre. The fuel lost was only 8.81% of the original seized quantity as compared to the compensation of 67.46% of the taxes collected. There was no documentary proof that the officials responsible for the loss were ever reprimanded. Failure to reprimand the responsible officers against such losses may continue to escalate the problem due to negligence.

Management explained that this was a case of fuel imported by a local fuel company in 2006 which was impounded by Enforcement at Malaba due to falsification of documents. The rate URA used to pay the importer was agreed upon using the court arbitration process.

I advised management to strengthen procedures for proper management and storage of seized goods to avoid compensation costs which are likely to escalate.

99.9 Outstanding assessed Customs entries Data obtained from ASYCUDA world system indicated that a number of assessed customs entries worth UGX.1,032,084,655 were outstanding. Also included in taxes is UGX.77,389,530 for importer (EUTAW) whose chances of recovery appear remote since this company cannot be traced according to reports. 395

Delays in accounting for the already assessed entries poses a risk of loss of collectible revenues and encourages accumulation of large volumes of low value transactions. It also affects revenue performance.

I advised management to account for all the outstanding assessed entries and ensure that they are managed in a timely manner.

99.10 Outstanding Transit Bonds (T1’s) Transit bonds worth UGX.38,661,815 which were destined to the customs stations of Kampala, Elegu and Ntoroko remained outstanding beyond the statutory period. Under such circumstances, management is supposed to either hold any goods in lien where the chance arises or call penalty to bond against the insurance covers executed by clearing agents to recover the collectible taxes.

T1s which are left un-validated for long periods pose a risk of loss of revenue due to the possibility of dumping of goods in transit.

Management explained that reconciliations of the outstanding amount are still on-going.

I urged management to expedite the reconciliation process and ensure that all outstanding amounts are fully accounted.

99.11 Outstanding temporary imports on CB10 Temporary importation is a procedure which allows qualifying companies to temporarily import machinery and equipment for use in Uganda for a particular contract or project. Import taxes are not paid on the equipment on condition that the equipment will be re- exported to its country of origin after its use in Uganda. Such imports have to be secured by execution of bond covers annually.

Temporary imports on CB10 with a bond value of UGX.275,607,767 were found outstanding with some dating way back to June 2011. There was no evidence to show that these goods were either re-exported and the respective bonds retired or were entered for home consumption on IM4 with the due taxes collected. Outstanding CB10s pose the risk of goods being dumped in the local market without payment of collectible taxes. 396

Although it was explained that penalty to bond was called on the insurance companies, it was established that a sum of UGX.60 million was on Excel Insurance Company whose operating licence was not renewed by the regulator.

I advised management to strengthen its system of using temporary imports on CB10 to ensure timely follow-ups and validations.

99.12 Outstanding Customs Taxes under MoUs In circumstances where a tax payer is unable to settle tax obligations at a go, a provision for payments to be made in instalments is available to those considered compliant in all tax matters. All requests are either authorised and approved by the Commissioner Customs or the Commissioner General through preparation of an MoU. It was noted that customs individual arrears under MoUs stood at UGX.18,405,355,707 at the year-end. However, further analysis shows general poor arrears performance during the year.

 For instance, arrears under warrant of distress only UGX.147,624,039 (4.16%) was collected during the year where the arrears reduced from UGX.3,548,515,405 in the previous year to UGX.3,400,891,366 in the year under review.  The companies dealing in electronics had UGX.6,129,852,371 and UGX.1,023,672,564 with no movement on the account for at least the past two years.

There is a possibility that these arrears may never be recovered.

I urged management to always ensure timely collection of all outstanding arrears and clearly indicate measures to be undertaken in collecting all the above arrears.

99.13 DOMESTIC TAXES DEPARTMENT

99.14 Failure to file tax returns and non-payment of tax by LTO registered tax 99.15 payers A comparison was made between the schedules of tax payments from Large Tax Payers (LTO) taxpayers for the financial year 2013/2014 against the LTO taxpayers‟ register as at June 30, 2014. It was noted that (67) non individual taxpayers appearing on the LTO

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register had neither filed returns nor made any tax payment throughout the financial year 2013/2014. Non-compliance among taxpayers results into revenue performance shortfalls.

Management explained that 13 of the taxpayers filed returns while 17 of them were assessed and penalized for non-filing and 12 taxpayers were deactivated.

Management indicated that this issue will become history after the introduction of the e- tax system which has made it easy for taxpayers to file returns and pay tax. Once a tax payer fails to file a return by the due date, e-tax automatically raises estimated assessment and the necessary penalties.

I advise management to strengthen the procedures further for proper tracking and management of tax payers with regard to filling returns and payments of all due taxes.

99.16 Inadequate management of DT- LTO Tax Arrears It was noted that (14) taxpayers with a total outstanding tax liability of UGX.4,062,276,544 did not attempt to make any payment towards settlement of their outstanding tax liabilities. This implies that the LTO compliance team did not enforce the taxpayers to gradually settle their outstanding tax liability.

Management explained that out of the defaulters identified, only 1 tax payer had paid taxes worth UGX.24,072,207, six (6) cases were under enforcement with the debt collection unit; and one (1) case is under receivership.

I urged management to put in place mechanisms aimed at ensuring that all the outstanding tax arrears are fully collected.

99.17 Existence of tax payers on the e-Tax system without valid contacts During registration on the e-Tax systems, it‟s a condition for tax payers to provide a valid phone number and e-mail address for the contact person. However, it was noted that the e-Tax system accepted to register taxpayers with invalid/non-existent phone numbers and without email addresses for the contact person. A sample of (19) tax payers was obtained from LTO tax register with a shared telephone number of 398

256999999999 between several un-related tax payers. There is a risk that the staffs responsible for registering the above tax payers may have captured inaccurate information into the system which may make it difficult for URA to effectively communicate or follow up on tax payers during enforcement.

Management explained that this was a result of relaxation of the system generated alerts during the tax papers registration exercise due to limited number of staff available for the post taxpayer registration exercise. Management is currently undertaking data cleaning exercises to clean up this data.

I urged management to expedite the data cleaning-up exercise to enable capture of accurate information into the e-tax system.

99.18 Irregular payment of taxes in instalments without formal MoUs There are circumstances where URA may allow instalment payments on application by the tax payer on approval by URA in form of Memorandum of Understanding (MoU). Contrary to this practice, it was noted that (89) tax payers under this category with tax arrears worth UGX.6,497,329,551 were accepted without allowing instalment payments. Allowing tax payers to make instalments payments without MoUs poses the risk of enforcement of collection in the event of default due to lack of a valid legal basis (MoU).

Management explained that at the time of the exit meeting, this process was on-going. So far 18 tax payers have signed MoUs, 14 taxpayers have had their MoUs forwarded to debt collection Unit for action.

I urged management to secure all supporting MoUs and approvals for the tax payers and ensure all instalment payments arrangements are entered into with signed MoUs.

99.19 Bounced cheques The URA debt collection unit is charged with following up on non-compliant tax payers especially those breaching the MoUs undertaken. When need arises, debt collection unit is required to forward un-collectible cases to the legal department for prosecution as an enforcement measure.

A review of the debt collection performance during the year revealed that cheques worth UGX.4,556,105,528 issued by tax payers under MoUs instalments were 399

dishonoured by various commercial banks on grounds of insufficient funds on the taxpayers‟ accounts. However, it was noted that there was no evidence to show that these tax payers were forwarded to the litigation division for prosecution. Delays in taking action for collection of such revenue may cause poor revenue performance.

Management explained that some of the cheques have been demanded and paid up and other cheques have been profiled for enforcement and prosecution.

I urged management to aggressively follow-up the culprits and ensure full recoveries are made.

99.20 Arrears management - Mbale DT A schedule for Mbale Domestic department tax arrears was reviewed and the following were noted:

99.21 Existence of un-registered taxpayers in Mbale DT station A review of the arrears list as at 30th June, 2014 indicates that the station had 76 tax payers with outstanding tax liabilities worth UGX.2,809,406,356. However, it was noted that the tax identification numbers (TINs) for these tax payers were not traceable in the e-Tax database. This therefore implies that the respective tax payers did not apply for the new TIN numbers which were introduced to enable proper and efficient monitoring, tracking, control and management of all taxable transactions.

Management explained that the un-registered tax payers are untraceable and they were inherited before e-tax. The tax payers were published in the shame list and no response was received. So far, 3 tax payers cleared their outstanding taxes amounting to UGX.5,024,134, four (4) tax payers closed business and one tax payer passed on.

I urged management to trace the remaining tax payers through the respective registered directors who could have changed business names but continue trading under other business.

99.22 Poor arrears management in Mbale DT Station 400

A comparison between the Mbale arrears list as at 30th June, 2014 with that of the prior year revealed that taxpayers with a total outstanding tax liability of UGX.2,820,065,019 did not attempt to make any payment towards settlement of their outstanding tax liabilities during the year. Some of these tax arrears have been long overdue. For instance, Reach Programme – Kapchorwa has failed to pay taxes worth UGX.36,038,020 since 2006. There was no documentation to indicate management actions in enforcing collection of these arrears.

This implies that the station compliance team failed to enforce taxpayers to gradually make payments towards settling their outstanding tax liability.

Management explained that four (4) cases have been served agency notices, while a number had been referred to the Compliance Headquarters for further management. Two businesses had closed and several cases were untraceable.

I urged management to devise mechanisms that are aimed at ensuring that taxpayers with outstanding tax liabilities gradually settle their tax obligations.

99.23 Omission of completed and assessed audit cases from the arrears list During the year, the Mbale compliance team conducted several tax payer audits. Concluded cases from such audits are usually assessed and demand notices served but in case the tax payer fails to make timely payments, they are included on the arrears list to enable better tracking, monitoring and collection. A review of this process revealed that (17) taxpayers with an assessed tax liability of UGX.478,644,886 were not included on the arrears list for the Eastern stations of Mbale, Soroti, Tororo and Busia Domestic Tax. There is a risk that the outstanding tax liabilities from these audited tax payers may not be recovered. The reported tax arrears for the station at the year-end may also be misstated.

Management explained that some tax payers had paid up their outstanding taxes while the outstanding tax for Local Authorities eliminated in line with the Financial Bill 2014.

I advised management to reconcile the position, update their arrears list to enable accurate disclosures and also collect all outstanding taxes.

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99.24 Entebbe Domestic Tax 99.25 False declaration of VAT by Spenah Beach Ltd A review of VAT returns established that a local company located in Entebbe irregularly declared only input VAT tax on purchases in its monthly returns submitted in the e-Tax system resulting into huge off-sets. It is a false declaration to omit output (sales) tax from the monthly VAT returns filed.

Management explained that they have instituted a special team to audit the Beach and Hotel sector in Entebbe due to the taxpayers‟ gross under declaring of VAT.

I await the results of the tax audit exercise.

99.26 Soroti DT Station 99.27 Lack of follow up on outstanding tax liabilities According to a comprehensive audit report issued on 16th January, 2014 in respect to Soroti Municipal Council Northern division, outstanding tax liabilities of UGX.65, 774,169 were established. However, it was noted that ever since the audit report was issued, a sum of only UGX.6,000,000 was paid leaving a long outstanding balance of UGX.59,774,169. There is no evidence to show that the station has made efforts to collect the outstanding tax. There appears to be laxity by the responsible officer in making the necessary enforcement.

I urged management to ensure that the station in charge makes a follow up on the above tax liability.

99.28 Nebbi DT - non-filling of tax returns by registered tax payers During the audit exercise, a comparison was made between the list of payments for Nebbi DT taxpayers for the financial year 2013/2014 and the Nebbi DT taxpayers‟ register as at 30th June, 2014. It was noted that (64) non individual taxpayers appearing on the NEBBI register had neither filed returns nor made any tax payment throughout the financial year 2013/2014. This may lead to increased non-compliance levels among taxpayers leading to revenue performance shortfalls.

