Report of the Auditor General on the Financial Statements of Mulago National Referral Hospital for the Financial Year Ended 30Th June, 2015

THE REPUBLIC OF UGANDA

REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF MULAGO NATIONAL REFERRAL HOSPITAL FOR THE FINANCIAL YEAR ENDED 30TH JUNE, 2015

OFFICE OF THE AUDITOR GENERAL UGANDA

TABLE OF CONTENTS

LIST OF ACRONYMS ...... iii 1.0 INTRODUCTION ...... vii 2.0 BACKGROUND INFORMATION ...... vii 3.0 ENTITY FINANCING ...... vii 4.0 OBJECTIVES OF MULAGO NATINAL REFERRAL HOSPITAL ...... vii 5.0 AUDIT OBJECTIVES ...... i 6.0 PROCEDURES PERFORMED ...... 1 7.0 PROFILING OF AUDIT OBSERVATIONS ...... 1 8.0. DETAILED FINDINGS ...... 2

LIST OF ACRONYMS

Acronym ADB African Development Bank ADB African Development Bank GoU Government of Uganda MNRH Mulago National Referral Hospital MoFPED Ministry of Finance Planning and Economic Development NMS National Medical Stores NMS National Medical Stores PFAR Public Finance and Accountability Regulations PFMA Public Finance Management Act TAIs Treasury Accounting Instructions UGX Uganda Shillings

iii

DETAILED REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF MULAGO NATINAL REFERRAL HOSPITAL FOR THE YEAR ENDED 30TH JUNE, 2015

THE RT. HON. SPEAKER OF PARLIAMENT I have audited the financial statements of Mulago National Referral Hospital for the year ended 30th June, 2015. 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 on 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 Mulago National Referral Hospital. The Accounting Officer is also responsible for the preparation of financial statements in accordance with the requirements of the Public Finance Management Act 2015, and the Financial Reporting Guide, 2008, and for such internal control as management determines is 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) 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

iv 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 qualified opinion.

Part “A” of this report sets out my qualified 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” Basis of Opinion  Mischarge of expenditure An amount of UGX.570,405,506 was wrongly charged on expenditure votes other than those under which they were appropriated. The practice undermines budgetary control and may result into misstatement of financial statements

The practice of mischarging expenditure undermines the importance of the budgeting process as well as the intentions of the appropriating authority

Qualified Opinion In my opinion, except for the possible effects of the matter described in the Basis for Qualified Opinion paragraph the financial statements of Mulago National Referral Hospital for the year ended 30th June 2015 are prepared, in all material respects in accordance with Section 51(1) of the Public Finance Management Act, 2015, and Financial Reporting Guide, 2008.

Emphasis of Matter Without qualifying my audit opinion I draw your attention to the following matter included under note 8 to the financial statements

 Misclassification of Expenditure UGX.1,985,400,000 was budgeted and incurred on patients' food under code 221010: Special Meals and Drinks which code is meant to cater for special meals and drinks served to staff working under exceptional working conditions, resulting into misrepresentation of accounts.

Other matter In addition to the matter raised above, I consider it necessary to communicate the following matter other than those that are presented in the financial statements.

 Unaccounted for advances to Personal Bank Accounts UGX.1,100,300,050 was advanced to staff through their personal bank accounts to undertake activities of the hospital. Although this was attributed to the nature of the activities involved, I noted that UGX.230,048,350 remained unaccounted for contrary to the provisions of Treasury Accounting Instructions.

John F.S. Muwanga AUDITOR GENERAL

8th December, 2015

PART "B" DETAILED REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF MULAGO NATIONAL REFERRAL HOSPITAL 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 Mulago National Referral Hospital (MNRH) to enable me report to Parliament.

2.0 BACKGROUND INFORMATION

Mulago National Referral Hospital is responsible for provision of super-specialized healthcare, training and conducting operational research in line with requirements of the Ministry of Health. Mulago National Referral Hospital is located on Mulago Hill, Kawempe Division, and Kampala. The Hospitals Vision is “To be the leading centre of healthcare delivery in Africa.” and its mission is “To offer state of art healthcare services.”

