PUBLIC AUTHORITIES & OTHER BODIES
ANNUAL GENERAL REPORT OF THE CONTROLLER AND AUDITOR GENERAL FOR THE FINANCIAL YEAR 2018/2019
30 March 2020
THE UNITED REPUBLIC OF TANZANIA
NATIONAL AUDIT OFFICE
Controller and Auditor General, National Audit Office, Audit House, 4 Ukaguzi Road, P.O. Box 950, 41104 Tambukareli, DODOMA. Telegram: “Ukaguzi", Telephone: 255(022)2115157/8, Fax: 255(022)2117527, E- mail: [email protected], Website: www.nao.go.tz
In reply please quote Ref.No.FA.27/249/01/2018/2019 30th March, 2020
H.E. Dr. John Pombe Joseph Magufuli, The President of the United Republic of Tanzania, State House, 1 Julius Nyerere Road, Chamwino, P.O. Box 1102, 40400 DODOMA.
RE: SUBMISSION OF THE ANNUAL GENERAL REPORT OF THE CONTROLLER AND AUDITOR GENERAL ON THE AUDIT OF PUBLIC AUTHORITIES AND OTHER BODIES FOR THE FINANCIAL YEAR 2018/2019
In accordance with Article 143(4) of the Constitution of the United Republic of Tanzania of 1977 (revised 2005), and Section 34 of the Public Audit Act No. 11 of 2008; I am pleased to submit to you my Annual General Report on the audit of Public Authorities and other Bodies for the financial year 2018/2019 for your kind consideration and onward submission to the Parliament.
I submit,
Charles E. Kichere THE CONTROLLER AND AUDITOR GENERAL
Report of Public Authorities and other Bodies 2018/19 i
The Controller and Auditor General, National Audit Office, United Republic of Tanzania
(Established under Article 143 of the Constitution of the URT)
The statutory duties and responsibilities of the Controller and Auditor General are given under Article 143 of the Constitution of the United Republic of Tanzania of 1977 (as amended from time to time) and amplified by the Public Audit Act, No. 11 of 2008 (as amended) and Public Audit Regulations of 2009.
Vision To be a highly regarded Institution that excels in Public Sector Auditing.
Mission To provide high quality audit services that improves public sector performance, accountability and transparency in the management of public resources.
Core Values In providing quality services, NAO is guided by the following Core Values: ✓ Objectivity: We are an impartial public institution, offering audit services to our clients in unbiased manner. ✓ Excellence: We are professionals providing high quality audit services based on standards and best practices. ✓ Integrity: We observe and maintain high standards of ethical behaviour, rule of law and a strong sense of purpose. ✓ People Focus: We value, respect and recognize interest of our stakeholders. ✓ Innovation: We are a learning and creative public institution that promotes value added ideas within and outside the institution. ✓ Results Oriented: We are an organization that focuses on achievement based on performance targets. ✓ Team Work Spirit: We work together as a team, interact professionally, share knowledge, ideas and experiences.
We do this by:- • Contributing to better stewardship of public funds by ensuring that our clients are accountable for the resources entrusted to them; • Helping to improve the quality of public services by supporting innovation on the use of public resources; • Providing technical advice to our clients on operational gaps in their operating systems; • Systematically involve our clients in the audit process and audit cycles; and • Providing audit staff with appropriate training, adequate working tools and facilities that promote their independence.
Report of Public Authorities and other Bodies 2018/19
TABLE OF CONTENTS
LIST OF TABLES ...... iii ACKNOWLEDGEMENTS ...... v PREFACE ...... vii EXECUTIVE SUMMARY ...... viii CHAPTER 1 ...... 1 BACKGROUND INFORMATION ...... 1 CHAPTER 2 ...... 6 TYPES AND TREND OF AUDIT OPINIONS ...... 6 CHAPTER 3 ...... 10 SUMMARY OF OUTSTANDING RECOMMENDATIONS ...... 10 CHAPTER 4 ...... 12 FINANCIAL PERFORMANCE OF THE PUBLIC ENTITIES AND GOING CONCERN ASSESSMENT ...... 12 CHAPTER 5 ...... 23 REVENUE MANAGEMENT IN PUBLIC ENTITIES ...... 23 CHAPTER 6 ...... 40 REVIEW OF CORPORATE GOVERNANCE ...... 40 CHAPTER 7 ...... 48 STRATEGIC AND OPERATIONAL EFFICIENCY ...... 48 CHAPTER 8 ...... 56 MANAGEMENT OF EXPENDITURE BY PUBLIC ENTITIES ...... 56 CHAPTER 9 ...... 70 REVIEW OF INVESTMENTS IN PUBLIC ENTITIES ...... 70 CHAPTER 10 ...... 87 REVIEW OF TOURISM SECTOR IN TANZANIA ...... 87 CHAPTER 11 ...... 98 PERFORMANCE OF GOVERNMENT-OWNED BANKS ...... 98 CHAPTER 12 ...... 118 OPERATIONS OF SOCIAL SECURITY SCHEMES ...... 118 CHAPTER 13 ...... 136 ADMINISTRATION OF LOANS BY PUBLIC ENTITIES ...... 136 CHAPTER 14 ...... 139 PERFORMANCE OF WATER AUTHORITIES ...... 139 CHAPTER 15 ...... 152 REVIEW OF HIGHER LEARNING INSTITUTIONS ...... 152 CHAPTER 16 ...... 163 MANAGEMENT OF CASH AND CASH EQUIVALENTS ...... 163 CHAPTER 17 ...... 167
Report of Public Authorities and other Bodies 2018/19 i
MANAGEMENT OF PROPERTY, PLANT AND EQUIPMENT ...... 167 CHAPTER 18 ...... 173 PROCUREMENT AND CONTRACT MANAGEMENT ...... 173 CHAPTER 19 ...... 194 SPECIAL AND FORENSIC AUDIT ...... 194 CHAPTER 20 ...... 223 PERFORMANCE OF EXTRACTIVE INDUSTRY ...... 223 CHAPTER 21 ...... 237 TAX COMPLIANCE IN PUBLIC ENTITIES ...... 237 CHAPTER 23 ...... 259 REVIEW OF CROPS AND PRODUCE BOARDS ...... 259 CHAPTER 24 ...... 265 EFFICIENCY OF PUBLIC ENTITIES UNDER HEALTH SECTOR ...... 265 APPEDICES ...... 272
Report of Public Authorities and other Bodies 2018/19 ii
LIST OF TABLES
Table 1: Trend of Audit Opinions ...... 8 Table 2: Implementation Status of Prior Years’ Audit Recommendations . 10 Table 3: Public Entities that record loss/deficits ...... 13 Table 4: Public Entities Financed by Debts ...... 17 Table 5: Public Entities with Negative Capital ...... 18 Table 6: Public Entities with Negative Working Capital ...... 19 Table 7: Entities with Long Outstanding Trade Receivables ...... 25 Table 8: Government’s Budget Releases Versus Approved Budgeted Amounts ...... 31 Table 9: Tenants Without Rental Contracts ...... 33 Table 10: Customers with Outstanding Balance of Payment Security ...... 35 Table 11: Disputed Recovery Cost ...... 37 Table 12: Loss on Roaming Contract With MIC ...... 38 Table 13: Public Authorities with no Boards of Directors or Acting Chairpersons ...... 42 Table 14: Public Officers Acting for More than 6 Months ...... 45 Table 15: Staff Shortage ...... 46 Table 16: Entities with Significant Budget Under Collections ...... 57 Table 17: Entities Which Could not Implement Expenditure as Planned .. 58 Table 18: Weaknesses in Budget Preparation and Implementation ...... 60 Table 19: Extract of Planned Activities of NDC for Industrial Parks ...... 75 Table 20: Projects that Failed to Commence Operations ...... 78 Table 21: List of Unmet Targets with their Planned Activities ...... 96 Table 22: Capital Adequacy Ratios below BoT Minimum Requirements.... 99 Table 23: System Access Rights which were Delayed to be Revoked ...... 100 Table 24: Overdraft Accounts Exceeding Approved Limits ...... 104 Table 25: Inaccurate Interest Rate Setups in Rubikon System ...... 104 Table 26: Reconciliation not performed for Suspense Account ...... 105 Table 27: Long Outstanding Items in Suspense Accounts ...... 106 Table 28: Mismatch between Interest Rate Reported in Customer Agreement and System...... 107 Table 29: Missing Loan Contracts ...... 107 Table 30: Separated Staff not charged Commercial Rate ...... 109 Table 31: Uncollected Appraisal Fees ...... 112 Table 32: Trend of Non-Performing Loans ...... 116 Table 33: Status of Government Loan ...... 122 Table 34: Benefit Packages Offered by the Fund ...... 123 Table 35: Decrease in Return on Investment Undertaken by Social Security125 Table 36: Low Occupancy Rate of Investment Properties ...... 126 Table 37: Statutory Inspection to Employers ...... 127 Table 38: Delayed Projects at NSSF ...... 132 Table 39: Loss Due to Non-Revenue Water ...... 140 Table 40: Inadequacy Water Service Coverage ...... 142 Table 41: Water Quality Compliance Analysis ...... 143 Table 42: Significant Long Outstanding Account Receivable ...... 145
Report of Public Authorities and other Bodies 2018/19 iii
Table 43: Liquidity Problem Experienced by Water Authorities ...... 147 Table 44: Declining Trend in Postgraduate Students ...... 155 Table 45: Decline in Enrolment of Undergraduate Students ...... 157 Table 46: Funds Collected Without Using GePG ...... 165 Table 47: Payments Made to SUMA JKT...... 188 Table 48: Debt Status of Tenants Who Have Filled Land Cases against NARCO ...... 190 Table 49: Details of Tenders Awarded Without Performance Guarantee . 193 Table 50: Payment Schedule of Acquired Farm ...... 205 Table 51: Outstanding Liabilities of Pride Company ...... 210 Table 52: Misappropriated and Fraudulent Payments ...... 212 Table 53: Projects which are Not Operating ...... 224 Table 54: Electricity Distribution Outage Hours Missing Number of Customers Affected ...... 235 Table 55: Payments made Without EFD Receipts Being Issued ...... 239 Table 56: Weaknesses Noted During Inspection ...... 254
Report of Public Authorities and other Bodies 2018/19 iv
ACKNOWLEDGEMENTS I am extremely delighted to achieve my constitutional obligation, for the first time as the Controller and Auditor General, of submitting to the President of the United Republic of Tanzania, the annual general report on the audit of Public Authorities and other Bodies for the financial year 2018/2019.
It is with great honour that I take this opportunity to thank His Excellency, Dr. John Pombe Joseph Magufuli, the President of the United Republic of Tanzania, for his immense support and personal initiatives to ensure that National Audit Office accomplishes its constitutional mandate.
I convey my sincere gratitude to the Honourable Speaker and Deputy Speaker of Parliament of the United Republic of Tanzania, Chairpersons and Honourable members of Parliamentary Accounts Committee for their cooperation that has always been extended to my Office. I cherish this crucial cooperation and trust that it remains strong as it is necessary for delivery of our respective institutions mandate in serving our country and its people.
I also acknowledge with gratitude, the invaluable assistance and co-operation extended by the Treasury Registrar, Boards of Directors, Accounting Officers, Senior Management and Staff of all Public Authorities and other Bodies which were covered in my audits.
I also commend the contribution of private audit firms which have been working with my Office in the audit of Public
Report of Public Authorities and other Bodies 2018/19 v
Authorities and other Bodies. Their contribution toward preparation of this report is essential and invaluable.
Finally, I must recognize important contribution of my entire staff who have been working tirelessly, driven entirely by professional call to complete assigned audit activities while maintaining high level of quality in line with the professional standards. It is a strong sense of purpose and dedication that has made it possible to deliver this report within the statutory deadline.
Charles E. Kichere THE CONTROLLER AND AUDITOR GENERAL 30 March, 2020
Report of Public Authorities and other Bodies 2018/19 vi
PREFACE
The annual General Report on the audit of Public Authorities and other Bodies (PA&OBs) for the financial year 2018/2019 covers all significant audit matters noted during the year relating to financial statements of PA & OBs and operational efficiency of the Entities in implementation of the mandate in which they were established.
In particular, the report has covered review of efficiencies in operation of PA & OBs under Social Security Schemes, Water Authorities, Higher Learning Institutions, Banking Sector and Health Sector.
The report has further analyzed strategic reviews of PA & OBs, investments of Public Sector Entities, and compliance of laws and regulations such as Public Procurement Act, 2011 (as amended in 2016) and its Regulations, 2013 (as amended in 2016), Income Tax Act, 2004 and other internal guidelines.
Also, I have assessed the performance and challenges being faced in the development of the Extractive Industry in Tanzania and briefly discussed about the Special and Forensic Audits of PA & OBs which were requested by different stakeholders during the financial year 2018/2019.
Report of Public Authorities and other Bodies 2018/19 vii
EXECUTIVE SUMMARY
Types and Trend of Audit Opinions During the financial year 2018/19, I completed and issued opinion on 148 audits for Public Authorities and other Bodies (PA & oBs). Out of 148 opinions issued, one (1) was Adverse and 147 were unqualified.
Implementation Status of Prior Years’ Audit Recommendations Out of 175 outstanding key audit recommendations I issued in the financial year 2017/18, 74 (42%) were fully implemented, 56 (32%) are under implementation, 38 (22%) were not implemented while seven (7) (4%) were overtaken by events. Out of 38 recommendations which are not implemented, 27 (78%) did not have responses indicating progress of implementations.
Financial Performance of the Public Entities and Going Concern Assessment I have reviewed financial stability of Public Authorities and other Bodies and noted that 23 entities were continuously recording deficits/making losses. The loss was mainly attributed to low performance, inadequate appraisal of projects and insufficient alternative sources of revenue. I further noted that eight (8) entities were financed by debts while six (6) entities had negative equity.
The financial difficulties facing these entities highlight that it is unlikely they will survive without Government support. Also, there is a risk that these entities might not be able to deliver on their mandates effectively.
Revenue Management in Public Entities During the review of the revenue management in Public Entities, I noted significant amounts of long outstanding accounts receivable emanating from different Public Entities which affects their liquidity. I also noted delays in handing over 13 Houses to Customers by Watumishi Housing Company (WHC), of which could negatively impact realization of revenue.
Report of Public Authorities and other Bodies 2018/19 viii
Review of Corporate Governance As I reported during the previous audit, I have continued to note that some Public Authorities operate without Oversight Bodies or substantive Chief Executive Officers. The entities that lack the Oversight Bodies have increased from 24 reported in 2017/18 to 39 as at 30th June, 2019, while the entities that lack substantive chief executive officers have been under acting chief executive officers who in most cases retain such positions for a long period.
Strategic and Operational Efficiency From the review of Strategic and Operational Efficiency of Public Entities, I noted that Gaming Board Tanzania operates with draft Internet Gaming Regulations for more than seven years, and it does not have administrative sanctions against non-compliant operators who located their servers outside Tanzania Mainland contrary to the requirement of Sports Betting Rules, 2016.
I noted that NHC Annual Work Plans are not aligned with Corporate Strategic Plan. I further, noted the Corporation neither performed monitoring and evaluation of the Strategic Plan nor engaged a staff who should be responsible for Monitoring and Evaluation (M &E) function.
At TANTRADE, I noted some anomalies including lack of crucial tools for its function such as established market intelligence system, robust established section for coordinating training activates; and documented institutional cooperation. The entity also lacked M&E tool for domestic market operations.
Management of Expenditure by Public Entities The PA & oBs I reviewed have not taken adequate measures to correct previous year’s anomalies in management of expenditure. I therefore continued to note deficiencies some of which similar to those identified in my previous audit such as non-compliance with rules and regulations on expenditure, activities implemented without proper budget approvals, inefficiencies in the budget implementation. Other includes
Report of Public Authorities and other Bodies 2018/19 ix
inadequate management of advances and imprest, delayed and non-remittance of statutory deductions to social security schemes and ineligible expenditures.
Review of Investments in Public Entities PA & oBs have not been benefiting from their investment due to a number of weaknesses in the investment process. For example, National Development Corporation (NDC) had inadequate management of rubber plantations with weaknesses such as uncultivated farm areas, lack of tools to measure latex quality, and unattended farm. It also failed to receive 1,578 Tractors from supplier as per agreement. The Corporation failed to establish centre for tractor servicing and some of the tractor available were slow moving of tractors, implying that joint venture agreement with supplier was not fruitfully to NDC.
At Tanzania Investment Centre I noted inefficiency in dealing with investors. For example, the Centre does not serve investors within 14 days as provided in the Act and Strategic Plan. It also takes 20 days for the Centre to process work permit while the process of fully attendance and feedback to an applicant of incentives of customs and excise duties to Tanzania Revenue Authority (TRA) through the Centre takes four to twelve months. I further noted that the Centre needs to evaluate the actual investments done by the registered investors during the financial year 2018/19.
Review of Tourism Sector in Tanzania Despite the Government efforts to promote tourism, I have noted several factors that pose challenges in the sector including lack of diversification of tourism products, inadequate promotion and marketing and lack of specified areas for tourism investment. NCAA and TANAPA faced challenge to control human populations that cause massive environmental degradation, increase in human–wild animal conflicts, unknown and blockage of diminishing wildlife movement routes. Further, I noted a slow pace in controlling wide spreading of invasive alien plants at
Report of Public Authorities and other Bodies 2018/19 x
NCAA and low rate of tourists visiting Western and Southern parts of the country.
Performance of Government-Owned Banks I have continued to note Capital Adequacy Ratios which are below Bank of Tanzania Minimum Requirements for TIB Development Bank and TIB Corporate Bank. Also, TIB Corporate Bank, Tanzania Agricultural Development Bank and TIB Development Bank have been delaying in revoking the system access right to separated staff. This deficiency exposes the banks to security and financial risks.
I also noted that TPB Bank had experienced liquidity ratios which are below regulatory ratios and deficiency in management of overdraft and Suspense Accounts.
Operations of Social Security Schemes I noted the weaknesses in the the social security schemes covered in my report which comprised the Health Insurance and Pension Schemes. The weakness includes absence of actuarial valuation for PSSSF; long outstanding contributions on late remittance at NHIF, WCF and PSSSF amounting to TZS 171.91 billion. Further, I identified the risk that the NHIF and PSSSF may not recover matured Fixed Deposit Funds amounting to TZS 111.8 billion due to liquidity problems of the Banks.
Administration of Loans by Public Entities I reviewed administration of loans in respect of National Board of Accountants and Auditors (NBAA), Ngorongoro Conservation Area Authority (NCAA) and National Housing Corporation (NHC) and noted deficiencies such as: Inadequate cash flow to repay NSSF loan; high interest rate on loan facility used in financing Construction of Ngorongoro Tourism Centre (NTC) Investment Property and non-compliance with loan covenants.
Performance of Water Authorities Water Authorities have not fully addressed my recommendations to improve on Non-Revenue Water issue. I have continued to
Report of Public Authorities and other Bodies 2018/19 xi
note challenges in these areas. For the year under review 20 of the Water Authorities I reviewed had high percentage of Non- Revenue Water with the total water loss of TZS 155.84 billion in 2018/19. The loss of TZS 74.14 billion included in this amount was above the normal loss threshold. I also noted inadequate water service coverage, low water quality and unsatisfactory rate of debt recovery by Water Authorities, which stood at TZS 106.31 billion as at 30th June, 2019.
Review of Higher Learning Institutions I identified scope for improvement in operational performance of a number of Higher Learning Institutions I reviewed. Some of the Higher Learning Institutions conducted tracer studies many years ago, other have not conducted while other have conducted partial studies which are not in line with the institutions plans. These institutions need comprehensive operating procedures which will be used as guidance for conducting tracer studies. They also need to raise enough funds for such activities and ensure consistency in conducting the studies. Tracer studies are crucial for the institutions to understand the impact of offered education. I further noted declining trend of students’ enrolment and delay in commercialization of patented intellectual properties, non-accreditation of technical institutions inappropriate conditions of motor vehicles used for driving course and inadequate performance of the proposed organization project.
Management of Cash and Cash Equivalents During the review of cash and cash equivalent management programs within the Public Authorities which involved assessment of internal control measures for cash, management of bank accounts, and management of cash flows I noted that there is ineffective Utilization of Government Electronic Payment Gateway (GePG) in some of the entities such as Ubungo Plaza Limited (UPL), Dare es salaam Marine Institute (DMI) and Kilimanjaro Airport Development Company Limited (KADCO).
Report of Public Authorities and other Bodies 2018/19 xii
Management of Property, Plant and Equipment From the review of management of PPE in the Public Entities I noted that most of the Public Entities face challenges in maintenance of Non-Current Assets. The challenges include lack of legal ownership of the assets, Non-maintenance of the assets register, delays in disposing of assets and delays in completion of some projects i.e. Construction of NHIF regional office Tabora.
Procurement and Contract Management In the procurement activities of the Public Authorities, I noted weakness such as lack of performance securities for awarded tender for Sokoine University, delays in execution and completion of awarded Tenders in TPA, TPB, AUWASA and MORUWASA.
Special and Forensic Audit During the audit under review I conducted special and forensic audits in Tanzania Electric Supply Company Limited (TANESCO), Promotion of Rural Initiatives and Development Enterprises Limited (Pride), National Social Security Fund (NSSF), Shirika la Usafiri Dar es salaam (UDA/UDART) and at Songas Limited which is private company but with the Government investment.
At TANESCO identified dispute invoices amounting to USD 42.3 million. The disputed invoices amounts were from two (2) creditors PAET and TPDC on the nature and amount of the outstanding liability. Also, TANESCO had 936 creditors with TZS 291.1 billion who did not respond to auditor’s confirmation.
Songas Limited Special Audit was focused on determining if the Government receives a fair share of benefits from the investment made in Songas Limited. Government parties involved TPDC and TANESCO.
At the Pride Company the audit was aimed to determine assets and liabilities of Pride Company as at 31st October, 2019. In
Report of Public Authorities and other Bodies 2018/19 xiii
course of audit, I revealed fraudulent payments and misappropriation of assets and liabilities.
Performance of Extractive Industry I assessed the Government investments in the mining sector and operational effectives of the midstream and downstream regulators in the petroleum sector. The overarching issues I identified included the following; mining projects initiated but not operating, incomplete transfer of shareholding to STAMICO and NDC, and increasing invasion at Tanzanite mine after stoppage operations. Other included environment rehabilitation fund not provided for Tanzanite Mine and Stamigold Mine, inadequate control of Liquefied Petroleum Gas (LPG) retail business operations and pricing and high cost amounted to TZS 7.9 billion for electricity charges caused by Stamigold’s use of fuel to power the Mine.
Tax Compliance in Public Entities I noted that a number of Public Entities failed to comply with tax laws and regulations as they delayed in issuing Electronic fiscal Device (EFD) receipts on cash received. Similarly, the entities delayed in payment of property tax and land rent. There were also cases of payments made but not supported by fiscal receipts TZS 877.05 million.
I also noted at Stamigold there were understated revenues in the VAT returns of TZS 4.5 billion and there was absence of transfer pricing documentation.
Efficiency of Public Entities in Business Environment I assessed efficiency of public entities in business environment with focus on seven (7) entities namely TASAC, LATRA, TBS and TTCL Corporation. I noted deficiency in monitoring commercial motorcycles and tricycles, deficiency in management of information systems, absence of approved strategic plan, Non- implementation of planned capital Investment, unregulated roaming charges resulting in a loss of TZS 1.11 billion to TTCL.
Report of Public Authorities and other Bodies 2018/19 xiv
Review of Crops and Produce Boards Despite formulation of Crop Boards and other crop research institutions by Government, during this audit I noted, there are still challenges encountered by the entities including duplication of functions among the entities (like extension and market promotion services); inadequate financing of the entity’s functions; inadequate crop quality control leading to the crops lacking qualities of attracting higher prices in the market.
Efficiency of Public Entities under Health Sector I reviewed the operations of Medical Store Department (MSD) and Muhimbili National Hospital (MNH) as part of public entities in health sector to determine propriety in their use of funds to achieve the targeted objectives for the financial year 2018/19. At MSD, I noted items received with shelf-life of less than 80%, inadequate order fill rate of 53.8% based on sales made from 1st July, 2018 to 30th June, 2019. MSD also led SADC procurement services for medicine and health commodities, but the activity was not sustainable. Some customers have been charged wrong prices by MSD, there was inadequate funding by the Government on procurement of medicine and medical supplies. Other cases included preventable delays in completion of the project with total cost of TZS 385.91 million for 12 months. The audit also identified long outstanding Government receivables that threaten MSD’s operations and Significant rejections of Claims submitted by MNH to NHIF amounting to TZS 2.18 billion.
Report of Public Authorities and other Bodies 2018/19 xv
CHAPTER 1
BACKGROUND INFORMATION
1.0 Legal Framework for Public Audit in Tanzania The Office of the Controller and Auditor General of the United Republic of Tanzania is an office established in accordance with Article 143 of the Constitution of the United Republic of Tanzania (URT) of 1977 (as amended from time to time). Sub article (5) of Article 143 of the Constitution of the URT and Section 34 of the Public Audit Act No. 11 of 2008 and Section 48 (3) of Public Procurement Act No.7 of 2011 (as amended in 2016), require the Controller and Auditor General (CAG) to audit all Public Authorities and other Bodies at least once in every financial year.
CAG has the mandate to conduct financial, performance, forensic or any other audit of Public Authorities and other Bodies (PA&oBs) as stipulated in Sections 26, 27, 28 and 29 of the Public Audit Act No.11 of 2008. Section 12 of the same Act empowers CAG to make recommendations for the purpose of:
• Preventing or minimizing unproductive expenditure of public resources; • Maximizing the collection of public revenues; • Averting loss by negligence, carelessness, theft, dishonesty, fraud and corruption relating to public monies and other resources; and • Improving economy, efficiency and effectiveness in the use of public resources.
Public Authorities and other Bodies prepare their financial statements under accrual basis of accounting in compliance with applicable financial reporting framework, that is, International Public Sector Accounting Standards (IPSAS) or International Financial Reporting Standards (IFRS). The Commercial Public Sector Entities use IFRS while the rest
Report of Public Authorities and other Bodies 2018/19 1
follow IPSAS framework. The preparation and submission of PA & oBs financial statements for audit purposes is a legal requirement as per individual Public Authorities and other Bodies’ Acts, the Companies Act of 2002 and the Public Audit Act No. 11 of 2008.
Treasury Registrar has a role and responsibility of overseeing Public Authorities and other Bodies in collaboration with Board of Directors of the respective entity as stipulated in the Treasury Registrar Ordinance Cap 418 and Section 6 of the Public Corporations Act No. 16 of 1992 in relation to functions of Public Corporations.
The Controller and Auditor General is required to submit his annual reports to the President of the URT by virtue of Article 143 (4) of the Constitution of the URT of 1977. Under Regulation 88 of the Public Audit Regulations, these reports are submitted to the President by 31st March each year. Upon receipt of the reports, the President directs persons concerned to submit them to the Parliament within seven days of the first sitting of the National Assembly.
If the President does not take steps of submitting reports to the National Assembly, then CAG shall submit a copy of such reports to the Speaker of the National Assembly (or the Deputy Speaker if the Office of the Speaker is vacant, or if for any reasons the Speaker is unable to perform the functions of his/her Office) who shall submit the report to the National Assembly.
The report of PA&OBs is subsequently discussed by the Parliamentary Accounts Committee (PAC) on behalf of the Parliament and report to that effect is then submitted to the Parliament.
Report of Public Authorities and other Bodies 2018/19 2
1.1 Scope and Applicable Audit Standards 1.1.1 Audit Objectives and Scope The main objective of conducting audit is to enable CAG to express an independent opinion on the fairness of the financial statements of PA&oBs and whether they have been prepared, in all material respects, in accordance with an accepted financial reporting framework. Particularly, the audits covered accounts for the periods ended, 31st December, 2018 and 30th June, 2019. The financial year for the Government owned Banks ends on 31st December, while other PA&oBs follow the Government cycle of closing the financial year on 30th June.
The scope of my audit covered evaluation of effectiveness of financial accounting systems and internal controls over the activities, examination and verification of the accompanying financial statements, performance reports and other audit procedures considered necessary in arriving at an audit conclusion. The audits were carried out based on risk and materiality.
Therefore, the audit findings are confined to the extent that records, documents and information requested for the purpose of the audits were made available to me.
1.1.2 Applicable Auditing Standards The National Audit Office (NAOT) is a member of the International Organisation of Supreme Audit Institutions (INTOSAI) and the African Organisation of Supreme Audit Institutions of English-speaking Countries (AFROSAI-E). Therefore, the applied audit procedures were in line with the International Standards of Supreme Audit Institutions (ISSAI) issued by INTOSAI and International Standards on Auditing (ISA) issued by the International Federation of Accountants (IFAC).
Report of Public Authorities and other Bodies 2018/19 3
1.2 Responsibilities of the Board of Directors and Chief Executive Officers The individual Boards of Directors and Managements of PA&oBs are responsible for the preparation and fair presentation of financial statements in accordance with International Financial Reporting Standards (IFRS) or International Public Sector Accounting Standards (IPSAS). This responsibility includes:
a) Designing, implementing and maintaining internal control systems relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or errors;
b) Selecting and applying appropriate accounting policies; and
c) Making accounting estimates that are reasonable in the circumstances. International Accounting Standards (IAS 1) and International Public Sector Accounting Standards (IPSAS 1) stipulate the types of financial statements to be prepared.
1.3 Organisation and Outsourcing of Audit Work The audit of Public Authorities and other Bodies (PA & oBs) are performed by Public Authorities Division under National Audit Office. This Division is grouped into four subdivisions namely Financial Institutions, Higher Learning Institutions, Regulatory Bodies and Public Utilities and Service Organisations.
Some audits were jointly audited or wholly contracted to private audit firms which audit on behalf of CAG in line with Section 33 of the Public Audit Act, empowers CAG to authorize any person or body eligible to be appointed as an auditor under the Auditors and Accountants (Registration) Act No. 33 of 1972 (as amended in 1995), to conduct the audit of
Report of Public Authorities and other Bodies 2018/19 4
public entities on his behalf. The outsourced audits are subjected to a quality review process carried by my Office.
During the financial years ended 31st December, 2018 and 30th June, 2019, CAG worked with 59 private audit firms. The contracted auditors were bound by the provision of the law not to disclose any information which relates to the business secrets of the auditee which come to their knowledge in the course of the audit.
The audit opinions remain the sole responsibility of the Controller and Auditor General.
Report of Public Authorities and other Bodies 2018/19 5
CHAPTER 2
TYPES AND TREND OF AUDIT OPINIONS
2.0 Introduction According to International Standards of Supreme Audit Institutions (ISSAI) 1200, the objectives of conducting audit of financial statements is to enable an auditor to express an independent opinion as to whether the financial statements are prepared in all material respects in accordance with the applicable financial reporting framework. This is achieved by designing the audit in such a way that it will enable the auditor to obtain reasonable assurance as to whether the financial statements as a whole are free from material misstatement, whether due to fraud or errors.
2.1 Types of Audit Opinions 2.1.1 Unmodified Opinion An unmodified opinion is expressed when the auditor concludes that the financial statements of an audited entity give a true and fair view or are presented fairly in all material respects in accordance with the applicable financial reporting framework.
2.1.2 Modified Opinions (i) Qualified Opinion A qualified opinion is issued when: (a) The auditor, having obtained sufficient appropriate audit evidence, concludes that misstatements, individually or in aggregate, are material, but not pervasive, to the financial statements; or (b) The auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion, but the auditor concludes that the possible effects on the financial statements of undetected misstatements, if any, could be material but not pervasive.
Report of Public Authorities and other Bodies 2018/19 6
(ii) Adverse Opinion An adverse opinion is expressed when the effect of a disagreement is so material and pervasive to the financial statements that the auditor concludes that a qualification of the report is not adequate to disclose the misleading or incomplete nature of the financial statements.
(iii) Disclaimer of Opinion The auditor shall disclaim an opinion when he is unable to obtain sufficient appropriate audit evidence on which to base the opinion, and the auditor concludes that the possible effects on the financial statements of undetected misstatement, if any, could be both material and pervasive.
2.1.3 Emphasis of Matter Paragraph in the Auditor’s Report If the auditor considers it necessary to draw users’ attention to a matter presented or disclosed in the financial statements that in the auditor’s judgment, is of such importance that it is fundamental to users’ understanding of the financial statements, the auditor shall include an Emphasis of Matter paragraph in the auditor’s report provided the auditor has obtained sufficient appropriate audit evidence that the matter is not materially misstated in the financial statements. Such a paragraph shall refer only to information presented or disclosed in the financial statements.
2.1.4 Key Audit Matters Key audit matters provide additional information to users of the financial statements to assist them in understanding those matters that, in the auditor’s professional judgment, were of most significance in the audit of the financial statements of the current period. Key audit matters may also assist users of the financial statements in understanding the entity and areas of significant management judgment in the audited financial
Report of Public Authorities and other Bodies 2018/19 7
statements; as such matters are areas of focus in performing the audit.
2.2 Audit Opinion Issued During the Year In the year under review, 148 opinions were issued to the Public Authorities and other Bodies (PA & OBs), out of which 147 were issued with unmodified opinions and one (1) with adverse opinion while no entity was issued with qualified or disclaimer of opinion. See Appendix I.
2.3 Trend of Audit Opinions Analysis of trend of audit opinions issued to Public Authorities and other Bodies for the 5 consecutive years from 2014/2015 to 2018/2019 is as shown in Table 1 below:
Table 1: Trend of Audit Opinions ANNUAL GENERAL REPORT OPINION 2014/15 2015/16 2016/17 2017/18 2018/19 Unqualified 107 108 101 121 147 Qualified 5 4 4 1 0 Disclaimer 0 0 0 0 0 Adverse 0 0 0 0 1 Total 112 112 105 122 148 Source: Analysis of Audited Financial Statements
2.4 Status of Submission of Financial Statements to CAG Section 31 of Public Audit Act of 2008 requires any Public Authority or Body to submit its financial statements to the Controller and Auditor General (CAG) within three months after the end of the financial year to which the accounts relate.
Upon receipt of the financial statements as prescribed above, Section 32 (4) of the same Act requires CAG to cause the submitted financial statements be audited and within a period of six months or such longer period as the National Assembly may by resolution issue the report thereon.
Report of Public Authorities and other Bodies 2018/19 8
Further, Section 33 (1) of Public Act of 2008 mandates CAG to appoint any qualified person of firm to audit on his behalf the books and accounts of any public authority which CAG may require to audit pursuant to the provisions of this Act and such person, or firm shall conduct the audit and report thereon to CAG in such manner as CAG may direct.
For outsourcing, the two parties, CAG and the appointed qualified person/firm sign the Service Agreement. Among others, the Agreement requires the outsourced auditors to submit the final audit reports to CAG within an agreed timeframe.
In view of that, the agreed date with all outsourced auditors for submission of final audit report relating to accounts of the financial year ended 30th June, 2019 was on 15th December, 2019.
However, up to 1st March, 2020, the final audit reports of 41 Public Authorities were not submitted to me for various reasons as indicated in the Appendix II.
Report of Public Authorities and other Bodies 2018/19 9
CHAPTER 3
SUMMARY OF OUTSTANDING RECOMMENDATIONS
3.0 Introduction This chapter provides a summary of implementation status and actions taken by accounting officers towards my audit recommendations issued in previous years’ Annual Audit reports in accordance with Sect. 40 (4) of the Public Audit Act No.11 of 2008.
On 5th July, 2019, I received Government responses prepared by the Paymaster General (PMG) on my previous annual general report. I appreciate the effort made by the PMG in responding to my reports and providing action plan on implementation of the recommendations.
3.1 Implementation status of prior years’ audit recommendations Out of 175 outstanding key audit recommendations from my previous years report, 74 (42%) were fully implemented, 56 (32%) are under implementation, 38 (22%) were not implemented while 7 (4%) were overtaken by events. Out of 38 recommendations which were not implemented, 27 (71%) were not supported by the Government’s responses. The overall status of implementation of the recommendations is very low as most of them are not implemented. Details of the status of implementation and aging analysis of these recommendations are shown in Appendix III and Table 2 respectively.
Table 2: Implementation Status of Prior Years’ Audit Recommendations Under Not Overta Financial Impleme implement implem ken by Total year nted ation ented event 2012/13 9 2 1 12 2015/16 29 5 3 2 39
Report of Public Authorities and other Bodies 2018/19 10
Under Not Overta Financial Impleme implement implem ken by Total year nted ation ented event 2016/17 20 25 13 3 61 2017/18 16 26 20 1 63 Total 74 56 38 7 175 Percentage 42 32 22 4 100 Source: Auditors analysis
Delay in implementation of my recommendations means that the deficiencies identified have not been addressed and are likely to continue exposing the entities to the risks of fraud, inefficiencies, and the failure to deliver on their mandate.
I therefore recommend that the Government through the Paymaster General make sure the accounting officers fully implement my recommendations to ensure that Public Authorities and other Bodies minimize fraud risks, enhance operating efficiency, and provide adequate services to the public.
Report of Public Authorities and other Bodies 2018/19 11
CHAPTER 4
FINANCIAL PERFORMANCE OF THE PUBLIC ENTITIES AND GOING CONCERN ASSESSMENT
4.0 Introduction The Public Authorities and other Bodies include Commercial Public Sector Entities (CPSEs) and Other Public Sector Entities (OPSEs).
According to the International Public Sector Accounting Standards (IPSAS) 1, the Commercial Public Sector Entities are those Government Entities with power to contract in their own names; have been assigned the financial and operational authority to carry on business; sell goods and services in normal courses of its business to other entities at a profit or full cost recovery; are not reliant on continuing government funding to be a going concern (other than purchases outputs at arm’s length); and are controlled by Public Sector Entity.
On the other hand, other Public Sector Entities (OPSEs) are those entities responsible for delivery of goods or services to the public with asset held primarily for their service potential or to make transfer payments to redistribute income and wealth; finance their activities directly or indirectly by means of taxes and/or transfer from other level of government, social contributions, debt or fees and do not have capital providers that are seeking a return on their investment or a return of the investment.
This chapter highlights financial performance and going concern of CPESs and OPSEs. I have assessed the ability of the current assets of an entity to meet its current liabilities, the financing structure; and total revenue generated versus total expenses incurred. The chapter also includes a summary of
Report of Public Authorities and other Bodies 2018/19 12
recommendations provided for improvement. The following are the findings and recommendations: -
4.1 Public Entities with Uncertain Survival I reviewed the financial stability of 140 Public Authorities and other Bodies and noted that 23 entities were continuously making deficits; eight (8) entities were financed by debts, and six (6) entities had negative equity. The financial difficulties facing these entities highlight that it is unlikely they will survive without Government support. Also, there is a risk that these entities might not be able to discharge their functions, thus, affecting their service delivery to the general public. Details of the Public Entities are as follows:
4.1.1 Continuous deficit Made by some Public Entities During the review I noted that, out of assessed 23 entities that made continuous loss or report deficits, four (4) were Commercial Public Sector Entities (CPSEs). The deficits/ losses are mainly attributed to non-performance and inadequate appraisal of projects for CPSEs, and insufficient alternative sources of revenue other than Government support for Other Public Entities (OPSEs). The losses and deficits recorded for the past two years and the names of the entities are presented in Table 3 below;
Table 3: Public Entities that record loss/deficits S/N Public Entity Category 2018/19 2017/18 TZS (000) TZS (000) 1 National Housing CPSE 93,807,122 143,690,910 Corporation 2 Tanzania Sisal Board OPSE 122,361 70,262 3 T-PESA LIMITED CPSE 688,693 360,305 4 Mkulazi Holdings CPSE 2,276,613 3,899,440 Company Limited 5 Ardhi University OPSE 432,121 671,891 6 National Kiswahili OPSE 32,143 77,423 Council of Tanzania 7 Babati Urban Water OPSE 397,382 74,983 Supply and Sanitation
Report of Public Authorities and other Bodies 2018/19 13
S/N Public Entity Category 2018/19 2017/18 TZS (000) TZS (000) Authority 8 Dar es Salaam OPSE 2,072,793 1,599,887 University College of Education (DUCE) 9 Export Processing OPSE 470,493 664,457 Zones Authority 10 Fair Competition OPSE 40,686 22,288 Tribunal 11 Lindi Urban Water OPSE 403,301 93,039 Supply and Sanitation Authority 12 Masasi Nachingwea OPSE 334,110 414,926 Water Supply and Sanitation Authority 13 National Board of OPSE 24,955,207 593,661 Accountants and Auditors (NBAA) 14 National Sugar Institute OPSE 176,124 57,089 15 Stamigold Company CPSE 6,239,398 16,419,263 Limited 16 Tanzania Food and OPSE 932,829 168,670 Nutrition Centre 17 Tanzania Investment OPSE 793,659 47,046 Centre 18 Tanzania Library OPSE 4,376,747 2,803,054 Service Board 19 Tanzania National OPSE 163,742 297,561 Business Council 20 University of Dodoma OPSE 6,172 12,060 21 Open University of OPSE 1,196,929 141,563 Tanzania 22 Tanzania Insurance OPSE 780,552 703,610 Regulatory Authority 23 Muhimbili University of OPSE 4,453,797 821,370 Health and Allied Sciences
For example, I noted that National Housing Corporation (NHC) had 75 uncompleted joint venture projects, out of these 33 (2017/18:32) were still in progress while 42 (2017/18:39) projects were stalled. The Corporation is at risk of incurring
Report of Public Authorities and other Bodies 2018/19 14
loss in terms of invested money and expected return from stalled and uncompleted projects.
Also, according to published communications statistics by Tanzania Communication Regulatory Authority (TCRA), during the fourth quarter of the financial year 2018/19, TTCL PESA Limited had an average market share of only 2% of mobile money subscriptions. This is partly attributed to low volume of transactions as compared to its competitors. For instance, during the month of June 2019, the Company had only 451,254 (0.17%) transactions out of a total 260,439,103 mobile money transactions.
It is necessary that the Company introduce measures to improve its operational efficiency, quality of service and ultimately increase its market share so as to reverse trend of loss making or recording deficit.
Further, I noted that Ardhi University rely largely on grants to support its activities. During the year 2018/19, revenue from grants accounted for 68% (2017/18: 70%) of its total revenue of TZS 24.96 billion. Without seeking for new sources of revenue, the University may fail to bridge the gap of continuing losses.
I also noted that Export Processing Zones Authority (EPZA) had been recording deficits for the last four years from 2016 to 2019. The deficits mainly resulted from insufficient revenue generated from land lease and office rent as well as operator and developer licenses for established economic zone. Up to the financial year ended 30th June, 2019, the Authority had 15 gazetted economic zones. However, only three industrial parks were operational while others were under various stages of development. Without Government support for completion of the economic zones, EPZA will continue making losses.
Report of Public Authorities and other Bodies 2018/19 15
The National Board of Accountants and Auditors (NBAA) invested in APC Investment Centre (a joint venture company) through a loan financed by NSSF on expectation of repayment of its loan through returns on the investment. The mismatches between the expected return on investment and loan repayment obligations to NSSF led to significant increase in deficit in the NBAA accounts during the year ended 30th June, 2019. The deficit has largely resulted from an impairment of TZS 21.83 billion of the loan receivable from APC and charged interests and penalties on delayed loan repayment to NSSF TZS 2.62 billion and TZS 344.68 million respectively. Servicing the outstanding loan, interest and penalties on overdue loan is crucial to ensure that Board reduce the related losses.
Despite having unfavourable condition, there were no evidences that the entities have instituted measures to turn around the situation. I am concerned that operating losses or recorded deficits erode the capital of the entities and expose them to financial risks. Further, the entities may face difficulties in attaining their established objectives if the trend of loss/ deficits recorded is not reversed.
I recommend that the entities (a) assess and establish turnaround measures; (b) appraise projects to minimize the risks of undertaking worthless project; (c) review operating expenses with a view to minimizing the expenses to create more sources of revenue.
4.1.2 Entities Financed Debt I noted eight (8) entities with gearing ratio (total liabilities/total equity) ranged from 100% to 6706% during the year indicating that the entities rely largely on debts to run their operations which are considered more susceptible to financial risk. Out of eight (8) entities, two (2) are Commercial Public Sector Entities (as referred in Table 4).
Report of Public Authorities and other Bodies 2018/19 16
The high gearing ratios were caused by the increase in borrowing cost due to delay in payment of overdue loans and interests. For instance, at TPDC, the amount of interest charged on loans during the year was TZS 83.52 billion compared to the total amount paid on due amount of TZS 34.92 billion. The increase was also, attributed to exchange losses as these loans are denominated in US dollars. During the financial year 2018/19 the loss was TZS 34.42 billion. The increase is a result of accrued interests and penalties for the year.
Table 4: Public Entities Financed by Debts S/N Entity Category Debt in Equity Capital (TZS) (000) (TZS) (000) (%) Gearing Ratio 1 Arusha Urban OPSE 115,931,776 37,371,436 310 Water Supply and Sanitation Authority 2 National Sports OPSE 494,469 7,374 6706 Council of Tanzania 3 Warehouse OPSE 560,739 27,060 2072 Receipts Regulatory Board 4 National Board of OPSE 28,806,376 (8,861,254) >100 Accountants and Auditors (NBAA) 5 Stamigold CPSE 74,576,781 (48,929,482) >100 Company Limited 6 Tanzania National OPSE 1,187,523 (1,068,685) >100 Business Council 7 Tanzania CPSE 3,523,427,00 354,030,000 >100 Petroleum 0 Development Corporation 8 Cashewnut Board OPSE 20,501,478 13,708,977 150 of Tanzania
I am concerned that the higher gearing ratios may negatively affect the operations and long-term financial stability of these entities resulting in inability to meet their financial obligations.
Report of Public Authorities and other Bodies 2018/19 17
I recommend that the Entities establish appropriate measures to lower the gearing ratios, which would include creation of more sources of revenue, controlling operational cost and servicing the debts in time. I also recommend that the Government review modes of operations of these entities and inject resources to revamp their operations.
4.1.3 Public Authorities with Negative Equity Balances During the financial year 2018/19, I noted that six (6) entities had negative equity balance. Five (5) entities were Other Public Sector Entities while one (1) was a Commercial Public Sector Entity as shown in (Table 5). Having more debts than assets cast doubt on on-going concern status of these entities.
The negative equity of these entities is mainly attributed to losses incurred for multiple years and excessive debts.
Table 5: Public Entities with Negative Capital S/N Entity Category Total Total Net Asset Asset Liability TZS (000) TZS (000) TZS (000) 1 Tanzania Sisal OPSE 398,606 812,646 (414,041) Board 2 National Kiswahili OPSE 1,563,598 1,831,527 (267,929) Council of Tanzania 3 Cotton OPSE 43,490,424 50,215,616 (6,725,192) Development Trust Fund 4 Fair Competition OPSE 63,059 76,557 (13,498) Tribunal 5 National Board of OPSE 19,945,122 28,806,376 (8,861,254) Accountants and Auditors (NBAA) 6 Stamigold CPSE 25,647,299 74,576,781 (48,929,482) Company Limited
If the current trend continues, it is unlikely that these entities will survive without Government support. Also, there is a risk that these entities might not be able to discharge their functions, thus, affecting their service delivery to the general public.
Report of Public Authorities and other Bodies 2018/19 18
I recommend that the Government review and restructure the modes of operations of the mentioned entities to revamp their operations in order to guarantee service sustainability.
4.2 Entities Incapable of Paying Short-Term Obligations Entities need enough working capital to meet short-term obligations including payments to their creditors and staff emoluments among other things. However, 30 out of 140 entities I reviewed had negative working capital (i.e. current liabilities are greater than current assets) for the financial year 2018/2019, whereby two (2) entities were Commercial Public Sector Entities. I observed that the current ratio (total current assets/total current liabilities) of these entities was ranging from 0.09:1 to 0.97:1 (refer to Table 6) which is below the current ratio of 1 indicating that such entities cannot meet their obligation as and when they fall due within 12 months.
Table 6: Public Entities with Negative Working Capital S/N Entity Category Current Current Working Liquidity asset liabilities capital ratio TZS TZS TZS (billion) (billion) (billion) 1 National OPSE 0.94 1.32 -0.38 0.71 Construction Council 2 National Sports OPSE 0.48 0.49 -0.01 0.97 Council of Tanzania 3 Singida Urban OPSE 0.85 0.87 -0.03 0.97 Water and Sanitation Authority 4 Tanzania Sisal OPSE 0.07 0.81 -0.74 0.09 Board 5 Warehouse OPSE 0.46 0.56 -0.10 0.83 Receipts Regulatory Board 6 National CPSE 44.21 67.87 -23.67 0.65 Development Corporation 7 Babati Urban OPSE 0.70 0.96 -0.25 0.73 Water Supply and Sanitation
Report of Public Authorities and other Bodies 2018/19 19
S/N Entity Category Current Current Working Liquidity asset liabilities capital ratio TZS TZS TZS (billion) (billion) (billion) Authority 8 Chalinze Water OPSE 1.98 3.97 -1.99 0.50 Supply and Sanitation Authority 9 Cotton OPSE 42.66 50.22 -7.55 0.85 Development Trust Fund 10 Dar es Salaam OPSE 3.17 6.04 -2.87 0.52 Institute of Technology 11 Export Processing OPSE 7.69 69.05 -61.37 0.11 Zones Authority 12 Kariakoo Market OPSE 0.83 1.07 -0.24 0.78 Corporation 13 Lindi Urban Water OPSE 0.43 0.62 -0.18 0.70 Supply and Sanitation Authority 14 National Board of OPSE 9.93 22.26 -12.32 0.45 Accountants and Auditors (NBAA) 15 Stamigold CPSE 15.75 55.11 -39.36 0.29 Company Limited 16 Tanzania Trade OPSE 1.54 3.09 -1.55 0.50 Development Authority 17 Tea Board of OPSE 0.29 0.48 -0.19 0.60 Tanzania 18 Tanzania Food OPSE 0.21 1.36 -1.15 0.15 and Nutrition Centre 19 Tanzania National OPSE 0.56 1.11 -0.55 0.51 Business Council 20 Tanzania Tourist OPSE 0.51 2.26 -1.74 0.23 Board 21 Cashewnut Board OPSE 15.70 20.50 -4.80 0.77 of Tanzania 22 Tanzania- OPSE 1.21 1.53 -0.32 0.79 Mozambique Centre for Foreign Relations 23 National Arts OPSE 0.11 0.36 -0.25 0.31 Council 24 National Ranching OPSE 8.71 12.43 -3.72 0.70 Company Limited, 25 National Institute OPSE 3.46 4.31 -0.85 0.80 of Transport 26 Open University OPSE 3.56 5.17 -1.61 0.69 of Tanzania
Report of Public Authorities and other Bodies 2018/19 20
S/N Entity Category Current Current Working Liquidity asset liabilities capital ratio TZS TZS TZS (billion) (billion) (billion) 27 Tanzania Fisheries OPSE 0.96 1.41 -0.45 0.68 Research Institute 28 Tanzania Forestry OPSE 0.46 0.57 -0.11 0.82 Research Institute 29 Tanzania Cotton OPSE 1.18 4.04 -2.87 0.29 Board 30 Dar es Salaam OPSE 100.32 175.27 -74.95 0.57 Water Supply and Sewerage Authority
The negative working capital of these entities among others is attributed to; losses due to operational inefficiencies, accrued interest and penalties on overdue loans, and insufficient Government support to public entities which lead to budgetary deficit.
For instance, at Export Processing Zones Authority (EPZA), delays in payment of compensations of land for economic zones’ development have resulted in substantial increase in the liability. I observed that outstanding compensation balance stood at TZS 69.05 billion as at 30th June, 2019 compared to TZS 64.10 billion reported as at 30th June, 2018. The increase is a result of accrued interests.
Further, on 1st November, 2010, the National Board of Accountants and Auditors (NBAA) entered into a long-term agreement with NSSF. The loan was taken to finance construction of APC Centre (a joint venture company). I noted there were delays in repayment of the loan. The total amount of overdue principal and interest as at 30th June, 2019, was TZS 21.66 billion (2018: TZS 19.81 billion). A penalty charged on overdue repayment is 2% of principal and accrued interest. As at 30th June, 2019, accrued penalties stood at TZS 849.82 million (2018: TZS 630.40 million). As a result, the current liabilities were higher than the current asset as 30th June, 2019.
Report of Public Authorities and other Bodies 2018/19 21
National Development Corporation (NDC) had a number of strategic projects that are its core mandate to develop and implement, but they had not been completed or implemented because of either the pending Government approval or underfunding. These projects include Mchuchuma coal and Liganga Iron and Steel, Engaruka Soda Ash, Kilimanjaro Machine Tools (KMTC), Tyre Manufacturing Plant and Rubber Plantations. I noted that, for the past 5 years, NDC experienced a huge budgetary deficit with an average of 80% being the result of under release of funds from the Government. For instance, in the financial year 2018/19, the Government disbursed only TZS 2.9 billion (12%) out of TZS 25.2 billion budgeted for NDC projects.
Stamigold Company Limited had Trade and Other Payables balance amounting to TZS 52.5 billion as at 30th June, 2019, which evidences out of TZS 30.60 billion were not made available for my verification of their accuracy, existence and completeness.
I recommend that the entities with unfavourable current ratios establish appropriate measures for raising the current ratios including establishing resource mobilization strategies, settle the short time liabilities in timely manner and adopt cost cutting measures.
Report of Public Authorities and other Bodies 2018/19 22
CHAPTER 5 REVENUE MANAGEMENT IN PUBLIC ENTITIES
5.0 Introduction This chapter highlights observations related to management of revenues by various Public Entities during the financial year 2018/2019. Revenue management encompasses the most critical path for Public Entities’ existence, as it significantly contributes to generation of cash which is necessary for the entities to be able to meet their obligations as and when they become due. Also, revenue management highly contributes to the performance of Public Entities as it affects profitability.
The following have been identified as matters of concern in terms of revenue management during the audit of various Public Entities:
5.1 Watumishi Housing Company (WHC) Limited 5.1.1 Delays in Handing Over of Houses to Customers Watumishi Housing build houses for selling to public servants, private sector employees and other members of Social Security Funds (PSSSF, NSSF and NHIF) across Tanzania and Diaspora under mortgage, hire purchase/rent to own, progressive payments and upfront cash arrangements.
During the financial year 2018/19, a total of 519 houses were built. From a sample of 13 houses handing over cases, I noted 10 cases with delays of more than 12 months due to late completion of respective houses. I have further noted that three (3) customers, whose handovers were delayed, had filed complaint with Watumishi Housing Company (WHC) Limited on the subject.
The noted delays could negatively impact the image of WHC in the real estate business that could result in a loss of market share and, hence affecting their revenue.
Report of Public Authorities and other Bodies 2018/19 23
I recommend that Watumishi Housing Company (WHC) exert more efforts to accelerate completion of its construction projects in order to avoid unnecessary disappointment to customers, which might affect their business.
5.2 Energy and Water Utilities Regulatory Authority (EWURA) 5.2.1 Unmarked Petroleum Products for Domestic Use 1.4 Billion Litres Rule 2 of Petroleum (Marking and Quality Control) Rules, 2010 requires all petroleum products imported for domestics use to be marked with an approved marker with exception of those that are tax exempted.
However, from the review of EWURA performance report on the imported petroleum products for the period between 2015/2016 and 2018/2019 I noted a cumulative difference of 1,381,274,744 litres between the marked petroleum products and the total imported petroleum products for domestic use. It is concerning that despite these shortcomings; EWURA has no mechanism to establish the causes of the difference.
