Office of the Auditor General

OFFICE OF THE AUDITOR GENERAL

THE REPUBLIC OF UGANDA

REPORT OF THE AUDITOR GENERAL

ON THE FINANCIAL STATEMENTS OF KYENJOJO DISTRICT

FOR THE YEAR ENDED 30TH JUNE 2016

Table of Contents ...... Error! Bookmark not defined.

LIST OF ACRONYMS ...... 2

1.0 INTRODUCTION ...... 5

2.0 AUDIT OBJECTIVES ...... 5

3.0 AUDIT METHODOLOGY ...... 6

4.0 ENTITY FINANCING ...... 7

5.0 FINDINGS...... 7

5.1 Categorization of findings ...... 7

5.2 Summary of findings ...... 7

6.0 DETAILED AUDIT FINDINGS ...... 8

6.1 Under Collection of Local Revenue ...... 8

6.2 Unspent Budget Allocation of Drugs and Medical Supplies – Kyenjojo General Hospital .... 8

6.3 Treatment Abroad ...... 9

6.4 Lack of Land Titles ...... 9

6.5 Understaffing ...... 10

6.6 Doubtful Payment to Baylor ...... 10

6.7 Delayed Deletion from the Payroll ...... 11

Appendix I: Unspent Budget Allocation for drugs- Kyenjojo Hospital ...... 12

Appendix II: Delayed Deletion From the Payroll ...... 12

Appendix III: Understaffing ...... 12

LIST OF ACRONYMS

DLG District Local Government ICT Information Communication Technology ISSAI International Standards of Supreme Audit Institution LGFAM Local Government Financial and Accounting Manual 2007 LGFAR Local Government Financial and Accounting Regulations 2007 MoESTS Ministry of Education Science and Technology and Sports MoFPED Ministry of Finance Planning and Economic Development NMS National Medical Stores PFMA Public Finance Management Act 2015 PPDA Public Procurement and Disposal of Assets UGX Uganda Shillings URA Uganda Revenue Authority USMID Uganda Support to Municipal Infrastructure Development VAT Value Added Tax WHT Withholding Tax

REPORT AND OPINION OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF KYENJOJO DISTRICT FOR THE YEAR ENDED 30TH JUNE 2016

THE RT. HON. SPEAKER OF PARLIAMENT

Introduction

I have audited the accompanying financial statements of Kyenjojo District for the year ended 30th June, 2016. These financial statements comprise the statement of financial position as at 30th June, 2016, statement of financial performance, statement of changes in Equity, cash flow statement together with other accompanying statements, notes and accounting policies.

Management’s Responsibility for the Financial Statements

Under Article 164 of the constitution of the Republic of Uganda, 1995, (as amended) and section 45 of the Public Finance Management Act, 2015, the Accounting Officer is accountable to Parliament for the funds and resources of Kyenjojo District. The Accounting Officer is also responsible for the preparation of financial statements in accordance with the requirements of the Local Governments Financial and Accountability Manual, 2007, and for such internal control as management determines necessary to enable the preparation of financial statements that are free from material misstatement whether due to fraud or error.

Auditor’s Responsibility

My responsibility as required by Article 163 of the Constitution of the Republic of Uganda, 1995 (as amended) Section 87 of the Local Governments Act and Sections 13, 16 and 19 of the National Audit Act, 2008 is to express an opinion on these 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 audit procedures to obtain evidence about the amounts and disclosures in the financial statements as well as evidence supporting compliance with relevant 3

laws and regulations. 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 considers internal controls relevant to the entity’s preparation of financial statements in order to design audit procedures that are appropriate in the circumstances but not for purposes of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

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

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

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

John F. S. Muwanga AUDITOR GENERAL

15th December, 2016

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

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

2.0 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. The audit was carried out with regard to the following objectives:- a. To verify whether the financial statements have been prepared in accordance with the requirements of the Local Governments Financial and Accounting Manual 2007 and the Local Governments Financial and Accounting Regulations 2007; and fairly present the income and expenditures for the year and of the financial position as at the end of the year. b. To verify whether all the funds of the entity were utilized with due attention to economy and efficiency and only for the purposes for which the funds were provided. c. To verify whether goods and services financed have been procured in accordance with the PPDA Act. d. To evaluate and obtain sufficient understanding of the internal control structure of the entity, assess control risk and identify reportable conditions, including material internal control weaknesses. e. To verify whether the management of the funds of the entity was in compliance with the Government of Uganda financial regulations.