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Management explained that 30 cases are untraceable and will be put in the shame list, 16 were traced and paid taxes, while 9 are under reconciliation and the rest were deregistered.

I advised management to expedite cases under reconciliations and also explore other means of identifying and locating the untraceable tax payers.

99.29 TAX INVESTIGATIONS 99.30 Tax evasion by a Telecommunication Company The URA investigations established that (85) customs entries had been wrongly classified under HS code 8517.62.00 which attracts a duty at a rate of 0% instead of HS code 8517.70.00 with a tax rate of 10% resulting into a tax liability of UGX.3,195,765,958. Accordingly, Tax Investigations in a communication dated 2nd September, 2013 informed the Telecom of the tax liability and Customs department was to ensure collection.

Management explained that UGX.784,668,651 was vacated after a reconciliation of the customs declarations with the company records. UGX.1,481,198,103 has been recovered leaving a balance of UGX.929,898,855 yet to be recovered.

I urged management to collect the outstanding balance as agreed by the two parties.

99.31 Under valuations and under declarations of taxes: 99.32 Steel products & batteries URA investigations established that the above firm undervalued both batteries and steel products declared. As a result, taxes worth UGX.184,569,783 and UGX.9,564,387 were identified in relation to Steel Products and batteries respectively. At the time of reporting the taxes had not been collected by the customs department.

I advised the Commissioner Customs to ensure that the taxes are recovered.

99.33 Motor vehicles importation It was also established that a number of motor vehicles were irregularly cleared through customs by a company. As a result, taxes worth UGX.352,895,930 were identified. This was a result of weaknesses on the part of customs staff in ensuring proper assessments.

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At the time of reporting the taxes had also not been recovered. I advised management to strengthen the process of assessment and valuation of taxes.

99.34 Under declaration of sales Analysis of tax returns filed by the above firm revealed that battery sales had been omitted during the period 2010 to 2012 resulting into tax liability of UGX.5,997,739,131. This was attributed to failure to conduct regular reviews by domestic tax audits and compliance. At the time of reporting, the taxes had not been collected.

I advised management to engage the debt collection unit to enforce recovery. I also advised management to include the outstanding amount in the arrears list to enable proper tracking and timely future follow-up.

99.35 PAYE tax obligations A review of the payroll by TID established that some employees were not included on the monthly payroll submitted to URA and monthly salary amounts declared to URA were lower than actually paid. As a result a tax liability of UGX.71,671,550 was established. In a letter dated 23rd October, 2013, the Commissioners Domestic Taxes was advised to issue necessary assessments and facilitate the taxpayer to settle the above tax liability. 99.36 Failure to recognize and collect tax arrears During the year, URA received information that one tax payer owned property whose value was disproportionate to incomes earned from his employment. Accordingly investigations were conducted and it was established that indeed the payer had not declared all incomes used in acquiring the said property to URA. As a result, an estimated tax liability based on un-accounted for bank deposits plus other incomes used to acquire assets of UGX.1,274,887,627 was assessed. However, it was explained that in a letter dated 14th April, 2014, the tax payer expressed inability to resolve the tax issue since all records were confiscated by Uganda Police.

Management explained that the client agreed to tax not in dispute of UGX.90,000,000, entered into an MoU for (3) instalments where he was paid a sum of UGX.30,207,921. The client also requested Tax Investigation Department (TID) to review the case.

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I advised management to expedite the review process and establish the final tax obligations.

99.37 Failure to collect identified taxes Tax Investigations identified some taxes worth UGX.14,283,535,738 which were not collected despite having been communicated to the respective collecting departments. It was further noted that the same arrears were not recognized and included in the respective departmental arrears schedules at the yearend.

Although management explained that some recoveries were made and the arrears schedule adjusted accordingly, supporting evidence of tax recoveries and adjusted schedules were not provided for verifications

I advised management to fully account for the above tax arrears by including them in the arrears schedule to enable proper tracking and collection.

99.38 Amounts forwarded for assessment not appearing in the arrears list In the period 2012/13, tax Investigation Department had identified tax worth UGX.18,978,555,355 after conducting investigation on various tax payers. In the year under review, it was noted that the assessed taxed were neither capture in the arrears schedule list nor collected. There is a risk that the identified taxes may not properly be tracked and monitored for collection purposes. Management explained that so far UGX.583,210,927 has be recovered, MoUs have been entered into with taxpayers for a sum of UGX.443,496,552 is under MoUs, while UGX.1,226,148,188 was forwarded to Debt Collection Unit for enforcement. The tax payers objected to a sum of UGX.1,049,639,363 and a balance of UGX.15,671,060,325 reconciliations.

I advised management to expedite the reconciliation and objections management processes and include the agreed amounts in the tax arrears schedule to enable proper tracking, monitoring and future follow-ups.

99.39 Non computation of interest in selected investigations The Income Tax Act and the Value Added Tax Act impose interest on tax payable/outstanding under sections 136 and 70 respectively. A review of the investigation reports revealed that whereas management imposed interest on the 405

outstanding tax payable, some of the investigations did not include interest penalty in the amount computed as liable and hence payable by the tax payer. I could not verify any reason in the investigation reports as to why interest was omitted in particular cases. There is a risk that management may lose revenue due to non-imposition of interest on outstanding tax.

Management explained that where interest or penalty is not computed upon completion of the investigation, it will be imposed before the assessment is sent out to the tax payer.

I urged management to avoid selective application of penalties and always ensure that all due interest is properly imposed in accordance with the law.

99.40 TOMS FIELD INSPECTIONS I carried out field inspections of five customs stations and the following were noted as per details in the table below:

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Station Audit Issue Management Recommendation Response CROSS Lack of shelter for impounded No response was Management should CUTTING motor cycles provided establish proper ISSUES  Several motor cycles impounded storage facilities at the for various offences at Oraba, stations to protect Arua, Moyo, Pakwach and Goli both the motor cycles and the URA corporate lacked sufficient appropriate image storage space.

Outstanding C32 Cases It was explained that I urged management (under TEVIS system) reconciliations are still to ensure that the  The C32 register had 458 on-going, however a exercise is expedited. vehicles still outstanding as of total of 160 have been 02/03/2015 Vurra (14), Malaba validated and 458 are outstanding as of (224) and Busia (285) 2/3/2015. respectively

LWAKHAK Use of seized motor vehicle The vehicle was I advised the HA for URA operations consigned to the Accounting Officer to  Motor vehicle number UAH Enforcement investigate the matter. 765Y had been seized for Headquarters of conveying contraband and was Eastern Region (Busitema) vide Cargo supposed to be auctioned. Receipt No 27226 of Instead the enforcement team 05/11/2014 for auction. replaced its number plate with UAB 661F to disguise its identity and was using it for its covert operations.

ORABA Un-secured land Management explained I urged management  URA owns land at Oraba that the fencing off this to urgently put a stop Customs Border Post which had land will be handled to further not been secured by way of next financial year encroachments and (2015/2016). secure the land by fencing. way of fencing and certificate of title.  Various transporters had started leveling the area opposite the office block for purposes of establishing a parking yard, which is an act of encroachment.

 Several kiosks and mud structures have cropped-up within the URA land.

GOLI Use of verification Bay for Management explained Management should impounded motor cycles that due to insufficient source for funds to  The station has a verification funds in the current have a separate bay specifically built for year, this will be shelter for impounded verification of goods whenever addressed in the motor cycles. financial year need arises but currently being 407

used for storage of impounded 2015/2016. motor cycles.

MALABA Under declaration and Explained that the audit The outcome of the outstanding assessed taxes on the imports by M/s audit exercise is  Enforcements report reviewed, Future Electronic Ltd awaited. physical counts and verifications started in February conducted on selected imports 2015 resulted into additional top up taxes of UGX.1,071,437,807 and penalties worth UGX.171,437,072.

 Only UGX.665,999,393 had been paid leaving an outstanding balance of UGX.576,875,486.

Un-accounted for Customs Management promised The promised Entries for Imports to investigate the origin management action is  Customs entries for (4) of the invoices during awaited. consignments of imports were the audit exercise. not assessed and the reason given for not making the assessments was that the declared values were higher than the invoice values presented.

Reconciliation of cargo Management explained Management should received vs what was that 33,995 declarations expedite the destined to Uganda have been accounted reconciliation process  Matching of ASYCUDA World, for and the balance of and fully account for ASYCUDA++, CURES and 4,994 entries still under the outstanding RADDEX databases revealed reconciliations. transactions destined to Uganda from that 38,989 declarations in Kenya. RADDEX had no corresponding ASYCUDA World, ASYCUDA++ and CURES declarations for the period July to December 2013.

 Although management explained that reconciliations are still on-going, inadequate controls to determine which cargo is not received in Uganda poses the risk of short landing and cargo smuggling leading to potential revenue loss.

BUSIA Poor State of Parking Yard at It was explained that Management action is Busia Millers management will awaited.  Busia Millers parking yard was engage Busia Millers to

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in a poor state with potholes have the matter and lacked drainage. resolved urgently since it‟s affecting many of  The area earmarked for dipping our clients. fuel had also been affected by the poor drainage and was not level with a risk that inaccurate measurements could be taken which may affect the results meant for comparison with the declarations.

Delayed Inspection of VAT Management Management should Deferment acknowledges that the ensure that timely  There was a (9) months delay discharge was late and inspections of VAT in validation of deferred VAT is working on the deferments are carried worth UGX.9,618,738 (ref automation of VAT out. deferment process. BSA/002/VT/ 2013) on chrome recovery plant and electrical panel board for UGX.53,437,435 given to Jambo Tannery (U) Ltd vide application dated 04/03/2013, entry number UGBUS/C10657.

MBALE Un-accounted for open entry Management explained Management should in the bond register that out of the original expedite the  A review of the bond registers amount of reconciliation process for bond warehouses numbers UGX.140,298,038, a to ensure that the W0140 (Trust) revealed an sum of above items are fully UGX.100,838,096 was accounted for. open entry for assorted goods paid and the balance of with total bond in force (BIF) UGX.40,697,242 is still values of UGX.40,697,242 that under reconciliation. was not supported by physical presence of items in the store or parking.

Lack of ASYCHDA Connection No response was Management should at Mbale Checkpoint provided. consider providing  The check point does not have ASYCUDA connection ASYCUDA connection, instead to this check point to each time the need to confirm enable effective operations. the goods in transit arises (depending on risk identified), the officer has to keep the truck waiting as he moves to the main URA offices, a distance of about 3km away.

Lack of motor vehicle for Management explained Management should enforcement operations that this will be consider allocating  The station has only one old addressed once they another better vehicle

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vehicle to cover a wide area yet get additional new in the meantime to it frequently breaks down hence vehicles that are being enable effective affecting the operations. procured under the enforcement existing finance lease operations in the area. arrangement with Capital Venture (U) Ltd. JINJA Warehousing of expired sugar It was explained that Management should  The stored sugar was due to the duty paid sugar refer this case to Tax expire in September 2013 as expired while stored in Investigations and per the letter from the the warehouse and where found Kakira Sugar Works has appropriate the Secretary General East African made plans to manage expired sugar be Community dated 22nd July the expired sugar in destroyed. 2103. accordance with accepted standards.  By the time of inspection (1st URA has alerted UNBS July 2014) 9 months after on the same in order expiry date, the sugar was still that they can take keen being warehoused with a risk interest in the that sugar unfit for human management of the expired sugar. consumption may be sold in the market.

Over stayed items in Management explained I advised management warehouse that the overstayed to complete the  Lifting machine no.308710441 goods were listed on exercise in view of the and motor vehicle no.T303 Want of Entry for statutory period. Toyota Cresta seized in 2010 auctioning. and 2011 respectively had over stayed in CPC Freight Services Ltd stores beyond the statutory period.