The noted inconsistencies indicate weakness in monitoring petroleum products for domestic use which could result in revenue loss.
I recommend that EWURA establish a mechanism that would enable monitoring and reconciling of petroleum products for domestic use for proper management and control.
5.3 Institutions with Long Outstanding Trade Receivable Balances A number of Public Authorities have significant amounts tied up with Trade Receivables. Out of 140 entities that I reviewed during the year, 34 had outstanding Trade Receivables amounting to TZS 263,760.05 million most of these are Trade Receivables related to utilities and costs of other services rendered to customers. I believe the receivables could be
Report of Public Authorities and other Bodies 2018/19 24
significantly reduced if most of the entities will automate revenue collection methods, adopt prepayment strategies, and strengthen debt recovery measures. Table 7 below lists the entities with significant long outstanding Trade Receivable balances:
Table 7: Entities with Long Outstanding Trade Receivables S/N Institution Amount Percent of TZS (Million) long outstanding receivables 1 Arusha Urban Water Supply and 1,493.15 54 Sanitation Authority (AWSA) 2 Babati Urban Water Supply and 155.88 43 Sanitation Authority (BAWASA) 3 Moshi Co-operative University 2,518.25 89 (MoCU) 4 National Housing 11,679.53 48 Corporation (NHC) 5 Tanzania Industrial Research and 468.48 56 Development Organization (TIRDO) 6 Arusha International Conference 6,012.31 84 Centre (AICC) 7 Centre for Agricultural 330.71 79 Mechanisation and Rural Technology (CARMATEC) 8 Tanzania Commission of Science 402.51 14 and Technology (COSTECH) 9 Cotton Development Trust Fund 3,080.51 9 (CDTF) 10 Export Processing Zones Authority 961.35 18 (EPZA) 11 Fair Competition Commission (FCC) 291.86 8 12 Kahama Urban Water Supply and 417.95 28 Sanitation Authority (KUWASA) 13 Lindi Urban Water Supply and 220.22 48 Sanitation Authority (LUWASA) 14 Masasi-Nachingwea Water Supply 325.50 55 and Sanitation Authority 15 Mtwara Urban Water Supply and 917.35 50 Sanitation Authority (MTUWASA) 16 National Board of Accountants and 366.16 83 Auditors 17 Ngorongoro Conservation Area 1,620.00 85 Authority (NCAA) 18 National Sugar Institute (NSI) 354.06 87 19 Public Service Social Security Fund 83,520.00 80
Report of Public Authorities and other Bodies 2018/19 25
S/N Institution Amount Percent of TZS (Million) long outstanding receivables (PSSSF) 20 Tanzania Trade Development 298.36 32 Authority (TANTRADE) 21 Tanzania Broadcasting Corporation 3,137.24 46 (TBC) 22 Tanzania Commission for 2,174.88 71 Universities (TCU) 23 Tanzania Industrial Research 468.48 56 Development Organisation (TIRDO) 24 Ubungo Plaza Limited (UPL) 9,403.62 92 25 University Computing Centre (UCC) 1,379.51 78 26 Engineers Registration Board (ERB) 600.00 35 27 National Institute of Transport 2,427.02 92 (NIT) 28 Sokoine University of Agriculture 3,896.27 39 (SUA) 29 Tanzania Cotton Board (TCB) 1,626.10 96 30 Workers Compensation Fund (WCF) 65,698.28 64 31 Tanzania Engineering and 398.71 83 Manufacturing Design Organization (TEMDO) 32 Land Transport Regulatory 398.47 100 Authority (LATRA) 33 *Tanzania Communication 54,392.22 100 Regulatory Authority (TCRA) 34 Institute of Finance 2,325.11 48 Management (IFM) TOTAL 263,760.05
The respective position affects the operations of these institutions as the amount could have been channelled to various productive activities undertaken by the respective entities.
I recommend that the highlighted institutions improve their debt collection mechanism which should involve thorough and effective methods to ensure fully recovery.
Report of Public Authorities and other Bodies 2018/19 26
5.4 Tanzania Shipping Agencies (TASAC) 5.4.1 Non-submission of Provisional Financial Statements and Payment of Annual Levy Rules 4 and 5 of Tanzania Shipping Agencies (Service Providers Levies and Fees) Rules, 2018 require regulated service providers to submit quarterly provisional financial statements and pay annual levy to Tanzania Shipping Agencies (TASAC) on a quarterly basis. Failure to do so attracts interest and fines.
However, from sample of 16 out of 980 licensed regulated service providers, I noted that five (5) service providers had neither paid nor submitted the quarterly provisional financial statements. The total due from these providers is estimated at TZS 10.35 billion. Further, I have noted that one service provider out of 16 reviewed has been submitting returns but never paid service levy aggregating to TZS 502.44 million.
This is significant amount that could have been used in implementing various TASAC’s activities but is tied up on trade receivables, hence hindering its operations.
I recommend that TASAC use effective approaches in enforcing its mandates as stipulated by pertinent rules and improve its efficiency and effectiveness in collection of dues from service providers.
5.5 Tanzania Engineering and Manufacturing Design Organisation (TEMDO) 5.5.1 Under-collection of Funds from Own Source During the financial years 2017/18 and 2018/19, Tanzania Engineering and Manufacturing Design Organisation (TEMDO) budgeted to collect TZS 1.25 billion and TZS 780 million respectively from own sources.
However, TEMDO collected only TZS 209.59 million and TZS 147.65 million during the years 2018 and 2019 which registered under collection of TZS 1.04 billion (83%) and TZS 632.35 (81%). The shortfall in revenue collection is attributed
Report of Public Authorities and other Bodies 2018/19 27
to the lack of comprehensive strategy for revenue mobilization and inadequate capacity in marketing strategies.
The under collection had a negative impact on TEMDO operations as it led to shortage of financial resources, hence, failure to achieve its planned objectives.
I recommend that TEMDO develop a comprehensive revenue mobilization strategy that would enable it to achieve its goals.
5.6 Tanzania Ports Authority (TPA) 5.6.1 Weaknesses over Revenue Recognition I noted deficiencies on invoices with total amounts of USD 390,282 for 2018/19 and USD 747,445 for 2017/18 relating to vessels docked out, which were not captured in the respective years as revenue. Also, 38 cargo invoices amounting to TZS 2.4 billion whose vessels arrived in 2019/20 were captured in the year 2018/19 revenue. The anomalies indicate deficiency in the TPA cut off procedure to ensure revenue is properly accounted for in the appropriate periods. This resulted in misstatement of TPA’s revenue.
I recommend that TPA institute proper cut-off procedures including reviews to ensure revenue are correctly captured in the period that it is earned.
5.6.2 Significant Increase in Trade Debtors for Dar es Salaam Port Regulation 3.3.6 of the TPA’s Financial Regulations, 2018 requires services to be provided to customers on cash basis and any credit to be approved by Director General through Director of Finance.
On reviewing Dar es Salaam Port receivable balance, I noted that out of TZS 66 billion debtors balance, TZS 25 billion (38%) is related to 2018/19 alone.
Report of Public Authorities and other Bodies 2018/19 28
The significant increase indicates that services to customer were offered on credit rather than cash which might have resulted in inadequate cash inflow and hence affecting TPA’s planned activities.
I recommend that TPA review its controls with regard to compliance with various guidelines and adjust accordingly to meet its operational requirements.
5.7 UTT - Asset Management and Investor Services Plc (2015/16 - 2017/18) 5.7.1 Long Outstanding Staff Advance Staff advances amounting to TZS 326 million were given to staff in May 2017 to enable them to participate in Vodacom IPO share issues. It was agreed that the advances given would be recovered within 3 months. However, I noted that the amount had not been recovered to the date of this audit.
UTT AMIS had put in place recovery strategies which empower it to either take back the shares from its staff (at their consent) based on the value advanced to them or make a full recovery of the amount advanced by making deductions from their salaries. However, as at the date of audit, none of the recovery strategies were implemented.
There is a risk of loss to the Company since recoverability of the advances becomes uncertain.
I recommend that UTT – Asset Management and Investor Service (AMIS) implement a formalized plan to recover the staff advances.
5.8 TTCL Pesa Ltd (T-Pesa) 5.8.1 Deficiency in Computation of Airtime Commission Earned Clause 9.2 of the E-voucher Dealership Service Contract between TTCL Corporation and TTCL Pesa Ltd (T-Pesa) requires computed commission to be VAT inclusive and be calculated on the basis of actual sales by T-Pesa.
Report of Public Authorities and other Bodies 2018/19 29
However, the computation of airtime commission earned by T-Pesa is based on electronic airtime from TTCL Corporation rather than the actual sales by T-Pesa as stipulated by the contract. T-Pesa’s current arrangement is based on the verbal agreement between the two parties which is yet to be effected in the contract. However, given the current running contract, I am concerned that T-Pesa revenue might have been misstated.
I recommend that T-Pesa amend the contract and include new agreed arrangements or compute commission based on the terms of the contract in force.
5.9 TTCL Pesa Trust Entity (T-Pesa Trust) 5.9.1 Absence of Independent Computation of Interest Earned in Trust Accounts Section 2.6 of Agreement between TTCL Pesa Ltd and TTCL Pesa Trust Entity and Banks (NMB, CRDB, TPB and TIB) requires interest earned on Trust account to be calculated daily on outstanding balance and credited into the Trust Account once at each month end.
However, TTCL Pesa Trust Entity management was unable to demonstrate that there is a mechanism in place to ensure that interest earned is accurate rather than relying on what is deposited by the Banks in Trust’s Bank Accounts. I noted three circumstances whereby interest earned were reversed by one of the banks due to identified undercharge by the respective bank.Absence of independent review/re-computation by T- Pesa Trust management might result in financial loss to the entity in case of an understatement of revenue goes undetected.
I recommend that TTCL T-Pesa Trust perform daily independent computation of interest to ensure accuracy and completeness of interest deposited in the Trust Accounts.
Report of Public Authorities and other Bodies 2018/19 30
5.10 The Arusha International Conference Centre (AICC) 5.10.1 Low Occupancy Rates on Rental Properties The Arusha International Conference Centre (AICC) Headquarters’ Complex building has total rental space of 19,686 square meters from its three wings namely Kilimanjaro, Serengeti and Ngorongoro.
However, it came to my attention that only 10,028 (51%) square meters were occupied during the financial year ended 30th June, 2019, leaving 9,658 square meters unoccupied. The revenue loss because of the total unoccupied space was TZS 2.32 billion during the year.
I recommend that AICC evaluate reasons for vacant rental spaces and institute strategies that will ensure renting of the spaces hence improve revenue of the Centre.
5.11 Inadequate Funding by the Government My assessment of the Public Authorities funding during the year identified cases of significant deviations between approved budgets and amount released by the Government to fund the budget. The concerned entities highly depend on the Government and underfunding creates serious shortage in their resources available for discharging their mandate. Table 8 below includes amounts approved and released by the Government with related unreleased amounts.
Table 8: Government’s Budget Releases Versus Approved Budgeted Amounts S/N Institution Year Budgete Unreleas % d ed Amount Amount TZS TZS (Million) (Million) 1 Centre for Agricultural 2018/19 3,000 2,750 92 Mechanization and Rural Technology (CARMATEC) 2 Tanzania Commission of 2018/19 11,095 7,505 68 Science and Technology (COSTECH)
Report of Public Authorities and other Bodies 2018/19 31
S/N Institution Year Budgete Unreleas % d ed Amount Amount TZS TZS (Million) (Million) 3 Medical Stores 2018/19 251,500 130,418 52 Department (MSD) 4 Tanzania Trade 2018/19 2,979 2,979 100 Development Authority (TANTRADE) 5 Tanzania Broadcasting 2018/19 5,000 2,500 50 Corporation (TBC) 6 Tanzania Engineering and 2017/18 4,671 2,621 56 Manufacturing Design Organization (TEMDO) 7 Tanzania Engineering and 2018/19 5,642 4,641 82 Manufacturing Design Organization (TEMDO)
The noted under-releases resulted in funds shortage by highlighted Public Authorities, which might have affected implementation of their functions.
I recommend that the Government enhance functioning of these Public Authorities and other Bodies by adequately funding them through their budgeted government subventions.
5.12 Kilimanjaro Airports Development Company Limited (KADCO) and Kariakoo Market Corporation (KMC) 5.12.1 Tenants Without Rental Contracts Kilimanjaro Airports Development Company Limited (KADCO) and Kariakoo Market Corporation (KMC) had a total of 710 tenants occupying their properties. However, a total of 401 (56%) of the tenants had no rental contracts while they are still conducting business in the Corporations’ premises. Refer Table 9 below;
Report of Public Authorities and other Bodies 2018/19 32
Table 9: Tenants Without Rental Contracts S/N Institution Total Tenants Percentage Number of Without Tenants Contracts 1 Kilimanjaro Airports 87 36 41 Development Company Limited (KADCO) 2 Kariakoo Market 623 365 59 Corporation (KMC) Total 710 401 56
I am concerned that KADCO and KMC may lose revenue in case of disputes as incomplete contracts may not be enforceable in the court of law.
I recommend that KADCO and KMC ensure contracts are duly signed by their tenants to avoid possibility of losing revenue through defaulters.
5.13 Medical Stores Department (MSD) 5.13.1 Significant Increase in Government Receivable Threatening Operations of MSD During the financial year ended 30th June, 2019, MSD receivables from Government increased significantly by TZS 16.18 billion from TZS 37.45 billion that was outstanding in the financial year ended 30th June, 2018. I am concerned that MSD’s liquidity is deteriorating which affects MSD operations including the outreach of medicine and medical equipment to the society as well as implementation of its various plans.
I recommend that Ministry of Health, Community Development, Gender, Elderly and Children pay their dues to MSD in a timely manner to enable sustainability of its operations and enhance the outreach of medicine and medical equipment to the society.
Report of Public Authorities and other Bodies 2018/19 33
5.14 Tanzania Petroleum Development Corporation (TPDC) 5.14.1 Loss of Revenue Due to Delay in Extension of Licenses for Production Sharing Agreements (PSAs) Section 57(1)-(4) of the Petroleum Act, 2015 requires the holder of exploration license to apply for extension license in respect of their blocks not later than 90 days before the due expiry day of the license. It further emphasizes that the Minister may accept an application for extension later than ninety days and not, in any case, after the date of expiry of a license. Section 59(8) of the same Act requires that when the application is made, the license should be deemed to continue in force until the Minister grants or refuses to grant the extension of license, or lapses of application, whichever occurs first even if the license has expired.
Furthermore, Section 6 of the Oil and Gas Revenues Management Act, 2015 requires that, among others, Tanzania Petroleum Development Corporation (TPDC) collect and retain surface rentals or annual block fees, signature bonuses and training fees for the purposes of enhancing development of oil and gas subsector.
From the review of the list of Production Sharing Agreements (PSA) licenses and their status and the status of PSA licenses with TPDC, I noted the following anomalies: • Seven (7) out of eight (8) operating PSAs gas exploration licenses had expired. • Holders of three (3) out of seven (7) expired PSAs license had not applied for extension within 90 days before expiration of the respective licenses as required by the law. • Five (5) PSAs whose licenses had expired were given comfort letters instead of extension.
TPDC explained that the extensions were delayed pending directives by the Public Accounts Committee (PAC) to review
Report of Public Authorities and other Bodies 2018/19 34
the existing PSAs in line with the Natural Wealth and Resources (Permanent Sovereignty) Act, 2017.
I am of the view that delays in resolving issue of expired licenses might demoralise the investors concerned. Also, the comfort letter issued does not suffice the necessity of licenses as it cannot be enforced in the court of law in case of disputes.
I thus, recommend that TPDC expedite implementation of PAC directives and follow up with responsible Minister to ensure that the licenses issue is resolved.
5.14.2 Significant outstanding receivable without performance guarantee and interest on outstanding balance Gas Sales Agreements or Terms (GSAs/GSTs) requires, TPDC’s customers to pay upfront an amount at least equal to the required amount (payment security), which is equal to daily quantity of natural gas supplied and taken by buyers during the previous three (3) months. GSA clause on payment security is among precedent conditions that should be fulfilled by GSA entered parties (buyers). The agreements further entitle the seller (TPDC) to suspend deliveries of natural gas if a buyer fails to replenish the payment security.
However, I noted an outstanding receivables of Payment Securities from sales of natural gas amounting to TZS 368.28 billion from five (5) TPDC’s customers as at 30th June, 2019 as detailed in the Table 10 below:
Table 10: Customers with Outstanding Balance of Payment Security S/n Customer name Starting Outstanding amount supply date (TZS Billion) 1 TANESCO September 338.67 2015 2 Dangote Cement Ltd September 22.35 Tanzania 2018 3 Goodwill Ceramic Co May 2017 7.08
Report of Public Authorities and other Bodies 2018/19 35
S/n Customer name Starting Outstanding amount supply date (TZS Billion) Ltd 4 Cocacola Kwanza Ltd May 2 019 0.13 5 Lodhia Steel June 2019 0.05 Industries Ltd Total 368.28
TPDC had not been charging any interest on the respective receivable balances.
I am concerned that TPDC may not be able to recover these outstanding amounts due to weak follow up mechanism and enforcement of the GSA provisions.
I recommend that TPDC devise rigorous strategies to collect the outstanding balances from the customers with interests and insist on compliance with the provisions of GSA.
5.14.3 Accounts of M&P not Adjusted According to PSA’s Audit Findings USD 45 Million The Government of the United Republic of Tanzania, TPDC and M&P (the contractor) entered into a Production Sharing Agreement (PSA) in 2004 to undertake hydrocarbon exploration at Mnazi Bay.
Under Annex D of PSA, TPDC is obliged to conduct PSA’s cost audit every year and provide audit report to M&P while Section 1.6 of the same Annex requires M&P to provide official responses to the audit observations within sixty (60) days from submission date, failure of which, M&P is deemed to have accepted the audit observations and thus require to adjust its accounts accordingly.
During the years 2016 and 2017, TPDC conducted audits on the recoverable costs for Mnazi Bay PSA covering the years 2013, 2014 and 2015 and disputed a total cost of USD 45 million as indicted in Table 11 below:
Report of Public Authorities and other Bodies 2018/19 36
Table 11: Disputed Recovery Cost Year Cost Disputed Date of final Date of Response by Days Claime Amounts audit report M &P taken d by M (USD) issued to M&P to & P Million respo (USD) nd Million 2013 22.8 6.4 14th March, 2017 18th October, 2017 218 2014 33.7 20.3 15th March, 2017 18th October, 2017 217 2015 43.2 18.5 12th July, 2017 18th October, 2017 98 45.2
I further learnt that M&P had requested TPDC to consider reviewing the M&P’s audits findings relating to rejected costs in view of the submitted responses. However, TPDC maintained its position that the disputed costs have been accepted by M&P by the virtue of failing to provide timely responses to them as required by PSA.
Management explained that M&P had not yet agreed to adjust the disputed cost and TPDC was still waiting for its board of director’s approval to consult the Ministry of Energy and Attorney General on the matter.
The failure to adjusting the rejected cost as per agreed terms and conditions of PSA reduces the shared profit accruing to TPDC hence, adversely affecting its revenue
I therefore, recommend that TPDC ensures that accounts of M&P are adjusted and thus, correct amount of profit share is shared with TPDC and then insist on maximum compliance with the terms and conditions of PSA by all parties to that agreement.
5.15 Dar es Salaam Maritime Institute (DMI) 5.15.1 Non-Compliance with GePG Circular Ministry of Finance and Planning through the Treasury Registrar issued Circular No. CCA 292/408/01/31 that requires all MDAs, LGAs and Institutions to collect revenue using Government e-Payment Gateway (GePG) by June 2018.
Report of Public Authorities and other Bodies 2018/19 37
I noted that Dar es Salaam Maritime Institute (DMI) implemented the respective Circular from July 2018. However, during the year ended 30th June, 2019, DMI collected a total of TZS 451.09 million and USD 184,750 in accounts other than those with GePG contrary to the above noted circular. This was attributed to lack of awareness of change of process (system) by students and tenants.
It is my concern that collections might have not been effective due to human interferences with the amounts collected outside GePG system. Also, the practice inhibits instant monitoring of collected funds.
I recommend that DMI ensure full compliance with the Circular to promote efficiency and effectiveness in collection of revenue.
5.16 TTCL Corporation (TTCL) 5.16.1 Loss on Roaming Contract with MIC TTCL Corporation entered into a contract with MIC Tanzania Limited for National Roaming with effect from 14th July, 2018. The intention was to expand network coverage countrywide to maximize revenue. The contract prices for the roaming service are detailed in Table 12 below:
Table 12: Loss on Roaming Contract With MIC S/N Details TZS 1. Radio Access Voice 8.5 per Minute 2. Data 2,500 per GB 3. Messaging (Local) 1 per SMS 4. Messaging (International) 2 per SMS
I noted that TTCL was offering lower package prices to its customers than the package contracted prices it pays. As a result, it made a loss of TZS 1.11 billion exclusively from the roaming contract.
Report of Public Authorities and other Bodies 2018/19 38
Also, if TTCL increases prices to curb the loss, there is possibility of reducing its revenues due to stiff competition in the market.
I recommend that TTCL seek alternative means of countrywide coverage.
Report of Public Authorities and other Bodies 2018/19 39
CHAPTER 6
REVIEW OF CORPORATE GOVERNANCE
6.0 Introduction Public Authorities and Other Bodies (PA & OBs) are established by laws with specific governance structure that enables them to discharge their mandates in effective, efficient and transparent way. Corporate governance does not only introduce rules and laws that provide minimum requirements but also customize practices that fit the public entities.
I reviewed governance of PA & OBs for the financial year 2018/2019 with a view to establishing effectiveness of performance of the PA & OBs. The review focused on management structure and composition of the Boards on implementation of core functions; presence of proper functioning of Board of Directors/Trustees on oversight functions and performance of the Boards in directing Managements of respective entities.
During the review, I noted that some entities had no Board of Directors while other Boards had acting chairpersons. There were public authorities whose Board of Directors had not conducted meetings as required in their guidelines. I further noted that, there were Public Entities of which had Managing Directors acting for a long period.
This chapter, therefore, set out details of weaknesses noted in the governance of PA & OBs and respective recommendations for improvement.
6.1.1 Increase in Public Authorities with no Boards of Directors Boards are oversight organs for the public entities that ensure performance of the entity in the interest of the public. It oversees management of the entity who are entrusted with the day to day operations. A Board of Directors is a responsible body in making decisions that provide the
Report of Public Authorities and other Bodies 2018/19 40
direction of the organization in the interest of the public. In this context, members of the Board are appointed to ensure their participation in running public entities provide value added decisions.
A Board of Directors is led by a chairperson whose appointment is stated in the law establishing such particular entity. The Board becomes active when it consists of all the required members appointed and discharging their functions throughout the period.
During the financial year 2018/19, I noted an increasing number of PA & OBs with no Boards of Directors; where in the current year, 31% of the audited PA & OBs had no Boards.
Apart from not having the Board of Directors some entities also lacked substantive leaders and were therefore headed by acting Chief Executives/Directors General. In addition, there were 11 PA & OBs with Board of Directors led by acting Chairpersons and acting Chief Executive Officers/Director Generals Table 13. Figure 1 below shows three years increasing trend of public authorities with no Oversight Bodies:
Trend of Public Authorities with no Boards39 of Directors
40 24 20 30
20
10
0 2016/2017 2017/2018 2018/2019 Financial Year
Report of Public Authorities and other Bodies 2018/19 41
Table 13: Public Authorities with no Boards of Directors or Acting Chairpersons S/N Name of Entity Board Acting DGs Available 1 Kibaha Education Center (KEC) No Board DG Appointed 2 Jakaya Kikwete Cardiac Institute (JKCI) No Board Acting 3 Institute of Accountancy Arusha (IAA) No Board DG Appointed 4 Centre For Foreign Relations (CFR) No Board Acting 5 Tanzania Fisheries Research Institute (TAFIRI) No Board Acting 6 Centre for Agricultural Mechanization and No Board Acting Rural Technology (CAMARTEC) 7 National Institute of Productivity (NIP) No Board DG Appointed 8 Tanzania Wildlife Research Institute (TAWIRI) No Board DG Appointed 9 Ocean Road Cancer Institute (ORCI) No Board DG Appointed 10 Tanzania Industrial Research and Development No Board DG Appointed Organization (TIRDO) 11 MWEKA College of African Wildlife No Board DG Appointed Management 12 Mwalimu Julius Nyerere University No Board DG Appointed 13 Tropical Pesticides Research Institute (TPRI) No Board Acting 14 Tanzania Engineering and Manufacturing No Board DG Appointed Development Organization (TEMDO) 15 Institute of Rural Development Planning (IRDP) No Board DG Appointed 16 TCAA-CCC No Board DG Appointed 17 Cashewnut Board of Tanzania (CBT) No Board DG Appointed 18 Marine Parks & Reserve Unit No Board DG Appointed 19 Tanzania Insurance Regulatory Authority (TIRA) No Board DG Appointed 20 Tanzania Pyrethrum Board No Board DG Appointed 21 Tanzania Meat Board No Board DG Appointed 22 National Economic Empowerment Council No Board DG Appointed (NEEC) 23 Tanzania Trade Development Authority No Board DG Appointed (TANTRADE) 24 Geita Urban Water No Board DG Appointed 25 Tanzania Bureau Of Standards (TBS) No Board DG Appointed 26 Procurement and Supplies Professionals and No Board DG Appointed Technicians Board (PSPTB) 27 Tanzania Diary Board No Board Acting 28 Tanzania Broadcasting Corporation (TBC) No Board DG Appointed 29 Bukoba Urban Water No Board DG Appointed 30 Tabora Urban Water No Board DG Appointed 31 Tanzania Fertilizer No Board DG Appointed 32 Mtwara Urban Water No Board DG Appointed 33 Rukwa/Sumbawanga Urban Water No Board DG Appointed 34 Mpanda Urban Water No Board DG Appointed 35 LATRA CCC No Board DG Appointed 36 Tanzania Coffee Board (TCB) Currently Chairperson have Board Acting 37 Tanzania Smallholders Tea Development Currently Chairperson Agency (TSHTDA) have Board Acting 38 Tanzania Cotton Board (TCB) Currently Chairperson have Board Acting 39 Tanzania Atomic Energy Commission (TAEC) Currently Chairperson
Report of Public Authorities and other Bodies 2018/19 42
S/N Name of Entity Board Acting DGs Available have Board Acting 40 Gaming Board of Tanzania (GBT) Currently Chairperson have Board Acting 41 Workers Compensation Fund (WCF) No Board 42 National Development Corporation (NDC) No Board 43 National Insurance Corporation (NIC) No Board
The lack of Board of Directors impacts the oversight functions in providing strategic direction of the entities. It also delays implementation of functions (including guidelines/regulations and policies) as they lack approval of the Boards. Further, acting Board chairpersons and Chief Executive Officers/Directors General are limited in terms of accountability and authoritative powers to make decisions.
I reiterate my prior year’s recommendation that appointing Authorities, (a) Consider taking measures to ensure early identification of Boards with nearly expiration period and commence appointment process in advance to mitigate the challenge and (b) Assess performance of the Acting Chairpersons and Directors and consider reducing the acting positions by making full appointments.
6.1.2 Inadequate Implementation of Directives of Board of Directors An effective Board of Directors gives directives to management of the PA & OBs to enhance effective performance of the entity. Implementation of the directives may be long, medium and short term.
I noted cases of unimplemented directives of the Boards. At Tanzania Civil Aviation Authority (TCAA) there were four (4) unimplemented Board of Directors directives issued in a meeting held on 10th October, 2018. The Board directed that management seek for the service level agreement on internet provision between TTCL and TCAA to ensure errors in the revenue billing system are rectified in a timely manner. The
Report of Public Authorities and other Bodies 2018/19 43
Management was also required to communicate with parent ministry to separate air accident bureau from the TCAA.
Similarly, the Tanzania Food and Nutrition Centre (TFNC) did not implement the directive to change administrative fee from 10% to 15% on research money channelled through the centre in order to increase revenue. The management of Tanzania Tourist Board (TTB) had four outstanding directives including working on the identified weaknesses in management of billboards contract with A1 Outdoor Company Limited.
The Office of Treasury Registrar enters into performance agreement with the Boards of Directors on targets to be achieved during the financial year. I noted that, the Boards of Capital Markets and Securities Authority and Lindi Urban Water and Sanitation Supply Authority did not adequately implement the performance agreements.
I consider presence of unimplemented directives to be an indication of weaknesses of the Boards performance in guiding the management. Further, inadequate Board’s performance affects achievements of the pre-determined targets that are set in the performance agreements.
I recommend that the Boards institute follow-up mechanisms to ensure implementation of their directives are evaluated and set implementation timelines and hold management accountable for unimplemented directives. In addition, the Boards ensure performance targets agreed with the Office of Treasury Registrar are effectively implemented.
6.1.3 Officers in Acting Positions for More Than Six Months Order D.18 (1) of the Standing Orders for the Public Service of 2009 states that; “acting appointments occurs where an employee is assigned temporarily to perform the duties of a
Report of Public Authorities and other Bodies 2018/19 44
position in a classification with a superlative substantive post”. In this context Order D.24 (3) states ‘where possible, a public servant shall not act in a vacant post for a period exceeding six months. The appointing authority should make sure that the process for appointing a substantive holder of a respective post is completed within that period of six months. The Public Authorities have adopted these general guidelines in their internal regulations like staff and financial regulations.
From the review of 10 PA & OBs I noted that, 146 officers were acting in substantive positions for more than six (6) months contrary to the Standing Orders cited above (Table 14). I further noted that, of these posts 15 were Directors General (Chief Executive Officers).
Table 14: Public Officers Acting for More than 6 Months Name Public Authority Number of Period in Acting Officers in Acting Position Positions SOUWASA 3 6 to 17 Months MSD 2 21 and 19 Months TPA 81 More than 6 Months AUWASA 2 19 and 21 Days NCC 2 More than 3 years BAWASA 1 More than 2 years TMDA 6 Acting for 12 Months HESLB 2 More than 6 Months CAMARTEC 9 More than 6 Months MNMA 1 Acting for 16 Months NIT 6 12 to 36 Months JKCI 12 8 months and 3 years VETA 11 10 Months and 5 years NBS 5 More than 9 months SHUWASA 3 More than 6 months Total 146
I consider that the performance of these acting Public Officers for more than six months. My review performance evaluation of the officers in the acting positions could efficiently be done within six (6) months as stated by the Orders and therefore
Report of Public Authorities and other Bodies 2018/19 45
enable the Appointing Authorities to make decision on whether to confirm them or appoint other suitable personnel.
In this regard, the positions held by acting officers for a long period may be a source of acting staff liabilities to an entity and has also implication on the performance of the acting officers.
I recommend that PA & OBs in collaboration with Treasury Registrar review on regular basis employment status of substantive officers and ensure the number of act posts held by officers who act are reduced by approving them or fill the posts with proper personnel.
6.1.4 Shortage of Staff in Public Authorities The Public Authorities prepare organization structures that aim to support functions of their organizations. The organization structures identify human resources that are required by the organization to accomplish its objectives.
In nine (9) out of 140 PA & OBs reviewed during the financial year 2018/19 I noted that staff establishments had requirements of 4,977 staff for various cadres. However, the actual staff available were only 3,323 resulting in a shortage of 1,654 staff equivalent to 33% of the requirements (Table 15).
Table 15: Staff Shortage S/N Division Proposed Current Vacant Percentage Staffing Level Status Posts of Vacancy 1 PPRA 152 71 81 53% 2 TCAA 553 444 109 20% 3 TPA 3196 2136 1060 33% 4 TASAC 195 141 54 28% 5 AQRB 54 24 30 56% 6 MTUWASA 70 53 17 24% 7 MNMA 427 277 150 35% 8 NEMC 277 142 135 55% 9 VETA 53 35 18 34% Total 4977 3323 1654 33%
Report of Public Authorities and other Bodies 2018/19 46
I consider that, PA & OBs make proper assessment of required staff to discharge the mandated functions and that the requirements are reviewed to determine their relevance over time. As such, significant shortage of workforce does not only reduce abilities of the public authorities to perform their mandated functions but also over utilize the available human resources by working above their capacity which results in inefficiency.
The Public Authorities should capitalize on the rapid change in technology and then assess whether all positions are still needed in the entity’s organization structure. I believe proper use of the technological changes by these entities would reduce the scope of human resource requirements and the need to fill some vacancies.
I, thus, recommend that PA&OBs in coordination with the Treasury Registrar consider reviewing their staffing requirements in line with their mandated functions and fill vacant positions as required.
Report of Public Authorities and other Bodies 2018/19 47
CHAPTER 7
STRATEGIC AND OPERATIONAL EFFICIENCY
7.0 Introduction Strategic Management encompasses continuous planning, monitoring, analysis and assessment of activities necessary for an organisation to meet its goals and objectives. Strategic Management typically involves analysing internal and external strengths and weaknesses, formulating action plans, executing action plans, evaluating the achievements and adjusting to attain the objectives.
Operational Efficiency means the ratio between inputs to run a business and the outputs gained from the business. Operational Efficiency encompasses several strategies used to accomplish the basic goals of delivering quality goods or services to the public in the most cost effective and timely manner.
My review of Strategic and Operational Efficiency included the following entities:
1. Gaming Board of Tanzania (GBT) 2. National Construction Council (NCC) 3. National Housing Corporation (NHC) 4. Centre for Agricultural Mechanism and Rural Technology (CAMARTEC) 5. Kilimanjaro Airport Development Company Limited (KADCO) 6. Tanzania Trade Development Authority (TANTRADE)
Report of Public Authorities and other Bodies 2018/19 48
7.1 Gaming Board of Tanzania 7.1.1 GBT Operates with Draft Internet Gaming Regulations for More than Seven Years The Gaming Board of Tanzania (GBT) operates internet gaming activities in the country. However, Internet Gaming Regulations are in draft and have not been approved to be an acceptable document for use. Further, in preparations of the draft Regulations the stakeholder’s opinions were not considered and uploaded on GBT’s website.
It is necessary that the formulated Regulations take into account stakeholder’s views. The approval of the regulations is crucial in order to give wider guidance on internet casino operations especially in the areas such as licensing, supervision, fees management, vetting of internet and service providers.
I recommend that GBT incorporate stakeholders’ opinions, widen the regulation to cover all aspects of the internet gaming and expedite finalization and approval of the Regulations.
7.1.2 Lack of Administrative Sanctions Against Non-Compliant Operators The Gaming Board of Tanzania (GBT) conducts routine and ad- hoc inspections of gaming operations to evaluate activities performed by the operators and inspection reports are submitted to Inspection and Compliance Manager for action.
The inspection reports for the financial year ended 2018/19 covered various deficiencies identified including: delays in renewing of gaming license; changing of gaming business locations without notification to the Board; unregistered slot machines; lack of supportive and key employee licenses; absence of gaming stickers; lack of permanent gaming locations and absence of gaming license.
Report of Public Authorities and other Bodies 2018/19 49
However, no actions have been taken by the Board mainly because the existing Regulations do not provide for administrative sanctions against non-compliant operators.
I recommend that GBT liaise with the Ministry of Finance and Planning to amend its regulations by including administrative sanctions to be imposed against noncompliant operators.
7.1.3 Gaming Operator’s Servers Located Outside Tanzania Mainland Local replica server is a requirement for sports betting operations, intending to mitigate the need to have information locally when needed for further scrutiny under Rule 17(2) and (3) of Sports Betting Rules, 2016.
I noted that servers of two operators (BITT-Tech and 360 with licence Nos 005476/006160/005826 and 005527 respectively) are located outside the Tanzania Mainland. This implies that information on their financial affairs may not be easily obtained when required by the Government Authorities including Tanzania Revenue Authority (TRA) and Gaming Board of Tanzania.
I am aware of the ongoing development of Gaming Regulatory Electronic Monitoring System (GREMS) which is an electronic regulatory tool that is expected to monitor and provide assurance on the Government revenue, responsible gaming, market awareness and business intelligence. Under this development, it is expected dependency on the replica servers will be significantly reduced and more real time information will be collected and stored on GBT-own servers located within Tanzania by June 2020. However, I remain concerned that financial affairs of the operators may not be obtained when needed until the project is completed.
Report of Public Authorities and other Bodies 2018/19 50
I recommend that GBT comply with Sports Betting Rules by ensuring that the operators locate their servers within Tanzania Mainland.
7.2 National Construction Council (NCC) 7.2.1 Inadequate Implementation of Development Projects TZS 509.56 Million The National Construction Council (NCC) has five years’ Corporate Strategic Plan covering from year 2016 to 2021. According to the Corporate Strategic Plan, for the year 2018/19, NCC planned to execute and complete seven (7) projects with estimated cost of TZS 509.56 million. However, out of the seven (7) projects, only two (2) projects were executed which is equivalent to 29% of the planned activities. Management attributed the delays in completion of the projects to budget constraints and inadequate human resources.
I recommend that NCC continue with the efforts of requesting Government grants and identifying other sources of which can sustainably finance its projects including increasing its internal income sources to complete the projects.
7.3 National Housing Corporation (NHC) 7.3.1 NHC Annual work Plan not Aligned with Corporate Strategic Plan The National Housing Corporation (NHC) has a ten-year Strategic Plan running from 2015/16 to 2024/25. The Strategic Plan is aimed at achieving the strategic goals including: to become a leading real estate developer; to become a real estate manager; to strengthen operational capacity and control mechanism; and to boost the corporate image.
NHC prepares Annual Action Plans to monitor planned activities as part of its initiatives to guide the implementation of the Strategic Plan. However, in the process of developing
Report of Public Authorities and other Bodies 2018/19 51
the annual action plan, I noted that the Corporation did not consider its Strategic Plan for the particular year. For instance, while the Corporation planned to raise TZS 240 billion in its Strategic Plan for the financial year 2018/19, in its annual action plan the Corporate indicated that it planned to raise TZS 167.7 billion only for the same period.
Further, the Corporation did not perform monitoring and evaluation of the Strategic Plan and did not have any personnel responsible for monitoring and evaluation.
Absences of Annual Work Plans which are aligned with Strategic Plan limits the Corporation in tracking implementation of the Strategic Plan and take corrective measures in a timely manner.
I recommend that the National Housing Corporation (NHC) streamline its Annual Work Plans with the Strategic Plan to ensure seamless implementation of its strategic objectives; and perform monitoring and evaluation of the Strategic Plan so as to measure its implementation and take corrective actions in a timely manner.
7.4 Centre for Agricultural Mechanism and Rural Technology (CAMARTEC) 7.4.1 CAMARTEC Strategic Plan (CSP) No Aligned to Five-year Plan The Centre for Agricultural Mechanism and Rural Technology (CAMARTEC) is identified by the Government as a key Centre for agricultural development in the country. Also, the Government’s Five-Year Development Plan II (FYDP II) identified CAMARTEC as one of strategic institutions to facilitate implementation of the Plan. In the Government five- year plan, the Centre was tasked with the project of constructing tractors for TZS 222.7 billion to be sold to Small and Medium Enterprises up to 2021.
Report of Public Authorities and other Bodies 2018/19 52
However, CARMATEC has not included construction of tractors as one of its objectives in its Corporate Strategic Plan which means that the plan is not aligned with Five-Year Development Plan II (FYDP II). In this situation, CARMATEC may not achieve the assigned objectives of FYDP II.
Further, while the Centre has Planning and Coordination Unit in its Organization Structure, no Planning Officer has ever been employed to fill the post since the establishment of Centre in 1981. The functions of the unit have therefore been performed by other departments on part time basis without practical experience of planning and budgeting.
I recommend that CARMATEC liaise with Ministry of Industry and Trade to (a) revise the Centre CSP to include the objectives of the FYDP II that were directed to the Centre; and (b) establish and employ staff for the Planning and Coordination Unit to carry out its responsibilities.
7.4.2 Lack of Operating Regulations, Policies and Manuals Review of CARMATEC noted following anomalies:
• Results of tests performed on all types of machinery and equipment which were intended for agricultural use and rural development were not published contrary to the requirements of CARMATEC’s Act;
• Researches performed by the Centre including of tractors, mounted multi-crop planters and beans thresher were not patented;
• The Centre failed to prepare rules, policies and manuals such as research policy, intellectual property policy, workshop manuals and other important standard operating procedures; and
• The lack of regulations to support the CARMATEC Act in three out of four mandated areas of production,
Report of Public Authorities and other Bodies 2018/19 53
technology transfer, research and development. Regulations for testing were developed in 2018.
The absence of key regulations, policies and operating manuals impact internal control systems and performance as the Centre is not adequately guided to implement its mandate.
I recommend that CARMATEC (a) enact the missing regulations for all areas of the Centre purview; (b) publish results of conducted tests for ease of administration and management; (c) develop all important policies, manuals, and other key procedure; and (d) patent all Centre’s innovations that may be impacted by some kinds of technological transfers.
7.5 Kilimanjaro Airport Development Company Limited (KADCO) 7.5.1 KADCO does not Maintain the Safety Key Performance Indicators and Targets Regulation 57 (1) of the Civil Aviation (Aerodromes) Regulations, 2017 requires an operator of an aerodrome to have in its operation a safety management system (SMS) acceptable to the TCAA and that complies with the requirements specified in the Civil Aviation (Safety Management) Regulations, 2015. Further, Regulation 57(2) requires an operator to establish and evaluate safety performance indicators, alert levels and target levels at an aerodrome acceptable to the Authority.
However, KADCO has not established the Safety Key Performance Indicators and Targets. The matter was also reported by TCAA in KIA Aerodrome Certification Inspection conducted from 27th to 31st May, 2019. This leads to inability of the company to measure the safety performance trends and determine area of improvement.I recommend that KADCO comply with the requirements of Regulation 57 (1) of the Civil Aviation (Aerodromes) Regulations, 2017.
Report of Public Authorities and other Bodies 2018/19 54
7.6 Tanzania Trade Development Authority (TANTRADE) 7.6.1 Absence of Trade Fair Facilities Accreditation Standards TANTRADE regulations require the Authority to set the standards and quality of the trade fair facilities.
However, TANTRADE had not developed standards for accreditation of Trade Fair facilities in the country. Lack of accreditation standards may lead to haphazardly established trade fair facilities, which limit attainment of the Authority’s goal and promotion of local products to the accepted standards.
I recommend that TANTRADE Management establish Trade Fair Facilities Accreditation standards and communicate them to all stakeholders.
7.6.2 Delays in Implementing TANTRADE Functions TANTRADE regulations require the Authority to develop tools for monitoring market operations; establish a market intelligence system; coordinating training activities and research on trade fair facilities from various institutions such as TIC and EPZA.
I reviewed implementation status of the TANTRADE functions and learnt that some of the functions were not implemented such as: absence of M&E tool for domestic market operations, absence of established market intelligence system and absence of robust established section for coordinating training activates. Management explained that, they are developing comprehensive regulations, tools and procedures for implementing the same.
I recommend that Management of TANTRADE finalise and approve all the tools so as to start working on all activities defined in the regulations.
Report of Public Authorities and other Bodies 2018/19 55
CHAPTER 8
MANAGEMENT OF EXPENDITURE BY PUBLIC ENTITIES
8.0 Introduction In carrying out mandated functions, Public Authorities and other Bodies (PA & OBs) spend money in line with their policies, rules, laws, and regulations. In this regard, every Public Authority establishes internal controls to guide expenditures which may be in form of budget, authorization, approval and verification processes.
From the evaluation of internal controls on management of expenditure, I noted that Public Entities continued to incur ineligible and/or fruitless expenditures. For the period ended 30th June, 2019, 36 Public Authorities recorded expenses amounting to TZS 454.32 billion (2017/18: TZS 411.90 billion) excluding non-cash expenditure like depreciation and amortization of assets, and estimation for provision. These Public Authorities had also payables and accrued liabilities at the year-end amounting to TZS 184.43 billion (2017/18: TZS 152 billion) equivalent to 41% of the reported expenses.
Based on the above spending analysis, I evaluated internal controls instituted by the authorities in managing such expenditure. I noted repeated non-compliance with rules and regulations guiding Public Entities. These included spending on activities without proper budget approvals, presence of inefficiencies in the budget implementation, inadequate management of advances and imprest, delayed and non- remittance of statutory deductions to Pension Funds and National Health Insurance Fund. I also noted expenses which lacked proper authorization and approvals by the Boards as well as wasteful and ineligible expenditures.
Report of Public Authorities and other Bodies 2018/19 56
This chapter highlights the matters noted and recommendations issued to the following entities regarding expenditure management:
8.1 Budget Implementation Budget is the guiding tool in allocating and utilizing public resources for attaining pre-determined targets and objectives.
In this audit, I noted that, 40 Public Entities had planned to collect revenue of TZS 1, 240.82 billion and spend TZS 1,221.19 billion for the year under review, but the entities had collected and spent an amount of TZS 822.68 billion and TZS 766.90 billion instead which is equals to 66% and 63% of the total approved budget.
I further noted 15 Public Entities with significant under collections of budgeted revenue ranging from 29% to 77% as indicated in Table 16. Also, I noted six (6) among them could not implement expenditure budget as planned at the rate of more than (50%) as shown in Table 17.
Table 16: Entities with Significant Budget Under Collections S/N Name of Budget Actua Varianc Percen Budget Entity (in l (in e tage implemen Million Millio (in Varianc tation TZS) n Million e rate TZS) TZS) 1 CHALINZE 3,940 2,742 1,198 30% 27% UWASA 2 CMSA 4,732 2,901 1,831 39% 14% 3 CASTECH 16,277 8,907 7,369 45% 15% 4 FCC 14,399 8,940 5,458 38% 30% 5 FCT 2,970 1,741 1,229 41% 41% 6 JKCI 33,589 20,04 13,549 40% 47% 0 7 LINDI UWASA 4,303 1,034 3,269 76% 34% 8 MANAWASA 4,014 2,869 1,144 29% 49% 9 SHUWASA 9,297 6,178 3,118 34% 21%
Report of Public Authorities and other Bodies 2018/19 57
Table 17: Entities Which Could not Implement Expenditure as Planned No. Name of Budget Actual Varianc Percent Budget Entity (in (in e age imple Million Million (in Varianc mentat TZS) TZS) Million e ion TZS) rate 1 CAMARTEC 5,748 1,672 4,075 71% 74% 2 COSOTA 1,943 980 962 50% 52% 3 CTDF 92,318 27,378 64,939 70% 69% 4 DAWASA 342,673 177,038 165,634 48% 50% 5 EPZA 30,802 7,154 23,647 77% 75% 6 VETA 168,074 85,550 82,524 49% 52%
Low revenue budget performances on the mentioned Public Authorities imply inefficiencies in implementation of planned activities by the Entities and leading to non-achievement of planned objectives.
I recommend that the mentioned Public Entities ensure proper planning and use of realistic budget assumptions during planning in order to improve the rate of revenue collections and therefore increase resources available for the budget implementation.
8.1.1 Inefficiencies in Budget Execution Paragraph 69 of the budget guidelines for the preparation of plans and budget of 2018/19 requires prioritization of effective spending and prudent fiscal management to be the main enforcement mechanisms for implementation of 2018/19 budget.
I noted that Tanzania Postal Corporation (TPC) had overspent a total of TZS 1.65 billion because for the financial 2018/19 TPC budget was not developed from Corporate Strategic Business Plan. The TPC 6th Corporation Strategic Business Plan covered the period from July 2014 to June 2018 while the 7th Strategic Business plan covered a period from July 2019 to June 2024 and therefore, the financial year 2018/19 was not covered by any of the Strategic Business Plans.
Report of Public Authorities and other Bodies 2018/19 58
Dar es salaam Maritime Institute (DMI) had overspent a total of TZS 604.64 million in different budget line items. The overspending was not approved by the relevant authorities. Likewise, EPZA had overspent TZS 118.46 million of which 79% was for Board and Committee meetings.
Tanzania Broadcasting Corporation (TBC) had an overspending of TZS 144.13 million on the contract for installation, training, testing, Integration and commissioning of production equipment for Tanzania Safari Channel. The approved budget for project was TZS 607.23 million but actual spending was TZS 751.35 million.
I consider that the overspending without proper approvals from the relevant authorities undermines the importance of the budgetary control within organisation.
I recommend that Boards of Directors of Public Authorities and other Bodies strengthen the budgetary control mechanisms in order to create a meaningful use of budgets as tool for controlling and monitoring expenditure.
8.1.2 Inefficiencies in Budget Preparation and Implementation Paragraphs 9 and 10 of the Guidelines for the Preparation of Plans and Budget of 2018/19 directed strengthening and maximizing institutional synergies amongst stakeholders to achieve efficiency in implementation of the national strategy. Thus, it requires all Accounting Officers to adhere to laws and use of the national strategy during preparation and implementation of their respective annual plans and budgets.
During the review of budget preparation and implementation, I noted some deficiencies in five (5) Public Authorities out of 40 Public Authorities included in my sample. The deficiencies included lack of involvement and participation of every unit within the organization on budget preparation, there is no linkage between the corporate business strategies/plans and
Report of Public Authorities and other Bodies 2018/19 59
the budget, the budget is not in line with strategic plan and inadequate documentation of budget monitoring and implementation reports (Table 18).
Table 18: Weaknesses in Budget Preparation and Implementation S/N Name of Budget Deficiencies Entity
1 PPAA - Lack of involvement of the two Directorates namely the Directorate of Technical Services and the Directorate of Finance and Administration, during Budget origination process.
- There was no identification of priorities or core activities of the entity to be included in the budget.
- There were no progress reports to monitor implementation of the budget during the year under review.
2 CPB - Absence of evidence to confirm that every unit participated in the budget preparation process (budget origination and participation).
- Budget not showing identification of priorities and proper resource allocation to core activities.
- Absence of the quarterly performance reports showing how budgeted activities have been met.
3 TPC - TPC had approved TZS 1.1 billion for repair/renovation of the office buildings. However, the budget and the Corporation Annual action plan did not contain budget amounts of the renovation of the six regional offices.
- The management did not prepare estimated BOQ document which was to become a benchmark and a cost ceiling for each respective regional office’s repair and renovation costs.
4 NHC - In the process of developing annual action plan, the Corporation did not consider its Strategic Plan for the particular year. For instance, in the Strategic Plan, the Corporation planned to raise TZS 240 billion during the year 2018/19, but in its action plan it planned to raise TZS 167.7 billion. Therefore, the budget could not reflect the planned objectives.
Report of Public Authorities and other Bodies 2018/19 60
S/N Name of Budget Deficiencies Entity
5 MSD - MSD had a contract for procurement of motor vehicles which exceeded the budget by TZS 446.57 million.
- There was no budget for the excess amount on this procurement. This is contrary to Para 224 of MSD Financial Regulations 2011, which states that before any purchase is approved, the Director General shall ensure that the proposed expenditure is sufficiently covered under a specific approved budget allocation and the Annual Procurement Plan.
Deficiencies noted may affect performance of the entities hence, the overall national objectives on utilization of resources may not be achieved.
I recommend that the Public Entities abide by the budget guidelines and budget controls in preparation and implementation of their activities.
8.2 Inadequate Management of Advance Payments TZS 750.52 Million During the period 2018/19 the Tanzania Postal Corporation (TPC) had paid 50% of the contract sums as advance payments to contractors to enable the contractors to fasten completion of their contracted works. The advances amounted to TZS 506.35 million. Nevertheless, the corporation made those payments without security bonds which could be used to cover the advances as required by Nineteenth schedule of the Public Procurement Regulations 2013 (as amended in 2016) under schedule 6.
Likewise, AICC paid TZS 100 million as advance to the former Capital Development Authority (CDA) for acquisition of 31.5 acres of land at Njedengwa in Dodoma municipality. Later, CDA was disbanded by the Presidential Order and its activities, assets, liabilities and employees were transferred to Dodoma Municipal Council. However, AICC had neither
Report of Public Authorities and other Bodies 2018/19 61
obtained the land nor the refund of the advance up to the time of concluding this audit in December 2019.
Similarly, NHIF KfW Project had no limit of amount of cash to be paid to staff as advance/imprest for implementation of project activities. As a result, a total of TZS 70.35 million and 73.82 million were paid as cash advances for conducting advocacy training to stakeholders and service providers. Carrying large amount of cash invites a risk of theft leading to loss of public funds. NHIF is urged to refrain from this mode of payment.
8.3 Payment of Insurance Premium contrary to Regulations USD 102,000 Section 72(2) of the Insurance Act of 2009 requires an insured to pay to a Tanzanian Insurer all premiums due to the insurer by depositing to the account of the insurer for insurance cover. Further, Section 72(4) restricts a broker not to receive any premium from the insured for insurance cover and doing so is committing offences.
Contrary to above requirements, I noted that KADCO had paid USD 102,000 as premium to the brokers, Astra Insurance Brokers Ltd instead of Insurance Company. In addition, there was no Insurance Policy issued to KADCO from insurer, but only a Risk Note covering a period of three months from 1st October, 2018 to 31st December, 2018 was issued by the payee.
Payment of premium to a broker and purchasing of insurance without an insurance policy amount to non-compliance with the requirements of the laws and may result in a loss of public funds. Further, the Corporation for the period under review was not insured and was exposed to the risk of loss for any calamity that could occur.
Report of Public Authorities and other Bodies 2018/19 62
I recommend that KADCO: (a) to ensure the amount paid for un-receipted insurance cover is recovered and (b) to investigate the causes of such anomaly and take action so that it does not recur.
8.4 Fruitless Expenditure Made to Ex-Employees of the Public Authorities TZS 829.45 Million Expenditures of Public Entities are guided by laws, regulations, guidelines and policies developed by the Government and respective entities. All of these aim at safeguarding utilization of the public resources to activate economic benefit of the resources spent.
I noted that, three Public Authorities paid a total of TZS 829.45 million to staff who had left respective entities due to different reasons. Higher Education Students’ Loans Board (HESLB) paid TZS 398.14 Million to ex-staff in form of motor vehicle loans, housing loans and imprest (TZS 331.28; TZS 45.47 and TZS 21.40 million respectively).
Similarly, Tanzania Fertilizer Regulatory Authority (TFRA) paid TZS 324.01 million as allowances (extra duty allowances TZS 214.95 million and other allowances TZS 109.07 million) to seconded staff who are not entitled to such payment according to Standing Order and approval of the Board. I further noted that, the payment had not been approved by the Board.
In the same way, Tanzania Port Authority (TPA) reported outstanding loans amounting to TZS 107.30 million that were issued to terminated staff. The loans were given in terms of Bandari loans, Ramadhani, Easter, Advance rent, motor vehicle loan and R/salary general.
These payments highlight weak managerial controls over loans to staff and the checkout procedures for staff separating from
Report of Public Authorities and other Bodies 2018/19 63
the entities. In return staff are given loans which are not secured leading to losses of fund in case of staff termination.
I recommend that Managements of respective entities (a) strengthen payment controls by ensuring precautions are taken before issuing loans to staff, and (b) trace the ex- employees and make follow-up to recover outstanding loan balances.
8.5 Outstanding Land Rent and Service Levy to LGAs Section 6(1)(u) of the Local Government Finance Act of 1982 provides sources of revenue for local government which are all monies derived from the service levy payable by the corporate entities i.e. the rate not exceeding 0.3% of the turnover net of the value added tax and the excise duty.
