The Republic of Uganda (Ministry of Works And

THE REPUBLIC OF UGANDA

(MINISTRY OF WORKS AND TRANSPORT COMPONENT) IDA CREDIT NO.4147 UG

REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF THE EAST AFRICA TRADE AND TRANSPORT FACILITATION PROJECT (EATTFP) FOR THE YEAR ENDED 30TH JUNE, 2015

OFFICE OF THE AUDITOR GENERAL UGANDA

TABLE OF CONTENTS

REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30TH JUNE 2015 ...... iv REPORT OF THE AUDITOR GENERAL ON THE SPECIAL ACCOUNT OPERATIONS FOR THE YEAR ENDED 30TH JUNE 2015 ...... vi 1.0 INTRODUCTION ...... 1 2.0 PROJECT BACKGROUND ...... 1 3.0 PROJECT OBJECTIVES AND COMPONENTS ...... 1 4.0 AUDIT OBJECTIVES ...... 2 5.0 AUDIT PROCEDURES PERFORMED ...... 3 6.0 CATEGORIZATION AND SUMMARY OF FINDINGS ...... 4 6.2 Summary of Findings ...... 5 7.0 DETAILED FINDINGS ...... 5 7.1 COMPLIANCE WITH THE FINANCING AGREEMENT AND GOVERNMENT OF UGANDA PROVISIONS ...... 5 7.2 GENERAL STANDARD OF ACCOUNTING AND INTERNAL CONTROL ...... 6 7.3 PROJECT IMPLEMENTATION ...... 6 7.4 Status of prior year audit recommendations ...... 17

LIST OF ACRONYMS

Acronym Meaning EATTFP The East Africa Trade and Transport Facilitation Project IDA International Development Association UG Uganda GoU Government of Uganda EU European Union UGX Uganda Shillings PPDA Public Procurement and Disposal of Public Assets. EAC East African Community URA Uganda Revenue Authority MOWT Ministry of Works and Transport US $ United States Dollar ISA International Standards on Auditing URC Uganda Railways Corporation JV Joint Venture Wrks Works OSBP One stop Boarder Post ICD Inland Container Depot EA East Africa TMEA Trade Mark East Africa. DLP Defects Liability Period Co. Company Ltd Limited MOFPED Ministry of Finance, Planning and Economic Development MTEF Medium Term Expenditure Framework VAT Value Added Tax

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THE EAST AFRICA TRADE AND TRANSPORT FACILITATION PROJECT (EATTFP) (MINISTRY OF WORKS AND TRANSPORT COMPONENT) IDA CREDIT NO.4147 UG

REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30TH JUNE 2015

THE RT. HON. SPEAKER OF PARLIAMENT I have audited the accompanying financial statements of the East Africa Trade and Transport Facilitation Project (EATTFP) (Ministry of Works and Transport Component) IDA Credit No.4147-UG for the year ended 30th June 2015. The financial statements set out on pages 6 to 30 comprise of;  Statement of receipts and payments  Statement of financial position  Statement of sources and uses of funds  Schedule of withdrawal applications  Statement of Designated Account Activity  Notes to the financial statements including a summary of accounting policies used.

Management’s Responsibility for the financial Statements Management is responsible for the preparation and fair presentation of the Project financial statements in accordance with the IDA guidelines and the cash basis of accounting as described under note 1 to the financial statements and for maintenance of such internal controls as management determines is necessary for the preparation and fair presentation of the Project financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility My responsibility is to express an opinion on the financial statements based on my audit. I conducted the audit in accordance with International Standards on Auditing (ISA). Those standards require that I comply with the ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatements.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the Auditor’s judgment, including the assessment of the risks of material misstatements of the financial statements, whether due to fraud or error. In making those risk assessments, the Auditor

iv considers internal controls relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion.

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

PART “A”

Opinion In my opinion, the project financial statements present fairly in all material respects the financial performance of the East Africa Trade and Transport Facilitation Project (EATTFP) (Ministry of Works and Transport Component) IDA Credit No.4147-UG as at 30th June 2015 and the receipts and payments for the year then ended in accordance with the IDA guidelines and the basis of accounting described under note 1 to the financial statements.