99.41 Review of Internal Audit Reports URA internal audit reports were reviewed and outstanding issues were noted as in the table below:

Audit Issue Audit Findings Recommendation Agreed Action Exemption During the years Management to Management to follow Regimes 2011/2012, 2012/2013 follow up the up the rest of the Management and 2013/2014, some taxpayers with the taxpayers with the Process Audit suppliers received Withholding Tax Withholding Tax payments from Agent to register the Agents for tax Mantrac from which listed potential registration and Withholding Tax was taxpayers and recover the taxes that deducted but are not recover the taxes. were unpaid if any. registered by URA for any taxes. This was contrary to the Income Tax Law. Kampala South A review of offset Management should Management to DT Region taxpayers revealed assess taxpayers and reconcile the variance

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Audit Issue Audit Findings Recommendation Agreed Action under declaration of collect unpaid taxes identified with the corporation tax sales in of estimated taxpayers and issue comparison with corporation tax of additional assessments monthly VAT returns UGX.5,063,640,825 where applicable. sales hence leading to estimated corporation tax loss of UGX.5,063,640,825 by 74 taxpayers.

Review the The lease held land The Government A list of lands owned management of files do not have the Valuers report is with no valuer‟s report acquisition and Government Valuer‟s expected for all land has been forwarded to renewal of land Report. obtained by URA both the Government titles under LSBA for financial accounts Valuer. declaration purposes in line with IPSAS requirements and also for making informed management decisions on aspects of land management. Review of A review of Taxpayers and their Customs to review the changes in CET transactions falling agents should be files and collect the arising from under the above HS asked to pay the underpayment if it is EACM Codes 8704.22.90 and under collected taxes. established that the pronouncements 8704.23.90 revealed vehicles were that vehicles were misclassified. charged either Import Duty of 0% or 10% yet they attracted higher rates. Review of It was observed that a The vehicles in Customs to review the changes in CET number of vehicles question should be vehicles in the arising from were cleared with recalled such that Appendix and use the EACM incomplete Verification proper GVW are chassis numbers to pronouncements Accounts. established. The establish whether they responsible taxpayers were misclassified. should pay the underpaid taxes Review of Sugar for industrial use Customs should Customs to changes in CET was cleared at 10% retrospectively retrospectively ask for arising from instead of the 2012 request the Council of the exemptions EACM CET rate of 100% or Ministers to approve pronouncements $200/MT yet there was the rates that were no legal document applied backing up the lower rates contrary to Section 140 of the EACCMA. The last EAC Gazette that remitted the rate 10 10% expired in April 2012. Review of A review of The amounts due Collect the taxes changes in CET transactions cleared should be collected relating to wheat flour,

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Audit Issue Audit Findings Recommendation Agreed Action arising from under CPC 450 (Duties from the relevant ink and Rolled iron EACM and taxes exempted taxpayers and steel. pronouncements for raw materials) showed raw materials Customs should falling under a number monitor these on a of HS Codes were daily basis using Case cleared at zero import ware Monitor duty yet they did not appear under the 2013/14 relevant Gazettes or if Gazetted, were required to pay Import Duty at 10%.

This was attributed to general exemptions given to text books and tyre manufacturers or errors made at the beginning of the financial year.

At the end of the audit, we were however not availed gazettes that gave general exemptions to textbook manufacturers or tyre manufacturers. The Gazettes provided gave specific HS Codes or manufacturers exempted. Review of The audit revealed The status of items Auction report to be Revenue that the auction status under auction should improved for future Collection Under of goods cleared or be complete, auctions and to be the Customs auctioned were not accurate & follow-up readily availed to other Auction Process appropriately effort documented for users on request presented on the accountability. auction schedules. For instance, a report schedule of goods auctioned in June & September 2013 reported some goods as sold although 75% balance not evidently indicated to justify this position. Similarly, there was no customised reporting of auction payments & status of items that

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Audit Issue Audit Findings Recommendation Agreed Action allows for appropriate audit trail & reconciliation. Audit of Malaba The URA Structure for The vacant positions Staff shortages will be Customs Station Malaba station requires at Malaba Customs addressed after 65 officers at the Station should be approval of the New station (attached filled staff structure by the Structure), Staff board. numbers stood at 55 officers by the time our visit.

Entebbe Cargo CPC 463 was wrongly Manager Entebbe The wrong application 2012 used in the clearance should give an of CPC to be amended of worn clothing for explanation as to why in the system and the UPDF worth UGX the goods were taxes collected where 30Billion. The personal cleared under CPC application was found effect facility was 463 yet do not qualify to be wrongly applied. abused. as personal effects

Rental Tax The analysis of rental Management should Manager Compliance Registration return declarations by sanction the LTO and Managers of Process Audit property owners and mentioned taxpayers‟ MTO, Kampala tenants revealed a big returns for an issue Central, East and variation between Audit, establish the south DT stations to what is declared by cause of the variance conduct desk audits tenants and property if any and raise and raise assessments owners. From a assessments where where issues will be sample of 30 taxpayers possible. A identified. reviewed revealed a countrywide variance of sensitization of UGX.27,237,232,847 property owners on as un declared rental their rental tax Income by land lords. obligations should be done. Rental Tax With the introduction Management to DT Manager Risk Registration of e-Tax dynamic ensure staff utilize should always extract Process Audit reports, Rental tax the available data on variances in declarations reports information on Tax to dynamic reports and are easily generated in be able to increase issue reports on e-Tax. From the compliance by quarterly basis. findings established, property owners that staff are not utilising are not disclosing rental related reports their rental income. to establish the fact that there is a high defaulting rate as Landlords are not declaring the rental income received and yet tenants are claiming rental expenses in their returns. Fleet Internal Audit noted Supervisor Fleet Unit The Fleet unit to Management that though the should liaise with the engage the service

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Audit Issue Audit Findings Recommendation Agreed Action Audit application FMIS had service provider to provider on the capability of set up enhance the enhancement of FMIS. monitoring due application for mileage for preventive monitoring of due maintenance, repair mileage of preventive cost per mileage and maintenance, repair fuel usage rates, these cost per mileage and had not been enabled fuel usage rates. in FMIS. Penetration In order to make it SSID should be coded IT to role this out by testing-Wireless difficult for hackers to or automatically 30th June 2015 and networks easily identify SSIDs disabled to improve have all access points and penetrate the security of named. organization‟s network, wireless network. it is recommended that access points are given SSIDs names that do not identify the offices using them. Attempts to detach office names from the access points has been made to Kampala region and upcountry stations are still using the station office name as names for access points. Penetration According to OWASP, All scripts should filter A new web application testing - Directory Traversal is a metacharacters from is scheduled for roll Webservers and vulnerability which user input. out where it is Web Applications allows attackers to anticipated that the access restricted security risks identified directories and execute in this finding have commands outside of been addressed. the web server's root directory.

A scan on the e-Tax portal revealed the existence of directory traversal in the following items. Affected items /ciraddinfo.do /general/file reader.jsp /openFile.do Penetration ICT and e-Tax A new web application testing - Various web errors management should is scheduled for roll Webservers and were disclosed within ensure that any out where it is Web Applications the e-Tax application unhandled application anticipated that the source code or other errors are trapped security risks identified files. This information and never displayed in this finding have could be used by to the user. The user been addressed attackers to make an should only see a educated guess about generic message

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Audit Issue Audit Findings Recommendation Agreed Action the application which contains environment type, enough information version and current to track the error configuration. In some within the application situations these errors logs. may indicate a weakness which could be exploited.

100.0 THE EAST AFRICAN TRADE AND TRANSPORT FACILITATION PROJECT- UGANDA REVENUE AUTHORITY (COMPONENT)- 30TH JUNE 2014

100.1 Failure to undertake a planned project activity According to the progress report accompanying the financial statements, business process re-engineering was one of the activities which had originally been planned for under customs department funded by (WB) EATTFP and budgeted at UGX.362,200,000. However, it was noted that this activity was not undertaken but funds were re-allocated to purchase a non-intrusive cargo tracking system. I sought for a no objection from the World Bank for the reallocation but this was not provided.

Management explained that following the up-grades in Customs IT systems in the region, project requirements changed and equipment procurement packages were revised.

I acknowledged the change in project requirement but advised the Accounting Officer to always seek a no objection from the World Bank before making such decisions.

100.2 Under-performed project activity Specialized training and development was one of planned activities under this project with a budget allocation of UGX.415,380,000 as indicated in the statements of physical progress report for the prior year. According to the prior year outputs status for this activity; some members staffs had been trained in specialized skills at a cost of UGX.18,831,000 and the budget balance of UGX.396,549,000 was for training in Electronic Cargo Tracking in the current year.

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However, it was noted that training in Electronic Cargo Tracking was not done as planned instead the budget amount was adjusted to UGX.18,831,000 and the status indicated as completed. The balance of the funds were then re-allocated towards purchase of the Disaster Recovery System (DRS) and Electronic Cargo Tracking System, but a no objection from the Bank together with the authority for the budget adjustments and re-allocation was not provided for verification.

I advised the Accounting Officer to ensure that in future, a no objection and authority for re-allocations and budget adjustments should be sought before such decisions are made.

100.3 Refunds of ineligible project expenditures-UGX.34,202,385 According to the statement of Receipts and Payments, a sum of UGX.34,202,385 was disclosed as refunds of ineligible expenditure. However, it was noted that ineligible expenditure was not budgeted for, which makes the refunds irregular and unauthorized. Expenditure of funds outside agreed areas is contrary to the financing agreement and could lead to sanctions.

I advised the Accounting Officer to always adhere to the financing provisions while spending project funds.

100.4 Un completed training by ECTS provider A contract to supply, configure, install, implement, train, commission and maintain the Electronic Cargo Tracking System (ECTS) was signed by B-Smart Technology and URA to provide training to URA staff as per the agreed terms of reference at a contract sum of US$5,246,205. It was noted that the service provider did not provide training in some stations in the East, West and Northern, where the system was rolled out. This was not in line with the signed agreement. Failure to provide training is tantamount to breach of contract and implying that the services were not fully rendered.

I advised management to engage the service provider and ensure that services are rendered as per the contractual arrangements.

101.0 UGANDA RETIREMENTS BENEFITS REGULATORY AUTHORITY

101.1 Mischarge of Expenditure

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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 Authority‟s expenditure revealed that the entity charged wrong expenditure codes to a tune of Shs.352,971,374. This constituted 7.5% of total expenditure of the Authority of Shs.4,695,432,329.

This practice undermines the importance of the budgeting process as well as the intentions of the appropriating authority and leads to misreporting.

Management explained that nine (9) out of the thirty one (31) activities were mischarged due to insufficient funds.

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.

101.2 Excess Expenditure A review of the expenditure ledgers and the approved budget for the year under review revealed that there was excess expenditure under the category of goods and services amounting to Shs.548,408,047.

The excess expenditure mainly affected items such as Advertising and public relations, Workshops and seminars, welfare and entertainment, printing and stationery and Travel abroad. In absence of the Authority to reallocate, the expenditure was considered irregular.

Management explained that the excess expenditure was retrospectively approved by the Finance committee of the Board at its first meeting held on 13th August 2014 (3 months after the end of the year under review).

I advised management to ensure compliance with the Treasury Accounting Instructions (TAI).

101.3 Revenue Shortfall The Authority‟s budget estimate for revenue collection was Shs.6,070,777,881 which included Government subvention of Shs.6,000,000,000 and Non-tax revenue of

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Shs.70,777,881. During the year, actual revenue received amounted to Shs.5,710,892,293 creating a shortfall of Shs.359,885,588 (6% of the total budget).

The Shortfall in revenue collection affected implementation of planned activities of the Authority such as procurement of vehicles and stakeholder engagement activities.

Management explained that the shortfall was a result of general budget cuts of the government subvention.

I advised management to liaise with Ministry of Finance Planning and Economic Development to ensure that the budgeted funds are received and spent as planned.