TPA had long outstanding City Service Levy of TZS 989 million and TZS 1.076 billion for 2016/17 and 2017/18 respectively payable to Temeke Municipal Council while Morogoro Urban Water Supply and Sanitation Water Authority (MORUWASA) had not paid the Municipal levy amounting to TZS 58 million to Morogoro Municipal Council. Similarly, National Housing Corporation had delayed payment of land rent amounting to TZS 404.26 million to Kilimanjaro, Dodoma, Lindi, Kigoma Arusha, Mbeya, Tanga and Ruvuma regions.
Levy is one of important sources of revenue for the Local Government Authorities. Delayed payment of service levy increase liabilities to the paying entities and affect implementation of budgeted activities.
I urge the Public Authorities to settle all the outstanding service levy and land rents.
8.6 Unregulated Payments of Leave Passage TZS 1,575 Million According to Regulation 3.1.3.13 of DAWASA’s Human Resource Policy and Regulations (2018), the Authority employee is entitled to an annual leave once in every two
Report of Public Authorities and other Bodies 2018/19 64
years of leave cycle to and from employee’s place of domicile. In this leave cycle the employee is paid travel allowance.
Nevertheless, DAWASA paid 13th salary as leave passage with the amount involved totalling to TZS 1,575 million to staff on leave contrary to the cited Regulation. I further leant that there were no any guidelines that was used to base the payment of 13th salary leave passage. Management acknowledged that it was reviewing the existing voluntary agreement and recommendations to be presented to the appropriate authority for being regularized.
I am concerned that payments were made without being provided anywhere in internal regulations or approved by the responsible authorities including the Treasury Registrar which highlights the risk of misuse of public resources.
I recommend that DAWASA seek guidance from approving Authorities including the Office of the Treasury Registrar while at the time comply with requirement of its Human Resource and Policies and Regulations.
8.7 Payment of Employees’ NHIF Monthly Contributions Section 9 of NHIF’s Act of 1999 requires each employer to make monthly contribution of 3% of each of his employees’ salaries to be deposited to the Fund together with the employees’ monthly contribution of three percent of their salaries. During the period under review, TTCL contributed a total of TZS 1.075 billion in respect of contributions to NHIF. However, the amount paid by TTCL included all the 6% of the contribution including 3% which was supposed to be contributed by the employee. TTCL Management explained that the 6% contribution by the employer was a result of management and Staff Joint Negotiation Council in 2015 and 2017 respectively.
Report of Public Authorities and other Bodies 2018/19 65
Similarly, DAWASA and LATRA also made contributions to NHIF to the tune of 6% of the employee’s salary which covered both; employer and employees’ contributions and no deductions were made from employees’ salaries. As such, the Authorities incurred medical cost of TZS 532.49 million and TZS 157.64 million respectively.
I recommend that Public Entities comply with the requirements of NHIF Act or in a special case, approval be sought from the Office of the Treasury Registrar.
8.8 Improper Payment Process to Contractors by DAWASA and Ministry of Water TZS 6.45 billion On 18th June, 2018 through a letter with reference CAB.5/125/03E/VOL.3/14, DAWASA received TZS 12.98 billion from the Ministry of Water in respect of implementation of various development projects. The release letter directed that TZS 6.53 billion were to pay activities/projects under DAWASA supervision while TZS 6.45 billion were to be used for projects which did not relate to DAWASA and were supervised by the Ministry of Water.
As of June, 2019, TZS 5.49 billion out TZS 6.45 billion supervised by the Ministry of Water was paid to 17 different Development projects which did related to DAWASA. These included for instance, construction of office building (Maji House) at Kilimani Dodoma, Construction of Water Supply and Sewerage System for Dodoma University in Dodoma City, Local counterpart funds for Transboundary water resources project Songwe River Basins Development Project and Rehabilitation and Extension of Headquarter for Rufiji Basin and Water Laboratory buildings Iringa.
I noted a case where DAWASA had directly transferred to contractors who were implementing the projects supervised by the Ministry of Water. For instance, review of a DAWASA Bank Statement noted payments of TZS 801.40 million made
Report of Public Authorities and other Bodies 2018/19 66
to five different contractors involved in construction of office building (Maji House) at Kilimani Dodoma. Since this project was supervised by the Ministry of Water, fund controls would have been made by the Ministry. DAWASA had no control over certifying the work performed by contractors/consultants to whom transfers were made. In such case, DAWASA was not able to provide any supporting documents apart from the instruction memo from Ministry of Water that contained analysis of payments to be made and their Certificates. Further, I could not trace the procurement process and contract management process, compliance with withholding tax requirements when making payments, and verification of the work done by contractor.
I consider the Ministry to be aware with the controls over payments to contractors implementing different contracted projects in different entities. Therefore, it is my opinion that, payment to contractors could be done by respective implementing entities or the Ministry itself in collaboration with the implementing entity. Payments made by DAWASA to projects/activities which did not relate to the Authority just under instruction of the Ministry were prone to nugatory expenditure and misappropriation of the funds as DAWASA had no power to validate the work performed by contractors before payments.
I recommend that the Ministry of Water (a) adhere to the budgetary and payment controls in place when disbursing funds to Entities under it for implementation of projects, (b) ensure the funds transferred by DAWASA to contractors were actually for works performed and respective expenditures were accounted for by the implementing entities, (c) withholding taxes were deducted and submitted to TRA as required by the tax laws.
Report of Public Authorities and other Bodies 2018/19 67
8.9 Delays and non-submissions of Statutory Deductions Section 18(5) of the Public Service Social Security Fund Act, 2018 requires statutory contributions to be paid to the PSSSF on the last day of the month in respect of which any payment of a month's salary or any part of a month’s salary is made to the member and the employer shall deduct the contribution from the salary. Section 14(1) of the National Social Security Fund Act, 1997 requires a contributing Employer to pay contributions to the NSSF within one month after the end of the month in respect of which the contributions are due and payable. Further, Section 9 (1) and (5) of NHIF’s Act 2012 (revised 2015) requires every employer to make monthly contribution to the equivalent of three percent of his employees’ salaries and that these contributions be made within one month after the last day of contribution period to which it relates.
However, I have continued to note significant delays in remitting the statutory deductions to Pension Funds and NHIF by Public Authorities as detailed below:
• Muhimbili National Hospital and COSTECH delayed submission of statutory deductions to pension funds amounting to TZS 887.83 million and TZS 142.36 million respectively. • MNMA and DUCE did not remit TZS 66.33 million and TZS 298.22 million respectively to NHIF. • DAWASA had not submitted TZS 7.667 billion to NSSF, PPF and PSSSF out of which, TZS 7.13 billion were penalties for delayed remittances. • Fair Competition Commission was penalized TZS 62.75 million as a result of delayed remittances to PSPF.
Non-remittance or delay in remittance of deductions leads to penalties which increase unnecessary expenses which erode the financial resources of the paying entity which could be used in other economic activities. Further, service delivery of
Report of Public Authorities and other Bodies 2018/19 68
the Pension Funds and Insurance Fund are affected by these delays as they depend much on the contributions.
I recommend that the Public Authorities ensure they remit statutory deductions to the respective PSSSF, NHIF and NSSF on time.
Report of Public Authorities and other Bodies 2018/19 69
CHAPTER 9
REVIEW OF INVESTMENTS IN PUBLIC ENTITIES
9.0 Introduction Tanzania Development Vision 2025 envisions to guide Tanzania from a low productivity agricultural economy to a semi- industrialized one led by modernized and highly productive agricultural activities, which are integrated with industrial production and services in both rural and urban areas.
As a process of nurturing Industrialization for Economic Transformation and Human Development as well as an initiative to reach the target of becoming a middle-income country by the year 2025, Tanzania has developed a Five-Year Development Plan (FYDP II) for 2016/17-2020/21. The FYDP II build a base of transforming Tanzania by promoting requisite industrial skills, production and service delivering skills, that will be of a help in production and trade management, operations and quality assurance.
In that regard, Public Entities such as National Development Corporation (NDC), Tanzania Investment Commission (TIC), and Centre for Agricultural Mechanization and Rural Technology (CARMATEC), were assigned some responsibilities to undertake various investments with the aim of supporting modernized and highly productive agricultural activities as well as industrialization agenda.
Other Public Entities such as Social Security Funds and National Housing Corporation undertake various investments and Joint Ventures with the aim of supporting industrialization in order to get returns from those investments.
Issues on investment activities relating to Social Security Funds, Governments Owned Banks and Government
Report of Public Authorities and other Bodies 2018/19 70
investments in the mining sector have been covered in chapters 11, 12 and 20 respectively.
Therefore, this chapter highlights the issues noted and recommendations that relates to investment by Other Public Entities which have a role to stimulate the economy through promotion of investments and those performing investment activities.
9.1 National Development Corporation (NDC) The National Development Corporation (NDC) has 13 projects out of which, six (6) projects are operating under various challenges. The six (6) projects are Industrial Estates (TAMCO- Kibaha and Kange Industrial Park Tanga, Malaria Control Project 100, Kalunga and Kihuhwi Rubber Plantations, Tractor Assembly Plant, South Ngaka Coalfields and Kilimanjaro Machine Tools).
While, other seven (7) projects are Mchuchuma and Liganga Project; Maganga Matitu Kasi Mpya Sponge Iron; Engaruka Soda Ash Project; Singida Wind Power Project; Arusha Tyre Manufacturing Plant; Singida Solar Power Project, and Large- Scale Sesame Farming in Kilwa for Edible Oil Production Plant have been stagnant due to different reasons as indicated in Table 20 below. During my audit, I noted the following inefficiencies in the operations of NDC:-
9.1.1 Kihuhwi and Kalunga Rubber Plantation Management at NDC NDC owns two rubber plantations at Kihuhwi in Muheza District and Kalunga in Kilombero District with total of 1,543 hectares. During the year ended 30th June, 2019, the Corporation incurred a total cost of TZS 93.17 million as operational cost of running the plantation whereby a total income of TZS 61.42 million was generated which resulted in a loss of TZS 31.7 million. The following deficiencies were observed in operating the plantations:
Report of Public Authorities and other Bodies 2018/19 71
(i) Inadequate Management of Rubber Plantations by NDC A total of 1,033 hectares out of 1,543 available equivalents to 67% have not been planted. According to NDC Strategic Plan of 2018/19-2022/23, 2.5 million Kg of dry rubber would be produced per annum by 2023 where NDC would plant 50 hectares Per Annum of uncultivated area in each year. During the financial year ended 30th June, 2019 NDC planted only 28 hectares at Kalunga instead of 50 hectares per annum as per plan.
Moreover, up to end of the year under review, NDC had established a nursery of rubber trees at Kalunga that could be planted on 115 hectares of uncultivated area; however, more than 50% of the available seedlings exceeded their time for being planted apart from the costs incurred for they preparation.
(ii) Lack of Diameters for Measuring the Quality of Latex from Tappers I noted that there is no diameter for measuring the quality of latex from tappers before processing in the factory. The diameter would help to determine the qualities of latex if were mixed with water or not. When latex is mixed with water, the volume is increased leading to more payments to tapers than they would otherwise receive.
(iii) Shortage of Manpower at Kalunga About 98 hectares of rubber of Kalunga plantation were burned by fire. This might be contributed by inadequate workers to watch and supervise the farm against fire break out and intruders. Kalunga had seven (7) workers instead of 35 required for planting and supervising the farm.
Report of Public Authorities and other Bodies 2018/19 72
I recommend that NDC ensure planned activities of planting new rubber trees and recruitment or hiring of laborers are executed in a timely manner to achieve the intended targets; and use diameters when measuring latex received from tappers to overpayments.
9.1.2 Tractor Assembly Project On 09th August, 2016, NDC entered into an agreement with Ms. USURS.SA of Poland and Ms. SUMA JKT for implementation of a contract formally signed by M/s SUMA JKT and M/s USURS on 22nd October, 2015. The contact was for construction of assembly hall and installation of equipment and machines for tractor assembly. It also involved establishment of 8 Service Centres for customer services and marketing of tractors; training 23 key NDC plant staff in Poland and supply of 2,400 tractors of 6 model in the form of Semi Knocked Down (SKD) and Completely Knocked Down (CKD) for USD 55 million (TZS 121 billion).
According to the former contract, construction of assembling hall, delivery of 2,400 tractors, and establishment of eight (8) sale and services of tractors were required to be completed by August 2016.
The intention of this project was to mechanize the agricultural sector in Tanzania to increase agricultural productivity by providing feedstock to the industries.
However, I noted the following anomalies during the review: (i) Centers for tractors Services not established I learnt that the 8 sales and service centers were not established contrary to the Section 26 of the agreement. Thus, buyers of the tractors are facing a challenge of frequent breakdowns of the tractors and they do not get supporting services from the vendor.
Report of Public Authorities and other Bodies 2018/19 73
Lack of support of maintenance by the vendor, minimizes performance of the tractors hence, affecting repayments of loans.
(ii) Failure to deliver 1,578 Tractors by Ms. USURS.SA I learnt that Ms. USURS.SA did not deliver 1,578 tractors out of contracted 2,400 tractors. Management of NDC explained that Ms USURS.SA had shut down the production line of tractors due to the financial constraints and that it had already reported the matter to the Government to find solution with the Government of Poland.
(iii) Slow moving of tractors Following slow selling pace of tractors, NDC decided to implement a hire scheme with a view to speeding up distribution and sales of the tractors. As at 30th June 2019, NDC managed to assemble a total of 526 tractors out of 822 of SKD/CKD tractors delivered at site (Kibaha) and sold a total of 400 tractors to various buyers under the scheme.
The slow pace of selling the tractors might largely be caused by absence of service centers that would have been used as marketing centers too.
I recommend that NDC and Gorvement:- • Make follow up to Ms.USURS.SA to ensure there is establishment of eight (8) Service Centers within the country for customer services and marketing of tractors as required by the contract to simplify tractor services as well as marketing of the same. • Ensure negotiation with Polland Goverment are finalize and tractors are delivered as per agreement.
Report of Public Authorities and other Bodies 2018/19 74
9.1.3 250 hacters of industrial parks have not been developed NDC owns 3 industrial park estates namely TAMCO at Kibaha, KMTC in Moshi and Kange in Tanga with an area of 74.11, 229 and 23 hectares respectively, making a total of 326.11 hacters.
I revealed that a total of 250.42 hacters (77% of the total industrial areas) were not developed yet. The areas are 14.42 hacters of TAMCO, 213 hacters of KMTC and 23 hacters of Kange.
Further, review of NDC strategic Plan of 2018/19-2022/23 noted inadequate implementation of annual planned activities to develop the industrial parks for the year under review as indicated in the Table 19 below:
Table 19: Extract of Planned Activities of NDC for Industrial Parks Targets Key performance Plans of Implementation indicators 2018/2019 Status 5 km internal Construction of Internal road Waste stabilizer road network, base constructed, Waste ponds, Water one oxidation infrastructure in stabilizer ponds and reservoir and Power pond, water TAMCO Industrial water reservoir substation were not system and Park. constructed, Power constructed as at 30 two industrial substation June 2019 sheds constructed, constructed by Conduct monitoring 2023. and evaluation. 4 km internal Constructed basic Construction of wall The wall and road network, infrastructure in signage post. signage posts were one oxidation KMT. not constructed . pond, water system and two industrial sheds constructed at KMTC by 2023. 4 km internal Constructed basic Construction of wall The wall and road network, infrastructure in signage post. signage post were one oxidation Kange. not constructed. pond, water system, and two industrial
Report of Public Authorities and other Bodies 2018/19 75
Targets Key performance Plans of Implementation indicators 2018/2019 Status sheds constructed at Kange by 2023.
I learnt that investors at TAMCO are developing their own infrastructure such as waste stabilizer ponds, water reservoirs and power substations but I am of the views that the situation would lead in development of park infrastructure in un- harmonized way. lack of necessary infrastructure imposes the big challenge on investor’s attraction hence, failure of NDC to attain its objectives.
I recommend that NDC ensures planned activities are executed on time as per the set timelines in the strategic plan and also to come up with strategies that will facilitate development of all undeveloped areas within the industrial parks in order to benefit out of them.
9.1.4 Low production Biolarvicides Tanzania Biotech Products Limited (TBPL) at TAMCO Industrial Estate in Kibaha produces Biolarvicides for Malaria-Vector Control for both local and foreign markets. The plant is owned by NDC and has capacity of producing six million litres per annum.
During my review, I learnt that despite its capacity, production is done on demand and this is due to two-year shelf life of the product. Thus, for the year under review, the plant produced and sold only 292,375 litres of the Biolarvicides for Malaria-Vector Control which is 4.9% of the plant’s capacity. I consider that NDC need to do more promotion of the plant and the product to attract more potential buyers from in and outside the country.
I recomend that Ministry of Health purchase more litres of Biolarvicides from the plant to increase the plant’s
Report of Public Authorities and other Bodies 2018/19 76
production and sale while combatting malaria and NDC promote the plant and advertise more the product to attract more potential buyers from in and outside the country.
9.1.5 Long-waited government decision on revamping KMTC KMTC was established to manufacture a wide range of machine tools and engineering products, but the production stopped in 1989 due to lack of economic feasibility largely due to under-capitalization and poor market response. The factory was specified in 1996 for divestiture under PSRC. Unfortunately, it could not secure potential investor and was transferred back to NDC in June 2009 through GN 237. KTMC was operating below capacity and fails to rehabilitate power system, establishment of mini foundry, working capital, promotion and marketing.
Feasibility study conducted by NDC with a view to revitalise the Company indicated that a total of TZS 1.665 billion were required for procuring foundry machines, marketing and sales promotional activities. KTMC qualified for a loan from GEPF. However, I learnt that it did not obtain a Letter of No Objection from the Government to secure the loan.
9.1.6 Underproduction of Coal and non-establishment of power plant (Ngaka -project) The Ngaka Thermal Coal Project is Intra Energy’s project through a joint venture between Tancoal Energy Limited (Tancoal) and National Development Corporation (NDC) of Tanzania whereby Intra Energy owns 70% while NDC owns 30%. The objective of the company is to explore and extract the vast Ngaka coal fields in Ruvuma region in South West Tanzania.
The project was initiated with a view to establishing a coal mine with capacity of 1.5 million tonnes per annum and 400 MW power plants. A coal mine was established with current production of 700,000 tonnes per annum which is equivalent
Report of Public Authorities and other Bodies 2018/19 77
to 47% of the capacity. The power plant was expected to commence by 2014/2015. However, this was not done up to the year ended 30th June, 2019 due to failure of negotiations between TANESCO and prospective investors. The failure resulted from lack of Government Guarantee (credit support), Currency to be used to repay loans and Tariffs barriers.
9.1.7 Stagnant projects at NDC NDC developed various 13 projects so as to enhance industrialisation, promote employment, and income generation in Tanzania. The 13 projects include, seven (7) established projects which had not commenced operations for the periods ranging from the year 2011 to 2021. The failure to commence operations was attributed to different reasons including shortage of capital Funds, machinery equipment, shortage of raw materials due to inadequate researches and compliance with various Government laws and regulations.
Delays in development and operationalization of the projects will result in failure of achieving (FYDP II) of 2016/17- 2020/21 that aims at building a base for transforming Tanzania into a semi-industrialized nation by 2025.
The projects and their respective reasons for failure to commence operations are shown in Table 20 below:
Table 20: Projects that Failed to Commence Operations S/n Details Particular 1. Large scale sesame Uncompleted processing of land farming in kilwa and ownership by NDC. edible oil production plant 2. Singida Solar Power Additional 150 Ha of land at Unyianga Project Village in Singida Municipality is required where TZS 500 million will be required for compensation of PAP (People Affected by Project). Also USD 126 million is required for implementation of 100MW solar project. The process is still on going. The Singida Solar Power Project was planned to reach Financial Close by
Report of Public Authorities and other Bodies 2018/19 78
S/n Details Particular December 2018 followed by power generation by December 2019. The Joint venture partner (Sinohydro) decided not to continue with the project due to high commercial interest rate without Government Guarantee and low power tariff of not more than USc 4.5/kWh. NDC is still looking for another investor to partner with. 3. Mchuchuma and JVA Contract was signed in September Liganga Project 2011 and original commissioning of both Liganga and Mchuchuma was planned by 2018/2019 for production of iron and steel product (1.0 million tons per year from Liganga) and 600MW from Mchuchuma.
TZS 11.037 billion have been set aside to compensate PAP. Disbursement of the verified fund will be implemented after conclusion of legal issues related to the project.
The process of establishing power station including power transmission line between Mchuchuma and Liganga has not started. TANESCO is expected to conduct competitive tendering process for prequalification to generate 600MW coal- based power project. 4. Maganga Matitu JVA was signed on 2/9/2009 and planned Sponge Iron Project commissioning date for production of sponge iron 330,000 tons per year was expected by 2013/2014
Due to inadequate research conducted before forming a Joint Venture, new research completed in 2017/18 at Maganga Matitu concluded that the reserve for iron ore is 8.0 million tons only, which is not enough for commercial production of sponge iron as previously anticipated.
Coal reserve at Kataweka coal field is 100 million tons where NDC has send application to Ministry of Energy and Minerals (MEM) requesting the transfer of prospecting License of Maganga Matitu Resource Development Limited (MMRDL)
Report of Public Authorities and other Bodies 2018/19 79
S/n Details Particular (joint venture) to Kataweka where the discussion is pending negotiation on Subscription & Shareholding Agreement (SSHA). 5. Engaruka Basin Soda Operations were planned to commence in Ash Project 2017 however, Funds for Techno economic study secured in 2019. Soda Ash Plant to be commissioned by 2021/22
Planned activities to enable project execution were not completed because of shortage of fund. The activities include undertaking studies on Techno-economic, ESIA, Hydrological survey & design of water infrastructure and land Survey and Valuation of properties of PAP for payment of compensation. 6. Singida Wind Project Commissioning for generation of 50MW was expected by December 2015.
Government directed the project to be financed through PPP arrangement. NDC failed to obtain potential partner because the condition provided by the potential partner Aciona Energy were not acceptable. 7. Arusha Tyre In 2012 Government gave a mandate to Manufacturing Plant NDC of reviving the former General Tyre East Africa Limited (GTEA). Discussion with potential investors on reviving tyre production in Arusha using modern state of art technology is yet to be finalized. Revival of General Tyre plant was expected to start by March 2019 and start production of tyres by March 2020, according to Sayinvest Proposal
I recommend NDC ensures that issues which impede projects implementation from progressing are addressed as matter of urgency to ensure that the projects start their operation as initially planned.
Report of Public Authorities and other Bodies 2018/19 80
9.2 Centre For Agricultural Mechanization and Rural Technology (CARMATEC) During my audit, I noted the following inefficiencies in the operations of the Centre for Agricultural Mechanization and Rural Technology (CARMATEC):-
i) Project of TZS 222.7 billion not taken on board by CAMARTEC The FYDP II 2016/2017-2020/2021 identifies CARMATEC as one of the strategic institutions that facilitate implementation of FYDP II where it was tasked to construct tractors that will be sold to SMEs worth at TZS 222.7 billion up to 2021. However, my review of the Centre Corporate Strategic Plan (CSP) Plan 2017/18 – 2021/22 noted that the plan was not in line with the FYDP II as the objective of construction of tractors worth TZS222.7 billion was not captured and addressed in the CARMATEC long term and short-term plan. This implies the Centre priorities were in divergence with that of the Government. Due to this the Country will not achieve intended objectives of constructing tractor worth 222.7 billion by 2021 at the time of performance evaluation towards implementation of FYDP 2016/2017- 2020/2021. Moreover, there is absence of planning officer despite the provision of Planning and Coordination Unit in the Organization Structure of the Centre since its establishment. Due to this planning functions have been performed by other departments on part time basis without practical experience of the planning process and budgeting.
I recommend that CARMATEC liaise with Ministry of Trade and Industry and review the Centre CSP to include the objectives of the FYDP II that directed construction of tractor project.
Report of Public Authorities and other Bodies 2018/19 81
ii) 8,806 installed biogas plants not completed have been abandoned In collaboration with ABPP/HIVOS planned to implement biogas plant programs in 2013 at the investment cost of TZS 2.5 billion. In its response, the Centre began developing the biogas since 2009 from which 12,007 biogas plants were installed in the country.
Review of project implementation revealed that 3,201 gas plants were commissioned which accounts for 26% while 8,806 biogas plants equivalent to 74% installed from 2010 to date were either abandoned, not completed, unknown or not functioning and they are regarded as wasteful investment.
Further, I noted the plants challenges of lacking adequately trained Technicians to service the plants; plants monitoring plans and visiting schedules; reliable data of the functioning and defective biogas plants; service call Centres; updated database; and periodical inspections.
I thus recommend that CARMATEC revitalise the abandoned plants and work on the noted challenges facing the biogas plants.
9.3 National Housing Company (NHC) The principal activities of NHC is to provide and facilitate the provision of quality housing and other buildings in Tanzania mainland for use by the general public while operating on sound commercial principles. In order to efficiently and effectively perform its functions, NHC enters into Joint Venture agreement with various stakeholders.
From the review of Joint Venture projects, I found the following deficiencies during its operation: -
Report of Public Authorities and other Bodies 2018/19 82
(i) 24 storey building not built on Plot No 85 at Lugalo On 27th November, 2007 NHC entered into a joint venture agreement with M/s Oil Com Limited whereby NHC was required to contribute land on plot 85, Lugalo while M/s Oilcom Limited was supposed to construct four residential apartment buildings each having 10 storeys with each storey containing 10 rooms of three bedrooms and car parking space. Contrary to the agreement, M/s Oil Com constructed only four storeys. This implies 24 storeys out of 40 storeys equivalent to 60 percent were not constructed.
(ii) Unauthorized Construction of Additional Floor A joint venture agreement number JV 1036-37/102 which was entered between NHC and Kadri complex Limited on 4th August 1995 allows construction of three storeys vertical extension on top of existing one storey structure (owned by NHC) at Samora/Morogoro road. According to the agreement, Kadri complex Limited) was required to finance the extension and NHC to contribute land.
Contrary to the joint venture agreement, we noted that Kadri Complex Limited constructed one un- authorized additional floor on top of the three-storey extension. The construction of additional four floors was completed before issuing of the building permit that determines whether the building could handle the additional floor.
Moreover, according to the joint venture agreement, building was to be used for commercial purpose; however, the building is currently being used for residential purpose. This implies there is change in building use from original intended purpose.
Report of Public Authorities and other Bodies 2018/19 83
I recommend that NHC: - • Ensures joint ventures are properly managed and building permits are obtained before projects are initiated. Moreover, proper approvals are obtained before any change are initiated; and
• Negotiate with OilCom (TZ) Ltd in order to arrive at the best way in which the breach can be remedied.
9.4 Tanzania Investment Centre 9.4.1 Delays in Attending Investors by TIC Section 16 of the Tanzania Investment Act, 1997 provides all Government institutions to co-operate fully with TIC to make it an effective One-Stop Centre in performing its functions. Under this, TIC liaises with other institutions to enable approvals and grants of licenses within 14 days.
I, however, noted inefficiency in servicing investors where investors were not serviced within 14 days as provided in the Act and Strategic Plan (SP). I revealed that processing work permit take 20 days while the process of fully attendance and feedback to an applicant of incentives of customs and excise duties to Tanzania Revenue Authority (TRA) through TIC take four to twelve months.
I also noted delays in issuing derivative titles for land investment where 18 plots of land were pending approval by National Land Allocation Committee for a period ranging from one to six months whereby applications were made from October 2018 to February 2019 and approved in April, 2019. Further, I noted lack of benchmark for monitoring time taken in servicing investors for applications, registrations and issuances of certificates of incentives.
I consider delays are caused by the lack of Standard Operating Procedures (SOP) to provide guidance on how TIC should co- operate with other institutions in carrying out its
Report of Public Authorities and other Bodies 2018/19 84
responsibilities. The delays may discourage investors from continuing with their investment plans.
I thus recommend that TIC develop comprehensive SOPs that will enable the entity to corporate with other Government institutions in carrying its duties efficiently.
9.4.2 Inadequate Performance Evaluation on actual Capital Investment Among core functions of After Care Unit as per TIC Strategic Plan is to facilitate both the successful start-up and continuing development of investment by ensuring projects are successfully implemented whereby investors are required to submit performance reports after every six months as monitoring method.
I noted that the Centre did not evaluate the actual investments done by registered investors. For the past five years from 2014 to 2018, TIC registered 2,067 projects of USD 31.6 million where expected employment creation is 222,600. However, there was no periodic information on actual capital invested and jobs created against projections. Further, my review of 12 files obtained out of 50 requested, revealed that investors do not submit the six-month’s performance report as required.
I recommend that TIC develop a mechanism that will ensure data is collected and maintained for actual capital invested against projections so as to achieve FYDP II of 2016/17- 2020/21 on semi industrialization and employment creation.
9.4.3 Uncertainties on evaluation factors for expected investment capital Section 2(2)(b) of Tanzania Investment Act, 1998 states that businesses will enjoy benefits and protection provided under this Act when minimum investment capital is not less than TZS equivalent to USD 500,000 for foreign investor or joint
Report of Public Authorities and other Bodies 2018/19 85
venture, if locally owned, the minimum investment capital is not less than TZS equivalent to USD100,000. Further, Section 2(2)(f) stipulates that investor is required to provide sufficient evidence of capital available for investment so as to enjoy the benefits and protection.
I observed that TIC does not evaluated the availability of sufficient capital for investment as required in Subsection (f), rather, it evaluates if the investor qualify for registration as required in Subsection (b). According to management, an investor is recommended to have sufficient capital when he/she submits a bank statement which shows cash balance equal to 25% of the minimum threshold for investor to be registered under this Act which is 25% of USD 500,000 and USD 100,000 for foreign and local investor respectively. Furthermore, the Centre failed to establish documentation of the 25% factor.
I am of the opinion that the cash balance equals to 25% as threshold factor may not guarantee that an investor has sufficient capital higher than the threshold.
I, thus, recommend that TIC establish clear factors for evaluation of investors’ financing capability as well as availability of capital required.
Report of Public Authorities and other Bodies 2018/19 86
CHAPTER 10
REVIEW OF TOURISM SECTOR IN TANZANIA
10.0 Introduction Five Years Development Plan (FYDP) II of 2016-2020 identifies specific interventions geared towards realization of the targets in terms of contribution to Gross Domestic Product and employment creation through promotion and marketing of Tanzania as a tourists destination, diversification of tourism products and services, identification of the areas for tourism investments, infrastructure improvements especially roads towards tourist attractions and improvement of training offered in tourism and hospitality institutions.
Despite the Government efforts to promote Tourism sector, I have noted several factors that poses challenges in including lack of qualified personnel, poor infrastructure development, lack of diversification of tourism products, inadequate promotion and marketing, lack of specified areas for tourism investment, poor quality of services and low state of technology. These challenges hinder the development of tourism sector in general as a result specific targets outlined in the FYDP II may not be attained.
During the audit of Tanzania National Parks (TANAPA), Ngorongoro Conservation Area Authority (NCAA) and Tanzania Tourist Board (TTB), which are crucial actors in the Tourism Sector, I identified scope for improvement in number of areas that need immediate management attention: -
10.1 Dilemma on Decisions to Control Human Population, Human activities and Domestic Animals within NCA NCAA implements a multiple land use model whereby human beings and animals live together within the conservation area in line with the requirements of Section 3 of Ngorongoro Conservation Area Act (Cap 284 R.E. 2002). The co-existence
Report of Public Authorities and other Bodies 2018/19 87
of wild animals and human being makes the NCAA a unique protected area in Africa where conservation of natural resources is integrated with human development and hence accorded the status of a World Heritage Site and listed as one of the International Biosphere Reserve by the UNESCO’s Man and Biosphere Reserve Programme.
Despite its uniqueness due to the co-existence of wild animals and human being, Ngorongoro Conservation Area faces several challenges as indicated below:
10.1.1 Massive Environmental Degradation Since its establishment in 1959 to-date, the Authority has experienced a massive environmental degradation resulted from increase in human population. According to the census of 2017, the current human population is estimated to be over 90,000 people compared to 8,000 people existed when NCA was established. Domestic animals are estimated to be 799,462 compared to 261,723 in 1960, which compete with wild animals on grazing land.
Increase in human population and domestic animals contribute largely to rapid environmental degradation where human activities further create adverse impacts as they both compete for scarce environmental resources.
10.1.2 Increase in Human–Wild Animal Conflicts Human- wild animal conflicts occur when growing human populations overlap the established wildlife territory creating competition for space and resources. Massive increase in human population, domestic animals and increased human activities within the area endanger conservation and wild animal existence. Hunger and poverty were mainly caused by restrictions imposed by the law which established the multiple land use principles adopted in 1959 as the legislation restricts agriculture and other key economic activities. Also, continued attacks by wildlife to people and livestock create a
Report of Public Authorities and other Bodies 2018/19 88
hostile relationship between the local community and the Authority. During the year ended 30th June, 2019, a total of seven (7) animals were killed and 16 animals were injured due to human-wild animal conflict.
Human-wildlife conflicts inflict direct and indirect consequences on people and animals as it can result in loss of life or injury to humans and wild animals, depredation of livestock, and degradation of habitat. Mitigation of human- wild animal conflict is an important priority for the management of biodiversity and protected areas.
10.1.3 Unknown Carrying Capacity of NCA Limit of acceptable use and change (Carrying Capacity) refers to the number of people, animals and/or crops which a region can support without environmental degradation.
Audit of NCAA learnt that the carrying capacity of the Ngorongoro Conservation Area (NCA) is not known as there is no study conducted to determine the capacity.
Change in culture, attitudes and desire for development of the communities within the NCA presents the Authority with a dilemma in decision making on sustainability of NCA given the co-existence of wildlife and indigenous people.
I recommend that NCAA conduct a study to determine the carrying capacity of the area and review its multiple land use model with regard to the established carrying capacity.
10.2 Blockage of and Diminishing Wildlife Movement Routes Wildlife animals move from one suitable habitat to another by using wildlife animal corridor. In Tanzania protected area Tourism depends on but not limited to the ability of animal to disperse and return to the area on annual basis and on a flow of animals from other protected areas.
Report of Public Authorities and other Bodies 2018/19 89
However, I learnt that various factors including growing human population, new settlement in previously unpopulated area, land use shift for agriculture and changes in infrastructure block wildlife corridor movement.
Furthermore, I observed that opportunities for establishing, maintaining and managing corridors between protected areas are rapidly diminishing, endangering the future ecosystem services and biodiversity provided by protect area. I noted blockage of Migratory Corridor at Speke Gulf where various studies conducted by Tanzania National Parks (TANAPA) between 1959 and 2013 shows that Serengeti ecology is incomplete due to this blockage. The reports revealed further that migratory corridor at a Speke Gulf with estimated area of 129 square kilometres were blocked because of increasing human activities and settlement at western part of Serengeti National Park in Bunda District. It was reported that the Gulf area was used by the wildlife to reach water from Lake Victoria especially during the dry seasons.
Also, preliminary discussions with Management of (NCAA), indigenous residents in Ngorongoro Conservation Area and researchers indicated that there is a network of trails and corridors linking the highland forests, Ngorongoro Crater with the Serengeti Plains. On the Plains, certain places appear to be important nodes for wildlife, such as the Olbalbal depression and the Ndutu area which block the movement. Apart from migrating wildebeest, other wildlife movements within the NCA have had little study beyond the Ngorongoro Crater.
I recommend that: (a) TANAPA enhances more effort to ensure the area of Speke Gulf is included as part of the Serengeti National Park to protect the area; and (b) NCAA finalizes survey/research toward determination of conservation bottlenecks in the area and a way forward
Report of Public Authorities and other Bodies 2018/19 90
with a view to examining validity of the existing Multiple Land Use Model of the area.
10.3 Slow Paces in Controlling Wide-Spreading of Invasive Alien Plants Ngorongoro Conservation Area is heavily affected by 25 alien species/invasive plants which need immediate intervention to control them. Alien species have ability to transform the structure and species composition of eco-systems by replacing or excluding indigenous species through outcompeting them for resources. According to Invasive Alien Plants Strategic Management Plan 2011, it becomes far more expensive to control them after being left for a long time and the chances to control them effectively diminish over time.
I noted that there is a reduction in the rate of uprooting invasive plants compared to the previous year. During the year 2018/2019, TZS 114 million were spent and 2,195.68 hectares were uprooted compared to the year 2017/2018 where TZS 159 million was spent and 2,278 hectares were uprooted. The decrease in uprooting pace is attributed to little resources allocated including tools and manpower which are not enough. Other factors include increased population and human activities, lack of appropriate tools for uprooting exercise.
NCAA needs to prioritize and focus more on dealing with invasive plants. Areas with invasive plants have been identified by location and not by hectors which also limit effective planning of required resources.
I recommend that NCAA use the strategy for management of invasive and alien plants revised in June, 2019 and review the exotic species and weed management strategy and tactics to effectively manage both weeds and exotic species.
Report of Public Authorities and other Bodies 2018/19 91
10.4 Water Shortage Noted in Parks Water availability is essential for sustainability of all resources and human activities in Parks. However, there has been an acute shortage of water in area over the recent past years. The shortage affects local people and wildlife in the area. The shortage is attributed to the increased uses by tourist facilities, increased domestic uses and drought in the region.
Also, there is absence of water supply system network within Serengeti National Park (SENAPA) despite the fact that SENAPA is responsible for water supply to all facilities within the Park including lodges, hotels, permanent tented camps, balloon activities, offices and residential house. The water has been supplied at the site by using water bowser with delays due to frequent breakdown of water bowsers and inaccessible road.
I recommend that NCAA and TANAPA develop an Integrated Water Management Plan in order to guarantee sustainable availability and use of this resource.
10.5 Low Tourists Visiting Western and Southern Parts of the Country TANAPA has a total of 17 National Parks, but only 4 Parks, Serengeti, Kilimanjaro, Tarangire and Lake Manyara, generate surplus revenues to subsidize Southern and Western Parks while Arusha National Park is just about to break even. This was attributed to inadequate marketing and poor infrastructure includes roads, bridges, airstrips and trails.
Our review revealed that a total of 1,196,284 tourists visited TANAPA during the financial year ended 2018/19, out of which only 50,587 (equivalent to 4.25%) visited Western and Southern Parks .This has resulted into low revenue collection hence, development and rehabilitation of tourism infrastructure of Western and Southern parks continue to
Report of Public Authorities and other Bodies 2018/19 92
heavily depend on revenues generated from the Northern Parks.
I recommend that TANAPA develop infrastructure and marketing strategies to attract tourism in Western and Southern parks.
10.6 Failure by NCAA to Focus on More Influencing Factors A study for understanding factors that affect tourism industry is essential in enhancing effective planning and efficient allocation of resources in tourism business. The study would identify influential factors and areas to which more efforts and resources would be directed to attract more tourists. However, NCAA focused on all factors collectively that management consider to have impacted on tourism rather than allocating resources to more influential factors.
Records on tourists who visited NCAA over the last five years indicated fluctuating trend where for the year ended 2018/2019, NCAA experienced an increase of 14% for Non- Resident tourist compared to previous year where there was an increase of 6% only. Also, for resident tourists, the Authority experienced an increase of 1% only for the year ended 2018/2019 compared to an increase of 22% in the previous year. I consider that it is crucial that NCAA identify influential factors and focus on them. This is important to stabilize and improve tourism business.
I recommend that NCAA conduct a study to identify influential factors affecting tourism and focus on them to attract more tourists.
10.7 Delayed Functioning of the Tourism Studio In December, 2018, the Minister for Natural Resources and Tourism directed the Tanzania Tourist Board (TTB) in collaboration with other institutions under the Ministry to establish a digital marketing studio in order to facilitate
Report of Public Authorities and other Bodies 2018/19 93
provision of correct and instant tourism information that is frequently searched by tourists.
According to the work plan, the project was to be completed within 9 months from the date of receiving Funds whereby up to January, 2019, other stakeholders of the project TANAPA, NCAA and Tanzania Forest Services Agency (TFSA) had contributed a total of TZS 342.17 million deposited into the Board’s bank account. Up to the year ended June, 2019, the Board had spent TZS 105.32 million to purchase ICT equipment and construct and renovate the studio room. Despite availability of funds, I noted delays in implementation of the project as up to the time of concluding my audit in December, 2019, the studio was not functioning yet.
I recommend that Tanzania Tourist Board (TTB) ensure the studio is working as per the agreed timeframe and all required resources are made available.
10.8 Inadequate Monitoring of Animal Killings Through Road Accidents TANAPA is facing a challenge of animal killings from road accidents where a total of 2,266 were killed during the year ended 30th June, 2019. Although both TANAPA and NCAA continue to monitor road killings along highway, they lack adequate technology (e.g. surveillance cameras) hindering identification of those who kill the animals.
According to the Annual Protection Reports for the period 2018/2019, at Mikumi National Park (MINAPA), a total of 124 wild animals of different species were killed from 1st to 3rd quarters of which MINAPA expected to receive a total of TZS 56.64 million as fines and penalties, but only a total of TZS 12.45 million were collected making a difference of TZS 44.18 million.
Report of Public Authorities and other Bodies 2018/19 94
Management explained that some of the road accidents occurred at night in which the culprits could not be seen as there are no surveillance cameras. Further, in other cases, payments were negotiable due to the fact that TANAPA does not have fines and penalties by-laws and for that matter it depends on the National Wild Conservation Regulations which are not binding in courts of law.
I recommend that both TANAPA and NCAA enact binding by- laws and administer controls to rescue animal from being killed through road accidents.
10.9 Absence of City Tour Sanctuary Tanzania does not have a City Tour Sanctuary where African arts and cultural values can be displayed in different galleries, museums and theatres.
To promote tourism sector in Tanzania in line with Five Year Development Plan (FYDP) II, both TANAPA and NCAA are required to diversify tourism products and service including but not limited to building City Tour Sanctuary.
Management explained that in their midterm plan, TANAPA will collaborate with other Government institutions dealing with real estate development like National Housing Corporation and Pension Funds plan to acquire land in the suburb of Arusha city for development of City Tour Sanctuary.
I recommend that TANAPA continue to collaborate with other stakeholders to build a City Tour Sanctuary to promote tourism.
10.10 Inadequate Execution of Tourism Activities by Tourist Board Among other objectives, the Tanzania Tourist Board (TTB) planned to champion promotion and marketing of Tanzania as a tourist destination through marketing and other promotional activities. To achieve those objectives, TTB identified various
Report of Public Authorities and other Bodies 2018/19 95
activities and set targets to be met in the financial year 2018/19.
From the review of implementation of the planned activities to be conducted by using Tourism Development Levy (TDL) during the financial year ended 30th June, 2019, I noted that nine (9) out of 29 activities equivalent to 31% were not implemented as summarized in Table 21 below:-
Table 21: List of Unmet Targets with their Planned Activities S/N TARGET PLANNED ACTIVITIES 1 Carrying out Tourism i. Conduct tourism market research Market Researches in Mbeya, Ruvuma, Dodoma, Arusha and Mwanza.
2 Promoting tourist i. Participation in Tourism road attractions shows in two cities, USA internationally ii. Conducting road shows in India 3 Promoting tourist i. Sensitizing domestic tourism attractions locally so that marketing strategy the number of domestic ii. Development and placement of tourists is increased radio, TV spots, airplane advert and to facilitate construction of Billboards in Dodoma and Dar es salaam iii. conducting awareness seminars to stakeholders to enhance Tourist Information Centre functions iv. Conducting stakeholders’ customer service impact awareness workshops v. Conducting awareness campaign for New Destination Brand, designing and Printing of Cultural Tourism Programme (CTP) Booklets, Corporate strategic plan and promotional materials 4 To take measures to i. Facilitating establishment of new diversify Tanzania Culture Tourism Enterprises (CTEs) tourism product in Dodoma, Simiyu, Mwanza, Geita, Mara, Shinyanga, and Morogoro and conducting monitoring and evaluation for 20 established CTEs in Tanzania
Report of Public Authorities and other Bodies 2018/19 96
I recommend that going forward TTB implements their plans in order to enhance performance of tourism sector.
Report of Public Authorities and other Bodies 2018/19 97
CHAPTER 11
PERFORMANCE OF GOVERNMENT-OWNED BANKS
11.0 Introduction This chapter highlights deficiencies noted in the operation of Government-owned banks and scope for improvement in different areas such as loans collections, non-performing loans, capital adequacy, portfolio at risk, credit decision in granting loans, supervision and follow-up on late and delinquent clients and projects. Performances of the following Banks (TIB Corporate Bank, TIB Development Bank, Tanzania Agriculture Development Bank (TADB), and Tanzania Postal Bank (TPB) and the results are presented below:
11.1 Capital Adequacy Ratios Below BoT Minimum Requirements Regulation 9(a) and (b) of Banking and Financial Institutions (Capital Adequacy Regulations), 2014, and Bank of Tanzania (BoT) circular No. FA.43/433/01/Vol III of 5th August, 2015 require every bank at all times to maintain core capital and total capital of 12.5% and 14.5% respectively of its total risk- weighted assets and off-balance sheet exposure. Regulation 19(2) of the Banking and Financial Institutions (Development Finance) Regulations, 2011 requires a Development Financial Institution to maintain at all times a minimum core capital and total capital equivalent to 13% and 15% respectively of its total risk-weighted assets and off-balance sheet exposures.
In the general audit report of 2017/18 of Public Authorities and other Bodies (PA & oBs), I highlighted four banks (TIB Corporate, TIB Development, TPB and Tanzania Women Bank) whose core capital and total capital ratios to total risk- weighted assets and off-balance sheet exposure were below the minimum requirements stipulated in the Banking and Financial Institutions Regulations, 2014 and BoT Circular of 2015. On that note, I recommended that those banks should review their capital levels with a view to considering capital
Report of Public Authorities and other Bodies 2018/19 98
injection to ensure compliance with Capital Adequacy Regulations.
During the year ended 30th June, 2019, I continued to note two banks which were still operating below the minimum requirements for three consecutive years now (Table 22). The deficiency exposes the banks to the risk of losing their licences if the regulator decides to revoke it on the grounds of noncompliance.
Table 22: Capital Adequacy Ratios below BoT Minimum Requirements Description 31.12.2018 31.12.2017 31.12.2016 Core Total Core Total Core Total capital capital capita capital capital capital (TZS in (TZS in l (TZS (TZS in (TZS (TZS in Million) Million) in Million) in Million Millio Million ) n) ) TIB Development Bank Core and total 79,131 79,131 74,304 75,095 76,437 77,423 capital Total risk weighted 656,475 856,702 942,621 assets Core and total 12% 12% 9% 9% 8% 8% capital ratio BOT Minimum core 13% 15% 13% 15% 13% 15% and total capital ratio TIB Corporate Bank Core and total 16,606 17,819.68 12,971 13,763 21,394 22,379 capital Total risk weighted 244,607.13 235,269 179,958 assets Core and total 6.79% 7.29% 5.51% 5.85% 11.89% 12.44% capital ratio BOT Minimum core 12.5% 14.50% 12.5% 14.50% 12.5% 14.50% and total capital ratio Source: Audit analysis
I reiterate my recommendation that TIB development and corporate banks review the capital levels with a view to considering capital injection to comply with the capital adequacy regulation.
Report of Public Authorities and other Bodies 2018/19 99
11.2 Delay in Revocation of System Access Rights to Separated Staff Banks ICT security policy requires system access to separated staff to be revoked on the last day and the appropriate security and personnel records to be adjusted accordingly. However, my review of system access to separated staff for TIB Corporate, TADB and TIB development banks noted delays in revoking the system access right.
For instance, at TIB Corporate Bank two staff whose system access rights remained active for more than 15 days from the date of separation contrary to the ICT Security Policy. Late revoking of system access was attributed to delay in sharing information from Human Resource Department to IT Department.
Table 23: System Access Rights which were Delayed to be Revoked Details Separation day Date of HR email to IT department Staff one 7th October, 2018 22nd October, 2018 Staff two 20th March, 2018 4th April, 2018
Delay in revoking system access rights to separated staff may lead to unauthorised access to the bank’s systems and perform fraudulent transactions which might result in financial losses.
I recommend that TIB Corporate, TIB Development and TADB Banks ensure system access rights to separated staff are revoked on the last day and appropriate security and personnel records are adjusted appropriately to avoid the risk of fraud. Also, ensure separated staff information from Human Resource Department are on shared time with IT Department for revocation of access right and establish staff exit clearance form which will include all systems.
Report of Public Authorities and other Bodies 2018/19 100
11.3 Challenges in Implementation of IFRS 9 On 1st January, 2018 banks and other entities adopted new International Financial Reporting Standards (IFRS) namely IFRS 9 (replaced IAS 39) dealing with financial instruments. The major changes were on classification and impairment of financial assets. Unlike International Accounting Standard (IAS) 39 in which impairment of loss was based on incurred loss model, IFRS 9 introduced Expected Credit Loss (ECL) model in computation of impairment loss which considers past, present and forward-looking information. During adoption of IFRS 9, banks were required to review their business model and establish impairment models. The banks review necessitates updates on classification of financial instruments consistent with the business model in practice and IFRS 9 requirements. It has also resulted in new methodology of computing impairment losses.
During the review of IFRS 9 implementation I noted various challenges relating to data quality and systems, inadequate policies and procedures, governance, internal capacity constraint, presentation and disclosure, lack of internal credit rating of counter parties, poor quality of collaterals, determination of forward-looking information and non-use of effective interest rate in computation of amortized cost. These challenges resulted in hiring external consultants to assist banks in developing impairment models.
It is my view that the noted challenges during first time implementation should be a loud call for the banks to imbibe the review of the developed impairment models by leveraging the gained knowledge and experience from hired consultants and reduce the outsourcing costs to be incurred every financial year. Also improve the noted challenges in terms of data quality, collaterals values, governance, internal ratings of customers, and reliable source of forward-looking information to ensure reliable impairment losses.
Report of Public Authorities and other Bodies 2018/19 101
I recommend that Government owned banks establish internal independent team to effectively challenge the processes underlying impairments as well as the calculation. This would include testing and challenging the assumptions applied by the Banks. Also, harbour the updating and review of the developed impairment models by the external consultants to minimize annual review cost.
11.4 Repetitive Errors on Mobile Money Transactions at TIB Corporate Bank During field visit to branches in Arusha, Mbeya and Samora I noted recurring complaints on mobile banking as there were repetitive customer complaints relating to the inefficiency of mobile money transfers from the customer accounts. The Bank kept on resolving the issue through reversing back the amounts to the customers’ accounts, but it has not been a permanent solution since the frequency of the complaints indicates that the problem is repetitive in nature.
Frequent errors in customer transactions may lead to loss of confidence on the customer side and loss of revenue to the bank in terms of fees which may decline as a result of reduced number of customer transactions through mobile transactions channel. TIB Corporate Bank promised to conduct thorough review on mobile money channels and seek permanent solution to the problems with the vendor.
I recommend that TIB Corporate Bank conduct investigation to find out main cause of error leading such complaints including root cause of the repetitive errors and take timely action which may involve short and long-term solutions.
11.5 Liquidity Ratio Below Regulatory Ratio for TPB Bank Regulation 7 of the Banking and Financial Institutions (Liquidity Management) Regulations, 2014 requires banks or
Report of Public Authorities and other Bodies 2018/19 102
financial institutions to maintain minimum liquid assets amounting to not less than 20% of its demand liabilities. During the audit I noted that TPB bank liquidity position at 31st December, 2018 stood at 19.17% ratio of liquid assets to demand liabilities contrary to the statutory minimum requirement of 20%. Non-compliance with regulations might result in fines and penalties.
TPB Bank explained that Liquidity ratio was below regulatory ratio due to non-renewal of fixed deposits totalling to TZS 47 billion by Public Institutions like National Health Insurance Fund (NHIF), Workers’ Compensation Fund (WCF), and National Social Security Fund (NSSF). Management has taken measures to improve through curtailing lending, aggressive loan recovery, engaging in deposit mobilization scheme and borrowing from other banks and institutions including Bank of Tanzania through Housing Microfinance Fund.
I recommend that TPB Bank comply with requirements of the Liquidity Management regulations to avoid fines and penalties from the regulator.
11.6 Deficiency in Management of Overdraft Account at TPB Bank During the audit, I noted the following deficiencies in the management of overdraft accounts:
(i) Overdraft Accounts Exceeding Approved Limits From the review of overdraft accounts, I noted instances whereby Core Banking System (R) did not limit customers to withdraw current accounts beyond the approved limits. Based on sample tested, below are overdraft accounts which exceeded approved limits as at 31st December, 2018 (Table 24). TPB explained that all the three overdraft loans originated from Ex Twiga Bancorp which has a challenge with its Core Banking System which allowed the facility to exceed
Report of Public Authorities and other Bodies 2018/19 103
its limit. TPB promised to ensure that after normalizing its repayment will not exceed the approved limit.
Table 24: Overdraft Accounts Exceeding Approved Limits Account ID Balance as at 31 Overdraft Difference number Dec, 2018 (TZS) Limit (TZS) (TZS) 91207000013 1,950,919,133 1,950,000,000 919,133 112604000001 364,894,683 280,000,000 84,894,683 191505000180 200,848,602 200,000,000 848,602
(ii) Inaccurate Interest Rate Setups in Rubikon System Further, I noted that Rubikon system is not configured with correct interest rates as per agreed contracts. This resulted in loss to the bank as the said accounts were not charged with interest during the year (Table 25).
TPB explained that, in quarter two of 2019 all insured costs related to borrowers will have separate code whereby on monthly basis, will be serviced from deposit accounts rather than the current practice of debiting overdraft accounts and increase the liability to TZS 306.7 million.
Table 25: Inaccurate Interest Rate Setups in Rubikon System Interest Approved Account Approved Interest Income Interest Number Amount income collecte rate d 300207000040 800,000,000 20% 133,906,881 - 210207000003 300,000,000 25% 9,753,426 - 150207000069 80,000,000 14% 30,610 -
(iii) Unrecoverable Overdrawn Accounts in Loan Book The loan book contains overdrawn accounts amounting to TZS 306,754,415 being customer deposit accounts linked to a loan account. These accounts are overdrawn because of indemnity charges being debited to accounts with insufficient funds. As these customer deposit accounts are opposed to overdraft facility accounts, the overdrawn amounts are irrecoverable. TPB explained that by nature of TPC agent’s accounts of Pangani, Muheza, Babati and Mpwapwa which had a total of
Report of Public Authorities and other Bodies 2018/19 104
TZS 66.11 million indicates the total balances of cash held into those TPC offices which should be remitted to TPB Bank.
(iv) Overdrawn Customer Accounts in Other Assets I noted a total of TZS 66.11 million overdrawn accounts as of 31st December, 2018 recorded as other assets. These transactions originated from TPC agents accounts of Pangani, Muheza, Babati and Mpwapwa, individual personal deposit accounts and staff accounts. Hence, the overdrawn amounts are irrecoverable. TPB explained that Rubikon system had a challenge in accruing interest on overdraft. TPB decided to engage consultant and set the timeline of implementation before end of 2019.
The noted weakness in controlling overdraft and overdrawn accounts exposes the Bank to a risk of loss due to unrecognized revenue.
I recommend that TPB Bank enhance controls in the management of overdraft facilities and special attention be paid in the disbursement and recording of overdraft facilities.
11.7 Deficiencies in Management of Suspense Accounts at TPB Bank
(i) Lack of Reconciliation of Suspense Accounts There was no reconciliation of the below listed suspense accounts from January to December 2018.
