THE REPUBLIC OF

REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF UGANDA AIR CARGO CORPORATION FOR THE FINANCIAL YEAR ENDED 30TH JUNE 2016

OFFICE OF THE AUDITOR GENERAL UGANDA

TABLE OF CONTENTS

LIST OF ACROYNMS ...... iii

1.0 INTRODUCTION ...... 1

2.0 BACKGROUND INFORMATION ...... 1

3.0 ENTITY FINANCING ...... 1

4.0 OBJECTIVES ...... 2

5.0 AUDIT OBJECTIVES ...... 2

6.0 AUDIT PROCEDURES PERFORMED ...... 2

7.0 CATEGORIZATION AND SUMMARY OF FINDINGS ...... 3

7.1 Categorization of findings ...... 3

7.2 Summary of Findings ...... 3

8.0 DETAILED FINDINGS ...... 4

8.1 Failure to disclose value of Land ...... 4

8.2 Afrik Aviation ...... 4

8.3 Staff Salaries Payable ...... 4

8.4 Outstanding PAYE ...... 5

8.5 Outstanding NSSF ...... 5

8.6 Grounded Aircraft - C130- 5X-UDF ...... 6

8.7 Returned Air Crafts (Y12s) ...... 6

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LIST OF ACROYNMS

UACC Uganda Air cargo corporation MoFPED Ministry of Finance Planning and Economic Development MOD Ministry Of Finance

AOC Air Operators Certificate

UGX Uganda Shillings

USD United State Dollars BOU NSSF National Social Security Fund TAI Treasury Accounting Instruction VAT Value Added Tax WHT Withholding Tax CAA Civil Aviation Authority PFMA Public Finance Management Act, 2016

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REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF UGANDA AIR CARGO CORPORATION FOR THE YEAR ENDED 30TH JUNE, 2016

THE RT. HON. SPEAKER OF PARLIAMENT

I have audited the financial statements of Uganda Air Cargo Corporation for the year ended 30th June 2016. These financial statements comprise of the statement of financial position, the statement of financial performance, and cash flow statement together with other accompanying statements, notes and accounting policies.

Management Responsibility for the financial statements The Directors are responsible for the preparation and fair presentation of the financial statements of Uganda Air Cargo Corporation in accordance with International Financial Reporting Standards and the requirements of the Corporation’s Act (Cap 322) and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatements, whether due to fraud or error.

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

An audit involves performing audit procedures to obtain evidence about the amounts and disclosures in the financial statements as well as evidence supporting compliance with relevant laws and regulations. The procedures selected depend on the Auditor’s judgment including the assessment of risks of material misstatement of financial statements whether due to fraud or error. In making those risk assessments, the Auditor considers internal control relevant to the entity’s preparation and fair presentation of financial statements in order to design audit procedures that are appropriate in the circumstances but not for purposes of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the

iv reasonableness of accounting estimates made by management as well as evaluating the overall presentation of the financial statements. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion.

Part “A” of this report sets out my opinion on the financial statements. Part “B” which forms an integral part of this report presents in detail all the significant audit findings made during the audit which have been brought to the attention of management and form part of my Annual Report to Parliament.

PART “A”

Opinion In my opinion, the financial statements present fairly, in all material respects, the financial position of Uganda Air Cargo Corporation as at 30th June, 2016 and its financial performance and cash flows for the year then ended, in accordance with the International Financial Reporting Standards and comply with the requirements of the Uganda Air Cargo Corporation Act.

Report on other legal requirements As required by the Uganda Air Cargo Act (Cap 322) and the National Audit Act, 2008; I report to you, based on my audit, that: i. I have obtained all the information and explanations, which to the best of my knowledge and belief were necessary for the purpose of my audit. ii. In my opinion, proper books of account have been kept by the Company, so far as appears from my examination of those books; and iii. The statement of financial position and statement of financial performance are in agreement with the books of account.

John F.S. Muwanga AUDITOR GENERAL 20th December, 2016 v

REPORT OF THE AUDITOR GENERAL AND SUPPLEMENTARY INFORMATION

PART "B" DETAILED REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF UGANDA AIR CARGO CORPORATION FOR THE YEAR ENDED 30TH JUNE, 2016 This Section outlines the detailed introduction, background information, entity financing, audit findings, management responses, and my recommendations in respect thereof.