John F.S. Muwanga AUDITOR GENERAL

KAMPALA

16th December, 2015

THE EAST AFRICA TRADE AND TRANSPORT FACILITATION PROJECT (EATTFP)(MINISTRY OF WORKS AND TRANSPORT COMPONENT) - IDA CREDIT NO.4147 UG REPORT OF THE AUDITOR GENERAL ON THE SPECIAL ACCOUNT OPERATIONS FOR THE YEAR ENDED 30TH JUNE 2015

I have audited the special account statement of the East Africa Trade and Transport Facilitation Project (EATTFP) (Ministry of Works and Transport Component) IDA Credit No.4147-UG for the year ended 30th June 2015 which is set out on pages 16-20 of the financial statements. Management Responsibility for the Special Account Statement Project management is responsible for preparation of the special account statement and its fair presentation in accordance with the requirements of the Government of Uganda regulations and IDA guidelines. Management is also responsible for designing and implementing internal controls relevant to the preparation of the special account statement that is free from material misrepresentation, whether due to fraud or error and selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances. Auditor’s Responsibility My responsibility is to express an opinion on the Special Account Statement based on my audit. I conducted the audit in accordance with International Standards on Auditing and the IDA guidelines on auditing. Those standards and guidelines require that I plan and perform the audit to obtain reasonable assurance about whether the Special Account statement is free from material misstatements. I believe that the audit provides a reasonable basis for my opinion. Opinion In my opinion, Project management complied in all material respects with IDA rules and procedures and that the special account statement for the East Africa Trade and Transport Facilitation Project (EATTFP) (Ministry of Works and Transport Component) IDA Credit No.4147-UG for the year ended 30th June 2015 presents fairly in all material respects the account transactions and the closing balance as at 30th June 2015.

John F.S. Muwanga AUDITOR GENERAL 16th December, 2015

REPORT OF THE AUDITOR GENERAL AND SUPPLEMENTARY INFORMATION

PART “B” DETAILED REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF THE EAST AFRICA TRADE AND TRANSPORT FACILITATION PROJECT FOR THE YEAR ENDED 30TH JUNE 2015 This Section outlines the detailed audit findings, management responses, and my recommendations in respect thereof.

1.0 INTRODUCTION

Article 163 (3) of the Constitution of the Republic of Uganda, 1995 (as amended), requires me to audit and report on the public accounts of Uganda and all public offices including the courts, the central and local government administrations, universities and public institutions of the like nature and any public corporation or other bodies or organizations established by an Act of Parliament. Accordingly, I carried out the audit of the East Africa Trade and Transport Facilitation Project (EATTFP) (Ministry of Works and Transport Component) IDA Credit No.4147-UG for the year ended 30th June 2015 to enable me report to Parliament.

2.0 PROJECT BACKGROUND

The Credit Agreement between Government of Uganda and the International Development Association (IDA) was signed on 7th April, 2006. Under the agreement, IDA agreed to provide a credit amounting to SDR 18,200,000 million (US $26.4 million with US $2.8m allocated to URA) to finance the Project activities.

The project became effective on 2nd April 2007 and was scheduled to close on 30th September 2011, however due to delays in the implementation of the key sub components, GoU requested for an extension of the Credit closure date, which was granted up to 30th September 2014. The closing date was further revised to 30th September 2015.

The Project is executed jointly by the Ministry of Works and Transport (MoWT) and Uganda Revenue Authority (URA).

3.0 PROJECT OBJECTIVES AND COMPONENTS

The project has the following major components; i) Customs component ii) Border posts sub-component

iii) Weighbridge sub-component iv) Railway sub-component The Project development objectives as at the start of the Project (April 2007), were; i) Improve trade environment through the effective implementation of the EAC customs union protocol. ii) Enhance transport and logistics services efficiency along key corridors by reducing non tariff barriers and uncertainty of transit time along key international transport corridors in EA. iii) Improve railway services in Kenya and Uganda.