101.4 Staffing Gaps A review of URBRA‟s organization structure revealed that out of the approved 54 posts, only 15 are filled leaving 39 posts unfilled which represents 72% understaffing. Of concern were 5 key positions of the Directors of various departments.

Lack of adequate staff coupled with increased workload on the existing few staff may impact on service delivery and achievement of targeted outputs.

Managment explained that the vacant positions were advertised in January and February 2014, and oral interviews were scheduled for March 2015. The delay in recrutiment was caused by the overhelming number of applications received which necessitated procurement of a recruitment Agency whose procurement was rather lengthy.

I await the outcome of management‟s efforts to have all approved staff positions filled.

101.5 Absence of an approved strategic plan The budgeting process of the Authority should be based on the integrated link of the strategic plan and annual work plans to ensure effective service delivery. However, it was noted that the Authority does not have an approved strategic plan. At the time of reporting, the plan was in a draft form. In absence of a strategic plan there is clear lack of strategic guidance in achieving the objectives. There is a risk that the strategic objectives of the entity will not be fulfilled in the long run.

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Management explained that the delay in approving the strategic plan was due to absence of key personnel mostly the Directors of departments who are the implementers of the plan and whose input is critical at the preparation stage. The plan will be finalized as soon as the Directors assume duty.

I advised management to expedite the recruitment process and have the plan reviewed and approved.

101.6 Budget Performance The budget performance for the year under review revealed that some targets were not achieved despite release of funds for the vote functions. Details are as below;

S/N Activity Expected Amount Actual Output Remarks output budgeted

1 Recruitment URBRA 210,000,000 Only 6 staff The recruitment of staff of staff hired have been hired process is still URBRA and ongoing with seven conducting staff on interviews secondment from various Ministries.

2 Rent and Payment of 328,140,000 Paid rent to UCC The Authority first Utilities rent and Property had office space at Services Ltd UCC Colville Street and has acquired bigger space at Plot 1 Clement Hill.

3 Procurement Service 571,957,881 2 motor vehicles Only 48% of the of vehicles vehicle were purchased budget was purchased consumed.

The inadequate performance partly affected service delivery and the appropriating authority‟s objectives may not have been met.

Management explained that the underperformance was due to budget cuts and a change in priorities during the year.

I advised management to ensure that planned activities are implemented in order to meet the Authority‟s objectives within the target time frame.

SECURITY SECTOR

102.0 UGANDA AIR CARGO CORPORATION

102.1 Lack of assets revaluation

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IAS 16 (revaluation model) requires that revaluations should be carried out regularly so that the carrying amount of an asset does not differ materially from its fair value at the balance sheet date. Uganda Air Cargo prepares financial statements applying IFRSs and therefore should have complied with the revaluation model. It was noted that the Corporation reported assets worth UGX.60,125,330,451 but the assets were not re-valued contrary to IAS 16.

Management explained that they have contacted experts in South Africa who are specialists in valuation of aircraft. The valuation exercise will be completed during the financial year 2014/2015.

I advised management to follow up the matter and have the assets re-valued in line with IAS 16.

102.2 Withdrawal of international Air Operator Certificate (AOC) According to one of the communication from Civil Aviation Authority dated 17th June 2014, it was noted that the Corporation had shortcomings regarding the Aircraft Operator and Aviation Maintenance Organisation Industry. It was noted that in order to avoid harming the entire civil aviation system of Uganda, the approved AOC and Operations specifications (OPSpecs) of all commercial and air operators was withdrawn. Management of UACC was asked to surrender the AOC and OPSpecs to the Authority and was advised to reapply for recertification. Revenue collections were grossly affected as the five (5) of its air-crafts were grounded because of disallowed flights across Uganda borders.

Management explained that they have submitted its manuals to CAA for evaluation. The entity was placed at Stage 4 of the 5 phase process of the AOC recertification exercise.

I urged management to continue pursuing the recertification exercise up to its conclusion to enable them perform their mandate.

102.3 Management of trade debtors It was observed that a sum of UGX.7,942,811,910 and UGX.9,278,342,911 remained outstanding as trade debtors at the end of the financial years 2014 and 2013 respectively. The following were observed:

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102.4 Non- performing debtors Non performing debtors worth UGX.2,834,018,304 were noted. There was no movement of the debtors‟ balances from the previous period (2013) indicating that no funds were collected from the Companies and Institutions, as shown in the table below. Failure to collect the outstanding debts deprives the entity of the resources required for proper running of the entity and its investment. Trade debtors USD UGX LC Aviation 1,000,000 2,496,000,000 RJM Aviation 23,100 57,657,600 Civil Aviation Authority 5,000 12,480,000 Foot Prints Travel Consultants Ltd 52,300 130,540800 Air Charter Services 11,982 29,907,072 Office Of The Prime Minister 22,630 56,484,480 Asante Aviation 2,212 5,521,152 Coco Travel 18,200 45,427,200 Total 2,834,018,304

Management explained that they have authorised debt collectors to recover LC Aviation outstanding debt which constitute the biggest percentage of the outstanding debt and hoped that the debt will be recovered before the end of the financial year 2014/2015. Demand notes have been written and in case the companies do not respond, management will engage the courts of law.

The outcomes of the promised actions are awaited.

102.5 Lack of a credit policy The Corporation is a profit making organization offering both cargo and passenger flight services to the public. Inherently, the business is risky in terms of non-credit worthy customers that may fail to make good their obligations. Accordingly, to mitigate such a risk of non-payment by the customers, the Corporation ought to have in place a documented credit policy. However, it was noted that there are no guidelines in place to determine credit rating and allowed credit limits. Lack of such guidelines may result in extending credit to customers who have not been evaluated and therefore not credit worthy.

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Management explained that the UACC Finance Manual provides some guidance on how credit should be extended and for what period. However, the manual is under review and hopefully this will properly cater for any eventual risks that come with credit extension.

I urged management to ensure that the process of reviewing the manual is expedited.

102.6 Un recovered WHT deductions It was noted that withholding tax worth UGX.395,598,528 was deducted by Ministry of Defence from invoices submitted for payment by Uganda Air Cargo since 1997/98 financial year. Management explained that since the Ministry of Defence did not remit the withheld taxes to URA then the taxes were supposed to have been refunded to UACC. The funds continue to be reflected in the financial statements as receivables.

Management explained that they have communicated to Ministry of Defence to avail the certificates in the Corporations favour but this has not been forthcoming for a while now. Management indicated that they will continue to demand the certificates.

I urged management to continue pursuing the matter and have the funds recovered.

102.7 Un remitted proceeds from sale of boarded off vehicles Uganda Air Cargo Corporation had three vehicles, all of which were disposed off by Ministry of Defence by public auction, but the proceeds from the sale have never been received by management of the Corporation. This is likely to affect UACC cash- flows and eventual performance.

Management explained that a letter was written to the Permanent Secretary, Ministry of Defence requesting for the proceeds of disposal but no payment has been received to date

I advised management to continue engaging the Ministry Accounting Officer, over the proceeds.

102.8 Budget Performance

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At the beginning of the year, Uganda Air Cargo Corporation had budgeted to collect USD.11,434,156 but only USD.11,016,861 was realized leading to a gap of USD.417,295. The shortage in revenue collections meant that some of the planned activities of the Corporation could not be undertaken. For example construction of office block and a hanger could not kick off. In addition, the Corporation failed to pay outstanding gratuity of UGX.479,673,673 owed to its employees.

Management attributed the gap to increased competition from other players, and grounding of five of its aircraft by Civil Aviation Authority.

I urged management to adjust their market strategies and also ensure that the conditions required for the issuance of the operators certificate are fulfilled.

102.9 Lack of business plan The Corporation has a fifteen year strategic plan for the period 2009-2024 within which there is a five year business plan (2009-2014). It was noted that the five year business plan from which annual activities undertaken by the corporation should be derived expired. The entity therefore did not prepare performance reports to indicate the planned activities, actual activities undertaken and the outputs derived. The absence of a business plan may adversely impact on the entity in the achievement of its objectives.

Management explained that the business plan was in draft form awaiting the appointment of a Board of Directors before it is finally approved. I urged management to ensure that a follow up is made to have a Board in place.

102.10 Inadequate office space The corporation secured some office space from CAA to accommodate engineering department, procurement department, sales and marketing plus internal audit and other offices at a monthly rent of USD.5,773 (an annual rent of USD.69,278).

However, it was noted that the offices appeared to be very small in size; the partitioned offices lacked proper ventilation and air conditioning and the lights had to be switched on throughout the day. It was also noted that there were no stores as items were being stored in a container in the compound. It was very clear that staff were working under unhealthy conditions which may affect their productivity.

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Management explained that the Corporation is planning to set up its own headquarters.

I urged management to secure a proper working environment. This will improve service delivery.

102.11 Expiry of term of Board of Directors. At the time of writing this report, it was established that the term of office of the Board had expired. Lack of Board is contrary to the Act establishing the Corporation and affects good corporate governance practices, which may negatively impact on the performance of management. It was also noted that the term for Board is only one (1) year and as such new members are to be appointed annually. This may pose a challenge to have new board members appointed in time.

Management explained that it had made several reminders to the Ministry of Defence to have a new Board appointed.

I urged management to continue pursuing the Ministry until a new Board is in place. Further, an amendment to the Act should be considered to have board terms extended.

NEC & SUBSIDIARIES

103.0 NEC HEADQUARTERS – YEAR ENDED 30TH JUNE 2014

103.1 Non-profit Making Investments Since 1989 when NEC was established, the following investments have been made to date:

Entity Amount invested(UGX.) NEC Works 4,504,657,083 NEC Farm Katonga 1,820,357,537 NEC Tractor Hire Scheme 2,682,301,572 NEC Tractor Project 586,513,872 NEC Luwero 27,095,515,000 NEC Kamba Ltd 250,000,000 NEC Pharmaceuticals 2,460,326,736

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Total 39,399,671,800

The investments were expected to generate profitable returns considering the magnitude. It was observed that apart from NEC Works, all other subsidiaries have never made any profitable returns since inception. For the year under audit the following losses were noted:

Entity Amount invested UGX.) NEC Enterprises Corporation 166,006,998 MEC Tractor Hire Scheme 187,437,641 NEC Tractor Project 300,176,349 NEC Farm Katonga 147,543,534 Luwero Industries Ltd 889,458,251 Total 1,690,622,773

Because of the poor rate of performance, management made a decision in 2010 to lease out NEC Pharmaceuticals under a joint venture to NEC Health World. However to date the joint venture has failed to take off. NEC repossessed assets to the tune of UGX.480,000,000 in the financial year 2012/2013. These assets were disclosed as NEC Investments at the end of financial year 2013 and 2014 and valued at the same amount. No depreciation was charged for the year contrary to IAS 16. This Plant has also been idle for a long time without generating revenue for the Corporation.

I was concerned about the purpose for which the investments were set. The initial objective has not been met, implying that the government capitalization funds were not put to proper use and value for money may not have been achieved.

Management explained that the investments have generally not been able to generate profitable returns because they are operating at low capacity. Management intends to improve production by; i) Purchasing additional equipment for NEC Construction, Works and Engineering Ltd and Tractor Hire Scheme. ii) Improving production efficiency at Luwero Industries Ltd by refurbishment of production lines and negotiating for more business in the Ministry of Defence which is the consumer of the military products and specialized services for the military.

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iii) Undertaking aggressive marketing to increase the sale of tractors and implements assembled by NEC Tractor Project.

iv) Diversifying operations of NEC Tractor Hire Scheme to include crop production, processing and supply of posho to Ministry of Defence.

v) Hiring our of NEC Pharmaceuticals Plant.

Management actions on the matter are awaited.

103.2 Unfilled position of Managing Director It was noted that the position of the Managing Director (MD) has been vacant for two years. The Corporation Secretary has doubled as Managing Director for this period, pending recruitment of a substantive MD. The failure to recruit a substantive Managing Director may hamper proper planning and management of the Corporation. Management explained that there was no board to effect the appointment after the position fell vacant. However after the appointment of the new Board, management will embark on the recruitment exercise.