1.0 INTRODUCTION In accordance with Article 163(3) of the Constitution of the Republic of Uganda, 1995 (as amended) and Section 16(2) of Uganda Air Cargo Corporation Act, I am required to audit and report on the public accounts of Uganda that is to say, all public offices including the courts, the central and the local government administrations, universities and public institutions of the like nature and any public corporation or other bodies or organizations established by an Act of Parliament. Section 16(2) of Uganda Air Cargo Corporation Act further mandates me to specifically carry out audits the Corporation. Accordingly, I carried out the audit of the above Corporation to enable me report to the Minister, the Board and Parliament.

2.0 BACKGROUND INFORMATION Uganda Air Cargo Corporation (UACC) was created by the UACC Act (Cap 322) in 1994 with the mandate to establish and operate air transport services within and outside Uganda. UACC is expected to operate commercially and be sustainable. UACC is a Government of Uganda statutory corporation, registered as a limited liability company under the Companies Act, 1994. UACC is classified under category (ii) of the PERD Statute, which means that the Government of Uganda intends to maintain majority ownership of the Corporation. The Corporation’s main offices are located at Entebbe International Airport, Terminal Building. It also has a ticketing office at Colline House in Kampala. The Corporation’s vision is “The preferred Airline”, and its mission is “To provide safe, reliable, efficient cargo freight, passenger freight and travel services at competitive rates”.

3.0 ENTITY FINANCING UACC offers air cargo freight, air passenger charters, medical evacuations, VIP charters, fun flights, businesss charters and humanitarian/relief flights. During the year, UACC generated a total income of UGX.28,894,706,200 from the services rendered and spent UGX.27,781,713,694.

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4.0 OBJECTIVES The main objective of the corporation is to establish, provide, develop and operate safe, efficient, adequate economical and properly coordinated air transport services.

5.0 AUDIT OBJECTIVES The audit was carried out in accordance with International Standards on Auditing and accordingly included a review of the accounting records and agreed procedures as was considered necessary. In conducting my reviews, special attention was paid to establish whether:-

a. The financial statements have been prepared in accordance with consistently applied Accounting Policies and fairly present the revenues and expenditures for the period and of the financial position as at the end of the period. b. All Corporation funds were utilized with due attention to economy and efficiency and only for the purposes for which the funds were provided. c. Goods and services financed have been procured in accordance with the Government of Uganda procurement regulations. d. To evaluate and obtain a sufficient understanding of the internal control structure of the Corporation, access control risk and identify reportable conditions, including material internal control weaknesses. e. The UACC management was in compliance with the Government of Uganda financial regulations. f. All necessary supporting documents, records and accounts have been kept in respect of all Corporation activities, and are in agreement with the financial statements presented.

6.0 AUDIT PROCEDURES PERFORMED The following audit procedures were undertaken:- a. Revenue Obtained all schedules of all revenues collected and reconciled the amounts to the UACC’s cashbooks and bank statements. b. Expenditure The Corporation payments vouchers were examined for proper authorization, eligibility and budgetary provision, accountability and support documentation. It was established that all UACC funds were utilized for the intended purposes.

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c. Internal Control System Reviewed the internal control system and its operations to establish whether sound controls were applied throughout the period audited. d. Procurement Reviewed the procurement of goods and services under the UACC during the period under review and reconciled with the approved procurement plan. e. Fixed Assets Management Reviewed the use and management of the assets of the UACC during the period audited. f. Uganda Air Cargo Corporation’s Financial Statements Examined, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessed the accounting principles used and significant estimates made by management; as well as evaluating the overall financial statement presentation.

7.0 CATEGORIZATION AND SUMMARY OF FINDINGS 7.1 Categorization of findings The following system of profiling of the audit findings has been adopted to better prioritise the implementation of audit recommendations: CategoryN Description o 1 High significance Has a significant/material impact, has a high likelihood of reoccurrence, and in the opinion of the Auditor General, it requires urgent remedial action. It is a matter of high risk or high stakeholder interest. 2 Moderate significance Has a moderate impact, has a likelihood of reoccurrence, and in the opinion of the Auditor General, it requires remedial action. It is a matter of medium risk or moderate stakeholder interest. 3 Low significance Has a low impact, has a remote likelihood of reoccurrence, and in the opinion of the Auditor General, may not require much attention, though its remediation may add value to the entity. It is a matter of low risk or low stakeholder interest.