However, following the restructuring on June 23rd, 2011 the project lifespan was extended from 30th September 2011 to 30th September 2014 and the project objectives were revised to;

i) Enhance efficiency of customs agencies’ clearance processes for the EAC partner states participating in the EA customs union, to facilitate trade. ii) Improve efficiency and reliability of transport and logistics services along the key corridors. iii) Enhance safety in identified areas and reduce the recipient’s fiscal transfers to railway institutions by rationalizing the workforce on the Kenya-Uganda railway.

4.0 AUDIT OBJECTIVES

The audit was conducted in accordance with International Standards on Auditing and included a review of the accounting records, accounting policies used and agreed procedures as was considered necessary. The Audit was carried out with regard to the following objectives;

a. To express an opinion as to whether the financial statements for the year ended 30th June 2015 present fairly in all material respect the receipts and payments of the project as well as the cash position and are in conformity with generally accepted accounting principles. b. To establish whether the special account has been maintained in accordance with the provisions of the Credit Agreement.

c. To evaluate and obtain a sufficient understanding of the internal control structure of the project, assess control risk and identify reportable conditions, including material internal control weaknesses. d. To establish whether project managers are managing the project in compliance with the covenants contained in the financing agreements as well as Government of Uganda financial regulations. e. To establish whether all procurements of goods and services under the project have been undertaken in accordance with GOU procurement guidelines and procedures as specified in the PPDA Act 2003. f. To establish whether all necessary supporting documents, accounting records as well as books of accounts have been kept in respect of all project activities. g. Whether project activities have been implemented as stated in the work plans and budgets.

5.0 AUDIT PROCEDURES PERFORMED

a. Revenue/Receipts Obtained a schedule of all project funds provided by IDA and Government of Uganda and reconciled the amounts to the project’s cash books and bank statements.

b. Expenditure Reviewed the Programme funding Agreement to ascertain agreed budget line activities for the IDA and GOU funding and checked whether funds were utilized in accordance with the approved work plan.

Vouched transactions of the programme in particular funding received and expenditures incurred during the period covered by the audit in order to establish that documentation in support of expenditure agreed with the amount and description on the payment vouchers and or applications, bank statements and was properly controlled and accounted for.

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

d. Procurement Reviewed procurement of goods and services for the project and reconciled with the approved procurement plan.

e. Fixed Assets Management Reviewed use and management of the assets of the project during the period under review.

f. Periodic Reports about project Activities Reviewed the programme agreement provisions, and reconciled it to the project activities during the period under review.

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

6.0 CATEGORIZATION AND SUMMARY OF FINDINGS 6.1 Categorization of Findings The following system of profiling of the audit findings is used to prioritise the implementation of audit recommendations:

No. Category Description 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 Has a moderate impact, has a likelihood of reoccurrence, significance 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.

6.2 Summary of Findings

No Finding Significance 7.1.1 Outstanding VAT Obligations - UGX. 3,171,023,449 High 7.1.2 Unreleased Budgeted Funds (IDA & GOU) UGX.4,307,582,756 High 7.3.1 Inspection of One Stop Border Posts (OSBP) High

7.4 Status of prior year audit recommendations Low

7.0 DETAILED FINDINGS 7.1 Compliance with the Financing Agreement and Government of Uganda Provisions Project Management complied in all material respects with the provisions in the agreement and GoU regulations except in the following matters;

7.1.1 Outstanding VAT Obligations The project had an outstanding obligation in un-cleared VAT of UGX.3,171,023,449 as at the end of the financial year under review. I noted that there was a delay in clearing VAT on paid certificates. I explained to Management that accumulation of VAT arrears could cause interruptions in the construction works with the contractors. Besides, there is a possibility that the amount may become unmanageable.

I advised the Accounting Officer to ensure the outstanding VAT is cleared.