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

3.0 AUDIT METHODOLOGY The following audit procedures were undertaken:-

a. Revenue Obtained schedules of all revenues collected and reconciled the amounts to the Cash books and bank statements of the entity

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

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

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

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

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

4.0 ENTITY FINANCING Kyenjojo District is financed by grants (Conditional and Unconditional) from Central Government, development partners and locally generated revenues from taxes, fees, licenses and charges. During the year, the council received grants totaling to UGX. 21,004,386,619 as central government grants, UGX. 328,401,050 as Donor Funds, UGX. 1,603,673,554 as transfers received from other government units and UGX.192,739,894 from locally generated revenues. The total revenue of UGX.23,129,201,117 constituted 61% of its approved budget estimates of UGX.24,471,529,360.

5.0 FINDINGS

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

5.2 Summary of findings No Finding Significance 6.1 Under Collection Local Revenue High 6.2 Unspent Budget Allocation for Drugs High 6.3 Treatment Abroad High 6.4 Lack of Land Titles Moderate 6.5 Understaffing Moderate 6.6 Payment to Baylor Moderate 6.7 Delayed Deletion from the payroll Moderate 7

6.0 DETAILED AUDIT FINDINGS This section outlines the detailed audit findings, management responses thereof and my recommendations.

6.1 Under Collection of Local Revenue Regulation 32 of Local Governments Financial and Accounting Regulation, 2007 requires Councils to ensure collection of all budgeted revenue in an approved manner and the revenue banked intact in Council accounts. However, it was observed that out of the budgeted sum of UGX 233,200,000 only UGX. 192,739,894 was realised resulting into a short fall of UGX. 40,460,106 representing 17% of the budget.

The Accounting Officer attributed underperformance to the outbreak of foot and mouth disease that affected the revenue from sale of cattle and goat loading.

I advised the Accounting Officer to initiate measures and to ensure that all budgeted local revenue is collected.

6.2 Unspent Budget Allocation of Drugs and Medical Supplies – Kyenjojo General Hospital

During the year under review the Hospital had a budget allocation of drugs and medical supplies with National Medical Stores amounting to UGX.409,617,150. However only UGX 214,014,549 worth of drugs and sundries were supplied by National Medical Stores(NMS) leaving a balance of UGX.195,602,601 unspent. The unspent balance represented 48% of the budget allocation. Details are in Appendix I.

The Accounting Officer did not explain the efforts made to follow up the unspent balance.

I advised the Accounting Officer to engage National Medical Stores to ensure that unspent balance is utilised.

6.3 Treatment Abroad Paragraph 3.15(1) of the LGFAM of 2007 requires that if new or additional funds are required over and above the approved budgetary provisions, which cannot be met by Virement or Reallocation, the vote controllers concerned shall apply to the Chief Executive for a Supplementary Provision.

However, the entity incurred UGX 125,000,000 as additional medical expenses for staff that got treatment abroad in India as shown in the table below.

PV Number Date Details Amount Treatment PV-S04024 2-Sep-15 31,250,000 Abroad Treatment PV-S04421 6-Nov-15 31,250,000 Abroad Treatment PV-S048266 26-Feb-16 31,250,000 Abroad Treatment PV-S05313 11-May-16 31,250,000 Abroad TOTAL 125,000,000

The recommendation of the Medical Board was $26,000. However, the patient spent six months in India and the resultant cost became $123,934 siting delays by the medical team abroad. The medical board had not ratified the revised cost to facilitate the initiation of the supplementary estimates. As a result, the entity has paid UGX 215,000,000 out of UGX 433,769,000 but owes the officer UGX 218,769,000 as liability.

Management acknowledged the issue and submitted that the process of bringing the issue of ratification to the attention to the Permanent Secretary Ministry of Health was underway.

I advised the Accounting Officer to have the outstanding bill ratified by the Medical Board and have it approved by District Council and proceed to settle it in full. In the meantime the liability should be fully disclosed in the financial statements.