7.2 Summary of Findings

No Finding Significance 8.1 Land High 8.2 Afrik Aviation High 8.3 Staff salaries payable High

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8.4 Outstanding PAYE High 8.5 Outstanding NSSF High 8.6 Grounded Aircraft – C130-5X-UDF High 8.7 Returned Air crafts (Y12s) High

8.0 DETAILED FINDINGS

8.1 Failure to disclose value of Land Uganda air cargo owns plot of land in Entebbe at plot 103A-107A and plot 137 which were allocated to the Corporation in 2010. However, these plots of land have not been disclosed in the accounts of the corporation. Besides, this land has not been revalued for the past six (6) years after its acquisition.

In response, the Accounting Officer stated that the valuation report from the Government Valuer had not yet been received by the close of financial year. The land has now been included in the Fixed Assets Register and adjustments will be made in the 2016/2017 financial statements.

I advised the Accounting Officer to ensure that the land is valued and disclosed in the financial statements.

8.2 Afrik Aviation Included in the outstanding debtors is Afrik Aviation which owes the corporation a sum UGX.3,678,234,512 for the transportation of cargo that has been outstanding for a period of over one year. Failure to collect money due to the organization affects the operations of the entity.

The Accounting Officer explained that efforts are being made to pursue full recovery of this debt from the debtor.

I await the Accounting Officer’s action on the matter.

8.3 Staff Salaries Payable Included in the trade payables are staff salaries amounting to UGX.1,613,011,703. I was not provided with any clear strategy on how the corporation was planning to settle this outstanding amount without incurring litigation costs. Non-payment of salaries demotivates the workers.

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In response the Accounting Officer attributed the accumulation of staff salary arrears to the revocation of the Corporation’s Air Operator Certificate (AOC) that lasted for over 18 months. The AOC was later renewed and all effort is being undertaken to retire the salary arrears as the business gains momentum.

I await the Accounting Officer’s action on this matter.

8.4 Outstanding PAYE Section 123(1) of the Income Tax Act (amended) 1997 requires a withholding agent to pay to 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.

It was noted that the outstanding PAYE at year end amounted to UGX.201,191,467. This amount is likely to attract penalties in form of interest which will result into wasteful expenditure.

The Accounting Officer explained that they have entered into arrangements with Uganda Revenue Authority to settle the outstanding debt amicably.

The Accounting Officer’s action is awaited.

8.5 Outstanding NSSF Section 11(1) of the NSSF Act 1985 that directs every contributing employer to pay to the fund, within fifteen days following the last day of the month for which the relevant wages are paid, a standard contribution of 15 percent on the total wages paid during that month.

It was observed that outstanding NSSF amounted to UGX.170,953,250 at the year end. I was not availed with a breakdown of this amount to establish interest charged and penalties for failure to clear the obligation on time. Non remittance of NSSF on time will further attract interest which will end up into wasteful expenditure.

The Accounting Officer responded that the revocation of the AOC affected the statutory remittances to NSSF. Management has also engaged NSSF on this matter and promised to remit monthly contributions whenever salary is paid.

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I advised the Accounting Officer to continue engaging NSSF and ensure that no penalties are imposed on the outstanding amount.

8.6 Grounded Aircraft - C130- 5X-UDF It was noted that the entity’s Aircraft, C130- 5X-UDF had been grounded for over a year. The aircraft required major repairs on a centre wing box. It appears the entity has not taken any step to have it repaired and has continued to incur maintenance expenses in form of insurance costs and crew salaries. The aircraft has continued to depreciate and may get impaired.

In response, the Accounting Officer explained that they are pursuing US$.8million from Ministry of Finance, Planning and Economic Development (MoFPED) as capitalization to the Corporation for the repair of the grounded C-130 aircraft.

I await the outcome of the Accounting Officers follow up.

8.7 Returned Air Crafts (Y12s) It was noted that Ministry of Defence returned two aircrafts (Y12s) previously taken from the Corporation. These two air crafts had been taken over by the Ministry for a period of more than a year but all the associated running costs in form of salaries for the pilots, insurance costs and spare parts were being met by Uganda Air Cargo. I was not availed with any document from the Corporation demanding refund of all costs incurred during that period.

In response, the Accounting Officer stated that prior to the return of the aircrafts, management had prepared a hand over report that was never received by the Ministry. In the said report, management demanded that the ministry reimburses the Corporation for costs incurred in keeping the aircraft airworthy and the associated overhead costs.

I advised the Accounting Officer to forward the bills related to this activity to the Ministry for reimbursement.

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APPENDIX I

FINANCIAL STATEMENTS

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APPENDIX I

FINANCIAL STATEMENTS

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