3.0 ENTITY FINANCING Mulago National Referral Hospital was financed by Grants from Central Government to the tune of UGX.47,200,221,960; Non-tax revenue of UGX.5,955,565,624 was also collected, bringing the total revenue to UGX.53,155,787,584. The total grants revenue of UGX.47,200,221,960 constituted 82.4% of its approved budget estimates of UGX.57,253,962,985

4.0 OBJECTIVES OF MULAGO NATINAL REFERRAL HOSPITAL The objective of Mulago National Referral Hospital is to provide super-specialized healthcare, training and conducting operational research in line with requirements of the Ministry of Health. 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:- a. Whether 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. Whether all funds were utilized with due attention to economy and efficiency and only for the purposes for which the funds were provided. c. Whether goods and services financed have been procured in accordance with the Government of Uganda Procurement regulations. d. Whether an adequate internal control structure was put in place to assess control risk and identify reportable conditions, including material internal control weaknesses. e. Whether the management was in compliance with the Government of Uganda financial regulations. f. Whether all necessary supporting documents, records and accounts have been kept in respect of all activities, and are in agreement with the financial statements presented.

6.0 PROCEDURES PERFORMED The following audit procedures were undertaken:- (a) Revenue

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

(b) Expenditure The payment vouchers 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 audited.

(d) Procurement Reviewed the procurement of goods and services by the Ministry during the period under review and reconciled with the approved procurement plan.

(e) Fixed Asset Management Reviewed the use and management of the Ministry assets during the period under audit

(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 evaluating the overall financial statement presentation.

7.0 PROFILING OF AUDIT OBSERVATIONS

7.1. Categorization of the audit 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 Has a moderate impact, has a likelihood of reoccurrence, and in significance 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 audit findings

No Observation Significance 1 Mischarge of expenditure High 2 Misclassification of Expenditure (Expenditure on patients meals) Moderate 3 Under delivery of Drug Supplies from National Medical Stores High 4 Fixed Budget Allocation for Essential Medicines and Health Supplies High 5 Inadequate Staff Establishment High 6 Improper Personnel Records Management Moderate

7 Advances to personal accounts High 8 Inadequate Provision of Medical Staff Houses Moderate

8.0. Detailed Findings 8.1 Mischarge of Expenditure The GOU Chart of accounts, which the hospital uses defines the nature of expenditure for each item code. The Chart of Accounts is intended to facilitate better and consistent classification of financial transactions and to also track budget performance per item in line with the approved budget. During the budgeting process, funds are tagged to particular activities and outputs using the account codes and appropriated accordingly. I noted that UGX.570,405,506 was wrongly charged on budget lines as shown below;

Account Amount Amount Activities to which funds were Description Code Allocated mischarged diverted Advertising and Public 112,500,000 Payments for Cookers and night 221001 53,389,000 Relations allowances. 267,100,000 cookers, stationery and sitting 221003 Staff Training 106,269,178 allowances Books, Periodicals & Sitting allowances were paid off this 221007 Newspapers 12,700,000 2,194,000 item. Welfare and Allowances to staff and hotel 221009 Entertainment 243,200,000 22,464,593 services

Printing, Stationery, Advances and sitting allowances 221011 Photocopying and 258,000,000 3,334,000 were charged off this item. Binding Sitting allowances 221012 Small Office Equipment 2,851,000 32,400,000 allowances to staff 221016 IFMS Recurrent Costs 30,000,000 14,820,000 Advances and allowances to staff 221020 IPPS Recurrent Costs 25,000,000 2,973,901 Information and 56,400,000 Clearing of imported items and 222003 communications 13,045,782 allowances to staff technology (ICT) Uniforms, Beddings 112,900,000 Advances to staff and allowances 224005 29,206,000 and Protective Gear 825,200,000 Sitting allowances 228001 Maintenance – Civil 137,924,000

stationery, repairs and other costs 263106 Other current Grants 98,000,000 31,934,092 2,205,909,000 electrical repairs, plumbing, Consultancy services 225001 149,999,960 purchase of stationery and other short term items 570,405,506

The practice of mischarging expenditure undermines the importance of the budgeting process as well as the intentions of the appropriating authority.

The Accounting Officer attributed the mischarges to activities that had to be attended to irrespective of whether funds were available under the particular code items or not.

I advised the Accounting to always undertake adequate planning and budgeting and ensure that all budget activities are given adequate funds.