7.1.2 Unreleased budgeted funds (IDA and GOU) Analysis of budget performance for the year showed that the Project expected funding from IDA and GOU totalling to UGX.30,405,740,000 (IDA- UGX.21,500,000,000 and GOU-UGX.8,905,740,000 respectively). However, UGX.26,102,702,295 (IDA- UGX.17,202,504,020 and GOU-UGX.8,895,653,224) was received translating into an overall performance of 86% performance for the year. UGX.4,307,582,756 (14%) of the total budget was not released to the project. Non- release of all budgeted funds affects smooth implementation of the planned activities.

In response, management explained that the shortfall in funding was majorly from the slow disbursement from IDA as a result of delayed completion of Mukono Railway ICD and construction works for Katuna OSBP. In regard to Katuna OSBP, progress was affected by lack of funding by the European Union (EU) where the

project was later split into two separate contracts due to insufficient balances on the IDA Credit. The two contracts include; building works contract financed by IDA and GOU and road, parking and swamp reclamation works contract funded by the EU.

I advised the Accounting Officer to improve on supervision and monitoring so as to have the works completed in the scheduled time lines.

7.2 General Standard of Accounting And Internal Control A review of the project financial management system was carried out and it was observed that management had instituted adequate controls to manage project resources.

7.3 Project Implementation 7.3.1 Inspection of One Stop Border Posts (OSBP) I inspected the OSBPs at Busia, Malaba, Mirama Hills, Katuna, Mutukula, and the in land Container Depot - Mukono in the month of October 2015 to establish the progress of construction works and listed below were some of the findings;

Busia OSBP The construction of Busia OSBP was undertaken at a contract sum of UGX.15,898,641,294 for a period of 12 months that commenced on 29/08/2013 and was expected to be completed by 28/8/2014. The project completion date was further revised to 30th September 2015. During inspection; I noted the following issues;

a) Delayed Completion of Additional Works Inspection of the construction works indicated that the contractor completed work for the construction of the staff quarters, the administration block and the structures were handed over to URA on the 12th September 2015. However, I noted that additional works currently funded by Trade Mark East Africa (TMEA) at a cost of US$.0.8m were behind schedule. This activity had been omitted in the original contract and this includes installation of fire-fighting equipment, relocation of the National Fibre Optic Hub and extension of the parking yard. At the time of inspection (October 2015), work was estimated to be above 85% completion.

Delays in implementation of project activities could lead to extra administrative costs.

In response, the Accounting Officer acknowledged the delay on the additional works mainly the parking yard and also attributed the slow progress to heavy rains that occurred in the project area in the recent months, making it unfavourable for major works to be executed especially earthworks. The situation has also been compounded by the rocky conditions in some parts of the project area causing frequent breakdown of contractor`s equipment. Management had stepped up its supervision. The remaining works would be completed in time.

I await the outcome of management’s commitment. b) Lack of funding for construction of Access Road - UGX. 4.2bn I noted that there was a delay to construct the access road to Busia OSPB which has now been taken over by GOU who will undertake the funding. At the time of reporting (December 2015), the Ministry was in the process of procuring a contractor. The delay to construct an exit road has caused congestion of trucks and trailers at the border thereby interrupting operations of the Boarder post. Below is a pictorial description of the progress of works:

On-going works at the park yard, in the picture Un operational concrete batching plant is the non-operational concrete batching machine

On-going works, extension of the park yard that had been halted because of delayed shifting of the The un constructed access road at Busia OSBP police Uni-ports.

The inside area of the administration block and One item under the additional works, customs offices already in use installation of fire fighting equipment

In the picture is the borehole that is part of Fibre optic cable to be relocated after additional works that had been omitted construction of the yard.

There is uncertainty as to whether the road will be constructed within the time frame. At the time of reporting, there was no commitment by GOU towards resolving the issue. I explained to management that the continued delay in constructing the road will continue to interrupt operations of the Border post.