I urged management to ensure that this exercise is urgently finalized.

103.3 Outstanding debtors It was noted that the receivables at the beginning of the financial year amounted to UGX.465,271,770. As at the end of the financial year UGX.356,644,270 was still outstanding. There appears to be laxity on the part of management on debt recovery as a number of debtors have been outstanding for more than twelve months showing no signs of likely recovery. I was more concerned with receivables from NEC Health World Pharmaceuticals and Stem Apparel where there was no movement in the past two or so years. In addition there was no provision for doubtful debts incase of failure of recovery. Debtors represent idle assets which hinders availability of funds for prompt service delivery.

Management explained that efforts to recover the debts have been hampered by some factors. The debt recovery of NEC Health World Pharmaceuticals has been difficult because the company did not take off. This was after the joint venture partner left the premises. Management had also written to Ministry of Finance regarding the Stem Apparel receivable but no response has been received. In the

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meantime the legal department is pursuing recovery of some of the debts. Recovery of the other subsidiaries will be effected once the revenue generation improves.

I urged management to step up the recovery efforts to have all the receivables realised.

103.4 Delayed payment of Statutory obligations It was noted that NEC headquarter had not made remittances in respect of NSSF and PAYE deductions amounting to UGX.41,000,900 and UGX.20,253,793 respectively to the statutory bodies. Delayed or non-remittance of statutory obligations attracts fines and penalties which may result in nugatory expenditure.

Management explained that it has negotiated with URA on the schedules for payment of the outstanding PAYE dues and was also in the process of negotiating with NSSF to avoid eventual fines and penalties. I advised the Accounting Officer to ensure that statutory obligations are paid whenever they are due.

103.5 Over-due creditors It was noted that the entity has had overdue creditors dating as far back as 1997 and at the end of the financial year; the amount had accumulated to UGX.305,102,724 compared to UGX.217,898,102 as at the beginning of the financial year. There was no movement in some of the creditors while new ones were incurred during the year.

Management explained that delay in settling the creditors were due to the poor cash flow which the corporation is experiencing but promised to settle them as the cash flow improves.

I advised management to always endeavour to pay the creditors to avoid unnecessary fines and litigation.

104.0 NEC CONSTRUCTION, WORKS & ENGINEERING YEAR ENDED 30TH JUNE 2014

104.1 Non remittance of statutory deductions-UGX.91,986,299 During the year, records availed revealed that management did not remit PAYE and NSSF deductions of UGX.58,447,959 and UGX.33,538,340 respectively to the statutory bodies. It was noted that the failure to remit statutory deductions is a

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recurrent problem as these arrears were noted to have been outstanding for several months. Non remittance of statutory deductions may result in payment of penalties which is nugatory.

Management explained that the failure to remit the deductions was due to insufficient funds however arrangements have been made with the concerned statutory bodies to avoid eventual penalties and fines.

I advised management to ensure that the statutory deductions are remitted without delay.

104.2 Accrued gratuity-UGX.217,401,511 It was noted that gratuity amounting to UGX.217,401,511 was still outstanding as at the time of audit. This amount is supposed to have been paid to a pension fund account in preparation for retiring employees. However todate, no pension fund account has been opened and this is likely to escalate the problem once staff start retiring. It is also likely that employees who have retired did not receive their entitlement contrary to regulations.

Management explained that poor cash inflows have derailed the gratuity payment. Management however promised that once the funds inflows improve, the account will be opened and commit the beneficiaries.

I urged management to devise ways and means and ensure this provision is implemented in line with employment terms of service and ensure that gratuity is committed and paid as and when staff retire.

104.3 Outstanding debtors-UGX. 46,761,594 It was noted that the receivables aging report had long outstanding amounts that have existed for more than five years. Failure to recover from debtors denies the entity funds to undertake planned activities. I explained to management that there seems to be laxity in following up of the debtors and ensuring their recovery. At the time of audit management had also not put in place a mechanism for writing off the debts that are likely not to be recovered.

Management explained that the affected debtors had been presented to the Board for write off.

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Management was advised to ensure adequate efforts for recovery have been made before write off.

104.4 Outstanding payables-UGX.224,297,396 The entity had an outstanding payable to the tune of UGX.224,297,396 as at the close of the year. Some of the creditors had been outstanding for more than 5 years. I explained to management that failure to settle creditors for such long periods could lead to litigation costs and could impact on the going concern of the entity.

Management explained that the history of some of the creditors cannot be traced however, this issue was presented to the Board of Directors who advised the legal team to write to the various creditors to provide evidence in form of documentation before action can be taken.

I advised management to expedite the process and have this issue resolved.

105.0 NEC FARM KATONGA-YEAR ENDED 30TH JUNE 2014

105.1 Uncertain status of NEC Farm Katonga NEC Farm Katonga Ltd is located in Kisozi-Gomba covering 17 sq miles and has approximately 600 cattle. The farm was leased to Iranian Investors for Agricultural production through a bilateral arrangement and the investors were supposed to improve and develop agriculture by introducing modern methods of agriculture and agro-processing. In addition, the investors were supposed to be granted a lease of 49 years provided that they perform to the satisfaction of NEC in the initial 5 years. The five years however expired in September 2013.

To-date, the investor has not exhibited capacity to fully utilize the land to fulfill the pre-lease conditions as agreed and has only cultivated approximately 230 acres out of the 17 sq. miles. Management of NEC has indicated likelihood to exercise its right of re-entry and rejuvenate the farm starting with 600 cattle on the farm. It was also noted that the land has been grossly encroached on. NEC Board of Directors had written to Ministry of Foreign Affairs seeking for a formal termination.

The farm‟s ability to provide services is in doubt as the land and cattle valued at UGX.225,300,000 appear not to generate any revenue for the farm.

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Management explained that the Board of Directors had resolved to keep the animals at the farm despite leasing of the land to the investor. The Board is also pursuing the option of co-existence with the investor at the farm considering that this was a diplomatic negotiation.

I urged management of NEC to continue with the diplomatic dialogue with a view of revamping the farm.

105.2 Over-due creditors It was observed that there was no movement in the creditors‟ ledger throughout the year with over 90% of the creditors being inter-subsidiary loans. Details of the creditors are in the table below: Creditor 2014 2014 Ministry of Defence 1,908,000 1,908,000 NEC Tractor Project 9,500,000 9,500,000 NEC Works 12,350,356 12,350,356 NEC Tractor Hire 1,600,000 1,600,000 Total 25,358,356 25,358,356

There seems not to be any steps being undertaken to ensure that the creditors are settled. Failure to settle creditors may have going concern implications on the operations of the farm. It may also hamper the entity operations and targets resulting into under performance.

Management explained that payment of intercompany loans was not effected to respective subsidiaries because the farm had to settle other obligations. Management will ensure settlement in the subsequent period once revenue generation improves.

Management action is awaited.

105.3 Encroachment on the farm land I carried out an inspection of the farm land and observed that the land was being encroached on. Some of the land had been fenced off by unknown persons with the intention to own it. Discussion with staff revealed that the animals belonging to the neighbours co-graze with the farm animals causing cattle disease and poor breeds. This has resulted into the death of the farm exotic breeds.

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Management explained that after the diplomatic negotiations which are likely to result into co-existence, the land will be fenced.

I advised management to expedite the negotiations and have the land properly secured and fenced off.

106.0 NEC-LUWERO INDUSTRIES – YEAR ENDED 30TH JUNE 2014

106.1 Overdue Creditors It was noted that the entity had overdue creditors that had accumulated to UGX.5,050,288,530 at the end of the year. Some of the creditors have taken long to be settled and the amounts involved are generally high. There seems not to be reasonable efforts taken to ensure that the creditors are settled. Failure to settle creditors may have going concern implications on the operations of the company.

Management explained that creditors worth UGX.202,146,786 were settled during the year and efforts were being made to settle the rest of the creditors.

I advised management to endeavour to pay the creditors to avoid unnecessary fines and litigation.

106.2 Outstanding Receivables It was noted that receivables at the beginning of the financial year were UGX.1,538,084,023 and new receivables worth UGX.296,096,472 arose while only UGX.36,836,472 was recovered during the year. This left outstanding debtors at the end of the year at UGX.1,797,344,023. Further UGX.419,084,666 was made as provision for bad and doubtful debts. The entity did not have a debtors‟ policy to govern the action for the management of debt within the legal framework.

Management explained that some of the debts have become irrecoverable as some debtors closed businesses while others died.

I urged management to ensure that efforts are made to have all outstanding debts recovered and also ensure that the process to have the irrecoverable debts written off is initiated through the proper means.

106.3 Missing funds-UGX.30,891,769

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It was observed that funds worth UGX.30,891,769 were found missing from Luwero Industries bank opened at Crane Bank. The account was opened with balance of UGX.157,776,489 as at 1st October,2012. The funds had been transferred from the entity account in National Bank of Commerce that had a credit balance of UGX.188,668,258 on 10th September, 2012. The balance of UGX.30,891,769 was not transferred and could not be traced. I raised this anomaly in my previous report to Parliament but no action has been taken to-date.

Management explained that they have written several communications to the Managing Director, Commercial Banking and Bank of Uganda requesting for intervention in recovering the said money and no tangible results have been achieved.

I urged the accounting Officer to continue pursing all the possible means and the missing funds recovered. 107.0 NEC TRACTOR HIRE – YEAR ENDED 30TH JUNE 2014

107.1 State of the tractors I carried out an inspection of the sites where the scheme's tractors operate to establish existence and status of the twelve (12) tractors. It was noted that most tractors had broken down or required repairs, causing delays in performance. Details are in the table below. Revenue expected from the hire scheme is greatly affected and creates redundancy of tractor operators. Registration Location Remarks

UAM 271 Q NEC Tractor Project Yard NEC Tractor Project is assessing the mechanical condition before repairs are carried out

UAM 287Q Kinyara Sugar works It is in sound mechanical condition

UAM 239Q -do- It had broken down

UAM 241Q -do- It is operational but not in sound mechanical condition

UAM 518Q -do- It had broken down but requires minor repairs

UAM 269Q Bweyale Broken down

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Registration Location Remarks

UAM 346Q Kakira Requires minor repairs

UAM 535Q Nec Tractor Project Requires major repairs

UAM 365Q Kakira Requires minor repairs

UAM 291Q Nakaseke In good mechanical condition

UAM 537Q Musita Requires minor repairs

UAM 208Q Nec Tractor Project Yard Broken down

Management explained that they have changed the approach in handling repairs and now uses the mobile team to perform routine servicing and minor repairs to ensure uninterrupted provision of services and generation of income. Management had also agreed on undertaking an aggressive tractor upgrading exercise that will involve replacing old problematic and inferior parts with new durable ones. They also intend to procure brand new tractors once the funds are realized. Management actions on the matter are awaited.

107.2 Non-remittance of Statutory Obligations It was noted that management of the entity did not remit statutory obligations (PAYE of UGX.10,891,860 and NSSF of UGX.39,429,078) to the respective entities. Delays to remit or non-remittance of the statutory deductions may attract penalties and fines resulting into nugatory expenditure.

Management explained that the failure to remit the statutory obligations was due to unrealized income but had now entered into an MOU with URA to clear the outstanding amount by December 2014.

I advised management to ensure remittance of these statutory obligations soon after they are deducted to avoid unnecessary costs on the entity imposed by the statutory bodies.

107.3 Outstanding debtors NEC Tractor Hire Scheme had outstanding debtors brought forward amounting to UGX.175,778,292 most of which relate to the previous periods. I was concerned with the Iran Agro Industries Ltd debt that has not been paid for the services offered at

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Katonga farm in 2012. The entity appears not to have taken any efforts to ensure that the debts are recovered. Besides, management has not put in place a debtors policy to provide guidance on the management of debtors, maintenance of debtors‟ records and collection arrangements.