Table 26: Reconciliation not performed for Suspense Account Account Account name Amount number (TZS) 2064002 Transfers awaiting Payment in 227,775,422 Tanzania 2031007 Collection Agents - Principal (201,531,782) Balances 2999999 System Control Account (185,866,658) 2999006 TWB Conversion Balances (155,384,563)
Report of Public Authorities and other Bodies 2018/19 105
Account Account name Amount number (TZS) 2999005 Conversion Twiga Balances 144,241,442 2031006 Postal Agencies - Principal (59,882,761) Balances
(ii) Long Outstanding Items in Suspense Accounts There were long outstanding items in suspense accounts some dating as far back as 2015. The total credit outstanding amounted to TZS 1.5 billion out of which TZS 90 million were outstanding from a period 2015 and 2016. Examples of such items are as follows:
Table 27: Long Outstanding Items in Suspense Accounts Date Credit Outstanding Amount (TZS) 12 Jul 16 Ja mes A Rugarabamu PSPF LOAN REC/ 6,097,877 18 Feb 16 TISS FROM CITIBANK 5,550,000 29 Jan 16 Unapplied fund (TISS from BOT) 5,196,386 26 Oct 15 MWANAISHA ABDULLA EHZN15 1,071,357 6 Oct 15 AmountPension Octfor TPB EFT 280815193 250,000 23 Dec 16 NALLE HASSAN M. 185,910
Also, I noted absence of supporting listing for the outstanding transactions in System Control Suspense accounts with a balance of TZS 185.87 million.
TPB Bank promised to review all credit outstanding suspense transactions to determine the amount to be recognized into profit and loss accounts as per financial regulations.
Lack of timely reconciliation of suspense accounts could result in unauthorized or fraudulent transactions going unnoticed.
I recommend that TPB Bank ensure all suspense accounts are reconciled on regular basis, and errors identified and corrected on a timely basis.
Report of Public Authorities and other Bodies 2018/19 106
11.8 Weaknesses in Loan Documentation at TPB Bank From the review of the TPB credit management process and documentation I noted the following deficiencies.
(i) Mismatch Between Contract Interest Rate and System Interest Rate Interest rate recorded in the system was different from that given in the customer agreements as summarized in the Table 28. There was also difference between repayment amounts registered in the system and repayment amount as per loan agreement. Repayment amount as per system for loans with reference number 220102000010 is TZS 18,499,076 while the loan agreement indicates repayment of TZS 18,504,671. Further, I noted absence of loan application letters for loans with reference No. 220104002421 and 220104000267 amounting to TZS 5.9 million and TZS 3.3 million respectively.
Table 28: Mismatch between Interest Rate Reported in Customer Agreement and System Interest set in Interest set in loan Loan Number Rubikon agreement 220102000010 22% 25% 110102000017 28% 20% 110121000378 22% 25% 110113000932 21% 25% Source: Customers agreement and system
(ii) Missing Loan Agreement Five of the loans issued to customers amounting to TZS 421.49 million had no loan agreements as shown in the Table 29 below:
Table 29: Missing Loan Contracts Current Amount financed Loan ID Contract Date Balance (TZS) (TZS) 11260400001 16 March 2010 280,000,000 364,894,683 12180300002 29 March 2014 2,000,000 101,956.00 28510200001 6 December 2018 38,000,000 38,000,000
Report of Public Authorities and other Bodies 2018/19 107
Current Amount financed Loan ID Contract Date Balance (TZS) (TZS) 19190200001 17 June 2014 11,851,875 11,851,875 212-0087534 7 September 2016 8,400,000 6,650,595 Total 421,499,109 Source: Auditors analysis
TPB Bank explained that they will strive to comply with lending manual by ensuring that interest rate inserted in the core banking systems match with offer letter. Additionally, repayment amount agreed in loan agreement must tally with repayment schedule in core Banking system. Management directed Branch managers to search for Loan application forms that were missing at Dodoma and Mpwapwa branches and were retrieved and filed for future references.
Missing loan files, documents, facility agreements and inconsistencies in loan documentation exposes the Bank to risk of loss in case a customer defaults and a reference to facility agreements and other security documents are required.
I, therefore, recommend that TPB Bank ensure the Bank complies with all loan applications and procedures to improve risk assessment process as this could help to highlight any potential risks with an applicant’s loan application.
11.9 Non-revision of Interest Rate on Loans Issued to Ex-Staff Staff Loan Policy requires marking loans to the market rate on the outstanding loan balance due from staff after cessation of employment. However, staff loan balance of TZS 1 billion relating to 82 ex-employees of TPB Bank and one staff of TIB development bank were not reclassified to commercial loan portfolio as required by the Staff Loan Policy.
Report of Public Authorities and other Bodies 2018/19 108
Table 30: Separated Staff not charged Commercial Rate No of Amount financed Outstanding Year Personnel (TZS) amount (TZS) 2012 1 6,000,000 3,001,520 2013 4 7,033,336 4,478,390 2014 2 6,116,205 5,816,205 2015 5 87,568,147 25,507,851 2016 8 76,908,000 61,934,529 2017 34 657,809,195 483,891,033 2018 28 637,253,483 456,777,119 Grand Total 82 1,478,688,366 1,041,406,648 Source: Bank Data
TPB Bank explained that they are following up with all ex- staff to sign Memorandum of Understanding (MoU) committing to pay the outstanding loans. Ex-staff who secure employment elsewhere sign MoU to pay their loans balances or new employer buys the loans. TPB Bank will put a mechanism as advised where appropriate to ensure ex-staff loans are re-classified and treated as commercial loans. TIB Development Bank promised to review and fix an updated interest rate as soon as employees leave the Bank.
Non-charging of commercial interest rate for ex-employee loan balances understates revenue of the bank and is against banks policy.
I recommend that TPB Bank re-classify ex-employee loans to the commercial loan portfolio and charge appropriate interest rate. In future, it has to ensure that the interest rates on post-employment outstanding staff loans are marked to the market as soon as they leave the Bank.
11.10 Review of Banks’ Backup Data at TPB Bank The TPB Bank backup procedures require independent IT personnel to review confirms and signs-off end of day (EOD) and backup operations. During the audit, I noted exceptions in 10 (66.7%) out of 15 sampled days where there was no review done for the daily backup and end of day (EOD)
Report of Public Authorities and other Bodies 2018/19 109
operations by independent personnel within the ICT department.
Inadequate review of backup data by an independent personnel may result in loss of bank’s critical data that may go undetected for a long period of time.
I recommend that ICT Department of the Bank to see to it that backup procedures are consistently reviewed on daily basis by independent personnel in order to validate the completeness and accuracy of the backup process.
11.11 Access to Rubikon System Not Restricted to System Administrator Access to amend customer charges in Rubikon system is not restricted to System administrators contrary to TPB’s procedures. With access to amend customer charges in Rubikon not being restricted to system administrator, there may be unauthorized amendments of customer charges in Rubikon without following the Banks' due procedures.
I recommend that access to amend customer charges in Rubikon system be restricted to System Administrators only.
11.12 Deficiencies in Management of Dormant Accounts Status TPB Bank had a total of 37,100 customer accounts that were not marked dormant after account inactivity of more than 12 months or 24 months days as required by TPB Standard Operating procedures.I also noted 13,969 customers’ accounts that were considered as dormant before being inactive for more than 12 months TBP Standard Operating Procedures. The system is configured to flag account as dormant after 12 or 24 months of inactivity for both current and saving accounts respectively.
TPB Bank explained that 37,100 customers’ accounts were due to data migration issue. Tanzania Women Bank (TPB) system
Report of Public Authorities and other Bodies 2018/19 110
(BR) was not stamping dormant date to account when reaches 730 days with no transactions. They were defaulted to account creation date for TPB system (Rubikon) to accept the migration. They will be automatically corrected by the system when a customer comes to activate.
Failure to mark accounts as dormant after reaching maximum allowable period of being inactive, may allow fraudulent transactions to be passed through the accounts while premature marking of active customer accounts as dormant may result in customers not being able to access their accounts. This may impact customers’ ability to transact and result in delay using their accounts.
I recommend that TPB Bank review and configure Rubikon system to ensure customer accounts are automatically flagged as dormant once inactive period reaches 12 or 24 months depending on the type of the accounts.
11.13 Non-collection of 50% of Appraisal Fees Before Full Appraisal at TADB Bank TADB credit policy requires charging pre appraisal fee of 1% from the approved loans. However, I noted 11 instances at TADB Bank whereby 50% of appraisal fees amounting to TZS 223,817,677 were not collected before full appraisal. Instead, the bank withheld it at the time of first disbursement contrary to paragraph 10 (c) of the TADB credit policy which requires portion of the appraisal/facility fees equivalent to 50% of agreed appraisal fee to be paid before the full appraisal and 50% payable upon approval. (Refer Table 31 below)
Report of Public Authorities and other Bodies 2018/19 111
Table 31: Uncollected Appraisal Fees Name of the Loan Loan Appraisal 50% of Borrower Approved Disbursed fee 1% of appraisal approved fee not loan paid at commenc ement of the appraisal.
TZS (000) TZS (000) TZS (000) TZS (000) Duuma Amcos 88,150 66,625 881,500 440 Kapolo AMCOS 410,769 360,025 4,107,688 2,054 Ilandutwa 850,000 587,657 8,500,000 4,250 Agrobusiness Co. Ltd Matanana 39,940 39,940 399,400 199,700 Amcos Kagera 12,000,000 12,000,000 120,000 60,000 Cooperative Union (1990) Karagwe 14,758,971 14,758,971 147,590 73,795 District Cooperative Union Ngara 2,000,000 2,000,000 20,000 10,000 farmers’ Cooperative Union Nyarusai 858,353 800,000 8,584 4,292 Limited You Spices 127,814 114,535 1,278,135 639 Enterprises Njombe Milk 1,455,140 469,016 14,551 7,276 Factory Company Ltd Global Agency 12,174,399 7,570,202 121,744 60,872 Limited Total 44,763,536 38,766,972 447,635 223,818 Source: Customer files
TADB Bank explained that they started lending operations with smallholder farmers in groups who could not afford to pay pre appraisal fees. Further explained that they have expanded its lending scope to include corporate and institutional clients and therefore pre appraisal fees will be
Report of Public Authorities and other Bodies 2018/19 112
charged henceforth. Nonetheless, the Bank is currently reviewing the credit policy to improve on this aspect.
Non-charging pre appraisal fee may result in financial losses in the event where customers withdraw their applications, or the applications have not been successfully approved.
I recommend that TADB Bank complies with the credit policy by ensuring that 50% of the appraisal fees is paid upfront before full appraisal to cover the preliminary cost and hedge against unanticipated losses in the event of unsuccessful customers’ applications.
11.14 Financing a Project Undertaken on River Valley Without Permit from NEMC Global Agency Limited was granted loans of TZS 12,174,398,817 and TZS 7, 570,201,918 to develop a drainage system of removing water from the farmland into the river. During a site visit I observed that the project is undertaken on river- bank of Ngono River in Kagera region. Further, I failed to obtain from the borrower a report of environmental impact assessment and approval for the project from National Environment Management Council (NEMC). This is contrary to the pre-disbursement conditions requirement No. 4 of the approval letter of 16th May, 2018.
Granting loan for the project which is undertaken on riverbank without approval from NEMC might result in loss if NEMC stops the project and the client fails to repay the loans.
I, thus, recommend that TADB Bank take corrective measures on these loans and ensure in future that a permit from NEMC is obtained first before loans are granted to undertake projects that have impacts on environment.
Report of Public Authorities and other Bodies 2018/19 113
11.15 Weakness in Management of Super Users/Administrative Credentials at TADB Review of management of super user credentials observed that the bank uses open source software named Keepass to manage administrative credentials (username and Password) contrary ISO 27001 and COBIT 5 standard of super user password management which requires all super user passwords to be registered and stored to the safe. Also, I noted lack of periodic review of super user/administrative access to the bank. TADB bank explained that currently they are in the process of acquiring the safe for storing super user/administrative passwords.
Open source software can be designed to allow malware, attack or send back the data to the developer which is risky to the bank while unauthorized users can access data which may lead to data theft, alteration and corruption.
I thus, recommend that TADB Bank consider stopping using the open source software (Keepass) to store bank super user credentials (username and password) and implement the procedure of storing password to the safe.
11.16 Deficiencies in System Development and Acquisition TADB Bank had no documented standard of programming language and database of the internally developed system to provide guidance in the system development process. I also learnt that the bank does not perform risk assessment prior to acquisition a new system. This practice may result in adopting a solution that is not in line with bank’s strategic goals, objectives, quality and standard. TADB bank promised to include system developments standards in the software development manual.
Report of Public Authorities and other Bodies 2018/19 114
I recommend that TADB Bank establish standard for programming language and database which will guide internally developed system, and conduct risk assessment prior to acquisition and implementation of a system to ensure the system is aligned with the Bank’s operating procedures.
11.17 Low Recovery Rate of Charged Off Loans by TIB Development Bank During period of January to September 2018 TIB Development Bank recovered only TZS 2.1 billion (2%) out of the total of TZS 129 billion written off loans which indicates low recovery rate. The recovered amount is lower than the target of TZS 6 billion. Low recovery rate increases the risk of liquidity to the bank since a huge portion of resources that could have been invested in profitable ventures are tied up on charged off loans.
The Bank explained that it had developed continuous Non- Performing Loans (NPLs) reduction strategy and NPLs management policy to improve the NPL position and collections of charged off accounts. The strategies include inter alia, debt collectors and engagement of judiciary to unlock cases of the facilities or loans whose cases are pending in court for a long time.
In line with the undertaken strategies, I recommend that TIB Development Bank enhance the recovery procedures in place to maximize recovery rate to meet the planned target.
11.18 Deterioration of the Quality of Loan Portfolio at TIB Development The Bank of Tanzania (BoT) is striving to improve the quality of banking sector’s assets which is reflected by the ratio of Non-Performing Loans (NPL) to gross loans. BoT directed all banks with higher NPLs ratio to formulate and
Report of Public Authorities and other Bodies 2018/19 115
implement strategies to reduce the NPL ratio to the maximum of 5%. To achieve this, BoT introduced mandatory requirements for all banks and financial institutions to make use of credit reference bureau reports when carrying out credit appraisal to new applicants using the existing credit reference system to reduce credit risks.
However, TIB Development bank’s ratio of NPL to total portfolio was far above the industrial level of 11.3% as published by BoT in Monetary Policy Statement issued in June 2018 (Table 32).
TIB Development Bank commented that they are strengthening loan collection and recovery functions in terms of staff numbers, skills, and customer relations. For 2018, the bank managed to collect a total of TZS 3.87 billion from NPLs accounts which as of 31st December, 2018 stood at TZS 216.3 billion.
Further, the Bank explained that they have developed Continuous improvement of credit accommodation processes through review of Investment Policy (including NPL reduction strategies) and Portfolio Management Manual, recruitment of staff to alleviate gaps and strengthen the Portfolio Management Directorate and conducting intensive staff training.
Table 32: Trend of Non-Performing Loans Category 30th 31st 31st 31st September, December, December, December, 2018 2017 2016 2015 TIB 33% 38% 35% 14% Development Bank Industrial 11.3% 11.7% 9.5% 6.4% average (BOT reports) Source: BoT and TIB Development data
Report of Public Authorities and other Bodies 2018/19 116
Deterioration of the quality of the portfolio erodes the Bank’s core capital through writing off loans.
While acknowledging efforts by the TIB Bank towards reducing the NPL, I recommend that the Bank exert more efforts to improve the quality of the bank loan book by increasing adherence to the BoT directives during appraisal of new applicants using the existing credit reference system to reduce credit risks and NPL reach maximum target of 5%.
Report of Public Authorities and other Bodies 2018/19 117
CHAPTER 12
OPERATIONS OF SOCIAL SECURITY SCHEMES
12.0 Introduction Social security schemes are schemes established for the purpose of providing social benefits to members of the community as a whole, or of particular sections of the community. The social security schemes among others include Health Insurance Scheme and Pension Schemes.
Health Insurance Scheme provides coverage for health care services. The National Health Insurance Fund (NHIF) was established as a Public Institution under the Act No.8 of 1999 [CAP 395 as Amended] to ensure quality health care services are available to public and private sector employees and other groups, and their respective legal dependants.
Pension Scheme is aimed at enabling people to live a respectable life where they can meet their basic needs even in the event of social and economic disasters that lead to reduction or cessation of income. Such disasters could be death or disability. Social protection also addresses reduced income that may result from retirement, maternity or sickness.
Following the merging of Pension Funds, up to 30th June, 2019, Tanzania had 2 Pension Funds namely Public Services Social Security Fund (PSSSF) and National Social Security Fund (NSSF).
Public Services Social Security Fund (PSSSF) was formed on 1st August, 2018 through merging of 4 Pension Funds (PSPF, GEPF, LAPF and PPF). That is, PSSSF serves public servants while NSSF has the responsibility of serving private sector employees.
Report of Public Authorities and other Bodies 2018/19 118
This chapter highlights weaknesses noted in operation of National Health Insurance Fund, Workers Compensation Fund (WCF), and Pension Funds. The chapter also includes summary of recommendations provided for improvement. The following are the findings and recommendations:
12.1 Absence of Actuarial Valuation for PSSSF An actuarial valuation is an analysis performed by an actuary that compares the fair value of assets and liabilities of a pension plan. Actuarial valuations are necessary to assess long-term sustainability of a defined benefit pension plan and serve as a decision-making tool.
As it was reported in my previous general report that the actuarial valuation reports of merged Pension Funds (PSPF, PPF, LAPF and GEPF) reflected actuarial deficits and low funding levels. Compared to other merged Funds, the funding level of PSPF (10.5%) was the lowest. However, since the newly established Public Services Social Security Fund (PSSSF) on 1st August, 2018 up to the time of audit in November 2019, the Fund has not yet carried out actuarial valuation to assess its short, medium and long-term financial positions. It is necessary that the Fund perform actuarial valuation so at to be in a position to assess whether it will be able to meet future obligations using available assets.
I thus recommend that PSSSF perform actuarial valuation in order to analyse the sustainability of the Fund.
12.2 Long Outstanding Contributions and Penalties TZS 171.91 billion All registered employers to social security scheme are required to remit contributions not later than 30 days after the month in which the contributions relate. Penalties are charged for late remittance. However, I noted that NHIF, WCF and PSSSF had a total of TZS 171.91 billion
Report of Public Authorities and other Bodies 2018/19 119
contributions and penalties receivables for more than 30 days.
At NHIF, I noted the Fund had a total of TZS 24.59 billion contributions receivable balances outstanding for more than 30 days (10.18 billion (41%) outstanding for more than a year). At WCF, a total of TZS 85.93 billion contributions receivables was outstanding for more than 30 days (65.70 billion (76%) outstanding for more than a year). While PSSSF had a total of TZS 61.39 billion receivable balance related to penalties on delayed contributions out of which TZS 61.02 billion (99%) was inherited from merged Funds).
Lack of timely collection of contributions income and penalties may result in losses to the Fund.
I thus, recommend that Management of the mentioned Funds institute effective measures on collection of outstanding contribution receivables and penalties, that can be invested for the benefit of the members.
12.3 Possibility of not Recovering Matured Fixed Deposit Funds TZS 111.8 Billion PSSSF and NHIF have matured fixed deposits with TIB Development Bank. However, I leant the Bank was unable to honour matured deposits. As at 30th June, 2019, the matured deposits and interests to the Funds amounted to TZS 111.8 billion, being TZS 16.8 billion for NHIF and TZS 95 for PSSSF.
Failure to collect maturing deposit and accrued interests by the Funds may impact their cash flows.
I thus recommend that the Funds’ managements make close follow up to ensure the invested funds are recovered and in future make thorough analysis of risks that may be faced before investing members’ funds.
Report of Public Authorities and other Bodies 2018/19 120
12.4 Loans Due from Terminated Employees Not Recovered TZS 974.20 million General conditions of the NHIF’s Staff Loan Policy of 2014 states that in the event of employee termination of services for any reason other than death or total permanent disability, the outstanding loan balance from the employee is deemed due and payable to the Fund unless a specific loan repayment agreement is entered by the exiting staff.
However, up to 30th June, 2019, I noted that NHIF had an outstanding loan balance of TZS 974.20 million (2018: TZS 115.47 million) from terminated employees and were no longer repaying their outstanding balances. This is an increase of 744% compared to previous year’s balance. Further, I learnt that, the Fund had not entered into any new repayment arrangements with the terminated staff. Thus, there is possibility that, the outstanding balance will not be recovered. This will affect the Fund’s cash flow and expose it to losses.
I recommend that the Fund intensifies its efforts to recover the outstanding balance and take necessary legal actions against the defaulters.
12.5 Long Outstanding Government Liabilities TZS 2,417.79 Billion I noted that Social Security Funds have nonperforming liabilities with Government and its Institutions. About TZS 2284.05 billion (94 %) of the Government liabilities were due at the year ended 30th June, 2019. Some of the liabilities matured since 2014. This situation exposes the Funds to credit risk.
The Government debt to Social Security Funds as at 31st July, 2019 accrued to TZS 2,417.79 billion.
Report of Public Authorities and other Bodies 2018/19 121
Table 33: Status of Government Loan Name Loan - TZS (Billion) PSSSF 731.40 NHIF* 220.39 NSSF 1,466.00 Total 2,417.79
*NHIF liabilities includes the loan of TZS 117 billion to the Government without guarantee and signed agreement advanced to University of Dodoma to finance construction of Medicare Centre (Phase I and II). During the year under review, the Fund granted an additional loan of TZS 2 billion.
Non-repayment of outstanding liabilities and accrued interest on due date disturbs liquidity of the Funds. Hence, they fail to fund new projects.
I thus recommend that Managements of the Funds request the Government to repay the liabilities or convert them into special bond.
12.6 Adverse Widening Gap Between Contribution Incomes and Benefit Expenses In the audit of NHIF, I assessed the trend of members’ contribution income against benefit expenses. I noted that benefit expenses are increasing at a much higher rate than the ability of the Fund to grow its contribution income. The trend from 2013 indicates contribution income have been growing at an average rate of 13% while benefit expenses are increasing at 30% resulting in decline of Fund’s surpluses. In the year under review, benefit and members services expenses of TZS 489.61 billion exceeded the contribution income TZS 431 billion by TZS 58.60. Thus, the fund recorded deficit from dealing with members.
I learnt that the trend is mainly contributed by benefit packages offered by the Fund, some of which are loss
Report of Public Authorities and other Bodies 2018/19 122
making (refer Table 3). The contribution income earned from these packages is significantly lower than the benefit expenses the Fund is incurring. In the year under review, such benefit packages resulted in a deficit from dealing with members amounting to TZS 32.44 billion (Table 34).
Table 34: Benefit Packages Offered by the Fund Benefit package Contributio Claims Resulting Percenta n received accepted in Deficit – TZS ge of in Current Current (000) claims Year – TZS Year – TZS against (000) (000) contribu tion Student 8,254,247 9,826,911 (1,572,664) 119% Retiree 2,997,083 30,222,201 (27,225,118) 1008% Clerics without 585,858 981,861 (396,003) 168% Family Intern Doctors 63,811 91,386 (27,575) 143% Mutual-Principal 854,876 1,814,079 (959,204) 212% Mutual - 64,472 79,183 (14,710) 123% Dependant Clerics with 187,693 229,026 (41,333) 122% Family Toto Afya - 4,706,217 6,897,790 (2,191,573) 147% Individual Ushirika Spouse 6,221 11,853 (5,632) 191% Ushirika 3,840 8,575 (4,735) 223% Dependant Total 17,724,318 50,162,865 (32,438,546)
In PSSSF, beneficiaries’ payments of TZS 1,500.90 billion for the year ended 30th June, 2019 exceeded the contribution from members by TZS 178.03 billion equivalent to 13%.For the period from 1st August, 2018 to 30th June, 2019, total administrative and investment management expenses of the Fund decreased to TZS 90.90 billion compared to TZS 124.35 billion for 11 months of the previous year, the Fund’s net asset decreased by 96.74 billion.
Further, I noted total assets of the PSSSF decreased to TZS 6,554.74 billion (2017/18: TZS 7,043.80 billion). This implies that the Fund utilized proceeds from matured investments to cover the benefits expenses.
Report of Public Authorities and other Bodies 2018/19 123
Continuous growth of benefits expense with a less than proportionate growth in contributions income erodes the existing reserves of the Fund and ultimately impact the solvency and sustainability of the Fund.
I recommend that PSSSF and NHIF seek different options to remediate the gap between contribution incomes and benefit expenses.
12.7 Decrease in Return on Investments TZS 542.29 billion Social security scheme invests in various undertakings such as financial institutions, equities, government securities, corporate Bonds, loans, tradable inventories, properties, and Joint Ventures with a view to create more money to pay benefits and operational expenses and ensure sustainability.
The financial performance of Social Security Schemes for the last three years (2016/17-2018/19) shows decreasing trend in return on investment consecutively over this period (Table 35).
At NHIF the decreasing return on investment was TZS 84.77 billion in 2018/2019 from TZS 109.47 billion recorded in 2017/2018 (Refer Table 27) representing a decrease of TZS 24.70 billion (23%). Further, during the period of 11 months from merging up to 30th June, 2019, PSSSF return on investment decreased to 429.90 billion from TZS 947.49 billion of previous periods, registering a decrease of 517.59 billion (55%).
Thus, within a period of three years, total return on investment of NHIF and PSSSF decreased by TZS 542.29 billion. The decreases of return on investments at PSSSF were mainly contributed by non-performing of undertaken investments (para 12.8 and 12.10) and decreasing of
Report of Public Authorities and other Bodies 2018/19 124
investment due to utilization of matured return to pay benefit expenses.
This trend jeopardises cash flows of the Funds as a result, their abilities to meet benefits, manage operational costs as well as exploiting other promising investment opportunities will be doubtful.
Table 35: Decrease in Return on Investment Undertaken by Social Security Details 2018/19 TZS 2017/18 TZS 2016/217 Name Return-TZS (billion) Return-TZS (billion) Return-TZS (billion) NHIF 84.77 107.37 109.47 PSSSF 429.90 1,119.76* - Source: Financial statements
*The balance represents the return on investment of PSSSF for a period of 13 months (1st July, 2017 to 31st July, 2018), for comparability, I recomputed return on investment for 11 months which is TZS 947.49 billion.
I recommend that NHIF and PSSSF seek different options to address investment risk.
12.8 Low Occupancy Rate of Investment Properties of PSSSF PSSSF invested in properties which are rented to hotels, companies, and individuals while others are used by Funds as office premises. The average intended property market occupancy rate is 80%.
However, I noted that PSSSF had eight (8) investment properties with a total value of TZ 652.32 billion which had occupancy rate below the intended rate. The occupancy rates of these properties were ranging from 20% to 73% (refer Table 36).
Management explained that the Fund had started to take various measures to improve the occupancy rate, including
Report of Public Authorities and other Bodies 2018/19 125
reviewing rental charges; renovating the properties and set target to all property managers.
Vacant properties are prone to decrease in fair value due to impairments. Also, the value for money may not be achieved from the invested properties.
Table 36: Low Occupancy Rate of Investment Properties S/N Property Property Total Occupied Vacant Occupancy name Value building space- space- rate in % TZS (000) space- (sqm) (sqm) (sqm) 1 PSSSF 24,000,000 5,297 3,909.00 1,388 73 Samora House 2 Garden 50,000,000 13,508 7,586 5,922 56 Avenue Tower 3 Victoria 23,050,000 7,044 4,649 2,395 66 House 4 Millennium 67,055,000 12,95.55 7,354.15 5,602.40 57 Towers-II 5 PSSSF 22,000,000 10,000 1,956 8,044 20 Quality Plaza 6 Sokoine 10,108,000 4,684 1,168 3,516 25 House 7 PSSSF 242,000,000 76,616 17,233 59,383 22 Commercial Complex 8 PSSSF Twin 214,108,000 52,088 10,642.92 41,445.08 20 Towers Total 652,321,000
I recommend that PSSSF ensure the occupancy rate is raised by promoting the properties, reviewing the rental charges and ensure all facilities within the properties are in acceptable standard.
12.9 Deficiencies in Systems and Operational Controls Information Systems and operational control of the Funds under Social Security had a number of deficiencies that resulted in losses, fraud and doubtful transactions.
At PSSSF, I noted that during the year ended 30th June, 2019 statutory inspections were not conducted to all
Report of Public Authorities and other Bodies 2018/19 126
employers which is contrary to Fund’s Operational Policy that requires the Fund to perform inspections to its registered employers at least two times a year.
I noted that in two (2) regions and 1 district inspections were done only once per year to a total of 32 (20%) out of 161 employers (Table 37). whilst, the Fund had a total of TZS 61.39 billion receivable balance related to penalties on delayed contribution as detailed in Para 12.2
Table 37: Statutory Inspection to Employers Regions/District Number of Inspected Remarks employers employers Ilala District 109 16 Inspection done once in a year for 16 employers only Arusha Region 26 8 Inspection done once in a year for 8 employers only Tanga Region 26 8 Inspection done once in a year for 8 employers only Total 161 32
There is a possibility that the employers will delay in remitting contributions and outstanding arrears may not be recovered.
I recommend that PSSSF ensure statutory inspections are conducted for all employers as stipulated in the operational policy and all arrears are collected.
At NHIF I found various anomalies which include a total of 21,042 active NHIF cards received medical services with claims totalling to TZS 1.78 billion but their principal members had not made any contributions. A total of 104,729 over-age dependants (with age above 18 years) received medical services with claims totalling to TZS 15.17 billion. A total of 4,441 revoked memberships also received medical services with claims totalling to TZS 202
Report of Public Authorities and other Bodies 2018/19 127
million. Further, I noted that there were 8,672 members registered as retirees while were below the minimum retirement age of 55 years as at the beginning of the financial year 2018/19 with claims totalling to TZS 2.88 billion.
Offering medical services to ineligible members is contrary to the requirements of Compliance Manuals and may result in material financial loss to the Fund leading to its inability to serve its members.
I recommend that NHIF re-evaluates and improves its validation process at the health facilities to ensure inactive cards are identified and members are not provided with service until such time their membership status is in good standing.
At Workers Compensation Fund (WCF), I learnt that the average time taken to process claims from claimants is six (6) months and above. I consider this as unfavourable time as compared to the average period of three (3) months for claims initiated in Dar es Salaam.
Increase of time of recuperation of claimants if the injuries are not addressed timely.
I recommend that WCF evaluate the situation and implement procedures for improving it, including standardization of claims processing period.
NSSF received cheques paid by contributors which were subsequently dishonoured by contributors’ banks. The value of the cheques amounted to TZS 13 billion (2018: TZS 11 billion). The funds were not recovered up to April 2019 when the Fund stopped accepting cheques as a mode of payment for contributions.
Report of Public Authorities and other Bodies 2018/19 128
I am concerned that the longer these balances remain unpaid the higher the risk that they will not be collectable in the near future.
I recommend that management intensifies efforts to recover the funds and take necessary legal action against the defaulters.
12.10 Low and Non–Performing Subsidiary Companies I noted that some of the Funds’ subsidiary companies and Joint Ventures Investments were not performing as intended. The underperforming undertakings include those run by Ubungo Plaza Ltd (UPL), Karanga Leather Industries Company Limited and Mkulazi Holdings Company Limited.
Ubungo Plaza Ltd (UPL) is owned by NSSF (35%), PSSSF (35%) and National Insurance Corporation (T) Ltd (30%). Up to 30th June, 2019, UPL did not pay dividend TZS 824.63 million declared for more than three years because of shortage of funds. Further, I noted UPL had a total of TZS 10.14 billion rent receivable balance, out of which TZS 7.61 billion (75%) is due from tenants who were evicted because of defaulting in rent payments.
Lack of timely collection of rental income may lead to losses.
I recommend that UPL institute aggressive measures on collection of outstanding rents. I also recommend that the Funds ensure investments operate as intended and receivables from vacated tenants at Ubungo Plaza Ltd are recovered.
Karanga Leather Industries Company Limited is a Joint Venture company owned by PPF Pensions Fund (then PSSSF) (90%) and the Prisons Corporation Sole under Tanzania Prisons Services (10%). The purpose of the Joint Venture was to revamp the existing shoe factory at Karanga area in
Report of Public Authorities and other Bodies 2018/19 129
Moshi Municipality and to construct the modern tannery, footwear, shoes sole processing and other leather goods processing industry.
During the financial year ended 30th June, 2018, the Company bought new machines at TZS 3.54 billion. The new machines increased the production capacity of shoes from 150 to 400 pairs per day.
However, I noted the Company faces market challenges of its products, where production depends on order placed by customers. I observed that the company is receiving a minimum order of one pair of shoes.
I recommend that management ensure that production is done through batches to achieve its goals; prepare the marketing strategy to increase demand for its products that will lead to increase in production rate.
Regulation 164 (1) of the Public Procurement Regulations of 2013 (as amended in 2016) requires a procuring entity to obtain quotations from at least three suppliers. However, Karanga Leather Industries Company procured raw materials at the total cost of TZS 310.19 million direct from various suppliers. This non-compliance with procurement Regulations might have resulted in conflict of interest and value for money may not be achieved.
I recommend that the Company comply with the requirements of the Public Procurement Act 2011 (as amended in 2016) and its Regulations of 2013 during procurement process exercise.
Furthermore, I noted retired expenditures amounting to TZS 110.51 million were not approved by Interim Chief Executive Officer (CEO) as per the designed form of retirement. Lack of cross-checking retirements may lead to misappropriation of the Company’s funds.
Report of Public Authorities and other Bodies 2018/19 130
I recommend that Management ensure all laid down retirements procedures are adhered to.
According to revised feasibility study of Mkulazi Holdings Company Limited (jointly owned by NSSF 96% and Prison Corporation Sole 4%) of January 2019, production of sugar was expected to start during the financial year 2018/19. However, production has not yet started, and the Company has been making loss for three consecutive years which amounted to TZS 8.87 billion up to 30th June, 2019 which is equal to 30% of total invested funds TZS 30.60 billion.
I recommend that the Fund see to it the Industry operates as intended to overcome the financial losses.
12.11 Delay in completion of Projects TZS 605.80 billion During the period 2018/19 NSSF had construction projects with total contracts prices of TZS 605.80 billion. The projects were supposed to have been completed by dates mentioned in the table below, but the completion was delayed for more than a year up to the time of this audit in January 2020 while a total of TZS 379.34 billion (63%) had already been spent on the projects. Reasons provided for the delays in completions are indicated in the Table 38 below.
I am of the view that, delay in completion of construction projects lead to cost escalation of costs, affect attainment of the intended objectives and value for money may not be obtained.
Report of Public Authorities and other Bodies 2018/19 131
Table 38: Delayed Projects at NSSF S/N Name Project Contract Amount Implementation Reasons for Details sum – spent status delays TZS TZS ‘‘billion’’ ‘‘billion’’ 1 Affordable The project 146.5 106.09 Lot 1-10 is 81% • Failure of housing involved complete, Lot contractor scheme construction 11-16 is 63% s to Phase III - of 720 units complete and complete Mtoni of residential Lot 17-20 is 83% the Kijichi apartments complete. projects and 100 units within of specified maisonettes. time period The project which led was initially to planned to expiration be of completed in contracts January • Value for 2015, but money was then audit extended to which is December, being 2018. conducted by PPRA. The PPRA is in final stage to issue their findings. • From November 2019 the Fund through force account completed 417 houses by providing them with necessary services like water, electricity and waste water systems. 2 Mzizima The project 233.3 116.31 The pending Conflict tower involved lots are 78% to between construction completion. main of residential contractor
Report of Public Authorities and other Bodies 2018/19 132
S/N Name Project Contract Amount Implementation Reasons for Details sum – spent status delays TZS TZS ‘‘billion’’ ‘‘billion’’ and and sub- commercial contractor towers. of cutting The project and walling was planned regarding to be supplied completed aluminum on 5th March profiles. The 2017 conflict was resolved in October 2019.
3 Mwanza The project 72.8 51.12 The project is The project tourist involved 73% complete was mainly hotel construction delayed by of a five star absence of hotel of 200 Hotel rooms of Operator various types who could including one define the presidential finishes and suite. interior part The project of the was planned Hotel. The to be Fund is now completed in discussion on 28th with one October 2016 prospective operator and expect to engage him by end of April 2020. 4 Dungu The project 149.12 101.6 The stages of • Failure of Farm & involved completions for contracto Toangoma construction both locations rs to Satellite of were 78% and complete TOWN commercial 83% for satellite the and village at Dungu projects residential and at within houses at Toangoma specified Dungu & respectively. time Toangoma- period 10 lots for which led lower classes to and 6 lots for expiratio class. n of contracts The project • Value
Report of Public Authorities and other Bodies 2018/19 133
S/N Name Project Contract Amount Implementation Reasons for Details sum – spent status delays TZS TZS ‘‘billion’’ ‘‘billion’’ was initially for planned to money be audit completed which is on being September conducte 2016 then d by was PPRA. extended to The PPRA 30th June is in final 2018. stage to issue their findings. • From Novembe r 2019 the Fund through force account complete d 171 houses by providing them with necessary services like water, electricit y and waste water systems. 5 Apollo The project 4.08 4.22 The project was The project Clinic at involved suspended for was Mwl. rehabilitation over spending. suspended Nyerere of existing for over Pension basement of spending Towers- Tower B, C, since 2015 Dsm ground and and was put first floor of under PCCB Tower B and investigation the former which is not NSSF yet Dispensary. completed. The project The fund is was currently expected to looking for a
Report of Public Authorities and other Bodies 2018/19 134
S/N Name Project Contract Amount Implementation Reasons for Details sum – spent status delays TZS TZS ‘‘billion’’ ‘‘billion’’ be tenant to completed in occupy the August 2015. space as Apollo Hospitals are no longer interested with the project. 605.80 379.34 Sources of data: Financial statements
I recommend that the Fund conduct thorough review to investigate the causes of delays and take appropriate measures against the parties which cause the delay. Further, I recommend that the Fund conduct frequent monitoring and evaluation of project implementation to ensure that they are implemented as per planned schedules.
Report of Public Authorities and other Bodies 2018/19 135
CHAPTER 13
ADMINISTRATION OF LOANS BY PUBLIC ENTITIES
13.0 Introduction In executing its mandates, Public Entities secure loans to finance various activities including development projects under their mandate on the core objectives and activities as provided by the establishment that govern the respective entities. These loans might be either foreign or local and differ in their nature and magnitude of risks. Administration of these loans is of great concern as they are secured against various assets that bear public interests.
I reviewed the administration of loans in respect of National Board of Accountants and Auditors (NBAA), Ngorongoro Conservation Area Authority (NCAA) and National Housing Corporation (NHC) and noted the following deficiencies:
13.1 Inadequate Cash Flow to Repay NSSF Loan On 01st November, 2010, National Board of Accountants and Auditors (NBAA) entered into an agreement with National Social Security Fund (NSSF) to acquire a loan amounting to TZS 15 billion payable in 10 years at the rate of 15% per annum for the purpose of financing the APC Investment Centre.
Based on repayment schedule, the loan had a grace period of 2 years, the repayment was to start on 11th May, 2014 and the last instalment was to be made on 11th November, 2021. Total amount that was required to have been paid was TZS 13.87 billion (loan plus interest) as at 30th June, 2019, and the remaining loan amount was required to be TZS 4.62 billion as at 30th June, 2019.
Report of Public Authorities and other Bodies 2018/19 136
However, the Board paid a total of TZS 4.95 billion (loan plus interest) to NSSF up to 30th June, 2019 and total amount of the remaining loan was TZS 27.44 (loan plus interest and penalty) billion as at 30th June, 2019 contrary to the agreed repayment schedule (loan plus interest).
During the financial year 2018/19 the Board made a loss of TZS 22.02 billion before shared loss in joint venture compared to a restated surplus of TZS 2.49 billion in the previous year. The loss was mainly caused by increased interest and penalty on loan from NSSF and impairment charge on loan to APC Investment centre.
The Board has not been able to repay the loan within the agreed schedule and there is a risk of loss of funds for paying penalties on delaying loan repayments.
I recommend that NBAA meets with NSSF to discuss the restructuring of the loan for NBAA to have favourable terms of repayments.
13.2 High Interest Rate on Loan Facility Used in Financing Construction of NTC Investment Property NCAA acquired loan facility on 20th June, 2014 of USD 17 million from CRDB bank for financing the construction of Ngorongoro Tourism Centre (NTC) investment property with interest rate charged at a fluctuating interest rate based on London Interbank Offered Rate (LIBOR) plus 750 basis points which can be reduced to a minimum 8.5% and subsequently on 16th July, 2014 was reduced to 8%.
During the audit, I noted that interest of London Interbank Offered Rate (LIBOR) plus 750 basis points which can decrease to a minimum of 8% is very high interest compared to the current market rates offered by commercial banks. The equivalent rates for mortgage facilities offered by top five commercial banks other than
Report of Public Authorities and other Bodies 2018/19 137
CRDB ranges from 5% to 7%. Besides, LIBOR will be discontinued in 2021, hence there is a possibility of a high volatility based on alternative benchmark to be decided by the Bank. Although the Authority has been making payments on time (interest rates in 2016/17, 2017/18 and 2018/19 are TZS 1.55 million, TZS 2.17 million and TZS 1.74 million respectively) and in some instances overpayment of the principal amounts, higher interest rates than market rates have negative impacts on the Authority’s cash flows.
I recommend that NCAA engage the Bank and renegotiate the interest rate based on the facts stated above in order to relieve itself from unnecessary cash outflows burden.
13.3 Non-compliance with Loan Covenant Clause 20.2 of the loan agreement between National Housing Corporation (NHC) and East African Development Bank (EADB) requires NHC to maintain the debt service ratio of at least 1.5:1. While there is notable improvement in debt service ratio from 0.63:1 in financial year 2017/2018 to 0.78:1 in financial year 2018/2019, the ratio is still below the required ratio based on the agreement.
I recommend that NHC improve the liquidity which will in turn improve the ratio.
Report of Public Authorities and other Bodies 2018/19 138
CHAPTER 14
PERFORMANCE OF WATER AUTHORITIES
14.0 Introduction Performances of Water Authorities are being measured through various targets set in Memorandum of Understanding between the Ministry of Water & Irrigation and the Water Authorities with close supervision from Energy and Water Utilities Regulatory Authority (EWURA). The key indicators of Water Authorities performances include protection of customers’ interests (service accessibility and quality of service); sustainability of the water authorities; metering ratio; revenue collection efficiency; operational costs; and infrastructure and environment sustainability.
This chapter highlights significant deficiencies noted in the performance of Water Authorities and other crosscutting matters affecting water provision services as detailed below:
14.1 High Rate of Non-revenue Water TZS 155.84 billion Non-Revenue Water (NRW) is the amount of water that the licensee produces or purchases but lost before it reaches customers. It is calculated by using water produced and water connected to customers. NRW continues to be one of the major challenges to the Water Authorities and can be the result of physical (leaks, overflow) and commercial (illegal connections, collection of revenue) losses. The percentage of NRW is one of the key performance indicators of efficiency of Water Authorities.
According to EWURA and Memorandum of Understanding between UWSSAs and Ministry of Water and Irrigation, the acceptable level of NRW for Urban Water Supply and
Report of Public Authorities and other Bodies 2018/19 139
Sanitation Authorities (UWSSAs) is equal to or less than 20%. This target is to be achieved by all UWSSAs by 2019.
Overall NRW is still far from service level benchmark of 20% for most of the UWSSA. From the review of 20 UWSSAs, I found that only Kahama UWASSA was able to achieve the service level benchmark of NRW. The remaining 19 Water Authorities continue to grapple with water losses with the recorded percentages, which were higher than their tolerable normal losses. The total loss by these authorities amounted to TZS 155.84 billion which was higher than the acceptable loss of TZS 74.14 billion meaning that the amount of TZ 81.70 billion represented unacceptable loss based on the available data of the quantity of water produced and water connected to customers as summarized in Table 39 below:
Table 39: Loss Due to Non-Revenue Water S/N Name of Total Accep Total Acceptable Unaccept UWSSAs % NRW table Loss loss able Loss % NRW (TZS (TZS in (TZS in Millions) Million) Million) 1 Babati 38.9 20 1,271 653.32 617.39 2 Arusha 43.9 20 9,574 4,361.59 5,212.09 3 Dodoma 26.6 20 5,067 3,809.46 1,257.12 4 Singida 26 20 784.63 235.39 1,020 5 Morogoro 33.25 20 4,469 2,688.11 1,780.87 6 Masasi 23 20 712 619.08 92.86 nachingwea 7 Mwanza 36.61 20 11,045 6,034.01 5,011.24 8 Lindi 33.2 20 366 220.65 145.63 9 Chalinze 27 20 700 518.18 181.36 10 Tanga 27.94 20 5,002 3,580.81 1,421.58 11 Kahama 11 20 753 753 - 12 Moshi 20.3 20 1,887 1,858.97 27.88 13 Mtwara 22 20 867 78 7.94 78.79 14 Musoma 57.5 20 4,186 1,455.98 2,729.95 15 Songea 20.4 20 630 617.33 12.35 16 Bukoba 45 20 1,865 828.79 1,035.99
Report of Public Authorities and other Bodies 2018/19 140
S/N Name of Total Accep Total Acceptable Unaccept UWSSAs % NRW table Loss loss able Loss % NRW (TZS (TZS in (TZS in Millions) Million) Million) 17 Iringa 25.6 20 2,481 1,938.57 542.80 18 DAWASA 49.2 20 101,251 41,158.87 60,091.95 19 Tabora 36.7 20 2692 1466.84 1224.81 Total 155,836 74,136 81,700
I recommend that UWSSAs reduce the levels of NRW to the set target by installing bulk meters; metering all customers; manage water pressure in the distribution networks and replacing old with new distribution networks equipment. I also recommend that UWSSAs reduce technical and commercial water losses to the acceptable normal loss levels.
14.2 Inadequacy Water Service Coverage The Memorandum of Understanding between Ministry of Water and UWSSAs requires UWSSAs to develop strategic and business plans that link with national policies such as Tanzania Development Vision 2025 and the Five-Year Development Plan (FYDP II) (2016/17 to 2020/21) including improvement on access to clean and safe water in urban areas for more than 90%.
Over the years, the population living in the area with water network has increased and service coverage in terms of population directly served is still far below the standard requirements. I noted that 10 out of 18 UWSSAs face challenge in fulfilling their responsibility in providing safe, reliable affordable water supply to the entire population due to inadequacy water supply infrastructure including existence of old pipes, outdated water distribution network and non-operational boreholes. Most of UWSSAs are still depending on old network in the distribution system that causes water leakages reducing the level of UWSSAs
Report of Public Authorities and other Bodies 2018/19 141
coverage of population with access to reliable water and water to be distributed to customers.
These Authorities strive to get funds for replacement of the outdated networks. However, the pace of implementing projects using their own funds does not match with the rapid population growth and attainment of Five-Year Development Plan. I was not able to get data from four UWSSAs (Tanga, Moshi, Mtwara and Tabora) and the remaining four UWSSAs (Mwanza, Songea, Iringa and Chalinze) were within the target. The noted UWSSA that are far below the target are analysed in Table 40 below: -
Table 40: Inadequacy Water Service Coverage S/N Name of Authority Water Population Directly Service served (%) Coverage (%) 1 Dodoma Uwassa 52 80 2 Morogoro Uwassa 57 No Data 3 Masasi nachingwea 44 No Data 4 Bukoba 88 55 5 Babati Uwassa 75 74 6 Arusha Uwassa 74 74 7 Musoma 76 80 8 Kahama 81 55 9 Singida Uwassa 82 80 10 Lindi Uwasa 71 No Data Source: Directors reports of 2018/19
I recommend that UWSSA in collaboration with the Ministry of Water increase investment in water production and distribution infrastructure water service coverage to meet the increasing demand. This may be done through promotion of Public Private Partnership (PPP) in water supply projects.
Report of Public Authorities and other Bodies 2018/19 142
14.3 Non-Compliance with Water quality requirements EWURA Water Quality Monitoring Guidelines for Utilities of 2014 and Memorandum of Understanding between Ministry of water and UWSSAs require all UWSSAs to have water quality monitoring plan and conduct water quality monitoring according to their plans.
Water quality compliance is analysed based on test parameter of E/Coli, Turbidity, Residual Chlorine and pH and is measured by the percentage of water samples that pass particular water quality test for portability equal to Total Number of sample passed divide by total number of sample tested times 100. The recommended benchmarking compliance is 100%.
During the current audit, I reviewed 18 UWASSAs to determine their water quality compliance. I noted that 14 conducted water monitoring tests whereby nine complied with quality compliance; while five did not comply. The remaining four (4) water authorities had no data on the quality compliance.
Based on the water quality analysis results the turbidity of treated water for various authorities, I noted some authorities’ bacteriological analysis revealed E. coli and turbidity compliance % is below the EWURA Water Quality Monitoring Guidelines for Utilities of 2014 and Memorandum of Understanding requirements hence, indicating water may not be safe. Analysis is shown in Table 41 below
Table 41: Water Quality Compliance Analysis S/N Name of UWSSAs Water Quality Water quality Turbidity (ECOLI) Actual Actual 1 Chalinze 56 100 2 Lindi Uwasa 95 68 3 Musoma 90 90 4 Iringa 90 90
Report of Public Authorities and other Bodies 2018/19 143
S/N Name of UWSSAs Water Quality Water quality Turbidity (ECOLI) Actual Actual 5 Morogoro 97 100 6 Masasi Nachingwea 7 Tanga No Data 8 Mtwara 9 Tabora
I recommend that UWSSAs enhance and implement water quality monitoring plan in accordance with the EWURA Water Quality Monitoring Guidelines for Utilities of 2014 and MoU between UWASSAs and Ministry of Water.
14.4 Low Level of Debt Recovery at Water Authorities TZS 106.31 Billion Effectiveness and efficiency in revenue collection of Urban Water Supply and Sanitation Authorities (UWSSAs) is analyzed through collection efficiency and account receivable turnover.
The credit policy of UWSSAs is to recover bills due within the following month and to disconnect from water service any customer who has accumulated his/her bills for more than ninety (90) days without paying. During the testing implementation of the policy, I identified low level of debt recovery within water authorities, as significant receivables had been outstanding beyond the credit limits policy. Such accumulations of account receivables balances of TZS 106.31 billion includes TZS 35.08 billion (33%) due from the Government and TZS 71.23 billion (67%) from other categories i.e. commercial customers, domestic customers, industrial customers and religious institutions. Large outstanding balance of account receivables is mainly caused by inadequate follow up and non-compliance with UWSSAs policy by not disconnecting water services to defaulting customers as required by the credit policy.
Report of Public Authorities and other Bodies 2018/19 144
The non-recovery of debts decreases the Authority’s liquidity and thus, forcing Authorities into unnecessary financial constraints. Breakdown of the respective accounts receivable with respective Authority are shown in the Table 42 below:
Table 42: Significant Long Outstanding Account Receivable S/n UWSSAs Government Commercial, Total Debt (TZS Domestic & (TZS Million) Million) Industrial Debt (TZS Million) 1 Arusha 643 2,068.78 2,712.25 2 Babati 193 165.78 358.78 3 Bukoba 364 422.80 786.83 4 Mtwara 1,784 51.19 1,835.22 5 Chalinze 415 479.10 894.39 6 Dodoma 2,295 3,398.10 5,692.64 7 Iringa 395 1,123.94 1,519.04 8 Kahama 186 1,329.57 1,515.20 9 Lindi 120 354.15 474.05 10 Masasi - 587.84 587.84 Nachingwea 11 Morogoro 481 1,763.77 2,245.25 12 Moshi 2,222 1,906.74 4,128.84 13 Musoma 1,227 727.96 1,954.83 14 Mwanza 1,173 3,805.80 4,979.29 15 Songea 571 797.34 1,368.73 16 Singida 288 331.09 619.38 17 Tanga 1,576 3,066.86 4,642.47 18 Tabora 817 630.45 1,447.09 19 Dar es salaam 19,417 47,482.28 66,899.28 20 Shinyanga 907 743.99 1,650.81 Total 35,075 71,237.53 106,312.21 Source: Financial Statements The amounts are very significant and might compromise the efficiency of the authorities operations as significant funds are held by customers rather than being used for implementing the authorities’ activities.
Report of Public Authorities and other Bodies 2018/19 145
I recommend that UWSSAs develop action plans for recovery of the outstanding receivables and use that plan to collect the receivables.
14.5 Less Average Hours of Water Service Supply by UWSSAs An average hour of service is one of the key performance indicators for UWSSAs. This indicator considers hours per day that a consumer draw water from tap at his household connection or a public stand post. These numbers of hours are not necessarily identical with the operations time of treatment plants or wells, as tanks, which are part of distributions system are used for storage. The best practice as per EWURA is 24 hours.
I noted that 14 out of 16 UWSSAs which supply clean water attained average service hours that are far below the service level benchmark of 24 hours per day. The main reasons were inadequate water productions from available water sources compared to the water demand and low area network coverage. UWSSAS supplies far below the benchmark are Morogoro- 12 hours, Lindi 14 hours, Arusha, Kigoma 15 hours, singida, Babati 17 hours, Chalinze 18 hours, Dar es salaam 21 hours, Musoma, Masasi Nachingwea, Bukoba and Mwanza 22 hours, Dodoma and Tanga 23 hours.
I recommend that UWSSAs enhance water production distribution system to ensure average supplies of 24 hours as required by EWURA Directive.
14.6 Liquidity Problems Experienced by Water Authorities A total of nine (9) out of 16 Water Authorities I reviewed during the year experience deteriorating financial performance leading to liquidity problems as a result of consecutive losses rendering them unable to honour their current liabilities when they fall due. The Table 43 below
Report of Public Authorities and other Bodies 2018/19 146
some of the Water Authorities with deteriorating working capital:
Table 43: Liquidity Problem Experienced by Water Authorities S/N Name of Loss During Accumulated Current Authority the Year- Loss Ratio 2018/19' 'TZS TZS in Million (Recommen In Million ded ratio 1:1) 1 Babati Uwassa 397.38 0.73:1 2 Singida Uwassa 113.11 2,732.20 0.97:1 Morogoro 3 Uwassa 68.15 9,575.36 Masasi 4 nachingwea 334.11 2,640.18 5 Lindi Uwasa 403.30 1,686.68 0.7:1 6 Chalinze 921.43 974.63 0.5:1 7 Kahama 42.57 - 8 Songea 153.66 2,750.15 9 Bukoba 914.67 1,954.18
The above noted liquidity ratios cast doubt about going concern of the Authorities if no immediate actions are taken to improve their financial capabilities.
I recommend that UWSSAs develop strategies such as reassessing and strengthening on follow-up on the trade receivables from sales of water and cut some operating costs to rescue the liquidity problems.
14.7 Delay in Connection and Reconnection Water Customers Rule 26 (1) (b) of the Water Supply and Sanitation (Quality of Service) Rules, 2016 requires the licensee to connect the new customers within 7 working days after having paid in full. However, I noted several delays ranging from 14 to 57 days in connecting new customers in Arusha, Singida, Chalinze and Songea UWSSAs contrary to the requirements of cited Rule.
Report of Public Authorities and other Bodies 2018/19 147
Further, Rule 31 of the Water Supply and Sanitation (Quality of Service) Rules, 2016 requires disconnected water service to be re-connected within 24 hours upon the customer resolving the issue that led to disconnection. However, MORUWASA took 6 to 36 days to reconnection
Most of these Authorities pointed out challenges of materials and equipment to be the main cause for late connections. Failure to meet new connection demands affects UWSSAs revenue adversely as they could have started earning revenue if they connected them earlier. In addition, delays hinder customers from accessing clean and safe water.