In response, management explained that the Ministry wrote to the Authority in charge of Roads in December 2013 to prioritise the construction of exit roads at Malaba and Busia OSBPs but this was not done due to lack of funding and consequently, the Ministry of works was advised to implement. MOWT with support from World Bank and Trade Mark - East Africa who are financing Malaba and Busia OSBPs respectively have since been following up on the issue of funding for Malaba/Busia exit roads with MOFPED until May 2015 when MOFPED advised the Ministry to raise the required funding from its MTEF. With guidance from the project Financiers and the Solicitor General, the Ministry re-started the procurement process for the contractor of Malaba and Busia exit roads. Evaluation process has been completed and the draft contract agreement has been submitted to Solicitor General for clearance. It is envisaged that contract signing will be by end of December 2015 while civil works are hoped to commence in early January 2016.

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

7.3.1.1 Malaba OSBP The construction of Malaba OSBP was undertaken at a contract sum of UGX.15,707,641,294 for a period of 12 months that commenced on 29/08/2013 and expected to be completed by 28/8/2014. The Project Completion date was revised to 30th September 2015, and hand-over is expected in February 2016. The construction of an exit road had not been embarked on as noted below:

Delayed Construction of exit road At the time of reporting (December), the procurement process had started and was at evaluation stage. I noted that the delayed construction of the exit roads has affected the movement of trucks and trailers at the border as the exit gate is as well used for incoming trucks which cause a lot of congestion and delay of trucks to clear at the Boarder point. Below is a pictorial description of the constructed Malaba border post:

Inspection Photographs at Malaba One Stop Completed and handed over customs structures of Border Post Malaba OSBP

Completed renovation of the former customs offices

I explained to management that in adequate planning could lead to failure to achieve the project intended objectives.

I advised management to expedite the procurement process so that construction work can be started.

7.3.1.2 Inspection of Internal container Depot (ICD) - Mukono The construction of the ICD at Mukono was undertaken by an international construction company for a contract sum of US$.8,688,112.11 for a period of 18 calendar months including 6 months of the defects liability period. I noted that the works were completed and the site handed over in July 2015. However; during the review, I noted the following issues;

a) Non-payment of UGX.490m to Mukono District Council Following a land dispute with Mukono District Council, the project management agreed to compensate UGX.490m as a lump sum payment to the Council. To date, Management has not yet honoured its commitment. I explained to management that delayed payment of compensation funds could attract interest and a possibility of litigation could not be ruled out.

In response, management explained that the long standing dispute between the Ministry and Mukono District affected the progress of the ICD project and an

understanding had been reached between the two parties. However in December 2014, the Ministry sought legal advice from the Solicitor General on the pending compensation of UGX.490m to Mukono District and the Solicitor General advised that there was no justification for the compensation since the District could not prove that it owned the structures. Therefore the Ministry could not proceed with this expenditure. Fortunately, works on the ICD works were completed and the facility was handed over in July 2015 to URC and RVR for operations.

I await the outcome of the Accounting Officer’s guided opinion on the matter. b) Poor workmanship on installation of pavers I noted that the paving works were not properly done as the pavers looked to be of low quality with rough finishing and gaps were identified in between. I explained to management that the poor installation of pavers may lead to high maintenance costs.

Management explained that the contract is still under Defects Liability Period (DLP) during which the contractor will address this shortcoming. The operator company has been advised to adhere to the ICD operational requirements.

I advised the Accounting Officer to enforce supervision for enhanced benefits. c) Poor Handles for all Emergency Doors It was noted that all the handles for the emergency doors were broken as they were made of plastic and not steel as provided for in the initial designs. Other defects included the lower point in the compound as evidenced by the stagnant rain water in the park yard. This problem could be attributed to inadequately casted levels constructed before the construction of rails. Below is a pictorial description of the status of the completed project works (ICD Mukono):

Completed ware house after renovation. The completed administration block already in use by URA/RVR

The completed weigh bridge with dent on extreme left by a truck which was larger than the provided area for The Mechanical servicing wing exit. It was explained it is to be fixed.