Management explained that most of the debtors have been notified through demand notices through the legal department and those considered irrecoverable have been referred to the Board of Directors for action.

I urged management to continue pursuing the affected entities with a view of recovering the outstanding debts.

107.4 Over-due Creditors Included in the creditors ledger is an amount of UGX.243,479,699 and UGX.24,886,500 payable to NEC Tractor Project and NEC Headquarter respectively that had not been settled at the time of audit. The failure to settle these debts stifles the activities of the subsidiaries resulting into non achievement of the set targets of the year. For example, NEC Tractor Project sold three tractors to the Tractor Hire scheme in 2010 at UGX.313,497,699 but to date only UGX.243,497,699 has been paid. Management of the entity appears to be incurring debts without clear ways to settle them which may affect the future operations in case recoveries are enforced.

Management explained that NEC Tractor Hire scheme is currently servicing the debt of UGX.313,497,699 it obtained from NEC Tractor Project at a rate of UGX.20,000,000 per quarter spread over 16 installments and that other creditors shall be handled as revenue is generated.

I advised management to put in place measures to ensure that the payables are promptly settled.

108.0 NEC TRACTOR PROJECT – YEAR ENDED 30TH JUNE 2014

108.1 Un-sold Tractors Worth-UGX.1,768,946,400 NEC Tractor Project was incorporated to strengthen the tractor business with Iran Tractor Manufacturing Company (ITMCo), with the ultimate objective of establishing a tractor assembly plant in Uganda. The entity imports tractors and implements for assembly and post assembly operations and later sale to farmers and government agencies. During the year under audit, a total of 21 new tractors worth

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UGX.1,768,946,400 were imported from Iran. However no sale was registered during the year and the tractors have been lying in the showroom since then.

The project did not carry out advertising purportedly due to limited funding, resulting in nil sales during the year. Tractor spare parts and other tractor implements such as disk harrows, disc ploughs and sprayers were sold but earned only UGX.62,898,600 during the year. Failure to sale the tractors implies that resources were kept idle and the profit generating and self-sustaining objective of the subsidiary may not be achieved.

Management explained that sale of tractors and related implements were not done because of late arrivals from Iran. The tractors could also not be assembled on time because the assembly now is being done on a simple line however management has planned in the second phase to undertake construction of a major line on the land offered by UIA. These arrangements together with advertising will improve the tractor sales. Management also intends to widen the product base to include sale of machinery for other categories.

Management was advised to revisit its marketing strategy to ensure that the tractors and implements are sold. Management action on the future plans is awaited.

108.2 Outstanding Debtors-UGX. 599,626,244 It was observed that NEC Tractor Project Ltd had outstanding debtors from previous years of UGX.599,626,244 that remained unsettled during the year. A review of the receivables ledger revealed that no recovery efforts have been undertaken by management. There seems to be laxity on the part of management in ensuring that the outstanding debtors are collected. Management has also not put in place a policy to write off the debtors that are considered uncollectible. Failure to collect the debtors may impact on the ability to undertake its planned activities hence affecting the achievement of project objectives.

Management explained that the trade debtors were referred to the Board of Directors for strategic guidance.

The action by the Board is awaited.

108.3 Unremitted Statutory Obligations

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By the close of the financial year, management of NEC Tractor Project Ltd had not remitted UGX. 9,920,175 and UGX. 9,199,525 for NSSF and PAYE respectively to the responsible statutory bodies contrary to the law. Non- remittance of statutory obligations attracts fines and penalties which may result into nugatory expenditure.

Management explained that they expected to make sales soon and promised to remit the outstanding obligation to the relevant statutory bodies.

I advised management to ensure that the outstanding statutory obligations are remitted without delay.

108.4 Long outstanding loan with NEC Headquarter The project had an outstanding of loan with NEC Headquarter of UGX.260,792,900 which has remained un-cleared for long. There were no signs that this amount will be cleared soon. Failure to recover such a loan may hamper the activities and performance of the project.

Management explained that the loan under consideration has been referred to Headquarters management for clarification and reconsideration.

I advised management that the subsidiary should prioritize payment of creditors as they budget for the Project and ensure that the loan is cleared as it falls due.

PUBLIC WORKS AND TRANSPORT SECTOR

109.0 CIVIL AVIATION AUTHORITY – YEAR ENDED 30TH JUNE 2013

109.1 Government owed Receivables and Provision for Bad debts Government owes CAA UGX.48 billion and this debt has been outstanding since 2007. There was no documentation to confirm that Government was committed to paying the debt as there was no agreement/Memorandum of Understanding signed between CAA and Government of Uganda concerning the debt receivable from Government. This debt resulted from mainly rental arrears of different Government departments/entities (from different Ministries) housed in CAA properties.

I advised management to formalize (through documentation signed by both parties) the financial obligations between Government of Uganda and CAA if the Government debt is to be firmly followed up for settlement.

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109.2 Procurement anomalies for Legal Services During the year under audit, three legal firms represented CAA in different court cases. However, it was noted that the firms were not procured through competitive bidding contrary to the PPDA Act. Total legal fees for the year amounted to over UGX.3.4 billion. No contract/Agreement was signed between CAA and legal service providers prior to taking up the assignment. Legal fees annual expenditure was also above the budget by UGX.2,657,199,420. I was therefore not able to determine the fairness of legal fees charged.

Management explained that the PPDA Act did not provide for procurement of law firms. The Advocates Act itself did not allow advertising for individual cases. Legal firms were pre-qualified through an open competitive bidding process. The list of pre qualified firms were sent to legal department who determined the law firm to use depending on the nature of the case and the competence of the legal firm in that particular case.

I advised management to ensure that legal services were procured like any other services using the guidelines as contained in the PPDA Act/Regulations.

109.3 Review of Expenditure Budget

CAA Finance Accounting Policies and Procedures manual under chapter 3 sec 3.1.3 requires all spending to be within the budget limits.

A review of the budget implementation for the year revealed significant variations in certain items as noted below;

Code Description Amount per Amount per Variance Budget UGX Actual Expenditure UGX UGX 82-188 Shift Workers 0 582,432,000 (582,432,000) Meal

84-444 Roof Repairs 0 273,227,000 (273,227,000)

86-527 Terminal Benefits 1,844,206,000 2,974,580,504 (1,130,374,504)

82-183 Office tea and 367,408,000 596,241,381 (228,833,381) Meals

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81-125 Per Diem 102,080,000 219,684,404 (117,604,404)

81-220 Advertising & 910,000,000 1,445,553,091 (535,553,091) Publicity

82-181 Stationery 571,438,000 895,141,690 (323,703,690)

81-362 Legal fees 743,000,000 3,400,199,420 2,657,199,420

Total 4,538,132,000 10,387,059,490 5,848,927,490

Management explained that CAA had always budgeted for expenditure and the budget was approved by the Board and the Minister. The budget gave only estimates of planned expenditure. Although most spending was within the budget, sometimes overspending occurred due to unforeseen circumstances and emergencies.

I advised management to ensure that spending should be in line with the budget as required by the CAA manual. In case of extra resources required on an item, the budget should have been revised, accordingly approved by the Board and issued and distributed to all stake holders as a revised.

109.4 CAA Board of Directors

The CAA Board of Directors expired in June 2013. By the time of the audit (October/November 2013) there was no Board to perform the oversight responsibilities that were normally performed by the Board. CAA management was constrained in her service delivery due to the Board of Directors absence.

Management explained that the new Board was appointed in April 2014.

I advised that the process of appointing a new Board should start before an old one expires.

109.5 Human Resources (HR)

109.5.1 Provision for Staff Leave According to the leave policy stated in the Human Resource Manual article 18: (b): annual leave may be accumulated for a maximum of twenty four continuous months

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(two years), that is; 72 days for salary scale M4-M6 and 60 days for salary scale S- G3.

From the review of the leave provision list/schedule, it was observed that the leave policy was not being followed. Some staff members had used more leave days than allowed while others had many excess days as contained in the CAA Schedule for Provision for Staff Leave.

Title Leave due - Excess of per CAA 72/60 Provision Schedule

Employee Manager (33) (33)

Employee Revenue Collections Assistant (14) (14)

Employee Registry Office (15) (15)

Employee Registry Office (33) (33)

Employee Senior Air Traffic Management (36) (36) Officer

Employee Principal Air Navigation Service 159 53 Inspector

Employee VIP Assistant (44) (44)

Employee Security Assistant (39) (39)

Employee Air Traffic Management Officer (38) (38)

Employee Cashier 273 213

Employee Procurement Officer 201 141

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Employee Pay and Benefits Officer 229 157

Employee Internal Auditor 224 152

I advised management to encourage staff to take their annual leave and also ensure compliance with the policy.

109.6 Manager’s Furniture

There was an expenditure of UGX.275,000,000 for Manager‟s furniture that was approved by the Board as furniture for Heads of Department‟s respective homes. However, this was not a benefit provided in the Human Resource Manual. The benefit contravened CAA established human resource guidelines and therefore considered irregular.

Management explained that the Human Resources Manual would be amended to incorporate the manager‟s furniture.

I advised management that such expenses should be documented as a benefit for particular heads of departments in the human resource manual. The Board should also work and approve expenditures as contained in various established manuals/guidelines.

109.7 Property, Plant and Equipment (Fixed Assets)

109.7.1 Updating of the Fixed Asset Register

CAA maintained a fixed asset register that was not regularly updated. I noted that the column of location of buildings from code “101102046” to “101102198” was indicated as “Not Defined”. This could prove difficult for users of information pertaining to such assets to locate these assets. Further, the asset schedules presented for audit that seven motor vehicles (UAA 400E, UAA 111E, UAA 939E, UAA 627E, UAA 404E, UAA 281E and UAA 302E) appeared on the fixed asset register but did not appear on the list of active and grounded vehicles as provided by Administration/Transport Section. Similarly, motor vehicle No. UAA 420E appeared on the schedule provided by Administration/Transport Section but did not appear on the asset register. Variances were also identified in schedules provided by legal department.

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It was therefore evident that motor vehicle reports from administration schedule were not reconciled with finance and legal department records.

Management explained that these assets would be verified during the asset valuation and verification exercise in 2014 to define their correct location for inclusion in the fixed asset register.

I advised Management to expedite the valuation and verification exercise and have the fixed assets register updated.

109.7.2 Items in fixed assets register with nil values

It was noted that there were some assets in the register with nil values. These assets were still in use at the time of audit. Non-current assets were therefore understated.

Management explained that these assets had nil cost values because they were fully depreciated by 30th June 2006, the time when the assets revaluation exercise was undertaken. They further explained that fully depreciated assets would be revalued by the experts.

I advised management to have all non-current assets with nil values verified, valued and recorded appropriately on the fixed asset register.

109.7.3 Capitalization of Non Current Assets

When capitalizing the assets on the assets register, only the amount that had so far been paid was capitalized. The subsequent payments were added as additional asset values and capitalized at that time. This contravened accounting guidelines on capitalization of assets.

Management explained that they had now adopted use of Goods In Transit, Work In Progress and Prepayments to capture such payments. Capitalization would always be at the time of asset deployment.

I advised management to ensure capitalization on acquisition (time of actual delivery and deployment of the item).

109.7.4 Non Current Assets Periodic Physical Verification and Valuation

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Section 7.1.1.11 of the CAA finance accounting policies and procedures manual requires physical verification of the Authority‟s assets at least once in every 3 years. This was not done in the past 3 years as CAA had not revalued her Property, Plant and Equipment since 2007. As such the existence and condition of CAA assets, other than those inspected during the audit, could not be established.

Management explained that asset verification and valuation would be conducted in 2014. The Consultant had been appointed.

I await for the outcome of management efforts in this respect.