8.2 Improper coding of expenditure

8.2.1 Misclassification of Expenditure (Expenditure on patients meals)

The item code 221010 in the Uganda Chart of Accounts is meant for special meals and drinks meant staffs working in exceptional conditions and meals provided to servicemen such as the Military during combat operations or others on active duty. However, during the financial year 2014/2015, UGX.1,985,400,000 was budgeted and spent on patients' food under code 221010. Since patients are not regarded as servicemen or staff on active duty, budgeting for their food on code 221010 is a misrepresentation of the budget facts and the reported output of expenditure does not represent the actual activity for which the funds were used. Misclassification of expenditure provides misleading information to the stakeholders.

Management explained that the Accountant General had not provided an appropriate code to cater for the cost of meals served to patients in hospitals thus funds were instead budgeted for and allocated to the ‘Special Meals’ code.

I have advised the Accounting Officer to seek guidance from the Accountant General on how to budget for and report on expenditure in respect of meals given to patients in hospitals in a more appropriate manner.

8.3 Drugs Supplied to Mulago Hospital 8.3.1 Fixed Budget Allocation for Essential Medicines and Health Supplies

I noted that the annual budget allocation of UGX.11,365,600,000 for essential medicines and health supplies for Mulago National Referral Hospital had remained constant since financial year 2011/2012 despite the remarkable increase in the

number of patients over the same period from 1,356,870 to 1,641,390 (21%) as shown in the table below,

FY 2011-12 FY 2012-13 FY 2013-14 FY 2014-15

Inpatients (On 727,044 788,086 799,007 761,573 admission basis) Outpatients 629,826 684,763 755,022 879,817 Total 1,356,870 1,472,849 1,554,029 1,641,390

As a result, the hospital continuously experienced shortages of drugs which affect service delivery. The Accounting Officer explained that the current budget was too small for the Hospital and is expected to worsen when the hospital becomes fully specialized and start providing services like Kidney and other organ transplants where drugs and sundries are very expensive. He further stated that they were liaising with the Ministry of Finance and other key stakeholders in the Health sector to improve on the current budget provision for drugs.

I advised the Accounting Officer to liaise with the respective stakeholders especially Ministry of Finance and National Medical Stores to provide adequate funding for the essential medicines and also plan for the upcoming change in the status of the hospital.

8.3.2 Under delivery of Drug Supplies from National Medical Stores The mandate of Mulago National Referral Hospital is to provide quality super specialized health care services as stated in its vision and mission. For the year under review UGX.11,366,157,000 was allocated to National Medical Stores (NMS) to procure, store and distribute essential medicines and health care supplies to the hospital. However, details at the hospital showed that medicines worth UGX.5,607,963,285 were requisitioned and only UGX.4,125,495,171 were received from NMS leaving a balance of UGX.7,240,661,829 worth of drugs. Of the orders placed, medicines worth UGX.1,482,468,115 were not delivered by NMS.

In his response, the Accounting Officer indicated that the Hospital placed orders for the medicines but National Medical Stores did not fully deliver

I advised the Accounting Officer to liaise with National Medical Stores management so that drugs allocated to Mulago National Referral Hospital are always delivered in their entirety.

8.3 Staffing issues 8.3.3. Inadequate Staff Establishment

Section (A – c) 3 (a) of the Government of Uganda Public Service Standing Orders 2010 require appointments in the public service to be subjected to availability of a vacancy in the approved staff establishment. According to the 1999 approved staff structure, the hospital ought to have 2,166 staffs of which 2,181 are in place implying overstaffing by 15 positions. However the hospital 5 – year strategic plan covering the period 2015/16 – 2020/2021 proposed 2,661 staffs owing to factors including new facilities such as kidney transplant which are under development.

The Accounting Officer explained that the hospital was still awaiting a new approved staff establishment from the Ministry of Public Service.

I advised Management to liaise with the stakeholders such as; Ministries of Health and Public Service, Health Service Commission, to have the staffing needs of the hospital assessed especially in view of the new facilities being developed.

8.3.4. Improper Personnel Records Management Section (P-d) Paragraph 5 of Public Service Standing Orders, 2010 requires that a Public Officer’s personal record must be complete and uploaded at any given time. It requires files to be open and maintained by the Ministry/Department for all officers.

I was not availed with twenty seven (27) personnel files for staff who are on the hospital’s contract staff payroll. This made it difficult to ascertain whether recruitments, salary scales, and promotions for the affected staff were properly sanctioned. There is a also risk of including names of non-existent and or inadequately qualified employees on the payroll.