In the picture is stagnant water due to Poorly constructed pavers with gaps in between casting problems that may need to be attended to urgently

I advised the Accounting Officer to correct the above defects early enough so that assets do not deteriorate quickly and or create unnecessary repair costs.

In response, Management explained that the above issues are included in the snag list (defects list) that the contractor is supposed to address during the DLP and has been reminded of his obligation to correct all defects as provided for in the contract. Management will ensure that all defects are corrected before the expiry of the DLP.

I advised management to ensure the contactor puts right all the defects prior to the expiry of the defects liability period.

7.3.1.3 Inspection of Mutukula OSBP The construction of Mutukula OSBP was undertaken at contracted sum of UGX.18,793,900,206 and commenced on the 5th September 2013. The completion date was set for 5th September 2014, which was later extended to 30th September 2015. Work was completed and handed over to URA on the 25th August 2015. However, inspection of the border post showed the following issues;

a) Delayed demolition of the Police Station Structures The Police Station that is so close to the verification shed has not been demolished as required. One of the conditions for demolition was relocation and re-construction of another Police Station which management has not yet implemented. Delayed demolition of the Police Station has hindered the completion of construction part of the verification shed, wet cargo and the loading area at the dry cargo. This hinders the operations of the border post.

In response, Management explained that the works for the new police post are on- going and will be completed at the end of December 2015. The community police is expected to relocate to its new office block in the first week of January 2016 to enable the contractor work on this area and complete the project.

I await the outcome of the Accounting Officer’s commitment. b) Delayed demolition of old URA building I noted that the old URA building has not been demolished and this has hindered completion of construction of the road to the exit gate and connection of the road to the scanner room, along gate number 1. I explained to management that this continues to affect the operations of the border post. Below is a pictorial description of the Mutukula Border post:

Completed Administration Block at OSBP Mutukula

Completed staff quarters, there was no Verification Office provision for paving or grading the compound in the bills of quantities

Incomplete concrete work in this area due to un Incomplete work on wet cargo house due to demolished police quarters un demolished police station.

Further review showed that there was no provision for paving or grading of the staff quarters compound in the bills of quantities and at the time of inspection, grass had not been planted. I explained to management that mud and/or dust could make the environment unhealthy.

Management explained that the demolition of the old URA building could not be done unless the new facilities have been completed and staff relocated. This has been achieved and URA staff are expected to relocate to the new offices by end of December 2015. This will pave way for demolition of the old structure and completion of works around this area. Regarding the issue of staff quarters compound, the Ministry has already submitted a proposal to the financier (TMEA) which is being considered.

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

7.3.1.4 Construction of OSBP at Mirama hills The Construction of OSBP at Mirama Hills was undertaken at a contract sum of US$.7,817,703.32. The contract commencement date was 4th July 2013 and the revised completion date was 19th September 2014. The completion date was further revised to 30th September 2015 and the hand over expected on the 2nd July 2015. The on-going works at the time of inspection were construction of the bridge connecting to Uganda OSBP to Rwanda. Construction was progressing well and expected completion date is 30th December 2015. Interview with the supervising consultant showed that they were ahead of time and hoped to complete by 30th November 2015. Below is the pictorial description of the completed works at the border post:

The inside part of the customs area. The Completed administration block

Behind view of the administration block Un demolished structures bordering the fence, pending demolition when road works begin.

Construction of bridge works at the gate Generator joining Rwandan border

In noted that the un-demolished structures bordering the fence of the border post could pause security threats to the border Post.

In response management explained that the construction of the bridge connecting Uganda to Rwanda is under a separate contract supervised by UNRA. Similarly, the un-demolished structures near the entrance gate and fence are being handled by UNRA under the on-going Ntungamo-Mirama Hills road upgrading project. The bridgeworks have been completed while progress on the Ntungamo-Mirama Hills road is about 45%. Management will continue to follow up the matter to ensure close supervision and timely completion of the construction works.

I await the outcome of management’s plan of action.