I recommend that UWSSAs ensures all materials required for new connections and reconnections are available for the connection services and improve water service levels by aligning with Water Supply and Sanitation Rules.
14.8 Raising Water Bills Without Using Water Meters The Memorandum of Understanding between UWSSAs and Ministry of Water requires water authorities to have a continuous monitoring of water production and distribution in terms of quantity and quality. Also, as per the Water Act, the Authorities are supposed to install water meters for the purpose of measuring the amount of water produced and supplied to customers.
During the current audit, I noted that some UWSSAs billed their customers based on estimated rather than the actual water use although the customers concerned had water meters. For instance, DAWASA estimated bills of TZS 3.82 billion for 29,832 (11% of total customers) metered customers. These customers had estimated bills for a period ranging from 1 to 14 years without actual readings. Most of these fails to issue bills based on actual reading
Report of Public Authorities and other Bodies 2018/19 148
because of insufficient staff for meter reading, and lack of data entry clerks as well as logistical challenges.
I further noted Musoma and Songea UWSSAs did not install meters for all their customers because lack of funds and thus billing are based on estimates which are prone to errors and eventually might result in commercial loss. Estimated billing has adverse impact on UWSSAs revenue as actual consumption might be higher than the estimates while unbilled customers are prone to the risk of fraud as dishonest employees might be colluding with them for personal advantage.
I recommend that UWSSAs address the above anomalies by instituting measures such as getting Government support (Ministry of Water) that will ensure metering and billing issues are resolved i.e. all customers be metered and ensure meters are read every month in order to issue realistic bills that are based on actual consumption.
14.9 Inadequate Coverage of Sewerage Infrastructure The national directives are for all UWSSAs to reach sewerage coverage target of 40% of the population by June 2021.
The UWASSAs infrastructure assessed during my audit was identified with low level of sewerage coverage while demand for connection is high. The UWASSAs inability to keep pace with their customers demand was largely contributed by high cost of connection and investment of aiding infrastructure such as oxidations ponds and sludge drying beds. Some of the sewerage facilities are obsolete that require major rehabilitation and increased population that require massive expansion.
Report of Public Authorities and other Bodies 2018/19 149
For instance, DUWASA’ coverage of infrastructure is only 22% which does not meet the current and future demand of the rapidly growing Dodoma City. This has been contributed by Authority by not taking action in implementing Nzunguni sewerage project while compensation of TZS 622 million has already been paid to the resident since 2015 to vacate. Other UWSSAs with low level of sewerage includes Dar es Salaam (10%), Tanga (7%), Arusha (8%), Bukoba (5%), Iringa (18%), Morogoro (6%), Moshi (32%), Mwanza (23%) and Songea (8%).
I recommend that the mentioned Water Authorities seek Government support to finance construction of sewerage infrastructure so as to increase sewerage service to achieve the national target of 40% by 2021.
14.10 Tariff Fees charged requires restructuring Energy and Water Utilities Regulatory Authority (EWURA) is required to examine and approve tariffs charged for the provision of water supply and sewerage services submitted by UWSSAs.
DAWASA has continued to charge the same tariffs to customers even after its amalgamation with DAWASCO. This included operator’s tariff of TZS 1,106, first new connection tariff TZS 61 and lessor tariff TZS 496. This is contrary to the Section 26 (c) of the DAWASA Act of 2001 that requires reviewing and issuing new tariff due to the new arrangement where an operator and lessor is one and the same thing.
I further noted MORUWASA delayed in submission of application for a new tariff to EWURA by 420 days. Application for new tariffs was made in May 2019 instead of January 2018 required under Section 4 (2) of EWURA Tariff Application and rates setting rules of 2017 As the result, it used the rates that pertained to the year
Report of Public Authorities and other Bodies 2018/19 150
2017/18. Application of old rate led to undercharge that amounted to TZS 165.07 million.
I recommend that DAWASA communicate with EWURA so that new tariff can be reviewed and approved to reflect the current arrangement of lessor and operator being one entity. Further, I recommend that UWSSAs have procedures in place that will ensure correct tariffs are applied as approved by EWURA.
Report of Public Authorities and other Bodies 2018/19 151
CHAPTER 15
REVIEW OF HIGHER LEARNING INSTITUTIONS
15.0 Introduction Higher Learning Institutions are among Public entities that receive review subventions from the Government as a source of revenue to finance their recurrent and development expenditures. Assessment of operational efficiency of higher learning institutions is vital for the development of body of knowledge in the country and realization of value from the investment in tertiary education. My responsibility is to evaluate efforts deployed by the Higher Learning Institutions to achieve targeted objectives of promoting education in the country.
During the review of the performance of higher learning institutions I reviewed the operations and financial statements of University of Dar es salaam, University of Dodoma, Mzumbe University, Sokoine University of Agriculture (SUA), Open University of Tanzania (OUT), Dar- es-Salaam University College of Education (DUCE), Ardhi University (ARU), National Council for Technical Education (NACTE) and Tanzania Engineering and Manufacturing Development Organization (TEMDO).
During my review, I noted , anomalies in conducting Tracer studies in higher Learning Institutions, declining trend of students’ enrolment and delay in commercialization of patented intellectual properties, non-accreditation of technical institutions, password sharing between admission and examination officer, inappropriate conditions of motor vehicles used for driving course and inadequate performance of the proposed organization project as explained below:
Report of Public Authorities and other Bodies 2018/19 152
15.1 Anomalies in Conducting Tracer Studies in Higher Learning Institutions One of the key targets in Mzumbe University’s Corporate Strategic Plan (CSP) 2017/18–2021/22 was to develop and deploy operational policies, guidelines and procedures for quality monitoring by June, 2018. Further, the University had targeted to conduct tracer studies for each Campus College, School, Faculty and Institute by June, 2022.
Mzumbe University conducted one tracer study to investigate the cause of low enrolment rates in Master of Science Local Government Management (MSc. LGM) and Bachelor of Local Government Management (BLGM).
Besides, there were no comprehensive guidelines or Standard Operating Procedures (SOP) for the study to act as authoritative reminder to the University’s management on the importance of conducting Tracer Studies.
SUA planned to conduct six tracer studies out of 29 programmes offered by the University in its Corporate Strategic Plan 2016/21. For a period of three years from 2016/17 to 2018/19 the University managed to produce 7713 graduates from various programmes. Out of 7713 graduates 7102 were from undergraduates which was equivalent to 92% and 611 were from postgraduates which accounts for 8%. During my audit, the University was unable to provide any report on recent comprehensive tracer studies conducted because the last comprehensive tracer studies were conducted in 2004, which creates a gap of 15 years. Based on Corporate Strategic Plan (CSP) implementation, I noted that the University conducted only one tracer study on Vocational Education Training (VET) out of 29 programmes which were planned to be carried out at a total cost of TZS 97.45 million out of total budget of TZS 480 million from 2016/17 to 2018/19. I also found
Report of Public Authorities and other Bodies 2018/19 153
that the University had no Standard Operating Procedure (SOP) that provide guidance for conducting tracer studies.
Lack of tracer studies limits the University’s opportunity to cope with new development in academic matters. In addition, failure to provide funds for tracer studies resulted in tracer studies remaining at hold and the intended objectives for the tracer studies could not be achieved.
I recommend that Universities develop comprehensive operating procedures to be used as guidance for conducting tracer studies and solicit and commit funds for the studies.
I also, noted that Open University of Tanzania (OUT), University of Dar-es-Salaam (UDSM) and National Institute for Transport (NIT) did not conduct any tracer studies for its graduants and programs. Strategic plan indicated that OUT planned to adopt a tracer studies framework by June 2020, but six months before the timeline of the mentioned milestone none of the mentioned activity had been planned and implemented. UDSM did not set aside budget to carry out the tracer studies and the last comprehensive tracer studies were conducted in 2003, which creates a gap of sixteen years.
NIT established Alumni portal and through this portal they have been able to track some of their students. Currently, the Institute is implementing the World Bank project in which one of the key activities is to conduct tracer studies. Through the project, four (4) academic staff have been trained on tracer study skills which has been planned to be conducted in financial year 2019/20.
Under this circumstance, the Universities might not be in position to determine comprehesively whether programmes
Report of Public Authorities and other Bodies 2018/19 154
they offer meet market requirements so as to make informed and evidence-based decisions about improvements in quality education and services. Similarly, curriculum development and reviews might not be adequately informed by a structured feedback mechanism and thus not addressing the skills gap in the market.
I recommend that Management of Universities develop a cost-effective mechanism for carrying out tracer studies and set standard operating procedures that will guide in conducting the racer studies. In addition, review of curriculum development needs to consider tracer studies in order to address the current needs of the market and the industry for the benefit of the country.
15.2 Declining Trend of Students’ Enrolment in Higher Learning Institutions 15.2.1 Postgraduate Students According to Mzumbe University and SUA Corporate Strategic Plans (CSPs) for the period 2017/18 – 2021/22, Mzumbe University had a target to increase Students enrolment by 9% for postgraduates by June 2022 and SUA had a target to increase postgraduates from 751 in December 2015 to 2000 in June 2021. However, I noted a decrease in postgraduate students from 620 in 2016/17 to 576 in 2018/19 for SUA and from 1,592 students in 2014/15 to 730 students in 2018/19 for Mzumbe University as indicated in Table 44
Table 44: Declining Trend in Postgraduate Students University Academic No. of enrolled (% year students Change) Mzumbe University 2014/15 1592 0 2015/16 1546 -3 2016/17 1016 -34 2017/ 18 961 -5 2018/ 19 730 -24
Report of Public Authorities and other Bodies 2018/19 155
University Academic No. of enrolled (% year students Change) Sokoine University of 2016/17 620 0 Agriculture 2017/18 813 31 2018/19 576 -29
SUA had formed a task force to analyse the decreasing trend on enrolment of postgraduate students and the team prepared a draft report that proposed strategies to mitigate the declining trend. They incorporated in its CSP strategies to expand the existing programmes and establish new demand driven one that will help increase the number of postgraduate students. Despite good strategies in CSP, no funds were allocated in recast budget for implementation of these strategies.
I further noted that the enrolment of Postgraduate students for the University of Dar-es-Salaam decreased from 2810 in 2016/17 to 2757 in 2017/18 to 2665 students in 2018/19. On the other hand, even postgraduate students who graduated declined from 1,020 reported in 2017/18 to 729 reported in 2018/19.
I am concerned that inadequate investment in outreach and advertisement of postgraduate could lead to non- achievement of Corporate Strategic Plans target to increase postgraduates and this has an impact on the institutions mandate delivery and internal revenue.
I recommend that the Universities develop a comprehensive strategy for outreach and advertisement by using hybrid approaches of social media and hardcopies such brochures to meet the postgraduate targets in CSPs.
Report of Public Authorities and other Bodies 2018/19 156
15.2.2 Undergraduate Students During the audit, I noted that Sokoine University of Agriculture operates 29 undergraduate programmes in which 8292, 8962 and 10691 students were enrolled in 2016/17, 2017/18 and 2018/19 respectively. Assessment made based on 29 programmes for a period of five years indicated that the enrolments were increasing, but seven (7) programmes were declining as indicated in Table 45.
For a period of five years from 214/15 to 2018/19 there has been a decline in enrolment in Bachelor Degrees in Science in Bio-Processing and Post-Harvest Engineering together with Bachelor of Science with Education (Information and Mathematics) by 84% (from 85 to 14 students) and 48% (from 96 to 40 students) respectively. Despite the declining trend of students in seven programmes, the University had not conducted a formal research to establish the reasons for decline.
Table 45: Decline in Enrolment of Undergraduate Students S/ List of Undergraduate Academic year N course 2014 2015 2016 2017/ 2018 /15 /16 /17 18 /19 1. Bachelor of Science in 95 73 20 19 42 Education (geography & maths) 2. Bachel or of Science in 47 31 5 6 21 Informatics 3. Bachelor of Science in 63 62 63 61 55 Irrigation & Water Resource Engineering 4. Bachelor of Science in 85 50 12 12 14 Bio-Processing & Post- Harvest Engineering 5. Bachelor of Science in 60 121 48 53 49 Applied Agricultural Extension 6. Bachelor of Science with 83 72 21 19 52
Report of Public Authorities and other Bodies 2018/19 157
S/ List of Undergraduate Academic year N course 2014 2015 2016 2017/ 2018 /15 /16 /17 18 /19 Education (Chemistry & Mathematics) 7. Bachelor of Science with 96 87 27 20 40 Education (Information & Mathematics)
Further, my review of the implementation of the objectives set in the DUCE’s rolling Strategic Plan (2016- 2019/20), I noted that the College planned to attain enrolment of 7,750 students by 2019. However, only 5,353 students were enrolled by September, 2019.
The decline in enrolment of undergraduates’ programmes might be caused by non-marketability of the programmes in the market and this has an impact on internal source of revenue and on fixed cost used to operate those programmes in terms of utilities and lecture theatres.
I recommend that SUA and DUCE review their programmes and come up with more innovative strategies to increase the enrolment of students.
15.2.3 Delay in Commercialization of ARU Patented Intellectual Property Strategic plan of ARU covering financial years 2017/18 - 2019/20 requires at least three research outputs to be patented by June, 2019. Further, section 5.2 of the University intellectual Property Policy 2018 requires research activities and results that led to discoveries and inventions to be reported to the University Organs. During the audit I noted that only one research titled “The Treatment of Water Using Natural Coagulant 2013” was patented in April, 2013 but up to June, 2019 it was not commercialized. This deficiency is partly contributed by the lack a guideline that requires commercialization of the
Report of Public Authorities and other Bodies 2018/19 158
intellectual properties. The failure to commercialize the patented innovation may eliminate benefits that the society would have obtained from deployment of knowledge.
I recommend that ARU prepare guidelines for commercializing patented intellectual properties and introduce them to the public domains to enhance easy branding of the University and to support the society.
15.3 Subsidiary Company Need Treasury Registrar Ratification Mbeya University of Science and Technology (MUST) registered a subsidiary company on 17th November, 2011 under the name of MIST Engineering Contractors Limited (MISTECO) that started operations on 1st April, 2017.
During the audit I noted that MISTECO was not ratified by the Treasury Registrar in accordance with the Government directive issued on 9th November, 2018 through a circular with reference number CLC.154/337/01/19.
Treasury Registrar might not have enough details about the company as a Registrar of public entities; hence fail to make appropriate decisions about the subsidiary companies in public entities.
I recommend that management obtain ratification of the newly formed subsidiary company from the Treasury Registrar.
15.4 Non-Accreditation of Technical Institutions Section 4 (1) (a) of National Council for Technical Institutions (NACTE) Act of 1997 requires NACTE to register and accredit all institutions and their departments. In addition, Regulation 5 of Accreditation and Recognition Regulations of 2001 requires technical institutions to be accredited by NACTE within six months after obtaining full registration.
Report of Public Authorities and other Bodies 2018/19 159
However, during the audit I noted that NACTE had not accredited 18 institutions with full registration. The council may not perform quality assurance and regulatory functions effectively.
I recommend that, NACTE ensure that 18 institutions are accredited in order to perform quality assurance and regulatory function effectively.
15.5 Sharing of Passwords among Admission and Examination Officers During my visit to higher learning institutions, I noted that, admission and examination officer are sharing password in almost all institutions that I visited. In many cases, I noted that Admission and Examination officers who were registered by NACTE were no longer working with institutions or were on study leave or transferred to other institutions. However, their passwords were being used by other staff members who were registered by NACTE in admission of students and uploading of examination results.
Institutions may face difficulties in holding any person responsible in case any problem occurs in admission and uploading of examination results.
I recommend that, management of NACTE ensures that passwords are not shared among admission and examination officers so as to improve controls.
15.6 Inappropriate Conditions of Motor Vehicles Used for Driving Training at VETA Shinyanga VTC has been allocated with two motor vehicles, Toyota Surf with registration No. SU 37349 and Nissan pickup with registration No. SU 39838 manufactured in 1989 and 1999 respectively, which are used for driving course training.
Report of Public Authorities and other Bodies 2018/19 160
Due to old age of these vehicles, they have been fully depreciated and their maintenance costs for the financial years 2017/18 and 2018/19 amounted to TZS 25.87 million and TZS 32.70 million respectively. These expenses are huge, and the funds could be used to acquire better and modern secondhand vehicles for the trainings.
Likewise, Mwanza RVTSC has five (5) motor vehicles that are used in training for driving short courses. These vehicles have been used for more than twenty years and have been fully depreciated. These vehicles consume an average of 1 litre per 5.1 km.
Moreover, Mwanza RVTSC owns a Minibus (Asia Comb) with registration number SU 34755 for the purpose of training and other operations of the office. However, the vehicle has been abandoned for more than two years despite being in repairable condition and used for training and other official duties.
Management attributed the noted deficiencies to budget limitations and restrictions on procurement of used motor vehicles for all public institutions. Management also explained that they continued to liaise with various authorities/companies including TRA for assistance/donations of used motor vehicles for training.
I recommend that VETA allocate funds for acquisition of better and modern vehicles for better trainings at low running costs of the vehicle used.
15.7 Inadequate Performance of Designing Projects TZS 211 Million During the financial year 2018/19 TEMDO started to implement two of projects of design and fabrication of a mini crude palm oil processing plant and high-quality cassava flour (HQCF) plant. The budgets of the projects
Report of Public Authorities and other Bodies 2018/19 161
were TZS 30 million and TZS 181 million and during the year under review a total of TZS 15.95 million (53%) and TZS 34.19 million (40%) respectively were released.
Management explained TEMDO encountered unavailability of some material for Stainless Steel 304 which delayed the implementation of the project. Besides, shortage of funds was the main cause for under implementation of these projects.
I recommend that TEMDO liaise with the responsible Ministry to release the project funds as planned and the projects are implemented as per indicated schedule.
Report of Public Authorities and other Bodies 2018/19 162
CHAPTER 16
MANAGEMENT OF CASH AND CASH EQUIVALENTS
16.0 Introduction Management of cash and cash equivalents encompasses collection, handling, and usage of cash. It also involves assessing market liquidity, cash flow, and short-term investments.
Public Authorities have to manage cash and cash equivalents so as to meet daily financial obligations as they fall due, good cash management program can significantly influence the efficiency of operations of the Authority since planned activities can be fully implemented when sufficient fund to finance the budget is available.
This Chapter highlights weaknesses noted during the review of cash and cash equivalent management programs within the Public Authorities which involved assessment of internal control measures for cash, management of bank accounts, and management of cash flows.
16.1 Ineffective Utilization of Government Electronic Payment Gateway (GePG) The Government through the Ministry of Finance and Planning (MoFP) established Government Electronic Payment Gateway System (GePG) in order to improve the revenue collection management. The system intends to standardize revenue collection practices within the Government and its institutions as well as increase visibility of the transactions at all stages of collection process.
MoFP through the Treasury Circular No. 3 of 4th September, 2017 operationalized the requirement by advising the permanent secretaries to ensure that all government revenues are collected through GePG.
Report of Public Authorities and other Bodies 2018/19 163
During my assessment of the Public Authorities’ compliance with the Treasury Circular on the utilization of GePG system in collecting public revenues identified the following deficiencies in various entities: -
16.2 Non-utilization of GePG at Ubungo Plaza Limited audit,Ubungo Plaza Limited does not use GePG system in revenue collection contrary to the requirement of the Treasury Circular No. 3 of 4th September, 2017. The management argued that they had already started communication with the Ministry of Finance and Planning and effective implementation of the system is planned to commence on 31st March, 2020.
I recommend that Ubungo Plaza Limited make follow-up with the Ministry to ensure that GePG system becomes effective within its operations as planned so as to increase visibility of revenue transactions.
16.3 Ineffective Utilization of GePG System at Dar es Salaam Marine Institute (DMI) Dar es Salaam Maritime Institute (DMI) had started using GePG system in July 2018. However, during the year under review, USD 184,750 and TZS 451 million were collected through other Institute’s bank accounts No. 012105004460 and 011103020561 respectively not linked with GePG system contrary to the Government directive. DMI revenues collected by through bank accounts not linked with GePG system.
I, therefore, recommend that Dar es Salaam Maritime Institute (DMI) ensure that GePG system is fully used in collecting all of its collections.
Report of Public Authorities and other Bodies 2018/19 164
16.4 Revenue Collected Without Using GePG at KADCO TZS 19.5 Billion KADCO had collected cash amounting to TZS 27.7 billion from different sources like Tender Application, Medical Charges, VIP use, Temporary Pass, Landing fee and Rent. However only TZS 8.2 billion was collected through GePG system and the remaining TZS 19.5 were not collected through GePG system. Collections of revenue without using GePG system creates loophole for misappropriation of fund and reduces efficiency in revenue collection.
I recommend that KADCO fully apply GePG system in collection all of its collections.
16.5 Revenue Collected Without Using GePG at DUWASA TZS 169.38 Million Dodoma Urban Water and Sanitation Authority (DUWASA) received revenues amounting to TZS 169.38 million from its customers directly into different DUWASA’s Bank Accounts without raising customer control number from GePG system. Further, I was not availed with the descriptions of the customers who made the payments. Refer to Table 46 below for details.
Table 46: Funds Collected Without Using GePG Bank Name Total Collections Collections Collections (TZS) through GePG without (TZS) GePG (TZS) (A) (B) (A-B) NMB 3,845,044,727 3,759,500,828 85,543,900 CRDB 1,275,911,578 1,197,968,321 78,539,087 NBC 21,806,731 20,431,821 1,374,910 TPB 36,006,950 32,085,550 3,921,400 Total 5,178,769,986 5,009,986,520 169,379,297
Report of Public Authorities and other Bodies 2018/19 165
Collecting revenue out of GePG system may lead to loss of funds which could have been collected and utilized to implement operational and development activities.
I recommend that DUWASA ensure GePG system is fully used in its revenue collecting procedures and make reconciliations among PASTEL, GEPG, BANK and SBM systems to control collection.
16.6 Dishonoured Cheques Balance at National Social Security Fund (NSSF) I reviewed the bank reconciliation of the Fund and noted the balance relating to dishonoured cheques amounting to TZS 13.9 billion (2018: TZS 11 billion). The balance relates to contribution from members prior to April 2019 when the Fund stopped accepting cheques as a mode of payment by employers and members when submitting the monthly contributions. The balances are long outstanding and ages more than 4 years.
Further, the balance has increased from prior year by TZS 2 billion which is an indication that there are no rigorous procedures in place by management to clear the balance. There is a risk that the long outstanding cheques may not be recovered from the respective employers.
I recommend that NSSF ensure proper controls are in place to ensure that all cheques that are not cleared are followed up from the respective employers on a timely manner.
Report of Public Authorities and other Bodies 2018/19 166
CHAPTER 17
MANAGEMENT OF PROPERTY, PLANT AND EQUIPMENT
17.0 Introduction Property, Plant and Equipment (PPE) are Non-Current assets maintained and used by an entity in the process of provision of its services or in production of its product.
From the review management of PPE in the Public Entities I noted that most of the Public Entities face challenges in locations, quantity, conditions, maintenance, depreciation and maintenance of registers for their Non-Current Assets as detailed below;
17.1 Delay in Completion of Design and Build a berth at Mtwara Port On 4th March, 2017 TPA entered into Contract No. AE/016/2015-16/CTB/W/37 with China Railway Construction Engineering Group and China Railway Major Bridge Engineering Group JV to design and build of One Additional Berth at Mtwara Port at contract sum of TZS 137.39 Billion to be on in February 2019 being 21 months from commencement date.
Up to 31st October, 2019, the project’s progress report showed that the stage of completion was 42 percent only. The slow implementation of the project was contributed by substantial delay in finalizing detailed design by the contractor since it was design and build and delay in engaging a consultant named INROS LACKNER with contract No. AE/016/2016-17/CTB/C/08 where the contract was signed on 26th February, 2018 at a price of TZS 5.01 billion.
Due to this, the Port fails to attain its intended objective of the project of increasing the port’s capacity to handle more than 1,000,000 from 400,000 tons of imports of
Report of Public Authorities and other Bodies 2018/19 167
mainly cement, food stuffs, and miscellaneous general cargo and exports of unprocessed cashew-nuts.
I recommend that Management make close follow up to ensure the project is adequately completed to the Port Achieve its objective.
17.2 Delay in Disposing of Assets Held for Sale TZS 4.34 Billion Assets held for sale are assets available for immediate sale in their present condition in respect of which there is high probability that sale exercise would have been completed within one year from the date of reclassification. The carrying amounts of the assets held for sale is expected to be recovered through the sale rather than through continuing using them.
I learnt that TANAPA and NCAA had various asset held for sale of TZS 1.71 billion and 2.63 billion respectively making total of TZS 4.34 billion. However, the assets have not been sold yet. Delay in disposing of the assets means that less amount will be realised on disposal of the assets.
I recommend that management ensure the assets are disposed of within one year to recover high sales revenue and to avoid possible loss from impairment.
17.3 Presence of Idle Generators at Zone Offices of TZS 614.96 Million Tanzania Broadcasting Corporation (TBC) has a total of 16 generators at various zone offices that were purchased in 2007 at a total cost of TZS 614.96 million. I learnt that the generators are not used as they are of high capacity thus high rate of consumption of which costs are unbearable to Corporation.
The generators have therefore been left idle while their conditions and value continue to deteriorate.
Report of Public Authorities and other Bodies 2018/19 168
I recommend that TBC liaise with the Government or any relevant authority to chart out better ways of disposing of these Generators.
17.4 Unintended Uses of Staff Houses TZS 570 Million Ruaha National Parks (RUNAPA) management requested a development project from TANAPA for construction of 4 in 1 staff houses at Nyaruu ranger post which involved a contract price of TZS 226 million. The houses were completed handed over to RUNAPA on 11th September, 2018. However, during a site visit I learnt that the houses are used by MBOMIPA Community Organisation contrary to original intention of building them. Due to this TANAPA funds were misallocated as intended economic benefits do not accrue to RUNAPA.
I recommend that RUNAPA ensure houses are used for intended purposes so to achieve value for money of their construction.
TAWIRI has 5 houses valued at TZS 344 million which are now dilapidated due lack of regular maintenance and they are vacant due to shortage of staff and research activities. If the houses continue to remain in severe state of disrepair for a long time, they may become inhabitable hence high cost of repairing them or be condemned and then demolished.
I recommend that TAWIRI prepare maintenance plan for assets and implement it as required by section 14 of Public Assets Management Guidelines, 2019; and set funds aside to the above noted houses.
17.5 Matters Arising from Land Ownership Landform part of entity’s non-current asset that reports the cost of real property exclusive of the cost of any constructed assets on it. Entities face challenges
Report of Public Authorities and other Bodies 2018/19 169
mostly on ownership (title deeds), revaluation and amortization. From the review of Land property, I revealed the following deficiencies: -
17.5.1 Lack of Legal Ownership House and Land at Morogoro Open University of Tanzania (OUT) purchased both a house and at Plot Number 680 Block 'J' in Kihonda Area at Morogoro Municipality for TZS 630 million and had fully paid the seller whereby the sale agreement was signed on 1st December, 2015.
During my site visit, I found that bills for land rents still come in the name of previous owner indicating that the ownership of the land has not been transferred to the University yet although about 3 years had passed since the sale was concluded.
I recommend that the Management transfer ownership of the land to OUT as early as possible as it is almost three years now since the final instalment was paid.
17.5.2 Plots of Lands not Recorded in Assets Register TPC asset register showed that the Corporation had Plots Nos 33, 34, 35 & 36 at Makambako which are not in TPC assets register despite the fact that TPC has title deeds for these plots. Further, the plots were built investments which include a guest house, shop frames and social hall by a tenant who pays a monthly rental fee of TZS 500,000 (TZS 6 million annually) to the Corporation.
Management explained that TPC has an agreement with the tenant and which stipulates that the tenant will handle over investment property to TPC after recovering all of his costs from investments without demanding time frame. I further noted that TPC did not establish actual cost incurred during construction and how much costs have recovered to date after 18 years of operations.
Report of Public Authorities and other Bodies 2018/19 170
I recommend that management of TPC establish construction costs, amount of cost recovered to date, time period for transferring the property back to the Corporation and record the properties in Corporation’s assets register.
17.5.3 Land Disputes Between HESLB and TIE TIE holds a lease title No.49223 issued on 1st January, 1999. According to clause No. 2 of MoU entered on 11th August, 2010, between Tanzania Institute of Education (TIE), Higher Education Students’ Loans Board (HESLB) and Vocational Education and Training Authority (VETA), it was agreed that upon transferring of the property to its ownership, TIE shall cause the property to be sub-divided into four plots, two of which shall be under sublease arrangement with separate sublease of HESLB and VETA.
In the same year, another lease agreement was signed on 18th October, 2010 between TIE and HESLB of which Clause 8 (b) (ii) requires TIE to surrender the main title to the Commissioner for lands and initiate due process to get a new title deed in the name of the Lessee, HELSB in respect of the subject of the lease. Under both arrangements, both VETA and HELSB were required to promptly compensate TIE by 100% of the value of respective plot, which is TZS 769.23 million as valued by Ardhi University.
From these arrangements, there is a contradiction between MoU which was signed on 11th August, 2010 and agreement that was signed on 18th October, 2010 as HESLB cannot make decisions on the plot of land because it is not clear whether the land has been subleased based on MoU or transferred based on the agreement signed between HESLB and TIE.
I recommend management of HESLB and TIE work together to resolve the land dispute as stipulated by
Report of Public Authorities and other Bodies 2018/19 171
clause 8 (a) and (b) of the agreement by seeking intervention of Accounting Officer (s) of the Ministry responsible for Education and Vocational Training or by arbitration in accordance with arbitration laws.
17.6 Delay in Implementation of Tabora Regional Office Construction Project On 24th July, 2014 NHIF bought a plot No. 667 Block L at Kanyenye with 3314 square meters from Tabora Municipal at TZS 198.84 million for the purpose of building Fund’s regional office. The purchased land was occupied by petty traders where according to Clause 10 of sale agreement, it was agreed that the Fund will be required to construct house Bandas in another place for the Petty trader so as to relocate them there. Clause 12 require Tabora Municipal to provide another piece of land to be used to by the Fund build the house Bandas before it starts construction of its own office.
During the physical verification of Plot No 667 Block L at Kanyenye Area, I learnt that the intended construction of regional office was yet to commence, and the plot is still occupied by the petty traders. Moreover, construction of House Bandas for petty traders is yet to commence and the Land provided by the Municipal was then occupied by intruders who run their various economic activities.
I recommend that management ensures that the construction of Tabora Regional Office project together with Banda house is implemented as agreed in the signed MoU so as to avoid unnecessary costs. Also, the Fund implement the project as planned.
Report of Public Authorities and other Bodies 2018/19 172
CHAPTER 18
PROCUREMENT AND CONTRACT MANAGEMENT
18.0 Introduction Procurement and Contract Management in Public Sector is guided by the Public Procurement Act, 2011 (as amended in 2016) and its Regulations of 2013 (as amended in 2016).
To ensure that procurement activities are undertaken consistently to a high standard, efficiently and economically so as to achieve economy, social and environmental benefits, compliance with Public Procurement Act, 2011 (as amended in 2016) and its Regulations of 2013 (as amended in 2016) are highly emphasized and monitored by the Public Procurement Regulatory Authority (PPRA).
PPRA is a regulatory body established under the Public Procurement Act. The Authority is charged with regulatory functions and vested with oversight powers and responsibilities on all public procurement activities carried by all public bodies in the mainland Tanzania.
This chapter highlights weaknesses noted during the review of procurement processes in Public Authorities and other Bodies, the following are identified deficiencies:
18.1 Delays in Execution and Completion of Awarded Tenders Regulation 114 (a) of Public Procurement Regulations of 2013 (as amended in 2016) states that a procuring entity shall be responsible for the effective management of any procurement of goods, services or works for which it is undertaking and shall monitor the costs and timely delivery of goods and services in the correct quantities and to the quality specified in each contract. Further, sub regulation (b) requires a procuring entity to monitor the progress and
Report of Public Authorities and other Bodies 2018/19 173
timely completion of works in accordance with the terms of each contract.
I reviewed the progress of execution of awarded contract in Public Authorities and noted the following:
18.1.1 Delays in Supply and Commissioning pontoons USD 1.1 Million On 07th March, 2018 Tanzania Port Authority (TPA) and M/s Songoro Marine Transport Co Ltd entered into a contract under Tender no. AE/016/2016-17/CTB/G/14 for Supply and Commissioning of three (3) Units of Modulus Passenger Landing Pontoons for Dar es Salaam Port worth USD 1.1 million equivalent to TZS 2.6 billion Delivery Duty Paid (DDP) Dar Port. The completion date of the contract was 6th February, 2019.
I noted that the pontoons were not delivered on 6th February, 2019 which was eleven months from the date of contract signing and there is not extension of time. I revealed TPA had a dispute with the contractor on the scope of work as a result the pontoons have not been commissioned. The contractor claims the construction is for one unit of passenger landing pontoon with three modules while TPA standing is on three units of passenger landing pontoons with three modules each.
On 27th December, 2019, Management agreed with the contractor to pay the contractor USD 783,970.68 to construct one unit of passenger landing pontoon with three modules instead of three units of modules type each and deduct the supplier 10% of the original contract price which is USD 119,709 as compensation to TPA for fundamental breach of contract according to clause 18 SSC (GCC Clause 17) of the contract.
Report of Public Authorities and other Bodies 2018/19 174
Both parties agreed that contract specifications were not very clear to the contractor and that might be the cause of unrealistic contractor’s bid so it is unlikely to settle the matter by forcing the contractor to construct three units of pontoons with three modules and a fresh tender should be invited for the remaining two units. Based on the facts agreed by both parties, the Evaluation team should have detected the unrealistic contractor’s bid since it reviewed the tender documents in both aspects of technical and financial evaluation.
On 4th February, 2020 the contractor informed TPA that the pontoon will be delivered for inspection and acceptance on 15th February, 2020 at mooring area anchorage D as directed via letter with referenced SMT/ADM.3/FLOATING/19-28/13. On 20th February, 2020 the pontoon was received by TPA as per delivery note No. SM/02/20.
I recommend TPA’s Management ensure that the compensation on breach of contract is deducted from the contractor’s contract fee as agreed.
I further recommend that TPA’s Tender Board emphasize on selection of competent evaluation team which will professionally and effectively evaluate tenders to avoid reoccurrence of similar mistakes.
18.1.2 Delay in Supply and Installation of Rubikon Server at TPB TZS 618 Million On 20th August, 2018, TPB entered into a contract with M/s Sunheralex consulting for supply and installation of Rubikon Server for TZS 618 million for a period of 6 weeks.
I noted that M/s Sunhrelax Consulting supplied and installed the Sever on 19th February, 2019 which was a 4 months delay from the contract end date which was on 1st
Report of Public Authorities and other Bodies 2018/19 175
October, 2018. The planned activities of using the server had to be delayed for the whole period of delay in delivery of the server by the Supplier.
I recommend that TPB emphasize on proper management of contract to ensure execution of awarded tenders as per terms and conditions stipulated in the contract.
18.1.3 Delays in completion of construction of AUWASA Main Office TZS 7 Billion On 9th October, 2018, Urban Water Supply and Sanitation Authority (AUWSA) entered into contract No. AUWSA/AfDB/W/005/2017 with TANCHI Brothers Construction Co. Ltd for construction of AUWSA main office for TZS 7 billion for a contract period of sixteen (16) months from 15th October, 2018 to 15th February, 2020.
I noted that as of 23rd October, 2019, the advance payment of TZS 1 billion was already made to the contractor and work performed was less than 10% while twelve (12) months equivalent to 75% of the contract period had already elapsed. Further, contract performance guarantee and advance payment guarantee had expired on 22nd October, 2019.
I recommend that AUWASA’s Tender Board and Management seek for legal advice from the Attorney General on actions to be taken towards TANCHI Brothers Construction Co. Ltd for delay in the implementation of the contract.
18.1.4 Abandoned Projects in Kilosa and Dakawa TZS 549 million
a) Kilosa Project On 7th August, 2017 of Morogoro Urban Water Supply and Sanitation Authority (MORUWASA) entered into a
Report of Public Authorities and other Bodies 2018/19 176
contract with M/s Nangai Engineering & Contractors Company Limited for Construction of water pumping scheme, supply and installation of submersible pump at Njia Panda-Manzese Area, Kilosa Town for TZS 280 million for a contract period of 6 months from 28th August, 2017.
During verification of implementation of the project, I noted that, the project had been abandoned for more than 6 months and installation of pipes and fitting for distance of 3,647 meters had not been completed by the contractor and the contract period for the project had ended and no extension had been made.
Management of MORUWASA explained that, the site was abandoned due to lack of financial capacity by the contractor to complete the project despite being paid in accordance with the construction contract.
b) Dakawa Project On 7th August, 2017 MORUWASA entered into a contract with M/s Decady Investment Company Limited for expansion of Dakawa Water Pumping Scheme to Mtakuja at a contract price of TZS 268 million for a contract period of 6 months from 21st August, 2017.
During verification of implementation of the project, I noted that the contractor failed to connect pipes and fittings from boreholes to storage tank and to existing distribution network; as a result, the project was abandoned for more than 7 months.
The management stated that the site was abandoned due to lack of financial capacity by the contractor to complete the project and the contract was
Report of Public Authorities and other Bodies 2018/19 177
terminated on 05th March, 2019 through letter Referenced No.UWSS-MG.AC/18/47/08/17.
I consider that the management has failed to monitor the project as a result the objective of providing adequate water supply services to the residents of Kilosa and Dakawa may not be achieved in a timely manner and value for money of the project abandoned could not be attained.
I recommend that, MORUWASA ensure liquidated damages are charged to contractors for breach of contract and ensure both projects are completed so as the objectives of the projects are attained.
I further recommend that MORUWAS’s Tender Board emphasize on selection of competent evaluation team which will professionally and effectively evaluate the tender and come up with competent contractors.
18.1.5 Payment of TZS 996.56 Million for Service Affected Before the Service Delivery at Medical Stores Department (MSD) On 21st August, 2018 MSD entered into a contract No.IE 009/2017/2018/HQ/NC/80 with Toyota Tanzania Ltd for servicing MSD Toyota land cruisers at a contract price of TZS 996.56 million for a contract period of 3 years or for next 75,000 Kms for each vehicle from inception mileage whichever event occurs first.
During the review of the implementation of the contract I noted that, the management paid TZS 996.57 million to Toyota Tanzania Ltd before receiving the services from supplier as per clause No.4 of the contract contrary to reg. 132(2)(a) which requires the procurement entity to effect payments for goods and services delivered and accepted.
Further the contract price exceeds the budget by 446.5 million and there was no budget for the excess amount on
Report of Public Authorities and other Bodies 2018/19 178
this procurement. This is contrary to Para 224 of MSD Financial Regulations 2011, which states that before any purchase is approved the Director General shall ensure that the proposed expenditure is sufficiently covered under a specific approved budget allocation and the annual procurement plan.
Furthermore, I noted that, there is no evidence of training provided by Toyota Tanzania Ltd during the year 2018/2019 as per contract agreement. This is contrary to terms of reference for value and service contract arrangement No.10 which stipulates that Toyota Tanzania Ltd shall provide a free one-off training to MSD drivers on proper driving skills to avoid mismanagement of vehicles. Training shall be provided in the following centers; Dar es Salaam, Arusha, Mwanza, Dodoma and Mbeya.
I recommend that MSD ensure Toyota conducts training to all drivers as stipulated in the contract so as they may be able to monitor all services provided by Toyota to enhance quality service throughout the execution of the contract.
18.2 Failure to Clear 230 Containers for KTPIP Project at Dar es salaam Port USD 3.5 Million TANESCO is an implementing entity of a Project of Kenya- Tanzania Power Interconnection Project (KTPIP) for construction of the 400kV Singida - Namanga Overhead Transmission Line. The project is financed by development partners and the Government of Tanzania.
TANESCO on 7th October, 2016 entered into contracts of Engineering, Procurement and Construction (EPC) No. KETRACO/PT/017/2014-PA/001/2015/HQ/W/49 and No. KETRACO/PT/017/2014-PA/001/2015/HQ/W/49 with M/s Bouygues Energies & Services and M/s Consortium Energoinvest-EMC Limited for contrct prices of USD
Report of Public Authorities and other Bodies 2018/19 179
36,893,079.88 and 30,652,713.80 VAT Exclusive for Babati – Arusha and Arusha- Namanga respectively.
However, TANESCO had failed to clear 230 stranded containers for the projects at the port of Dar-es-Salaam which had resulted in demurrage and storage charges of USD 3.5 million. The situation is a result of amendments of Value Added Tax Act of 2017 which came into force on 1st January 2018 which requires projects to have Government Notice (GN) in order to qualify for VAT ex-emptions. When the new law was introduced, a number of consignments for the project and specifically for the above-mentioned contracts were on transit to the port of Dar es salaam and following the changes in the law, the VAT exemptions applications were subsequently rejected by TRA as from 1st January, 2018 until the GN Nos 438 and 439 were released in June, 2019.
TANESCO requested waiver of the accrued charges from TRA on custom ware-house rent, Shippers on demurrage, TPA and ICD on storage charges after obtaining the GN Nos 438 and 439 released in June 2019 under the name of the contractors while the containers were ordered in the name of TANESCO and so the waiver could not be granted.
I’m of the view that the main cause of the shortcomings highlighted above, is inadequate coordination, cooperation and a long of bureaucracy process that actually impedes inter-ministerial and government agencies to cooperate in getting the GNs and VAT exemptions.
I further noted, up to the time of audit in October, 2019, port clearance charges for un- cleared containers stood at USD 113,483 per day. Further delays in clearance of the containers will impact the completion time of the projects and cost in terms of claims from contractors for the delays which will increase the overall project costs.
Report of Public Authorities and other Bodies 2018/19 180
The Consultants’ second quarter report (1st April-30th June 2019) shows that, all Transmission Line Contractors have notified their intention to claim additional costs related to extensions. Bouygues energies & Service has already submitted claims of USD 7,717,324 through letter with reference No HQW49-TZ-CHO-TL-3100-A-442 of 8th October 2019 which is still under the review by TANESCO.
I recommend that Government intervene in this matter to enable release of the containers to avoid more costs and to enable completion of the project.
18.3 Payment of Penalties for Delay in Payments TZS 912.97 Million On 3rd January, 2019 the Ministry of Water, DAWASA and M/s China Civil Engineer Construction Corporation entered into a Novation Agreement under Contract No. ME- 011/2013-2014/W/01 for Construction of the Office Building for the Ministry of Water (Maji House) at Ubungo- Dar-es-salaam for a price of TZS 44 billion. The Novation agreement transfers all the rights, liabilities, duties and obligations of the original employer (Ministry of Water) to new employer, DAWASA taking into account the terms and conditions agreed upon in the original contract entered on 10th November, 2014 including its addendums.
Further, Clause 40 of General Condition of Contract requires the employer to pay the contractor the amount certified by the project manager within 28 days of the date of each certificate. If the employer delays the payment, the contractor will be paid interest on the late payment in the next payment.
An Interim Payment Certificate No. 13 dated 19th June, 2018 showed that the contractor had charged a total of TZS 912.97 million as interest on delayed payments and out of which TZS 472.26 million were paid by DAWASA in
Report of Public Authorities and other Bodies 2018/19 181
respective of Certificate No.12 and TZS 440.71 million were paid by Ministry of Water.
I recommend that DAWASA avoid escalation of the project costs by paying the contractor on time.
18.4 Weaknesses noted on the procurement process of a Consultant for undertaking T-PESA Cashless Project for a contract price of USD 12,000,000 equivalent to TZS 27,240,000,000 at TTCL Corporation
On 15th February, 2019 TTCL Corporation entered into a contract with a consortium formed by Paylink Korea Inc, Ken Hana Card and Atech T & Co. Limited for undertaking Planning, Designing, Supplying, Installation, Testing and Commissioning of Central NFC & POS System and Hardware including Operation and Maintenance on T-PESA Cashless Project at contract price of USD 12,000,000 (Equivalent to TZS 27,240,000,000).
During the review of tender file No. PA/032/HQ/2017- 2018/G/59 I identified the following deficiencies in this contractual arrangement:
a) Management of TTCL proceeded with the procurement process contrary to the advice of AG The Attorney General (AG) advised TTCL to enter into an investment contract since the nature of contract falls within Public Private Partnership (PPP) and does not fall within Public Procurement Act. Further, AG advised the management to comply with PPP’s Act and consult PPP unit in the Ministry of Finance and Planning for further guidance in case they opt for such an arrangement.
The tender board agreed to cancel the tender as per advice given by Attorney General through its first Ordinary Tender Board Meeting held on 15th November, 2018. The Ag. Accounting Officer (Director General) through a letter
Report of Public Authorities and other Bodies 2018/19 182
with reference number DF 5011/G/59/2017-2018, sent a notice of cancellation of the tender to Ms Paylink Korea Co. Ltd a successful tenderer. However, seven days later a letter dated 28th November, 2018 with ref No. DF 5011/G/59/2017-2018 was sent to Ms Paylink Korea Co. Ltd to revert the notice of cancellation with explanations that the corporation was making some internal arrangement of the matter without affecting the current stage of tendering process. The decision to revoke the notice of cancellation of contract was not approved by the Tender Board as there were no minutes for such discussion and deliberation and the Ag. Accounting Officer proceeded with signing of the contract contrary to Section 35 (2) of the Public Procurement Act, 2011 (as amended in 2016) which states that, no person or firm shall sign a contract with any public body unless the award has been approved by the tender board.
b) Entering into contract with private party without performance of feasibility study Section 11(1) of PPP’s Act, 2010 requires, “Every contracting authority to undertake or cause to be undertaken a feasibility study where it considers that a project may be implemented under an agreement for purposes of assessing whether the proposed project is feasible as PPP project.” In addition, Section 17(1) requires the Minister responsible for finance to approves the terms of the agreement pursuant to paragraph (d) of subsection (1) of section 10, before the contracting authority proceed with the procurement process.
Contrary to the cited legal requirements, TTCL did not undertake any feasibility study on the project or approval from the Public Private Partnership Unit and the Minister responsible for finance. Verification of the Procurement Requisition Form No. 2 shows comment from the Accounting Officer indicating to have signed the document
Report of Public Authorities and other Bodies 2018/19 183
on the understanding that TTCL will not invest the said amount (cost estimate of TZS 12,036,000,000) rather it’s just vendor financing to be repaid from the “project” itself. However, PMU proceeded with the procurement process without conducting and submitting project feasibility study to PPP Unit and the Minister responsible for finance for consideration and approval. This is mainly caused by oversight by PMU on the requirements of Public Private Partnership Act and its regulations.
c) Un-realistic cost estimates produced by the user department and increase in project cost by TZS 15,204,000,000 TTCL Procurement Requisition Form No. 2 from the user department (Information Services) dated 17th April, 2018 indicated total estimated cost inclusive of taxes for T-Pesa Cashless Project was TZS 12,036,000,000. The balance of fund available for procurement was TZS 4,400,000,000 although the confirmation for fund balance was not approved by the responsible Head of Finance. The form was certified to evidence submission of request by Head of user department, signed by the Head of Procurement on receipt of request and authorization to procure granted by the Accounting Officer under the understanding that the project will be vendor financed.
However, according to the Price Schedule, paragraph 3.6.2.1 of the 2nd Stage Evaluation report indicates Grand Summary of Total price for the project as TZS 26,789,072,400 (USD 11,801,353.48) more than twice the estimated amount by the user department highlighting inefficiencies project cost estimation and non-performance of feasibility study.
I further noted that the agreed price of TZS 26,789,072,400 (USD 11,801,353.48) was subject to negotiations as per the evaluation report submitted by the evaluation committee.
Report of Public Authorities and other Bodies 2018/19 184
Negotiations held on 2nd August, 2018 shows the price was reduced to TZS 23,007,043,800 equivalent to USD 10,135,262 as an agreed price for contract implementation. However, following the formation of SPVC (consortium) that did exclude the successful bidder Paylink Tanzania Limited, new negotiations emerged and the agreed cost of the project rose to USD 12,000,000 (TZS 27,240,000,000) above the agreed amount with the successful bidder by USD 1,864,738.41. There was no supporting evidence provided to justify the increase in project cost/invested capital by such amount.
d) Non-Evaluation of members forming a consortium Section 72(1) of the Public Procurement Act, 2011 (as amended 2016) states that, “the basis for tender evaluation and selection of the successful tenderer shall be clearly specified in the tender document, (2) The tender documents shall specify factors, in addition to price, which may be taken into account in evaluating a tender and how such factors may be quantified or otherwise evaluated.”
Regulation 203(1) of the Public Procurement Regulations, 2013 (as amended 2016) states that “the tender evaluation shall be consistent with the terms and conditions prescribed in the tender documents and such evaluation shall be carried out using the criteria explicitly stated in the tender documents.”
Further, BDS Clause 3 supported by ITS clause 3.1 states that, “Joint Venture “not” applicable. However, during the bidding process Ms Paylink Tanzania Limited submitted a request with intent to get in a consortium to carry out the contract with Hana Card Co from Seoul-South Korea, Samwon FA from Busan-South Korea, Paylink Korea Inc from Seoul South Korea and Sinam LLC from Azerbaijan. The request was accepted contrary to the requirement of
Report of Public Authorities and other Bodies 2018/19 185
Clause 3 of BDS and without approval of Tender Board to authorize the changes in tender document.
I noted that evaluation of tender documents was done for Ms Paylink Tanzania Limited and not to all members forming the consortium. Ms Paylink Tanzania Limited was awarded as a successful bidder though was eliminated as part of the partners forming the consortium.
Furthermore a post qualification was performed to the partners forming the consortium and it was noted that the capital of Paylink Korea Inc was 5.5 million Korean Won (KRW) equivalent to USD 4,742.24 casting doubt on the financial ability of the lead partner in running the consortium to carry out the project.
I recommend that TTCL Corporation consider termination of the contract since the award was not approved by the tender board, nature of the contract project is PPP and its requirements were not adhered to as advised by AG and all the weakness noted in the procurement process may have negative impact on the contract implementation.
18.5 Contract not Vetted by Attorney General Involved USD 644,400 On 10th May, 2019 STAMIGOLD Company Limited entered into contract number PA/125/2018-2019/G/04 with M/s Shandong Huamin Steel Ball Joint – Stock Co Ltd for supply of forged steel balls (Grinding media 100mm) for a period of one year for USD 161,100 per quarter making a total of USD 644,400 per year.
Reg. 59 (1) of Public Procurement Regulations 2013 (amended 2016) requires contracts whose value is one billion or above to be vetted by the Attorney General before the contract is signed by the parties; and Reg. 59
Report of Public Authorities and other Bodies 2018/19 186
(5) requires an accounting officer upon receiving the comments from Attorney General to incorporate them in the draft contract.
From the review of procurement proceedings of the tender, I found that the contract was signed by both parties without being vetted by Attorney General.
I consider that, signing contract which is above one billion without being vetted by Attorney General exposes the entity to legal risks.
I therefore, recommend that STAMIGOLD Company Limited ensures in future contracts above one billion amounts are vetted by Attorney General and advice provided is incorporated before signing contracts to avoid legal issues that may arise during implementation.
18.6 Payment for Provision of Security Services without Contract TZS 1.34 Billion Regulation 233 of the Public Procurement Regulations 2013 (amended 2016) requires a procuring entity and the a person whose tender is accepted to enter into a formal contract within twenty eight calendar days after fulfilling all conditions prior to the signing of contract and the formal contract to be in a prescribed form and contain terms, conditions and provisions set out in the tender document.
I noted that STAMIGOLD Company Limited paid a total amount of TZS 1.34 billion to SUMA JKT for provision of security services for financial year 2018/2019 without having a valid contract as the existing contract expired on 7th January, 2017.
Payment made without contractual agreement creates loopholes for fictitious payments and may result in disputes between the service provider and procuring entity since
Report of Public Authorities and other Bodies 2018/19 187
there are no obligatory terms and condition in place. Details of payment are shown in the Table 47 below:
Table 47: Payments Made to SUMA JKT Date Code Reference Reference Descriptions Debit (TZS)(000) 18-Jul- CASH SBM/TIB/F CBR02454 INV#4375 46,701 2018 T - 91518 18-Jul- CASH SBM/TIB/F CBR02454 INV#2792 73,299 2018 T - 91518 30-Aug- CASH SBM/TIB/F CBR02530 Payments for 2018 T - 95418 provision of 120,000 security services 24-Sep- CASH SBM- CBR02521 Provision of 2018 TIB/FT - security services 120,000 98218 12-Oct- CASH SBM- CBR02525 Payment for 2018 TIB/FT- provision of 120,000 100618 security services 7-Nov- CASH SBM/TIB/F CBR02530 Payments for 2018 T - 103718 provision of 120,000 security services 13-Dec- CASH SBM/TIB/F CBR02560 Payment for 2018 T - 109518 security services 120,000 (commitment) 22-Jan- CASH SBM/TIB/F CBR02572 Payment for 2019 t - 001819 security services 120,000 (commitment) 26-Feb- CASH SBM- CBR02589 Payment for 2019 TIB/FT- Security service 120,000 005719 ( Commitment) 26-Mar- CASH SBM- CBR02603 Security ( 2019 TIB/FT- Commitment ) 120,000 09719 25-Apr- CASH SBM/TIB/F CBR02623 Security 2019 T - 103219 services - 130,000 commitment 31-May- CASH SBM/TIB/F CBR02623 Security service 2019 T - 107819 - commitment 130,000 Total 1,340,000
I recommend that Stamigold Company Limited comply with requirements of relevant procurement laws and regulations in managing procuments.
18.7 Claims Damages for Intention to Leasing 88 Ranching Blocks TZS 7.21 Billion NARCO’s Tender Board held a meeting on 1st November, 2018 in which members agreed to invite competitive bids
Report of Public Authorities and other Bodies 2018/19 188
from bidders who are interested to lease 28 ranch blocks in Uvinza in Kigoma, Kilosa and Mvomero in Morogoro, Siha, Longido and Meru in Arusha and Kilimanjaro, and Handeni and Korogwe in Tanga. The same was communicated to the NARCO’s Accounting Officer (Director General).
However, on 15th March, 2019 management of NARCO advertised tender under Bid No: PA/110/2018/2019/HQ/NC/01 for leasing 88 ranching blocks in Uvinza, Dakawa, Mkata, West Kilimanjaro, Mzeri, Usangu, Kagoma, Kalambo, Kitengule, Missenyi and Mabale ranches. The Tender Board minutes for the meeting held on 21st and 22nd May, 2019 show that the Tender Board was not involved in the decision to increase the number of blocks for lease from 28 to 88 and requested a written explanation from the Accounting Officer.
The Tender Board cautioned the management to take into account new bidders’ Business Plan submissions before entering into lease contracts and review grounds for terminating old lessees to avoid possible losses from legal disputes after reviewing the Bid evaluation report. On 13th September, 2019 the Chairman of the Tender Board further advised the Accounting Officer on more challenges regarding this tender including the fact that some of the current lessees whose blocks were advertised have already settled their outstanding lease payments. The Chairman cautioned that subdividing the leased blocks before agreeing with previous lessees holding official titles of 33 years lease agreements recognized by the Ministry of Lands would result in complex legal disputes.