109.8 Some Inventory not valued/no cost attached

The inventory valuation schedules did not show values of some inventory items. The inventory value in the financial statement was understated since some inventories were valued at zero cost, yet they were not obsolete.

Management explained that most of such items were acquired from Ministry of Works with no values attached to them at the inception of CAA. Various consultancies had failed to attach values to them since 2004. They further stated that the T-shirts had previously been issued to public affairs department but were later brought back to the stores for safe custody.

I informed management that if stock did not have latest cost then it should have been valued at historical cost or market value as cold have been sourced from vendors.

109.9 Cash and Cash Equivalents

109.9.1 Variance between End of Year Cash Count and Statement of Financial Position Balances There were two major cash control accounts, the dollar cash control (34-612) and the shilling cash control (34-611). The balances on these accounts should be agreeing with the cash count witnessed by the auditors. However, I noted a variance as shown below;

Code Amount per Year End Cash Amount Per Statement Variance- Count Report UGX of Financial Position UGX UGX

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34-611 45,052,200 59,303,660 14,251,560

According to CAA management, the variance on the cash control shillings account was caused by cheques that were not presented during the end year cash count for inclusion in the report.

I advised management to conduct the cash count with the external auditors to ensure that every cheque and money held at year end was counted, and properly documented in the presence of the external auditors during the end of year cash count exercise.

109.9.2 Stale Cheques

The following cheques included in CAA Bank Reconciliation Statements were found to be stale and were not reversed in the books of accounts.

Bank Account JN Cheque Cheque Amount per Number Date Cheque UGX Stanbic Kampala UGX 55715 025507 14/11/2012 825,000 Stanbic Kampala UGX 55715 025509 14/11/2012 442,500 Stanbic Kampala UGX 55638 025676 13/12/2012 1,950,000 Stanbic Bank Kampala $ 52260 00492 15/10/2012 37,037,856 TOATAL 40,255,356

The financial statements and books of accounts were misstated because the cheques were not reversed by 30th June, 2013.

Management explained that adjustment journal vouchers were made to reverse the 1st three (table above) stale cheques from the accounts. Cheque No. 00492 was a payment of $14,733 converted to UGX.37,037,856 to International Energy Technik that the bank never debited to their account till 2nd April 2014, thus a bank error.

I advised management to ensure that all stale cheques were reversed in their respective legers in a timely manner.

109.9.3 Cash In Transit

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An outstanding amount of UGX 2,129,000 had been on a cash account named “cash in transit” for the past two financial years. CAA officials in finance department did not know much about this account and the account had not been reconciled for long.

Management explained that this money was in Transafrica Bank at the time of its closure and that there were no movements on this account for a long time.

I advised management to ensure that this account be investigated, supported and appropriately captured in the books of accounts.

109.10 Un reconciled Receivable with Credit Balance

A review of the credit balances in the debtor‟s schedule indicated an amount of over UGX 454 million which were brought about by the exchange rates variations. It was noted that some clients‟ receivable balances were misstated; especially those whose credit balances were a result of exchange rate variations. Exchange rate variations were supposed to be handled through the statement of Comprehensive Income accounts and not through client accounts which affected the statement of financial position.

Management explained that the credit balances were partly created by some clients whose accounts were/are in US dollars but they decided to settle their invoices in Uganda Shillings and others were system balances.

I advised management to handle these through exchange gain/loss accounts.

109.11 Policy on provisions for bad debts – dormant accounts

The debtors list consisted of debtors who had not paid anything to reduce their obligations to CAA in the last ten years. CAA policy on provision for bad debts had no 100% provision even when debts were not likely to be collected. (Max. bad debts provisions is currently 20%). See details below:-

Account code Debtor Amount UGX Last Date of Payment 3D-A022 Agip 15,135,284 No payment since 2000 3D-A024 Air Alexandra 464,939 No payment since 2000

3D-A0450 Antonov airlines 555,726 No payment since 2000 3D-A121 Air force base 3,168,859 No payment since 2000

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Bwambale Shoe 3D-B030 Shinners 1,390,034 No payment since 2000 3D-C121 C&S Upholstery 1,050,000 No payment since 2000 3D-C122 Casements (Africa) 6,830,886 No payment since 2000 3D-C151 Colonel Khaael 402,566 No payment since 2000 Total 28,998,294

Management explained that these debtors had closed their operations at the Airport and could not be traced. The PDU was in the final process of procuring the services of external debt collectors. Management still hoped that some of those debts would be recovered by the external debt collectors. If all those efforts failed, management would seek the Board authority to write off those debts.

I advised management to seek the Solicitor General advice on the matter before seeking services of external debt collectors.

109.12 Accruals

Included under accruals schedule as at 30th June, 2013 was a deposit of US$ 31,500.55 payable to Speke Resort for a function scheduled to take place between 7th-9th July 2013. An accrual qualifies only if services/goods are already received by end of reporting date. The deposit was for meals and accommodation. Since meals and accommodation had not been utilized by year-end, it was more of a commitment than an accrual and therefore should be captured as an expense in 2013/2014 and not 2012/2013. As such, expenses for 2012/13 were overstated by the above amount.

Management explained that an adjustment journal was made to correct this anomaly in 2012/13 and correctly book it in 2013/14 and to reverse the entry from accruals account to prepayments account.

I advised management that only good/services already consumed but not invoiced by year-end should be included under accruals. The above should have been captured as a prepayment. 109.13 Payment for Utilities At Jinja Aerodrome

Jinja Aerodrome security had been beefed by deployment of about 5 CAA security personnel. Some Aerodrome staff, including security personnel were housed at the

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Aerodrome staff quarters, about 500 metres from the Administration building. Toilet facilities at staff quarters were water-borne, yet water had been disconnected for a long time. Electricity to the staff quarters had been disconnected for a long time due to none payment of bills. Water at the administration building had been disconnected for 2 months by the time of our audit visit. The only pit latrine at the Aerodrome was located at the administration building which was about 500 metres away from staff quarters.

Sanitary facilities at staff quarters were wanting and there was a possibility of an outbreak of diseases associated with sanitation.

Management explained that water account bills were settled to nil as at November 2013, with electricity bills being paid were only the current bills and the arrears would be settled when certified bills from UMEME were received. Management would consider construction of a pit latrine at staff quarters to supplement the waterborne toilets.

I advised management to immediately consider paying bills arrears and reconnect both water and electricity supplies and to construct a pit latrine at staff quarters to supplement the waterborne toilets as a matter of priority.

JUSTICE, LAW AND ORDER SECTOR (JLOS)

110.0 AMNESTY COMMISSION – YEAR ENDED 30TH JUNE 2014

110.1 Depreciation of the Assets

A review of final accounts revealed that the Commission is using a modified type of accounting where assets are capitalized and depreciated instead of expensing them in the year of acquisition in accordance with the Public Finance and Accountability Regulations 2003 and the Treasury Accounting Instructions 2003. This creates an expense that ends up appearing as loss in the Commission accounts. In the year under review, Shs.265,011,814 was indicated as a deficit as a result of depreciation.

The Accounting Officer explained that the Commission uses the accrual basis of accounting where assets are capitalized and depreciated. Management has however communicated this position to the Accountant General seeking guidance on the matter.

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I await the results of the management action.

110.2 Outstanding rent Shs.200,127,100

During the year under review, the Commission incurred rent amounting to Shs.210,203,100 out of which only Shs.10,076,000 (5%) was paid leaving a balance of Shs.200,127,100 outstanding at the close of the year. Accumulation of the arrears implies that management did not comply with the commitment control system as guided by the Accountant General.

The Accounting Officer attributed the accumulation of rent arrears to the Ministry of Internal Affairs‟ failure to release Shs.637m released to the Ministry on behalf of the Commission from the Ministry of Finance, Planning and Economic Development.

I advised the Accounting Officer to liaise with the relevant authorities to ensure that outstanding rental arrears are settled in time to avoid risk of litigation and the likely consequences of eviction.

110.3 Unfilled positions

According to the Amnesty Act 2002, the Commission should have six commissioners chaired by a Judge while running the Commission business. A review of the Commission structure and staffing establishment revealed that there are two commissioners who left the Commission sometime back but their positions have never been filled. The structure of the Commission has remained inadequate to accomplish its mandate, which may explain the underperformance of the Commission during the year under review. This matter was raised in my previous year‟s reports to Parliament however no action has been taken to-date.

Absence of the commissioners is contrary to the provisions of the Amnesty Act. Further, the inadequate composition of the Commission may affect the smooth running of Commission activities.

The Accounting Officer explained that the Commission is following up the matter with the relevant authorities.

I advised management to keep liaising with the relevant authorities and have the vacant posts filled as per the Act.

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110.4 Irregular Recruitment of volunteer staff

According to the Ministry of Internal Affairs, the approved structure for the Amnesty Commission is 38 staff. I however noted that the Commission employs 76 staff which is twice the approved structure. The Commission irregularly recruited 38 volunteer staff over the years to bridge the performance gaps without following a formal recruitment criteria.

According to management these volunteers were not to be paid salaries but facilitation allowances as and when they were on official duty. However, it was noted that management pays these volunteers a fixed monthly emoluments of Shs.500,000 and sometimes the Commission advances them with funds yet there are not established staff of the Commission. The recruitment of the volunteer staff was therefore irregular.

Management explained that over years, the commission work expanded and required competencies which were not originally approved for the commission. The structure required only two staff i.e. that of the DRT and the Driver at the regional office, yet there is need to also have a Senior Resettlement Officer, Information Counseling and Referral Officer, Personal Secretary, a guard and store keeper. The Accounting Officer explained that they have however communicated to the Ministry of Internal Affairs about the need to have the Ministry of Public Service approve the required staff for the commission regional offices.

I await the results of management efforts. 110.5 Budget Performance

During the year under review, the Commission received Shs.1,858,967,578 against the approved budget of Shs.2,496,733,000 resulting into a shortfall of Shs.637,765,422. The shortfall affected the performance of some of the activities in the work-plan. The following activities were not fully undertaken thus hampering service delivery.  Demobilization, resettlement and social reintegration of reporters.  Rent for office in Gulu, Kitgum, Kasese, Arua, Mbale, Kampala, and Beni DRC Congo  Housing and Medical for 11 entitled officers.  Residual payments of UNRF II and Technical negotiating team.

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 Training of reporters including provision of tools and inputs. The Accounting Officer explained that the shortfall in the release of funds to Amnesty Commission was a result of failure by the Ministry of Internal Affairs to release the funds earlier released by the Ministry of Finance to the Commission. This affected the implementation of the above activities. The Accounting Officer explained that efforts to follow up the funds with the Ministries of Finance and Internal Affairs appeared futile.

I advised Management to continue liaising with the concerned authorities to ensure that the funds are released and have the activities implemented.

111.0 LAW DEVELOPMENT CENTRE

111.1 Land and Buildings

111.1.1 Valuation of Land and Buildings Land and buildings are stated at UGX.9,900,000,000 and UGX.7,022,511,723 respectively. The Centre follows the revaluation model when measuring the value of land and buildings. The revaluation model requires assets to be revalued with sufficient regularity and also assets of the entire class to be revalued together. In the period 2012/2013, the Centre revalued only a small part of its land, and not as a whole (land and buildings). This is inconsistent with the revaluation model. The value of buildings and part of the land may be misstated because of failure to ascertain the correct current values.

Management explained that LDC wrote to the Government valuer to value all the land and buildings belonging to LDC. However, no positive response has yet been received from the valuer.

I advised Management to follow up the matter with the Government valuer to enable the financial records to be updated.

111.1.2 Un-titled plots 7 plots (34, 508, 509, 510, 613, 614, 615) on Block 9 Makerere, Kampala were acquired by the Centre under the land acquisition instrument S.1 No. 74 of 1987- Kibuga block. However, it was noted that these plots do not have titles to evidence

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ownership. The plots were also not recorded in the asset register. There is a risk of loss of land since it is not appropriately recorded and its titles are unavailable.