7.3.1.5 Delayed Construction of Katuna OSBP and swamp reclamation works a) Construction of the OSBP The construction of Katuna OSBP is undertaken at a contract sum of UGX.8,951,277,750 and Swamp reclamation for access road works estimated at UGX.12,000,000,000. The commencement date for the construction was 13th June 2014 and the estimated completion date was set for 13th June 2015. This was later revised to 30th December 2015. Inspection of construction works showed the following;

The MOWT re-started the procurement process for the contractor of the OSBP, access road and swamp reclamation in May 2013 after receiving a No- Objection from the Government of Rwanda to proceed with the development of the OSBP. After completion of the procurement process, the World Bank gave a no Objection based on the following conditions;

14 a) GOU to confirm funding of US$.3.9m of which 15% should be made available during the FYR 2013/14. b) EU’s funding for access roads and swamp reclamation works is confirmed and; c) NEMA and World Bank clear the Environmental Impact Assessment review report.

The EU Confirmed funding on the 12th May 2014 and all the conditions set by World Bank were met including NEMA’s clearance that was received on the 30th April 2014. I noted that GOU was required to finance the building works for Katuna OSBP since IDA credit funding had been exhausted. The contract for construction of OSBP was finally awarded at a sum of UGX.8,951,277,750 on the 5th June 2014. The EU delayed to operationalize her support and the contractor could not commence on the major building works due to delayed reclamation of the wetland where the buildings were to be constructed.

I noted that finally EU pulled out from the funding of the swamp reclamation and construction of access roads and in resolution of this funding gap, a variation of the existing contract was made to include some limited land reclamation covering areas proposed for construction of the buildings so that the building contract could progress. The variation was approved with a value of UGX.2,228,578,942 that was signed on the 25th May 2015. It is anticipated that all the works would be completed by end of April 2016. I explained to management that delayed completion of construction works may affect operations of the border post.

Management explained that they are now focusing on enhanced supervision with weekly programmes, bi-weekly site inspections and monthly site meetings. Below is a pictorial description of the progress of works at Katuna OSBP:

Hired manual labour instead of using Reclamation works at Katuna equipment

Un reclaimed swamp area due to lack of Building Works at 10% progress funding

I advised the Accounting Officer to enforce monitoring and supervision of the construction works in order to achieve the targeted goal. b) Delayed completion of reclamation works Inspection of the site showed that the contractor was behind schedule on reclamation of the swamp and according to the contract; reclamation works were supposed to have been completed by 30th September 2015 but physical progress was estimated at 40% by the time of inspection. Interview with management showed that the slow progress was attributed to the factors listed below; i) Lack of Equipment During the procurement process; the contractor specified a number of equipment to be used on site however physical inspection revealed that the contractor had employed man power of around five men to remove fines from the stone aggregates which work could have been done quickly if the equipment was used. This delayed the works under swamp reclamation.

In response, management explained that they have stepped up supervision and the contractor is now required to submit and adhere to a weekly programme though progress has been affected by rains. Construction works have commenced in some areas and all building works will be completed by end April 2016.

I advised the Accounting Officer to enforce supervision.

ii) Un delivered purchased material

It was noted that the contractor purchased material to be used on site but lacked capacity to deliver them. There is a possibility that this could delay construction works and besides; the risk of material getting spoiled or stolen could not be ruled out.

Management explained that heavy rains, poor terrain and lack of material sources in Katuna such as sand are the biggest challenges. The would be material sources such as hard core are not readily accessible due to the hilly terrain of the area and the contractor can only make a few trips only on a sunny day. For materials like sand, the source is Mbarara (about 150km) and the contractor can only make a few trips given that the road (Mbarara-Ntungamo and Kabale-Katuna) is under construction.

I advised the Accounting Officer to enforce monitoring of construction works closely to ensure works are completed in time.