However, at the time of concluding my audit in December 2019 no documented disagreement to the Tender Board’s recommendation or a reference to PPRA for review was provided by the Accounting Officer. This is contrary to Regulation 51 of the Public Procurement Regulations 2013
Report of Public Authorities and other Bodies 2018/19 189
which states that “Where an accounting officer disagrees with the decision of the Tender Board regarding application or interpretation of any procurement method, process or practice by tender under these Regulations, the accounting officer has to (a) return the decision to the Tender Board for review giving written reasons for the dissatisfaction; and (b) where the accounting officer is not satisfied with the outcome of the review, request for an independent review by the PPRA stating the reasons for disagreement.
Furthermore, the intended new leasing arrangement failed to materialize, and the procurement process ended on evaluation stage after some of the lessees challenged the process in court by filling Land cases in the High Court of Tanzania against NARCO for wrongful termination of their lease agreements. They claim damages totaling TZS 7.21 billion which has been disclosed in the financial statements of NARCO as contingent liabilities. The lessees have also suspended payment of rental fees pending court decision for their filed cases and their current debt status as at 20th December, 2019 was TZS 528.29 million as shown in the Table 48. This is a potential loss of revenue and has an adverse impact on the cash-flows of NARCO until settlement of the dispute.
I recommend that NARCO take advice of the Tender Board in Bid processing to avoid unnecessary disputes and financial losses and make efforts in the management of the case to ensure that NARCO defense succeed to avoid crystallization of the contingent liability.
Table 48: Debt Status of Tenants Who Have Filled Land Cases against NARCO S/N Ranch Name of 2018/19 2019/20 (TZS) AS AT Block Lessee (TZS) 20.12.2019 (TZS) 1 Usangu Highlands 106,452,500 35,945,910 142,398,410 Ranch 2 Usangu O.C. Industrial 46,760,500 42,643,315 89,403,815
Report of Public Authorities and other Bodies 2018/19 190
S/N Ranch Name of 2018/19 2019/20 (TZS) AS AT Block Lessee (TZS) 20.12.2019 (TZS) Holding Ltd 3 Usangu Usangu Ranch 49,553,778 35,945,910 85,499,688 Company/Kab olika 4 Usangu Charles Yumbu 45,877,674 38,771,590 84,649,264 Gelegele 5 Kagoma Kikundi cha 17,700,595 29,588,130 47,288,725 Wafugaji Kihanga 6 Kagoma Kyaka Ranches (3,000) 17,788,590 17,785,590 7 Kagoma Ukurwa Ranch - 17,290,000 17,290,000 8 Kagoma Kikundi cha (49,442) 17,220,840 17,171,398 Wafugaji Katembe 9 Kagoma Emanzi (747) 16,551,175 16,550,428 Ranching 10 Kitengu Edivedius (644) 10,252,970 10,252,326 le Ruttta Kassano Total 266,291,214 261,998,430 528,289,644
18.8 Absence of performance security for awarded tenders TZS 631 million Regulation 29 (1) of Public Procurement Regulations 2013 (amended 2016) requires a procuring entity to require a successful tenderer to submit a performance security to guarantee the faithful performance of the contract and payment of all labourers, suppliers, mechanics and subcontractors, if any.
However, from the review of procurement activities at Sokoine University of Agriculture I noted the lack of performance security for eight tenders with total value of TZS 631 million as shown in the
Report of Public Authorities and other Bodies 2018/19 191
Table 49. The University may suffer loss in the event of default by a supplier or substandard works by a contractor.
Report of Public Authorities and other Bodies 2018/19 192
Table 49: Details of Tenders Awarded Without Performance Guarantee S/N Tender No Description Supplier Amount (TZS) 1 PA/012/2018 Supply and Fixing of Chairs Jaffery Ind. Saini 394,879,920 - and Reading Tables at Limited 19/HQ/G/10 Lecture Theatres at SUA 5 Main Campus 2 PA/012/2017 Provision of security NEW BANTU 80,670,000 - services at Solomon Morogoro Security 18/HQ/NCS/ Mahlangu College of Science Guard Services 04 Lot No. 2 and Education Ltd 3 PA/012/2018 Provision of consultancy Hamisi Massanja 77,954,620 - services - Formulation of Malebo 19/HQ/CS/07 commiphora swynnertonii extract products under AESA Rise Fellowship 4 PA/012/2017 Provision of cleaning Care Sanitation 77,615,166 - services at SUA Main and Suppliers Ltd 18/HQ/NCS/ Campus – Exterior 100 Lot No. 4 Total 631,119,706 Source: Procurement tendering files
I recommend that SUA ensure in future performance security guarantee is submitted prior to the commencement of the projects.
Report of Public Authorities and other Bodies 2018/19 193
CHAPTER 19
SPECIAL AND FORENSIC AUDIT
19.0 Introduction The Controller and Auditor General (CAG) is empowered under Section 29(2) of the Public Audit Act No. 11 of 2008 to undertake special audits upon receiving a request from a Person, Institution, Ministries, Departments, Agencies, Local Government Authorities and such other Bodies or as he may deem fit to undertake any special audit.
In accordance with the provision of the Act, the Office of the Controller and Auditor General conducted three (3) special audits and two (2) forensic audits in four (4) of the Public Authorities and one (1) private company with Government investment during the year under review.
Public Entities in which special audits and forensic audits were conducted are Tanzania Electric Supply Company Limited (TANESCO), Promotion of Rural Initiatives and Development Enterprises Limited (Pride), National Social Security Fund (NSSF) and Shirika la Usafiri Dar es salaam (UDA/UDART). A private company with a Government investment which a special audit was conducted is Songas Limited.
Key findings of the special audits presented in this report are the summary of the audit observations; the detailed findings are available in the respective reports and can be provided by Authorities which requested the special audit, in cases where circumstances of the matter permit disclosure of details. The key findings in summary are as follows:
19.1 Tanzania Electric Supply Company Limited (TANESCO) Following the energy crises which faced the country in the late 1990s and early 2000s, TANESCO was forced to expand
Report of Public Authorities and other Bodies 2018/19 194
its sources of energy by contracting independent power producers and undertake emergency measures in order to nurture energy security. The measures taken by TANESCO proved to be expensive and raised large amount of liabilities to the tune of TZS 938.5 billion which include accrued interest of USD 19.48 million from delayed payment. Hence, in view of the situation, the World Bank conducted an initiative to analyse the amount of liabilities in the power sector so as to rescue the sustainability of Tanzania Power Sector. In response to World Bank initiatives the Permanent Secretary Ministry of Energy requested my office to verify the existence, accuracy and authenticity of the reported liability of TANESCO as at 31st May, 2018. The audit noted the following issues: -
19.1.1 Disputes Invoices Amounting USD 42.83 million TANESCO has a conflict with two (2) creditors; Pan Africa Energy Tanzania Limited (PAET) and Tanzania Petroleum Development Corporation (TPDC) on the nature and amount of the outstanding liability totalling USD 42.83 million. The reasons for the conflicts are as explained in the subsequent paragraph: -
A liability of USD 8.13 million from 29 invoices were raised from the use of High Heating Value (HHV) by TPDC for invoicing purpose which was considered to be higher compared to maximum HHV stated in the gas sales agreement between TANESCO and TPDC and on the computation of indexation of wellhead charge.
Liabilities of USD 34.7 million from 25 invoices were raised by PAET to TANESCO. However, TANESCO claimed that from the invoices they noted PAET used a method of reduced Maximum Daily quantity (MDQ) without informing them on the change. Also, TANESCO claimed that extra gas, hourly overtake daily excess gas and take or pay charged was not adequately computed. PAET is also,
Report of Public Authorities and other Bodies 2018/19 195
complaining that TANESCO did not follow the appropriate channel to report the claims hence the liability from the raised invoices has not been settled.
I recommend that TANESCO conduct mutual discussion with respective creditors to resolve the existing conflicts while considering respective gas sales agreement clauses.
19.1.2 Un-Responded Creditors TZS 291.1 billion TANESCO had 936 creditors which are divided in three groups namely, big companies’ local energy suppliers, foreign power producers and other small energy, power and gas creditors. During the audit, I requested confirmations of the outstanding debts from the creditors which resulted as follows; 23 creditors with an amount of TZS. 647.4 billion responded while 913 creditors with an amount of TZS.291.1 billion did not respond.
Out of 913 creditors, I noted that IPTL had an outstanding debt of TZS 102.12 billion and did not respond to my inquiry because of the existing management challenges facing the company.
I recommend that TANESCO establish authenticity of the outstanding debts of which creditors did not respond to the confirmation request.
19.2 Songas Limited Songas Limited was established on 27th August, 1997 as a private company with the government being among the shareholders of the company with 40.7% shareholding. The company was established for the purpose of generating energy from the gas deposit discovered at Songo Songo Island through Songo Songo gas to energy project. The initiative named Songo songo gas to energy project was among the measures taken by the government to mitigate
Report of Public Authorities and other Bodies 2018/19 196
the power shortage crises which faced the country in the years 1990s and 2000s. In July, 2018 the parliament committee on petroleum and gas sector submitted to the parliament its report showing that the Government does not receive a fair share of benefits from the investment made in Songas Limited. With that note, the permanent secretary Ministry of Energy asked my office to assess the effectiveness and economy of the Government’s investment in Songas limited against five terms of reference. My assessment noted that the government’s investment in Songas Limited had the following issues:
19.2.1 Investment made by the Government Vs Shareholdings obtained The Government holds 40.7% of the Songas Limited shares through Tanzania Petroleum Development Corporation (TPDC) (28.69%:30,000 shares), Tanzania Electric Supply Company Limited (TANESCO) (9.56%: 10,000 shares) and Tanzania Development Finance Company Ltd (TDFL) (2.45%:2,560) which is a jointly owned company between the Government (32%) and ABC Holding (68%).
I noted that TANESCO transferred assets and liability to Songas Limited on 8th November, 2004 the net of assets and liability value were determined to be USD 1 million. However, there were no evidence on how the USD 1 million was obtained since no valuation of the assets and liability were made during the time of transfer or afterward which could be used as a base to determine equitability of the shares value acquired against fair value of transferred assets and liability.
Transferred liability amounted to USD 45.88 million which was continued to be paid by TANESCO through capacity charged levied by Songas as part of the monthly invoices. The Assets transferred were part of the land at Ubungo (i.e. Ubungo Complex) with its associated fixed assets, part
Report of Public Authorities and other Bodies 2018/19 197
of the land (way leave) for the construction/use and maintenance of gas pipeline from Ubungo to Wazo Cement Factory through joint use way leave and four power generator turbines (UGT 1,2,3,and 4).
Further, I noted that TPDC transferred part of the Songo songo island with the associated fixed assets as outlined under schedule 1A and 1B of the agreement, and five gas wells namely, SS-3, SS-4, SS-5, SS-7 and SS-9 drilled between 1977 and 1982. However, the computations or valuation methodology used to determine the value of transferred assets to equate with the value of allocated shares (USD 3 million) was based on the agreement made between shareholders of Songas Limited and the government. The computation did not involve any professional valuer who would have provided an independent professional valuation opinion on the fair value of the transferred assets. Furthermore, my audit has determined that, the five gas wells are among nine drilled wells at songo songo.
The government owned eight gas wells and had spent USD 90 million for exploration, drilling and maintenance of gas well since 1970s of according to the feasibility study volume 2 of 1992 conducted by Hardy BBT Limited and Canuck Engineering. The study recommended that a prospective investor in the Songo songo project should reimburse the costs incurred after commercial production commencement. However, I noted that the allocated shareholding did not consider that cost incurred by the Government.
Songas Limited urged that, the allocated shareholding to both TANESCO and TPDC is equitable and fair to the Government because of the electricity production cost relief brought by the company charging TANESCO low tariff rate of USD 0.6/kWh (TZS 135/kWh) compared to USD 12/kWh (TZS 270/kWh) charged by TANESCO to the final
Report of Public Authorities and other Bodies 2018/19 198
consumers. However without an independent valuation of the transferred assets, financing of transferred liability and consideration of the incurred cost (USD 90 million) one cannot accurately and objectively determine that, the value of surrendered assets from both TANESCO and TPDC is equal to the assigned total value of USD 4 million (1 million TANESCO: 3 million TPDC).
I recommend that the Government revise the signed agreements between Songas Limited against TANESCO and TPDC and cause, a revaluation of the transferred assets, rationality and economy of the transferred liability. Also, consider the cost incurred on the wells (USD 90 million) to determine fair share of the Government at Songas Company. 19.2.2 Unconscionable Terms of the Company/Project Financing Songas Limited has a capital of USD 333.20 million which comprise USD 10.45 million (3%) as equity, USD 113.16 million (34%) originally preference share then converted to loan and USD 209.58 million (63%) as debt.
My review of the terms and benefits mentioned in the loan agreements noted that from converted preference shares and the loans TANESCO had paid a sum of USD 103.43 million principal amounts and USD 152.30 million as interest payable from the preference shares up to 31st December, 2018 as part of capacity charge incorporated in monthly billed invoices. TANESCO also, had to pay a sum of USD 209.58 million that was loaned to the Government by International Development Agency (IDA), Sweden International Development Agency (SIDA) and European Investment Bank (EIB) as part of capacity charge incorporated in monthly billed invoices.
Further, I noted that, the preference shares that constitute the capacity charge were of two types A and B with interest rates of 22% and 18% respectively, the charged
Report of Public Authorities and other Bodies 2018/19 199
rates were far higher than the market interest rate of 7% at the time when the shares were issued in 2004.
It would have been better off if the Government and other shareholders financed the preference shares from the Financial Institutions as at 31st December 2018. Hence, TANESCO would have paid total interest of USD 44.89 million rather than USD 152.30 million.
On the loan of USD 209.58 million I consider that, since the loan is paid by TANESCO, the Government would have benefited more by transferring the loan as part of the its investment (asset) instead of a liability since the Government is both a loan guarantor and payer. However, as part of the project agreements and terms of the loan by the World Bank, the Government was obliged to transfer the loan to Songas Limited on the grounds that, because of mismanagement and huge debts crises which faced TANESCO at the time, the Government would not be a major shareholder of Songas Limited.
To benefit from being a guarantor and borrower of the loan, the Government charged Songas Limited an interest rate averaging 7% on transferred loan of USD 209.58 million instead of the original interest rate of 1% from the lender. The additional interest rate was paid by Songas Limited through monthly invoices billed to TANESCO.
However, TANESCO stopped making loan portion payment after paying a total sum of USD 12.32 million from eight (8) months of billed invoices. It then transferred the obligation to the Government in accordance with Loan assumption agreement, which allows TANESCO to transfer the liability to the Government and finance it either through setting it off against the electricity bills owed by the Government or making direct payment to the Government in the future. As at 31st December, 2018, TANESCO debt to the Government
Report of Public Authorities and other Bodies 2018/19 200
stood at USD 300.26 million from unpaid loan charges. Following transferring of the liability to the Government, the intended benefit from additional interest rate charges failed to materialize since the Government is the one making payment of the interest payable and at the same time receiving interest income. Moreover, if TANESCO opts to set off the loan liability against electricity bills owed [by to] the Government, the Government will incur a loss caused by setting off additional interest payable charges (unrealized) against actual electricity bills owed.
The loan of USD 159.51 million issued at the inception of Songas Limited was taken to finance the operation of the company, which involves payment of suppliers, consultants and contractors engaged in the project. According to para 2.1(a) ii of the loan agreement between the World Bank and the Government of the United Republic of Tanzania of 11th October, 2001 the loan was paid directly to the project suppliers, consultants and contractors.
This impedes shareholders from verifying the associated costs which pose a risk of cost inflation; moreover, the procurement process of the related suppliers, consultants and contractors was not subjected to the Public Procurement Act and its Regulations.
I recommend that the Government use the Natural Resources Contracts (Review and Re-Negotiation of Unconscionable Terms) Act, 2017 to:
a) Negotiate with the preference shares (later loan) shareholders to revise the interest rates charged and compensate the government for the inflated interest paid;
b) Perform a cost and benefit analysis to determine whether the Government can benefit from the additional interest rates levied on loan
Report of Public Authorities and other Bodies 2018/19 201
transferred to Songas Limited considering the payment options granted to TANESCO;
c) Determine the accuracy and authentic of the cost paid directly to suppliers, consultants and contractors from issued loan at the inception of the project; and
d) Revise the financing structure of Songas Limited considering the liability obligation carried and paid by the Government against the benefits derived, given that the conditions, which impelled the existing financing structure are mitigated and reduced.
19.2.3 Existing Dilemma on the Sales of Energy and Ownership of Transferred Strategic Assets After the Completion of Songo Songo Project Songo songo gas to electricity project was established to revive the power shortage crises which faced the country during 1990s and 2000s through the use of discovered gas deposit at Songo Songo islands to generate energy. The project started producing energy on 4th October, 2004 and is expected to be completed by the year 2024. The project operation and management is under Songas Limited, a private company which is jointly owned by the Government of the United Republic of Tanzania (40.70%) and other four shareholders (ABC Holdings, Globeleq Holdings (Songas) Limited, Globeleq Tanzania Limited, and Globeleq Somanga Limited) holding a total of 59.30%.
From the review of the operation and finalization of Songo songo project I noted that there exists a dilemma on sales of energy between Songas Limited and TANESCO and ownership of the transferred strategic assets after the completion of the Songo songo project as follows:
Report of Public Authorities and other Bodies 2018/19 202
According to para 4.1(b) and annex F of the power purchasing agreement between TANESCO and Songas Limited of 11th October, 2001, when Songo songo project reaches 17 years (2021) and each year thereafter on the request of any of parties of the agreement, TANESCO and Songas Limited will meet and discuss on the termination of the agreement based on the provisions provided in the agreement. Otherwise, if the two parties failed to agree on the proposed terms of the termination, Songas Limited will be free to sales power to any other buyer after the project completion in 2024. However, as at the time of issuing this report in January 2020, the project parties (TANESCO and Songas Limited) have not agreed on the way forward coming to the year 2021 which activates the warrant.
My review of Songas Limited’s operation and implementation of the project noted that, while Songo Songo project will be completed in the year 2024, the company articles of association does not reflect this fact and the company is expected to continue operating for the coming future years. There exists an ambiguity on the ownership of the transferred assets and incurred liability after the completion of the project. Moreover, the signed project agreements have not disclosed on the fate of Government’s transferred assets and incurred liability after the completion of the project. The Government is at risk of losing the control and ownership of transferred assets and gas extraction rights to a private power producing company which is not the ultimate goal and objective of the Government. The transferred assets and rights are strategic resources in the energy sector and should be under the control of the Government after the completion of the project instead of a private company.
I recommend that the management of TANESCO discuss with Songas Limited to agree on the terms of power sales before activation of para 4 of the power agreement, also
Report of Public Authorities and other Bodies 2018/19 203
the Government revise all signed agreements to ensure that transferred strategic assets (land, gas wells, and turbines) are returned to the Government or Songas Limited is made a public corporation.
19.3 National Social Security Fund (NSSF) The Prevention and Combating of Corruption Bureau (PCCB), through letter with Reference No.PCCB/HQ/ENQ/46/2016/38/OP4 of 3rd January, 2019 requested my office to conduct an investigation audit on the acquisition of the farm No. 870 at Kiluvya, Kisarawe by NSSF. The audit focused on determining whether there were any losses incurred by the Fund from the transactions. The audit noted that through the acquisition, the Fund and the Government incurred a loss detailed as follows:
19.3.1 Inflated Prices on Purchase of a Farm TZS 2.90 billion On 16th September 2010 following the approval of the tender board, NSSF signed a contract for the acquisition of 277 acres farm located at Kiluvya for the price of TZS 3.32 billion. According to circular No. 1 of 14th May, 1969 issued by the Permanent Secretary Ministry of Land, Settlement and Water Development requires that in order to control expenditure on the purchase, acquisition and sale of land and buildings, the Government Parastatal and all Public Institutions are required to obtain advice (regarding compensation price) from the Valuation Division of the Ministry of Land. However, I noted that, NSSF did not seek advice from the Land Valuation Division prior to the acquisition of the 277 acres of the farm at Kiluvya. Valuation inquiry of the land from Temeke Municipal which was certified by the Government Chief valuer on 28th October, 2010 established that the value of the land as at the time of acquisition was TZS 416.40 million.
Report of Public Authorities and other Bodies 2018/19 204
The selling price of TZS 3.32 billion was inflated far above the farm real value of TZS 416.40 million and therefore NSSF was overcharged by TZS 2.90 billion. Additionally, according to the agenda item 6.11 of the Tender Board meeting minutes, the Board proposed that, payment for the acquired plot be made in three instalments of 30% upon signing the agreement, 40% upon obtaining transfer consents and 30% upon transfer of the titles. However, contrary to the tender board’s instructions, NSSF management paid full amount in two instalments as shown in Table 50.
Table 50: Payment Schedule of Acquired Farm Actual Payments Instructed Terms of Payments Date Chequ Amount Date Perce Amount- e (TZS)(000) ntage (TZS) (000) 27.09.2010 914346 997,200 16.09.2010 30 997,200 22.12.2010 855342 2,326,800 22.12.2010 40 1,329,600 00 25.01.2011 30 997,200 Total 3,324,000 Total 3,324,000 Source: NSSF payment vouchers
I recommend that the management of NSSF (a) take prompt actions to recover the excessive amount paid over and above the real value of the farm at the time of acquisition; and (b) take necessary action against NSSF management and oversight board members who through negligence or intension caused the loss to NSSF.
19.3.2 Unpaid Stamp Duty and Interest on Capital Gain Tax of TZS 442 Million The acquisition of the farm transaction has attracted payment of stamp duty tax and capital gain tax in accordance with the Stamp Duty Act and Income Tax Act respectively. My audit on the compliance with and accuracy of the tax payment noted the following anomalies.
Report of Public Authorities and other Bodies 2018/19 205
Section 5(1) of the Stamp Duty Act revised 2006 requires every instrument specified in the schedule (which includes bill of sale) and which is executed in Tanzania Mainland to be charged with duty of the amount specified or calculated in the manner specified in that schedule. The schedule provides that the bills of sale (absolute) will be charged stamp duty of 1% of value in excess of TZS 100,000. The acquisition of farm by NSSF attracts payment of Stamp duty.
I noted that as part of the terms of the sales agreement, the seller was required to process transfer of land and provide certificate of tittle deeds. However, during the processing of the document, the seller declared to TRA that the selling price of the land was TZS 900 million instead of TZS 3.32 billion and paid a total sum of TZS 9 million as stamp duty on behalf of NSSF which was refunded by NSSF instead of the correct amount of TZS 33.24 million. This resulted in an underpayment of the stamp duty by TZS 24 million.
TRA via a letter with Ref.101-208-628 of 30th November, 2010 to the Director General of NSSF disclosed that, TRA had realized that the provided selling price of TZS 900 million was incorrect, and request payment of the outstanding balance but up to the time of issuing this report (January 2020). However, I was not provided with any evidence on the payment of the remaining balance of the underpaid stamp duty by the management of NSSF.
Furthermore, according to section 90 of the Income Tax Act, 2004, the income derived from the sale of the farm by the seller is required to be charged capital gain tax. On my inquiry, TRA through a letter with reference number Ref.AB.33/527/01/15 dated 30th September, 2019 revealed that, TZS 89.99 million and TZS. 242.40 million were paid by the seller as capital gain tax on November, 2010 and
Report of Public Authorities and other Bodies 2018/19 206
28th March, 2017 respectively making a total sum of TZS 332.39 million. Nevertheless, I noted that, prior to the second payment of TZS 242 million in March 2017, TRA through a letter with reference number TRA/CDR/T.30/105-029-551 dated 09th August, 2016 informed the seller that, the Authority has discovered that the declared selling price of the land was under declared. Due to this underpayment of the capital gain tax and TRA required the seller to paid for the underpaid amount which the seller did.
However, because of the delayed payment of the underpaid amount for a maximum period of 71 months from December 2010 to March 2017, TRA issued a tax assessment notice requiring payment of TZS 417. 86 million as interest on late payment of capital gain tax which as at the time of issuing this report (January 2020) was not yet paid.
I recommend that the management of TRA enforce payment of the underpaid stamp duty tax by NSSF and unpaid interest on late payment of capital gain tax by the seller.
19.4 Promotion of Rural Initiatives and Development Enterprises Limited (Pride) Pride is a company established on 5th May, 1993 to promote rural development through promotion of rural initiatives project. The project is a joint operation between the Government of the United Republic of Tanzania and the Government of Norway. From 2015 a dispute arises on the ownership of the company between the Government and company directors. The dispute was resolved by the court order and consent by the directors of company acknowledging that Pride Company is owned by the Government. Following the consent, on 4th July, 2019 the Ministry of Finance and the Prevention and Combating of
Report of Public Authorities and other Bodies 2018/19 207
Corruption Bureau (PCCB) asked my Office to conduct an audit to determine assets and liabilities of Pride Company as at 31st October, 2019 and establish whether there is any misappropriation of funds or losses caused by weak controls on the company’s operations for the period of 1st January, 2017 to 31st December, 2019. My audit identified the company’s assets and liabilities as at 31st October, 2019 and revealed fraudulent payments and misappropriation of assets and liabilities as detailed below;
19.4.1 Misappropriation of Company’s Assets According to its records Pride Company had total assets of TZS 19.97 billion as at 31st October, 2019 which comprise customers loans TZS 8.82 billion and staff loans TZS 11.14 billion. My verification of accuracy, completeness and validity of the reported asset noted that, the reported loans to customers and staff were misappropriated and total reported assets was incomplete as some assets were not included in the records.
The company offered loans to its staff as part of employment incentives. It had an outstanding balance of staff loan of TZS 11.14 billion as at 31st October, 2019. The loan balance was made of three categories namely, house loans, special loans and general loans. The Company’s loan administration information system (DUX) and financial reporting information system (Bankers Realm) showed that, an outstanding balance of TZS 745.59 million represent loans issued to 168 ex-staff from whom the Company did not establish any mechanism of recovering the outstanding balance, No loan deductions were being charged against 33 staff with an outstanding loan balances amounting to TZS 10.38 billion. Moreover, there were no records of staff issued a total loan amounting to TZS 2.60 billion, the loan was not included as part of the company’s asset.
Report of Public Authorities and other Bodies 2018/19 208
I consider that the noted anomalies were caused by weak controls and fraudulent practice by dishonest staff.
Other than the reported staff and customer loans, according to the latest audit report of the company for the financial year ended 31st December 2016, the company owned other assets such as PPE, Shareholding investment, fixed deposit accounts and intangible asset. However, these assets were not included in the reported company’s total assets as at 31st October 2019 because of a number of anomalies. These include; an investment consisting of shareholding valued TZS 2.31 billion at Bank M (Tanzania) Limited, was impaired following the bank becoming bankruptcy.
In addition, fixed deposit accounts totalling TZS 48.20 billion from CRDB, Bank M (Tanzania) Limited, and NMB were confiscated by the banks to repay their respective loans to the company. PPE (excluding land) and intangible asset (operating information systems) valued at TZS 942.11 and TZS 956.46 respectively were not reported because the availed fixed assets register did not indicate individual costs of PPE and intangible items recorded; the register has a block figures on which my audit could not rely upon. Lastly, the land plot Nos 1&2 land order No. 393206 block A at Morogoro region was valued at TZS 1.44 billion, the land was not reported because of undetermined current value.
I recommend that the Government takes legal measures against management and staff involved in the misappropriation of staff loans and engage the Government valuer to identify and determine the value of unreported assets for their inclusion in the list of the company’s assets.
Report of Public Authorities and other Bodies 2018/19 209
19.4.2 Unconfirmed and Misappropriated Reported Liabilities Pride Tanzania had liabilities of TZS 130.11 billion as at 31st October, 2019 as detailed in Table 51.
Table 51: Outstanding Liabilities of Pride Company S/no Detail Amount (TZS) “in billion” 1 Loan and debt from local financial 29.90 institutions 2 Loan and debt from international 59.08 financial institutions 3 Outstanding fees and charges from 19.11 government entities 4 Trade and other creditors (suppliers) 2.02 5 Loan insurance payable (Alliance Life 0.887 Insurance) 6 Customer Deposits from Loan 8.27 application 7 Unpaid staff Salary and other 5.89 incentives 8 Saccos Staff deposits and deductions 4.95 Total 130.11 Source: Pride Records and Audit report for the FY ended 30th December, 2016
In determining the authentic and completeness of the identified liabilities, I noted that, five (5) out of seven (7) loans and debt reported by Pride Tanzania from international financial institutions of Stromme Foundation, Incofin, ResposAbility, NMI Fund III KS, and Symbiotics with outstanding balance of TZS 47.68 billion were not registered with Bank of Tanzania (BOT). In that regard, I failed to verify accuracy of the reported outstanding balance from BOT. Outstanding balance of TZS 361.76 million from trade and other creditors was not supported by respective invoices or/and contracts. In addition, there is no updated records from 31st December, 2018 of un- submitted staff deductions and deposit with respect to Fahari Yetu Saccoss (Pride Staff Saccos association) amounting TZS 4.95 billion as the saccos information
Report of Public Authorities and other Bodies 2018/19 210
system had expired with no back up database or physical records.
Furthermore, I consider that the nature of the outstanding liabilities from Loan insurance payable (Alliance Life Insurance) which were charged against issued loans, and Customer Deposits from Loan application was caused by negligence, mismanagement and misappropriations acts by dishonest staff because if adequate controls were undertaken by the management, the Company would have not been liable for that liabilities.
I recommend that the Ministry of Finance determine the accuracy and authenticity of outstanding balances which the audit failed to confirm also legal measures be taken against staff involved in conducting negligent practices which resulted in creating unnecessary liabilities to the Company.
19.4.3 Misappropriate and Fraudulent Payments TZS 4.53 Billion Payment procedures of Pride Company are outlined in its financial Regulations of 2005. According the regulations, payments are required to be initiated by the requester, processed by the accounting department and approved by the relevant authorities which includes the head of the unit/department where the payment request originates, finance manager and the managing director.
I reviewed payments made by the company from 01st January, 2017 to 31st October, 2019 to establish their accuracy, authenticity, proper authorisation and compliance with payments procedures outlined in the financial regulations through interviewing key finance personnel which included finance manager and accountants, and information system for the period.
Report of Public Authorities and other Bodies 2018/19 211
Through this review, I revealed that payments amounting TZS 4.53 billion were not authorized, supported and were made in fraudulent means as detailed in the Table 52.
Table 52: Misappropriated and Fraudulent Payments S/N Details Amount (TZS) in million
1 Unapproved payments with missing 660.73 signatures, payment request and names or title of responsible accountants who process them. 2 Payments without supporting 1,687.00 attachments evidencing occurrence of the payments 3 Unentitled payments made to the board 139.43 of directors and staff 4 Payment with unspecified activities and 508.37 purpose 5 Transfer of fund from the branch office 405.47 to unidentified recipient through telecommunication networks mobile money 6 Cash payments to inexistent creditors. 585.93 The company director and finance manager made cash payment to creditors whom upon audit, it was revealed that they did not exist and had not performed any service or supply any goods to the company 7 Use of fake documents and 540.96 impersonation to acquire/grant loans by dishonest staff Total 4,528 Source: Audit field work
The anomalies noted were caused by negligence and intentional misappropriation by dishonest staff impelled by overriding and weak controls.
I recommend that the Government take legal measures against the dishonest staffs involved in the fraudulent payments.
Report of Public Authorities and other Bodies 2018/19 212
19.5 ‘Shirika la Usafiri’ Dar es Salaam (UDA) and UDA Rapid Transport (UDART) UDA Rapid Transit company was founded on 19th December 2014 where it was owned by UDA and Simon Group Ltd for 99% and 1% respectively. Following the decision that was made between the government and Simon Group Ltd on 9th October 2019, it was agreed that UDA would own UDART by 100 percent. Since then, UDART is owned by UDA alone which is also owned by government and Simon Group Ltd by 85% and 15% respectively.
On 14th May, 2019, the Paymaster General asked my Office to conduct an investigation on the authenticity of procurements of buses and spareparts, management of company associated loans, shares acquisition by the parties, management of company rental properties and compliance with the Public Procurement Act, 2011 (as amended in 2016) and its Regulations, 2013 (as amended in 2016) in contract awarding. The audit is the continuation of the previous conducted audit at the company. During my audit I noted the following:-
19.5.1 Overpayments in the procurement of buses USD 14.41 Million UDART and UDA signed three sales agreement contracts from 10th October, 2014 to 15th July, 2015 with Xiamen Golden Dragon Bus Co. Ltd (seller) for the supply of 140 rapid buses. As at 24th August 2015, 138 rapid buses were delivered and received at the Dar es Salaam port. The buses were received with three invoices of GDES-15-156A for 56 buses, GDES-15-156B for 28 buses and GDES-15-252 for 54 buses all dated 24th August, 2015. During my assessment of the compliance and propriety of the procurement process, I noted the following anomalies:
According to the clauses 1 and 2.1 of the sales agreement and the after sales services agreements respectively for 84
Report of Public Authorities and other Bodies 2018/19 213
buses with contract sum of USD 13.37 million, the seller will offer free spare parts equivalent to 2% (USD 267,425) of the contract sum for 36 months with Simon Motors Ltd being the seller’s agent. However, I noted of the officered spare parts, only spare parts with total cost of USD 99,467 were offered by the agent as per sales agreement while spare parts with total cost of USD 167,958 were not provided.
From review of the invoice prices from three invoices obtained from Tanzania Revenue Authority (TRA) and Tanzania Postal Authority (TPA), I noted that the total invoiced price was USD 11.24 million which is lower than the signed contract price of USD 25.65 million. However, the Executive Chairman of UDART instructed the company to pay the seller as per contract price rather than the invoiced price and therefore, overcharged UDART USD 14.41 million from the purchase.
According to the bank statement number 20110017640 (USD) and No. 20110028055 (TZS) as at 25th February, 2020, a total of USD 22.73 million was paid to the seller with the remaining balance of USD 4.34 million expected to be paid in October, 2020 in respect of the procurement.
Further, I noted that the excess paid USD 14.41 million was used by Simon Group Ltd to fraudulently procure 70 buses from the seller through a contract signed on 30th September, 2017 for the price of USD 17. 68 million. The procured buses were transferred to UDART by Simon Group Ltd for a price of USD 20.33 million which implies that Simon Group Ltd will benefit a profit of USD 2.65 million from the transfer payable after UDART started using the buses.
Moreover, Simon Group Ltd and UDART did not declare importation of the buses in the TRA importation
Report of Public Authorities and other Bodies 2018/19 214
information system (Tancis) which led the buses to be held for more than 721 days (February 2018 to February 2020) and accrued USD 2.30 million of warehouse rent payable by UDART.
I recommend that the UDART requests Simon Motors to release the remaining free spare parts, refund or transfer free the 70 buses allocated by Simon Group Ltd as a compensation for the overcharged amount between the invoice price and contract price; and take legal measures against the Executive Chairman of UDART for causing the company to make excessive payment on the procurement.
19.5.2 Fraudulent Payment in Implementation of BRT Project TZS 3.95 Billion I identified a number of fraudulent payments made by UDA during the implementation of Bus Rapid Transit Project as follows:
On 18th June, 2015 UDA and UDART signed a contract with two companies of Consultant for Resources Evaluation Limited and Enterprise Growth Market Advisors Limited together called consortium for the initial public offering of UDART. On 5th October, 2015 UDART transferred TZS 550 million from bank account No 20110017710 DART PROJECT to CRDB bank account No 01J1027103201 of Consultant for Resources Evaluation Limited for initial public offering of UDART which was banked on 8th October, 2015.
However, the payee company bank statement showed that on the same day of 8th October, 2015, the payee company transferred TZS 500 million to Equity bank account No 3004211129958 of UDA then UDA accountant withdrew TZS 442 million without providing details of the withdrawal. Moreover, my inquiry from Capital Market & Securities Authorities (CMSA) revealed that UDART had not
Report of Public Authorities and other Bodies 2018/19 215
communicated with the authority on their intention of offering shares to the public therefore; UDA had paid the payee company knowingly that it did not intend to make an Initial Public Offering.
In the implementation of BRT project, UDART signed a contract with Kapsch CarrierCom Belgium NV (KCC) for the installation of Intelligent Transportation System (ITS) and in turn Kapsch CarrierCom Belgium NV (KCC) entered a partnership agreement with Maxcom Africa Ltd to assist them in executing the signed contract with UDART.
From 16th November, 2015 to 5th January, 2016 UDART had made total payments of TZS 3.91 billion from NMB bank account No. 20110017710 (DART Project) to Maxcom Africa Ltd International Commercial (ICB) bank account No.10160168505 in respect of installation of ITS system, procurement of bus electronic cards and fixation of emergency power electric equipment.
However, during the follow up of the payee’s bank account from 18th November, 2015 to 5th January, 2015 I revealed that a sum of TZS 3.45 billion was ordered and transferred to Executive Chairman of UDART personal bank account number 10160214306 with International Commercial Bank (ICB). The reason provided is that the sum will be used to pay compensation of previous owners of daladalas being one of the activities of BRT project implementation.
On reviewing the chairman’s personal account from 18th November, 2015 to 5th January, 2015 I revealed that, the whole transferred amount was paid from his bank for personal uses rather than the declared objective. Thus, out of the total TZS 3.91 billion paid to Maxcom Africa Ltd, TZS 3.48 billion for installation of ITS system and procurement of buses cards was ineligible payment as UDART had no any contract with Maxcom for the activities paid for.
Report of Public Authorities and other Bodies 2018/19 216
I recommend that the Government take legal measures against the executive chairman of UDART and UDA accountant for the misappropriation of UDART funds.
Report of Public Authorities and other Bodies 2018/19 217
19.5.3 Provision of Services and Payment Without Signed Contracts TZS 3.48 billion According to clause 6.1 of interim service provider agreement between DART, UDART and UDA signed on 24th April, 2015, DART and UDART are required, after signing the agreement, to immediately select NMB bank to be Fund manager of the project. However, I discovered that such an agreement was not signed and NMB was not selected as the fund manager at the date of signing the agreement. During the review of NMB DART INTERIM SER FARES COLL ACC bank account number 20110021252 for the period of three years and eight months from 16th May 2016 to 22nd January, 2020 I noted that the bank had charged a total sum of TZS 1.78 billion as fund management fees without any agreement with account holder. The parties come to sign fund management agreement with the bank on 25th March, 2019.
Simon Media Group was awarded cleaning contract for the buses and UDART buses stations from 6th May, 2016 to 29th April, 2017. However, my audit noted that the company continued to provide services after expiring of the signed contract (29th April, 2017) and a total sum of TZS 698.54 million was paid up to January, 2020. Additionally, from 22nd November, 2016 to 3rd May, 2018 UDART paid the company a sum of TZS 1.01 billion as advertising commission despite that the company does not have a signed contract with UDART for the provision of advertisement marketing.
I consider the payments made to the Simon Media Group for the provision of services while there no signed contracts as ineligible expenditure.
I recommend that UDART and Service Providers enter valid contracts by complying with Procurement Act, 2011 (as amended in 2016) and its Regulations, 2013
Report of Public Authorities and other Bodies 2018/19 218
(as amended in 2016) and be accountable for the payment made in absence of signed contracts.
19.5.4 Acquisition of UDA shares and loan repayment using UDART revenue TZS 4.75 billion I noted that in acquisition of UDA shares, Simon Group Ltd had used resources of UDART project to repay the loan taken by the company to finance shares acquisition as detailed below:
On 25th September, 2013 the Dar es Salaam City Council signed a sales agreement of its 3.63 million shares of UDA to Simon Group Ltd for TZS 5.87 billion. Following signing of the agreement, Simon Group Ltd was granted rights over the assets of UDA. To finance payment of the shares, Simon Group Ltd took two loans from National Microfinance Bank (NMB) on 9th July, 2015 and 31st March 2016 by using UDA assets as collateral. Simon Group Ltd failed to repay the loan and on 22nd August, 2017, the outstanding debt was raised to TZS 6.93 billion because of the accruing interests.
The Executive Chairman and Managing Director of UDART on multiple times instructed UDART management to pay NMB in respect of the outstanding loan debt. I noted that as at 31st January, 2019 UDART had paid a total of TZS 4.75 billion which include TZS 295 million paid to NMB bank account number 20406600306 of Simon Group Ltd from UDA rapid transit NMB bank account No 20110017639 and TZS 4.46 billion paid out of NMB UDA Rapid transit bank account No 20110028055 to NMB bank account number 20110017722 of Simon Logistics Group Ltd.
Simon group Ltd has fraudulently used UDA assets to secure a loan and uses UDART revenue to repay the loan.
I recommend that the Government revoke shareholding of Simon group and takes legal measures against the Executive Chairman and Managing Director of UDART.
Report of Public Authorities and other Bodies 2018/19 219
19.5.5 Revenue from UDA’s Leased Warehouse not Collected TZS 17.52 Billion and USD 1.13 Million Simon Group Ltd signed a lease contract on 1st October, 2011 with UDA for three plots located at Kurasini Depot, Dar es Salaam with total size of 55,037 square meters for a contract sum of TZS 400 million per year for the period of 10 years from 1st June, 2012 to 30th May, 2022. However, according to records of the UDA accounts from 1st June, 2012 to latest period of 31st December, 2019.
Simon Group Ltd has not paid lease fees since commencement of the lease contract. The unpaid period of eight years and six months resulted in a liability of TZS 3.44 billion as at 31st December, 2019. Moreover, UDA has not taken any measures to enforce payment or eviction of the company from the leased plots.
Moreover, I noted that Simon Group Ltd and Simon Logistic Group Ltd which are sister companies subleased Plot No 36 located at Kurasini owned by UDA to different companies of Tanzania Breweries Limited (TBL), OLAM Tanzania Ltd, Tanzania Distilleries Limited (TDL) and CMA CGM. These companies paid a total sum of TZS 14.08 billion and USD 1.13 million in respect of the sub-lease contract.
However, I learnt that Simon Logistic Group Ltd leases the area to CMA CGM and OLAM Tanzania Ltd without having signed agreement with the owner of the plots (UDA). Also, despite Simon Group Ltd receiving fees from the subleases fees, the company has not paid out outstanding lease fees payable to UDA.
The leased plots are not benefiting UDA but Simon Group Ltd. Moreover, the management of UDA has not taken relevant measures to enforce payment of the outstanding amount or termination of the lease contract.
Report of Public Authorities and other Bodies 2018/19 220
I recommend that the Government and the management of UDA take relevant measures to enforce payment of the outstanding lease fees from Simon Group Limited and Simon Logistic Group Ltd.
19.5.6 Procured and paid for electronic ticketing system not used TZS 6.56 billion For the purpose of offering modern transportation services, on 19th October, 2015, UDART contracted Kapsch CarrierCom Belgium NV (KCC) for the provision of Intelligent Transportation System (ITS) which offered information system-based ticketing services. According to clause 6 of the contract, the contract sum of the system was Euro 3.40 million equivalent to TZS 8.55 billion (1 Euro=TZS 2,509). Installation of the system was completed and started operational in May, 2016 with total payment made to the contractor amounting to TZS 6.56 billion.
However, UDART stopped using the system from 18th June, 2018 and started using Local Government Revenue Collection Information System (LGRCIS) to collect ticket revenue while strategizing on development of a new information system.
The Managing Director of DART explained that, they stopped using the system because of expired ITS licence and the system been incompatible with other operational information systems. But the claims are disputed by the Director of Maxcom Africa Ltd counter arguing that, the system is compatible with other information system for instance the system was integrated with mobile money services for ticket payment convenience.
I view the investment of ITS system to be a substantial one and thus, non-utilizing it leads to lack of value for money on the investment and a loss to the government if the information system will be discarded.
Report of Public Authorities and other Bodies 2018/19 221
I recommend that UDART deal with the challenges facing the ITS information system instead of developing a new system as it has already invested a substantial amount of resources in ITS System.
Report of Public Authorities and other Bodies 2018/19 222
CHAPTER 20
PERFORMANCE OF EXTRACTIVE INDUSTRY
20.0 Introduction Extractive Industry covers exploration and extraction of raw materials from the earth to the point of making them ready for use by diverse consumers. The industry consists of any operations that extract resources such as metals, minerals and aggregate oil and gas from the earth. The industry is divided in two sub-sectors. All operations involved in extracting natural resources from the earth are categorized as downstream/exploration stage while operations involved in refining and making extracted resources ready for use are categorized as upstream and midstream or development and production stage.
The country is known for its endowment in mineral resources and gas deposits but there are still weaknesses identified which might hinder realization of the value of it to the economy.
My audit involved review of the performance and management of the Government investments in the mining sector and operational effectives of the midstream and downstream regulators in the petroleum sector. It also covered operations of State Mining Corporation (STAMICO) with its associates which includes; Stamigold Company Limited, Buckreef Gold Mine, Kyerwa Tin Ltd, Tanzanite One, Kabulo Coal Mine, Kiwira Coal and Power Ltd, Buhemba Gold Mine, Ubena Zomoni and Chigongwe project; National Development Corporation (NDC) with its associates which includes; Mchuchuma-Katewaka Coal mine, Engaruka Basin Soda Ash project, Maganga Matitu Sponge Iron project, Katewaka Coal project, Bukoba Silica sands project, Tancoal Energy Ltd; and Energy and Water Utilities Regulatory Authority (EWURA).
Report of Public Authorities and other Bodies 2018/19 223
20.1 Review of Performance and Management Of Government Investment in the Mining Sector The Government invested in the mining sector through Stamico, NDC and newly formed Twiga Company Limited. Stamico and NDC operate with their respective associates, subsidiaries, and joint ventures which includes Stamigold Company Limited, Buckreef Gold Mine, Kyerwa Tin Ltd, Tanzanite One, Kabulo Coal Mine, Kiwira Coal and Power Ltd, Buhemba Gold Mine, Ubena Zomoni and Chigongwe project, Mchuchuma-Katewaka Coal mine, Engaruka Basin Soda Ash project, Maganga Matitu Sponge Iron project, Katewaka Coal project, Bukoba Silica sands project, and Tancoal Energy Ltd. During the review of the operations of these entities undertaken over the period of three years from 1st July, 2017 to 30th June, 2019, I identified a number of anomalies and provide recommendations for improvement as detailed below.
20.1.1 Initiated mining projects not operating The government through STAMICO and NDC invested in a number of extractive projects by the use of subsidiaries, associates, joint ventures and project business arrangements. STAMICO and NDC have the duty to monitor and evaluate project performance and recommend strategic management enhancements for the optimization of the resources used and results achieved.
However, I noted five (5) projects undertaken by the STAMICO and NDC, which are not operating for various reasons as detailed in the Table 53.
Table 53: Projects which are Not Operating S/n Name of Overview of the project Remarks the Project
1 Buckreef The project is a joint venture The parties to Gold Mine between STAMICO (45%) and the venture have Tanzania American not managed to International Development raise the
Report of Public Authorities and other Bodies 2018/19 224
S/n Name of Overview of the project Remarks the Project
Corporation (TANZAM 2000) required capital (55%) signed on 25th October, investment to 2011. The venture requires a start project. total of USD 5.9 million for the redevelopment of the Special Mining License (SML 04/92). The project was expected to start in 2014.
2 Buhemba The mine was formerly The corporation Gold mine owned by Meremeta Mining has not Limited then transferred to commenced Stamico by the then Ministry production. The of Minerals and Energy in Corporation is July, 2011. The corporation developing a target is to re-develop the business plan of mine. The mine is estimated the project. to have underground gold reserve of over 441,772.29 ounces. The mine was planned to start production in June, 2016.
3 Ubena Stamico owns ten Primary The corporation Zomozi mining licenses acquired in is searching for a stone quarry 2016 at Chalinze with an prospective aggregate estimated reserve of over investor and project 41.5 million tons of stones. plans to start Business plan indicates that operations in the the project was planned to year 2021. be completed in July 2018 and requires an initial cost capital outlay of USD 1.75 million. 4 Liganga Iron The project is joint venture The project has Ore and arrangement signed on 11th not commenced Mchuchuma September, 2011 between because of the Coal NDC and Sichuan Hongda ongoing (Group) Co. Ltd through a investment and founded joint company shareholding Tanzania China international review between mineral resources Co. Ltd the Government (TCIMRL). The project aims and the investor. to develop liganga iron ore mine and mchuchuma coal mine. The project investment cost is estimated
Report of Public Authorities and other Bodies 2018/19 225
S/n Name of Overview of the project Remarks the Project
to be USD 3 billion.
5 Maganga The project is implemented Parties to the Matitu by Maganga Matitu Resource venture are Sponge Iron Development Company reviewing project Project Limited (MMRDL), a Joint investment and Venture Company between financing NDC and MM Steel Resources structure given Public Limited (MMSR PLC) that MMSR PLC signed on 28th October, 2019. has already spent The project’s objective is to TZS 85.7 billion produce sponge iron to serve after the project the domestic steel mills and feasibility study exportation. proved that iron reserves at Maganga Matitu is not commercially viable and recommended the project to focus on coal production.
Delayed in implementation of the projects means that the Government cannot achieve achievement of other objectives including development of the extractive industry and creation of employment opportunities. Thus, I recommended that the managements of STAMICO and NDC take necessary actions to ensure that the projects are implemented.
20.1.2 Incomplete Transfers of Shareholding to STAMICO and NDC STAMICO and NDC are beneficiaries of a number of mines transferred by the Ministry of Minerals or previous mine owners. I noted that transfer of shares of Kiwira Coal and Power Ltd and mining licence for TANCOAL Energy Limited are not completed as intended because of a number of reasons as detailed below:
Report of Public Authorities and other Bodies 2018/19 226
• For the purpose of securing supply of coal, on 11th March, 2017, the Ministry of Minerals granted Dangote Industries (Tanzania) Limited mining licence number PML Application No. 0062/2016 for an area measuring 9.98km2 at Ngaka area, Mbinga District, Ruvuma previously owned by Tancoal Energy Limited mine owned by NDC for development and operation of coal mine. The Dangote failed to operate the mine and returned the licence to the Ministry. However, the licence has not been returned to the original owner Tancoal Energy Limited.
• TanPower Resources Limited (TPR) agreed in 2015 to transfer 70% shareholding in Kiwira Coal and Power Limited (KPCPL) (Being 700,000 shares) to the Government through STAMICO for a consideration of one shilling and payment of USD 4.74 million as management fees. Transfer of the shareholding was not completed because of absence of tax clearance certificates which is required by the Business Registration and Licensing Agency (BRELA) before effecting the transfer of the shares. The certificate is withheld by Tanzania Revenue Authority (TRA) due to outstanding tax liability of TZS 2.92 billion payable by Tan Power Resources Ltd.
The failure to transfer the shareholding and license delays operations of mines and execution of investment decisions by STAMICO and NDC and therefore depriving the companies’ revenue which also impede development of mining sector.
I recommend that the Ministry of Minerals consider returning mining licence of part of the mining site of TANCOAL Energy Limited and enforce TanPower Resources Limited to make payment of tax liability.
Report of Public Authorities and other Bodies 2018/19 227
20.1.3 Increasing Invasion at Tanzanite Mine After Stoppage of Operations Tanzanite mine under mining license No. 490/2013 issued on 20th June, 2013 is joint venture owned on 50:50 shareholding by the Government of Tanzania through State Mine Corporation (STAMICO) and Tanzanite One Mining Ltd (TML), with TML being the operator of the joint venture and STAMICO facilitate and liaise with the Government authorities to ensure regulatory actions are taken in a coordinated and a timely manner. The venture’s operations were suspended in December 2017 whereby the operator was subsequently required to surrender the mining license to the Government to pave way for negotiations between Government and the investor.
According to the supervision quarter report for the month of September to December 2019 by STAMICO representative at the mining site submitted on 24th December, 2019, mining site invasion had increased especially in the area that is close to block B bordering small scale miners. The report mentioned six miners who upon inquiry, explained that they were granted permission to operate at the sites by the Ministry of Minerals without producing any evidence to confirm their assertion.
The increase of intruders into the site depletes mineral reserves and the unregulated operations lead to loss of Government revenues. Moreover, the invasion of small- scale miners reduces the value as the Government is undergoing review of the venture with the investor.
I recommend that STAMICO ensures adequate security at the site to stop intrusion.
Report of Public Authorities and other Bodies 2018/19 228
20.1.4 Inadequate management of tailings reserves at STAMIGOLD and Buhemba Gold mines Tailings are the materials left over after the process of separating the valuable fraction from the ore extracted from the earth. Tailings are usually stored for either treatment of hazardous chemicals or reprocessed to recover small gold contents in them. My review of tailing reserve management at Buhemba Gold Mines and STAMIGOLD Biharamulo Gold mine both owned by STAMICO revealed inadequate management over the tailing reserves as detailed below:
Buhemba Gold Mine had a tailing reserve of 995,500 tons with 1.6g/t grade with estimated gold contents of 56,885 ounces at the time the mine was transferred from Meremeta Mining Limited in 2011. However, according to the latest studies conducted, it was learnt that the reserve had diminished by 20% to 796,400 tons of tailings, grading at 1.07 g/t of gold with potential gold content of 30,433 ounces because of being eroded by rains and other environmental factors.
According to the latest report of SEAMIC laboratories of September 2017, STAMIGOLD Biharamulo gold mine had tailing reserve of 8.35 million tons with 0.56 g/t grade equivalent to a probable reserve of 151,580 ounces of gold. However, as at the time of my site visit in February, 2020, the tailing reserves were unprocessed and stored at the mine site. The report further suggests that as of September 2017, after deduction of related extracting cost and considering recovery rate of 80%, the value of the reserve is USD 113.50 million equivalents to TZS 258.78 billion.
I consider that, unprocessed tailing reserves are at the risk of deteriorating because of environmental factors or misappropriation if not secured and stored adequately, also
Report of Public Authorities and other Bodies 2018/19 229
it represent unrealized revenue which could remedy the financial constrains faced by the mines.
I recommend that STAMICO request approval of processing the tailing reserves from relative authorities by first determining an environmental safety and cost- effective method of processing them supported by a detailed study report. Also, STAMICO consider improving safety and storage method of the reserves.
20.1.5 Environment Rehabilitation Fund Not Provided for Tanzanite Mine and Stamigold Mine Regulation 206 (1) of the Mining Regulations, 2010: (Safety, Occupational Health And Environment Protection) provides that the Minister shall require a holder of a Special Mining License and Mining License to provide for posting of rehabilitation bond which shall be in any of the following forms, Escrow Account, Capital Bond, insurance Guarantee bond and Bank Guarantee bond.
However, during the audit I discovered TanzaniteOne Mining Limited and Stamigold Biharamulo Mine have not provided rehabilitation fund as required by the above regulation. Additionally, STAMICO had mismanaged transferred rehabilitation fund at the time of acquiring STAMIGOLD Biharamulo mine as detailed below:
Stamigold Biharamulo mine estimated closure plan as at 30th June, 2019 with estimated rehabilitation fund of TZS 19.46 billion. However, the management disclosed that the rehabilitation fund has not been provided and the management is making arrangement to secure the funds to comply with the requirements of the regulation. Moreover, I noted that according to Para 7.2 of Transfer agreement of the Tulawaka Mine (now Stamigold Biharamulo mine) dated 15th November, 2013 between Pangea Mineral Limited, ABG Exploration Limited and State Mining Corporation, a sum of
Report of Public Authorities and other Bodies 2018/19 230
USD 11. 63 million equivalents to TZS 18.96 billion was paid by previous owner to STAMICO on 31st January, 2014 through bank account number 004 200 000320202 of TIB Development Bank as reclamation fund. However, the sum was utilized by STAMICO to finance the corporation and Stamigold operational activities throughout the years and there is no outstanding balance as at 30th June, 2019.