Although the Accounting Officer indicated in his response that the files were available, they were not availed for review.

I advised the Accounting Officer to ensure that all the staff on the hospital contract staff payroll are supported with adequately maintained personnel files.

8.3.5. Inadequate Provision of Medical Staff Houses A review of the 30 year strategic investment plan for Mulago National Referral Hospital revealed that the hospital had a staff strength of 2,181 of whom 1,637

personnel were medical staff. During the year 2013/2014, a contract was procured for the construction of 100 units of staff houses at a cost of UGX.17,453,287,500. The contract completion date was scheduled for 16th October 2015. Whereas the construction of staff houses was a positive development, the quantity of housing units is grossly inadequate for the staff housing needs. The quarterly release by Treasury was also not matching the rate of construction, thus the delay because of inadequate settlement of interim payment certificates.

Besides, there was no evidence of funding for additional staff houses. Lack of accommodation affects staff wellbeing adversely and may lead to poor service delivery, given the fact that the nature of service offered requires the staff to be on call all the time.

The Accounting Officer explained that UGX.11,713,835,086 had been paid out of UGX.19,370,174,700 but the hospital management was in liaison with the Ministry of Finance, to release all the funds before the completion date in addition to sourcing extra funds to further reduce the housing deficit/gap.

I await the outcome of the action taken by management.

8.4. Advances to Personal Accounts Although the Ministry of Finance, Planning and Economic Development restricted payments of cash to individuals to undertake activities such as constructions, repairs and printing, it was noted that out of UGX.1,100,300,050 advanced to various individuals to undertake activities which would normally require contracting of private firms (providers), UGX.230,048,350 remained un-accounted for although the Accounting Officer stated that all transactions had been accounted for. These activities included civil works, repairs and printing services.

In other incidents, funds for allowances to third party individuals were being advanced to an individual to pass them over to the 3rd parties for example salaries of Private Patients’ staff, Interns allowances and security personnel allowances.

There is a risk of such funds not reaching the intended beneficiaries. Besides, part of the advances had not been accounted for, contrary to the provisions of the Treasury Accounting Instructions which require advances to be accounted for within 60 days.

In response, the Accounting Officer explained that;

 Advances to individuals were always in relation to micro procurements that in most cases were of emergency nature especially to staff under the engineering section and were mostly for sewage leakages, small civil works like roof replacements, electric and plumbing fittings and frequent pipe bursts while others were for activities conducted directly by the respective officers.

 Some of the payments in respect of third parties were advanced to officers because most of those beneficiaries keep being changed for example security guards and casual laborers.

 These payments would drastically reduce after the general renovation works had been finalized.

I advised management to minimize the use of advances, and explore the possibility of having framework contracts with service providers.

8.5. Status of implementation of audit Recommendations A review of management’s response to the internal audit issues was carried out and the following status was established.

Observation Managements response Current status Incomplete staff list -Payroll cleanup was a Employee Not The hospital had no Employee Register. The continuance activity in the Register not addressed Integrated Human Resource Information hospital and a review of complete. System (IHRIS) with details of some of the the payroll and employee hospital employees was not regularly updated, register was now carried list not regularly reviewed and updated. out periodically,

Petty cash payments and deliveries not All deliveries were always Some Stores Not entered in stores ledger books taken in charge and procedures addressed Payments were made for deliveries worth registered in the stores were still 28,762,000 without entering them in the stores ledger books. bypassed, but ledger books or being witnessed by an could be independent person. This contravenes the avoided with requirements of paragraph 20 of TAI 2003. proper Limiting petty cash to certain types of procurement expenditures could decrease the need for petty planning on- cash. going

In addition, the issues below were still outstanding in the previous year report.

Audit Observation Recommendation Accounting officer comments Current Status

Mischarge of of The Accounting Officer Tool (OBT), budget preparation and Partly Expenditure advised to streamline the implementation has improved. addressed budget implementation process on-Disclosure of of advised A/O to follow the UGX. 1,256,811,309 had not yet been received by Partly Receivables prescribed Reporting Guide, the year end. addressed

Inadequate Control of over Advised to make adequate Installed 508 meters for water in all the institutions Partly the utilisation of Utility provisions in the budget to pay resident at Mulago Hill for purposes of tracking their addressed Services the outstanding arrears. And to consumption.

separate the various A prepaid meter has also been installed as the main independent institutions from source of water. the Hospital’s meters so as to reduce on the hospital’s utility bills.