7.4 Status of prior year audit recommendations

Review of the status of implementation of the prior year audit Recommendations showed that some recommendations were not yet implemented by management as per the schedule below;

Audit Issue Recommendation Audit Remarks Unreleased Budgeted Project Funds (IDA & I advised management to There is some GOU) take up the matter with improvement Analysis of budget for the year showed that appropriate authorities for though the the Project expected funding from IDA and purposes of obtaining challenge is still GOU to a tune UGX.894,846,000 and adequate funding and on. UGX.11,910,000,000 respectively. However, enforce monitoring to I noted that only UGX.14,227,175,761 was ensure project activities are received from IDA and UGX.2,357,076,832 completed as scheduled. from GOU translating into 45% performance of the total budgeted funds for the year. Funds totalling to UGX.9,552,923,168 (26 % of the total budget) from GOU was not released to the project. Low absorption capacity coupled with the non-release of funds from GOU affects implementation of the planned activities.

Inspection of construction works at One Stop Border Posts (OSBP) I inspected four OSBPs at Katuna, Mutukula, Mirama, Busia, Malaba and Mukono ICD was carried out between the 24th August and 5th September 2014. It was noted that works at all the OSBPs and Mukono Railway ICD were behind schedule despite several requests to have the project extended. BUSIA OSBP I advised management to Implemented The construction of Busia OSBP at a contract liaise with the PS/ST and sum of UGX.15,898,641,294 was for a period IDA on the matter and have of 12 months. Works commenced on 29th the extra works urgently August 2013 and was to be completed on funded to avoid any delays 28th August, 2014. At the time of inspection, and costs associated with the agreed time period had expired and the project extension. construction works were far behind schedule. At the time of reporting, the progress of works was estimated at 60% and the contractor had provisionally been given the extension up to end of December 2014. Such delays have an effect on project performance. MALABA OSBP I advised management to Implemented Construction of Malaba OSBP was agreed at seek for an extension and a contract sum of UGX.15,708,759,579 to be have the construction completed within 12 months effective 29th finalized. August 2013. The expected date of completion was scheduled to 28th August, 2014 however, this period had expired before completion of works. At the time of inspection, works were estimated at 75% completion. As at the time of reporting, I noted that management had not secured a “No Objection” for the project extension from the IDA. Non completion is likely to extend the project life further. 7.4.1 MUTUKULA OSBP I advised management to Implementati The construction of Mutukula OSBP monitor the contractor on in commenced on 6th September 2013 at a closely and ensure that the progress. contract sum of UGX.18,793,900,201. The works are completed within expected date of completion was 5th the extended timelines. September 2014, however, at the time of inspection, the expected date had expired yet a substantial amount of work had not been done. Delayed completion of works has greatly affected the performance of the project.

7.4.2 KATUNA OSBP I advised management to Implementati The construction of Katuna OSBP at a ensure close monitoring so on on but contract sum of UGX.8,951,277,750 that the project is works behind commencement on 13th June 2014 and was completed on schedule. schedule. estimated to be completed on 13th June, 2015. At the time of inspection, the contractor had completed demolishing of the existing structures preparing the site for construction works to commence. It was evident that works may not be completed at the set period. 7.4.3 MIRAMA HILLS OSBP I advised management to Implemented The Construction of OSBP at Mirama Hills at enforce the provisions of a contract sum of US$.7,817,703.32 the contracts and ensure commenced on 4th July 2013 and the revised that the contractor speeds completion date had been set for 19th up the works at the border September 2014. At the time of inspection, posts to avoid escalation of the extension had expired and the physical contract costs. progress of works achieved was estimated at 70%. Delayed completion of works affects border post operations and could lead to unnecessary project extension costs. 7.4.4 MUKONO ICD I advised management to Implemented The Construction of proposed Railway Inland increase supervision and Container Depot (ICD) at Mukono by an monitoring with a view of international construction company at a having the construction contract sum of US$.8,688,120,112 completed within the commenced on 10th December 2012 and was extended time period. expected to be completed on 10th December 2013 but was later revised to 9th June 2014. At the time of inspection, the constructions were estimated at 50% completion way below expected performance. As explained earlier, delays are likely to affect the project performance and time extensions.

I advised the Accounting Officer to make timely implementation of the recommendations.

APPENDIX I

FINANCIAL STATEMENTS