According to Article 9.3 and 9.4 of the Joint Venture Agreement between STAMICO and Tanzanite One Mining Ltd (TML) parties are to set aside 1% of the gross sales to meet the cost of mine closure. The fund is to be kept in a separate account managed by trustees approved by the parties. According to Tanzania Sorting Company (Tansort) valuation reports and gross revenue reports submitted by the management of STAMICO, the mine had total gross sales of USD 31.02 million as of December 2017 when the operation of the mine ceased and therefore, a total of USD 310,280.95 was supposed to be deposited in the Rehabilitation Fund Trustee Account.
However, the latest availed Stamico and Tanzaniteone JV- Rehabilitation bank statement number 00111047335002 as at 14th February, 2018 showed that the account had a balance of USD 9,992.50 which is an under banking of USD 300,288.45.
Non-provision of environmental rehabilitation fund poses a risk on reclamation of hazards caused by mining operations which includes land sliding and health issues to the surrounding population. Additionally, the Government being the trustee of the citizen’s wellbeing will be compelled to incur additional costs to reduce or eradicate environmental hazards caused by the mining operations.
I recommend that the management of STAMICO and TML ensure provision of rehabilitation fund as directed in
Report of Public Authorities and other Bodies 2018/19 231
regulations 207 (1) of the Mining Regulations, 2010 by using cost and risk conscience financing approach.
20.1.6 High Cost of Electricity Caused of Stamigold Use of Fuel to Power the Mine TZS 7.9 Billion Mines operation are inherently power dependency. According to the management operation reports, Stamigold Biharamulo mine operations consume an estimated KWh 1.42 million of electricity per month. The mine is not connected to TANESCO’s National Grid electricity or established other cheaper power generation alternative. The mine power station therefore use seven diesel power generators to generate the required electricity.
On average, the power station consumes around 370,423 litres of diesel per month. Considering the selling price of TZS 2,500 per litre of diesel and other necessary power station maintenance and operation costs, the power station incurred at least TZS 1 billion per month.
Stamigold’s analysis of the power generation cost if the mine was connected to a National Grid shows that the monthly cost would TZS 337.57 million per month therefore; the mine would have saved TZS 658.48 million per month or TZS 7.90 billion per year. The high cost of power production is among the costs which contribute to the yearly financial loss reported by the mine. Management of Stamigold explained that, TANESCO had failed to connect the mine in the National Grid electricity because of the high cost associated with connecting the mine to the grid.
I consider that, if the mine is connected to National Grid of electricity, operational cost will be minimized substantially, and profit will be maximized. Also, Stamigold Biharamulo Mine will be the largest power consumers in Kagera Region therefore will increases TANESCO’S revenue.
Report of Public Authorities and other Bodies 2018/19 232
Moreover, according to Stamigold Biharamulo mine management paper, investment cost of TANESCO in connecting the mine to the National Grid can be recovered in a short period as follows: it is estimated that TANESCO would need to invest at least TZS 2.5 billion to connect Stamigold Biharamulo Mine to the North West National Grid branch.
The expected revenue from this investment (before taxes) is around TZS 277 million per month (with taxes to REA, EWURA and VAT amounting to TZS 61 million). This suggests a payback period (excluding running costs) of about 9 months.
I recommend that Stamigold Biharamulo Mine develop a project proposal which will involves both Stamigold and TANESCO on how the two entities with the involvement of respective mother ministries will undertake the project of connecting the mine to the national grid of electricity or come up with other cheaper alternative of power generation.
20.1.7 Review of the Operation Effectiveness of Midstream and Downstream of Petroleum Sector Regulator Water Utilities Regulatory Authority (EWURA) is the regulator of the midstream and downstream petroleum sector by virtue of section 29(1) of the Petroleum Act, 2015. The midstream activities include petroleum processing, refining, liquefaction, storage and transportation from the point of supply or loading as a commodity while downstream activities includes; transportation, distribution, storage, regasification and marketing of gas and petroleum products.
In this audit, I noted weakness in the regulatory operations as follows:
Report of Public Authorities and other Bodies 2018/19 233
20.1.8 Inadequate Evaluation of the Quality of Service Offered by Power Operators Among the function of EWURA as the regulator is to monitor the quality of services offered by the power/electricity operators. The authority monitors the quality of services offered through conducting power system reliability. According to authority’s Regulatory Performance Report of 2017/2018 on electricity subsector, power system reliability is analysed with respect to System Average Interruption Frequency Index (SAIFI), System Average Interruption Duration Index (SAIDI), and Customer Average Interruption Duration Index (CAIDI).
SAIFI measures average number of supply interruptions per customer per year, SAIDI measures average duration (in minutes) of supply interruptions per customer per year and CAIDI measures average duration of each supply interruptions per customer who experienced the interruption per year. In relation to the measurement, para 7 of Tanzania Bureau of Standard (TZS 1374:2011) requires that the annual SAIFI should be less than 3 interruptions per customer per year, the annual SAIDI should be less than 650 minutes (10.8Hours) per customer per year, and the annual CAIDI should be less than 4 minutes (0.1hours) per interruption event per year.
EWURA conducted power system reliability operations during the year 2017/2018. However, the Electricity Sub sector Performance Report for 2017/2018 did not outline in detail the planned and unplanned outages including the area and number of customers expected to be affected during the period. Instead, the data were indicated in block figures as shown in Table 54 below. The authority explained that, they did not analyse and measure the operators’ performance in detail as required because of the power producers’ feeder meters incapable of producing the number of customers per area served with such meter.
Report of Public Authorities and other Bodies 2018/19 234
Consequently, the quality of service and power reliability of the operators could not be measured and monitored by the Authority.
Table 54: Electricity Distribution Outage Hours Missing Number of Customers Affected S/N Licensee Planned Unplanned Total outage Actual hours hours planned and Outage unplanned Hours hours 2017/18 2017/18 2017/18 2017/18
1 TANESCO 19,344.00 14,217.00 33,561.00 28,224.29 2 Mwenga 49.28 145.40 194.68 194.68 3 Andoya 36.00 134.00 170.00 170.00 Source: EWURA annual performance reports 2017/2018
I recommend that EWURA ensure that power operators’ feed meters provide the number of customers per area to facilitate evaluation of quality of service and power reliability and take appropriate action against operators who fail to meet such standard.
20.1.9 Inadequate Control of Liquefied Petroleum Gas (LPG) Retail Business Operations and Pricing According to the Petroleum (Liquefied Petroleum Gas Operations) Rules, 2018, EWURA regulates activities relating to Liquefied Petroleum Gas wholesale business, Liquefied Petroleum Gas distribution business and Liquefied Petroleum Gas retail business. Liquefied Petroleum Gas Retail Business means an activity necessary for storing, handling, and selling LPG to a customer through a retail outlet.
In the current audit I reviewed the Authority’s Regulations of the Liquefied Petroleum Gas Business I noted that, according to rule no. 10(2) of the same Rules, for the
Report of Public Authorities and other Bodies 2018/19 235
purpose of enforcing monitoring of the LPG operation, EWURA issued licenses to the LPG wholesale business and distribution business. However, the rule excluding Liquefied Petroleum Gas retail businesses. This creates a gap on monitoring the retail business which pose a risk on the security, quality and standard of Liquefied Petroleum Gas sold to the customers.
Additionally, I noted that, the Authority does not control prices of Liquefied Petroleum Gas contrary to requirement of section 7(b) iv of the EWURA Act, 2001 which among others, stipulates the function of EWURA to regulate rates and charges of the energy and water utilities. The prevailing market are controlled and influenced by the LPG wholesale operators. The Authority explained that, it is unable to regulate the prices, pending commencement of importation of LPG through the Bulk Procurement System (BPS) which awaits the construction/modification of the infrastructures at the Dar es Salaam port which allows for receiving LPG consignments, and absence of accurate information system on the importation of the LPG consignments.
I recommend that EWURA review its application provision of the Petroleum (Liquefied Petroleum Gas Operations) Rules, 2018 to ensure that Liquefied Petroleum Gas retail businesses are effectively monitored, also expedite the establishment of Bulk procurement process of Liquefied Petroleum Gas and information system pursued to enable the LPG price setting and monitoring by the Authority.
Report of Public Authorities and other Bodies 2018/19 236
CHAPTER 21
TAX COMPLIANCE IN PUBLIC ENTITIES
21.0 Introduction Public Entities are required to comply with tax laws including timely remittance of tax returns. However, as reported in the previous years, I noted that some public entities continue to delay in remitting or not remitting taxes deducted from their employees’ income and withholding taxes which as a result attract fines and penalties.
Despite emphasis to use EFD receipts, I noted that some entities do not have EFD machines particularly those making sales. I further noted non-compliance with the requirements of withholding tax due inadequate translation of Tax Laws.
The details of the anomalies relating to tax matters are provided below: -
21.1 Watumishi Housing Company (WHC) Limited 21.1.1 Delays in Issuing Electronic Fiscal Device (EFD) Receipts on Cash Received Section 86 of the Value Added (VAT) Act, 2014 requires a serially numbered and correct invoice or receipt generated by Electronic Fiscal Device (EFD) to be issued not later than the day on which VAT becomes payable on the supply. However, from a sample of four (4) receipts, I identified three (3) cases involving receipt of cash totalling to TZS 788.67 million from Electronics Government Agency (e-GA) where there were delays in issuing EFD receipts. The noted delay was ranging between 18 and 69 days for all the receipts.
Such delays might result in penalty and interests that might adversely affect WHC both financially and operationally.
Report of Public Authorities and other Bodies 2018/19 237
I recommend that Watumishi Housing Company (WHC) Limited make deliberate efforts to ensure that electronic fiscal receipts/invoices are issued in a timely manner after value added tax becomes payable on the supply (tax point) at the earlier date of receipt of money/consideration in whole or part.
21.2 National Housing Corporation (NHC) 21.2.1 Delays in Payment of Property Tax and Land Rent Section 18 of the Local Government Finance Act, 1982 requires every person liable to pay rent to the collector, i.e. Tanzania Revenue Authority (TRA). Similarly, Section 33(1) of the Land Act, 1999 requires the holder of right of occupancy to pay an annual rent for that right of occupancy in instalments and intervals during the year.
During the time of audit in October, 2019, the National Housing Corporation (NHC) had overdue payments of TZS 1.05 billion and TZS 404.26 million for property tax/rate and land rent respectively relating to the year ended 30th June, 2019. The payments relate to land and properties of NHC located in different regions within Tanzania Mainland have been overdue for more than 123 days.
Failure to make land rent and property tax is non- compliance with laws, which could attract interest and penalties. The expected interest using risk free interest rate is estimated at TZS 42.59 million.
I recommend that NHC make prompt payments of land rent and property tax to respective authorities to avoid potential penalties and interest.
Report of Public Authorities and other Bodies 2018/19 238
21.3 Payments not Supported by Fiscal Receipts 877.05 Million Regulation 28 of the Income Tax (Electronic Fiscal Devices) Regulations, 2012 requires every purchaser to demand fiscal receipt or invoice in his possession.
However, a number of Public Authorities reviewed during the year made various payments to suppliers without demanding fiscal receipts. Table 55 below shows Public Authorities that made payments without demanding fiscal receipts:
Table 55: Payments made Without EFD Receipts Being Issued S/N Institution Amount (TZS ‘Million) 1 Morogoro Urban Water Supply and Sanitation 744.07 Authority 2 Musoma Urban Water Supply and Sanitation 108.38 Authority 3 Vocational Educational and Training Authority 24.60 Total 877.05
The failure to demand EFD receipts could subject the respective entities to possible penalties as expressed under Regulation 24 of the Income Tax (Electronic Fiscal Devices) Regulations, 2012. In addition, such deficiency hinders Government efforts to collect revenue.
I recommend that management of the respective entities ensure that they demand fiscal receipts for all payments they made to avoid unnecessary inconveniences associated with non-compliance with tax laws and help responsible authorities to collect Government revenue.
Report of Public Authorities and other Bodies 2018/19 239
21.4 Stamigold Company Limited 21.4.1 Understated revenues in the VAT Returns TZS 4.5 billion The VAT returns of Stamigold Company Limited showed a difference of TZS 4.5 billion between amount of revenue declared in the VAT returns and the total revenue as per the general ledger. The amount of revenue in the general ledger was higher than one filed in the returns. Further, I found duplicated invoices from suppliers totalling TZS 530.50 million during the financial year 2018/19. The anomalies resulted in misstatement of VAT amount.
I recommend Stamigold ensure preparation of VAT returns are accurate and reconcile their figures before submission to avoid penalties and interests on under- declaration of VAT amount.
21.4.2 Absence of Transfer Pricing Documentation Regulation 7 of the Tax administration (Transfer Pricing) Regulations 2018 provides that any person participating in a controlled transaction has to prepare a contemporaneous transfer pricing documentation that include records and documents of transactions and the parties involved. It further requires taxpayers with related party transactions of TZS 10 billion or more to mandatorily file documents and taxpayers with related party transactions below TZS 10 billion not to file the documentation but prepare them and file within 30 days of TRA’s request.
I noted Stamigold does not have a transfer-pricing document in place to justify an arm’s length dealing on intercompany transactions amounting TZS 1.2 billion. Stamigold is exposed to a risk of penalty of not less than 3,500 currency points (an equivalent of TZS 52.50 million) for failure to comply with transfer-pricing documentation requirements.
I thus recommend the Stamigold comply with the laws and have a transfer-pricing document in place.
Report of Public Authorities and other Bodies 2018/19 240
21.5 Tanzania Broadcasting Corporation (TBC) 21.5.1 Non-payment of VAT Liabilities during the Year Section 66(1) of the Valued Added Tax Act 2014 requires a taxpayer to file VAT returns and pay relevant VAT liabilities for the month not later than 20th day of the following month of business.
However, I noted that Tanzania Broadcasting Corporation (TBC) did not remit in full the VAT liabilities totalling TZS 488.76 million relating to four months of July 2018, April 2019, May 2019 and June 2019.
Non-payment of VAT timely may subject TBC to pay interests and penalties that could consume financial resources that could have been used for other productive activities.
I recommend that TBC ensure VAT liabilities are paid on time following filing of VAT returns.
21.6 Tax Revenue Appeals Board (TRAB) 21.6.1 Pending Appeal and Application Cases Tax Revenue Appeals Act, 2010 and Tax Revenue Appeals Board Rules, 2018 require all appeals and applications submitted to the Board to be timely, transparently and fairly determined.
However, I revealed that appeals are not determined on time. At the end of financial year 2018/19, the Board had pending 881 appeals and 21 applications involving TZS 364.19 trillion and USD 79.65 million of tax disputes. Delay in ruling the cases denies the Government its opportunity to collect its share of tax revenue from those appeals.
I recommend that TRAB ensure all cases are determined in a timely manner and avoid having a large number of pending cases.
Report of Public Authorities and other Bodies 2018/19 241
21.7 Tanzania Revenue Appeals Tribunal (TRAT) 21.7.1 Pending Appeal and Application Cases At the end of financial year 2018/19, the Tribunal had pending 28 appeals and applications worth TZS 1.12 billion and USD 1.45 million of tax in disputes. The delay in resolving the tax case is inconsistent with the Tax Revenue Appeals Act, 2010 and Tax Revenue Appeals Tribunal Rules, 2018 that require such case to be resolved efficiently.
Delay in ruling the cases denies the Government its right to collect its share of tax revenue from for those cases.
I recommend TRAT expedite the process to resolve submitted cases.
In addition, Section 90 (1) (f) of the Tax Administration Act, 2015 provides that when any person is not taxable person but holds himself as taxable person under Value Added Tax Act, commits an offense.
However, I noted the Institute of Finance Management (IFM) entered into contract with two vendors/suppliers namely M/s Self Reliance (Unit of VETA Dodoma region) and M/s BICO (under University of Dar es Salaam).
The contracts’ prices were VAT inclusive while the respective entities were not VAT registered. In one case, IFM entered a contract of TZS 971.51 million with M/s Self Reliance Unit of VETA – Dodoma Region for the construction of classrooms, administration and library buildings at Simiyu Region. M/s BICO for TZS 940 million to undertake Architectural & Engineering Design for IFM School at Njedengwa-Dodoma region.
However, the two vendors arenot VAT registered, while the prices were VAT inclusive, thus, the conract prices for VETA – Dodoma Region and M/s BICO, were inflated by TZS 148.20 million and TZS 143.39 million respectively.
Report of Public Authorities and other Bodies 2018/19 242
I recommend that IFM amend the contract to reflect the price which is VAT exclusive and claim back any amount paid as VAT in these contracts.
Report of Public Authorities and other Bodies 2018/19 243
CHAPTER 22
EFFICIENCY OF PUBLIC ENTITIES IN BUSINESS ENVIRONMENT
22.0 Introduction The Government is striving to improve business environment through providing a wide range of appropriate incentives and support to unleash creativity of private sector and other stakeholders in harnessing Tanzania’s comparative advantages and thereby boosting productivity, enhancing innovation, and fostering economic integration and deepening participation in the regional and global value chains. The Government continues to improve its strategic entities as input to the industrialization agenda.
Despite the notable milestone, while reviewing the operational efficiency of Strategic Public Entities, I noted scope for improvement in various strategic areas which demands government intervention for further improvements. My review included seven public entities namely: -
i. Tanzania Shipping Agencies Corporation (TASAC) ii. Land Transport Regulatory Authority (LATRA) iii. Tanzania Bureau of Standard (TBS) iv. Tanzania Telecommunication Corporation (TTCL Corporation)
22.1 Land Transport Regulatory Authority (LATRA) LATRA was established to regulate land transport and enhance the welfare of Tanzania society by promoting effective competition and economic efficiency of regulated sectors; protecting the interests of consumers in relation to costs, quality and standards of transport services; and protecting the financial viability of efficient suppliers. My
Report of Public Authorities and other Bodies 2018/19 244
review of operating efficiency at LATRA noted the following deficiencies:
22.1.1 Deficiency in Monitoring Commercial Motorcycles and Tricycles In the financial year 2018/19, LATRA managed to issue 21,282 and 33,084 licenses for tricycles and motorcycles respectively. However, due to lack of database, LATRA was unable to trace the number of unlicensed motorcycles and tricycles. I also noted that LATRA does not have visibility to TRA systems to access the list of registered motor vehicles, tricycles and motorcycles in the country.
To enhance effective monitoring, I recommend that LATRA maintain database for commercial motorcycle and tricycles. I also recommend that LATRA liaise with TRA to have access to the TRA’s system for registered vehicles, tricycles and motorcycles.
22.1.2 Deficiency in Management of Information Systems LATRA has automated ICT application systems as a way of enhancing efficiency and improving service delivery. The Authority has six (6) ICT systems in operations namely Electronic Document Management System (EDMS); Passenger Service Vehicles Tracking System (VTS); Road Licensing Information System (SURLIS); Integrated Financial Management System (IFMIS) based on Epicor 10.2; Integrated Payroll & Human Resource Management System; Mobile Phones Online Inquiry System for Bus Fares; and Time Attendance (Biometric) System. From the review of ICT application systems, I noted the following deficiencies which need management intervention for improvements.
(i) Lack of Segregation of Duties in Road Licensing Information System (SURLIS) In the SURLIS application system, there was no segregation of duties in Road Licensing Information System whereby one
Report of Public Authorities and other Bodies 2018/19 245
person has right to enter details of a vehicle, verifies application details, approve and issue notification. These weaknesses in internal control increase the risk of fraud and errors through issuing unsupported applications.
I recommend that LATRA promote online license applications and create a pool of license verifiers and approvers to attend license applications.
(ii) Activity logs for ICT Administrators Not Reviewed by Independent Security Personnel LATRA’s ICT section has four (4) employees responsible for system administration for the Authority’s ICT applications. The ICT administrators have access rights to all applications and their databases. I noted that the application and database activity logs for ICT administrators are not reviewed by an independent person to verify and confirm that the administrators perform only authorized functions in the system. Lack of ICT security function in the Authority increases the risk of data integrity and potential ICT related fraud.
LATRA commented that ICT department has position of Network Administrator whose roles include development of ICT security strategy of the Authority, conducting ICT security awareness and review of system administrators’ logs. Management has submitted proposal to the Board for recruitment of ICT Security Officer.
I recommend that LATRA consider delegating or employing ICT security personnel who will be responsible for developing ICT security strategy of the Authority including conduct ICT security awareness and review of system administrators’ logs.
Report of Public Authorities and other Bodies 2018/19 246
22.1.3 Absence of Approved Strategic Plan Strategic Plan is a document that lays out a set of strategic objectives designed to address the needs and show the direction of the Authority. It summarizes how the Authority plans to operate and grow over the next three to five years and describes the business opportunities the Authority will pursue and how it will do so. The document must align with the Government strategic plan of 2016/17 to 2020/21.
However, I noted absence of an approved strategic plan to guide LATRAs operations. Strategic plan is a vital document to show the direction of the entity and act as a base for annual budget and operational plan. LATRA management explained that the final document is ready to be submitted to the Board.
I recommend that LATRA expedite review and approval process of the strategic plan so that it becomes operational. Also, ensure it aligns with the Government Strategic Plan of 2016/17 to 2020/21.
22.2 TTCL Corporation TTCL Corporation is the largest wire-line Telecommunication carrier (fixed business) in Tanzania providing complete range of voice and broadband services to retail and wholesale customers. The Corporation is responsible for managing infrastructural facility in a manner that ensures safety, economic and commercial viability of the strategic telecommunications infrastructure.
TTCL Corporation is leading fixed telecommunications market with over 98% market share while other operators have only 2% total market share of fixed line business. On the other hand, TTCL corporation occupies only 1% of the total operators' subscription Market Shares (refer figure II)
Report of Public Authorities and other Bodies 2018/19 247
Figure II: Operators Subscription Market Share
Source: TTCL Financial statements 2018/19
During the review of the TTCL operations, I noted the following weaknesses which limits the corporation from further expansion to attain its strategic objectives: -
22.2.1 Non-Implementation of Planned Capital Investment by 96% TTCL Corporation Strategic Plan of 2016/17 to 2020/21 shows strategic direction in terms of value-added telecom product offering and related ICT services to customers; market growth; and transformation of the company into a major player in the competitive Tanzania, Africa and Global telecom market consistent with business objectives and national strategic interest.
TTCL performance in the market is mainly affected by insufficient funds for business expansion as compared to other operators. For instance, during the year 2018/19 TTCL forecasted capital investment of TZS 671.28 billion, however, only TZS 29.39 billion was invested which resulted in a budget deficit of 96%. The budgeted investments related to expansion of network infrastructure; upgrade of existing network; and maintenance of network infrastructure and services. The corporation’s budget was mainly expected to be generated through concession loan of TZS 643.79 billion under Government guarantee.
Report of Public Authorities and other Bodies 2018/19 248
However, no loan was granted to the Corporation the financial year 2018/19. Further, I noted that out of the total annual budget of TZS 831.75 billion, only TZS 131.43 billion was collected during the year. Despite the noted financial constraints, the Corporation continued to use its internal generated funds to perform various marketing and promotion strategies in order to improve its market share in the mobile telecommunication industry. The Corporation submitted a letter together with strategic and Business Plan to the Government on 7th December, 2018 to request Government guarantee on concession loan.
I am concerned about the significant underperformance of the budget in its core business which limits the corporation from achieving its strategic objectives.
I recommend that the Corporation make close follow up on the submitted strategic and business plan to the Government for support on the transformation projects through guarantee on concession loans from either internal or external financiers. It also needs to explore other internal sources of income to finance the planned activities.
22.2.2 Unregulated Roaming Charges Resulting in a Loss of TZS 1.11 billion TTCL Corporation introduced roaming as a short-term strategy to achieve wider coverage within shortest possible time. It is anticipated that as TTCL Corporation increases its own coverage, the amount of roaming traffic will be declining. During the financial year 2018/19, the corporation entered into a contract with TIGO for national roaming with effect from 14th July, 2018. However, from the contract, I noted that the price per one gigabyte (GB) is TZS 2,500 which is higher than the corporation price charged to customers of TZS 1,500. As a result, the corporation recorded roaming loss of TZS 1.11 billion,
Report of Public Authorities and other Bodies 2018/19 249
resulting from roaming revenue of TZS 2.35 billion against roaming cost of TZS 3.46 billion.
Further, I noted that roaming services between operators are currently not regulated by Tanzania Communication Regulatory Authority (TCRA) which results in higher roaming cost between operators. Also, I found that the Corporation had no strategies on roaming exit plan for areas identified with extreme traffics. The Corporation explained that they have re-negotiated the price of data with TIGO and reduced data roaming rate from TZS 2500 to TZS 1,800 per GB. However, negotiated price is still higher than the Corporation price of TZS 1500 per GB.
I recommend that TTCL liaise with the parent Ministry and TCRA on the need of establishing roaming price regulations as the current practice affect the new entrants to the industry due to the fact that giant telecommunication operators will always offer higher prices to limit competition in the industry due to higher operational costs caused by roaming.
In addition, the Corporation need to search for other telecommunication operators which can offer reasonable price. As a long-term solution, let the Corporation considers the possibility of seeking funds for financing infrastructure expansions based on the roll out plan to be developed to minimize higher roaming cost which affect the performance of the corporation.
22.2.3 Inappropriate Management of Special Package Led to Average Loss TZS 2.35 Billion TTCL introduced several competing motivational packages in the market including Boom pack (student package) and Staff pack (restricted to staff). These packages offered at affordable price and hence motivate staff and students to use TTCL services.
Report of Public Authorities and other Bodies 2018/19 250
In assessing the controls placed on the subscribers of boom packages and staff package I noted that there is misuse of packages offered by TTCL Corporation which led to the average loss of TZS 2.35 billion in a year. This is caused by invalid customers who benefit from subsidized prices of staff and boom packages instead of normal packages. For instance, the number of staff registered for the package is in excess by 481 as compared to actual number of employed staff. Further, about 16,263 customers of the boom pack had more than one SIM card (ranging from 2 to 52 SIM cards). I consider that most of the subscribers on those packages could be untargeted beneficiaries, hence may indicate fraudulent actions.
I recommend that TTCL Corporation strengthen controls to minimize the risk of registering invalid customers on special packages offered to special targeted group i.e. one Student and employee identity card to be used once for one SIM Card.
22.3 Tanzania Shipping Agencies Corporation (TASAC) TASAC was established to carry out shipping business and enhance maritime administration to regulate ports, shipping services, maritime environment, safety and security and related matters in Mainland Tanzania. Its mission is to ensure efficient provision of safe, secure, reliable and environmentally friendly maritime and shipping business services to contribute to socio-economic development. During the review of the TASAC operational efficiency, I noted the following weaknesses: -
22.3.1 Lack of Approved Policies and Manuals to Guide TASAC Operations COSO1 framework describes policies, procedures and manuals as part of control environment and a base for
1 COSO refers to Committee of Sponsoring Organization of Treadway Commission.
Report of Public Authorities and other Bodies 2018/19 251
carrying out internal control across an organization. Also it has considered them as foundation on which an effective system of internal control is built and operated in an organization that strives to achieve its strategic objectives; provide reliable financial reporting to internal and external stakeholders; operate its business efficiently and effectively, comply with all applicable laws and regulations, and safeguard its assets.
During the audit, I found that TASAC had not operationalized several policies, standard operating procedures and manuals to guide its operations. The related policies include ICT policy, guidelines and standard operating procedures; Business Continuity Plan and Disaster Recovery Plan; Staff Rules and Regulations; Financial Rules and Regulations; ICT Steering Committee Charter; Risk Based Internal Audit Manual; and Risk Management Policy and Framework.
I consider that these internal policies are critical for smooth operation of different processes of the organization.
I recommend that TASAC expedite internal review process of these documents to ensure they are approved and ready for operation to improve internal control processes.
22.3.2 Lack of Standardized Marine Tariffs for Cargoes and Passengers Vessels Section 12(1) (d) of the TASAC Act, 2017 mandates the Corporation to regulate maritime transport services by standardizing rates and charges. However, I noted that there were no standardized tariffs for both local and international vessels providing cargo and passenger services. In the interim period, TASAC had developed a draft Tanzania Shipping Agencies (Tariff) Regulations, 2019
Report of Public Authorities and other Bodies 2018/19 252
that provides a framework for promotion of competition and regulation of tariffs. The draft regulations is still pending Government approval and gazetting.
Lack of approved tariff caps for cargo and passenger services both locally and internationally opens the marine transport users to a possibility of exploitative and unfair charges by the providers of marine transport service.
I recommend that TASAC make follow up with Government on the approval of the draft Tanzania Shipping Agencies (Tariff) Regulations, 2019. Also review the current charged fares and other charges for various marine routes with the view to standardizing the rates to comply with Section 12(1) (d) of Tanzania Shipping Agencies Act 2017.
22.3.3 Deficiency in Inspection of Unregistered Boats/Vessels Reg. 82 of the Merchant Shipping Regulations of 2005 requires annual licensing of unregistered vessels. TASAC is required to undertake inspection of vessels before licensing to ensure the vessel comply with the minimum safety requirements. However, I noted the following deficiencies in relation to the inspection of vessels:
(i) Lack of Mechanism to Ensure Completeness of Inspection of Unregistered Vessels According to the TASAC Performance Report for the financial period 2018/2019 noted that only 7,423 (54%) out of 13,729 of unregistered vessels were surveyed during the year while 6,306 (46%) unregistered vessels were operating without being checked for safety compliance. Further, I found that TASAC had not developed comprehensive database of all unregistered vessels operating in Tanzania.
Furthermore, during my visit to regional offices I noted that the maintained manual is missing the status of the
Report of Public Authorities and other Bodies 2018/19 253
registered vessels whether they are currently in operation or not, the date of registration and registration numbers are not sequential recorded to avoid duplication.
TASAC promised to engage competent authority during the year 2020/21 to conduct a census of all unregistered vessels operating in Tanzania mainland that fall under TASAC’s regulation.
(ii) Inadequate Follow Up on Inspection Directives TASAC Pre-licensing Inspection Reports performed by Tanga office details several deficiencies of vessels inspected as indicated in the Table 56 below.
Table 56: Weaknesses Noted During Inspection Vessel Weakness noted name 1. MV Aida Kondo Lack of valid documents and certificates 2. MV Ulinzi II Lack of valid documents and certificates 3. MV Mwambani Expired life raft, rocket parachutes and hand flares as well as lacking valid documents and certificate 4. MV-Elizabeth Defective expired life raft, rocket Luhigo parachutes and hand flares and starboard generator, as well as lacking valid documents and certificates. Source: TASAC Annual Performance Report
Nevertheless, I found no evidence of follow up to confirm if the noted weaknesses were addressed by the respective vessels. Also, I could not confirm if the respective vessels were not in operation prior to rectification of the noted weaknesses.
Inadequate follow up and tracking mechanism to ensure the inspected vessels defects are fixed may impose risk of marine accidents while lack of vessels database makes it
Report of Public Authorities and other Bodies 2018/19 254
difficult to establish the coverage of the licensed unregistered vessels.
I recommend that TASAC establish mechanism of identifying all unregistered vessels operating within TASAC’s territory with a view to establishing a comprehensive database. This database would form a basis of assessing coverage of the licensing operation and ensure all such vessels are inspected. Where deficiencies are noted, TASAC should actively follow up on the corrective measures taken instead of waiting for vessel owners to correct and request re-inspection on their own.
22.3.4 Weaknesses in the ICT functions Through audit review of application systems at TASAC, I noted the following weaknesses:
i) Undefined Separation of Responsibilities in the ICT Unit Section 10.1 of the ISO/IEC27002 Code of practice for information security management stipulates the need for segregation of duties in the IT responsibilities to reduce the risk of negligent or deliberate system misuse. The following functions cannot be combined in ICT department Programmer and database administrator; System administrator and database administrator; Security administrator and database administrator; and Network administrator and database administrator.
However, I noted lack of segregation of duties within the ICT unit. For example, four employees were employed to assist in the development of a shipping business system and the same staff will be involved in the live production environment as operators of the system. This violates the principles of segregation of duties whereby system
Report of Public Authorities and other Bodies 2018/19 255
developers should not have access to production environment.
ii) Unutilized Modules/Functionalities of Application Systems TASAC acquired ARUTI application system to manage payroll and human resources operations. The system has a total of eleven (11) modules, out of which, only seven (7) are being utilized, whilst the cost of the license covers all modules. In addition, TASAC has a financial management system to manage financial and accounting operations but the system does not generate all financial reports. I consider that due to large number of transactions to be handled, it is obvious that the quality of financial reporting would be greatly enhanced through the use ERMS system.
Lack of segregation of duties in the ICT department may expose the systems to risk of misuse since system developers may have access to the live production environment. Also, TASAC may not get assurance on integrity and recoverability of the backup created and sent to secondary site in case of disaster.
I recommend that TASAC (a) segregate the roles within the ICT unit to separate roles on network and infrastructure, system development and maintenance, and ICT support. The four staff involved in the development of the shipping business system should not be assigned roles that require them to access the live production environment; and (b) ensure ARUTI modules are effectively utilized to improve operational efficiency, as well as ensuring all financial reports are generated from the IFMS Epicor.
22.4 Tanzania Bureau of Standards (TBS) TBS was established to promote standardization and quality assurance activities in industry and commerce in Tanzania.
Report of Public Authorities and other Bodies 2018/19 256
I have reviewed the operations of TBS to ascertain if it discharges its functions as mandated. I noted the following anomalies in the operations of the TBS which need management attention for improvement:
22.4.1 Un-witnessed Loading of Containers and Sealing with Tamper-Proof Seals Clause 2.3.2 (l) under Specific Requirements of general conditions of the contracts between TBS and PVoC2 agents (Bureau Veritas; Intertek International; and SGS) requires the agents to witness the loading and sealing of containers with tamper-proof seals.
During my review of the contracts between TBS and PVoC agents assigned in Istanbul (Turkey) and Dubai (United Arab Emirates) I found that two agents out of three available did not witness the loading of containers and sealing with tamper proof seals for all consignments shipped to Tanzania mainland between 01st September, 2018 and 30th June, 2019. One agent witnessed a container loading risky products which they identified based on their experience.
PVoC agents indicated that clause 2.3.2(l) is too general thus they are still waiting for TBS instructions on how container loads and sealing should be performed because it cannot be performed in all consignments. Respective instructions are expected to incorporate a list of risky products of which mandatory loading verification should be performed. For example, there are associated costs on verification of loading of containers and challenges of Loose Cargo Loads (LCL) against Full Container Loads (FCL).
TBS explained that risk product profiling matrix draft is already in place for final discussion and agreement with the service providers in a joint meeting (PVoC technical meetings) scheduled to be held in February, 2020.
2 PVOC refers to Pre-export Verification of Conformity to Standards
Report of Public Authorities and other Bodies 2018/19 257
I am of the view that TBS is supposed to be proactive by preparing and sharing instructions with all agents along the signed contracts. Un-witnessed consignments might leave room for importation of substandard products.
I recommend that TBS prepare and share instructions which amplify terms and conditions stipulated in the contract after performing risk assessment on all imports and categorize them based on their risk profile and decide which can be subjected to mandatory loading verifications. Also communicate with PVoC agents and agree on modalities suitable for smooth implementation of contracts.
Report of Public Authorities and other Bodies 2018/19 258
CHAPTER 23
REVIEW OF CROPS AND PRODUCE BOARDS
23.0 Introduction Agriculture accounts a significant part of the income and poverty reduction for population living rural areas. According to National Strategy for Growth and Reduction of Poverty – II, 2010, challenges encountered in agriculture development were highlighted to be inadequate extension services, unreliable markets and uncompetitive farm gate prices, inappropriate financing mechanisms and poor infrastructure to support agriculture.
Since independence, the Government has been enhancing agriculture sector through established different agricultural institutions that in a way were mandated to carry out functions that would mitigate challenges stated in the NSGRP II. The institutions include Crop Boards like Sugar Board of Tanzania (SBT), Tea Board of Tanzania (TBT), Cashewnut Board of Tanzania (CBT), Tobacco Board (TTB), Tanzania Sisal Board and Tanzania Coffee Board (TCB), Tanzania Pyrethrum Board (TPB). Other institutions included crop research institutions like TaCRI and TaLIRI and Crop Trust Funds like cotton, coffee and cashewnut development trust funds which recently were dissolved, and their functions transferred to the crop boards.
Despite formulation of the above institutions there are still challenges encountered by the entities including duplication of functions among the entities (like extension and market promotion services); inadequate financing of the entity’s functions; inadequate crop quality control leading to the crops lacking qualities of attracting higher prices in the market. During audit, I identify scope for improvement in operations and financial management of the entities as detailed below.
Report of Public Authorities and other Bodies 2018/19 259
23.1 Delay in Official Dissolving Crops Trust Funds Following Government Instructions I noted that there were Trust Funds established under different crops by stakeholders to support development of the respective crops. The Trust Funds had functions such as importation of agrochemicals and other inputs; finance or support respective crops related agricultural and extension; promote, develop and foster sustainable agricultural growth and marketing of the crop and invest the funds for the purposes of developing the respective crop industry for the benefit of the industry’s stakeholders.
In the period of 2017/18, the Prime Minister instructed the Coffee and Cotton Trust Funds to be dissolved and their functions to be transferred to their respective Crop Boards. Similarly, Cashewnut Industry Development Trust Fund (CIDTF) activities were also suspended by the Minister for Agriculture, Livestock and Fisheries via letter with reference number CAC 65/86/01/VII/03 of 21st December, 2016. However, I observed that, the Funds were not officially dissolved as per the instructions and for instance, Tanzania Cotton Development Trust Fund continued to operate.
I am concerned about time taken to implement directives of the Prime Minister and Minister of Agriculture on dissolution of the Trust Funds. Delayed implementation of the directives has impact on the effective performance of the functions that were transferred to their Boards. Further, there are risks that, assets and liabilities that were managed by the Funds might not be properly controlled during this transition period. Further, resources such as cash held in banks are tied up in the bank accounts while they could be used in development of the respective crop activities.
Report of Public Authorities and other Bodies 2018/19 260
I recommend that the Boards in collaboration with the Ministry of Agriculture expedite the process of legal dissolution of the funds to enable smooth transfer of their functions and assets.
23.2 Large Receivables and Payables Reported by Cotton Development Trust Fund In January, 2018 and December, 2017, the Prime Minister instructed dissolution of Coffee and Cotton Development Trust Funds and their functions be transferred to the Coffee and Cotton Boards respectively.
While Coffee Trust Fund ceased its operations immediately, Cotton Development Trust Fund (CDTF) continued with its operations and prepared financial statements for the year ended June 2019. In its financial statements, the Fund reported increase in receivables to TZS 38.69 billion from TZS 9.13 billion (324%) reported in the prior year (Provision inclusive of TZS 1.65 billion in both cases). The Fund also reported an increase in payables from TZS 50.22 billion to TZS 25.76 billion (95%) reported in the prior year. The reason for both increases being pesticides procured on credit and disseminated to farmers on credit terms.
The CDTF functions included supporting the cotton industry in cotton research related activities, procuring and distributing cotton inputs to farmers, provision of extension services and data collection.
I am concerned about such significant increase in receivables and payables at the time where the Fund was supposed to be dissolved as per Prime Minister’s instructions. This may also, involve risks of recoverability of receivables which is the source for paying the reported payables.
Report of Public Authorities and other Bodies 2018/19 261
I recommend that the Tanzania Cotton Board and the Ministry of Agriculture expedite careful and proper legal dissolution of the Fund to enable adequate handling of the assets and liabilities reported by the TCDTF.
23.3 Decline in Quantity and Prices of Exported Crops The Tobacco Industry Act 2001 as amended by Act No. 20 of 2009 Crop Laws (Miscellaneous Amendments) Act and the Tea Act No. 3 of 1997 mandate the Tobacco and Tea Boards to advice the Government on the policies and strategies for the development of the respective crop industries and to regulate and control quality of the produce.
Tobacco expert performance for the year showed that, tobacco production trend for the past five years generally decreased from 71,999 tons to 60,691 tons from year 2014/15 to 2018/2019. The continued decrease was due to many reasons including decrease in demand of tobacco in the world market as a result of anti-tobacco campaigns by WHO Framework Convention on Tobacco Control and initiation of electronic cigarettes (e-cigarette). The top grades also went down by 7.23 tons in 2018/2019 compared to 2017/2018. Further, the export value also decreased from USD 132,611,000 to USD 92,927,000 million in 2017/2018 and 2018/2019 respectively.
Likewise, Tea Board reported a very small increase of 0.3% (29,243,841Kgs) in export sales for the period of 2018/2019 as compared to 29,160,642Kgs in 2017/2018. Despite the relative small increase in export sales, tea industry recorded significant decrease of 29.4% in earnings from such exports. For the year 2018/2019 total earnings was USD 43,890,138 compared to USD 62,167,167 for the year 2017/2018. The decrease in tea export earnings was attributed to the decrease in World tea price from an
Report of Public Authorities and other Bodies 2018/19 262
average of USD 2.13/Kg in 2017/2018 to an average of USD 1.50/Kg in 2018/2019.
The situations above challenge agriculture for crops with high contribution to foreign currency. The decline in price leads to declining export value. Farmers may not realize the value of efforts they invest in agricultural sector and therefore, they may be discouraged.
I recommend that Crop Boards and Ministry of Agriculture (a) implementing strategies that address the sector challenges in order that, farmers are not discouraged by the falling trend of prices and production, and (b) increase sector monitoring through value addition and increased crop quality in order to increase both domestic and foreign markets.
23.4 Financing Challenges to Tanzania Sisal Board (TSB) and Cotton Buyers Since 2005 through Circular No 42 of 2005, the Government decided to fund the operations of all Crop Boards by removing crop levies charged to farmers for supporting Crop Boards activities. The aim was to give cost relief to farmers for their produce.
All Crop Boards in this regard depend mostly on government subventions to run their activities. I noted that, Tanzania Sisal Board (TSB) had suspended implementation of planned activities like inspections, promotion and training in the financial year 2018/2019 due to budget constraints. The Board reported revenues of TZS 367.54 Million, but expenses were TZS 489.90 Million while payables and accruals increased from TZS 702 Million to TZS 812.65 Million for the years 2017/2018 and 2018/2019 respectively.
Report of Public Authorities and other Bodies 2018/19 263
Further, the Cotton Board faced a situation where cotton buyers were not able to access credit facilities from commercial banks. This was a result of unfavorable cotton international market prices that influenced commercial banks hesitate extending credit facilities to cotton buyers in some regions. As such, there was a delay in procuring cotton seeds that had to be extended to farmers. Consequently, the impact affected loan repayment schedules which were planned to be in November, 2018 and May, 2019. Until the year end, the Cotton Board had managed to repay TZS 159.6 million only out of TZS 700 million that was scheduled to be repaid in May, 2019 installment.
Financing challenges in both cases reduce ability of the Boards to provide farmers timely with agricultural inputs and extension services. In turn, the impact goes further to productions and quality of the crops.
I recommend that the Ministry of Agriculture review the scope of activities performed by the Boards to achieved agreed objectives and allocate adequate resources to achieve them and insuring timely remittance of funds.
Report of Public Authorities and other Bodies 2018/19 264
CHAPTER 24
EFFICIENCY OF PUBLIC ENTITIES UNDER HEALTH SECTOR
24.0 Introduction For the financial year 2018/19, I reviewed the performance of health sector in terms of utilization of funds to achieve the targeted objectives in Medical Store Department (MSD) and Muhimbili National Hospital (MNH) and I noted items received with shelf-life less than 80%, inadequate order fill rate of 53.8% based on sales made from 1st July, 2018 to 30th June, 2019 non-sustainability of SADC procurement services for medicine and health commodities, some customers being charged wrong prices by MSD, inadequate funding by the Government on procurement of medicine and medical supplies, preventable delays in completion of the project with total cost of TZS 385.91 million for 12 months. Other include Long outstanding Government receivables that threatens MSD’s operations and Significant rejections of Claims submitted by MNH to NHIF amounting to TZS 2.18 billion as explained below.
24.1 Drugs Received with Shelf-life Less than 80% Para 7.1.3 of MSD Inventory Management Guidelines of June 2018 requires that during the receipts of the drugs and medical equipment at the warehouse, Management should calculate the remaining shelf life of the products to ensure that they are in conformity with standards, that is, the shelf life is either above 80% or two years of the total shelf life.
During the audit, I noted that 36-line items of drugs had remaining shelf life ranging from 3% to 65%, which were less than the required rate of 80%. The drugs may expire in the MSD’s warehouses before being distributed to users and this may cause significant financial loss to MSD in terms
Report of Public Authorities and other Bodies 2018/19 265
resources needed to replace the drug and disposal cost of the expired drug.
I recommend that Management of MSD improve supervision and ensure that they comply with the requirements of the Inventory Management Guidelines for receiving goods and also communicate with the system developers to automate rejection of drugs with unaccepted shelf-life.
24.2 Inadequate Order fill Rate of 53.8% Based on Sales Made from 1st July, 2018 to 30th June, 2019 MSD targeted to achieve 75% Customer order fill rate based on key performance indicator (KPI) indicated in MSD Annual Business Plan for the financial year 2018/19 under the Directorate of Customer service and Zonal Operations.
During the audit, I reviewed customer service level report for the period from July, 2018 to June, 2019 and noted that order fill rate for the period was 53.8% contrary to the above requirement.
I consider the customer orders were noted fulfilled because the items were out of stock, which indicate inadequate demand forecast and lack of regular review of stock against sales trend. Targeted revenues might not be met due to non-attainment of targeted customer order fill rate. Besides, MSD reputation may be damaged due to low customer order fulfilment rate.
I recommend that MSD ensure the outlets have sufficient stocks at all times and have well-established demand forecast.
24.3 Non-Sustainability of SADC Procurement Services for Medicines and Health Commodities The Government through MSD signed Memorandum of Understanding (MoU) with Southern African Development
Report of Public Authorities and other Bodies 2018/19 266
Community secretariat (SADC) on 9th October, 2018 for provision of the SADC pooled procurement services for medicine and health commodities. Under this agreement MSD agreed to manage procurement process according to the best public procurement principles, monitor framework contract and resolve issues related to orders placed by the member states and then provide e-procurement services.
Review of MoU between MSD and SADC Secretariat noted the following shortfalls: -
a) Absence of conditions which enforce SADC member states to procure the medicines and health commodities which have been processed and procured by MSD. It is not mandatory for member states to procure through MSD and this may lead MSD to process the procurement, but not necessarily the member states buy them since they are not obliged to purchase MSD’s medicines and health commodities.
b) Existence of different standards of medicine and medical commodities by SADC member states. This creates challenge to MSD to comply with standard of each member state.
c) Absence of common procurement system applicable for all member states. Currently the procurement system is applicable in Tanzania but not yet officiated by other member states.
d) Absence of trained personnel who will be involved directly in procurement process at MSD.
Absence of earlier harmonization of the noted anomalies may lead to failure by MSD to provide services to the member states and ultimately may lead to the breach of the agreement.
Report of Public Authorities and other Bodies 2018/19 267
I recommend that MSD ensure that the noted anomalies are addressed so as to make sure that the procurement process is performed without causing negative effect to MSD.
24.4 Some Customers Being Charged Wrong Price by MSD The Director of Finance of MSD determines the price catalogues of medicine and medical commodities which is recommended by Executive Management Team and approved by the Board in every year.
In reviewing the complaints register, I noted that Muhimbili National Hospital (MNH) registered complaint to have been charged prices above catalogue. For example, instead of being charged TZS 1,880 MNH was charged TZS 22,900 per ten amp of haloperidol injection 5mg/ml. Similar complaint case was presented by other providers such as Central Medical Stores Zanzibar. Although MSD Management provide explanations too clarify some of these cases, I consider that MSD need to strengthen control on prices of medicines and medical equipment to ensure correct prices are used to avoid unnecessary conflicts with customers.
I recommend management of MSD establish adequate controls over prices charged to customers so as to avoid potential overcharging or undercharging of prices.
24.5 Inadequate Funding by the Government on Procurement of Medicine and Medical Supplies TZS 260 billion During the financial year 2018/19, MSD budgeted to receive TZS 260 billion from the Government for the purpose of facilitating procurement of medicine and medical supplies for Health facilities. However, up to financial year ended 30th June, 2019 the Government disbursed only TZS 80 billion equivalent to 33% of the approved budget, leaving
Report of Public Authorities and other Bodies 2018/19 268
the balance of TZS 160 billion equivalent to 67% not received by MSD from Government.
The disbursement of funds from the Government show a decreasing trend of funds released by the Government from budgeted amount of TZS 251.10 billion, TZS 260 billion and TZS 260 billion to actual amounts of TZS 121.10 billion, TZS 80.10 billion and TZS 80 billion in financial years 2016/17, 2017/18 and 2018/19 respectively.
In adequate funding increases the risk that MSD will not be in a position to implement its planned procurement of medicine and medical equipment.
I recommend that MSD make follow up with the Ministry to ensure budgeted funds are released and widen its internal sources of revenue which will help to cover the procurement of medicines and medical facilities which were required to be covered by Government funds.
24.6 Preventable Delay in Completion of the Project Worth TZS 385.91 Million for 12 Months Contract No IE-009/2017/2018/HQ/W/20 between MSD and SUMA JKT dated 11th May, 2018 for the maintenance of concrete floor at ARV and Central warehouse was expected to be completed on 12th October, 2018 which was 5 months from the contract start date of 11th May, 2018.
I noted that extension was granted twice for this contract, the first extension was granted from 30th November, 2018 to 28th June, 2019 and the second extension was granted from 29th June, 2019 to 28th October, 2019.
The annual approved budget for the project was TZS 378.90 million, but management decided to award the contract for TZS 385.10 million, which means the project was awarded for TZS 7 million above the approved budget.
Report of Public Authorities and other Bodies 2018/19 269
Management of MSD explained that the project delayed because the space to be maintained was still occupied by goods and management had to find another space to place the goods.
Delayed implementation of the project may lead to price fluctuations and increase project cost. Also, the contractor might claim damages for the delay in completion of the contract.
I recommend that MSD find alternative locations to store the goods and leave the concerned area open for maintenance.
24.7 Long outstanding Government receivables that threatening MSD Operations Government receivables have increased by 14% from TZS 228.60 billion in the financial year 2017/18 to TZS 260.45 billion in 2018/19. Out of TZS 260.45 billion, TZS 223.6 billion of the debt relates to payments made by MSD for clearing, storage, and distribution of various commodities donated to the Government by development partners and various donor communities; TZS 36.8 billion relates to value of medicines and medical supplies supplied to various Government Health Facilities on credit.
Management of MSD communicated with Ministry of Health Community Development, Gender, Elderly and Children concerning the increase in government receivables. Further management of MSD met with Permanent Secretary of the Ministry of Finance on 24th April, 2019 and 11th September, 2019 and the Government promised to pay the debt.
Liquidity of Department is deteriorating because the Department depends on recovery on Government debt in order to sustain the self-revolving fund.
Report of Public Authorities and other Bodies 2018/19 270
I recommend that MSD continue making follow up with Permanent Secretary of Ministry of Finance in order to recover the outstanding Government debt.
24.8 Significant Rejections of Claims Submitted by MNH to NHIF Amounting to TZS 2.18 Billion Muhimbili National Hospital (MNH) billed NHIF a total invoice of TZS 45.30 billion during the financial year 2018/19 following services provided by MNH to the beneficiaries of NHIF. Out of the total amount billed, TZS 2.18 billion were rejected by NHIF which accounts for 4.8% of total billed amount.
Management of MNH explained that rejections are mainly contributed by differences in the interpretation of NHIF benefit package and management has planned to map NHIF benefit package with MNH billing system so that only services and commodities in the package will be billed.
MNH incurred a loss following such rejection by NHIF.
I recommend that MNH ensure that they map NHIF benefit package with MNH billing system so that only services and commodities in the package will be provided under the cover of NHIF. Also, MNH and NHIF need to make monthly reconciliation meetings before submission of claims.