Advised to ensure that the Receipts from the Uganda Revenue Authority wre Addressed Un-acknowledged remittances reached URA and periodically picked for reconciliation of the Statutory statutory deductions that the acknowledgment deductions made. receipts are obtained from URA as evidence that the money reached.

Staffing Gaps advised to liaise with the A recruitment Plan 2015/2016 based on Attrition Not Ministry of Public Service and (replacement basis) is being formalized for addressed the Health Service Commission submission to Ministry of Public Service for to consider recruitment of more clearance. 19 (nineteen) medical officers, 1 (one) staff Senior Medical Officer, 2 enrolled mid wives, 1 enrolled nurse, 4 (four) theatre assistants 6 (six) consultants, 55(Fifty Five) nursing officers, 2 (two) senior Nursing Officers.

Inadequately Funded Advised to source for adequate Construction work ws now estimated at about 60% Not Commitment of funding for the project well in of completion expected by October 2016. The addressed Construction of 100 time, to avoid accumulation of hospital continues to engage with the Ministry of Units of Staff Houses(2 domestic arrears. Finance to have all the funds released before the Flats) at Mulago Hospital completion date and UGX 11,713,835,086 has so far been paid out of 19,370,174,700/=.

Payment of Advances to Advised to always make Individual Consultants and Senior Consultants are Not Individual Employees payments directly to service paid Research funds directly to their accounts to addressed Personal Bank Accounts providers procured in carry out this activity which has further improved

accordance with the prescribed service delivery. In other cases hospital especially in regulations. Official advances micro procurements that in most cases are of should be paid to designated emergency nature. cash agents for ease of accountability.

Direct Procurements The Accounting Officer was Advances to staff were in relation to micro Partly advised to always engage procurements that in most cases are of emergency addressed prequalified providers in order nature, for example sewage leakages and pipe to encourage transparency and bursts. competition.

Irregular Procurements The Accounting Officer was The payments in question referred to donations Partly advised to ensure that the made by H.E the President for fire victims at addressed Contracts Committee is always Namungoona after the fuel tank blast and so did not involved in all procurements. require the contracts committee approval.

Procurement of Parking The Accounting Officer was Parking Management is a prequalified service under Addressed Management Services advised to ensure that the the hospital. . Hospital effectively plans for all The service provider is charged with developing and

procurements to avoid maintaining the parking space. emergency situations in future.

Inadequate Accounting The Accounting Officer was the Private Patients Services finances/expenditures Partly Software for Private advised to ensure that the have been connected to the integrated financial addressed Patients Scheme software is upgraded to ensure management system( IFMS) .

that revenue collections and expenditure are properly coded and limit the human intervention in the process.

Non-disposal of unused advised to either have the beds Most of these beds have been given to other Not Hospital Beds repaired for further Hospital use hospitals for use as per the following details,136 addressed or have them disposed of beds- Kanungu ,100 beds- Butaleja, 20 beds- Public expeditiously to avoid Health Nursing College, 100 beds- Kyenjojo deterioration in value.

Lack of a Strategic Plan Advised to expedite the process Currently, there is a 5 year Investment Plan and a addressed of approval and have the 30 year Master Plan to guide Management in its strategic plan in place to guide operations. management in their operations.

Bed Occupancy advised to devise measures to Kawempe and Kiruddu hospitals once completed and Partly control the number of operational will assist in controlling the bed addressed caretakers, so as not to occupancy rate, coupled with strengthening the overstretch the hospital referral and counter referral systems at regional facilities, given the high levels and KCCA. maintenance and utility costs. The Accounting Officer was During renovation the patients were shifted from a Partly Adequacy of Dialysis Machines advised to liaise with the big dialysis ward (6A) where up to 23 patients could addressed respective Ministries so as to be attended to at ago to a small place where only 17 acquire optimal number of patients can be worked on. dialysis machines with the associated staffing levels, for Hospital has trained (15) staffs in Dialysia and improved service delivery. kidney transplant

Failure to implement recommendations result in recurrence of the anomalies and is also an indication of management’s laxity in enforcing governance issues.

I advised the Accounting Officer to ensure that all prior year audit recommendations are implemented to ensure proper accountability and better stewardship of the Hospital resources.

FINANCIAL STATEMENTS