6.4 Lack of Land Titles Regulation 58(4) of the LGFAR of 2007 requires the properties and assets of a Local Government including land to be properly registered, titles issued and valued. However,

it was observed that the district does not have land titles for its District Hospital land, 128 and 9 government aided primary and secondary schools’ land respectively. Lack of land titles creates a risk of encroachment and land disputes.

The Accounting Officer explained that the process for acquiring the titles would be prioritized next year.

I advised the Accounting Officer to ensure that land titles are secured.

6.5 Understaffing The District has an approved staff structure of 368 positions. However, out of the approved 368 posts, only 236 positions were filled leaving 132 positions vacant representing 36% of the structure as shown in appendix II. Understaffing overstretches the available staff beyond their capacity, creates job-related stress and negatively affects the level of service delivery to the community.

The Accounting Officer attributed the staff shortage to the ban on recruitment.

I advised the Accounting Officer to continue engaging the relevant Ministries to ensure that the vacant positions are filled.

6.6 Doubtful Payment to Baylor

Paragraph 5.4.6 (1) of the LGFAM of 2007 requires that before any voucher is passed for payment the Head of Finance shall ensure that the voucher and any supporting documents are correct in all relevant particulars, and that sufficient provision is available in the relevant item to meet the expenditure.

However, management paid UGX.5,928,000 to M/s. Baylor Uganda purportedly in respect of an unaccounted for funds Baylor was demanding from various Health Centres because a staff of Baylor had lost accountability. I was not availed the Memorandum of Understanding(MoU) between the District and Baylor Uganda to justify the expenditure. In the absence of the memorandum of understanding, the payment made to Baylor is rendered doubtful.

The Accounting Officer claimed that the memorandum of Understanding was available but it was presented for audit.

I advised the Accounting Officer to provide the Memorandum of Understanding with Baylor Uganda for verification.

6.7 Delayed Deletion from the Payroll Section 5.6.3 (2) of the Local Government Finance and Accountability Manual, 2007 requires that staff who have left the Local Government service should be immediately deleted from the payroll.

However, it was revealed that some of the staff who left during the year continued to access the payroll resulting into a financial loss of UGX.2,659,750. Details are in (Appendix III). Delayed deletion from the payroll causes financial loss to the entity.

Management acknowledged the oversight and promised to make recoveries from the retirement benefits of the individuals identified.

I advised the Accounting Officer to ensure that the individuals identified are deleted from the payroll and the accounts recovered from their retirement benefits.

APPENDICES

Appendix I: Unspent Budget Allocation for drugs- Kyenjojo Hospital DELIVERY OF DRUGS BY NMS CYCLE BUDGETED AMOUNT AMOUNT DELIVERED DEFICIT 1 61,331,200 23,780,457 37,550,743 2 66,272,400 25,451,333 40,821,067 3 77,973,400 39,330,592.64 38,642,807.36 4 64,210,150 29,175,484 35,034,666 5 69,915,000 58,797,169.80 11,117,830.20 6 69,915,000 37,479,512.65 32,435,487.35 409,617,150 214,014,549 195,602,601

Appendix II: Delayed Deletion From the Payroll Appoin Date of assumption tment of duty/ Date Designatio Name Remarks TOTAL Date/ reported to n Exit deletions register Principal Makun The last pay certificate stated that the last date of pay Township e 31/01/2 was 31/01/2016. Continued on the payroll up to Apr 31/01/2016 Officer George 016 691,805- this was net pay. The payment register (Town 1,383,61 William showed he received up to march Clerk) 0 Katusa Reached mandatory retirement on 13/01/2016 but be 13/01/2 13/01/2016 Grade II Tr received upto Mar (187,139). The payment register Geogin 016 1,276,14 showed she received up to Mar (425,380) a 0 2,659,7 50

Appendix III: Understaffing Department Approved Filled Vacant Administration 25 20 06 Internal Audit 06 04 02 Procurement 03 04 - Finance 24 13 11 Planning 09 05 04 Natural Resources 13 12 01 Community Based services 10 7 03

Works 21 18 03 Production 65 24 41 Education 12 10 02 Statutory Bodies 180 119 61 TOTAL 368 236 132