Report of Public Authorities and other Bodies 2018/19 271
APPEDICES Appendix I: Analysis of Audit Opinions SN INSTITUTIONS Opinion 1 Air Tanzania LTD Unqualified 2 Architects and Quantity Surveyors Registration Board Unqualified 3 Ardhi University (ARU) Unqualified 4 Arusha International Conference Centre (AICC) Unqualified 5 Arusha Technical College (ATC) Unqualified 6 Arusha Urban Water Authority Unqualified 7 Babati Urban Water supply and Sanitation authority Unqualified 8 Baraza la Kiswahili Tanzania (BAKITA) Unqualified 9 Bukoba Urban Water supply and Sanitation authority Unqualified 10 Capital Markets Securities Authorities (CMSA) Unqualified 11 Cashewnut Board of Tanzania Unqualified 12 CDITF-(Cashewnut) Unqualified 13 CDTF-(Cotton) Unqualified Centre for Agriculture Mechanisation and Rural 14 Unqualified Technology (CAMARTEC) 15 Centre For Foreign Relations (CFR) Unqualified 16 Chalinze Urban Water Supply and Sanitation Authority Unqualified 17 College of Business Education (CBE) Unqualified 18 Contractor Registration Board (CRB) Unqualified Cooperative Organizations Audit and Supervision 19 Unqualified Corporation (COASCO) 20 Copyright Society of Tanzania (COSOTA) Unqualified 21 Dar Es Salaam Institute of Technology (DIT) Unqualified 22 Dar Es Salaam Maritime Institute (DMI) Unqualified 23 Dar es Salaam University College of Education (DUCE) Unqualified 24 DAWASA Unqualified 25 Deposit Insurance Board (DIB) Unqualified 26 Dodoma Urban Water Sanitation and Authority Unqualified 27 Energy and Water Utilities Regulatory Authority (EWURA) Unqualified 28 Engineers Registration Board Unqualified 29 EWURA CCC Unqualified 30 Export Processing Zones Authority (EPZA) Unqualified 31 Fair Competition Commission (FCC) Unqualified 32 Fair Competition Tribunal (FCT) Unqualified
Report of Public Authorities and other Bodies 2018/19 272
SN INSTITUTIONS Opinion 33 Higher Education Students Loans Board (HESLB) Unqualified 34 Institute of Adult Education Unqualified 35 Institute of Finance Management (IFM) Unqualified 36 Institute of Rural Development Planning (IRDP) Unqualified 37 Institute of Social Work (ISW) Unqualified 38 Iringa Urban Water supply and Sanitation authority Unqualified 39 Jakaya Kikwete Cardiac Institute (JKCI) Unqualified 40 KADCO Unqualified 41 Kahama Urban Water supply and Sanitation authority Unqualified 42 Kariakoo Market Corporation Unqualified 43 Kibaha Education Center (KEC) Unqualified 44 Kigoma urban Water and Sewerage Authority Unqualified 45 Lindi Urban Water Authority Unqualified Masasi-Nachingwea Water Supply and Sanitation 46 Unqualified Authority 47 Mbeya University of Science and Technology (MUST) Unqualified 48 Mbeya Urban Water supply and Sanitation authority Unqualified 49 Medical Stores Department Unqualified 50 Mkulanzi Holding Company Unqualified 51 Mkwawa University College of Education (MUCE) Unqualified 52 Morogoro Urban Water supply and Sanitation authority Unqualified 53 Moshi Cooperative University (MOCU) Unqualified 54 Moshi Urban Water Supply and Sewerage Authority Unqualified 55 Mtwara Urban Water Unqualified 56 Muhimbili National Hospital Unqualified Muhimbili University of Health and Allied Science 57 Unqualified (MUHAS) 58 Musoma Urban Water Supply and Sewerage Authority Unqualified 59 Mwalimu Nyerere Memorial Academy (MNMA) Unqualified 60 Mwanza Urban Water supply and Sanitation Authority Unqualified 61 Mweka College of African Wildlife (MCAW) Unqualified 62 Mzumbe University (MU) Unqualified 63 National Arts Council (BASATA) Unqualified 64 National Board of Accountants and Auditors (NBAA) Unqualified 65 National Bureau of Standards (NBS) Unqualified 66 National Construction Council Unqualified
Report of Public Authorities and other Bodies 2018/19 273
SN INSTITUTIONS Opinion 67 National Council of Technical Education (NACTE) Unqualified 68 National Development Corporation (NDC) Unqualified 69 National Economic Empowerment Council (NEEC) Unqualified 70 National Environment Management Council of Tanzania Unqualified 71 National Examination Council of Tanzania (NECTA) Unqualified 72 National Health Insurance Fund (NHIF) Unqualified 73 National Housing Corporation (NHC) Unqualified 74 National Institute of Medical Research (NIMR) Unqualified 75 National Institute of Transport(NIT) Unqualified 76 National Ranching Company Unqualified 77 National Social Security Fund (NSSF) Unqualified 78 National Sports Council Unqualified 79 National Sugar Institute (NSI) Unqualified 80 Ngorongoro Conservation Area Authority Unqualified 81 NHC/PPF IPS Builiding Unqualified 82 Ocean Road Cancer Institute (ORCI) Unqualified 83 Open University of Tanzania (OUT) Unqualified 84 Petroleum Upstream Regulatory Authority (PURA) Unqualified 85 Public Procurement Appeals Authority (PPAA) Unqualified 86 Public Procurement Regulatory Authority (PPRA) Unqualified 87 Public Service Social Security Fund (PSSSF) Unqualified 88 Shinyanga Urban Water supply and Sanitation authority Unqualified 89 Singida Urban Water Sanitation and Authority Unqualified 90 Small Industry Development Organisation (SIDO) Unqualified 91 Sokoine University of Agriculture (SUA) Unqualified 92 Songea Urban Water supply and Sanitation authority Unqualified 93 Stamigold Company Limited Adverse 94 Sugar Board of Tanzania Unqualified 95 SUMATRA CCC Unqualified Surface Marine Transport Authority (SUMATRA)- (Current 96 Unqualified LATRA) 97 Tabora Urban Water supply and Sanitation Authority Unqualified 98 Tanga Urban Water Supply and Sewerage Authority Unqualified 99 Tanzania Atomic Energy Commission (TAEC) Unqualified 100 Tanzania Broadcasting Corporation (TBC) Unqualified 101 Tanzania Bureau of Standards Unqualified
Report of Public Authorities and other Bodies 2018/19 274
SN INSTITUTIONS Opinion 102 Tanzania Cereals Board and Other Produce (CPB) Unqualified 103 Tanzania Civil Aviation Authority (TCAA) Unqualified 104 Tanzania Coffee Board Unqualified 105 Tanzania Commission for University (TCU) Unqualified 106 Tanzania Commission of Science and Technology Unqualified 107 Tanzania Communication Regulatory Authority (TCRA) Unqualified 108 Tanzania Cotton Board Unqualified 109 Tanzania Education Authority (TEA) Unqualified 110 Tanzania Electric Supply Co.LTD (TANESCO) Unqualified Tanzania Engineering and Manufacturing Development 111 Unqualified Organization (TEMDO) 112 Tanzania Fertilizer Regulatory Authority Unqualified 113 Tanzania Food Nutrition Centre (TFNC) Unqualified 114 Tanzania Forest Research Institute (TAFORI) Unqualified Tanzania Industrial Research and Development 115 Unqualified Organization (TIRDO) 116 Tanzania Institute Education (TIE) Unqualified 117 Tanzania Investment Centre (TIC) Unqualified 118 Tanzania Investment Corporate Bank Unqualified 119 Tanzania Library Service Unqualified 120 Tanzania Marine Parks Reserve Unit Unqualified Tanzania Medicines and Medical Devises Authority 121 Unqualified (TMDA) former TFDA 122 Tanzania National Parks (TANAPA) Unqualified 123 Tanzania Petroleum Development Corporation (TPDC) Unqualified 124 Tanzania Ports Authority (TPA) Unqualified 125 Tanzania Postal Bank (TPB) Unqualified 126 Tanzania Posts Corporation (TPC) Unqualified 127 Tanzania Pyrethrum Board Unqualified 128 Tanzania Shipping Agencies Corporation (TASAC) Unqualified 129 Tanzania Sisal Board Unqualified 130 Tanzania Tobacco Board Unqualified 131 Tanzania Tourist Board (TTB) Unqualified 132 Tanzania Trade Development Authority (TANTRADE) Unqualified 133 Tanzania Wildlife Research Institute (TAWIRI) Unqualified 134 Tax Appeals Tribunal Unqualified
Report of Public Authorities and other Bodies 2018/19 275
SN INSTITUTIONS Opinion 135 Tax Revenue Appeals Board Unqualified 136 TCRA-CCC Unqualified 137 Tea Board of Tanzania Unqualified 138 Tropical Pesticides Research Institute (TPRI) Unqualified 139 TTCL Pesa Limited Unqualified 140 TTCL Pesa Trust Entity Unqualified 141 Ubungo Plaza Co Ltd (UPL) Unqualified 142 Universal Communication Access Fund (UCSAF) Unqualified 143 University of Dar-Es-Salaam (UDSM) Unqualified 144 University of Dodoma (UDOM) Unqualified 145 UTT Microfinace PLC (MFI)/SELF MFI Unqualified 146 Warehouse Receipt Regulatory Board Unqualified 147 Watumishi Housing Company (WHC) Unqualified 148 Workers Compensation Fund (WCF) Unqualified
Report of Public Authorities and other Bodies 2018/19 276
Appendix II: Entities that did not submit Financial Statements for various reasons S/N Details 1 Bariadi Urban Water Supply and Sanitation Authority 2 Gaming Board Tanzania 3 Geita Urban Water Supply and Sanitation Authority (GEUWASA) 4 Institute of Accountancy in Arusha 5 Kahama Shinyanga Urban Water supply and Sanitation authority 6 Karatu Urban Water supply Authority 7 Korogwe Urban Water supply Authority 8 Kyela Urban Water supply Authority 9 Makambako Urban Water Supply and Sewerage Authority 10 Marine Service and Company 11 Mpanda Urban Water Supply Authority 12 Muhimbili Orthopedic Institute (MOI) 13 Muleba Urban Water Supply and Sewerage Authority 14 Mwalimu Nyerere University of Agriculture and Technology (MNUAT) 15 Namtumbo Urban Water Supply and Sewerage Authority 16 National Institute Of Productivity (NIP) 17 National Insurance Company (NIC) 18 National Museum Tanzania 19 NGARA Urban Water Supply and Sewerage Authority 20 Njombe Urban Water supply and Sanitation authority 21 Nzega Urban Water Supply Authority 22 Procurement and Supplies Professional and Technicians Board (PSPTB) 23 Rukwa/Sumbawanga Urban Water 24 Same Urban Water Supply and Sewerage Authority 25 Sharing World 26 STAMICO 27 Tanzania Civil Aviation A uthority - (TCA-CCC) 28 Tanzania Diary Board 29 Tanzania Fertilizer Coy 30 Tanzania Fisheries Research Institute (TAFIRI) 31 Tanzania Insurance Regulatory Authority (TIRA) 32 Tanzania Investment Bank - Dev (TIB) (GBT) 33 Tanzania Meat Board 34 Tanzania National Business Council (TNBC) 35 Tanzania Railway Corporation
Report of Public Authorities and other Bodies 2018/19 277
S/N Details 36 Tanzania Small Holder Tea Development Agency (TSHTDA) 37 Tanzania Standards Newspaper (TSN) 38 Tanzania Telecommunication Company Limited 39 Tukuyu Water Supply and Sewerage Authority 40 UTT- Asset Management and Investor Services (UTT-AMIS)/PID 41 Vocational Education And Training Authority (VETA)
Report of Public Authorities and other Bodies 2018/19 278
Appendix III: Implementation Status of Prior Years’ Audit Recommendations S/ YEAR AUDIT GOVERNMENT CAG COMMENT STATUS N RECOMMENDATIONS RESPONSE 1 2012/ Azania Bank was The Ministry has It is my Not 13 supposed to be sought advice from expectation implemente under the control of Attorney General that the AG’s d the Treasury (AG) to get Office will Registrar and submit clarification on the initiate a its financial matter. The AG process to statements to CAG advised that amend the for audit pursuant to section 3 of the Public Audit Article 143 of the Public Audit Act, Act to Constitution of URT Cap 418 should be accommodate and Section 9 (a) iii amended to all public & IV of the Public empower CAG to entities Audit Act No. 11 of Audit Entity including 2008. registered and companies established under where the the Companies Act. Government is Thus, "the majority definition of Public shareholder. Authority" is The current amended so that it position is that adds a further PSSSF now owns exception, which more than 50% holds that even if the Azania an entity is bank. registered under the Companies Act, if the majority shareholders are from the Government, then they will still require to be audited by the CAG. 2 2015/ I recommended that The Fund received I noted that the Not 16 Management of NHIF a letter from the Fund continues implemente have a written Ministry of Finance to provide d agreement with the and Planning loans to the borrower and obtain (MoFP) of 15 Government a government December 2015 without written guarantee. NHIF was with ref: agreement and also urged to, in CJA.452/479/01 those previous future, ensure showing the loans were not binding agreement is intention of converted into entered into prior to converting the loan non-cash bond disbursement of any to non-cash Bond, as directed by loan. used to offset all MoFP through outstanding debts the letter with owed by the ref: Government to CJA.452/479/0 Social Security 1.
Report of Public Authorities and other Bodies 2018/19 279
Schemes.
3 2015/ I recommended that Management is There was no Not 16 TPC Management requesting the evidence implemente comply with the Government to submitted for d relevant legal and offset the amount audit regulatory due to TCRA of TZS verification to requirements by 1.38 billion against confirm that remitting the the amount used to TPC outstanding TPC to pay EAC Management Royalties and Annual pensioners of TZS requested the fees amounting to 3.87 billion. Government to TZS 1.38 billion to offset the TCRA. amount due. 4 2015/ Lack of Progress on The important Management Under 16 Implementation of component to explanations implementa ADS-B Phase - I TZS finalize the project are noted. I tion 3.4 Billion (TCAA) is expected to be will keep in installed parallel view and assess I recommended that with the new Julius fully management carry Nyerere implementation out a new detailed International of the Company search on Airport radar to recommendatio the current financial fuse the radar n in next audit. and operational information and capacity of COMSOFT the ADS-B Gmbh. This might information into need to involve the same screen Tanzania Embassy in (monitor) to be Germany for reliable used by the Air information. Traffic Controller. Management was also advised to assess the challenges of implementation of the project and take appropriate decisions to improve air traffic control activities. 5 2015/ Management of i. To increase Tariff Response has Under 16 Independent and (when using EPPs been noted for implementa Emergency Power and IPPs) to be cost follow up in the tion Plants (IPP's & reflective will next audit. EPP's), and Capacity cause adverse Charges impact to the country’s economy. To revive TANESCO Instead the and make the Government has
Report of Public Authorities and other Bodies 2018/19 280
Company perform been providing effectively, I subsidy to the recommended the utility in order to following: enable it meet its (i) Energy charge financial tariff taking into obligations and account those costs render required relating to capacity services to its and energy charges customers; paid to IPPs and ii. The Government EPPs. has already (ii) The price also directed under GN should include a No.292 of margin 21/10/2016 for (iii) The all IPPs to be procurement of EPP engaged through and IPP projects to competitive be made on a bidding. However, competitive basis to the Government ensure that has insisted to TANESCO gets IPPs emphasize on the which are cost development of our effective. own power generation projects; and iii. TANESCO has always been involved throughout the process of procurement, negotiation and awarding processes. 6 2015/ Construction of Participation of Response has Under 16 Songwe TANESCO in been noted for implementa Hydropower Project downstream follow up of its tion investment implementation (i) I recommended activities, in the next that the especially in audit. Government ratify mobilization of the Convention for resources for establishment of the project Songwe River Basin implementation Commission to and technical enable the project support. to start. We take on board (ii) I also as well the idea for recommended that TANESCO to Government ensure partake in the it involve TANESCO construction of in the processes of lower dam and construction of the hydropower plant lower dam and process and to hydropower Plant to provide technical
Report of Public Authorities and other Bodies 2018/19 281
provide technical advice when advice when deemed needed. appropriate.
7 2015/ Viability of TANESCO will Management Under 16 TANESCO's Power continue to make a response has implementa Tariff close follow up to been noted for tion ensure that EWURA follow up. I also recommended reviews the that EWURA periodic tariff critically review the adjustments at electricity tariffs to each quarter where include all the costs applicable. related to the power generation and a reasonable return, while allowing for prudent capital investments to improve TANESCO’s service delivery and efficient financial operational performance. 8 2015/ Unpaid Lease Rent The Not 16 by Ministry of Government implemente Energy and Minerals did not provide d TZS 1.117 billion response to this recommendatio Management of n TANESCO was advised to put more efforts in following up with the then Ministry of Energy and Minerals to ensure the Ministry pays their outstanding rent. 9 2015/ Violation of Rent Appropriate Implementation Under 16 Payment to UDSM measures are is still in implementa underway including progress, I will tion I recommended that invoicing of the keep track on management of the underpaid fees, the full University: followed by a implementation (i) Recalculate its demand note for of my portion of 10 per the difference recommendatio cent as required by between the gross n. the contract and the amount and the net difference be amount paid to
Report of Public Authorities and other Bodies 2018/19 282
claimed from the UDSM. At the same lessee; and (ii) Liaise time, UDSM is with the lessee and pursuing other consider reviewing related matters the contract to with MHL to include all necessary establish a better clauses such as way that will have allowing UDSM mutual benefit and internal audit more agreed level department to of transparent to conduct verification feature in the of revenue and contract which is operational costs. the operation guiding document for both parties in relation to the Mlimani City project. 10 2015/ Assessment of MoU The Not 16 of wharfage Government implemente collection between has not d TPA and TRA provided response to this I recommended that recommendatio TPA management n. liaise with TRA’s on the terms of MoU of wharfage collections to ensure that the parties fulfill the requirements of the agreement and ensure that TPA’s operational efficiency is not impaired by the new modality of collection. 11 2016/ Deteriorating TANESCO has taken Management Under 17 Financial various measures response has implementa Performance aimed at improving been noted. tion company’s financial However, I am I recommended that performance for waiting for the TANESCO look for sustainable support completion of ways to improve its of National the projects. financial Economic sustainability for it Transformation to be able to support through the National industrialization. economic Measures taken so transformation far include: First, through to reduce industrialization. generation cost through ongoing major investment
Report of Public Authorities and other Bodies 2018/19 283
projects in cheap sources of power generation (Kinyerezi II and Stigler Gorge); second, continue with transmission project for extension of National Power Grid (Makambako - Songea, North-West grid) to connect isolated branches which use expensive fuel power Generation plant: third, improving distribution infrastructure in order to reduce power outages and increase number of new customers’ connection from 250,000 to 290,000 customers per year so as to increase revenue; fourth, improving collection rate from 94% to 98% from postpaid customers through LUKU rollout and ‘KA-TA’ campaign for defaulters. Cost cutting measures have been instituted to allow for only vital activities to be financed.
12 2016/ Interest Payable to TANESCO has Management Under 17 Pan African Energy continued settling response has implementa USD 10.43 million PAET liability such been noted. tion that from July 2016 However, I I recommended that to March 2018 a recommend TANESCO look for total of TZS 161.84 Management ways to resolve billion out of TZS increase effort disputes to avoid 350.63 billion has on covering the accumulating of such been paid. liability facing huge amounts of Currently, the ahead.
Report of Public Authorities and other Bodies 2018/19 284
unpaid invoices. remaining outstanding balance is TZS billion 188.79 of which TANESCO has committed to pay TZS 2 billion weekly. 13 2016/ Unpaid Rent by The judgment was Management Under 17 Tumaini Hospital delivered in favour response has implementa USD 9.4 Million of TANESCO. been noted and tion Currently, I keep on view I recommended TANESCO has of ongoing TANESCO’s lodged a substitute implementation Management ensure application for . that the court execution of Court decree is Decree after implemented withdrawal of the without any further previous delay. application that indicated Tumaini Hospital as a Judgment Debtor. 14 2016/ Contingent Liability TANESCO in Management Under 17 by SCBHK Vs collaboration with response is implementa TANESCO USD 148.4 the Government is noted. I am tion million in the process to waiting for the enforce the Deed management I recommended that of Indemnity action on its TANESCO prepare a executed by Mr. response. well-planned Habinda Singh Sethi alternative source of for and on behalf funding to cover this of IPTL and the potential liability in Bank of Tanzania in case local favour of the jurisdictions decide Government of in favour of SCBHK. Tanzania to settle anticipated claim by SCB HK should TANESCO fail to contest the ICSID Award worth USD 148.4 million being principal and interest thereof. 15 2016/ Delays in TANESCO has been Management Under 17 Transferring transferring its response is implementa Customers to their customers from one noted. I will tion Correct Tariff Level tariff category to keep on another in every following up on I recommend that month especially the fully TANESCO ensure from D1 to T1. implementation efficient control However, in order of the measures are in to ensure that this recommendatio place to monitor is done effectively, n.
Report of Public Authorities and other Bodies 2018/19 285
transfer of users into during 2018/19 their correct tariff financial year, the rates as per their company has consumption. planned to Moreover, automate this automated system process into its could be used in system such that, effecting prompt customers will be changes of tariffs to transferred from reduce risks of one tariff category human to another without interventions. human intervention. 16 2016/ Absence of TBS Currently due It’s important Under 17 Officers at Border scarcity of to have TBS implementa Stations employees, TBS has staff at border tion stationed officers station so I I recommendation in new borders such advise TBS that all Border as Tunduma, Management to Stations to be Kasumulo, put more effort manned by TBS Kabanga, Rusumo. on recruiting Officers to ensure Allocation of staff more staff that only qualified to the identified members as commodities are border stations will recommended imported into the be done after Country. recruitment of more staff. 17 2016/ Delays in MWAUWASA has Management Under 17 Completion of taken measures response has implementa Project at including making been noted. I tion MWAUWASA TZS sure that the am waiting for 6.66 Billion component for the water supply which implementation I recommended that is at 90% degree of of audit MWAUWASA ensure completion is recommendatio that the project is completed. For n. completed without sanitation further delay. component MWAUWASA together with the Ministry of Water and Irrigation are in the preparation of Contract termination and invitation for new Contractor through Restrictive Tendering to make sure that the Works are completed before Donor (AfDB) Disbursement window which was
Report of Public Authorities and other Bodies 2018/19 286
closed by Sept ember 2018.
18 2016/ Significant Increase During the FY The response Under 17 and Inadequate 2017/2018 has been implementa Efforts in Debt receivables noted. tion Collection at amounted to TZS However, the Muhimbili Hospital 54.59 billion out of debtors’ which and TZS balance is still I recommended that 46.63 billion were huge. The the Hospital design collected by 30th balance as at and employ rigorous June, 2018. Hence 30th June 2019 efforts to recover registering was TZS 33.28 the outstanding collection billion. debts performance by 85.4%. Total
amount of debtors was TZS 18.16 billion as of 30th June, 2018 out of this TZS 7.96 billion were already billed and TZS 9.63 was not yet billed to NHIF and TZS 0.56 billion was unbilled to other credit companies. 19 2016/ Rejected Health The Hospital has The response is Under 17 Insurance Bills TZS significantly noted. implementa 1.86 billion at MNH improved However, the tion verification of rejection still I recommended that billed insurance exist. I noted the MNH investigate claims. The the amount the rejected bills percentage of rejected during with a view to rejected claims has the year finding out causes of declined from 6% in 2018/19 was their rejection and 2016/17 to 3% in TZS 2.18 take appropriate 2017/18. In billion. . I measures. Also, MNH 2016/17 the advised was advised to Hospital billed TZS Muhimbili review the billing 31.7 billion and was Management to process to identify paid TZS 29.8 further review the available gaps billion where as in and strengthen
Report of Public Authorities and other Bodies 2018/19 287
that might have led 2017/18 total billing process to fraudulent billing. billed amount from with the aim of July 2017 –to March minimising 2018 was TZS 29.45 rejected bills. billion and paid amount was TZS 28.45 billion). 20 2016/ Delay in Completion This project was Management Under 17 WIP TZS 1.18 billion initiated by response has implementa at Moshi UWASSA Ministry of Water been noted. tion and Irrigation under However, I am I recommended that umbrella of WSDP waiting for the Authority make and was being implementation follow up with the financed by World of Ministry of Water Bank and will be in recommendatio and Irrigation for 2 phases including n. implementation of Detailed Design and phase two of the Tender Documents project. preparation and Construction. 21 2016/ TCAA Consumer TCAA CC reported Management Under 17 Consultative the matter to response has implementa Council relevant been noted. tion Contradiction government However, I am between TCAA Act entities including waiting for the and Constitution of the parent Ministry, implementation the URT Ministry of of audit Constitutional and recommendatio I recommended that Legal Affairs, the n. TCAA - CCC align AG office, CAG, Sect 52(4) of TCAA and TCAA vide Act (2006) with the letter with Ref. No. provisions of Article TCAA CCC/06/181 143 of the dated 31st January, Constitution. 2018. In addition, we have liaised with TCAA to amend the Civil Aviation Act, Cap 80 so as to align with Article 143 (2) (c) of the Constitution. 22 2016/ House Purchased The Council Management Under 17 but Not Handed through its response is implementa Over TZS 180 Advocates (G&S noted. I will tion Million at BAKITA Associate follow up on Advocate) has the I recommended that added the cost in implementation BAKITA Management case No. 175/2015 of make follow-up on to compel NIC to recommended the status and compensate for all in line with the conclusion of the loss incurred in the Management matter. court plus response, in compensation the next audit.
Report of Public Authorities and other Bodies 2018/19 288
(mesac profit) for not utilizing its four apartments.
23 2016/ Difference in Management is Management Under 17 Reported Revenues improving its response noted. implementa TZS 607 million at control system over However not all tion TPC its revenue by the offices deploying systems have been I recommended that that will be connected with TPC connect all interfaced with the said system Offices to the Post Global and hence revenue system, Netsmart. reconciliation conduct However, TPC is in was not yet reconciliations of the process to conducted. revenues from connect its revenue unconnected Offices systems to the and investigate to government ascertain the nature electronic payment of the noted gateway for differences. connection.
24 2016/ Unreconciled Management has Management Under 17 Liability Due to TTCL noted Auditor’s response noted. implementa TZS 922.05 Million recommendations I am waiting for tion for the I recommended that implementation. implementation TBC make close On 14th December, of audit follow-ups with TTCL 2017, TTCL notified recommendatio to resolve the management n. differences and through email that record the they are in the appropriate balances process of seeking due in its books of approval to waive account. disputed amount. 25 2016/ Impairment of Projects for Management Under 17 Uncompleted development of response has implementa Projects TZS 1.61 New Standard been noted. I tion billion Gauge line are consider Capital intensive. RAHCO I recommended that They cannot be Management
Report of Public Authorities and other Bodies 2018/19 289
RAHCO investigate financed through need to the nature of the revenue from communicate projects and take normal business of with the appropriate actions a common railway Ministry of to ensure that the organization like Finance for projects are RAHCO and now early release of completed or take TRC. The only funds for those action against all means is through internal funding Officials involved in budget allocation projects. causing the loss to and disbursement the Company. from the Central Government through own local source or external financing (grant, loan, ECA, etc.). In this regards, mobilization of funds for projects for these new railway projects is done by GoT through MoFP.
RAHCO and now TRC, being Implementing Agent of the project is obliged to furnish Technical Inputs for financing agreement and execute implementation. Development of those projects must undergo at least 3 phases, namely feasibility study, Detailed Design and implementation/co nstruction. At feasibility phase, is when they GoT through implementation Agent, TRC (formerly RAHCO), establishes whether project is feasible or not. We will proceed to next stage of construction –only if the project is
Report of Public Authorities and other Bodies 2018/19 290
found to be feasible and funds have been secured. Also, feasibility study report is document necessary while approaching donors or investors to such capital extensive projects.
Lastly if GoT wants to execute using own local money, details design is one of documents that may be needed for commissioning construction. Very unfortunately these are Trillions of projects, that why studies and designs are in Billions. However, in future RAHCO/TRC will improve and work more closely with MOWTC to address recommendation by CAG. 26 2016/ Fraudulent Some of measures Management Under 17 transactions leading taken by response has implementa to a loss TZS 130.6 Management to been noted. I tion Million improve internal acknowledge controls included: the internal I recommended that (a) Segregation of control JKCI continue Duties introduced by following up this Currently the case with the Police implementation of management. to ensure that the accounting duties, However, I will final judgement by including cash keep on the court is receipt, cash tracking the obtained. Further, deposit and progress of the the JKCI was reconciliation are case in the needed to institute being executed by subsequent strong internal different audit. controls that would personnel. deter theft including (b) Job Rotation inter alia, The Institute has segregation of started to duties, job rotations implement job and internal checks. rotation as part of
Report of Public Authorities and other Bodies 2018/19 291
internal controls. Accounting Staff members are rotated from one unit to another after a span of at least 12 months. (c) Internal Checks Moreover, in order to ensure that checks and balances are in place, the Institute has undertaken the following measures; i. Cash collection service by NMB Bank has been extended from 5 days (Mondays to Fridays) to 6 days (Mondays to Saturdays). A formal agreement has been entered with NMB Bank to extend the closure time during weekdays (Mondays to Fridays) from 04.30pm to 10:00pm ii. Daily verification of cash revenue collected against cash deposited into JKCI bank account is being done on a daily basis by a person who is not involved in executing cash collection duties. iii. Internet Banking. The Institute has acquired access rights to utilize internet banking services which has simplified the process of obtaining, viewing and reconciling
Report of Public Authorities and other Bodies 2018/19 292
reports from bank against internal reports
27 2016/ Fraudulent Police Tanzania and While Under 17 Payment of USD Interpol are appreciating implementa 26,356.65 and Euro cooperating to management’s tion 2,500 recover the lost efforts, I still amount, the keep the I recommended that investigation is in matter in my DMI make close progress. view till the follow up with lost fund is cybercrime police to recovered. get the status of the matter and recover the money and in future ensure that documents are examined before instructing a bank to effect any payment. 28 2016/ Unpaid Royalties Management is Management Under 17 from the Radio making consented response has implementa Stations and efforts to remind been noted. I tion Television Houses the TV houses and insist on the TZS 927.86 Million Radio stations on collection of their responsibility unpaid royalties I recommend that to pay royalties as from Radio COSOTA make per invoices raised. Stations and consented efforts to It is planned that Television remind the TV COSOTA and Data Houses. houses and Radio Centre will resume stations on the the invoicing, responsibility of monitoring, paying the royalties collection, distribution and enforcement of tariff royalties after Data Centre has completed developing the Government Owned system for monitoring of Broadcasting Organizations.
Currently, COSOTA
Report of Public Authorities and other Bodies 2018/19 293
has joined the Government electronic Gateway Payment (GePG) System to facilitate collection of fees. The two joint systems will definitely assist in the collection of revenue including the unpaid royalties.
29 2016/ Irregularities in The Not 17 Accounting for Government implemente Investment in did not provide d Ngorongoro response to this Protection Fund recommendatio (NPF) at NCAA n
I recommended that NCAA obtain legal documents for NPF to ascertain the ownership structure and establish its relationship with NCAA. 30 2016/ Payment for Land Land will be valued Management Under 17 Acquisition before the money response is implementa Contrary to Agreed is paid. noted. I am tion Procedures at TPA waiting for the implementation I recommended that of management TPA follow the response. requirements of Public Procurement Act, as relevant procedures including getting Board approval and valuing the land before continuing with paying of the outstanding balance.
Report of Public Authorities and other Bodies 2018/19 294
31 2016/ Uncertainty on the The Government Considered not Not 17 Ownership of has noted the implemented implemente COPEC Petrol external Auditors d Station at Makumira recommendations (TPDC) and will act I recommended that accordingly. TPDC make follow up of its ownership in the two companies to know the status of its investments and take appropriate actions. 32 2016/ Inadequate CCTV The agreements I acknowledge Under 17 Coverage at KADCO between KADCO the implementa I recommended that and Agreneb management tion Management speed Consult Ltd have effort on the up the procurement been entered for progress made; process and getting drawings and review of the the most qualified preparations of progress of the bidder to perform tender document project will be the installation tasks for the CCTV. done in the These are ready for next audit. quotation by the shortlisted firms for the CCTV project to start immediately by this week. 33 2016/ Rehabilitation The Not 17 Liability on Government implemente Buhemba Gold Mine has not d at STAMICO provided not I recommended that provide STAMICO liaise with response to this the Ministry of recommendatio Minerals to find the n. solution of how to rehabilitate the surrounding environment after ceasing the operations. 34 2016/ Absence of Title A letter with Management Under 17 Deeds for Plots TZS Ref.No.NBS/A.30/6 response noted. implementa 5.44 Billion at NBS /11 of 8th However, I am tion February, 2018, waiting for I recommended that written to Kigoma availability of NBS take appropriate Regional the title deed steps to ensure that Administrative and the one title deeds are Secretary (RAS), available for obtained for all land requesting him to Dar es salaam owned by the Bureau instruct the plot was not in order to legally Municipality to submitted for
Report of Public Authorities and other Bodies 2018/19 295
own the assets. issue a title deed in audit the name of NBS. verification. Another letter with Ref.No.NBS/R.10/1 /3 of 6th February, 2018 was written to the Director of Arusha Municipality, requesting him to issue a title deed of Plot No.565 located at Kibla – Makao Mapya in the name of NBS. Either the Title Deed for the Dar es Salaam Plot was already obtained with Title No. 87784 Plot No. 86 BLOCK – SURVEY REG. PLAN NO. 61735 measuring 1929 SQ.M located at Magogoni area. Close follow will be made to Kigoma Municipality and Arusha City regarding the Title deeds for NBS buildings. 35 2016/ Loss of Rental The Management Under 17 Income on a Plot at recommendation is response is implementa Kunduchi Beach at noted. Management noted, however tion UDSM before the end of I am awaiting a March 2018 was to reviewed Since the term of 10 convene a contract which years is approaching University Team to will to an end, I review and accommodate recommended that negotiate the the changes the University contract. noted. review the contract so as to accommodate the change of the reserved consideration and converting the unexecuted contractual obligations into monetary values relative to the
Report of Public Authorities and other Bodies 2018/19 296
rentals payable for the lease.
36 2016/ Loans Disbursed The Not 17 Beyond Contract Government implemente Amount TZS 6.18 did not provide d Billion at NSSF response to this recommendatio I recommended that n NSSF investigate the reasons for over disbursement made to the four Institutions and ensure their immediate recoveries. Also, I also recommended that NSSF, in future, ensure no excess disbursement is made contrary to agreements. 37 2016/ Inadequate The University has Management Under 17 Management of established a response has implementa Patented special unit which been noted. tion Intellectual deals with follow up on Properties (SUA) Intellectual implementation Property Rights of the response I recommended that responsible among will be done in the University other to register all the next audit institute controls to innovation. Two ensure that technologies with intellectual patents were properties are not published in published in the science-based public domain journals (Indexed without its consent journals). and develop a According to comprehensive business strategy to regulations, this commercialize them. procedure is acceptable given I also recommended the fact that even that SUA liaise with patents are science the respective publications; for Authority to obtain public consumption copyright of the and that they are
Report of Public Authorities and other Bodies 2018/19 297
innovations that are supposed to be in already in the open access. market without Furthermore, the patent rights and Journal Editor or arrange to enter into Publisher is not contract with the allowed to Publish distributor so that the patents which the University could are already in the get royalty and open access annual maintenance directory for public fees. consumption. Lastly in all patent related publications, the publisher must explain the new technology. The policy which is in progress will include the need to prepare comprehensive strategy to expedite their commercialization and the requirement to give incentive to inventors as the means of encouraging them. 38 2016/ Inadequate Funding Management has While Under 17 of MSD Operations written on several acknowledging implementa occasions to the the tion I recommended that Ministry of Finance management MSD to liaise with through MoH effort, I still the Government to regarding the consider MSD ensure that it pays adverse financial Management its outstanding situation and need to liaise receivables in order requesting for with the to strengthen MSD’s repayment of the Government to capital base to debt. be paid their enhance its efficient outstanding and effective service receivables. delivery. 39 2016/ Non-Operational The Government Considered not Not 17 Petrol Stations and has noted External implemented as implemente Expired Lease Auditors no evidence of d Agreements at recommendations. progress was TPDC provided by the Government. I recommended that TPDC enter into new lease agreements with the tenants and
Report of Public Authorities and other Bodies 2018/19 298
to rehabilitate and operationalize the dormant ones to realize the intended economic benefits.
40 2016/ Limitation of Scope The Not 17 for the Controller Government implemente and Auditor General did not provide d in the Extractive response to this Industry recommendatio Given the n importance of transparency in the Extractive Industry activities. I recommended the Government to amend the principal Acts to provide the CAG an explicit and unrestricted access to all the financial and non-financial records of these Companies to enhance proper accountability by these Companies with regard to the natural resources which they have been given an opportunity to extract. 41 2016/ Absence of The Not 17 Regulations to Government implemente Amplify Natural did not provide d Wealth and response to this Resources recommendatio I recommended that n. the Government through the Ministry of Minerals establish regulations which will govern applications of relevant provisions of the two Acts.
Report of Public Authorities and other Bodies 2018/19 299
42 2016/ Non-Verification of The Not 17 Mining Initial Capital Government implemente Investment Cost. did not provide d I recommended that response to this the Government recommendatio through the Mining n Commission verify the accuracy of the initial and subsequent capital investments by all mining companies to ensure that correct declarations of investment cost are made to enhance fair and accurate reporting by the mining companies to enable the government to receive a fair share through royalty and taxes. 43 2016/ Delays in The under 17 Explorations of Government implementa Block 4/1B & 4/1C did not provide tion I recommended that response to this TPDC and Ministry of recommendatio Energy: a) develop n. and sign a Memorandum of Understanding which will govern the exploration and extraction activities within these blocks; b)ensure issuance of exploration license to TPDC for successful development of block 4/1B and 4/1C; and c) consult the government and other associated partners to finance the blocks exploration activities.
Report of Public Authorities and other Bodies 2018/19 300
44 2016/ Redundant Seven The Not 17 Deep Sea and One Government implemente Lake Tanganyika did not provide d North Blocks response to this I recommended that recommendatio TPDC consult the n. Government to review the terms and conditions in the 2013 Model Production Sharing Agreement. 45 2016/ Underutilization of The under 17 Natural Gas Government implementa Processing Plants did not provide tion I recommended that response to this TPDC to look for recommendatio more potential n. customers to buy the gas to achieve the planned processing levels and benefit from the advantage of economies of scale, in order to be able to generate more profit. 46 2016/ Royalty Paid Out of The Not 17 the Government’s Government implemente Profit Share did not provide d Through the response to this mandate granted recommendatio under Section 4 of n. the Natural Wealth and Resources Contracts (Review and Renegotiation of Unconscionable Terms) Act, 2017 I recommended the Government review and amend Songosongo PSA to ensure that royalty is being charged and paid by both the license holder and Contractor as stipulated under the Petroleum Act, 2015
Report of Public Authorities and other Bodies 2018/19 301
47 2016/ Financial Distress The Not 17 Facing TPDC Due to Government implemente Non-Settlement of did not provide d TANESCO Long response to this Outstanding Bills recommendatio TZS 248 Billion n. I recommended that Government through Ministry of Finance and Planning and Ministry of Energy consider assisting TANESCO in their efforts to settle such long outstanding dues which in turn will help TPDC meet gas purchase and other operational costs 48 2017/ Long Outstanding The Government Implementation Under 18 Receivables has noted the is still in implementa auditor’s progress; tion I recommended that recommendation. further review NIC and AICC The management of enforce their Rental of the institutions implementation Policy. will be guided to will be put up a followed up in mechanism of the next audit. enforcing their rent policy 49 2017/ Incorrect Prices The Fund has Implementation Under 18 Applied on Claims improved its is still in Implementa and Payment to membership and progress; tion Medical Facilities contribution system further review for Non- (AMMIS) with effect of contributing from 1st November, implementation Members 2018 to enhance will be electronic followed up I recommended that submission of NHIF Management contribution during strengthen controls registration and over claims by contribution ensuring automation payment whereby of claims approval all non-contributors process in the long are easily run and increase identified during sensitivity of the submission of process in the contribution. meantime. The Fund has issued directive to all private and Faith Based facilities regardless of their level to
Report of Public Authorities and other Bodies 2018/19 302
start using pre- authorization systems before members’ access services with effect from 1st December, 2018. Daily electronic monitoring of non- contributing members issued IDs and utilize service have been introduced from September, 2018.
50 2017/ Significant Claims The Management The Not 18 from Ineligible Child has started to Government Implemente Dependants implement Auditors Response d recommendations Noted. I recommended that in phases, first, the NHIF Management Fund has stopped update its database providing services However, NHIF to identify over-aged to 85,280 ineligible has not yet child dependants dependants who implement my and institute are above 26yrs recommendatio controls that will with effect from n. ensure that they are 27/05/2019.The no longer covered by second phase will the insurance. involve dependants children between the age of 18-25 yrs as parents has to provide proof if they are still at school.
51 2017/ Untraced Loan The Government Implementation Under 18 Beneficiaries-TZS noted auditor’s is still in Implementa 1.46 trillion recommendation. progress; tion The Board will be I recommended that directed to engage Up to the year HESLB engage other all available ended 30th institutions and any sources of June 2019, other available information which untraced loan sources of will facilitate balance was information to identification of TZS 987.17 identify the yet untraced billion. untraced beneficiary to beneficiaries enhance the loan recovery.
52 2017/ Weakness on The Not 18 Aerodrome Government Implemente Licensing and did not provide d
Report of Public Authorities and other Bodies 2018/19 303
Inspection response to this recommendatio I recommended that n TCAA strengthen inspection and license issuing procedures. 53 2017/ Overdependence on The Not 18 Development Government Implemente Partners to Fund did not provide d Core Activities response to my recommendatio n I recommended that the Government increase subvention to NBS. 54 2017/ Non-recognition of The Government Government Under 18 Interest Income through Treasury response is implementa from Fixed Deposits Registrar will make noted; tion at TIB Development follow up on the further review Bank and UTT matter to rescue of Microfinance of TZS the situation implementation 7.61 billion and TZS observed by the will be 962 million Auditors. followed up. respectively. Status of the implementation I recommended that will be shared with RAHCO make follow the Auditor in the up to recover the next audit amounts. I also, recommended that the Government intervene and institute necessary measures to rescue the situation as it adversely affects RAHCO’s operations.
55 2017/ Uncollected Rental The Government Government Under 18 Income from through RAHCO will response is implementa Telecommunication make follow up on noted; further tion Companies- USD the matter to review of 540,800. rescue the situation implementation I recommended that observed by the will be RAHCO make Auditors. Status of followed up. necessary follow up the implementation to recover the will be shared with outstanding amount. the Auditor in the next audit.
Report of Public Authorities and other Bodies 2018/19 304
56 2017/ Public Entities The Government Government Under 18 without Board of has made response is implementa Directors and appointment to fill noted. tion Trustees. vacancy of board members in various However, some I recommended that PISC’s and Minority of the Public the appointing take Shareholding entities such as deliberate measures TPDC and NDC including still do not commencing the have the Board appointment process of Directors. in advance prior to expiring the tenure Further review of the existing of Board. implementation will be followed up.
57 2017/ Absence of The Not 18 Adequate Government implemente Mechanisms to did not provide d Ensure All Imports response to this Are Insured Locally recommendatio by Insurance n. Companies in Tanzania
I recommended that TIRA bring on board other stakeholders such as Tanzania Revenue Authority (TRA), Tanzania Shipping Agencies Corporation (TASAC), Tanzania Ports Authority (TPA), Tanzania Bureau of Standards (TBS) and other Government Bodies which have various responsibilities on imported goods in order to have a mechanism and joint efforts to strengthen controls and ensure all imports are insured by Tanzania Insurers. 58 2017/ Issuance of License The Not 18 for Use of Bureau’s Government implemente Mark to Failed did not provide d Products response to this
Report of Public Authorities and other Bodies 2018/19 305
recommendatio I recommended that n. TBS investigate and take appropriate actions on licenses issued to clients whose products tests and initial factory evaluation report failed and ensure procedures for issuance of licenses are complied with without exception. 59 2017/ Absence of Control The Not 18 and Ownership of Government implemente the National ICT did not provide d Broadband response to this Backbone (NICTBB) recommendatio n I recommended that Management of TTCL settle and reconcile with the Government on full ownership of the NICTBB for proper management.
60 2017/ Non-reimbursement The Not 18 of NICTBB’s Running Government implemente Cost to TTCL TZS did not provide d 20.63 Billion response to this recommendatio I recommended that n. TTCL make a close follow-up with the Ministry and claim the net balance of TZS 20.63 billion after netting off their outstanding balances. 61 2017/ Non- The Not 18 implementation of Government implemente Agreed Measures on did not provide d Mitigating Effects of response to this Road Accidents recommendatio n I recommended that TANAPA strengthen road accidents monitoring measures and also seek for other stakeholders
Report of Public Authorities and other Bodies 2018/19 306
such as TANROAD for sharing road maintenance cost at ANAPA. 62 2017/ Air Tanzania The Not 18 Company Limited Government implement (ATCL) did not ed I recommended that provide ATCL continue to response to focus on improving its profitability and this liquidity by recommendat increasing revenues ion. and maintaining costs at reasonable level.
I also recommended that the Government provide financial support to the Company to facilitate payment of previous years’ obligations to relief ATCL from interest charges which accounts for significant portion of total cost. 63 2017/ Reported Suspected The Government Government Under 18 Fraud at TFDA - through Permanent response is implementa Northern Zone Secretary, Ministry noted; further tion Office of Health, review of Community implementation I recommended that Development, will be TFDA review on a Gender, Elderly followed up regular basis, both and Children preventive and requested the detective controls. Internal Auditor General to conduct a Special Audit to establish the actual amount embezzled and recommend appropriate actions to be taken. The entry meeting for such special audit was held on 17th December, 2018. The recommendations that shall be issued
Report of Public Authorities and other Bodies 2018/19 307
by the IAG will be implemented
64 2017/ Allowances Paid The Government Government Not 18 Contrary to has noted response is implemente Treasury Registrar auditor’s noted. d Circulars at TBS and recommendation However, the DAWASA -TZS 1.88 and the Treasury anomaly still Billion Registrar will exists at I recommended that ensure that DAWASA. the Treasury circulars in force Registrar to ensure regarding that Government allowances to circulars in force are employees are adhered to and if adhered specific needs arise for some entities, provide clear guidance on those particular needs.
65 2017/ Absence of The Not 18 Guidelines on Government implemente Allowances Paid to did not provide d Employees in Public response to my Authorities. recommendatio n Together with the presence of Treasury Registrar Circular No. 1 of 2010 dated 22 July 2010 with reference number TYC/T/200/583/18, every public entity has its laws, regulations and policies to guide allowances to its employees
Treasury Registrar was advised to explore all fringe benefits paid in different public entities and develop guidelines that will assist the entities in paying them. 66 2017/ Delay in Completion The Not 18 of NHC Housing Government implemente Projects of TZS did not provide d 245.55 Billion response to my
Report of Public Authorities and other Bodies 2018/19 308
recommendatio I advised NHC make n close follow-up with Ministry of Finance and Planning to get an approval of loan to finance the already established projects. I also advised NHC ensure feasibility study is conducted prior to entering into any construction contract. 67 2017/ Mergers of The Not 18 Government Owned Government implemente Banks did not provide d response to my I advised the recommendatio Government to n closely monitor the merging of Government banks to avoid subsequent negative impact on operating efficiency of the newly formed bank. The Government supposed to take precaution so that weaknesses of the poor performing banks do not spread in the new entity after merging 2017/ Long Outstanding The Government Under 18 Dishonoured has noted the Government implementa Cheques at Social Auditors Response is tion Security TZS 836.80 recommendation noted; further 68 Million. and it will review of therefore direct implementation The Management of the Management of will be social security funds the Social Security followed up. was advised to funds to come up intensify efforts to with better ways to recover the recover the outstanding balances outstanding and take necessary balances and take legal action against necessary legal the defaulters action against the defaulters 69 2017/ Delays in The Government Government Not 18 Recovering Double has noted the response is Implemente
Report of Public Authorities and other Bodies 2018/19 309
Payments from Auditors noted d Pensioners TZS recommendation However, no 218.31 Million and it will thus evidence on direct PSSSF to implementatio I thus recommend seek better options n of my that PSSSF seek to recover the recommendati different options to remaining balance. on was recover the provided. remaining balance 2017/ Staff Separated The Fund has Government Under 18 from the Funds entered into response is implementa Before Settling individual loan noted; further tion their Outstanding repayment review of 70 Loans TZS 821.82 agreement in which implementation Million the transferred will be employees have followed up. Social security funds agreed to continue were advised to servicing their loan intensify their through the new efforts to recover employers. So far the outstanding monthly balances and take repayments are necessary legal continuing, action against the currently no report defaulters. of any default.
71 2017/ Mysterious Purposes The Government Government Not 18 of Loan from Azania has noted the response is implement Bank TZS 372.76 Auditors noted ed Million recommendation However, no and it will make evidence on I recommended that follow up on the implementatio CPB establish matter through n of my purposes, conditions investigation. recommendati and utilization of the on was loan and account for provided. its acquisition without the Board’s approval.
72 2017/ Long Outstanding The Government Management Under 18 Loan Balance TZS has noted the response is implement 47.40 billion Auditors noted; further ation recommendation review of I recommended that and it will implementation Government therefore consider will be consider the the possibility of followed up . possibility of relieving DAWASA relieving DAWASA with this burden to with this burden to enable it continue enable it to start provide water providing water service smoothly service smoothly
73 2017/ Slow Pace of Loans The Government Government Under
Report of Public Authorities and other Bodies 2018/19 310
18 Recovery by TEA. has enhanced the response is implement Authorities Loan noted; further ation I recommended that collection review of TEA enhance its loan strategies by implementation collection method forming will be and institute more Authorities Loans followed up. aggressive measures follow ups to speed up Committee, which collection of the is responsible for loaned funds. collections of all overdue loans. From July 2018 to May 2019, the Authority has collected a total of TZS 529,130,387.60. Nevertheless, the Government through TEA will continue with implementation of aggressive measures to ensure that all overdue loans are collected 74 2017/ Absence of National The Not 18 Sewerage Policy Government implemente and Act did not provide d I recommended that response to this the Government recommendatio establish National n Sewerage Policy and Sewerage Act which will guide all sewerage matters within the country. 2017/ Improper Evaluation The Government Government Under 18 of Tender for Re- has noted the response is implement branding TPB Bank Auditors noted; further ation PLC Logo TZS recommendation review of 495.75 Million and the TPB’s implementation 75 I recommended that Tender Board and will be made in TPB’s Tender Board Management will next audit. and Management be directed to conduct thorough conduct thorough due diligence in due diligence in implementing their implementing their duties with respect duties with respect to procurement to procurement activities. activities 76 2017/ Unapproved TPB’s The Government Government Under 18 Procurements TZS has noted Auditors response is implement 247 Million recommendation noted; further ation
Report of Public Authorities and other Bodies 2018/19 311
I recommended that and the TPB review of TPB make proper management will implementation allocation of funds be directed to will be and plan effectively make proper followed up. for the allocation of funds procurements they and plan intend to effect effectively for the during a year. procurement they intend to effect during a year.
77 2017/ Variation of The Government Government Under 18 Contract Price has noted the response is implement without Approval Auditors noted; further ation TZS 685.33 Million recommendation review of I recommended that and the TBS implementation TBS abide by its Management will will be approved budget in be directed to followed up. the implementation adhere with the of procurements and Public Procurement if need arise add Regulatory extra funds then Authority Act No.7 seek required of 2011 and its approval. Regulations of 2013 in procurement process.
78 2017/ Non-compliance The Government Government Under 18 with Regulation has noted the response is implement 232(1) of PPR TZS Auditors noted; further ation 20.37 Billion recommendation review of I recommended that and the CBT implementation CBT always make management will will be made in sure that copies of be directed to my next audit. all awarded make sure that contracts are copies of all submitted to the awarded contracts Chief Executive are submitted to Officer of the above offices as Authority, the required by Reg. Controller and 232(1) of the Auditor General, the Procurement Attorney General Regulations 2013 and the Internal Auditor General as required by Reg. 232(1) of the Procurement Regulations 2013 79 2017/ Liquidated Damages DAWASA will be Not 18 Not Charged TZS directed to review Government Implement 1.98 Billion the term of contact response is ed DAWASA and claim noted I recommended that liquidated damage However, no DAWASA claim for if there is any delay evidence on
Report of Public Authorities and other Bodies 2018/19 312
the Liquidated implementatio Damages from the n of my contractor. recommendati on was provided. 80 2017/ Fictitious Payments This was for the Management Under 18 to Suppliers TZS fraudulent response is implement 2.61 Billion incidence occurred noted; further ation I recommended that at Mara Regional review of the relevant office in year 2016, implementation Authority take the incidence is will be appropriate actions under investigation followed up against the members by PCCB. of the staff involved in the suspected fraud at NHIF Mara office. 81 2017/ Payments Made This was for the Management Under 18 Contrary to TISS fraudulent response is implement Regulations TZS incidence occurred noted; further ation 404.93 Million at at Mara Regional review of NHIF office in year 2016, implementation I recommended the incidence is will be appropriate action under investigation followed up to be taken against by PCCB the officers involved for non- compliance with TISS Regulations. 82 2017/ Absence of Payment This was for the Management Under 18 Voucher to Cash fraudulent response is implement Payment TZS 1.26 incidence occurred noted; further ation Billion at NHIF at Mara Regional review of office in year 2016, implementation NHIF’s management the incidence is will be made in in Mara region was under investigation my next audit. required to provide by PCCB justification for these payments and the names of payees. Also, I advised that appropriate action to be taken against custodians of the payment voucher. 83 2017/ Overpayment of The Government Management Under 18 Students Research will form a response is implement Funds TZS 225.18 committee to noted; further ation Million at UDSM investigate the review of I recommended that matter within 3 implementation UDSM’s Vice- months and action will be Chancellor instruct will be taken on followed up the CCCS’s recommendations management to availed
Report of Public Authorities and other Bodies 2018/19 313
observe the rates approved by the University Council in the prospectus and other directives instead of using personal discretion and judgment. 84 2017/ Uncompetitive The Government Government Under 18 Procurement has noted the response is implement Processes USD Auditors noted; further ation 112,757 at UDSM recommendation review of I recommended that and the UDSM implementation UDSM to ensure Management will will be compliance with the ensure compliance followed up requirements of the with the Public Public Procurement Procurement Act Act and its and its Regulations Regulations to and make sure of obtain value for non-reoccurrence. money from its procurements. 85 2017/ Institutional Fees The Government Government Under 18 Not Contributed of has noted Auditors response is implement TZS 2.97 Billion recommendation; noted; further ation I recommended the the respective review of University ensure Departments at the implementation that the research UDSM were will be policy is complied instructed to make followed up with in contributing payments within a to the institutional month of all overheads and research projects design an effective conducted during and rigorous the period mechanism of according to CKD collecting all Policy. contributions from all projects.
86 2017/ The Genisys The Government Management Under 18 Configurator has noted the response is implement Software was Auditors noted; further ation expected to recommendation review of integrate three and NIC will be implementation aspects of NIC directed to liaise will be made in functions of Life with the vendor to the next audit. Assurance, Non-Life ensure that all the Insurance and pending issues as Accounts functions. per Functional I recommended that Requirement NIC liaise with the Document are vendor to ensure resolved and that that all the pending the system issues as per becomes fully Functional functional as
Report of Public Authorities and other Bodies 2018/19 314
Requirement intended. Document are resolved and that the system becomes fully functional as intended.
87 2017/ UDA’s Shares Sold The Not 18 Without Approval of Government implement the Treasury did not provide ed Registrar response to this . recommendatio I recommended that n the returned un- allotted shares of UDA be allotted to Government so that the Government becomes the majority shareholder. 88 2017/ Insufficient Number The Not 18 of Rapid buses Government implement did not provide ed I recommended that response to this DART accelerate the recommendatio bidding process to n increase new buses to meet current needs to provide better quality services. 89 2017/ Uncovered Loan TZS The Government Management Under 18 469.25 Million has noted Auditors response is implement recommendation noted; further ation I recommended that and currently, the review of COSTECH take COSTECH is working implementation proper actions on preparing Credit will be against the Policy upon followed up defaulters of the completion of the loans and to recover COSTECH Act the loaned amounts. review. Moreover, the outstanding loan has been presented to the Treasury Registrar to see how best it
Report of Public Authorities and other Bodies 2018/19 315
can be recovered. 90 2017/ Loss from All management Management Under 18 Acquisition of Land team, which were response is implement TZS 4.17 Billion involved in these noted; ation I recommended that transactions, was further review the NSSF Board and replaced. of Management take Prevention and implementation necessary action Combating will be against those who Corruption Bureau followed up were involved in the (PCCB) is currently whole process of investigating the acquiring the land matter. which resulted in a loss of TZS 4.17 billion to NSSF. 91 2017/ Irregular Issue of The recovery of the Government Under 18 Loan to NSSF issued loan of response is implement Members and Staff Tshs.206 million to noted; further ation for Purchase of NSSF staff on review of Shares in Vodacom purchasing implementation TZS 1.86 Billion Vodacom shares will be I recommended that continues whereby followed up NSSF formalize the NSSF as employer loans issued and has been deducting specify terms and the amount to conditions pertaining every staff with the to the funds said loan on their advanced for salaries every purchasing Vodacom month. shares. Also, Moreover, letters rigorous measures be were sent to all instituted to recover organization with the advanced funds NSSF members with to avoid loss of the the said loan i.e. Fund’s monies Ministry of Construction, Transport and Communication, Presidents Office (TAMISEMI), Ministry of Foreign Affairs and East Africa Cooperation, Tanzania Petroleum Development Corporation (TPDC), Singida Region, Prime minister’s Office and Weight Measures Agency (WMA); to assist in effecting recovery 92 Non-fulfilment of The Not Obligation in Government implement
Report of Public Authorities and other Bodies 2018/19 316
Implementation of did not provide ed KFW Project at response to this SENAPA recommendatio I recommended that n. TANAPA and TRA resolve the matter to allow smooth implementation of the project 93 Outstanding Taxes The Government Management Under and Duties not paid through TBC has response is implement by Public Entities written a letter noted; further ation Tanzania reference no. CDA: review of Broadcasting 341/361/01 dated implementation Corporation (TBC) 27th March, 2019 to will be had a total of TZS TRA concerning the followed up 2.27 billion payment plan (excluding fines and penalties) I recommended that Public Entities ensure taxes are paid in timely manner to avoid fines and penalties. 94 Outstanding VAT The Government Management Under with Respect to has noted the response is implement NICTBB TZS 10.83 Auditors noted; further ation billion recommendation review of I recommended that and the issue will implementation TTCL and the be implemented will be Ministry resolve the having mutual followed up issue of payment of agreement and VAT in respect of necessary NICTBB. regulations.
Report of Public Authorities and other Bodies 2018/19 317