Management explained that LDC wrote to its Lawyers to follow up on the issue of titles for the un-titled plots.

I advised Management to closely follow up on the process and obtain titles for the said plots and have their details recorded in the asset register.

111.1.3 Un-valued plots of land It was also noted that six (6) plots of land disclosed in the fixed asset register did not have land titles and were not in the valuation report. The plots are allocated the following asset codes in the asset register; 167945, 157710, 933(2), 74, 933, 334593 (1). The Centre‟s land is not only undervalued but cannot also be confirmed as LDC land.

Management explained that LDC wrote to the Chief Government valuer to revalue all the land and buildings belonging to LDC. They further explained that the Government valuer has not taken any action yet. Management also indicated that Government valuer had been requested to allow the entity to use a private valuer.

I advised Management to follow up the matter with the Government valuer to have the assets revalued and accordingly recorded in the assets register.

111.2 Encroached on Land

a) Plots 245,221,464 The Law Development Centre is the registered proprietor of Plot 221 block 9 Makerere as per instrument of Registration No.334591 of June 2003. Plots 245 and 464 were also acquired under statutory instrument No 74 of 1987. The three plots were valued at UGX.300,000,000 as follows-plot 221 (UGX.80m), Plot 245 (UGX.70m), Plot 464 (UGX.150m) as per valuer‟s report of 2008. However, it was observed that the plots are being used by occupants who have put up permanent structures thus encumbering any developments the Centre may wish to make.

Furthermore, the value of these plots has not been included in the value of the Centre‟s land thus understating it by 300m. The land has also not been revalued since 2008 rendering the value attached to the plots unreliable.

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Management responded that the legal process of securing the plots is ongoing in the Courts of law. I await the results of the court process.

b) Plots 481 and 482 The Law Development Centre is also the proprietor of Plots 481 and 482 block 9 Makerere, Kampala as per instruments of registration 334593 of 30th June 2003 and 334603 of 30th June 2003. The two strategically located plots are also being claimed by an individual Mailo land owner. The plots have not been valued but have been included in the asset register for the Centre. The Centre‟s land is therefore understated.

Management explained that the LDC gave instructions to its advocate to handle the matter so that LDC can secure the plots. I await the results of management efforts.

c) Plots 1 and 69 Bukoto Estate, Kampala The Centre is also the registered proprietor of plot 1 Bukoto Estate (Private Mailo under Register Volume No 1693 Folio 22) as per Instrument of registration No KLA 167945 of 17th August 1994 and plot 69 Bukoto Estate ( Private Mailo under register volume 1537 Folio 25) as per Instrument of registration No KLA 157710 of 12th March 1993.

Part of this land is occupied by people who claim to have bought the land from the caretaker and about 0.60 acres is occupied by the Northern by pass. I could not ascertain whether the Centre was compensated by the Uganda National Roads Authority at the time the Northern by pass was being constructed and if it was compensated how the funds were eventually accounted for.

Management explained that they have instructed their lawyer to handle the matter. I await the results of management efforts.

111.3 Delayed completion of construction works on LDC Auditorium

Construction works for the auditorium at contract price of UGX.3,971, 88,902 started in May 2012. The original contact period was between 30th May, 2012 and 11th June 2013. However, the completion date was extended to 30th June 2014. Four (4) interim certificates worth UGX.3, 577,406,635 have so far been raised and cleared, two of which were paid during the period reviewed. Details are shown below:

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Certificate No. Date issued Amount (UGX.) Advance payment 2011-2012 992,970,227 1 26th September, 2012 1,102,122,271 2 07th March, 2013 675,661,106. 3 2nd September, 2013 680,253,919 4 07th March, 2014 126,399,112 Total 3,577,406,635

It was noted that construction work has not been completed as planned. By the time of writing this report, the contractor was not on site and no work was ongoing. Inspection of the site revealed that the building was surrounded by tall grass. Photo below Refers:

It was further noted that failure by the contractor to complete in time was attributed to unapproved variation of UGX.912,901,339.25 requested for by the contractor. The variation was challenged by the consultant firm which reduced the contract variation costs to UGX.588,596,396. In its meeting held on 11/06/2014 the Building Committee studied both the project manager‟s report and the report of the technical person from Judiciary and recommended a variation of UGX.577,297,801.22

According to the head of procurement, the issue of evaluating the BOQ certifying the cost of contract variation was forwarded to the Ministry of Works for further guidance before a final approval can be made. To date, no response has been received from the Ministry.

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Delayed approval of the contract variation may result into:  Further delays in completion of the construction works.

 Further contract variations due to inflation.

Management explained that the contractor, submitted variations in respect of air conditioning, auditorium chairs, and extra works in respect of the pergola and landscaping in 2013. The variations and extra works were referred to Ministry of Works and Transport for a technical opinion. The report from the Ministry is being awaited. LDC Regrets the delay.

I advised Management to ensure that approval of the contract variation is expedited to avoid further costs associated with delayed completion of the facility.

111.4 Renovation of the Department of Law Building

The Centre de-roofed the department of law building valued at UGX.100,000,000 (building) which had been earmarked for renovation four years ago. A procurement process seeking a contractor to do the renovation was started and a contract worth UGX.59,511,648 was awarded on 11th June 2012. It was however, observed that after removing the roof, the contractor abandoned the site due to conflicts relating to variations and advance payments. Renovation of the building has since stalled and this has not only put the walls and the floors of the building at risk of weakening but has also escalated the shortage of office space at the Centre.

In addition, management did not carry out an impairment test on the building that is depreciating faster than other buildings. The value of the building is therefore overstated in the financial statements. The building is pictured below:

Picture: Department of law building

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Management explained that the Centre engaged an Engineer from Judiciary to review the cost of renovating the building. The estimated cost was about UGX.300,000,000. It was advised that the building be demolished and a new and better building be constructed. This is because the cost of renovation was very high. The Centre is now planning to construct a new building.

I noted that Management‟s delay in carrying out the repairs caused further depreciation of the building and diminution in value; I advised that Management in future should ensure that prompt action is taken on repairs to avoid wastage of resources.

111.5 Governance

111.6 Composition of the Management Committee

Section 7 – Management Committee and Membership of the LDC Act stipulates that the membership of the LDC Management Committee shall comprise of the Solicitor General, the head of the faculty of law Makerere University, the Director LDC, the PS Ministry of Education and a maximum of four people who shall be persons qualified as having had experience in the practice and administration of law. However, it has been observed that the composition of membership may not be appropriate for the Centre to achieve its objectives as all the members have a legal background except for a representative from the Ministry of Education.

Management explained that the process of reviewing the LDC Act is on-going. A draft proposal is already in place and has already been discussed with major stakeholders. The Law Development Centre Management Committee is to consider the proposal before submission to the Ministry of Justice and Constitutional Affairs.

I await the results of management action.

111.7 Internal Audit Function

As noted in the previous audit report, the internal audit function appears not to have made any quarterly reports to management. It was also noted that Centre lacks a

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substantive head of the Internal Audit Function, the one heading the internal audit function is in an acting capacity. This in a way affects the performance of the unit.

Failure by the internal audit function to evaluate and assess the adequacy and effectiveness of the Centre‟s processes can result into the following risks;

 Failure to identify areas of weaknesses in the control systems and control environment.  Loss of strategic direction as a result of inability to determine progress against planned activities.  Ineffective internal controls, that are prone to fraud due to failure by management to improve on the control systems.  Loss of assets due to inappropriate safeguards for it assets.

Management explained that according to the new structure, the Internal Audit Department has two staff namely; Internal Auditor and Assistant Internal Auditor. A qualified Assistant Internal Auditor has been recruited and the post of Internal Auditor is to be re-advertised because when the post was advertised, there was nobody among the applicants who met the minimum requirements. With two qualified staff in the department, the reporting is going to improve.

I advised management to ensure that the internal audit unit discharges its mandate to enable the Centre improve on performance.

111.8 Joint Venture with Law Africa

The Centre entered into a joint venture with Law Africa Publishing Limited for publishing Uganda Law Reports at 50/50% share of profits. In the joint venture, Law Africa was to provide general management and administration, publication and marketing of reports. LDC on the other hand was responsible for securing judgments and provision of certain editorial functions.

It was however noted that since the signing of the joint venture, more than four years ago, returns of UGX.3,733,929 only have been made to the Centre. There is a likelihood that the Joint venture is making profits but returns are not being remitted to LDC, and no follow-up on this matter is being made.

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Some clauses of the Joint venture have not been exercised by the Centre for instance, Clause 13.1.1 requires the joint venture partners to meet once every quarter or whenever so required by either JV partner. I noted that no meetings had taken place. Clause 10.1.3 also provides that LDC‟s authorized auditors shall be accorded the opportunity to access all books and records of account. The clause has also not been exercised by LDC. I was unable to ascertain whether the joint venture has been beneficial to the Centre.

Management explained that Law Africa has not made any more remittances to LDC as proceeds from the sale of Law reports. The Joint Venture expired in 2013. LDC has started on the legal process to stop Law Africa from publishing LDC Law reports. LDC is in the process of publishing the Law Reports itself by outsourcing a printing company.

I await the results of management‟s proposed strategy.

111.9 Budget performance

A review of the Centre‟s performance as per the Centre‟s performance report 2013/14, revealed that core activities especially those related to provision of accessible legal training that is relevant and responsive to the needs of the labour market, were performed below the set targets, while others were not performed at all. The table below shows the areas of underperformance, and the management related comments.

Out put Planned out Actual Out Put Variance Response put Legal Train 500 310 Bar course 190 students not Reduction in student Training students on Bar students trained. trained (38%under numbers due to the Bar Course. performance). course pre-entry examinations. LDC has no control over the pre- entry examination. Train 350 485 Administrative Planned number of Number of students to students on Officers trained. students exceeded by be enrolled was under Diploma in Law. 135 (38.6% over estimated. performance). Train 1,200 680 Administrative 520 Administrative Number of students on Officers trained. Officers not trained. Administrative Officers Administrative (43% under Law Course is reducing Officers Law performance). as a result of other

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Out put Planned out Actual Out Put Variance Response put Course/Court institutions that have Bailiffs. started to conduct it. Trained 100 50 students were 50 students (50% Course has just started students in admitted on the under performance). it will pick up. Diploma in Diploma in Human Human Rights. Rights course. Other Handle 2,000 977 cases were 1023 cases not Inadequate funding. services juvenile cases in handled in handled. (51% under This is a diversion Kampala Kampala, Iganga, performance) programme funded by Lira, Kabalore, JLOS. In FY 2013/2014, Kamuli, JLOS allocated Kamwenge, inadequate funds to Ibanda, Masindi this activity. and Kibale. Train 100 Police Training not done. 100% under Not achieved. Due to Officers and 20 performance. lack of funding. Magistrates on the diversion programme. Other Complete Construction of Construction not No work in progress. Activities Construction of the Auditorium completed. Work stalled due to the Auditorium. completed. variations in the contract that had not yet been approved. Renovate Not done. 100% under Not achieved. Activity buildings. performance. under NICHE project funding which was cancelled. Procure staff and Not done. 100% under Not achieved. Activity student furniture. performance. was under NICHE project funding that was cancelled. Introduce virtual Not done. 100% under Not achieved. Activity library. performance. under NICHE project funding which was cancelled. Complete the Not done. 100% under Not achieve. second phase of performance. Restructuring was the right sizing completed on 31st exercise. December, 2014.

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Unimplemented activities negatively impact on the Centre‟s ability to deliver on its mandate.

Management attributed the decline in the number of students‟ intake for the Bar Course to poor performance in bar course pre-entry examinations. Management also attributed the failure to implement planned activities to inadequate funding.

I advised Management to carry out realistic planning, and ensure that all planned activities for which funds are released are completed as planned to enable the LDC deliver on its mandate.

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